<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
WEEKS CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies:
Common Stock; Series F Cumulative Redeemable Preference Shares
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
27,260,637 Common Shares; 6,000,000 Series F Cumulative Redeemable
Preference Shares
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
$22.75 Common; $25.00 Series F
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$770,179,492
------------------------------------------------------------------------
(5) Total fee paid:
See below
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/X/ Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
$214,1000
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
Form S-4; Registration No. 333-77645
------------------------------------------------------------------------
(3) Filing Party:
Duke Realty Investments, Inc.
------------------------------------------------------------------------
(4) Date Filed:
May 3, 1999
------------------------------------------------------------------------
<PAGE>
WEEKS CORPORATION
4497 Park Drive
Norcross, Georgia 30093
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To be held June 18, 1999
------------------------
A special meeting of shareholders of Weeks Corporation will be held at the
Atlanta Marriott, Gwinnett Place, 1775 Pleasant Hill Road, Duluth, Georgia on
June 18, 1999 at 10:00 a.m., local time. Your Board of Directors asks you to
attend this meeting (in person or by proxy) for the following purposes:
1. To consider and vote upon a proposal to approve the merger of Weeks with
and into Duke Realty Investments, Inc., an Indiana corporation, and the
Agreement and Plan of Merger by and between Weeks and Duke dated as of
February 28, 1999 (a copy of which is attached as Annex A to the
accompanying joint proxy statement and prospectus).
2. To transact such other business as may properly come before the meeting
and any adjournments of the meeting.
Shareholders of Weeks are not entitled to appraisal rights in connection
with the merger.
Only shareholders of record of common shares of Weeks as of the close of
business on May 3, 1999 are entitled to notice of and to vote at the special
meeting. A list of shareholders entitled to vote as of the close of business on
May 3, 1999 will be available at the special meeting for examination by any
shareholder, or the shareholder's attorney or agent.
We invite you to attend the special meeting because it is important that
your shares be represented at the meeting. Whether or not you plan to attend the
special meeting, please sign, date and return the enclosed proxy card in the
accompanying postage-paid envelope. If you attend the meeting, you may vote in
person, which will revoke a signed proxy if you have already sent one in. You
may also revoke your proxy at any time before the meeting either in writing or
by notifying us.
By Order of the Board of Directors,
[LOGO]
A. Ray Weeks, Jr.
Chairman and Chief Executive Officer
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
THE BOARD OF DIRECTORS HAS APPROVED THE MERGER OF WEEKS CORPORATION INTO
DUKE REALTY INVESTMENTS, INC. AND RECOMMENDS THAT THE SHAREHOLDERS VOTE IN FAVOR
OF THE MERGER.
<PAGE>
------------------------
JOINT PROXY STATEMENT AND PROSPECTUS
FOR THE ANNUAL MEETING OF
THE SHAREHOLDERS OF DUKE REALTY INVESTMENTS, INC. AND
A SPECIAL MEETING OF THE SHAREHOLDERS
OF WEEKS CORPORATION
------------------------
The Board of Directors of Duke Realty Investments, Inc. and the Board of
Directors of Weeks Corporation have approved a merger of Weeks into Duke and
recommend that their shareholders vote in favor of the merger. The merger will
be a tax-free transaction for the shareholders of Duke and Weeks, except in the
case of cash paid to Weeks shareholders in lieu of Duke fractional shares.
In the merger:
- each outstanding Weeks common share will be converted into the right to
receive 1.38 Duke common shares; and
- each outstanding Weeks 8.0% Series A cumulative redeemable preferred share
will be converted into the right to receive one preference share of Duke
having substantially identical rights and preferences to one 8.0% Weeks
Series A cumulative redeemable preferred share.
The Duke common and preference shares to be issued in the merger have been
approved for listing on the New York Stock Exchange, subject to official notice
of issuance.
This joint proxy statement and prospectus provides you with detailed
information about the proposed merger. We encourage you to read this entire
document carefully. In addition, you may obtain information about our companies
from documents that we have filed with the Securities and Exchange Commission.
See the risk factors beginning on page 14 of this joint proxy statement and
prospectus for a discussion of risks that you should consider in evaluating the
merger.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or passed upon the
accuracy or adequacy of this joint proxy statement and prospectus. Any
representation to the contrary is a criminal offense.
Joint proxy statement and prospectus dated May 5, 1999
and first mailed to shareholders on May 11, 1999
<PAGE>
This joint proxy statement and prospectus incorporates important business and
financial information about Duke and Weeks that is not included in or delivered
with this document, including the information described on page 94 under "Where
You Can Find More Information." This information is available without charge to
the Duke shareholders and the Weeks shareholders upon written or oral request to
the following address or telephone numbers and will be sent by first class mail
within one business day of receipt of such request:
<TABLE>
<S> <C>
Investor Relations Investor Relations
Duke Realty Investments, Inc. Weeks Corporation
8888 Keystone Crossing, Suite 1200 4497 Park Drive
Indianapolis, Indiana 43240 Norcross, Georgia 30093
Tel: (317) 808-6005 Tel: (770) 717-3221
Fax: (317) 808-6786 Fax: (770) 717-2479
</TABLE>
To obtain timely delivery, the Duke shareholders and the Weeks shareholders
must request the information no later than June 11, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY.......................................................................... 1
Questions and Answers About the Merger......................................... 1
The Companies.................................................................. 3
The Shareholder Meetings....................................................... 4
Recommendations to Shareholders................................................ 5
The Merger..................................................................... 6
Amendments to Duke Charter and Duke Bylaws..................................... 8
Voting Agreements.............................................................. 9
Selected Financial Data........................................................ 10
Duke-Weeks Pro Forma Summary Financial Data.................................... 12
Comparative Market and Per Share Data.......................................... 13
RISK FACTORS..................................................................... 14
Risk Factors Relating to the Merger............................................ 14
Risk Factors Relating to the Ownership of Real Estate Securities............... 16
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS........................ 19
ABOUT THIS JOINT PROXY STATEMENT AND PROSPECTUS.................................. 19
THE COMPANIES.................................................................... 20
Duke........................................................................... 20
Weeks.......................................................................... 20
The Combined Company........................................................... 21
THE MEETINGS..................................................................... 24
Times and Places; Purposes..................................................... 24
Duke........................................................................... 24
Other matters.................................................................. 26
Weeks.......................................................................... 26
Other Matters.................................................................. 27
THE MERGER AND THE MERGER PROPOSAL............................................... 28
The Merger Proposal............................................................ 28
Duke's Board Recommendation.................................................... 28
Weeks' Board Recommendation.................................................... 29
Effect of the Merger........................................................... 29
Background of the Merger....................................................... 29
Reasons for the Merger; Recommendation of the Duke Board....................... 34
Positive Factors Considered by the Duke Board.................................. 34
Negative Factors Considered by the Duke Board.................................. 35
Opinion of Duke's Financial Advisor............................................ 35
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Reasons for the Merger; Recommendation of the Weeks Board...................... 41
Positive Factors Considered by the Weeks Board................................. 42
Negative Factors Considered by the Weeks Board................................. 43
Opinion of Weeks' Financial Advisor............................................ 43
Interests of Weeks Directors, Officers and Significant Shareholders............ 49
Service Companies Option....................................................... 51
Voting Agreements.............................................................. 51
Material Federal Income Tax Consequences....................................... 51
Accounting Treatment........................................................... 54
Appraisal Rights............................................................... 54
THE MERGER AGREEMENT............................................................. 55
General........................................................................ 55
Expenses of Solicitation....................................................... 55
Effective Time of the Merger................................................... 56
Exchange of Weeks Shares....................................................... 56
Unclaimed Merger Consideration................................................. 57
Record Dates; Distributions with Respect to Unexchanged Shares................. 57
Conditions to the Merger....................................................... 57
Representations and Warranties................................................. 58
Covenants...................................................................... 59
No Solicitation of Transactions................................................ 62
Termination.................................................................... 63
Indemnification; Directors' and Officers' Insurance............................ 64
Amendment and Waiver........................................................... 64
COMPARISON OF SHAREHOLDER RIGHTS................................................. 65
Authorized Capital............................................................. 65
Voting......................................................................... 66
Board of Directors............................................................. 66
Removal of Directors........................................................... 66
Special Meetings of the Shareholders........................................... 66
Shareholder Action by Written Consent.......................................... 67
Appraisal Rights in Mergers and Reorganizations................................ 67
Power to Adopt, Amend or Repeal By-Laws........................................ 67
Amendment of Articles of Incorporation......................................... 67
Anti-Takeover Statutes......................................................... 68
Shareholder Rights Agreements.................................................. 70
Indiana Control Share Acquisition Statute...................................... 71
Additional Provisions of the IBCL.............................................. 71
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
THE PROPOSAL TO INCREASE THE SIZE OF DUKE'S BOARD................................ 72
THE PROPOSAL FOR ADDITIONAL AMENDMENTS TO DUKE'S ARTICLES........................ 73
DESCRIPTION OF DUKE CAPITAL STOCK ISSUED BEFORE THE MERGER....................... 74
Description of Common Shares................................................... 74
Description of Preferred Shares................................................ 75
Description Of Depositary Shares............................................... 77
DESCRIPTION OF DUKE CAPITAL STOCK ISSUED IN CONNECTION WITH THE PROPOSED
MERGER......................................................................... 78
8.0% Series F Cumulative Redeemable Preferred Shares........................... 78
8.625% Series H Cumulative Redeemable Preferred Shares......................... 82
THE DUKE DIRECTORS PROPOSAL...................................................... 86
THE DUKE DIRECTORS' STOCK OPTION PROPOSAL........................................ 88
Material Features of the Directors' Plan....................................... 88
Federal Income Tax Consequences of the Directors' Plan......................... 90
THE DUKE SALARY REPLACEMENT PROPOSAL............................................. 90
Material Features of the Salary Replacement Plan............................... 90
Federal Income Tax Consequences of the Salary Replacement Plan................. 91
THE DUKE DIRECTORS' STOCK PAYMENT PLAN PROPOSAL.................................. 92
Material Features of the Directors' Stock Payment Plan......................... 92
Federal Income Tax Consequences................................................ 92
DISCLOSURE OF NEW PLAN BENEFITS.................................................. 93
LEGAL MATTERS.................................................................... 94
INDEPENDENT PUBLIC ACCOUNTANTS AND EXPERTS....................................... 94
WHERE YOU CAN FIND MORE INFORMATION.............................................. 94
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS............................ F-1
Agreement and Plan of Merger................................................... Annex A
Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated.................. Annex B
Opinion of Goldman, Sachs & Co................................................. Annex C
Second Amended and Restated Articles of Incorporation.......................... Annex D
Duke's Director and Executive Compensation Information......................... Annex E
Duke's 1999 Directors' Stock Option and Dividend Increase Unit Plan............ Annex F
Duke's 1999 Salary Replacement Stock Option and Dividend Increase Unit Plan.... Annex G
Duke's 1996 Directors' Stock Payment Plan and Amendment One to the 1996
Directors' Stock Payment Plan................................................ Annex H
</TABLE>
iii
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS JOINT PROXY STATEMENT AND PROSPECTUS,
INCLUDING THE ANNEXES TO IT, OR INCORPORATED IN THIS DOCUMENT BY REFERENCE. WE
URGE YOU TO REVIEW THE ENTIRE JOINT PROXY STATEMENT AND PROSPECTUS, INCLUDING
ITS ANNEXES.
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: What are the benefits of the proposed merger?
A: Duke and Weeks expect the combined company resulting from the merger to
have the following characteristics, which are expected to create long-term
shareholder value:
- the combined company will be the largest mixed office/industrial REIT in
the United States, based on the amount of rentable space it will own and
its equity market capitalization;
- the combined company expects to improve its valuation relative to other
REITs in the public market because for each of Duke and Weeks the merger
should result in greater liquidity in its publicly traded securities,
increased research coverage, a more diversified credit profile and an
enhanced institutional shareholder base;
- the combined company will have an experienced management team able to
leverage its skills over a broader base of assets and a large development
pipeline; and
- the combined company will have a more geographically diversified asset
base than either Duke or Weeks alone, which should reduce cash flow
sensitivity to local economic cycles and provide more consistent
development opportunities.
Q: What are the detriments of the proposed merger?
A: Duke and Weeks expect the merger to have the following potential
detriments to their shareholders:
- the exchange ratio of Duke common shares for Weeks common shares is fixed
at 1.38, which means that the Duke common shares that Weeks common
shareholders will receive in the merger may have a greater or lesser value
than the value contemplated at the time the merger agreement was signed
because of fluctuations in the market price of Duke common shares;
- substantial management time and effort will be required to consummate the
merger and integrate the operations of the two companies; and
- there is a risk that the benefits sought in the merger will not be
obtained.
Q: Will Duke shareholders receive any shares as a result of the merger?
A: No. Duke shareholders will continue to hold the same number of Duke
shares they currently own.
Q: If I own preferred shares of Weeks, will any of the terms of my shares
change as a result of the merger?
A: No. Each preference share of Duke which you will receive in the merger
will have terms substantially identical to the terms of your Weeks preferred
shares, including the dividend rate. The fact that a preference share of
Duke represents 1/1,000, of a preferred share of Duke does not mean that
your rights and benefits as preferred shareholders of Weeks are being
reduced in any way. The use of a preference share is simply a mechanism used
to deliver shares in the merger having substantially identical terms to the
Weeks preferred shares without issuing more preferred shares than are
authorized under Duke's Articles of Incorporation.
Q: What do I need to do now?
1
<PAGE>
A: After reading this joint proxy statement and prospectus, just mail your
signed proxy card in the enclosed return envelope as soon as possible, so
that your shares can be voted at the June 18, 1999 Duke shareholder meeting,
if you are a Duke shareholder, or at the June 18, 1999 Weeks shareholder
meeting, if you are a Weeks shareholder.
Q: If my shares are held in "street name" by my broker, will my broker vote
my shares for me?
A: Your broker will vote your shares only if you provide instructions to
your broker on how to vote. You should contact your broker and ask what
directions your broker will need from you. Your broker will not be able to
vote your shares without instructions from you.
Q: Can I change my vote after I have mailed my signed proxy card?
A: Yes. You can change your vote at any time before your proxy is voted at
the applicable shareholder meeting. You can do this in one of three ways.
First, you can send a written notice stating that you revoke your proxy.
Second, you can complete and submit a new proxy card, dated a later date
than the first proxy card. Third, you can attend the appropriate meeting and
vote in person. Your attendance at the shareholder meeting will not,
however, by itself revoke your proxy. If you hold your shares in "street
name" and have instructed your broker to vote your shares, you must follow
directions received from your broker to change those instructions.
Q: Should Weeks shareholders or Duke shareholders send in their stock
certificates now?
A: No. If you are a Weeks shareholder, after the merger is completed you
will receive written instructions for exchanging your Weeks common and
preferred shares for Duke common and preference shares, and any cash
payments you may be entitled to receive. If you are a Duke shareholder, you
should retain your certificates, as you will continue to hold the Duke
shares you currently own.
Q: What happens to my distributions prior to the closing of the merger and
in the future?
A: Both Weeks and Duke plan to continue to pay distributions on their common
shares until the closing of the merger consistent with their current
distribution policies. Both the Duke Board of Directors and the Weeks Board
of Directors will continue to evaluate their respective financial condition
and earnings level, which could result in a change in the future
distribution level. After the merger, Duke-Weeks plans to increase its
distributions to an annualized level of at least $1.48 per common share from
Duke's current annualized distribution of $1.36 per common share. Based on
the 1.38 exchange ratio, this would equal approximately $2.04 per existing
Weeks common share. It is expected that the first distribution by the
combined company will be paid in late August 1999. Duke-Weeks expects that
it will pay distributions on its common shares at the end of May, August,
November and February of each year, which is when Duke has traditionally
paid distributions. Duke-Weeks intends to pay distributions in order to
maintain its status as a real estate investment trust under the Internal
Revenue Code of 1986.
Q: What are the tax consequences of the merger?
A: We have structured the merger so that Duke, Weeks and our respective
shareholders will not recognize any gain or loss for federal income tax
purposes in the merger, except in the case of cash to be received by Weeks
shareholders in lieu of Duke fractional shares. As part of the closing, each
company will receive legal opinions confirming these tax consequences.
Q: What will the tax basis of Weeks' shareholders be in the Duke common
shares they receive in the merger?
A: Your tax basis in the Duke common and preference shares will equal your
current tax basis in your Weeks common and preferred shares surrendered in
the exchange, decreased by your tax basis
2
<PAGE>
attributable to fractional shares. See "The Merger and the Merger
Proposal--Material Federal Income Tax Consequences" on page 51.
Q: When do you expect the merger to be completed?
A: We hope to complete the merger on June 30, 1999, or as quickly as
possible thereafter.
Q: Who can help answer my questions?
A: If you are a Duke shareholder and you have more questions about the
merger, you should contact:
Investor Relations
Duke Realty Investments, Inc.
8888 Keystone Crossing
Suite 1200
Indianapolis, Indiana 43240
Tel: (317) 808-6005
Fax: (317) 808-6786
If you are a Weeks shareholder and you have more questions about the merger,
you should contact:
Investor Relations
Weeks Corporation
4497 Park Drive
Norcross, Georgia 30093
Tel: (770) 717-3221
Fax: (770) 717-2479
THE COMPANIES
DUKE REALTY INVESTMENTS, INC.
8888 KEYSTONE CROSSING
SUITE 1200
INDIANAPOLIS, INDIANA 46240
(317) 808-6000
Duke, which will be the surviving company in the merger, is a
self-administered and self-managed real estate investment trust organized under
Indiana law. Duke owns and leases industrial, office and retail properties
throughout the Midwest, which it and its predecessors have been doing since
1972. Duke has the largest commercial real estate operations in Indianapolis and
Cincinnati and is one of the largest real estate companies in the Midwest. As of
December 31, 1998, Duke owned interests in a diversified portfolio of 493 rental
properties comprising approximately 59.3 million square feet (including 40
buildings and three expansions comprising approximately 7.2 million square feet
under development). Substantially all of these properties are located in
Indianapolis, Indiana; Cincinnati, Cleveland, and Columbus, Ohio; St. Louis,
Missouri; Minneapolis, Minnesota; Chicago, Illinois; and Nashville, Tennessee.
Also, as of December 31, 1998, Duke owned or controlled approximately 2,800
acres of unencumbered land, which Duke believes could support the development of
approximately 43 million square feet of properties. In addition to its rental
operations, Duke, through its service operations, provides leasing, management,
construction, development and other real estate services for approximately 6.9
million square feet of properties owned by third parties.
3
<PAGE>
WEEKS CORPORATION
4497 PARK DRIVE
NORCROSS, GEORGIA 30093
(770) 923-4076
Weeks is a self-administered and self-managed real estate investment trust
that was organized in 1994 under Georgia law to continue and expand the fully
integrated real estate business previously conducted by Weeks and its
affiliates. Since 1965, Weeks, together with its affiliates and predecessors,
has developed, owned, managed, constructed and acquired primarily
institutional-quality industrial and suburban office properties in select
suburban markets in the southeast United States and Texas. As of December 31,
1998, Weeks owned 371 properties, totaling approximately 31.6 million square
feet, including 52 properties that were under development or in lease-up and
excluding two properties that were under agreement to acquire. Weeks' properties
are located in Atlanta, Georgia; Nashville, Tennessee; Raleigh-Durham-Chapel
Hill, North Carolina; Miami, Orlando, Jacksonville, Ft. Lauderdale and Tampa,
Florida; Dallas, Texas; and Spartanburg, South Carolina. In addition, as of
December 31, 1998, Weeks owned or controlled approximately 1,900 net useable
acres of undeveloped land, which Weeks believes could support the development of
approximately 20 million square feet of properties.
THE COMBINED COMPANY
Upon completion of the merger, the combined company is expected to have a
total pro forma market capitalization of approximately $5.2 billion, based on
the closing price of Duke's common shares on February 26, 1999 (the last full
trading day before the merger was publicly announced) and the outstanding
principal amount of indebtedness of the two companies on December 31, 1998. The
combined company will own interests in 864 industrial, office and retail
properties (including properties under development), based on the real estate
assets held by Duke and Weeks as of December 31, 1998. The combined real estate
assets, including assets held by unconsolidated subsidiaries and joint ventures,
will consist of over 90 million square feet of industrial, office and retail
properties serving approximately 5,000 tenants. Additionally, the combined
company will own or control approximately 4,700 acres of undeveloped land with
estimated future development potential of approximately 63 million square feet
of industrial, office and retail properties. The name of the combined company
for two years after the merger will be Duke-Weeks Realty Corporation. After that
two-year period, the name will be changed to Duke Realty Corporation, unless the
combined company's Board of Directors recommends against changing the name. The
combined company will continue to be taxed as a real estate investment trust
under the Internal Revenue Code of 1986.
THE SHAREHOLDER MEETINGS
THE DUKE ANNUAL MEETING (SEE PAGE 24).
- Duke's annual meeting of shareholders is scheduled to be held at 10:00
a.m., local time, on June 18, 1999 at the Marriott North Hotel, 4645 River
Crossing Parkway, Indianapolis, Indiana.
- Duke's Board of Directors has fixed the close of business on May 3, 1999
as the record date for the determination of the Duke shareholders entitled
to notice of and to vote at Duke's annual meeting of shareholders.
- The affirmative vote of the holders of at least a majority of the issued
and outstanding Duke common shares is required to approve the merger and
the merger agreement. Approval of the merger will also constitute approval
of amendments to Duke's Articles of Incorporation that will take effect at
the effective time of the merger. Those amendments will change Duke's name
to
4
<PAGE>
Duke-Weeks Realty Corporation for two years after the merger and then to
Duke Realty Corporation following that two year period (unless the
combined company's Board of Directors recommends against changing the
name), and will increase the maximum number of common shares that Duke is
authorized to issue from 150,000,000 to 250,000,000.
- The affirmative vote of the holders of at least 80% of the issued and
outstanding Duke common shares and preferred shares, voting together as a
single class, is required to approve a proposed amendment to Duke's
Articles of Incorporation which would increase the maximum size of Duke's
Board of Directors from 15 to 23.
- The affirmative vote of the holders of at least 80% of the issued and
outstanding Duke common shares and preferred shares, voting together as a
single class, and the affirmative vote of at least two-thirds of the
issued and outstanding shares of each series of preferred shares is
required to approve additional amendments to Duke's Articles of
Incorporation which would (1) change the existing requirement that 80% of
the shares of CAPITAL STOCK of Duke approve certain amendments to Duke's
Articles of Incorporation to require the approval of 80% of the Duke
COMMON SHARES and (2) change the existing requirement that 80% of the
shares of capital stock approve any amendment to the provisions of the
Articles of Incorporation relating to the number, classes, term of office
and qualifications of directors to require the approval of a majority of
the Duke common shares.
- The affirmative vote of at least a majority of the common shares entitled
to vote thereon present in person or by proxy at the annual meeting is
required to approve the election of three directors to serve until the
earlier of (1) the effective date of the merger or (2) if the merger is
not approved, the expiration of their terms in 2002.
- The affirmative vote of the holders of a majority of the votes cast by the
holders of Duke common shares at the meeting is required to approve the
1999 Directors' Stock Option and Dividend Increase Unit Plan, the 1999
Salary Replacement Stock Option and Dividend Increase Unit Plan and the
amendment to the 1996 Directors' Stock Payment Plan.
THE WEEKS SPECIAL MEETING (SEE PAGE 26).
- The Weeks special meeting of shareholders is scheduled to be held at 10:00
a.m., local time, on June 18, 1999 at the Atlanta Marriott, Gwinnett Place
at 1775 Pleasant Hill Road, Duluth, Georgia.
- The Weeks Board of Directors has fixed the close of business on May 3,
1999 as the record date for the determination of holders of Weeks common
shares entitled to notice of and to vote at the Weeks special meeting of
shareholders.
- The affirmative vote of at least a majority of the issued and outstanding
Weeks common shares is required to approve the merger and the merger
agreement.
RECOMMENDATIONS TO SHAREHOLDERS
TO DUKE SHAREHOLDERS: THE DUKE BOARD BELIEVES THAT THE MERGER IS IN YOUR
BEST INTEREST AND RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSAL TO APPROVE THE
MERGER AND APPROVE AND ADOPT THE MERGER AGREEMENT, "FOR" THE PROPOSAL TO APPROVE
THE PROPOSED AMENDMENT TO DUKE'S ARTICLES OF INCORPORATION WHICH WOULD INCREASE
THE SIZE OF DUKE'S BOARD, "FOR" THE PROPOSAL TO APPROVE THE ADDITIONAL PROPOSED
AMENDMENTS TO DUKE'S ARTICLES OF INCORPORATION, "FOR" THE ELECTION OF THE THREE
NOMINATED DIRECTORS, "FOR" THE PROPOSAL TO APPROVE THE NEW DUKE STOCK OPTION
PLANS AND "FOR" THE PROPOSAL TO APPROVE THE AMENDMENT TO THE DUKE STOCK PAYMENT
PLAN.
TO WEEKS SHAREHOLDERS: THE WEEKS BOARD BELIEVES THAT THE MERGER IS IN YOUR
BEST INTEREST AND RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSAL TO APPROVE THE
MERGER AND APPROVE AND ADOPT THE MERGER AGREEMENT.
5
<PAGE>
THE MERGER
WE ENCOURAGE YOU TO READ THE ENTIRE MERGER AGREEMENT WHICH IS ATTACHED AS
ANNEX A TO THIS JOINT PROXY STATEMENT AND PROSPECTUS.
MERGER CONSIDERATION. In the merger, each outstanding common share of Weeks
will be converted into the right to receive 1.38 common shares of Duke; each
outstanding 8.0% Series A cumulative redeemable preferred share of Weeks will be
converted into the right to receive one preference share of Duke representing
1/1,000 of an 8.0% Series F cumulative redeemable preferred share of Duke having
substantially identical rights and preferences; and each outstanding 8.625%
Series D cumulative redeemable preferred share of Weeks will be converted into
the right to receive one preference share of Duke representing 1/1,000 of an
8.625% Series H cumulative redeemable preferred share of Duke having
substantially identical rights and preferences. As of the date of this joint
proxy statement and prospectus, there were no 8.625% Series D cumulative
redeemable preferred shares of Weeks outstanding.
No fractional shares will be issued in the merger. Cash will be issued in
lieu of fractional Duke common shares upon surrender of a Weeks share
certificate and to satisfy any dividends or other cash distributions to which a
shareholder is entitled, in each case without interest and less any required
withholding taxes.
At least one business day prior to the merger of Weeks into Duke, Weeks'
principal operating subsidiary, Weeks Realty, L.P. (the "Weeks OP"), will be
merged with and into Duke's principal operating subsidiary, Duke Realty Limited
Partnership (the "Duke OP"). In the OP merger, each common unit of limited
partnership interest in Weeks OP will be converted into 1.38 common units of
limited partnership interest in Duke OP; each 8.0% Series A cumulative
redeemable preferred unit in Weeks OP will be converted into one 8.0% Series F
cumulative redeemable preferred unit in Duke OP; each 8.0% Series C cumulative
redeemable preferred unit in Weeks OP will be converted into one 8.0% Series G
cumulative redeemable preferred unit in Duke OP; and each 8.625% Series D
cumulative redeemable preferred unit in Weeks OP will be converted into one
8.625% Series H cumulative redeemable preferred unit in Duke OP.
OWNERSHIP OF DUKE-WEEKS AFTER THE MERGER. Duke will issue approximately
27.3 million common shares to Weeks common shareholders in the merger. Duke OP
will issue approximately 10.1 million units of common limited partnership
interest to the limited partners of Weeks OP in the OP merger. Each Duke OP
common unit will be exchangeable by the holders of the units for one Duke common
share or, if Duke elects under certain circumstances, the cash value of one Duke
common share. The common shares that Duke will issue in the merger, plus the
common shares Duke will reserve for issuance upon exchange of the Duke common OP
units issued in the OP merger, will represent 27.7% of the Duke-Weeks common
shares that will be outstanding after the merger or potentially issuable upon
exchange of outstanding Duke-Weeks common OP units. This information is based on
the number of shares of Duke and Weeks and the number of common units of Duke OP
and Weeks OP outstanding on March 1, 1999 and does not take into account shares
issuable upon the exercise of outstanding stock options and warrants.
EFFECTIVE TIME OF THE MERGER. We currently expect the merger to become
effective on June 30, 1999, or as soon as practicable thereafter, if the
conditions to the merger are satisfied or waived.
CONDITIONS TO THE MERGER (SEE PAGE 57). The completion of the merger
depends upon meeting or waiving a number of conditions, including:
- approval of the merger by the shareholders of Duke and Weeks;
- approval for listing on the New York Stock Exchange of Duke common shares
and Duke preference shares issuable in the merger;
6
<PAGE>
- receipt of satisfactory legal opinions regarding Weeks' and Duke's
respective real estate investment trust status for federal income tax
purposes and the treatment of the merger as a tax-free reorganization for
federal income tax purposes;
- no material adverse changes from the period between the execution of the
merger agreement and the closing date of the merger; and
- continued accuracy of the respective representations and warranties made
by Duke and Weeks in the merger agreement.
OFFICERS AND DIRECTORS OF DUKE-WEEKS AFTER THE MERGER (SEE PAGE 22). If
Duke obtains the requisite vote of its shareholders to increase the maximum size
of Duke's Board of Directors to 23, then the Board of Directors of Duke-Weeks
immediately following the merger will consist of 11 of the 12 current members of
Duke's Board and 10 of the 11 current members of Weeks' Board.
If Duke does not obtain the requisite vote of its shareholders to increase
the size of its Board, then the Board of Directors of Duke-Weeks immediately
following the merger will consist of 15 members, of which eight currently are
members of Duke's Board and seven currently are members of Weeks' Board.
Following the merger, Thomas L. Hefner, Duke's current chief executive
officer, will be the chief executive officer of Duke-Weeks and A. Ray Weeks,
Jr., Weeks' current chief executive officer, will be the president and chief
operating officer of Duke-Weeks. See page 23 for a list of the other members of
the senior management of Duke-Weeks.
INTERESTS OF OFFICERS AND DIRECTORS IN THE MERGER (SEE PAGE 49). When
considering the Weeks Board's recommendation that Weeks' shareholders vote in
favor of the merger, you should be aware that a number of Weeks' officers have
stock options, employment and other agreements, retention incentives and other
benefits plans, and that Weeks' directors that become Duke-Weeks directors
pursuant to the merger will have rights to stock grants and stock options under
Duke plans, in each case, that provide them with interests in the merger that
are different from, or in addition to, yours.
TERMINATION (SEE PAGE 63). Duke and Weeks can jointly agree to terminate
the merger agreement at any time, even if the shareholders of both companies
have approved the merger. Also, either Duke or Weeks can decide, without the
consent of the other, to terminate the merger agreement if:
- any judgment, injunction, order, decree or action by any governmental
entity of competent authority preventing the consummation of the merger or
the OP merger has become final and nonappealable;
- the required approval of the shareholders of either party has not been
obtained at the applicable shareholders meeting;
- the merger has not been consummated by December 31, 1999; or
- the other party materially breaches the merger agreement.
Weeks also may unilaterally terminate the merger agreement if:
- the Board of Directors of Weeks withdraws or modifies its approval or
recommendation of the merger or the OP merger in connection with a
superior competing transaction (but this termination right can be
exercised by Weeks only before its shareholders meeting and not less than
30 days after its Board takes one of these actions); or
- (1) the Board of Directors of Duke withdraws or modifies its approval or
recommendation of the merger or the OP merger in connection with a
superior competing transaction, (2) Duke or Duke OP enters into any
agreement with respect to any competing transaction, or (3) the Board of
Directors of Duke resolves to do any of those things.
7
<PAGE>
Duke also may unilaterally terminate the merger agreement if:
- the Board of Directors of Duke withdraws or modifies its approval or
recommendation of the merger or the OP merger in connection with a
superior competing transaction (but this termination right can be
exercised by Duke only before its shareholders meeting and not less than
30 days after its Board takes one of these actions); or
- (1) the Board of Directors of Weeks withdraws or modifies its approval or
recommendation of the merger or the OP merger in connection with any
superior competing transaction, (2) Weeks or Weeks OP enters into any
agreement with respect to any competing transaction, or (3) the Board of
Directors of Weeks resolves to do any of those things.
TERMINATION FEES (SEE PAGE 65). Either Duke or Weeks may become liable to
the other for payment of a $50 million termination fee or expenses of up to $5
million if the merger agreement is terminated.
OPINIONS OF FINANCIAL ADVISORS (SEE PAGES 35 AND 43). On February 28, 1999,
Merrill Lynch, Pierce, Fenner & Smith Incorporated delivered its written opinion
to the Duke Board of Directors stating that, as of that date, the exchange ratio
pursuant to the merger agreement was fair, from a financial point of view, to
Duke. The opinion of Merrill Lynch does not constitute a recommendation as to
how any Duke shareholder should vote with respect to the merger. On February 28,
1999, Goldman, Sachs & Co. delivered its oral opinion to the Board of Directors
of Weeks that, as of that date, the exchange ratio pursuant to the merger
agreement was fair from a financial point of view to the holders of the
outstanding Weeks common shares. Goldman Sachs confirmed its oral opinion by
delivery of its written opinion dated February 28, 1999. The opinion of Goldman
Sachs does not constitute a recommendation as to how any Weeks shareholder
should vote with respect to the merger. These opinions, which are based upon and
subject to various qualifications and assumptions, are attached as Annexes B and
C to this joint proxy statement and prospectus. We encourage you to read these
opinions in their entirety. The analyses performed by Merrill Lynch and Goldman
Sachs are summarized in this joint proxy statement and prospectus under the
captions "The Merger and the Merger Proposal--Opinion of Duke's Financial
Advisor" and "--Opinion of Weeks' Financial Advisor."
APPRAISAL RIGHTS. No dissenters' or appraisal rights are available with
respect to the merger.
REGULATORY APPROVALS. The parties are not aware of any federal or state
regulatory approvals which must be obtained in connection with the merger and
related transactions.
AMENDMENTS TO DUKE CHARTER AND DUKE BYLAWS
The merger agreement provides that, as part of the merger, Duke's Articles
of Incorporation will be amended to change Duke's name to Duke-Weeks Realty
Corporation for a two-year period following the effective time of the merger and
then to Duke Realty Corporation following that two year period (unless the
combined company's Board of Directors recommends against changing the name) and
to increase the common shares that Duke is authorized to issue from 150,000,000
to 250,000,000. In addition, Duke's Board recommends that its shareholders vote
to approve additional amendments to Duke's Articles of Incorporation (the
"additional charter amendments"), including the following:
- increase the maximum number of directors from 15 to 23;
- change the existing requirement that 80% of the shares of CAPITAL STOCK of
Duke approve certain amendments to Duke's Articles of Incorporation to
require the approval of 80% of the COMMON SHARES; and
- change the existing requirement that 80% of the shares of capital stock of
Duke approve the number, classes, term of office and qualifications of
directors, to require the approval of a majority of the common shares of
Duke.
8
<PAGE>
Approval of the additional charter amendments is not a condition to the
merger.
At the effective time of the merger, if the first additional charter
amendment described above is approved, Duke's Bylaws will be amended to increase
the size of Duke's Board to 23. If this additional charter amendment is not
approved, the size of Duke's Board will remain at 15.
VOTING AGREEMENTS
At the same time the merger agreement was signed,
- holders of approximately 2% of the outstanding Weeks common shares and
holders of approximately 56% of the outstanding common limited partnership
interests in Weeks OP (other than those held indirectly by Weeks, which
are not entitled to vote) entered into voting agreements with Duke and
Duke OP in which the holders granted Duke irrevocable proxies to vote
their shares and partnership interests in favor of the merger, the merger
agreement and the other transactions contemplated thereby and against any
competing proposal; and
- holders of approximately 5% of the outstanding Duke common shares and
holders of approximately 95% of the outstanding common limited partnership
interests in Duke OP entered into voting agreements with Weeks and Weeks
OP in which the holders granted Weeks irrevocable proxies to vote their
shares and partnership interests in favor of the merger, the merger
agreement and the other transactions contemplated thereby and against any
competing proposal.
As a result of these arrangements, the approvals by the partners of Duke OP
and Weeks OP that are required for the OP merger have already been obtained.
9
<PAGE>
SELECTED FINANCIAL DATA
SELECTED HISTORICAL FINANCIAL DATA OF DUKE
We are providing the following financial information of Duke to aid you in
your analysis of the financial aspects of the merger. We derived this
information from audited consolidated financial statements for the years ended
December 31, 1994 through 1998. The amounts are stated in thousands, except for
the per share data. Information with respect to per share data for all five
years reflects the two-for-one stock split effected in August 1997. Funds from
Operations presented below is defined by the National Association of Real Estate
Investment Trusts as net income or loss excluding gains or losses from debt
restructuring and sales of property plus depreciation and amortization, and
after adjustments for minority interests and unconsolidated companies
(adjustments for minority interests and unconsolidated companies are calculated
to reflect Funds from Operations on the same basis). Funds from Operations does
not represent cash flow from operations as defined by generally accepted
accounting principles, should not be considered as an alternative to net income
as an indicator of operating performance, and is not indicative of cash
available to fund all cash flow needs. This information is only a summary and
you should read it together with Duke's historical consolidated financial
statements, and related notes, contained in the annual reports and other
information that Duke files with the Securities and Exchange Commission. See
"Where You Can Find More Information" on page 94.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ -----------
OPERATING DATA:
Revenues:
Rental Operations......................... $ 348,625 $ 229,702 $ 162,160 $ 113,641 $ 89,299
Service Operations........................ 24,716 22,378 19,929 17,777 18,473
------------ ------------ ------------ ------------ -----------
Total Revenues.............................. $ 373,341 $ 252,080 $ 182,089 $ 131,418 $ 107,772
------------ ------------ ------------ ------------ -----------
------------ ------------ ------------ ------------ -----------
Net Income Available for Common Shares...... $ 90,871 $ 65,999 $ 50,872 $ 35,019 $ 26,216
------------ ------------ ------------ ------------ -----------
------------ ------------ ------------ ------------ -----------
Per Share Data:
Net Income per Common Share
Basic................................... $ 1.13 $ .99 $ .91 $ .77 $ .77
Diluted................................. 1.12 .98 .90 .77 .77
Dividends Paid per Common Share........... 1.28 1.10 1.00 .96 .92
Weighted Average Common Shares
Outstanding............................. 80,704 66,427 56,134 45,358 34,278
Weighted Average Common and Dilutive
Potential Common Shares................. 92,468 74,993 64,398 53,802 43,002
BALANCE SHEET DATA (at December 31):
Total Assets................................ $ 2,853,653 $ 2,176,214 $ 1,361,142 $ 1,045,588 $ 774,901
Total Debt.................................. 1,007,317 720,119 525,815 454,820 298,640
Total Preferred Equity...................... 347,798 218,338 72,288 -- --
Total Shareholders' Equity.................. 1,570,112 1,234,681 754,932 534,789 445,384
Total Common Shares Outstanding............. 86,053 76,065 58,972 48,304 40,782
OTHER DATA:
Funds from Operations....................... $ 154,074 $ 107,256 $ 76,079 $ 54,746 $ 38,198
Cash Flow Provided by (Used by):
Operating Activities...................... $ 221,188 $ 159,195 $ 95,135 $ 78,620 $ 51,873
Investing Activities...................... (703,814) (597,324) (276,748) (289,569) (116,238)
Financing Activities...................... 479,223 443,148 181,220 176,243 94,733
</TABLE>
10
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF WEEKS
We are providing the following financial information of Weeks and its
predecessor entity, Weeks Group, to aid you in your analysis of the financial
aspects of the merger. We derived this information from audited consolidated
financial statements for the years ended December 31, 1994 through 1998. Weeks
completed its initial public offering and related formation transactions on
August 24, 1994. The amounts are stated in thousands, except for the per share
data. This information is only a summary and you should read it together with
Weeks' historical consolidated financial statements, and related notes,
contained in the annual reports and other information that Weeks files with the
Securities and Exchange Commission. See "Where You Can Find More Information" on
page 94.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, WEEKS GROUP
--------------------------------------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
AUG. 24 TO JAN. 1 TO
DEC. 31, AUG. 23,
1998 1997 1996 1995 1994 1994
------------ ----------- ----------- ----------- ---------- ----------
OPERATING DATA:
Revenues:
Rental Operations and Other................. $ 150,974 $ 92,020 $ 53,883 $ 35,271 $ 9,312 $ 12,525
Service Operations.......................... -- -- -- -- -- 4,013
------------ ----------- ----------- ----------- ---------- ----------
Total Revenues................................ $ 150,974 $ 92,020 $ 53,883 $ 35,271 $ 9,312 $ 16,538
------------ ----------- ----------- ----------- ---------- ----------
------------ ----------- ----------- ----------- ---------- ----------
Net Income Available for Common Shares........ $ 22,874 $ 20,255 $ 12,745 $ 8,426 $ 798 $ 516
------------ ----------- ----------- ----------- ---------- ----------
------------ ----------- ----------- ----------- ---------- ----------
Per Share Data:
Net Income per Common Share
Basic..................................... $ 1.19 $ 1.24 $ 1.11 $ 1.03 $ .10 N/A
Diluted................................... 1.18 1.23 1.10 1.03 .10 N/A
Dividends Paid per Common Share............. 1.90 1.76 1.63 1.53 0.53 N/A
Weighted Average Common Shares
Outstanding............................... 19,256 16,357 11,512 8,171 7,675 N/A
Weighted Average Common and Dilutive
Potential Common Shares................... 26,299 21,580 14,386 10,832 10,286 N/A
BALANCE SHEET DATA (at December 31):
Total Assets.................................. $ 1,447,592 $ 852,361 $ 591,849 $ 320,441 $ 176,674 N/A
Total Debt.................................... 654,424 275,515 296,975 147,305 71,961 N/A
Total Preferred Equity........................ 150,000 150,000 -- -- -- N/A
Total Shareholders' Equity.................... 514,912 459,048 213,711 132,949 73,470 N/A
Total Common Shares Outstanding............... 19,674 17,704 14,049 11,156 7,675 N/A
OTHER DATA:
Funds from Operations......................... $ 51,532 $ 38,517 $ 23,640 $ 14,662 $ 4,359 N/A
Cash Flow Provided by (Used by):
Operating Activities........................ $ 77,821 $ 49,097 $ 28,031 $ 18,678 $ 3,954 $ 2,769
Investing Activities........................ (454,721) (173,574) (120,323) (117,127) (38,148) (14,953)
Financing Activities........................ 372,982 129,638 91,570 93,097 40,352 12,229
</TABLE>
11
<PAGE>
DUKE-WEEKS PRO FORMA SUMMARY FINANCIAL DATA
We expect that the merger will be accounted for as a purchase. For a more
detailed description of purchase accounting, see "The Merger and the Merger
Proposal--Accounting Treatment" on page 54.
We have presented below unaudited pro forma financial information that
reflects the purchase method of accounting and is intended to give you a better
picture of what our businesses might have looked like had the merger occurred on
January 1, 1998, with respect to operating data, and December 31, 1998, with
respect to balance sheet data. The pro forma financial information does not
purport to represent what the combined company's results of operations would
have been for the year ended December 31, 1998 if the merger had in fact
occurred on January 1, 1998. The amounts are stated in thousands, except for the
per share data. We prepared the pro forma condensed consolidated balance sheet
by making adjustments to reflect the assets and liabilities acquired at their
fair value and made other merger-related adjustments. We prepared the pro forma
condensed consolidated statements of operations by combining the historical
amount of earnings of each company. We then adjusted the combined amount to
reflect differences in the operating results that would have resulted if the
merger had occurred on January 1, 1998. The companies may have performed
differently if they had been combined. You should not rely on the pro forma
financial information as being indicative of the historical results that we
would have had or the future results that we will experience after the merger.
The information is only a summary and you should read it together with
Duke's and Weeks' historical financial statements incorporated in this joint
proxy statement and prospectus, and the Duke-Weeks pro forma condensed
consolidated financial statements included in this joint proxy statement and
prospectus beginning on page F-1.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
-----------------
<S> <C>
OPERATING DATA:
Rental and Other Revenues................................................ $ 502,030
Services Revenues........................................................ 24,716
-----------------
Total Revenues....................................................... $ 526,746
-----------------
-----------------
Rental Expenses:
Operating Expenses..................................................... $ 128,993
Interest Expense....................................................... 87,945
Depreciation and Amortization.......................................... 109,101
-----------------
Total Rental Expenses................................................ $ 326,039
-----------------
-----------------
Net Income from Continuing Operations Available for Common Shareholders.... $ 116,675
-----------------
-----------------
PER SHARE DATA:
Basic Net Income from Continuing Operations Per Share.................... $ 1.09
Diluted Net Income from Continuing Operations Per Share.................. 1.07
Basic Weighted Average Shares Outstanding................................ 107,277
Diluted Weighted Average Shares Outstanding.............................. 128,761
BALANCE SHEET DATA (at December 31):
Real Estate Investments, Net............................................. $ 4,409,626
Total Assets............................................................. 4,641,821
Total Debt............................................................... 1,684,391
Total Liabilities........................................................ 2,326,033
Total Shareholders' Equity............................................... 2,315,788
Total Shares Outstanding................................................. 113,298
</TABLE>
12
<PAGE>
COMPARATIVE MARKET AND PER SHARE DATA
We have summarized below the per share information for our respective
companies on an historical basis, combined pro forma basis and combined
equivalent pro forma basis. The combined pro forma summary amounts are based on
the purchase method of accounting. The Weeks per share combined pro forma
equivalents are calculated by multiplying the combined pro forma per share
amounts by 1.38. Weeks shareholders will receive 1.38 Duke common shares in
exchange for each Weeks common share. The following information should be read
together with the historical and pro forma financial statements included or
incorporated by reference in this joint proxy statement and prospectus.
On February 26, 1999, the last trading day prior to the announcement of the
signing of the merger agreement, the closing price of a Duke common share was
$21.8125. On the same day, the closing price of a Weeks common share was $27.00.
The equivalent per share value of a Weeks common share on that date, applying
the exchange ratio per share, was $30.10125.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
--------------------
<S> <C> <C>
DUKE WEEKS
--------- ---------
Net Income per Share from Continuing Operations Attributable to Common
Shares:
Basic:
Historical............................................................. $ 1.13 $ 1.20
Combined Pro Forma..................................................... $ 1.09 $ N/A
1.38 Duke-Weeks Pro Forma Equivalents.................................. N/A $ 1.50
Diluted:
Historical............................................................. $ 1.12 $ 1.19
Combined Pro Forma..................................................... $ 1.07 N/A
1.38 Duke-Weeks Pro Forma Equivalents.................................. N/A $ 1.48
Distributions Per Common Share:
Historical............................................................. $ 1.28 $ 1.86
Book Value Per Common Share (at end of period):
Historical............................................................. $ 14.06 $ 18.55
Combined Pro Forma..................................................... $ 15.50 N/A
1.38 Duke-Weeks Pro Forma Equivalents.................................. N/A $ 21.39
</TABLE>
13
<PAGE>
RISK FACTORS
YOU SHOULD CONSIDER CAREFULLY THE FACTORS SET FORTH BELOW IN EVALUATING THE
MERGER. THE FOLLOWING LIST SUMMARIZES ALL MATERIAL RISKS RELATED TO THE MERGER.
THIS JOINT PROXY STATEMENT AND PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS
WITH RESPECT TO THE OPERATIONS OF DUKE, WEEKS AND THE COMBINED COMPANY. ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE SET FORTH IN THE FORWARD-LOOKING
STATEMENTS. SEE "CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS"
(PAGE 19).
RISK FACTORS RELATING TO THE MERGER
FIXED MERGER CONSIDERATION MAY NOT REFLECT CHANGES IN SHARE VALUE.
The value of Duke common shares and Weeks common shares at the effective
time of the merger may be different from the price and value of these securities
on the date the merger consideration was determined. This difference could be
caused by changes in the operations and prospects of Duke or Weeks, general
market and economic conditions or other factors which are beyond the control of
either party.
THE FAIRNESS OPINIONS OBTAINED BY DUKE AND WEEKS WILL NOT REFLECT CHANGES IN THE
RELATIVE VALUES OF THE COMPANIES SINCE THE MERGER AGREEMENT WAS SIGNED.
Duke does not intend to obtain an updated fairness opinion of Merrill Lynch,
Pierce, Fenner & Smith Incorporated, and Weeks does not intend to obtain an
updated fairness opinion of Goldman, Sachs & Co. Changes in the operations and
prospects of Duke or Weeks, general market and economic conditions and other
factors which are beyond the control of Duke or Weeks, on which the opinions of
Merrill Lynch and Goldman Sachs are based, may have altered the relative value
of the companies. Therefore, the opinions of Merrill Lynch and Goldman Sachs do
not address the fairness of the merger consideration at the time the merger will
be completed.
THE MERGER WILL EXPOSE THE COMBINED COMPANY TO THE GENERAL ECONOMIC CONDITIONS
OF SEVERAL NEW MARKETS IN WHICH EITHER DUKE OR WEEKS WERE NOT PREVIOUSLY
INVOLVED.
The combined company's operating performance could be adversely affected if
conditions, such as an oversupply of space or a reduction in demand for
industrial, office or retail properties, in the combined company's larger
markets, principally the Atlanta, Cincinnati, Indianapolis and St. Louis
markets, become less favorable relative to other geographic areas. Any material
oversupply of space or material reduction of demand for space could adversely
affect the combined company's operating income and the value of the combined
company's shares.
THE EXPECTATION THAT THE MERGER WILL RESULT IN AN EFFICIENT INTEGRATION OF THE
COMPANIES MAY NOT BE REALIZED.
Weeks and Duke have entered into the merger agreement with the expectation
that the merger will create a combined company which will be able to operate
efficiently in Midwestern and Sunbelt markets. Achieving this anticipated result
will depend in part on the efficient integration of the businesses of Weeks and
Duke, each of which is a large organization. There can be no assurance that an
efficient integration will occur. For a discussion of other factors and
assumptions related to the anticipated benefits of the merger, see "The Merger
and the Merger Proposal--Reasons for the Merger; Recommendation of the Duke
Board" and "--Reasons for the Merger; Recommendation of the Weeks Board."
THE COMPANIES HAVE EXPENDED RESOURCES AND CAPITAL IN THE PURSUIT OF THIS MERGER,
AND IF THE MERGER FAILS TO OCCUR, THE COMPANIES WILL NOT BENEFIT FROM THESE
EXPENDITURES AND MAY INCUR ADDITIONAL PAYMENTS.
The merger may not be completed. If the merger is not completed, Duke and
Weeks will have incurred substantial expenses for which no ultimate benefit will
have been received by either company. Additionally, if the merger agreement is
terminated, Duke may be required to pay Weeks a $50 million termination fee or
reimburse up to $5 million of termination expenses or Weeks may be required to
pay
14
<PAGE>
Duke a $50 million termination fee or reimburse up to $5 million of termination
expenses. See "The Merger Agreement--Termination."
THE DIRECTORS AND OFFICERS OF WEEKS MAY HAVE INTERESTS IN THE COMPLETION OF THE
MERGER THAT ARE DIFFERENT FROM THE INTEREST OF WEEKS SHAREHOLDERS.
The following officers of Weeks have entered into change of control
agreements with Weeks which entitle the officers rights to receive, upon a
change of control, severance payments upon involuntary termination of their
employment: A. Ray Weeks, Jr., Thomas D. Senkbeil, Forrest W. Robinson, David P.
Stockert, John W. Nelley, Jr., Robert G. Cutlip, Clyde H. Duckett, Mark W.
Flowers, Charles D. Graham, Eben Hardie III and Jeffrey D. Turner. In addition,
the change of control agreements entered into with each of Messrs. Weeks,
Senkbeil, Robinson, Stockert and Nelley entitle these officers to receive the
severance benefit if they voluntarily terminate their employment before the
first anniversary of the change of control. Each of these officers has agreed
with Duke to waive their right to the severance benefit if they voluntarily
terminate their employment after the merger, except that Mr. Stockert will be
entitled to receive the severance benefit provided for in his change of control
agreement if he voluntarily terminates his employment during the four month
period beginning on the first anniversary of the effective time of the merger.
In order to induce Mr. Robinson to modify his rights under his change of control
agreement, Duke agreed to provide him with a $250,000 unsecured loan payable in
equal annual installments over a five year term in order to facilitate his
relocation to Florida. The terms of the loan provide that (1) annual payments of
principal will be forgiven so long as Mr. Robinson is still employed by
Duke-Weeks and (2) the principal and interest will be forgiven in full if (A)
Mr. Robinson is terminated other than for cause by Duke-Weeks, (B) Mr. Robinson
terminates his own employment for good reason within the 12 month period
following the effective time of the merger, or (C) Duke changes the terms of the
agreement made with Mr. Robinson regarding modification of his rights under his
change of control agreement without his prior consent before the first
anniversary of the merger.
At the time of the execution and delivery of the merger agreement, a company
owned by Thomas L. Hefner, Darrell E. Zink, Jr., A. Ray Weeks, Jr. and Thomas D.
Senkbeil was granted options to purchase interests in three service companies
owned by certain current and former Weeks officers, including A. Ray Weeks, Jr.,
Thomas D. Senkbeil and Forrest W. Robinson. If the company exercises these
options, the aggregate payment received by these current and former Weeks
officers would be approximately $130,000.
Weeks directors who become directors of Duke-Weeks will be compensated for
their services as directors and granted stock options annually during their
tenure as directors. Non-employee directors of Duke-Weeks are entitled to
receive 300 common shares of Duke pursuant to Duke's 1996 Directors' Stock
Payment Plan for each full calendar quarter of service as a Director (or a
pro-rata amount for less than a full calendar quarter of service). In addition,
if Duke's 1999 Directors' Stock Option and Dividend Increase Unit Plan is
approved by the shareholders of Duke, directors of Duke-Weeks who are not
entitled to receive grants of options under any other Duke sponsored plan for
any given year will be granted options to purchase 2,500 common shares of Duke
for that year. Weeks directors who become Duke-Weeks directors will first
receive such stock option grants at the first quarterly meeting of Duke-Weeks'
compensation committee for the year 2000. These persons will receive benefits
that will not be shared by other shareholders of Weeks generally.
THE RIGHTS OF DUKE SHAREHOLDERS DIFFER FROM THOSE OF WEEKS.
The rights of shareholders of Weeks currently are governed by Georgia law
applicable to corporations formed under the laws of that state and by Weeks'
articles of incorporation and bylaws. Upon completion of the merger,
shareholders of Weeks will become shareholders of Duke-Weeks and their rights
will be governed by Indiana law applicable to corporations formed under the laws
of that state and by Duke's charter and by-laws. The rights of shareholders of
Weeks differ materially from the rights of shareholders
15
<PAGE>
of Duke and the rights of the former Weeks shareholders in Duke may be less
favorable than their former rights as shareholders of Weeks. See "Comparison of
Shareholder Rights."
RISK FACTORS RELATING TO THE OWNERSHIP OF REAL ESTATE SECURITIES
THE COMBINED COMPANY'S REAL ESTATE INVESTMENTS ARE SUBJECT TO RISKS PARTICULAR
TO REAL ESTATE INVESTMENTS.
Real property investments are subject to varying degrees of risk. Real
estate values are affected by a number of factors, including:
- changes in general economic conditions;
- local conditions, such as an oversupply of space or a reduction in demand
for real estate in an area;
- competition from other available space;
- the ability of the owner to provide adequate maintenance and insurance;
- the ability of the owner to control variable operating costs;
- government regulations;
- interest rate levels;
- the availability of financing; and
- potential liability under, and changes in, environmental, zoning, and
other laws.
THE COMBINED COMPANY'S REAL ESTATE DEVELOPMENT ACTIVITIES ARE SUBJECT TO RISKS
PARTICULAR TO DEVELOPMENT.
The combined company intends to continue to pursue development activities as
opportunities arise. These development activities generally require various
government and other approvals. The combined company may not receive the
necessary approvals.
The combined company will be subject to risks associated with any
development activities. These risks include:
- development opportunities explored by the combined company may be
abandoned;
- construction costs of a project may exceed original estimates, possibly
making the project less profitable than originally estimated;
- the time required to complete construction of a project or to lease out
the completed project may be greater than originally anticipated, thereby
adversely affecting the combined company's cash flow and liquidity; and
- occupancy rates and rents of a completed project may not be sufficient to
make the project profitable.
In the case of an unsuccessful development project, the combined company
could lose its investment in the project.
THE COMBINED COMPANY IS EXPOSED TO THE RISKS OF DEFAULTS BY TENANTS.
The combined company's income and distributable cash flow would be adversely
affected if a significant number of the combined company's tenants were unable
to meet their obligations to the combined company, especially if the combined
company were unable to lease to another party, on economically favorable terms,
a significant amount of space vacated by tenants in its properties. In the event
of default by a significant number of tenants, the combined company may
experience delays in collecting rent and incur substantial costs in enforcing
its rights as landlord.
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REAL ESTATE INVESTMENTS ARE RELATIVELY ILLIQUID GENERALLY, AND DUKE HAS AGREED
TO ASSUME ADDITIONAL RESTRICTIONS ON PROPERTY SALES IN THE MERGER AGREEMENT.
Equity real estate investments are relatively illiquid and therefore may
tend to limit the ability of the combined company to react promptly to changes
in economic or other conditions. In addition, significant expenditures
associated with equity real estate investments, such as mortgage payments, real
estate taxes and maintenance costs, are generally not reduced when circumstances
cause a reduction in income from the investments. Like other companies
qualifying as real estate investment trusts under the Internal Revenue Code of
1986, the combined company will be subject to a 100% penalty tax on gain
recognized from the sale of property held for sale to customers in the ordinary
course of business or other "dealer" property. To ensure that real property
sales are not viewed as "dealer" property, the combined company may comply with
certain safe harbor rules relating to the number of properties sold in a year,
their tax bases and the cost of improvements made to these properties.
In the merger agreement, Duke agreed to assume four agreements of Weeks
which restricted Weeks' ability to sell certain of its properties. Duke is also
currently party to four agreements which restrict Duke's ability to sell certain
of its properties. Duke also agreed that until the tenth anniversary of the
effective time of the merger, any proposed sale or a series of related sales by
the combined company of assets which were previously owned by Weeks and have a
value of more than $50 million must first be approved by the asset committee of
the combined company's Board of Directors. Compliance with the foregoing safe
harbor rules and these agreements may restrict the combined company's ability to
sell assets at any time to change its asset base.
THE COMBINED COMPANY IS EXPOSED TO POTENTIAL ENVIRONMENTAL LIABILITY.
Under various federal, state and local laws, ordinances and regulations, a
current or previous owner, developer or operator of real estate may be liable
for the costs of removal or remediation of hazardous or toxic substances at, on,
under or in its property. The costs of removal or remediation of hazardous or
toxic substances could be substantial. Environmental laws often impose liability
without regard to whether the owner or operator knew of, or was responsible for,
the release or presence of hazardous substances. The presence of hazardous
substances on the combined company's properties may adversely affect its ability
to sell those properties or to borrow using those properties as collateral and
may also have an adverse effect on the combined company's ability to pay
distributions to its shareholders.
THE COMBINED COMPANY COULD INCREASE ITS LEVEL OF DEBT IN SUCH A MANNER THAT
COULD JEOPARDIZE CASH DISTRIBUTIONS TO SHAREHOLDERS.
Each of Duke and Weeks currently has a policy of incurring debt only if,
upon such incurrence, the combined company's debt-to-total market capitalization
ratio, as adjusted, would equal 50% or less. The combined company's Board of
Directors could alter or eliminate this policy without shareholder approval and
would do so if, for example, it were necessary in order for the combined company
to continue to qualify as a real estate investment trust under the Internal
Revenue Code of 1986. If this policy were changed, the combined company could
become more highly leveraged, resulting in an increase in debt service that
could adversely affect the cash available for distribution to shareholders. The
combined company's pro forma debt-to-total market capitalization ratio at
December 31, 1998 was approximately 31%.
THE FAILURE OF THE COMBINED COMPANY TO QUALIFY AS A REAL ESTATE INVESTMENT TRUST
COULD ADVERSELY AFFECT SHAREHOLDERS.
Duke has elected to be taxed as a real estate investment trust under the
Internal Revenue Code of 1986 commencing with its taxable year ended December
31, 1986. The combined company will inherit this tax status. To maintain real
estate investment trust status, the combined company must meet a number of
highly technical requirements on a continuing basis. These requirements seek to
ensure, among other
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things, that the gross income and investments of a real estate investment trust
are largely real estate related, that a real estate investment trust distributes
substantially all its ordinary taxable income to shareholders on a current basis
and that the real estate investment trust's share ownership is not overly
concentrated in the hands of individuals (including certain entities treated as
individuals). Due to the complex nature of these rules, the limited available
guidance concerning interpretation of the rules, the importance of ongoing
factual determinations and the possibility of adverse changes in the law,
administrative interpretations of the law and developments at the combined
company, no assurance can be given that the combined company will qualify as a
real estate investment trust for any particular year.
If the combined company fails to qualify as a real estate investment trust,
it will be taxed as a regular corporation, and distributions to shareholders
will not be deductible in computing the combined company's taxable income. The
resulting corporate tax liabilities could materially reduce the funds available
for distribution to the combined company's shareholders or for reinvestment. In
the absence of real estate investment trust status, distributions to
shareholders would no longer be required. Moreover, the combined company might
not be able to elect to be treated as a real estate investment trust for the
four taxable years after the year during which the combined company ceased to
qualify as a real estate investment trust. In addition, if the combined company
later requalified as a real estate investment trust, it might be required to pay
a full corporate-level tax on any unrealized gain in its assets as of the date
of requalification and to make distributions to shareholders equal to any
earnings accumulated during the period of non-real estate investment trust
status, all of which would materially reduce the funds available for
distribution to the combined company's shareholders or for reinvestment.
REAL ESTATE INVESTMENT TRUST DISTRIBUTION REQUIREMENTS LIMIT THE AMOUNT OF CASH
THE COMBINED COMPANY WILL HAVE AVAILABLE FOR OTHER BUSINESS PURPOSES, INCLUDING
AMOUNTS TO FUND THE COMBINED COMPANY'S FUTURE GROWTH.
To maintain its qualification as a real estate investment trust under the
Internal Revenue Code of 1986, the combined company must annually distribute to
the combined company's shareholders at least 95% of its ordinary taxable income,
excluding net capital gains. This requirement limits the combined company's
ability to accumulate capital for use for other business purposes. If the
combined company does not have sufficient cash or other liquid assets to meet
the distribution requirements, the combined company may have to borrow funds or
sell properties on adverse terms in order to meet the distribution requirements.
If the combined company fails to make a required distribution, it would cease to
qualify as a real estate investment trust.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The following statements are or may constitute forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended:
(1) statements, including, without limitation, possible or assumed future
results of operations of Duke, Weeks and the combined company contained
in "Summary," "The Merger and the Merger Proposal--Background of the
Merger," "The Merger and the Merger Proposal--Reasons for the Merger;
Recommendations of the Duke Board," "The Merger and the Merger Proposal--
Opinion of Duke's Financial Advisor," "The Merger and the Merger
Proposal--Reasons for the Merger; Recommendations of the Weeks Board" and
"The Merger and the Merger Proposal-- Opinion of Weeks' Financial
Advisor," including any forecasts, projections and descriptions of
anticipated cost savings or other synergies referred to therein, and any
such statements incorporated by reference from documents filed with the
Securities and Exchange Commission by Duke and Weeks, including any
statements contained herein or therein regarding the development or
possible or assumed future results of operations of Duke's, Weeks' and
the combined company's businesses, the markets for Duke's, Weeks' and the
combined company's services and products, anticipated capital
expenditures, competition or the effects of the merger of Weeks with and
into Duke;
(2) any statements preceded by, followed by or that include the words
"believes," "expects," "anticipates," "intends" or similar expressions;
and
(3) other statements contained or incorporated by reference herein regarding
matters that are not historical facts.
Because these statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by the
forward-looking statements. Duke's and Weeks' shareholders are cautioned not to
place undue reliance on those statements, which speak only as of the date of
this joint proxy statement and prospectus.
Among the factors that could cause actual results to differ materially are:
general economic conditions, competition and the supply of and demand for
industrial, office and retail properties in the combined company's markets,
interest rate levels, the availability of financing, potential environmental
liability and other risks associated with the ownership, development and
acquisition of industrial, office and retail properties, including risks that
tenants will not take or remain in occupancy or pay rent, or that construction
or operating costs may be greater than anticipated, inflationary trends, and
other risks detailed from time to time in the reports filed with the Securities
and Exchange Commission by Duke and Weeks.
Except for their ongoing obligations to disclose material information as
required by the federal securities laws, neither Duke nor Weeks undertakes any
obligation to release publicly any revisions to any forward-looking statements
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
ABOUT THIS JOINT PROXY STATEMENT AND PROSPECTUS
This joint proxy statement and prospectus is part of a registration
statement that Duke filed with the Securities and Exchange Commission relating
to the Duke common shares and preference shares being issued in the merger. This
joint proxy statement and prospectus provides you with a general description of
the securities Duke will offer. You should read this joint proxy statement and
prospectus together with the additional information described under the heading
"Where You Can Find More Information."
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THE COMPANIES
DUKE
Duke is a self-administered and self-managed REIT organized under Indiana
law. Duke owns and leases industrial, office and retail properties throughout
the Midwest which it and its predecessors have been doing since 1972. As of
December 31, 1998, Duke owned interests in a diversified portfolio of 493 rental
properties comprising approximately 59.3 million square feet (including 40
buildings and three expansions comprising approximately 7.2 million square feet
under development). Substantially all of these properties are located in
Indianapolis, Indiana; Cincinnati, Cleveland, and Columbus, Ohio; St. Louis,
Missouri; Minneapolis, Minnesota; Chicago, Illinois; and Nashville, Tennessee.
Also, as of December 31, 1998, Duke owned or controlled approximately 2,800
acres of unencumbered land, which Duke believes could support the development of
approximately 43 million square feet of properties. In addition to its rental
operations, Duke, through its service operations provides leasing, management,
construction, development and other real estate services for approximately 6.9
million square feet of properties owned by third parties. Duke's rental
operations are conducted through Duke Realty Limited Partnership. In addition,
Duke conducts its service operations through Duke Realty Services Limited
Partnership and Duke Construction Limited Partnership, in which the company's
wholly-owned subsidiary, Duke Services, Inc., is the sole general partner. Duke
has the largest commercial real estate operations in Indianapolis and Cincinnati
and is one of the largest real estate companies in the Midwest.
Duke's headquarters and executive offices are located in Indianapolis,
Indiana. In addition, Duke has seven regional offices located in Cincinnati,
Ohio; Columbus, Ohio; Cleveland, Ohio; Chicago, Illinois; Nashville, Tennessee;
St. Louis, Missouri and Minneapolis, Minnesota. Duke had 748 employees as of
December 31, 1998.
As a fully integrated commercial real estate firm, Duke believes that its
in-house leasing, management, development and construction services and Duke's
significant base of commercially zoned and unencumbered land in existing
business parks should give Duke a competitive advantage in its future
development activities.
Duke has sought to develop and acquire Class A commercial properties located
in markets with high growth potential for Fortune 500 companies and other
quality regional and local firms. Duke's industrial and suburban office
development has focused on business parks and mixed-use developments suitable
for development of multiple projects on a single site where Duke can create and
control the business environment. These business parks and mixed-use
developments generally include restaurants and other amenities which Duke
believes create an atmosphere that is particularly efficient and desirable.
Duke's retail development has focused on community, power and neighborhood
centers in its existing markets. As a fully integrated real estate company, Duke
has been able to arrange for or provide to its industrial, office and retail
tenants not only well located and well maintained facilities, but also
additional services such as build-to-suit construction, tenant finish
construction, expansion flexibility and advertising and marketing services.
WEEKS
Weeks is a self-administered and self-managed REIT that was organized in
1994 under Georgia law to continue and expand the fully integrated real estate
business previously conducted by Weeks and its affiliates. Since 1965, Weeks,
together with its affiliates and predecessors, has developed, owned, managed,
constructed and acquired primarily institutional-quality industrial and suburban
office properties in select suburban markets in the southeast United States and
Texas. As of December 31, 1998, Weeks owned 371 properties totaling
approximately 31.6 million square feet, including 52 properties that were under
development or in lease-up and excluding two properties that were under
agreement to acquire. Weeks' properties are located in Atlanta, Georgia;
Nashville, Tennessee; Raleigh-Durham-Chapel Hill, North
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Carolina; Miami, Orlando, Jacksonville, Ft. Landerdale and Tampa, Florida;
Dallas, Texas; and Spartanburg, South Carolina.
At December 31, 1998, Weeks also owned or controlled (through agreements to
acquire, options and marketing and development agreements) approximately 1,900
net usable acres of undeveloped land located primarily in existing business
parks with zoning and infrastructure in place. Weeks believes the development
potential of this land could ultimately total approximately 20 million square
feet (based upon Weeks' estimate of the appropriate density and anticipated
building types that may be developed, net of land necessary to provide for
adequate infrastructure).
Weeks conducts its third-party service business through two companies: Weeks
Realty Services, Inc., which conducts third-party landscape, property management
and leasing services, and Weeks Construction Services, Inc., which conducts
third-party construction services. Weeks holds 100% of the nonvoting and 1% of
the voting common shares of these subsidiaries. The remaining voting common
shares are held by three executive officers of Weeks. The ownership of the
common shares of these companies entitles Weeks to substantially all (99%) of
the economic benefits from the results of their operations. As described under
"The Merger and the Merger Proposal--Service Companies Option," three executive
officers of Weeks have granted an option to purchase all of their shares in
these two companies to a newly formed corporation owned by Messrs. Hefner, Zink,
Weeks and Senkbeil.
Weeks owns, develops and operates primarily industrial and suburban office
properties, most of which are located in landscaped business park settings.
Weeks' business strategy emphasizes high quality properties and tenant service.
Weeks' approximately 575 employees have experience and are engaged in virtually
every aspect of the real estate business, including development, construction,
engineering, design, landscape, leasing, marketing and property management.
Weeks' strategy for growth includes intensive management of its properties,
developing and acquiring additional properties that are consistent with its
existing portfolio, and owning and controlling undeveloped land sufficient to
develop new and existing business parks and to meet the expansion and relocation
needs of its tenants. Weeks concentrates its activities in a limited number of
Sunbelt cities where it believes it can sustain a significant market presence.
THE COMBINED COMPANY
Upon completion of the merger, Duke-Weeks is expected to have a total pro
forma market capitalization of approximately $5.2 billion, based on the closing
price of Duke shares on February 26, 1999 (the last full trading day before the
merger was announced) and the outstanding principal amount of indebtedness of
the two companies on December 31, 1998. The combined company will own interests
in 864 industrial, office and retail properties (including properties under
development), based on the real estate assets held by Duke and Weeks as of
December 31, 1998. The combined real estate assets, including assets held by
unconsolidated subsidiaries and joint ventures, will consist of over 90 million
square feet of operating industrial, office and retail properties. Additionally,
the combined company will own or control approximately 4,700 acres of
undeveloped land with an estimated future development potential of approximately
63 million square feet of industrial, office and retail properties. The name of
the combined company for two years after the merger will be Duke-Weeks Realty
Corporation and then Duke Realty Corporation after that two year period, unless
the combined company's Board of Directors recommends against changing the name.
The combined company intends to continue to be taxed as a real estate investment
trust under the Internal Revenue Code of 1986.
Duke and Weeks expect the combined company to have the following important
characteristics, which are intended to create long-term shareholder value:
- the combined company will be the largest mixed office/industrial REIT in
the United States based on the amount of rentable space it will own and
equity market capitalization;
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- the combined company expects to improve its valuation relative to other
REITS in the public market because of greater liquidity of its publicly
traded securities, increased research coverage, a more diversified credit
profile and an enhanced institutional shareholder base;
- the combined company will have a strong combined management team
benefiting from the combined years of experience in the industrial/office
real estate industry of Duke and Weeks and will be able to leverage its
skills over a broader base of assets and a large development pipeline; and
- the combined company will have a more geographically diversified asset
base which should reduce cash flow sensitivity to local economic cycles
and provide more consistent development opportunities.
Duke-Weeks' business objective is to increase its funds from operations by:
- maintaining and increasing property occupancy and rental rates through the
aggressive leasing and management of its portfolio of existing properties;
- expanding existing properties;
- developing and acquiring new properties; and
- providing a full line of real estate services to its tenants and to
third-parties.
Duke-Weeks expects to utilize its approximately 4,700 acres of undeveloped
land and its many business relationships with nearly 5,000 commercial tenants to
expand its build-to-suit business (development projects substantially pre-leased
to a single tenant) and to pursue other development and acquisition
opportunities in its primary markets and elsewhere.
Duke-Weeks seeks to maintain a well-balanced, conservative and flexible
capital structure by:
- currently targeting a ratio of long-term debt to total market
capitalization in the range of 25% to 40%;
- extending and sequencing the maturity dates of its debt;
- borrowing primarily at fixed rates;
- generally pursuing current and future long-term debt financings and
refinancings on an unsecured basis; and
- maintaining conservative debt service and fixed charge coverage ratios.
Management believes that these strategies should enable Duke-Weeks to access
the debt and equity capital markets for its long-term capital requirements such
as debt refinancings and financing development and acquisitions of additional
rental properties.
BOARD OF DIRECTORS AND MANAGEMENT OF DUKE-WEEKS AFTER THE MERGER. If Duke
obtains the requisite vote of its shareholders to amend its Articles of
Incorporation to increase the maximum size of Duke's Board to 23, then the Board
of Directors of Duke-Weeks immediately following the merger will consist of 11
of the 12 current members of Duke's Board (Ms. Cuneo and Messrs. Baur, Button,
Feinsand, Hefner, Lytle, Peterson, Rogers, Staton, Strauss and Zink) and 10 of
the 11 current members of Weeks' Board (Messrs. Branch, Busbee, Cavanaugh,
Codina, Eitel, McCoy, Nelley, Robinson, Senkbeil and Weeks).
If Duke does not obtain the requisite vote of its shareholders to increase
the maximum size of its Board to 23, the Board of Directors of Duke-Weeks
immediately following the merger will consist of 15 members of which eight are
current members of Duke's Board (Ms. Cuneo and Messrs. Button, Feinsand, Hefner,
Lytle, Rogers, Strauss and Zink) and seven are current members of Weeks' Board
(Messrs. Branch, Cavanaugh, Eitel, McCoy, Nelley, Senkbeil and Weeks).
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Following the merger, the senior management of Duke-Weeks will include the
following:
<TABLE>
<S> <C>
Thomas L. Hefner Chief Executive Officer
A. Ray Weeks, Jr. President and Chief Operating Officer
Gary A. Burk Executive Vice President--Construction
Robert M. Chapman Executive Vice President--Atlanta Region
Robert G. Cutlip Executive Vice President--Carolina Region
Richard W. Horn Executive Vice President--Midwest Office
William E. Linville, Executive Vice President--Midwest Industrial
III
Dennis D. Oklak Executive Vice President and Chief Administrative Officer
Forrest W. Robinson Executive Vice President--Florida Region
Thomas D. Senkbeil Executive Vice President and Chief Investment Officer
David P. Stockert Executive Vice President--Strategic Planning and Capital Markets
Darell E. Zink, Jr. Executive Vice President and Chief Financial Officer
John W. Nelley, Jr. Managing Director--Nashville
Edward T. Baur Vice President--St. Louis
</TABLE>
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THE MEETINGS
This joint proxy statement and prospectus is furnished in connection with
the solicitation of proxies (1) from the holders of Duke common shares and Duke
preferred shares by the Duke Board for use at the Duke meeting and (2) from the
holders of Weeks common shares by the Weeks Board for use at the Weeks meeting.
This joint proxy statement and prospectus and accompanying forms of proxy are
first being mailed to the respective shareholders of Duke and Weeks on or about
May 11, 1999.
TIMES AND PLACES; PURPOSES
The Duke meeting will be held at the Marriott North Hotel, 3645 River
Crossing Parkway, Indianapolis, Indiana, at 10:00 a.m., local time, on June 18,
1999. At the Duke meeting, the shareholders of Duke will be asked:
1. To consider and approve the merger proposal (See page 28);
2. To consider and approve an amendment to Duke's Articles of
Incorporation to expand the maximum number of directors on the Duke Board
from 15 directors to 23 directors (See page 72);
3. To consider and approve two additional amendments to Duke's Articles
of Incorporation (See page 73);
4. To consider and approve the proposal to elect three directors to
Duke's Board of Directors (See page 86);
5. To consider and approve the Directors' Stock Option and Dividend
Increase Unit Plan (See page 88);
6. To consider and approve the Salary Replacement and Dividend Increase
Unit Plan (See page 90);
7. To consider and approve an amendment to the Directors' Stock Payment
Plan (See page 92); and
8. To transact such other business as may properly come before the
meeting and any adjournments of the meeting.
The Weeks meeting will be held at the Atlanta Marriott, Gwinnett Place, 1775
Pleasant Hill Road, Duluth, Georgia, at 10:00 a.m., local time, on June 18,
1999. At the Weeks meeting, the shareholders of Weeks will be asked:
1. To consider and approve the merger proposal (See page 28); and
2. To transact such other business as may properly come before the
meeting or any adjournment of the meeting.
DUKE
VOTING RIGHTS; VOTES REQUIRED FOR APPROVAL. The Duke Board has fixed the
close of business on May 3, 1999, as the record date for the determination of
the Duke shareholders entitled to notice of and to vote at the Duke meeting. On
April 27, 1999, there were 86,751,130 Duke common shares and 15,400,000 Duke
depositary shares, each representing 1/10 of a Duke preferred share,
outstanding, which were held by approximately 8,868 and 94 record holders,
respectively. As of April 27, 1999, Duke's directors and executive officers
beneficially owned an aggregate of 4,373,168 Duke common shares (excluding
shares subject to options), or approximately 5% of the outstanding Duke common
shares entitled to vote on the merger proposal, which requires the affirmative
vote of a majority of Duke's outstanding common shares. Directors and executive
officers of Duke and entities which they control have agreed to vote all of
their common shares, representing approximately 5% of Duke's outstanding common
shares, in favor of the merger and the merger agreement and against any
competing transaction. See "The Merger and the Merger Proposal--Voting
Agreements."
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The presence, either in person or by proxy, of the holders of a majority of
the outstanding Duke common shares is necessary to constitute a quorum at the
Duke meeting. Assuming the existence of a quorum, the affirmative vote of the
holders of at least a majority of the issued and outstanding Duke common shares
is required to approve the merger proposal, which includes amendments to Duke's
Articles of Incorporation that would change Duke's name to Duke-Weeks Realty
Corporation for two years after the merger and then to Duke Realty Corporation
following that two year period (unless the combined company's Board of Directors
recommends against changing the name), and would increase the maximum number of
common shares that Duke is authorized to issue from 150,000,000 to 250,000,000.
Approval of the 1999 Directors' Stock Option and Dividend Increase Unit Plan,
the 1999 Salary Replacement Stock Option and Dividend Increase Unit Plan and the
amendment to the 1996 Directors' Stock Payment Plan requires the affirmative
vote of at least a majority of the votes cast by the holders of common shares at
the meeting. Approval of the additional charter amendments, including the
charter amendment to increase the size of Duke's Board, requires the affirmative
vote of at least 80% of the outstanding Duke common and preferred shares, voting
together as a single class, and, in the case of the additional charter
amendments which would (1) change the existing requirement that 80% of the
shares of CAPITAL STOCK of Duke approve certain amendments to Duke's Articles of
Incorporation to require the approval of 80% of the Duke COMMON SHARES and (2)
change the existing requirement that 80% of the shares of capital stock approve
any amendment to the provisions of the Articles of Incorporation relating to the
number, classes, term of office and qualifications of directors, to require the
approval of a majority of the Duke common shares, also requires the affirmative
vote of at least two-thirds of the shares of each series of preferred shares
outstanding. The election of three directors to Duke's Board requires the
affirmative vote of at least a majority of the Duke common shares present in
person or by proxy at the meeting. Holders of record of Duke common shares on
the Duke record date are entitled to one vote per Duke common share at the Duke
meeting. Holders of record of Duke depositary shares, each representing 1/10 of
one Duke preferred share on the Duke record date are entitled to one vote per
Duke depositary share at the Duke meeting.
If a shareholder attends the Duke meeting, he or she may vote by ballot.
However, since many shareholders may be unable to attend the Duke meeting, those
shareholders can ensure that their shares are voted at the meeting by signing
and dating the enclosed proxy and returning it in the envelope provided. When a
proxy card is returned properly signed and dated, the Duke shares represented by
that proxy card will be voted in accordance with the instructions on the proxy
card. For approval of the merger and the additional charter amendments, if a
shareholder does not return a signed proxy card, their Duke shares will not be
voted and thus will have the effect of a vote "against" the proposals.
Similarly, a broker non-vote or an abstention will have the effect of a vote
"against" the proposals. For the election of the nominees to the Duke Board of
Directors and approval of the 1999 Directors' Stock Option and Dividend Increase
Unit Plan, the 1999 Salary Replacement Stock Option and Dividend Increase Unit
Plan and the amendment to the 1996 Directors' Stock Payment Plan, broker
non-votes and abstentions will not be counted as a vote for or against those
proposals. Shareholders are urged to mark the box on the proxy card to indicate
how their Duke shares are to be voted. If a shareholder returns a signed proxy
card, but does not indicate how their Duke shares are to be voted, the Duke
shares represented by the proxy card will be voted "FOR" the proposals. The
proxy card also confers discretionary authority on the individuals appointed by
the Duke Board and named on the proxy card to vote the Duke shares represented
thereby on any other matter that is properly presented for action at the Duke
meeting. Such discretionary authority will not be used to vote for adjournment
of the Duke meeting to permit further solicitation of proxies if the shareholder
votes against any proposal.
Any Duke shareholder who executes and returns a proxy card may revoke the
proxy at any time before it is voted by:
(1) notifying in writing the Assistant Secretary of Duke at 8888
Keystone Crossing, Suite 1200, Indianapolis, Indiana 46240-2438;
(2) granting a subsequent proxy; or
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(3) appearing in person and voting at the Duke meeting.
Attendance at the Duke meeting will not in and of itself constitute
revocation of a proxy.
Duke has not yet selected its independent auditors for the fiscal year
ending December 31, 1999. However, representatives of KPMG LLP, its independent
auditors for the fiscal year ending December 31, 1998, are expected to be
present at the annual meeting of shareholders of Duke with the opportunity to
make a statement if they desire to do so, and will be available to respond to
questions.
SOLICITATION OF PROXIES. Duke will bear its own costs of solicitation of
proxies, except that the cost of preparing, printing and mailing this joint
proxy statement and prospectus will be borne equally by Duke and Weeks.
Brokerage houses, fiduciaries, nominees and others will, upon request, be
reimbursed for their out-of-pocket expenses in forwarding proxy materials to
owners of Duke common and preferred shares held in their names. In addition to
the solicitation of proxies by use of the mails, proxies may be solicited from
Duke shareholders by directors, officers and employees of Duke in person or by
telephone, telegraph, facsimile or other appropriate means of communication. No
additional compensation, except for reimbursement of reasonable out-of-pocket
expenses, will be paid to these directors, officers and employees of Duke in
connection with the solicitation. In addition, Innisfree M&A Incorporated, a
proxy solicitation firm, has been engaged by Duke to act as proxy solicitor and
will receive fees estimated at $15,000, plus reimbursement of out-of-pocket
expenses. Any questions or requests for assistance regarding this joint proxy
statement and prospectus and related proxy materials may be directed to the
Investor Relations Department of Duke by telephone at (317) 808-6005.
OTHER MATTERS
Duke is not aware of any business or matter other than those indicated above
which may be properly presented at the Duke meeting. If, however, any other
matter properly comes before the Duke meeting, the proxy holders will, in their
discretion, vote thereon in accordance with their best judgment.
Any proposal by a shareholder intended to be presented at the 2000 annual
meeting of shareholders must have been received by Duke at its principal
executive offices located at 8888 Keystone Crossing, Suite 1200, Indianapolis,
Indiana 46240-2438 not later than November 22, 1999 for inclusion in Duke's
proxy statement and form of proxy relating to Duke's 2000 annual meeting of
shareholders. Duke's Board will review any shareholder proposals that are filed
as required, and will determine whether such proposals meet the criteria for
inclusion in the proxy solicitation materials or for consideration at the 2000
annual meeting. In addition, Duke's By-laws provide that any shareholder wishing
to nominate a candidate for director or to propose other business at the 2000
annual meeting must give Duke written notice at its principal executive offices
no earlier than January 27, 2000 and no later than February 25, 2000, and the
notice must provide certain other information as described in the By-laws.
Copies of Duke's By-laws are available to shareholders free of charge upon
request to Duke's Investor Relations Department. Duke retains discretion to vote
proxies on matters of which it is not properly notified.
WEEKS
VOTING RIGHTS; VOTES REQUIRED FOR APPROVAL. The Weeks Board has fixed the
close of business on May 3, 1999 as the record date for the determination of
holders of Weeks common shares entitled to notice of and to vote at the Weeks
meeting. On April 27, 1999 there were 19,754,085 Weeks common shares
outstanding, which were held by approximately 190 record holders. As of April
27, 1999, Directors and executive officers of Weeks beneficially owned an
aggregate of 799,658 Weeks common shares (excluding shares subject to options)
or approximately 4% of the outstanding Weeks common shares. Certain directors
and executive officers of Weeks and entities controlled by them have agreed to
vote all of their Weeks common shares, representing approximately 2% of Weeks'
outstanding common shares, in favor of the merger and the merger agreement and
against any competing transaction. See "The Merger and the Merger
Proposal--Voting Agreements."
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The presence, either in person or by proxy, of the holders of a majority of
the outstanding Weeks common shares is necessary to constitute a quorum at the
Weeks meeting. Assuming the existence of a quorum, the affirmative vote of the
holders of a majority of the outstanding Weeks common shares is required to
approve the merger. Holders of record of Weeks common shares on the Weeks record
date are entitled to one vote per Weeks common share at the Weeks meeting.
If a Weeks shareholder attends the Weeks meeting, he or she may vote by
ballot. However, since many shareholders may be unable to attend the Weeks
meeting, those shareholders can ensure that their shares are voted at the
meeting by signing and dating the enclosed proxy and returning it in the
envelope provided. When a proxy card is returned properly signed and dated, the
Weeks common shares represented thereby will be voted in accordance with the
instructions on the proxy card. If a Weeks shareholder does not return a signed
proxy card, their Weeks common shares will not be voted and thus will have the
effect of a vote "against" the merger and the merger agreement. Similarly, a
broker non-vote or an abstention will have the effect of a vote "against" the
merger and the merger agreement. Weeks shareholders are urged to mark the box on
the proxy card to indicate how their Weeks common shares are to be voted. If a
Weeks shareholder returns a signed proxy card, but does not indicate how their
Weeks common shares are to be voted, the Weeks common shares represented by the
proxy card will be voted "FOR" the proposal. The proxy card also confers
discretionary authority on the individuals appointed by the Weeks Board and
named on the proxy card to vote the Weeks common shares represented thereby on
any other matter that is properly presented for action at the Weeks meeting.
Such discretionary authority will not be used to vote for adjournment of the
Weeks meeting to permit further solicitation of proxies if the shareholder votes
against any proposal.
Any Weeks shareholder who executes and returns a proxy card may revoke such
proxy at any time before it is voted by:
(1) notifying in writing the Secretary of Weeks at 4497 Park Drive,
Norcross, Georgia 30093;
(2) granting a subsequent proxy; or
(3) appearing in person and voting at the Weeks meeting.
Attendance at the Weeks meeting will not in and of itself constitute
revocation of a proxy.
SOLICITATION OF PROXIES. Weeks will bear its own costs of solicitation of
proxies, except that the cost of preparing, printing and mailing this joint
proxy statement and prospectus will be borne equally by Duke and Weeks.
Brokerage houses, fiduciaries, nominees and others will, upon request, be
reimbursed for their out-of-pocket expenses in forwarding proxy materials to
owners of Weeks common shares held in their names. In addition to the
solicitation of proxies by use of the mails, proxies may be solicited from Weeks
shareholders by directors, officers and employees of Weeks in person or by
telephone, telegraph, facsimile or other appropriate means of communication. No
additional compensation, except for reimbursement of reasonable out-of-pocket
expenses, will be paid to these directors, officers and employees of Weeks in
connection with the solicitation. In addition, Innisfree M&A Incorporated, a
proxy solicitation firm, has been engaged by Weeks to act as proxy solicitor and
will receive fees estimated at $5,000, plus reimbursement of out-of-pocket
expenses. Any questions or requests for assistance regarding this joint proxy
statement and prospectus and related proxy materials may be directed to the Vice
President-Investor Relations of Weeks by telephone at (770) 717-3221.
OTHER MATTERS
Weeks is not aware of any business or matter other than the proposal to
approve the merger which may be properly presented at the Weeks meeting. If,
however, any other matter properly comes before the Weeks meeting, the proxy
holders will, in their discretion, vote thereon in accordance with their best
judgment.
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THE MERGER AND THE MERGER PROPOSAL
THE MERGER PROPOSAL
The shareholders of Duke and Weeks are being asked to approve a merger of
Weeks with and into Duke and the merger agreement between Duke and Weeks
pursuant to which the merger will occur. Approval of the merger will also
constitute approval of amendments to Duke's Article of Incorporation that will
take effect at the effective time of the merger and will change Duke's name to
Duke-Weeks Realty Corporation for a period of two years following the effective
date of the merger and increase the maximum number of common shares that Duke is
authorized to issue from 150,000,000 to 250,000,000. Approval of the merger will
also constitute approval of an additional amendment to Duke's Articles of
Incorporation that would take effect two years after the effective time of the
merger and at such time would change the combined company's name to Duke Realty
Corporation, unless the combined company's Board of Directors recommends against
changing the name. The Board of Directors of Duke and the Board of Directors of
Weeks have approved the merger of Weeks into Duke and recommend that their
shareholders vote in favor of the merger.
Pursuant to the merger agreement, at the effective time of the merger:
- Weeks will be merged with and into Duke, with Duke being the surviving
entity;
- each issued and outstanding Weeks common share will be converted into the
right to receive 1.38 Duke common shares;
- each issued and outstanding Weeks 8.0% Series A cumulative redeemable
preferred share will be converted into the right to receive one preference
share representing 1/1,000 of an 8.0% Duke Series F cumulative redeemable
preferred share having substantially identical rights and preferences;
- each issued and outstanding Weeks 8.625% Series D cumulative redeemable
preferred share will be converted into the right to receive one preference
share representing 1/1,000 of an 8.625% Duke Series H cumulative
redeemable preferred share having substantially identical rights and
preferences; and
- the surviving company will be named Duke-Weeks Realty Corporation.
Duke will issue approximately 27.3 million common shares to Weeks common
shareholders in the merger. Duke OP will issue approximately 10.1 million common
units of limited partnership interests to limited partners of Weeks OP in the OP
merger. Each Duke OP common unit will be exchangeable by the holders of the
units for one Duke common share or, if Duke elects, the cash value of one Duke
common share. The common shares that Duke will issue in the merger, plus the
common shares Duke will reserve for issuance upon exchange of the Duke OP common
units issued in the OP merger, will represent 27.7% of the outstanding
Duke-Weeks common shares which will be outstanding after the merger or
potentially issuable upon exchange of outstanding Duke-Weeks OP common units.
This information is based on the number of common shares of Duke and Weeks and
the number of common units of Duke OP and Weeks OP outstanding on March 1, 1999
and does not take into account shares issuable upon the exercise of outstanding
stock options and warrants.
The merger cannot be completed unless the majority of the outstanding common
shares of each company approve it. Your vote is very important.
DUKE'S BOARD RECOMMENDATION
The members of Duke's Board of Directors have unanimously approved and
declare advisable and recommend that the Duke shareholders vote "FOR" the merger
of Weeks with and into Duke. The
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affirmative vote of the holders of at least a majority of the outstanding Duke
common shares is required to approve the merger proposal.
WEEKS' BOARD RECOMMENDATION
The members of Weeks' Board of Directors have unanimously approved and
declare advisable and recommend that the Weeks shareholders vote "FOR" the
merger of Weeks with and into Duke. The affirmative vote of the holders of at
least a majority of the outstanding Weeks common shares is required to approve
the merger proposal.
EFFECT OF THE MERGER
As a result of the merger and without any action on the part of Weeks'
shareholders, at the effective time of the merger, each Weeks common share and
preferred share will cease to be outstanding, will be canceled and retired and
will cease to exist. Each holder of a certificate representing Weeks common
shares or Weeks preferred shares will thereafter cease to have any rights with
respect to such shares, except the right to receive the applicable merger
consideration upon the surrender of such certificate. Promptly after the
effective time of the merger, Duke will deposit with an exchange agent, a bank
or trust company, certificates representing the Duke shares to be issued in the
merger. The exchange agent will mail a letter of transmittal and instructions to
each holder of a certificate representing Weeks shares, as of the effective
time, for use in effecting the surrender of their Weeks stock certificates in
exchange for certificates representing Duke shares. See "The Merger
Agreement--Exchange of Weeks Shares."
BACKGROUND OF THE MERGER
Historically, Duke has grown through acquisitions of portfolios of
properties and small real estate companies, as well as through the development
of properties located in the Midwest. Beginning in 1998, and based on the belief
that significant consolidation was likely in the U.S. REIT industry, Duke's
management decided to explore opportunities for growth through strategic
business combinations. As an initial step in this process, Duke's management
sought to arrange meetings with the senior management of companies which Duke
considered to be part of its peer group in an effort to learn about their
management philosophies, their market positions and the quality and nature of
their assets.
Since its inception, Weeks' business objective has been to increase
shareholder value by, among other things, increasing per share cash available
for distribution. A key strategy used by Weeks to achieve this objective has
been the acquisition and development of institutional-quality industrial and
suburban office properties, including the strategic expansion into new
geographic markets through the acquisition of property portfolios. In light of
the consolidation trend developing in the REIT industry in 1997 and the
increasing difficulty publicly held REITs encountered raising funds in the
equity capital markets, beginning in late 1997, Weeks' management began
exploring additional strategic alternatives to achieve its business objectives.
As part of this process, Weeks consulted with Goldman Sachs, its historical
financial advisor, regarding Weeks' existing business plan, general industry
conditions, and possible strategic alternatives such as the acquisition of or
merger with another publicly held REIT. No specific course of action or
acquisition or merger candidates were discussed. In addition, at industry
conferences and similar events during late 1997 and early 1998, A. Ray Weeks,
Jr., Weeks' chief executive officer, met informally with the chief executive
officers of several publicly held REITs, including Thomas L. Hefner, Duke's
chief executive officer, to discuss industry trends, management philosophies and
market conditions.
At the regularly scheduled meeting of the Weeks Board on November 21, 1997,
Mr. Weeks briefly outlined the ongoing discussions between management and
Goldman Sachs, and the Weeks Board had a general discussion regarding the
relative benefits and detriments of the strategic alternatives management had
been analyzing, and the publicly held REITs that management considered to be in
Weeks' peer group of companies.
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In January 1998, Mr. Hefner and Darell E. Zink, Jr., Duke's chief financial
officer, met with Mr. Weeks, David P. Stockert, Weeks' chief financial officer,
and Thomas D. Senkbeil, Weeks' chief investment officer, in Atlanta. During the
meeting, the parties discussed the real estate industry generally and in their
particular markets and their respective operating philosophies. There were no
specific discussions regarding a combination of the two companies. There were
similar meetings between Messrs. Hefner and Weeks in February, June and July of
1998. None of these meetings included any specific discussions regarding a
combination of the two companies.
In early February 1998, Weeks' management again consulted with Goldman Sachs
regarding possible acquisition and merger candidates. At the regularly scheduled
meeting of the Weeks Board on February 13, 1998, Mr. Weeks briefed the Weeks
Board about the informal meetings between Weeks' management and the senior
management of several publicly held REITs, including the meetings with Messrs.
Hefner and Zink described above. In addition, the Weeks Board continued its
discussion concerning strategic alternatives, including the possible candidates
identified by Goldman Sachs. Following a lengthy discussion, the Weeks Board
concluded that current market conditions did not support the implementation of
any of the alternatives discussed, but recommended that management continue
analyzing Weeks' strategic alternatives in light of its business objective of
increasing shareholder value.
Between February and November 1998, members of Weeks' senior management
continued to meet informally with management of other publicly held REITs,
including Duke, and to narrow the list of possible acquisition or merger
candidates. None of these meetings involved any specific discussions or
proposals regarding a possible acquisition or business combination.
On July 23, 1998, Mr. Hefner briefed Duke's Board about the discussions that
had taken place to date with Weeks and other companies.
There were no further discussions between Duke and Weeks until September 15,
1998, when Mr. Zink had a breakfast meeting with Mr. Weeks before an industry
conference. Messrs. Zink and Weeks discussed the management personnel of each of
the companies and discussed the state of the REIT industry, which was becoming
constrained in its ability to raise capital.
On October 23, 1998, Duke's executive committee met to discuss strategic
alternatives available to Duke, including the possibility of Duke's expanding
its focus from the Midwest to new markets through a merger.
On November 17, 1998, at the annual retreat of the Weeks Board, Goldman
Sachs discussed the current REIT market environment, Weeks' market position
relative to several publicly held REITs considered to be in Weeks' peer group,
possible strategic alternatives and its recommended course of action. Among the
alternatives discussed were a strategic sale of assets, a merger with another
REIT, an acquisition of an existing REIT or continuation of Weeks' existing
strategy. After a lengthy discussion, the Weeks Board concluded that none of the
alternatives involving a sale or merger of the company or the acquisition of an
existing REIT were feasible at that time on favorable terms. Accordingly, the
Weeks Board determined that the course of action consistent with its business
objective of increasing shareholder value would be to continue executing its
existing strategy.
On November 30, 1998, Mr. Weeks was contacted by and met with the chief
executive officer of another publicly held REIT ("Company A") to discuss their
respective companies, including their properties, markets and operating
philosophies. During this meeting Mr. Weeks and Company A's chief executive
officer discussed in general terms a possible combination of the two companies,
but the discussion did not include any specific material terms of such a
combination. Following the meetings with Duke and Company B described below, Mr.
Weeks decided not to pursue further discussions with Company A.
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On December 9, 1998, Messrs. Hefner and Weeks met in Indianapolis to discuss
the personnel of their respective organizations and the prospects of a business
combination involving Duke and Weeks. Messrs. Hefner and Weeks continued these
discussions in Atlanta on January 22, 1999.
Shortly following Mr. Weeks' December 9 meeting with Mr. Hefner, Mr. Weeks
was contacted by the chief executive officer of another publicly held REIT
("Company B"), at which time the chief executive officer expressed a desire to
begin a dialogue with Weeks' management concerning a possible business
combination. During this discussion, Mr. Weeks and Company B's chief executive
officer talked briefly about a possible combination of the two companies, but
the discussion did not include any specific terms of such a combination.
Following this meeting, Mr. Weeks and Company B's chief executive officer agreed
to continue discussing a possible business combination of the two companies.
In early January 1999, Weeks' senior management met internally and with its
legal advisors to discuss Mr. Weeks' meetings and discussions with management of
Duke, Company A and Company B. Following these meetings, in a letter to each
director dated January 7, 1999, Mr. Weeks informed the Weeks Board of the
existence of these discussions and the meetings with the chief executive
officers of Duke, Company A and Company B. During the Weeks Board's regularly
scheduled conference call on January 13, 1999, Mr. Weeks described his
discussions to date with Messrs. Hefner and Zink and the chief executive
officers of Company A and Company B. Mr. Weeks reviewed management's views of
the interest Duke, Company A and Company B had in pursuing discussions
concerning a strategic merger with Weeks. The Weeks Board recommended that
Weeks' management continue to pursue these discussions with Duke and Company B
to determine if a business combination with either company was desirable, but
not to hold exclusive discussions with either Duke or any other company,
including Company B, in order to maximize the potential value to Weeks'
shareholders.
On January 15, 1999, Mr. Stockert met with the chief financial officer of
Company B to discuss systems integration, operating strategies and the
management of the two companies. On January 25 and 26, 1999, the chief executive
officer and chief financial officer of Company B met with Weeks' senior
management in Atlanta to discuss the integration of the two companies and to
visit certain of Weeks' properties in Atlanta. The parties continued these
discussions on February 7 and 8, 1999, when Messrs. Weeks, Senkbeil and Forrest
W. Robinson, Weeks' president and chief operating officer, met with Company B's
senior management and visited certain of Company B's properties.
At a meeting of Duke's Board held on January 27, 1999, Mr. Hefner briefed
the Board on the discussions he had with Mr. Weeks and the challenges and
opportunities associated with expanding Duke's focus beyond the Midwest.
On February 3, 1999, Weeks entered into a confidentiality agreement with
Duke, pursuant to which each company agreed to maintain the confidentiality of
the non-public information provided to each other in connection with each
company's due diligence and financial analysis of the other company.
On February 4, 1999, members of Weeks' senior management met with members of
Duke's executive committee at Duke's regional offices. Messrs. Zink, Stockert
and Dennis D. Oklak, Duke's chief administrative officer, met to discuss
integrating the systems of the companies and the likely accounting treatment of
a combination of the companies. During the weeks of February 8 and February 15,
representatives of Duke and Weeks visited most of the properties owned or being
developed by the two companies.
On February 5, 1999, Mr. Hefner met with Mr. Weeks and Mr. Senkbeil to
discuss management assignments for the personnel of a combined company. Mr.
Hefner continued these discussions with Mr. Weeks on February 9, 1999.
On February 10, 1999, the Weeks Board held a special meeting, which was
attended by lawyers from King & Spalding, Weeks' legal counsel. Mr. Weeks
described his discussions to date with Duke and Company B, and the potential
benefits to the Weeks' shareholders from a merger with either Duke or Company B.
The Board then discussed with legal counsel the fiduciary duties of the Weeks
Board to the
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Weeks shareholders and the mechanics and processes involved in a potential
merger transaction. Mr. Weeks then reviewed materials prepared by management and
Goldman Sachs, which included an analysis of the relative market positions
within the REIT industry of each of Weeks, Duke and Company B, an overview of
each of Duke and Company B, and a summary of a combined company following a
Weeks/ Duke and Weeks/Company B merger. Mr. Weeks also described the business,
properties and operations of Duke and Company B, including specifically the
quality of their respective properties, their market capitalization, their cost
of capital and their management. The Weeks Board further discussed generally the
perceived benefit to Weeks and its shareholders of a merger with Duke and a
merger with Company B. Based upon the information provided to the Weeks Board
and their discussions with management regarding the potential transactions, the
Weeks Board determined that Weeks should evaluate further a potential business
combination with Duke and authorized Weeks' senior management to continue the
discussions with Duke regarding a possible transaction. The Weeks Board also
authorized management to retain Goldman Sachs to act as Weeks' financial advisor
in connection with its evaluation of a potential business combination with Duke.
No formal action was taken at the meeting with respect to the merger.
At a meeting of Duke's Board on February 11, 1999, Mr. Hefner briefed the
Board on the discussions held to date with Weeks. At this meeting, the Duke
Board authorized management to retain legal and financial advisors to assist
management in evaluating a transaction between Duke and Weeks. Duke engaged
Merrill Lynch Pierce, Fenner & Smith Incorporated to act as its financial
advisor and Rogers & Wells LLP as its legal advisor in connection with its
evaluation of a potential business combination with Weeks.
On February 15, 1999, representatives of Duke and Weeks met in New York at
the offices of Duke's legal counsel. Mr. Zink, Mr. Oklak and James R.
Windmiller, Duke's Vice President--Taxation, were present from Duke. Mr. Weeks,
Mr. Stockert and Elizabeth C. Belden, Weeks' general counsel, were present from
Weeks. Representatives from Duke's and Weeks' outside legal counsel and
financial advisors were also present. At this meeting, Weeks' representatives
reviewed Weeks' property portfolio and described Weeks' joint venture
arrangements. The parties discussed a schedule for completing legal and
financial due diligence of the companies and also discussed potential legal
structures for a combination of the two companies. Messrs. Zink and Weeks had a
further meeting on the evening of February 15, 1999 at which they discussed the
strategic vision of the combined company and how to integrate effectively the
operations of the companies.
A data room containing Weeks due diligence material was established at the
offices of Weeks' legal counsel. Representatives of Duke and its legal counsel
visited the data room during the week of February 15. A similar data room
containing Duke due diligence material was established near Duke's headquarters
in Indianapolis. Weeks and its legal counsel visited the data room during the
week of February 15. There were also numerous telephone conversations during
that week between the legal advisors for the two companies regarding due
diligence and legal structure, as well as conversations between the companies'
financial advisors regarding financial diligence and financial analyses of the
companies.
On February 18, 1999, drafts of a merger agreement and related documents
were sent by Duke's counsel to Duke and Weeks and their respective legal and
financial advisors. On February 19, 1999, representatives of Merrill Lynch and
Goldman Sachs conducted due diligence meetings with the management of Duke and
Weeks in Indianapolis and Atlanta.
On February 22, 1999, Messrs. Zink and Oklak and representatives of Duke's
legal counsel met in New York with Mr. Stockert, Ms. Belden and representatives
of Weeks' legal counsel to discuss the draft merger agreement and due diligence
issues that had arisen during the course of the parties' due diligence reviews.
During the week of February 22, Duke and Weeks, in consultation with their
legal and financial advisors, reviewed and commented on the merger agreement and
finalized the terms of the merger. The
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principal issues discussed during these negotiations were the exchange ratio,
covenants of Duke and Weeks with regard to the conduct of their business during
the period between signing the merger agreement and closing the merger, the
appropriate amounts of the termination fees and expenses and the circumstances
under which they should be payable, the conditions under which a breach by
either party of a representation or warranty would give the non-breaching party
the right to terminate the merger agreement, the terms of Weeks' existing change
of control agreements, the scope of the amendments which would be made to the
operating partnership agreement of Duke OP and the effect of the merger on
Weeks' outstanding stock options.
On February 23, 1999, Duke's Board held a special telephonic meeting in
which Duke's financial and legal advisors also participated. The Duke Board was
informed of the status of negotiations with regard to the exchange ratio and the
merger. At the conclusion of the meeting, the Board gave direction and authority
to management regarding the terms of the merger and the approach management
should take in its negotiations. Later that evening, the parties agreed upon a
fixed exchange ratio of 1.38 Duke common shares for one common share of Weeks
and agreed that there would be no adjustment to the exchange ratio for
fluctuations in the trading prices of Duke or Weeks common shares.
The Weeks Board held a special telephonic meeting on February 24, 1999, in
which Weeks' financial and legal advisors participated. During the meeting the
Weeks Board discussed with management and Weeks' financial and legal advisors
the status of negotiations with respect to a business combination with Duke,
including the exchange ratio of 1.38 Duke common shares for one common share of
Weeks and the composition of senior management and the board of directors of the
combined company. The Weeks Board authorized management to proceed with the
negotiation of the terms of the merger agreement and related documents on these
terms.
On the morning of February 28, 1999, a special meeting of the Weeks Board
was held at which members of management and representatives of Weeks' financial
and legal advisors were present. Mr. Weeks made a presentation to the Weeks
Board regarding the background and events leading up to the meeting with respect
to the proposed merger with Duke. Mr. Weeks then set forth the reasons he
believed a strategic merger with Duke would be beneficial to Weeks and its
shareholders, which reasons are described under the heading "Reasons for the
Merger--Recommendation of the Weeks Board" below. Legal counsel then described
for the Weeks Board the due diligence investigation of Duke that had been
conducted in connection with the proposed merger. Representatives of Goldman
Sachs then made a presentation regarding the proposed merger with Duke. A
summary of this presentation is described below under the heading "--Opinion of
Weeks' Financial Advisor." Goldman Sachs delivered to the Weeks Board its
opinion that as of that date, the exchange ratio pursuant to the merger
agreement was fair from a financial point of view to the holders of the
outstanding Weeks common shares. Weeks' legal counsel then made a presentation
to the Weeks Board in which it explained the material terms of the proposed
merger agreement, including closing conditions, termination rights and related
fees and expense reimbursement provisions, briefed the Weeks Board on certain
legal issues raised by the proposed merger and advised the Weeks Board of its
fiduciary duties in connection with the transaction. Following such
presentations, and after extensive discussion of the advantages and potential
risks of the proposed merger as described under the heading "Reasons for the
Merger--Recommendation of the Weeks Board" below, the Weeks Board unanimously
approved the merger, the merger agreement and the transactions contemplated
thereby.
Also on February 28, 1999, the Duke Board held a meeting to approve the
merger agreement and the merger. Representatives of Merrill Lynch delivered
their written opinion that as of that date, the exchange ratio in the merger
agreement was fair, from a financial point of view, to Duke. Representatives of
Duke's legal counsel discussed with the Board, among other things, their
fiduciary duties and the terms of the merger. Duke's Board of Directors reviewed
and discussed the information presented by management and Duke's legal and
financial advisors, together with the opinion delivered by Merrill Lynch. At the
conclusion of the discussion, Duke's Board of Directors unanimously approved the
merger and the merger agreement.
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REASONS FOR THE MERGER; RECOMMENDATION OF THE DUKE BOARD
Duke's Board of Directors unanimously approved the merger and the merger
agreement at a meeting held on February 28, 1999. The Duke Board believes that
the terms of the merger, the merger agreement and the other transactions
contemplated thereby are advisable and in the best interests of Duke and its
shareholders. Accordingly, the Duke Board recommends that its shareholders
approve the merger, the merger agreement and the transactions contemplated
thereby.
In considering the recommendation of the Duke Board with respect to the
merger, Duke shareholders should be aware that if the additional charter
amendment to the Duke Articles of Incorporation to increase the size of the Duke
Board is approved, 11 of the 12 members of the Duke Board will become directors
of Duke-Weeks following consummation of the merger. If this amendment is not
approved, but the merger is approved by the requisite vote of the Duke
shareholders, then up to eight members of Duke's Board will become directors of
Duke-Weeks following consummation of the merger. Therefore, Duke's directors
have interests in the merger that are different than, or in addition to, the
interests of the shareholders of Duke generally.
In its deliberations with respect to the merger and the merger agreement,
the Duke Board consulted with Duke's management and the financial and legal
advisors to Duke. The factors considered by the Duke Board include those
enumerated below. While all of these factors were considered by the Duke Board,
the Board did not make determinations with respect to each factor. Rather, the
Board made its judgment with respect to the merger and the merger agreement
based on the total mix of information available to it, and the judgments of
individual directors may have been influenced to a greater or lesser degree by
their individual views with respect to different factors.
POSITIVE FACTORS CONSIDERED BY THE DUKE BOARD
In making its determination with respect to the merger, the Duke Board
considered the following material positive factors:
- The merger will combine the assets of Weeks and Duke, strengthening one of
the largest real estate investment trusts in the Midwest and expanding
Duke into desirable new markets in the southeast United States and Texas.
Duke-Weeks is expected to have a pro forma total market capitalization of
approximately $5.2 billion, based on the closing price of Duke's common
shares on February 26, 1999 (the last full trading day before the merger
was publicly announced) and the outstanding principal amount of
indebtedness of the two companies on December 31, 1998.
- The Duke Board believes that the combined company resulting from the
merger will have a strong balance sheet. The pro forma ratio of total
long-term debt to total long-term undepreciated book capitalization of the
combined company as of December 31, 1998 is approximately 57%. In
addition, the Duke Board believes that the merger will result in improved
liquidity for Duke shareholders as a result of the increased total equity
capitalization of the combined company and an increased trading volume of
the securities of the combined company.
- The merger will give Duke market presence and new platforms for growth in
key markets. Weeks' assets are located in growth-oriented markets in the
southeast United States and Texas. After the merger, the combined company
will own assets totaling in excess of 30 million square feet in these key
Sunbelt markets.
- Duke management believes that the operating philosophies and systems of
Duke and Weeks are sufficiently similar that the operations of the two
companies can be combined without significant costs or disruption to
operations.
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<PAGE>
- The opinion of Merrill Lynch described below to the effect that, as of the
date of such opinion, and based upon and subject to the matters stated in
such opinion, the exchange ratio of 1.38 Duke common shares for each Weeks
common share is fair, from a financial point of view, to Duke.
NEGATIVE FACTORS CONSIDERED BY THE DUKE BOARD
The Duke Board also considered the matters described above under "Risk
Factors" as well as the following potentially negative factors in its
deliberations concerning the merger.
- Because the exchange ratio of Duke common shares for Weeks common shares
is fixed at 1.38, the common shares that Duke will be required to issue in
the merger may have a greater value than the value contemplated at the
time the merger was signed because of an increase in the market price of
Duke common shares.
- Duke shareholders will not maintain their current percentage ownership of
Duke in the combined company.
In view of the wide variety of factors considered by the Duke Board, the
Duke Board did not quantify or otherwise attempt to assign relative weights to
the specific factors considered in making its determination. However, in the
view of the Duke Board, the potentially negative factors considered by it were
not sufficient, either individually or collectively, to outweigh the positive
factors considered by it in its deliberations relating to the merger.
OPINION OF DUKE'S FINANCIAL ADVISOR
Merrill Lynch has acted as the financial advisor to the Duke Board in
evaluating the merger between Duke and Weeks. On February 28, 1999, Merrill
Lynch delivered its written opinion (the "Merrill Lynch Opinion") to the Duke
Board stating that, as of February 28, 1999, based upon and subject to the
assumptions made, matters considered and limits of review set forth therein, the
exchange ratio of 1.38 Duke common shares for each Weeks common share was fair,
from a financial point of view, to Duke.
THE FULL TEXT OF THE MERRILL LYNCH OPINION, WHICH SETS FORTH ASSUMPTIONS
MADE, MATTERS CONSIDERED AND LIMITS OF REVIEW UNDERTAKEN, IS ATTACHED TO THIS
JOINT PROXY STATEMENT AND PROSPECTUS AS ANNEX B. DUKE SHAREHOLDERS ARE URGED TO
READ THE OPINION IN ITS ENTIRETY. THE DESCRIPTION OF THE MERRILL LYNCH OPINION
SET FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF
THE MERRILL LYNCH OPINION. THE MERRILL LYNCH OPINION IS ADDRESSED TO THE DUKE
BOARD AND ADDRESSES ONLY THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, TO DUKE
OF THE EXCHANGE RATIO, DOES NOT ADDRESS THE MERITS OF THE UNDERLYING DECISION BY
DUKE TO ENGAGE IN THE TRANSACTION AND DOES NOT CONSTITUTE, NOR SHOULD IT BE
CONSTRUED AS, A RECOMMENDATION TO ANY SHAREHOLDER AS TO HOW SUCH SHAREHOLDER
SHOULD VOTE AT THE DUKE ANNUAL MEETING. THE MERRILL LYNCH OPINION DOES NOT
CONSTITUTE AN OPINION OR IMPLY ANY CONCLUSION OF MERRILL LYNCH AS TO THE LIKELY
TRADING RANGE FOR THE DUKE COMMON SHARES, THE DUKE PREFERRED SHARES, THE WEEKS
COMMON SHARES OR THE WEEKS PREFERRED SHARES FOLLOWING THE ANNOUNCEMENT OR
CONSUMMATION OF THE MERGER. THE EXCHANGE RATIO WAS DETERMINED AS A RESULT OF
NEGOTIATIONS BETWEEN DUKE AND WEEKS AND WAS APPROVED BY THE DUKE BOARD.
In connection with the preparation of the Merrill Lynch Opinion, Merrill
Lynch, among other things:
- reviewed certain publicly available business and financial information
relating to Duke and Weeks which Merrill Lynch deemed to be relevant;
- reviewed certain information, including financial forecasts, relating to
the business, earnings, funds from operations, adjusted funds from
operations, cash flow, assets, liabilities and prospects of Duke and Weeks
furnished to Merrill Lynch by Duke and Weeks, as well as the amount and
timing of the savings and related synergies expected to result from the
merger (the "Expected Synergies") furnished to Merrill Lynch by Duke and
Weeks;
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<PAGE>
- conducted discussions with members of management of Duke and Weeks
concerning the matters described in the two clauses above, as well as
their respective businesses and prospects before and after giving effect
to the merger and the Expected Synergies;
- reviewed the market prices and valuation multiples for the Duke common
shares and the Weeks common shares and compared them with those of certain
publicly traded companies that Merrill Lynch deemed relevant;
- reviewed the results of operations of Duke and Weeks and compared them
with those of certain publicly traded companies that Merrill Lynch deemed
to be relevant;
- compared the proposed financial terms of the merger with the financial
terms of certain other transactions which Merrill Lynch deemed to be
relevant;
- participated in certain discussions and negotiations among representatives
of Duke and Weeks and their financial and legal advisors;
- reviewed the potential pro forma impact of the merger on Duke;
- reviewed a draft of the merger agreement, and assumed that the final form
would not differ in any respect that is material to the Merrill Lynch
Opinion; and
- reviewed such other financial studies and analyses and took into account
such other matters as Merrill Lynch deemed necessary, including its
assessment of general economic, real estate, market and monetary
conditions.
In preparing the Merrill Lynch Opinion, Merrill Lynch assumed and relied
upon, without assuming any responsibility for verification, the accuracy and
completeness of all information supplied or otherwise made available to Merrill
Lynch, discussed with or reviewed by or for Merrill Lynch, or publicly
available. With respect to the financial forecast information and the Expected
Synergies furnished to or discussed with Merrill Lynch by Duke or Weeks, Merrill
Lynch assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgment of Duke's or Weeks' management
as to the expected future financial performance of Duke or Weeks, as the case
may be, and the Expected Synergies. Merrill Lynch expressed no view as to such
projections or information or the assumptions on which they are based. Merrill
Lynch did not assume any responsibility for making or obtaining any independent
evaluation or appraisal of any of the assets or liabilities of Duke or Weeks.
Merrill Lynch further assumed that the merger will qualify as a tax-free
reorganization for United States federal and any applicable state income tax
purposes. Merrill Lynch also assumed that the merger will not change the real
estate investment trust status of the pro forma entity for federal income tax
purposes.
For purposes of rendering the Merrill Lynch Opinion, Merrill Lynch assumed
in all respects material to its analysis that the representations and warranties
of each party contained in the merger agreement were true and correct, that each
party would perform all of the covenants and agreements required to be performed
by it under the merger agreement, and that all conditions to the consummation of
the merger would be satisfied without waiver thereof. Merrill Lynch assumed that
in the course of obtaining the necessary regulatory or other consents or
approvals (contractual or otherwise) for the merger, no restrictions, including
any divestiture requirements, or amendments or modifications, will be imposed
that will have an adverse effect on the contemplated benefits of the merger. The
Merrill Lynch Opinion is necessarily based upon market, real estate, economic
and other conditions as they exist and can be evaluated on, and on the
information made available to Merrill Lynch as of, February 26, 1999. Merrill
Lynch assumed no responsibility to update or revise the Merrill Lynch Opinion
based upon circumstances or events occurring after February 26, 1999.
The following is a summary of the material financial and comparative
analyses performed by Merrill Lynch in arriving at the Merrill Lynch Opinion.
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<PAGE>
THE SUMMARY OF FINANCIAL ANALYSES INCLUDE INFORMATION PRESENTED IN TABULAR
FORMAT. YOU SHOULD READ THESE TABLES TOGETHER WITH THE TEXT OF EACH SUMMARY.
VALUATION OF WEEKS.
HISTORICAL TRADING PERFORMANCE AND CURRENT CAPITALIZATION. Merrill Lynch
reviewed certain trading information for Weeks and, on the basis thereof,
calculated its market value, market capitalization and trading multiples based
on its stock price as of February 24, 1999 of $26.75. For this purpose, Merrill
Lynch defined "total market capitalization" as the market value of Weeks' common
equity (including operating partnership units as if converted into common
equity), plus preferred shares at liquidation value as of December 31, 1998,
plus total debt as of December 31, 1998. Merrill Lynch then calculated the
market value of Weeks as a multiple of projected Funds from Operations ("FFO")
and FFO less recurring capital expenditures ("AFFO") provided by Weeks'
management. Weeks' projected FFO multiples for 1999 and 2000 were 8.9x and 8.1x,
respectively, and the projected AFFO multiples for 1999 and 2000 were 9.9x and
9.1x, respectively.
Merrill Lynch reviewed Duke's offer for Weeks and, on the basis thereof and
using publicly available share price information for the Duke common shares as
of February 24, 1999, calculated an aggregate net offer value (the "Net Offer
Value") of $819.4 million. Based upon Weeks' actual preferred shares, debt and
cash balances as of December 31, 1998, Merrill Lynch also calculated an
aggregate transaction value (the "Transaction Value") of $1,719.0 million, which
consisted of the Net Offer Value, plus Weeks' preferred shares at their
liquidation value of $250.0 million and Weeks' debt of $651.2 million, less
Weeks' cash balance of $1.5 million. Merrill Lynch also calculated Net Offer
Value transaction multiples based on projections provided by Weeks' management
of its projected FFO and AFFO of 10.0x and 11.2x, respectively, for 1999 and
9.2x and 10.3x, respectively, for 2000.
ANALYSIS OF SELECTED COMPARABLE PUBLICLY TRADED COMPANIES. Using publicly
available information and estimates of future financial results published by
First Call, an industry service provider of earnings estimates based on an
average of earnings estimates published by various investment banking firms
("First Call"), and taken from Merrill Lynch Equity Research, Merrill Lynch
compared certain financial and operating information and ratios for Weeks with
the corresponding financial and operating information for a group of publicly
traded companies engaged primarily in the ownership, management, operation and
acquisition of industrial and office properties which Merrill Lynch deemed to be
reasonably comparable to Weeks. For the purpose of its analyses, the following
companies were used as comparable companies to Weeks: AMB Property Corporation,
Cabot Industrial Trust, CenterPoint Properties Trust, First Industrial Realty
Trust, Inc., Liberty Property Trust and ProLogis Trust (collectively, the "Weeks
Comparable Companies").
Merrill Lynch's calculations resulted in the following relevant ranges for
the Weeks Comparable Companies and for Weeks as of February 24, 1999:
<TABLE>
<CAPTION>
TRADING VALUATION MULTIPLES
------------------------------------------
<S> <C> <C> <C> <C>
WEEKS COMPARABLE COMPANIES
-------------------------------
LOW MEAN HIGH WEEKS
--------- --------- --------- ---------
Projected 1999 FFO............................. 8.0x 9.5x 11.0x 8.9x
Projected 2000 FFO............................. 7.5x 8.7x 9.9x 8.1x
Projected 1999 AFFO............................ 9.3x 10.5x 11.8x 9.9x
Projected 2000 AFFO............................ 8.6x 9.7x 10.8x 9.1x
<CAPTION>
LOW MEAN HIGH WEEKS
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Debt to total market capitalization............ 20.8% 33.5% 42.4% 40.1%
Market Value to estimated net asset value...... 91.0% 105.0% 125.0% 93.0%
</TABLE>
37
<PAGE>
Based on projected 2000 FFO multiples, this analysis results in a per share
valuation of between $24.75 and $32.67.
None of the Weeks Comparable Companies is identical to Weeks. Accordingly, a
complete analysis of the results of the foregoing calculations cannot be limited
to a quantitative review of such results and involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the Weeks Comparable Companies and other factors that could affect the public
trading of the Weeks Comparable Companies, as well as that of Weeks. In
addition, the multiples of market value to projected 1999 and 2000 FFO and AFFO
for the Weeks Comparable Companies are based on projections prepared by research
analysts using only publicly available information. Accordingly, such estimates
may or may not prove to be accurate.
COMPARABLE TRANSACTIONS ANALYSIS. Merrill Lynch also compared certain
financial ratios of the merger with those of other selected mergers and
strategic transactions involving real estate investment trusts which Merrill
Lynch deemed to be relevant. These transactions were ProLogis Trust's pending
merger with Meridian Industrial Trust, Inc., Reckson Associates Realty
Corp./Crescent Real Estate Equities Company's pending merger with Tower Realty
Trust, Inc., Equity Office Properties Trust's merger with Beacon Properties
Corporation and Highwoods Properties, Inc.'s merger with Crocker Realty Trust,
Inc.
Using publicly available information and estimates of financial results as
published by First Call, Merrill Lynch calculated the premium of the implied
offer value per share relative to the acquired company's stock price on the day
before the announcement of the respective transaction, and as a multiple of the
projected forward year FFO for the transaction. This analysis resulted in the
following relevant ranges for the transactions found by Merrill Lynch to be
comparable to the merger:
<TABLE>
<CAPTION>
LOW MEAN HIGH
--------- ----- ---------
<S> <C> <C> <C>
Premium to market..................................... 7.3% 18.1% 28.3%
Multiple of projected FFO............................. 10.3x 12.8x 15.5x
</TABLE>
This analysis results in a per share valuation of between $31.11 and $33.52.
DISCOUNTED CASH FLOW ANALYSIS--DISCOUNTED DIVIDEND METHOD. Merrill Lynch
performed a discounted cash flow analysis (I.E., an analysis of the present
value calculated as of December 31, 1998 of the projected levered cash flows for
the periods using the discount rates indicated) of Weeks based upon projections
provided by Weeks' management for the years 1999 through 2003, inclusive, using
discount rates reflecting an equity cost of capital ranging from 13.0% to 17.0%
and terminal value multiples for 2003 FFO ranging from 9.5x to 10.5x. Based upon
Weeks' projections for the years 1999 through 2003, the range of present values
per Weeks common share was $27.08 to $34.07.
NET ASSET VALUATION ANALYSIS. Merrill Lynch performed a net asset valuation
for Weeks based on an asset-by-asset real estate valuation of Weeks' properties,
an estimation of the current value for Weeks' other assets and liabilities, and
Weeks' debt balances as of December 31, 1998. The real estate valuation utilized
property specific projections prepared by Weeks' management for 1999. For the
operating portfolio of Weeks, the valuation utilized the direct capitalization
method on projected 1999 property net operating income and capitalization rates
of 9.0% and 10.0%. These calculations indicated a per share net asset valuation
range for Weeks of $26.64 to $32.22.
VALUATION OF DUKE.
HISTORICAL TRADING PERFORMANCE AND CURRENT CAPITALIZATION. Merrill Lynch
reviewed certain trading information for Duke and, on the basis thereof,
calculated its market value, market capitalization and trading multiples based
on its stock price as of February 24, 1999 of $22.00. For this purpose, Merrill
Lynch
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<PAGE>
defined "total market capitalization" as market value of Duke's common equity
(including operating partnership units as if converted into common equity), plus
preferred shares at liquidation value as of December 31, 1998, plus total debt
as of December 31, 1998. Merrill Lynch then calculated the market value of Duke
as a multiple of projected FFO and AFFO provided by Duke's management. Duke's
projected FFO multiples for 1999 and 2000 were 10.6x and 9.5x, respectively, and
the projected AFFO multiples for 1999 and 2000 were 12.7x and 10.5x,
respectively.
ANALYSIS OF SELECTED COMPARABLE PUBLICLY TRADED COMPANIES. Using publicly
available information and estimates of future financial results published by
First Call and taken from Merrill Lynch Equity Research, Merrill Lynch compared
certain financial and operating information and ratios for Duke with the
corresponding financial and operating information for a group of publicly traded
companies engaged primarily in the ownership, management, operation and
acquisition of industrial and office properties which Merrill Lynch deemed to be
reasonably comparable to Duke. For the purpose of its analyses, the following
companies were used as comparable companies to Duke: Spieker Properties, Inc.,
CenterPoint Properties Trust, ProLogis Trust, AMB Property Corporation, Liberty
Property Trust and First Industrial Realty Trust, Inc. (collectively, the "Duke
Comparable Companies").
Merrill Lynch's calculations resulted in the following relevant ranges for
the Duke Comparable Companies and for Duke as of February 24, 1999:
<TABLE>
<CAPTION>
TRADING VALUATION MULTIPLES
------------------------------------------
DUKE COMPARABLE COMPANIES
-------------------------------
LOW MEAN HIGH DUKE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Projected 1999 FFO............................... 8.0x 9.7x 11.0x 10.6x
Projected 2000 FFO............................... 7.5x 8.9x 10.0x 9.5x
Projected 1999 AFFO.............................. 9.3x 11.1x 12.3x 12.7x
Projected 2000 AFFO.............................. 8.6x 10.2x 11.1x 10.5x
<CAPTION>
LOW MEAN HIGH DUKE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Debt to total market capitalization.............. 30.0% 36.1% 42.4% 25.6%
Market Value to estimated net asset value........ 91.0% 105.0% 125.0% 102.0%
</TABLE>
Based on projected 2000 FFO multiples, this analysis results in a per share
valuation of between $17.33 and $23.10.
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<PAGE>
None of the Duke Comparable Companies is, of course, identical to Duke.
Accordingly, a complete analysis of the results of the foregoing calculations
cannot be limited to a quantitative review of such results and involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the Duke Comparable Companies, and other factors that could
affect the public trading of the Duke Comparable Companies, as well as that of
Duke. In addition, the multiples of market value to projected 1999 and 2000 FFO
and AFFO for the Duke Comparable Companies are based on projections prepared by
research analysts using only publicly available information. Accordingly, such
estimates may or may not prove to be accurate.
DISCOUNTED CASH FLOW ANALYSIS--DISCOUNTED DIVIDEND METHOD. Merrill Lynch
performed a discounted cash flow analysis (I.E., analysis of the present value
of the projected levered cash flows for the periods using the discount rates
indicated) of Duke based upon projections provided by Duke's management for the
years 1999 through 2003, inclusive, using discount rates reflecting an equity
cost of capital ranging from 13.0% to 17.0% and terminal value multiples for
2003 FFO ranging from 10.3x to 11.3x. Based upon Duke's projections for the
years 1999 through 2003, the range of present values per Duke common share was
$19.70 to $24.62.
NET ASSET VALUATION ANALYSIS. Merrill Lynch also performed a net asset
valuation for Duke based on an asset-by-asset real estate valuation of Duke's
properties, an estimation of the current values for Duke's other assets and
liabilities, and an estimation of Duke's debt balances as of December 31, 1998.
The real estate valuation utilized property specific projections prepared by
Duke's management for 1999. For the operating portfolio of Duke, the valuation
utilized the direct capitalization method on projected 1999 property net
operating income and a range of capitalization rates of 8.8% to 10.5%. These
calculations indicated a per share net asset valuation range for Duke of $19.66
to $23.05.
PRO FORMA MERGER CONSEQUENCES.
IMPLIED EXCHANGE RATIO ANALYSIS--COMPARATIVE VALUATIONS. Merrill Lynch
utilized the results of three valuation methodologies: public comparables
analysis; discounted cash flow analysis--discounted dividend method; and net
asset value analysis, in order to calculate a range of implied exchange ratios
for each method, as compared to the 1.38x exchange ratio in the merger. This
analysis yielded the following ranges:
<TABLE>
<CAPTION>
IMPLIED EXCHANGE RATIOS
-------------------------------
LOW MEAN HIGH
--------- --------- ---------
<S> <C> <C> <C>
Public Comparables............................................... 1.400x 1.414x 1.428x
Discounted Cash Flow Analysis--Discounted Dividend Method........ 1.375x 1.379x 1.384x
Net Asset Value.................................................. 1.355x 1.378x 1.400x
</TABLE>
PRO FORMA COMBINATION ANALYSIS. Merrill Lynch analyzed the pro forma
effects resulting from the merger, including the potential impact on Duke's
projected stand-alone FFO per share and the anticipated accretion (I.E., the
incremental increase) to Duke's FFO per share resulting from the merger. Merrill
Lynch observed that, after giving effect to the Expected Synergies, the merger
would be accretive to Duke's projected FFO per share in each of the years 1999
through 2003, inclusive.
Merrill Lynch also observed that the projected annual dividend per Duke
common share pro forma for the merger were $1.43, $1.60, $1.77, $1.94 and $2.06
per Duke common share in 1999, 2000, 2001, 2002 and 2003, implying no reduction
in Duke's current indicated dividend rate.
PRO FORMA CONTRIBUTION ANALYSIS. Weeks' current shareholders will have an
aggregate ownership interest in Duke of approximately 25.9% (on a fully diluted
basis, assuming the conversion of all OP units and convertible preferred shares)
after the completion of the merger. On a pro forma basis, after giving
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<PAGE>
effect to the merger and the Expected Synergies and assuming the accuracy of the
estimates provided by the management of Duke and Weeks, the following will be
contributed to the combined operations of Duke-Weeks:
<TABLE>
<CAPTION>
1998(%) 1999(EST.)(%) 2000(EST.)(%)
--------------------------------------- --------------------------------------- -----------
EXPECTED EXPECTED
WEEKS DUKE SYNERGIES WEEKS DUKE SYNERGIES WEEKS
----------- ----- ------------- ----------- ----- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
EBITDA (equity adjusted)........... 27.5 72.5 -- 27.1 72.8 0.2 25.3
FFO................................ 31.3 68.7 -- 26.8 73.0 0.1 25.6
AFFO............................... 31.5 68.5 -- 28.2 71.6 0.2 25.4
<CAPTION>
2001(EST.)(%)
---------------------------------------
EXPECTED EXPECTED
DUKE SYNERGIES WEEKS DUKE SYNERGIES
----- ------------- ----------- ----- -------------
<S> <C> <C> <C> <C> <C>
EBITDA (equity adjusted)........... 74.1 0.7 25.4 73.8 0.8
FFO................................ 73.7 0.7 24.9 74.3 0.8
AFFO............................... 73.9 0.7 24.0 75.1 0.9
</TABLE>
On the basis of this analysis, Weeks' contribution to the combined
operations with respect to pro forma EBITDA, FFO and AFFO are greater for 1998
and 1999 on a percentage basis than the aggregate ownership interest that Weeks
shareholders would receive in Duke pursuant to the merger.
The summary set forth above does not purport to be a complete description of
the analyses performed by Merrill Lynch in arriving at the Merrill Lynch
Opinion. The preparation of a fairness opinion is a complex process and not
necessarily susceptible to partial or summary description. Merrill Lynch
believes that its analyses must be considered as a whole and that selecting
portions of its analyses and of the factors considered by it, without
considering all factors and analyses, could create a misleading view of the
process underlying the Merrill Lynch Opinion. The process of preparing a
fairness opinion necessarily requires a broad range of subjective judgment with
respect to appropriate comparable companies and transactions, appropriate
multiples of various selected financial data, appropriate discount rates and
other financial and other facts. Accordingly, any analysis is not mathematical;
rather it involves complex considerations and judgments. In its analyses,
Merrill Lynch made numerous assumptions with respect to industry performance,
general business and economic conditions and other matters, many of which are
beyond Duke's, Weeks', and Merrill Lynch's control. Any estimates contained in
Merrill Lynch's analyses are not necessarily indicative of actual values, which
may be significantly more or less favorable than as set forth therein. Estimated
values do not purport to be appraisals and do not necessarily reflect the prices
at which businesses or companies may be sold in the future, and such estimates
are inherently subject to uncertainty.
The Duke Board selected Merrill Lynch to render a fairness opinion because
Merrill Lynch is an internationally recognized investment banking firm with
substantial experience in transactions similar to the merger and because it is
familiar with Duke and its business. Merrill Lynch is continually engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, leveraged buyouts, negotiated underwritings, secondary
distributions of listed and unlisted securities and private placements.
Pursuant to a letter agreement dated February 24, 1999, Duke agreed to pay
Merrill Lynch a fee equal to 0.35% of the purchase price (as defined in the
letter agreement) upon consummation of the merger. Duke also agreed to reimburse
Merrill Lynch for its reasonable out-of-pocket expenses incurred in connection
with its advisory work, including the reasonable fees and disbursements of its
legal counsel, subject to certain limitations, and to indemnify Merrill Lynch
and certain related persons against certain liabilities arising out of or in
conjunction with its rendering of services under such letter agreement,
including certain liabilities under the federal securities law.
Merrill Lynch has, in the past, provided financial advisory and financing
services to Duke and may continue to do so and has received, and may receive,
fees for the rendering of such services. In the ordinary course of its business,
Merrill Lynch may actively trade in the securities of Duke for its own account
and for the accounts of its customers and, accordingly, may at any time hold a
long or short position in such securities.
REASONS FOR THE MERGER; RECOMMENDATION OF THE WEEKS BOARD
The Weeks Board of Directors unanimously approved the merger and the merger
agreement at a meeting held on February 28, 1999. The Weeks Board believes that
the terms of the merger, the merger agreement and
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<PAGE>
the other transactions contemplated thereby are advisable and in the best
interests of Weeks and its shareholders. Accordingly, the Weeks Board recommends
that its shareholders approve the merger, the merger agreement and the
transactions contemplated thereby.
In considering the recommendation of the Weeks Board with respect to the
merger, Weeks' shareholders should be aware that if the additional charter
amendment to the Duke Articles of Incorporation increasing the size of the Duke
Board is approved, ten of the 11 members of the Weeks Board will become
directors of Duke-Weeks following consummation of the merger. If this amendment
is not approved, but the merger is approved by the requisite vote of the Duke
shareholders, then up to seven members of the Weeks Board will become directors
of Duke-Weeks following consummation of the merger. Also, Weeks directors who
become Duke-Weeks directors will be eligible to receive stock grants and stock
options under certain Duke plans. Therefore, the Weeks directors have interests
in the merger that are different than, or in addition to, the interests of the
shareholders of Weeks generally.
In its deliberations with respect to the merger and the merger agreement,
the Weeks Board consulted with Weeks' management and the financial and legal
advisors to Weeks. The factors considered by the Weeks Board include those
enumerated below. While all of these factors were considered by the Weeks Board,
the Board did not make determinations with respect to each such factor. Rather,
the Board made its judgment with respect to the merger and the merger agreement
based on the total mix of information available to it, and the judgments of
individual directors may have been influenced to a greater or lesser degree by
their individual views with respect to different factors.
POSITIVE FACTORS CONSIDERED BY THE WEEKS BOARD
In making its determination with respect to the merger, the Weeks Board
considered the following material positive factors:
- Each Weeks common share will be exchanged for 1.38 Duke common shares.
Consequently, based on the closing price of Duke common shares on February
26, 1999 (the last full trading day before the merger was publicly
announced), each Weeks common share would be exchanged for Duke common
shares in the merger having a value of approximately $30.10 (based on the
February 26, 1999 closing price of Duke common shares of $21.81),
representing an 11.47% premium over the closing price of $27.00 for Weeks
common shares on February 26, 1998.
- The geographic diversification and increased tenant base of the combined
company will reduce the dependence on any single market or region or on
any single tenant. Recessions often affect economies of different regions
and different industries at different times. With a substantial number of
properties in both the southeastern and midwestern United States and with
approximately 5,000 tenants, there should be a reduction in the risk that
a regional economic downturn could affect a large number of the combined
company's properties simultaneously. The Weeks Board believes the
geographic diversification and larger tenant base resulting from the
merger may smooth the combined company's performance through these
economic cycles.
- Based on the closing price of Duke's common shares on February 26, 1999,
Duke-Weeks would have a total market capitalization of approximately $5.2
billion. By virtue of its larger size, the Weeks Board believes that
Duke-Weeks also will have improved access to capital markets, which should
make additional debt or other financing available upon more attractive
terms. The Weeks Board also viewed as favorable its belief, based in part
on discussions with financial advisors, that the increased market
capitalization would provide Weeks shareholders with enhanced liquidity
following consummation of the merger.
- The Weeks Board viewed as favorable the fact that the merger will be
consummated on a tax-free basis.
- The Weeks Board believes Duke and Weeks have complementary product focus
and operating strategies, which should result in a more effective
integration of the two companies.
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<PAGE>
- The Weeks Board believes the merger may generate additional efficiencies
through economies of scale and anticipated reductions in expense.
- The opinion, analyses and presentations of Goldman Sachs described under
"--Opinion of Weeks' Financial Advisor" below, including the opinion of
Goldman Sachs to the effect that, as of the date of such opinion, and
based upon and subject to certain matters stated therein, the exchange
ratio pursuant to the merger agreement was fair from a financial point of
view to the holders of outstanding Weeks common shares.
- Weeks' other strategic alternatives, including the prospects of
positioning Weeks for the future and enhancing long-term shareholder value
by remaining an independent company or by effecting a strategic business
combination with another company were not as attractive as the current
merger with Duke.
NEGATIVE FACTORS CONSIDERED BY THE WEEKS BOARD
The Weeks Board of Directors also considered the following potentially
negative factors in its deliberations concerning the Merger:
- The exchange ratio is fixed and not subject to adjustment, and thus, a
decrease in the trading price of Duke common shares prior to the effective
time of the merger will reduce the aggregate consideration paid to the
Weeks common shareholders.
- The risk that the anticipated benefits of the merger to Weeks shareholders
may not be realized as a result of possible changes in the real estate
market in general, the inability to achieve the anticipated reductions in
expenses or other potential difficulties in integrating the two companies
and their respective operations. In addition, the Board considered the
effect of the public announcement of the merger on Weeks' ability to
retain employees and on the trading price of Weeks' common shares.
- The significant costs involved in connection with consummating the merger,
the substantial management time and effort required to effectuate the
merger and integrate the businesses of Weeks and Duke and the related
disruption to Weeks' operations.
- The risk that the merger might not be completed based upon the failure to
satisfy certain covenants or closing conditions.
The Weeks Board also considered certain matters described above under "Risk
Factors," including the potential benefits to certain directors and officers
discussed in "Risk Factors--The Directors and Officers of Weeks May Have
Interests in the Completion of the Merger that are Different From the Interests
of Weeks' Shareholders."
In view of the wide variety of factors considered by the Weeks Board, the
Weeks Board did not quantify or otherwise attempt to assign relative weights to
the specific factors that it considered in making its determination. In the view
of the Weeks Board, however, the potentially negative factors considered by it
were not sufficient, either individually or collectively, to outweigh the
positive factors considered in its deliberations relating to the merger.
OPINION OF WEEKS' FINANCIAL ADVISOR
On February 28, 1999, Goldman Sachs delivered its oral opinion to the board
of directors of Weeks that, as of that date, the exchange ratio pursuant to the
merger agreement was fair from a financial point of view to the holders of the
outstanding Weeks common shares. Goldman Sachs confirmed its oral opinion by
delivery of its written opinion dated February 28, 1999.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS DATED FEBRUARY 28,
1999, WHICH IDENTIFIES ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON
THE REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED AS
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<PAGE>
ANNEX C TO THIS JOINT PROXY STATEMENT AND PROSPECTUS. SHAREHOLDERS OF WEEKS ARE
ENCOURAGED TO, AND SHOULD, READ THE OPINION IN ITS ENTIRETY.
In connection with its opinion, Goldman Sachs reviewed, among other things,
- the merger agreement;
- Annual Reports to Shareholders and Annual Reports on Form 10-K of Weeks
for the four years ended December 31, 1997;
- Annual Reports to Shareholders and Annual Reports on Form 10-K of Duke for
the five years ended December 31, 1997;
- certain interim reports to shareholders and Quarterly Reports on Form 10-Q
of Weeks and certain interim reports to shareholders and Quarterly Reports
on Form 10-Q of Duke;
- certain other communications from Weeks and Duke to their respective
shareholders; and
- certain internal financial analyses and forecasts for Weeks and Duke
prepared by their respective managements, including certain cost savings
and operating synergies projected by the management of Weeks to result
from the merger.
Goldman Sachs also held discussions with members of the senior managements
of Weeks and Duke regarding the strategic rationale for, and the potential
benefits of, the transaction contemplated by the merger agreement and the past
and current business operations, financial condition and future prospects of
their respective companies. In addition, Goldman Sachs:
- reviewed the reported price and trading activity for the Weeks common
shares and the Duke common shares;
- compared certain financial and stock market information for Weeks and Duke
with similar information for certain other companies the securities of
which are publicly traded;
- reviewed the financial terms of certain recent business combinations in
the real estate industry specifically and in other industries generally;
and
- performed such other studies and analyses as it considered appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information reviewed by it and assumed such accuracy and
completeness for purposes of rendering its opinion. In addition, Goldman Sachs
did not make an independent evaluation or appraisal of the assets and
liabilities of Weeks or Duke or any of their respective subsidiaries and was not
furnished with any such evaluation or appraisal. The advisory services and
opinion of Goldman Sachs referred to herein were provided for the information
and assistance of the board of directors of Weeks in connection with its
consideration of the transaction contemplated by the merger agreement and such
opinion does not constitute a recommendation as to how any holder of the
outstanding shares of Weeks common shares should vote with respect to the such
transaction.
The following is a summary of the material financial analyses used by
Goldman Sachs in connection with providing its oral opinion to Weeks' board of
directors on February 28, 1999. Goldman Sachs utilized substantially the same
type of financial analyses in connection with providing its written opinion
attached as Annex C.
THE FOLLOWING SUMMARIES OF FINANCIAL ANALYSES INCLUDE INFORMATION PRESENTED
IN TABULAR FORMAT. YOU SHOULD READ THESE TABLES TOGETHER WITH THE TEXT OF EACH
SUMMARY.
(I) HISTORICAL EXCHANGE RATIO ANALYSIS. Goldman Sachs reviewed the
historical trading prices for the Weeks common shares and the Duke common shares
and calculated implied exchange ratios based on a comparison of
44
<PAGE>
historical average closing prices for Weeks common shares and Duke common shares
for the periods set forth below to the exchange ratio in the merger of 1.38x.
<TABLE>
<CAPTION>
PERIOD IMPLIED EXCHANGE RATIO
- ---------------------------------------------------------------------------- -----------------------
<S> <C>
15 trading days ended February 26, 1999..................................... 1.19x
30 trading days ended February 26, 1999..................................... 1.19x
60 trading days ended February 26, 1999..................................... 1.21x
90 trading days ended February 26, 1999..................................... 1.22x
180 trading days ended February 26, 1999.................................... 1.28x
</TABLE>
(II) SELECTED COMPANIES ANALYSIS. Goldman Sachs reviewed and compared
certain financial information relating to Weeks and Duke to corresponding
financial information, ratios and public market multiples for the following
fifteen publicly traded industrial/office real estate companies:
- Cousins Properties, Inc.
- CenterPoint Properties Trust
- Spieker Properties, Inc.
- ProLogis Trust
- AMB Property Corporation
- Reckson Associates Realty Corp.
- Cabot Industrial Trust
- Arden Realty, Inc.
- Mack Cali Realty Corporation
- Liberty Property Trust
- First Industrial Realty Trust, Inc.
- CarrAmerica Realty Corporation
- Brandywine Realty Trust
- Prentiss Properties Trust
- Highwoods Properties, Inc.
Goldman Sachs also calculated and compared various financial multiples and
ratios based on information it obtained from SEC filings and Institutional
Brokers Estimate System estimates. The multiples and ratios for Weeks were
calculated using a price of $27.00 per share, the closing price of Weeks common
shares on the NYSE on February 25, 1999. The multiples for Duke were calculated
using a price of $21.88 per share, the closing price of Duke common shares on
the NYSE on February 25, 1999. The multiples and ratios for Weeks and Duke were
based on information provided by their respective managements and Institutional
Brokers Estimate System estimates. The multiples for each of the selected
companies were based on the most recent publicly available information. Goldman
Sachs' analyses of the selected companies compared the following to the results
for Weeks and Duke:
- total market capitalization;
- net debt as a percentage of total market capitalization;
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<PAGE>
- the estimated calendar year price/Funds from Operations multiples for
estimated calendar years 1999 and 2000 prepared by Institutional Brokers
Estimate System;
- estimated 1998/1999 Funds from Operations growth rate based on median
Institutional Brokers Estimate System estimates;
- the ratio of estimated calendar year price/Funds from Operations multiple
for estimated calendar year 1999 to estimated 1998/1999 Funds from
Operations growth rate;
- closing price on February 25, 1999 as a percentage of fifty-two week high
share price; and
- annual dividend yield, based on most recent reported dividend.
The results of these analyses are summarized as follows:
<TABLE>
<CAPTION>
SELECTED COMPANIES*
--------------------------------
RANGE MEDIAN WEEKS** DUKE**
--------------------- --------- ------------ ------------
<S> <C> <C> <C> <C>
($ IN THOUSANDS)
Levered Market Cap....................................... $1,008.7-$4,807.5 $2,761.7 $ 1,633.4 $ 3,632.2
Net Debt/Total Cap....................................... 20.5%-54.6% 37.6% 40.0% 28.5%
1999E FFO Multiple***.................................... 6.6x-11.8x 9.1x 9.0x 10.4x
2000E FFO Multiple***.................................... 6.1x-10.2x 8.2x 8.2x 9.4x
1998-99E FFO Growth Rate***.............................. 7.3%-14.0% 10.7x 12.4% 11.1%
1999E FFO Multiple to Growth Rate***..................... 0.5-1.1 0.9 0.73 0.94
% of 52-Week High........................................ 66.1%-87.7% 77.9% 80.6% 87.5%
Annual Dividend Yield.................................... 5.7%-9.2% 7.3% 7.5% 6.2%
</TABLE>
- ------------------------
* Excluding Weeks, but including Duke.
** Based on information provided by the respective managements of Weeks and
Duke as of December 31, 1998.
*** Based on Institutional Brokers Estimate System estimates.
(III) SELECTED TRANSACTIONS ANALYSIS. Goldman Sachs analyzed certain
information relating to twenty-six selected transactions in the public real
estate investment trust industry since 1995. Goldman Sachs compared:
- the premium or discount of the implied offer price to the target stock
price on the trading day before the particular selected transaction was
announced;
- the premium or discount over the target's 60 trading day average before
the particular selected transaction was announced; and
- the transaction Funds from Operations multiple as a percentage of the
acquiring company's Funds from Operations multiple for the particular
selected transaction.
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<PAGE>
The results of these analyses are summarized as follows:
<TABLE>
<CAPTION>
SELECTED TRANSACTIONS
------------------------------------------- PROPOSED
RANGE MEDIAN MEAN TRANSACTION
----------------- ----------- ----- -------------
<S> <C> <C> <C> <C>
Premium Paid................................................... -0.9% to 28.4% 9.4% 9.8% 11.5%*
Premium Paid Based on 60-day Trading Average of Target......... -6.5% to 33.6% 12.4% 10.6% 9.5%**
Transaction FFO Multiple as % of Acquiror Multiple***.......... 73.5% to 109.8% 97.9% 96.7% 96.8%****
</TABLE>
- ------------------------
* Based on the closing prices for Weeks and Duke on February 26, 1999.
** Based on the sixty-day trading day average of Weeks for the period
ending February 26, 1999 and the closing price of Duke on February 26,
1999.
*** Based on next twelve months (quarterly basis) First Call estimates.
**** Based on consensus estimates for 1999 for Weeks and Duke.
(IV) CONTRIBUTION ANALYSIS. Goldman Sachs reviewed certain historical and
estimated future operating and financial information for Weeks, Duke and the
combined company resulting from the merger based on Weeks' and Duke's
managements' consensus financial forecasts for each of Weeks, Duke and the
combined entity. The analysis indicated that the Weeks shareholders would
receive 25.9% of the outstanding common equity of the combined company after the
merger (on a fully diluted basis, assuming the conversion of all OP units and
convertible preferred stock). Goldman Sachs also analyzed:
- earnings before interest, income taxes, depreciation and amortization
based on actual 1998 and estimated years 1999 and 2000 adjusted to
eliminate the effect of leverage;
- Funds from Operations based on actual 1998 and estimated years 1999 and
2000; and
- funds available for distribution based on actual 1998 and estimated years
1999 and 2000.
These analyses indicated the following contributions by Weeks and Duke to
the combined company for the following periods and implied exchange ratios based
on such contributions:
<TABLE>
<CAPTION>
1999 ESTIMATED 2000 ESTIMATED
1998 ACTUAL
------------------------ ------------------------ ------------------------
WEEKS DUKE WEEKS DUKE WEEKS DUKE
----------- ----- ----------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
EBITDA............................................ 31.3% 68.7% 30.1% 69.9% 28.4% 71.6%
Funds from Operations............................. 28.6% 71.4% 26.7% 73.3% 25.8% 74.2%
Funds Available for Distribution.................. 28.4% 71.6% 28.0% 72.0% 25.5% 74.5%
</TABLE>
(V) PRO FORMA MERGER ANALYSES. Goldman Sachs prepared pro forma analyses of
the financial impact of the transaction using (a) management estimates for Weeks
and Duke and (b) the estimates of the Goldman Sachs research department for
street consensus estimates. For each of the estimated years 1999 and 2000,
Goldman Sachs compared the Funds from Operations of Duke common shares, on a
stand-alone basis, to the Funds from Operations of the common shares of the
combined company on a pro forma basis. Goldman Sachs performed this analysis
based on the closing price for Duke and Weeks on February 26, 1999 and assuming
a 1.38 exchange ratio on Duke's closing price of February 26, 1999. Based on
such analyses and assuming transaction costs for the street consensus estimates
analysis and transaction costs, additional interest savings, general and
administrative synergies, and interest expenses that might result from the
merger for the management estimates analysis, the proposed transaction would be
accretive to Duke Funds from Operations in both of the above scenarios.
(VI) NET ASSET VALUE ANALYSIS. Goldman Sachs estimated the net asset value
per share for Weeks' common shares as of year-end 1999 by subtracting
outstanding debt and other liabilities from gross value, where gross
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<PAGE>
value was based on Weeks' projected core portfolio net operating income of
$122.7 million at capitalization rates ranging from 8.75% to 9.25% plus the
estimated year-end 1999 value of other assets.
These analyses indicated the following estimated net asset values of Weeks'
common shares:
<TABLE>
<CAPTION>
ESTIMATED NET ASSET VALUE OF
CAPITALIZATION RATE WEEKS COMMON SHARES AT 12/31/99
- ------------------------------------------------- -------------------------------------------------
<S> <C>
8.75% $31.35
9.00% $29.81
9.25% $28.36
</TABLE>
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all such analyses. No company or
transaction used in the above analyses as a comparison is directly comparable to
Weeks or Duke or the contemplated transaction.
The analyses were prepared for purposes of providing an opinion to the Weeks
Board of Directors as to the fairness from a financial point of view of the
exchange ratio pursuant to the merger agreement to the holders of the
outstanding Weeks common shares. The analyses do not purport to be appraisals or
necessarily reflect the prices at which businesses or securities actually may be
sold. Analyses based upon forecasts of future results are not necessarily
indicative of actual future results, which may be significantly more or less
favorable than suggested by such analyses. Because such analyses are inherently
subject to uncertainty, being based upon numerous factors or events beyond the
control of the parties or their respective advisors, none of Weeks, Duke,
Goldman Sachs or any other person assumes responsibility if future results are
materially different from those forecast.
As described above, Goldman Sachs' opinion to the Board of Directors of
Weeks was one of many factors taken into consideration by the Weeks Board of
Directors in making its determination to approve the merger agreement. The
foregoing summary does not purport to be a complete description of the analyses
performed by Goldman Sachs.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. Goldman Sachs is
familiar with Weeks, having provided certain investment banking services to
Weeks from time to time, including having acted as:
- lead-managing underwriter of a public offering of 2.25 million Weeks
common shares in November 1996;
- lead-managing underwriter of a public offering of 3.2 million Weeks common
shares in May 1997;
- lead-managing underwriter of a public offering of $150 million Series A
Cumulative Redeemable Preferred shares of Weeks in October 1997;
- lead-managing underwriter of a public offering of $100 million 6.875%
Notes due 2005 of Weeks in March 1998;
- lead-managing underwriter of a public offering of $100 million 7.375%
Notes due 2007 of Weeks in July 1998; and
- its financial advisor in connection with, and having participated in
certain of the negotiations leading to, the merger agreement.
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<PAGE>
Goldman Sachs has also provided certain investment banking services to Duke
from time to time, including having acted as:
- lead-managing underwriter of a public offering of $100 million Puttable
Reset Securities PURS(SM) due 2016 of Duke in March 1998; and
- sole underwriter of a public offering of 1.5 million shares of Duke common
shares in November 1998.
Goldman Sachs may also provide investment banking services to Duke in the
future. Weeks selected Goldman Sachs as its financial advisor because it is a
nationally recognized investment banking firm that has substantial experience in
transactions similar to the merger.
Goldman Sachs provides a full range of financial, advisory and brokerage
services and in the course of its normal trading activities may from time to
time effect transactions and hold positions in the securities or options on
securities of Weeks and/or Duke for its own account and for the account of
customers.
Pursuant to a letter agreement dated February 23, 1999, Weeks engaged
Goldman Sachs to act as its financial advisor in connection with the possible
sale of, or merger involving, all or a portion of the common shares or assets of
Weeks. Pursuant to the terms of this letter, Weeks has agreed to pay Goldman
Sachs a transaction fee of 0.35% of the aggregate consideration paid in the
merger.
Weeks has agreed to reimburse Goldman Sachs for its reasonable out-of-pocket
expenses, including attorneys' fees, and to indemnify Goldman Sachs against
certain liabilities, including certain liabilities under the federal securities
laws.
INTERESTS OF WEEKS DIRECTORS, OFFICERS AND SIGNIFICANT SHAREHOLDERS
The merger will qualify as a change of control for purposes of existing
change of control agreements between Weeks and certain members of its
management. Under these agreements, which will be assumed by Duke in the merger,
11 Weeks officers are entitled to receive severance payments based upon a
multiple of such officer's then current compensation upon the occurrence of
certain events, including the following: (1) if the officer's employment is
terminated without cause within 24 months following a change of control or (2)
if the officer voluntarily terminates his employment for good reason within the
12 month period ending on the second anniversary of the change of control. In
addition, the change of control agreements entered into with each of Messrs.
Weeks, Senkbeil, Robinson, Stockert and Nelley, entitle these officers to
receive the severance benefit if they voluntarily terminate their employment
before the first anniversary of the change of control. In connection with the
merger, these officers have agreed in side letter agreements with Duke to waive
their right to this severance benefit if they voluntarily terminate their
employment, except that Mr. Stockert will be entitled to receive the severance
benefit he is entitled to under his change of control agreement if he
voluntarily terminates his employment during the four month period beginning on
the first anniversary of the effective time of the merger. Duke also agreed to
extend the period for which Messrs. Weeks, Senkbeil, Robinson, Stockert and
Nelley may receive severance for termination by Duke-Weeks other than for cause
or voluntary termination of their employment for good reason from a 12 month
period ending on the second anniversary of the effective date of the merger to a
24 month period ending on the third anniversary of the effective date of the
merger.
In order to induce Mr. Robinson to waive his rights under his change of
control agreement, Duke agreed to provide him with a $250,000 unsecured loan
which will be payable in equal installments over a five year period to
facilitate his relocation to Florida. The terms of the loan provide that (1) the
annual payment of principal will be forgiven if Mr. Robinson is employed by
Duke-Weeks or an affiliate of Duke-Weeks at the due date of such payment; and
(2) the principal and interest will be forgiven in full if (x) Duke-Weeks
terminates his employment other than for cause, (y) Mr. Robinson voluntarily
terminates his own employment for good reason within the 12 month period
following the effective time of the merger, or (z) Duke changes the terms of the
agreement made with Mr. Robinson regarding modifications to his rights under his
change of control agreement without his prior consent before the first
anniversary of the merger.
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<PAGE>
The following table summarizes the maximum cash severance payments to which
officers of Weeks would be entitled under their change of control agreements,
without giving effect to provisions of the agreements entitling the officers to
additional amounts to pay taxes on their severance payments:
<TABLE>
<CAPTION>
NAME AMOUNT OF PAYMENT
- -------------------------------------------------------------------------- ------------------
<S> <C>
A. Ray Weeks, Jr.......................................................... $ 1,280,000
Thomas D. Senkbeil........................................................ 1,067,500
Forrest W. Robinson....................................................... 994,167
David P. Stockert......................................................... 930,000
John W. Nelley, Jr........................................................ 771,250
Robert G. Cutlip.......................................................... 613,333
Clyde H. Duckett.......................................................... 558,133
Mark W. Flowers........................................................... 357,333
Charles D. Graham......................................................... 311,250
Eben Hardie III........................................................... 367,500
Jeffrey D. Turner......................................................... 382,500
------------------
Total................................................................. $ 7,632,966
------------------
------------------
</TABLE>
All of the Weeks outstanding stock options, including the 915,600 held by
directors and executive officers of Weeks will be converted into options to
purchase Duke common shares and will (1) maintain their current vesting
schedules and (2) have an exercise price adjusted for the merger exchange ratio.
The 32,309 shares of unvested Weeks restricted stock will become 44,586 shares
of Duke restricted stock, based on the merger exchange ratio, and will become
subject to forfeiture to the same extent as shares of Weeks restricted stock are
currently subject to forfeiture.
If the merger is approved, the Weeks directors that become non-employee
Duke-Weeks directors, will be eligible to receive 300 common shares of Duke
pursuant to the 1996 Duke Directors' Stock Payment Plan for each fiscal quarter
of service as a director (or a pro-rata amount for less than a full fiscal
quarter), the first distribution of such shares to occur at the end of the first
fiscal quarter in which the former Weeks director serves as a Duke-Weeks
director. In addition, if the 1999 Duke Directors' Stock Option and Dividend
Increase Unit Plan is approved by the shareholders of Duke, Weeks' directors
that become Duke-Weeks directors and are ineligible to receive stock option
grants under any other Duke plan for a given calendar year, will be granted
options to purchase 2,500 common shares of Duke for such calendar year, the
initial grant of such options for the former Weeks directors to occur at the
first quarterly meeting of Duke's compensation committee for the year 2000.
Following the execution of the merger agreement, Weeks reached an agreement
in principle, subject to final documentation, with Harold S. Lichtin, who
currently serves on the Weeks Board, regarding Mr. Lichtin's relationship with
Duke-Weeks following the merger. This agreement in principle contains the
following material terms:
- Mr. Lichtin will resign from the Weeks Board on the effective date of the
merger and will not serve on the Board of Directors of the combined
company;
- Mr. Lichtin's employment under the Consulting Agreement dated December 30,
1997, between Mr. Lichtin and Weeks will terminate on the effective date
of the merger, and Mr. Lichtin will not be entitled to receive any
additional compensation or benefits pursuant to the Consulting Agreement
following the merger;
- The restriction on transferability of Weeks OP common units and Weeks
common shares held by Mr. Lichtin and his affiliates and on exercise of
the right to exchange such units for Weeks common shares will terminate on
the effective date of the merger. Restrictions relating to Weeks OP common
units to be issued to Mr. Lichtin and his affiliates in connection with
future contributions of additional properties will remain subject to the
restrictions provided for in the existing documents governing such
contributions;
- Mr. Lichtin will be released from certain provisions of his Noncompetition
Agreement with Weeks, and will be permitted to engage in competing
businesses in Weeks' markets following the effective
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<PAGE>
date of the merger; PROVIDED, that Mr. Lichtin will be prohibited from
soliciting existing employees and customers of Weeks until December 31,
2000; and
- Weeks has agreed to release its security interest in certain Weeks OP
common partnership units held by Mr. Lichtin and his affiliates securing
their indemnification obligations under the Weeks OP partnership
agreement. Notwithstanding this release, Mr. Lichtin and his affiliates
remain liable for such obligations until the end of the applicable
survival period provided for under the Weeks OP partnership agreement.
SERVICE COMPANIES OPTION
A. Ray Weeks, Jr., Thomas D. Senkbeil and Forrest W. Robinson are the
holders of common shares of Weeks' third-party service subsidiaries, Weeks
Construction Services and Weeks Realty Services, representing 99% of the voting
power and 1% of the economic interests in those companies. Contemporaneously
with the execution and delivery of the merger agreement, MWSB, Inc., a newly
formed corporation owned by Messrs. Hefner, Zink, Weeks and Senkbeil, entered
into an option agreement with each of Messrs. Weeks, Senkbeil and Robinson which
grants MWSB, Inc. an option to purchase all their shares in Weeks Construction
Services and Weeks Realty Services at any time after the effective date of the
merger. The total exercise price for the option to purchase both Weeks services
entities is $110,000 (as adjusted for any additional capital contributed to the
service entities prior to the exercise of such option).
In addition, prior to the effective time of the merger, MWSB, Inc. will also
enter into an agreement which grants MWSB, Inc. an option to purchase common
shares of Weeks HVAC, Inc., from Messrs. Weeks, Senkbeil, Robinson, Duckett,
Cutlip, Flowers and Simpson for an aggregate exercise price of $20,000. Weeks
HVAC, Inc. provides HVAC services for tenants in Weeks' existing properties and
for third parties. The shares of Weeks HVAC, Inc. that are subject to the option
represent 100% of Weeks HVAC Inc.'s voting power and 100% of its economic
interests.
VOTING AGREEMENTS
Contemporaneously with the execution and delivery of the merger agreement,
(1) holders of approximately 2% of Weeks' outstanding common shares and holders
of approximately 56% of the outstanding limited partnership interests in Weeks
OP (other than those held indirectly by Weeks, which are not entitled to vote)
entered into voting agreements with Duke and Duke OP pursuant to which, among
other things, those holders have granted to Duke irrevocable proxies to vote
their shares and partnership interests in favor of the merger and the merger
agreement and the other transactions contemplated thereby and against any
competing proposal, and (2) holders of approximately 5% of Duke's outstanding
common shares and holders of approximately 95% of the outstanding limited
partnership interests in Duke OP entered into voting agreements with Weeks and
Weeks OP, pursuant to which, among other things, those holders have granted to
Weeks irrevocable proxies to vote their shares and partnership interests in
favor of the merger agreement and the other transactions contemplated thereby
and against any competing proposal.
The voting agreements terminate upon the termination of the merger agreement
or the consummation of the transactions contemplated thereby.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
consequences relating to the merger of Weeks into Duke. This discussion is not
exhaustive of all possible tax considerations and does not include a detailed
discussion of any state, local or foreign tax considerations. In addition, the
following discussion is intended to address only those federal income tax
considerations that are generally applicable to all U.S. shareholders and does
not discuss all of the aspects of federal income taxation that may be relevant
to particular U.S. shareholders in light of their specific circumstances or to
certain types of shareholders (including insurance companies, tax-exempt
entities, financial institutions or broker-dealers,
51
<PAGE>
foreign corporations and persons who are not citizens or residents of the United
States) who are subject to special treatment under the federal income tax laws.
The statements and opinions in this discussion are based on current
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), and
its legislative history, existing, temporary and currently proposed Treasury
Regulations under the Code, existing administrative rulings and practices of the
Internal Revenue Service and judicial decisions. No assurance can be given that
legislative, judicial or administrative changes will not affect the accuracy of
any statements in this joint proxy statement and prospectus with respect to
transactions entered into or contemplated prior to the effective date of such
changes. In addition, Duke has not requested and does not plan to request any
rulings from the Internal Revenue Service concerning the tax treatment of the
merger. Accordingly, no assurance can be given that the statements set forth in
this section (which do not bind the Internal Revenue Service or the courts) will
not be challenged by the Internal Revenue Service or sustained by the courts if
so challenged.
THIS DISCUSSION IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING.
EACH HOLDER OF DUKE OR WEEKS SHARES IS URGED TO CONSULT WITH HIS OR HER OWN TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE MERGER,
INCLUDING THE FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES THAT MAY BE
APPLICABLE TO SUCH HOLDER.
TAX CONSEQUENCES OF THE MERGER. The merger is intended to qualify as a
reorganization under Section 368(a) of the Code. Rogers & Wells LLP, counsel to
Duke, and King & Spalding, counsel to Weeks, as a condition to the merger, will
deliver opinions to Duke and Weeks, respectively, that the merger will qualify
as a reorganization under the provisions of Section 368(a) of the Code, based on
certain factual assumptions and representations made by Duke and Weeks.
If the merger qualifies as a reorganization under Section 368(a) of the
Code, a Weeks shareholder who receives solely Duke common shares in exchange for
Weeks common shares will not recognize any gain or loss on the exchange.
Similarly, a Weeks shareholder who receives solely Duke preference shares in
exchange for Weeks preferred shares will not recognize any gain or loss on the
exchange. However, if a Weeks shareholder receives Duke common shares and cash
in lieu of a fractional share of Duke common shares, such Weeks shareholder will
recognize taxable gain or loss in an amount equal to the difference between such
cash and the tax basis allocated to such Weeks shareholder's fractional share
interest in Duke common shares. Such gain or loss will constitute capital gain
or loss if the shareholder's Weeks common shares were held as a capital asset. A
Weeks shareholder will have an aggregate tax basis in the Duke shares received
in the merger equal to his aggregate tax basis in the Weeks shares (reduced by
the amount of any tax basis allocable to a fractional share interest for which
cash is received) that were exchanged for those Duke shares. A Weeks
shareholder's holding period for Duke shares received in the merger will include
his holding period for the Weeks shares that were exchanged for those Duke
shares, if the Weeks shares are held as a capital asset by the Weeks shareholder
at the effective time of the merger. If a Weeks shareholder holds multiple
blocks of Weeks shares that have different holdings periods and/or different tax
bases, the Duke shares received for each block of Weeks shares will have a
separate tax basis and holding period that is determined by reference to the
specific tax basis and holding period of the specific Weeks shares exchanged for
those Duke shares.
No gain or loss will be recognized by Duke or Weeks as a result of the
merger so long as the merger qualifies as a reorganization under Section 368(a)
of the Code.
PRE-MERGER DISTRIBUTIONS. The merger agreement provides that Weeks will
distribute to its shareholders immediately prior to the merger the minimum
amount necessary for Weeks to satisfy the REIT distribution requirements under
Section 857(a)(1) of the Code for Weeks' short taxable year ending at the
effective time. The merger agreement also provides that, should such
distribution by Weeks occur, Duke will distribute to its shareholders an amount
per share equal to the amount per share of any such dividend paid by Weeks,
adjusted to reflect the exchange ratio of Weeks shares for Duke shares in the
merger. Any such distributions by Weeks and Duke are referred to in this
discussion as "pre-merger distributions." Except as described below with respect
to pre-merger distributions that may be designated as capital gain
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dividends, (1) pre-merger distributions paid to Weeks' taxable U.S. shareholders
out of Weeks' current or accumulated earnings and profits would be taken into
account by those shareholders as ordinary income and would not be eligible for
the dividends received deduction generally available for corporations, and (2)
any pre-merger distributions paid to Duke's taxable U.S. shareholders out of
Duke's current or accumulated earnings and profits would be taken into account
by those shareholders as ordinary income and would not be eligible for the
dividends received deduction generally available for corporations. Any
pre-merger distributions in excess of current and accumulated earnings and
profits of either Weeks (in the case of any Weeks pre-merger distribution) or
Duke (in the case of any Duke pre-merger distribution) would not be taxable to
shareholders to the extent the distribution does not exceed the adjusted basis
of the shareholder's shares with respect to which the distribution is made, but
rather would reduce the adjusted basis of those shares. To the extent any such
pre-merger distribution in excess of earnings and profits exceeded the adjusted
basis of a shareholder's shares, the distribution would be included in the
shareholder's income as capital gain (such capital gain will be long-term
capital gain if the shares have been held for more than one year or short-term
capital gain if the shares have been held for one year or less), assuming the
shareholder holds the shares as a capital asset at the time of the merger. Any
pre-merger distributions designated as capital gain dividends will be taxed as
capital gain (to the extent they do not exceed the payor's actual net capital
gain for the taxable year), provided that corporate shareholders may be required
to treat up to 20% of certain capital gain distributions as ordinary income.
BACKUP WITHHOLDING AND INFORMATION REPORTING. The cash payments, if any,
due a holder upon the exchange of Weeks common shares pursuant to the merger,
other than exempt persons or entities, will be subject to "backup withholding"
for federal income tax purposes unless specific requirements are met. Duke or a
third-party paying agent, as the case may be, must withhold 31% of the cash
payments to the holder, unless the holder (1) is a corporation or comes within
certain other exempt categories and, when required, demonstrates this fact or
(2) provides a taxpayer identification number, certifies as to no loss of
exemption and otherwise complies with the applicable requirements of the backup
withholding rules. Any amount paid as backup withholding will be credited
against the holder's federal income tax liability.
Holders who receive Duke shares must also comply with the information
reporting requirements of the Treasury Regulations under Section 368 of the
Code. In general, these Treasury Regulations require any taxpayer who receives
shares, securities or other property, including cash, in a tax-free exchange in
connection with a corporate reorganization to include with his or her income tax
return a complete statement of facts pertaining to the nonrecognition of gain or
loss including (1) the cost or other basis of the shares or securities
transferred in the exchange, and (2) the amount of shares, securities or other
property received in the exchange. In addition, the statement must include the
fair market value, at the date of the exchange, of each type of shares,
securities or other property received by the taxpayer and taxpayers are required
to keep permanent records showing the cost or other basis of any property
involved in such an exchange. All Duke and Weeks shareholders are urged to
consult their own tax advisors to determine the specific information that they
may need to file pursuant to the Treasury Regulations under Section 368 of the
Code.
CONSEQUENCES OF THE MERGER ON DUKE'S QUALIFICATION AS A REAL ESTATE
INVESTMENT TRUST. In the opinion of Rogers & Wells LLP, Duke was organized and
has operated in conformity with the requirements for qualification and taxation
as a real estate investment trust under the Code commencing with its taxable
year ended December 31, 1993, and Duke's current and proposed method of
operation, taking into account the effects of the merger, will enable it to
continue to meet the requirements for qualification and taxation as a real
estate investment trust under the Code. The opinion of Rogers & Wells LLP is
based on (1) certain factual representations of Duke and Weeks, (2) the
assumption that Duke was organized and has operated in conformity with the
requirements for qualification and taxation as a real estate investment trust
under the Code for all of its taxable years ending prior to December 31, 1993,
and (3) the opinion of King & Spalding that Weeks was organized and has operated
in conformity with the requirements for qualification and taxation as a real
estate investment trust under the Code commencing with its taxable year ended
December 31, 1994, and the current organization and method of operation of Weeks
will allow
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it to continue to qualify as a real estate investment trust through the
effective time. Although Duke intends to operate in a manner which will permit
it to continue to satisfy the requirements for qualification and taxation as a
real estate investment trust under the Code, no assurance can be given that
these requirements will be met.
The continued qualification of Duke-Weeks as a REIT will also depend upon
the continued classification of Duke OP as a partnership for federal income tax
purposes and not as an association taxable as a corporation or a "publicly
traded partnership" taxable as a corporation. A publicly traded partnership will
not be treated as a corporation as long as 90% or more of its gross income is
"qualifying income" within the meaning of the Code. Qualifying income is
generally defined to include, among other items, interest, real property rents
and gain from the disposition of real property. In the opinion of Rogers & Wells
LLP, Duke OP, commencing with its first taxable year ended December 31, 1993,
has been properly classified as a partnership for federal income tax purposes
and not as an association taxable as a corporation or as a publicly traded
partnership taxable as a corporation, and Duke OP's proposed method of
operation, taking into account the effects of the merger, will enable it to
continue to be treated as a partnership for federal income tax purposes. The
opinion of Rogers & Wells LLP is based on (1) certain factual representations of
Duke and Weeks including representations regarding the sources of income of Duke
OP and Weeks OP, and (2) the opinion of King & Spalding that Weeks OP,
commencing with its taxable year ended December 31, 1994 and through the
effective time, has been properly classified as a partnership for federal income
tax purposes and not as an association taxable as a corporation or as a publicly
traded partnership taxable as a corporation.
In order to qualify as a REIT, the combined company may not own (1) the debt
or equity securities of a single issuer (other than a mortgage loan which
qualifies as a real estate asset, an interest in a partnership or shares of a
"qualified REIT subsidiary" or another REIT) with a value in excess of 5% of the
value of the combined company's total assets, and (2) more than 10% of any
single issuer's outstanding voting securities (other than an interest in a
partnership or shares of a "qualified REIT subsidiary" or another REIT).
Following the merger, Duke OP will directly own (x) approximately 95.9% of the
non-voting common stock and 100% of the non-voting preferred stock of Duke
Realty Construction, Inc., (y) 100% of the non-voting stock and 1% of the voting
stock of Weeks Construction Services and (z) 100% of the non-voting stock and 1%
of the voting stock of Weeks Realty Services (collectively referred to herein as
the "Service Companies"). By virtue of its ownership interest in Duke OP, the
combined company will be considered to own its pro rata share of the assets of
Duke OP, including the debt or equity securities of the Service Companies. Duke
OP will not own more than 10% of the voting securities of any of the Service
Companies and, therefore, the combined company will not own more than 10% of the
voting securities of any of the Service Companies. In addition, Duke's and
Weeks' senior management believe that the combined company's pro rata share of
the value of the debt or equity securities of each of the Service Companies will
not exceed 5% of the total value of the combined company's assets after the
merger. Management's belief is based in part upon its analysis of the
anticipated operating cash flows of the Service Companies. There can be no
assurance, however, that the IRS will not contend that the value of the
securities of a particular Service Company exceeds the 5% value limitation.
Rogers & Wells LLP, in rendering its opinion regarding the qualification of
Duke-Weeks as a REIT, will rely on the conclusions of Duke-Weeks and its senior
management as to the value of the securities of the Service Companies.
ACCOUNTING TREATMENT
Duke will account for the merger as a purchase in accordance with Accounting
Principals Board Opinion No. 16. Accordingly, Duke will record the assets and
liabilities acquired from Weeks at Duke's cost, the consideration paid to Weeks
shareholders in the merger.
APPRAISAL RIGHTS
Because the Weeks common shares and the Duke common shares are listed on the
New York Stock Exchange and the preference shares of Duke into which the Weeks
preferred shares will be converted will also be listed on the New York Stock
Exchange, neither Weeks shareholders nor Duke shareholders have appraisal rights
under Georgia or Indiana law.
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THE MERGER AGREEMENT
WE ENCOURAGE YOU TO READ THE ENTIRE MERGER AGREEMENT, WHICH IS ATTACHED AS
ANNEX A TO THIS JOINT PROXY STATEMENT AND PROSPECTUS.
GENERAL
The merger agreement provides for the merger of Weeks with and into Duke.
In the merger, the holders of Weeks common shares will receive for each
Weeks common share the right to receive 1.38 Duke common shares. Holders of
Weeks 8.0% Series A cumulative redeemable preferred shares, par value $.01 per
share, will be converted into the right to receive one preference share of Duke
representing 1/1,000 of an 8.0% Series F cumulative redeemable preferred share
of Duke. Holders of Weeks 8.625% Series D cumulative redeemable preferred
shares, par value $.01 per share, will be converted into the right to receive
one preference share of Duke representing 1/1,000 of an 8.625% Series H
cumulative redeemable preferred share of Duke. The Duke preference shares to be
issued in the merger will have rights and preferences substantially identical to
the rights and preferences of the Weeks Series A preferred shares and Weeks
Series D preferred shares.
Concurrently with the execution of the merger agreement, Duke OP, Duke's
principal operating partnership subsidiary, entered into a merger agreement with
Weeks OP, Weeks' principal operating partnership subsidiary. In the operating
partnership merger or "OP" merger, the holders of common units of limited
partnership interest in Weeks OP will be converted into 1.38 common units of
limited partnership interest in Duke OP, each 8.0% Series A cumulative
redeemable preferred partnership unit in Weeks OP will be converted into one
8.0% Series F cumulative redeemable preferred unit in Duke OP, each 8.0% Series
C cumulative redeemable preferred partnership unit in Weeks OP will be converted
into one 8.0% Series G cumulative redeemable preferred unit in Duke OP and each
8.625% Series D cumulative redeemable preferred partnership unit in Weeks OP
will be converted into one 8.625% Series H cumulative redeemable preferred unit
in Duke OP. In the OP merger, all Weeks OP units will cease to be outstanding
and will automatically be cancelled and retired and all rights with respect to
the Weeks OP units will cease to exist.
No certificates or script representing fractional shares of Duke common
shares will be issued upon surrender for exchange of Weeks certificates. Cash
will be issued in lieu of fractional shares of Duke common shares upon surrender
of such certificate, and any dividends or other distributions to which such
holder is entitled, in each case without interest and less any required
withholding taxes.
The merger of Duke and Weeks is intended to qualify as a tax-free
reorganization for federal income tax purposes, and the OP merger transaction is
intended to qualify as a tax-deferred exchange for Weeks and the other holders
of Weeks OP units. The discussion in this joint proxy statement and prospectus
of the merger agreement and the description of the material terms of the merger
agreement are qualified in their entirety by reference to the merger agreement,
a copy of which is attached to this joint proxy statement and prospectus as
Annex A and is incorporated herein by reference.
EXPENSES OF SOLICITATION
All fees and expenses, including financial advisory and other professional
services fees, incurred in connection with the merger agreement and the
transactions contemplated thereby will be paid by the party incurring the
expenses, except for fees and expenses incurred in connection with filing,
printing and distributing this joint proxy statement and prospectus, which will
be shared equally by Duke and Weeks. The costs of solicitation of proxies from
Duke shareholders will be borne by Duke. The costs of solicitation of proxies
from Weeks shareholders will be borne by Weeks. Duke and Weeks will reimburse
brokers, fiduciaries, custodians and other nominees for reasonable out-of-pocket
expenses incurred in sending this joint proxy statement and prospectus and other
proxy materials to, and obtaining instructions relating to
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such material from, Duke and Weeks shareholders. Duke shareholder proxies may be
solicited by directors or officers of Duke in person, by telephone, telegraph,
facsimile or other appropriate means of communication. Weeks shareholder proxies
may be solicited by directors or officers of Weeks in person, by telephone,
telegraph, facsimile or other appropriate means of communication. In addition,
Duke will retain Innisfree M&A Incorporated to assist in the solicitation of
proxies and expects that the estimated fees for services to Duke will not exceed
$15,000 in the aggregate plus expenses. Weeks will retain Innisfree M&A
Incorporated to assist in the solicitation of proxies and expects that the
estimated fees for these services will not exceed $5,000 in the aggregate plus
expenses.
Duke and Weeks will also reimburse custodians, nominees and fiduciaries for
forwarding proxies and proxy materials to the beneficial owners of its shares in
accordance with regulations of the SEC and the NYSE.
EFFECTIVE TIME OF THE MERGER
Subject to the satisfaction, or waiver, of the conditions to the obligations
of Duke and Weeks to complete the merger, the merger will be completed as soon
as practicable following the approval by the shareholders of Duke and Weeks of
the merger and the merger agreement at their respective meetings, but no sooner
than one business day after the completion of the OP merger.
EXCHANGE OF WEEKS SHARES
As of the effective time of the merger, Duke will deposit certificates
representing the Duke common shares, Duke Series F preference shares and Duke
Series H preference shares, if any, to be issued in exchange for outstanding
Weeks common shares, Weeks Series A preferred shares and any Weeks Series D
preferred shares with an exchange agent designated by Duke and reasonably
acceptable to Weeks. Duke will also deposit cash with the exchange agent to be
paid in lieu of the issuance of fractional Duke common shares. The deposit of
the certificates and cash in lieu of fractional shares will be for the benefit
of the holders of Weeks common shares, Weeks Series A preferred shares and Weeks
Series D preferred shares, as applicable, for exchange in accordance with the
merger agreement.
As soon as reasonably practicable after the effective time, the exchange
agent will mail to each holder of record of a Weeks stock certificate or
certificates whose shares were converted into the right to receive Duke shares
in the merger and which, prior to the effective time, represented outstanding
shares of Weeks common shares, Weeks Series A preferred shares or Weeks Series D
preferred shares, a letter of transmittal which will specify that delivery will
be effected and risk of loss and title to the certificates will pass only upon
delivery of the Weeks certificates to the exchange agent; and instructions for
surrendering the Weeks certificates in exchange for certificates representing
Duke common or preference shares.
Upon surrender of a Weeks certificate for cancellation to the exchange
agent, together with the letter of transmittal, duly executed, and any other
documents reasonably required by the exchange agent, the holder of a Weeks
certificate formerly representing shares of Weeks common or preferred shares
will be entitled to receive in exchange a certificate representing that number
of Duke common or preference shares which such holder has the right to receive
pursuant to the merger agreement, and any unpaid Duke distributions with a
record date after the time that the merger becomes effective that the holder has
the right to receive. The surrendered Weeks certificates will be cancelled.
In the event that the ownership of Weeks common or preferred shares is
transferred and the transfer is not registered in Weeks' transfer records, a
certificate representing the appropriate number of Duke common or preference
shares may be made to a person other than the person in whose name the
surrendered certificate is registered if the certificate is properly endorsed or
is in proper form for transfer and is accompanied by all documents required to
evidence and effect a transfer and by evidence that any applicable stock
transfer taxes have been paid. After the effective time, each Weeks certificate
will
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represent only the right to receive, upon surrender, Duke common or preference
shares without interest, and dividends or other distributions to which the
holder is entitled.
The exchange agent will not be entitled to vote or exercise any rights of
ownership with respect to Duke common or preference shares it holds, except that
it will receive and hold all dividends or other distributions paid or
distributed with respect to the Duke shares for the account of persons entitled
to them.
UNCLAIMED MERGER CONSIDERATION
Any merger consideration which is delivered to the exchange agent and is
unclaimed for six months will be redelivered to Duke, and any holders of Weeks
certificates will after that date only look to Duke for the merger
consideration, subject to applicable abandoned property or similar laws.
RECORD DATES; DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES
The merger agreement provides that Weeks may declare a dividend to the
holders of Weeks common shares, the record date for which will be the close of
business on the last business day prior to the effective time. If Weeks declares
a final dividend, it will notify Duke at least 10 days prior to the date of the
Weeks meeting, and Duke will declare a dividend to holders of Duke common shares
of record at the close of business on the last business day prior to the
effective time.
CONDITIONS TO THE MERGER
The respective obligations of Duke and Weeks to effect the merger and the
other transactions contemplated by the merger agreement are subject to the
satisfaction or waiver of each of the following conditions at or prior to the
effective time of the merger:
- Each party will have performed in all material respects its obligations
contained in the merger agreement required to be performed on or prior to
the closing of the merger and the representations and warranties of each
party shall be true and correct in all material respects on and as of the
date made and the date of the closing of the merger, in each case as
evidenced by certificates signed by each party's chief executive officer
and chief financial officer;
- The shareholders of Duke and Weeks will have approved the merger and the
other matters contemplated by the merger agreement;
- The registration statement of which this joint proxy statement and
prospectus forms a part which has become effective under the Securities
Act of 1933, will not be the subject of any proceeding by the Securities
and Exchange Commission seeking a stop order;
- The New York Stock Exchange will have approved for listing the Duke common
shares and Duke preference shares issued in the merger, and any shares
issuable on conversion of Weeks OP units, in each case subject to official
notice of issuance;
- No temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the merger or the
OP merger or any of the other transactions or agreements contemplated by
the merger agreement will be in effect;
- All consents and waivers from third parties necessary in connection with
the consummation of the merger and the OP merger will have been obtained,
other than such consents and waivers from third parties which, if not
obtained, would not result, individually or in the aggregate in a material
adverse effect for Duke or Weeks and their respective subsidiaries, taken
as a whole;
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- If the additional amendment to Duke's Articles of Incorporation to
increase the size of Duke's Board is not approved by the Duke
shareholders, Duke will have received resignations from members of the
Duke Board which are sufficient to permit the appointment of seven
representatives of Weeks to the combined company's Board of Directors;
- Weeks will have received a favorable opinion, dated as of the closing date
of the merger, from Rogers & Wells LLP (subject to customary exceptions,
assumptions and qualifications, and based on customary representations),
regarding the qualification of Duke as a REIT under the Internal Revenue
Code of 1986, as amended, the treatment of Duke OP as a partnership for
federal income tax purposes and the continued qualification of Duke-Weeks
as a REIT following the merger;
- Duke will have received a favorable opinion, dated as of the closing date
of the merger, from King & Spalding (subject to customary exceptions,
assumptions and qualifications, and based on customary representations),
regarding the qualification of Weeks as a REIT under the Internal Revenue
Code of 1986, as amended, and the treatment of Weeks OP as a partnership
for federal income tax purposes;
- All waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 will have terminated or expired with regard to the merger and the
OP merger;
- Since the date of the merger agreement, there will have been no material
adverse change in the business, properties, financial condition or results
of operations of Weeks and its subsidiaries, taken as a whole. Duke will
have received a certificate of the chief executive officer and chief
financial officer of Weeks to the effect that there has been no such
material adverse change;
- Since the date of the merger agreement, there will have been no material
adverse change in the business, properties, financial condition or results
of operations of Duke and its subsidiaries, taken as a whole. Weeks will
have received a certificate of the chief executive officer and chief
financial officer of Duke to the effect that there has been no such
material adverse change;
- Duke will have received an opinion dated as of the closing date from
Rogers & Wells LLP to the effect that the merger will qualify as a
tax-free reorganization under Section 368(a) of the Internal Revenue Code
of 1986 as amended; and
- Weeks will have received an opinion dated as of the closing date from King
& Spalding to the effect that the merger will qualify as a tax-free
reorganization under Section 368(a) of the Internal Revenue Code of 1986,
as amended.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains various customary representations and
warranties relating to, among other things:
- the due organization, power, authority and standing of Duke and Weeks and
similar corporate matters;
- the capital structure of Duke and Weeks;
- the authorization of the merger agreement by each party, the absence of
any violations caused by the merger, and the required consents and
approvals in connection with the execution of the merger;
- the availability and accuracy of the documents filed by Duke and Weeks
with the Securities and Exchange Commission;
- the accuracy of the information supplied by each party for inclusion in
this joint proxy statement and prospectus;
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- the absence of changes or events since information was most recently filed
by each party with the Securities and Exchange Commission;
- the absence of undisclosed violations of or defaults under contracts and
debt instruments of either party;
- compliance with applicable laws;
- the absence of litigation;
- tax matters;
- the absence of changes in benefit plans of each party and compliance with
the Employee Retirement Income Security Act of 1974, as amended;
- compliance with environmental laws and other environmental matters;
- the receipt of fairness opinions from each party's financial advisor;
- the vote required of each party's shareholders necessary to approve the
merger;
- the absence of broker's fees except for fees owed to Merrill Lynch & Co.,
which provided financial advisory services to Duke, and Goldman, Sachs &
Co., which provided financial advisory services to Weeks;
- the absence of a requirement for either party to register as an investment
company under the Investment Company Act of 1940, as amended;
- the approval of amendments to Weeks' Rights Agreement and the exemption of
the transaction from the application of Georgia antitakeover laws;
- the exemption of the transaction from the application of Indiana
antitakeover laws;
- the absence of loans or payments to employees, officers or directors of
Duke and Weeks except as disclosed; and
- year 2000 issues.
COVENANTS
CONDUCT OF BUSINESS PRIOR TO MERGER. Except as specifically required by the
terms of the merger agreement or with the written consent of the other party,
Duke and Weeks have agreed that they will, prior to the effective time of the
merger, carry on their respective businesses in the usual, regular and ordinary
course of business consistent with past practice, and use commercially
reasonable efforts to preserve intact their present business organizations,
goodwill, ongoing businesses and status as REITs, in order that their businesses
will not be impaired prior to the effective time.
In addition, except as contemplated by the merger agreement, unless the
other party has agreed in writing, Duke and Weeks have each agreed that they
will not, and will not permit any of their respective subsidiaries to:
- declare or pay any dividends or make other distributions in respect of any
of their or their subsidiaries shares of capital stock or partnership
interests except for:
(1) the payment of regular quarterly dividends to Weeks and Duke
shareholders and unitholders in Duke OP and Weeks OP;
(2) the payment of any other distributions by any wholly owned Weeks or
Duke subsidiaries, in each case with customary record and payment dates; and
(3) other dividends necessary in order for Weeks and Duke to maintain
their status as REITs.
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- split, combine or reclassify any capital stock or partnership interests or
issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of such capital stock or partnership
interests;
- purchase, redeem or otherwise acquire any shares of capital stock, or any
options, warrants or rights to acquire, or security convertible into,
shares of capital stock of Weeks, Weeks OP, Duke or Duke OP, as
applicable, except (1) pursuant to outstanding agreements, (2) in
connection with the use of Duke or Weeks common shares to pay the exercise
price or tax withholding obligation upon the exercise of a stock option
issued under any of the stock plans as presently permitted under those
plans, or (3) pursuant to Weeks' dividend reinvestment plan, Duke's
dividend reinvestment plan and Duke's employee stock purchase plan, each
as presently in effect;
- issue, deliver, sell or grant any option or other right in respect of any
shares of capital stock, any other voting or redeemable securities of
Weeks or any Weeks subsidiary or Duke or any Duke subsidiary or any
securities convertible into, or any rights, warrants or options to
acquire, any such shares, voting securities, or convertible or redeemable
securities, except to Weeks or a Weeks subsidiary or to Duke or a Duke
subsidiary, except (1) as permitted or required under outstanding
agreements and stock options, (2) with regard to Weeks' dividend
reinvestment plan, Duke's dividend reinvestment plan and Duke's employee
stock purchase plan, and (3) in the case of Duke, except for bona fide
financing transactions involving not more than $150,000,000 in the
aggregate;
- amend their organizational documents, other than as contemplated by the
merger agreement;
- merge, consolidate or enter into any other business combination with any
person;
- (1) acquire or agree to acquire any business or any entity; (2) mortgage
or otherwise encumber or subject to any lien or sell, lease or otherwise
dispose of any of its material properties or assets or assign or encumber
the right to receive income, dividends, distributions and the like or
agree to do any of the foregoing; or (3) incur any indebtedness for
borrowed money or guarantee any indebtedness of another person, issue or
sell any debt securities or warrants or other rights to acquire any debt
securities, guarantee any debt securities of another person, enter into
any "keep well" or other agreement to maintain any financial statement
condition of another person or enter into any arrangement having the
economic effect of any of the foregoing or prepay or refinance any
indebtedness or make any loans, advances or capital contributions to, or
investments in, any other person;
- in the case of Weeks, make any election relating to taxes, other than an
election which is not reasonably expected to affect the amount or timing
of items of income, gain, loss or deductions of greater than $10,000,000
on a cumulative basis or taxes in any year of greater than $1,000,000
(unless, after prior consultation with Duke, such action is required by
law or necessary to preserve Weeks' status as a REIT or the status of
Weeks OP or any other Weeks subsidiary as a partnership for federal tax
purposes);
- (1) change in any material manner any of its methods, principles or
practices of accounting or (2) settle or compromise any claim, action,
suit, litigation, proceeding, arbitration, investigation, audit or
controversy relating to taxes, except in the case of settlements or
compromises relating to taxes on real property or sales taxes in an amount
not to exceed, individually or in the aggregate, $5,000,000, except, in
the case of clause (1), as may be required by the Securities and Exchange
Commission, applicable law or Generally Accepted Accounting Principles;
- adopt any new employee benefit or similar welfare plan, or amend any
existing plan or rights, or enter into or amend any employment agreement
or, except in the ordinary course consistent with past practice, grant any
increase in the compensation of officers or employees;
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- in the case of Weeks, settle any shareholder derivative or class action
claims arising out of or in connection with any of the transactions
contemplated by the merger agreement; and
- enter into or modify any agreement or arrangement with affiliates,
officers or directors.
OTHER AGREEMENTS. Duke and Weeks also have agreed that:
- each will use its commercially reasonable efforts to obtain all required
consents to the transactions contemplated by the merger agreement;
- upon and after the effective time, the combined company will provide
benefits to former employees of Weeks and Weeks subsidiaries which are no
less favorable in the aggregate to such employees than those provided to
similarly situated employees of Duke and Duke OP;
- as of the effective time, each outstanding Weeks stock option will be
assumed by Duke and will be deemed to constitute an option to acquire, on
the same terms and conditions as were applicable under such Weeks stock
option, the same number of Duke common shares as the holder of such Weeks
stock option would have been entitled to receive pursuant to the merger
had the holder exercised the Weeks stock option in full immediately prior
to the effective time, at a price per share equal to the aggregate
exercise price for the shares subject to the Weeks stock option divided by
the number of full Duke common shares deemed to be purchasable pursuant to
the Weeks stock option. Prior to the effective time, Weeks will use its
commercially reasonable efforts to obtain any necessary consents and will
make any amendments to and take any actions in respect of any Weeks stock
plans, Weeks stock options or restricted stock award to the extent
consents or amendments are necessary to give effect to the foregoing;
- at the effective time, Duke will assume the Weeks stock plans, and the
compensation committee of the Board of Directors of Duke will administer
the Weeks stock plans. At the effective time, the Weeks stock plans will
be amended so that no further options shall be issued thereunder;
- Weeks will either (1) redeem, effective immediately prior to the effective
time, all the then outstanding "Rights" under its existing Rights
Agreement for cash pursuant to and in compliance with the Rights Agreement
or (2) take such other action to terminate the Rights Agreement as of that
time, as Weeks and Duke may mutually agree. Weeks will not redeem the
Rights issued under the Rights Agreement, or terminate the Rights
Agreement, prior to the effective time (other than in accordance with the
preceding sentence) unless required to do so by a court of competent
jurisdiction;
- each of Duke and Weeks will coordinate with the other regarding the
declaration and payment of dividends and distributions in respect of Duke
common shares, Weeks common shares, Duke OP common units and Weeks OP
common units;
- at the closing, Duke OP will amend the partnership agreement of Duke OP to
provide that (1) any former limited partners of Weeks OP, as well as
current or future limited partners of Duke OP will be permitted to elect
to become liable to Duke OP to restore a negative capital account balance
upon the liquidation of the partner's interest in Duke OP, up to an agreed
upon dollar amount, (2) Duke OP will use commercially reasonable efforts
during the 10 year period following the effective date of the OP merger to
maintain an amount of "recourse" debt equal to or greater than the
aggregate amount of Duke OP recourse debt as to which one or more current
or future partners have agreed, or will agree in the future, to bear the
economic risk of loss through deficit make-up obligations, indemnity
agreements or otherwise (which will initially be limited to an aggregate
of $100 million for former Weeks OP partners); (3) appropriate provisions
be made to replicate the terms of the outstanding Series A, C and D
classes of preferred units of Weeks OP; (4) approval of the Asset
Committee of the Duke Board be required for a period of 10 years following
the closing date of the OP merger, for any proposed sale (or series of
related sales) of properties acquired from
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Weeks OP in the OP merger which have an aggregate value in excess of $50
million, if such proposed sale is reasonably likely to result in adverse
tax consequences to the former Weeks OP unitholders; (5) the "traditional
method" of accounting be used for differences between the tax basis and
fair market value of properties acquired from Weeks OP; (6) Duke and Duke
OP will assume existing lock-up restrictions on the resale of certain
properties acquired from Weeks OP; (7) Duke withdraw as general partner of
Duke OP and be replaced by a wholly owned subsidiary of Duke; (8) Duke OP
units may be freely pledged without general partner consent; and (9)
uncertificated OP units may be issued; and
- Weeks and Duke will establish an interim transactions committee which will
review and jointly evaluate acquisition, budget and capital improvement
activities of each of Weeks and Duke between the date of the merger
agreement and the effective time.
NO SOLICITATION OF TRANSACTIONS
In the merger agreement, each of Duke and Weeks has agreed that it will not
directly or indirectly, through any representative, solicit, encourage or
facilitate any inquiries or the making of any proposal or other action that
constitutes, or may reasonably be expected to lead to (other than the
transactions expressly provided for in the merger agreement):
- any merger, consolidation, share exchange, business combination or similar
transaction involving Duke (or any of its subsidiaries, including Duke OP)
or Weeks (or any of its subsidiaries, including Weeks OP), as the case may
be;
- any sale, lease, exchange, mortgage, pledge, transfer or other disposition
of 20% or more of the assets of Duke and its subsidiaries, taken as a
whole, or Weeks and its subsidiaries, taken as a whole, as the case may
be, in a single transaction or series of related transactions;
- any tender offer or exchange offer for 20% or more of the outstanding
equity securities of Duke (or any of its subsidiaries, including Duke OP)
or Weeks (or any of its subsidiaries, including Weeks OP); or
- any public announcement of a proposal, plan or intention to do any of the
foregoing or any agreement to engage in any of the foregoing, or enter
into or maintain or continue discussions or negotiate with any person in
furtherance of such inquiries.
Duke and Weeks also agreed to notify the other in writing (as promptly as
practicable) of all of the relevant details relating to all inquiries and
proposals of the types described above which it or any of its subsidiaries or
any representative may receive and if the inquiry or proposal is in writing,
each of Duke and Weeks is required to deliver to the other a copy of the inquiry
or proposal.
Notwithstanding the foregoing, however, each of Duke and Weeks may, to the
extent required by the fiduciary obligations of either the Duke Board or the
Weeks Board: (1) disclose to its shareholders any information required to be
disclosed under applicable law; (2) to the extent applicable, comply with Rule
14e-2(a) promulgated under the Securities Exchange Act of 1934 with respect to a
competing transaction, (3) in response to an unsolicited request, participate in
discussions or negotiations with or furnish information with respect to it
pursuant to a confidentiality agreement in connection with a Superior Competing
Transaction (as defined below), provided it has notified the other party of such
unsolicited request in accordance with the terms of the merger agreement; and
(4) approve and recommend (and in connection therewith, withdraw or modify its
approval of the merger) a Superior Competing Transaction or enter into an
agreement with respect to a Superior Competing Transaction. A "Superior
Competing Transaction" is defined in the merger agreement to mean a bona fide
proposal for a competing transaction made by a third party which a majority of
the directors of Duke or Weeks, as applicable, determines in good faith (after
consultation with its financial advisor) to be more favorable to its
shareholders than the proposed merger and OP merger.
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TERMINATION
The merger agreement may be terminated at any time prior to the filing of a
certificate of merger for the OP merger with the Secretary of State of Indiana
and the Secretary of State of Georgia, whether before or after any or all of the
shareholder approvals are obtained:
(1) by mutual written consent duly authorized by the Duke Board of
Directors and Weeks Board of Directors;
(2) by Duke, upon a breach of any representation, warranty, covenant or
agreement on the part of Weeks or if any representation or warranty of Weeks
shall have become untrue, in either case such that the conditions to the
merger would be incapable of being satisfied by December 31, 1999 (as
otherwise extended);
(3) by Weeks, upon a breach of any representation, warranty, covenant or
agreement on the part of Duke or if any representation or warranty of Duke
shall have become untrue, in either case such that the conditions to the
merger would be incapable of being satisfied by December 31, 1999 (as
otherwise extended);
(4) by either Duke or Weeks, if any judgment, injunction, order, decree
or action by any governmental entity of competent authority preventing the
consummation of the merger or the OP merger has become final and
nonappealable;
(5) by either Duke or Weeks, if the merger has not been consummated
before December 31, 1999; provided, however, that a party that has
materially breached a representation, warranty or covenant of that party in
the merger agreement will not be entitled to exercise its right to terminate
under this provision;
(6) by Duke or Weeks (unless Weeks is in breach of certain obligations
under the merger agreement) if, upon a vote at a duly held Weeks
shareholders meeting or any adjournment, the Weeks shareholders have not
approved the merger;
(7) by Weeks or Duke (unless Duke is in breach of certain obligations
under the merger agreement) if, upon a vote at a duly held Duke shareholders
meeting or any adjournment the Duke shareholders have not approved the
merger;
(8) by Weeks, prior to the Weeks shareholders meeting and not less than
30 days after the Weeks Board of Directors has withdrawn or modified in any
manner adverse to Duke or Duke OP its approval or recommendation of the
merger, the OP merger or the merger agreement or the OP merger agreement in
connection with, or approved or recommended, a Superior Competing
Transaction;
(9) by Duke, prior to the Duke shareholders meeting and not less than 30
days after the Duke Board of Directors has withdrawn or modified in any
manner adverse to Weeks or Weeks OP its approval or recommendation of the
merger, the OP merger or the merger agreement or the OP merger agreement in
connection with, or approved and recommended, a Superior Competing
Transaction;
(10) by Duke, if (i) prior to the Weeks shareholders meeting the Weeks
Board of Directors or any committee has withdrawn or modified in any manner
adverse to Duke its approval or recommendation of the merger, the OP merger
or the merger agreement or the OP merger agreement in connection with, or
approved or recommended, any Superior Competing Transaction, (ii) Weeks or
Weeks OP has entered into any agreement with respect to any competing
transaction, or (iii) the Weeks Board or any committee has resolved to do
any of the above; or
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(11) by Weeks, if (i) prior to the Duke shareholders meeting the Duke
Board of Directors or any committee has withdrawn or modified in any manner
adverse to Weeks its approval or recommendation of the merger or the OP
merger or the merger agreement or the OP Agreement in connection with, or
approved or recommended, a Superior Competing Transaction, (ii) Duke or Duke
OP shall have entered into any agreement with respect to any competing
transaction, or (iii) the Duke Board of Directors or any committee shall
have resolved to do any of the above.
If the merger agreement is terminated under the circumstances described in
paragraph 2 or 6 above, then Weeks will be obligated to reimburse Duke for
expenses incurred by Duke in connection with the merger, up to a maximum amount
of $5 million. If, within 12 months following any such termination, Weeks
consummates a competing transaction or enters into a definitive agreement with
regard to a competing transaction, then Weeks will also be obligated to pay Duke
a termination fee of $50 million, less the amount of any termination expenses
previously reimbursed. If the merger agreement is terminated under the
circumstances described in paragraph 8 or 10 above, then Weeks is obligated to
pay Duke a termination fee of $50 million less the amount of any termination
expenses previously reimbursed.
If the merger agreement is terminated under the circumstances described in
paragraphs 3 or 7 above, then Duke will be obligated to reimburse Weeks for
expenses incurred by Weeks in connection with the merger, up to a maximum amount
of $5 million. If within 12 months following any such termination, Duke
consummates a competing transaction or enters into a definitive agreement with
regard to a competing transaction, then Duke will also be obligated to pay Weeks
a termination fee of $50 million, less the amount of any termination expenses
previously reimbursed. If the merger agreement is terminated under the
circumstances described in paragraph 9 or 11 above, then Duke is obligated to
pay Weeks a termination fee of $50 million less the amount of any termination
expenses previously reimbursed.
In the event of termination of the merger agreement by either party, the
merger agreement will become void and have no effect except to the extent that
such termination results from a willful breach by a party of any of its
representations, warranties, covenants or agreements.
INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE
Duke has agreed to indemnify and hold harmless each director and officer of
Weeks and any subsidiary of Weeks in connection with any threatened or actual
claim, action or investigation arising out of the fact that such person is or
was a director or officer of Weeks or any Weeks subsidiary at or prior to the
effective time, including all indemnified liabilities based on, or arising out
of, or pertaining to the merger agreement, the merger, the OP merger or the
transactions contemplated by the merger agreement or the OP merger agreement.
In addition, Duke has agreed that at or prior to the effective time, Duke
will purchase directors' and officers' liability insurance "tail" policy
coverage for Weeks' directors and executive officers for a period of six years,
which will provide the directors and officers with coverage on substantially
similar terms as currently provided by Weeks to such directors and officers for
claims based on activity prior to the effective time; provided, however, that
Duke will have no obligation to pay more than $250,000 in premiums for the
coverage.
AMENDMENT AND WAIVER
The merger agreement may be amended by the parties in writing by action of
their respective Boards at any time before or after any shareholder approvals,
the Weeks OP approvals and the Duke OP approvals are obtained and prior to the
filing of the articles of merger for the merger with the Secretary of State of
Indiana and the Secretary of State of Georgia and a certificate of merger for
the OP merger with the Secretary of State of Indiana and the Secretary of State
of Georgia; provided however that, after any of the stockholder approvals, the
Weeks OP approvals and the Duke OP approvals are obtained, amendments,
modifications or supplements must not alter the amount or change the form of the
consideration to be delivered to Weeks' or Duke's shareholders or alter or
change any of the terms or conditions of the merger agreement if the alteration
or change would adversely affect Weeks' shareholders or Duke's shareholders, or
the Weeks limited partners or Duke limited partners.
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COMPARISON OF SHAREHOLDER RIGHTS
The rights of Duke shareholders are currently governed by the Indiana
Business Corporation Law (the "IBCL") and the Amended and Restated Articles of
Incorporation and the Amended and Restated Bylaws of Duke (the "Duke Charter"
and the "Duke Bylaws," respectively). The rights of Weeks shareholders are
currently governed by the Georgia Business Corporation Code (the "GBCC") and the
Restated Articles of Incorporation and the Third Amended and Restated Bylaws of
Weeks (the "Weeks Charter" and "Weeks Bylaws," respectively).
The following discussions are not intended to be complete and are qualified
by reference to the IBCL, the GBCC, the Duke Charter, the Duke Bylaws, the Weeks
Charter and the Weeks Bylaws. Copies of the Duke Charter, the Duke Bylaws, the
Weeks Charter and the Weeks Bylaws are incorporated by reference herein and will
be sent to holders of Duke shares and Weeks shares upon request. See "Where You
Can Find More Information."
As part of the merger, Duke's name will be changed to Duke-Weeks Realty
Corporation for two years after the merger and then to Duke Realty Corporation
following that two year period, unless the combined company's Board of Directors
recommends against changing the name, and the total number of authorized common
shares will be increased to 250,000,000.
In addition, at the Duke annual meeting, shareholders will be asked to
approve the following additional amendments to the Duke Charter:
- increasing the maximum number of directors from 15 to 23;
- changing the existing requirement that 80% of the shares of CAPITAL STOCK
of Duke approve certain amendments to Duke's Articles of Incorporation to
require the approval of 80% of the COMMON SHARES of Duke; and
- changing the existing requirement that 80% of the shares of capital stock
approve any amendment to the provisions of the Articles of Incorporation
relating to the number, classes, term of office and qualifications of
directors to require the approval of a majority of the common shares of
Duke.
AUTHORIZED CAPITAL
Duke is currently authorized to issue 155,000,000 shares of capital stock,
of which 150,000,000 are common shares and 5,000,000 are preferred shares. As a
result of the merger, the number of authorized shares will be 255,000,000, of
which 250,000,000 will be common shares and 5,000,000 will be preferred shares.
The Duke Charter authorizes the Duke Board, without shareholder approval, to
provide for the issuance of Duke preferred shares in one or more series and to
fix the designations and the powers, preferences, conversion and other rights,
voting rights, restrictions and limitations as to dividends, liquidation
preference, qualifications and terms and conditions of redemption as the Duke
Board may determine.
Weeks is authorized to issue 100,000,000 common shares and 20,000,000
preferred shares.
The Weeks Charter authorizes the Weeks Board, without shareholder approval,
to provide for the issuance of Weeks preferred shares in one or more series and
to fix the designations and the powers, preferences, conversion and other
rights, voting rights, restrictions and limitations as to dividends, liquidation
preference, qualifications and terms and conditions of redemption as the Weeks
Board may determine.
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VOTING
Each holder of Duke common shares is entitled to one vote per share and to
the same and identical voting rights as other holders of Duke common shares.
Holders of Duke common shares do not have cumulative voting rights. Except as
may otherwise be provided in the Duke Charter, a designation of a series of Duke
preferred shares or as otherwise expressly required by law, holders of Duke
preferred shares do not have any voting rights.
Each holder of Weeks common shares is entitled to one vote per share and to
the same and identical voting rights as other holders of Weeks common shares.
Holders of Weeks common shares do not have cumulative voting rights. Holders of
Weeks preferred shares have such voting rights, if any, as established by the
Weeks Board in the designation of a series of Weeks preferred shares or as
otherwise expressly required by law.
BOARD OF DIRECTORS
The Duke Charter and Duke Bylaws currently provide that the number of
directors will be between five and 15. A proposed additional amendment to the
Duke Charter, if approved, will increase the Board to no more than 23 directors.
The directors are divided into three classes and hold office for staggered three
year terms.
The Weeks Bylaws currently provide that the number of directors will be
eleven. The Weeks directors are divided into three classes and serve staggered
three year terms pursuant to the Weeks Charter.
REMOVAL OF DIRECTORS
Under the IBCL, directors may be removed in any manner provided in the
articles of incorporation. In addition, directors may be removed by the
shareholders and directors with or without cause unless the articles of
incorporation specify otherwise. The Duke Charter provides that a director may
be removed for cause by the affirmative vote of a majority of the shareholders
at a meeting called expressly for such purpose.
The GBCC provides that if the directors have staggered terms, directors may
be removed only for cause, unless the articles of incorporation provide
otherwise. The Weeks Charter has not modified this provision.
SPECIAL MEETINGS OF THE SHAREHOLDERS
The IBCL provides that a special meeting of shareholders may be called by
the Board of Directors or persons specifically authorized to do so by the
articles of incorporation or bylaws and if no percentage of votes necessary to
demand such a meeting is specified, the demand must be made by the holders of
all of the votes entitled to be cast on the issue.
Pursuant to the Duke Bylaws, a special meeting of the shareholders may be
called at any time by the chairman of the Board of Directors, a majority of the
Board of Directors, a majority of unaffiliated directors, the president of Duke
or at the request of the owners of 10% of the outstanding common shares entitled
to vote.
Under the GBCC, a special meeting of shareholders may be called by the
holders of 25% of shares entitled to vote, or such greater or lesser percentage
as is provided in the articles of incorporation or bylaws.
The Weeks Bylaws provide that special meetings of the shareholders may be
called by the Board of Directors or by the chairman of the Board, and upon the
written request of more than 50% of the outstanding shares entitled to vote.
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SHAREHOLDER ACTION BY WRITTEN CONSENT
The IBCL permits shareholders to act without a meeting only by unanimous
written consent.
The Duke Charter prohibits shareholder action by written consent in lieu of
a meeting.
Under the GBCC, shareholders may act without a meeting if the action is
taken by all the shareholders entitled to vote on the action or, if provided in
the articles of incorporation, by the number of shares necessary to take the
action at a meeting. The Weeks Charter has not modified the GBCC requirement
that actions without a meeting be taken by all the shareholders.
APPRAISAL RIGHTS IN MERGERS AND REORGANIZATIONS
The GBCC and the IBCL allow shareholders, under certain circumstances, to
dissent from certain corporate transactions and to receive fair value for their
shares in lieu of the consideration they would otherwise receive in the
transaction.
Under the IBCL, there are no dissenters' rights for shareholders of a
company which has shares registered on a national securities exchange or traded
through the NASDAQ National Market System.
Under the GBCC, there are no dissenters' rights for shareholders of a
company which has shares registered on a national securities exchange or are
held of record by more than 2,000 shareholders, unless pursuant to a plan of
merger the holders of shares are required under the plan of merger to accept for
their shares anything except shares of the surviving corporation, which are
registered on a national securities exchange as of the effective date of the
merger or if the articles of incorporation or a resolution of the Board of
Directors approving the transaction provides otherwise.
POWER TO ADOPT, AMEND OR REPEAL BY-LAWS
The IBCL and the GBCC reserve the power to amend or repeal by-laws solely to
the corporation's Board of Directors unless the articles of incorporation
provide otherwise.
The Duke Charter allows the shareholders or the directors to amend or repeal
any provision of the bylaws by a majority vote.
The Weeks Bylaws permit amendment by a majority of the Board, but any bylaws
adopted by the Board of Directors may be amended or new bylaws adopted, by a
majority shareholder vote. The Weeks Bylaws also permit shareholders to
prescribe that any bylaw adopted by them may not be amended or repealed by the
Board of Directors.
AMENDMENT OF ARTICLES OF INCORPORATION
Under the IBCL, certain amendments to the Duke Charter are permitted without
shareholder action; however, shareholders are entitled to vote on a proposed
amendment if the amendment would (1) increase or decrease the aggregate number
of authorized shares of the class; (2) effect an exchange or reclassification of
all or part of the shares of the class into shares of another class; (3) effect
an exchange or reclassification, or create the right of exchange, of all or part
of the shares of another class into shares of the class; (4) change the
designation, rights, preferences, or limitations of all or part of the shares of
the class; (5) change the shares of all or part of the class into a different
number of shares of the same class; (6) create a new class of shares having
rights or preferences with respect to distributions or to dissolution that are
prior, superior, or substantially equal to the shares of the class (except for
any series created by the Duke Board as permitted by the Duke Charter); (7)
increase the rights, preferences, or number of authorized shares of any class
that, after giving effect to the amendment, have rights or preferences with
respect to distributions or to dissolution that are prior, superior, or
substantially equal to the shares of the class; (8) limit or deny an existing
preemptive right of all or part of the shares of the class; or (9) cancel or
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otherwise affect rights to distributions or dividends that have accumulated but
not yet been declared on all or part of the shares of the class.
Article XI of Duke's Charter provides that either the shareholders or the
Board of Directors may amend or repeal certain provisions of the Duke Charter by
a majority vote and other specified provisions may only be amended or repealed
by an 80% vote of the issued and outstanding shares of capital stock.
The GBCC provides for voting substantially similar to the voting provisions
enumerated in the IBCL, but also requires a shareholder vote if a proposed
amendment would cancel, redeem or repurchase all or part of the shares of the
class.
The affirmative vote of a majority of shareholders is required to amend the
Weeks Charter.
ANTI-TAKEOVER STATUTES
Chapter 43 of the IBCL generally prohibits a "resident domestic corporation"
of Indiana, such as Duke, from engaging in any "Business Combination" (as
defined below) with any "Interested Shareholder" (defined generally as any
person that, individually or with or through any of its affiliates or
associates, beneficially owns 10% or more of the outstanding voting securities
of a corporation) for a period of five years after the date the person becomes
an Interested Shareholder unless, before such person became an Interested
Shareholder, the Board of Directors of the corporation approved either the
business combination or the purchase of more than 10% of the corporation's
voting securities by the Interested Shareholder. Chapter 43 also provides that a
resident domestic corporation may not engage in a merger or other business
combination with an Interested Shareholder at any time unless one of three
conditions is satisfied: (1) the Board of Directors of the corporation had,
before such person became an Interested Shareholder, approved either the
business combination or the purchase of more than 10% of the corporation's
voting securities by the Interested Shareholder; (2) certain "fair price"
criteria are satisfied (including a requirement that the Interested Shareholder
and its affiliates and associates have not purchased any additional shares after
first acquiring 10% of the corporation's voting securities); or (3) five years
have passed since the Interested Shareholder acquired more than 10% of the
corporation's voting securities and the Business Combination is approved by a
majority of the "disinterested" voting securities of the corporation.
A "Business Combination" is defined in Chapter 43 of the IBCL as (1) any
merger of a resident domestic corporation or any of its subsidiaries with (A) an
Interested Shareholder or (B) any other corporation which is, or after a merger
or consolidation would be, an affiliate or associate of an Interested
Shareholder; (2) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or with an
Interested Shareholder or any of its affiliates or associates of assets of a
resident domestic corporation or any of its subsidiaries (A) having an aggregate
market value equal to 10% or more of the aggregate market value of all assets,
determined on a consolidated basis, of the resident domestic corporation, (B)
having an aggregate market value equal to 10% or more of the aggregate market
value of all the outstanding shares of the resident domestic corporation, or (C)
representing 10% or more of the earning power or net income, determined on a
consolidated basis, of the resident domestic corporation; (3) the issuance or
transfer by a resident domestic corporation or any of its subsidiaries (in one
transaction or a series of transactions) of any shares of the resident domestic
corporation or any of its subsidiaries which has an aggregate market value equal
to 5% or more of the aggregate market value of all the outstanding shares of the
resident domestic corporation to an Interested Shareholder or any of its
affiliates or associates, except pursuant to the exercise of warrants or rights
to purchase shares offered, or a dividend or distribution or made pro rata to
all shareholders of the resident domestic corporation; (4) the adoption of a
plan of liquidation or plan of dissolution of a resident domestic corporation
proposed by, or pursuant to any agreement, arrangement or understanding with, an
Interested Shareholder or any of its affiliates or associates; (5) any
reclassification of securities including, without limitation, any share split,
share dividend or other distribution of shares in respect of
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shares, or any reverse share split), or recapitalization of a resident domestic
corporation, or any merger or consolidation of a domestic corporation with any
of its subsidiaries, or any other transaction (whether or not with or into or
otherwise involving an Interested Shareholder), proposed by, or pursuant to any
agreement, arrangement or understanding with, an Interested Shareholder or any
of its affiliates or associates, which has the effect, directly or indirectly,
of increasing the proportionate share of the outstanding shares of any class or
series of voting shares or securities convertible into voting shares of a
resident domestic corporation or any of its subsidiaries which is directly or
indirectly owned by the Interested Shareholder or any of its affiliates or
associates (except as a result of immaterial changes due to fractional share
adjustments); or (6) any receipt by an Interested Shareholder or any of its
affiliates or associates, directly or indirectly (except proportionally as a
shareholder of the resident domestic corporation), of any loans, advances,
guarantees, pledges or other financial assistance or any tax credits or tax
advantages provided by or through a resident domestic corporation.
The GBCC restricts certain business combinations with "interested
shareholders" (as defined below) (the "Business Combination Statute") and
contains fair price requirements applicable to certain mergers with certain
interested shareholders (the "Fair Price Statute"). In accordance with the
provisions of these statutes, a company must elect in its articles or bylaws to
be covered by the restrictions imposed by these statutes. Weeks has not elected
to be covered by such restrictions; however, Weeks, by action of the Board of
Directors without shareholder approval, may in the future amend the Weeks Bylaws
to make such an election. Furthermore, shareholders may amend or repeal the
Weeks Bylaws or adopt new Weeks Bylaws (even though the Bylaws may also be
amended or repealed by its Board of Directors) and may also expressly provide
that any Bylaw so amended or repealed by them may not be amended or repealed by
the Board of Directors.
The Business Combination Statute regulates business combinations such as
mergers, consolidations, share exchanges and asset purchases where the acquired
business has at least 100 shareholders residing in Georgia and has its principal
office in Georgia, as Weeks does, and where the acquiror became an interested
shareholder of the corporation, unless either (1) the transaction resulting in
such acquiror becoming an interested shareholder or the business combination
received the approval of the corporation's board of directors prior to the date
on which the acquiror became an interested shareholder, or (2) the acquiror
became the owner of at least 90% of the outstanding voting shares of the
corporation (excluding shares held by directors, officers and affiliates of the
corporation and shares held by certain other persons) in the same transaction in
which the acquiror became an interested shareholder. For purposes of the
Business Combination Statute and the Fair Price Statute, an "interested
shareholder" generally is any person who directly or indirectly, alone or in
concert with others, beneficially owns or controls 10% or more of the voting
power of the outstanding voting shares of the corporation. The Business
Combination Statute prohibits business combinations with an unapproved
interested shareholder for a period of five years after the date on which such
person became an interested shareholder. The Business Combination Statute is
broad in its scope and is designed to inhibit unfriendly acquisitions.
The Fair Price Statute prohibits certain business combinations between a
Georgia corporation and an interested shareholder. The Fair Price Statute would
permit the business combination to be effected if (1) certain "fair price"
criteria are satisfied, (2) the business combination is unanimously approved by
the continuing directors, (3) the business combination is recommended by at
least two-thirds of the continuing directors and approved by a majority of the
votes entitled to be cast by holders of voting shares, other than voting shares
beneficially owned by the interested shareholder, or (4) the interested
shareholder has been such for at least three years and has not increased his
ownership position in such three-year period by more than one percent in any
twelve month period. The Fair Price Statute is designed to inhibit unfriendly
acquisitions that do not satisfy the specified "fair price" requirements.
The Duke Charter contains a business combination provision ("Article IX")
similar to the IBCL and the GBCC. However, Article IX defines a "business
combination" differently than either the IBCL or the
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GBCC and, as a result, may afford protection to Duke's shareholders in certain
situations in which Chapter 43 would not apply.
SHAREHOLDER RIGHTS AGREEMENTS
Each of Duke and Weeks has a rights agreement pursuant to which common
shareholders are granted rights to purchase fractional interests in preferred
shares of the companies upon the occurrence of certain triggering events. The
Weeks shareholder rights plan and rights agreement will be terminated
immediately prior to the effective time of the merger pursuant to the terms of
the merger agreement. Each Weeks shareholder entitled to receive Duke common
shares pursuant to the merger will also receive associated rights to purchase
fractional interests in Duke preferred shares pursuant to the terms of the Duke
rights agreement, dated as of July 23, 1998.
Under the Duke rights agreement, each common shareholder receives a dividend
of one right (a "Right") for each outstanding Duke common share which entitles
the holder to purchase 1/1,000 of a Series C Junior Preferred Share (a "Unit")
of Duke at a purchase price of $95.00 per Unit, subject to adjustment to prevent
dilution (the "Series C Purchase Price"). Generally, each Unit has substantially
the same voting rights as one Duke common share. The Rights expire on July 23,
2008 unless redeemed earlier by Duke.
Generally, the Rights become exercisable if:
- any person or group becomes the beneficial owner of 15% or more of the
outstanding common shares of Duke (such person being an "Acquiring Person"
and the date of the announcement being the "Stock Acquisition Date");
- a majority of the directors serving on the Duke Board immediately prior to
the Stock Acquisition Date or the directors appointed by such directors
(the "Continuing Directors") declare that a 10% common shareholder is a
detriment to the interests of Duke (an "Adverse Person");
- a person or group commences a tender offer that would result in a person
acquiring 15% of the then outstanding common shares, unless the tender
offer is for all outstanding shares and deemed fair by a majority of the
Continuing Directors; or
- it is publicly announced that a person or affiliated group has acquired
40% or more of the then outstanding common shares of Duke.
Under certain circumstances, once the Rights are exercisable, each holder of
a Right, except any Acquiring Person or Adverse Person, may receive, upon
exercise, Units having a value equal to two times the Series C Purchase Price.
Additionally, upon the acquisition or sale of Duke, each holder of a Right may
receive, upon exercise, common stock of the Acquiring Person or Adverse Person
having a value equal to two times the exercise price of the Right.
At any time before the Rights are exercisable, a majority of the Continuing
Directors of Duke may redeem the Rights at a price of $.0025 per Right, or
exchange the Rights for Duke common shares at an exchange ratio determined
pursuant to the Rights Agreement.
The Rights may have certain anti-takeover effects and will cause substantial
dilution to a person or group that attempts to acquire Duke on terms not
approved by a majority of the Continuing Directors, unless the offer is
conditioned on a number of the Rights being acquired. However, the Rights should
not interfere with any merger approved by a majority of the Continuing Directors
because the Rights may be redeemed by Duke. Thus, the Rights are intended to
encourage persons that seek to acquire control of Duke to initiate such an
acquisition through negotiations with the Board of Directors. To the extent any
potential acquirors are deterred by the Rights, the Rights may have the effect
of preserving incumbent management in office.
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INDIANA CONTROL SHARE ACQUISITION STATUTE
Indiana has a control share acquisition statute, which generally provides
that any person or group of persons that acquires the power to vote more than
specified levels (one-fifth, one-third or a majority) of the shares of certain
domestic corporations in transactions not approved by the corporation's Board of
Directors will not have the right to vote such shares unless granted voting
rights by the holders of a majority of the votes entitled to be cast, excluding
"Interested Shares." "Interested Shares" are those shares held by the acquiring
person, officers of the corporation and employees of the corporation who are
also directors of the corporation. If approval of voting power for the shares is
obtained at one of the specified levels, additional shareholder approvals are
required when a shareholder seeks to acquire the power to vote shares at the
next level. In the absence of such approval, the additional shares acquired by
the shareholder may not be voted. The Indiana control share acquisition statute
is applicable only to an Indiana corporation that has (1) 100 or more
shareholders; (2) its principal place of business, its principal office, or
substantial assets within Indiana; and (3) either (A) more than 10% of its
shareholders as residents of Indiana, (B) more than 10% of its shares owned by
Indiana residents, or (C) 10,000 shareholders resident in Indiana. Duke-Weeks
immediately after the merger will meet these requirements and, consequently, the
control share acquisition statute will continue to provide additional deterrents
to acquisitions of control of Duke-Weeks.
ADDITIONAL PROVISIONS OF THE IBCL
The IBCL specifically authorizes directors, in considering the best
interests of a corporation, to consider the effects of any action on
shareholders, employees, suppliers, and customers of the corporation, on
communities in which offices or other facilities of the corporation are located,
and any other factors the directors consider pertinent. Under the IBCL,
directors are not required to approve a proposed business combination or other
corporate action if the directors determine in good faith that such approval is
not in the best interest of the corporation. In addition, the IBCL states that
directors are not required to redeem any rights under or render inapplicable a
shareholder rights plan or to take or decline to take any other action solely
because of the effects such action might have on a proposed change of control of
the corporation or the amounts to be paid to shareholders upon such a change of
control.
In taking or declining to take any action or in making any recommendation to
a corporation's shareholders with respect to any matter, directors are
authorized under the IBCL to consider both the short-term and long-term
interests of the corporation as well as interests of other constituencies and
other relevant factors. Any determination made with respect to the foregoing by
a majority of the disinterested directors is conclusively presumed to be valid
unless it can be demonstrated that the determination was not made in good faith.
These provisions of the IBCL may give the Board of Directors of Duke-Weeks
greater flexibility in responding to acquisition proposals, and accordingly, it
may be more difficult for an acquiror to gain control of Duke-Weeks in a
transaction not approved by the Board of Directors of Duke-Weeks.
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THE PROPOSAL TO INCREASE THE SIZE OF DUKE'S BOARD
THE FOLLOWING DESCRIPTION, WHICH SUMMARIZES A PROPOSED CHANGE TO THE DUKE
ARTICLES OF INCORPORATION, WHICH WOULD INCREASE THE SIZE OF THE DUKE BOARD IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FORM OF THE DUKE ARTICLES OF
INCORPORATION, AMENDED AND RESTATED TO SHOW THE CHANGES IF THE PROPOSAL IS
APPROVED ATTACHED AS ANNEX D HERETO.
The Board of Directors of Duke has unanimously approved the following
additional amendment to Duke's Articles of Incorporation because they believe
the amendment will enable shareholders to realize the full benefits contemplated
by the merger agreement and recommends that Duke's shareholders vote "FOR" the
approval of the proposed amendment to the Duke Articles of Incorporation.
The amendment would expand the maximum number of directors on the Duke Board
from 15 directors to 23 directors. The purpose of this amendment is to expand
the Board in order to include the members of the Weeks Board without having to
require any members of the Duke Board to resign as directors.
The proposed additional charter amendment requires the affirmative vote of
at least 80% of the issued and outstanding common shares and preferred shares of
Duke, voting together as a single class.
At the effective time of the merger, if this additional charter amendment is
approved, Duke's Bylaws will be amended to increase the size of Duke's Board to
23. If the additional charter amendment is not approved, the size of Duke's
Board will remain at 15.
Adoption of the additional charter amendment described above is not a
condition to consummation of the merger.
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THE PROPOSAL FOR ADDITIONAL AMENDMENTS TO DUKE'S ARTICLES
THE FOLLOWING DESCRIPTION, WHICH SUMMARIZES TWO ADDITIONAL PROPOSED CHANGES
TO THE DUKE ARTICLES OF INCORPORATION, IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE FORM OF THE DUKE ARTICLES OF INCORPORATION, AMENDED AND RESTATED TO SHOW
THE CHANGES IF THE PROPOSAL IS APPROVED ATTACHED AS ANNEX D HERETO.
The Board of Directors of Duke has unanimously approved the following
additional amendments to Duke's Articles of Incorporation and recommend that
Duke's shareholders vote "FOR" the approval of the proposed amendments to the
Duke Articles of Incorporation.
- The first amendment would change the existing requirement that 80% of the
outstanding shares of CAPITAL STOCK of Duke approve certain amendments to
Duke's articles of incorporation to require the approval of 80% of the
COMMON SHARES of Duke. The purpose of this amendment is to make Duke's
Articles of Incorporation consistent with the terms of Duke's preferred
shares which have no voting rights except as specified in the designating
amendment creating a particular series of preferred shares. This amendment
will also give Duke-Weeks more flexibility in setting the voting rights of
preferred shares on a series by series basis.
- The second amendment would change the existing requirement that 80% of the
outstanding shares of capital stock of Duke approve any amendment to the
provisions of the Articles of Incorporation relating to the number,
classes, term of office and qualifications of directors to require the
approval of a majority of the common shares of Duke. The purpose of this
amendment is to give Duke what it believes is more customary flexibility
to structure its Board of Directors and to ensure that the common
shareholders who have the right to elect directors without any approval of
the preferred shares, have the right to approve any changes to the
structure of the Board without the approval of the preferred shares.
The proposed additional charter amendments require the affirmative vote of
at least 80% of the issued and outstanding common shares and preferred shares of
Duke, voting together as a single class, and also the affirmative vote of at
least two-thirds of the issued and outstanding shares of each series of
preferred shares.
Adoption of the additional charter amendments is not a condition to
consummation of the merger.
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DESCRIPTION OF DUKE CAPITAL STOCK ISSUED BEFORE THE MERGER
Duke is authorized to issue 150,000,000 common shares, par value $.01 per
share, and 5,000,000 preferred shares, par value $.01 per share. At April 27,
1999, the following Duke shares were outstanding: 86,751,130 common shares,
300,000 9.10% Series A Cumulative Redeemable Preferred Shares, 300,000 7.99%
Series B Cumulative Step-Up Premium Rate(sm) Preferred Shares, 540,000 7.375%
Series D Convertible Cumulative Redeemable Preferred Shares, and 400,000 8.25%
Series E Cumulative Redeemable Preferred Shares.
DESCRIPTION OF COMMON SHARES
The following description of Duke common shares sets forth certain general
terms and is a summary of all material provisions of Duke common shares. The
statements below describing Duke common shares are in all respects subject to
and qualified in their entirety by reference to the applicable provisions of the
Duke Charter and Duke Bylaws.
GENERAL. All common shares issued will be duly authorized, fully paid, and
non-assessable when issued. Duke shareholders will be entitled to receive
dividends when, as and if declared by the Duke Board, out of funds legally
available therefor. Payment and declaration of dividends on Duke common shares
and purchases of common shares by Duke will be subject to certain restrictions
if Duke fails to pay dividends on outstanding preferred shares. See
"--Description of Preferred Shares." Duke intends to continue to pay quarterly
dividends. Upon any liquidation, dissolution or winding up of Duke, holders of
Duke common shares will be entitled to share equally and ratably in any assets
available for distribution to them, after payment or provision for payment of
the debts and other liabilities of Duke and the preferential amounts owing with
respect to any outstanding preferred shares. Holders of Duke common shares have
no preemptive rights, which means they have no right to acquire any additional
shares of Duke common shares that may be issued by Duke at a subsequent date.
Each outstanding Duke common share entitles the holder to one vote on all
matters presented to Duke shareholders for a vote.
Common shares currently outstanding are listed for trading on the New York
Stock Exchange (the "NYSE"). The additional common shares to be issued in the
merger have been approved for listing on the NYSE, subject to official notice of
issuance.
Holders of common shares have no right to cumulative voting for the election
of directors. Consequently, at each annual meeting of shareholders, the holders
of a plurality of the common shares are able to elect all of the successors of
the class of directors whose term expires at that meeting. Directors may be
removed only for cause and only with the affirmative vote of the holders of a
majority of the common shares entitled to vote in the election of directors.
CERTAIN PROVISIONS AFFECTING CHANGE OF CONTROL. Pursuant to the IBCL, Duke
cannot merge with or sell all or substantially all of the assets of Duke, except
pursuant to a resolution approved by shareholders holding a majority of the
shares voting on the resolution. Duke's Articles of Incorporation also contain
provisions which may discourage certain types of transactions involving an
actual or threatened change of control of Duke, including: (1) a requirement
that, in the case of certain mergers, sales of assets, liquidations or
dissolutions, or reclassifications or recapitalizations involving persons owning
10% or more of the capital stock of Duke, such transactions be approved by a
vote of the holders of 80% of the issued and outstanding shares of capital stock
of Duke (or 80% of the issued and outstanding common shares of Duke if certain
additional charter amendments are approved at the Duke annual meeting) or
three-fourths of the continuing directors, or provide for payment of a price to
affected shareholders for their shares not less than as specified in the
Articles of Incorporation; (2) a requirement that any amendment or alteration of
certain provisions of the Articles of Incorporation affecting change of control
be approved by the holders of 80% of the issued and outstanding capital stock of
Duke (or 80% of the issued and outstanding
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common shares of Duke if certain additional charter amendments are approved at
the Duke annual meeting); and (3) a staggered Board of Directors and a
limitation on removal of directors to removal for cause as described above.
The partnership agreement for Duke OP also contains provisions which could
discourage transactions involving an actual or threatened change of control of
Duke, including (1) a requirement that holders of at least 90% of the
outstanding units of limited partnership interest, including units held by Duke,
approve any voluntary sale, exchange or other disposition, including a merger or
consolidation (other than a disposition occurring upon a financing or
refinancing of the Duke OP), of all or substantially all of the assets of Duke
OP in a single transaction or a series of related transactions; (2) a
restriction against any assignment or transfer by Duke of its interest in Duke
OP; and (3) a requirement that holders of more than 90% of the units approve any
merger, consolidation or other combination of Duke with or into another entity,
or sale of all or substantially all of Duke's assets, or any reclassification or
recapitalization or change of outstanding common shares (other than certain
changes in par value, stock splits, stock dividends or combinations) unless
after the transaction substantially all of the assets of the surviving entity
are contributed to Duke OP in exchange for units. On these matters, Duke's units
will be voted at the discretion of the directors of Duke who are not officers or
employees of Duke and do not hold units.
OWNERSHIP LIMITS. For Duke to qualify as a REIT under the Code, no more
than 50% in value of its outstanding capital shares may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year or during a
proportionate part of a shorter taxable year. The common shares must also be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year or during a proportionate part of a shorter taxable year. Because Duke
expects to continue to qualify as a REIT, the Articles of Incorporation of Duke
contain restrictions on the acquisition of common shares intended to ensure
compliance with these requirements.
The Articles of Incorporation contain a restriction which authorizes, but
does not require, the Board of Directors to refuse to give effect to a transfer
of common shares which, in its opinion, might jeopardize the status of Duke as a
REIT. This provision also renders null and void any purported acquisition of
shares which would result in the disqualification of Duke as a REIT. The
provision also gives the Board of Directors the authority to take such actions
as it deems advisable to enforce the provision. Such actions might include, but
are not limited to, refusing to give effect to, or seeking to enjoin, a transfer
which might jeopardize Duke's status as a REIT. The provision also requires any
shareholder to provide Duke such information regarding his direct and indirect
ownership of common shares as Duke may reasonably require.
DESCRIPTION OF PREFERRED SHARES
GENERAL. Subject to the limitations prescribed by the Duke Charter, the
Duke Board is authorized to fix the number of shares constituting each series of
preferred shares and the designations and powers, preferences and relative,
participating, optional or other special rights and qualifications, limitations
or restrictions thereof, including such provisions as may be desired concerning
voting, redemption, dividends, dissolution or the distribution of assets,
conversion or exchange, and such other subjects or matters as may be fixed by
resolution of the Board of Directors. The following description of the preferred
shares sets forth certain general terms and provisions which apply to those
series of preferred shares which the Duke Board has designated through the date
of this joint proxy statement and prospectus. The statements below describing
the preferred shares are in all respects subject to and qualified in their
entirety by reference to the applicable provisions of the Duke Charter and Duke
Bylaws and each amendment to the Duke Charter designating terms of a series of
preferred shares. The preferred shares are fully paid and nonassessable by Duke
and have no preemptive rights.
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RANK. Each series of preferred shares will, with respect to dividend rights
and rights upon liquidation, dissolution or winding up of Duke, rank senior to
all classes or series of common shares of Duke, and on a parity with all other
series of preferred shares.
DIVIDENDS. Holders of the preferred shares of each series will be entitled
to receive, when, as and if declared by the Board of Directors of Duke, out of
assets of Duke legally available for payment, cash dividends at such rates and
on such dates as are set forth in the applicable designating amendment to the
Duke Charter creating the series. Dividends on any series of the preferred
shares may be cumulative or non-cumulative, as provided with regard to a
particular series. Dividends, if cumulative, will be cumulative from and after
the date set forth in the applicable designating amendment.
Holders of the preferred shares will be entitled to receive dividends in
preference to the holders of common shares. When dividends are not paid in full
(or a sum sufficient for such full payment is not so set apart) upon preferred
shares of any series and the shares of any other series of preferred shares
ranking on a parity as to dividends with the preferred shares of such series,
all dividends declared upon preferred shares of such series and any other series
of preferred shares ranking on a parity as to dividends with such preferred
shares shall be declared pro rata.
REDEMPTION. If so provided with regard to a particular series, the
preferred shares will be subject to mandatory redemption or redemption at the
option of Duke, as a whole or in part, in each case upon the terms, at the times
and at the redemption prices set forth in the designating amendment to the Duke
Charter creating the series. A particular series of preferred shares may provide
that the shares may be redeemed only with the proceeds of an equity offering by
Duke.
No shares of any series of preferred shares shall be redeemed unless all
outstanding preferred shares of such series are simultaneously redeemed, unless
full cumulative dividends on all shares of any series of preferred shares shall
have been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for payment for all past dividend
periods and the then current dividend period. However, the foregoing shall not
prevent the purchase or acquisition of preferred shares of such series to
preserve the REIT status of Duke or pursuant to a purchase or exchange offer
made on the same terms to holders of all outstanding preferred shares of such
series.
If fewer than all of the outstanding preferred shares of any series are to
be redeemed, the number of shares to be redeemed will be determined by Duke and
such shares may be redeemed pro rata from the holders of record of such shares
in proportion to the number of such shares held or for which redemption is
requested by such holder (with adjustments to avoid redemption of fractional
shares) or by lot in a manner determined by Duke.
LIQUIDATION PREFERENCE. Upon any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of Duke, then, before any distribution
or payment shall be made to the holders of any common shares or any other class
or series of capital shares of Duke ranking junior to the preferred shares in
the distribution of assets upon any liquidation, dissolution or winding up of
Duke, the holders of each series of preferred shares shall be entitled to
receive out of assets of Duke legally available for distribution to shareholders
liquidating distributions in the amount of the liquidation preference per share
with regard to a particular series, plus an amount equal to all dividends
accrued and unpaid thereon (which shall not include any accumulation in respect
of unpaid dividends for prior dividend periods if such preferred shares does not
have a cumulative dividend).
VOTING RIGHTS. Holders of the preferred shares will have voting rights only
to the extent permitted in the Duke Charter, and as set forth below or as
otherwise from time to time required by law or as indicated in the Duke Charter
amendment designating the series.
Each outstanding series of preferred shares provides that whenever dividends
on any shares of that series shall be in arrears for six or more consecutive
quarterly periods, the holders of those preferred
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shares (voting separately as a class with all other series of preferred shares
upon which like voting rights have been conferred and are exercisable) will be
entitled to vote for the election of two additional directors of Duke at a
special meeting called by the holders of record of at least ten percent (10%) of
any series of preferred shares so in arrears (unless such request is received
less than 90 days before the date fixed for the next annual or special meeting
of the stockholders) or at the next annual meeting of stockholders, and at each
subsequent annual meeting until (1) if such series of preferred shares has a
cumulative dividend, all dividends accumulated on such shares of preferred
shares for the past dividend periods and the then current dividend period shall
have been fully paid or declared and a sum sufficient for the payment thereof
set aside for payment or (2) if such series of preferred shares does not have a
cumulative dividend, four consecutive quarterly dividends shall have been fully
paid or declared and a sum sufficient for the payment thereof set aside for
payment. In such case, the entire Board of Directors of Duke will be increased
by two directors.
Unless provided otherwise for any series of preferred shares, so long as any
preferred shares remain outstanding, Duke will not, without the affirmative vote
or consent of the holders of at least two-thirds of the shares of each series of
preferred shares outstanding at the time, given in person or by proxy, either in
writing or at a meeting (each such series voting separately as a class), (1)
authorize or create, or increase the authorized or issued amount of, any class
or series of capital stock ranking prior to such series of preferred shares with
respect to payment of dividends or the distribution of assets upon liquidation,
dissolution or winding up or reclassify any authorized capital stock of Duke
into such shares, or create, authorize or issue any obligation or security
convertible into or evidencing the right to purchase any such shares; or (2)
amend, alter or repeal the provisions of the Duke Charter or the designating
amendment for such series of preferred shares, whether by merger, consolidation
or otherwise, so as to materially and adversely affect any right, preference,
privilege or voting power of such series of preferred shares or the holders
thereof.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such series of preferred shares shall
have been redeemed or called for redemption and sufficient funds shall have been
deposited in trust to effect such redemption.
CONVERSION RIGHTS. The terms and conditions, if any, upon which any series
of preferred shares is convertible into common shares will be set forth in the
Duke Charter amendment designating the series. Only the holders of the 7.375%
Series D Convertible Cumulative Redeemable Preferred Shares had the right to
convert to common shares.
DESCRIPTION OF DEPOSITARY SHARES
Duke may issue depositary receipts for depositary shares (also referred to
as "preference shares" when they relate to the 8.0% Series F Cumulative
Redeemable Preferred Shares and the 8.625% Series H Cumulative Redeemable
Preferred Shares to be issued to Weeks preferred shareholders in the merger),
each of which will represent a fractional interest of a share of a particular
series of preferred shares. Preferred shares of each series represented by
depositary shares will be deposited under a separate deposit agreement among
Duke, the depositary named therein and the holders from time to time of the
depositary receipts. Subject to the terms of the applicable deposit agreement,
each owner of a depositary receipt will be entitled, in proportion to the
fractional interest of a share of a particular series of preferred shares
represented by the depositary shares evidenced by such depositary receipt, to
all the rights and preferences of the preferred shares represented by such
depositary shares (including dividend, voting, conversion, redemption and
liquidation rights).
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DESCRIPTION OF DUKE CAPITAL STOCK ISSUED IN CONNECTION
WITH THE PROPOSED MERGER
In connection with the proposed merger, Duke will issue to holders of Weeks
Series A Cumulative Redeemable Preferred Shares one preference share
representing 1/1,000 of an 8.0% Series F Cumulative Redeemable Preferred Share
of Duke for each outstanding Series A Cumulative Redeemable Preferred Share of
Weeks. Duke will issue to holders of Weeks Series Cumulative Redeemable D
Preferred Shares (if any) one preference share representing 1/1,000 of an 8.625%
Series H Cumulative Redeemable Preferred Share of Duke for each outstanding
Series D Cumulative Redeemable Preferred Share of Weeks.
8.0% SERIES F CUMULATIVE REDEEMABLE PREFERRED SHARES
Prior to the completion of the merger, Duke will adopt an amendment to its
Articles of Incorporation specifying a series of preferred shares consisting of
up to 7,400 shares, designated 8.0% Series F Cumulative Redeemable Preferred
Shares (the "Series F Preferred Shares"). Preference shares representing
interests in 6,000 Series F Preferred Shares will be issued in the merger.
Preference shares representing interests in up to an additional 1,400 Series F
Preferred Shares are issuable upon conversion of the Series G Preferred Units or
the exercise of a warrant held by the holders of the Series G Preferred Units.
The following summary of the material terms and provisions of the Series F
Preferred Shares is qualified in its entirety by reference to the pertinent
sections of the amendment designating the Series F Preferred Shares, which may
be obtained from Duke.
The transfer agent, registrar and dividends disbursing agent for the Series
F Preferred Shares will be American Stock Transfer & Trust Company.
Each preference share represents a 1/1,000 fractional interest in a Series F
Preferred Share. The Series F Preferred Shares will be deposited with American
Stock Transfer & Trust Company, as depositary, under a deposit agreement which
Duke will enter into with the depositary. The depositary will issue preference
receipts which will evidence the preference shares. Subject to the terms of the
deposit agreement, each holder of a preference receipt evidencing a preference
share will be entitled to all the rights and preferences of a 1/1,000 fractional
interest in a Series F Preferred Share (including distribution, voting,
redemption and liquidation rights and preferences).
The preference shares have been approved for listing on the NYSE, subject to
official notice of issuance. The Series F Preferred Shares will not be listed,
and we do not expect that there will be any trading market for the Series F
Preferred Shares except as represented by preference shares.
RANKING. The Series F Preferred Shares will rank senior to Duke's common
shares with respect to payment of distributions or amounts upon the liquidation,
dissolution or winding up of Duke.
While any Series F Preferred Shares are outstanding, Duke may not authorize,
create or increase the authorized amount of any class of security that ranks
senior to the Series F Preferred Shares with respect to the payment of dividends
or amounts payable upon liquidation, dissolution or winding up, or any class of
security convertible into shares of such a class, without the consent of the
holders of two-thirds of the outstanding Series F Preferred Shares and Parity
Shares (as defined below), voting as a single class. However, Duke may create
additional classes of other stock, increase the authorized number of preferred
shares or issue series of preferred shares ranking on a parity with the Series F
Preferred Shares with respect, in each case, to the payment of dividends and
amounts upon liquidation, dissolution and winding up ("Parity Shares") without
the consent of any holder of Series F Preferred Shares. See "--Voting Rights"
below.
DIVIDENDS. Holders of the Series F Preferred Shares are entitled to
receive, when and as declared by the Board of Directors, out of funds legally
available for the payment of dividends, cumulative dividends at the rate of 8.0%
of the liquidation preference per annum (equivalent to $2.00 per preference
share per
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annum). Dividends are cumulative from the date of original issue and are payable
quarterly in arrears on the last calendar day (or, if such day is not a business
day, the next business day) of each January, April, July and October (each, a
"Quarterly Dividend Date"). Any dividends payable on the Series F Preferred
Shares for any partial dividend period will be computed on a basis of the actual
number of days in such period. Dividends are payable to holders of record as
they appear in the records of Duke at the close of business on the applicable
record date, which is the 15(th) day of the calendar month in which the
Quarterly Dividend Date falls or such other date designated as such by the Board
of Directors of Duke that is not more than 50 nor less than 10 days prior to
such Quarterly Divided Date (each, a "Record Date"). Accrued and unpaid
dividends for any past dividend periods may be declared and paid at any time and
for such interim periods to holders of record on the applicable Record Date. Any
dividend payment made on the Series F Preferred Shares is credited against the
earliest accrued but unpaid dividend due with respect to the Series F Preferred
shares that remains payable.
No dividends may be authorized by the Board of Directors or paid or set
aside for payment if any agreement of Duke prohibits such authorization, payment
or setting apart for payment or provides that such authorization, payment or
setting aside would constitute a breach thereof or a default thereunder, or if
such authorization or payment is restricted or prohibited by law. Dividends on
Series F Preferred Shares accrue whether or not Duke has earnings, whether or
not there are funds legally available for the payment of such dividends and
whether or not such dividends are declared. No interest, or sum of money in lieu
of interest, is payable in respect of any dividend payment or payments on the
Series F Preferred shares that is in arrears. Holders of Series F Preferred
Shares are not entitled to any dividends, whether payable in cash, property or
shares of stock, in excess of the full cumulative dividends, as described
herein, on the Series F Preferred Shares.
If, for any taxable year, Duke elects to designate as "capital gain
dividends" (as defined in Section 857 of the Code) any portion (the "Capital
Gains Amount") of the dividends (within the meaning of the Code) paid or made
available for the year to holders of all classes of capital stock, then the
portion of the Capital Gains Amount that will be allocable to holders of Series
F Preferred Shares will be in the same proportion that the dividends paid or
made available to the holders of Series F Preferred Shares for the year bears to
the dividends.
Except as provided in the next sentence, no dividends may be declared or
paid on any Parity Shares unless full cumulative dividends have been declared
and paid or are contemporaneously declared and funds sufficient for the payment
thereof set aside for such payment on the Series F Preferred shares for all
prior dividend periods. If accrued dividends on the Series F Preferred Shares
for all prior dividend periods have not been paid in full, then any dividend
declared on the Series F Preferred Shares and on any Parity Shares for any
dividend period will be declared ratably in proportion to accrued and unpaid
dividends on the Series F Preferred shares and such Parity Shares.
Duke may not (1) declare, pay or set apart funds for the payment of any
dividend or other distribution with respect to any Junior Shares (as defined
below) or (2) redeem, purchase or otherwise acquire for consideration any Junior
Shares through a sinking fund or otherwise (other than a redemption or purchase
or other acquisition of common shares made for purposes of any employee
incentive or benefit plan of Duke or any subsidiary), unless (A) all cumulative
dividends with respect to the Series F Preferred Shares and any Parity Shares at
the time such dividends are payable have been paid or declared and funds have
been set apart for payment of such dividends and (B) sufficient funds have been
paid or declared and set apart for the payment of the dividend for the current
dividend period with respect to the Series F Preferred Shares and any Parity
Shares.
As used herein, (1) the term "dividend" does not include dividends or other
distributions payable solely in Fully Junior Shares (as defined below), or in
options, warrants or rights to subscribe for or purchase any Fully Junior
Shares, (2) the term "Junior Shares" means the common shares and any other class
or series of shares of capital stock of Duke now or hereafter issued and
outstanding that rank junior
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to the Series F Preferred Shares as to the payment of dividends or in the
distributions of assets or amounts upon liquidation, dissolution and winding up
and (3) the term "Fully Junior Shares" means Junior Shares (including the common
shares) that rank junior to the Series F Preferred Shares both as to the payment
of dividends and distribution of assets upon liquidation, dissolution and
winding up.
LIQUIDATION RIGHTS. Upon any voluntary or involuntary liquidation,
dissolution or winding up of Duke, the holders of Series F Preferred Shares will
be entitled to receive out of assets of Duke legally available for distribution
to shareholders a liquidation preference of $25,000 per share (equivalent to
$25.00 per preference share), plus an amount per Series F Preferred Share equal
to all dividends (whether or not earned or declared) accrued and unpaid thereon
to the date of final distribution to such holders, and no more.
Until the holders of Series F Preferred Shares and Parity Shares have been
paid their liquidation preference in full, no payment will be made to any holder
of Junior Shares upon the liquidation, dissolution or winding up of Duke. If
upon any liquidation, dissolution or winding up of Duke, the assets of Duke, or
proceeds thereof, distributable among the holders of the Series F Preferred
Shares are insufficient to pay in full the amount payable upon liquidation with
respect to the Series F Preferred Shares and any other Parity Shares, then such
assets, or the proceeds thereof, will be distributed among the holders of Series
F Preferred Shares and any such Parity Shares ratably in accordance with the
respective amounts which would be payable on such Series F Preferred Shares and
any other Parity Shares if all amounts payable thereon were paid in full Neither
a consolidation nor a merger of Duke with another entity, a statutory share
exchange by Duke or a sale, lease or transfer of all or substantially all of
Duke's assets will be considered a liquidation, dissolution or winding up,
voluntary or involuntary, of Duke.
REDEMPTION. The Series F Preferred Shares are not redeemable by Duke prior
to October 10, 2002. On and after October 10, 2002, Duke, at its option, upon
publication in a newspaper of general circulation in New York, New York at least
once a week for two successive weeks and written notice to the holders of Series
F Preferred Shares, may redeem the Series F Preferred Shares, in whole or in
part, at any time or from time to time, for cash at a redemption price of
$25,000 per share (equivalent to $25.00 per preference share), plus accumulated,
accrued and unpaid dividends thereon to the date fixed for redemption, without
interest. The redemption price of the Series F Preferred Shares (other than the
portion thereof consisting of accrued and unpaid dividends) is payable solely
out of proceeds from the sale of other capital stock of Duke, which may include
common shares, preferred shares, preference shares, depositary shares,
interests, participations or other ownership interests in Duke however
designated (other than debt securities convertible into or exchangeable for
equity securities), and any rights, warrants or options to purchase any thereof.
If fewer than all of the outstanding Series F Preferred Shares are to be
redeemed, the number of shares to be redeemed will be determined by Duke and
such shares may be redeemed pro rata from the holders of record of such shares
in proportion to the number of such shares held by such holders (with
adjustments to avoid redemption of fractional shares), by lot or by any other
method determined by Duke in its sole discretion to be equitable.
Unless full cumulative dividends on all Series F Preferred Shares and any
Parity Shares have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof set apart for payment for all past
dividend periods and the then-current dividend period, no Series F Preferred
Shares or Parity Shares may be redeemed or purchased by Duke except pursuant to
a purchase or exchange offer made on the same terms to holders of all
outstanding Series F Preferred Shares or Parity Shares, as the case may be.
Notice of redemption will be mailed at least 30 days but not more than 90
days before the redemption date by the registrar to each holder of record of
Series F Preferred Shares to be redeemed at the address shown on the stock
transfer books of Duke. Each notice shall state: (1) the redemption date; (2)
the number of Series F Preferred Shares to be redeemed; (3) the redemption price
per share; (4) the place or places where certificates for Series F Preferred
Shares are to be surrendered for payment of the
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redemption price; and (5) that dividends on the Series F Preferred Shares will
cease to accrue on such redemption date. If fewer than all Series F Preferred
Shares are to be redeemed, the notice mailed to each such holder thereof shall
also specify the number of Series F Preferred Shares to be redeemed for such
holder. If notice of redemption of any Series F Preferred Shares has been given
and if the funds necessary for such redemption have been set aside by Duke in
trust for the benefit of the holders of Series F Preferred Shares so called for
redemption, then from and after the redemption date, dividends will cease to
accrue on the Series F Preferred Shares, such Series F Preferred Shares shall no
longer be deemed outstanding and all rights of the holders of such shares will
terminate, except the right to receive the redemption price.
The holders of Series F Preferred Shares at the close of business on a
Record Date are entitled to receive the dividends payable with respect to such
Series F Preferred Shares on the corresponding Quarterly Dividend Date
notwithstanding the redemption thereof between such Record Date and the
corresponding Quarterly Dividend Date or Duke's default in the payment of the
dividend due. Duke will make no payment or allowance for unpaid dividends,
whether or not in arrears, on Series F Preferred Shares which have been called
for redemption, except as otherwise provided in the preceding sentence or to the
extent that such unpaid dividends are included in the redemption price.
The Series F Preferred Shares may not be redeemed except from proceeds from
the sale of other capital stock of Duke. The Series F Preferred Shares have no
stated maturity and are not subject to any sinking fund or mandatory redemption.
VOTING RIGHTS. Except as indicated below, or except as otherwise from time
to time required by applicable law, the holders of Series F Preferred Shares
have no voting rights.
If six consecutive quarterly dividends payable on the Series F Preferred
shares or any Parity Shares are in arrears, whether or not declared, the number
of directors then constituting the Board of Directors of Duke will be increased
by two, and the holders of Series F Preferred Shares, voting together as a class
with the holders of any other series of Parity Shares, will have the right to
elect two additional directors to serve on Duke's Board of Directors at any
annual meeting of shareholders or a properly called special meeting of the
holders of the voting Parity Shares until all such dividends and dividends for
the current quarterly period on the Series F Preferred shares and such other
voting Parity Shares have been declared and paid or set aside for payment. Such
voting rights will terminate when all such accrued and unpaid dividends have
been declared and paid or set aside for payment. The term of office of all
directors so elected will terminate with the termination of such voting rights.
The approval of two-thirds of the outstanding Series F Preferred Shares and
all other Parity Shares, voting as a single class, is required in order to (1)
amend the Articles of Incorporation to affect materially and adversely the
rights, preferences or voting power of the holders of the Series F Preferred
Shares or the Parity Shares (except that if such amendment would materially and
adversely affect any right, preference, privilege or voting power of the Series
F Preferred Shares or another series of Parity Shares that is not enjoyed by the
other, then the approval of two-thirds of the holders of all series similarly
affected shall be required); (2) enter into a share exchange that affects the
Series F Preferred Shares, or consolidate Duke with or merge Duke with another
entity, unless in each such case each Series F Preferred Share remains
outstanding without a material adverse change to its terms and rights or is
converted into or exchanged for preferred shares of the surviving entity having
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption thereof identical to that of the Series F Preferred Shares (except
for changes that do not materially and adversely affect the holders of Series F
Preferred Shares); or (3) authorize, reclassify, create or increase the
authorized or issued amount of any shares of any class, or any security
convertible into shares of any class, having rights senior to the Series F
Preferred Shares with respect to the payment of dividends or the distribution of
assets or amounts upon liquidation, dissolution or winding up of Duke.
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<PAGE>
Except as provided above and as required by applicable law, the holders of
Series F Preferred Shares are not entitled to vote on any merger or
consolidation involving Duke, on any share exchange or on a sale of all or
substantially all of the assets of Duke.
8.625% SERIES H CUMULATIVE REDEEMABLE PREFERRED SHARES
Prior to the completion of the merger, Duke will adopt an amendment to its
Charter specifying a series of preferred shares (the "Series H Preferred
Shares") consisting of up to 2,600 shares, designated 8.625% Series H Cumulative
Redeemable Preferred Shares. The following summary of the material terms and
provisions of the Series H Preferred Shares is qualified in its entirety by
reference to the pertinent sections of the amendment designating the Series H
Preferred Shares, which may be obtained from Duke.
The transfer agent, registrar and dividends disbursing agent for the Series
H Preferred Shares will be American Stock Transfer & Trust Company.
Each preference share represents a 1/1,000 fractional interest in a Series H
Preferred Share. The Series H Preferred Shares will be deposited with American
Stock Transfer & Trust Company, as depositary, under a deposit agreement which
Duke will enter into with the depositary. The depositary, will issue preference
receipts which will evidence the preference shares. Subject to the terms of the
deposit agreement, each holder of a preference receipt evidencing a preference
share will be entitled to all the rights and preferences of a 1/1,000 fractional
interest in a Series H Preferred Share (including distribution, voting,
redemption and liquidation rights and preferences).
RANKING. The Series H Preferred Shares will rank senior to Duke's common
shares with respect to payment of distributions or amounts upon our liquidation,
dissolution or winding up.
While any Series H Preferred Shares are outstanding, Duke may not authorize,
create or increase the authorized amount of any class of security that ranks
senior to the Series H Preferred Shares with respect to the payment of dividends
or amounts payable upon liquidation, dissolution or winding up, or any class of
security convertible into shares of such a class, without the consent of the
holders of two-thirds of the outstanding Series H Preferred Shares and Parity
Shares (as defined below), voting as a single class. However, Duke may create
additional classes of other stock, increase the authorized number of preferred
shares or issue series of preferred shares ranking on a parity with the Series H
Preferred Shares with respect, in each case, to the payment of dividends and
amounts upon liquidation, dissolution and winding up ("Parity Shares") without
the consent of any holder of Series H Preferred Shares. See "--Voting Rights"
below.
DIVIDENDS. Holders of the Series H Preferred Shares are entitled to
receive, when and as declared by the Board of Directors, out of funds legally
available for the payment of dividends, cumulative dividends at the rate of
8.625% of the liquidation preference per annum (equivalent to $2.15625 per
preference share) and are payable quarterly in arrears on the last calendar day
(or, if such day is not a business day, the next business day) of each January,
April, July and October (each, a "Quarterly Dividend Date"). Any dividends
payable on the Series H Preferred Shares for any partial dividend period will be
computed on a basis of the actual number of days in such period. Dividends are
payable to holders of record as they appear in the records of Duke at the close
of business on the applicable record date, which is the 15(th) day of the
calendar month in which the Quarterly Dividend Date falls or such other date
designated as such by the Board of Directors of Duke that is not more than 50
nor less than 10 days prior to such Quarterly Dividend Date (each, a "Record
Date"). Accrued and unpaid dividends for any past dividend periods may be
declared and paid at any time and for such interim periods to holders of record
on the applicable Record Date. Any dividend payment made on the Series H
Preferred Shares is credited against the earliest accrued but unpaid dividend
due with respect to the Series H Preferred Shares that remains payable.
No dividends may be authorized by the Board of Directors or paid or set
aside for payment if any agreement of Duke prohibits such authorization, payment
or setting apart for payment or provides that
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such authorization, payment or setting aside would constitute a breach thereof
or a default thereunder, or if such authorization or payment is restricted or
prohibited by law. Dividends on Series H Preferred Shares accrue whether or not
Duke has earnings, whether or not there are funds legally available for the
payment of such dividends and whether or not such dividends are declared. No
interest, or sum of money in lieu of interest, is payable in respect of any
dividend payment or payments on the Series H Preferred Shares that is in
arrears. Holders of Series H Preferred Shares are not entitled to any dividends,
whether payable in cash, property or shares of stock, in excess of the full
cumulative dividends, as described herein, on the Series H Preferred Shares.
If, for any taxable year, Duke elects to designate as "capital gain
dividends" (as defined in Section 857 of the Code) any portion (the "Capital
Gains Amount") of the dividends (within the meaning of the Code) paid or made
available for the year to holders of all classes of capital stock, then the
portion of the Capital Gains Amount that will be allocable to holders of Series
H Preferred Shares will be in the same portion that the dividends paid or made
available to the holders of Series H Preferred Shares for the year bears to the
dividends.
Except as provided in the next sentence, no dividends may be declared or
paid on any Parity Shares unless full cumulative dividends have been declared
and paid or are contemporaneously declared and funds sufficient for the payment
thereof set aside for such payment on the Series H Preferred Shares for all
prior dividend periods. If accrued dividends on the Series H Preferred Shares
for all prior dividends periods have not been paid in full, then any dividend
declared on the Series H Preferred Shares and on any Parity Shares for any
dividend period will be declared ratably in proportion to accrued and unpaid
dividends on the Series H Preferred Shares and such Parity Shares.
Duke may not (1) declare, pay or set apart funds for the payment of any
dividend or other distribution with respect to any Junior Shares (as defined
below) or (2) redeem, purchase or otherwise acquire for consideration any Junior
Shares through a sinking fund or otherwise (other than a redemption or purchase
or other acquisition of common shares made for purposes of any employee
incentive or benefit plan of Duke or any subsidiary), unless (A) all cumulative
dividends with respect to the Series H Preferred Shares and any Parity Shares at
the time such dividends are payable have been paid or declared and funds have
been set apart for payment of such dividends and (B) the dividend for the
current dividend period with respect to the Series H Preferred Shares and any
Parity Shares.
As used herein, (1) the term "dividend" does not include dividends or other
distributions payable solely in Fully Junior Shares (as defined below), or in
options, warrants or rights to subscribe for or purchase any Fully Junior
Shares, (2) the term "Junior Shares" means the common shares and any other class
or series of shares of capital stock of Duke now or hereafter issued and
outstanding that ranks junior to the Series H Preferred Shares as to the payment
of dividends or in the distributions of assets or amounts upon liquidation,
dissolution and winding up, and (3) the term "Fully Junior Shares" means Junior
Shares (including the common shares) that rank junior to the Series H Preferred
Shares both as to the payment of dividends and distribution of assets upon
liquidation, dissolution and winding up.
LIQUIDATION RIGHTS. Upon any voluntary or involuntary liquidation,
dissolution or winding up of Duke, the holders of Series H Preferred Shares will
be entitled to receive out of assets of Duke legally available for distribution
to shareholders a liquidation preference of $25,000 per share (equivalent to
$25.00 per preference share), plus an amount per Series H Preferred Shares equal
to all dividends (whether or not earned or declared) accrued and unpaid thereon
to the date of final distribution to such holders, and no more.
Until the holders of Series H Preferred Shares and Parity Shares have been
paid their liquidation preference in full, no payment will be made to any holder
of Junior Shares upon the liquidation, dissolution or winding up of Duke. If
upon any liquidation, dissolution or winding up of Duke, the assets of Duke, or
proceeds thereof, distributable among the holders of the Series H Preferred
Shares are insufficient to pay in full the amount payable upon liquidation with
respect to the Series H Preferred
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Shares and any other Parity Shares, then such assets, or the proceeds thereof,
will be distributed among the holders of Series H Preferred Shares and any such
Parity Shares ratably in accordance with the respective amounts which would be
payable on such Series H Preferred Shares and any other Parity Shares if all
amounts payable thereon were paid in full. Neither a consolidation nor a merger
of Duke with another entity, a statutory share exchange by Duke or a sale, lease
or transfer of all or substantially all of Duke's assets will be considered a
liquidation, dissolution or winding up, voluntary or involuntary, of Duke.
REDEMPTION. The Series H Preferred Shares are not redeemable by Duke prior
to November 12, 2003. On and after November 12, 2003, Duke, at its option, upon
publication in a newspaper of general circulation in New York, New York at least
once a week for two successive weeks and written notice to the holders of Series
H Preferred Shares, may redeem the Series H Preferred Shares, in whole or in
part, at any time or from time to time, for cash at a redemption price of
$25,000 per share (equivalent to $25.00 per preference share), plus accumulated,
accrued and unpaid dividends thereon to the date fixed for redemption, without
interest. The redemption price of the Series H Preferred Shares (other than the
portion thereof consisting of accrued and unpaid dividends) is payable solely
out of proceeds from the sale of other capital stock of Duke, which may include
common shares, preferred shares, preference shares, depository shares,
interests, participations or other ownership interests in Duke however
designated (other than debt securities convertible into or exchangeable for
equity securities), and any rights, warrants or options to purchase any thereof.
If fewer than all of the outstanding Series H Preferred Shares are to be
redeemed, the number of shares to be redeemed will be determined by Duke and
such shares may be redeemed pro rata from the holders of record of such shares
in proportion to the number of such shares held by such holders (with
adjustments to avoid redemption of fractional shares), by lot or by any other
method determined by Duke in its sole discretion to be equitable.
Unless full cumulative dividends on all Series H Preferred Shares and any
Parity Shares have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof set apart for payment for all past
dividend periods and the then-current dividend period, no Series H Preferred
Shares or Parity Shares may be redeemed or purchased by Duke except pursuant to
a purchase or exchange offer made on the same terms to holders of all
outstanding Series H Preferred Shares or Parity Shares may be redeemed or
purchased by Duke except pursuant to a purchase or exchange offer made on the
same terms to holders of all outstanding Series H Preferred Shares or Parity
Shares, as the case may be.
Notice of redemption will be mailed at least 30 days but not more than 90
days before the redemption date by the registrar to each holder of record of
Series H Preferred Shares to be redeemed at the address shown on the stock
transfer books of Duke. Each notice shall state: (1) the redemption date; (2)
the number of Series H Preferred Shares to be redeemed; (3) the redemption price
per share; (4) the place or places where certificates for Series H Preferred
Shares are to be surrendered for payment of the redemption price; and (5) that
dividends on the Series H Preferred Shares will cease to accrue on such
redemption date. If fewer than all Series H Preferred Shares are to be redeemed,
the notice mailed to each such holder thereof shall also specify the number of
Series H Preferred Shares to be redeemed from such holder. If notice of
redemption of any Series H Preferred Shares has been given and if the funds
necessary for such redemption have been set aside by Duke in trust for the
benefit of the holders of Series H Preferred Shares so called for redemption,
then from and after the redemption date, dividends will cease to accrue on the
Series H Preferred shares, such Series H Preferred Shares shall no longer be
deemed outstanding and all rights of the holders of such shares will terminate,
except the right to receive the redemption price.
The holders of Series H Preferred Shares at the close of business on a
Record Date are entitled to receive the dividends payable with respect to such
Series H Preferred Shares on the corresponding Quarterly Dividend Date
notwithstanding the redemption thereof between such Record Date and the
corresponding quarterly Dividend Date or Duke's default in the payment of the
dividend due. Duke will make no payment or allowance for unpaid dividends,
whether or not in arrears, on Series H Preferred
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Shares which have been called for redemption, except as otherwise provided in
the preceding sentence or to the extent that such unpaid dividends are included
in the redemption price.
The Series H Preferred Shares may not be redeemed except from proceeds from
the sale of other capital stock of Duke. The Series H Preferred Shares have no
stated maturity and are not subject to any sinking fund or mandatory redemption.
VOTING RIGHTS. Except as indicated below, or except as otherwise from time
to time required by applicable law, the holders of Series H Preferred Shares
have no voting rights.
If six consecutive quarterly dividends payable on the Series H Preferred
Shares or any Parity Shares are in arrears, whether or not declared, the number
of directors then constituting the Board of Directors of Duke will be increased
by two, and the holders of Series H Preferred Shares, voting together as a class
with the holders of any other series of Parity Shares, will have the right to
elect two additional directors to serve on Duke's Board of Directors at any
annual meeting of shareholders or a properly called special meeting of the
holders of the voting Parity Shares until all such dividends and dividends for
the current quarterly period on the Series H Preferred Shares and such other
voting Parity Shares have been declared and paid or set aside for payment. Such
voting rights will terminate when all such accrued and unpaid dividends have
been declared and paid or set aside for payment. The term of office of all
directors so elected will terminate with the termination of such voting rights.
The approval of two-thirds of the outstanding Series H Preferred Shares and
all other Parity Shares, voting as a single class, is required to order to (1)
amend the Articles to affect materially and adversely the rights, preferences or
voting power of the holders of the Series H Preferred Shares or the Parity
Shares (except that if such amendment would materially and adversely affect any
right, preference, privilege or voting power of the Series H Preferred Shares or
another series of Parity Shares that is not enjoyed by the other, then the
approval of two-thirds of the holders of all series similarly affected shall be
required); (2) enter into a share exchange that affects the Series H Preferred
Shares, or consolidate Duke with or merge Duke with another entity, unless in
each such case each Series H Preferred Share remains outstanding without a
material adverse change to its terms and rights or is converted into or
exchanged for preferred shares of the surviving entity having preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption thereof
identical to that of the Series H Preferred Shares (except for changes that do
not materially and adversely affect the holders of Series H Preferred Shares);
or (3) authorize, reclassify, create or increase the authorized or issued amount
of any shares of any class, or any security convertible into shares of any
class, having rights senior to the Series H Preferred Shares with respect to the
payment of dividends or the distribution of assets or amounts upon liquidation,
dissolution or winding up of Duke.
Except as provided above and is required by applicable law, the holders of
Series H Preferred Shares are not entitled to vote on any merger or
consolidation involving Duke, on any share exchange or on a sale of all or
substantially all of the assets of Duke.
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THE DUKE DIRECTORS PROPOSAL
If the merger is approved by Duke's and Weeks' shareholders and is
completed, the Board of Directors of the combined company will be composed of
persons who presently are members of the Duke Board and the Weeks Board, as
explained under "The Companies--The Combined Company" at pages 21-23. If that
happens, the proposal described below will affect the composition of the Duke
Board only through the effective time of the merger, at which time the new Board
of the combined company will take office.
The Board of Directors of Duke recommends that shareholders of Duke vote in
favor of electing the following nominees to Duke's Board of Directors, to serve
until the earlier to occur of (1) the effective time of the merger or (2) if the
merger is not approved or completed, the expiration of their terms in 2002.
NOMINEES FOR ELECTION AS DIRECTORS AT 1999 ANNUAL
MEETING FOR TERMS EXPIRING IN 2002
<TABLE>
<CAPTION>
NAME, AGE, PRINCIPAL OCCUPATION(S) AND DIRECTOR
BUSINESS EXPERIENCE DURING PAST 5 YEARS SINCE
- -------------------------------------------------------------------------------------------------------- -----------
<S> <C>
DIRECTORS WHOSE TERMS EXPIRE IN 1999
THOMAS L. HEFNER, Age 52................................................................................ 1993
Chairman, President and Chief Executive Officer of Duke.
L. BEN LYTLE, Age 52.................................................................................... 1996
Chairman, President and Chief Executive Officer of Anthem, Inc., a national insurance and financial
services firm. Director of IPALCO Enterprises, Inc. and Central Newspapers, Inc.
EDWARD T. BAUR, Age 52.................................................................................. 1997
Vice President and General Manager of Duke. Prior to joining Duke in 1997, Mr. Baur was the Chief
Executive Officer of Baur Properties.
</TABLE>
CONTINUING DIRECTORS
The continuing directors listed in the table below will continue in office
until expiration of their terms or the effective time of the merger (at which
time some or all of them may become directors of the combined company as
described under "The Companies--The Combined Company").
<TABLE>
<CAPTION>
NAME, AGE, PRINCIPAL OCCUPATION(S) AND DIRECTOR
BUSINESS EXPERIENCE DURING PAST 5 YEARS SINCE
- -------------------------------------------------------------------------------------------------------- -----------
<S> <C>
DIRECTORS WHOSE TERMS EXPIRE IN 2000
HOWARD L. FEINSAND, Age 51.............................................................................. 1988
Founder and Principal, Choir Capital Ltd., since 1996. Managing Director, Citicorp North America, Inc.,
1995-1996; Senior Vice President and Manager, GE Capital Aviation Services, Inc., an aircraft leasing
company, 1994-1995. Director of Egan Systems, Inc.
JAMES E. ROGERS, Age 51................................................................................. 1994
Vice Chairman, President and Chief Executive Officer of Cinergy Corp., a regional utility holding
company. Director of Cinergy Corp. and Fifth Third Bancorp.
DANIEL C. STATON, Age 46................................................................................ 1993
President of Walnut Capital Partners, an investment and venture capital company, since 1997. Executive
Vice President and Chief Operating Officer of Duke until May, 1997. Chairman of the Board of Directors
of Storage Trust Realty, Inc.
</TABLE>
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<TABLE>
<CAPTION>
NAME, AGE, PRINCIPAL OCCUPATION(S) AND DIRECTOR
BUSINESS EXPERIENCE DURING PAST 5 YEARS SINCE
- -------------------------------------------------------------------------------------------------------- -----------
<S> <C>
JAY J. STRAUSS, Age 63.................................................................................. 1985
Chairman and Chief Executive Officer of Regent Realty Group, Inc., a general real estate and mortgage
banking firm.
DIRECTORS WHOSE TERMS EXPIRE IN 2001
GEOFFREY BUTTON, Age 50................................................................................. 1993
An independent real estate and financing consultant. Prior to 1996, was executive Director of Wyndham
Investments Limited, a property holding company of Allied Domecq Pension Funds. Director of Sector
Communications, Inc.
NGAIRE E. CUNEO, Age 48................................................................................. 1995
Executive Vice President, Corporate Development, Conseco, Inc., an owner, operator and provider of
services to companies in the financial services industry. Director of Conseco, Inc. and Bankers Life
Holding Corporation.
JOHN D. PETERSON, Age 65................................................................................ 1986
Chairman of City Securities Corporation, a securities brokerage firm. Director of Lilly Industries, Inc.
DARELL E. ZINK, JR., Age 52............................................................................. 1993
Executive Vice President, Chief Financial Officer and Assistant Secretary of Duke. Director of People's
Bank Corporation of Indianapolis.
</TABLE>
The Duke Directors Proposal requires the affirmative vote of at least a
majority of the common shares of Duke entitled to vote thereon present in person
or by proxy at the meeting.
If the additional charter amendment to increase the size of the Board from
15 to 23 is not approved, the following Weeks directors will serve on the
Duke-Weeks Board:
BARRINGTON H. BRANCH. Director of Weeks since August 1994. He is currently
President of The Branch-Shelton Company LLC, a private investment banking firm.
From October 1991 to February 1997, Mr. Branch was President and Chief Executive
Officer of DIHC Management Corporation, the wholly owned U.S. real estate
investment subsidiary of Pensionefonds PGGM, the second largest private pension
fund in The Netherlands.
WILLIAM CAVANAUGH III. Director of Weeks since June 1997. Mr. Cavanaugh has
been President and Chief Executive Officer of Carolina Power and Light Company
("CP&L") since October 1996. He joined CP&L in September 1992 and served as the
company's President and Chief Operating Officer until October 1996, when he
became Chief Executive Officer. He is a member of the board of directors of the
Nuclear Energy Institute, the Association of Edison Illuminating Companies,
Wachovia Bank of North Carolina, North Carolina Citizens for Business and
Industry, and the Southeastern Electric Exchange.
CHARLES R. EITEL. Director of Weeks since August 1994. Since February 1997,
Mr. Eitel has been President and Chief Operating Officer of Interface, Inc., a
worldwide commercial interiors products and services company. He was President
and Chief Executive Officer, Floorcoverings Group, Interface, Inc., and served
as Executive Vice President of Interface, Inc. from October 1994 until February
1997. Mr. Eitel was President and Chief Executive Officer of Interface Flooring
Systems from November 1993 to February 1994, and was President of the Floor
Coverings Division of Collins & Aikman from July 1987 to November 1993. He is
currently on the board of directors of Interface, Inc.
WILLIAM O. MCCOY. Director of Weeks since August 1994. Since December 1997,
Mr. McCoy has been a partner of Franklin Street Partners, an investment
management firm in Chapel Hill, North Carolina. Mr. McCoy was a Vice
President-Finance for the University of North Carolina system from
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February 1995 to November 1998. He was President of BellSouth Enterprises and
Vice Chairman of the Board of BellSouth Corporation from 1983 until January
1995. He is currently on the board of directors of Carolina Power & Light
Company, Kenan Transport Company, Fidelity Investments and the Liberty
Corporation.
JOHN W. NELLEY, JR. Director of Weeks since November 1996. In addition, Mr.
Nelley has been a Managing Director of Weeks, with responsibilities for Weeks'
activities in Nashville, Tennessee, since November 1996. Since 1982, Mr. Nelley
has been a general partner of NWI Warehouse Group, L.P., an industrial warehouse
development company in Nashville, Tennessee, whose assets and business have been
acquired, or are under agreement to be acquired, by Weeks.
THOMAS D. SENKBEIL. Director of Weeks since October 1992. Mr. Senkbeil has
been the Vice Chairman of the Board and Chief Investment Officer of Weeks since
October 1992.
A. RAY WEEKS, JR. Chairman of the Board of Directors and Chief Executive
Officer of Weeks since its incorporation in 1983. He was also the President of
Weeks from 1983 through March 1991.
If the additional charter amendment to increase the size of the Board is
approved, the following Weeks directors will also serve on the Duke-Weeks Board:
GEORGE D. BUSBEE. Director of Weeks since August 1994. He has been of
counsel to the law firm of King & Spalding since January 1994 and was a Partner
of King & Spalding from January 1983 to December 1993. Mr. Busbee is a former
governor of the State of Georgia. He is currently a director of Union Camp
Corporation.
ARMANDO CODINA. Director of Weeks since June 1998. For over 20 years, Mr.
Codina has been Chairman and Chief Executive Officer of Codina Group, Inc., a
Miami based real estate investment, development, construction, brokerage and
property management firm of which Weeks owns a one-third interest. Mr. Codina
serves on the boards of AMR Inc. (American Airlines), American Bankers Insurance
Group, Inc., BellSouth Corporation, FPL Group Inc. and Winn-Dixie Stores, Inc.
FORREST W. ROBINSON. Director and President of Weeks since April 1991 and
the Chief Operating Officer of Weeks since May 1988.
THE DUKE DIRECTORS' STOCK OPTION PROPOSAL
Subject to shareholder approval, Duke's Board has approved and adopted the
1999 Directors' Stock Option and Dividend Increase Unit Plan of Duke Realty
Investments, Inc. (the "Directors' Plan") as of January 1, 1999. To become
effective, the Directors' Plan must be approved by Duke's shareholders. The
Board believes that the Directors' Plan, when combined with other compensation
paid to the directors, will provide the directors with a competitive
compensation package that will further align the interests of the directors with
the interests of Duke's shareholders.
A summary of the material features of the Directors' Plan follows. This
summary is subject in all respects to the actual plan document, a copy of which
is contained in Annex F to this joint proxy statement and prospectus.
If the merger is not consummated but this proposal is adopted, the
Directors' Plan will take effect with respect to Duke. If the merger is
consummated, the Directors' Plan will take effect with respect to the combined
company.
MATERIAL FEATURES OF THE DIRECTORS' PLAN
The Directors' Plan provides for the granting of (1) options to purchase
common shares ("Director Options"); and (2) dividend increase units ("Director
DIUs") to certain directors ("Eligible Directors")
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for a period of 10 years commencing January 1, 1999. A director is an Eligible
Director if, for the year of grant, such director has not and will not receive a
grant of stock options under any other Duke sponsored plan. The Directors' Plan
will expire on December 31, 2008 except as to outstanding Director Options and
Director DIUs that shall remain in effect until they have been exercised,
terminated or expired. A total of 500,000 common shares may be issued under the
plan.
During the term of the plan, each Eligible Director will receive an annual
grant of 2,500 Director Options and Director DIUs on the date of the first
executive compensation committee meeting of each calendar year. However, for the
1999 grant only, if an Eligible Director has never previously received a grant
of stock options under any other Duke sponsored plan, 7,500 Director Options and
Director DIUs shall be granted to such Eligible Director. In accordance with the
terms of the Directors' Plan, and subject to shareholder approval, Ms. Cuneo and
Messrs. Button, Feinsand, Lytle, Peterson, Rogers, and Strauss received grants
of 7,500 Director Options and Director DIUs on January 26, 1999. On that same
date, Messrs. Staton and Wynne received grants of 2,500 Director Options and
Director DIUs.
Each Director Option and Director DIU has a term of 10 years from the date
of grant. For grants made after 1999, the Director Options and Director DIUs
will vest at a rate of twenty percent (20%) per year on each anniversary of the
date of grant. For 1999 grants, each Director Option and Director DIU will vest
at a rate of twenty percent (20%) per year commencing on the first anniversary
of the date the director became a director.
The exercise price of each Director Option shall not be less than the fair
market value of a common share as of the date of grant.
The value of each Director DIU at the date of exercise will be determined by
calculating the dividend yield on Duke's common shares at the date the Director
DIU is granted and dividing the increase in Duke's annualized dividend from the
date of grant to the date of exercise by such dividend yield. Director DIUs may
be exercised by a director only to the extent that such director has exercised
an equivalent number of Director Options granted on the same date as the DIUs.
Any amounts payable to a director upon the exercise of a Director DIU will
be made in a single lump sum payment in the form of common shares. The number of
shares to be issued will be based on the fair market value of the common shares
at the time of exercise. In the event of a change of control of Duke, each
director will be entitled to receive, within 90 days of the date of change in
control, a lump sum payment in cash equal to the value of the Director DIUs at
the date of the change of control.
If an optionee's position as a director terminates for any reason other than
for cause (as defined), total disability, death, retirement on or after
attaining the age of 65, or a change in control of Duke, any outstanding options
that were exercisable on the date of termination will terminate 90 days after
the date of termination. If a director is terminated for cause, all outstanding
options will expire on the date of termination. If termination occurs because of
death or total disability, all outstanding options remain exercisable for a
period of one year from the date of termination. If termination occurs because
of retirement or a change in control, the options may be exercised at any time
prior to ten (10) years after the date of grant. In the event of the death,
total disability or retirement (on or after attaining age 65) of the director or
a change in control of Duke, all outstanding options become immediately
exercisable.
The Board of Directors may, at any time, without the approval of the
shareholders of Duke, alter, amend, modify, suspend or discontinue the
Directors' Plan except for any such alterations which would (1) increase the
aggregate number of options and units that may be granted under the plan (except
to the extent otherwise provided for as a result of stock dividends, splits,
combinations or other changes of shares described in the plan document); (2)
decrease the minimum exercise price; (3) extend the term of the plan or change
the term during which any Director Option or Director DIU may be exercised; (4)
change the transferability restrictions; (5) change the manner of determining
the option price, the calculation of unit
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<PAGE>
value or the method of payment of units; (6) change the class of individuals
eligible for grants; or (7) change the number of common shares authorized for
issuance under the plan.
FEDERAL INCOME TAX CONSEQUENCES OF THE DIRECTORS' PLAN
The Director Options granted under the Directors' Plan will not qualify as
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code. The Directors will recognize no taxable income and no tax
deduction is allowable to Duke or its subsidiaries at the time an option is
granted. At the time a Director Option is exercised, the Director will recognize
ordinary income and Duke or its subsidiaries will be entitled to a compensation
expense deduction equal to the excess of the fair market value of the shares on
the date the option is exercised over the exercise price of the shares. The fair
market value of the stock at the time of exercise is the basis for the
determination of capital gain or loss upon the director's subsequent disposition
of the shares.
At the time a Director DIU is exercised, the participant will recognize
ordinary income, and Duke or its subsidiaries will be entitled to a compensation
expense deduction equal to the value of the common shares transferred to the
Director.
Duke's Board of Directors unanimously recommends the approval of the
Directors' Plan, and therefore recommends a vote "FOR" the Duke Directors' Stock
Option Proposal. The Directors' Stock Option Proposal requires the affirmative
vote of a majority of the votes cast by the holders of common shares at the
meeting.
THE DUKE SALARY REPLACEMENT PROPOSAL
Subject to shareholder approval, the Duke Board has approved and adopted the
1999 Salary Replacement Stock Option and Dividend Increase Unit Plan of Duke
Realty Investments, Inc. (the "Salary Replacement Plan") as of January 1, 1999.
To become effective, the plan must be approved by Duke's shareholders.
Under the Salary Replacement Plan, key employees of Duke will have the
opportunity to receive stock options and dividend increase units in lieu of
receiving other compensation. The intent of the Salary Replacement Plan is to
further link compensation earned by key employees to Duke's stock performance
and dividend paying capacity. Accordingly, the Board believes that the Salary
Replacement Plan will further align Duke's compensation programs with
shareholder interests.
A summary of the material features of the Salary Replacement Plan follows.
This summary is subject in all respects to the actual plan document, a copy of
which is contained in Annex G to this joint proxy statement and prospectus.
If the merger is not consummated but this proposal is adopted, the Salary
Replacement Plan will take effect with respect to Duke. If the merger is
consummated, the Salary Replacement Plan will take effect with respect to the
combined company.
MATERIAL FEATURES OF THE SALARY REPLACEMENT PLAN
The Salary Replacement Plan provides for the granting of (1) options to
purchase common shares ("Salary Replacement Options"); and (2) dividend increase
units ("Salary Replacement DIUs") to key employees for a period of 10 years
commencing January 1, 1999. The Salary Replacement Plan will expire on December
31, 2008 except as to outstanding Salary Replacement Options and Salary
Replacement DIUs which shall remain in effect until they have been exercised,
terminated or expired. A total of 500,000 common shares may be issued under the
plan.
During the term of the plan, each eligible employee may elect to receive
Salary Replacement Options and Salary Replacement DIUs in lieu of all or a
portion of their annual salary, bonus or Duke's
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<PAGE>
Shareholder Value Plan award. The number of Salary Replacement Options and
Salary Replacement DIUs granted for the foregone compensation will be based on
the executive compensation committee's determination of the value of an option
and DIU on the date of grant.
Each Salary Replacement Option and Salary Replacement DIU will have a term
of 10 years from the date of grant and will immediately vest on the date of
grant. The exercise price of each Salary Replacement Option shall not be less
than the fair market value of a common share as of the date of grant.
The value of each Salary Replacement DIU on the date of exercise will be
determined by calculating the dividend yield on Duke's common shares as of the
date of the Salary Replacement DIU is granted and dividing the increase in
Duke's annualized dividend from the date of grant to the date of exercise by
such dividend yield. Salary Replacement DIUs may be exercised only to the extent
that a participant has exercised an equivalent number of Salary Replacement
Options granted on the same date as the DIUs.
Any amounts payable to a participant upon the exercise of a Salary
Replacement DIU will be made in a single lump sum payment in the form of common
shares. The number of shares to be issued will be based on the fair market value
of the common shares at the time of exercise. In the event of a change of
control of Duke, each participant will be entitled to receive, within 90 days of
the date of change in control, a lump sum payment in cash equal to the value of
the Salary Replacement DIUs at the date of change of control.
If a participant's employment terminates for any reason other than for cause
(as defined), any outstanding options that were exercisable on the date of
termination will terminate (2) years after the date of termination. If a
participant is terminated for cause, all outstanding options will expire on the
date of termination.
The Board of Directors may, at any time, without the approval of the
shareholders of Duke, alter, amend, modify, suspend or discontinue the Salary
Replacement Plan, except for any such alterations which would (1) decrease the
minimum exercise price; (2) extend the term of the plan or change the term
during which any Salary Replacement Option or Salary Replacement DIU may be
exercised; (3) change the class of individuals eligible for grants; (4) change
the number of shares of common shares authorized for issuance under the plan; or
(5) withdraw administration of the plan from the executive compensation
committee or the Board of Directors.
FEDERAL INCOME TAX CONSEQUENCES OF THE SALARY REPLACEMENT PLAN
The Salary Replacement Options granted under the Salary Replacement Plan
will not qualify as incentive stock options within the meaning of Section 422 of
the Internal Revenue Code. The participants will recognize no taxable income and
no tax deduction is allowable to Duke or its subsidiaries at the time an option
is granted. At the time a Salary Replacement Option is exercised, a participant
will recognize ordinary income, in the form of compensation, and Duke or its
subsidiaries will be entitled to a compensation expense deduction equal to the
excess of the fair market value of the shares on the date the option is
exercised over the exercise price of the shares. The fair market value of the
stock at the time of exercise is the basis for the determination of capital gain
or loss upon the participant's subsequent disposition of the shares.
At the time a Salary Replacement DIU is exercised, the participant will
recognize ordinary income in the form of compensation, and Duke or its
subsidiaries will be entitled to a compensation expense deduction equal to the
value of the common shares transferred to the participant.
The Board of Directors unanimously recommends the approval of the Salary
Replacement Plan, and therefore recommends a vote "FOR" the Duke Salary
Replacement Proposal. The Duke Salary Replacement Proposal requires the
affirmative vote of a majority of votes cast by the holders of common shares at
the meeting.
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THE DUKE DIRECTORS' STOCK PAYMENT PLAN PROPOSAL
Duke's Board of Directors has adopted an amendment to the 1996 Directors'
Stock Payment Plan of Duke Realty Investments, Inc. (the "Directors' Stock
Payment Plan") and is recommending the approval of the amendment by the
shareholders. The amendment would increase the number of common shares available
for issuance under the Directors' Stock Payment Plan. If approved by the
shareholders, the number of common shares available for issuance would increase
by 100,000.
The purpose of the Directors' Stock Payment Plan is to increase the
proprietary interest in Duke of its non-employee directors. The Directors' Stock
Payment Plan covers only the non-employee directors of Duke and is administered
by Duke's Compensation Committee.
The Directors Stock Payment Plan was adopted by Duke's Board in October 1995
and approved by the shareholders in April 1996. The Directors' Stock Payment
Plan currently permits the issuance of up to 40,000 shares, of which 31,800
shares have been issued. Absent approval of this proposal by the shareholders,
Duke will not be able to continue to issue common shares to the directors in
amounts contemplated by the plan.
Duke's Board of Directors believes that adding more common shares to the
Directors' Stock Payment Plan will help Duke continue to align the interests of
the directors with the interests of Duke's shareholders and to compensate its
non-employee directors in a manner that is competitive with companies comparable
to Duke.
The following is a description of the material features of the Directors'
Stock Payment Plan. A copy of the plan document and the amendment to the plan
are set out in full in Annex H to this joint proxy statement and prospectus.
MATERIAL FEATURES OF THE DIRECTORS' STOCK PAYMENT PLAN
Under the Directors' Stock Payment Plan, each non-employee director of Duke
is entitled to receive as compensation for services 300 shares of common stock
of Duke for each full calendar quarter during which he or she is actively
serving as a director of Duke. In the event a participant is a director for less
than a full calendar quarter, the number of shares such participant is entitled
to receive will be prorated for the portion of the quarter of active service.
FEDERAL INCOME TAX CONSEQUENCES
The participants will recognize ordinary income and Duke will be entitled to
an income tax deduction equal to the fair market value of the Duke's common
stock at the time of the transfer of the shares.
Duke's Board of Directors unanimously recommends the approval of the
amendment to the Directors' Stock Payment Plan, and therefore recommends a vote
"FOR" the Duke Directors' Stock Payment Plan Proposal. The Directors' Stock
Payment Plan Proposal requires the affirmative vote of a majority of the votes
cast by the holders of common shares at the meeting.
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DISCLOSURE OF NEW PLAN BENEFITS
Awards under the 1999 Directors' Stock Option and Dividend Increase Unit
Plan and the 1996 Directors' Stock Payment Plan are set by formula. The benefits
to be received under the 1999 Salary Replacement Stock Option and Dividend
Increase Unit Plan are generally indeterminable because all awards are within
the discretion of the employee. Duke's chief executive officer and its four most
highly compensated executive officers (other than the chief executive officer)
during the last fiscal year are not eligible to receive benefits under the 1999
Directors' Stock Option and Dividend Increase Unit Plan and the 1996 Directors'
Stock Payment Plan, nor have any of these executive officers elected to receive
benefits under the 1999 Salary Replacement Stock Option and Dividend Increase
Unit Plan for the 1999 fiscal year. The awards that will be made in Duke's 1999
fiscal year under such plans if the plan proposals are approved are outlined in
the following tables.
<TABLE>
<CAPTION>
1999 DIRECTORS' 1999 SALARY REPLACEMENT
STOCK OPTION AND DIU STOCK OPTION AND DIU PLAN
PLAN GRANTS IN 1999 (#) GRANTS IN 1999 (#)
----------------------- -------------------------
<S> <C> <C>
Non-Executive Officer Director Group (9
persons)................................... 57,500 --
Non-Executive Officer Employee Group (1
person).................................... -- 4,486
<CAPTION>
1996 DIRECTORS' STOCK
PAYMENT PLAN GRANTS IN
1999 (#)
-----------------------
<S> <C> <C>
Non-Executive Officer Director Group (8
persons)................................... 9,300(1)
</TABLE>
- ------------------------
(1) Since John W. Wynne will not be standing for re-election at the 1999 Annual
Meeting, this amount reflects him receiving benefits under the 1996
Directors' Stock Payment Plan for only the first two fiscal quarters of
1999.
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LEGAL MATTERS
The validity of the Duke common shares and the Duke preference shares
offered to holders of Weeks common shares and Weeks preferred shares,
respectively, by this joint proxy statement and prospectus has been passed upon
for Duke by Rogers & Wells LLP, New York, New York. An opinion as to continued
real estate investment trust qualification following the merger has been
rendered for Duke and Weeks by Rogers & Wells LLP. An opinion as to the
qualification of the merger as a tax-free reorganization has been rendered for
Weeks by King & Spalding, Atlanta, Georgia, and an opinion as to the
qualification of the merger as a tax-free reorganization has been rendered for
Duke by Rogers & Wells LLP. Rogers & Wells LLP has in the past represented Duke
in various matters, as well as Merrill Lynch & Co. as Duke's underwriter, in
public offerings of securities. George D. Busbee, a director of Weeks, is of
counsel to King & Spalding.
INDEPENDENT PUBLIC ACCOUNTANTS AND EXPERTS
The consolidated financial statements of Duke as of December 31, 1998 and
1997, and for each of the years in the three-year period ended December 31, 1998
and the related schedule have been incorporated by reference herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
The consolidated financial statements and schedule of Weeks and its
subsidiaries as of December 31, 1998 and 1997, and for each of the three years
in the period ended December 31, 1998 incorporated by reference herein and in
the registration statement on Form S-4 filed by Duke have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and are incorporated by reference herein in reliance upon the
authority of said firm as experts in giving said report.
WHERE YOU CAN FIND MORE INFORMATION
Duke and Weeks are subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended, and each files reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any materials Duke or Weeks files with the Securities and Exchange
Commission at its Public Reference Room at 450 Fifth Street, N.W., Washington
D.C. 20549. You may obtain information on the operation of the Public Reference
Room by calling the Securities and Exchange Commission at 1-800-SEC-0330. In
addition, the Securities and Exchange Commission maintains an Internet site that
contains reports, proxies, information statements, and other information
regarding issuers that file electronically, and the address of that site is
http://www.sec.gov. Duke's common shares and Weeks' common shares are listed on
the New York Stock Exchange under the symbols "DRE" and "WKS," respectively, and
all reports, proxy statements and other information filed by Duke and Weeks with
the New York Stock Exchange may be inspected at the New York Stock Exchange's
offices at 20 Broad Street, New York, New York 10005.
Duke has filed with the Securities and Exchange Commission a registration
statement on Form S-4 under the Securities Act of 1933 with respect to the
common shares and preference shares of Duke being offered in the merger. This
joint proxy statement and prospectus, which constitutes part of the registration
statement, does not contain all of the information set forth in the registration
statement. Parts of the registration statement are omitted from the joint proxy
statement and prospectus in accordance with the rules and regulations of the
Securities and Exchange Commission. For further information, your attention is
directed to the registration statement. Statements made in this joint proxy
statement and prospectus concerning the contents of any documents are not
necessarily complete, and in each case are qualified in all respects by
reference to the copy of the document filed with the Securities and Exchange
Commission.
The Securities and Exchange Commission allows Duke and Weeks to "incorporate
by reference" the information Duke and Weeks file with the Securities and
Exchange Commission, which means that Duke
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<PAGE>
and Weeks can disclose important information to you by referring you to those
documents. The information incorporated by reference is an important part of
this joint proxy statement and prospectus, and information that Duke and Weeks
file later with the Securities and Exchange Commission will automatically update
and supersede this information.
Duke incorporates by reference the documents listed below:
(1) Duke's annual report on Form 10-K for the year ended December 31,
1998;
(2) Duke's current reports on Form 8-K filed January 19 and March 3,
1999;
(3) The description of Duke's common shares contained in the
Registration Statement on Form 8-A, File No. 1-9044, as amended;
(4) The description of Duke's preferred shares contained in the
Registration Statements on Form 8-A dated August 15, 1996, July 11, 1997,
July 31, 1998, November 19, 1998 and January 19, 1999;
(5) The description of Duke's policies regarding particular activities
under the caption "Policies with Respect to Certain Activities" on page 56
in the prospectus dated September 27, 1993 included in Duke's Registration
Statement on Form S-2, Securities and Exchange Commission Registration
Number 33-64038; and
(6) The description of Duke's 8.0% Series F Cumulative Redeemable
Preference Shares and 8.625% Series H Cumulative Redeemable Preference
Shares to be issued in the merger contained in Duke's Registration Statement
on Form 8-A dated April 28, 1999.
The Securities and Exchange Commission has assigned file number 1-9044 to
the reports and other information that Duke files with the Securities and
Exchange Commission.
Weeks incorporates by reference the documents listed below:
(1) Weeks' annual report on Form 10-K for the year ended December 31,
1998;
(2) Weeks' current report on Form 8-K filed March 5, 1999;
(3) The description of Weeks' common shares contained in the
Registration Statement on Form 8-A, dated August 12, 1994;
(4) The description of Weeks' Series A preferred shares contained in the
Registration Statement on Form 8-A, dated October 9, 1997; and
(5) The description of Weeks' policies regarding particular activities
under the caption "Policies with Respect to Certain Activities" on page 103
in the prospectus dated August 17, 1994 included in Weeks' Registration
Statement on Form S-11, Securities and Exchange Commission Registration
Number 33-80314.
The Securities and Exchange Commission has assigned file number 1-13254 to
the reports and other information that Weeks files with the Securities and
Exchange Commission.
You may request a copy of each of the above-listed Duke documents at no
cost, by writing or telephoning Duke at the following address, telephone number
or e-mail address, and the requested documents will be sent by first class mail
within one business day of Duke's receipt of your request:
Investor Relations
Duke Realty Investments, Inc.
8888 Keystone Crossing
Indianapolis, Indiana 46240
(317) 808-6005
www.dukereit.com
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You may request a copy of each of the above-listed Weeks documents at no
cost, by writing or telephoning Weeks at the following address, telephone number
or e-mail address, and the requested documents will be sent by first class mail
within one business day of Weeks' receipt of your request:
Investor Relations
Weeks Corporation
4497 Park Drive
Norcross, Georgia 30093
(770) 717-3221
www.weekscorp.com
All documents filed by each of Duke and Weeks pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after the date of this
joint proxy statement and prospectus and prior to the dates of the Duke annual
meeting and the Weeks special meeting shall be deemed incorporated in and a part
of this joint proxy statement and prospectus from the date of filing of such
documents.
Any statement contained in a document incorporated or deemed to be
incorporated herein shall be deemed modified or superseded for purposes of this
joint proxy statement and prospectus to the extent that a statement contained
herein or in any other subsequently filed document that is deemed to be
incorporated herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this joint proxy statement and prospectus.
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is inconsistent with information contained in this document or
any document incorporated by reference. This joint proxy statement and
prospectus is not an offer to sell these securities in any state where the offer
and sale of these securities is not permitted. The information in this joint
proxy statement and prospectus is current as of the date it is mailed to
security holders, and not necessarily as of any later date. If any material
change occurs during the period that this joint proxy statement and prospectus
is required to be delivered, this joint proxy statement and prospectus will be
supplemented or amended.
All information regarding Duke in this joint proxy statement and prospectus
has been provided by Duke and all information regarding Weeks in this joint
proxy statement and prospectus has been provided by Weeks.
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INDEX TO PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Pro Forma Condensed Consolidated Balance Sheet as of December 31, 1998 (unaudited)........................ F-3
Notes to Pro Forma Condensed Consolidated Balance Sheet................................................... F-4
Pro Forma Condensed Consolidated Statement of Operations for the year ended December 31, 1998
(unaudited)............................................................................................. F-8
Notes to Pro Forma Condensed Consolidated Statement of Operations......................................... F-9
</TABLE>
F-1
<PAGE>
DUKE-WEEKS REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following pro forma condensed consolidated financial statements for
Duke-Weeks Realty Corporation ("Duke-Weeks") include certain pro forma
adjustments to the historical financial statements of Duke Realty Investments,
Inc. ("Duke") to reflect the proposed merger (the "Merger") of Duke and Weeks
Corporation ("Weeks"). The Merger will be accounted for using the purchase
method of accounting in accordance with Accounting Principles Board Opinion No.
16. These pro forma condensed consolidated financial statements should be read
in conjunction with the Duke Form 10-K as of and for the three years ended
December 31, 1998, and also in conjunction with Weeks' Form 10-K as of and for
the three years ended December 31, 1998.
The following pro forma condensed consolidated balance sheet is based upon
the December 31, 1998 consolidated balance sheet of Duke and the December 31,
1998 consolidated balance sheet of Weeks, presented as if the Merger occurred on
December 31, 1998.
The following pro forma condensed consolidated statement of operations is
based upon the consolidated statements of operations for the year ended December
31, 1998 of Duke and Weeks, presented as if the Merger occurred as of January 1,
1998.
The pro forma condensed consolidated financial statements do not purport to
be indicative of the actual financial position or results of operations which
would have been obtained assuming that the Merger had been completed as set
forth above, or which may be obtained in the future.
F-2
<PAGE>
DUKE-WEEKS REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA DUKE-WEEKS
-------------------------- MERGER POST-MERGER
DUKE WEEKS ADJUSTMENTS PRO FORMA
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Real estate............................................. $ 2,589,729 $ 1,361,843 $ 287,642(a) $ 4,239,214
Land held for development............................... 146,911 42,438 --(b) 189,349
Investment in unconsolidated real estate companies...... 125,746 35,204 -- 160,950
Less accumulated depreciation......................... (179,887) (96,383) 96,383(a) (179,887)
------------ ------------ ----------- ------------
Net real estate investment........................ 2,682,499 1,343,102 384,025 4,409,626
Cash and cash equivalents............................... 6,950 1,503 (8,453)(d) 0
Accounts receivable..................................... 9,641 9,483 -- 19,124
Straight-line rent receivable........................... 20,332 5,833 (5,833)(c) 20,332
Investment in and notes receivable from unconsolidated
service companies..................................... -- 43,639 -- 43,639
Deferred financing costs................................ 11,382 8,455 (8,455)(c) 11,382
Deferred other costs.................................... 53,281 20,708 (20,708)(c) 53,281
Other assets............................................ 69,568 14,869 84,437
------------ ------------ ----------- ------------
TOTAL ASSETS...................................... $ 2,853,653 $ 1,447,592 $ 340,576 $ 4,641,821
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C> <C>
Liabilities:
Secured debt.......................................... $ 326,317 $ 251,399 $ 12,109(e) $ 589,825
Unsecured debt........................................ 590,000 285,000 1,994(e) 876,994
Lines of credit....................................... 91,000 118,025 8,547(d) 217,572
Accounts payable and other liabilities................ 169,495 42,603 -- 212,098
------------ ------------ ----------- ------------
Total liabilities................................. 1,176,812 697,027 22,650 1,896,489
Minority interest
Common................................................ 106,729 135,653 84,207(a) 326,589
Preferred............................................. -- 100,000 (2,955)(a) 102,955
------------ ------------ ----------- ------------
Total minority interest........................... 106,729 235,653 87,162 429,544
Shareholders' equity:
Preferred shares:
Series A at liquidation preference.................. 75,000 150,000 (150,000)(a) 75,000
Series B at liquidation preference.................. 150,000 -- 150,000
Series D convertible at liquidation preference...... 135,000 -- 135,000
Series F at liquidation preference.................. 150,000(a) 150,000
Common shares......................................... 861 197 75(a) 1,133
Additional paid-in capital............................ 1,277,250 430,923 164,481(a) 1,822,654
Distributions in excess of earnings................... (67,999) (66,208) 66,208(f) (67,999)
------------ ------------ ----------- ------------
Total shareholders' equity........................ 1,570,112 514,912 230,764 2,315,788
------------ ------------ ----------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............. $ 2,853,653 $ 1,447,592 $ 340,576 $ 4,641,821
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
</TABLE>
See accompanying notes to pro forma condensed consolidated balance sheet
F-3
<PAGE>
DUKE-WEEKS REALTY CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
(UNAUDITED)
(IN THOUSANDS)
(a) Represents adjustments to record Weeks' assets and liabilities at their
respective purchase values based on the purchase method of accounting. The
assumed purchase price of $1.8 billion was computed as follows:
<TABLE>
<CAPTION>
DUKE SHARES
WEEKS SHARES AND EXCHANGE AND UNITS DUKE VALUE ACQUISITION
UNITS OUTSTANDING RATIO ISSUED PER SHARE COSTS
----------------- ----------- ------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Common stock............................ 19,743 1.38 27,245 $ 21.75 $ 592,586
Minority Operating Partnership Units.... 7,325 1.38 10,109 $ 21.75 219,860
------ ------ ----------------
27,068 37,354 812,446(1)
------ ------
------ ------
Preferred Series A Stock................ 6,000 1.00 6,000 $ 23.75 142,500(2)
------
------
Preferred Series C Units................ 1,400 1.00 1,400 $ 25.00 35,000(3)
------
------
Preferred Series D Units................ 2,600 1.00 2,600 $ 26.14 67,955(4)
------
------
Duke options and warrants issued........ 11,990(5)
Weeks outstanding debt assumed.......... 668,527(6)
Other Weeks liabilities assumed......... 42,603
Estimated transaction costs............. 17,000(7)
----------------
Total assumed purchase price............ $ 1,798,021
----------------
----------------
</TABLE>
- ------------------------
(1) Represents the value of the Duke common shares and Operating Partnership
units held by minority interests that will be exchanged for the assumed
outstanding Weeks common shares and Weeks Operating Partnership units.
The value of the Duke common shares and Operating Partnership units is
based upon the five day average of the closing price of Duke's common
stock as listed on the New York Stock Exchange immediately before, during
and after the date the terms of the merger were agreed to and announced
to the public on March 1, 1999.
F-4
<PAGE>
DUKE-WEEKS REALTY CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
(UNAUDITED)
(IN THOUSANDS)
The following purchase adjustments were made to common shareholders'
equity:
<TABLE>
<S> <C>
Value of Duke common stock issued................................. $ 592,586
Less net book value of Weeks common shareholders' equity at
December 31, 1998............................................... 364,912
---------
Adjustments to common shareholders' equity for Duke common shares
issued.......................................................... 227,674
Less: Elimination of Weeks' distributions in excess of earnings
(see note (f)).............................................. (66,208)
Par value adjustment to shareholders' equity (see note (a)
(8))........................................................ (75)
---------
Total adjustment to additional paid-in capital for Duke common
shares issued................................................... 161,391
Adjustment for Duke Series F Preferred Shares issued (see note (a)
(2))............................................................ (7,500)
Adjustment for Duke options issued (see note (a) (5))............. 10,590
---------
Total adjustment to additional paid-in capital.................... $ 164,481
---------
---------
</TABLE>
The following purchase adjustment was made to minority interest:
<TABLE>
<S> <C>
Value of Duke Operating Partnership common units issued to
minority interests.............................................. $ 219,860
Less book value of Weeks common unitholder minority interest at
December 31, 1998............................................... 135,653
---------
Purchase accounting adjustment to minority interest............... $ 84,207
---------
---------
</TABLE>
(2) Each outstanding share of Preferred Series A Cumulative Redeemable
Preferred Stock of Weeks will be converted into the right to receive one
preference share of Duke representing 1/1000 of a share of Series F
Cumulative Redeemable Preferred Stock of Duke. The assumed value of the
Duke Series F preferred shares is based upon the average closing price of
the Weeks Series A Preferred Stock the two days immediately following the
date the terms of the merger were agreed to and announced to the public.
The following purchase adjustment will be made to additional paid-in
capital:
<TABLE>
<S> <C>
Value of Duke Series F Preferred Stock issued..................... $ 142,500
Less net book value of Weeks Series A Preferred Stock at December
31, 1998........................................................ 150,000
---------
Purchase accounting adjustments to additional paid-in capital..... $ (7,500)
---------
---------
</TABLE>
(3) The Duke Operating Partnership will issue preferred units valued at the
book value (which approximates estimated fair value), of Weeks Operating
Partnership Preferred C Units at December 31, 1998. The Duke Operating
Partnership Preferred Units will have the same economic attributes as the
Weeks Operating Partnership Preferred C Units.
F-5
<PAGE>
DUKE-WEEKS REALTY CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
(UNAUDITED)
(IN THOUSANDS)
(4) The Duke Operating Partnership will issue preferred units valued at the
estimated fair value of the Weeks Operating Partnership Preferred D Units
at December 31, 1998. The Duke Operating Partnership Preferred Units will
have the same economic attributes as the Weeks Operating Partnership
Preferred D Units. The adjustment to estimated fair value is based on the
present value of amounts to be paid using pricing levels currently
available to Duke for preferred securities with similar terms and
features.
The following purchase adjustment will be made to minority interest:
<TABLE>
<S> <C>
Value of Duke Preferred Units...................................... $ 67,955
Less net book value of Weeks Operating Partnership Series D
Preferred Units at December 31, 1998............................. 65,000
---------
Purchase adjustment to minority interest........................... $ 2,955
---------
---------
</TABLE>
(5) Represents the fair value (computed using an option pricing model) of
Duke stock options and warrants to be issued to replace outstanding Weeks
stock options and warrants. The Duke stock options and warrants will
carry the same terms and remaining vesting schedule as the Weeks stock
options and warrants being replaced and provide for the option to
purchase up to 3,116,000 of Duke common shares. The following purchase
adjustment will be made to additional paid-in capital:
<TABLE>
<S> <C>
Value of Duke issued stock options and warrants.................... $ 11,990
Less book value of Weeks warrants at December 31, 1998............. (1,400)
---------
Purchase adjustment to additional paid-in capital.................. $ 10,590
---------
---------
</TABLE>
(6) The Weeks outstanding debt assumed is calculated as follows (see note
(e)):
<TABLE>
<S> <C>
Weeks outstanding debt............................................ $ 654,424
Fair value adjustment to secured debt............................. 12,109
Fair value adjustment to unsecured debt........................... 1,994
---------
$ 668,527
---------
---------
</TABLE>
(7) Represents estimated costs to be incurred by Duke in connection with the
Merger (see note (d))
(8) The adjustment to par value of common shares is calculated as follows:
<TABLE>
<S> <C>
Duke common shares to be issued (see note (a))..................... 27,245
Par value of common shares......................................... $ .01
---------
Total par value of Duke common shares issued....................... 272
Less: Weeks common shares outstanding par value at December 31,
1998............................................................. (197)
---------
Total adjustment to par value of common shares..................... $ 75
---------
---------
</TABLE>
F-6
<PAGE>
DUKE-WEEKS REALTY CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
(UNAUDITED)
(IN THOUSANDS)
(b) The book value of Weeks' land held for development and investments in
undervalued companies at December 31, 1998, was estimated to approximate the
fair value because substantially all land acquisitions and investments in
undervalued companies occurred within the last 24 months and the acquisition
or investment cost is representative of current market conditions.
(c) Represents the elimination of assets of Weeks that have no future value to
the combined company.
(d) Represents the expected incremental borrowings and cash expenditures to fund
the following costs to be incurred with the merger:
<TABLE>
<S> <C>
Advisory Fees...................................... $ 13,000
Legal and Professional Fees........................ 3,000
Other.............................................. 1,000
---------
$ 17,000
---------
---------
</TABLE>
(e) Represents adjustments to Weeks secured and unsecured debt reflect the
premium or discount to adjust these financial instruments to their estimated
fair value. The adjustment is based on the present value of amounts to be
paid using interest rates currently available to Duke for debt obligations
with similar terms and features. The borrowing rates available to Duke are
assumed to be comparable to the borrowing rates available to the combined
company. The adjustments are based on current effective interest rates
ranging from 6.29% to 7.45%. See note (a)(6).
(f) Represents the reclassification of $66,208 of Weeks' distributions in excess
of net earnings to additional paid-in capital in accordance with purchase
accounting.
F-7
<PAGE>
DUKE-WEEKS REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA DUKE-WEEKS
---------------------- MERGER POST-MERGER
DUKE WEEKS ADJUSTMENTS PRO FORMA
---------- ---------- ------------- -----------
<S> <C> <C> <C> <C>
Revenues:
Rental income.............................................. $ 337,768 $ 150,974 $ 2,102(g) $ 490,844
Equity in earnings of unconsolidated real estate
companies................................................ 10,857 329 -- 11,186
---------- ---------- ------ -----------
Total income........................................... 348,625 151,303 2,102 502,030
---------- ---------- ------ -----------
Expenses:
Rental expenses............................................ 59,769 22,494 -- 82,263
Real estate taxes.......................................... 33,906 12,824 -- 46,730
Interest................................................... 60,217 30,782 (3,054)(h) 87,945
Depreciation and amortization.............................. 68,766 38,348 1,987(i) 109,101
---------- ---------- ------ -----------
Total expenses......................................... 222,658 104,448 (1,067) 326,039
---------- ---------- ------ -----------
Earnings from rental operations.............................. 125,967 46,855 3,169 175,991
Earnings from service operations............................. 7,195 -- -- 7,195
Equity in earnings from unconsolidated service companies..... -- 2,535 -- 2,535
General and administrative................................... (11,573) (5,809) -- (17,382)
Other income and expenses.................................... 2,608 1,018 -- 3,626
---------- ---------- ------ -----------
Net income from continuing operations before minority
interest................................................... 124,197 44,599 3,169 171,965
Minority interest in earnings of common unitholders.......... (12,241) (8,267) (506)(j) (21,014)
Other minority interest in earnings of subsidiaries.......... (1,252) (1,191) -- (2,443)
---------- ---------- ------ -----------
Net income from continuing operations........................ 110,704 35,141 2,663 148,508
Less preferred share dividends............................... (19,833) (12,000) -- (31,833)
---------- ---------- ------ -----------
Net income from continuing operations available for common
shareholders............................................... $ 90,871 $ 23,141 $ 2,663 $ 116,675
---------- ---------- ------ -----------
---------- ---------- ------ -----------
Weighted average common shares outstanding- basic............ 80,704 19,256 107,277
---------- ---------- -----------
---------- ---------- -----------
Weighted average common shares outstanding-diluted........... 92,468 26,299 128,761
---------- ---------- -----------
---------- ---------- -----------
Net income from continuing operations per share (note (k)):
Basic...................................................... $ 1.13 $ 1.20 $ 1.09
---------- ---------- -----------
---------- ---------- -----------
Diluted.................................................... $ 1.12 $ 1.19 $ 1.07
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
See accompanying notes to pro forma consolidated statement of operations
F-8
<PAGE>
DUKE-WEEKS REALTY CORPORATION
NOTES TO PROFORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(g) Represents the net increase in rental income as a result of the re-setting
of straight-line rents for Weeks under purchase accounting.
(h) Represents the net change in interest expense as a result of the following
items for the year ended December 31, 1998:
<TABLE>
<S> <C>
Decrease based on the pro forma interest rates resulting from the
adjustments of Weeks' debt to estimated fair market value as described in
note (e)................................................................. $ (1,931)
Decrease in Weeks' deferred finance cost amortization related to the
elimination of Weeks deferred finance costs as described in note (c)..... (1,686)
Increase related to additional borrowings on the line of credit to fund
Merger related costs identified in note (d).............................. 563
---------
$ (3.054)
---------
---------
</TABLE>
(i) Represents the net increase in depreciation of real estate as a result of
the allocation of purchase price to record Weeks' real estate at estimated
fair value for the year ended December 31, 1998 (in thousands).
<TABLE>
<S> <C>
Additional basis in real estate basis (see note (a))...................... $ 384,025
Less amount of step-up allocated to:
Developments in progress................................................ (85,487)
Land portion of operating facilities.................................... (42,118)
---------
Depreciable portion of additional basis................................... $ 256,420
---------
---------
</TABLE>
The depreciable portion of the additional basis is then allocated to
properties placed in service prior to or during 1998 and depreciation
expense is computed over the time in service for each property during 1998,
based upon a 40 year estimated useful life. The depreciation expense
attributable to the additional basis is $5,586, offset by a decrease in
amortization expense of $3,599, which is related to the elimination of Weeks
deferred leasing costs as described in note (c).
(j) Minority interest share of purchase adjustments.
F-9
<PAGE>
DUKE-WEEKS REALTY CORPORATION
NOTES TO PROFORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(k) The following summarizes the calculation of basic and diluted pro forma
earnings per share for the year ended December 31, 1998:
<TABLE>
<S> <C>
Basic Earnings Per Share (EPS) Calculation:
Weighted average common shares outstanding
Duke prior to merger.................................................. 80,704
Duke common shares issued to Weeks (1)................................ 26,573
---------
Adjusted weighted average common shares outstanding--basic.............. 107,277
---------
---------
Pro forma net income from continuing operations available for common
shareholders.......................................................... $ 116,675
---------
---------
Basic pro forma EPS....................................................... $ 1.09
---------
---------
Diluted Earnings Per Share (EPS) Calculation
Adjusted weighted average common shares outstanding for Basic EPS..... 107,277
Weighted average dilutive potential common shares:
Duke exchangeable partnership units................................... 10,872
Duke dilutive potential securities.................................... 892
Duke exchangeable partnership units issued to Weeks (1)............... 9,492
Duke dilutive potential securities after Merger conversion (1)........ 228
---------
Adjusted weighted average common and dilutive potential common shares... 128,761
---------
---------
Pro forma net income from continuing operations for Basic EPS........... $ 116,675
Add: minority interest of partnership units........................... 21,014
---------
Pro forma net income from continuing operations for diluted EPS......... $ 137,689
---------
---------
Diluted pro forma EPS..................................................... $ 1.07
---------
---------
</TABLE>
- ------------------------
(1) The Duke-Weeks pro forma weighted average common shares outstanding reflects
adjustments based on the issuance of 1.38 Duke common shares for each
weighted average share of Weeks common stock and each weighted average share
of Weeks dilutive potential securities and the issuance of 1.38 Duke limited
partnership units for each weighted average limited partnership unit of
Weeks.
F-10
<PAGE>
ANNEX A
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF FEBRUARY 28, 1999
BY AND AMONG
DUKE REALTY INVESTMENTS, INC.
AND
WEEKS CORPORATION
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<C> <S> <C>
ARTICLE I THE REIT MERGER...................................................................... 2
Section 1.1. The REIT Merger.................................................................... 2
Section 1.2. Closing............................................................................ 2
Section 1.3. Effective Time..................................................................... 2
Section 1.4. Charter and By-laws................................................................ 2
Section 1.5. Directors.......................................................................... 2
Section 1.6. Officers........................................................................... 3
ARTICLE II EFFECTS OF THE REIT MERGER; EXCHANGE OF CERTIFICATES................................. 3
Section 2.1. Effect on Capital Stock............................................................ 3
(a) Capital Stock Owned by Weeks or its Subsidiaries................................... 3
(b) Conversion of Weeks Capital Stock Into Duke Capital Stock.......................... 3
(c) Shares of Duke Capital Stock....................................................... 4
Section 2.2. Exchange of Certificates........................................................... 4
(a) Exchange Agent..................................................................... 4
(b) Duke to Provide Merger Consideration............................................... 4
(c) Exchange Procedure................................................................. 4
(d) Record Dates; Distributions with Respect to Unexchanged Shares..................... 4
(e) No Further Ownership Rights in Weeks Capital Stock................................. 5
(f) Unclaimed Merger Consideration..................................................... 5
(g) No Fractional Shares............................................................... 6
(h) Withholding........................................................................ 6
(i) No Dissenters' Rights.............................................................. 6
ARTICLE III REPRESENTATIONS AND WARRANTIES....................................................... 6
Section 3.1. Representations and Warranties of Weeks............................................ 6
(a) Organization, Standing and Corporate Power of Weeks................................ 6
(b) Weeks Subsidiaries; Interests in Other Persons..................................... 6
(c) Capital Structure.................................................................. 7
(d) Authority; Noncontravention; Consents.............................................. 8
(e) SEC Documents; Financial Statements; Undisclosed Liabilities....................... 9
(f) Absence of Certain Changes or Events............................................... 10
(g) Litigation......................................................................... 10
(h) Absence of Changes in Benefit Plans; ERISA Compliance.............................. 11
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<C> <S> <C>
(i) Taxes.............................................................................. 12
(j) No Loans or Payments to Employees, Officers or Directors........................... 12
(k) Brokers; Schedule of Fees and Expenses............................................. 13
(l) Compliance with Laws............................................................... 13
(m) Contracts; Debt Instruments........................................................ 13
(n) OP Agreement....................................................................... 14
(o) Environmental Matters.............................................................. 14
(p) Weeks Properties................................................................... 15
(q) Books and Records.................................................................. 16
(r) Opinion of Financial Advisor....................................................... 16
(s) State Takeover Statutes; Rights Agreement.......................................... 16
(t) Investment Company Act of 1940..................................................... 17
(u) Proxy Statement and Registration Statement......................................... 17
(v) Vote Required...................................................................... 17
(w) "Year 2000 Ready".................................................................. 17
Section 3.2. Representations and Warranties of Duke............................................. 18
(a) Organization, Standing and Corporate Power of Duke................................. 18
(b) Duke Subsidiaries; Interests in Other Persons...................................... 18
(c) Capital Structure.................................................................. 18
(d) Authority; Noncontravention; Consents.............................................. 19
(e) SEC Documents; Financial Statements; Undisclosed Liabilities....................... 20
(f) Absence of Certain Changes or Events............................................... 21
(g) Litigation......................................................................... 22
(h) Absence of Changes in Benefit Plans; ERISA Compliance.............................. 22
(i) Taxes.............................................................................. 23
(j) No Loans or Payments to Employees, Officers or Directors........................... 23
(k) Brokers; Schedule of Fees and Expenses............................................. 23
(l) Compliance with Laws............................................................... 24
(m) Contracts; Debt Instruments........................................................ 24
(n) Duke OP Agreement.................................................................. 24
(o) Environmental Matters.............................................................. 24
(p) Duke Properties.................................................................... 25
(q) Opinion of Financial Advisor....................................................... 26
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<C> <S> <C>
(r) State Takeover Statutes............................................................ 26
(s) 1940 Act........................................................................... 26
(t) Proxy Statement and Registration Statement......................................... 27
(u) Vote Required...................................................................... 27
(v) Year 2000 Issues................................................................... 27
ARTICLE IV COVENANTS............................................................................ 28
Section 4.1. Conduct of Business by Weeks and Weeks OP.......................................... 28
Section 4.2. Conduct of Business by Duke........................................................ 29
Section 4.3. Other Actions...................................................................... 31
ARTICLE V ADDITIONAL COVENANTS............................................................... 32
Section 5.1. Preparation of the Registration Statement and the Proxy Statement; Shareholders'
Meetings; Partners' Consents..................................................... 32
Section 5.2. Access to Information; Confidentiality............................................. 33
Section 5.3. Commercially Reasonable Efforts; Notification...................................... 33
Section 5.4. Affiliates......................................................................... 34
Section 5.5. Tax Treatment...................................................................... 34
Section 5.6. No Solicitation of Transactions.................................................... 34
Section 5.7. Public Announcements............................................................... 35
Section 5.8. NYSE Listing....................................................................... 35
Section 5.9. Letters of Accountants............................................................. 35
Section 5.10. Transfer and Gains Taxes; Shareholder Demand Letters............................... 35
Section 5.11. Benefit Plans and Other Employee Arrangements...................................... 36
(a) Benefit Plans...................................................................... 36
(b) Stock Incentive Plans.............................................................. 36
(c) Change in Control Agreements....................................................... 37
Section 5.12. Indemnification; Directors' and Officers' Insurance................................ 37
Section 5.13. Provisions Relating to Certain Weeks Indebtedness.................................. 38
Section 5.14. The Weeks Rights Plan.............................................................. 38
Section 5.15. Coordination of Dividends.......................................................... 38
Section 5.16. Existing Restrictions on Resale of Certain Falcon Properties....................... 39
Section 5.17. Assumption of Warrants............................................................. 39
Section 5.18. Weeks Notes........................................................................ 39
Section 5.19. Duke OP Partnership Agreement...................................................... 39
Section 5.20. Registration Rights Agreements..................................................... 39
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<C> <S> <C>
Section 5.21. Interim Transactions Committee..................................................... 40
Section 5.22. Executive Officer Appointments..................................................... 40
ARTICLE VI CONDITIONS PRECEDENT................................................................. 40
Section 6.1. Conditions to Each Party's Obligation to Effect the Merger......................... 40
(a) Shareholder Approvals.............................................................. 40
(b) Listing of Shares.................................................................. 40
(c) Registration Statement............................................................. 40
(d) No Injunctions or Restraints....................................................... 40
(e) HSR Act............................................................................ 40
Section 6.2. Conditions to Obligations of Duke.................................................. 40
(a) Representations and Warranties..................................................... 40
(b) Performance of Obligations of Weeks and Weeks OP................................... 41
(c) Material Adverse Change............................................................ 41
(d) Opinions Relating to REIT and Partnership Status................................... 41
(e) Other Tax Opinion.................................................................. 41
(f) Consents........................................................................... 41
Section 6.3. Conditions to Obligation of Weeks and Weeks OP..................................... 41
(a) Representations and Warranties..................................................... 41
(b) Performance of Obligations of Duke and Duke OP..................................... 41
(c) Material Adverse Change............................................................ 41
(d) Opinions Relating to REIT and Partnership Status................................... 42
(e) Other Tax Opinion.................................................................. 42
(f) Consents........................................................................... 42
(g) Directors' Resignations............................................................ 42
ARTICLE VII BOARD ACTIONS........................................................................ 42
Section 7.1. Board Actions...................................................................... 42
Section 7.2. Weeks Subsidiary Boards............................................................ 42
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER.................................................... 43
Section 8.1. Termination........................................................................ 43
Section 8.2. Expenses........................................................................... 44
Section 8.3. Effect of Termination.............................................................. 46
Section 8.4. Amendment.......................................................................... 46
Section 8.5. Extension; Waiver.................................................................. 46
</TABLE>
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<TABLE>
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<C> <S> <C>
ARTICLE IX GENERAL PROVISIONS................................................................... 47
Section 9.1. Nonsurvival of Representations and Warranties...................................... 47
Section 9.2. Notices............................................................................ 47
Section 9.3. Interpretation..................................................................... 48
Section 9.4. Counterparts....................................................................... 48
Section 9.5. Entire Agreement; No Third-Party Beneficiaries..................................... 48
Section 9.6. GOVERNING LAW...................................................................... 48
Section 9.7. Assignment......................................................................... 48
Section 9.8. Enforcement........................................................................ 48
Section 9.9. Exhibits; Disclosure Letters....................................................... 48
ARTICLE X CERTAIN DEFINITIONS.................................................................. 49
Section 10.1. Certain Definitions................................................................ 49
</TABLE>
<TABLE>
<S> <C>
Schedules (not included)
A Holders of Weeks Common Stock and OP Units Delivering Proxies to Duke
B Holders of Duke Common Stock and OP Units Delivering Proxies to Weeks
C Service Companies Owners
D Directors of the Surviving Corporation if 80% Duke Approval is Obtained
E Directors of the Surviving Corporation if 80% Duke Approval is Not Obtained
F Officers of the Surviving Corporation
Exhibits (not included)
A Form of OP Merger Agreement
B Form of Weeks Agreement and Irrevocable Proxy
C Form of Duke Agreement and Irrevocable Proxy
D Forms of Weeks Services Companies Option Agreement
E Charter of the Surviving Corporation (if 80% Duke Approval is Obtained)
F By-laws of the Surviving Corporation (if 80% Duke Approval is Obtained)
G Charter of the Surviving Corporation (if 80% Duke Approval is Not Obtained)
H By-laws of the Surviving Corporation (if 80% Duke Approval is Not Obtained)
I Form of Affiliates Letter
J Duke Operating Partnership Agreement Amendments
K Form of King & Spalding Tax Opinion
L Form of Rogers & Wells LLP Tax Opinion
</TABLE>
v
<PAGE>
AGREEMENT AND PLAN OF MERGER (the "AGREEMENT"), dated as of February 28,
1999, by and between DUKE REALTY INVESTMENTS, INC., an Indiana corporation
("DUKE"), and WEEKS CORPORATION, a Georgia corporation ("WEEKS").
RECITALS
A. The Boards of Directors of Duke and Weeks each have determined that it is
advisable and in the best interest of their respective companies and
shareholders that upon the terms and subject to the conditions set forth in this
Agreement, Weeks will merge with and into Duke, with Duke being the surviving
corporation, in a merger (the "REIT MERGER") in which each issued and
outstanding share of common stock, par value $.01 per share, of Weeks (the
"WEEKS COMMON STOCK"), each issued and outstanding share of 8.0% Series A
Cumulative Redeemable Preferred Stock, par value $.01 per share, of Weeks (the
"WEEKS SERIES A PREFERRED STOCK") and each issued and outstanding share, if any,
of 8.625% Series D Cumulative Redeemable Preferred Stock, par value $.01 per
share, of Weeks (the "WEEKS SERIES D PREFERRED STOCK" and together with the
Weeks Series A Preferred Stock, the "WEEKS PREFERRED STOCK") will be converted
into the right to receive the applicable Merger Consideration (as defined
below).
B. Duke, as managing general partner of Duke Limited Partnership, an Indiana
limited partnership ("DUKE OP"), and Weeks, as general partner (through a wholly
owned subsidiary) of Weeks, L.P., a Georgia limited partnership ("WEEKS OP"),
each has determined that it is advisable and in the best interest of their
respective partnerships and partners that upon the terms and subject to the
conditions set forth in an agreement and plan of merger between Duke OP and
Weeks OP executed on the date hereof, a copy of which is attached as Exhibit A
hereto (the "OP MERGER AGREEMENT"), Weeks OP will merge with and into Duke OP
with Duke OP being the surviving partnership in such merger (the "OP MERGER").
C. The parties intend that for federal income tax purposes the REIT Merger
will qualify as a tax-free reorganization under Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "CODE"), and that, following the REIT
Merger, Duke will continue to be subject to taxation as a real estate investment
trust (a "REIT") within the meaning of the Code.
D. Contemporaneously with the execution and delivery of this Agreement, (i)
certain holders of Weeks Common Stock named in Schedule A hereto and certain
holders of limited partnership interests in Weeks OP named in Schedule A hereto
have entered into agreements, each substantially in the form of Exhibit B hereto
(the "WEEKS VOTING AGREEMENTS"), with Duke and Duke OP pursuant to which, among
other things, those holders have granted to Duke irrevocable proxies to vote
their shares and partnership interests in favor of the REIT Merger, this
Agreement, the OP Merger, the OP Merger Agreement and the other transactions
contemplated hereby and thereby and against any competing proposal, and (ii)
certain holders of Duke Common Stock named in Schedule B hereto and certain
holders of limited partnership interests in Duke OP named in Schedule B hereto
have entered into agreements with Weeks and Weeks OP, each substantially in the
form of Exhibit C hereto (the "DUKE VOTING AGREEMENTS"), pursuant to which,
among other things, those holders have granted to Weeks irrevocable proxies to
vote their shares and partnership interests in favor of the REIT Merger, this
Agreement, the OP Merger, the OP Merger Agreement and the other transactions
contemplated hereby and thereby and against any competing proposal.
E. Contemporaneously with the execution and delivery of this Agreement, the
persons named in Schedule C hereto (collectively the "SERVICES COMPANIES
OWNERS") have entered into an option agreement, a copy of which is attached as
Exhibit D hereto (the "WEEKS SERVICES COMPANIES OPTION AGREEMENT"), with MWSB,
Inc. (the "OPTION HOLDER") pursuant to which the Weeks Services Companies Owners
have granted the Option Holder an option to acquire all of the interests of the
Weeks Services Companies Owners in Weeks Realty Services, Inc. and Weeks
Construction Services, Inc. (together, the "WEEKS SERVICES COMPANIES").
<PAGE>
AGREEMENT
In consideration of the representations, warranties, covenants and
agreements contained in this Agreement, the parties agree as follows:
ARTICLE I
THE REIT MERGER
Section 1.1. THE REIT MERGER.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, at the Effective Time (as hereinafter defined), Weeks shall be merged
with and into Duke in accordance with the Indiana Business Corporation Law (the
"IBCL") and the Georgia Business Corporation Code (the "GBCC," and together with
the IBCL, the "GOVERNING LAWS"), whereupon the separate corporate existence of
Weeks shall cease and Duke shall continue as the surviving corporation (the
"SURVIVING CORPORATION").
(b) The REIT Merger shall have the effects set forth in the Governing Laws.
Accordingly, from and after the Effective Time, the Surviving Corporation shall
possess all the rights, privileges, powers and franchises and be subject to all
of the restrictions, disabilities, liabilities and duties of Duke and Weeks.
Section 1.2. CLOSING. The closing of the REIT Merger (the "CLOSING") will
take place at 10:00 a.m. New York City time on the second business day after
satisfaction or waiver of the conditions set forth in Article VI (the "CLOSING
DATE"), at the offices of Rogers & Wells LLP, 200 Park Avenue, New York, New
York 10166, unless another date or place is agreed to in writing by the parties.
Section 1.3. EFFECTIVE TIME. On the Closing Date, the parties shall
execute and file Articles of Merger or other appropriate documents in accordance
with the Governing Laws, and shall make all other filings or recordings required
with respect to the REIT Merger under the Governing Laws. The REIT Merger shall
become effective one day after the day a certificate of merger or other
appropriate documents for the OP Merger have been duly filed with the Secretary
of State of Indiana and the Secretary of State of Georgia, or at such other time
or times as may be agreed by Duke and Weeks and specified in the Articles of
Merger (the time the REIT Merger becomes effective being the "EFFECTIVE TIME"),
it being understood that the parties shall cause the Effective Time to occur as
soon as practicable after the Closing Date but in any event at least one day
after the effective time of the OP Merger.
Section 1.4. CHARTER AND BY-LAWS. The articles of incorporation and
by-laws of Duke, amended and restated substantially in the forms set forth in
Exhibits E and F hereto, shall become the articles of incorporation (the
"CHARTER") and by-laws (the "BY-LAWS") of the Surviving Corporation upon the
Effective Time until further amended in accordance with applicable Indiana law;
PROVIDED, HOWEVER, that if the Duke Special Charter Proposal (as defined below)
is not approved at the Duke Shareholders Meeting (as defined in Section 5.1(b))
by the affirmative vote of at least 80% of Duke's issued and outstanding shares
of capital stock ("80% DUKE APPROVAL"), the Charter and By-laws upon the
Effective Time shall be substantially in the forms set forth in Exhibits G and H
hereto until further amended in accordance with applicable Indiana law. The
"DUKE SPECIAL CHARTER PROPOSAL" is the proposal, to be presented at the Duke
Shareholders Meeting, to amend Duke's Charter to (i) increase the size of Duke's
Board of Directors to a minimum of five and a maximum of 23 and (ii) delete the
references contained in Article XII of Duke's Charter to Section 7.01 of the
Charter.
Section 1.5. DIRECTORS. Immediately following the Effective Time, the
Board of Directors of the Surviving Corporation (the "BOARD") and certain
committees of the Board shall consist of the persons named on Schedule D hereto,
each of whom shall be a member of the class indicated on Schedule D; PROVIDED,
HOWEVER, that if the Duke Special Charter Proposal is not approved at the Duke
Shareholder Meeting by the 80% Duke Approval, the Board and certain committees
of the Board shall consist immediately following the Effective Time of the
persons named on Schedule E hereto, each of whom shall
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be a member of the class indicated on Schedule E. If any person referred to in
the preceding sentence should for any reason be unable or unwilling to serve,
such person's replacement shall be selected before the Effective Time by mutual
agreement of Duke and Weeks or after the Effective Time by the Board.
Section 1.6. OFFICERS. The executive officers of the Surviving Corporation
immediately following the Effective Time shall include the persons named on
Schedule F hereto (or, if any such person should for any reason be unable or
unwilling to serve, such other person or persons as shall be mutually agreed by
Duke and Weeks), each of whom shall hold the position indicated on Schedule F
hereto. If any such person should for any reason be unable or unwilling to
serve, such person's replacement shall be selected before the Effective Time by
mutual agreement of Duke and Weeks or after the Effective Time by the Board.
ARTICLE II
EFFECTS OF THE REIT MERGER;
EXCHANGE OF CERTIFICATES
Section 2.1. EFFECT ON CAPITAL STOCK
(a) CAPITAL STOCK OWNED BY WEEKS OR ITS SUBSIDIARIES. As of the Effective
Time, any shares of capital stock of Weeks that are owned by Weeks or any Weeks
Subsidiary automatically shall be cancelled and retired and all rights with
respect thereto shall cease to exist, and no consideration shall be delivered in
exchange therefor.
(b) CONVERSION OF WEEKS CAPITAL STOCK INTO DUKE CAPITAL STOCK. At the
Effective Time, except as provided in Section 2.1(a), (i) each issued and
outstanding share of Weeks Common Stock shall be converted by virtue of the REIT
Merger, automatically and without any action on the part of the holder thereof,
into the right to receive from the Surviving Corporation 1.38 (the "EXCHANGE
RATIO"") fully paid and nonassessable shares of common stock, par value $.01 per
share, of Duke ("DUKE COMMON STOCK"), (ii) each issued and outstanding share of
Weeks Series A Preferred Stock shall be converted by virtue of the REIT Merger,
automatically and without any action on the part of the holder thereof, into the
right to receive from the Surviving Corporation one fully paid and nonassessable
preference share (a "SERIES F PREFERENCE SHARE"), representing 1/1000 of a share
of 8.0% Series F Cumulative Redeemable Preferred Stock, par value $.01 per
share, of Duke ("DUKE SERIES F PREFERRED STOCK") and (iii) each issued and
outstanding share of Weeks Series D Preferred Stock (if any) shall be converted,
by virtue of the REIT Merger, automatically and without any action on the part
of the holder thereof, into the right to receive from the Surviving Corporation
one fully paid and nonassessable preference share (a "SERIES H PREFERENCE
SHARE", and together with the Series F Preference Shares, the "NEW DUKE
PREFERENCE SHARES"), representing 1/1000 of a share of 8.625% Series H
Cumulative Redeemable Preferred Stock, par value $0.01 per share, of Duke ("DUKE
SERIES H PREFERRED STOCK", and together with the Duke Series F Preferred Stock,
the "NEW DUKE PREFERRED STOCK"). At the Effective Time, all shares of Weeks
Common Stock and Weeks Preferred Stock outstanding immediately prior to the
Effective Time shall cease to be outstanding and automatically shall be
cancelled and retired and all rights with respect thereto shall cease to exist,
and each holder of a certificate representing any shares of Weeks Common Stock
or Weeks Preferred Stock (a "CERTIFICATE") shall cease to have any rights with
respect thereto, except the right to receive, upon surrender of such Certificate
in accordance with Section 2.2(c), a certificate or certificates representing
the shares of Duke Common Stock or New Duke Preference Shares, as applicable,
into which those shares are converted pursuant to this Section 2.1(b) and any
cash in lieu of fractional shares of Duke Common Stock to be issued or paid in
consideration therefor upon surrender of such certificate (the "MERGER
CONSIDERATION") and any dividends or other distributions to which such holder is
entitled pursuant to Section 2.2(d), in each case without interest and less any
required withholding taxes. Notwithstanding the foregoing, the rights of each
stockholder of the Surviving Corporation under this Section 2.1 will be subject
to the ownership limitations and other related provisions contained in the
Charter.
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(c) SHARES OF DUKE CAPITAL STOCK. Upon the Effective Time, each share of
capital stock of Duke outstanding immediately prior to the Effective Time shall
remain outstanding and shall represent one share of validly issued, fully paid
and nonassessable capital stock of the same class and designation.
Section 2.2. EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT. Prior to the Effective Time, Duke shall appoint a bank
or trust company that is reasonably acceptable to Weeks to act as exchange agent
(the "EXCHANGE AGENT") for the exchange of the Merger Consideration for
Certificates representing issued and outstanding Weeks Common Stock and Weeks
Preferred Stock.
(b) DUKE TO PROVIDE MERGER CONSIDERATION. Duke shall provide, or cause to be
provided, to the Exchange Agent on and after the Effective Time from time to
time as required pursuant to Section 2.2(c) and 2.2(g), for the benefit of the
holders of Weeks Common Stock and Weeks Preferred Stock, certificates
representing the shares of Duke Common Stock and New Duke Preferred Stock into
which the issued and outstanding shares of Weeks Common Stock and Weeks
Preferred Stock are converted pursuant to Section 2.1(b), together with the cash
payable in respect of fractional shares pursuant to Section 2.2(g).
(c) EXCHANGE PROCEDURE. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
Certificate or Certificates whose shares were converted into the right to
receive the Merger Consideration pursuant to Section 2.1, (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in a form and have such other
provisions as Duke may reasonably specify) and (ii) instructions for use in
effecting the surrender of the Certificates, in exchange for the applicable
Merger Consideration. Upon surrender of a Certificate for cancellation to the
Exchange Agent or to such other agent or agents as may be appointed by Duke,
together with such letter of transmittal, duly executed, and such other
documents as may reasonably be required by the Exchange Agent, the holder of
such Certificate shall be entitled to receive in exchange therefor the
applicable Merger Consideration and any dividends or other distributions to
which such holder is entitled pursuant to Section 2.2(d), and the Certificate so
surrendered shall forthwith be cancelled. In the event of a transfer of
ownership of Weeks Common Stock or Weeks Preferred Stock which is not registered
in the transfer records of Weeks, payment may be made to a person other than the
person in whose name the Certificate so surrendered is registered if such
Certificate shall be properly endorsed or otherwise be in proper form for
transfer and the person requesting such payment either shall pay any transfer or
other taxes required by reason of such payment being made to a person other than
the registered holder of such Certificate or establish to the satisfaction of
Duke that such tax or taxes have been paid or are not applicable. Until
surrendered as contemplated by this Section 2.2, each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the applicable Merger Consideration, without
interest, into which the shares theretofore represented by such Certificate
shall have been converted pursuant to Section 2.1 and any dividends or other
distributions to which such holder is entitled pursuant to Section 2.2(d). No
interest will be paid or will accrue on the applicable Merger Consideration upon
the surrender of any Certificate or on any cash payable pursuant to Section
2.2(d) or Section 2.2(g).
(d) RECORD DATES; DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES.
(i) To the extent reasonably necessary to ensure satisfaction of the
requirements of Section 857(a)(1) of the Code for the taxable year of Weeks
ending at the Effective Time, Weeks shall declare a dividend (the "FINAL
WEEKS DIVIDEND") to holders of shares of Weeks Common Stock, the record date
for which shall be the close of business on the last business day prior to
the Effective Time, in an amount equal to the minimum dividend sufficient to
permit Weeks to satisfy such requirements. If Weeks determines it necessary
to declare the Final Weeks Dividend, it shall notify Duke at least ten (10)
days prior to the date for the Weeks Shareholders Meeting (as defined in
Section 5.1(b)), and Duke shall declare a dividend per share to holders of
Duke Common Stock, the
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<PAGE>
record date for which shall be the close of business on the last business
day prior to the Effective Time, in an amount per share equal to the
quotient obtained by dividing (x) the Final Weeks Dividend per share of
Weeks Common Stock paid by Weeks by (y) the Exchange Ratio. The dividends
payable hereunder to holders of Weeks Common Stock shall be paid upon
presentation of the Certificates of Weeks Common Stock for exchange in
accordance with this Article II.
(ii) No dividends or other distributions with respect to Duke Common
Stock or New Duke Preferred Stock with a record date after the Effective
Time shall be paid to the holder of any unsurrendered Certificate with
respect to the shares represented thereby, and no cash payment in lieu of
fractional shares shall be paid to any such holder pursuant to Section
2.2(g), in each case until the surrender of such Certificate in accordance
with this Article II. Subject to the effect of applicable abandoned
property, escheat or similar laws, following surrender of any such
Certificate there shall be paid to the holder of such Certificate without
interest, (A) at the time of such surrender, the amount of any cash payable
in lieu of any fractional share of Weeks Common Stock to which such holder
is entitled pursuant to Section 2.2(g) and (B) if such Certificate is
exchangeable for one or more whole shares of Duke Common Stock, or New Duke
Preferred Stock, (x) at the time of such surrender, the amount of dividends
or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of Duke Common Stock or
New Duke Preferred Stock, and (y) at the appropriate payment date, the
amount of dividends or other distributions with a record date after the
Effective Time but prior to such surrender and with a payment date
subsequent to such surrender payable with respect to such whole shares of
Duke Common Stock or New Duke Preferred Stock.
(e) NO FURTHER OWNERSHIP RIGHTS IN WEEKS CAPITAL STOCK. All Merger
Consideration paid upon the surrender of Certificates in accordance with the
terms of this Article II (and any cash paid pursuant to Section 2.2(g)) shall be
deemed to have been paid in full satisfaction of all rights pertaining to the
shares of Weeks Common Stock and Weeks Preferred Stock theretofore represented
by such Certificates; subject, however, to the obligation of Weeks to pay,
without interest, any dividends or make any other distributions with a record
date prior to the Effective Time which may have been declared or made by Weeks
on such shares in accordance with the terms of this Agreement or prior to the
date of this Agreement and which remain unpaid at the Effective Time and have
not been paid prior to such surrender, and there shall be no further
registration of transfers on the stock transfer books of Weeks of the shares of
Weeks Common Stock or Weeks Preferred Stock which were outstanding immediately
prior to the Effective Time. If, after the Effective Time, Certificates are
properly presented to the Surviving Corporation they shall be cancelled and
exchanged as provided in this Article II.
(f) UNCLAIMED MERGER CONSIDERATION. Any portion of the Merger Consideration
delivered to the Exchange Agent pursuant to this Agreement that remains
unclaimed for six months after the Effective Time shall be redelivered by the
Exchange Agent to the Surviving Corporation, upon demand, and any holders of
Certificates who have not theretofore complied with Section 2.2(b) shall
thereafter look only to the Surviving Corporation for delivery of the Merger
Consideration, subject to applicable abandoned property, escheat and other
similar laws. The Surviving Corporation shall have no liability to any holder of
shares of Weeks Common Stock or Weeks Preferred Stock for Merger Consideration
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law. Any Merger Consideration remaining unclaimed by any
holder of shares of Weeks Common Stock or Weeks Preferred Stock on the day
immediately prior to the time such amounts otherwise would escheat to or become
the property of any governmental entity shall, to the extent permitted by law,
become the property of the Surviving Corporation, free and clear of any claim or
interest of any Persons previously entitled thereto.
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(g) NO FRACTIONAL SHARES.
(i) No certificates or scrip representing fractional shares of Duke
Common Stock shall be issued upon the surrender for exchange of
Certificates, and such fractional share interests will not entitle the owner
thereof to vote, to receive dividends or to any other rights of a
stockholder of Duke.
(ii) Notwithstanding any other provision of this Agreement, each holder
of shares of Weeks Common Stock who would otherwise have been entitled to
receive a fraction of a share of Duke Common Stock (after taking into
account all Certificates delivered by such holder) shall receive, upon
surrender of such holder's Certificates in accordance with Section 2.1, a
cash payment in lieu of such fractional shares of Duke Common Stock equal to
the same fractional proportion of the arithmetic mean of the closing sales
price of a share of Duke Common Stock on the New York Stock Exchange (the
"NYSE") on each of the ten trading days immediately preceding the Closing
Date.
(h) WITHHOLDING. The Surviving Corporation or the Exchange Agent shall be
entitled to deduct and withhold from the Merger Consideration otherwise payable
pursuant to this Agreement to any holder of shares of Weeks Common Stock or
Weeks Preferred Stock such amounts as the Surviving Corporation or the Exchange
Agent is required to deduct and withhold with respect to the making of such
payment under the Code, or any provision of state, local or foreign tax law. To
the extent that amounts are so withheld by the Surviving Corporation or the
Exchange Agent, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the shares of Weeks Common Stock
or Weeks Preferred Stock, as the case may be, in respect of which such deduction
and withholding was made by the Surviving Corporation or the Exchange Agent.
(i) NO DISSENTERS' RIGHTS. No dissenters' or appraisal rights shall be
available with respect to the REIT Merger.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1. REPRESENTATIONS AND WARRANTIES OF WEEKS. Except as set forth
in the letter of even date herewith (with sections organized in accordance with
Section 9.9) signed by the President or Chief Executive Officer and the Chief
Financial Officer of Weeks and delivered to Duke prior to the execution hereof
(the "WEEKS DISCLOSURE LETTER"), Weeks represents and warrants to Duke as
follows:
(a) ORGANIZATION, STANDING AND CORPORATE POWER OF WEEKS. Weeks is a
corporation duly organized and validly existing under the laws of Georgia and
has the requisite corporate power and authority to carry on its business as now
being conducted. Weeks is duly qualified or licensed to do business and is in
good standing in each jurisdiction in which the nature of its business or the
ownership, leasing of its properties or management of properties for others
makes such qualification or licensing necessary, other than in such
jurisdictions where the failure to be so qualified or licensed, individually or
in the aggregate, would not have a material adverse effect on the business,
properties, financial condition or results of operations of Weeks and the Weeks
Subsidiaries taken as a whole (a "WEEKS MATERIAL ADVERSE EFFECT").
(b) WEEKS SUBSIDIARIES; INTERESTS IN OTHER PERSONS.
(i) Section 3.1(b)(i) of the Weeks Disclosure Letter sets forth each
Weeks Subsidiary and the ownership interest therein of Weeks and each other
Weeks Subsidiary. All the outstanding shares of capital stock of each Weeks
Subsidiary that is a corporation have been validly issued and are fully paid
and nonassessable and are not subject to any preemptive rights, and are
owned by Weeks, by another Weeks Subsidiary or by Weeks and another Weeks
Subsidiary, free and clear of all pledges, claims, liens, charges,
encumbrances and security interests of any kind or nature whatsoever
(collectively, "LIENS"), and equity interests in each Weeks Subsidiary,
including Weeks OP, that is a partnership, limited liability company or
trust are owned by Weeks, by another Weeks Subsidiary or by Weeks and
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another Weeks Subsidiary free and clear of all Liens. Each Weeks Subsidiary
that is a corporation is duly incorporated and validly existing under the
laws of its jurisdiction of incorporation and has the requisite corporate
power and authority to carry on its business as now being conducted and each
Weeks Subsidiary, including Weeks OP, that is a partnership, limited
liability company or trust is duly organized and validly existing under the
laws of its jurisdiction of organization and has the requisite power and
authority to carry on its business as now being conducted. Each Weeks
Subsidiary, including Weeks OP, is duly qualified or licensed to do business
and is in good standing in each jurisdiction in which the nature of its
business or the ownership, leasing of its properties or management of
properties for others makes such qualification or licensing necessary, other
than in such jurisdictions where the failure to be so qualified or licensed,
individually or in the aggregate, would not have a Weeks Material Adverse
Effect.
(ii) Except for the capital stock of, or other equity interests in, the
Weeks Subsidiaries and the other interests disclosed in Section 3.1(b)(ii)
of the Weeks Disclosure Letter (the "WEEKS OTHER INTERESTS"), Weeks does not
own, directly or indirectly (including through any Weeks Subsidiary), any
capital stock or other ownership interest, with a fair market value as of
the date of this Agreement greater than $250,000 in any Person or which
represents 5% or more of the outstanding voting power, capital stock or
other ownership interest of any class in any Person. Neither Weeks nor any
Weeks Subsidiary is in material default of any provision of any
organizational documents governing or otherwise relating to its rights in
any Weeks Other Interest. All such organizational documents are set forth in
Section 3.1(b)(ii) of the Weeks Disclosure Letter and are in full force and
effect.
(c) CAPITAL STRUCTURE. The authorized capital stock of Weeks consists of
100,000,000 shares of Weeks Common Stock and 20,000,000 shares of preferred
stock, par value $.01 per share. On the date hereof, (i) 19,743,232 shares of
Weeks Common Stock and 6,000,000 shares of Weeks Series A Preferred Stock
constitute all of the issued and outstanding capital stock of Weeks, (ii) 47,889
shares of Weeks Common Stock were available for issuance under Weeks' 1994
Incentive Stock Plan, (iii) 286,000 shares of Weeks Common Stock were available
for issuance under Weeks' 1998 Incentive Stock Plan (the 1994 Incentive Stock
Plan and the 1998 Incentive Stock Plan are collectively referred to as the
"WEEKS STOCK PLANS"), (iv) 32,309 shares of Weeks Common Stock were issued but
had not yet vested under restricted stock grants made pursuant to the Weeks
Stock Plans, (v) 1,908,265 shares of Weeks Common Stock were reserved for
issuance upon exercise of outstanding stock options to purchase shares of Weeks
Common Stock granted to employees and directors of Weeks under the Weeks Stock
Plans (the "WEEKS STOCK OPTIONS"), (vi) 7,324,677 shares of Weeks Common Stock
were reserved for issuance upon exchange of units of limited partnership
interest in Weeks OP ("WEEKS OP UNITS") for shares of Weeks Common Stock
pursuant to the agreements listed in Section 3.1(c) of the Weeks Disclosure
Letter (the "WEEKS EXCHANGE AGREEMENTS"), (vii) 1,046,729 shares of Weeks Common
Stock and 1,400,000 shares of Weeks Series A Preferred Stock were reserved for
issuance upon the exercise of the warrants issued pursuant to the Warrant
Agreement, dated November 6, 1998, between Weeks and AEW Targeted Securities
Fund, L.P. (the "AEW WARRANT"), (viii) 350,000 shares of Weeks Common Stock were
reserved for issuance upon the exercise of the warrants issued pursuant to the
Stock Purchase Agreement, dated February 24, 1998, among Weeks and Armando
Codina, Codina Group, Inc. and St. Joe Corporation (the "CODINA WARRANTS"), (ix)
1,400,000 shares of Weeks Series A Preferred Stock and 1,046,729 shares of Weeks
Common Stock were reserved for issuance upon the redemption and exchange of
1,400,000 Series C Preferred Weeks OP Units, (x) 100,000 shares of Weeks Series
B Preferred Stock were reserved for issuance pursuant to the Rights Agreement
(as defined in Section 3.1(f)) and (xi) 2,600,000 shares of Weeks Series D
Preferred Stock were reserved for issuance upon the exchange of 2,600,000 Series
D Preferred Weeks OP Units. On the date of this Agreement, except as set forth
above in this Section 3.1(c), no shares of capital stock or other voting
securities of Weeks were issued, reserved for issuance or outstanding. There are
no outstanding stock appreciation rights relating to the capital stock of Weeks.
All outstanding shares of capital stock of Weeks are duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights. There
are no bonds, debentures, notes or other indebtedness of Weeks having
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the right to vote (or convertible into, or exchangeable for, securities having
the right to vote) on any matters on which shareholders of Weeks may vote. Weeks
GP Holdings, Inc., a wholly owned subsidiary of Weeks ("WEEKS GP") is the sole
general partner of Weeks OP and holds a 1.247% general partner interest in Weeks
OP. Weeks LP Holdings, Inc., a wholly owned subsidiary of Weeks ("WEEKS LP"),
holds a 71.693% limited partner interest in Weeks OP. As of the date hereof,
27,067,909 common Weeks OP Units, 6,000,000 8.0% Series A Cumulative Redeemable
Preferred OP Units, 1,400,000 8.0% Series C Preferred OP Units and 2,600,000
8.625% Series D Cumulative Redeemable Preferred OP Units are validly issued and
outstanding, fully paid and nonassessable and not subject to preemptive rights.
The common Weeks OP Units not held by Weeks or any Weeks Subsidiary are
exchangeable for Weeks Common Stock on a one-for-one basis into an aggregate of
7,324,677 shares of Weeks Common Stock in accordance with the terms of the Weeks
Exchange Agreements, subject to adjustment as provided in the Weeks Exchange
Agreements. The Series C Preferred Weeks OP Units are subject to redemption or
exchange on a one-for-one basis into an aggregate of 1,400,000 shares of Weeks
Series A Preferred Stock pursuant to the terms of the Series C Preferred Weeks
OP Units. The Series D Weeks Preferred OP Units are exchangeable on a
one-for-one basis into an aggregate of 2,600,000 shares, Weeks Series D
Preferred Stock pursuant to the terms of the Series D Preferred Weeks OP Units.
Section 3.1(c) of the Weeks Disclosure Letter sets forth the name, number and
class of Weeks OP Units and the percentage interest of each partner in Weeks OP.
Except as set forth in this Section 3.1(c), and except for the Weeks Stock
Options, there are no outstanding securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to which Weeks
or any Weeks Subsidiary, including Weeks OP, is a party or by which such entity
is bound, obligating Weeks or any Weeks Subsidiary, including Weeks OP, to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock, voting securities or other ownership interests of Weeks
or any Weeks Subsidiary, including Weeks OP, or obligating Weeks or any Weeks
Subsidiary, including Weeks OP, to issue, grant, extend or enter into any such
security, option, warrant, call, right, commitment, agreement, arrangement or
undertaking other than to Weeks or a Weeks Subsidiary. Except as set forth in
this Section 3.1(c), there are no outstanding contractual obligations of Weeks
or any Weeks Subsidiary, including Weeks OP, to repurchase, redeem or otherwise
acquire any shares of capital stock of Weeks or any capital stock, voting
securities or other ownership interests in Weeks or any Weeks Subsidiary,
including Weeks OP, or make any material investment (in the form of a loan,
capital contribution or otherwise) in any Person (other than a Weeks Subsidiary,
including Weeks OP).
(d) AUTHORITY; NONCONTRAVENTION; CONSENTS. Weeks has the requisite corporate
power and authority to enter into this Agreement and, subject to receipt of the
Weeks Shareholder Approvals (as defined in Section 3.1(v)), to consummate the
transactions contemplated by this Agreement to which Weeks is a party. Weeks GP,
as Weeks OP's sole general partner, has the requisite power and authority to
enter into the OP Merger Agreement and to consummate the transactions
contemplated by the OP Merger Agreement. The execution and delivery of this
Agreement and any other agreement contemplated by this Agreement by Weeks and
the consummation by Weeks of the transactions contemplated hereby to which Weeks
is a party have been duly authorized by all necessary corporate action on the
part of Weeks, subject to receipt of the Weeks Shareholder Approvals. The
execution and delivery of the OP Merger Agreement and any other agreement
contemplated by this Agreement or the OP Merger Agreement by Weeks GP, as the
sole general partner of Weeks OP, and by Weeks OP and the consummation by Weeks
OP of the transactions contemplated hereby and by the OP Merger Agreement have
been duly authorized by all necessary partnership action. This Agreement, the OP
Merger Agreement and the other agreements contemplated by this Agreement have
been duly executed and delivered by Weeks, Weeks GP or Weeks OP, as the case may
be, and constitute valid and binding obligations of Weeks, Weeks GP or Weeks OP,
as the case may be, enforceable against Weeks, Weeks GP or Weeks OP in
accordance with their terms. The execution and delivery of this Agreement, the
OP Merger Agreement and the other agreements contemplated by this Agreement by
Weeks, Weeks GP and Weeks OP do not, and the consummation of the transactions
contemplated hereby and thereby to which either Weeks or Weeks OP is a party and
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compliance by Weeks, Weeks GP or Weeks OP with the provisions of this Agreement,
the OP Merger Agreement and the other agreements contemplated by this Agreement
and the OP Merger Agreement will not, conflict with, or result in any violation
of, or default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation or acceleration of any material
obligation or to loss of a material benefit under, or result in the creation of
any Lien upon any of the properties or assets of Weeks or any Weeks Subsidiary
(including Weeks OP) under, (i) the articles of incorporation or by-laws of
Weeks or the comparable articles of incorporation or organizational documents or
partnership or similar agreement (as the case may be) of any Weeks Subsidiary,
(ii) any loan or credit agreement, note, bond, mortgage, indenture, reciprocal
easement agreement, lease or other agreement, instrument, permit, concession,
contract, franchise or license applicable to Weeks or any Weeks Subsidiary
(including Weeks OP) or their respective properties or assets or (iii) subject
to the governmental filings and other matters referred to in the following
sentence, any judgment, order, decree, statute, law, ordinance, rule or
regulation (collectively, "LAWS") applicable to Weeks or any Weeks Subsidiary
(including Weeks OP), or their respective properties or assets, other than, in
the case of clause (ii) or (iii), any such conflicts, violations, defaults,
rights or Liens that individually or in the aggregate would not (x) have a Weeks
Material Adverse Effect or (y) materially delay or prevent the consummation of
the REIT Merger or the OP Merger or the other transactions contemplated by this
Agreement or the OP Merger Agreement. No consent, approval, order or
authorization of, or registration, declaration or filing with, any federal,
state or local government or any court, administrative or regulatory agency or
commission or other governmental authority or agency (a "GOVERNMENTAL ENTITY"),
is required by or with respect to Weeks or any Weeks Subsidiary (including Weeks
OP) in connection with the execution and delivery of this Agreement, the OP
Merger Agreement or the other agreements contemplated by this Agreement by Weeks
or Weeks OP, as the case may be, or the consummation by Weeks and the Weeks
Subsidiaries (including Weeks OP) of any of the other transactions contemplated
hereby and thereby, except for (i) the filing with the Securities and Exchange
Commission (the "SEC") of (x) a joint proxy statement relating to the approval
by Weeks' shareholders and Duke's shareholders of the transactions contemplated
by this Agreement (as amended or supplemented from time to time, the "PROXY
STATEMENT") and a registration statement relating to the issuance of the Merger
Consideration (the "REGISTRATION STATEMENT"), and (y) such reports under Section
13 of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), as
may be required in connection with this Agreement and the transactions
contemplated by this Agreement, (ii) the filing of the Articles of Merger for
the REIT Merger with the Secretary of State of Indiana and the Secretary of
State of Georgia and the filing of a certificate of merger for the OP Merger
with the Secretary of State of Indiana and the Secretary of State of Georgia,
(iii) such filings as may be required in connection with the payment of any
Transfer and Gains Taxes (as defined below), (iv) the termination or expiration
of all waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (the "HSR ACT") and (v) such other consents, approvals, orders,
authorizations, registrations, declarations and filings as are set forth in
Section 3.1(d) of the Weeks Disclosure Letter or (A) as may be required under
(x) federal, state, local or foreign environmental laws or (y) the "BLUE SKY"
laws of various states or (B) which, if not obtained or made, would not prevent
or delay in any material respect the consummation of any of the transactions
contemplated by this Agreement or the OP Merger Agreement or otherwise prevent
Weeks or Weeks OP from performing their obligations under this Agreement or the
OP Merger Agreement in any material respect or have, individually or in the
aggregate, a Weeks Material Adverse Effect.
(e) SEC DOCUMENTS; FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES. Weeks and
Weeks OP have filed all required reports, schedules, forms, statements and other
documents with the SEC since January 1, 1995 and August 4, 1997, respectively
(collectively, the "WEEKS SEC DOCUMENTS"). All of the Weeks SEC Documents (other
than preliminary materials or materials that were subsequently amended), as of
their respective filing dates, complied in all material respects with all
applicable requirements of the Securities Act of 1933, as amended (the
"SECURITIES ACT") and the Exchange Act and, in each case, the rules and
regulations promulgated thereunder applicable to such Weeks SEC Documents. None
of the Weeks SEC Documents at the time of filing contained any untrue statement
of a material fact or omitted to state any
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material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except to the extent such statements have been amended, modified
or superseded by later filed Weeks SEC Documents. None of the Weeks SEC
Documents is the subject of any confidential treatment request by Weeks or Weeks
OP. Section 3.1(e) of the Weeks Disclosure Letter lists all of the Weeks SEC
Documents filed with the SEC since January 1, 1998. The consolidated financial
statements of Weeks and Weeks OP, as applicable, included in the Weeks SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles ("GAAP") (except, in the case of interim financial
statements, as permitted by the applicable rules and regulations of the SEC)
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and fairly presented in all material respects,
in accordance with the applicable requirements of GAAP, the consolidated
financial position of Weeks and the Weeks Subsidiaries taken as a whole, as of
the dates thereof and the consolidated results of operations and cash flows for
the periods then ended (subject, in the case of interim financial statements, to
normal year-end adjustments). Except as set forth in the Weeks SEC Documents
filed with the SEC prior to the date of this Agreement, neither Weeks nor any
Weeks Subsidiary has any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) required by GAAP to be set forth on
a consolidated balance sheet of Weeks or in the notes thereto and which,
individually or in the aggregate, would have a Weeks Material Adverse Effect.
(f) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the Weeks
SEC Documents filed with the SEC prior to the date of this Agreement, since
December 31, 1997 (the "WEEKS FINANCIAL STATEMENT DATE") and to the date of this
Agreement, Weeks and the Weeks Subsidiaries have conducted their business only
in the ordinary course and there has not been (i) any change that would have a
Weeks Material Adverse Effect (a "WEEKS MATERIAL ADVERSE CHANGE"), nor has there
been any occurrence or circumstance that with the passage of time would
reasonably be expected to result in a Weeks Material Adverse Change, (ii) any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to any of Weeks' capital stock
or any Weeks OP Units, except for (A) regular quarterly dividends (in the case
of Weeks) not in excess of $.505 per share of Weeks Common Stock and regular
quarterly dividends on Weeks Series A Preferred Stock not in excess of $.50 per
share of Weeks Series A Preferred Stock, (B) the payment of a preferred stock
purchase right dividend pursuant to a Rights Agreement between Weeks and
Wachovia Bank, N.A. dated May 20, 1998 (the "RIGHTS AGREEMENT"), (C) the Final
Weeks Dividend and the corresponding Weeks OP distribution, (D) regular
quarterly distributions (in the case of Weeks OP) of $.505 per Weeks Common OP
Unit, $.50 per Series A Preferred OP Unit, $.50 per Series C Preferred OP Unit
and $.5390625 per Series D Preferred OP Unit and (E) any distributions by any
Weeks Subsidiaries (other than Weeks OP) to other Weeks Subsidiaries or to
Weeks, in each case, with customary record and payment dates, (iii) any split,
combination or reclassification of any of Weeks' capital stock or any issuance
or the authorization of any issuance of any other securities in respect of, in
lieu of or in substitution for, or giving the right to acquire by exchange or
exercise, shares of its capital stock or any issuance of an ownership interest
in, any Weeks Subsidiary, (iv) any damage, destruction or loss, whether or not
covered by insurance, that has or would have a Weeks Material Adverse Effect, or
(v) any change in accounting methods, principles or practices by Weeks
materially affecting its assets, liabilities or business, except insofar as may
have been disclosed in the Weeks SEC Documents filed with the SEC prior to the
date of this Agreement, or required by a change in GAAP.
(g) LITIGATION. Except as disclosed in the Weeks SEC Documents filed with
the SEC prior to the date of this Agreement, and other than personal injury and
other routine tort litigation arising from the ordinary course of operations of
Weeks and the Weeks Subsidiaries which are covered by adequate insurance, there
is no suit, action or proceeding pending or, to the knowledge of Weeks,
threatened against or affecting Weeks or any Weeks Subsidiary that, individually
or in the aggregate, could reasonably be expected to (i) have a Weeks Material
Adverse Effect or (ii) prevent the consummation of any of the
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transactions contemplated herein, nor is there any judgment, decree, injunction,
rule or order of any Governmental Entity or arbitrator outstanding against Weeks
or any Weeks Subsidiary having, or which, insofar as reasonably can be foreseen,
in the future would have, any such effect.
(h) ABSENCE OF CHANGES IN BENEFIT PLANS; ERISA COMPLIANCE.
(i) Except as disclosed in the Weeks SEC Documents filed with the SEC
prior to the date of this Agreement, since the Weeks Financial Statement
Date, there has not been any adoption or amendment in any material respect,
or the undertaking of any additional obligation, by Weeks, any Weeks
Subsidiary or any Weeks ERISA Affiliate (as defined below) of any Weeks
Benefit Plan (as defined below). For purposes of this Agreement, "Weeks
Benefit Plan" shall mean any Employee Plan sponsored or maintained by Weeks,
any Weeks Subsidiary or any Weeks ERISA Affiliate, or with respect to which
Weeks, any Weeks Subsidiary or any Weeks ERISA Affiliate has any obligation
to contribute, has liability under or is otherwise a party to, or which
otherwise provides benefits for any current or former employees, officers,
directors or other independent contractors (or their dependents and
beneficiaries) of Weeks or any Weeks Subsidiary. For purposes of this
Agreement, "Weeks ERISA Affiliate" means any entity required to be
aggregated with any of Weeks or any Weeks Subsidiary under Sections 414(b),
(c), (m) or (o) of the Code or Section 4001 of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"). Section 3.1(h)(i) of the
Weeks Disclosure Letter sets forth each Weeks Benefit Plan.
(ii) Except as described in the Weeks SEC Documents filed with the SEC
prior to the date of this Agreement or as would not have a Weeks Material
Adverse Effect, (A) all Weeks Benefit Plans, including any such plan that is
an "employee benefit plan" as defined in Section 3(3) of ERISA, are in
compliance with the terms of such plan and all applicable requirements of
law, including ERISA and the Code and, without limitation, the requirements
of ERISA and all tax rules for which favorable tax treatment is intended,
and (B) there are no liabilities or obligations with respect to any such
Weeks Benefit Plan, whether accrued, contingent or otherwise (other than
obligations by Weeks and the Weeks Subsidiaries to make contributions, and
for such plan to pay benefits and administrative costs, incurred in the
ordinary course), nor to the knowledge of Weeks are any such liabilities or
obligations expected to be incurred. The execution of, and performance of
the transactions contemplated in, this Agreement will not (either alone or
together with the occurrence of any additional or subsequent events)
constitute an event under any Weeks Benefit Plan, policy, program,
arrangement or agreement, trust or loan that will or may result in any
payment (whether of severance pay or otherwise), acceleration, forgiveness
of indebtedness, vesting, distribution, increase in benefits or obligation
to fund benefits with respect to any employee or director, will not result
in any "golden parachute payments" being due (as defined for purposes of
Section 280G of the Code), or result in any breach or violation of, or a
default under, any of the Weeks Benefit Plans. The only severance agreements
or severance policies applicable to Weeks or the Weeks Subsidiaries are the
agreements and policies specifically referred to in Section 3.1(h)(ii) of
the Weeks Disclosure Letter.
(iii) Without limiting the foregoing, each Weeks Benefit Plan which is
intended to be tax-qualified under Section 401(a) of the Code has been
determined by the IRS to be so qualified and such determination has not been
modified, revoked or limited, and no circumstances have occurred that would
adversely affect the tax-qualified status of any such plan. No Weeks Benefit
Plan is or has ever been subject to Part III of Subtitle B of Title I of
ERISA or Title IV of ERISA or Section 412 of the Code. None of Weeks or any
Weeks Subsidiary, or any "party in interest" (as defined in Section 3(14) of
ERISA) or any "disqualified person" (as defined in Section 4975 of the Code)
with respect to any Weeks Benefit Plan, has engaged in a non-exempt
"prohibited transaction" within the meaning of Section 4975 of the Code or
Section 406 of ERISA that would have a Weeks Material Adverse Effect.
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(i) TAXES.
(i) Each of Weeks and each Weeks Subsidiary (including Weeks OP) has
timely filed all Tax Returns and reports required to be filed by it (after
giving effect to any filing extension properly granted by a Governmental
Entity having authority to do so). Each such Tax Return is true, correct and
complete in all material respects. Weeks and each Weeks Subsidiary
(including Weeks OP) have paid (or Weeks has paid on their behalf), within
the time and manner prescribed by law, all Taxes that are due and payable.
The Tax Returns of Weeks and each Weeks Subsidiary have not been audited by
any Governmental Entity responsible for tax matters (a "TAXING AUTHORITY").
There are no Tax liens upon the assets of Weeks or any Weeks Subsidiary
other than liens for Taxes not yet due. The most recent financial statements
contained in the Weeks SEC Documents filed with the SEC prior to the date of
this Agreement reflect an adequate reserve for all material Taxes payable by
Weeks and by each Weeks Subsidiary for all taxable periods and portions
thereof through the date of such financial statements. Since the Weeks
Financial Statement Date, Weeks has incurred no liability for federal taxes,
other than withholding and employment taxes, under the Code or IRS Notice
88-19. To the knowledge of Weeks, no event has occurred, and no condition or
circumstance exists, which presents a material risk that any material Tax
described in the preceding sentence will be imposed upon Weeks. No
deficiencies for any Taxes have been proposed, asserted or assessed against
Weeks or any of the Weeks Subsidiaries, and no requests for waivers of the
time to assess any such Taxes have been granted or are pending. As used in
this Agreement, "TAXES" or "TAX" shall mean any federal, state, local or
foreign income, gross receipts, license, payroll, employment withholding,
property, recording, stamp, sales, excise or other tax or governmental
charges of any nature whatsoever, together with any penalties, interest or
additions thereto and "TAX RETURN" shall mean any return, declaration,
report, claim for refund, or information return or statement relating to
Taxes, including any schedule or attachment thereto, and including any
amendment thereof.
(ii) Weeks (A) for each taxable year beginning with the taxable year
ending on December 31, 1994, has been subject to taxation as a REIT within
the meaning of the Code and has satisfied the requirements to qualify as a
REIT for such years, (B) has operated, and intends to continue to operate,
in such a manner as to qualify as a REIT through the end of its taxable year
ending at the Effective Time, and (C) has not taken or omitted to take any
action which could reasonably be expected to result in a challenge to its
status as a REIT, and no such challenge is pending or to Weeks' knowledge,
threatened. Weeks OP has at all times, and each other Weeks Subsidiary which
is a partnership or files Tax Returns as a partnership or limited liability
company for federal income tax purposes has since its acquisition by Weeks
been classified for federal income tax purposes as a partnership or
disregarded entity and not as an association taxable as a corporation, or a
"publicly traded partnership" within the meaning of Section 7704(b) of the
Code that is treated as a corporation for federal income tax purposes under
Section 7704(a) of the Code. Neither Weeks nor any Weeks Subsidiary holds
any asset (x) the disposition of which would be subject to rules similar to
Section 1374 of the Code as announced in IRS Notice 88 19 or (y) that is
subject to a consent filed pursuant to Section 341(f) of the Code and the
regulations thereunder.
(iii) As of the date hereof, Weeks does not have any earnings and
profits attributable to Weeks or any other corporation in any non-REIT year
within the meaning of Section 857 of the Code.
(iv) To the best knowledge of Weeks, Weeks qualifies as a
"domestically-controlled" REIT within the meaning of Section 897(h)(4)(B) of
the Code, as of the date hereof.
(j) NO LOANS OR PAYMENTS TO EMPLOYEES, OFFICERS OR DIRECTORS. Except as
disclosed in the Weeks SEC Documents or as otherwise specifically provided for
in this Agreement, there is no (i) loan outstanding from or to any employee or
director, (ii) employment or consulting contracts, (iii) agreements requiring
payments to be made on a change of control or otherwise as a result of the
consummation of the REIT Merger, the OP Merger or any of the other transactions
contemplated by this Agreement or the OP
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Merger Agreement with respect to any employee, officer or director of Weeks or
any Weeks Subsidiary or (iv) any agreement to appoint or nominate any person as
a director of Weeks.
(k) BROKERS; SCHEDULE OF FEES AND EXPENSES. No broker, investment banker,
financial advisor or other person, other than Goldman, Sachs & Co., the fees and
expenses of which, as set forth in a letter agreement between Weeks and such
financial advisor, have previously been disclosed to Duke and will be paid by
Weeks, is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the REIT Merger or the OP Merger or
any of the other transactions contemplated by this Agreement or the OP Merger
Agreement based upon arrangements made by or on behalf of Weeks or any Weeks
Subsidiary.
(l) COMPLIANCE WITH LAWS. Except as disclosed in the Weeks SEC Documents
filed with the SEC prior to the date of this Agreement, neither Weeks nor any of
the Weeks Subsidiaries has violated or failed to comply with any statute, law,
ordinance, regulation, rule, judgment, decree or order of any Governmental
Entity applicable to its business, properties or operations, except for
violations and failures to comply that would not, individually or in the
aggregate, reasonably be expected to result in a Weeks Material Adverse Effect.
(m) CONTRACTS; DEBT INSTRUMENTS.
(i) Neither Weeks nor any Weeks Subsidiary has received written notice
that it is in violation of or in default under, in any material respect (nor
does there exist any condition which upon the passage of time or the giving
of notice or both would cause such a violation of or default under), any
material loan or credit agreement, note, bond, mortgage, indenture, lease,
permit, concession, franchise or license, or any agreement to acquire real
property, or any other material contract, agreement, arrangement or
understanding, to which it is a party or by which it or any of its
properties or assets is bound, except for violations or defaults that would
not, individually or in the aggregate, result in a Weeks Material Adverse
Effect.
(ii) Section 3.1(m)(ii) of the Weeks Disclosure Letter sets forth (A) a
detailed list of all indebtedness of Weeks or any of the Weeks Subsidiaries,
other than indebtedness payable to Weeks or a wholly owned Weeks Subsidiary,
in an aggregate principal amount in excess of $5,000,000 per item is
outstanding or may be incurred and (B) the respective principal amounts
outstanding thereunder on December 31, 1998. For purposes of this Section
3.1(m)(ii) and Section 3.2(m)(ii), "indebtedness" shall mean, with respect
to any person, without duplication, (A) all indebtedness of such person for
borrowed money, whether secured or unsecured, (B) all obligations of such
person under conditional sale or other title retention agreements relating
to property purchased by such person, (C) all capitalized lease obligations
of such person, (D) all obligations of such person under interest rate or
currency hedging transactions (valued at the termination value thereof), and
(E) all guarantees of such person of any such indebtedness of any other
person.
(iii) Neither Weeks nor any Weeks Subsidiary has entered into or is
subject, directly or indirectly, to any Weeks Tax Protection Agreements. As
used herein, a "WEEKS TAX PROTECTION AGREEMENT" is an agreement, oral or
written, (A) that has as one of its purposes to permit a Person to take the
position that such Person could defer federal taxable income attributable to
the acquisition or ownership of Weeks OP Units or an interest in any other
Weeks Subsidiary that is treated as a partnership for federal income tax
purposes, and (B) that (i) prohibits or restricts in any manner the
disposition of any assets of Weeks or any Weeks Subsidiary, (ii) requires
that Weeks or any Weeks Subsidiary maintain, increase or put in place, or
replace, indebtedness, whether or not secured by one or more of the Weeks
Properties, or (iii) requires that Weeks or any Weeks Subsidiary offer to
any person or entity at any time the opportunity to guarantee or otherwise
assume, directly or indirectly, the risk of loss for federal income tax
purposes for indebtedness or other liabilities of Weeks or any Weeks
Subsidiary.
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(n) OP AGREEMENT. The Agreement of Limited Partnership of Weeks OP, as
amended through the date hereof (the "WEEKS OP AGREEMENT") has been duly
authorized, executed and delivered by Weeks GP and Weeks LP. Assuming due
execution by the limited partners of Weeks OP, the Weeks OP Agreement
constitutes a valid and binding obligation of Weeks GP and Weeks LP, enforceable
against Weeks GP and Weeks LP in accordance with its terms.
(o) ENVIRONMENTAL MATTERS. Except as disclosed in Section 3.1(o) of the
Weeks Disclosure Letter, each of Weeks and each Weeks Subsidiary has obtained
all licenses, permits, authorizations, approvals and consents from Governmental
Entities which are required of Weeks and each Weeks Subsidiary in respect of its
business, operations, assets or properties under any applicable Environmental
Law (as defined below) and each of Weeks and each Weeks Subsidiary is in
compliance in all respects with the terms and conditions of all such licenses,
permits, authorizations, approvals and consents and with its obligations under
any applicable Environmental Law, except for such failures to comply which would
not, individually or in the aggregate, have a Weeks Material Adverse Effect.
Except as disclosed in Section 3.1(o) of the Weeks Disclosure Letter or in the
environmental audits/reports listed thereon:
(i) No Order has been issued that is still in effect, no complaint has
been filed that has not been resolved, no penalty has been assessed that has
not been paid and no investigation or review is pending or, to the Knowledge
of Weeks and its Subsidiaries, threatened by any Governmental Entity with
respect to any alleged failure by Weeks or any Weeks Subsidiary to have any
license, permit, authorization, approval or consent from Governmental
Entities required under any applicable Environmental Law in connection with
the conduct of the business or operations of Weeks or any Weeks Subsidiary
or with respect to any treatment, storage, recycling, transportation,
disposal or "RELEASE" as
defined in 42 U.S.C. Section 9601(22) ("RELEASE"), by Weeks or any Weeks
Subsidiary of any Hazardous Material (as defined below).
(ii) Neither Weeks nor any Weeks Subsidiary nor, to the Knowledge of
Weeks and its Subsidiaries, any prior owner or lessee of any property now or
previously owned or leased by Weeks or any Weeks Subsidiary has handled any
Hazardous Material on any property now or previously owned or leased by
Weeks or any Weeks Subsidiary, except in material compliance with any
applicable Environmental Law, and without limiting the foregoing, (A) no
regulated level of polychlorinated biphenyl is or has been present, (B) no
friable asbestos is or has been present, (C) there are no Hazardous Material
underground storage tanks, active or abandoned and (D) no Hazardous Material
has been Released in a quantity reportable under, or in violation of, any
applicable Environmental Law, at, on or under any property now or previously
owned or leased by Weeks or any Weeks Subsidiary, during any period that
Weeks or any Weeks Subsidiary owned or leased such property or, to the
Knowledge of Weeks and its Subsidiaries, prior thereto.
(iii) Neither Weeks nor any Weeks Subsidiary has transported or arranged
for the transportation of any Hazardous Material to any location which is
the subject of any action, suit, arbitration or proceeding that could be
reasonably expected to lead to claims against Weeks or any Weeks Subsidiary
related to such Hazardous Material for clean-up costs, remedial work,
damages to natural resources or personal injury claims, including, but not
limited to, claims under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, and the rules and
regulations promulgated thereunder ("CERCLA").
(iv) No oral or written notification of a Release of a Hazardous
Material has been filed or should have been filed by or on behalf of Weeks
or any Weeks Subsidiary under an applicable Environmental Law, except for
failures to make filings which would not, individually or in the aggregate,
have a Weeks Material Adverse Effect, and no property now or previously
owned or leased by Weeks or any Weeks Subsidiary is listed or, to the
Knowledge of Weeks and its Subsidiaries, proposed for listing on the
National Priorities List promulgated pursuant to CERCLA or on any similar
state list of sites requiring investigation or clean-up.
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(v) There are no Liens arising under or pursuant to any applicable
Environmental Law on any real property owned or leased by Weeks or any Weeks
Subsidiary, and no action of any Governmental Entity has been taken or, to
the knowledge of Falcon and the Falcon Subsidiaries, is in process which
could subject any of such properties to such Liens, and neither Weeks nor
any Weeks Subsidiary currently has a duty under any applicable Environmental
Law to place any notice or restriction relating to the presence of Hazardous
Material at any such property owned by it in any deed to such property.
(vi) There have been no environmental investigations, studies, audits,
tests, reviews or other analyses conducted by or which are in the possession
or control of Weeks or any Weeks Subsidiary in relation to any property or
facility now or previously owned, leased or managed by Weeks or any Weeks
Subsidiary which have not been listed in Section 3.1(o)(vi) of the Weeks
Disclosure Letter and made available to Duke prior to the execution of this
Agreement.
(vii) As used herein:
(A) "ENVIRONMENTAL LAW" means any Law of any Governmental Entity
relating to human health, safety or protection of the environment or to
emissions, discharges, releases or threatened releases of pollutants,
contaminants or Hazardous Materials in the environment (including,
without limitation, ambient air, surface water, ground water, land
surface or subsurface strata), or otherwise relating to the treatment,
storage, disposal, transport or handling of any Hazardous Material; and
(B) "HAZARDOUS MATERIAL" means (A) any petroleum or petroleum
products, radioactive materials, asbestos in any form that is or could
reasonably be expected to become friable, urea formaldehyde foam
insulation and transformers or other equipment that contain dielectric
fluid containing regulated levels of polychlorinated biphenyls (PCBs);
(B) any chemicals, materials, substances or wastes which are now defined
as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "extremely hazardous wastes," "restricted
hazardous wastes," "toxic substances," "toxic pollutants" or words of
similar import, under any applicable Environmental Law; and (C) any other
chemical, material, substance or waste, exposure to which is now or
hereafter prohibited, limited or regulated by any applicable
Environmental Law.
(p) WEEKS PROPERTIES. (i) Weeks or a Weeks Subsidiary owns fee simple title
to or has a valid leasehold interest in, each of the real properties reflected
on the most recent balance sheet of Weeks included in the Weeks SEC Documents or
as identified in Section 3.1(p) of the Weeks Disclosure Letter (the "WEEKS
PROPERTIES"), which are all of the real estate properties owned by them, free
and clear of liens, mortgages or deeds of trust, claims against title, charges
which are liens, security interests or other encumbrances on title ("WEEKS
ENCUMBRANCES") except for (a) debt identified on Schedule 3.1(m)(ii) of the
Weeks Disclosure Letter, (b) inchoate liens imposed for construction work in
progress or otherwise incurred in the ordinary course of business, (c)
mechanics', workmen's and repairmen's liens (other than inchoate liens for work
in progress) which have heretofore been bonded or which individually or in the
aggregate are not substantial in amount, and (d) other Weeks Encumbrances, if
any, which do not materially detract from the value of or materially interfere
with the present use of any of the Weeks Properties subject thereto or affected
thereby and do not otherwise materially impair business operations conducted by
Weeks and the Weeks Subsidiaries; (ii) the Weeks Properties are not subject to
any rights of way, written agreements, laws, ordinances and regulations
affecting building use or occupancy, or reservations of an interest in title
(collectively, "WEEKS PROPERTY RESTRICTIONS"), except for (a) Weeks Property
Restrictions imposed or promulgated by law or any Governmental Entity with
respect to real property, including zoning regulations, provided they do not
materially adversely affect the current use of the Weeks Properties, and (b)
other Weeks Property Restrictions and other limitations of any kind, if any,
which individually or in the aggregate are not material in amount, do not
materially detract from the value of or materially interfere with the present
use
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of any of the Weeks Properties subject thereto or affected thereby, do not
otherwise materially interfere with the present use of any of the Weeks
Properties subject thereto, and do not otherwise materially impair business
operations conducted by Weeks and the Weeks Subsidiaries; (iv) valid policies of
title insurance have been issued insuring Weeks' or a Weeks Subsidiary's or a
predecessor in interest's fee simple title or leasehold estate to the Weeks
Properties except as noted therein, and such policies are, at the date hereof,
in full force and effect and no claim has been made against any such policy; (v)
there is no certificate, permit or license from any Governmental Entity having
jurisdiction over any of the Weeks Properties or any agreement, easement or any
other right which is necessary to permit the lawful use and operation of the
buildings and improvements on any of the Weeks Properties or which is necessary
to permit the lawful use and operation of all driveways, roads and other means
of egress and ingress to and from any of the Weeks Properties that has not been
obtained and is not in full force and effect, or of any pending threat of
modification or cancellation of any of same, the failure of which to obtain
would not result in a Weeks Material Adverse Effect; (vi) neither Weeks nor a
Weeks Subsidiary has received written notice of any violation of any federal,
state or municipal law, ordinance, order, regulation or requirement affecting
any portion of any of the Weeks Properties issued by any Governmental Entity
that has not otherwise been resolved; (vii) neither Weeks nor a Weeks Subsidiary
has received notice to the effect that and there are no (a) condemnation or
rezoning or proceedings that are pending or, to the Knowledge of Weeks and its
Subsidiaries, threatened with respect to any of the Weeks Properties or (b)
zoning, building or similar laws, codes, ordinances, orders or regulations that
are or will be violated by the continued maintenance, operation or use of any
buildings or other improvements on any of the Weeks Properties or by the
continued maintenance, operation or use of the parking areas.
(q) BOOKS AND RECORDS.
(i) Weeks has previously delivered or made available to Duke true and
correct copies of the articles of incorporation and by-laws of Weeks, as
amended to date, and the charter, by-laws, organization documents,
partnership agreements and joint venture agreements of its Subsidiaries, and
all amendments thereto. All such documents are listed in Section 3.1(q)(i)
of the Weeks Disclosure Letter. Weeks has also delivered to Duke evidence of
its Director and Officer liability insurance policy.
(ii) The minute books and other records of corporate or partnership
proceedings of Weeks and each Weeks Subsidiary have been made available to
Duke, contain in all material respects accurate records of all meetings and
accurately reflect in all material respects all other corporate action of
the stockholders and directors and any committees of the Board of Directors
of Weeks and the Weeks Subsidiaries which are corporations.
(r) OPINION OF FINANCIAL ADVISOR. The Board of Directors of Weeks has
received the verbal opinion, to be confirmed in writing, of Goldman, Sachs &
Co., satisfactory to Weeks and its Board of Directors, to the effect that, as of
the date of such opinion, the Exchange Ratio is fair from a financial point of
view to the common shareholders of Weeks. Weeks shall deliver a copy of the
written opinion of Goldman, Sachs & Co. to Duke promptly after Weeks receives
such opinion. It is agreed and understood that such opinion is for the sole
benefit of Weeks' board of directors and may not be relied upon by Duke.
(s) STATE TAKEOVER STATUTES; RIGHTS AGREEMENT.
(i) Weeks and Weeks OP each has taken all actions necessary, if any, to
exempt the REIT Merger, the OP Merger, this Agreement, the OP Merger
Agreement, any of the transactions contemplated by this Agreement or the OP
Merger Agreement from the operation of any Takeover Statute (as defined
below) of the State of Georgia, including, without limitation, the fair
price provisions of Section 14-2-110 ET SEQ. of the GBCC and the business
combination provisions of Section 14-2-1131 ET SEQ. of the GBCC.
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(ii) Weeks has taken all actions necessary to exclude Duke and any Duke
Subsidiary from the definition of "Acquiring Person" under the Rights
Agreement, dated as of May 20, 1998, between Weeks and Wachovia Bank, N.A.
(the "RIGHTS AGREEMENT").
(t) INVESTMENT COMPANY ACT OF 1940. None of Weeks or any of the Weeks
Subsidiaries is, or at the Effective Time will be, required to be registered
under the Investment Company Act of 1940, as amended (the "1940 ACT").
(u) PROXY STATEMENT AND REGISTRATION STATEMENT. The information furnished by
Weeks for inclusion or incorporation by reference in the Registration Statement
and any amendment or supplement thereto will not, as of the date the
Registration Statement is declared effective by the SEC contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading. The information furnished by Weeks for inclusion or incorporation by
reference in the Proxy Statement will not, on the date the Proxy Statement is
first mailed or furnished to securityholders of Weeks or Duke or on the
respective meeting dates, contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading. Notwithstanding the foregoing, Weeks makes no representation or
warranty with respect to any information furnished by Duke for inclusion or
incorporation by reference in any of the foregoing documents.
(v) VOTE REQUIRED. The affirmative vote of at least a majority of the
outstanding shares of Weeks Common Stock is the only vote of the holders of any
class or series of Weeks' capital stock necessary (under applicable law or
otherwise) to approve the REIT Merger, this Agreement, the OP Merger, the OP
Merger Agreement and the other transactions contemplated hereby and thereby (the
"WEEKS SHAREHOLDER APPROVALS"). The affirmative vote (by written consent or
otherwise) of holders of at least a majority of the outstanding Weeks common OP
Units (other than OP Units held by Weeks or any Weeks Subsidiary) is the only
vote of the holders of any interest in Weeks OP necessary (under applicable law
or otherwise) to approve the REIT Merger, this Agreement, the OP Merger, the OP
Merger Agreement and the other transactions contemplated hereby and thereby (the
"WEEKS OP APPROVALS"). The Weeks OP Approvals have been duly obtained.
(w) YEAR 2000 ISSUES.
(i) To the best knowledge of Weeks, based on representations and
warranties made by third parties, the software, hardware and equipment of
Weeks owned, leased or licensed by it and used in the conduct of its
business (the "WEEKS INFORMATION TECHNOLOGY"), as well as the elevator
systems in Weeks' Office Properties, and the heating ventilation and air
conditioning, fire and safety and other automated building systems at the
Weeks Properties (the "WEEKS BUILDING SYSTEMS") are Year 2000 Ready.
(ii) Weeks has (A) developed and delivered to Duke a comprehensive plan
(the "WEEKS Y2K PLAN") for insuring that the software, hardware, equipment
and systems of Weeks and the Weeks Subsidiaries used in the conduct of its
business as conducted on the date hereof will be Year 2000 Ready and (B) met
the Weeks Y2K Plan milestones such that all software, hardware, equipment
and systems of Weeks and Weeks Subsidiaries will be Year 2000 Ready, except
to the extent that its failure would not have a Weeks Material Adverse
Effect.
(iii) "YEAR 2000 READY" means that the software, hardware, equipment and
systems of Weeks and the Weeks Subsidiaries with respect to the operation of
their respective businesses and their general business plans will: (A)
handle date information involving any and all dates before, during and/or
after January 1, 2000, including accepting input, providing output and
performing date calculations in whole or in part; (B) operate, accurately
and without interruption on and in respect of any and all dates before,
during and/or after January 1, 2000 and without any change in performance;
and(C) store and provide date input information without creating any
ambiguity as to the century.
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<PAGE>
Section 3.2. REPRESENTATIONS AND WARRANTIES OF DUKE. Except as set forth
in the letter of even date herewith (with section references organized in
accordance with Section 9.9) signed by the President or Chief Executive Officer
and the Chief Financial Officer of Duke and delivered to Weeks prior to the
execution hereof (the "DUKE DISCLOSURE LETTER"), Duke represents and warrants to
Weeks as follows:
(a) ORGANIZATION, STANDING AND CORPORATE POWER OF DUKE. Duke is a
corporation duly organized and validly existing under the laws of Indiana and
has the requisite corporate power and authority to carry on its business as now
being conducted. Duke is duly qualified or licensed to do business and is in
good standing in each jurisdiction in which the nature of its business or the
ownership, leasing of its properties or management of properties for others
makes such qualification or licensing necessary, other than in such
jurisdictions where the failure to be so qualified or licensed, individually or
in the aggregate, would not have a material adverse effect on the business,
properties, financial condition or results of operations of Duke and the Duke
Subsidiaries, taken as a whole (a "DUKE MATERIAL ADVERSE EFFECT").
(b) DUKE SUBSIDIARIES; INTERESTS IN OTHER PERSONS.
(i) Section 3.2(b) of the Duke Disclosure Letter sets forth each Duke
Subsidiary and the ownership interest therein of Duke and each other Duke
Subsidiary. All the outstanding shares of capital stock of each Duke
Subsidiary that is a corporation have been validly issued and are fully paid
and nonassessable and are not subject to any preemptive rights, and are
owned by Duke, by another Duke Subsidiary or by Duke and another Duke
Subsidiary, free and clear of all Liens, and all equity interests in each
Duke Subsidiary, including Duke OP, that is a partnership (other than Duke
OP) or limited liability company or trust are owned by Duke or by Duke and
another Duke Subsidiary free and clear of all Liens. Each Duke Subsidiary
that is a corporation is duly incorporated and validly existing under the
laws of its jurisdiction of incorporation and has the requisite corporate
power and authority to carry on its business as now being conducted and each
Duke Subsidiary, including Duke OP, that is a partnership, limited liability
company or trust is duly organized and validly existing under the laws of
its jurisdiction of organization and has the requisite power and authority
to carry on its business as now being conducted. Each Duke Subsidiary,
including Duke OP, is duly qualified or licensed to do business and is in
good standing in each jurisdiction in which the nature of its business or
the ownership or leasing of its properties makes such qualification or
licensing necessary, other than in such jurisdictions where the failure to
be so qualified or licensed individually or in the aggregate, would not have
an Duke Material Adverse Effect.
(ii) Except for the capital stock of or other equity interests in the
Duke Subsidiaries and the other interests disclosed in Section 3.2(b)(ii) of
the Duke Disclosure Letter (the "DUKE OTHER INTERESTS"), Duke does not own,
directly or indirectly (including through any Duke Subsidiary), any capital
stock or other ownership interest, with a fair market value as of the date
of this Agreement greater than $250,000 in any Person or which represents 5%
or more of the voting power, outstanding capital stock or other ownership
interest of any class in any Person. Neither Duke nor any Duke Subsidiary is
in material default of any provision of any organizational documents
governing or otherwise relating to its rights in any Duke Other Interest.
All such organizational documents are set forth in Section 3.2(b)(ii) of the
Duke Disclosure Letter and are in full force and effect.
(c) CAPITAL STRUCTURE. The authorized capital stock of Duke consists of
150,000,000 shares of Duke Common Stock and 5,000,000 shares of preferred stock,
par value $.01 per share (the "DUKE PREFERRED STOCK"). On the date hereof, (i)
86,352,441 shares of Duke Common Stock, 300,000 shares of Duke Series A
Preferred Stock, 300,000 shares of Duke Series B Preferred Stock, no shares of
Duke Series C Preferred Stock, 540,000 shares of Duke Series D Preferred Stock,
400,000 shares of Duke Series E Preferred Stock and 15,400,000 depositary
shares, each representing a 1/10 interest in a share of Duke Preferred Stock,
were issued and outstanding, (ii) an aggregate of 2,647,863 shares were
available for grant under Duke's 1993 Stock Option Plan, Duke's 1995 Key
Employees' Stock Option Plan, the 1996 Directors' Stock Payment Plan of Duke,
the Duke 401(k) Plan, the Duke Employee Stock Purchase Plan,
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the 1999 Directors' Stock Option and Dividend Increase Unit Plan of Duke and the
1999 Salary Replacement Stock Option and Dividend Increase Unit Plan of Duke,
(iii) a total of 199,642 units of limited partnership interest were available
for grant under the 1995 Dividend Increase Unit Plan of Duke Realty Services
Limited Partnership, the 1995 Shareholder Value Plan of Duke Realty Services
Limited Partnership and the Executives Deferred Compensation Plan of Duke Realty
Services Limited Partnership (the plans named in clauses (i) and (ii) being the
"DUKE STOCK PLANS"), 2,857,742 shares of Duke Common Stock and 34,356 units of
limited partnership interest in Duke Realty Services Limited Partnership were
reserved for issuance upon exercise of outstanding options to purchase shares of
Duke Common Stock and units of limited partnership interest in Duke Realty
Services Limited Partnership granted to employees of Duke and Duke Subsidiaries
and directors of Duke under the Duke Stock Plans (the "DUKE STOCK OPTIONS"), and
(iv) 10,831,552 shares of Duke Common Stock were reserved for issuance upon
exchange of units of limited partnership interests in Duke OP ("DUKE OP UNITS")
for shares of Duke Common Stock pursuant to the Duke OP Agreement and the other
agreements listed in Section 3.2(c) of the Duke Disclosure Letter (the "DUKE
EXCHANGE AGREEMENTS"). On the date of this Agreement, except as set forth in
this Section 3.2(c), no shares of capital stock or other voting securities of
Duke were issued, reserved for issuance or outstanding. There are no outstanding
stock appreciation rights relating to the capital stock of Duke. All outstanding
shares of capital stock of Duke are, and all shares which may be issued pursuant
to this Agreement will be, when issued, duly authorized, validly issued, fully
paid and nonassessable and not subject to preemptive rights. There are no bonds,
debentures, notes or other indebtedness of Duke having the right to vote (or
convertible into, or exchangeable for, securities having the right to vote) on
any matters on which shareholders of Duke may vote. Duke is the sole general
partner of Duke OP and also holds an 88.9% limited partner interest in Duke OP.
As of the date hereof, 97,183,993 common Duke OP Units, 300,000 Series A
Preferred Duke OP Units, 300,000 Series B Duke OP Units, no Series C Preferred
Duke OP Units and 540,000 Series D Preferred Duke OP Units are validly issued
and outstanding, fully paid and nonassessable and not subject to preemptive
rights. The common Duke OP Units not held by Duke are exchangeable for Duke
Common Stock on a one-for-one basis into an aggregate of 10,831,552 shares of
Duke Common Stock in accordance with the terms of the Duke OP Agreement and the
Duke Exchange Agreements, subject to adjustment as provided in the Duke OP
Agreement and the Duke Exchange Agreements. Section 3.2(c) of the Duke
Disclosure Letter sets forth the name, number and class of OP Units and the
percentage interest of each partner in Duke OP. Except as set forth in this
Section 3.2(c), and except (A) for the Duke Stock Options and Duke OP Units
(which, subject to certain restrictions, may be delivered to Duke in exchange
for Duke Common Stock), and (B) as contemplated under Duke's dividend
reinvestment plan and employee stock purchase plan, as of the date of this
Agreement there are no outstanding securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to which Duke
or any Duke Subsidiary, including Duke OP, is a party or by which such entity is
bound, obligating Duke or any Duke Subsidiary, including Duke OP, to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
capital stock, voting securities or other ownership interests of Duke or of any
Duke Subsidiary, including Duke OP, or obligating Duke or any Duke Subsidiary,
including Duke OP, to issue, grant, extend or enter into any such security,
option, warrant, call, right, commitment, agreement, arrangement or undertaking
(other than to Duke or a Duke Subsidiary). Except as set forth in this Section
3.2(c), there are no outstanding contractual obligations of Duke or any Duke
Subsidiary, including Duke OP, to repurchase, redeem or otherwise acquire any
shares of capital stock or other ownership interests in Duke or any Duke
Subsidiary, including Duke OP, or make any material investment (in the form of a
loan, capital contribution or otherwise) in any Person other than Duke OP.
(d) AUTHORITY; NONCONTRAVENTION; CONSENTS. Duke has the requisite corporate
power and authority to enter into this Agreement and, subject to receipt of the
Duke Shareholder Approvals (as defined in Section 3.2(u)), to consummate the
transactions contemplated by this Agreement. Duke, on behalf of Duke OP, as its
sole general partner, has the requisite power and authority to enter into the OP
Merger Agreement and to consummate the transactions contemplated by the OP
Merger Agreement. The
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execution and delivery of this Agreement and other agreements contemplated by
this Agreement by Duke and the consummation by Duke of the transactions
contemplated hereby to which Duke is a party have been duly authorized by all
necessary action on the part of Duke, subject to receipt of the Duke Shareholder
Approvals. The execution and delivery of the OP Merger Agreement and any other
agreement contemplated by this Agreement or the OP Merger Agreement by Duke, as
the sole general partner of Duke OP, and by Duke OP and the consummation by Duke
OP of the transactions contemplated hereby and by the OP Merger Agreement have
been duly authorized by all necessary partnership action. This Agreement, the OP
Merger Agreement and the other agreements contemplated by this Agreement have
been duly executed and delivered by Duke or Duke OP, as the case may be, and
constitute the valid and binding obligations of Duke and Duke OP, as the case
may be, enforceable against Duke or Duke OP in accordance with their terms. The
execution and delivery of this Agreement, the OP Merger Agreement and the other
agreements contemplated by this Agreement and the OP Merger Agreement by Duke on
behalf of itself and as general partner of Duke OP do not, and the consummation
of the transactions contemplated hereby and thereby to which either Duke or Duke
OP is a party and compliance by either Duke or Duke OP with the provisions of
this Agreement, the OP Merger Agreement and the other agreements contemplated by
this Agreement and the OP Merger Agreement will not, conflict with, or result in
any violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or to loss of a material benefit under, or result in the creation
of any Lien upon any of the properties or assets of Duke or any Duke Subsidiary
under, (i) the Charter or By-laws or the comparable charter or organizational
documents or partnership or similar agreement (as the case may be) of any Duke
Subsidiary, each as amended or supplemented to the date of this Agreement, (ii)
any loan or credit agreement, note, bond, mortgage, indenture, reciprocal
easement agreement, lease or other agreement, instrument, permit, concession,
contract, franchise or license applicable to Duke or any Duke Subsidiary or
their respective properties or assets or (iii) subject to the governmental
filings and other matters referred to in the following sentence, any Laws
applicable to Duke or any Duke Subsidiary or their respective properties or
assets, other than, in the case of clause (ii) or (iii), any such conflicts,
violations, defaults, rights or Liens that individually or in the aggregate
would not (x) have a Duke Material Adverse Effect or (y) materially delay or
prevent the consummation of the REIT Merger or the OP Merger or the transactions
contemplated by this Agreement or the OP Merger Agreement. No consent, approval,
order or authorization of, or registration, declaration or filing with, any
Governmental Entity is required by or with respect to Duke or any Duke
Subsidiary (including Duke OP) in connection with the execution and delivery of
this Agreement, the OP Merger Agreement or the other agreements contemplated by
this Agreement, by Duke or Duke OP, as the case may be, or the consummation by
Duke and its Subsidiaries of any of the transactions contemplated hereby, except
for (i) the filing with the SEC of (x) the Proxy Statements and the Registration
Statements and (y) such reports under Section 13 of the Exchange Act as may be
required in connection with this Agreement and the transactions contemplated by
this Agreement, (ii) the filing of the Articles of Merger for the REIT Merger
with the Secretary of State of Indiana and the Secretary of State of Georgia,
(iii) the filing of a certificate of merger for the OP Merger with the Secretary
of State of Indiana and the Secretary of State of Georgia, (iv) such filings as
may be required in connection with the payment of any Transfer and Gains Taxes,
(v) the termination or expiration of all waiting periods under the HSR Act and
(vi) such other consents, approvals, orders, authorizations, registrations,
declarations and filings as are set forth in Section 3.2(d) of the Duke
Disclosure Letter or (A) as may be required under (x) federal, state or local
environmental laws or (y) the "blue sky" laws of various states or (B) which, if
not obtained or made, would not prevent or delay in any material respect the
consummation of the REIT Merger or the OP Merger or any of the transactions
contemplated by this Agreement or the OP Merger Agreement or otherwise prevent
Duke or Duke OP from performing its obligations under this Agreement in any
material respect or have, individually or in the aggregate, a Duke Material
Adverse Effect.
(e) SEC DOCUMENTS; FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES. Duke and
Duke OP have filed all required reports, schedules, forms, statements and other
documents with the SEC since January 1, 1995
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<PAGE>
and August 4, 1997, respectively (collectively, the "DUKE SEC DOCUMENTS"). All
of the Duke SEC Documents (other than preliminary materials or materials that
were subsequently amended), as of their respective filing dates, complied in all
material respects with all applicable requirements of the Securities Act and the
Exchange Act and, in each case, the rules and regulations promulgated thereunder
applicable to such Duke SEC Documents. None of the Duke SEC Documents at the
time of filing contained any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading, except to the extent such statements have been amended,
modified or superseded by later filed Duke SEC Documents. None of the Duke SEC
Documents is the subject of any confidential treatment request by Duke or Duke
OP. Section 3.2(e) lists all of the Duke SEC Documents filed with the SEC since
January 1, 1998. The consolidated financial statements of Duke and Duke OP, as
applicable, included in the Duke SEC Documents complied as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with GAAP (except, in the case of interim financial statements, as
permitted by the applicable rules and regulations of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto) and fairly presented in all material respects, in accordance with
the applicable requirements of GAAP, the consolidated financial position of Duke
and the Duke Subsidiaries, taken as a whole, as of the dates thereof and the
consolidated results of operations and cash flows for the periods then ended
(subject, in the case of interim financial statements, to normal year-end
adjustments). Except as set forth in the Duke SEC Documents filed with the SEC
prior to the date of this Agreement, neither Duke nor any Duke Subsidiary has
any liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) required by GAAP to be set forth on a consolidated
balance sheet of Duke or in the notes thereto and which, individually or in the
aggregate, would have a Duke Material Adverse Effect.
(f) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the Duke
SEC Documents filed with the SEC prior to the date of this Agreement since
December 31, 1997 (the "DUKE FINANCIAL STATEMENT DATE") and to the date of this
Agreement, Duke and the Duke Subsidiaries have conducted their business only in
the ordinary course and there has not been (i) any change that would have a Duke
Material Adverse Effect (a "DUKE MATERIAL ADVERSE CHANGE"), nor has there been
any occurrence or circumstance that with the passage of time would reasonably be
expected to result in an Duke Material Adverse Change, (ii) any declaration,
setting aside or payment of any dividend or distribution (whether in cash, stock
or property) with respect to any of Duke's capital stock or any Duke OP Units,
except for (A) regular quarterly dividends (in the case of Duke) of $.34 per
share of Duke Common Stock, and the dividend, if any, to be paid by Duke
pursuant to Section 2.2(c)(i) (and the corresponding Duke OP distribution), (B)
regular quarterly distributions (in the case of Duke OP) of $.34 per Duke Common
OP Unit, $.56875 per Duke Series A Preferred OP Unit, $.99875 per Duke Series B
Preferred OP Unit, $.46 per Duke Series D Preferred Unit and $.515625 per Duke
Series E Preferred Unit, (C) regularly quarterly dividends (in the case of Duke)
of $.56875 on outstanding shares of Duke Series A Preferred Stock, $.99875 on
Duke Series B Preferred Stock, $.46 on Duke Series D Preferred Stock and
$.515625 on Duke Series E Preferred Stock and (D) any distributions by any Duke
Subsidiaries (other than Duke OP) to other Duke Subsidiaries or to Duke, in each
case with customary record and payment dates, (iii) any split, combination or
reclassification of any of Duke's capital stock or any issuance or the
authorization of any issuance of any other securities in respect of, in lieu of
or in substitution for, or giving the right to acquire by exchange or exercise,
shares of its capital stock or any issuance of an ownership interest in any Duke
Subsidiary, (iv) any damage, destruction or loss, whether or not covered by
insurance, that has or would have a Duke Material Adverse Effect, or (v) any
change in accounting methods, principles or practices by Duke or any Duke
Subsidiary materially affecting its assets, liabilities or business, except
insofar as may have been disclosed in the Duke SEC Documents filed with the SEC
prior to the date of this Agreement, or required by a change in GAAP.
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(g) LITIGATION. Except as disclosed in the Duke SEC Documents filed with the
SEC prior to the date of this Agreement and other than personal injury and other
routine tort litigation arising from the ordinary course of operations of Duke
or the Duke Subsidiaries which are covered by adequate insurance, there is no
suit, action or proceeding pending or, to the knowledge of Duke and Duke OP,
threatened against or affecting Duke or any Duke Subsidiary that, individually
or in the aggregate, could reasonably be expected to (i) have a Duke Material
Adverse Effect or (ii) prevent the consummation of any of the transactions
contemplated hereby, nor is there any judgment, decree, injunction, rule or
order of any Governmental Entity or arbitrator outstanding against Duke or any
Duke Subsidiary having, or which, insofar as reasonably can be foreseen, in the
future would have, any such effect.
(h) ABSENCE OF CHANGES IN BENEFIT PLANS; ERISA COMPLIANCE.
(i) Except as disclosed in the Duke SEC Documents filed with the SEC
prior to the date of this Agreement, since the Duke Financial Statement
Date, there has not been any adoption or amendment in any material respect,
or the undertaking of any additional obligation, by Duke, any Duke
Subsidiary or any Duke ERISA Affiliate (as defined below) of any Duke
Benefit Plan (as defined below). For purposes of this Agreement, "DUKE
BENEFIT PLAN" shall mean any Employee Plan sponsored or maintained by Duke,
any Duke Subsidiary or any Duke ERISA Affiliate, or with respect to which
Duke, any Duke Subsidiary or any Duke ERISA Affiliate has any obligation to
contribute, has liability under or is otherwise a party to, or which
otherwise provides benefits for any current or former employees, officers,
directors or other independent contractors (or their dependents and
beneficiaries) of Duke or any Duke Subsidiary. For purposes of this
Agreement, "DUKE ERISA AFFILIATE" means any entity required to be aggregated
with any of Duke or any Duke Subsidiary under Sections 414(b), (c), (m) or
(o) of the Code or Section 4001 of ERISA. Schedule 3.2(h)(i) to the Duke
Disclosure Letter sets forth each Duke Benefit Plan.
(ii) Except as described in the Duke SEC Documents filed with the SEC
prior to the date of this Agreement or as would not have a Duke Material
Adverse Effect, (A) all Duke Benefit Plans, including any such plan that is
an "employee benefit plan" as defined in Section 3(3) of ERISA, are in
compliance with the terms of such plan and all applicable requirements of
law, including ERISA and the Code and, without limitation, the requirements
of ERISA and all tax rules for which favorable tax treatment is intended,
and (B) there are no liabilities or obligations with respect to any such
Duke Benefit Plan, whether accrued, contingent or otherwise (other than
obligations by Duke and the Duke Subsidiaries to make contributions, and for
such plan to pay benefits and administrative costs, incurred in the ordinary
course), nor to the knowledge of Duke are any such liabilities or
obligations expected to be incurred. The execution of, and performance of
the transactions contemplated in, this Agreement will not (either alone or
together with the occurrence of any additional or subsequent events)
constitute an event under any Duke Benefit Plan, policy, program,
arrangement or agreement, trust or loan that will or may result in any
payment (whether of severance pay or otherwise), acceleration, forgiveness
of indebtedness, vesting, distribution, increase in benefits or obligation
to fund benefits with respect to any employee or director, will not result
in any "golden parachute payments" being due (as defined for purposes of
Section 280G of the Code), or result in any breach or violation of, or a
default under, any of the Duke Benefit Plans. The only severance agreements
or severance policies applicable to Duke or the Duke Subsidiaries are the
agreements and policies specifically referred to in Section 3.2(h)(ii) of
the Duke Disclosure Letter.
(iii) Without limiting the foregoing, each Duke Benefit Plan which is
intended to be tax-qualified under Section 401(a) of the Code has been
determined by the IRS to be so qualified and such determination has not been
modified, revoked or limited, and no circumstances have occurred that would
adversely affect the tax-qualified status of any such plan. No Duke Benefit
Plan is or has ever been subject to Part III of Subtitle B of Title I of
ERISA or Title IV of ERISA or Section 412 of the Code. None of Duke or any
Duke Subsidiary, or any "party in interest" (as defined in Section 3(14) of
ERISA) or any "disqualified person" (as defined in Section 4975 of the Code)
with respect to any Duke Benefit Plan, has engaged in a non-exempt
"prohibited transaction" within the meaning of Section 4975 of the Code or
Section 406 of ERISA that would have a Duke Material Adverse Effect.
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(i) TAXES.
(i) Each of Duke and each Duke Subsidiary (including Duke OP) has timely
filed with the appropriate taxing authority all Tax Returns and reports
required to be filed by it (after giving effect to any filing extension
properly granted by a Governmental Entity having authority to do so). Each
such Tax Return is true, correct and complete in all material respects. Duke
and each Duke Subsidiary (including Duke OP) have paid (or Duke has paid on
their behalf), within the time and manner prescribed by law, all Taxes that
are due and payable. The Tax Returns of Duke and each Duke Subsidiary have
not been audited by any Taxing Authority. There are no Tax liens upon the
assets of Duke or any Duke Subsidiary other than liens for Taxes not yet
due. The most recent financial statements contained in the Duke SEC
Documents filed with the SEC prior to the date of this Agreement reflect an
adequate reserve for all material Taxes payable by Duke and by each Duke
Subsidiary for all taxable periods and portions thereof through the date of
such financial statements. Since the Duke Financial Statement Date, Duke has
incurred no liability for federal taxes, other than withholding and
employment taxes, under the Code or IRS Notice 88-19. To the knowledge of
Duke, no event has occurred, and no condition or circumstance exists, which
presents a material risk that any material Tax described in the preceding
sentence will be imposed upon Duke. To the knowledge of Duke, no
deficiencies for any Taxes have been proposed, asserted or assessed against
Duke or any of the Duke Subsidiaries, and no requests for waivers of the
time to assess any such Taxes have been granted or are pending.
(ii) Duke (A) for all of its taxable years beginning with its taxable
year ending on December 31, 1986 has been subject to taxation as a REIT
within the meaning of the Code and has satisfied the requirements to qualify
as a REIT for such years, (B) has operated, and intends to continue to
operate, in such a manner as to qualify as a REIT, and (C) has not taken or
omitted to take any action which could reasonably be expected to result in a
challenge to its status as a REIT, and, to Duke's knowledge, no such
challenge is pending or threatened. Duke OP has at all times, and each other
Duke Subsidiary which is a partnership or limited liability company or files
Tax Returns as a partnership for federal income tax purposes has since its
acquisition by Duke, been classified for federal income tax purposes as a
partnership or disregarded entity and not as an association taxable as a
corporation or a "publicly traded partnership" within the meaning of Section
7704(b) of the Code that is treated as a corporation for federal income tax
purposes under Section 7704(a) of the Code. Duke OP has operated, and Duke
intends to cause Duke OP to continue to operate, in such a manner as to
satisfy the gross income requirements of Section 7704(c)(2) of the Code, so
that if Duke OP were classified as a publicly traded partnership, Duke OP
would not be treated for federal income tax purposes as a corporation under
Section 7704(a) of the Code.
(iii) To the best knowledge and belief of Duke, Duke qualifies as a
"domestically-controlled" REIT within the meaning of Section 897(h)(4)(B) of
the Code, as of the date hereof.
(j) NO LOANS OR PAYMENTS TO EMPLOYEES, OFFICERS OR DIRECTORS. Except as
disclosed in the Duke SEC Documents or as otherwise specifically provided for in
this Agreement, there is no (i) loan outstanding from or to any employee or
director, (ii) employment or consulting contracts, (iii) agreements requiring
payments to be made on a change of control or otherwise as a result of the
consummation of any of the transactions with respect to any employee, officer or
director of Duke or any Duke Subsidiary or (iv) any agreement to appoint or
nominate any person as a director of Duke.
(k) BROKERS; SCHEDULE OF FEES AND EXPENSES. No broker, investment banker,
financial advisor or other person, other than Merrill Lynch & Co., the fees and
expenses of which, as set forth in a letter agreement between Duke and such
financial advisor, have previously been disclosed to Weeks and will be paid by
Duke, is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the REIT Merger, the OP Merger or
any of the transactions contemplated by this
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Agreement or the OP Merger Agreement based upon arrangements made by or on
behalf of Duke or any other Duke Subsidiary.
(l) COMPLIANCE WITH LAWS. Except as disclosed in the Duke SEC Documents
filed with the SEC prior to the date of this Agreement neither Duke nor any of
the Duke Subsidiaries has violated or failed to comply with any statute, law,
ordinance, regulation, rule, judgment, decree or order of any Governmental
Entity applicable to its business, properties or operations, except for
violations and failures to comply that would not, individually or in the
aggregate, reasonably be expected to result in a Duke Material Adverse Effect.
(m) CONTRACTS; DEBT INSTRUMENTS.
(i) Neither Duke nor any Duke Subsidiary has received written notice
that it is in violation of or in default under, in any material respect (nor
does there exist any condition which upon the passage of time or the giving
of notice or both would cause such a violation of or default under), any
material loan or credit agreement, note, bond, mortgage, indenture, lease,
permit, concession, franchise or license, or any agreement to acquire real
property, or any other material contract, agreement, arrangement or
understanding, to which it is a party or by which it or any of its
properties or assets is bound, except for violations or defaults that would
not, individually or in the aggregate, result in a Duke Material Adverse
Effect.
(ii) Section 3.2(m)(ii) of the Duke Disclosure Letter sets forth (A) a
detailed list of all loan indebtedness of Duke or any of the Duke
Subsidiaries, other than indebtedness payable to Duke or a wholly owned Duke
Subsidiary, in an aggregate principal amount in excess of $5,000,000 per
item is outstanding or may be incurred and (B) the respective principal
amounts outstanding thereunder on December 31, 1998.
(iii) Neither Duke nor any Duke Subsidiary has entered into or is
subject, directly or indirectly, to any Duke Tax Protection Agreements. As
used herein, a "DUKE TAX PROTECTION AGREEMENT" is an agreement, oral or
written, (A) that has as one of its purposes to permit a Person to take the
position that such Person could defer federal taxable income that otherwise
might have been recognized attributable to the acquisition or ownership of
Duke OP Units or an interest in any other Duke Subsidiary that is treated as
a partnership for federal income tax purposes, and (B) that (i) prohibits or
restricts in any manner the disposition of any assets of Duke or any Duke
Subsidiary, (ii) requires that Duke or any Duke Subsidiary maintain,
increase or put in place, or replace, indebtedness, whether or not secured
by one or more of the Duke Properties, or (iii) requires that Duke or any
Duke Subsidiary offer to any person or entity at any time the opportunity to
guarantee or otherwise assume, directly or indirectly, the risk of loss for
federal income tax purposes for indebtedness or other liabilities of Colt or
any Colt Subsidiary.
(n) DUKE OP AGREEMENT. The Duke OP Agreement has been duly authorized,
executed and delivered by Duke. Assuming due execution by the limited partners
of Duke OP, the Duke OP Agreement constitutes a valid and binding obligation of
Duke, enforceable against Duke in accordance with its terms.
(o) ENVIRONMENTAL MATTERS. Except as disclosed in Section 3.2(o) of the Duke
Disclosure Letter, each of Duke and each Duke Subsidiary has obtained all
licenses, permits, authorizations, approvals and consents from Governmental
Entities which are required of Duke and each Duke Subsidiary in respect of its
business, operations, assets or properties under any applicable Environmental
Law, and each of Duke and each Duke Subsidiary is in compliance in all respects
with the terms and conditions of all such licenses, permits, authorizations,
approvals and consents and with its obligations under any applicable
Environmental Law, except for such failures to comply which would not,
individually or in the aggregate, have a Duke
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Material Adverse Effect. Except as disclosed in Section 3.2(o) of the Duke
Disclosure Letter or in the environmental audits/reports listed thereon:
(i) No Order has been issued that is still in effect, no complaint has
been filed that has not been resolved, no penalty has been assessed that has
not been paid and no investigation or review is pending or, to the Knowledge
of Duke and its Subsidiaries, threatened by any Governmental Entity with
respect to any alleged failure by Duke or any Duke Subsidiary to have any
license, permit, authorization, approval or consent from Governmental
Entities required under any applicable Environmental Law in connection with
the conduct of the business or operations of Duke or any Duke Subsidiary or
with respect to any Release by Duke or any Duke Subsidiary of any Hazardous
Material.
(ii) Neither Duke nor any Duke Subsidiary nor, to the Knowledge of Duke
and its Subsidiaries, any prior owner or lessee of any property now or
previously owned or leased by Duke or any Duke Subsidiary has handled any
Hazardous Material on any property now or previously owned or leased by Duke
or any Duke Subsidiary except in material compliance with any applicable
Environmental Law, and without limiting the foregoing, (A) no regulated
level of polychlorinated biphenyl is or has been present, (B) no friable
asbestos is or has been present, (C) there are no Hazardous Material
underground storage tanks, active or abandoned and (D) no Hazardous Material
has been Released in a quantity reportable under, or in violation of, any
applicable Environmental Law, at, on or under any property now or previously
owned or leased by Duke or any Duke Subsidiary, during any period that Duke
or any Duke Subsidiary owned or leased such property or, to the Knowledge of
Duke and its Subsidiaries, prior thereto.
(iii) Neither Duke nor any Duke Subsidiary has transported or arranged
for the transportation of any Hazardous Material to any location which is
the subject of any action, suit, arbitration or proceeding that could be
reasonably expected to lead to claims against Duke or any Duke Subsidiary
related to such Hazardous Material for clean-up costs, remedial work,
damages to natural resources or personal injury claims, including, but not
limited to, claims under CERCLA.
(iv) No oral or written notification of a Release of a Hazardous
Material has been filed or should have been filed by or on behalf of Duke or
any Duke Subsidiary under an applicable Environmental Law, except for
failures to make filings which would not, individually or in the aggregate,
have a Material Adverse Effect and no property now or previously owned or
leased by Duke or any Duke Subsidiary is listed or, to the Knowledge of Duke
and its Subsidiaries, proposed for listing on the National Priorities List
promulgated pursuant to CERCLA or on any similar state list of sites
requiring investigation or clean-up.
(v) There are no Liens arising under or pursuant to any applicable
Environmental Law on any real property owned or leased by Duke or any Duke
Subsidiary, and no action of any Governmental Entity has been taken or, to
the knowledge of Colt and the Colt Subsidiaries, is in process which could
subject any of such properties to such Liens, and neither Duke nor any Duke
Subsidiary currently has a duty under any applicable Environmental Law to
place any notice or restriction relating to the presence of Hazardous
Material at any such property owned by it in any deed to such property.
(vi) There have been no environmental investigations, studies, audits,
tests, reviews or other analyses conducted by or which are in the possession
or control of Duke or any Duke Subsidiary in relation to any property or
facility now or previously owned or leased by Duke or any Duke Subsidiary
which have not been listed in Section 3.2(o)(vi) of the Duke Disclosure
Letter and made available to Weeks prior to the execution of this Agreement.
(p) DUKE PROPERTIES. (i) Duke or a Duke Subsidiary owns fee simple title to
or has a valid leasehold interest in, each of the real properties reflected on
the most recent balance sheet of Duke included in the Duke SEC Documents or as
identified in Section 3.2(o) of the Duke Disclosure Letter (the "DUKE
PROPERTIES"), which are all of the real estate properties owned by them, free
and clear of liens, mortgages or
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deeds of trust, claims against title, charges which are liens, security
interests or other encumbrances on title ("DUKE ENCUMBRANCES") except for (a)
debt identified on Schedule 3.2(m)(ii), (b) inchoate liens imposed for
construction work in progress or otherwise incurred in the ordinary course of
business, (c) mechanics', workmen's and repairmen's liens (other than inchoate
liens for work in progress) which have heretofore been bonded or which
individually or in the aggregate are not substantial in amount, and (d) other
Duke Encumbrances, if any, which do not materially detract from the value of or
materially interfere with the present use of any of the Duke Properties subject
thereto or affected thereby and do not otherwise materially impair business
operations conducted by Duke and the Duke Subsidiaries; (ii) the Duke Properties
are not subject to any rights of way, written agreements, laws, ordinances and
regulations affecting building use or occupancy, or reservations of an interest
in title (collectively, "DUKE PROPERTY RESTRICTIONS"), except for (a) Duke
Property Restrictions imposed or promulgated by law or any Governmental Entity
with respect to real property, including zoning regulations, provided they do
not materially adversely affect the current use of the Duke Properties, and (b)
other Duke Property Restrictions and other limitations of any kind, if any,
which have heretofore been bonded or which individually or in the aggregate are
not material in amount, do not materially detract from the value of or
materially interfere with the present use of any of the Duke Properties subject
thereto, do not otherwise materially interfere with the present use of any of
the Duke Properties subject thereto, and do not otherwise materially impair
business operations conducted by Duke and the Duke Subsidiaries; (iv) valid
policies of title insurance have been issued insuring Duke's or a Duke
Subsidiary's or a predecessor in interest's fee simple title or leasehold estate
to the Duke Properties except as noted therein, and such policies are, at the
date hereof, in full force and effect and no claim has been made against any
such policy; (v) there is no certificate, permit or license from any
Governmental Entity having jurisdiction over any of the Duke Properties or any
agreement, easement or any other right which is necessary to permit the lawful
use and operation of the buildings and improvements on any of the Duke
Properties or which is necessary to permit the lawful use and operation of all
driveways, roads and other means of egress and ingress to and from any of the
Duke Properties that has not been obtained and is not in full force and effect,
or of any pending threat of modification or cancellation of any of same, the
failure of which to obtain would not result in a Duke Material Adverse Effect;
(vi) neither Duke nor a Duke Subsidiary has received written notice of any
violation of any federal, state or municipal law, ordinance, order, regulation
or requirement affecting any portion of any of the Duke Properties issued by any
Governmental Entity that has not otherwise been resolved; (vii) neither Duke nor
a Duke Subsidiary has received notice to the effect that and there are no (a)
condemnation or rezoning or proceedings that are pending or, to the Knowledge of
Duke and its Subsidiaries, threatened with respect to any of the Duke Properties
or (b) zoning, building or similar laws, codes, ordinances, orders or
regulations that are or will be violated by the continued maintenance, operation
or use of any buildings or other improvements on any of the Duke Properties or
by the continued maintenance, operation or use of the parking areas.
(q) OPINION OF FINANCIAL ADVISOR. The Board of Directors of Duke has
received the opinion of Merrill Lynch & Co., Duke's financial advisor,
satisfactory to Duke's Board of Directors, to Weeks to the effect that, as of
the date of such opinion, the Exchange Ratio is fair to the shareholders of Duke
from a financial point of view. Duke shall promptly deliver to Weeks a copy of
the written opinion of Merrill Lynch & Co. It is agreed and understood that such
opinion is for the sole benefit of Duke's board of directors and may not be
relied upon by Weeks.
(r) STATE TAKEOVER STATUTES. Duke and Duke OP each have taken all actions
necessary, if any, to exempt the REIT Merger, the OP Merger, this Agreement, the
OP Merger Agreement, any of the transactions contemplated by this Agreement or
the OP Merger Agreement from the operation of any Takeover Statute of the State
of Indiana, including, without limitation, the control share acquisition
provisions of Chapter 42 of the IBCL and the business combination provisions of
Chapter 43 of the IBCL.
(s) 1940 ACT. None of Duke or any of the Duke Subsidiaries is, or at the
Effective Time will be, required to be registered under the 1940 Act.
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(t) PROXY STATEMENT AND REGISTRATION STATEMENT. The information furnished by
Duke for inclusion or incorporation by reference in the Registration Statement
and any amendment or supplement thereto will not, as of the date the
Registration Statement is declared effective by the SEC contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order the make the statements therein not
misleading. The information furnished by Duke for inclusion or incorporation by
reference in the Proxy Statement will not, on the dates the Proxy Statement
first is mailed or furnished to securityholders of Weeks or Duke or on the
respective meeting dates, contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading. Notwithstanding the foregoing, Duke makes no representation or
warranty with respect to any information furnished by Weeks for inclusion or
incorporation by reference in any of the foregoing documents.
(u) VOTE REQUIRED. The affirmative vote of at least a majority of the
outstanding shares of Duke Common Stock is the only vote of the holders of any
class or series of Duke's capital stock necessary (under applicable law or
otherwise) to approve the REIT Merger, this Agreement, the OP Merger, the OP
Merger Agreement and the amendments to Duke's Charter contemplated by this
Agreement other than the Duke Special Charter Proposal (the "DUKE MERGER
SHAREHOLDER APPROVAL"). The Duke 80% Approval is the only vote of the holders of
any class or series of Duke's capital stock necessary (under applicable law or
otherwise) to approve the Duke Special Charter Proposal (the "DUKE SPECIAL
CHARTER SHAREHOLDER APPROVAL" and together with the Duke Merger Shareholder
Approval, the "DUKE SHAREHOLDER APPROVALS"). The affirmative vote (by written
consent or otherwise) of at least 90% of the outstanding Duke common OP Units is
the only vote of the holders of any interest in Duke OP necessary (under
applicable law or otherwise) to approve the REIT Merger, the REIT Merger
Agreement, the OP Merger, the OP Merger Agreement and the transactions
contemplated hereby and thereby (the "DUKE OP APPROVALS"). The Duke OP Approvals
have been duly obtained.
(v) YEAR 2000 ISSUES.
(i) To the best knowledge of Duke, based on representations and
warranties made by third parties, the software, hardware and equipment of
Duke owned, leased or licensed by it and used in the conduct of its business
(the "DUKE INFORMATION TECHNOLOGY"), as well as the elevator systems in
Duke's Office Properties, and the heating ventilation and air conditioning,
fire and safety and other automated building systems at the Duke Properties
(the "DUKE BUILDING SYSTEMS") are Year 2000 Ready.
(ii) Duke has (A) developed and delivered to Weeks a comprehensive plan
(the "DUKE Y2K PLAN") for insuring that the software, hardware, equipment
and systems of Duke and the Duke Subsidiaries used in the conduct of its
business as conducted on the date hereof will be Year 2000 Ready and (B) met
the Duke Y2K Plan milestones such that all software, hardware, equipment and
systems of Duke and the Duke Subsidiaries will be Year 2000 Ready, except to
the extent that its failure would not have a Duke Material Adverse Effect.
(iii) "YEAR 2000 READY" means that the software, hardware, equipment and
systems of Duke and the Duke Subsidiaries with respect to the operation of
their respective businesses and their general business plans will: (A)
handle date information involving any and all dates before, during and/or
after January 1, 2000, including accepting input, providing output and
performing date calculations in whole or in part; (B) operate, accurately
and without interruption on and in respect of any and all dates before,
during and/or after January 1, 2000 and without any change in performance
and (C) store and provide date input information without creating any
ambiguity as to the century.
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ARTICLE IV
COVENANTS
Section 4.1. CONDUCT OF BUSINESS BY WEEKS AND WEEKS OP. During the period
from the date of this Agreement to the Effective Time, Weeks shall, and shall
cause each of the Weeks Subsidiaries (including Weeks OP) to, carry on its
businesses in the usual, regular and ordinary course in substantially the same
manner as heretofore conducted and, to the extent consistent therewith, use
commercially reasonable efforts to preserve intact its current business
organization, goodwill, ongoing businesses and Weeks' status as a REIT within
the meaning of the Code. Without limiting the generality of the foregoing, the
following additional restrictions shall apply: during the period from the date
of this Agreement to the earlier of (i) the termination of this Agreement or
(ii) the Effective Time, except as set forth in Section 4.1 of the Weeks
Disclosure Letter or as otherwise contemplated by this Agreement, Weeks shall
not and shall cause the Weeks Subsidiaries (including Weeks OP) not to (and not
to authorize or commit or agree to):
(a) (i) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of Weeks' capital stock or the Weeks OP Units
or partnership interests, stock or other equity interests in any Weeks
Subsidiary that is not directly or indirectly wholly owned by Weeks, except (v)
in the case of Weeks, for regular quarterly dividends not in excess of $.505 per
share of Weeks Common Stock, $.50 per share of Weeks Series A Preferred Stock
and $.5390625 per share of Weeks Series D Preferred Stock, (w) in the case of
Weeks OP, for regular quarterly distributions to Weeks GP and limited partners
of Weeks OP not in excess of $.505 per common Weeks OP Unit, $.50 per Weeks
Series A preferred OP Unit, $.50 per Weeks Series C Preferred OP Unit and
$.5390625 per Weeks Series D Preferred OP Unit, (x) any other distributions by
any other wholly owned Weeks Subsidiaries, in each case with customary record
and payment dates, (y) the Final Weeks Dividend to be paid pursuant to Section
2.2(d)(i) (and the corresponding Weeks OP distribution) and (z) other dividends
necessary in order for Weeks to maintain its status as a REIT (which shall not
be declared or paid prior to December 15, 1999), (ii) split, combine or
reclassify any capital stock or partnership interests or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of such capital stock or partnership interests, or (iii) purchase,
redeem or otherwise acquire any shares of capital stock of Weeks or Weeks OP
Units or any options, warrants or rights to acquire, or security convertible
into, shares of capital stock of Weeks or such Weeks OP Units, except (A)
pursuant to the Weeks Exchange Agreements, (B) in connection with the use of
Weeks Common Stock to pay the exercise price or tax withholding obligation upon
the exercise of a Weeks Stock Option issued under any of the Weeks Stock Plans
as presently permitted under those Plans, or (C) pursuant to Weeks' dividend
reinvestment plan as presently in effect;
(b) issue, deliver, sell or grant any option or other right in respect of
any shares of capital stock, any other voting or redeemable securities
(including Weeks OP Units or other partnership interests) of Weeks or any Weeks
Subsidiary or any securities convertible into, or any rights, warrants or
options to acquire, any such shares, voting securities or convertible or
redeemable securities except to Weeks or a Weeks Subsidiary, except (i) as
permitted or required under the Weeks OP Agreement or Weeks' dividend
reinvestment plan as presently in effect, (ii) in connection with the exercise
of outstanding options under the Weeks Stock Options Plans, the exercise of the
AEW Warrant or the Codina Warrant or the exchange of Weeks OP Units for shares
of Weeks Common Stock or Weeks Preferred Stock, as applicable, pursuant to the
Weeks Exchange Agreements and (iii) as permitted under Section 4.1(e);
(c) amend Weeks' articles or by-laws, the Weeks OP Agreement or any other
comparable charter or organizational documents of any Weeks Subsidiary, except
as otherwise contemplated by this Agreement;
(d) merge, consolidate or enter into any other business combination
transaction with any Person;
(e) other than (x) as set forth in Section 4.1 of the Weeks Disclosure
Letter or (y) with Duke's prior written consent (such consent not to be
unreasonably withheld), (i) acquire or agree to acquire by merging or
consolidating with, or by purchasing all or a substantial portion of the equity
securities or assets of, or by
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any other manner, any business or any corporation, partnership, limited
liability company, joint venture, association, business trust or other business
organization or division thereof or interest therein or any assets; (ii)
mortgage or otherwise encumber or subject to any Lien or sell, lease or
otherwise dispose of any of its material properties or assets or assign or
encumber the right to receive income, dividends, distributions and the like or
agree to do any of the foregoing; or (iii) incur any indebtedness for borrowed
money or guarantee any such indebtedness of another person, issue or sell any
debt securities or warrants or other rights to acquire any debt securities of
Weeks, guarantee any debt securities of another person, enter into any "keep
well" or other agreement to maintain any financial statement condition of
another person or enter into any arrangement having the economic effect of any
of the foregoing, prepay or refinance any indebtedness or make any loans,
advances or capital contributions to, or investments in, any other person;
(f) make any election relating to Taxes, other than an election which is not
reasonably expected to affect the amount or timing of items of income, gain,
loss or deductions of greater than $10,000,000 on a cumulative basis or Taxes in
any year of greater than $1,000,000 (unless, after prior consultation with Duke,
such action is required by law or necessary to preserve Weeks' status as a REIT
or the status of Weeks OP or any other Weeks Subsidiary as a partnership for
federal tax purposes);
(g) (i) change in any material manner any of its methods, principles or
practices of accounting in effect at the Weeks Financial Statement Date, or (ii)
settle or compromise any claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to taxes, except in
the case of settlements or compromises relating to taxes on real property or
sales taxes in an amount not to exceed, individually or in the aggregate,
$5,000,000, or change any of its methods of reporting income or deductions for
federal income tax purposes from those employed in the preparation of its
federal income tax return for the taxable year ended December 31, 1997, except,
in the case of clause (i), as may be required by the SEC, applicable law or
GAAP;
(h) except as provided in this Agreement, adopt any new employee benefit
plan, incentive plan, severance plan, bonus plan, stock option or similar plan,
grant new stock appreciation rights or amend any existing plan or rights, or
enter into or amend any employment agreement or similar agreement or arrangement
or, except in the ordinary course consistent with past practice, grant or become
obligated to grant any increase in the compensation of officers or employees,
except such changes as are required by law or which are not more favorable to
participants than provisions presently in effect;
(i) settle any stockholder derivative or class action claims arising out of
or in connection with any of the transactions contemplated by this Agreement or
the OP Merger Agreement; and
(j) enter into or amend or otherwise modify any agreement or arrangement
with persons that are affiliates or, as of the date hereof, are officers or
directors of Weeks or any Weeks Subsidiary without prior written notice to Duke
and the approval of a majority of the "independent" members of the Board of
Directors of Weeks.
Section 4.2. CONDUCT OF BUSINESS BY DUKE. During the period from the date
of this Agreement to the Effective Time, Duke and Duke OP shall, and shall cause
the Duke Subsidiaries each to, carry on its businesses in the usual, regular and
ordinary course in substantially the same manner as heretofore conducted and, to
the extent consistent therewith, use commercially reasonable efforts to preserve
intact its current business organization, goodwill, ongoing businesses and
Duke's status as a REIT within the meaning of the Code. Without limiting the
generality of the foregoing, the following additional restrictions shall apply:
During the period from the date of this Agreement to the Effective Time, except
as set forth in Section 4.2 of the Duke Disclosure Letter or as otherwise
contemplated by this Agreement, Duke shall not
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and shall cause the Duke Subsidiaries (including Duke OP) not to (and not to
authorize or commit or agree to):
(a) (i) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of Duke's capital stock or the Duke OP Units or
partnership interests, stock or other equity interests in any Duke Subsidiary
that is not directly or indirectly wholly owned by Duke except (v) in the case
of Duke, for regular quarterly dividends not in excess of $.34 per share of Duke
Common Stock and regular quarterly dividends not in excess of $.56875 per share
of Duke Series A Preferred Stock, $.99875 per share of Duke Series B Preferred
Stock, $.46094 per share of Duke Series D Preferred Stock, and $.515625 per
share of Duke Series E Preferred Stock, (w) in the case of Duke OP, for regular
quarterly distributions to the general and limited partners of Duke OP not in
excess of $.34 per Duke Common OP Unit and regular quarterly dividends on
outstanding Duke Preferred OP Units not in excess of $.56875 per Duke Series A
Preferred OP Unit, $.99875 per Duke Series B Preferred OP Unit, $.46094 per Duke
Series D Preferred OP Unit and $.515625 per Duke Series E Preferred OP Unit, (x)
any distributions by any other wholly owned Duke Subsidiaries, in each case with
customary record and payment dates, (y) the dividend required to be paid
pursuant to Section 2.2(d)(i) (and the corresponding Duke OP distribution) and
(z) other dividends necessary in order for Duke to maintain its status as a REIT
(which shall not be declared or paid prior to December 15, 1999), (ii) split,
combine or reclassify any capital stock or partnership interests or issue or
authorize the issuance of any other securities in respect of, in lieu of or in
substitution for shares of such capital stock or partnership interests, except
as permitted under Section 4.2(e) or as contemplated under the exchange
provisions of the Duke OP Agreement and the Duke Exchange Agreements or (iii)
purchase, redeem or otherwise acquire any shares of capital stock of Duke or
Duke OP Units or any options, warrants or rights to acquire, or security
convertible into, shares of capital stock of Duke or such Duke OP Units, except
(A) pursuant to the exchange provisions of the Duke OP Agreement and the Duke
Exchange Agreements, (B) in connection with the use of Duke Common Stock to pay
the exercise price or withholding tax obligation upon the exercise of any Duke
Stock Option issued under any of the Duke Stock Plans as presently permitted
under those Plans, or (C) pursuant to Duke's dividend reinvestment plan and
employee stock purchase plan, each as presently in effect;
(b) issue, deliver or sell, or grant any option or other right in respect
of, any shares of capital stock, any other voting or redeemable securities
(including Duke OP Units or other partnership interests) of Duke or any Duke
Subsidiary or any securities convertible into, or any rights, warrants or
options to acquire, any such shares, voting securities or convertible or
redeemable securities except to Duke or a Duke Subsidiary except (i) for bona
fide financing transactions involving not more than $150,000,000 in the
aggregate, (ii) as permitted or required under the Duke OP Agreement, the Duke
Exchange Agreements, Duke's dividend reinvestment plan or the Duke employee
stock purchase plan, (iii) in connection with the exercise of outstanding Duke
Stock Options and (iv) as permitted by Section 4.2(e);
(c) amend the Charter, By-laws, Duke OP Agreement or other comparable
charter or organizational documents of Duke or any Duke Subsidiary except as
otherwise contemplated by this Agreement, and except as may be necessary to
effect the restructuring transactions described in Section 4.2 of the Duke
Disclosure Letter (the "DMI Restructuring") or as otherwise disclosed in Section
4.2 of the Duke Disclosure Letter;
(d) merge, consolidate or enter into any other business combination with any
Person, except (i) as contemplated by the DMI Restructuring and (ii) as
permitted under Section 4.2(e);
(e) other than (x) as set forth in Section 4.2 of the Duke Disclosure Letter
or (y) with Weeks' prior written consent (such consent not to be unreasonably
withheld), (i) acquire or agree to acquire by merging or consolidating with, or
by purchasing all or a substantial portion of the equity securities or assets
of, or by any other manner, any business or any corporation, partnership,
limited liability company, joint venture, association, business trust or other
business organization or division thereof or interest therein or any assets;
(ii) mortgage or otherwise encumber or subject to any Lien or sell, lease or
otherwise dispose of any
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of its material properties or assets or assign or encumber the right to receive
income, dividends, distributions and the like or agree to do any of the
foregoing; or (iii) incur any indebtedness for borrowed money or guarantee any
such indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of Duke or any Duke
Subsidiary, guarantee any debt securities of another person, enter into any
"keep well" or other agreement to maintain any financial statement condition of
another person or enter into any arrangement having the economic effect of any
of the foregoing, prepay or refinance any indebtedness or make any loans,
advances or capital contributions to, or investments in, any other person;
(f) (i) change in any material manner any of its methods, principles or
practices of accounting in effect at the Duke Financial Statement Date, or (ii)
settle or compromise any claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to taxes, except in
the case of settlements or compromises relating to taxes on real property or
sales taxes in an amount not to exceed, individually or in the aggregate,
$5,000,000, except, in the case of clause (i), as may be required by the SEC,
applicable law or GAAP;
(g) except as provided in this Agreement, adopt any new employee benefit
plan, incentive plan, severance plan, bonus plan, stock option or similar plan,
grant new stock appreciation rights or amend any existing plan or rights, or
enter into or amend any employment agreement or similar agreement or arrangement
(other than as contemplated under Section 5.11 or, except in the ordinary course
consistent with past practice, grant or become obligated to grant any increase
in the compensation of officers or employees, except such changes as are
required by law or which are not more favorable to participants than provisions
presently in effect; and
(h) enter into or amend or otherwise modify any agreement or arrangement
with persons that are affiliates or, as of the date hereof, are officers or
directors of Duke or any Duke Subsidiary not approved by a majority of the
"independent" members of the Board of Directors of Duke.
Section 4.3. OTHER ACTIONS. Each of Weeks and Duke shall use its
commercially reasonable efforts not to, and shall use its commercially
reasonable efforts to cause its respective subsidiaries not to take any action
that would result in (i) any of the representations and warranties of such party
(without giving effect to any "knowledge" qualification) set forth in this
Agreement that are qualified as to materiality becoming untrue, (ii) any of such
representations and warranties (without giving effect to any "knowledge"
qualification) that are not so qualified becoming untrue in any material respect
or (iii) except as contemplated by Section 7.1, any of the conditions to the
REIT Merger set forth in Article VI not being satisfied.
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ARTICLE V
ADDITIONAL COVENANTS
Section 5.1. PREPARATION OF THE REGISTRATION STATEMENT AND THE PROXY
STATEMENT; SHAREHOLDERS' MEETINGS; PARTNERS' CONSENTS.
(a) As soon as practicable following the date of this Agreement, Weeks and
Duke shall (i) prepare and file with the SEC a preliminary joint Proxy
Statement, with appropriate requests for confidential treatment, in form and
substance satisfactory to each of Duke and Weeks, and Duke will provide on a
supplemental basis to the SEC the Registration Statement, in which the Proxy
Statement will be included as a prospectus. Each of Weeks and Duke shall use its
commercially reasonable efforts to cause and enable Duke to (i) respond to any
comments of the staff of the SEC and (ii) have the Registration Statement
declared effective under the Securities Act and the rules and regulations
promulgated thereunder as promptly as practicable after such filing and to keep
the Registration Statement effective as long as is necessary to consummate the
REIT Merger. Each of Weeks and Duke will use its commercially reasonable efforts
to cause the Proxy Statement to be mailed to Weeks' shareholders and Duke's
shareholders, respectively, as promptly as practicable after the Registration
Statement is declared effective under the Securities Act. Each party will notify
the other promptly of the receipt of any comments from the SEC and of any
request by the SEC for amendments or supplements to the Registration Statement
or the Proxy Statement or for additional information and will supply the other
with copies of all correspondence between such party or any of its
representatives and the SEC with respect to the Registration Statement or the
Proxy Statement. The Registration Statement and the Proxy Statement shall comply
in all material respects with all applicable requirements of Law. Whenever any
event occurs which is required to be set forth in an amendment or supplement to
the Registration Statement or the Proxy Statement, Duke or Weeks, as the case
may be, shall promptly inform the other of such occurrences and cooperate in
filing with the SEC and/or mailing to the shareholders of Duke and the
shareholders of Weeks such amendment or supplement in a form reasonably
acceptable to Duke and Weeks.
(b) Weeks will, as soon as practicable following the date of this
Agreement, duly call, give notice of, convene and hold a meeting of its
shareholders (the "WEEKS SHAREHOLDERS MEETING") (but in no event shall such
meeting be held sooner than 20 business days following the date the Proxy
Statement is mailed to its shareholders), for the purpose of obtaining the Weeks
Shareholder Approvals. Duke will, as soon as practicable following the date of
this Agreement, duly call, give notice of, convene and hold a meeting of its
shareholders (the "DUKE SHAREHOLDERS MEETING") (but in no event shall such
meeting be held sooner than 20 business days following the date the Proxy
Statement is mailed to its shareholders), for the purpose of obtaining the Duke
Shareholder Approvals. Weeks and Duke will cooperate in good faith to seek to
ensure that the Weeks Shareholder Meeting and the Duke Shareholder Meeting are
held on the same day, as close together in time as is reasonably practicable.
Duke covenants that, subject to Section 7.1, Duke will, through its Board of
Directors, recommend to its shareholders approval of the REIT Merger, the OP
Merger, this Agreement, the OP Merger Agreement, the charter and bylaw
amendments, the election of directors and the other transactions contemplated
hereby and thereby and further covenants that the Proxy Statement will include
such recommendation. Weeks covenants that, subject to Section 7.1, Weeks will,
through its Board of Directors, recommend to its shareholders approval of the
REIT Merger, the OP Merger, this Agreement, the OP Merger Agreement and the
other transactions contemplated hereby and thereby and further covenants that
the Proxy Statement will include such recommendation. Duke shall furnish all
information concerning Duke and the holders of Duke Common Stock as may
reasonably be requested in connection with any action required to be taken under
any applicable state securities or "blue sky" laws in connection with the
issuance of Duke Common Stock pursuant to the REIT Merger, and Weeks shall
furnish all information concerning Weeks and the holders of Weeks Stock as may
be reasonably requested in connection with any such action. Each of Duke and
Weeks will use their commercially reasonable efforts to cause Duke to obtain,
prior to the effective date of the Registration Statement, all necessary state
securities or "blue sky" permits or approvals required to carry out the REIT
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Merger and the other transactions contemplated by this Agreement. In connection
with the preparation of the Proxy Statement and the Registration Statement, Duke
shall use reasonable efforts to cause to be delivered to Weeks, prior to the
mailing of the Proxy Statement to Weeks' shareholders and Duke's shareholders,
the opinion dated the date of the Proxy Statement of Rogers & Wells LLP,
substantially in the form attached hereto as EXHIBIT L (subject to customary
exceptions, assumptions and qualifications, and based on customary
representations), regarding the qualification of Duke as a REIT under the Code
and the treatment of Duke OP as a partnership for federal income tax purposes.
In issuing its opinion, Rogers & Wells LLP shall be permitted to rely on the
opinion of King & Spalding as to the qualification of Weeks as a REIT. In
connection with the preparation of the Proxy Statement and the Registration
Statement, Weeks shall use reasonable efforts to cause to be delivered to Duke,
prior to the mailing of the Proxy Statement to Weeks' shareholders and Duke's
shareholders, the opinion dated the date of the Proxy Statement of King &
Spalding, substantially in the form attached hereto as EXHIBIT K (subject to
customary exceptions, assumptions and qualifications, and based on customary
representations), regarding the qualification of Weeks as a REIT under the Code
and the treatment of Weeks OP as a partnership for federal income tax purposes.
Section 5.2. ACCESS TO INFORMATION; CONFIDENTIALITY. Each of Weeks and
Duke shall, and shall cause each of its respective Subsidiaries to, afford to
the other party and to the officers, employees, accountants, counsel, financial
advisors and other representatives of such other party, reasonable access during
normal business hours during the period prior to the Effective Time to all their
respective properties, books, contracts, commitments, personnel and records and,
during such period, each of Weeks and Duke shall, and shall cause each of its
respective subsidiaries to, furnish promptly to the other party (a) a copy of
each report, schedule, registration statement and other document filed by it
during such period pursuant to the requirements of federal or state securities
laws and (b) all other information concerning its business, properties and
personnel as such other party may reasonably request. Each of Weeks and Duke
will hold, and will cause its respective subsidiaries' officers, employees,
accountants, counsel, financial advisors and other representatives and
affiliates to hold, any nonpublic information in confidence to the extent
required by, and in accordance with, and will comply with the provisions of the
letter agreement between Weeks and Duke dated as of February 3, 1999, as amended
to date (as so amended, the "CONFIDENTIALITY AGREEMENT").
Section 5.3. COMMERCIALLY REASONABLE EFFORTS; NOTIFICATION.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of Duke and Weeks agrees to use its commercially reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, and to assist and cooperate with the other in doing, all things necessary,
proper or advisable to fulfill all conditions applicable to such party pursuant
to this Agreement and to consummate and make effective, in the most expeditious
manner practicable, the REIT Merger, the OP Merger and the other transactions
contemplated hereby and by the OP Merger Agreement, including (i) the obtaining
of all necessary actions or nonactions, waivers, consents and approvals from
Governmental Entities and the making of all necessary registrations and filings
and the taking of all reasonable steps as may be necessary to obtain an
approval, waiver or exemption from, or to avoid an action or proceeding by, any
Governmental Entity, (ii) the obtaining of all necessary consents, approvals,
waivers or exemption from non-governmental third parties; provided, however,
that if either party is obliged to make expenditures, or incur costs, expenses
or other liabilities to obtain the consent of any non-governmental party, it
shall consult reasonably with the other party upon reasonable notice prior to
making payment of any such amount, and in no event shall either Weeks or Duke
make payment of any such amount in excess of $5,000,000 in obtaining such
consents without obtaining the prior written consent of the other, which consent
shall not unreasonably be withheld or delayed, (iii) the defending of any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging the REIT Merger, this Agreement or the OP Merger Agreement or the
consummation of the transactions contemplated by this Agreement or the OP Merger
Agreement, including seeking to have any stay or temporary restraining order
entered by any court or other Governmental Entity vacated or reversed, and (iv)
the execution and delivery of any additional instruments necessary to consummate
the transactions contemplated by and to fully carry out the purposes
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of, this Agreement or the OP Merger Agreement. In connection with and without
limiting the foregoing, Weeks, Duke and their respective Boards of Directors
shall (i) take all action necessary so that no "fair price," "business
combination," "moratorium," "control share acquisition" or any other
anti-takeover statute or similar statute enacted under state or federal laws of
the United States or similar statute or regulation (a "TAKEOVER STATUTE") is or
becomes applicable to the REIT Merger, the OP Merger, this Agreement, the OP
Merger Agreement or any of the other transactions contemplated hereby or thereby
and (ii) if any Takeover Statute becomes applicable to the REIT Merger, the OP
Merger, this Agreement, the OP Merger Agreement or any other transaction
contemplated hereby, take all action necessary so that the REIT Merger, the OP
Merger, this Agreement, the OP Merger Agreement and the other transactions
contemplated hereby or thereby may be consummated as promptly as practicable on
the terms contemplated by this Agreement and the OP Merger Agreement and
otherwise to minimize the effect of such Takeover Statute on the REIT Mergers,
the OP Merger and the other transactions contemplated by this Agreement and the
OP Merger Agreement. From the date hereof through the Effective Time, Weeks and
Weeks OP shall timely file with the SEC all Weeks SEC Documents required to be
so filed. From the date hereof through the Effective Time, Duke and Duke OP
shall timely file with the SEC all Duke SEC Documents required to be so filed.
(b) Weeks shall give prompt notice to Duke, and Duke shall give prompt
notice to Weeks, if (i) any representation or warranty made by it contained in
this Agreement that is qualified as to materiality becomes untrue or inaccurate
in any respect or any such representation or warranty that is not so qualified
becomes untrue or inaccurate in any material respect or (ii) it fails to comply
with or satisfy in any material respect any covenant, condition or agreement to
be complied with or satisfied by it under this Agreement; PROVIDED, HOWEVER,
that no such notification shall affect the representations, warranties,
covenants or agreements of the parties or the conditions to the obligations of
the parties under this Agreement.
Section 5.4. AFFILIATES. Prior to the Closing Date, Weeks and Duke shall
exchange letters identifying all persons who are, at the time this Agreement is
submitted for approval to the shareholders of Weeks and Duke, their respective
"affiliates" for purposes of Rule 145 under the Securities Act. Weeks and Duke
shall use their respective commercially reasonable efforts to cause each of
their respective affiliates to deliver on or prior to the Closing Date a written
agreement substantially in the form attached as Exhibit I hereto.
Section 5.5. TAX TREATMENT. Each of Duke and Weeks shall use its
commercially reasonable efforts to (a) cause the REIT Merger to qualify as a
tax-free reorganization under Section 368(a) of the Code, (b) cause the OP
Merger to qualify as a tax-deferred exchange for Weeks and the other holders of
Weeks OP Units, and (c) obtain the opinions of counsel referred to in Sections
5.1(b), 6.2(e) and 6.3(e).
Section 5.6. NO SOLICITATION OF TRANSACTIONS. Subject to Section 7.1, each
of Duke and Weeks shall not directly or indirectly, through any officer,
director, employee, agent, investment banker, financial advisor, attorney,
accountant, broker, finder or other representative, initiate, solicit, encourage
or facilitate (including by way of furnishing nonpublic information or
assistance) any inquiries or the making of any proposal or other action that
constitutes, or may reasonably be expected to lead to, any Competing Transaction
(as defined below), or enter into or maintain or continue discussions or
negotiate with any person in furtherance of such inquiries or to obtain a
Competing Transaction, or agree to or endorse any Competing Transaction, or
authorize or permit any of its officers, directors, employees or agents,
attorneys, investment bankers, financial advisors, accountants, brokers, finders
or other representatives to take any such action. Each of Duke and Weeks shall
notify the other in writing (as promptly as practicable) of all of the relevant
details relating to all inquiries and proposals which it or any of its
Subsidiaries or any such officer, director, employee, agent, investment banker,
financial advisor, attorney, accountant, broker, finder or other representative
may receive relating to any of such matters and if such inquiry or proposal is
in writing, each of Duke and Weeks shall deliver to the other a copy of such
inquiry or proposal. For purposes of this Agreement, "COMPETING TRANSACTION"
shall mean any of the following (other than the transactions expressly provided
for in this Agreement): (i) any merger, consolidation, share exchange,
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business combination or similar transaction involving Duke (or any of its
Subsidiaries, including Duke OP) or Weeks (or any of its Subsidiaries, including
Weeks OP), as the case may be; (ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition of 20% or more of the assets of Duke and its
Subsidiaries, taken as a whole or Weeks and its Subsidiaries, taken as a whole,
as the case may be, in a single transaction or series of related transactions,
excluding any bona fide financing transactions which do not, individually or in
the aggregate, have as a purpose or effect the sale or transfer of control of
such assets; (iii) any tender offer or exchange offer for 20% or more of the
outstanding equity securities of Duke (or any of its Subsidiaries, including
Duke OP), or Weeks (or any of its Subsidiaries, including Weeks OP); or (iv) any
public announcement of a proposal, plan or intention to do any of the foregoing
or any agreement to engage in any of the foregoing.
Section 5.7. PUBLIC ANNOUNCEMENTS. Duke, Duke OP, Weeks and Weeks OP will
consult with each other before issuing, and provide each other the opportunity
to review and comment upon, any press release or other public statements with
respect to the REIT Merger, the OP Merger or any other transactions contemplated
by this Agreement or the OP Merger Agreement, and shall not issue any such press
release or make any such public statement prior to such consultation, except as
may be required by applicable law, court process or by obligations pursuant to
any listing agreement with any national securities exchange. The parties agree
that the initial press release to be issued with respect to the REIT Merger and
the OP Merger will be in the form agreed to by the parties hereto prior to the
execution of this Agreement.
Section 5.8. NYSE LISTING. Duke shall prepare and submit to the NYSE a
supplemental listing application covering the Duke Common Stock, Duke Series F
Preferred Stock and Duke Series H Preferred Stock issuable in the REIT Merger
and shall use its commercially reasonable efforts to have the NYSE approve for
listing, upon official notice of issuance, the Duke Common Stock, Duke Series F
Preferred Stock and any Duke Series H Preferred Stock to be issued in the REIT
Merger.
Section 5.9. LETTERS OF ACCOUNTANTS.
(a) Weeks shall use its reasonable best efforts to cause to be delivered to
Duke and Weeks "comfort" letters of Arthur Andersen LLP, Weeks' independent
public accountants, dated and delivered the date on which the Registration
Statement shall become effective and as of the Effective Time, and addressed to
Duke and Weeks, in form and substance reasonably satisfactory to Duke and Weeks
and reasonably customary in scope and substance for letters delivered by
independent public accountants in connection with transactions such as those
contemplated by this Agreement and the OP Merger Agreement.
(b) Duke shall use its reasonable best efforts to cause to be delivered to
Weeks and Duke "comfort" letters of KPMG Peat Marwick, Duke's independent public
accountants, dated and delivered the date on which the Registration Statement
shall become effective and as of the Effective Time, and addressed to Weeks and
Duke, in form and substance reasonably satisfactory to Weeks and Duke and
reasonably customary in scope and substance for letters delivered by independent
public accountants in connection with transactions such as those contemplated by
this Agreement and the OP Merger Agreement.
Section 5.10. TRANSFER AND GAINS TAXES; SHAREHOLDER DEMAND LETTERS. Duke
and Weeks shall cooperate in the preparation, execution and filing of all
returns, questionnaires, applications or other documents regarding any real
property transfer or gains, sales, use, transfer, value added stock transfer and
stamp taxes, any transfer, recording, registration and other fees and any
similar taxes which become payable in connection with the transactions
contemplated by this Agreement or the OP Merger Agreement (together with any
related interests, penalties or additions to tax, "TRANSFER AND GAINS TAXES").
From and after the Effective Time, Duke shall cause Duke OP to pay or cause to
be paid all Transfer and Gains Taxes. Within 30 days after the Effective Time,
Duke shall send the shareholder demand letters required by Treasury Regulation
Section 1.857-8 to the appropriate shareholders of Weeks for Weeks' taxable year
ended on the Effective Time.
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Section 5.11. BENEFIT PLANS AND OTHER EMPLOYEE ARRANGEMENTS.
(a) BENEFIT PLANS. Subject to subsection (b) below, upon and after the
Effective Time, Duke and Duke OP (or their respective successors or assigns)
shall provide benefits to former employees of Weeks and its Subsidiaries that
are no less favorable in the aggregate to such employees than those provided to
other similarly situated employees of Duke and Duke OP at any applicable time
after the termination of the benefits provided to such employees by Weeks and
the Weeks Subsidiaries. With respect to any Duke Benefit Plan which is an
"employee benefit plan" as defined in Section 3(3) of ERISA and any other
service based benefits (including vacations) in which employees of Weeks or Duke
or their respective Subsidiaries may participate, solely for purposes of
determining eligibility to participate, vesting and entitlement to benefits but
not for purposes of accrual of pension benefits, service with Weeks, Duke or any
of their respective Subsidiaries shall be treated as service with Duke or Duke
OP, as the case may be; PROVIDED, HOWEVER, that such service shall not be
recognized to the extent that such recognition would result in a duplication of
benefits under both a Weeks Benefit Plan and a Duke Benefit Plan (or is not
otherwise recognized for such purposes under the benefit plans of Duke or Duke
OP).
(b) STOCK INCENTIVE PLANS.
(i) As of the Effective Time, each outstanding Weeks Stock Option shall
be assumed by Duke and shall be deemed to constitute an option to acquire,
on the same terms and conditions as were applicable under such Weeks Stock
Option (including, without limitation, vesting and exercisability but
without regard to any provisions that would result in the acceleration of
such vesting or exercisability due to the execution and delivery of this
Agreement or the consummation of the transactions contemplated by this
Agreement), the same number of shares of Duke Common Stock as the holder of
such Weeks Stock Option would have been entitled to receive pursuant to the
REIT Merger had such holder exercised such Weeks Stock Option in full
immediately prior to the Effective
Time at a price per share equal to the aggregate exercise price for the
shares subject to such Weeks Stock Option divided by the number of full
shares of Duke Common Stock deemed to be purchasable pursuant to such Weeks
Stock Option; PROVIDED, HOWEVER, that the number of shares of Duke Common
Stock that may be purchased upon exercise of such Weeks Stock Option shall
not include any fractional share but shall be rounded upward to the next
whole number of shares, or if rounding up would disqualify an option as an
incentive stock option, shall be rounded down to the nearest whole number
and cash shall be paid to each affected optionee as compensation for such
fractional share based on the fair market value of Duke Common Stock at the
Effective Time. Shares of Duke Common Stock received pursuant to the terms
of this Agreement, in consideration for shares of Weeks Common Stock which
have been held by Weeks executives and which are unvested and subject to
forfeiture at the Effective Time pursuant to a restricted stock award under
a Weeks Stock Plan shall vest and be subject to forfeiture in accordance
with the terms of the applicable restricted stock award of Weeks Common
Stock in the absence of the transactions contemplated by this Agreement.
Prior to the Effective Time, Weeks will use its commercially reasonable
efforts to obtain any necessary consents and shall (to the extent permitted
under the terms of the Weeks Stock Plans) make any amendments to and take
any actions in respect of any Weeks Stock Plans, Weeks Stock Options or
restricted stock award to the extent such consents or amendments are
necessary to give effect to the foregoing (including without limitation, the
elimination of any right to acceleration of exercisability or vesting as a
result of the completion of the transactions contemplated by this
Agreement).
(ii) Each Duke Stock Option shall continue in accordance with its term
and conditions, including, without limitation, vesting and exercisability
without regard to any acceleration of such vesting and exercisability as a
result of the transactions contemplated by this Agreement. Prior to the
Effective Time, Duke will use its best efforts to obtain any necessary
consents and make any amendments to any Duke Stock Plans or Duke Weeks Stock
Options to the extent such consents or amendments are necessary to give
effect to the foregoing.
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(iii) At the Effective Time, Duke shall assume the Weeks Stock Plans
(such Weeks Stock Plans having been amended as appropriate to take into
account the adjustments set forth in Section 5.11(b)(i)), and the
compensation committee of the Board of Directors of Duke shall administer
the Weeks Stock Plans. At the Effective Time, the Weeks Stock Plans shall be
amended such that no further options shall be issued thereunder.
(c) CHANGE IN CONTROL AGREEMENTS. At the Effective Time, Weeks shall assign
and Duke shall assume by operation of this Agreement Weeks' obligations under
Weeks' Change in Control Agreements identified in Section 5.11(c) of the Weeks
Disclosure Letter.
Section 5.12. INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE.
(a) (i) Weeks shall, and, from and after the Effective Time, the Surviving
Corporation and the Surviving Partnership (collectively, the "INDEMNIFYING
PARTIES") shall, indemnify, defend and hold harmless each person who is now or
has been at any time prior to the date hereof or who becomes prior to the
Effective Time, an officer or director of Weeks or any Weeks Subsidiary (the
"Indemnified Parties") against all losses, claims, damages, costs, expenses
(including attorneys' fees and expenses), liabilities or judgments or amounts
that are paid in settlement of, with the approval of the Indemnifying Parties
(which approval shall not be unreasonably withheld or delayed), or otherwise in
connection with any threatened or actual claim, action, suit, proceeding or
investigation based on or arising out of the fact that such person is or was a
director or officer of Weeks or any Weeks Subsidiary at or prior to the
Effective Time, whether asserted or claimed prior to, or at or after, the
Effective Time ("INDEMNIFIED LIABILITIES"), including all Indemnified
Liabilities based on, or arising out of, or pertaining to this Agreement, the
REIT Merger, the OP Merger or the transactions contemplated by this Agreement or
the OP Merger Agreement, in each case to the full extent a corporation is
permitted under the GBCC to indemnify its own directors or officers, as the case
may be (and the Surviving Corporation will pay expenses in advance of the final
disposition of any such action or proceeding to each Indemnified Party to the
full extent permitted by law subject to the limitations set forth in Section
5.12(a)(iii)).
(ii) Any Indemnified Parties proposing to assert the right to be
indemnified under this Section 5.12 shall, promptly after receipt of notice
of commencement of any action against such Indemnified Parties in respect of
which a claim is to be made under this Section 5.12 against Weeks and, from
and after the Effective Time, the Surviving Corporation, notify the
Indemnifying Parties of the commencement of such action, enclosing a copy of
all papers served. If any such action is brought against any of the
Indemnified Parties and such Indemnified Parties notify the Indemnifying
Parties of its commencement, the Indemnifying Parties will be entitled to
participate in and, to the extent that they elect by delivering written
notice to such Indemnified Parties promptly after receiving notice of the
commencement of the action from the Indemnified Parties, to assume the
defense of the action and after notice from the Indemnifying Parties to the
Indemnified Parties of their election to assume the defense, the
Indemnifying Parties will not be liable to the Indemnified Parties for any
legal or other expenses except as provided below and except for the
reasonable costs of investigation subsequently incurred by the Indemnified
Parties in connection with the defense. If the Indemnifying Parties assume
the defense, the Indemnifying Parties shall have the right to settle such
action without the consent of the Indemnified Parties; PROVIDED, HOWEVER,
that the Indemnifying Parties shall be required to obtain such consent
(which consent shall not be unreasonably withheld) if the settlement
includes any admission of wrongdoing on the part of the Indemnified Parties
or any decree or restriction on the Indemnified Parties or their officers or
directors; PROVIDED, FURTHER, that no Indemnifying Parties, in the defense
of any such action shall, except with the consent of the Indemnified Parties
(which consent shall not be unreasonably withheld), consent to entry of any
judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Parties of a release from all liability with respect to such
action. The Indemnified Parties will have the right to employ their own
counsel in any such action, but the fees, expenses and other charges of such
counsel will be at the expense of such Indemnified Parties unless
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(i) the employment of counsel by the Indemnified Parties has been authorized
in writing by the Indemnifying Parties, (ii) the Indemnified Parties have
reasonably concluded (based on advice of counsel) that there may be legal
defenses available to them that are different from or in addition to those
available to the Indemnifying Parties, (iii) a conflict or potential
conflict exists (based on advice of counsel to the Indemnified Parties)
between the Indemnified Parties and the Indemnifying Parties (in which case
the Indemnifying Parties will not have the right to direct the defense of
such action on behalf of the Indemnified Parties) or (iv) the Indemnifying
Parties have not in fact employed counsel to assume the defense of such
action within a reasonable time after receiving notice of the commencement
of the action, in each of which cases the reasonable fees, disbursements and
other charges of counsel will be at the expense of the Indemnifying Parties.
(iii) It is understood that the Indemnifying Parties shall not, in
connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees, disbursements and other
charges of more than one separate firm admitted to practice in such
jurisdiction at any one time for all such Indemnified Parties unless (a) the
employment of more than one counsel has been authorized in writing by the
Indemnifying Parties, (b) any of the Indemnified Parties have reasonably
concluded (based on advice of counsel) that there may be legal defenses
available to them that are different from or in addition to those available
to other Indemnified Parties or (c) a conflict or potential conflict exists
(based on advice of counsel to the Indemnified Parties) between any of the
Indemnified Parties and the other Indemnified Parties, in each case of which
the Indemnifying Parties shall be obligated to pay the reasonable fees and
expenses of such additional counsel or counsels.
(iv) The Indemnifying Parties will not be liable for any settlement of
any action or claim effected without their written consent (which consent
shall not be unreasonably withheld).
(b) At the Effective Time, Duke shall expressly assume by operation of this
Agreement (i) the Weeks Indemnity Agreements identified in Section 5.12(b) of
the Weeks Disclosure Letter and (ii) the indemnification obligations contained
in the Weeks OP Agreement.
(c) At or prior to the Effective Time, Duke shall purchase directors' and
officers' liability insurance "tail" policy coverage for Weeks' directors and
executive officers for a period of six years which will provide the directors
and officers with coverage on substantially similar terms as currently provided
by Weeks to such directors and officers for claims based on activity prior to
the Effective Time; provided, however, that Duke shall have no obligation to pay
more than $250,000 in premiums for such coverage.
(d) The provisions of this Section 5.12 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party, his or her heirs and
his or her personal representatives and shall be binding on all successors and
assigns of Duke and Weeks.
Section 5.13. PROVISIONS RELATING TO CERTAIN WEEKS
INDEBTEDNESS. Notwithstanding any other provision of this Agreement, Weeks and
Duke shall utilize reasonable best efforts and cooperate with each other to
cause the condition specified in Section 6.2(f) and 6.3(f) to be satisfied on or
prior to the Closing Date.
Section 5.14. THE WEEKS RIGHTS PLAN. Weeks shall either (i) redeem,
effective immediately prior to the Effective Time, all the then outstanding
Rights (as defined in the Rights Agreement) for cash pursuant to and in
compliance with Section 23 of the Rights Agreement or (ii) take such other
action to terminate the Rights Agreement as of that time, as Weeks and Duke may
mutually agree. Weeks shall not redeem the Rights issued under the Rights
Agreement, or terminate the Rights Agreement, prior to the Effective Time (other
than in accordance with the preceding sentence) unless required to do so by a
court of competent jurisdiction; provided, however, that Weeks may take any of
the foregoing actions if the Board of Directors of Weeks shall have accepted a
proposal for a Superior Competing Transaction in accordance with the terms of
Section 7.1.
Section 5.15. COORDINATION OF DIVIDENDS. Each of Duke and Weeks shall
coordinate with the other regarding the declaration and payment of dividends in
respect of Duke Common Stock and Weeks
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Common Stock and the record dates and payment dates relating thereto, it being
the intention of Duke and Weeks that any holder of Weeks Common Stock shall not
receive two dividends, or fail to receive one dividend, for any single calendar
quarter with respect to such holder's Weeks Common Stock and/or Duke Common
Stock such holder receives in exchange therefor pursuant to the REIT Merger.
Each of Duke OP and Weeks OP shall coordinate with the other regarding the
declaration and payment of distributions in respect of Duke common OP units and
Weeks common OP units and the record dates and payment dates relating thereto,
it being the intention of Duke OP and Weeks OP that any holder of Weeks common
OP units shall not receive two distributions, or fail to receive one
distribution, for any single calendar quarter with respect to such holder's
Weeks OP common units and/or Duke common OP Units any such holder receives in
exchange therefore pursuant to the OP Merger.
Section 5.16. EXISTING RESTRICTIONS ON RESALE OF CERTAIN FALCON
PROPERTIES. Duke and Duke OP shall assume the obligations of Weeks, Weeks OP or
the applicable Weeks Subsidiary, as the case may be, under the Tax Protection
Agreements described in Schedule 3.1(m) to the Weeks Disclosure Letter.
Section 5.17. ASSUMPTION OF WARRANTS. Subject to the terms of their
respective governing instruments, each AEW Warrant and each Codina Warrant
(collectively, the "WARRANTS") issued and outstanding at the Effective Time
shall remain outstanding following the Effective Time. At the Effective time,
the AEW Warrant Agreement and each outstanding AEW Warrant and the Codina
Warrant Agreement and each outstanding Codina Warrant shall be assumed by the
Surviving Entity. Each such Warrant shall be deemed to constitute a warrant to
acquire, on the same terms and conditions as were applicable under such Warrant,
a number of shares of Duke Common Stock equal to the number of shares of Duke
Common Stock purchasable pursuant to such Warrant multiplied by the Exchange
Ratio (plus the amount of cash consideration, if any, payable with respect to
the number of shares of Duke Common Stock issuable upon the exercise of such
Warrant immediately prior to the Effective Time), at a price per share equal to
the per-share exercise price for the shares of Weeks Common Stock purchasable
pursuant to such Warrant divided by the Exchange Ratio. Any fractional interests
shall be rounded up to one share of Duke Common Stock (with all fractional
interests to which a holder would otherwise be entitled being aggregated before
any such rounding). Duke shall take all action necessary to reserve for issuance
a sufficient number of shares of Duke Common Stock for delivery upon exercise of
the Warrants assumed in accordance with this Section 5.17.
Section 5.18. WEEKS NOTES. At the Closing, Duke OP shall (a) execute and
deliver a supplemental indenture evidencing its assumption of the payment of
principal of (and premium, if any) and interest on Weeks OP's outstanding 6.875%
Notes and 7.375% Notes and the due and punctual performance and observance of
each covenant and agreement of the Indenture dated March 20, 1997 and a
Supplemental Indenture dated July 30, 1998 between Weeks OP and State Street
Bank and Company, as Trustee, and (b) cause to be delivered to the trustee an
opinion of counsel to the effect that all agreements or instruments effecting
such assumption are enforceable in accordance with their terms and comply with
the terms of such Indenture.
Section 5.19. DUKE OP PARTNERSHIP AGREEMENT. At the Closing, Duke OP shall
(i) amend the partnership agreement of Duke OP to reflect the agreements
described on Exhibit J hereto and (ii) assume and perform any obligations that
Weeks OP or any Weeks Subsidiary has immediately prior to the Effective Time to
issue securities in accordance with the terms of any partnership or other
agreement to which Weeks OP or such Subsidiary is a party and which has been
previously disclosed to Duke, in the same manner and to the same extent that
Weeks OP or such Subsidiary would be required to perform such obligation if no
Merger had been consummated.
Section 5.20. REGISTRATION RIGHTS AGREEMENTS. At the Closing, Weeks shall
assign and Duke shall assume by operation of this Agreement, Weeks' Registration
Rights Agreements identified in Section 5.20 of the Weeks Disclosure Letter.
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Section 5.21. INTERIM TRANSACTIONS COMMITTEE. Weeks and Duke shall
establish an interim transactions committee (the "Interim Transactions
Committee") consisting of three individuals nominated by each. The Interim
Transactions Committee shall review and jointly evaluate (but will not have the
power to approve or disapprove) acquisition, budget and capital improvement
activities of each of Weeks and Duke between the date hereof and the Effective
Time.
Section 5.22. EXECUTIVE OFFICER APPOINTMENTS. Prior to the Closing, the
Board of Directors of Duke shall take such action as may be necessary or
advisable to ensure the appointment of the persons named on Schedule G hereto as
the executive officers of the Surviving Corporation (or, if any such person
should for any reason be unable or unwilling to serve, such other person or
persons as shall be mutually agreed by Duke and Weeks), such appointments to be
effective immediately following the Closing, each of whom shall serve in such
position indicated on Schedule F until such time indicated on Schedule F hereto
(the "EXECUTIVE OFFICER APPOINTMENTS").
ARTICLE VI
CONDITIONS PRECEDENT
Section 6.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of Weeks and Duke to effect the REIT Merger
and the OP Merger and to consummate the other transactions contemplated by this
Agreement on the Closing Date is subject to the satisfaction or waiver on or
prior to the Effective Time of the following conditions:
(a) SHAREHOLDER APPROVALS. The Weeks Shareholder Approvals and the Duke
Merger Shareholder Approval shall have been obtained.
(b) LISTING OF SHARES. The NYSE shall have approved for listing the Duke
Common Stock, Duke Series F Preferred Stock and any Duke Series H Preferred
Stock to be issued in the REIT Merger and the Duke Common Stock, Duke Series F
Preferred Stock and any Duke Series H Preferred Stock reserved for issuance upon
redemption of Colt OP Units issued in the OP Merger, subject to official notice
of issuance.
(c) REGISTRATION STATEMENT. The Registration Statement shall have become
effective under the Securities Act and shall not be the subject of any stop
order or proceedings by the SEC seeking a stop order.
(d) NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the REIT Merger or the OP Merger or any of the other
transactions or agreements contemplated by this Agreement or the OP Merger
Agreement shall be in effect.
(e) HSR ACT. All waiting periods under the HSR Act shall have terminated or
expired with regard to the REIT Merger and the OP Merger.
Section 6.2. CONDITIONS TO OBLIGATIONS OF DUKE. The obligation of Duke to
effect the REIT Merger and the OP Merger and to consummate the other
transactions contemplated by this Agreement and the OP Merger Agreement on the
Closing Date are further subject to the following conditions, any one or more of
which may be waived by Duke:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Weeks set forth in this Agreement shall be true and correct in all material
respects on and as of the Closing Date, as though made on and as of the Closing
Date, except to the extent the representation or warranty is expressly limited
by its terms to another date, and Duke shall have received a certificate (which
certificate may be qualified by knowledge to the same extent as such
representations and warranties are so qualified) signed on behalf of Weeks by
the Chief Executive Officer and the Chief Financial Officer of Weeks to such
effect. This condition shall be deemed to have been satisfied unless (i) the
representations and warranties of Weeks contained in Section 3.1(c) are not true
and correct in all material respects or (ii) all breaches of Weeks'
representations and warranties in this Agreement (without giving effect to any
materiality, Weeks Material Adverse Effect or any similar qualification or
limitation) are in the aggregate reasonably expected to have
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a Weeks Material Adverse Effect or a material adverse effect on the business,
properties, financial condition or results of operations of the Surviving
Corporation (a "SURVIVING CORPORATION MATERIAL ADVERSE EFFECT").
(b) PERFORMANCE OF OBLIGATIONS OF WEEKS AND WEEKS OP. Each of Weeks and
Weeks OP shall have performed in all material respects all obligations required
to be performed by it under this Agreement and the OP Merger Agreement at or
prior to the Effective Time, and Duke shall have received a certificate signed
on behalf of Weeks by the Chief Executive Officer and the Chief Financial
Officer of Weeks to such effect.
(c) MATERIAL ADVERSE CHANGE. Since the date of this Agreement, there shall
have been no Weeks Material Adverse Change. Duke shall have received a
certificate of the Chief Executive Officer and Chief Financial Officer of Weeks
to the effect that there has been no such Weeks Material Adverse Change.
(d) OPINIONS RELATING TO REIT AND PARTNERSHIP STATUS. Duke shall have
received an opinion dated as of the Closing Date of King & Spalding,
substantially in the form of EXHIBIT K attached hereto (subject to customary
exceptions, assumptions and qualifications, and based on customary
representations), regarding the qualification of Weeks as a REIT under the Code
and the treatment of Weeks OP as a partnership for federal income tax purposes.
King & Spalding shall permit Rogers & Wells LLP to rely on its opinion for
purposes of delivering the opinion required by Section 6.3(d).
(e) OTHER TAX OPINION. Duke shall have received an opinion dated as of the
Closing Date from Rogers & Wells LLP to the effect that the REIT Merger will
qualify as a tax-free reorganization Duke under Section 368(a) of the Code.
(f) CONSENTS. All consents and waivers from third parties necessary in
connection with the consummation of the REIT Merger and the OP Merger shall have
been obtained, other than such consents and waivers from third parties, which,
if not obtained, would not result, individually or in the aggregate, in a Weeks
Material Adverse Effect or a Duke Material Adverse Effect.
Section 6.3. CONDITIONS TO OBLIGATION OF WEEKS AND WEEKS OP. The
obligations of Weeks and Weeks OP to effect the REIT Merger and the OP Merger
and to consummate the other transactions contemplated by this Agreement to occur
on the Closing Date is further subject to the following conditions, any one or
more of which may be waived by Weeks:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Duke set forth in this Agreement shall be true and correct in all material
respects on and as of the Closing Date, as though made on and as of the Closing
Date, except to the extent the representation or warranty is expressly limited
by its terms to another date, and Weeks shall have received a certificate (which
certificate may be qualified by knowledge to the same extent as such
representations and warranties are so qualified) signed on behalf of Duke by the
Chief Executive Officer and the Chief Financial Officer of Duke to such effect.
This condition shall be deemed to have been satisfied unless (i) the
representations and warranties of Duke contained in Section 3.2(c) are not true
and correct in all material respects or (ii) all breaches of Duke's
representations and warranties in this Agreement (without giving effect to any
materiality, Duke Material Adverse Effect or other similar qualification or
limitation) are in the aggregate reasonably expected to have a Duke Material
Adverse Effect or a Surviving Corporation Material Adverse Effect.
(b) PERFORMANCE OF OBLIGATIONS OF DUKE AND DUKE OP. Each of Duke and Duke
OP shall have performed in all material respects all obligations required to be
performed by it under this Agreement and the OP Agreement at or prior to the
Effective Time, and Duke shall have received a certificate signed on behalf of
Duke by the Chief Executive Officer and the Chief Financial Officer of Duke to
such effect.
(c) MATERIAL ADVERSE CHANGE. Since the date of this Agreement, there shall
have been no Duke Material Adverse Change. Duke shall have received a
certificate of the Chief Executive Officer and Chief Financial Officer of Duke
to the effect that there has been no such Duke Material Adverse Change.
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(d) OPINIONS RELATING TO REIT AND PARTNERSHIP STATUS. Weeks shall have
received an opinion dated as of the Closing Date of Rogers & Wells LLP,
substantially in the form of Exhibit L attached hereto (subject to customary
exceptions, assumptions and qualifications, and based on customary
representations), regarding the qualification of Duke as a REIT under the Code
and the treatment of Duke OP as a partnership for federal income tax purposes.
(e) OTHER TAX OPINION. Weeks shall have received an opinion dated as of the
Closing Date from King & Spalding (subject to customary exceptions, assumptions
and qualifications, and based on customary representations) to the effect that
the REIT Merger will qualify as a tax-free reorganization under Section 368(a)
of the Code.
(f) CONSENTS. All consents and waivers from third parties necessary in
connection with the consummation of the transactions shall have been obtained,
other than such consents and waivers from third parties, which, if not obtained,
would not result, individually or in the aggregate, in a Weeks Material Adverse
Effect or a Duke Material Adverse Effect.
(g) DIRECTORS' RESIGNATIONS. If the Duke Special Charter Proposal is not
approved by the 80% Duke Approval at the Duke Shareholders Meeting, Duke shall
have received resignations from certain members of its Board of Directors which
are sufficient to permit the adoption of EXHIBITS G and H as the Charter and
By-laws and the election as directors of the individuals set forth on Schedule
E.
ARTICLE VII
BOARD ACTIONS
Section 7.1. BOARD ACTIONS. Notwithstanding Section 5.6 or any other
provision of this Agreement to the contrary, to the extent required by the
fiduciary obligations of the Board of Directors of either Duke or Weeks, as
determined by either such board in good faith after consultation with outside
counsel, either Duke or Weeks may:
(a) disclose to its shareholders any information required to be disclosed
under applicable law;
(b) to the extent applicable, comply with Rule 14e-2(a) promulgated under
the Exchange Act with respect to a Competing Transaction;
(c) in response to an unsolicited request therefor, participate in
discussions or negotiations with or furnish information with respect to it
pursuant to a confidentiality agreement which is at least as favorable to it as
the Confidentiality Agreement, or otherwise respond to or deal with any person
in connection with a Superior Competing Transaction, provided that it shall have
notified either Duke or Weeks, as the case may be, of such unsolicited requests
or its participation in discussions or negotiations in accordance with Section
5.6; and
(d) approve or recommend (and in connection therewith withdraw or modify
its approval or recommendation of this Agreement, the OP Merger Agreement and
the REIT Merger and the OP Merger) a Superior Competing Transaction (as defined
below) or enter into an agreement with respect to such Superior Competing
Transaction (for purposes of this Agreement, "SUPERIOR COMPETING TRANSACTION"
means a bona fide proposal for a Competing Transaction made by a third party
which a majority of the members of the Board of Directors of Duke or Weeks, as
the case may be, determines in good faith (after consultation with its financial
advisor) to be more favorable to its shareholders than the REIT Merger and the
OP Merger.
Section 7.2. WEEKS SUBSIDIARY BOARDS. On the Closing Date, Weeks shall use
its reasonable best efforts to cause the directors and officers of each of the
Weeks Subsidiaries to submit their resignations from such positions, effective
as of the Effective Time.
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ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
Section 8.1. TERMINATION. This Agreement and the OP Merger Agreement may
be terminated at any time prior to the filing of a certificate of merger for the
OP Merger with the Secretary of State of Indiana and the Secretary of State of
Georgia, whether before or after any or all of the Stockholder Approvals are
obtained:
(a) by mutual written consent duly authorized by the respective Boards of
Directors of Duke and Weeks;
(b) by Duke, upon a breach of any representation, warranty, covenant or
agreement on the part of Weeks set forth in this Agreement, or if any
representation or warranty of Weeks shall have become untrue, in either case
such that the conditions set forth in Section 6.2(a) or Section 6.2(b), as the
case may be, would be incapable of being satisfied by December 31, 1999 (as
otherwise extended);
(c) by Weeks, upon a breach of any representation, warranty, covenant or
agreement on the part of Duke set forth in this Agreement, or if any
representation or warranty of Duke shall have become untrue, in either case such
that the conditions set forth in Section 6.3(a) or Section 6.3(b), as the case
may be, would be incapable of being satisfied by December 31, 1999 (as otherwise
extended);
(d) by either Duke or Weeks, if any judgment, injunction, order, decree or
action by any Governmental Entity of competent authority preventing the
consummation of the REIT Merger or the OP Merger shall have become final and
nonappealable;
(e) by either Duke or Weeks, if the REIT Merger shall not have been
consummated before December 31, 1999; provided, however, that a party that has
materially breached a representation, warranty or covenant of such party set
forth in this Agreement shall not be entitled to exercise its right to terminate
under this Section 8.1(e);
(f) by Duke or Weeks (unless Weeks is in breach of its obligations under
Section 5.1) if, upon a vote at a duly held Weeks Shareholders Meeting or any
adjournment thereof, the Weeks Shareholder Approvals shall not have been
obtained, as contemplated by Section 5.1;
(g) by Weeks or Duke (unless Duke is in breach of its obligations under
Section 5.1) if, upon a vote at a duly held Duke Shareholders Meeting or any
adjournment thereof, the Duke Merger Shareholder Approval shall not have been
obtained, as contemplated by Section 5.1;
(h) by Weeks, prior to the Weeks Shareholders Meeting and not less than 30
days after the Board of Directors of Weeks shall have withdrawn or modified in
any manner adverse to Duke or Duke OP its approval or recommendation of the REIT
Merger, the OP Merger or this Agreement or the OP Merger Agreement in connection
with, or approved or recommended, a Superior Competing Transaction;
(i) by Duke, prior to the Duke Shareholders Meeting and not less than 30
days after the Board of Directors of Duke shall have withdrawn or modified in
any manner adverse to Weeks or Weeks OP its approval or recommendation of the
Merger, the OP Merger or this Agreement or the OP Merger Agreement in connection
with, or approved and recommended, a Superior Competing Transaction;
(j) by Duke, if (i) prior to the Weeks Shareholders Meeting the Board of
Directors of Weeks or any committee thereof shall have withdrawn or modified in
any manner adverse to Duke its approval or recommendation of the REIT Merger,
the OP Merger or this Agreement or the OP Merger Agreement in connection with,
or approved or recommended, any Superior Competing Transaction, (ii) Weeks or
Weeks OP shall have entered into any agreement with respect to any Competing
Transaction, or (iii) the Board of Directors of Weeks or any committee thereof
shall have resolved to do any of the foregoing; or
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(k) by Weeks if (i) prior to the Duke Shareholders Meeting the Board of
Directors of Duke or any committee thereof shall have withdrawn or modified in
any manner adverse to Weeks its approval or recommendation of the REIT Merger or
the OP Merger or this Agreement or the OP Agreement in connection with, or
approved or recommended, a Superior Competing Transaction, (ii) Duke or Duke OP
shall have entered into any agreement with respect to any Competing Transaction,
or (iii) the Board of Directors of Duke or any committee thereof shall have
resolved to do any of the foregoing.
Section 8.2. EXPENSES.
(a) Except as otherwise specified in this Section 8.2 or agreed in writing
by the parties, all out-of-pocket costs and expenses incurred in connection with
this Agreement, the REIT Merger, the OP Merger Agreement, the OP Merger and the
other transactions contemplated hereby and the OP Merger Agreement shall be paid
by the party incurring such cost or expense.
(b) Weeks agrees that if this Agreement shall be terminated pursuant to
Section 8.1(b) then Weeks will pay to Duke, or as directed by Duke, an amount
equal to the Duke Break-Up Expenses (as defined below). In addition, Weeks
agrees that if (x) this Agreement shall be terminated pursuant to Section 8.1(b)
or (f) and within 12 months following such termination Weeks or Weeks OP shall
consummate a Competing Transaction or enter into a definitive agreement
providing for a Competing Transaction or (y) this Agreement is terminated
pursuant to Section 8.1(h) or (j), then Weeks will pay as directed by Duke a fee
in an amount equal to the Duke Break-Up Fee (as defined below) less any Duke
Break-Up Expenses. Payment of any of such amounts shall be made, as directed by
Duke, by wire transfer of immediately available funds promptly, but in no event
later than two business days after the amount is due as provided herein. The
"DUKE BREAK-UP FEE" shall be an amount equal to the lesser of (i) $50,000,000
(the "BASE AMOUNT") or (ii) the sum of (A) the maximum amount that can be paid
to Duke or Duke OP for the taxable year in which this Agreement is terminated
without causing Duke to fail to meet the requirements of Sections 856(c)(2) and
(3) of the Code determined as if the payment of such amount did not constitute
income described in Sections 856(c)(2) and (3) of the Code ("QUALIFYING
INCOME"), as determined by outside counsel or independent accountants to Duke,
and (B) in the event Duke receives a letter from outside counsel (the "DUKE
BREAK-UP FEE TAX OPINION") indicating that Duke has received a ruling from the
IRS holding that the receipt by Duke or Duke OP of the Base Amount would either
constitute Qualifying Income as to Duke with respect to Duke's proportionate
share thereof or would be excluded from Duke's gross income for purposes of
Sections 856(c)(2) and (3) of the Code (the "REIT REQUIREMENTS"), the Base
Amount less the amount payable under clause (A) above. In the event that Duke OP
is not able to receive the full Base Amount, Weeks shall place the unpaid amount
in escrow and shall not release any portion thereof to Duke or Duke OP unless
and until Weeks receives any one or a combination of the following: (i) a
letter(s) from Duke's outside counsel or independent accountants indicating the
maximum amount that can be paid at that time to Duke OP without causing Duke to
fail to meet the REIT Requirements for any relevant taxable year, together with
an IRS ruling or opinion of the counsel to the effect that such payment would
not be treated as included in the income of Weeks for any prior taxable year, in
which event such maximum amount shall be paid to Duke OP, or (ii) a Duke
Break-Up Fee Tax Opinion, in which event Weeks shall pay to Duke OP the unpaid
Base Amount. Weeks' obligation to pay any unpaid portion of the Duke Break-Up
Fee (provided Weeks has otherwise complied with its obligations under this
provision) shall terminate (and any amount still held in such escrow shall be
released to Weeks) on the date that is five years from the date the Duke
Break-Up Fee first becomes due under this Agreement. The "DUKE BREAK-UP
EXPENSES" shall be an amount equal to the lesser of (i) Duke OP's out-of-pocket
expenses incurred in connection with this Agreement and the other transactions
(including, without limitation, all attorneys', accountants' and investment
bankers' fees and expenses) but in no event in an amount greater than $5,000,000
(such amount not to exceed such $5,000,000 being referred to in this Section
8.2(b) or (c) as the "DUKE EXPENSE FEE BASE AMOUNT") and (ii) the sum of (A) the
maximum amount that can be paid to Duke OP without causing Duke to fail to meet
the requirements of Sections 856(c)(2) and (3) of the Code determined as if the
payment of such amount did not constitute Qualifying
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Income, as determined by outside counsel or independent accountants to Duke and
(B) in the event Duke receives a Duke Break-Up Fee Tax Opinion indicating that
Duke has received a ruling from the IRS holding that Duke OP's receipt of the
Duke Expense Fee Base Amount would either constitute Qualifying Income as to
Duke with respect to Duke's proportionate share thereof or would be excluded
from Duke's gross income for purposes of the REIT Requirements, the Duke Expense
Fee Base Amount less the amount payable under clause (A) above. In the event
that Duke is not able to receive the full amount of the Duke Break-Up Expenses,
Weeks shall place the unpaid amount in escrow and shall not release any portion
thereof to Duke OP unless and until Weeks receives any one or combination of the
following: (i) a letter(s) from Duke's outside counsel or independent
accountants indicating the maximum amount that can be paid at that time to Duke
OP without causing Duke to fail to meet the REIT Requirements for any relevant
taxable year together with an IRS ruling or opinion of tax counsel to the effect
that such payment would not be treated as included in income for any prior
taxable year, in which event such maximum amount shall be paid to Duke OP, or
(ii) a Duke Break-Up Fee Tax Opinion indicating that Duke's receipt of the
Expense Fee Base Amount would satisfy in whole or in part the REIT Requirements,
in which event Weeks shall pay to Duke OP the unpaid Duke Expense Fee Base
Amount. Weeks' obligation to pay any unpaid portion of the Duke Break-Up
Expenses (provided Weeks has otherwise complied with its obligations under this
provision) shall terminate (and any amount still held in such escrow shall be
released to Weeks) on the date that is five years from the date the Duke
Break-Up Expenses first become due under this Agreement.
(c) Duke agrees that if this Agreement shall be terminated pursuant to
Section 8.1(c), then Duke will pay, as directed by Weeks, an amount equal to the
Weeks Break-Up Expenses (as defined below). In addition, Duke and Duke OP agree
that if (x) this Agreement shall be terminated pursuant to Section 8.1(c) or (g)
and within 12 months following such termination Duke or Duke OP shall consummate
a Competing Transaction or enter into a definitive agreement providing for a
Competing Transaction or (y) this Agreement is terminated pursuant to Section
8.1(i) or (k), then Duke or Duke OP will pay as directed by Weeks a fee in an
amount equal to the Weeks Break-Up Fee (as defined below) less any Weeks
Break-Up Expenses. Payment of any of such amounts shall be made, as directed by
Weeks, by wire transfer of immediately available funds promptly, but in no event
later than two business days after the amount is due as provided herein. The
"WEEKS BREAK-UP FEE" shall be an amount equal to the lesser of (i) $50,000,000
(the "BASE AMOUNT") and (ii) the sum of (A) the maximum amount that can be paid
to Weeks without causing it to fail to meet the requirements of Sections
856(c)(2) and (3) of the Code determined as if the payment of such amount did
not constitute Qualifying Income, as determined by independent accountants to
Weeks and (B) in the event Weeks receives a letter from outside counsel (the
"WEEKS BREAK-UP FEE TAX OPINION") indicating that Weeks has received a ruling
from the IRS holding that Weeks' receipt of the Base Amount would either
constitute Qualifying Income or would be excluded from gross income for purposes
of Sections 856(c)(2) and (3) of the Code, the Base Amount less the amount
payable under clause (A) above. In the event that Weeks is not able to receive
the full Base Amount, Duke shall place the unpaid amount in escrow and shall not
release any portion thereof to Weeks unless and until Duke receives any one or a
combination of the following: (i) a letter(s) from Weeks' outside counsel or
independent accountants indicating the maximum amount that can be paid at that
time to Weeks without causing Weeks to fail to meet the REIT Requirements for
any relevant taxable year together with an IRS ruling or opinion of tax counsel
to the effect that such payment would not be treated as included in income for
any prior taxable year, in which even such maximum amount shall be paid to Weeks
OP, or (ii) a Weeks Break-Up Fee Tax Opinion, in which event Duke shall pay to
Weeks the unpaid Base Amount. Duke's obligation to pay the Weeks Break-Up Fee
(provided Duke has otherwise complied with its obligations under this provision)
shall terminate (and any amount still held in such escrow shall be released to
Duke) on the date that is five years from the date the Weeks Break-Up Fee first
becomes due under this Agreement. The "WEEKS BREAK-UP EXPENSES" shall be an
amount equal to the lesser of (i) Weeks' out-of-pocket expenses incurred in
connection with this Agreement and the other transactions (including, without
limitation, all attorneys', accountants' and investment bankers' fees and
expenses) but in no event
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<PAGE>
in an amount greater than $5,000,000 (such amount not to exceed such $5,000,000
being referred to in this Section 8.2(d) or (e) as the "WEEKS EXPENSE FEE BASE
AMOUNT") and (ii) the sum of (A) the maximum amount that can be paid to Weeks
without causing it to fail to meet the requirements of Sections 856(c)(2) and
(3) of the Code determined as if the payment of such amount did not constitute
Qualifying Income, as determined by independent accountants to Weeks and (B) in
the event Weeks receives a Weeks Break-Up Fee Tax Opinion indicating that Weeks
has received a ruling from the IRS holding that Weeks' receipt of the Weeks
Expense Fee Base Amount would either constitute Qualifying Income or would be
excluded from gross income for purposes of the REIT Requirements or that receipt
by Weeks of the remaining balance of the Weeks Expense Fee Base Amount following
the receipt of and pursuant to such ruling would not be deemed constructively
received prior thereto, the Expense Fee Base Amount less the amount payable
under clause (A) above. In the event that Weeks is not able to receive the full
Weeks Expense Fee Base Amount, Duke and Duke OP shall place the unpaid amount in
escrow and shall not release any portion thereof to Weeks OP unless and until
Duke receives any one or combination of the following: (i) a letter(s) from
Weeks' outside counsel or independent accountants indicating the maximum amount
that can be paid at that time to Weeks OP without causing Weeks to fail to meet
the REIT Requirements for any relevant taxable year together with an IRS ruling
or opinion of tax counsel to the effect that such payment would not be treated
as included in income for any prior taxable year, in which event such maximum
amount shall be paid to Weeks OP, or (ii) a Weeks Break-Up Fee Tax Opinion
indicating that Weeks' receipt of the Weeks Expense Fee Base Amount would
satisfy in whole or in part the REIT Requirements, in which event Duke shall pay
to Weeks OP the lessor of the unpaid Weeks Expense Fee Base Amount. Duke's
obligation to pay any unpaid portion of the Weeks Break-Up Expenses (provided
Duke has otherwise complied with its obligations under this provision) shall
terminate (and any amount still held in such escrow shall be released to Duke)
on the date that is five years from the date the Weeks Break-Up Expenses first
become due under this Agreement.
(d) In the event that any of Duke or Weeks is required to file suit to seek
all or a portion of the amounts payable under this Section 8.2, and such party
prevails in such litigation, such party shall be entitled to all expenses,
including attorney's fees and expenses which it has incurred in enforcing its
rights hereunder; PROVIDED that such expenses shall be considered part of
out-of-pocket expenses incurred in connection with this Agreement and the other
transactions within the definition of Duke Break-Up Expenses or Weeks Break-Up
Expenses, as the case may be.
Section 8.3. EFFECT OF TERMINATION. In the event of termination of this
Agreement by either Weeks or Duke as provided in Section 8.1, this Agreement
shall forthwith become void and have no effect, without any liability or
obligation on the part of Duke, or Weeks, other than the last sentence of
Section 5.2, Section 8.2, this Section 8.3 and Article IX and except to the
extent that such termination results from a willful breach by a party of any of
its representations, warranties, covenants or agreements set forth in this
Agreement.
Section 8.4. AMENDMENT. This Agreement may be amended by the parties in
writing by action of their respective Boards of Directors at any time before or
after any Stockholder Approvals, the Weeks OP Approvals and the Duke OP
Approvals are obtained and prior to the filing of the Articles of Merger for the
Merger with the Secretary of State of Indiana and the Secretary of State of
Georgia and a certificate of merger for the OP Merger with the Office of the
Secretary of State of Indiana and the Office of the Secretary of State of
Georgia; PROVIDED, HOWEVER, that, after any of the Stockholder Approvals, the
Weeks OP Approvals and the Duke OP Approvals are obtained, no such amendment,
modification or supplement shall alter the amount or change the form of the
consideration to be delivered to Weeks' or Duke's shareholders or alter or
change any of the terms or conditions of this Agreement if such alteration or
change would adversely affect Weeks' shareholders or Duke's shareholders, or the
Weeks Limited Partners or Duke Limited Partners.
Section 8.5. EXTENSION; WAIVER. At any time prior to the Effective Time,
each of Weeks and Duke may (a) extend the time for the performance of any of the
obligations or other acts of the other party,
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<PAGE>
(b) waive any inaccuracies in the representations and warranties of the other
party contained in this Agreement or in any document delivered pursuant to this
Agreement or (c) subject to the proviso of Section 8.4, waive compliance with
any of the agreements or conditions of the other party contained in this
Agreement. Any agreement on the part of a party to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party. Any waivers pursuant to clause (c) of the second preceding sentence
(i) of the provisions of Section 4.1(e) may be given in writing by or on behalf
of Duke by the chief executive officer of Duke and (ii) of the provisions of
Section 4.2(e) may be given in writing by or on behalf of Weeks by the chief
executive officer of Weeks. The failure of any party to this Agreement to assert
any of its rights under this Agreement or otherwise shall not constitute a
waiver of those rights.
ARTICLE IX
GENERAL PROVISIONS
Section 9.1. NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time. This Section 9.1
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time.
Section 9.2. NOTICES. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, sent by overnight courier (providing proof of
delivery) to the parties or sent by telecopy (providing confirmation of
transmission) at the following addresses or telecopy numbers (or at such other
address or telecopy number for a party as shall be specified by like notice):
(a) if to Duke, to
Darell E. Zink, Jr.
Executive Vice President and Chief Financial Officer
8888 Keystone Crossing
Suite 1150
Indianapolis, Indiana 46240
with a copy to:
John R. Gaskin
Vice President and General Counsel
8888 Keystone Crossing
Suite 1150
Indianapolis, Indiana 46240
and a copy to:
Rogers & Wells LLP
200 Park Avenue
New York, NY 10166
Attn: Robert E. King, Jr.
Fax: (212) 878-8375
(b) if to Weeks, to
A. Ray Weeks, Jr.
Chairman and Chief Executive Officer
4497 Park Drive
Norcross, Georgia 30093
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<PAGE>
with a copy to:
Elizabeth C. Belden
General Counsel
4497 Park Drive
Norcross, Georgia 30093
and a copy to:
William B. Fryer
King & Spalding
191 Peachtree Street
Atlanta, GA 30303
Fax: (404) 572-5148
Section 9.3. INTERPRETATION. When a reference is made in this Agreement to
a Section, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation."
Section 9.4. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
Section 9.5. ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This
Agreement, the Confidentiality Agreement and the other agreements entered into
in connection with the transactions (a) constitute the entire agreement and
supersedes all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter of this Agreement and,
(b) except for the provisions of Article II and Sections 5.11(b) and 5.12, are
not intended to confer upon any person other than the parties hereto any rights
or remedies.
Section 9.6. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF INDIANA.
Section 9.7. ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned or delegated, in
whole or in part, by operation of law or otherwise by any of the parties without
the prior written consent of the other parties. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of, and be
enforceable by, the parties and their respective successors and assigns.
Section 9.8. ENFORCEMENT. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of Indiana or in any Indiana State court, this being in
addition to any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (a) consents to submit itself (without
making such submission exclusive) to the personal jurisdiction of any federal
court located in the State of Indiana or any Indiana State court in the event
any dispute arises out of this Agreement or any of the transactions contemplated
by this Agreement and (b) agrees that it will not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any such court.
Section 9.9. EXHIBITS; DISCLOSURE LETTERS. All Exhibits referred to herein
and in the Weeks Disclosure Letter and the Duke Disclosure Letter are intended
to be and hereby are specifically made a part of this Agreement. Each exception
to a representation or warranty of Duke or Weeks that is set forth in the
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applicable Duke or Weeks Disclosure Letter is identified by reference to, or has
been grouped under a heading referring to, a specific individual Section of this
Agreement and, except as otherwise specifically stated with respect to such
exception in the applicable Duke or Weeks Disclosure Letter, relates only to
such Section.
ARTICLE X
CERTAIN DEFINITIONS
Section 10.1. CERTAIN DEFINITIONS. For purposes of this Agreement:
An "AFFILIATE" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first person.
"EMPLOYEE PLAN" means any employment, bonus, incentive compensation,
deferred compensation, pension, profit sharing, retirement, stock purchase,
stock option, stock ownership, stock appreciation rights, phantom stock, equity
(or equity-based) leave of absence, layoff, vacation, day or dependent care,
legal services, cafeteria, life, health, medical, accident, disability,
workmen's compensation or other insurance, severance, separation, termination,
change of control or other benefit plan, agreement (including any collective
bargaining agreement), practice, policy or arrangement of any kind, whether
written or oral, and whether or not subject to ERISA, including, but not limited
to, any "employee benefit plan" within the meaning of Section 3(3) of ERISA.
"KNOWLEDGE" where used herein with respect to Weeks shall mean the knowledge
of the persons named in Section 10 of the Weeks Disclosure Letter and where used
with respect to Duke shall mean the knowledge of the persons named in Section 10
of the Duke Disclosure Letter.
"LAW" means any statute, law, regulation or ordinance of any Government
Entity applicable to Duke or Weeks or any of their respective Subsidiaries.
"DUKE SUBSIDIARY" means the Duke OP and each other Subsidiary of Duke.
"PERSON" means an individual, corporation, partnership, limited liability
company, joint venture, association, trust, unincorporated organization or other
entity.
"SUBSIDIARY" of any person means any corporation, partnership, limited
liability company, joint venture or other legal entity of which such person
(either directly or through or together with another Subsidiary of such person)
owns 50% or more of the voting stock, value of or other equity interests (voting
or non-voting) of such corporation, partnership, limited liability company,
joint venture or other legal entity.
"WEEKS SUBSIDIARY" means Weeks OP and each other Subsidiary of Weeks.
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<PAGE>
IN WITNESS WHEREOF, Duke and Weeks have caused this Agreement to be signed
by their respective officers thereunto duly authorized, all as of the date first
written above.
<TABLE>
<S> <C> <C>
DUKE REALTY INVESTMENTS, INC.
By: /s/ THOMAS L. HEFNER
-----------------------------------------
Name: Thomas L. Hefner
Title: President and Chief Executive
Officer
</TABLE>
<TABLE>
<S> <C> <C>
WEEKS CORPORATION
By: /s/ A. RAY WEEKS, JR.
-----------------------------------------
Name: A. Ray Weeks, Jr.
Title: Chairman and Chief Executive
Officer
</TABLE>
A-50
<PAGE>
ANNEX B
Investment Banking
Corporate and
Institutional
Client Group
World Financial Center
North Tower
New York, New York
10281-1320
[LOGO]
212 449 1000
February 28, 1999
Board of Directors
Duke Realty Investments, Inc.
8888 Keystone Crossing, Suite 1200
Indianapolis, Indiana 46240
Members of the Board of Directors:
Duke Realty Investments, Inc. ("Duke") and Weeks Corporation ("Weeks")
propose to enter into an Agreement and Plan of Merger, draft dated February 25,
1999 (the "Merger Agreement"), pursuant to which Weeks will be merged with and
into Duke in a transaction (the "Transaction") in which (i) each issued and
outstanding share of common stock, par value $.01 per share, of Weeks (the
"Weeks Common Stock") will be converted into the right to receive 1.380 shares
(the "Exchange Ratio") of common stock, par value $01. per share, of Duke (the
"Duke Common Stock"), (ii) each issued and outstanding share of 8.0% Series A
Cumulative Redeemable Preferred Stock, par value $.01 per share, of Weeks
("Weeks Series A Preferred"), will be converted into the right to receive shares
of 8.0% Series F Cumulative Redeemable Preferred Stock, par value $.01 per
share, of Duke ("Duke Series F Preferred"), and (iii) each issued and
outstanding share of 8.625% Series D Cumulative Redeemable Preferred Stock, par
value $.01 per share, of Weeks ("Weeks Series D Preferred," and together with
the Weeks Common Stock and the Weeks Series A Preferred, the "Weeks Shares")
will be converted into the right to receive shares of 8.625% Series G Cumulative
Redeemable Preferred Stock, par value $.01 per share, of Duke ("Duke Series G
Preferred," and together with the Duke Common Stock and the Duke Series F
Preferred, "Duke Shares"). The terms and conditions of the transaction are more
fully set forth in the Merger Agreement.
You have asked us whether, in our opinion, the Exchange Ratio is fair from a
financial point of view to Duke.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial
information relating to Duke and Weeks which we deemed to be
relevant;
(2) Reviewed certain information, including financial forecasts, relating
to the business, earnings, funds from operations, adjusted funds from
operations, cash flow, assets, liabilities and prospects of Duke and
Weeks furnished to us by Duke and Weeks, as well as the amount and
timing of the savings and related synergies expected to result from
the Transaction (the "Expected Synergies") furnished to us by Duke
and Weeks;
(3) Conducted discussions with members of senior management of Duke and
Weeks concerning the matters described in clauses (1) and (2) above,
as well as their respective business and prospects before and after
giving effect to the Transaction and the Expected Synergies;
(4) Reviewed the market prices and valuation multiples for Duke Shares
and Weeks Shares and compared them with those of certain publicly
traded companies that we deemed relevant;
(5) Reviewed the results of operations of Duke and Weeks and compared
them with those of certain publicly traded companies that we deemed
to be relevant;
<PAGE>
(6) Compared the proposed financial terms of the Transaction with the
financial terms of certain other transactions which we deemed to be
relevant;
(7) Participated in certain discussions and negotiations among
representatives of Duke and Weeks and their financial and legal
advisors;
(8) Reviewed the potential pro forma impact of the Transaction on Duke;
(9) Reviewed a draft of the Merger Agreement, dated February 25, 1999;
and
(10) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our
assessment of general economic, real estate, market and monetary
conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of Duke or Weeks. With respect to the financial forecast information
and the Expected Synergies furnished to or discussed with us by Duke or Weeks,
we have assumed that they have been reasonably prepared and reflect the best
currently available estimates and judgment of Duke's or Weeks' management as to
(a) the expected future financial performance of Duke or Weeks, as the case may
be, and (b) the Expected Synergies. We have further assumed that the Transaction
will qualify as a tax-free reorganization for United States federal and any
applicable state income tax purposes. We have also assumed that the Transaction
will not change the Real Estate Investment Trust status of the pro forma entity
for federal income tax purposes, and that the final form of the Merger Agreement
will be substantially similar to the draft reviewed by us.
Our opinion is necessarily based upon market, real estate, economic and
other conditions as they exist and can be evaluated on, and on the information
made available to us as of, February 26, 1999. We have assumed that, in the
course of obtaining the necessary regulatory or other consents or approvals
(contractual or otherwise) for the Transaction, no restrictions, including any
divestiture requirements or amendments or modifications, will be imposed that
will have a material adverse effect on the contemplated benefits of the
Transaction or the Expected Synergies.
We are acting as financial advisor to Duke in connection with the
Transaction and will receive a fee from Duke for our services, which is
contingent upon the consummation of the Transaction. In addition, Duke has
agreed to indemnify us for certain liabilities arising out of our engagement. We
have, in the past, provided financial advisory services to Duke and may continue
to do so and have received, and may receive, fees for the rendering of such
services. In addition, in the ordinary course of our business, we may actively
trade the securities of Duke or Weeks, for our own account and for the accounts
of customers, and, accordingly, may at any time hold a long or short position in
such securities.
This opinion is solely for the use and benefit of the Board of Directors of
Duke. Our opinion does not address the merits of the underlying decision by Duke
to engage in the Transaction and does not constitute a recommendation to any
shareholder of Duke as to how such shareholder should vote on the Transaction.
We are not expressing any opinion as to the prices at which any of Duke Shares
will trade following the announcement or consummation of the Transaction. On the
basis of and subject to the foregoing, we are of the opinion that, as of the
date hereof, the Exchange Ratio is fair from a financial point of view to Duke.
Very truly yours,
/s/ MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
------------------------------------------
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
<PAGE>
ANNEX C
[LOGO]
PERSONAL AND CONFIDENTIAL
February 28, 1999
Board of Directors
Weeks Corporation
4497 Park Drive
Norcross, GA 30093
Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the holders of the outstanding shares of Common Stock, par value $0.01
per share (the "Weeks Common Stock"), of Weeks Corporation ("Weeks") of the
exchange ratio of 1.38 shares of Common Stock, par value $0.01 per share (the
"Duke Common Stock"), of Duke Realty Investments, Inc. ("Duke") to be received
for each outstanding share of Weeks Common Stock (the "Exchange Ratio") pursuant
to the Agreement and Plan of Merger, dated as of February 28, 1999 by an among
Duke and Weeks (the "Agreement").
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with Weeks having provided certain investment banking services to Weeks
from time to time, including having acted as (i) lead-managing underwriter of a
public offering of 2.25 million shares of Weeks Common Stock in November 1996,
(ii) lead-managing underwriter of a public offering of 3.2 million shares of
Weeks Common Stock in May 1997, (iii) lead-managing underwriter of a public
offering of $150 million Series A Cumulative Redeemable Preferred Stock of Weeks
in October 1997, (iv) lead-managing underwriter of a public offering of $100
million 6.875% Notes due 2005 of Weeks in March 1998, and (v) lead-managing
underwriter of a public offering of $100 million 7.375% Notes due 2007 of Weeks
in July 1998, and (vi) its financial advisor in connection with, and having
participated in certain negotiations leading to, the Agreement. We have also
provided certain investment banking services to Duke from time to time,
including having acted as (i) lead-managing underwriter of a public offering of
$100 million Puttable Reset Securities PURS (SM) due 2016 of Duke in March 1998
and (ii) sole underwriter of a public offering of 1.5 million shares of Duke
Common Stock in November 1998 and may continue to provide investment banking
services to Duke in the future. Goldman Sachs provides a full range of financial
advisory and securities services and, in the course of its normal trading
activities, may from time to time effect transactions and hold securities,
including derivative securities, of Weeks or Duke for its own account and the
accounts of customers.
<PAGE>
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K of
Weeks for the four years ended December 31, 1997, and in the case of Duke for
the five years ended December 31, 1997; certain interim reports to stockholders
and Quarterly Reports on Form 10-Q of Weeks and Duke; certain other
communications from Weeks and Duke to their respective stockholders; and certain
internal financial analyses and forecasts for Weeks and Duke prepared by their
respective managements, including certain cost savings and operating synergies
projected by the management of Weeks to result from the transaction. We also
have held discussions with members of the senior management of Weeks and Duke
regarding the strategic rationale for, and the potential benefits of, the
transaction contemplated by the Agreement and the past and current business
operations, financial condition and future prospects of their respective
companies. In addition, we have reviewed the reported price and trading activity
for the Weeks Common Stock and Duke Common Stock, compared certain financial and
stock market information for Weeks and Duke with similar information for certain
other companies the securities of which are publicly traded, reviewed the
financial terms of certain recent business combinations in the real estate
industry specifically, and in other industries generally, and performed such
other studies and analyses as we considered appropriate.
We have relied upon the accuracy and completeness of all of the financial
and other information reviewed by us and have assumed such accuracy and
completeness for purposes of rendering this opinion. In addition, we have not
made an independent evaluation or appraisal of the assets and liabilities of
Weeks or Duke or any of their respective subsidiaries and we have not been
furnished with any such evaluation or appraisal. Our advisory services and the
opinion expressed herein are provided for the information and assistance of the
Board of Directors of Weeks in connection with its consideration of the
transaction contemplated by the agreement and such opinion does not constitute a
recommendation as to how any holder of Weeks Common Stock should vote with
respect to such transaction.
Based upon and subject to the foregoing and based upon such other matters as
we consider relevant, it is our opinion that as of the date hereof the Exchange
Ratio pursuant to the Agreement is fair from a financial point of view to the
holders of Weeks Common Stock.
Very truly yours,
/s/ GOLDMAN, SACHS & CO.
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GOLDMAN, SACHS & CO.
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ANNEX D
SECOND AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
DUKE-WEEKS REALTY CORPORATION
ARTICLE I
IDENTIFICATION
Section 1.01. NAME. The name of the Corporation is Duke-Weeks Realty
Corporation
ARTICLE II
DEFINITIONS
Section 2.01. CERTAIN DEFINITIONS. The following terms when used herein
shall have the meanings set forth below:
(a) ACT. The "Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(b) AFFILIATE. "Affiliate" shall mean, as to any Person, (i) any other
Person directly or indirectly controlling, controlled by or under common
control with such Person, (ii) any other Person that owns beneficially,
directly or indirectly, five percent (5%) or more of the outstanding capital
stock, shares or equity interests of such Person, or (iii) any officer,
director, employee, general partner or trustee of such Person or of any
Person controlling, controlled by or under common control with such Person
(excluding trustees and Persons serving in similar capacities who are not
otherwise an Affiliate of such Person), and shall have the meaning ascribed
thereto in the Act.
(c) ARTICLES. "Articles" shall mean the Articles of Incorporation of the
Corporation, filed with the Indiana Secretary of State, as amended from time
to time.
(d) BUSINESS COMBINATION. "Business Combination" shall have the meaning
set forth in Section 9.01.
(e) BY-LAWS. "By-Laws" shall mean the By-Laws of the Corporation, as
amended from time to time.
(f) CODE. "Code" shall mean the Internal Revenue Code of 1986, as
amended or supplemented from time to time.
(g) COMMON SHAREHOLDERS. "Common Shareholders" shall mean as of any
particular time all the holders of record of outstanding common stock at
such time.
(h) COMMON SHARES. "Common Shares" shall have the meaning set forth in
Article V of these Articles.
(i) CONTINUING DIRECTOR. The term "Continuing Director" shall mean a
Person who was a member of the Board of Directors of the Corporation
immediately prior to the date as of which the Substantial Shareholder in
question became a Substantial Shareholder, or, following such date, a Person
designated (before his initial election or appointment as a director) as a
Continuing Director by a majority of the Whole Board, but only if a majority
of the Whole Board shall then consist of Continuing Directors, or, if a
majority of the Whole Board shall not then consist of Continuing Directors,
by a majority of the then Continuing Directors.
(j) CORPORATION. The "Corporation" shall mean Duke-Weeks Realty
Corporation
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(k) DIRECTOR. "Director" shall mean a member of the Corporation's Board
of Directors.
(l) GENDER AND NUMBER. As used herein the masculine and feminine gender
and the singular and plural number shall be interchangeable, as the context
requires.
(m) OWNER. A Person is the "Owner" of Shares he has the right to acquire
either immediately or at some future date pursuant to any agreement, or upon
exercise of conversion rights, warrants or options or otherwise. A Person is
also the Owner of any Shares whose ownership is attributed to him by reason
of the ownership provisions of Sections 542 and 544 of the Code, and any
Shares he beneficially owns under Rule 13d-3 promulgated under the Act.
(n) PERSON. "Person" shall mean an individual, partnership, trust,
corporation, or any other entity.
(o) PREFERRED SHARES. "Preferred Shares" shall have the meaning set
forth in Article V of these Articles.
(p) REAL PROPERTY. "Real Property" shall mean land, leasehold interests
(including, but not limited to interests of lessor or lessee therein),
rights and interests in land, and any buildings, structures, improvements,
furnishings, fixtures and equipment used on or in connection with land,
leasehold interests or rights in land or interests therein.
(q) REIT. "REIT" or "real estate investment trust" shall mean a real
estate investment trust meeting all the qualifications in the Code.
(r) SECURITIES. "Securities" shall mean any stock, shares, voting trust
certificates, bonds, debentures, notes or other evidences of indebtedness or
in general any instruments commonly known as "securities" or any
certificates of interest, shares or participations in, temporary or interim
certificates for, receipts for, guarantees of, or warrants, options or
rights to subscribe to, purchase or acquire any of the foregoing.
(s) SHAREHOLDERS. "Shareholders" shall mean as of any particular time
all holders of record of outstanding Shares at such time.
(t) SHARES. "Shares" shall mean the capital stock of the Corporation.
(u) SUBSTANTIAL SHAREHOLDER. "Substantial Shareholder" shall mean any
Person, corporation or other entity, together with any other entity with
which it or its Affiliate has any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of capital stock
of the Corporation or which is its Affiliate, which immediately prior to any
Business Combination is the Owner of 10% or more of the outstanding Shares
of the Corporation.
(v) UNAFFILIATED DIRECTOR. "Unaffiliated Director" shall mean a Director
who is not an officer or employee of the Corporation or of any Affiliate of
the Corporation.
(w) WHOLE BOARD. "Whole Board" shall mean the total number of Directors
which this Corporation would have if there were no vacancies.
In connection with the foregoing and other defined terms in these Articles,
where applicable except as otherwise provided in the relevant definition,
calculations of amounts should be made in accordance with the accrual basis of
accounting.
ARTICLE III
REGISTERED OFFICE AND AGENT
The street address of the Corporation's registered office in the State of
Indiana is 1 North Capital Avenue, Indianapolis, Indiana 46204. The name of its
initial registered agent at such address is CT Corporation System.
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ARTICLE IV
PURPOSES
The purposes of the Corporation shall be:
(a) To purchase, hold, and otherwise deal in and with income-producing
interests in Real Property, and to make distributions of such income to its
Shareholders so as to qualify as a REIT at all times.
(b) To engage in any lawful act or activity for which corporations may
be organized under the Indiana Business Corporation Law, as amended from
time to time, not inconsistent with paragraph (a) above, and not otherwise
specifically prohibited in these Articles.
ARTICLE V
AUTHORIZED SHARES
The total number of shares of capital stock which the Corporation shall have
authority to issue is two hundred fifty-five million (255,000,000), of which two
hundred fifty million (250,000,000) shall be common stock having a par value of
$.01 per share (the "Common Shares"), and five million (5,000,000) shall be
serial preferred stock having a par value of $.01 per share (the "Preferred
Shares").
ARTICLE VI
TERMS OF AUTHORIZED SHARES
Section 6.01. TERMS OF STOCK. Each Common Share shall have the same
relative rights as and be identical in all respects with all other Common
Shares. The Preferred Shares may be issued from time to time in one or more
series. The Board of Directors of the Corporation shall have authority to fix by
resolution or resolutions the designations and the powers, preferences and
relative, participating, optional or other special rights, qualifications,
limitations or restrictions thereof, including, without limitation, the voting
rights, the dividend rate, conversion rights, redemption price and liquidation
preference, of any series of Preferred Shares, to fix the number of Preferred
Shares constituting any such series, and to increase or decrease the number of
Preferred Shares of any such series (but not below the number of Preferred
Shares thereof then outstanding). In case the number of Preferred Shares of any
such series shall be so decreased, the Preferred Shares constituting such
decrease shall resume the status they had prior to the adoption of the
resolution or resolutions originally fixing the number of Preferred Shares of
such series. Shares shall have such other voting powers, participating, optional
or other special rights and qualifications, limitations or restrictions thereof,
as are stated below:
(a) DIVIDENDS. Whenever there shall have been paid, or declared and set
aside for payment, to the holders of the outstanding Shares of any class of
stock having preference over the common shares as to the payment of
dividends, the full amount of dividends and of sinking fund or retirement
fund or other retirement payments, if any, to which such holders are
respectively entitled in preference to the common shares, then dividends may
be paid on the common shares and on any class or series of Shares entitled
to participate therewith as to dividends, out of any assets legally
available for the payment of dividends in such form and amount as shall be
determined by the Board of Directors in accordance with the Indiana Business
Corporation Law.
(b)TERMINATION. In the event of any voluntary or involuntary
liquidation, dissolution, winding up or other termination of the
Corporation, after the payment in full of the claims of creditors and after
there shall have been paid to or set aside for the holders of any class
having preference over the
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common shares in event of liquidation, dissolution, winding up or other
termination the full preferential amounts to which they are respectively
entitled, the remaining assets of the Corporation available for payment and
distribution to Shareholders shall be distributed ratably among the holders
of the common stock, and any class or series of Shares entitled to
participate therewith, in whole or in part, as to the distribution of
assets.
Section 6.02. DILUTION. The Corporation shall not increase the number of
authorized Shares without the approval of a majority of the Unaffiliated
Directors, and the affirmative vote of a majority of the Shareholders.
Section 6.03. LIABILITY FOR FURTHER ASSESSMENTS. The Shares, when duly
issued and paid for, will be fully paid and non-assessable by the Corporation.
Section 6.04. VOTING RIGHTS. Holders of Common Shares are entitled to one
vote per Common Share on all matters upon which such holders are entitled to
vote, except as otherwise specified herein. The Common Shares shall not have
cumulative voting rights.
ARTICLE VII
BOARD OF DIRECTORS
Section 7.01. NUMBER, CLASSES, TERM OF OFFICE AND QUALIFICATIONS OF
DIRECTORS. There shall be no fewer than five (5) nor more than twenty-three
(23) Directors. The initial Board of Directors shall consist of twenty-three
(23) members. The number of Directors may be increased or decreased from time to
time by the Directors.
There shall be three classes of Directors, each class to be as nearly equal
in number as possible. The Directors of the first class shall hold office for a
term expiring at the annual meeting in 2000; Directors of the second class shall
hold office for a term expiring at the annual meeting in 2001; and Directors of
the third class shall hold office for a term expiring at the annual meeting in
2002. At each annual election beginning at the annual meeting of Shareholders in
2000, the successors to the class of Directors whose term then expires shall be
elected to hold office for a term of three years. Directors may be re-elected
any number of times. Election of each Director at an annual meeting shall be by
the affirmative vote of at least a majority of the Common Shareholders entitled
to vote thereon present in person or by proxy at such meeting. Subject to
Section 7.03, each Director shall hold office until the election and
qualification of his successor. Directors may, but need not, own Shares or other
securities of the Corporation.
A Director shall be an individual at least twenty-one (21) years of age who
is not under legal disability. A majority of the Directors shall at all times be
Persons who are Unaffiliated Directors; PROVIDED, HOWEVER, that upon a failure
to comply with this requirement because of the resignation, removal or death of
a Director who is an Unaffiliated Director, such requirement shall not be
applicable for a period of sixty (60) days. Nominees to serve as Unaffiliated
Directors shall be nominated by the then current Unaffiliated Directors, if any,
otherwise by the remaining Directors. Unless otherwise required by law, no
Director shall be required to give bond, surety or security in any jurisdiction
for the performance of any duties or obligations hereunder. The Directors in
their capacity as Directors shall not be required to devote their entire time to
the business and affairs of the Corporation.
Section 7.02. RESIGNATION, REMOVAL AND DEATH OF DIRECTORS. A Director may
resign at any time by giving written notice to the remaining Directors at the
principal office of the Corporation. Such resignation shall take effect on the
date specified in such notice, without need for prior accounting. A Director
judged incompetent, or for whom a guardian or conservator has been appointed,
shall be deemed to have resigned as of the date of such adjudication or
appointment. A Director may be removed for cause by affirmative vote of at least
a majority of the total votes eligible to be cast by the Common Shareholders at
a duly constituted meeting of Shareholders called expressly for such purpose.
Except as may otherwise be
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provided by law, cause for removal shall be construed to exist only if the
Director whose removal is proposed has been judged incompetent, convicted of a
felony by a court of competent jurisdiction and such conviction is no longer
subject to appeal, or has been adjudged by a court of competent jurisdiction to
be liable for gross negligence or misconduct in the performance of his duty to
the Corporation in a matter of substantial importance to the Corporation, and
such adjudication is no longer subject to direct appeal. At least 20 days prior
to such meeting of Shareholders, written notice shall be sent to the Director or
Directors whose removal will be considered at such meeting.
Section 7.03. VACANCIES. Notwithstanding any of the foregoing provisions
of this Article, each Director shall serve until his successor is elected and
qualified or until his death, retirement, resignation or removal. Should a
vacancy occur or be created, whether arising through death, resignation or
removal of a Director or through an increase in the number of Directors of any
class, such vacancy shall be filled by a majority vote of the remaining
Directors then in office, whether or not a quorum. A Director so elected to fill
a vacancy shall serve for the remainder of the then present term of office of
the class to which he was elected.
Section 7.04. QUORUM. A quorum for all meetings of the Directors shall be
a majority of the total number of Directors; PROVIDED, HOWEVER, that, whenever
the vote of a majority of a particular group of Directors (including, but not
limited to the Unaffiliated Directors) is required at a meeting, a quorum for
such meeting shall be a majority of the total number of Directors which shall
include a majority of such group.
Section 7.05. COMMITTEES. The Directors may appoint from among their
number an audit committee and such other standing committees as the Directors
determine; PROVIDED, HOWEVER, the composition of the members of the nominating
committee, the compensation committee and the asset committee may not be changed
without the approval of at least sixty percent (60%) of the Directors. Each
standing committee shall consist of three or more members All members of the
audit committee shall be Unaffiliated Directors. A majority of the members of
each other standing committee shall be Unaffiliated Directors; PROVIDED,
HOWEVER, that upon a failure to comply with this requirement because of the
resignation, removal or death of a Director who is an Unaffiliated Director,
such requirement shall not be applicable for a period of sixty (60) days. Each
committee shall have such powers, duties and obligations as the Directors may
deem necessary or appropriate. The standing committees shall report their
activities periodically to the Directors.
ARTICLE VIII
SHAREHOLDERS' MEETINGS
Section 8.01. All meetings of Shareholders to elect Directors and to
transact such other business as may properly be presented to the meeting shall
be held at such place, either within or without the State of Indiana, as may be
authorized in the By-Laws and specified in the respective notices of any such
meetings.
Section 8.02. Special meetings of the Shareholders may be called at any
time by the Chairman of the Board of Directors, a majority of the Board of
Directors, a majority of the Unaffiliated Directors, the President of the
Corporation, or at the request, in writing, of Shareholders owning ten percent
(10%) of the aggregate number of the Common Shares of the Corporation issued and
outstanding and entitled to vote. Such meetings shall be held at such time and
place, within or without the State of Indiana, as shall be specified in the
notice thereof. Business transacted at any special meeting of Shareholders shall
be limited to the purpose or purposes stated in the notice.
Section 8.03. All actions permitted or required to be taken by the
Shareholders shall be taken at an annual or special meeting of the Shareholders.
The Shareholders may not act by written consent in lieu of meeting.
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ARTICLE IX
BUSINESS COMBINATIONS
Section 9.01. Except as provided in Section 9.02 hereof, the affirmative
vote of at least 80% of the Common Shareholders shall be required to approve any
Business Combination involving a Substantial Shareholder. Such affirmative vote
shall be required for any Business Combination notwithstanding the fact that no
vote may be required, or that a lesser percentage may be specified by law or in
any agreement with any national securities exchange or otherwise. As used in
this Article IX, the term Business Combination shall mean:
(a) any merger or consolidation of the Corporation or any subsidiary of
the Corporation with (i) any Substantial Shareholder or (ii) any other
Person (whether or not itself a Substantial Shareholder) which is, or after
such merger or consolidation would be, a Substantial Shareholder or an
Affiliate of a Substantial Shareholder; or
(b) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or with any
Substantial Shareholder, or any Affiliate of any Substantial Shareholder, of
any assets of the Corporation or any subsidiary having an aggregate fair
market value of $1,000,000 or more; or
(c) the issuance or transfer by the Corporation or any subsidiary (in
one transaction or a series of transactions) of any Securities of the
Corporation or any subsidiary of any Substantial Shareholder or any
Affiliate of any Substantial Shareholder in exchange for cash, Securities or
other property (or a combination thereof) having an aggregate fair market
value of $1,000,000 or more; or
(d) the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of a Substantial
Shareholder or any Affiliate of any Substantial Shareholder; or
(e) any reclassification of Securities (including any reverse stock
split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any subsidiary or any other
transaction (whether or not with or into or otherwise involving a
Substantial Shareholder) which has the effect, directly or indirectly, of
increasing the proportionate share of the outstanding Shares or Securities
of the Corporation or any subsidiary which is directly or indirectly owned
by any Substantial Shareholder or any Affiliate of any Substantial
Shareholder.
Section 9.02. Section 9.01 of this Article shall not apply to a Business
Combination if (A) the Business Combination is approved by a vote of
three-fourths of the Continuing Directors, (B) the Business Combination consists
of the issuance or transfer by the Corporation of Common Shares in exchange for
a partnership interest in Duke Realty Limited Partnership, an Indiana limited
partnership, or Duke Realty Services Limited Partnership, an Indiana limited
partnership, or any successor in interest to either such limited partnership or
(C) the Substantial Shareholder shall have complied with the provisions of this
Section 9.02 of this Article and all Shareholders of the Corporation shall have
been given a reasonable opportunity immediately before the consummation of the
Business Combination to receive in the Business Combination, or the right to
receive as a result of or in the Business Combination cash, cash and other
consideration or other consideration, the per Share fair market value of which
will not, at the time the Business Combination is effected, together with any
cash, be less than the greatest of: (i) the highest price per Share (including
brokerage commissions, soliciting dealers' fees and all other expenses) paid by
the Substantial Shareholder in acquiring any of its Shares of the Corporation of
the same class; (ii) the per Share book value of the same class of the
Corporation's Shares at the time the Business Combination is effected,
determined by such independent appraisal firm or their experts as the Board of
Directors deem appropriate; (iii) the highest sale or bid price per Share for
the Shares of the same class during the 24 months immediately preceding the time
the Business Combination is effected; and (iv) an amount
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which bears the same or a greater percentage relationship to the market price of
the same class of the Corporation's Shares immediately prior to the announcement
of the Business Combination as the highest per Share price paid in (i) above
bore to the market price of the same class of the Corporation's Shares
immediately prior to the commencement of acquisition of the Corporation's Shares
by such Substantial Shareholder. The consideration to be received by holders of
outstanding Shares under this Section 9.02 shall be in cash or in the same form
as the Substantial Shareholder has previously paid for such Shares. If the
Substantial Shareholder has paid for Shares with varying forms of consideration,
the form of consideration for Shares acquired under this Section 9.02 shall be
either cash or the form used to acquire the largest number of Shares previously
acquired by such Substantial Shareholder.
Section 9.03. RESTRICTIONS ON CORPORATE ACTION. Without the approval of
three-fourths of the Continuing Directors, a Substantial Shareholder, after the
time it became such, seeking to comply with Section 9.02 of this Article shall
not have (i) made any material change in the Corporation's business or capital
structure, (ii) received the benefit directly or indirectly (except
proportionately as a Shareholder) of any loans, advances, guarantees, pledges or
other financial assistance provided by the Corporation, or (iii) made, caused or
brought about, directly or indirectly, any change in the Corporation's Articles
or By-Laws or in the membership of the Corporation's Board of Directors of any
committee thereof, or (iv) terminated the Corporation's agreement with the
Advisor.
Section 9.04. A majority of the Whole Board shall have the power to
determine, but only if a majority of the Whole Board shall then consist of
Continuing Directors, or, if a majority of the Whole Board shall not then
consist of Continuing Directors, a majority of the Continuing Directors shall
have the power to determine, for the purposes of this Article on the basis of
information known to them, (i) the number of Shares of the Corporation of which
any Person is the Owner, (ii) whether a Person is an Affiliate of another, and
(iii) any other factual matter relating to the applicability or effect of this
Article.
Section 9.05. Any determinations made by the Board of Directors, or by the
Continuing Directors, as the case may be, pursuant to this Article in good faith
and on the basis of such information and assistance as was then reasonably
available for such purpose, shall be conclusive and binding upon this
Corporation and its Shareholders, including any Substantial Shareholders.
Section 9.06. Notwithstanding any provision of this Article IX to the
contrary, no Substantial Shareholder shall consummate any Business Combination
unless such Substantial Shareholder shall have mailed to public Shareholders of
the Corporation, at least 30 days prior to the date of such consummation, a
proxy or information statement describing the proposed Business Combination,
which statement shall comply with the Act and the Rules and Regulations
thereunder or any successor statute or regulation, whether or not such proxy or
information statement is required to be mailed pursuant to such Act, rules or
regulations or subsequent provisions.
Section 9.07. Nothing contained in this Article shall be construed to
relieve any Substantial Shareholder from any fiduciary obligation imposed by
law.
ARTICLE X
REFUSAL TO TRANSFER SHARES, ACQUISITION
RESTRICTION AND OTHER RESTRICTIONS ON RIGHTS OF SHARES
Section 10.01. The Shareholders shall upon demand disclose to the Directors
in writing such information with respect to direct and indirect ownership of the
Shares as the Directors deem necessary or appropriate to comply with the REIT
provisions of the Code or to comply with the requirements of any taxing
authority or governmental agency.
Section 10.02. Whenever it is deemed by them to be reasonably necessary to
protect the status of the Corporation as a REIT, the Directors may require a
statement or affidavit from each Shareholder or
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proposed transferee of Shares setting forth the number of Shares already owned
by him and any related Person specified in the form prescribed by the Directors
for that purpose. If, in the opinion of the Directors, which shall be conclusive
upon any proposed transferee of Shares, any proposed transfer might jeopardize
the status of the Corporation as a REIT, the Directors shall have the right, but
not the duty, to refuse to permit such transfer.
Section 10.03. Notwithstanding any other provision of these Articles to the
contrary, any purported acquisition of Shares of the Corporation which would
result in the disqualification of the Corporation as a REIT shall be null and
void.
Section 10.04. Nothing contained in these Articles shall limit the
authority of the Directors to take such other action as they deem necessary or
advisable to protect the Corporation and the interests of the Shareholders by
preservation of the Corporation's status as a REIT.
Section 10.05. It shall be the policy of the Directors to consult with the
appropriate officials of any stock exchange on which the relevant Shares of the
Corporation are listed as far as reasonably possible in advance of the final
exercise (at any time when the Shares are listed on such exchange) of any powers
granted by Sections 10.02 or 10.03.
Section 10.06. In furtherance of the provisions of this Article X, each
certificate evidencing Shares shall contain a legend imprinted thereon to the
following effect, or such other legend as the Directors may from time to time
adopt:
STATEMENT OF POWERS;
PROVISIONS RELATING TO PROHIBITION OF
TRANSFER OF SHARES AND OTHER RESTRICTIONS
"If necessary to effect compliance by the Corporation with requirements of
the Internal Revenue Code relating to real estate investment trusts, rights of
the holder of the Shares represented by this certificate may be restricted by
the Corporation and/or the transfer thereof may be prohibited upon the terms and
conditions set forth in the Articles of Incorporation. The Corporation will
furnish a copy of such terms and conditions and a statement of all the powers,
designations, participating, optional or other special rights of each class of
stock issued by the Corporation and the qualifications, limitations or
restrictions of such preferences and/or rights, to the registered holder of this
certificate upon request and without charge."
ARTICLE XI
AMENDMENT OF BY-LAWS
The Common Shareholders or the Directors may, by a majority vote, amend or
repeal any provision of the By-Laws.
ARTICLE XII
AMENDMENT OR REPEAL
Notwithstanding any other provision of these Articles or the By-Laws of the
Corporation (and not withstanding the fact that a lesser percentage may be
specified by these Articles or the By-Laws of the Corporation) and in addition
to any other procedure specified under Indiana law, the affirmative vote of at
least eighty percent (80%) of the issued and outstanding Common Shares of the
Corporation shall be required to repeal or adopt any provision inconsistent with
Articles IX, X, XI and XII, or Sections 7.02, 7.03, and 8.03, hereof. With
respect to any other proposed amendment to or alteration of these Articles not
approved by the vote of three-quarters of the Directors, such amendment or
alteration shall require the affirmative vote of at least eighty percent (80%)
of the issued and outstanding Common Shares.
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ARTICLE XIII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 13.01. ELIMINATION OF CERTAIN LIABILITY OF DIRECTORS. A Director
of the Corporation shall not be personally liable to the Corporation or its
Shareholders for monetary damages for breach of fiduciary duty as a Director,
except for liability (i) for any breach of the Director's duty of loyalty to the
Corporation or its Shareholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
IND. CODE Section 23-1-35-4, or (iv) for any transaction from which the Director
derived an improper personal benefit.
Section 13.02. INDEMNIFICATION AND INSURANCE.
(a) RIGHT TO INDEMNIFICATION. Each Person who was or is made a party or
is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a
Person of whom he or she is the legal representative, is or was a Director
or officer of the Corporation or is or was serving at the request of the
Corporation as a Director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including
service with respect to employee benefit plans, whether the basis of such
proceeding is alleged action in an official capacity as a Director, officer,
employee or agent or in any other capacity while serving as a Director,
officer, employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Indiana Business
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment), against all
expense, liability and loss (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by such Person in connection
therewith and such indemnification shall continue as to a Person who has
ceased to be a Director, officer, employee or agent and shall inure to the
benefit of his or her heirs, executors and administrators: PROVIDED,
HOWEVER, that, except as provided in paragraph (b) hereof, the Corporation
shall indemnify any such Person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such Person only if such
proceeding (or part thereof) was authorized by the Board of Directors of the
Corporation. The right to indemnification conferred in this Section 13.02
shall be a contract right and shall include the right to be paid by the
Corporation the expenses incurred in defending any such proceeding in
advance of its final disposition: PROVIDED, HOWEVER, that, if the Indiana
Business Corporation Law requires, the payment of such expenses incurred by
a Director or officer in his or her capacity as a Director or officer (and
not in any other capacity in which service was or is rendered by such Person
while a Director or officer, including, without limitation, service to an
employee benefit plan) in advance of the final disposition of a proceeding,
shall be made only upon delivery to the Corporation of an undertaking, by or
on behalf of such Director or officer, to repay all amounts so advanced if
it shall ultimately be determined that such Director or officer is not
entitled to be indemnified under this Section 13.02 or otherwise. The
Corporation may, by action of its Board of Directors, provide
indemnification to employees and agents of the Corporation with the same
scope and effect as the foregoing indemnification of Directors and officers.
(b) RIGHT OF CLAIMANT TO BRING SUIT. If a claim under paragraph (a) of
this Section 13.02 is not paid in full by the Corporation within thirty days
after a written claim has been received by the Corporation, the claimant may
at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim and, if successful in whole or in part, the
claimant shall be entitled to be paid also the expense of prosecuting such
claim. It shall be a defense to any such action (other than an action
brought to enforce a claim for expenses incurred in defending any proceeding
in advance of its final disposition where the required undertaking, if any
is required, has been tendered to the Corporation)
D-9
<PAGE>
that the claimant has not met the standards of conduct which make it
permissible under the Indiana Business Corporation Law for the Corporation
to indemnify the claimant for the amount claimed, but the burden of proving
such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or
its Shareholders) to have made a determination prior to the commencement of
such action that indemnification of the claimant is proper in the
circumstances because he or she has met the applicable standard of conduct
set forth in the Indiana Business Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors,
independent legal counsel, or its Shareholders) that the claimant has not
met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met such applicable standard
of conduct.
(c) NON-EXCLUSIVITY OF RIGHTS. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Section 13.02 shall not be exclusive of
any other right which any Person may have or hereafter acquire under any
statute, provision of these Articles, by-law, agreement, vote of
Shareholders or disinterested Directors or otherwise.
(d) INSURANCE. The Corporation may maintain insurance, at its expense,
to protect itself and any Director, officer, employee or agent of the
Corporation or another corporation, partnership joint venture, trust or
other enterprise against any such expense, liability or loss, whether or not
the Corporation would have the power to indemnify such Person against such
expense, liability or loss under the Indiana Business Corporation Law.
ARTICLE XIV
SEVERABILITY
In the event that any Article or Section (or portion thereof) of these
Articles shall be found to be invalid, prohibited or unenforceable for any
reason, the remaining provisions, or portion thereof, of these Articles shall be
deemed to remain in full force and effect, and shall be construed as if such
invalid, prohibited or unenforceable provision had been stricken herefrom or
otherwise rendered inapplicable, it being the intent of this Corporation and its
Shareholders that each such remaining provision (or portion thereof of these
Articles remain, to the fullest extent permitted by law, applicable and
enforceable as to all Shareholders, including Substantial Shareholders
notwithstanding any such findings.
ARTICLE XV
INCORPORATOR
The name and mailing address of the sole incorporator are:
John R. Gaskin
8888 Keystone Crossing, Suite 1150
Indianapolis, Indiana 46240-2438
D-10
<PAGE>
ANNEX E
DUKE'S DIRECTOR AND EXECUTIVE COMPENSATION INFORMATION
COMMITTEES OF THE BOARD OF DIRECTORS OF DUKE
The Board of Directors of Duke met four times during the last fiscal year.
The Board of Directors of Duke has an Asset Committee, an Audit Committee, an
Executive Compensation Committee, a Finance Committee and a Nominating
Committee.
The function of the Asset Committee is to discuss, review and authorize
business transactions that exceed established guidelines. The members of the
Asset Committee are Messrs. Baur, Feinsand, Peterson, Strauss and Zink and Ms.
Cuneo. Mr. Strauss served as the Committee's chairman. The Committee met 12
times in 1998.
The function of the Audit Committee is to evaluate audit performance, handle
relations with Duke's independent auditors and evaluate policies and procedures
related to internal accounting controls. The members of the Audit Committee are
Messrs. Button, Feinsand, Lytle and Peterson and Ms. Cuneo. Mr. Feinsand served
as the Committee's chairman. The Committee met three times during 1998.
The function of the Executive Compensation Committee is to review and make
recommendations to the Board of Directors with respect to the compensation of
directors, officers, and employees of Duke, to implement Duke's long term
compensation plans and other employee benefit plans and to make recommendations
to the Nominating Committee regarding individuals qualified to be nominated as
unaffiliated directors. The members of the Executive Compensation Committee are
Messrs. Button, Lytle, Rogers and Strauss and Ms. Cuneo. Mr. Button served as
the Committee's chairman. The Committee met five times during 1998.
The function of the Finance Committee is to review, recommend and authorize
certain debt financing and equity transactions. The members of the Finance
Committee are Messrs. Baur, Button, Feinsand, Rogers, Staton, Strauss and Zink.
Mr. Rogers served as the Committee's chairman. The committee met six times
during 1998.
The function of the Nominating Committee is to nominate individuals to serve
as directors. The Nominating Committee is comprised of all of the unaffiliated
directors, Messrs. Button, Feinsand, Lytle, Peterson, Rogers and Strauss and Ms.
Cuneo. The committee does not formally consider nominations by shareholders. Mr.
Button served as the Committee's chairman. The Committee met once during 1998.
In 1998, all directors attended at least 75% of the meetings of the Board
and all committees of the Board of which they were members except for Mr.
Rogers. Mr. Rogers attended 100% of the Board of Directors meetings, but his
overall attendance at all Board and committee meetings was less than 75%.
DIRECTOR EMERITUS
At the annual meeting of shareholders, Duke will confer the title of
Director Emeritus upon John W. Wynne, who does not intend to stand for
re-election as a Director this year. Mr. Wynne has served Duke as a Director
with exemplary skill and loyalty since Duke was established and was one of the
founders of Duke in 1972. The entire Duke organization wishes to express its
gratitude and admiration for Mr. Wynne's outstanding service throughout his
career and looks forward to many more years of his valuable counsel in the role
of Director Emeritus.
COMPENSATION OF DIRECTORS
Each non-employee director receives 1,200 common shares of Duke as annual
compensation. Non-employee directors also receive a fee of $2,500 for attendance
at each meeting of the Board of Directors. In addition, the non-employee
directors receive $500 for participation in each telephonic meeting of the Board
and for participation in each committee meeting not held in conjunction with a
regularly scheduled Board meeting. Officers of Duke who are also directors
receive no additional compensation for their services as directors.
<PAGE>
Beginning in 1999, certain Directors will receive grants of stock option and
dividend increase units under the 1999 Directors Stock Option and Dividend
Increase Unit Plan of Duke Realty Investments, Inc. Pursuant to this plan,
Directors that do not receive grants of stock options under any other Duke plan
for a year will receive a grant of 2,500 stock options and 2,500 dividend
increase units at the first meeting of Duke's Executive Compensation Committee
of each year. However, for 1999 only, Directors that have never been granted
stock options under a Duke plan will receive a grant of 7,500 stock options and
7,500 dividend increase units.
The following information is provided regarding the executive officers of
Duke who do not serve as Directors of Duke:
<TABLE>
<CAPTION>
WITH
NAME, AGE, PRINCIPAL OCCUPATION(S) AND DUKE
BUSINESS EXPERIENCE DURING PAST 5 YEARS SINCE
- ---------------------------------------------------------------------------------------------------------- ---------
<S> <C>
GARY A. BURK--Age 47
President of Duke Services, Inc. Mr. Burk is responsible for Duke's construction operations. 1979
ROBERT CHAPMAN--Age 45
Executive Vice President--Acquisitions. Mr. Chapman was previously with The REEF Funds where he managed
acquisitions and dispositions. 1997
JOHN R. GASKIN--Age 37
Vice President, General Counsel and Secretary 1990
RICHARD W. HORN--Age 41
Executive Vice President--Office. Mr. Horn is responsible for all office activities of Duke. 1984
WILLIAM E. LINVILLE, III--Age 44
Executive Vice President--Industrial. Mr. Linville is responsible for all industrial activities of Duke. 1987
JOHN NEMECEK--Age 44
President--Asset and Property Management. Mr. Nemecek was previously with Compass Management where he
managed the Florida operations. 1994
DENNIS D. OKLAK--Age 45 Executive Vice President, Chief Administrative Officer and Treasurer. 1986
</TABLE>
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
Duke's officers and directors, and persons who beneficially own more than 10% of
Duke common shares, to file reports of ownership and changes in ownership with
the Securities and Exchange Commission. Based on a review of these forms, Duke
believes that during 1998 all of its officers, directors and greater than 10%
beneficial owners timely filed the forms required under Section 16(a).
REPORT OF EXECUTIVE COMPENSATION COMMITTEE
EXECUTIVE COMPENSATION PHILOSOPHY
The primary objectives of the Executive Compensation Committee (the
"Committee") of the Board of Directors in determining total compensation of
Duke's executive officers are (1) to enable Duke to attract and retain high
quality executives by providing total compensation opportunities with a
combination of compensation elements which are at or above competitive
opportunities and which provide for moderate fixed costs and leveraged incentive
opportunities, and (2) to align shareholder interests and executive rewards by
providing substantial incentive opportunities to be earned by meeting
pay-for-performance standards designed to increase long-term shareholder value.
In order to accomplish
E-2
<PAGE>
these objectives, the Committee adopted in 1995 an executive compensation
program which provides (x) annual base salaries at or near the market median,
(y) annual incentive opportunities which reward the executives for achieving or
surpassing performance goals which represent industry norms of excellence, and
(z) long-term incentive opportunities which are directly related to increasing
shareholder value.
Section 162(m) of the Internal Revenue Code of 1986, as amended, imposes a
limitation on the deductibility of nonperformance based compensation in excess
of $1 million paid to certain executive officers. The Compensation Committee's
policy with respect to Section 162(m) is to make every reasonable effort to
ensure that compensation is deductible to the extent permitted, while
simultaneously providing executives appropriate awards for their performance.
Duke's long-term incentive plans have been designed to comply with the
performance-based requirements of Section 162(m).
BASE SALARIES AND ANNUAL CASH INCENTIVES
The range of base salaries for the executive officers of Duke is established
after a review by the Committee of the salaries paid to executive officers of a
comparison group of other publicly traded real estate investment trusts. Other
subjective factors are considered such as the individual's experience and
performance.
An annual cash incentive range is established for each executive officer at
the beginning of the year. The actual annual cash incentive paid to each
executive is determined based on his or her ability to impact measurable
results. The amount of each executive's annual award is based on a combination
of three performance factors: (1) overall corporate performance; (2) business
segment or departmental performance; and (3) individual performance. The
relative importance of each of the performance factors in determining annual
cash incentives differs for each executive position with the performance factor
for the most senior executives being based more heavily on overall corporate
performance and the performance factor for the officers in-charge of business
segments or departments being based more heavily on the performance of their
segment or department. The overall corporate performance factor is based on a
three-tier measurement system consisting of Funds from Operations Growth Per
common share, Return on Shareholders' Equity and
Return on Real Estate Investments. The business segment performance is based
on certain financial measurements, including the volume and yield of new
acquisitions and developments, performance of the in-service property portfolio,
and the business segment's operating income contribution to Duke. The amount of
the targeted annual cash incentives paid is based on the perceived level of
attainment of each of the measurements by the Committee.
LONG-TERM INCENTIVE OPPORTUNITIES
The amount of long-term incentive compensation awarded to officers and
executives on an annual basis is determined at the discretion of the Committee
but is tied to overall corporate and business segment performance, the
participant's level of responsibility within Duke and the participant's
individual performance. The long-term incentive opportunities consist of
approximately two-thirds Stock Options ("Options") and Dividend Increase Units
("DIUs") and one-third Shareholder Value Grants.
STOCK OPTION AND DIVIDEND INCREASE UNIT PLANS
The objectives of the Stock Option and Dividend Increase Unit Plans are to
provide executive officers with long-term incentive opportunities aligned with
the shareholder benefits of an increased common share value and increased annual
dividends. The number of Options and DIUs issued to each executive annually is
set by the Committee based on the goal of providing approximately two-thirds of
the total annual long-term incentive award through these plans. The Options and
DIUs are for terms of no more than ten years. With certain limited exceptions,
awards made under the Stock Option and Dividend Increase Unit Plans vest 20
percent per year over a five-year period. The Options may not be issued for
E-3
<PAGE>
less than the fair market value of Duke's common shares at the date of grant.
The value of each DIU at the date of exercise will be determined by calculating
the percentage of Duke's annualized dividend per share to the market value of
one common share (the "Dividend Yield") at the date the DIU is granted and
dividing the increase in Duke's annualized dividend from the date of grant to
the date of exercise by such Dividend Yield. A DIU may be exercised by a
participant only to the extent that such participant has exercised an Option to
purchase a common share of Duke under an Option granted under the 1995 Stock
Option Plan on the same date as the grant of the DIU.
SHAREHOLDER VALUE PLAN
The objective of the Shareholder Value Plan is to provide executive officers
with long-term incentive opportunities directly related to providing total
shareholder return in excess of the median of independent market indices. The
annual Shareholder Value Plan amount for each executive is set by the Committee
with the goal of providing approximately one-third of the total long-term
incentive award through this plan. The award vests entirely three years after
the date of grant and the amount paid is based on Duke's total shareholder
return for such three year period as compared to independent market indices. The
independent market indices used for comparison are the S&P 500 Index and the
NAREIT Equity REIT Total Return Index. The amount of the award payable may range
from zero percent if both of the rankings of the comparable returns are less
than the 50th percentile of both of the indices to 300 percent if the rankings
of both of the comparable returns are in the 90th percentile or higher of both
of the indices, with 100 percent of the award being payable at the 60th
percentile.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The compensation awarded to Mr. Hefner in 1998 consisted primarily of an
annual base salary, an annual cash incentive award, and grants under Duke's
long-term incentive plans. The total compensation paid to Mr. Hefner has
historically resulted in total compensation that is below the comparable market
median but is considered appropriate in light of Mr. Hefner's substantial equity
interest in Duke and his stock options held.
BASE SALARY. The Committee intends to gradually increase Mr. Hefner's base
salary with the intent that, by 1999, his base salary will be equal to 90
percent of the market median of a comparison group of thirteen other publicly
traded real estate investment trusts. Mr. Hefner's annual base salary for 1998
was $195,000.
ANNUAL CASH INCENTIVE. Under the Committee's executive compensation plan,
Mr. Hefner is eligible for a targeted annual cash incentive bonus. The amount of
Mr. Hefner's annual cash incentive bonus is determined solely upon overall
corporate performance which is based on a three-tier measurement system
consisting of Funds from Operations Growth Per common share, Return on
Shareholders' Equity and Return on Real Estate Investments as compared to
pre-determined target criteria established by the Committee. The amount of the
targeted annual cash incentives paid is based on the level of attainment of each
of the measurements as compared to the pre-determined targets. For 1998, Duke's
FFO Growth was 18.13% per common share, its Return on Shareholders' Equity was
12.16% and its Return on Real Estate Investments was 9.59%. Based on these
results versus the pre-determined targets established by the Committee, Mr.
Hefner received an Annual Cash Incentive award of $250,000 for 1998.
LONG-TERM INCENTIVE OPPORTUNITY AWARD. Mr. Hefner is also eligible for a
targeted long-term incentive award with a value equal to a percentage of his
annual base salary. The long-term incentive opportunity award granted to Mr.
Hefner in 1998 consisted of (1) the grant of an option to purchase 18,960 common
shares at a price of $24.25 per share, (2) the grant of 18,960 DIUs with a
Dividend Yield of 4.95%, and (3) the award of a targeted amount of $66,667 under
the Shareholder Value Plan.
E-4
<PAGE>
In January 1998, Mr. Hefner received a payment of $53,460 pursuant to a
grant under the Shareholder Value Plan made in 1995. In February 1999, Mr.
Hefner received a payment of $64,238 pursuant to a grant under the Shareholder
Value Plan made in 1996. The payout percentages of these awards as determined by
formulas contained in the plan were 178% and 214% for the grants made in 1995
and 1996, respectively.
STOCK PURCHASE PLANS
In 1998, the Board of Directors adopted the Executive and Senior Officer
Stock Purchase Plan of Duke Realty Investments, Inc. (the "Officer Stock
Purchase Plan") and the Director Stock Purchase Plan of Duke Realty Investments,
Inc. (the"Director Stock Purchase Plan"). The purpose of these plans is to more
closely align officer and Director financial rewards with the financial rewards
realized by Company shareholders, increase officer and Director motivation to
manage Duke as equity owners, retain key employees and increase the ownership of
common shares by officers and directors. On August 25, 1998, under the Officer
Stock Purchase Plan, certain officers of Duke received options to purchase
1,231,215 common shares at $21.625 per share (the closing price of a common
share on that date). On that same date, the officers exercised these options by
purchasing 1,231,215 common shares from Duke at $21.625 per share. From August
26, 1998 through August 31, 1998, certain Directors of Duke purchased 402,335
common shares under the Director Stock Purchase Plan in the open market at an
average price of $21.623 per share.
All officers and Directors participating in the plans borrowed the entire
purchase price of the shares from KeyBank, N.A. and are personally obligated to
repay the loans. The Operating Partnership has unconditionally guaranteed the
payment and performance obligations of the officers and Directors to KeyBank,
N.A. Each participant is personally liable to the Operating Partnership for any
payments made by the Operating Partnership under the guarantee as a result of
default by such participant on their KeyBank, N.A. loan.
SALARY REPLACEMENT PLAN
In January 1999, subject to shareholder approval, the Committee adopted the
1999 Salary Replacement Stock Option and Dividend Increase Unit Plan of Duke
Realty Investments, Inc. (the "Salary Replacement Plan"). The purpose of this
plan is to encourage additional equity ownership in Duke by key officers. Under
this plan, certain officers may elect to receive Options and DIUs in lieu of the
receipt of all or a portion of their base salary, annual incentive bonus or
Shareholder Value Plan payments. The number of Options and DIUs granted under
the Salary Replacement Plan will be based on the amount of forgone compensation
elected by a participant divided by the Committee's determination of the value
of an Option/DIU. The exercise price of an option may not be less than the fair
market value of Duke's common shares at the date of grant. All awards made under
the Salary Replacement Plan will vest on the date of grant.
EMPLOYMENT AND SEVERANCE AGREEMENTS
In April 1998, the Committee adopted the Duke Realty Severance Pay Plan.
This plan provides for the payment of severance amounts to certain key officers
if, within one year of a change in control of Duke, employment is terminated by
Duke other than "for cause" or if an officer voluntarily terminates employment
because of a reduction in the officer's pay or his forced relocation. A "Level
One" participant will receive two times the sum of the compensation awarded to
such terminated participant for the calendar year preceding the date of
termination and a "Level Two" will receive one times his prior year
compensation. The only participants of the plan at this time are Messrs. Burk,
Chapman, Hefner, Horn, Linville, Oklak and Zink. The Committee has designated
each of these participants as eligible for Level One benefits.
E-5
<PAGE>
COMPENSATION COMMITTEE
Geoffrey Button, Chair
Ngaire E. Cuneo
James E. Rogers
Jay J. Strauss
L. Ben Lytle
PERFORMANCE GRAPH
The following graph compares, over the last five years, the cumulative total
shareholder return on Duke's common shares with the cumulative total return of
the S&P 500 Index, and the cumulative total return of the NAREIT Equity REIT
Total Return Index.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
COMPANY COMMON SHARES, S&P 500 INDEX,
AND NAREIT EQUITY REIT TOTAL RETURN INDEX *
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
DRE NAREIT S&P 500
<S> <C> <C> <C>
Dec-93 100.00 100.00 100.00
Dec-94 136.52 103.17 101.31
Dec-95 163.29 118.92 139.23
Dec-96 211.86 160.86 171.19
Dec-97 281.38 193.45 228.32
Dec-98 285.68 159.59 293.57
</TABLE>
<TABLE>
<CAPTION>
DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER
1993 1994 1995 1996 1997 1998
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
The Company........................................... 100.00 136.52 162.29 211.86 281.38 285.68
NAREIT................................................ 100.00 103.17 118.92 160.86 193.45 159.59
S&P................................................... 100.00 101.31 139.23 171.19 228.32 293.57
</TABLE>
* Assumes that the value of the investment in Duke's common shares and each
index was $100 on December 31, 1993 and that all dividends were reinvested.
E-6
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation awarded, earned by, or paid
to Duke's chief executive officer and Duke's six other most highly compensated
executive officers (the "Named Executive Officers") during the last three fiscal
years.
<TABLE>
<CAPTION>
LONG-TERM LONG-TERM
COMPENSATION COMPENSATION
AWARDS PAYMENTS
------------- -------------
(1) (2)
ANNUAL COMPENSATION SECURITIES SHAREHOLDER (3)
--------------------------------- UNDERLYING VALUE PLAN ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS PAYMENTS COMPENSATION
- -------------------------------------------- --------- ---------- ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas L. Hefner............................ 1998 $ 195,000 $ 250,000 76,763 $ 53,460 $ 7,676
President and 1997 175,000 200,000 13,010 0 3,200
Chief Executive Officer 1996 165,000 100,000 12,880 0 3,000
Richard W. Horn............................. 1998 $ 175,000 $ 325,000 23,699 71,280 $ 9,204
Executive Vice President 1997 132,700 300,000 44,192 0 3,200
Office 1996 120,000 200,000 17,174 0 3,000
William E. Linville, III.................... 1998 $ 175,000 $ 275,000 69,942 71,280 $ 4,800
Executive Vice President 1997 132,700 275,000 44,192 0 3,200
Industrial 1996 120,000 225,000 17,174 0 3,000
Gary A. Burk................................ 1998 $ 175,000 $ 200,000 14,220 53,460 $ 4,800
President 1997 150,000 150,000 13,010 0 3,200
Construction 1996 150,000 75,000 12,880 0 3,000
Robert M. Chapman........................... 1998 $ 175,000 $ 200,000 53,642 0 $ 3,311
Executive Vice President 1997 21,192 100,000 10,000 0 0
Acquisitions 1996 0 0 0 0 0
Dennis D. Oklak............................. 1998 $ 175,000 $ 200,000 60,463 23,166 $ 4,800
Executive Vice President, Chief 1997 150,000 150,000 7,096 0 3,200
Administrative Officer and Treasurer 1996 140,000 85,000 7,872 0 3,000
Darell E. Zink, Jr.......................... 1998 $ 175,000 $ 200,000 60,463 53,460 $ 4,800
Executive Vice President and Chief Financial 1997 150,000 150,000 13,010 0 3,200
Officer 1996 150,000 75,000 12,880 0 3,000
</TABLE>
- ------------------------
(1) Includes the following options that were granted in August, 1998 in
connection with the Officer Stock Purchase Plan: Mr. Hefner 57,803; Mr.
Linville 46,243; Mr. Chapman 34,682; Mr. Oklak 46,243; Mr. Zink 46,243.
Under that plan, the participants were required to exercise the options the
same day they were granted. The grant price and the exercise price were both
equal to the fair market value of Duke's common shares on the date of grant.
(2) Represents payments made under Duke's Shareholder Value Plan.
(3) For Messrs. Hefner, Horn, Linville, Burk, Oklak and Zink, includes a $4,800
contribution by Duke to Duke's Profit Sharing and Salary Deferral Plan. For
Mr. Chapman, a $2,625 Profit Sharing and Salary Deferral Plan contribution
was made. Also includes discounts of $2,876, $4,404 and $686 received by
Messrs. Hefner, Horn and Chapman, respectively, in connection with common
shares purchased under Duke's Employee Stock Purchase Plan.
E-7
<PAGE>
STOCK OPTION GRANTS IN 1998
The following table sets forth certain information for the Named Executive
Officers relating to stock option grants during 1998 under Duke's 1995 Stock
Option Plan.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
INDIVIDUAL GRANTS AT ASSUMED ANNUAL RATE
----------------------------------- OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM (1)
OPTIONS EMPLOYEES PRICE PER EXPIRATION ----------------------
NAME GRANTED IN 1998 SHARE DATE 5% 10%
- ----------------------------------------- ----------- ----------- --------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Thomas L. Hefner......................... 18,960 1.1275% $ 24.250 1/28/08 $ 289,153 $ 732,771
( 2)57,803 3.4374% $ 21.625 8/25/98 $ 0 $ 0
Richard W. Horn.......................... 23,699 1.4093% $ 24.250 1/28/08 $ 361,426 $ 915,925
William E. Linville, III................. 23,699 1.4093% $ 24.250 1/28/08 $ 361,426 $ 915,925
( 2)46,243 2.7499% $ 21.625 8/25/98 $ 0 $ 0
Gary A. Burk............................. 14,220 .8456% $ 24.250 1/28/08 $ 216,865 $ 549,578
Robert M. Chapman........................ 18,960 1.1275% $ 24.250 1/28/08 $ 289,153 $ 732,771
( 2)34,682 2.0624% $ 21.625 8/25/98 $ 0 $ 0
Dennis D. Oklak.......................... 14,220 .8456% $ 24.250 1/28/08 $ 216,865 $ 549,578
( 2)46,243 2.7499% $ 21.625 8/25/98 $ 0 $ 0
Darell E. Zink, Jr....................... 14,220 .8456% $ 24.250 1/28/08 $ 216,865 $ 549,578
( 2)46,243 2.7499% $ 21.625 8/25/98 $ 0 $ 0
</TABLE>
- ------------------------
(1) The dollar amounts under these columns are the result of calculations at the
5% and 10% rates set by the Securities and Exchange Commission and,
therefore, are not intended to forecast future appreciation of Duke's stock
price. For the options expiring on January 28, 2008, Duke's per share stock
price would be $39.50 and $62.90 if increased 5% and 10%, respectively,
compounded annually over the 10-year option term.
(2) These options were granted in connection with the Officer Stock Purchase
Plan. Under that plan, the participants were required to exercise the
options the same day they were granted. The grant price and the exercise
price were each equal to the fair market value of one common share on the
date of grant.
The following table presents certain information for the Named Executive
Officers relating to the exercise of stock options during 1998 and, in addition,
information relating to the valuation of unexercised stock options.
E-8
<PAGE>
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY
ACQUIRED OPTIONS AT 12/31/98 OPTIONS AT 12/31/98(1)
ON VALUE -------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------ --------- ---------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas L. Hefner (2)...................... 114,203 $ 669,750 100,459 42,503 $ 1,073,609 $ 138,143
Richard W. Horn........................... 0 0 82,515 82,566 783,543 276,942
William E. Linville, III (2).............. 46,243 0 97,515 92,566 938,230 380,067
Gary A. Burk.............................. 42,300 518,175 114,559 37,763 1,233,997 138,143
Robert M. Chapman (2)..................... 34,682 0 2,000 26,960 1,000 4,000
Dennis D. Oklak (2)....................... 46,243 0 64,082 32,962 683,377 136,051
Darell E. Zink, Jr. (2)................... 167,022 1,374,697 36,080 37,763 370,657 138,143
</TABLE>
- ------------------------
(1) Based on the closing price of Duke's common shares on December 31, 1998 of
$23.25.
(2) Includes shares exercised in connection with the Officer Stock Purchase Plan
for which no value was realized.
The following table sets forth awards to the Named Executive Officers in
1998 under Duke's Dividend Increase Unit Plan and Shareholder Value Plan.
E-9
<PAGE>
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
PERFORMANCE UNDER NON-STOCK
NUMBER OF SHARES, PERIOD PRICED-BASED-PLANS
DIUS, OR UNTIL ------------------------------------
NAME OTHER RIGHTS PAYOUT THRESHOLD TARGET MAXIMUM
- ---------------------------------------------- ----------------- ----------- ------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Thomas L. Hefner.............................. 18,960 DIUs N/A N/A N/A N/A
Dividend Increase Unit Plan (1) N/A 3 Years $ 0 $ 66,667 $ 200,000
Shareholder Value Plan (2)
Richard W. Horn............................... 23,699 DIUs N/A N/A N/A N/A
Dividend Increase Unit Plan (1) N/A 3 Years $ 0 $ 83,333 $ 250,000
Shareholder Value Plan (2)
William E. Linville, III...................... 23,699 DIUs N/A N/A N/A N/A
Dividend Increase Unit Plan (1) N/A 3 Years $ 0 $ 83,333 $ 250,000
Shareholder Value Plan (2)
Gary A. Burk.................................. 14,220 DIUs N/A N/A N/A N/A
Dividend Increase Unit Plan (1) N/A 3 Years $ 0 $ 50,000 $ 150,000
Shareholder Value Plan (2)
Robert M. Chapman............................. 18,960 DIUs N/A N/A N/A N/A
Dividend Increase Unit Plan (1) N/A 3 Years $ 0 $ 66,667 $ 200,000
Shareholder Value Plan (2)
Dennis D. Oklak............................... 14,220 DIUs N/A N/A N/A N/A
Dividend Increase Unit Plan (1) N/A 3 Years $ 0 $ 50,000 $ 150,000
Shareholder Value Plan (2)
Darell E. Zink, Jr............................ 14,220 DIUs N/A N/A N/A N/A
Dividend Increase Unit Plan (1) N/A 3 Years $ 0 $ 50,000 $ 150,000
Shareholder Value Plan (2)
</TABLE>
- ------------------------
(1) Under the 1995 Dividend Increase Unit Plan, DIUs are granted to key
employees. DIUs vest over a five-year period at 20% per year. A participant
may exercise DIUs only to the extent that such participant has purchased a
common share pursuant to an option granted under the 1995 Stock Option Plan
on the same date as the grant of the DIU. The value of each DIU at the date
of exercise is determined by calculating the Dividend Yield at the date the
DIU is granted and dividing the increase in Duke's annualized dividend from
the date of grant to the date of exercise by such Dividend Yield. DIUs not
exercised within 10 years of the date of grant are forfeited. Distribution
of a participant's benefits under the 1995 Dividend Increase Unit Plan will
be made in a single lump sum payment in the form of Duke's common shares.
The "In-the-Money" value of vested DIUs at December 31, 1998 for these
executives was $104,402 for Messrs. Hefner, Zink and Burk, $178,247 for
Messrs. Horn and Linville, $6,936 for Mr. Chapman and $52,841 for Mr. Oklak.
(2) Under the 1995 Shareholder Value Plan, awards are granted in specified
dollar amounts to selected key employees. The specified award is payable to
the participant on the third anniversary of the grant of the award. The
actual payments under the plan will be determined based upon Duke's
cumulative total shareholder return for the three year period beginning on
the date of grant as compared to the cumulative total return for the S&P 500
Index and the NAREIT Equity REIT Total Return Index (the "Indices") for the
same period. Duke's cumulative total shareholder return is calculated by
determining the average per share closing price of Duke's common shares for
the 30 day period preceding the end of the three year period increased by an
amount that would be realized if all cash dividends paid during the three
year period were reinvested in common shares of Duke and comparing this
amount to the average per share closing price of Duke's common shares for
the 30 day period preceding the date of grant. The payment of one-half of
the bonus award is adjusted based upon the percentile
E-10
<PAGE>
ranking of Duke's cumulative total shareholder return as compared to each of
the Indices for the same period. The payment adjustment may range from zero
percent of the amount awarded if both of the rankings of the comparable
returns are less than the 50th percentile of both of the Indices to 300
percent of the amount awarded if both of the rankings are in the 90th
percentile or higher of both of the Indices, with 100 percent of the award
being payable at the 60th percentile. Distribution of a participant's
adjusted bonus award at the end of the three-year period after the date of
grant will be made one-half in cash and one-half in the form of common
shares of Duke. The amount of the awards payable to these executives on
December 31, 1998 was $64,238 for Messrs. Hefner, Zink, and Burk, $85,650
for Messrs. Linville and Horn, and $39,256 for Mr. Oklak.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Ms. Cuneo, Mr. Lytle and Mr. Strauss serve on Duke's Executive Compensation
Committee. Duke contracted with an affiliate of Conseco, Inc. during 1998 for
certain construction and insurance related services. Ms. Cuneo is an Executive
Vice President and director of Conseco, Inc. In 1998, Duke received $561,000 in
construction related fees from a Conseco, Inc. affiliate and paid a Conseco,
Inc. affiliate $1,522,000 in insurance premiums.
Duke leases office space to affiliates of Anthem, Inc. Mr. Lytle is
Chairman, President and Chief Executive Officer of Anthem, Inc. Under the
leases, which have lease rates comparable to similar space in the area, Duke
received total rental income of $1,756,000 in 1998.
In connection with the acquisition of an eight building portfolio of
properties with a total purchase price of $16.2 million, Duke paid Regent Realty
Group, Inc. a commission of $117,000. Mr. Strauss is Chairman and Chief
Executive Officer of Regent Realty Group, Inc.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Duke has one class of voting common stock outstanding of which 86,690,489
shares ("common shares") were outstanding as of the close of business on March
1, 1999. The following table shows, as of March 1, 1999, the number and
percentage of common shares and limited partnership interests ("Units") in Duke
Realty Limited Partnership ("DRLP"), an affiliate of Duke, held by (1) all
directors and nominees, (2) each person known to Duke who beneficially owned
more than five percent of the issued and outstanding common shares, and (3)
certain executive officers. Each Unit is convertible into one common share at
the option of the holder. The total number of common shares and Units (other
than Units owned by Duke) outstanding as of the close of business on March 1,
1999 was 97,522,041.
<TABLE>
<CAPTION>
DIRECTORS
AND
EFFECTIVE
ECONOMIC
AMOUNT AND NATURE PERCENT OF ALL PERCENT OF ALL OWNERSHIP OF
OF BENEFICIAL COMMON COMMON EXECUTIVE
BENEFICIAL OWNER OWNERSHIP SHARES(1) SHARES/UNITS(2) OFFICERS(3)
- ---------------------------------------------- ------------------ --------------- ----------------- ------------
<S> <C> <C> <C> <C>
Thomas L. Hefner.............................. 3,357,664(4) 3.74% 3.43% 1,644,695
Darell E. Zink, Jr............................ 3,359,661(5) 3.76% 3.44% 1,722,709
Daniel C. Staton.............................. 3,291,560(6) 3.69% 3.37% 1,677,983
John W. Wynne................................. 3,413,113(7) 3.84% 3.50% 1,592,191
Edward T. Baur................................ 1,552,123(8) 1.76% 1.59% 1,119,744
Gary A. Burk.................................. 2,501,111(9) 2.81% 2.56% 520,869
William E. Linville, III...................... 203,254(10) (16) (16) 86,726
Richard W. Horn............................... 187,616(11) (16) (16) 91,088
Dennis D. Oklak............................... 150,630(12) (16) (16) 77,711
Robert M. Chapman............................. 42,158 (16) (16) 36,366
Geoffrey Button............................... 41,677 (16) (16) 34,177
</TABLE>
E-11
<PAGE>
<TABLE>
<CAPTION>
DIRECTORS
AND
EFFECTIVE
ECONOMIC
AMOUNT AND NATURE PERCENT OF ALL PERCENT OF ALL OWNERSHIP OF
OF BENEFICIAL COMMON COMMON EXECUTIVE
BENEFICIAL OWNER OWNERSHIP SHARES(1) SHARES/UNITS(2) OFFICERS(3)
- ---------------------------------------------- ------------------ --------------- ----------------- ------------
<S> <C> <C> <C> <C>
Ngaire E. Cuneo............................... 65,046 (16) (16) 59,046
Howard L. Feinsand............................ 85,290 (16) (16) 77,790
L. Ben Lytle.................................. 17,952 (16) (16) 13,452
John D. Peterson.............................. 56,280(13) (16) (16) 48,780
James E. Rogers............................... 81,387 (16) (16) 75,387
Jay J. Strauss................................ 62,411(14) (16) (16) 54,911
FMR Corp...................................... 8,005,744(15) 9.23% 8.21% N/A
Directors and Executive Officers as a Group
(19 persons)................................ 9,724,149 10.54% 9.90% 9,013,317
</TABLE>
- ------------------------
(1) Assumes that the only Units exchanged for common shares are those owned by
such beneficial owner.
(2) Assumes the exchange of all outstanding Units for common shares.
(3) Reflects common shares and Units beneficially owned by Directors and
executive officers, including their proportionate economic interest in
common shares and Units owned by family members and various entities.
Excludes any beneficial interest in stock options.
(4) Includes 649,229 common shares owned by Mr. Hefner, members of his family
and Hefner Family Investors Limited Partnership. Also includes the following
Units: (i) 579,506 Units owned directly by Mr. Hefner; and (ii) 2,008,500
Units owned by DMI Partnership, a partnership in which Mr. Hefner owns a
20.71% beneficial interest.
(5) Includes 745,235 common shares owned by Mr. Zink, members of his family, the
Zink Family Foundation and the Zink Family Limited Partnership. Also
includes the following Units: (i) 561,514 Units owned directly by Mr. Zink;
and (ii) 2,008,500 Units owned by DMI Partnership, a partnership in which
Mr. Zink owns a 20.71% beneficial interest.
(6) Includes 863,045 common shares owned by Mr. Staton and the following Units:
(i) 398,978 Units owned directly by Mr. Staton; and (ii) 2,008,500 Units
owned by DMI Partnership, a partnership in which Mr. Staton owns a 20.71%
beneficial interest.
(7) Includes: (i) 965,545 common shares owned by Mr. Wynne, members of his
family and the Wynne Family Trust; and (ii) 171,982 common shares owned as
trustee under the Phillip R. Duke Irrevocable Trust in which Mr. Wynne
disclaims any beneficial interest. Also includes the following Units: (i)
210,686 Units owned directly by Mr. Wynne; and (ii) 2,008,500 Units owned by
DMI Partnership, a partnership in which Mr. Wynne owns a 20.71% beneficial
interest.
(8) Includes 13,145 common shares owned by Mr. Baur and the following Units: (i)
330,148 Units owned directly by Mr. Baur; (ii) 120,000 Units owned by Mr.
Baur's spouse; and (iii) 1,086,934 Units owned by Lindbergh-Warson
Properties, Inc., a corporation in which Mr. Baur owns a 60.4% beneficial
interest.
(9) Includes: 214,252 common shares owned by Mr. Burk and his spouse and the
following Units: (i) 155,778 Units owned directly by Mr. Burk; and (ii)
2,008,500 Units owned by DMI Partnership, a partnership in which Mr. Burk
owns a 7.51% beneficial interest.
(10) Includes 77,088 common shares owned by Mr. Linville and his family. Also
includes 9,638 Units beneficially owned by Mr. Linville under an agreement
with a partnership owned by certain other executive officers.
E-12
<PAGE>
(11) Includes 84,442 common shares owned by Mr. Horn and his spouse. Also
includes 6,646 Units beneficially owned by Mr. Horn under an agreement with
a partnership owned by certain other executive officers.
(12) Includes 69,731 common shares owned by Mr. Oklak. Also includes 7,980 Units
beneficially owned by Mr. Oklak under an agreement with a partnership owned
by certain other executive officers.
(13) Includes: (i) 18,098 common shares owned by Mr. Peterson and members of his
family; (ii) 10,400 common shares owned by Mr. Peterson as Trustee for the
Peterson Family GST Investment Share Trust; (iii) 14,282 common shares owned
for investment purposes by City Securities Corporation, a firm in which Mr.
Peterson serves as Chairman of the Board and Chief Executive Officer; and
(iv) 6,000 common shares owned by Mr. Peterson as Trustee for the Peterson
Family Trusts.
(14) Includes: (i) 49,511 shares owned by Mr. Strauss and his spouse, and (ii)
5,400 shares held in a trust in which Mr. Strauss' family members are
beneficiaries.
(15) Share amount as reported on Schedule 13G filed with the Securities and
Exchange Commission on February 12, 1999. Address: 82 Devonshire Street,
Boston, Massachusetts 02109. Includes (i) 6,244,844 shares beneficially
owned by Fidelity Management & Research Company ("Fidelity"), a wholly-owned
subsidiary of FMR Corp., which holds such shares for investment advisory
clients, (ii) 6,244,844 shares beneficially owned by Edward C. Johnson III,
Chairman of FMR Corp., and FMR Corp., through its control of Fidelity, and
each is deemed to have sole power to dispose of such shares, (iii) 1,760,900
shares beneficially owned by Fidelity Management Trust Company ("Fidelity
Management"), a wholly-owned subsidiary of FMR Corp., which holds such
shares as investment manager of certain institutional accounts, and (iv)
1,760,900 shares beneficially owned by Mr. Johnson and FMR Corp., through
its control of Fidelity Management, of which each is deemed to have sole
voting and dispositive power over 1,668,500 of such shares and sole
dispositive but no voting power over the remaining 92,400 shares. Neither
FMR Corp. nor Mr. Johnson has the sole power to vote or direct the voting of
the shares owned directly by the Fidelity funds, which power resides with
such funds' Board of Trustees and Fidelity carries out the voting of the
shares under guidelines established by such Board of Trustees.
(16) Represents less than 1% of the outstanding common shares.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
A wholly owned subsidiary of Duke is the sole general partner of Duke Realty
Services Limited Partnership (the "Services Partnership"), which is in turn the
sole general partner of Duke Construction Limited Partnership (the "Construction
Partnership"). The operations of these entities are included in the consolidated
financial statements of Duke. The Services Partnership provides third-party
property management, leasing, construction management and development services
and the Construction Partnership provides third-party construction services.
Certain of the executive officers own limited partnership interests in these
entities. Thomas L. Hefner, Daniel C. Staton, Darell E. Zink, Jr., John W.
Wynne, Gary A. Burk and David R. Mennel, all of whom are officers or Directors
of Duke, control DMI Partnership ("DMI"), which owns ninety percent of the
capital interests of the Services Partnership and a profits interest which
varies from ten percent to ninety percent. The share of net income of the
Services Partnership allocated to DMI in 1998 was $1,211,000. DMI's share of net
income from the Services Partnership is included in minority interest in Duke's
financial statements. Duke has an option to acquire DMI's interest in the
Services Partnership in exchange for 833,334 common shares. Duke is required to
purchase DMI's interest in the Services Partnership for 833,334 common shares
upon a change in control of Duke or the dissolution of the Operating
Partnership. DMI also indirectly owns a ninety-five percent limited partnership
interest in the Construction Partnership, which Duke has the option to purchase
for $1,000. The Construction Partnership has a deficit cumulative capital
balance; thus there was no allocation of net income to any of the partners of
the Construction Partnership, including DMI.
E-13
<PAGE>
The Services Partnership and the Construction Partnership provide property
management, leasing, construction and other tenant related services to
properties in which Messrs. Hefner, Staton, Zink, Wynne, Burk and Mennel have
ownership interests. Duke has an option to acquire these executive officers'
interests in these properties (the "Option Properties"). In 1998, the Services
Partnership and the Construction Partnership received fees of $2,247,000 for
services provided to the Option Properties. The fees charged by the Services
Partnership and the Construction Partnership for such services are equivalent to
those charged to other third-party owners for similar services except for one
property. Pursuant to an agreement with this property's lender, the payment of
75% of the fees was deferred and payable only from excess sale or refinancing
proceeds. Duke agreed to this deferral in 1997 in order to retain certain
contracts for services provided to other properties owned by the lender. In
1998, Duke acquired this loan from the third party lender and all such deferred
fees have been paid.
Duke also leased operating facilities in certain of the Option Properties.
In 1998, the aggregate rent under such leases was approximately $21,309. The
rental amount paid is comparable to similar space in the area.
The Operating Partnership has a $20.0 million loan to the Services
Partnership, which requires interest only payments at 12% through September,
2003. The loan then amortizes over a 15-year period with interest at 12% until
final maturity in September, 2018. The loan is guaranteed by an entity owned
indirectly by Messrs. Hefner, Staton, Zink, Wynne, Burk and Mennel. The
Operating Partnership also provides working capital financing to the Services
Partnership at a rate of prime plus 1%.
Messrs. Hefner, Staton, Zink, Wynne, Burk and Mennel, as well as Edward T.
Baur, a Director of Duke, and a corporation controlled by Mr. Baur, have
personal guarantees for $65.5 million of Duke's debt. The Operating Partnership
has indemnified them from any liability with respect to such debt.
Duke contracts with Steel Frame Erectors, Inc. ("SFE"), an entity owned by
Messrs. Hefner, Staton, Zink, Wynne, Burk and Mennel, for certain
construction-related services. During 1998, the total costs under these
contracts for Company related projects were $1,396,000. The construction fees
earned by SFE on company related projects were $43,000. A 50% owned subsidiary
of SFE leases space in an office building from a limited liability company
partially owned by Duke. The subsidiary paid $294,000 under this lease in 1998.
In May, 1998 and January, 1999, a partnership 70% owned by Edward T. Baur
contributed land and a building to Duke in return for 101,849 Units of DRLP with
a value of $2.3 million and the assumption of $1.4 million in indebtedness.
E-14
<PAGE>
ANNEX F
1999 DIRECTORS' STOCK OPTION
AND DIVIDEND INCREASE UNIT PLAN
OF
DUKE REALTY INVESTMENTS, INC.
ARTICLE I
INTRODUCTION
1.1. PURPOSE. The 1999 Directors' Stock Option and Dividend Increase Unit
Plan of Duke Realty Investments, Inc. (the "Plan") is designed to promote the
interests of Duke Realty Investments, Inc. (the "Company"), its shareholders and
the Subsidiaries of the Company, through the granting of nonqualified stock
options ("Options") and dividend increase units ("Units") to the members of the
Board of Directors of the Company, thereby encouraging their focus on the
growth, profitability and dividend paying capacity of the Company.
1.2. EFFECTIVE DATE AND DURATION. The Effective Date of the Plan is
January 1, 1999. Options and Units may be granted under the Plan for a period of
ten (10) years commencing January 1, 1999; however, no Options or Units may be
exercised until the Plan has been approved by a majority of the shares of the
Company represented at the shareholders' meeting at which approval of the Plan
is considered. No Options or Units shall be granted under the Plan after
December 31, 2008. On that date, the Plan shall expire, except as to outstanding
Options and Units, which Options and Units shall remain in effect until they
have been exercised, terminated or have expired.
1.3. ADMINISTRATION.
(a) ADMINISTRATIVE COMMITTEE. The Plan shall be administered by the
Committee. The Committee, from time to time, may adopt any rule or procedure
it deems necessary or desirable for the proper and efficient administration
of the Plan provided it is consistent with the terms of the Plan. The
decision of a majority of the Committee members shall constitute the
decision of the Committee. In administering the Plan, the Committee's
actions and determinations shall be binding on all interested parties. A
member of the Committee shall be eligible, at any time when he is such a
member, to receive Options and Units under the Plan. The decision of a
majority of the members of the Committee shall constitute the decision of
the Committee.
(b) ADMINISTRATIVE DISCRETION. Notwithstanding any other provisions of
the Plan, unless set forth or otherwise contemplated herein, the Committee
shall have no authority to (i) grant Options or Units; (ii) determine the
option period; (iii) determine the time or times at which Options or Units
will be granted; (iv) determine the time or times when each Option or Unit
becomes exercisable; or (v) determine other conditions and limitations, if
any, applicable to the exercise of each Option. Each Option and Unit granted
under the Plan to a Director shall be evidenced by a grant agreement. Any
notice or document required to be given to or filed with the Committee will
be properly given or filed if delivered or mailed by certified mail, postage
prepaid, to the Committee at 8888 Keystone Crossing, Suite 1200,
Indianapolis, Indiana 46240-2182.
(c) NO CONTRACT OF EMPLOYMENT. Neither the Plan nor any grant agreement
executed hereunder shall constitute a contract of employment between the
Company and a Director. Participation in the Plan does not give any Director
the right to be retained, nominated or reelected as a Director.
1.4. DEFINITIONS. For purposes of this Plan, unless a different meaning is
clearly required by the context:
(a) "Affiliate" or "Affiliates" means any Subsidiary.
(b) "Board of Directors" means the board of directors of the Company.
(c) "Change in Control of the Company" means (i) any merger,
consolidation or similar transaction which involves the Company and in which
persons who are the shareholders of the
<PAGE>
Company immediately prior to such transaction own, immediately after such
transaction, shares of the surviving or combined entity which possess voting
rights equal to or less than fifty percent (50%) of the voting rights of all
shareholders of such entity, determined on a fully diluted basis; (ii) any
sale, lease, exchange, transfer or other disposition of all or any
substantial part of the consolidated assets of the Company; (iii) any
tender, exchange, sale or other disposition (other than disposition of the
stock of the Company or any Subsidiary in connection with bankruptcy,
insolvency, foreclosure, receivership or other similar transactions) or
purchases (other than purchases by the Company or any Company sponsored
employee benefit plan, or purchases by members of the Board of Directors of
the Company or any Subsidiary) of shares which represent more than
twenty-five percent (25%) of the voting power of the Company or any
Subsidiary; (iv) during any period of two (2) consecutive years, individuals
who at the date of the adoption of the Plan constitute the Company's Board
of Directors cease for any reason to constitute at least a majority thereof,
unless the election of each director at the beginning of such period has
been approved by directors representing at least a majority of the directors
then in office who were directors on the date of the adoption of the Plan;
(v) a majority of the Company's Board of Directors recommends the acceptance
of or accept any agreement, contract, offer or other arrangement providing
for, or any series of transactions resulting in, any of the transactions
described above. Notwithstanding the foregoing, a Change in Control of the
Company shall not occur as a result of the issuance of stock by the Company
in connection with any public offering of its stock.
(d) "Code" means the Internal Revenue Code, as amended.
(e) "Committee" means the Executive Compensation Committee of the Board
of Directors of the Company.
(f) "Company" means Duke Realty Investments, Inc.
(g) "Delivered Stock" means whole shares of common stock of the Company.
(h) "Director" means any member of the Board of Directors of the
Company.
(i) "Effective Date" means January 1, 1999.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(k) "Fair Market Value" means the per share closing price for the
Company's common stock on the New York Stock Exchange on the date of
determination.
(l) "Immediate Family Member" or "Immediate Family Members" means the
spouse, the child or grandchildren of an optionee.
(m) "NASD Dealer" means a broker-dealer who is a member of the National
Association of Securities Dealers.
(n) "Option" or "Options" means nonqualified stock options granted by
the Company under the Plan.
(o) "Permanent and Total Disability" or "Permanently and Totally
Disabled" means any disability that would qualify as a disability under Code
Section 22(c)(3).
(p) "Per Share Value" means the per share New York Stock Exchange
closing price for the Company's common stock on the date of determination.
(q) "Plan" means the stock option and dividend increase unit plan
embodied herein, as amended from time to time, known as the 1999 Directors'
Stock Option and Dividend Increase Unit Plan of Duke Realty Investments,
Inc.
(r) "Section 16 Grantee" means a person subject to potential liability
under Section 16(b) of the Exchange Act with respect to transactions
involving equity securities of the Company.
F-2
<PAGE>
(s) "Subsidiary" or "Subsidiaries" means a corporation, partnership or
limited liability company, a majority of the outstanding voting stock,
general partnership interests or membership interests, as the case may be,
of which is owned or controlled, directly or indirectly, by the Company or
by one or more other Subsidiaries of the Company. For the purposes of this
definition, "voting stock" means stock having voting power for the election
of directors, or trustees, as the case may be, whether at all times or only
so long as no senior class of stock has such voting power by reason of any
contingency.
(t) "Unit" or "Units" means dividend increase units granted under
Section 3.1.
ARTICLE II
ELIGIBILITY AND VESTING
2.1. ELIGIBILITY. Only those individuals who are serving as members of the
Board of Directors on a grant date shall be eligible to receive grants of
Options and Units under the Plan. Provided further, any member of the Board of
Directors who receives grants under any other stock option plan or dividend
increase unit plan sponsored by the Company during a calendar year shall not be
eligible to receive any grants of Options or Units under the Plan for such
calendar year.
2.2. VESTING OF OPTIONS AND UNITS. With the exception of the initial grant
of 7,500 Options and Units to certain Directors in January 1999, all Options and
Units granted under the Plan shall vest twenty percent (20%) per year commencing
on the first anniversary of the date of grant. The initial grant of 7,500
Options and Units to certain Directors in January 1999 shall vest twenty percent
(20%) per year commencing on the first anniversary of the date the Plan
participant became a Director of the Company. Notwithstanding the foregoing, in
the event of (i) a Change in Control of the Company, (ii) the death or Permanent
and Total Disability of a participant, or (iii) the retirement of a participant
from the Board of Directors on or after attaining the age sixty-five (65) years,
all outstanding Options and Units granted under the Plan to such participant
shall be fully vested.
ARTICLE III
BENEFITS
3.1. SHARES COVERED BY THE PLAN. The stock to be subject to Options and
Units under the Plan shall be shares of authorized common stock of the Company
and may be unissued shares or reacquired shares (including shares purchased in
the open market), or a combination of the two, as the Committee may from time to
time determine. Subject to the provisions of Sections 4.4 and 5.3 and the
provisions of this Section 3.1, the maximum number of shares to be delivered
upon exercise of all Options and Units granted under the Plan shall not exceed
Five Hundred Thousand (500,000) shares. If the exercise price of any stock
option granted under the Plan is satisfied by tendering shares to the Company
(by either actual delivery or by attestation), only the number of shares issued
net of the shares tendered shall be deemed delivered for purposes of determining
the maximum number of shares available for delivery under the Plan. Shares
covered by an Option or Unit that are forfeited due to termination of service or
that remain unpurchased or undistributed upon expiration or termination of the
Option or Unit, respectively, may be made subject to further Options and Units.
A. STOCK OPTIONS
3.2. GRANT OF OPTIONS. For each year during the term of the Plan,
effective on the date on which the Committee holds its first quarterly meeting
during a calendar year, each Director who is eligible under Section 2.1 shall
receive an option to acquire Two Thousand Five Hundred (2,500) shares of Company
common stock for such calendar year. Provided, however, for the 1999 calendar
year, each Director who is eligible under Section 2.1 and who, as of the date of
the first quarterly Board of Directors meeting in 1999, has not previously
received a grant of stock options from the Company, shall receive an option to
acquire
F-3
<PAGE>
Seven Thousand Five Hundred (7,500) shares of the Company's common stock. A
Director who has previously received a grant of stock options from the Company
shall be granted an option to acquire Two Thousand Five Hundred (2,500) shares
of the Company's common stock for the 1999 calendar year.
3.3. EXERCISE OF OPTIONS. All rights to exercise an Option shall terminate
ninety (90) days following the date on which a Director ceases to be a Director,
unless the termination of his status as a Director is on account of (i)
Permanent and Total Disability (ii) death, (iii) retirement after attaining the
age of 65 years, or (iv) a Change in Control of the Company, but not later than
the date the Option expires pursuant to its terms. If a Director ceases to be a
Director due to Permanent and Total Disability or death, the Director, his
guardian, attorney-in-fact or personal representative, as the case may be, may
exercise his Options subject to the limitations of this Plan within one (1) year
following the date on which he ceases to be a Director, but not later than the
date on which the Option expires pursuant to its terms.
3.4. OPTION PRICE. The option price per share of stock under each Option
shall be one hundred percent (100%) of the Fair Market Value of the shares on
the date on which the Option is granted.
3.5. OPTION PERIOD. The option period for each Option granted under the
Plan shall be ten (10) years from the date of grant of such Option. If an Option
is not exercised on or before the tenth anniversary of the date on which it was
granted, the Option shall expire.
B. DIVIDEND INCREASE UNITS
3.6. GRANT OF UNITS. For each year during the term of the Plan, effective
on the date on which the Committee holds its first quarterly meeting during a
calendar year, each Director who is eligible under Section 2.1 shall receive a
grant of Two Thousand Five Hundred (2,500) Units for such calendar year.
Provided, however, for the 1999 calendar year, each Director who is eligible
under Section 2.1 and who, as of the date of the first quarterly Board of
Directors meeting in 1999, has not previously received a grant of stock options
from the Company, shall receive a grant of Seven Thousand Five Hundred (7,500)
Units. A Director who has previously received a grant of stock options from the
Company shall receive a grant of Two Thousand Five Hundred (2,500) Units for the
1999 calendar year.
3.7. EXERCISE OF UNITS. A Director may exercise his Units subject to the
following requirements:
(a) TIMING OF EXERCISE. A Unit must be exercised on or before the tenth
anniversary of the date on which it was granted; if not exercised on or
before that date, the Unit will expire. All rights to exercise a Unit shall
terminate ninety (90) days following the date on which the Director ceases
to be a Director, unless the termination of his status as a Director is on
account of (i) Permanent and Total Disability, (ii) death, or (iii)
retirement after attaining the age of 65 years, but not later than the date
the Unit expires pursuant to its terms. If a Director ceases to be a
Director due to Permanent and Total Disability or death, the Director, his
guardian, attorney-in-fact or personal representative, as the case may be,
may exercise his Units subject to the limitations of this Plan within one
(1) year following the date on which he ceases to be a Director, but not
later than the date on which the Unit expires pursuant to its terms.
(b) PRIOR EXERCISE OF STOCK OPTIONS. Units may be exercised only to the
extent that the same or a greater number of Options have been surrendered by
the Director through the exercise of Options granted under the Plan on the
same date on which the Units were granted. Such exercise may have been prior
to or simultaneous with the exercise of such Units. For example, if a
Director was granted an Option under the Plan to acquire Two Thousand Five
Hundred (2,500) shares of the Company's stock and on the same date he was
granted Two Thousand Five Hundred (2,500) Units under the Plan, the Director
may not exercise the Two Thousand Five Hundred (2,500) Units granted
hereunder until he has exercised at least Two Thousand Five Hundred (2,500)
Options under that stock option grant. Thus, if the Director has exercised
(or simultaneously surrenders with his exercise of the Units) One Thousand
(1,000) Options under that stock option grant, he may at any time on or
after the date
F-4
<PAGE>
of such acquisition, exercise up to One Thousand (1,000) Units hereunder, as
long as all the other Plan conditions and limitations have been satisfied
with respect to such exercise. The shares of Company stock acquired by the
exercise of an Option on a date other than the date on which the Units were
granted may not be used as a basis for the exercise of such Units.
(c) PRIOR NOTICE OF EXERCISE. The Director must notify the Committee of
his intent to exercise a Unit by completing an election form authorized by
the Committee and filing such form with the Committee.
3.8. CALCULATION OF UNIT VALUE. Upon the exercise date, the Unit or Units
being exercised will be valued for all purposes under the Plan in accordance
with the following formula. First, the Per Share Value of a share of the
Company's common stock, as of the effective date on which the Unit was granted,
will be determined. Second, the quarterly cash dividend rate per share of the
Company's common stock most recently declared prior to the effective date of the
grant will be determined and annualized (multiplied by four). Third, that
annualized cash dividend will be divided by the Per Share Value on the effective
date of the grant to set the grant date dividend yield. Fourth, the quarterly
cash dividend rate per share of the Company's common stock which was most
recently declared on or before the exercise date will be determined and
annualized (multiplied by four). Fifth, the annualized cash dividend on the
effective date of the grant (as determined under the second step) will be
subtracted from the annualized dividend on the exercise date (as determined
under the fourth step) to determine the increase in the annualized cash
dividend. Sixth, the amount of the increase (as determined under the fifth step)
will be divided by the grant date dividend yield (as determined under the third
step) to establish the Unit's value on the exercise date. For all purposes of
this Plan, if there is no Per Share Value for Company stock on the date on which
an event which requires the stock to be valued, the per share value shall be the
Per Share Value for Company stock on the trading date immediately preceding the
date on which the stock is required to be valued.
For example, if the Per Share Value of a share of Company stock on the
effective date of a Unit's grant was $30.00, the quarterly dividend rate on the
date of grant was $0.49 and the quarterly dividend rate on the date of exercise
was $0.55, then the Unit's value at exercise would be $3.67, determined under
the six steps in the preceding paragraph as follows:
<TABLE>
<S> <C>
(1) $30.00 [NYSE Closing Price on Date of Grant]
(2) $1.96 [$0.49 (Company's Quarterly Cash Dividend on Date of Grant) X 4]
(3) 6.5333% [(2) DIVIDED BY (1)]
(4) $2.20 [$0.55 (Company's Quarterly Cash Dividend on Date of Exercise)X4]
(5) $0.24 [$2.20-$1.96 -- Increase in Annualized Cash Dividend]
(6) $3.67 [(5) DIVIDED BY (3)]
</TABLE>
If the Director had been granted one hundred (100) Units and he exercised
all of those Units, he would be entitled to receive whole shares of Company
common stock with a value of $367 based on the Per Share Value on the date of
exercise. (The number of shares to be distributed is described under Section
4.2).
ARTICLE IV
DISTRIBUTIONS
4.1. TIME OF PAYMENT OF UNITS. The Company will pay to each Director the
value of the Unit or Units, rounded to the nearest whole share of Company common
stock, with respect to which a proper and timely election has been made. Such
payment shall be made as soon as practicable following the exercise date.
4.2. MANNER OF PAYMENT OF UNITS. Distribution of a Director's benefit
under Section 4.1 will be made in a single lump sum in the form of whole shares
of Company common stock rounded to the nearest whole
F-5
<PAGE>
share. The number of shares to be issued under this Section 4.2 will be based on
the Per Share Value on the exercise date of the Units. For example, if the Per
Share Value on the date of exercise was $50.00 and the payment amount determined
under Section 3.8 was $367.00, the Director would be entitled to receive seven
(7) shares of Company stock (367 DIVIDED BY 50 = 7.34). On the other hand, if
the payment amount determined under Section 3.8 was $380.00, the Director would
be entitled to receive eight (8) shares of Company stock ($380 DIVIDED BY 50 =
7.60).
4.3. DISTRIBUTION ON CHANGE OF CONTROL. Notwithstanding any other Plan
provision to the contrary, each Director will be entitled to receive, within
ninety (90) days of a Change in Control of the Company, a lump sum payment, in
cash, of the value of his Units determined under Section 3.8 as of the date of
the Change in Control of the Company.
4.4. PAYMENT FOR STOCK.
(a) Full payment for shares purchased pursuant to the exercise of an
Option hereunder shall be made at the time the Option is exercised. Payment
may be made by delivering to the Company (i) cash; (ii) Delivered Stock
which (A) has been owned by the optionee for more than six (6) months and
has been paid for, within the meaning of Securities and Exchange Commission
Rule 144 (and, if such stock was purchased from the Company by use of a
promissory note, such note has been fully paid with respect to such stock),
or (B) was obtained by the optionee in the public market or other than
through the exercise of an Option under this Plan or under any other stock
option plan involving Company stock; (iii) a combination of cash and
Delivered Stock; or (iv) provided that a public market for the Company's
common stock exists, (A) through a "same day sale" commitment from the
optionee and a NASD Dealer whereby the Director irrevocably elects to
exercise the Option and to sell a portion of the common stock so purchased
in order to pay the option price, and whereby the NASD Dealer irrevocably
commits upon receipt of such stock to forward the option price directly to
the Company; or (B) through a "margin" commitment from the Director and an
NASD Dealer whereby the Director irrevocably elects to exercise the Option
and to pledge the stock so purchased to the NASD Dealer in a margin account
as security for a loan from the NASD Dealer in the amount of the option
price and whereby the NASD Dealer irrevocably commits upon receipt of such
stock to forward the option price directly to the Company. Delivered Stock
shall be valued by the Committee at its Fair Market Value determined as of
the date of the exercise of the Option. No shares shall be issued until full
payment for them has been made, and a Director shall have none of the rights
of a shareholder with respect to any shares until they are issued to him.
Upon payment of the full purchase price, the Company shall issue a
certificate or certificates to the Director evidencing ownership of the
shares purchased pursuant to the exercise of the Option which contain(s)
such terms, conditions and provisions as may be required and as are
consistent with the terms, conditions and provisions of the Plan and the
grant agreement between the Company and the Director. For purposes of this
Section 4.4, payment for shares purchased hereunder may be delivered to the
Company through such attestation or certification procedures as may be
established by the Committee from time to time in its sole discretion.
(b) For purposes of determining the number of Units which can be
exercised under Section 3.7(b), the number of Options surrendered rather
than the number of shares actually issued under this Section 4.4 shall be
taken into account.
ARTICLE V
PLAN ADMINISTRATION AND INTERPRETATION
5.1 AMENDMENT OR TERMINATION. The Board of Directors may, at any time,
without the approval of the stockholders of the Company (except as otherwise
required by applicable law, rule or regulation, including without limitation any
shareholder approval of the safe harbor provisions of Rule 16b-3 promulgated
under the Exchange Act) alter, amend, modify, suspend or discontinue the Plan,
but may not,
F-6
<PAGE>
without the consent of the holder of an Option or Unit, make any alteration
which would adversely affect an Option or Unit previously granted under the
Plan. However, the Board of Directors may not, without the approval of the
stockholders of the Company, make any alteration which would (a) increase the
aggregate number of shares subject to Options and Units under the Plan, except
as provided in Section 5.3; (b) decrease the minimum option price, except as
provided in Section 5.3; (c) extend the term of the Plan or change the term
during which any Option or Unit can be exercised; (d) change the restrictions on
the transferability of Options and Units; (e) change the manner of determining
the option price, the calculation of unit value or the method of payment of
Units; (f) change the time(s)at or circumstances under which Options and Units
may be exercised; (g) change the class of individuals eligible for Options and
Units; (h) change the number of shares of Company common stock authorized for
issuance under the Plan; or (i) withdraw administration of the Plan from the
Committee or Board of Directors.
5.2. NONTRANSFERABILITY.
(a) No Option or Unit shall be transferable, except by the Director's
will or the laws of descent and distribution. During the Director's
lifetime, his Options and Units shall be exercisable (to the extent
exercisable) only by him. The Options and Units, and any rights and
privileges pertaining thereto, shall not be transferred, assigned, pledged
or hypothecated by the Director in any way, whether by operation of law or
otherwise and shall not be subject to execution, attachment or similar
process.
(b) Notwithstanding the provisions of subsection (a), a Director may
transfer Options granted under the Plan to: (i) Immediate Family Members;
(ii) a trust or trusts for the exclusive benefit of Immediate Family
Members; or (iii) a partnership or limited liability company in which the
optionee and/or the Immediate Family Members are the only equity owners
(collectively, "Eligible Transferees"). An Option that is transferred to an
Immediate Family Member shall not be transferable by such Immediate Family
Member, except for any transfer by such Immediate Family Member's will or by
the laws of descent and distribution upon the death of such Immediate Family
Member.
(c) In the event that a Director transfers Options to an Eligible
Transferee under this Section 5.2, the Options transferred to the Eligible
Transferee must be exercised by such Eligible Transferee and, in the event
of the death of such Eligible Transferee, by such Eligible Transferee's
executor or administrator only in the same manner, to the same extent and
under the same circumstances (including, without limitation, the time period
within which the Options must be exercised) as the Director or, in the event
of the Director's death, the executor or administrator of the Director's
estate, could have exercised such Options. The Director, or in the event of
the Director's death, the Director's estate, shall remain liable for all
federal, state, city and local taxes applicable upon the exercise of an
Option by an Eligible Transferee.
5.3. CHANGES IN STOCK.
(a) SUBSTITUTION OF STOCK AND ASSUMPTION OF PLAN. In the event of any
change in the common stock of the Company through stock dividends,
split-ups, recapitalization, reclassifications or otherwise, or in the event
that other stock shall be substituted for the present common stock of the
Company as the result of any merger, consolidation or reorganization or
similar transaction which constitutes a Change in Control of the Company,
then the Committee shall make appropriate adjustment or substitution in the
(i) aggregate number, price and kind of shares to be distributed under the
Plan and in the calculation of a Unit's value provided in Section 3.8; and
(ii) aggregate number, price and kind of shares available under the Plan and
in the number, price and kind of shares covered under any Options and Units
granted or to be granted under the Plan. The Committee's determination in
this respect shall be final and conclusive. Provided, however, that the
Company shall not, and shall not permit its Subsidiaries to, recommend,
facilitate or agree or consent to a transaction or series of transactions
which would result in a Change of Control of the Company unless and until
the person or persons or entity or entities acquiring or succeeding to the
assets or capital stock of the
F-7
<PAGE>
Company or any of its Subsidiaries as a result of such transaction or
transactions agrees to be bound by the terms of the Plan so far as it
pertains to Options and Units theretofore granted and agrees to assume and
perform the obligations of the Company and its Successor hereunder (as
defined in subsection (b)).
(b) CONVERSION OF STOCK. In the event of a Change in Control of the
Company pursuant to which another person or entity acquires control of the
Company (such other person or entity being the "Successor"), the kind of
shares of common stock which shall be subject to the Plan and to each
outstanding Option and Unit shall, automatically by virtue of such Change in
Control of the Company, be converted into and replaced by shares of common
stock, or such other class of securities having rights and preferences no
less favorable than common stock of the Successor, and the number of shares
subject to an Option, the calculation of a Unit's value and the purchase
price per share upon exercise of the Option shall be correspondingly
adjusted, so that, by virtue of such Change in Control of the Company, each
Director shall (i) in the case of Options, have the right to purchase (A)
that number of shares of common stock of the Successor which have a Fair
Market Value equal, as of the date of such Change in Control of the Company,
to the Fair Market Value, as of the date of such Change in Control of the
Company, of the shares of common stock of the Company theretofore subject to
his Option, (B) for a purchase price per share which, when multiplied by the
number of shares of common stock of the Successor subject to the Option,
shall equal the aggregate exercise price at which the Director could have
acquired all of the shares of common stock of the Company previously
optioned to the Director; and (ii) in the case of Units, have the right to
receive that number of shares of common stock of the Successor which have a
Fair Market Value equal, as of the date of such Change in Control of the
Company, to the shares of the common stock of the Company to which the Units
relate.
5.4. USE OF PROCEEDS. The proceeds received by the Company from the sale
of stock pursuant to the Plan will be used for general corporate purposes.
5.5. INFORMATION TO BE FURNISHED BY DIRECTORS. Directors, or any other
persons entitled to benefits under the Plan, must furnish to the Committee such
documents, evidence, data or other information as the Committee considers
necessary or desirable for the purpose of administering the Plan. The benefits
under the Plan for each Director, and each other person who is entitled to
benefits hereunder, are to be provided on the condition that he furnish full,
true and complete data, evidence or other information, and that he will promptly
sign any document reasonably related to the administration of the Plan requested
by the Committee.
5.6. EVIDENCE. Evidence required of anyone under the Plan may be by
certificate, affidavit, document or other information which the person relying
thereon considers pertinent and reliable, and signed, made or presented by the
proper party or parties.
5.7. GENDER AND NUMBER. When the context admits, words in the masculine
gender shall include the feminine gender, the plural shall include the singular
and the singular shall include the plural.
5.8. ACTION BY COMPANY. Any action required of or permitted by the Company
under the Plan shall be by resolution of the Committee or by a person or persons
authorized by resolution of the Committee.
5.9. CONTROLLING LAWS. Except to the extent superseded by the laws of the
United States, the laws of Indiana, without regard to the choice of law
principles thereof, shall be controlling in all matters relating to the Plan.
5.10. MISTAKE OF FACT. Any mistake of fact or misstatement of facts shall
be corrected when it becomes known and proper adjustment made by reason thereof.
F-8
<PAGE>
5.11. SEVERABILITY. In the event any provisions of the Plan shall be held
illegal or invalid for any reason, such illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if such illegal or invalid provisions had never been contained in
the Plan.
5.12. EFFECT OF HEADINGS. The descriptive headings and sections of the
Plan are inserted for convenience of reference and identification only and do
not constitute a part of the Plan for purposes of interpretation.
5.15. FUNDING. Benefits payable under the Plan to any person will be paid
by the Company or its Affiliates from their general assets. Shares of Company
common stock to be distributed hereunder shall be issued directly by the Company
or acquired by the Company or its Affiliates, on the open market, or a
combination thereof. Neither the Company nor any of its Affiliates shall be
required to segregate on their books or otherwise establish any funding
procedure for any amount to be used for the payment of benefits under the Plan.
The Company or any of its Affiliates may, however, in their sole discretion, set
funds aside in investments to meet any anticipated obligations under the Plan.
Any such action or set-aside shall not be deemed to create a trust of any kind
between the Company or any of its Affiliates and any Director or other person
entitled to benefits under the Plan or to constitute the funding of any Plan
benefits. Consequently, any person entitled to a payment under the Plan will
have no rights greater than the rights of any other unsecured creditor of the
Company or its Affiliates.
5.16. LIABILITY. No member of the Board of Directors, the Committee or any
officer or employee of the Company or any of its Affiliates shall be personally
liable for any action, omission or determination made in good faith in
connection with the Plan. By participating in the Plan, each Director agrees to
release and hold harmless the Company, its Affiliates (and their respective
directors, officers and employees) and the Committee from and against any tax
liability, including without limitation, interest and penalties, incurred by the
Director in connection with his receipt of Options and Units under the Plan and
the exercise thereof.
5.17. WITHHOLDING. Each Director shall be solely responsible for (and,
where required by applicable law, the Company will withhold from any amounts
payable under the Plan) all legally required federal, state, city and local
taxes. The Committee shall permit a Director to satisfy, in whole or in part,
any withholding tax obligation which may arise in connection with the exercise
of an Option or Unit by having the Company retain shares of stock which would
otherwise be issued in connection with the exercise of the Option or Unit or
accept delivery from the Director of shares of Company stock which have a Fair
Market Value, determined as of the date of the delivery of such shares, equal to
the amount of withholding tax to be satisfied by that delivery.
<TABLE>
<S> <C> <C>
DUKE REALTY INVESTMENTS, INC.
By: /S/ DENNIS D. OKLAK
-----------------------------------------
Dennis D. Oklak, Executive Vice President,
DATED: January 26, 1999 Treasurer and Chief Administrative Officer
</TABLE>
<TABLE>
<S> <C> <C>
ATTEST:
/s/ DENISE K. DANK
-----------------------------------------
Denise K. Dank,Vice President,
Human Resources
By:
</TABLE>
F-9
<PAGE>
ANNEX G
1999 SALARY REPLACEMENT STOCK OPTION
AND DIVIDEND INCREASE UNIT PLAN
OF
DUKE REALTY INVESTMENTS, INC.
ARTICLE I
INTRODUCTION
1.1. PURPOSE. The 1999 Salary Replacement Stock Option and Dividend
Increase Unit Plan of Duke Realty Investments, Inc. (the "Plan") is designed to
promote the interests of Duke Realty Investments, Inc. (the "Company"), its
shareholders and the Subsidiaries of the Company, by providing officers and key
employees, upon whose judgment, initiative and industry the Company and its
Subsidiaries are largely dependent for the successful conduct and growth of
their businesses, the opportunity to receive nonqualified stock options
("Options") and dividend increase units ("Units") in lieu of Eligible
Compensation (as defined below) thereby encouraging focus on the growth,
profitability and dividend paying capacity of the Company.
1.2. EFFECTIVE DATE AND DURATION. The Effective Date of the Plan is
January 1, 1999. Options and Units may be granted under the Plan for a period of
ten (10) years commencing January 1, 1999; however, no Options or Units may be
exercised until the Plan has been approved by a majority of the shares of the
Company represented at the shareholders' meeting at which approval of the Plan
is considered. No Options or Units shall be granted under the Plan after
December 31, 2009. On that date, the Plan shall expire, except as to outstanding
Options and Units, which Options and Units shall remain in effect until they
have been exercised, terminated or have expired.
1.3. ADMINISTRATION.
(a) ADMINISTRATIVE COMMITTEE AND DISCRETION. The Plan shall be
administered by the Committee. The Committee, from time to time, may adopt
any rule or procedure it deems necessary or desirable for the proper and
efficient administration of the Plan provided it is consistent with the
terms of the Plan. The decision of a majority of the Committee members shall
constitute the decision of the Committee. Subject to the provisions of the
Plan, the Committee is authorized (i) to grant Options and Units; (ii) to
determine the employees to be granted Option and Units; (iii) to determine
the number of shares subject to each Option; (iv) to determine the number of
Units to be granted; (v) to permit, in its discretion, the limited
transferability of Options granted to Participants; and (vi) to determine
the conditions and limitations, if any, applicable to the exercise of each
Option and Unit. Each Option and Unit granted under the Plan shall be
evidenced by a Grant Agreement containing terms and conditions established
by the Committee consistent with the provision of the Plan. The Committee's
determinations and interpretations with respect to the Plan shall be final
and binding on all parties. Any notice or document required to be given to
or filed with the Committee will be properly given or filed if delivered or
mailed by certified mail, postage prepaid, to the Committee at 8888 Keystone
Crossing, Suite 1200, Indianapolis, Indiana 46240-2182.
(b) NO CONTRACT OF EMPLOYMENT. Neither the Plan, nor any Grant
Agreement executed under the Plan shall constitute a contract of employment
and participation in the Plan will not give a Participant the right to be
rehired or retained in the employ of the Company, nor will participation in
the Plan give any Participant any right or claim to any benefit under the
Plan, unless such right or claim has specifically accrued under the terms of
the Plan.
1.4. DEFINITIONS. For purposes of this Plan, unless a different meaning is
clearly required by the context:
(a) "Annual Incentive Bonuses" means any cash bonus award payable to a
Participant for a calendar year by the Company and/or a Subsidiary.
<PAGE>
(b) "Basic Salary" means a Participant's base salary from the Company and/or
a Subsidiary for a calendar year (or portion thereof during which he is a
Participant under the Plan), excluding (i) amounts deferred under
Sections 125 and 401(k) of the Code, (ii) amounts deferred under the
Executives' Deferred Compensation Plan of Duke Realty Services Limited
Partnership, (iii) Annual Incentive Bonuses, and (iv) other forms of
incentive compensation.
(c) "Board of Directors" means the board of directors of the Company.
(d) "Change in Control of the Company" means (i) any merger, consolidation
or similar transaction which involves the Company and in which persons
who are the shareholders of the Company immediately prior to such
transaction own, immediately after such transaction, shares of the
surviving or combined entity which possess voting rights equal to or less
than fifty percent (50%) of the voting rights of all shareholders of such
entity, determined on a fully diluted basis; (ii) any sale, lease,
exchange, transfer or other disposition of all or any substantial part of
the consolidated assets of the Company; (iii) any tender, exchange, sale
or other disposition (other than disposition of the stock of the Company
or any Subsidiary in connection with bankruptcy, insolvency, foreclosure,
receivership or other similar transactions) or purchases (other than
purchases by the Company or any Company sponsored employee benefit plan,
or purchases by members of the Board of Directors of the Company or any
Subsidiary) of shares which represent more than twenty-five percent (25%)
of the voting power of the Company or any Subsidiary; (iv) during any
period of two (2) consecutive years, individuals who at the date of the
adoption of the Plan constitute the Company's Board of Directors cease
for any reason to constitute at least a majority thereof, unless the
election of each director at the beginning of such period has been
approved by directors representing at least a majority of the directors
then in office who were directors on the date of the adoption of the
Plan; (v) a majority of the Company's Board of Directors recommends the
acceptance of or accept any agreement, contract, offer or other
arrangement providing for, or any series of transactions resulting in,
any of the transactions described above. Notwithstanding the foregoing, a
Change in Control of the Company shall not occur as a result of the
issuance of stock by the Company in connection with any public offering
of its stock.
(e) "Code" means the Internal Revenue Code, as amended.
(f) "Committee" means the Executive Compensation Committee of the Board of
Directors of the Company.
(g) "Company" means Duke Realty Investments, Inc.
(h) "Delivered Stock" means whole shares of common stock of the Company.
(i) "Eligible Compensation" means Basic Salary, Annual Incentive Bonuses and
Shareholder Value Plan Awards.
(j) "Effective Date" means January 1, 1999.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(l) "Fair Market Value" means the per share closing price for the Company's
common stock on the New York Stock Exchange on the date of determination.
(m) "For Cause" means (i) the willful and continued failure of a Participant
to perform his required duties as an officer or employee of the Company
or any Subsidiary, (ii) any action by a Participant which involves
willful misfeasance or gross negligence, (iii) the requirement of or
direction by a federal or state regulatory agency which has jurisdiction
over the Company or any Subsidiary to terminate the employment of a
Participant, (iv) the conviction of a Participant of the commission of
any criminal offense which involves dishonesty or breach of trust, or (v)
any intentional breach
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<PAGE>
by a Participant of a material term, condition or covenant of any
agreement between the Participant and the Company or any Subsidiary.
(n) "Grant Agreement" means the written agreement between a Participant and
the Company which sets forth the terms and conditions of the grant to the
Participant of Options and Units.
(o) "Immediate Family Member" or "Immediate Family Members" means the
spouse, children or grandchildren of a Participant.
(p) "NASD Dealer" means a broker-dealer who is a member of the National
Association of Securities Dealers.
(q) "Option" or "Options" means nonqualified stock options granted by the
Company under the Plan.
(r) "Participant" means an officer or key employee who is designated to
participate in the Plan as provided in Article II.
(s) "Participation Agreement" means the written agreement between a
Participant and the Company whereby the Participant agrees to defer all
or any percentage (or dollar amount) of his Eligible Compensation from
the Company for a calendar year in exchange for the grant to the
Participant of Options and Units under the Plan.
(t) "Permanent and Total Disability" or "Permanently and Totally Disabled"
means any disability that would qualify as a disability under Code
Section 22(c)(3).
(u) "Per Share Value" means the per share New York Stock Exchange closing
price for the Company's common stock on the date of determination.
(v) "Plan" means the stock option and dividend increase unit plan embodied
herein, as amended from time to time, known as the 1999 Salary
Replacement Stock Option and Dividend Increase Unit Plan of Duke Realty
Investments, Inc.
(w) "Section 16 Grantee" means a person subject to potential liability under
Section 16(b) of the Exchange Act with respect to transactions involving
equity securities of the Company.
(x) "Shareholder Value Plan Award" means any awards payable to a Participant
for a calendar year by the Company and/or a Subsidiary under the 1995
Shareholder Value Plan of Duke Realty Services Limited Partnership.
(y) "Subsidiary" or "Subsidiaries" means a corporation, partnership or
limited liability company, a majority of the outstanding voting stock,
general partnership interests or membership interests, as the case may
be, of which is owned or controlled, directly or indirectly, by the
Company or by one or more other Subsidiaries of the Company. For the
purposes of this definition, "voting stock" means stock having voting
power for the election of directors, or trustees, as the case may be,
whether at all times or only so long as no senior class of stock has such
voting power by reason of any contingency.
(z) "Unit" or "Units" means dividend increase units granted by the Company
under the Plan.
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ARTICLE II
ELIGIBILITY AND VESTING
2.1. ELIGIBILITY. Participation in the Plan is limited to those officers
and key employees of the Company and its Subsidiaries who, from time to time,
shall be designated by the Committee. Committee members shall not be eligible to
receive grants of Options or Units under this Plan while serving as Committee
members. A designated employee will become a Participant in the Plan as of the
date specified by the Committee. A Participant may be removed as an active
Participant by the Committee effective as of any date.
2.2 ELECTION TO PARTICIPATE.
(a) MANNER OF ELECTING TO PARTICIPATE. Subject to the terms and
limitations of Article III, for each calendar year during the term of the
Plan, an officer or employee who has been designated as a Participant may
elect to reduce his Eligible Compensation from the Company and receive
grants of Options and Units hereunder by delivering a completed
Participation Agreement to the Committee prior to the year in which the
Eligible Compensation would otherwise be paid. The Participation Agreement
shall specify the percentage (or dollar amount) of the Participant's
Eligible Compensation to be deferred.
(b) PARTICIPATION AGREEMENT. A Participation Agreement must be
executed by the Participant and the Company on or prior to December 31 of
the calendar year prior to the calendar year during which the Participant
would otherwise be entitled to receive payment of the Eligible Compensation
to which the Participation Agreement relates. A Participation Agreement may
be amended with respect to any subsequent calendar year so long as such
amended Participation Agreement is executed by the Participant and the
Company on or prior to December 31 of the calendar year preceding the
calendar year to which the amended Participation Agreement relates.
(c) NO LIMITATIONS ON DEFERRALS. A Participant may elect to defer up
to one hundred percent (100%) of each of his Eligible Compensation for a
calendar year.
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ARTICLE III
BENEFITS
3.1. SHARES COVERED BY THE PLAN. The stock to be subject to Options and
Units under the Plan shall be shares of authorized common stock of the Company
and may be unissued shares or reacquired shares (including shares purchased in
the open market), or a combination of the two, as the Committee may from time to
time determine. Subject to the provisions of Sections 4.4 and 5.3 and the
provisions of this Section 3.1, the maximum number of shares to be delivered
upon exercise of all Options and Units granted under the Plan shall not exceed
Five Hundred Thousand (500,000) shares. If the exercise price of any stock
option granted under the Plan is satisfied by tendering shares to the Company
(by either actual delivery or by attestation), only the number of shares issued
net of the shares tendered shall be deemed delivered for purposes of determining
the maximum number of shares available for delivery under the Plan. Shares
covered by an Option or Unit that are forfeited due to termination of service or
that remain unpurchased or undistributed upon expiration or termination of the
Option or Unit, respectively, may be made subject to further Options and Units.
A. STOCK OPTIONS
3.2. GRANT OF OPTIONS. For each calendar year during the term of the Plan,
each Participant who has made an election under Section 2.2 shall receive one or
more grants of Options for the calendar year to which the Participant's
Participation Agreement relates. Such grant shall be made by the Committee. The
number of the Options granted for each dollar of Eligible Compensation deferred
for such calendar year and the date(s) of grant shall be determined at the sole
discretion of the Committee, provided that the number of Options granted shall
equal the number of Units granted under Section 3.6. In the event the
Participant's employment is terminated for any reason prior to the last day of
the calendar year during which a Participation Agreement is in effect, the
Options granted to him for such calendar year that are attributable to the
deferral of Basic Salary (determined at the sole discretion of the Committee)
shall be reduced to reflect the amount of Basic Salary which was not payable to
the Participant due to his termination of employment.
3.3. EXERCISE OF OPTIONS. All Options shall vest on the effective date of
the Option grant. However, Options shall not be exercisable until the first
anniversary of the effective date of the Option grant. An Option must be
exercised on or before the tenth anniversary of the date on which it was
granted. If not exercised on or before that date, the Option shall expire. In
addition, all rights to exercise an Option shall terminate two (2) years after
the effective date of the Participant's termination of employment with the
Company and its Subsidiaries, but not later than the date the Option expires
pursuant to its terms, unless such termination is For Cause. Transfer of
employment from the Company to a Subsidiary, or vice versa, or from one
Subsidiary to another, shall not be deemed a termination of employment. The
Committee shall have the authority to determine in each case whether a leave of
absence on military or government service shall be deemed a termination of
employment for purposes of this Section 3.3. If a Participant's employment is
terminated For Cause, his rights to exercise his Option shall expire on the date
of termination. If a Participant's employment terminates due to Permanent and
Total Disability or death, the Participant, his guardian, attorney-in-fact or
personal representative, as the case may be, may exercise his Option subject to
the limitations of this Plan and the Option grant.
3.4. OPTION PRICE. The option price per share of stock under each Option
shall be not less than one hundred percent (100%) of the Fair Market Value of
the shares as of the date on which the Option is granted.
B. DIVIDEND INCREASE UNITS
3.6. GRANT OF UNITS. For each calendar year during the term of the Plan,
each Participant who has made an election under Section 2.2 shall receive one or
more grants of Units for the calendar year to which the Participant's
Participation Agreement relates. Such grant shall be made by the Committee. The
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<PAGE>
number of the Units granted for each dollar of Eligible Compensation deferred
for such calendar year and the date(s) of grant shall be determined at the sole
discretion of the Committee, provided that the number of Units granted shall
equal the number of Options granted under Section 3.2. In the event the
Participant's employment is terminated for any reason prior to the last day of
the calendar year for which his Participation Agreement is in effect, the number
of Units granted to him for such calendar year that are attributable to the
deferral of Basic Salary (determined at the sole discretion of the Committee)
shall be reduced to reflect the amount of Basic Salary which was not payable to
the Participant due to his termination of employment.
3.7. EXERCISE OF UNITS. A Participant may exercise his Units subject to
the following requirements:
(a) TIMING OF EXERCISE. All Units shall vest on the effective date of
the Unit grant. However, a Unit shall not be exercisable until the first
anniversary of the effective date of the Unit grant. A Unit must be
exercised on or before the tenth anniversary of the date on which it was
granted. If not exercised on or before that date, the Unit shall expire. In
addition, all rights to exercise a Unit shall terminate two (2) years after
the effective date of the Participant's termination of employment with the
Company and its Subsidiaries, but not later than the date the Unit expires
pursuant to its terms, unless such termination is For Cause. Transfer of
employment from the Company to a Subsidiary, or vice versa, or from one
Subsidiary to another, shall not be deemed a termination of employment. The
Committee shall have the authority to determine in each case whether a leave
of absence on military or government service shall be deemed a termination
of employment for purposes of this Section 3.7(a). If a Participant's
employment is terminated For Cause, his rights to exercise his Units shall
expire on the date of termination. If a Participant's employment terminates
due to Permanent and Total Disability or death, the Participant, his
guardian, attorney-in-fact or personal representative, as the case may be,
may exercise his Units subject to the limitations of this Plan and the Grant
Agreement.
(b) PRIOR EXERCISE OF STOCK OPTIONS. Units may be exercised only to
the extent that the same or a greater number of Options have been
surrendered by the Participant through the exercise of Options granted under
the Plan on the same date on which the Units were granted. Such exercise may
have been prior to or simultaneous with the exercise of such Units. For
example, if a Participant was granted an Option under the Plan to acquire
Two Thousand Five Hundred (2,500) shares of the Company's stock and on the
same date he was granted Two Thousand Five Hundred (2,500) Units under the
Plan, the Participant may not exercise the Two Thousand Five Hundred (2,500)
Units granted hereunder until he has exercised at least Two Thousand Five
Hundred (2,500) Options under that stock option grant. Thus, if the
Participant has exercised (or is simultaneously exercising with his exercise
of the Units) One Thousand (1,000) Options under that stock option grant, he
may at any time on or after the date of such exercise, exercise up to One
Thousand (1,000) Units granted on the same date as the date such Options
were granted, as long as all the other Plan conditions and limitations have
been satisfied with respect to such exercise. The shares of Company stock
acquired by the exercise of an Option on a date other than the date on which
the Units were granted may not be used as a basis for the exercise of such
Units.
(c) PRIOR NOTICE OF EXERCISE. The Participant must notify the
Committee of his intent to exercise a Unit by completing an election form
authorized by the Committee and filing such form with the Committee.
3.8. CALCULATION OF UNIT VALUE AT TIME OF PAYMENT. Upon the exercise date,
the Unit or Units being exercised will be valued for all purposes under the Plan
in accordance with the following formula. First, the Per Share Value of a share
of the Company's common stock, as of the effective date on which the Unit was
granted, will be determined. Second, the quarterly cash dividend rate per share
of the Company's common stock most recently declared prior to the effective date
of the grant will be determined and annualized (multiplied by four). Third, that
annualized cash dividend will be divided by the Per Share Value on the effective
date of the grant to set the grant date dividend yield. Fourth, the quarterly
cash dividend rate per
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share of the Company's common stock which was most recently declared on or
before the exercise date will be determined and annualized (multiplied by four).
Fifth, the annualized cash dividend on the effective date of the grant (as
determined under the second step) will be subtracted from the annualized
dividend on the exercise date (as determined under the fourth step) to determine
the increase in the annualized cash dividend. Sixth, the amount of the increase
(as determined under the fifth step) will be divided by the grant date dividend
yield (as determined under the third step) to establish the Unit's value on the
exercise date. For all purposes of this Plan, if there is no Per Share Value for
Company stock on the date on which an event which requires the stock to be
valued, the per share value shall be the Per Share Value for Company stock on
the trading date immediately preceding the date on which the stock is required
to be valued.
For example, if the Per Share Value of a share of Company stock on the
effective date of a Unit's grant was $30.00, the quarterly dividend rate on the
date of grant was $0.49 and the quarterly dividend rate on the date of exercise
was $0.55, then the Unit's value at exercise would be $3.67, determined under
the six steps in the preceding paragraph as follows:
<TABLE>
<S> <C> <C>
(1) $30.00 [NYSE Closing Price on Date of Grant]
(2) $1.96 [$0.49 (Company's Quarterly Cash Dividend on Date of Grant) X 4]
(3) 6.5333% [(2) DIVIDED BY (1)]
(4) $2.20 [$0.55 (Company's Quarterly Cash Dividend on Date of Exercise) X 4]
(5) $0.24 [$2.20-$1.96 = Increase in Annualized Cash Dividend]
(6) $3.67 [(5) DIVIDED BY (3)]
</TABLE>
If the Participant had been granted one hundred (100) Units and he exercised all
of those Units, he would be entitled to receive whole shares of Company common
stock with a value of $367 based on the Per Share Value on the date of exercise.
(The number of shares to be distributed is described under Section 4.2).
ARTICLE IV
DISTRIBUTIONS
4.1. TIME OF PAYMENT OF UNITS. The Company will pay to each Participant
the value of the Unit or Units, rounded to the nearest whole share of Company
common stock, with respect to which a proper and timely election has been made.
Such payment shall be made as soon as practicable following the exercise date.
4.2. MANNER OF PAYMENT OF UNITS. Distribution of a Participant's benefit
under Section 4.1 will be made in a single lump sum in the form of whole shares
of Company common stock rounded to the nearest whole share. The number of shares
to be issued under this Section 4.2 will be based on the Per Share Value on the
exercise date of the Units. For example, if the Per Share Value on the date of
exercise was $50.00 and the payment amount determined under Section 3.8 was
$367.00, the Participant would be entitled to receive seven (7) shares of
Company stock (367 DIVIDED BY 50 = 7.34). On the other hand, if the payment
amount determined under Section 3.8 was $380.00, the Participant would be
entitled to receive eight (8) shares of Company stock ($380 DIVIDED BY 50 =
7.60).
4.3. DISTRIBUTION ON CHANGE OF CONTROL. Notwithstanding any other Plan
provision to the contrary, each Participant will be entitled to receive, within
ninety (90) days of a Change in Control of the Company, a lump sum payment, in
cash, of the value of his Units determined under Section 3.8 as of the date of
the Change in Control of the Company.
4.4. PAYMENT FOR STOCK.
(a) Full payment for shares purchased pursuant to the exercise of an
Option hereunder shall be made at the time the Option is exercised. Payment
may be made by delivering to the Company (i) cash; (ii) Delivered Stock
which (A) has been owned by the Participant for more than six
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(6) months and has been paid for, within the meaning of Securities Exchange
Commission Rule 144 (and, if such stock was purchased from the Company by
use of a promissory note, such note has been fully paid with respect to such
stock), or (B) was obtained by the Participant in the public market or other
than through the exercise of an Option under this Plan or under any other
stock option plan involving Company stock; (iii) a combination of cash and
Delivered Stock; or (iv) provided that a public market for the Company's
common stock exists, (A) through a "same day sale" commitment from the
Participant and a NASD Dealer whereby the Participant irrevocably elects to
exercise the Option and to sell a portion of the common stock so purchased
in order to pay the option price, and whereby the NASD Dealer irrevocably
commits upon receipt of such stock to forward the option price directly to
the Company; or (B) through a "margin" commitment from the Participant and
an NASD Dealer whereby the Participant irrevocably elects to exercise the
Option and to pledge the stock so purchased to the NASD Dealer in a margin
account as security for a loan from the NASD Dealer in the amount of the
option price and whereby the NASD Dealer irrevocably commits upon receipt of
such stock to forward the option price directly to the Company. Delivered
Stock shall be valued by the Committee at its Fair Market Value determined
as of the date of the exercise of the Option. No shares shall be issued
until full payment for them has been made, and a Participant shall have none
of the rights of a shareholder with respect to any shares until they are
issued to him. Upon payment of the full purchase price, the Company shall
issue a certificate or certificates to the Participant evidencing ownership
of the shares purchased pursuant to the exercise of the Option which
contain(s) such terms, conditions and provisions as may be required and as
are consistent with the terms, conditions and provisions of the Plan and the
grant agreement. For purposes of this Section 4.4, payment for shares
purchased hereunder may be delivered to the Company through such attestation
or certification procedures as may be established by the Committee from time
to time in its sole discretion.
(b) For purposes of determining the number of Units which can be
exercised under Section 3.7, the number of Options exercised rather than the
number of shares actually issued under this Section 4.4 shall be taken into
account.
ARTICLE V
PLAN ADMINISTRATION AND INTERPRETATION
5.1 AMENDMENT OR TERMINATION. The Board of Directors may, at any time,
without the approval of the stockholders of the Company (except as otherwise
required by applicable law, rule or regulation, including without limitation any
shareholder approval of the safe harbor provisions of Rule 16b-3 promulgated
under the Exchange Act) alter, amend, modify, suspend or discontinue the Plan,
but may not, without the consent of the holder of an Option or Unit, make any
alteration which would adversely affect an Option or Unit previously granted
under the Plan. However, the Board of Directors may not, without the approval of
the stockholders of the Company, make any alteration which would (a) change the
number of shares of Company common stock authorized for issuance under the Plan,
except as provided in Section 5.3; (b) decrease the minimum option price, except
as provided in Section 5.3; (c) extend the term of the Plan or change the term
during which any Option or Unit can be exercised; (d) change the class of
individuals eligible for Options and Units; or (e) withdraw administration of
the Plan from the Committee or Board of Directors.
5.2. NONTRANSFERABILITY.
(a) No Option or Unit shall be transferable, except by the Participant's
will or the laws of descent and distribution. During the Participant's
lifetime, his Options and Units shall be exercisable (to the extent
exercisable) only by him. The Options and Units, and any rights and
privileges pertaining thereto, shall not be transferred, assigned, pledged
or hypothecated by the Participant in any way, whether by operation of law
or otherwise and shall not be subject to execution, attachment or similar
process.
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(b) Notwithstanding the provisions of subsection (a), a Participant may
transfer Options granted under the Plan to: (i) Immediate Family Members;
(ii) a trust or trusts for the exclusive benefit of Immediate Family
Members; or (iii) a partnership or limited liability company in which the
Participant and/or the Immediate Family Members are the only equity owners
(collectively, "Eligible Transferees"). An Option that is transferred to an
Immediate Family Member shall not be transferable by such Immediate Family
Member, except for any transfer by such Immediate Family Member's will or by
the laws of descent and distribution upon the death of such Immediate Family
Member.
(c) In the event that a Participant transfers Options to an Eligible
Transferee under this Section 5.2, the Options transferred to the Eligible
Transferee must be exercised by such Eligible Transferee and, in the event
of the death of such Eligible Transferee, by such Eligible Transferee's
executor or administrator only in the same manner, to the same extent and
under the same circumstances (including, without limitation, the time period
within which the Options must be exercised) as the Participant or, in the
event of the Participant's death, the executor or administrator of the
Participant's estate, could have exercised such Options. The Participant, or
in the event of the Participant's death, the Participant's estate, shall
remain liable for all federal, state, city and local taxes applicable upon
the exercise of an Option by an Eligible Transferee.
5.3. CHANGES IN STOCK.
(a) SUBSTITUTION OF STOCK AND ASSUMPTION OF PLAN. In the event of any
change in the common stock of the Company through stock dividends,
split-ups, recapitalization, reclassifications or otherwise, or in the event
that other stock shall be substituted for the present common stock of the
Company as the result of any merger, consolidation or reorganization or
similar transaction which constitutes a Change in Control of the Company,
then the Committee shall make appropriate adjustment or substitution in the
(i) aggregate number, price and kind of shares to be distributed under the
Plan and in the calculation of a Unit's value provided in Section 3.8; and
(ii) aggregate number, price and kind of shares available under the Plan and
in the number, price and kind of shares covered under any Options and Units
granted or to be granted under the Plan. The Committee's determination in
this respect shall be final and conclusive. Provided, however, that the
Company shall not, and shall not permit its Subsidiaries to, recommend,
facilitate or agree or consent to a transaction or series of transactions
which would result in a Change of Control of the Company unless and until
the person or persons or entity or entities acquiring or succeeding to the
assets or capital stock of the Company or any of its Subsidiaries as a
result of such transaction or transactions agrees to be bound by the terms
of the Plan so far as it pertains to Options and Units theretofore granted
and agrees to assume and perform the obligations of the Company and its
Successor hereunder (as defined in subsection (b)).
(b) CONVERSION OF STOCK. In the event of a Change in Control of the
Company pursuant to which another person or entity acquires control of the
Company (such other person or entity being the "Successor"), the kind of
shares of common stock which shall be subject to the Plan and to each
outstanding Option and Unit shall, automatically by virtue of such Change in
Control of the Company, be converted into and replaced by shares of common
stock, or such other class of securities having rights and preferences no
less favorable than common stock of the Successor, and the number of shares
subject to an Option, the calculation of a Unit's value and the purchase
price per share upon exercise of the Option shall be correspondingly
adjusted, so that, by virtue of such Change in Control of the Company, each
shall (i) in the case of Options, have the right to purchase (A) that number
of shares of common stock of the Successor which have a Fair Market Value
equal, as of the date of such Change in Control of the Company, to the Fair
Market Value, as of the date of such Change in Control of the Company, of
the shares of common stock of the Company theretofore subject to his Option,
(B) for a purchase price per share which, when multiplied by the number of
shares of common stock of the Successor subject to the Option, shall equal
the aggregate exercise price at which the Participant could have acquired
all of the shares of common stock of the Company previously
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optioned to the Participant; and (ii) in the case of Units, have the right
to receive that number of shares of common stock of the Successor which have
a Fair Market Value equal, as of the date of such Change in Control of the
Company, to the shares of the common stock of the Company to which the Units
relate.
5.4. USE OF PROCEEDS. The proceeds received by the Company from the sale
of stock pursuant to the Plan will be used for general corporate purposes.
5.5. INFORMATION TO BE FURNISHED BY PARTICIPANTS. Participants, or any
other persons entitled to benefits under the Plan, must furnish to the Committee
such documents, evidence, data or other information as the Committee considers
necessary or desirable for the purpose of administering the Plan. The benefits
under the Plan for each Participant, and each other person who is entitled to
benefits hereunder, are to be provided on the condition that he furnish full,
true and complete data, evidence or other information, and that he will promptly
sign any document reasonably related to the administration of the Plan requested
by the Committee.
5.6. EVIDENCE. Evidence required of anyone under the Plan may be by
certificate, affidavit, document or other information which the person relying
thereon considers pertinent and reliable, and signed, made or presented by the
proper party or parties.
5.7. GENDER AND NUMBER. When the context admits, words in the masculine
gender shall include the feminine gender, the plural shall include the singular
and the singular shall include the plural.
5.8. ACTION BY COMPANY. Any action required of or permitted by the Company
under the Plan shall be by resolution of the Committee or by a person or persons
authorized by resolution of the Committee.
5.9. CONTROLLING LAWS. Except to the extent superseded by the laws of the
United States, the laws of Indiana, without regard to the choice of law
principles thereof, shall be controlling in all matters relating to the Plan.
5.10. MISTAKE OF FACT. Any mistake of fact or misstatement of facts shall
be corrected when it becomes known and proper adjustment made by reason thereof.
5.11. SEVERABILITY. In the event any provisions of the Plan shall be held
illegal or invalid for any reason, such illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if such illegal or invalid provisions had never been contained in
the Plan.
5.12. EFFECT OF HEADINGS. The descriptive headings and sections of the
Plan are inserted for convenience of reference and identification only and do
not constitute a part of the Plan for purposes of interpretation.
5.13. FUNDING. Benefits payable under the Plan to any person will be paid
by the Company or its Subsidiaries from their general assets. Shares of Company
common stock to be distributed hereunder shall be issued directly by the Company
or acquired by the Company or its Subsidiaries, on the open market, or a
combination thereof. Neither the Company nor any of its Subsidiaries shall be
required to segregate on their books or otherwise establish any funding
procedure for any amount to be used for the payment of benefits under the Plan.
The Company or any of its Subsidiaries may, however, in their sole discretion,
set funds aside in investments to meet any anticipated obligations under the
Plan. Any such action or set-aside shall not be deemed to create a trust of any
kind between the Company or any of its Subsidiaries and any Participant or other
person entitled to benefits under the Plan or to constitute the funding of any
Plan benefits. Consequently, any person entitled to a payment under the Plan
will have no rights greater than the rights of any other unsecured creditor of
the Company or its Subsidiaries.
5.14. LIABILITY. No member of the Board of Directors, the Committee or any
officer or employee of the Company or any of its Subsidiaries shall be
personally liable for any action, omission or determination made in good faith
in connection with the Plan. By participating in the Plan, each Participant
agrees to release and hold harmless the Company, its Subsidiaries (and their
respective directors, officers and
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employees) and the Committee from and against any tax liability, including
without limitation, interest and penalties, incurred by the Participant in
connection with his receipt of Options and Units under the Plan and the exercise
thereof.
5.15. WITHHOLDING. Each Participant shall be solely responsible for (and,
where required by applicable law, the Company will withhold from any amounts
payable under the Plan) all legally required federal, state, city and local
taxes. The Committee shall permit a Participant to satisfy, in whole or in part,
any withholding tax obligation which may arise in connection with the exercise
of an Option or Unit by having the Company retain shares of stock which would
otherwise be issued in connection with the exercise of the Option or Unit or
accept delivery from the Participant of shares of Company stock which have a
Fair Market Value, determined as of the date of the delivery of such shares,
equal to the amount of withholding tax to be satisfied by that delivery.
<TABLE>
<S> <C> <C>
DUKE REALTY INVESTMENTS, INC.
By: /s/ DENNIS D. OKLAK
-----------------------------------------
Dennis D. Oklak, Executive Vice President,
Treasurer and Chief Financial Officer
DATED: January 26, 1999
- ------------------------------
</TABLE>
ATTEST:
<TABLE>
<S> <C> <C> <C>
By: /s/ DENISE K. DANK
-------------------------
Denise K. Dank, Vice
President,
Human Resources
</TABLE>
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ANNEX H
AMENDMENT ONE TO THE 1996
DIRECTORS' STOCK PAYMENT PLAN OF
DUKE REALTY INVESTMENTS, INC.
This Amendment One to the 1996 Directors' Stock Payment Plan of Duke Realty
Investments, Inc. ("Plan") is hereby adopted this 12th day of March, 1999 by
Duke Realty Investments, Inc. ("Company");
W I T N E S S E T H:
WHEREAS, the Company adopted the Plan for the purposes set forth therein;
and
WHEREAS, pursuant to Section 7 of the Plan, the Company has reserved the
right to amend the Plan with respect to certain matters, by action of the Board
of Directors of Duke Realty Investments, Inc. ("Board"); and
WHEREAS, the Plan currently provides that each Plan participant will be
entitled to receive one hundred fifty (150) shares of common stock of the
Company for each full calendar quarter during which he is actively serving as a
Director of the Company; and
WHEREAS, the Plan currently provides that the maximum number of shares to be
distributed under the Plan shall not exceed twenty thousand (20,000) shares; and
WHEREAS, the Board approved a two (2) for one (1) stock split of the
Company's common stock effective as of August 25, 1997, with respect to all
shareholders of record as of August 18, 1997; and
WHEREAS, as a result of the two (2) for one (1) stock split, the number of
shares of common stock to which each Director is entitled for each calendar
quarter was increased to three hundred (300) and the maximum number of shares to
be distributed under the Plan was increased to forty thousand (40,000);
WHEREAS, the Board has approved an increase in the maximum number of shares
to be distributed under the Plan from 40,000 shares to 140,000 shares; and
WHEREAS, the Board has approved and authorized this Amendment One;
NOW, THEREFORE, pursuant to the authority reserved to the Company under
Sections 5 and 7 of the Plan, the Plan is hereby amended by substituting the
following for Sections 4 and 6 of the Plan:
"4. SHARES COVERED BY THE PLAN. The stock to be subject to distribution
under the Plan shall be shares of authorized common stock of the Company and may
be unissued shares or reacquired shares (including shares purchased in the open
market), or a combination of the two, as the Committee may from time to time
determine. Provided, however, subject to the provisions of Section 5 and the
provisions of this Section 4, the maximum number of shares to be distributed
under the Plan shall not exceed One Hundred Forty Thousand (140,000) shares."
"6. PLAN BENEFITS. Each Plan participant will be entitled to receive three
hundred (300) shares of common stock of the Company for each full calendar
quarter during which he is actively serving as a Director of the Company. In the
event a participant is a Director for less than a full calendar quarter, the
number of shares he shall be entitled to receive hereunder shall be based on a
fraction the numerator of which is the number of days in the calendar quarter
during which he serves as a Director and the denominator of which is ninety
(90). Distribution of shares shall be made effective as of the first day of the
calendar quarter (January 1, April 1, July 1 and October 1) immediately
following the calendar quarter to which the Director's service relates.
Distribution of those shares shall be made on, or as soon as practicable
following, that date."
<PAGE>
IN WITNESS WHEREOF, Duke Realty Investments, Inc. has executed this
Amendment One to the 1996 Directors' Stock Payment Plan of Duke Realty
Investments, Inc. this 12th day of March, 1999.
<TABLE>
<S> <C> <C>
DUKE REALTY INVESTMENTS, INC.
By: /s/ DENNIS D. OKLAK
-----------------------------------------
Dennis D. Oklak
Executive Vice President,
Treasurer and Chief Administrative Officer
</TABLE>
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<PAGE>
1996 DIRECTORS' STOCK PAYMENT PLAN
OF
DUKE REALTY INVESTMENTS, INC.
1. PURPOSE. The 1996 Directors' Stock Payment Plan of Duke Realty
Investments, Inc. (the "Plan") is designed to promote the interests of Duke
Realty Investments, Inc. (the "Company") and its Subsidiaries by increasing the
proprietary interest in the Company of the members of the Company's Board of
Directors (the "Board"). For purposes of the Plan, "Subsidiary" or
"Subsidiaries" means a corporation, partnership or limited liability company, a
majority of the outstanding voting stock, general partnership interests or
membership interests, as the case may be, of which is owned or controlled,
directly or indirectly, by the Company or by one or more other Subsidiaries of
the Company. For the purposes of this definition, "voting stock" means stock
having voting power for the election of directors, or trustees, as the case may
be, whether at all times or only so long as no senior class of stock has such
voting power by reason of any contingency.
2. ADMINISTRATION. The Plan will be administered by the Compensation
Committee of the Board (the "Committee"). The Committee, from time to time, may
adopt any rule or procedure it deems necessary or desirable for the proper and
efficient administration of the Plan, provided it is consistent with the terms
of the Plan. The decision of a majority of the Committee members shall
constitute the decision of the Committee. The Committee's determinations and
interpretations with respect to the Plan shall be final and binding on all
parties. Any notice or document required to be given to or filed with the
Committee will be properly given or filed if delivered or mailed by certified
mail, postage prepaid, to the Committee at 8888 Keystone Crossing, Suite 1200,
Indianapolis, Indiana 46240-2182. Notwithstanding any Plan provision to the
contrary, the Plan is intended to meet the requirements of Rule 16b-3(c)(2)(ii)
adopted under the Securities Exchange Act of 1934, as amended (or its successor)
("Act"), and accordingly is intended to be self-governing. To this end, the Plan
requires no discretionary action by any administrative body with regard to any
transaction hereunder. To the extent, if any, that any questions of
interpretation arise, such questions shall be resolved by the Committee.
Transactions under the Plan are intended to comply with all applicable
conditions of Rule 16b-3 under the Securities Exchange Act of 1934 (or its
successors). To the extent any provision of this Plan or any action by the
Committee or the Board fails to so comply, it shall be deemed null and void to
the extent permitted by law and deemed advisable by the Committee.
3. ELIGIBILITY. Subject to the terms and conditions of the Plan, each
member of the Board, excluding those directors who are also employees of the
Company or a Subsidiary (a "Director"), shall receive shares of the Company's
common stock under the Plan as described in Section 6. A Director shall cease to
be a Plan participant on the date he ceases to be a Director for any reason.
4. SHARES COVERED BY THE PLAN. The stock to be subject to distribution
under the Plan shall be shares of authorized common stock of the Company and may
be unissued shares or reacquired shares (including shares purchased in the open
market), or a combination of the two, as the Committee may from time to time
determine. Provided, however, subject to the provisions of Section 5 and the
provisions of this Section 4, the maximum number of shares to be distributed
under the Plan shall not exceed Twenty Thousand (20,000) shares.
5. ADJUSTMENTS. If the outstanding shares of stock of the class then
subject to the Plan are increased or decreased, or are changed into or exchanged
for a different number or kind of shares or securities as a result of one (1) or
more reorganizations, recapitalizations, stock splits, reverse stock splits,
stock dividends, spin-offs and the like, appropriate adjustments shall be made
in the number and/or type of shares or securities for which awards shall
thereafter be granted under the Plan.
6. PLAN BENEFITS. Each Plan participant will be entitled to receive one
hundred fifty (150) shares of common stock of the Company for each full calendar
quarter during which he is actively serving as a
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<PAGE>
Director of the Company. In the event a participant is a Director for less than
a full calendar quarter, the number of shares he shall be entitled to receive
hereunder shall be based on a fraction the numerator of which is the number of
days in the calendar quarter during which he serves as a Director and the
denominator of which is ninety (90). Distribution of shares shall be made
effective as of the first day of the calendar quarter (January 1, April 1, July
1 and October 1) immediately following the calendar quarter to which the
Director's service relates. Distribution of those shares shall be made on, or as
soon as practicable following, that date.
7. AMENDMENT AND DISCONTINUANCE. The Board or the Committee may, at any
time, alter, amend, suspend or discontinue the Plan, provided that (i)
shareholder approval shall be obtained to the extent required to comply with
Rule 16b-3 or any successor exemptive rule under the Act, and (ii) the
provisions of the Plan which designate the individuals eligible to participate
in the Plan and specifying the amount and timing of grants under the Plan shall
not be amended more than once every six (6) months, other than to comply with
amendments to the Internal Revenue Code or the rules and regulations promulgated
thereunder.
8. LIABILITY. No member of the Board or the Committee or any officer or
employee of the Company or its Subsidiaries shall be personally liable for any
action, omission or determination made in good faith in connection with the
Plan.
9. EFFECTIVE DATE AND DURATION. This Plan will become effective on the
date it is approved by a majority of the shares of the Company's stock
represented at any annual meeting of the stockholders.
10. TAX WITHHOLDING. The Company shall withhold from any amounts payable
under this Plan all legally required federal, state, city and local taxes.
11. EVIDENCE. Evidence required of anyone under the Plan may be by
certificate, affidavit, document or other information which the person relying
thereon considers pertinent and reliable, and signed, made or presented by the
proper party or parties.
12. GENDER AND NUMBER. Where the context admits, words in the masculine
gender shall include the feminine gender, the plural shall include the singular
and the singular shall include the plural.
13. CONTROLLING LAWS. Except to the extent superseded by laws of the
United States, the laws of Indiana shall be controlling in all matters relating
to the Plan.
14. MISTAKE OF FACT. Any mistake of fact or misstatement of fact shall be
corrected when it becomes known and proper adjustment made by reason thereof.
15. SEVERABILITY. In the event any provisions of the Plan shall be held to
be illegal or invalid for any reason, such illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
endorsed as if such illegal or invalid provisions had never been contained in
the Plan.
16. EFFECT OF HEADINGS. The descriptive headings of the sections of this
Plan are inserted for convenience of reference and identification only and do
not constitute a part of this Plan for purposes of interpretation.
17. COMPLIANCE WITH LAW. Common stock shall not be issued under the Plan
unless and until counsel for the Company shall be satisfied that any conditions
necessary for such issuance to comply with applicable federal, state or local
tax, securities or other laws or rules or applicable securities exchange
requirements have been fulfilled. In particular, the Company shall not be
required to deliver any shares pursuant to the Plan prior to (i) the admission
of such shares to listing on any stock exchange on which the common stock of the
Company may then be listed, (ii) the completion of such registration or other
qualification of such shares under state or federal law, rule or regulation as
the Company shall determine to be necessary or advisable, and (iii) to the
extent the shares are not so registered or qualified under the law of any
applicable jurisdiction, the receipt by the Company of such representations of
the investment
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<PAGE>
intent of the recipient of the shares as the Company shall require to comply
with federal, state or local securities laws.
<TABLE>
<S> <C> <C>
DUKE REALTY INVESTMENTS, INC.
By: /s/ THOMAS L. HEFNER
-----------------------------------------
Thomas L. Hefner
DATED: October 26, 1995 President and Chief Executive Officer
</TABLE>
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