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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1997
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number 333-31183-01
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
North Carolina 56-1869557
<S> <C>
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>
3100 Smoketree Court, Suite 600
Raleigh, N.C. 27604
(Address of principal executive offices) (Zip Code)
919-872-4924
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of Each Exchange on
Title of Each Class Which Registered
- --------------------------------------------- -------------------------
<S> <C>
6 3/4% Notes due December 1, 2003 New York Stock Exchange
7% Notes due December 1, 2006 New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment of
this Form 10-K. [ ]
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement of Highwoods Properties, Inc. in
connection with its Annual Meeting of Shareholders to be held May 14, 1998 are
incorporated by reference in Part III Items 10, 11 and 13.
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<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item No. Page No.
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<S> <C> <C>
PART I
1. Business .................................................................. 3
2. Properties ................................................................ 10
3. Legal Proceedings ......................................................... 24
4. Submission of Matters to a Vote of Security Holders ....................... 24
X. Executive Officers of the Registrant ...................................... 24
PART II
5. Market for Registrant's Equity and Related Security Holder Matters ........ 25
6. Selected Financial Data ................................................... 25
7. Management's Discussion and Analysis of Financial Condition and Results
of Operations ............................................................. 27
8. Financial Statements and Supplementary Data ............................... 38
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ...................................................... 38
PART III
10. Directors and Executive Officers of the Registrant ........................ 38
11. Executive Compensation .................................................... 38
12. Security Ownership of Certain Beneficial Owners and Management ............ 38
13. Certain Relationships and Related Transactions ............................ 38
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ........... 39
</TABLE>
2
<PAGE>
PART I
ITEM 1. BUSINESS
General
Highwoods/Forsyth Limited Partnership (the "Operating Partnership") is
managed by its general partner, Highwoods Properties, Inc. (the "Company"), a
self-administered and self-managed real estate investment trust ("REIT") that
began operations through a predecessor in 1978. Originally founded to oversee
the development, leasing and management of the 201-acre Highwoods Office Center
in Raleigh, North Carolina, the Operating Partnership has since evolved into
one of the largest owners and operators of suburban office and industrial
properties in the southeastern United States. As of December 31, 1997, the
Operating Partnership owned a portfolio of 481 in-service office and industrial
properties (the "Properties") and owned 718 acres (and had agreed to purchase
an additional 512 acres) of undeveloped land suitable for future development
(the "Development Land"). An additional 32 properties (the "Development
Projects"), which will encompass approximately 3.3 million square feet, were
under development as of December 31, 1997. The Properties consist of 342
suburban office properties and 139 industrial properties (including 73 service
centers) located in 19 markets in North Carolina, Florida, Tennessee, Georgia,
Virginia, South Carolina, Maryland and Alabama.
The Operating Partnership is controlled by the Company as its sole general
partner and, as of March 20, 1998, the Company owned approximately 83% of the
common partnership interests (the "Common Units") in the Operating Partnership.
The remaining Common Units are owned by limited partners (including certain
officers and directors of the Company). Each Common Unit may be redeemed by the
holder thereof for the cash value of one share of common stock, $.01 par value,
of the Company (the "Common Stock") or, at the Company's option, one share
(subject to certain adjustments) of Common Stock. With each such exchange, the
number of Common Units owned by the Company and, therefore, the Company's
percentage interest in the Operating Partnership, will increase.
In addition to owning the Properties, the Development Projects and the
Development Land, the Operating Partnership provides leasing, property
management, real estate development, construction and miscellaneous tenant
services for the Properties as well as for third parties. The Operating
Partnership conducts its third-party fee-based services through Highwoods
Tennessee Properties, Inc., a wholly owned subsidiary of the Company, and
Highwoods Services, Inc., a subsidiary of the Operating Partnership.
The Operating Partnership was formed in North Carolina in 1994. The
Operating Partnership's executive offices are located at 3100 Smoketree Court,
Suite 600, Raleigh, North Carolina 27604, and its telephone number is (919)
872-4924. The Operating Partnership also maintains regional offices in
Winston-Salem and Charlotte, North Carolina; Richmond, Virginia; Baltimore,
Maryland; Nashville and Memphis, Tennessee; Atlanta, Georgia; Tampa, Boca
Raton, Tallahassee and Jacksonville, Florida; and South Florida.
Business Objectives and Strategy of the Operating Partnership
The Operating Partnership seeks to maximize the total return to its Common
Unit holders (i) through contractual increases in rental rates from existing
leases, (ii) by renewing or re-leasing space with expiring leases at higher
effective rental rates, (iii) by increasing occupancy levels in properties,
(iv) by acquiring new properties, (v) by developing new properties, including
properties on the Development Land, and (vi) by providing a complete line of
real estate services to the Operating Partnership's tenants and to third
parties. The Operating Partnership believes that its in-house development,
acquisition, construction management, leasing and management services allow it
to respond to the many demands of its existing and potential tenant base, and
enable it to provide its tenants cost-effective services such as build-to-suit
construction and space modification, including tenant improvements and
expansions. In addition, the breadth of the Operating Partnership's
capabilities and resources provides it with market
3
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information not generally available and gives the Operating Partnership
increased access to development, acquisition and management opportunities. The
Operating Partnership believes that the operating efficiencies achieved through
its fully integrated organization also provide a competitive advantage in
setting its lease rates and pricing its other services.
The Operating Partnership's strategy has been to focus its real estate
activities in markets where it believes its extensive local knowledge gives it
a competitive advantage over other real estate developers and operators. As the
Operating Partnership has expanded into new markets, it has continued to
maintain this localized approach by combining with local real estate operators
with many years of development and management experience in their respective
markets. Also, in making its acquisitions, the Operating Partnership has sought
to employ those property-level managers who are experienced with the real
estate operations and the local market relating to the acquired properties,
resulting in approximately three-quarters of the portfolio currently being
managed on a day-to-day basis by personnel that has had previous experience
managing, leasing and/or developing those properties for which they are
responsible.
The Operating Partnership seeks to acquire suburban office and industrial
properties at prices below replacement cost that offer attractive returns,
including acquisitions of underperforming, high-quality assets in situations
offering opportunities for the Operating Partnership to improve such assets'
operating performance. In evaluating potential acquisition opportunities, the
Operating Partnership will continue to rely on the extensive experience of its
management and its research capabilities in considering a number of factors,
including: (i) the location of the property, (ii) the construction quality and
condition of the property, (iii) the occupancy and demand of properties of a
similar type in the market and (iv) the ability of the property to generate
returns at or above levels of expected growth. (See " -- Recent Developments"
for a discussion of the Operating Partnership's acquisition and development
activities during 1997.) The Operating Partnership also believes that the 1,230
acres of Development Land controlled as of December 31, 1997 should provide it
with a competitive advantage in its future development activities.
The Operating Partnership may from time to time acquire properties from
property owners through the exchange of Common Units for the property owner's
equity in the acquired property. As discussed above, each Common Unit received
by these property owners is redeemable for cash from the Operating Partnership
or, at the Company's option, one share of Common Stock. In connection with the
transactions, the Operating Partnership may also assume outstanding
indebtedness associated with the acquired properties. The Operating Partnership
believes that this acquisition method may permit it to acquire properties at
attractive prices from property owners wishing to enter into tax-deferred
transactions. As of December 31, 1997, the Operating Partnership had acquired
235 properties using the foregoing method since its inception, comprising 16.4
million rentable square feet.
The Operating Partnership is also committed to maintaining a capital
structure that will allow it to grow through development and acquisition
opportunities. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
4
<PAGE>
Recent Developments
Merger and Acquisition Activity. The following table summarizes the
mergers and acquisitions completed during the year ended December 31, 1997
(dollars in thousands):
<TABLE>
<CAPTION>
Acquisition Number of Rentable Initial
Property Location Closing Date Properties Square Feet Cost
- ------------------------------------- ------------------- -------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Century Center Atlanta 02/01/97 21 1,437,000 $ 128,100
Anderson Properties Atlanta 02/01/97 28 1,914,000 61,800
Patewood I & II Greenville 03/01/97 2 117,000 11,900
3600 Glenwood Avenue Research Triangle 03/01/97 1 78,000 11,000
400 North Business Park Atlanta 05/01/97 3 86,000 7,200
Kennestone Corporate Center Atlanta 05/01/97 5 82,000 5,400
Oxford Lakes Business Center Atlanta 05/01/97 2 102,000 8,000
Bluegrass Place 1 Atlanta 08/29/97 1 69,000 2,500
Bluegrass Place 2 Atlanta 08/29/97 1 72,000 3,000
Centrum Building Memphis 09/03/97 1 71,000 6,600
Pinebrook Charlotte 09/23/97 1 61,000 5,600
1765 The Exchange Atlanta 10/01/97 1 90,000 7,200
NationsBank Plaza Greenville 10/01/97 1 196,000 10,200
Associated Capital Properties, Inc. Florida 10/01/97 84 6,410,000 617,000
Riparius Development Corporation Baltimore 12/23/97 5 364,000 42,000
Shelton Portfolio Piedmont Triad 11/17/97 8 499,000 48,000
Smith Portfolio Tampa 10/17/97 3 217,000 17,900
Triad Crow Portfolio Atlanta 12/04/97 2 267,000 39,300
Riverside Plaza Norfolk 10/31/97 1 87,000 7,700
Zurn Building Tampa 11/01/97 1 74,000 5,400
Avion Building South Florida 11/17/97 1 67,000 5,200
Gulf Atlantic South Florida 12/12/97 1 135,000 11,300
100 Winner's Circle Nashville 12/15/97 1 72,000 8,700
Doral Financial Plaza South Florida 12/22/97 1 222,000 17,300
---- ----------
176 12,789,000 $1,088,300
=== ========== ==========
</TABLE>
A significant portion of the Operating Partnership's growth during 1997
resulted from its expansion in existing markets, including the ACP Transaction,
the Century Center Transaction and the Anderson Transaction (each as defined
herein). The Operating Partnership also entered a new market, Baltimore,
Maryland, as a result of the Riparius Transaction (as defined herein).
Century Center Transaction. On January 9, 1997, the Operating Partnership
acquired the 17-building Century Center Office Park, four affiliated industrial
properties and 20 acres of land for development located in suburban Atlanta,
Georgia (the "Century Center Transaction"). The properties total 1.6 million
rentable square feet and, as of December 31, 1997, were 99% leased. The cost of
the Century Center Transaction was $55.6 million in Common Units (valued at
$29.25 per Common Unit, the market value of a share of Common Stock as of the
signing of a letter of intent for the Century Center Transaction), the
assumption of $19.4 million of secured debt and a cash payment of $53.1
million. All Common Units issued in the transaction are subject to restrictions
on transfer and redemption. Such restrictions are scheduled to expire over a
three-year period in equal annual installments commencing one year from the
date of issuance.
Century Center Office Park is located on approximately 77 acres, of which
approximately 61 acres are controlled under long-term fixed rental ground
leases that expire in 2058. The rent under the leases is approximately $180,000
per year with scheduled 10% increases in 1999 and 2009. The leases do not
contain a right to purchase the subject land.
Anderson Transaction. On February 12, 1997, the Operating Partnership
acquired a portfolio of industrial, office and undeveloped properties in
Atlanta from Anderson Properties, Inc. and affiliates (the "Anderson
Transaction"). The Anderson Transaction involved 22 industrial properties and
six office
5
<PAGE>
properties totaling 1.6 million rentable square feet, three industrial
development projects totaling 402,000 square feet and 137 acres of land for
development. The in-service properties were 94% leased as of December 31, 1997.
The cost of the Anderson Transaction consisted of the issuance of $22.9
million of Common Units (valued at $29.25 per Common Unit, the market value of
a share of Common Stock as of the signing of a letter of intent relating to the
Anderson Transaction), the assumption of $7.8 million of mortgage debt and a
cash payment of $37.7 million. The cash amount does not include $11.1 million
paid to complete the three development projects. Approximately $5.5 million of
the Common Units are Class B Common Units, which differ from other Common Units
in that they are not eligible for cash distributions from the Operating
Partnership. The Class B Common Units convert to regular Common Units in 25%
annual installments commencing one year from the date of issuance. Prior to
such conversion, such Common Units are not redeemable for cash or Common Stock.
All other Common Units issued in the transaction are also subject to
restrictions on transfer or redemption. Such lock-up restrictions expire over a
three-year period in equal annual installments commencing one year from the
date of issuance.
ACP Transaction. In October of 1997, the Operating Partnership completed
an acquisition (the "ACP Transaction") of Associated Capital Properties, Inc.
("ACP") involving a portfolio of 84 office properties encompassing 6.4 million
rentable square feet (the "ACP Properties") and approximately 50 acres of land
for development with a build-out capacity of 1.9 million square feet in six
markets in Florida. At December 31, 1997, the ACP Properties were approximately
92% leased to approximately 1,100 tenants including IBM, the State of Florida,
Prudential, Price Waterhouse, AT&T, GTE, Prosource, Lockheed Martin,
NationsBank and Accustaff. Seventy-nine of the ACP Properties are located in
suburban submarkets, with the remaining properties located in the central
business districts of Orlando, Jacksonville and West Palm Beach.
The cost of the ACP Transaction was valued at $617 million and consisted
of the issuance of 2,955,238 Common Units (valued at $32.50 per Common Unit),
the assumption of approximately $481 million of mortgage debt ($391 million of
which was paid off by the Operating Partnership on the date of closing), the
issuance of 117,617 shares of Common Stock (valued at $32.50 per share), a
capital expense reserve of $11 million and a cash payment of approximately $24
million. All Common Units and Common Stock issued in the transaction are
subject to restrictions on transfer or redemption that will expire over a
three-year period. All lockup restrictions on the transfer of such Common Units
or Common Stock issued to ACP and its affiliates expire in the event of a
change of control of the Operating Partnership or a material adverse change in
the financial condition of the Operating Partnership. Such restrictions also
expire if James R. Heistand, the former president of ACP, is not appointed or
elected as a director of the Company by October 7, 1998. Also in connection
with the ACP Transaction, the Company issued to certain affiliates of ACP
warrants to purchase 1,479,290 shares of the Common Stock at $32.50 per share,
exercisable after October 1, 2002.
Riparius Transaction. In closings on December 23, 1997 and January 8,
1998, the Operating Partnership completed an acquisition of Riparius
Development Corporation in Baltimore, Maryland involving a portfolio of five
office properties encompassing 369,000 square feet, two office development
projects encompassing 235,000 square feet, 11 acres of development land and 101
additional acres of development land to be acquired over the next three years
(the "Riparius Transaction"). As of December 31, 1997, the in-service
properties acquired in the Riparius Transaction were 99% leased. The cost of
the Riparius Transaction consisted of a cash payment of $43.6 million. In
addition, the Operating Partnership has assumed the two office development
projects with an anticipated cost of $26.2 million expected to be paid in 1998,
and will pay out $23.9 million over the next three years for the 101 additional
acres of development land.
Garcia Transaction. For a discussion of the Operating Partnership's recent
acquisition of substantially all of a property portfolio in Tampa, Florida (the
"Garcia Transaction"), see "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Recent Developments."
6
<PAGE>
Pending Acquisitions
For a discussion of the Operating Partnership's proposed business
combinations with J.C. Nichols Company, a publicly traded Kansas City real
estate operator, and The Easton-Babcock Companies, a real estate owner and
operator in Miami, Florida, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Recent Developments."
Development Activity
The following table summarizes the 14 development projects placed in
service during the year ended December 31, 1997 (dollars in thousands):
Completed
<TABLE>
<CAPTION>
Date Placed Number of Rentable Initial
Property Location in Service Properties Square Feet Cost (1)
- ---------------------------------------- ------------------- ------------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C>
Shockoe Alleghany Warehouse ............ Richmond 02/01/97 1 119,000 $19,300
NorthPark .............................. Research Triangle 03/15/97 1 42,000 3,700
Centerpoint V .......................... Columbia 04/11/97 1 20,000 1,700
Sycamore ............................... Research Triangle 04/15/97 1 72,000 6,300
Chastain Place I ....................... Atlanta 05/01/97 1 108,000 3,900
AirPark East-Simplex (Bldg. 6) ......... Piedmont Triad 05/02/97 1 13,000 800
Two Airpark East (Bldg. D) ............. Piedmont Triad 06/01/97 1 54,000 4,200
Airport Center I ....................... Richmond 08/01/97 1 142,000 6,300
Westshore III .......................... Richmond 08/26/97 1 57,000 5,300
Highwoods Plaza II ..................... Nashville 09/02/97 1 102,000 10,400
The Richfood Building .................. Richmond 09/05/97 1 76,000 7,300
R.F. Micro Devices ..................... Piedmont Triad 10/18/97 1 50,000 8,400
Highwoods Office Center At
Southwind ............................ Memphis 12/01/97 1 69,000 7,000
Grove Park ............................. Richmond 12/31/97 1 61,000 5,900
---- -------
Total ................................ 14 9,850,000 $90,500
== ========= =======
</TABLE>
- ----------
(1) Initial Cost includes estimated amounts required to complete the project
including tenant improvement costs.
7
<PAGE>
The Operating Partnership had 25 suburban office properties and seven
industrial properties under development totaling 3.3 million square feet of
office and industrial space at December 31, 1997. The following table
summarizes these development projects as of December 31, 1997 (dollars in
thousands):
In process
<TABLE>
<CAPTION>
Rentable Estimated Cost at Pre-Leasing Estimated
Name Location Square Feet Costs 12/31/97 Percentage* Completion
- --------------------------------- ------------------- ------------- ----------- ---------- ------------- -----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Office Properties:
Ridgefield III Asheville 57,000 $ 5,485 $ 1,638 --% 2Q98
2400 Century Center Atlanta 135,000 16,195 6,527 -- 2Q98
10 Glenlakes Atlanta 254,000 35,135 3,360 -- 4Q98
Automatic Data Processing Baltimore 110,000 12,400 3,367 100 3Q98
Riparius Center at Owings Mills Baltimore 125,000 13,800 2,393 -- 2Q99
BB&T** Greenville 71,000 5,851 81 100 2Q98
Patewood VI Greenville 107,000 11,360 5,202 19 2Q98
Colonnade Memphis 89,000 9,400 5,592 73 2Q98
Southwind C Memphis 74,000 7,657 1,245 34 4Q98
Harpeth V Nashville 65,000 6,900 3,108 47 1Q98
Lakeview Ridge II Nashville 61,000 6,000 2,879 70 1Q98
Southpointe Nashville 104,000 10,878 4,254 26 2Q98
Concourse Center One Piedmont Triad 86,000 8,415 -- -- 1Q99
RMIC Piedmont Triad 90,000 7,650 3,971 100 2Q98
Clintrials Research Triangle 178,000 21,490 12,034 100 2Q98
Situs II Research Triangle 59,000 5,857 1,218 -- 2Q98
Highwoods Centre Research Triangle 76,000 8,327 960 36 3Q98
Overlook Research Triangle 97,000 10,307 1,083 -- 4Q98
Red Oak Research Triangle 65,000 6,394 568 -- 3Q98
Rexwoods V Research Triangle 61,000 7,444 5,894 70 1Q98
Markel-American Richmond 106,000 10,650 5,226 52 2Q98
Highwoods V Richmond 67,000 6,620 1,096 100 2Q98
Interstate Corporate Center** Tampa 309,000 8,600 40 23 4Q98
Intermedia (Sabal) Phase I Tampa 121,000 12,500 1,331 100 4Q98
Intermedia (Sabal) Phase II Tampa 121,000 13,000 662 100 1Q00
------- -------- ------- ---
Office Total or Weighted Average 2,688,000 $268,315 $73,729 43%
========= ======== ======= ===
Industrial Properties:
Chastain II & III Atlanta 122,000 $ 4,686 $ 1,359 --% 3Q98
Newpoint Atlanta 119,000 4,660 3,224 20 1Q98
Tradeport 1 Atlanta 87,000 3,070 1,608 -- 1Q98
Tradeport 2 Atlanta 87,000 3,070 1,608 -- 1Q98
Air Park South Warehouse I Piedmont Triad 100,000 2,929 545 90 1Q98
Airport Center II Richmond 70,000 3,197 2,732 54 1Q98
--------- -------- ------- ---
Industrial Total or Weighted Average 585,000 $ 21,612 $11,076 26%
========= ======== ======= ===
Total or Weighted Average of
all Development Projects 3,273,000 $289,927 $84,805 40%
========= ======== ======= ===
Summary By Estimated
Completion Date:
First Quarter 1998 650,000 $ 37,270 $21,598 41%
Second Quarter 1998 1,063,000 111,436 46,839 54
Third Quarter 1998 373,000 31,807 6,254 37
Fourth Quarter 1998 855,000 74,199 7,059 25
First Quarter 1999 86,000 8,415 -- --
Second Quarter 1999 125,000 13,800 2,393 --
First Quarter 2000 121,000 13,000 662 100
--------- -------- ------- ---
3,273,000 $289,927 $84,805 40%
========= ======== ======= ===
</TABLE>
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* Includes letters of intent
** Redevelopment projects
8
<PAGE>
Competition
The Properties compete for tenants with similar properties located in the
Operating Partnership's markets primarily on the basis of location, rent
charged, services provided and the design and condition of the facilities. The
Operating Partnership also competes with other REITs, financial institutions,
pension funds, partnerships, individual investors and others when attempting to
acquire properties.
Employees
As of December 31, 1997, the Operating Partnership employed 468 persons,
as compared to 260 at December 31, 1996. The increase is primarily a result of
the Operating Partnership's expansion within its existing markets and into
Baltimore, Maryland.
9
<PAGE>
ITEM 2. PROPERTIES
General
The following table sets forth certain information about the Properties at
December 31, 1997:
<TABLE>
<CAPTION>
Percent of
Rentable Total Annualized Percent of
Office Industrial Total Square Rentable Rental Total Annualized
Properties Properties (1) Properties Feet Square Feet Revenue (2) Rental Revenue
------------ ---------------- ------------ ------------ ------------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Research Triangle, NC..... 69 4 73 4,686,120 15.2% $ 65,314,092 17.9%
Atlanta, GA .............. 39 31 70 4,824,831 15.5 44,200,033 12.2
Tampa, FL ................ 42 -- 42 2,904,587 9.5 41,772,977 11.4
Piedmont Triad, NC ....... 34 79 113 4,738,992 15.3 36,779,925 10.0
South Florida ............ 27 -- 27 2,384,044 7.8 36,511,089 10.0
Nashville, TN ............ 15 3 18 1,821,485 5.9 27,183,735 7.4
Orlando, FL .............. 30 -- 30 1,990,148 6.5 23,756,539 6.5
Jacksonville, FL ......... 16 -- 16 1,465,139 4.8 17,367,432 4.7
Charlotte, NC ............ 15 16 31 1,428,590 4.7 15,158,758 4.1
Richmond, VA ............. 20 2 22 1,278,726 4.2 14,348,878 3.9
Greenville, SC ........... 8 2 10 1,001,641 3.3 11,051,150 3.0
Memphis, TN .............. 9 -- 9 606,549 2.0 10,033,045 2.7
Baltimore, MD ............ 5 -- 5 364,434 1.2 7,837,121 2.1
Columbia, SC ............. 7 -- 7 423,738 1.4 5,553,603 1.5
Tallahassee, FL .......... 1 -- 1 244,676 0.8 3,372,355 0.9
Norfolk, VA .............. 2 1 3 265,857 0.9 2,843,389 0.8
Birmingham, AL ........... 1 -- 1 115,289 0.4 1,795,236 0.5
Asheville, NC ............ 1 1 2 124,177 0.4 1,180,068 0.3
Ft. Myers, FL ............ 1 -- 1 51,831 0.2 509,720 0.1
-- -- --- --------- ----- ------------ -----
Total ................ 342 139 481 30,720,854 100.0% $366,569,145 100.0%
=== === === ========== ===== ============ =====
</TABLE>
<TABLE>
<CAPTION>
Office Properties Industrial Properties (1) Total or Weighted Average
------------------- --------------------------- --------------------------
<S> <C> <C> <C>
Total Annualized Rental Revenue (2) ......... $331,936,875 $34,632,270 $ 366,569,145
Total rentable square feet .................. 23,841,565 6,879,289 30,720,854
Percent leased .............................. 94%(3) 93%(4) 94%
Weighted average age (years) ................ 12.2(5) 11.4 12.0
</TABLE>
- ----------
(1) Includes 73 service center properties.
(2) Annualized Rental Revenue is December 1997 rental revenue (base rent plus
operating expense pass throughs) multiplied by 12.
(3) Includes 47 single-tenant properties comprising 3.4 million rentable square
feet and 378,000 rentable square feet leased but not occupied.
(4) Includes 24 single-tenant properties comprising 1.6 million rentable square
feet and 27,000 rentable square feet leased but not occupied.
(5) Excludes the Comeau Building, which is a historical building constructed in
1926 and renovated in 1996.
10
<PAGE>
The following table sets forth certain information about the portfolio of
in-service and development properties as of December 31, 1997 and 1996:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
------------------------------------------- ------------------------------------------
Number Percent Number Percent
of Rentable Leased/ of Rentable Leased/
Properties Square Feet Pre-leased Properties Square Feet Pre-leased
------------ ------------- ------------ ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
In-Service
Office ............. 342 23,842,000 94% 181 12,350,600 93%
Industrial ......... 139 6,879,000 93 111 5,104,600 90
--- ---------- -- --- ---------- --
Total ............. 481 30,721,000 94% 292 17,455,200 92%
=== ========== == === ========== ==
Under Development
Office ............. 25 2,687,000 43% 12 825,000 52%
Industrial ......... 7 585,000 26 2 190,000 24
--- ---------- -- --- ---------- --
Total ............. 32 3,272,000 40% 14 1,015,000 46%
=== ========== == === ========== ==
Total
Office ............. 367 26,529,000 193 13,175,600
Industrial ......... 146 7,464,000 113 5,294,600
--- ---------- --- ----------
Total ............. 513 33,993,000 306 18,470,200
=== ========== === ==========
</TABLE>
Tenants
As of December 31, 1997, the Properties were leased to approximately 3,100
tenants, which engage in a wide variety of businesses. The following table sets
forth information concerning the 20 largest tenants of the Properties as of
December 31, 1997:
<TABLE>
<CAPTION>
Percent of Total
Number Annualized Annualized
Tenant of Leases Rental Revenue (1) Rental Revenue
- ------------------------------------------------------- ----------- -------------------- -----------------
<S> <C> <C> <C>
1. IBM ............................................... 13 $13,546,185 3.7%
2. Federal Government ................................ 45 12,059,353 3.3
3. AT&T .............................................. 16 6,985,351 1.9
4. Bell South ........................................ 45 6,340,084 1.7
5. State of Florida .................................. 22 5,215,070 1.4
6. GTE ............................................... 6 2,995,422 0.8
7. NationsBank ....................................... 21 2,953,191 0.8
8. First Citizens Bank & Trust ....................... 8 2,887,811 0.8
9. Bluecross & Blue Shield of South Carolina ......... 10 2,554,517 0.7
10. MCI ............................................... 10 2,458,637 0.7
11. Prudential ........................................ 13 2,412,640 0.7
12. Jacobs-Sirrene Engineers, Inc. .................... 1 2,235,550 0.6
13. Price Waterhouse .................................. 3 2,047,953 0.6
14. US Airways ........................................ 4 2,033,940 0.6
15. Alex Brown & Sons ................................. 1 1,943,070 0.5
16. H.L.P. Health Plan of Florida ..................... 2 1,913,005 0.5
17. The Martin Agency, Inc. ........................... 1 1,863,504 0.5
18. Northern Telecom Inc. ............................. 2 1,849,118 0.5
19. BB&T .............................................. 4 1,845,501 0.5
20. Clintrials ........................................ 4 1,812,206 0.5
-- ----------- ----
Total ............................................ 231 $77,952,108 21.3%
=== =========== ====
</TABLE>
- ----------
(1) Annualized Rental Revenue is December 1997 rental revenue (base rent plus
operating expense pass throughs) multiplied by 12.
11
<PAGE>
The following tables set forth certain information about the Operating
Partnership's leasing activities for the years ended December 31, 1997 and
1996.
<TABLE>
<CAPTION>
1997 1996
------------------------------- -------------------------------
Office Industrial Office Industrial
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net Effective Rents Related to Re-Leased
Space:
Number of lease transactions (signed
leases) ................................... 520 241 306 240
Rentable square footage leased .............. 2,531,393 1,958,539 1,158,563 2,302,151
Average per rentable square foot over the
lease term:
Base rent ................................. $ 16.04 $ 5.37 $ 15.00 $ 4.68
Tenant improvements ....................... ( 1.06) (0.22) ( 0.93) (0.15)
Leasing commissions ....................... ( 0.39) (0.13) ( 0.31) (0.10)
Rent concessions .......................... ( 0.01) (0.01) -- --
----------- ---------- ---------- ----------
Effective rent ............................ $ 14.58 $ 5.01 $ 13.76 $ 4.43
Expense stop .............................. ( 3.53) (0.23) ( 3.36) (0.39)
----------- ---------- ---------- ----------
Equivalent effective net rent ............. $ 11.05 $ 4.78 $ 10.40 $ 4.04
=========== ========== ========== ==========
Average term in years ....................... 4 3 4 2
=========== ========== ========== ==========
Rental Rate Trends:
Average final rate with expense pass
throughs .................................. $ 13.78 $ 5.08 $ 13.64 $ 4.41
Average first year cash rental rate ......... $ 14.76 $ 5.37 $ 14.46 $ 4.68
----------- ---------- ---------- ----------
Percentage increase ......................... 7.11% 5.71% 6.01% 6.12%
=========== ========== ========== ==========
Capital Expenditures Related to
Re-leased Space:
Tenant Improvements:
Total dollars committed under signed
leases ................................... $11,443,099 $1,421,203 $4,496,523 $ 685,880
Rentable square feet ...................... 2,531,393 1,958,539 1,158,563 2,302,151
----------- ---------- ---------- ----------
Per rentable square foot .................. $ 4.52 $ 0.73 $ 3.88 $ 0.30
=========== ========== ========== ==========
Leasing Commissions:
Total dollars committed under signed
leases ................................... $ 4,247,280 $ 890,280 $1,495,498 $ 470,090
Rentable square feet ...................... 2,531,393 1,958,539 1,158,563 2,302,151
----------- ---------- ---------- ----------
Per rentable square foot .................. $ 1.68 $ 0.45 $ 1.29 $ 0.20
=========== ========== ========== ==========
Total:
Total dollars committed under signed
leases ................................... $15,690,379 $2,311,483 $5,992,021 $1,155,970
Rentable square feet ...................... 2,531,393 1,958,539 1,158,563 2,302,151
----------- ---------- ---------- ----------
Per rentable square foot .................. $ 6.20 $ 1.18 $ 5.17 $ 0.50
=========== ========== ========== ==========
</TABLE>
12
<PAGE>
The following tables set forth scheduled lease expirations for executed
leases as of December 31, 1997, assuming no tenant exercises renewal options.
Office Properties:
<TABLE>
<CAPTION>
Average Percentage of
Annual Leased Rents
Total Percentage of Annual Rents Rental Rate Represented
Year of Rentable Leased Square Footage Under Per Square by
Lease Number of Square Feet Represented by Expiring Foot for Expiring
Expiration Leases Expiring Expiring Leases Leases (1) Expirations (1) Leases
- ------------ ----------- ------------- ----------------------- -------------- ----------------- --------------
<S> <C> <C> <C> <C> <C> <C>
1998 886 3,785,469 17.2% $ 57,338,996 $ 15.15 17.2%
1999 627 3,144,551 14.3 47,330,017 15.05 14.3
2000 684 3,532,083 16.0 54,111,857 15.32 16.3
2001 413 3,077,007 13.9 47,164,815 15.33 14.2
2002 410 3,131,735 14.2 47,142,775 15.05 14.2
2003 86 1,227,155 5.6 18,193,113 14.83 5.5
2004 55 980,824 4.4 16,840,214 17.17 5.1
2005 39 817,786 3.7 10,501,525 12.84 3.2
2006 27 847,453 3.8 11,936,405 14.09 3.6
2007 18 535,012 2.4 7,273,331 13.59 2.2
Thereafter 25 983,034 4.5 14,103,828 14.35 4.2
--- --------- ----- ------------ -------- -----
Total or
average 3,270 22,062,109 100.0% $331,936,876 $ 15.05 100.0%
===== ========== ===== ============ ======== =====
</TABLE>
Industrial Properties:
<TABLE>
<CAPTION>
Average Percentage of
Annual Leased Rents
Total Percentage of Annual Rents Rental Rate Represented
Year of Rentable Leased Square Footage Under Per Square by
Lease Number of Square Feet Represented by Expiring Foot for Expiring
Expiration Leases Expiring Expiring Leases Leases (1) Expirations (1) Leases
- ------------- ----------- ------------- ----------------------- -------------- ----------------- --------------
<S> <C> <C> <C> <C> <C> <C>
1998 221 1,686,906 26.2% $ 9,247,354 $ 5.48 26.7%
1999 139 1,215,439 19.0 6,500,284 5.35 18.8
2000 123 1,223,412 19.1 7,304,628 5.97 21.1
2001 58 597,379 9.3 3,523,569 5.90 10.2
2002 54 1,159,283 18.1 5,056,924 4.36 14.6
2003 9 99,905 1.6 760,152 7.61 2.2
2004 5 104,369 1.6 602,516 5.77 1.7
2005 4 33,832 0.5 289,380 8.55 0.8
2006 2 196,600 3.1 882,636 4.49 2.5
2007 -- -- -- -- -- --
Thereafter 1 95,545 1.5 464,826 4.86 1.4
--- --------- ----- ----------- ------- -----
Total or
average 616 6,412,670 100.0% $34,632,269 $ 5.40 100.0%
=== ========= ===== =========== ======= =====
</TABLE>
- ----------
(1) Includes operating expense pass throughs and excludes the effect of future
contractual rent increases.
13
<PAGE>
Table of Properties
The following table and the notes thereto set forth information regarding
the Properties at December 31, 1997:
<TABLE>
<CAPTION>
Percent
Occupied at Tenants Leasing 25% or More
Building Year Rentable December 31, of Rentable Square Feet at
Property Type (1) Built Square Feet 1997(13) December 31, 1997
- ------------------------- ---------- ------- ------------- -------------- -------------------------------------------
<S> <C> <C> <C> <C> <C>
Research Triangle, NC
- -------------------------
Highwoods Office Center
Amica O 1983 20,708 100% Amica Mutual Insurance Co.
Interface Technologies
Arrowood O 1979 58,743 100 First Citizens Bank & Trust
Aspen O 1980 36,796 87 Coopers & Lybrand
Birchwood O 1983 12,748 100 Southlight, Inc., Donohoe Construction Co.
Cedar East O 1981 40,552 100 Amerimark Building Products
Cedar West O 1981 39,609 100 N/A
Cottonwood O 1983 40,150 100 First Citizens Bank & Trust
Cypress O 1980 39,003 90 GSA-Army Recruiters
Dogwood O 1983 40,613 100 First Citizens Bank & Trust
Global Software O 1996 92,985 100 Global Software Inc.
Hawthorn O 1987 63,797 100 Carolina Telephone & Telegraph
Highwoods Tower O 1991 185,446 98 Maupin, Taylor & Ellis
Holly O 1984 20,186 100 Capital Associated Industries
Ironwood O 1978 35,695 97 First Citizens Bank & Trust
Kaiser O 1988 56,975 100 Kaiser Foundation Health
Laurel O 1982 39,382 100 Ms. Terry Woods,
First Citizens Bank & Trust
Leatherwood O 1979 36,581 92 GAB Robins North America, Inc.
Smoketree Tower O 1984 150,341 98 N/A
Rexwoods Office Center
2500 Blue Ridge O 1982 61,594 97 Rex Hospital, Inc.
Blue Ridge II O 1988 20,673 100 McGladrey & Pullen
Rexwoods Center O 1990 41,686 100 N/A
Rexwoods II O 1993 20,845 100 Raleigh Neurology Clinic,
Miller Building Corporation
Rexwoods III O 1992 42,488 100 ARCADIS Geraghty & Miller, Inc.
Rexwoods IV O 1995 42,331 100 N/A
Triangle Business Center
Building 2A O 1984 102,400 100 Harris Semiconductor Corporation,
Building 2B S 1984 32,000 100 Qualex Inc.
Building 3 O 1988 135,382 100 N/A
Building 7 O 1986 124,432 91 Broadband Technologies, Inc.
Progress Center
Cape Fear O 1979 41,527 100 Intercardia, Inc.
Catawba O 1980 40,578 100 GSA -- EPA
Pamlico O 1980 104,773 100 Northern Telecom, Inc.
North Park
4800 North Park O 1985 168,016 100 IBM-PC Division
4900 North Park O 1984 32,339 100 N/A
5000 North Park O 1980 74,653 93 N/A
Creekstone Park
Creekstone Crossing O 1990 59,299 100 N/A
Riverbirch O 1987 60,192 100 Quintiles, Inc.
Sycamore O 1997 72,124 95 Northern Telecom Inc.
Willow Oak O 1995 89,392 100 AT&T
Research Commons
EPA Administration O 1966 46,718 100 GSA-EPA
EPA Annex O 1966 145,875 100 GSA-EPA
4501 Building O 1985 56,566 100 Lockheed Martin
4401 Building O 1987 117,436 100 Ericsson, GSA-NIH
4301 Building O 1989 90,894 100 Glaxo Wellcome, Inc.
4201 Building O 1991 83,481 100 GSA-EPA
Roxboro Road Portfolio
Fairfield I O 1987 52,050 92 Reliance Insurance Company
Fairfield II O 1989 59,954 100 Qualex, Inc.
Qualex O 1985 67,000 100 Qualex, Inc.
4101 Roxboro O 1984 56,000 100 Duke -- Cardiology
4020 Roxboro O 1989 40,000 100 Duke -- Pediatrics
Duke -- Cardiology
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Percent
Occupied at Tenants Leasing 25% or More
Building Year Rentable December 31, of Rentable Square Feet at
Property Type (1) Built Square Feet 1997(13) December 31, 1997
- ------------------------------- ---------- ------- ------------- -------------- -----------------------------------------
<S> <C> <C> <C> <C> <C>
Six Forks Center
Six Forks Center I O 1982 33,867 98% Centura Bank, NY Life Ins. Co.
Six Forks Center II O 1983 55,678 93 N/A
Six Forks Center III O 1987 60,814 100 EDS
ONCC
Phase I S 1981 101,129 75 N/A
"W" Building O 1983 91,335 79 Closure Medical Corporation
3645 Trust Drive O 1984 50,652 74 Customer Access Resources, Inc.
5220 Green's Dairy Road O 1984 29,720 100 N/A
5200 Green's Dairy Road O 1984 18,317 32 N/A
5301 Departure Drive S 1984 84,899 100 ABB Power T&D Co., Inc.,
Cardiovascular Diagnostics, Inc.
Other Research Triangle
Properties
4000 Aerial Center O 1992 25,330 0 N/A
Colony Corporate Center O 1985 52,183 79 Rust Environmental &
Infrastructure, Fujitsu
Concourse O 1986 131,834 100 ClinTrials
Cotton Building O 1972 40,035 100 Cotton Inc., Associated
Insurances Inc.
Expressway One Warehouse I 1990 59,600 54 Number One Supply Corporation
3600 Glenwood Avenue (2) O 1986 78,008 100 Poyner & Spruill
Healthsource O 1996 180,000 100 Healthsource N.C.
Holiday Inn O 1984 30,000 100 Holiday Hospitality Corporation
Lake Plaza East O 1984 71,339 93 N/A
MSA O 1996 55,219 100 Management Systems Associates
Phoenix O 1990 26,449 91 Computer Intelligence, Inc.
North Park Building One O 1997 42,255 38 Medpartners Acquisition
Situs I O 1996 59,255 95 BellSouth
South Square I O 1988 56,401 100 Blue Cross and Blue Shield of SC
South Square II O 1989 58,793 100 Blue Cross and Blue Shield of NC,
------- ---
Duke University
Total or Weighted Average 4,686,120 95%
========= ===
Atlanta, GA
- -------------------------------
Oakbrook
Oakbrook I S 1981 106,662 100 N/A
Oakbrook II O 1983 141,938 100 Assetcare, Inc.
Oakbrook III S 1984 164,297 100 N/A
Oakbrook IV O 1985 89,102 100 N/A
Oakbrook V O 1985 204,338 100 N/A
6348 Northeast Expressway I 1978 49,023 100 Quick Ship Holding, Inc.
6438 Northeast Expressway I 1981 43,024 100 Leather Creations, Inc., Roos, Inc.
Chattahoochee Avenue I 1970 62,095 82 N/A
Corporate Lakes Dist Center I 1988 235,595 99 Motorola Energy Products
Cosmopolitan North O 1980 120,967 90 Wells Fargo Armored Services Corporation
Gwinnett Distribution I 1991 316,668 98 N/A
Center
Lavista Business Park I 1973 216,200 94 N/A
Norcross I,II I 1970 64,010 100 Sun Mi Chun
Oakbrook Summitt I 1981 234,232 100 N/A
Southside Distribution I 1988 191,200 73 Coca-Cola
Center
Steel Drive I 1975 57,188 93 Ballistic Studios
Century Center
1700 Century Circle O 1972 69,368 95 N/A
1800 Century Boulevard O 1975 279,491 100 Bell South
1875 Century Boulevard (3) O 1976 96,069 100 GSA
1900 Century Boulevard (3) O 1971 80,026 96 N/A
2200 Century Parkway (3) O 1971 143,088 100 N/A
2600 Century Parkway (3) O 1973 96,287 100 MBNA Marketing Systems, Inc., GSA
2635 Century Parkway (3) O 1980 210,066 99 GSA
2800 Century Parkway (3) O 1983 220,873 100 AT&T
Other Atlanta Properties
1035 Fred Drive I 1973 100,187 100 The Tenstar Corporation
1077 Fred Drive I 1973 105,600 100 Advanced Distribution Systems,
International Paper
5125 Fulton Industrial Blvd. I 1973 149,386 100 Martin Brower Co.
Fulton Corporate Center I 1973 101,000 87 N/A
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Percent
Occupied at Tenants Leasing 25% or More
Building Year Rentable December 31, of Rentable Square Feet at
Property Type (1) Built Square Feet 1997(13) December 31, 1997
- ------------------------------- ---------- ------- ------------- -------------- -------------------------------------
<S> <C> <C> <C> <C> <C>
400 North Business Park O 1985 85,756 100% N/A
Kennestone Corporate O 1985 81,993 100 N/A
Center
Oxford Lakes Business O 1985 102,446 100 Vanstar Corporation
Center
Chastain Place 1 I 1997 108,000 50 Nailco Southeast, Inc.
Bluegrass Place 1 I 1995 69,000 100 Ebscaft, Inc.
Bluegrass Place 2 I 1996 72,000 100 Hansgrohe, Inc.
1765 The Exchange O 1983 90,215 90 GA Waste Systems Inc.
Two Point Royal O 1997 123,032 89 Hartford Fire Insurance Co., Textron
Financial Corporation
50 Glenlake O 1997 144,409 93 Hartford Fire Insurance Co
------- ---
Total or Weighted Average 4,824,831 96%
========= ===
Tampa, FL
- -------------------------------
Sabal Park
Atrium O 1989 131,952 100 GTE Data Services, Inc.,
Intermedia Communications
Sabal Business Center VI O 1988 99,136 100 Pharmacy Management
Services, Inc.
Progressive Insurance O 1988 83,648 100 Progressive American
Insurance Co.
Sabal Business Center VII O 1990 71,248 100 Beverly Enterprises, Inc.
Sabal Business Center V O 1988 60,578 100 Lebhar-Friedman Inc.
Registry II O 1987 58,781 97 N/A
Registry I O 1985 58,319 95 N/A
Sabal Business Center IV (4) O 1984 49,368 100 Phillips Educational Group of
Central Florida, Inc.,
TGC Home Health Care, Inc.
Sabal Tech Center O 1989 48,220 100 Merck-Medco Managed Care
Sabal Park Plaza O 1987 46,758 100 State of Florida Department
of Revenue, ERM South, Inc.
Sabal Lake Building O 1986 44,533 100 Warner Publisher Services,
Inc.
Sabal Business Center I O 1982 39,866 85 N/A
Sabal Business Center II O 1984 32,736 64 Owen Ayres and Associates,
Inc.
Registry Square O 1988 26,568 91 Proctor & Redfern, Inc.
Expo Building O 1981 25,600 100 Exposystems, Inc., Expodisplays
Sabal Business Center III O 1984 21,300 100 Progressive Insurance
Benjamin Center
Benjamin Center #7 O 1991 30,962 100 Basetec Office Systems, Inc.,
Beers Construction
Benjamin Center #9 O 1989 38,405 79 First Image Management Co.
Tampa Bay Park
Horizon (5) O 1980 92,073 91 IBM
Lakeside (5) O 1978 91,545 100 American Portable Telecom
Lakepointe I O 1986 229,524 98 IBM, Price Waterhouse
Parkside (5) O 1979 102,046 100 IBM
Pavillion (5) O 1982 144,166 100 IBM
Spectrum O 1984 146,994 100 IBM
Other Tampa Properties
Tower Place O 1988 181,179 96 N/A
Day Care Center O 1986 8,000 100 Brookwood Academy Child Care
5400 Gray Street O 1973 5,408 100 The Wackenhut Corporation
Crossroads Office Center O 1981 74,729 63 N/A
Cypress West O 1985 64,977 82 Paradigm Communications, Inc.
Feathersound II O 1986 79,972 98 N/A
Fireman's Fund Building O 1982 49,578 98 Fireman's Fund Insurance Co.,
Pitney Bowes, Inc.
Lakeside Technology Center O 1984 146,663 94 NationsBank
Grand Plaza O 1985 239,353 90 N/A
Mariner Square O 1973 72,319 99 GSA
Telecom Technology Center O 1991 133,820 100 GTE
Zurn Building O 1983 74,263 100 N/A
------- --- -------------------------------------
Total or Weighted Average 2,904,587 96%
========= ===
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Percent
Occupied at Tenants Leasing 25% or More
Building Year Rentable December 31, of Rentable Square Feet at
Property Type (1) Built Square Feet 1997(13) December 31, 1997
- ------------------------- ---------- ------- ------------- -------------- ----------------------------------
<S> <C> <C> <C> <C> <C>
Piedmont Triad, NC
- -------------------------
Airpark East
Highland Industries S 1990 12,500 100% Highland Industries, Inc.
Service Center 1 S 1985 18,575 53 N/A
Service Center 2 S 1985 19,125 0 N/A
Service Center 3 S 1985 16,498 100 ECPI of Tidewater, VA
Service Center 4 S 1985 16,500 0 N/A
Copier Consultants S 1990 20,000 100 Copier Consultants
Service Court S 1990 12,600 81 N/A
Building 01 O 1990 24,423 79 Health & Hygiene
Building 02 O 1986 23,827 100 GSA-United States Postal Service
Building 03 O 1986 23,182 96 Time Warner, Lockheed Martin
Building 06 O 1997 12,500 62 Simplex Time Recorder Co.
Building A O 1986 56,272 100 N/A
Building B O 1988 54,088 100 GSA-United States Postal Service
Building C O 1990 134,893 91 Daicore Life and Health Ins.
Building D O 1997 54,007 90 Volvo
Sears Cenfact O 1989 49,504 100 Sears
Hewlett Packard O 1996 15,000 100 Hewlett Packard Co.
Inacom O 1996 12,620 100 Inacom Business Centers Inc.
Warehouse 1 I 1985 64,000 100 Guilford Business Forms, Inc.,
Safelite Glass Corporation
Warehouse 2 I 1985 64,000 75 Volvo GM Heavy Truck Corporation,
State Street Bank Realty
Warehouse 3 I 1986 57,600 93 US Air, Inc., Garlock, Inc.
Warehouse 4 I 1988 54,000 100 First Data Resources, Inc.,
Microdyne Systems, Inc.
Airpark North
DC-1 I 1986 112,000 100 VSA, Inc.
DC-2 I 1987 111,905 100 Sears
Electric South
DC-3 I 1988 75,000 100 Continuous Forms & Checks, Inc.,
Liberty of NC
DC-4 I 1988 60,000 0 N/A
Airpark West
Airpark I O 1984 60,000 100 Volvo GM Heavy Truck Corp.
Airpark II O 1985 45,680 67 Volvo GM Heavy Truck Corp.
Airpark IV O 1985 22,612 100 Max Radio of Greensboro
Airpark V O 1985 21,923 46 N/A
Airpark VI O 1985 22,097 94 Brookstone College, Anacomp
West Point Business Park
BMF Warehouse I 1986 240,000 100 Sara Lee Knit Products, Inc.
WP-11 I 1988 89,600 100 N.C. Record Control Centers,
Walt Klein & Associates
WP-12 I 1988 89,600 100 Norel Plastics, Sara Lee
WP-13 I 1988 89,600 100 Sara Lee Knit Products, Inc.
WP-3 & 4 S 1988 18,059 100 Pediatric Services of America,
Rayco Safety, Inc.
WP-5 S 1995 26,282 100 Cardinal Health, Inc.
Fairchild Building I 1990 89,000 100 Fairchild Industrial Products
LUWA Bahnson Building O 1990 27,000 100 Luwa Bahnson, Inc.
University Commercial
Center
W-1 I 1983 44,400 100 Lantal Corp.
W-2 I 1983 46,500 100 Paper Supply Company
SR-1 S 1983 23,112 100 N/A
SR-2 01/02 S 1983 17,282 100 Decision Point Marketing
SR-3 S 1984 23,925 80 Decision Point Marketing
Building 03 O 1985 37,077 61 N/A
Building 04 O 1986 34,470 94 Telespectrum Worldwide, Inc.
Knollwood Office Center
370 Knollwood O 1994 90,315 100 Krispy Kreme, Prudential
Carolinas Realty
380 Knollwood O 1990 164,179 100 N/A
Stoneleigh Business Park
7327 W. Friendly Ave. S 1987 11,180 90 Sprint, Salem Imaging
7339 W. Friendly Ave. S 1989 11,784 100 Medical Endoscopy Service,
R.F. Micro Devices
7341 W. Friendly Ave. S 1988 21,048 91 R.F. Micro Devices
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Percent
Occupied at Tenants Leasing 25% or More
Building Year Rentable December 31, of Rentable Square Feet at
Property Type (1) Built Square Feet 1997(13) December 31, 1997
- ------------------------------ ---------- ------- ------------- -------------- ----------------------------------------
<S> <C> <C> <C> <C> <C>
7343 W. Friendly Ave. S 1988 13,463 100% Executone Information Systems
7345 W. Friendly Ave. S 1988 12,300 100 Rule Manufacturing
7347 W. Friendly Ave. S 1988 17,978 93 Carter & Associates, Surf Air
7349 W. Friendly Ave. S 1988 9,840 100 Ardratech, Inc., Anderson & Associates
7351 W. Friendly Ave. S 1988 19,723 100 ACT MEDIA, Inc., Corporate Express,
Heritage Capital
7353 W. Friendly Ave. S 1988 22,826 100 Office Equipment Wholesalers, United
Dominion Industries
7355 W. Friendly Ave. S 1988 13,296 100 R.F. Micro Devices
Spring Garden Plaza
4000 Spring Garden St. S 1983 21,773 91 Lighting Creations, Inc.
4002 Spring Garden St. S 1983 6,684 100 Reynolds & Reynolds
4004 Spring Garden St. S 1983 23,724 92 N/A
Pomona Center -- Phase I
7 Dundas Circle S 1986 14,184 91 N/A
8 Dundas Circle S 1986 16,488 100 N/A
9 Dundas Circle S 1986 9,972 43 Netcom Cabling, Inc.
Pomona Center -- Phase II
302 Pomona Dr. S 1987 16,488 100 N/A
304 Pomona Dr. S 1987 4,344 100 Fortune Personnel
Consultants, OEC Fluid Handling, Inc.
306 Pomona Dr. S 1987 9,840 75 Aqua Science
308 Pomona Dr. S 1987 14,184 100 N/A
5 Dundas Circle S 1987 14,184 91 Engineering Consulting SV
Westgate on
Wendover -- Phase I
305 South Westgate Dr. S 1985 4,608 100 Alarmguard Security, Inc., The Computer
Store, Inc.
307 South Westgate Dr. S 1985 12,672 100 Incutech, Inc.
309 South Westgate Dr. S 1985 12,960 44 GEODAX Technology, Inc.,
Earth Tech, Inc.
311 South Westgate Dr. S 1985 14,400 110 N/A
315 South Westgate Dr. S 1985 10,368 78 N/A
317 South Westgate Dr. S 1985 15,552 93 N/A
319 South Westgate Dr. S 1985 10,368 78 N/A
Westgate on
Wendover -- Phase II
206 South Westgate Dr. S 1986 17,376 100 Home Care of the Central
Carolinas
207 South Westgate Dr. S 1986 26,448 100 Health Equipment Services
300 South Westgate Dr. S 1986 12,960 87 Health Equipment Services
4600 Dundas Circle S 1985 11,922 0 N/A
4602 Dundas Circle S 1985 13,017 61 Four Seasons Apparel Co.
Radar Road
500 Radar Rd. I 1981 78,000 100 N/A
502 Radar Rd. I 1986 15,000 100 East Texas Distributing, Inc.
504 Radar Rd. I 1986 15,000 100 Techno Craft, Inc.,
Dayva Industries
506 Radar Rd. I 1986 15,000 100 D&N International, Inc.
American Coatings of VA,
Wentworth Textiles
Holden/85 Business Park
2616 Phoenix Dr. I 1985 31,894 100 Pliana, Inc.
2606 Phoenix Dr. -- 100 S 1989 15,000 100 Piedmont Plastics, Inc., Rexam
Flexible Packaging Corporation
2606 Phoenix Dr. -- 200 S 1989 15,000 100 REHAU, Inc.,
Reynolds Renovations
2606 Phoenix Dr. -- 300 S 1989 7,380 100 N/A
2606 Phoenix Dr. -- 400 S 1989 12,300 90 Spectrum Financial Systems
2606 Phoenix Dr. -- 500 S 1989 15,180 100 The Record Exchange, Inc.
2606 Phoenix Dr. -- 600 S 1989 18,540 70 Faith & Victory Church
Industrial Village
7906 Industrial Village Rd. I 1985 15,000 100 Texas Aluminum Industries
7908 Industrial Village Rd. I 1985 15,000 100 Air Express, Pharmagraphics Holdings
7910 Industrial Village Rd. I 1985 15,000 100 Wadkin North America, Inc.
Consolidated Center
Consolidated Center I O 1983 40,000 100 Bali
Consolidated Center II O 1983 60,000 92 Bali, Aon Risk Services
Consolidated Center III O 1989 50,775 96 Lowes, Shelco, Inc.
Consolidated Center IV O 1989 29,312 100 Medcost, Inc.
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Percent
Occupied at Tenants Leasing 25% or More
Building Year Rentable December 31, of Rentable Square Feet at
Property Type (1) Built Square Feet 1997(13) December 31, 1997
- ------------------------------- ---------- ------------ ------------- -------------- ---------------------------------------
<S> <C> <C> <C> <C> <C>
Other Piedmont Triad
Properties
101 S. Stratford O 1986 78,194 100% First Union, Triad
Guaranty Ins. Corporation
6348 Burnt Poplar I 1990 125,000 100 Sears
6350 Burnt Poplar I 1992 57,600 100 Industries for the Blind
Champion Madison Park II O 1993 105,723 100 Champion
Deep River I O 1989 78,094 78 N/A
Forsyth I O 1985 52,922 94 Management Directions
Regency One I 1996 127,600 100 New Breed Leasing Corporation
Regency Two I 1996 96,000 100 Duorr Medical Corporation
R.F. Micro Devices O 1997 49,505 100 R.F. Micro Devices
Stratford O 1991 135,533 88 BB&T
Chesapeake I 1993 250,000 100 Chesapeake Display &
Packaging
USAIR Buildings O 1970-1987 134,555 100 US AIR
3288 Robinhood O 1989 19,599 100 N/A
--------- ---
Total or Weighted Average 4,738,992 93%
========= ===
South Florida
- -------------------------------
1800 Eller Drive (6) O 1983 103,440 87 Renaissance Cruises
2828 Coral Way Building O 1985 64,000 96 Spanish Radio Network
Atrium At Coral Gables O 1984 164,528 100 Prosource
Atrium West O 1983 92,014 93 GSA
Avion Building O 1985 66,908 91 N/A
Centrum Plaza O 1988 40,938 98 N/A
Comeau Building O 1926 87,302 66 N/A
Corporate Square O 1981 87,823 95 N/A
Dadeland Office Complex O 1972 240,148 86 N/A
Design Center Plaza O 1982 57,500 94 Carnival Air Lines, Inc.
Doral Financial Plaza O 1987 222,000 72 Sun Bank
Emerald Hills Plaza I O 1979 63,401 94 N/A
Emerald Hills Plaza II O 1979 74,218 76 Sheridan Health Corp
Gulf Atlantic (7) O 1986 134,776 97 N/A
Highwoods Plaza O 1980 80,260 100 N/A
Highwoods Square O 1989 148,945 99 N/A
One Boca Place O 1987 277,630 94 N/A
Palm Beach Gardens Office O 1984 67,657 95 N/A
Park
Pine Island Commons O 1985 60,810 74 N/A
Venture Corporate Center I O 1982 82,224 96 Conroy, Simberg & Lewis
Venture Corporate Center II O 1982 83,737 97 H.I.P. Health Plan Of Florida, Michael
Swerdlow Companies
Venture Corporate Center III O 1982 83,785 100 H.I.P. Health Plan of Florida
--------- ---
2,384,044 90%
========= ===
Nashville, TN
- -------------------------------
Maryland Farms
Eastpark 1 O 1978 29,797 100 Brentwood Music, Volunteer
Credit Corporation
Eastpark 2 O 1978 85,516 100 PMT Services, Inc.
Eastpark 3 O 1978 77,480 100 N/A
Harpeth II O 1984 78,220 100 N/A
Harpeth III O 1987 78,989 100 Alcoa Fujikura Ltd.
Harpeth IV O 1989 77,694 100 USF&G, L.M. Berry Co.
Highwoods Plaza I O 1996 102,593 100 TCS Management Group, Inc.
Highwoods Plaza II O 1997 102,052 100 TCS Management Group, Inc.,
Windy Hill Pet Food Co.
EMI/Sparrow O 1982 59,656 100 EMI Christian Music Group
5310 Maryland Way O 1994 76,615 100 Bell South
Grassmere
Grassmere I S 1984 87,902 100 Contel Cellular of Nashville, Inc.
Grassmere II S 1985 145,092 90 N/A
Grassmere III S 1990 103,000 100 Harris Graphics Corporation
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Percent
Occupied at Tenants Leasing 25% or More
Building Year Rentable December 31, of Rentable Square Feet at
Property Type (1) Built Square Feet 1997(13) December 31, 1997
- ------------------------------- ---------- ------------ ------------- -------------- -----------------------------------------
<S> <C> <C> <C> <C> <C>
Other Nashville Properties
Century City Plaza I O 1987 56,161 96% N/A
Lakeview O 1986 99,722 100 The Kroger Co.
3401 Westend O 1982 255,137 99 N/A
BNA O 1985 234,198 98 N/A
100 Winner's Circle O 1987 71,661 100 American Color Graphics, McDonald's
--------- ---
Total or Weighted Average 1,821,485 98%
========= ===
Orlando, FL
- -------------------------------
Metrowest I O 1988 102,019 100 Hilton Grand Vacation Co.
Southwest Corporate Center O 1984 98,777 100 Walt Disney World Co.
Campus Crusade O 1990 165,000 100 Campus Crusade For Christ
ACP-W O 1966-1992 315,515 85 AT&T
Corporate Square (8) O 1971 46,915 96 L.J. Norarse, Valencia Community College
Executive Point Towers O 1978 123,038 87 AT&T
Lakeview Office Park O 1975 212,443 91 N/A
2699 Lee Road (9) O 1974 86,464 97 N/A
One Winter Park O 1982 62,564 97 N/A
The Palladium O 1988 72,278 100 Westinghouse Electric
201 Pine Street O 1980 241,601 95 N/A
Premiere Point North O 1983 47,871 96 Muscato Corporation
Premiere Point South O 1983 47,581 95 N/A
Shoppes Of Interlachen O 1987 49,705 89 N/A
Signature Plaza O 1986 272,931 83 N/A
Skyline Plaza O 1985 45,446 98 Hubbard Construction Co.
--------- ---
Total or Weighted Average 1,990,148 92%
========= ===
Jacksonville, FL
- -------------------------------
Towermarc Plaza O 1991 50,624 100 Aetna Casualty
Belfort Park I O 1988 63,925 92 Acr Systems, Inc.
Belfort Park II O 1988 56,633 90 Media One
Belfort Park III O 1988 84,294 89 Xomed, Inc.
Cigna Building O 1972 39,078 74 Insurance Co. of North America
Harry James Building O 1982 31,056 100 Aon
Independent Square O 1975 639,358 89 N/A
Three Oaks Plaza O 1972 257,028 95 N/A
Reflections O 1985 114,992 96 N/A
Southpoint Office Building O 1980 56,836 92 N/A
100 West Bay Street Building O 1964 71,315 74 Life Of The South Insurance
--------- ---
Total or Weighted Average 1,465,139 90%
========= ===
Charlotte, NC
- -------------------------------
Steele Creek Park
Building A I 1989 42,500 100 Comer MFG
Building B I 1985 15,031 100 Pumps Parts & Services
Building E I 1985 38,697 100 Bradman-Lake, Inc., Atlas Die, Inc.
Building G-1 I 1989 22,500 44 Safewaste Corporation
Building H I 1987 53,614 64 Sugravo Rallis Engraving, Inc.
Building K I 1985 19,400 100 Queen City Plastics, Inc.
Highwoods/Forsyth
Business Park
4101 Stuart Andrew Blvd. S 1984 11,573 100 N/A
4105 Stuart Andrew Blvd. S 1984 4,340 100 Re-Directions, Inc., Daltile,
G & E Engineering
4109 Stuart Andrew Blvd. S 1984 14,783 100 N/A
4201 Stuart Andrew Blvd. S 1982 19,004 100 Medstaff Contract Nursing
4205 Stuart Andrew Blvd. S 1982 23,042 100 Sunbelt Video, Inc.
4209 Stuart Andrew Blvd. S 1982 15,578 100 N/A
4215 Stuart Andrew Blvd. S 1982 23,372 98 Rodan, Inc.
4301 Stuart Andrew Blvd. S 1982 38,662 99 Circle K
4321 Stuart Andrew Blvd. S 1982 12,018 83 Dilan
Parkway Plaza
Building 1 O 1982 57,584 99 BASF Corporation
Building 2 O 1983 87,314 70 N/A
Building 3 O 1984 81,821 93 N/A
Building 6 (10) O 1996 40,708 100 Hewlett-Packard
Building 7 (11) O 1985 60,722 100 Barclays American Mortgage
Building 8 (11) O 1986 40,615 100 Barclays American Mortgage
Building 9 (11) I 1984 110,000 100 BB&T
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Percent
Occupied at Tenants Leasing 25% or More
Building Year Rentable December 31, of Rentable Square Feet at
Property Type (1) Built Square Feet 1997(13) December 31, 1997
- ---------------------------- ---------- ------- ------------- -------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C>
Oakhill Business Park
Twin Oaks O 1985 97,115 88% Springs Industries, Inc.
Water Oak O 1985 95,636 97 N/A
Scarlet Oak O 1982 76,584 87 Krueger Ringier, Inc.
English Oak O 1984 54,865 100 The Employers Association of
the Carolinas
Willow Oak O 1982 36,560 0 N/A
Laurel Oak O 1984 34,536 100 Paramount Parks Inc.,
Woolpert Consultants, AG
Live Oak O 1989 82,431 97 CHF Industries
Other Charlotte Properties
First Citizens O 1989 57,171 64 N/A
Pinebrook O 1986 60,814 95 Keycorp Corporate Real Estate
-------- ---
Total or Weighted Average 1,428,590 89%
========= ===
Richmond, VA
- ----------------------------
Innsbrook Office Center
Liberty Mutual O 1990 57,915 100 Capital One, Liberty Mutual
Markel American O 1988 38,867 91 Mark IV Realty Corporation
Proctor-Silex O 1986 58,366 100 Proctor-Silex, Inc.
Vantage Place I O 1987 13,584 100 Rountrey and Associates, Spencer Printing Co.
Vantage Place II O 1987 14,822 100 Government Entities
Vantage Place III O 1988 14,389 100 Broughton Systems, Inc.
Vantage Place IV O 1988 13,441 35 Cemetary Mgmt.
Vantage Point O 1990 64,898 86 EDS, Nationwide Insurance
Innsbrook Tech I S 1991 18,350 89 Air Specialists of VA
DEQ Technology Center O 1991 53,554 93 FirstHealth, Dept. of Environmental Quality
DEQ Office O 1991 70,423 100 Circuit City
Aetna O 1989 99,209 97 N/A
Highwoods One O 1996 124,375 100 Amtec Technologies, Dynex Capital
Technology Park
Virginia Center O 1985 119,672 90 N/A
Other Richmond Properties
Westshore I O 1995 18,775 100 Snyder Hunt Corporation
Westshore II O 1995 27,714 100 Hewlett-Packard
Westshore III O 1997 56,500 56 K-Line America,Inc.
Shockoe Alleghany O 1996 118,518 100 The Martin Agency, Inc.
Warehouse
Airport Center 1 I 1997 141,613 100 Federal Express, Stone
Container Corporation
The Richfood Building O 1997 75,618 80 N/A
Grove Park O 1997 61,258 10 N/A
East Cary Street O 1987 16,865 66 Butler, Macon Et. Al.
-------- ---
Total or Weighted Average 1,278,726 89%
========= ===
Greenville, SC
- ----------------------------
Brookfield Corporate
Center
Brookfield-Jacobs-Sirrine O 1990 228,345 100 Jacobs-Sirrine Engineers, Inc.
Brookfield Plaza O 1987 117,982 94 CSC Continuum, Inc.
Brookfield-YMCA S 1990 15,500 46 Kids & Company at Pelham
Falls, Inc.
Patewood Plaza Office Park
Patewood Business Center S 1983 103,302 92 N/A
Patewood V O 1990 100,187 100 Bell Atlantic Mobile Systems,
Inc., PYA/Monarch, Inc.
Patewood IV O 1989 61,649 100 MCI
Patewood III O 1989 61,539 94 MCI
Patewood I O 1985 57,136 100 Metropolitan Life Ins. Co
Patewood II O 1987 60,168 79 Coats & Clark, Inc.
Other Greenville Properties
NationsBank Plaza (12) O 1973 195,833 79 N/A
-------- ---
Total or Weighted Average 1,001,641 91%
========= ===
Memphis, TN
- ----------------------------
Southwind
Office Center "A" O 1991 62,179 100 Promus Hotels, Inc.
Office Center "B" O 1990 61,860 64 N/A
Highwoods Office Center O 1997 69,023 66 Check Solutions
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Percent
Occupied at Tenants Leasing 25% or More
Building Year Rentable December 31, of Rentable Square Feet at
Property Type (1) Built Square Feet 1997(13) December 31, 1997
- ------------------------------- ---------- ------- ------------- -------------- ----------------------------------
<S> <C> <C> <C> <C> <C>
Other Memphis Properties
Atrium I O 1984 42,124 100% Baptist Memorial Health Care
Atrium II O 1984 42,099 100 Mueller Streamline Co.
International Place Phase II O 1988 208,014 94 International Paper Company
Kirby Centre O 1984 32,007 100 Financial Federal Savings Bank,
Union Central Life
Insurance Co.
Medical Properties, Inc. O 1988 18,079 100 Health Tech Affiliates, Inc.
Centrum Building O 1979 71,164 96 NationsBank
-------- ---
Total or Weighted Average 606,549 90%
========== ===
Baltimore
- -------------------------------
9690 Deereco Road O 1989 132,835 99 N/A
375 West Padonia Road (The O 1986 100,800 99 N/A
Atrium)
Business Center at Owings O 1989 43,753 99 N/A
Mills 7
Business Center at Owings O 1989 39,195 99 N/A
Mills 8
Business Center at Owings O 1988 47,851 99 N/A
-------- ---
Mills 9
364,434 99%
========== ===
Columbia, SC
- -------------------------------
Fontaine Business Center
Fontaine I O 1985 98,100 99 Blue Cross and Blue Shield of
S.C.
Fontaine II O 1987 72,468 100 Blue Cross and Blue Shield of
S.C.
Fontaine III O 1988 57,888 100 Companion Health Care Corporation
Fontaine V O 1990 21,107 100 Roche Biomedical
Laboratories, Inc.
Other Columbia Properties
Center Point I O 1988 72,565 93 Sedgewick James of South
Carolina, Inc., Alltel Mobile
Communication
Center Point II O 1996 81,466 46 Bell South
Center Point V O 1997 20,144 63 DS Atlantic Corporation,
-------- ---
Hewlett Packard
Total or Weighted Average 423,738 86%
========== ===
Tallahassee
- -------------------------------
Blair Stone Building O 1994 244,676 100% State of Florida
======== ===
Norfolk, VA
- -------------------------------
Battlefield I S 1987 97,633 100 Kasei Memory Products, Inc.
Greenbrier Business Center O 1984 81,194 100 Canon Computer Systems,
Inc., Roche Biomedical
Laboratories, Inc.
Riverside Plaza O 1988 87,030 93 First Hospital Corporation
-------- ---
Total or Weighted Average 265,857 98%
========== ===
Birmingham, AL
- -------------------------------
Grandview I O 1989 115,289 100% N/A
======== ===
Asheville, NC
- -------------------------------
Ridgefield 300 O 1989 63,500 100 N/A
Ridgefield 200 S 1987 60,677 100 Medical Business Resource
-------- ---
Total or Weighted Average 124,177 100%
========== ===
Ft Myers
- -------------------------------
Sunrise Office Center O 1974 51,831 67% N/A
======== === ==================================
Total or Weighted Average
of All Properties 30,720,854 94%
========== ===
</TABLE>
22
<PAGE>
- ----------
(1) I = Industrial, S = Service Center and O = Office.
(2) The property is subject to a land lease expiring August 31, 2023. Rental
payments on this lease are to be adjusted in 1998 and 2013 based on the
consumer price index. The Operating Partnership has a right of first
refusal to purchase the leased land during the lease term.
(3) The six properties are subject to land leases expiring December 31, 2058.
(4) The property is subject to a ground lease expiring May 31, 2002.
(5) The four properties are subject to land leases expiring December 31, 2058.
Rental payments on these leases are adjusted yearly based on a stated
percentage of each property's cash flow over a base amount.
(6) The property is subject to a ground lease expiring January 31, 2031.
Rental payments on this lease are to be adjusted every five years based on
the consumer price index.
(7) The property is subject to a ground lease expiring February 14, 2033.
(8) The property is subject to a ground lease expiring November 30, 2036.
Rental payments on this lease are to be adjusted every five years based on
the consumer price index.
(9) The property is subject to a ground lease expiring May 25, 2020.
(10) The property is subject to a land lease expiring December 31, 2071.
(11) The three properties are subject to a ground lease expiring December 31,
2082. The Operating Partnership has the option to purchase the land during
the lease term at the greater of $35,000 per acre or 85% of appraised
value.
(12) The property is subject to two land leases expiring September 30, 2069 and
a land lease expiring August 31, 2069.
(13) Includes 405,000 rentable square feet leased but not occupied.
Development Land
As of December 31, 1997, the Operating Partnership owned 718 acres and had
committed to purchase over the next six years an additional 512 acres of land
for development. The Operating Partnership estimates that it can develop
approximately 16 million square feet of office and industrial space on the
Development Land.
All of the Development Land is zoned and available for office or
industrial development, substantially all of which has utility infrastructure
already in place. The Operating Partnership believes that the cost of
developing the Development Land could be financed with the funds available from
the Operating Partnership's existing credit facilities, additional borrowings
and offerings of equity and debt securities. The Operating Partnership believes
that its commercially zoned and unencumbered land in existing business parks
gives the Operating Partnership an advantage in its future development
activities over other commercial real estate development companies in many of
its markets. Any future development, however, is dependent on the demand for
industrial or office space in the area, the availability of favorable financing
and other factors, and no assurance can be given that any construction will
take place on the Development Land. In addition, if construction is undertaken
on the Development Land, the Operating Partnership will be subject to the risks
associated with construction activities, including the risk that occupancy
rates and rents at a newly completed property may not be sufficient to make the
property profitable, construction costs may exceed original estimates and
construction and lease-up may not be completed on schedule, resulting in
increased debt service expense and construction expense.
23
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Operating Partnership is a party to a variety of legal proceedings
arising in the ordinary course of its business. The Operating Partnership
believes that it is adequately covered by insurance and indemnification
agreements. Accordingly, none of such proceedings are expected to have a
material adverse effect on the financial position or results of operations of
the Operating Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT
The Operating Partnership is managed by the Company as its sole general
partner. The following table sets forth certain information with respect to the
executive officers of the Company:
<TABLE>
<CAPTION>
Name Age Position and Background
- ---------------------- ----- -----------------------------------------------------------------------------
<S> <C> <C>
Ronald P. Gibson 53 Director, President and Chief Executive Officer. Mr. Gibson is a founder of
the Company and has served as President or managing partner of its
predecessor since its formation in 1978.
John L. Turner 51 Director, Vice Chairman of the Board of Directors and Chief Investment
Officer. Mr. Turner co-founded the predecessor of Forsyth Properties in
1975.
Edward J. Fritsch 39 Executive Vice President, Chief Operating Officer and Secretary.
Mr. Fritsch joined the Company in 1982.
John W. Eakin 43 Director and Senior Vice President. Mr. Eakin is responsible for operations
in Tennessee, Florida and Alabama. Mr. Eakin was a founder and president
of Eakin & Smith, Inc. prior to its merger with the Company.
James R. Heistand 45 Senior Vice President. Mr. Heistand is responsible for operations in Florida
and is an advisory member of the Company's investment committee.
Mr. Heistand is expected to join the Company's Board of Directors and
become a voting member of the investment committee this year.
Mr. Heistand was the founder and president of ACP prior to its merger with
the Company.
Gene H. Anderson 52 Director and Senior Vice President. Mr. Anderson manages the operations
of the Company's Georgia properties. Mr. Anderson was the founder and
president of Anderson Properties, Inc. prior to its merger with the
Company.
Carman J. Liuzzo 37 Vice President, Chief Financial Officer and Treasurer. Prior to joining the
Company in 1994, Mr. Liuzzo was vice president and chief accounting
officer for Boddie-Noell Enterprises, Inc. and Boddie-Noell Restaurant
Properties, Inc. Mr. Liuzzo is a certified public accountant.
Mack D. Pridgen, III 48 Vice President and General Counsel. Prior to joining the Company,
Mr. Pridgen was a partner with Smith Helms Mulliss & Moore, L.L.P.
</TABLE>
As the Operating Partnership has expanded into new markets, it has sought
to enter into business combinations with local real estate operators with many
years of management and development experience in their respective markets.
Messrs. Turner, Eakin, Anderson and Heistand each joined the Company, general
partner of the Operating Partnership, as executive officers as a result of such
business combinations. Mr. Turner entered into a three-year employment contract
with the Company in 1995, Mr. Eakin entered into a three-year employment
contract with the Company in 1996 and Messrs. Anderson and Heistand each
entered into a three-year employment contract with the Company in 1997.
24
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S EQUITY AND RELATED SECURITY HOLDER MATTERS
Market Information and Distributions
There is no established public trading market for the Common Units. The
following table sets forth the cash distributions paid per Common Unit during
each quarter. Comparable cash distributions are expected in the future. As of
March 20, 1998, there were 171 record holders of Common Units.
<TABLE>
<CAPTION>
Quarter 1997 1996 1995
Ended: Distributions Distributions Distributions
- ------------------------ --------------- --------------- --------------
<S> <C> <C> <C>
March 31 ............. $ 0.48 $ 0.45 $ 0.425
June 30 .............. 0.81 0.48 0.45
September 30 ......... 0.51 0.48 0.45
December 31 .......... 0.51 0.48 0.45
</TABLE>
- ----------
On January 26, 1998, the Operating Partnership declared a quarterly cash
distribution of $.51 per Common Unit payable on February 18, 1998 to Common
Unit holders of record on February 5, 1998. Such distributions are prorated
with respect to Common Units that have not been outstanding for the full prior
quarter.
Sales of Unregistered Securities
In connection with the acquisition of real estate, the Operating
Partnership frequently issues Common Units to sellers of real estate in
reliance on exemptions from registration under the Securities Act of 1933 (the
"Securities Act"). In connection with acquisitions in 1997, the Operating
Partnership issued 6,613,242 Common Units in offerings exempt from the
registration requirements of the Securities Act. The Operating Partnership
exercised reasonable care to assure that each of the offerees of Common Units
in 1997 were "accredited investors" under Rule 501 of the Securities Act and
that the investors were not purchasing the Common Units with a view to their
distribution. Specifically, the Operating Partnership relies on the exemptions
provided by Section 4(2) of the Securities Act or Rule 506 of the rules
promulgated by the Commission under the Securities Act.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial and operating
information for the Operating Partnership as of December 31, 1997, 1996, 1995
and 1994, for the years ended December 31, 1997, 1996 and 1995, and for the
period from June 14, 1994 (commencement of operations) to December 31, 1994.
The following table also sets forth selected financial and operating
information on a historical basis for the Highwoods Group (the predecessor to
the Operating Partnership) as of and for each of the years in the two-year
period ended December 31, 1993, and for the period from January 1, 1994, to
June 13, 1994. The pro forma operating data for the year ended December 31,
1994 assumes completion of the initial public offering and the Formation
Transaction (defined below) as of January 1, 1994.
Due to the impact of the initial formation of the Operating Partnership
and the Company's initial public offering in 1994, the second and third
offerings in 1995 and the transactions more fully described in "Management's
Discussion and Analysis -- Overview and Background," the historical results of
operations for the year ended December 31, 1995 and the period from June 14,
1994 to December 31, 1994 may not be comparable to the current period results
of operations.
25
<PAGE>
The Operating Partnership and the Highwoods Group
<TABLE>
<CAPTION>
Operating Partnership
June 14, 1994
Year Ended Year Ended Year Ended to
December 31, December 31, December 31, December 31,
1997 1996 1995 1994
-------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
(Dollars in thousands, except per share amounts)
Operating Data:
Total revenue ................... $ 273,165 $ 132,302 $ 73,522 $ 19,442
Rental property
operating expenses ............ 76,743 33,657 17,049(1) 5,110(1)
General and
administrative ................ 10,216 5,636 2,737 810
Interest expense ................ 47,394 25,230 13,720 3,220
Depreciation and
amortization .................. 47,260 21,105 11,082 2,607
------------ ----------- ------------ ------------
Income (loss) before
extraordinary item ............ 91,552 46,674 28,934 7,695
Extraordinary item-loss
on early extinguishment
of debt ....................... (6,945) (2,432) (1,068) (1,422)
------------ ----------- ------------ ------------
Net income (loss) ............... $ 84,607 $ 44,242 $ 27,866 $ 6,273
============ =========== ============ ============
Dividends on preferred units..... (13,117) -- -- --
------------ ----------- ------------ ------------
Net income available for
Common Unit holders ........... $ 71,490
============
Net income per Common
Unit -- basic ................. $ 1.54 $ 1.48 $ 1.49 $ .63
============ =========== ============ ============
Net income per Common
Unit -- diluted ............... $ 1.53 $ 1.47 $ 1.48 $ .63
============ =========== ============ ============
Balance Sheet Data
(at end of period):
Real estate, net of
accumulated
depreciation .................. $ 2,601,211 $ 1,364,606 $ 593,066 $ 207,976
------------ ----------- ------------ ------------
Total assets .................... 2,707,240 1,429,488 621,134 224,777
------------ ----------- ------------ ------------
Total mortgages and
notes payable ................. 978,558 555,876 182,736 66,864
------------ ----------- ------------ ------------
Other data:
Number of in-service
properties .................... 481 292 191 44
------------ ----------- ------------ ------------
Total rentable square
feet .......................... 30,720,854 17,455,174 9,215,171 2,746,219
============ =========== ============ ============
<CAPTION>
The Operating Partnership and the Highwoods Group
Operating
Partnership Highwoods
Pro Forma Group
Highwoods
Group
January 1,
Year Ended 1994 to Year ended
December 31, June 13, December 31,
1994 1994 1993
-------------- -------------- -------------
<S> <C> <C> <C>
Operating Data:
Total revenue ................... $ 34,282 $ 6,648 $ 13,450
Rental property
operating expenses ............ 9,677(1) 2,596(2) 6,248(2)
General and
administrative ................ 1,134 280 589
Interest expense ................ 5,604 2,473 5,185
Depreciation and
amortization .................. 4,638 835 1,583
----------- ----------- -----------
Income (loss) before
extraordinary item ............ 13,229 464 (155)
Extraordinary item-loss
on early extinguishment
of debt ....................... -- -- --
----------- ----------- -----------
Net income (loss) ............... $ 13,229 $ 464 $ (155)
=========== =========== ===========
Dividends on preferred units..... --
-----------
Net income available for
Common Unit holders ...........
Net income per Common
Unit -- basic ................. $ 1.32
===========
Net income per Common
Unit -- diluted ............... $ 1.32
===========
Balance Sheet Data
(at end of period):
Real estate, net of
accumulated
depreciation .................. $ -- $ -- $ 51,590
----------- ----------- -----------
Total assets .................... -- -- 58,679
----------- ----------- -----------
Total mortgages and
notes payable ................. -- -- 64,347
----------- ----------- -----------
Other data:
Number of in-service
properties .................... -- 14 14
----------- ----------- -----------
Total rentable square
feet .......................... -- 816,690 816,690
=========== =========== ===========
</TABLE>
- ----------
(1) Rental property operating expenses include salaries, real estate taxes,
insurance, repairs and maintenance, property management, security and
utilities.
(2) Rental property operating expenses include salaries, real estate taxes,
insurance, repairs and maintenance, property management, security,
utilities, leasing, development, and construction expenses.
26
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview and Background
The Highwoods Group (the predecessor to the Operating Partnership) was
comprised of 13 office properties and one warehouse facility (the
"Highwoods-Owned Properties"), 94 acres of development land and the management,
development and leasing business of Highwoods Properties Company ("HPC"). On
June 14, 1994, following completion of the Company's initial public offering,
the Company, through a business combination involving entities under varying
common ownership, succeeded to the Highwoods-Owned Properties, HPC's real
estate business and 27 additional office properties owned by unaffiliated
parties (such combination being referred to as the "Formation Transaction").
The Company is the sole general partner of the Operating Partnership. The
Operating Partnership owns the Company's Properties and conducts substantially
all of its operations. The Operating Partnership acquired three additional
Properties in 1994 after the Formation Transaction.
In February 1995, the Operating Partnership expanded into other North
Carolina markets and diversified its portfolio to include industrial and
service center properties with its $170 million, 57-Property business
combination with Forsyth Partners (the "Forsyth Transaction"). During the year
ended December 31, 1995, the Operating Partnership acquired 144 Properties
encompassing 6,357,000 square feet, at an initial cost of $369.9 million.
In September 1996, the Operating Partnership acquired 5.7 million rentable
square feet of office and service center space through its $566 million merger
with Crocker Realty Trust, Inc. ("Crocker"). During the year ended December 31,
1996, the Operating Partnership acquired 91 Properties encompassing 7,325,500
square feet at an initial cost of $704.0 million.
During the year ended December 31, 1997, the Operating Partnership
acquired 176 properties encompassing 12,789,000 square feet at an initial cost
of $1.1 billion. See "Business -- Recent Developments" for a description of the
ACP Transaction, the Riparius Transaction, the Century Center Transaction and
the Anderson Transaction and for a table summarizing all mergers and
acquisitions completed during the year ended December 31, 1997.
This information should be read in conjunction with the accompanying
consolidated financial statements and the related notes thereto.
Results of Operations
Comparison of 1997 to 1996
Revenue from rental operations increased $140.9 million, or 111.8%, from
$126.0 million in 1996 to $266.9 million in 1997. The increase is primarily a
result of revenue from newly acquired and developed properties as well as
acquisitions completed in 1996 which only contributed partially in 1996.
Interest and other income decreased 1.6% from $6.3 million in 1996 to $6.2
million in 1997. Lease termination fees and third-party income accounted for a
majority of such income in 1997 while excess cash invested in 1996 from two
offerings of Common Stock during the summer of 1996 raising total net proceeds
of approximately $293 million (the "Summer 1996 Offering") accounted for a
majority of such income in 1996.
Rental operating expenses increased $43.0 million, or 127.6%, from $33.7
million in 1996 to $76.7 million in 1997. The increase is due to the net
addition of 13.3 million square feet to the in-service portfolio in 1997 as
well as acquisitions completed in 1996 which only contributed partially in
1996. Rental expenses as a percentage of related rental revenues increased from
26.7% for the year ended December 31, 1996 to 28.7% for the year ended December
31, 1997. The increase is a result of an increase in the percentage of office
properties in the portfolio which have fewer "triple net" leases.
Depreciation and amortization for the years ended December 31, 1997 and
1996 was $47.3 million and $21.1 million, respectively. The increase of $26.2
million, or 124.2%, is due to an average increase
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in depreciable assets of 103.5%. Interest expense increased 88.1%, or $22.2
million, from $25.2 million in 1996 to $47.4 million in 1997. The increase is
attributable to the increase in outstanding debt related to the Operating
Partnership's acquisition and development activity. Interest expense for the
years ended December 31, 1997 and 1996 included $2.3 million and $1.9 million,
respectively, of non-cash deferred financing costs and amortization of the
costs related to the Operating Partnership's interest protection agreements.
General and administrative expenses decreased from 4.4% of rental revenue
in 1996 to 3.8% in 1997. The decrease is attributable to the realization of
synergies from the Operating Partnership's growth in 1997. Duplication of
personnel costs in the third quarter of 1996 related to the acquisition of
Crocker also contributed to the higher general and administrative expenses in
the prior year.
Net income before extraordinary item equaled $91.6 million and $46.7
million, respectively, for the years ended December 31, 1997 and 1996. The
extraordinary items consisted of prepayment penalties incurred and deferred
loan cost expensed in connection with the extinguishment of secured debt
assumed in various acquisitions completed in 1997 and 1996. The Operating
Partnership also recorded $13.1 million in preferred unit dividends for the
year ended December 31, 1997.
Comparison of 1996 to 1995
Revenue from rental operations increased $54.8 million, or 77.0%, from
$71.2 million in 1995 to $126.0 million in 1996. The increase is primarily a
result of revenue from newly acquired and developed properties. Interest and
other income increased 173.9% from $2.3 million in 1995 to $6.3 million in
1996. This increase is a result of the excess cash and cash equivalents
resulting from the Summer 1996 Offering and an increase in third-party
management and leasing income.
Rental operating expenses increased $16.7 million, or 98.2%, from $17.0
million in 1995 to $33.7 million in 1996. The increase is due to the addition
of 8.2 million square feet to the in-service portfolio. Rental expenses as a
percentage of related rental revenues increased from 23.9% for the year ended
December 31, 1995 to 26.7% for the year ended December 31, 1996. The increase
is a result of an increase in the percentage of office properties in the
portfolio which have fewer "triple net" leases, and approximately $400,000 in
additional expenses related to the severe winter weather in 1996 and the
hurricane in September of the same year.
Depreciation and amortization for the years ended December 31, 1996 and
1995 was $21.1 million and $11.1 million, respectively. The increase of $10.0
million, or 90.1%, is due to a 128.8% increase in depreciable assets. Interest
expense increased $11.5 million, or 83.9%, from $13.7 million in 1995 to $25.2
million in 1996. The increase is attributable to the increase in outstanding
debt related to the Operating Partnership's acquisition and development
activities. Interest expense for the years ended December 31, 1996 and 1995
included $1.9 million and $1.6 million, respectively, of non-cash deferred
financing costs and amortization of the costs related to the Operating
Partnership's interest rate protection agreements.
General and administrative expenses increased from 3.8% of rental revenue
in 1995 to 4.5% in 1996. This increase is attributable to the addition of four
regional offices in Nashville, Memphis, Tampa, and Boca Raton as a result of
acquisitions. The duplication of certain personnel costs in the third quarter
during the acquisition of Crocker also contributed to higher general and
administrative expenses for the year ended December 31, 1996. Such duplicative
costs were eliminated in the fourth quarter as the Operating Partnership
realized the planned synergies from the merger.
Net income before extraordinary item equaled $46.7 million and $28.9
million for the years ended December 31, 1996 and 1995, respectively. The
extraordinary items consisted of prepayment penalties incurred and deferred
loan expensed in connection with the extinguishment of certain debt assumed in
the Crocker merger in 1996 and the Forsyth Transaction in 1995.
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Liquidity and Capital Resources
Statement of Cash Flows
The Operating Partnership generated $127.3 million in cash flows from
operating activities and $394.1 million in cash flows from financing activities
for the year ended December 31, 1997. These combined cash flows of $521.4
million were used to fund investing activities for the year ended December 31,
1997. Such investing activities consisted primarily of development and merger
and acquisition activity for the year ended December 31, 1997. See "Business --
Recent Developments."
Capitalization
Mortgage and notes payable at December 31, 1997 totaled $978.6 million and
were comprised of $332.4 million of secured indebtedness with a weighted
average interest rate of 8.2% and $646.2 million of unsecured indebtedness with
a weighted average interest rate of 7.0%. All of the mortgage and notes payable
outstanding at December 31, 1997 were either fixed rate obligations or variable
rate obligations covered by interest rate protection agreements (see below).
The weighted average life of the indebtedness was approximately 5.3 years at
December 31, 1997.
The Company and the Operating Partnership completed the following
financing activities during the year ended December 31, 1997:
o Series A Preferred Offering. On February 12, 1997, the Company sold
125,000 Series A Cumulative Redeemable Preferred Shares (the "Series A
Preferred Shares") for net proceeds of approximately $121.7 million (the
"Series A Preferred Offering"). Dividends on the Series A Preferred Shares
are cumulative from the date of original issuance and are payable
quarterly on or about the last day of February, May, August and November
of each year, commencing May 31, 1997, at the rate of 8 5/8% of the $1,000
liquidation preference per annum (equivalent to $86.25 per annum per
share). The Series A Preferred Shares are not redeemable prior to February
12, 2027. The net proceeds of the Series A Preferred Offering were
contributed to the Operating Partnership in exchange for Series A
Preferred Units, which have the same economic terms as the Series A
Preferred Shares.
o X-POSSM Offering. On June 24, 1997, a trust formed by the Operating
Partnership sold $100 million of Exercisable Put Option SecuritiesSM
("X-POSSM"), which represent fractional undivided beneficial interests in
the trust. The assets of the trust consist of, among other things, $100
million of Exercisable Put Option Notes due June 15, 2011 issued by the
Operating Partnership (the "Put Option Notes"). The X-POSSM bear an
interest rate of 7.19%, representing an effective borrowing cost of 7.09%,
net of a related put option and certain interest rate protection agreement
costs. Under certain circumstances, the Put Option Notes could also become
subject to early maturity on June 15, 2004. The issuance of the Put Option
Notes and the related put option is referred to herein as the "X-POSSM
Offering."
o August 1997 Offering. On August 28, 1997, the Company entered into two
transactions with affiliates of Union Bank of Switzerland (the "August
1997 Offering"). In one transaction, the Company sold 1,800,000 shares of
Common Stock to UBS Limited for net proceeds of approximately $57 million.
In the other transaction, the Company entered into a forward share
purchase agreement (the "Forward Contract") with Union Bank of
Switzerland, London Branch ("UBS/LB"). The Forward Contract generally
provides that if the price of a share of Common Stock is above $32.14 (the
"Forward Price") on August 28, 1998, UBS/LB will return the difference (in
shares of Common Stock) to the Company. Similarly, if the price of a share
of Common Stock on August 28, 1998 is less than the Forward Price, the
Company will pay the difference to UBS/LB in cash or shares of Common
Stock, at the Company's option. The net proceeds of the August 1997
Offering were contributed to the Operating Partnership in exchange for
Common Units.
o Series B Preferred Offering. On September 25, 1997, the Company sold
6,900,000 Series B Preferred Cumulative Redeemable Shares (the "Series B
Preferred Shares") for net proceeds of
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approximately $166.9 million (the "Series B Preferred Offering").
Dividends on the Series B Preferred Shares are cumulative from the date of
original issuance and are payable quarterly on March 15, June 15,
September 15 and December 15 of each year, commencing December 15, 1997,
at the rate of 8% of the $25 liquidation preference per annum (equivalent
to $2.00 per annum per share). The Series B Preferred Shares are not
redeemable prior to September 25, 2002. The net proceeds of the Series B
Preferred Offering were contributed to the Operating Partnership in
exchange for Series B Preferred Units, which have the same economic terms
as the Series B Preferred Shares.
o October 1997 Offering. On October 1, 1997, the Company sold 7,500,000
shares of Common Stock in an underwritten public offering for net proceeds
of approximately $249 million. The underwriters exercised a portion of
their over-allotment option for 1,000,000 shares of Common Stock on
October 6, 1997, raising additional net proceeds of $33.2 million
(together with the sale on October 1, 1997, the "October 1997 Offering").
The net proceeds of the October 1997 Offering were contributed to the
Operating Partnership in exchange for Common Units.
o $150 Million Credit Facility. On December 15, 1997, the Operating
Partnership obtained a $150 million unsecured revolving loan with a
syndicate of lenders that matures on June 30, 1998. Borrowings under the
revolving loan are based on the 30-day LIBOR rate plus 90 basis points. At
December 31, 1997, the Operating Partnership had $100 million available of
borrowings under the $150 million loan. During the second or third quarter
of 1998, the Operating Partnership expects to replace the newly acquired
revolving loan and its $280 million revolving loan with a revolving loan
of up to $500 million.
o Issuance of Common Units and Common Stock. In connection with 1997
acquisitions, the Operating Partnership issued 6,613,242 Common Units and
the Company issued 117,617 shares of restricted Common Stock for an
aggregate value of approximately $210.0 million (based on the agreed-upon
valuation of a share of Common Stock at the time of the acquisition).
Additional information regarding the X-POS Offering, the August 1997 Offering
and the newly obtained revolving loan is set forth in the notes related to the
accompanying consolidated financial statements.
To protect the Operating Partnership from increases in interest expense
due to changes in the variable rate, the Operating Partnership: (i) purchased
an interest rate collar limiting its exposure to an increase in interest rates
to 7.25% with respect to $80 million of its $430 million aggregate amount of
unsecured revolving loans (the "Revolving Loans") excluding the effect of
changes in the Operating Partnership's credit risk, and (ii) entered into
interest rate swaps that limit its exposure to an increase in interest rates to
6.95% in connection with the $22 million of variable rate mortgages. The
interest rate on all such variable rate debt is adjusted at monthly intervals,
subject to the Operating Partnership's interest rate protection program. Net
payments made to counterparties under the above interest rate protection
agreements were $47,000 in 1997 and were recorded as an increase to interest
expense. Payments received from the counterparties under the interest rate
protection agreements were $167,000 and $385,000 for 1996 and 1995,
respectively. The Operating Partnership is exposed to certain losses in the
event of non-performance by the counterparties under the cap and swap
arrangements. The counterparties are major financial institutions and are
expected to perform fully under the agreements. However, if they were to
default on their obligations under the arrangements, the Operating Partnership
could be required to pay the full rates under the Revolving Loans and the
variable rate mortgages, even if such rates were in excess of the rate in the
cap and swap agreements. In addition, the Operating Partnership may incur other
variable rate indebtedness in the future. Increases in interest rates on its
indebtedness could increase the Operating Partnership's interest expense and
could adversely affect the Operating Partnership's cash flow and its ability to
pay expected distributions to stockholders.
In anticipation of a 1998 debt offering, on September 17, 1997, the
Operating Partnership entered into a swap agreement with a notional amount of
$114 million. The swap agreement has a termination
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date of April 10, 1998, and carries a fixed rate of 6.3% which is a combination
of the treasury rate plus the swap spread and the forward premium.
Historically, rental revenue has been the principal source of funds to pay
operating expenses, debt service and capital expenditures, excluding
non-recurring capital expenditures. In addition, construction management,
maintenance, leasing and management fees have provided sources of cash flow.
Management believes that the Operating Partnership will have access to the
capital resources necessary to expand and develop its business. To the extent
that the Operating Partnership's cash flow from operating activities is
insufficient to finance its acquisition costs and other capital expenditures,
including development costs, the Operating Partnership expects to finance such
activities through the Revolving Loans and other debt and equity financing.
The Operating Partnership presently has no plans for major capital
improvements to the existing properties, other than an $8 million renovation of
the common areas of a 639,000-square foot property acquired in the ACP
Transaction. A reserve has been established to cover the cost of the
renovations. The Operating Partnership expects to meet its short-term liquidity
requirements generally through its working capital and net cash provided by
operating activities along with the previously discussed Revolving Loans. The
Operating Partnership expects to meet certain of its financing requirements
through long-term secured and unsecured borrowings and the issuance of debt
securities or additional equity securities of the Operating Partnership. In
addition, the Operating Partnership anticipates utilizing the Revolving Loans
primarily to fund construction and development activities. The Operating
Partnership does not intend to reserve funds to retire existing mortgage
indebtedness or indebtedness under the Revolving Loans upon maturity. Instead,
the Operating Partnership will seek to refinance such debt at maturity or
retire such debt through the issuance of additional equity or debt securities.
The Operating Partnership anticipates that its available cash and cash
equivalents and cash flows from operating activities, together with cash
available from borrowings and other sources, will be adequate to meet the
capital and liquidity needs of the Operating Partnership in both the short and
long-term. However, if these sources of funds are insufficient or unavailable,
the Operating Partnership's ability to make the expected distributions
discussed below may be adversely affected.
Recent Developments
Recent Acquisitions
Riparius Transaction. In closings on December 23, 1997 and January 8,
1998, the Operating Partnership completed a business combination with Riparius
Development Corporation in Baltimore, Maryland involving the acquisition of a
portfolio of five office properties encompassing 369,000 square feet, two
office development projects encompassing 235,000 square feet, 11 acres of
development land and 101 additional acres of development land to be acquired
over the next three years. As of December 31, 1997, the in-service properties
acquired in the Riparius Transaction were 99% leased. The cost of the Riparius
Transaction consisted of a cash payment of $43.6 million. In addition, the
Operating Partnership has assumed the two office development projects with an
anticipated cost of $26.2 million expected to be paid in 1998, and will pay out
$23.9 million over the next three years for the 101 additional acres of
development land.
Garcia Transaction. On February 4, 1998, the Operating Partnership
acquired substantially all of a portfolio consisting of 28 office properties
encompassing 787,000 rentable square feet, seven service center properties
encompassing 471,000 square feet and 66 acres of development land in Tampa,
Florida (the "Garcia Transaction"). As of December 31, 1997, the properties
acquired in the Garcia Transaction were 92% leased. The cost of the Garcia
Transaction consists of a cash payment of approximately $87 million and the
assumption of approximately $24 million in secured debt. The Operating
Partnership expects to close on the one remaining property by April 4, 1998.
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Pending Acquisitions
J.C. Nichols Transaction. On December 22, 1997, the Company entered into a
merger agreement (the "Merger Agreement") with J.C. Nichols Company, a publicly
traded Kansas City real estate operating company ("J.C. Nichols"), pursuant to
which the Company would acquire J.C. Nichols with the view that the Operating
Partnership would combine its property operations with J.C. Nichols. J.C.
Nichols is subject to the information requirements of the Securities Exchange
Act of 1934, as amended, and, in accordance therewith, files reports and other
information with the Securities and Exchange Commission.
J.C. Nichols owns or has an ownership interest in 27 office properties
encompassing approximately 1.5 million rentable square feet, 13 industrial
properties encompassing approximately 337,000 rentable square feet, 33 retail
properties encompassing approximately 2.5 million rentable square feet and 16
multifamily communities with 1,816 apartment units in Kansas City, Missouri and
Kansas. Additionally, J.C. Nichols has an ownership interest in 21 office
properties encompassing approximately 1.3 million rentable square feet, one
industrial property encompassing approximately 200,000 rentable square feet and
one multifamily community with 418 apartment units in Des Moines, Iowa. As of
December 31, 1997, the properties to be acquired in the J.C. Nichols
Transaction were 95% leased.
Consummation of the J.C. Nichols Transaction is subject, among other
things, to the approval of 66 2/3% of the shareholders of J.C. Nichols. Under
the terms of the Merger Agreement, the Company would acquire all of the
outstanding common stock, $.01 par value, of J.C. Nichols ("J.C. Nichols Common
Stock"). Under the Merger Agreement, J.C. Nichols shareholders may elect to
receive either 1.84 shares of Common Stock or $65 in cash for each share of
J.C. Nichols Common Stock. However, the cash payment to J.C. Nichols
shareholders cannot exceed 40% of the total consideration and the Company may
limit the amount of Common Stock issued to 75% of the total consideration. The
exchange ratio is fixed and reflects the average closing price of the Common
Stock over the 20 trading days preceding the effective date of the Merger
Agreement. The cost of the J.C. Nichols Transaction under the Merger Agreement
is approximately $570 million, including assumed debt of approximately $250
million, net of cash of approximately $65 million. The Merger Agreement
provides for payment by J.C. Nichols to the Company of a termination fee and
expenses of up to $17.2 million if J.C. Nichols enters into an acquisition
proposal other than the Merger Agreement and certain other conditions are met.
The failure of J.C. Nichols shareholders to approve the J.C. Nichols
Transaction, however, will not trigger the payment of a termination fee, except
for a fee of $2.5 million, if, among other things, J.C. Nichols enters into
another acquisition proposal before December 22, 1998.
No assurance can be given that all or part of the J.C. Nichols Transaction
will be consummated or that, if consummated, it would follow the terms set
forth in the Merger Agreement. As of the date hereof, certain third parties
have expressed an interest to J.C. Nichols and/or certain of its shareholders
in purchasing all or a portion of the outstanding J.C. Nichols Common Stock at
a price in excess of $65 per share. No assurance can be given that a third
party will not make an offer to J.C. Nichols or its shareholders to purchase
all or a portion of the outstanding J.C. Nichols Common Stock at a price in
excess of $65 per share or that the board of directors of J.C. Nichols would
reject any such offer. The Company and/or J.C. Nichols may terminate the Merger
Agreement if the J.C. Nichols Transaction is not consummated by June 30, 1998.
The properties to be acquired in the J.C. Nichols Transaction include the
Country Club Plaza in Kansas City, which covers 15 square blocks and includes
1.0 million square feet of retail space, 1.1 million square feet of office
space and 462 apartment units. As of December 31, 1997, the Country Club Plaza
was approximately 96% leased. The Country Club Plaza is presently undergoing an
expansion and restoration expected to add 800,000 square feet of retail,
office, hotel and residential space with an estimated cost of approximately
$240 million. Assuming consummation of the J.C. Nichols Transaction, the
Operating Partnership intends to complete the development in the Country Club
Plaza previously planned by J.C. Nichols.
Assuming completion of the J.C. Nichols Transaction, the Company and the
Operating Partnership would succeed to the interests of J.C. Nichols in a
strategic alliance with Kessinger/Hunter & Company,
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Inc. ("Kessinger/Hunter") pursuant to which Kessinger/Hunter manages and leases
the office, industrial and retail properties presently owned by J.C. Nichols in
the greater Kansas City metropolitan area. J.C. Nichols currently has a 30%
ownership interest in the strategic alliance with Kessinger/Hunter and has two
additional options to acquire up to a 65% ownership interest in the strategic
alliance. Assuming completion of the J.C. Nichols Transaction, the Company and
the Operating Partnership would also succeed to the interests of J.C. Nichols
in a strategic alliance with R&R Investors, Ltd. ("R&R") pursuant to which R&R
manages and leases the properties in which J.C. Nichols has an ownership
interest in Des Moines. J.C. Nichols has an ownership interest of 50% or more
in each of the properties in Des Moines with R&R or its principal.
Easton-Babcock Transaction. The Operating Partnership has entered into an
agreement with The Easton-Babcock Companies, a real estate operating company in
Miami, Florida ("Easton-Babcock"), pursuant to which the Operating Partnership
will combine its property operations with Easton-Babcock and acquire a
portfolio of 11 industrial properties encompassing 1.8 million rentable square
feet, three office properties encompassing 197,000 rentable square feet and 110
acres of land for development, of which 88 acres will be acquired over a
three-year period (the "Easton-Babcock Transaction"). As of December 31, 1997,
the industrial properties to be acquired in the Easton-Babcock Transaction were
88% leased and the office properties to be acquired in the Easton-Babcock
Transaction were 50% leased. The cost of the Easton-Babcock Transaction is $143
million (inclusive of the 88 acres of development land to be acquired over a
three-year period) and will consist of an undetermined combination of the
issuance of Common Units, the assumption of mortgage debt and a cash payment.
Also in connection with the Easton-Babcock Transaction, the Company will issue
to certain affiliates of Easton-Babcock warrants to purchase 926,000 shares of
Common Stock at $35.50 per share. Although the Easton-Babcock Transaction is
expected to close by April 30, 1998, no assurance can be given that all or part
of the transaction will be consummated.
Financing Activities
Set forth below is a summary description of the recent financing
activities of the Company and the Operating Partnership:
January 1998 Offering. On January 27, 1998, the Company sold 2,000,000
shares of Common Stock in an underwritten public offering (the "January 1998
Offering") for net proceeds of approximately $68.2 million. The net proceeds of
the January 1998 Offerings were contributed to the Operating Partnership in
exchange for Common Units.
February 1998 Debt Offering. On February 2, 1998, the Operating
Partnership sold $125 million of 6.835% MandatOry Par Put Remarketed Securities
("MOPPRS") due February 1, 2013 and $100 million of 7 1/8% notes due February
1, 2008 (the "February 1998 Debt Offering").
February 1998 Common Stock Offerings. On February 12, 1998, the Company
sold an aggregate of 1,553,604 shares of Common Stock in two underwritten
public offerings (the "February 1998 Common Stock Offerings") for net proceeds
of approximately $51.2 million. The net proceeds of the February 1998 Common
Stock Offerings were contributed to the Operating Partnership in exchange for
Common Units.
March 1998 Offering. On March 30, 1998, the Company sold 428,572 shares of
Common Stock in an underwritten public offering (the "March 1998 Offering") for
net proceeds of approximately $14.2 million. The net proceeds of the March 1998
Offering were contributed to the Operating Partnership in exchange for Common
Units.
Possible Environmental Liabilities
Under various Federal, state and local laws, ordinances and regulations,
such as the Comprehensive Environmental Response Compensation and Liability Act
or "CERCLA," and common law, an owner or operator of real estate is liable for
the costs of removal or remediation of certain hazardous or toxic
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substances on or in such property as well as certain other costs, including
governmental fines and injuries to persons and property. Such laws often impose
such liability without regard to whether the owner or operator knew of, or was
responsible for, the presence of such hazardous or toxic substances. The
presence of such substances, or the failure to remediate such substances
properly, may adversely affect the owner's or operator's ability to sell or
rent such property or to borrow using such property as collateral. Persons who
arrange for the disposal or treatment of hazardous or toxic substances may also
be liable for the costs of removal or remediation of such substances at a
disposal or treatment facility, whether or not such facility is owned or
operated by such person. Certain environmental laws impose liability for
release of asbestos-containing materials ("ACM"), and third parties may seek
recovery from owners or operators of real property for personal injuries
associated with ACM. A number of Properties contain ACM or material that is
presumed to be ACM. In connection with the ownership and operation of its
properties, the Operating Partnership may be liable for such costs. In
addition, it is not unusual for property owners to encounter on-site
contamination caused by off-site sources, and the presence of hazardous or
toxic substances at a site in the vicinity of a property could require the
property owner to participate in remediation activities in certain cases or
could have an adverse effect on the value of such property. In a few
situations, contamination from adjacent properties has migrated onto property
owned by the Operating Partnership; however, based on current information,
management of the Operating Partnership does not believe that any significant
remedial action is necessary at these affected sites.
As of the date hereof, substantially all of the Properties have been
subjected to a Phase I environmental assessment and/or assessment update. These
assessments have not revealed, nor is management of the Operating Partnership
aware of, any environmental liability that it believes would have a material
adverse effect on the Operating Partnership's financial position, operations or
liquidity taken as a whole. This projection, however, could prove to be
incorrect depending on certain factors. For example, the Operating
Partnership's assessments may not reveal all environmental liabilities, or may
underestimate the scope and severity of environmental conditions observed, with
the result that there may be material environmental liabilities of which the
Operating Partnership is unaware, or material environmental liabilities may
have arisen after the assessments were performed of which the Operating
Partnership is unaware. In addition, assumptions regarding groundwater flow and
the existence and source of contamination are based on available sampling data,
and there are no assurances that the data is reliable in all cases. Moreover,
there can be no assurance that (i) future laws, ordinances or regulations will
not impose any material environmental liability or (ii) the current
environmental condition of the Properties will not be affected by tenants, by
the condition of land or operations in the vicinity of the Properties, or by
third parties unrelated to the Operating Partnership.
Some tenants use or generate hazardous substances in the ordinary course
of their respective businesses. These tenants are required under their leases
to comply with all applicable laws and are responsible to the Operating
Partnership for any damages resulting from the tenants' use of the property.
The Operating Partnership is not aware of any material environmental problems
resulting from tenants' use or generation of hazardous substances. There are no
assurances that all tenants will comply with the terms of their leases or
remain solvent and that the Operating Partnership may not at some point be
responsible for contamination caused by such tenants.
Compliance with the Americans with Disabilities Act
Under the Americans with Disabilities Act (the "ADA"), all public
accommodations and commercial facilities are required to meet certain Federal
requirements related to access and use by disabled persons. These requirements
became effective in 1992. Compliance with the ADA requirements could require
removal of access barriers, and non-compliance could result in imposition of
fines by the U.S. government or an award of damages to private litigants.
Although the Operating Partnership believes that the Properties are
substantially in compliance with these requirements, the Operating Partnership
may incur additional costs to comply with the ADA. Although the Operating
Partnership believes that such costs will not have a material adverse effect on
the Operating Partnership, if required changes
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involve a greater expenditure than the Operating Partnership currently
anticipates, the Operating Partnership's results of operations, liquidity and
capital resources could be materially adversely affected.
Impact of Year 2000 Issue
The "Year 2000" issue is a general term used to describe the various
problems that may result from the improper processing of dates and calculations
involving years by many computers throughout the world as the Year 2000 is
approached and reached. The Operating Partnership has reviewed the impact of
Year 2000 issues and does not expect any remedial actions taken with respect
thereto to materially adversely affect its business, operations, or financial
condition.
FASB Statement No. 128
In 1997, the Financial Accounting Standard Board ("FASB") issued Statement
No. 128, "Earnings Per Share," which is effective for financial statements for
periods ending after December 15, 1997. FASB Statement No. 128 requires the
restatement of prior period earnings per Common Unit and requires the
disclosure of additional supplemental information detailing the calculation of
earnings per Common Unit.
FASB Statement No. 128 replaced the calculation of primary and fully
diluted earnings per Common Unit with basic and diluted earnings per Common
Unit. Unlike primary earnings per Common Unit, basic earnings per Common Unit
excludes any dilutive effects of options, warrants and convertible securities.
Diluted earnings per Common Unit is very similar to the previously reported
fully diluted earnings per Common Unit. It is computed using the weighted
average number of Common Units and the dilutive effect of options, warrants and
convertible securities outstanding, using the "treasury stock" method. Earnings
per Common Unit data is required for all periods for which an income statement
or summary of earnings is presented, including summaries outside the basic
financial statements. All earnings per Common Unit amounts for all periods
presented have, where appropriate, been restated to conform to the FASB
Statement No. 128 requirements.
Funds From Operations and Cash Available for Distributions
The Operating Partnership considers Funds from Operations ("FFO") to be a
useful financial performance measure because, together with net income and cash
flows, FFO provides investors with an additional basis to evaluate its ability
to incur and service debt and to fund acquisitions and other capital
expenditures. FFO does not represent net income or cash flows from operating,
investing or financing activities as defined by Generally Accepted Accounting
Principles ("GAAP"). It should not be considered as an alternative to net
income as an indicator of the Operating Partnership's operating performance or
to cash flows as a measure of liquidity. FFO does not measure whether cash flow
is sufficient to fund all cash needs including principal amortization, capital
improvements and distributions to partners. Further, FFO as disclosed by other
REITs may not be comparable to the Operating Partnership's calculation of FFO,
as described below, FFO and cash available for distributions should not be
considered as alternatives to net income as an indication of the Operating
Partnership's performance or to cash flows as a measure of liquidity.
FFO means net income (computed in accordance with generally accepted
accounting principles) excluding gains (or losses) from debt restructuring and
sales of property, plus depreciation and amortization, and after adjustments
for unconsolidated partnerships and joint ventures. In March 1995, the National
Association of Real Estate Investment Trusts ("NAREIT") issued a clarification
of the definition of FFO. The clarification provides that amortization of
deferred financing costs and depreciation of non-real estate assets are no
longer to be added back to net income in arriving at FFO. Cash available for
distribution is defined as funds from operations reduced by non-revenue
enhancing capital expenditures for building improvements and tenant
improvements and lease commissions related to second generation space.
35
<PAGE>
FFO and cash available for distribution for the years ended December 31,
1997 and 1996 are summarized in the following table (in thousands):
<TABLE>
<CAPTION>
Year Ended
December 31,
-------------------------
1997 1996
------------ ----------
<S> <C> <C>
FFO:
Income before extraordinary item ............................. $ 91,552 $ 46,674
Add (deduct):
Dividends to preferred unitholders ......................... (13,117) --
Depreciation and amortization .............................. 47,260 21,105
Third-party service company cash flow ...................... -- 400
--------- --------
FFO before minority interest .............................. 125,695 68,179
Cash Available for Distribution:
Add (deduct):
Rental income from straight-line rents ..................... (7,035) (2,603)
Amortization of deferred financing costs ................... 2,256 1,911
Non-incremental revenue generating capital expenditures:
Building improvements paid ................................ (4,401) (3,554)
Second generation tenant improvements paid ................ (9,889) (3,471)
Second generation lease commissions paid .................. (5,535) (1,426)
--------- --------
Cash available for distribution ......................... $ 101,091 $ 59,036
========= ========
Weighted average Common Units outstanding -- Basic ........... 46,422 29,852
========= ========
Weighted average Common Units outstanding -- Diluted ......... 46,813 30,074
========= ========
Dividend payout ratio:
FFO ........................................................ 73.1% 81.4%
========= ========
Cash available from distribution ........................... 90.9% 94.1%
========= ========
</TABLE>
Inflation
In the last five years, inflation has not had a significant impact on the
Operating Partnership because of the relatively low inflation rate in the
Operating Partnership's geographic areas of operation. Most of the leases
require the tenants to pay their pro rata share of operating expenses,
including common area maintenance, real estate taxes and insurance, thereby
reducing the Operating Partnership's exposure to increases in operating
expenses resulting from inflation. In addition, many of the leases are for
terms of less than seven years, which may enable the Operating Partnership to
replace existing leases with new leases at a higher base if rents on the
existing leases are below the then-existing market rate.
Disclosure Regarding Forward-looking Statements
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements to encourage companies to provide
prospective information about their companies without fear of litigation so
long as those statements are identified as forward-looking and are accompanied
by meaningful cautionary statements identifying important factors that could
cause actual results to differ materially from those projected in the
statement. Accordingly, the Operating Partnership hereby identifies the
following important factors that could cause the Operating Partnership's actual
financial results to differ materially from those projected by the Operating
Partnership in forward-looking statements:
(i) unexpected increases in development of office or industrial
properties in the Operating Partnership's markets;
(ii) deterioration in the financial condition of tenants;
36
<PAGE>
(iii) construction costs of properties exceeding original estimates;
(iv) delays in the completion of development projects or acquisitions;
(v) delays in leasing or releasing space;
(vi) incorrect assessments of (or changes in) the environmental
condition of the Operating Partnership's properties;
(vii) unexpected increases in interest rates; and
(viii) loss of key executives.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See page F-1 of the financial report included herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The section under the heading "Election of Directors" of the Proxy
Statement for the Annual Meeting of Stockholders to be held May 14, 1998 (the
"Proxy Statement") is incorporated herein by reference for information on
directors of the Company. See ITEM X in Part I hereof for information regarding
executive officers of the Company.
ITEM 11. EXECUTIVE COMPENSATION
The section under the heading "Election of Directors" entitled
"Compensation of Directors" of the Proxy Statement and the section titled
"Executive Compensation" of the Proxy Statement are incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 20, 1998, the Operating Partnership had no executive officers
or directors. As of that date, the only person or group known by the Operating
Partnership to be holding more than 5% of the Common Units was the Company,
which owned 50,243,862 Common Units, or approximately 83% of the total
outstanding Common Units.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section under the heading "Certain Relationships and Related
Transactions" of the Proxy Statement is incorporated herein by reference.
37
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of Documents Filed as a Part of this Report
1. Consolidated Financial Statements and Report of Independent Auditors
See Index on Page F-1
2. Financial Statement Schedules
See Index on Page F-1
3. Exhibits
<TABLE>
<CAPTION>
Ex. FN Description
- ---------- --------- ---------------------------------------------------------------------
<S> <C> <C>
2.1 (1) Master Agreement of Merger and Acquisition by and among the
Company, the Operating Partnership, Eakin & Smith, Inc. and the
partnerships and limited liability companies listed therein dated
April 1, 1996
2.2 (2) Stock Purchase Agreement among AP CRTI Holdings, L.P., AEW
Partners, L.P., Thomas J. Crocker, Barbara F. Crocker, Richard S.
Ackerman and Robert E. Onisko and the Company and Cedar
Acquisition Corporation, dated April 29, 1996
2.3 (2) Agreement and Plan of Merger by and among the Company, Crocker
RealtyTrust, Inc. and Cedar Acquisition Corporation, dated as of
April 29, 1996
2.4 (3) Contribution and Exchange Agreement by and among Century Center
group, the Operating Partnership and the Company, dated
December 31, 1996
2.5 (3) Master Agreement of Merger and Acquisition by and among the
Company, the Operating Partnership, Anderson Properties, Inc.,
Gene Anderson, and the partnerships and limited liability
companies listed therein, dated January 31, 1997
2.6 (4) Amended and Master Agreement of Merger and Acquisition dated
January 9, 1995 by and among Highwoods Realty Limited
Partnership, Forsyth Partners Holdings, Inc., Forsyth Partners
Brokerage, Inc., John L. Turner, William T. Wilson III, John E.
Reece II, H. Jack Leister and the partnerships and corporations
listed therein
2.7 (5) Master Agreement of Merger and Acquisition by and among the
Company, the Operating Partnership, Associated Capital Properties,
Inc. and its shareholders dated August 27, 1997
2.8 Agreement and Plan of Merger by and among the Company, Jackson
Acquisition Corp. and J.C. Nichols Company dated December 22,
1997
3.1 (6) Amended and Restated Articles of Incorporation of the Company
3.2 (7) Amended and Restated Bylaws of the Company
4.1 (7) Specimen of certificate representing shares of Common Stock
4.2 (8) Indenture among AP Southeast Portfolio Partners, L.P., Bankers Trust
Company of California, N.A. and Bankers Trust Company, dated as
of March 1, 1994
4.3 (9) Indenture among the Operating Partnership, the Company, and First
Union National Bank of North Carolina, dated as of December 1,
1996
4.4 (9) Form of Notes due 2003
4.5 (9) Form of Notes due 2006
4.6 (10) Specimen of certificate representing 8 5/8% Series A Cumulative
Redeemable Preferred Shares
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
Ex. FN Description
- --------------- ---------------- -------------------------------------------------------------------
<S> <C> <C>
4.7 (11) Specimen of certificate representing 8% Series B Cumulative
Redeemable Preferred Shares
4.8 Purchase Agreement between the Company, UBS Limited and Union
Bank of Switzerland, London Branch, dated as of August 28, 1997
4.9 Forward Stock Purchase Agreement between the Company and Union
Bank of Switzerland, London Branch, dated as of August 28, 1997
4.10 (12) Rights Agreement, dated as of October 6, 1997, between the Company
and First Union National Bank
4.11 (13) Form of Notes due 2008
4.12 (13) Form of MandatOry Par Put Remarketed Securities due 2013
4.13 (13) Form of Remarketing Agreement among the Operating Partnership,
the Company and Merrill Lynch, Pierce, Fenner & Smith
4.14 (14) Credit Agreement among the Operating Partnership, the Company, the
Subsidiaries named therein and the Lenders named therein, dated as
of September 27, 1996
4.15 Credit Agreement among the Operating Partnership, the Company, the
Subsidiaries named therein and the Lenders named therein, dated as
of December 15, 1997
4.16 Agreement to furnish certain instruments defining the rights of
long-term debt holders
10.1 (7) Amended and Restated Agreement of Limited Partnership of the
Operating Partnership
10.2 (10) Amendment to Amended and Restated Agreement of Limited
Partnership of the Operating Partnership with respect to Series A
Preferred Units
10.3 (15) Amendment to Amended and Restated Agreement of Limited
Partnership of the Operating Partnership with respect to certain
rights of limited partners upon a change in control
10.4 (11) Amendment to Amended and Restated Agreement of Limited
Partnership of the Operating Partnership with respect to Series B
Preferred Units
10.5 (16) Form of Registration Rights and Lockup Agreement among the
Company and the Holders named therein
10.6 (16) Articles of Incorporation of Highwoods Services, Inc.
10.7 (16) Bylaws of Highwoods Services, Inc.
10.8 (17)(18) Amended and Restated 1994 Stock Option Plan
10.9 (18) 1997 Performance Award Plan
10.10 (18) 1997 Unit Option Plan
10.11(a) (16)(18) Employment Agreement between the Company and the Operating
Partnership and John L. Turner
10.11(b) (1)(18) Employment Agreement between the Company and the Operating
Partnership and John W. Eakin
10.11(c) (3)(18) Employment Agreement between the Company and the Operating
Partnership and Gene H. Anderson
10.11(d) (18) Employment Agreement between the Company and the Operating
Partnership and James R. Heistand
10.12(a) (18)(19) Executive Supplemental Employment Agreement between the
Company and Ronald P. Gibson
10.12(b) (18)(19) Executive Supplemental Employment Agreement between the
Company and John L. Turner
10.12(c) (18)(19) Executive Supplemental Employment Agreement between the
Company and Edward J. Fritsch
10.12(d) (18)(19) Executive Supplemental Employment Agreement between the
Company and Carman J. Liuzzo
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
Ex. FN Description
- ---------------- ---------------- ------------------------------------------------------------------
<S> <C> <C>
10.12(e) (18)(19) Executive Supplemental Employment Agreement between the
Company and Mack D. Pridgen, III
10.13 (4) Form of warrants to purchase Common Stock of the Company issued
to John L. Turner, William T. Wilson III and John E. Reece II
10.14 (1) Form of warrants to purchase Common Stock of the Company issued
to W. Brian Reames, John W. Eakin and Thomas S. Smith
10.15 Form of warrants to purchase Common Stock of the Company issued
to James R. Heistand and certain other shareholders of Associated
Capital Properties, Inc.
21 Schedule of subsidiaries
23 Consent of Ernst & Young
27 Financial Data Schedule
</TABLE>
- ----------
(1) Filed as a part of the Company's Current Report on Form 8-K dated April 1,
1996 and incorporated herein by reference.
(2) Filed as a part of the Company's Current Report on Form 8-K dated April 29,
1996 and incorporated herein by reference.
(3) Filed as a part of the Company's Current Report on Form 8-K dated January
9, 1997 and incorporated herein by reference.
(4) Filed as part of Registration Statement 33-88364 with the Securities and
Exchange Commission and incorporated herein by reference.
(5) Filed as a part of the Company's Current Report on Form 8-K dated August
27, 1997 and incorporated herein by reference.
(6) Filed as part of the Company's Current Report on September 25, 1997 and
amended by articles supplementary filed as part of the Company's Current
Report on Form 8-K dated October 4, 1997, each of which is incorporated
herein by reference.
(7) Filed as part of Registration Statement 33-76952 with the Securities and
Exchange Commission and incorporated herein by reference.
(8) Filed by Crocker Realty Trust, Inc. as part of Registration Statement No.
33-88482 filed with the Securities and Exchange Commission and
incorporated herein by reference.
(9) Filed as a part of the Operating Partnership's Current Report on Form 8-K
dated December 2, 1996 and incorporated herein by reference.
(10) Filed as a part of the Company's Current Report on Form 8-K dated February
12, 1997 and incorporated herein by reference.
(11) Filed as a part of the Company's Current Report on Form 8-K dated
September 25, 1997 and incorporated herein by reference.
(12) Filed as a part of the Company's Current Report on Form 8-K dated October
4, 1997 and incorporated herein by reference.
(13) Filed as a part of the Company's Current Report on Form 8-K dated February
2, 1998 and incorporated herein by reference.
(14) Filed as part of the Company's Current Report on Form 8-K dated September
27, 1996 and incorporated herein by reference.
(15) Filed as a part of the Operating Partnership's Quarterly Report on Form
10-Q for the quarter ended June 30, 1997 and incorporated herein by
reference.
(16) Filed as a part of the Company's Annual Report on Form 10-K for the year
ended December 31, 1995 and incorporated herein by reference.
40
<PAGE>
(17) Filed as a part of the Company's definitive proxy statement on Schedule
14A relating to the 1997 Annual Meeting of Stockholders
(18) Management contract or compensatory plan.
(19) Terms of the agreement are disclosed in the Company's proxy statement on
Schedule 14A relating to the 1998 Annual Meeting of Stockholders under the
caption "Executive Compensation -- Employment Agreements," which section
is incorporated as an exhibit to this Form 10-K. As of the date hereof,
such agreement is subject to final documentation.
The Company will provide copies of any exhibit, upon written request, at
a cost of $.05 per page.
(b) Reports on Form 8-K.
On October 16, 1997, the Operating Partnership filed a current report on
Form 8-K, dated October 1, 1997, reporting under item 2 of the Form the closing
of a business combination with Associated Capital Properties, Inc. and related
property portfolio acquisition. The report included audited financial
statements of Associated Capital Properties, Inc. for the year ended December
31, 1996 and of the 1997 Pending Acquisitions for the year ended December 31,
1996.
On January 6, 1998, the Operating Partnership filed a current report on
Form 8-K, dated December 22, 1997, reporting under item 5 of the Form that the
Company had entered into an agreement to merge with J.C. Nichols Company.
41
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Raleigh, State of North Carolina, on March 31, 1998.
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
By: Highwoods Properties, Inc., in its
capacity as general partner (the
"General Partner")
By: /s/ RONALD P. GIBSON
-------------------------------------
Ronald P. Gibson, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- --------------------------------- ---------------
<S> <C> <C>
/s/ O. TEMPLE SLOAN, JR. Chairman of the Board of March 31, 1998
- -------------------------------------
O. Temple Sloan, Jr. Directors of the General
Partner
/s/ RONALD P. GIBSON President, Chief Executive March 31, 1998
- -------------------------------------
Ronald P. Gibson Officer and Director of the
General Partner
/s/ JOHN L. TURNER Vice Chairman of the Board March 31, 1998
- -------------------------------------
John L. Turner and Chief Investment
Officer of the General
Partner
/s/ GENE H. ANDERSON Senior Vice President and March 31, 1998
- -------------------------------------
Gene H. Anderson Director of the General
Partner
/s/ JOHN W. EAKIN Senior Vice President and March 31, 1998
- -------------------------------------
John W. Eakin Director of the General
Partner
/s/ THOMAS W. ADLER Director of the General Partner March 31, 1998
- -------------------------------------
Thomas W. Adler
/s/ WILLIAM E. GRAHAM, JR. Director of the General Partner March 31, 1998
- -------------------------------------
William E. Graham, Jr.
/s/ L. GLENN ORR, JR. Director of the General Partner March 31, 1998
- -------------------------------------
Glenn Orr, Jr.
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- --------------------------------- ---------------
<S> <C> <C>
/s/ WILLARD W. SMITH JR. Director of the General Partner March 31, 1998
- -------------------------------------
Willard W. Smith Jr.
/s/ STEPHEN TIMKO Director of the General Partner March 31, 1998
- -------------------------------------
Stephen Timko
/s/ WILLIAM T. WILSON III Director of the General Partner March 31, 1998
- -------------------------------------
William T. Wilson III
/s/ CARMAN J. LIUZZO Vice President and Chief March 31, 1998
- -------------------------------------
Carman J. Liuzzo Financial Officer (Principal
Financial Officer and
Principal Accounting
Officer) and Treasurer of the
General Partner
</TABLE>
43
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Highwoods/Forsyth Limited Partnership
Report of Independent Auditors ......................................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996 ........................... F-3
Consolidated Statements of Income for the Years Ended December 31, 1997, 1996 and 1995.. F-4
Consolidated Statements of Partner's Capital for the Years Ended December 31, 1997, 1996
and 1995 .............................................................................. F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and
1995 .................................................................................. F-6
Notes to Consolidated Financial Statements ............................................. F-8
Schedule III -- Real Estate and Accumulated Depreciation ............................... F-19
</TABLE>
All other schedules are omitted because they are not applicable, or
because the required information is included in the financial statements or
notes thereto.
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
TO THE OWNERS
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
We have audited the accompanying consolidated balance sheets of
Highwoods/Forsyth Limited Partnership as of December 31, 1997 and 1996, and the
related consolidated statements of income, partners' capital, and cash flows
for each of the three years in the period ended December 31, 1997. Our audits
also included the financial statement schedule listed in the Index at Item
14(a). These financial statements and schedule are the responsibility of the
Operating Partnership's management. Our responsibility is to express an opinion
on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Highwoods/Forsyth Limited Partnership at December 31, 1997 and 1996, and the
consolidated results of its operations and cash flows for each of the three
years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule when considered in relation to the basic financial
statements taken as a whole presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
Raleigh, North Carolina
February 20, 1998
F-2
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
Consolidated Balance Sheets
(Dollars in thousands, except per unit amounts)
<TABLE>
<CAPTION>
December 31,
-----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Assets
Real estate assets, at cost:
Land & improvements .................................................... $ 341,623 $ 216,847
Buildings and tenant improvements ...................................... 2,183,454 1,142,223
Development in process ................................................. 95,387 28,858
Land held for development .............................................. 64,454 17,551
Furniture, fixtures and equipment ...................................... 3,339 2,096
---------- ----------
2,688,257 1,407,575
Less -- accumulated depreciation ....................................... (87,046) (42,969)
---------- ----------
Net real estate assets ................................................. 2,601,211 1,364,606
Cash and cash equivalents ................................................ 8,816 10,618
Restricted cash .......................................................... 9,341 8,539
Accounts receivable net of allowance of $555 and $286 at December 31,
1997 and 1996, respectively ............................................ 17,426 8,822
Advances to related parties .............................................. 9,072 2,406
Accrued straight line rents receivable ................................... 13,033 6,185
Other assets:
Deferred leasing costs ................................................. 21,688 9,601
Deferred financing costs ............................................... 22,294 21,789
Prepaid expenses and other ............................................. 17,575 3,876
---------- ----------
61,557 35,266
Less -- accumulated amortization ....................................... (13,216) (6,954)
---------- ----------
48,341 28,312
---------- ----------
$2,707,240 $1,429,488
========== ==========
Liabilities and partner's capital
Mortgages and notes payable .............................................. $ 978,558 $ 555,876
Accounts payable, accrued expenses and other liabilities ................. 52,152 27,632
---------- ----------
Total liabilities ...................................................... 1,030,710 583,508
Redeemable operating partnership units:
Class A Common Units outstanding, 10,261,665 and 4,283,237 at
December 31, 1997 and 1996, respectively .............................. 381,631 144,559
---------- ----------
Class B Common Units outstanding, 187,528 at December 31, 1997 ......... 6,974 --
---------- ----------
Partners' capital:
Series A Preferred Units outstanding ................................... 121,809 --
Series B Preferred Units outstanding ................................... 166,346 --
---------- ----------
Class A Common Units:
General partner Common Units outstanding, 566,108 and 395,596 at
December 31, 1997 and 1996, respectively ............................ 9,997 7,014
Limited partner Common Units outstanding, 45,783,071 and
34,880,833 at December 31, 1997 and 1996, respectively .............. 989,773 694,407
---------- ----------
Total partners' capital ............................................. 999,770 701,421
---------- ----------
$2,707,240 $1,429,488
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
Consolidated Statements of Income
(Dollars in thousands, except per unit amounts)
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Revenue:
Rental property .................................................... $ 266,933 $ 125,987 $ 71,217
Interest and other income .......................................... 6,232 6,315 2,305
----------- ----------- -----------
273,165 132,302 73,522
Operating expenses:
Rental property .................................................... 76,743 33,657 17,049
Depreciation and amortization ...................................... 47,260 21,105 11,082
Interest expense:
Contractual ....................................................... 45,138 23,360 12,101
Amortization of deferred financing costs .......................... 2,256 1,870 1,619
----------- ----------- -----------
47,394 25,230 13,720
General and administrative ......................................... 10,216 5,636 2,737
----------- ----------- -----------
Income before extraordinary item ................................... 91,552 46,674 28,934
----------- ----------- -----------
Extraordinary item -- loss on early extinguishment
of debt ............................................................ (6,945) (2,432) (1,068)
----------- ----------- -----------
Net income ......................................................... 84,607 44,242 27,866
Dividends on preferred units ........................................ (13,117) -- --
----------- ----------- -----------
Net income available for Class A Common Units ...................... $ 71,490 $ 44,242 $ 27,866
=========== =========== ===========
Net income (loss) per Class A Common Unit -- Basic:
Income before extraordinary item ................................... $ 1.69 $ 1.56 $ 1.55
=========== =========== ===========
Extraordinary item -- loss on early extinguishment of debt ......... $ (0.15) $ (0.08) $ (0.06)
=========== =========== ===========
Net income ......................................................... $ 1.54 $ 1.48 $ 1.49
=========== =========== ===========
Net income (loss) per Class A Common Unit -- Diluted:
Income before extraordinary item ................................... $ 1.68 $ 1.55 $ 1.54
=========== =========== ===========
Extraordinary item -- loss on early extinguishment of debt ......... $ (0.15) $ (0.08) $ (0.06)
=========== =========== ===========
Net income ......................................................... $ 1.53 $ 1.47 $ 1.48
=========== =========== ===========
Net income per Class A Common Unit -- Basic:
General Partner .................................................... $ 1.54 $ 1.48 $ 1.49
=========== =========== ===========
Limited Partners ................................................... $ 1.54 $ 1.48 $ 1.49
=========== =========== ===========
Net income per Class B Common Unit:
Limited Partners .................................................. $ -- $ -- $ --
=========== =========== ===========
Net income per Class A Common Unit -- Diluted:
General Partner .................................................... $ 1.53 $ 1.47 $ 1.48
=========== =========== ===========
Limited Partners ................................................... $ 1.53 $ 1.47 $ 1.48
=========== =========== ===========
Net income per Class B Common Unit:
Limited Partners .................................................. $ -- $ -- $ --
=========== =========== ===========
Weighted average Common Units outstanding -- Basic:
Class A Common Units:
General Partner ................................................... 464,218 298,520 186,970
Limited Partners .................................................. 45,788,572 29,553,480 18,510,030
Class B Common Units:
Limited Partners .................................................. 171,000 -- --
----------- ----------- -----------
Total .............................................................. 48,421,790 29,852,000 18,697,000
=========== =========== ===========
Weighted average Common Units outstanding -- Diluted:
Class A Common Units:
General Partner ................................................... 488,129 300,739 188,008
Limited Partners .................................................. 46,173,816 29,773,139 18,612,827
Class B Common Units:
Limited Partners .................................................. 171,000 -- --
----------- ----------- -----------
Total .............................................................. 46,812,945 30,073,878 18,800,835
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
Consolidated Statements of Partners' Capital
(Dollars in thousands)
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Class A Unit Class B Unit
------------------------ -------------
General Limited Limited Total Series A Series B
Partner's Partners' Partners' Partners' Preferred Preferred
Capital Capital Capital Capital Units Units
----------- ------------ ------------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $1,303 $ 129,009 $ -- $ 130,312 $ -- $ --
Offering proceeds .................. -- 220,164 -- 220,164 -- --
Net income ......................... 278 27,588 -- 27,866 -- --
Distributions ...................... (299) (29,546) -- (29,845) -- --
Adjustment of redeemable
Common Units to fair value ........ (266) (26,286) -- (26,552) -- --
Transfer of limited partners'
interest .......................... 2,203 (2,203) -- -- -- --
------ --------- -------- --------- -------- --------
Balance at December 31, 1995........ $3,219 $ 318,726 $ -- 321,945 -- --
Offering proceeds .................. -- 406,893 -- 406,893 -- --
Net income ......................... 442 43,800 -- 44,242 -- --
Distributions ...................... (550) (54,525) -- (55,075) -- --
Adjustments of redeemable
Common Units to fair value ........ (238) (23,550) -- (23,788) -- --
Conversion of redeemable
Common Units to Common
Shares ............................ 72 7,132 -- 7,204 -- --
Transfer of limited partners'
interest .......................... 4,069 (4,069) -- -- -- --
------ --------- -------- --------- -------- --------
Balance at December 31, 1996........ $7,014 $ 694,407 $ -- $ 701,421 $ -- $ --
Offering Proceeds .................. -- 339,840 5,485 345,325 -- --
Series A Preferred Unit offering ... -- -- -- -- 121,809 --
Series B Preferred Unit offering ... -- -- -- -- -- 166,346
Distributions Paid ................. (874) (86,574) -- (87,448) -- --
Preferred Distributions Paid ....... (131) (12,986) -- (13,117) -- --
Net income ......................... 843 83,465 299 84,607 -- --
Adjustments of redeemable
Common Unit to fair (414) (40,948) (5,784) (47,146) -- --
value ............................. -- -- -- -- --
Conversion of redeemable
Common Unit to Common 161 15,967 -- 16,128 -- --
Shares ............................ -- -- -- --
Transfer of limited partner's
interest .......................... 3,398 (3,398) -- -- -- --
-- -- -- --
-------- --------- -------- --------
Balance at December 31, 1997........ $9,997 $ 989,773 $ -- $ 999,770 $121,809 $166,346
====== ========= ======== ========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows
(Dollars in thousands)
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Operating activities:
Net income .......................................................... $ 84,607 $ 44,242 $ 27,866
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation ...................................................... 44,120 20,562 10,483
Amortization ...................................................... 5,396 3,244 2,218
Loss on early extinguishment of debt .............................. 6,945 2,432 1,068
Changes in operating assets and liabilities:
Accounts receivable .............................................. (8,604) (1,437) (1,561)
Prepaid expenses and other assets ................................ (3,263) (776) (173)
Accrued straight line rents receivable ........................... (6,848) (2,778) (1,519)
Accounts payable, accrued expenses and other liabilities ......... 4,993 4,389 4,787
---------- ---------- ----------
Net cash provided by operating activities ...................... 127,346 69,878 43,169
---------- ---------- ----------
Investing activities:
Proceeds from disposition of real estate assets ..................... 1,419 900 2,200
Additions to real estate assets ..................................... (464,618) (181,444) (130,411)
Advances to subsidiaries ............................................ (6,666) (1,132) (654)
Other assets and notes receivable ................................... (18,001) (3,385) (1,123)
Cash from contributed net assets .................................... -- 20,711 549
Cash paid in exchange for partnership net assets .................... (35,390) (322,276) (6,593)
---------- ---------- ----------
Net cash used in investing activities ............................ (523,256) (486,626) (136,032)
---------- ---------- ----------
Financing activities:
Distributions paid .................................................. (87,448) (55,075) (29,845)
Payment of preferred unit dividends ................................. (11,720) -- --
Net proceeds from Contributed Capital -- Preferred Units ............ 288,155 -- --
Net proceeds from Contributed Capital -- Common Units ............... 345,325 406,901 219,821
Payment of prepayment penalties and loan costs ...................... (6,945) (1,184) (1,046)
Borrowings on Revolving Loans ....................................... 563,500 307,500 50,800
Repayment of Revolving Loans ...................................... (264,000) (299,000) (87,000)
Proceeds from mortgages and notes payable ........................... 100,000 213,500 90,250
Repayment of mortgages and notes payable ............................ (532,481) (141,216) (148,907)
Payment of deferred financing costs ................................. (278) (10,898) (630)
---------- ---------- ----------
Net cash provided by financing activities ........................ 394,108 420,528 93,443
---------- ---------- ----------
Net increase in cash and cash equivalents ........................... (1,802) 3,780 580
Cash and cash equivalents at beginning of the period ................ 10,618 6,838 6,258
---------- ---------- ----------
Cash and cash equivalents at end of the period ...................... $ 8,816 $ 10,618 $ 6,838
========== ========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest .............................................. $ 51,283 $ 26,039 $ 11,965
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows -- Continued
(Dollars in thousands)
For the Years Ended December 31, 1997, 1996 and 1995
Supplemental disclosure of non-cash investing and financing activities:
The following summarizes the net assets contributed by the Common Unit holders
of the Operating Partnership or assets acquired subject to mortgage notes
payable:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Assets:
Real estate assets, net .......................................... $782,136 $611,678 $260,883
Cash and cash equivalents ........................................ -- 20,711 549
Restricted cash .................................................. 2,727 11,476 --
Tenant leasing costs, net ........................................ 131 -- --
Deferred financing costs, net .................................... 227 3,871 842
Accounts receivable and other .................................... 913 1,635 6,290
-------- -------- --------
Total assets ................................................... 786,134 649,371 268,564
-------- -------- --------
Liabilities:
Mortgages and notes payable ...................................... 555,663 244,129 210,728
Accounts payable, accrued expenses and other liabilities ......... 19,527 19,142 549
-------- -------- --------
Total liabilities .............................................. 575,190 263,271 211,277
-------- -------- --------
Net assets .................................................... $210,944 $386,100 $ 57,287
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Organization and Formation of the Company
Highwoods/Forsyth Limited Partnership (the "Operating Partnership"
formerly Highwoods Realty Limited Partnership), commenced operations on June
14, 1994 when Highwoods Properties, Inc. (the "Company") completed an initial
public offering (the "Initial Public Offering") and issued 7.4 million shares
of Common Stock (plus 1.1 million shares subsequently issued pursuant to the
underwriters' over-allotment option). As of December 31, 1997, the Operating
Partnership owned 481 properties consisting of 342 suburban office buildings,
139 industrial properties and 718 acres of undeveloped land suitable for future
development.
The following transactions (the "Formation Transactions") occurred in
connection with the Initial Public Offering:
o The Company consummated various purchase agreements to acquire certain
interests in 41 properties, including 27 properties that were not owned by
the predecessor to the Company and the Operating Partnership (the
"Highwoods Group") prior to the Initial Public Offering.
For the 14 properties previously owned by the Highwoods Group, negative
net assets of approximately $9,272,000 were contributed to the Operating
Partnership at their historical cost. Approximately, $8,400,000 was
distributed to the non-continuing partners of the Highwoods Group for
their partnership interests in the 14 properties. For the 27 properties
not owned by the Highwoods Group, the Company issued approximately
$4,200,000 of common partnership interests (the "Common Units") in the
Operating Partnership, assumed $54,164,000 of debt and paid $82,129,000 in
cash. These 27 properties were recorded at their purchase price using the
purchase method of accounting.
o The Company became the sole general partner of Operating Partnership, by
contributing its ownership interests in the 41 properties and its
third-party fee business and all but $10,400,000 of the net proceeds of
the Initial Public Offering in exchange for an approximate 88.3% interest
in the Operating Partnership.
o The Operating Partnership executed various option and purchase agreements
whereby it paid approximately $81,352,000 in cash, issued 1,054,664 Common
Units and assumed approximately $118,111,000 of indebtedness in exchange
for fee simple interests in the 41 properties and the development land.
o The Operating Partnership contributed the third-party management and
development business and the third-party leasing business to Highwoods
Services, Inc. (formerly Highwoods Realty Services, Inc. and Highwoods
Leasing Company) in exchange for 100% of each company's non-voting common
stock and 1% of each company's voting common stock.
Generally one year after issuance (the "lock-up period"), the Operating
Partnership is obligated to redeem each Common Unit at the request of the
holder thereof for cash equal to the fair market value of one share of the
Company's Common Stock at the time of such redemption, provided that the
Company at its option may elect to acquire any such Common Unit presented for
redemption for cash or one share of Common Stock. When a Common Unit holder
redeems a Common Unit for a share of Common Stock or cash, the minority
interest will be reduced and the Company's share in the Operating Partnership
will be increased. The Common Units owned by the Company are not redeemable for
cash. At December 31, 1997, the lock-up period had expired with respect to
3,805,392 of the 10,444,464 Common Units issued and outstanding.
F-8
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- Continued
Basis of Presentation
The Operating Partnership's investment in Highwoods Services, Inc. (the
"Service Company") is accounted for using the equity method of accounting. All
significant intercompany balances and transactions have been eliminated in the
financial statements.
The extraordinary loss represents the write-off of loan origination fees
and prepayment penalties paid on the early extinguishment of debt.
Real Estate Assets
Real estate assets are stated at the lower of cost or fair value. All
capitalizable costs related to the improvement or replacement of commercial
real estate properties are capitalized. Depreciation is computed by the
straight-line method over the estimated useful life of 40 years for buildings
and improvements and 5 to 7 years for furniture and equipment. Tenant
improvements are amortized over the life of the respective leases, using the
straight-line method.
In March 1995, the FASB issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of," which
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company adopted the Statement
in the first quarter of 1996 and the adoption did not have any material effect.
Cash Equivalents
The Operating Partnership considers highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
Restricted Cash
The Operating Partnership is required by a mortgage note to maintain
various depository accounts, a cash collateral account and a contingency
reserve account. All rents with respect to the collateralized properties are
made payable to, and deposited directly in, the depository accounts, which are
then transferred to the cash collateral account. Subsequent to payment of debt
service and other required escrows, the residual balance of the cash collateral
account is funded to the Operating Partnership for capital expenditures and
operations. The contingency reserve account is required to maintain a balance
of $7,000,000. At December 31, 1997, the account balances were $8,624,090
including $7,069,186 in the contingency reserve account. At December 31, 1996,
the account balances were $7,691,857 including $7,000,000 in the contingency
reserve account.
The Operating Partnership is required by certain mortgage notes to escrow
real estate taxes with the mortgagor. At December 31, 1997 and 1996, $717,350
and $846,990, respectively, was escrowed for real estate taxes.
Revenue Recognition
Minimum rental income is recognized on a straight-line basis over the term
of the lease. Unpaid rents are included in accounts receivable. Certain lease
agreements contain provisions which provide reimbursement of real estate taxes,
insurance, advertising and certain common area maintenance ("CAM")
F-9
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- Continued
costs. These additional rents are recorded on the accrual basis. All rent and
other receivables from tenants are due from commercial building tenants located
in the properties.
Deferred Lease Fees and Loan Costs
Lease fees, concessions and loan costs are capitalized at cost and
amortized over the life of the related lease or loan term, respectively.
Redeemable Common Units
Holders of redeemable Common Units may request redemption of each of their
Common Units by the Operating Partnership for cash equal to the fair market
value of one share of the Company's Common Stock at any time after expiration
of the applicable "lock-up" period. The Company, the general partner of the
Operating Partnership, may at its option choose to satisfy the redemption
requirement by issuing Common Stock on a one-for-one basis for the number of
Common Units submitted for redemption. In accordance with ASR 268 issued by the
Securities and Exchange Commission, these Common Units are classified outside
of permanent partners' capital in the accompanying balance sheet. The recorded
value of the Common Units is based on fair value at the balance sheet date as
measured by the closing price of the Company's common stock on that date
multiplied by the total number of Common Units outstanding.
Income Taxes
No provision has been made for income taxes in the accompanying financial
statements because such taxes, if any, are the responsibility of the individual
partners.
The tax basis of the Operating Partnership's assets and liabilities is
$2,306,333,000 and $1,035,558,000 respectively. The Operating Partnership's
taxable income for the years ended December 31, 1997, 1996 and 1995 was
$76,213,000, $42,738,000 and $22,258,500, respectively. The differences between
book income and taxable income primarily result from timing differences
consisting of depreciation expense ($3,077,000, $530,000 and $2,788,000 in
1997, 1996 and 1995, respectively) and recording of rental income ($6,762,000,
$2,596,791 and $1,115,390 in 1997, 1996 and 1995, respectively).
Concentration of Credit Risk
Management of the Operating Partnership performs ongoing credit
evaluations of its tenants. The properties are leased to approximately 3,100
tenants, in 19 geographic locations, which engage in a wide variety of
businesses. There is no dependence upon any single tenant.
Interest Rate Risk Management
The Operating Partnership may enter into derivative financial instruments
such as interest rate swaps and interest rate collars in order to mitigate its
interest rate risk on a related financial instrument. The Operating Partnership
has designated these derivative financial instruments as hedges and applies
deferral accounting. Gains and losses related to the termination of such
derivative financial instruments are deferred and amortized to interest expense
over the term of the debt instrument. Payments to or from counterparties are
recorded as adjustments to interest expense.
The Operating Partnership also utilizes interest rate contracts to hedge
interest rate risk on anticipated debt offerings. These anticipatory hedges are
designated, and effective, as hedges of identified debt issuances which have a
high probability of occurring. Gains and losses resulting from changes in the
market value of these contracts are deferred and amortized into interest
expense over the life of the related debt instrument.
F-10
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- Continued
The Operating Partnership is exposed to certain losses in the event of
non-performance by the counterparties under the collar and swap arrangements.
The counterparties are major financial institutions with credit ratings of Aa3
or better, and are expected to perform fully under the agreements. However, if
they were to default on their obligations under the arrangements, the Operating
Partnership could be required to pay the full rate under its Revolving Loan and
the variable rate mortgages, even if such rate were in excess of the rate in
the collar and swap agreements. The Operating Partnership would not realize a
material loss as of December 31, 1997 in the event of non-performance by any
one counterparty. Additionally, the Operating Partnership limits the amount of
credit exposure with any one institution.
Common Unit and Stock Compensation
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of a share at the date of grant.
With each issuance of a share, the Operating Partnership will issue to the
Company one Common Unit upon payment of the exercise price to the Operating
Partnership. In addition, the Operating Partnership grants options for a fixed
number of Common Units to employees with an exercise price equal to the fair
value of a share of Common Stock at the date of grant. As described in Note 8,
the Operating Partnership has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and
related interpretations in accounting for stock and Common Unit options.
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Impact of Recently Issued Accounting Standards
In 1997, the FASB issued Statements No. 130, "Reporting Comprehensive
Income" ("SFAS 130") and No. 131, "Disclosures About Segments of an Enterprise
and Related Information" ("SFAS 131"), which are both effective for fiscal
years beginning after December 15, 1997. SFAS 130 addresses reporting amounts
of other comprehensive income and SFAS 131 addresses reporting segment
information. The Operating Partnership does not believe that the adoption of
these new standards will have a material impact on the its financial
statements.
F-11
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued)
2. MORTGAGES AND NOTES PAYABLE
Mortgages and notes payable consisted of the following at December 31,
1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Mortgage notes payable:
7.9% mortgage note due 2001 .................. $140,000 $140,000
8.1% mortgage note due 2002 .................. 11,649 --
9.0% mortgage note due 2005 .................. 39,630 40,168
8.2% mortgage note due 2005 .................. 30,951 31,410
8.0% mortgage note due 2006 .................. 43,465 --
7.6% to 13% mortgage notes due between
1999 and 2013 ........................................ 66,681 73,719
Variable rate mortgage note due 2000 ......... -- 11,612
-------- --------
332,376 296,909
-------- --------
Unsecured indebtedness:
6.8% notes due in 2003 ....................... 100,000 100,000
7.19% notes due in 2004 ...................... 100,000 --
7.0% notes due in 2006 ....................... 110,000 110,000
7% and 9% notes due in 1997 .................. -- 11,595
Variable rate note due in 1999 ............... 21,682 22,372
Revolving Loan due in 1998 ................... 50,000 --
Revolving loan due in 1999 ................... 264,500 15,000
-------- --------
646,182 258,967
-------- --------
Total ................................................ $978,558 $555,876
======== ========
</TABLE>
Secured Indebtedness
Mortgage notes payable were secured by real estate with an aggregate
carrying value of $719.4 million at December 31, 1997.
The 7.9% Mortgage Note is secured by 46 of the Properties (the "Mortgage
Note Properties"), which are held by AP Southeast Portfolio Partners, L.P. (the
"Financing Partnership"). The Operating Partnership has a 99.99% economic
interest in the Financing Partnership, which is managed, indirectly, by the
Operating Partnership. The 7.9% Mortgage Note is a conventional, monthly pay,
first mortgage note in the principal amount of $140 million issued by the
Financing Partnership. The 7.9% Mortgage Note is a limited recourse obligation
of the Financing Partnership as to which, in the event of a default under the
indenture or the mortgage, recourse may be had only against the Mortgage Note
Properties and other assets that have been pledged as security. The 7.9%
Mortgage Note was issued to Kidder Peabody Acceptance Corporation I pursuant to
an indenture, dated March 1, 1994 (the "Mortgage Note Indenture"), among the
Financing Partnership, Bankers Trust Company of California, N.A., and Bankers
Trust Company.
The Mortgage Note Indenture provides for a lockout period that prohibits
optional redemption payments in respect of principal of the 7.9% Mortgage Note
(other than a $7 million premium-free redemption payment) prior to November
1998. Thereafter, the Financing Partnership may make optional redemption
payments in respect of principal of the 7.9% Mortgage Note on any distribution
date, subject to the payment of a yield maintenance charge in connection with
such payments made prior to August 1, 2000.
F-12
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued)
2. MORTGAGES AND NOTES PAYABLE -- Continued
Under the terms of the purchase agreement relating to the Mortgage Note
Properties, the Financing Partnership may be obligated to pay NationsBank, N.A.
a deferred contingent purchase price. This contingent payment, which will in no
event exceed $4.4 million, is due on April 1, 1998 if the actual four-year
cumulative cash flow of such properties exceeds the projected four-year
cumulative cash flow. Based on the estimates of future operations, the
Operating Partnership does not believe that any deferred contingent purchase
principal price will be payable.
Unsecured Indebtedness
On November 26, 1996, the Operating Partnership issued $100,000,000 of
unsecured 6 3/4% notes due December 1, 2003 and $110,000,000 of unsecured 7%
notes due December 1, 2006. Interest on the notes is payable semi-annually on
June 1 and December 1, commencing on June 1, 1997. In accordance with the terms
of the Indenture under which the unsecured notes are issued, the Operating
Partnership is required to (a) limit its total indebtedness, (b) limit its
level of secured debt, (c) maintain a minimum debt service coverage ratio and
(d) maintain a minimum level of unencumbered assets. At December 31, 1997, the
Operating Partnership was in compliance with these covenants.
On June 24, 1997, a trust formed by the Operating Partnership sold $100
million of X-POSSM, which represent fractional undivided beneficial interests
in the trust. The assets of the trust consist of, among other things, $100
million of Put Option Notes. The X-POSSM bear an interest rate of 7.19%,
representing an effective borrowing cost of 7.09%, net of a related put option
and certain interest rate protection agreement costs. Under certain
circumstances, the Put Option Notes could also become subject to early maturity
on June 15, 2004. The Put Option Notes are subject to the same covenants as the
unsecured 6 3/4% and 7% notes described above.
In September 1996, the Operating Partnership obtained a $280,000,000
unsecured revolving loan which matures on October 31, 1999. Borrowings under
such revolving loan will adjust based upon the Operating Partnership's senior
unsecured debt rating with a range of 30-day LIBOR plus 100 basis points to
LIBOR plus 175 basis points. At December 31, 1997, the rate was set at 30-day
LIBOR plus 100 basis points and the effective interest rate was 6.97%. The
Operating Partnership had $15,500,000 in available borrowings under this loan
at December 31, 1997. In December 1997, the Operating Partnership obtained a
$150,000,000 unsecured revolving loan which matures on June 30, 1998.
Borrowings under the revolving loan will be based on the 30-day LIBOR rate plus
90 basis points. At December 31, 1997 the effective interest rate was 6.84%.
The Operating Partnership had $100,000,000 in available borrowings under this
loan at December 31, 1997. The terms of each of the revolving loans require the
Operating Partnership to pay a commitment fee equal to .15% to .25% of the
unused portion of such revolving loan and include certain restrictive covenants
which limit, among other things, dividend payments, and which require
compliance with certain financial ratios and measurements. At December 31,
1997, the Operating Partnership was in compliance with these covenants.
Other Information
The Operating Partnership has entered into an interest swap agreement with
a financial institution to fix effectively the interest rate on the variable
rate mortgages and variable rate notes at a rate of 6.95%. At December 31,
1997, the notional amount of the interest rate swap equaled the outstanding
balance of the indebtedness. The swap expires in June 2000 and had a cost basis
of $334,000 at December 31, 1997.
To limit increases in interest expense on $80 million of its $430 million
aggregate amount of unsecured revolving loans (the "Revolving Loans"), the
Operating Partnership has purchased an interest rate collar which limits its
exposure to an increase in 30-day LIBOR to 6.25% through November 2001. The
F-13
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued)
2. MORTGAGES AND NOTES PAYABLE -- Continued
initial premium used to acquire the $80 million interest rate collar is being
amortized over the term of the collar. The cost basis of the collar was
$2,457,000 at December 31, 1997.
Net payments made to counterparties under the above interest rate
protection agreement were $47,000 in 1997 and were recorded as an increase to
interest expense. Payments received from counterparties under the above
interest rate protection agreements were $167,000 in 1996 and $385,000 in 1995
and were recorded as a reduction of interest expense.
The aggregate maturities of the mortgage and notes payable at December 31,
1997 are as follows (in thousands):
<TABLE>
<S> <C>
1998 ................. $ 54,737
1999 ................. 291,541
2000 ................. 21,529
2001 ................. 143,630
2002 ................. 14,504
Thereafter ........... 452,617
--------
$978,558
========
</TABLE>
Total interest capitalized was $7,238,000 in 1997, $2,935,000 in 1996, and
$507,000 in 1995.
In anticipation of a 1998 debt offering, on September 17, 1997, the
Operating Partnership entered into a swap agreement with a notional amount of
$114 million. The swap agreement has a termination date of April 10, 1998, and
carries a fixed rate of 6.3%, which is a combination of the treasury rate plus
the swap spread and the forward premium. The estimated fair value of the swap
agreement at December 31, 1997 was ($4.8 million).
3. EMPLOYEE BENEFIT PLANS
Management Compensation Program
The Operating Partnership has established an incentive compensation plan
for employees of the Operating Partnership. The plan provides for payment of a
cash bonus to participating employees if certain Operating Partnership
performance objectives are achieved. The amount of the bonus to participating
employees is based on a formula determined for each employee by the
Compensation Committee of the Company, but may not exceed 100% of base salary.
All bonuses may be subject to adjustment to reflect individual performance as
measured by specific qualitative criteria to be approved by the Compensation
Committee. Bonuses are accrued in the year earned and included in accrued
expenses in the Consolidated Balance Sheets.
In addition, as an incentive to retain top management, the Company has
established a deferred compensation plan which provides for phantom stock
awards. Under the deferred compensation plan, phantom stock or stock
appreciation rights equal in value to 25% of the yearly cash bonus may be set
aside in an incentive pool, with payment after five years. If an employee
leaves the Company for any reason (other than death, disability or normal
retirement) prior to the end of the five-year period, all awards under the
deferred compensation plan will be forfeited. The Operating Partnership
reimburses the Company with respect to its obligations under the deferred
compensation plan.
F-14
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued)
401(k) Savings Plan
The Company has a 401(k) savings plan covering substantially all employees
who meet certain age and employment criteria. The Company matches the first 6%
of compensation deferred at the rate of 50% of employee contributions. During
1997, 1996 and 1995, the Company contributed $353,000, $160,000, and $51,000,
respectively to the Plan. Administrative expenses of the plan are paid by the
Company. The Company's obligations under and related to the Plan are reimbursed
by the Operating Partnership.
Employee Stock Purchase Plan
In August 1997, the Company instituted an Employee Stock Purchase Plan
("ESPP") for all active employees. At the end of each three-month offering
period, each participant's account balance is applied to acquire shares of
Common Stock at 90% of the market value of the Common Stock, calculated as the
lower of the average closing price on the New York Stock Exchange on the five
consecutive days preceding the first day of the quarter or the five days
preceding the last day of the quarter. A participant may not invest more than
$7,500 per quarter. As of December 31, 1997, 5,839 shares of Common Stock had
been purchased under the ESPP for the year. With each share of Common Stock
issued under the ESPP, the Operating Partnership issues one Common Unit to the
Company in exchange for the price paid by the employee for the share.
4. RENTAL INCOME
The Operating Partnership's real estate assets are leased to tenants under
operating leases, substantially all of which expire over the next ten years.
The minimum rental amounts under the leases are generally either subject to
scheduled fixed increases or adjustments based on the Consumer Price Index.
Generally, the leases also require that the tenants reimburse the Operating
Partnership for increases in certain costs above the base year costs.
Expected future minimum rents to be received over the next five years and
thereafter from tenants for leases in effect at Deceber 31, 1997, are as
follows (in thousands):
<TABLE>
<S> <C>
1998 ...................... $ 327,950
1999 ...................... 274,130
2000 ...................... 214,538
2001 ...................... 150,889
2002 ...................... 95,660
Thereafter ................ 262,215
----------
$1,325,382
==========
</TABLE>
5. RELATED-PARTY TRANSACTIONS
The Operating Partnership makes advances to Highwoods Services, Inc. for
working capital purposes. These advances bear interest at a rate of 7% per
annum due on demand and totaled $7,022,000 at December 31, 1997 and $2,406,000
at December 31, 1996. The Operating Partnership recorded interest income from
these advances of $142,189, $91,000 and $43,000 for the years ended December
31, 1997, 1996 and 1995, respectively.
On October 1, 1997, the Operating Partnership transferred title to the Ivy
Distribution Center in Winston-Salem, North Carolina, to a limited liability
company controlled by an executive officer of the Company for $2,050,000. The
Operating Partnership accepted a Note Receivable of $2,050,000 as consideration
for
F-15
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued)
5. RELATED-PARTY TRANSACTIONS -- Continued
this transaction, which approximated the carrying value of the property. The
note bears interest at 8% per annum and is payable in full on September 1,
1998. The Operating Partnership recorded interest income of $41,000 for the
year ended December 31, 1997.
On March 18, 1997, the Operating Partnership purchased 5.68 acres of
development land in Raleigh, North Carolina for $1,298,959 from a Partnership
in which an executive officer and director and an additional director of the
Company each had an 8.5% limited partnership interest.
During the year ended December 31, 1995, the Operating Partnership
acquired two properties encompassing 99,334 square feet at an aggregate
purchase price of $6,850,000 from partnerships in which certain officers and
directors owned a majority interest. These transactions were accounted for
using the purchase method of accounting and their operating results are
included in the Statements of Income from their respective acquisition dates.
6. PARTNER'S CAPITAL
Distributions
Distributions paid on Common Units were $1.98, $1.86 and $1.75 per Common
Unit for the years ended December 31, 1997, 1996 and 1995 respectively.
On January 26, 1998, the Board of Directors declared a Common Unit
distribution of $.51 per Common Unit payable on February 18, 1998, to Common
Unitholders of record on February 5, 1998. Such distributions are prorated with
respect to Common Units that have not been outstanding for the full prior
quarter.
Preferred Units
On February 7, 1997, the Operating Partnership issued 125,000 Series A
Cumulative Redeemable Preferred Units (the "Series A Preferred Units"). The
Series A Preferred Units are non-voting and have a liquidation preference of
$1,000 per Unit for an aggregate liquidation preference of $125.0 million plus
accrued and unpaid distributions. The net proceeds (after underwriting
commission and other offering costs) of the Series A Preferred Units issued
were $121.8 million. The Company is entitled to receive cumulative preferential
cash distributions at a rate of 8 5/8% of the liquidation preference per annum
(equivalent to $86.2 per Unit). On or after February 12, 2027, the Series A
Preferred Units will be redeemed for cash upon the redemption of the
corresponding Series A Preferred Stock issued by the Company. The redemption
price (other than the portion thereof consisting of accrued and unpaid
distributions) is payable solely out of the sale proceeds of other Units, which
may include other preferred Units.
On September 22, 1997, the Operating Partnership issued 6,900,000 Series B
Cumulative Redeemable Preferred Units (the "Series B Preferred Units") to the
Company. The Series B Preferred Units are non-voting and have a liquidation
preference of $25 per share for an aggregate liquidation preference of $172.5
million plus accrued and unpaid distributions. The net proceeds (after
underwriting commission and other offering costs) of the Series B Preferred
Units issued were $166.3 million. The Company is entitled to receive cumulative
preferential cash distributions at a rate of 8% of the liquidation preference
per annum (equivalent to $2.00 per Unit). On or after September 25, 2002, the
Series B Preferred Units may be redeemed for cash upon the redemption of the
corresponding Series B Preferred Stock issued by the Company. The redemption
price (other than the portion thereof consisting of accrued and unpaid
distributions) is payable solely out of the sale proceeds of other Units, which
may include other preferred Units.
F-16
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued)
7. EARNINGS PER COMMON UNIT
In 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 128, "Earnings Per Share," which is effective for financial
statements for periods ending after December 15, 1997. FASB Statement No. 128
requires the restatement of prior period earnings per share and requires the
disclosure of additional supplemental information detailing the calculation of
earnings per share.
FASB Statement No. 128 replaced the calculation of primary and fully
diluted earnings per Common Unit with basic and diluted earnings per share.
Unlike primary earnings per Common Unit, basic earnings per Common Unit excludes
any dilutive effects of options, warrants and convertible securities. Diluted
earnings per Common Unit is very similar to the previously reported fully
diluted earnings per Common Unit. It is computed using the weighted average
number of Common Units and the dilutive effect of options, warrants and
convertible securities outstanding, using the "treasury stock" method. Earnings
per Common Unit data is required for all periods for which an income statement
or summary of earnings is presented, including summaries outside the basic
financial statements. All earnings per Common Unit amounts for all periods
presented have, where appropriate, been restated to conform to the FASB
Statement 128 requirements.
The following table sets forth the computation of basic and diluted
earnings per Common Unit:
<TABLE>
<CAPTION>
1997 1996 1995
---------------- -------------- --------------
<S> <C> <C> <C>
Numerator:
Income before extraordinary item ....................... $91,552,000 $46,674,000 $28,934,000
Non-convertible preferred unit dividends ............... (13,117,000) -- --
Extraordinary item ..................................... (6,945,000) (2,432,000) (1,068,000)
----------- ----------- -----------
Numerator for basic earnings per Common
Unit -- income available to Common Unitholders ......... 71,490,000 44,242,000 27,866,000
Numerator for diluted earnings per share -- income
available to Common Unitholders ........................ 71,490,000 44,242,000 27,866,000
Denominator:
Denominator for basic earnings per Common
Unit -- weighted-average shares ........................ 46,421,790 29,852,000 18,697,000
Effect of dilutive securities:
Employee stock options ................................ 317,845 189,620 90,041
Warrants .............................................. 73,310 32,258 13,794
----------- ----------- -----------
Dilutive potential Common Units ........................ 391,155 221,878 103,835
Denominator for diluted earnings per Common
Unit -- adjusted weighted average Common Units
and assumed conversions ................................ 46,812,945 30,073,878 18,800,835
Basic earnings per Common Unit ........................... $ 1.54 $ 1.48 $ 1.49
=========== =========== ===========
Diluted earnings per Common Unit ......................... $ 1.53 $ 1.47 $ 1.48
=========== =========== ===========
</TABLE>
For additional disclosures regarding the outstanding preferred Units, the
employee stock options, the warrants, see Notes 6 and 8.
On January 27, 1998, the Company sold 2,000,000 shares of Common Stock in
an underwritten public offering for net proceeds of approximately $68.2
million. On February 12, 1998, the Company sold an aggregate of 1,553,604
shares of Common Stock in two underwritten public offerings for net proceeds of
approximately $51.2 million. On March 30, 1998, the Company sold 428,572 shares
of Common Stock in an underwritten public offering for net proceeds of
approximately $14.2 million. (See Note 9.)
F-17
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued)
8. STOCK OPTIONS AND WARRANTS
As of December 31, 1997, 2,364,027 shares of the Company's authorized
Common Stock were reserved for issuance upon the exercise of options under the
Amended and Restated 1994 Stock Option Plan. Options generally vest over a four
or five-year period beginning with the date of grant. In 1997, the Company
adopted a Unit Option Plan whereby no limit was placed on the number of
authorized Common Units reserved for future issuances. Common Unit options are
similar to non-qualified stock options except that the holder is entitled to
purchase Common Units in the Operating Partnership. Each Common Unit received
upon the exercise of a Common Unit option may be redeemed by the holder thereof
for the cash value of one share of Common Stock. The Company intends to allow
holders of the Common Unit options to convert them to non-qualified stock
options upon approval by the stockholders of the Company.
In 1995, the Financial Accounting Standards Board issued a Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," ("SFAS 123"). SFAS 123 recommends the use of a fair value based
method of accounting for an employee stock option whereby compensation cost is
measured at the grant date on the fair value of the award and is recognized
over the service period (generally the vesting period of the award). However,
SFAS 123 specifically allows an entity to continue to measure compensation cost
under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" ("APB 25") so long as pro forma disclosures of net income and
earnings per share are made as if SFAS 123 had been adopted. The Operating
Partnership has elected to follow APB 25 and related interpretations in
accounting for its employee stock options because the Operating Partnership
believes that the models available to estimate the fair value of employee stock
options do not provide a reliable single measure of the fair value of employee
stock options. Moreover, such models required the input of highly subjective
assumptions, which can materially affect the fair value estimates. APB 25
requires the recognition of compensation expense at the date of grant equal to
the difference between the option price and the value of the underlying stock.
Because the exercise price of the options equals the market price of the
underlying stock on the date of grant, the Operating Partnership records no
compensation expense for the award of employee stock options.
Under SFAS 123, a public entity must estimate the fair value of a stock
option by using an option-pricing model that takes into account as of the grant
date the exercise price and expected life of the options, the current price of
the underlying stock and its expected volatility, expected dividends on the
stock, and the risk-free interest rate for the expected term of the option.
SFAS provides examples of possible pricing models and includes the
Black-Scholes pricing model, which the Operating Partnership used to develop
its pro forma disclosures. However, as previously noted, the Operating
Partnership does not believe that such models provide a reliable single measure
of the fair value of employee stock options. Furthermore, the Black-Scholes
model was developed for use in estimating the fair value of traded options that
have no vesting restrictions and are fully transferable, rather than for use in
estimating the fair value of employee stock options subject to vesting and
transferability restrictions.
Because SFAS 123 is applicable only to options granted subsequent to
December 31, 1994, only options granted subsequent to that date were valued
using this Black-Scholes model. The fair value of these options granted in 1997
was estimated at the date of grant using the following weighted-average
assumptions: risk-free interest rates ranging between 5.75% and 6.72%, dividend
yield of 6.5% and a weighted average expected life of the options of five
years. The fair values of the 1996 and 1995 options were estimated at the date
of grant using the following weighted average assumptions: risk-free interest
rate of 6.47%; expected volatility of .182; dividend yield of 7.07% and a
weighted-average expected life of the options of five years. Had the
compensation cost for the Operating Partnership's option plans been determined
based on the fair value at the date of grant for awards in 1997, 1996 and 1995
consistent with the provisions of SFAS 123, the Operating Partnership's net
income and net income per share
F-18
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued)
8. STOCK OPTIONS AND WARRANTS -- Continued
would have decreased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Year ended
December 31
------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net income -- as reported .................................... $ 71,490 $ 44,242 $ 27,866
Net income -- pro forma ...................................... $ 70,769 $ 43,783 $ 27,743
Net income per Class A Unit -- basic (as reported) ........... $ 1.54 $ 1.48 $ 1.49
Net income per Class A Unit -- diluted (as reported) ......... $ 1.53 $ 1.47 $ 1.48
Net income per Class A Unit -- basic (pro forma) ............. $ 1.54 $ 1.48 $ 1.49
Net income per Class A Unit -- diluted (pro forma) ........... $ 1.51 $ 1.46 $ 1.48
</TABLE>
The following table summarizes information about employees' and Board of
Directors' stock and Unit options outstanding at December 31, 1997, 1996 and
1995:
<TABLE>
<CAPTION>
Options Outstanding
--------------------------------
Weighted
Average
Number Exercise
of Shares Price
------------------ -----------
<S> <C> <C>
Balances at December 31, 1994 ......... 326,000 $ 21.00
Options granted ....................... 400,000 22.09
Options canceled ...................... (28,680) 23.22
Options exercised ..................... (8,000) 21.00
------- --------
Balances at December 31, 1995 ......... 689,320 21.54
Options granted ....................... 586,925 28.27
Options canceled ...................... -- --
Options exercised ..................... (10,545) 20.75
------- --------
Balances at December 31, 1996 ......... 1,265,700 24.67
Options granted ....................... 2,250,765(1) 32.90
Options canceled ...................... (76,040) 22.20
Options exercised ..................... (117,428) 21.84
----------- --------
Balances at December 31, 1997 ......... 3,322,997(1) $ 30.40
=========== ========
</TABLE>
- ----------
(1) Includes 1,134,310 Common Unit Options granted pursuant to the Operating
Partnership's 1997 Unit Option Plan.
<TABLE>
<CAPTION>
Options Exercisable
-------------------------
Weighted
Average
Number of Exercise
Shares Price
----------- -----------
<S> <C> <C>
December 31, 1995 ......... 48,000 $ 21.00
December 31, 1996 ......... 225,350 $ 21.74
December 31, 1997 ......... 686,870 $ 30.94
</TABLE>
Exercise prices for options outstanding as of December 31, 1997 ranged
from $20.75 to $35.50. The weighted average remaining contractual life of those
options is 9.0 years. Using the Black-Scholes options valuation model, the
weighted average fair value of options granted during 1997, 1996 and 1995 was
$3.23, $3.10 and $1.90, respectively.
F-19
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued)
Warrants
In connection with various acquisitions in 1997, 1996 and 1995, the
Company issued warrants to certain officers and directors.
<TABLE>
<CAPTION>
Number of Exercise
Date of Issuance Warrants Price
- ----------------------- ----------- -----------
<S> <C> <C>
February 1995 ......... 100,000 $ 21.00
April 1996 ............ 150,000 $ 28.00
October 1997 .......... 1,479,290 $ 32.50
December 1997 ......... 120,000 $ 34.13
---------
Total ............... 1,849,290
=========
</TABLE>
The warrants granted in February 1995, April 1996 and December 1997 expire
10 years from the date of issuance and are exercisable as of December 31, 1996.
The warrants granted in October 1997 do not have an expiration date. Upon
exercise of a warrant, the Company will contribute the exercise price to the
Operating Partnership in exchange for Common Units.
9. COMMITMENTS AND CONTINGENCIES
Lease
Certain properties in the portfolio are subject to land leases expiring
through 2082. Rental payments on these leases are either adjusted annually
based on the consumer price index or based on a predetermined schedule.
For three properties, the Operating Partnership has the option to purchase
the leased land during the lease term at the greater of 85% of appraised value
or $35,000 per acre.
The obligation for future minimum lease payments is as follows (in
thousands):
<TABLE>
<S> <C>
1998 ............... $ 1,130
1999 ............... 1,155
2000 ............... 1,166
2001 ............... 1,182
2002 ............... 1,169
Thereafter ......... 60,151
-------
$65,953
=======
</TABLE>
Forward Share Purchase Agreement
On August 28, 1997, the Company entered into two transactions with
affiliates of Union Bank of Switzerland (the "August 1997 Offering"). In one
transaction, the Company sold 1,800,000 shares of Common stock to UBS Limited
for net proceeds of approximately $57 million. In the other transaction, the
Company entered into a forward share purchase agreement (the "Forward
Contract") with Union Bank of Switzerland, London Branch ("UBS/LB"). The
Forward Contract generally provides that if the price of a share of Common
Stock is above $32.14 (the "Forward Price") on August 28, 1998, UBS/LB will
return the difference (in shares of Common Stock) to the Company. Similarly, if
the price of a share of Common Stock on August 28, 1998 is less than the
Forward Price, the Company will pay the difference to UBS/LB in cash or shares
of Common Stock, at the Company's option.
F-20
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued)
Litigation
The Operating Partnership is a party to a variety of legal proceedings
arising in the ordinary course of its business. These matters are generally
covered by insurance or indemnities. All of these matters, taken together, are
not expected to have a material adverse effect on the accompanying consolidated
financial statements notwithstanding possible insurance recovery.
Contracts
The Operating Partnership has entered into construction contracts totaling
$150.4 million at December 31, 1997. The amounts remaining on these contracts
as of December 31, 1997, totaled $69.0 million.
The Operating Partnership has entered into a contract under which it is
committed to acquire 36 acres of land over a three-year period for an aggregate
purchase price of approximately $6,000,000. The seller has the option to elect
to receive the purchase price in either cash or Common Units valued at $26.67
per Common Unit.
The Operating Partnership has also entered into a contract under which it
is committed to acquire 18 acres of land on or before August 1, 1998, for an
aggregate purchase price of approximately $2,032,000.
Capital Expenditures
The Operating Partnership presently has no plans for major capital
improvements to the existing properties, other than an $8 million renovation of
the common areas of a 69,000-square foot property acquired in the ACP
Transaction. A reserve has been established to cover the cost of the
renovations.
Environmental Matters
Substantially all of the Operating Partnership's properties have been
subjected to Phase I environmental reviews. Such reviews have not revealed, nor
is management aware of, any environmental liability that management believes
would have a material adverse effect on the accompanying consolidated financial
statements.
Employment Agreements
As the Operating Partnership has expanded into new markets, it has sought
to enter into business combinations with local real estate operators with
management and development experience in their respective markets. Accordingly,
in connection with joining the Company as officers as a result of such business
combinations, some officers have entered into employment agreements with the
Company. The Operating Partnership reimburses the Company with respect to its
obligations under such agreements.
F-21
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued)
9. COMMITMENTS AND CONTINGENCIES -- Continued
10. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of estimated fair values were determined by
management using available market information and appropriate valuation
methodologies. Considerable judgment is necessary to interpret market data and
develop estimated fair values. Accordingly, the estimates presented herein are
not necessarily indicative of the amounts that the Operating Partnership could
realize upon disposition of the financial instruments. The use of different
market assumptions and/or estimation methodologies may have a material effect
on the estimated fair values . The carrying amounts and estimated fair values
of the Operating Partnership's financial instruments at December 31, 1997, were
as follows (in thousands):
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
---------- ------------
<S> <C> <C>
Cash and cash equivalents ........................ $ 19,487 $ 19,487
Accounts and notes receivable .................... $ 17,701 $ 17,701
Mortgages and notes payable ...................... $978,558 $995,180
Interest rate collar and swap agreements ......... $ 2,791 $ (259)
</TABLE>
The fair values for the Operating Partnership's fixed rate mortgages and
notes payable were estimated using discounted cash flow analysis, based on the
Operating Partnership's estimated incremental borrowing rate at December 31,
1997, for similar types of borrowing arrangements. The carrying amounts of the
Operating Partnership's variable rate borrowings approximate fair value.
The fair values of the Operating Partnership's interest rate swap and
interest rate collar agreements represent the estimated amount the Operating
Partnership would receive or pay to terminate or replace the financial
instruments at current market rates.
Disclosures about the fair value of financial instruments are based on
relevant information available to the Operating Partnership at December 31,
1997. Although management is not aware of any factors that would have a
material effect on the fair value amounts reported herein, such amounts have
not been revalued since that date and current estimates of fair value may
significantly differ from the amounts presented herein.
11. SUPPLEMENTAL PRO FORMA INFORMATION (UNAUDITED)
The following unaudited pro forma information has been prepared assuming
the following transactions all occurred as of January 1, 1996: (1) the 1996
acquisition of 91 properties at an initial cost of $704 million, (2) the 1997
acquisition of 176 properties at an initial cost of $1.1 billion, (3) the
Summer 1996 and December 1996 Common Stock offerings, (4) the November 1996
issuance of $210 million of unsecured notes, (5) the 1997 Series A and Series B
Preferred Stock Offerings, (6) the June 1997 X-POS Offering and (7) the August
and October 1997 Offerings.
Pro forma interest expense was calculated based on the indebtedness
outstanding after debt repayment and using the effective interest rate on such
indebtedness. In connection with various transactions, the Operating
Partnership issued Common Units totaling 6.7 million in 1997 and 1.3 million in
1996 which were recorded at their fair market value upon the closing date of
the transactions.
F-22
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued)
11. SUPPLEMENTAL PRO FORMA INFORMATION (UNAUDITED) -- Continued
<TABLE>
<CAPTION>
Pro Forma Year Ended Pro Forma Year Ended
December 31, 1997 December 31, 1996
---------------------- ---------------------
(in thousands, except per share amounts)
<S> <C> <C>
Revenues ............................ $ 350,595 $ 307,542
Net Income before
Extraordinary Item ................ $ 89,897 $ 58,139
Net Income .......................... $ 82,952 $ 55,707
Net Income per Class A Unit ......... $ 1.45 $ 0.98
Net Income per Class A Unit ......... $ 1.44 $ 0.97
</TABLE>
The pro forma information is not necessarily indicative of what the
Operating Partnership's results of operations would have been if the
transactions had occurred at the beginning of each period presented.
Additionally, the pro forma information does not purport to be indicative of
the Operating Partnership's results of operations for future periods.
12. SUBSEQUENT EVENTS
Recent Acquisitions
In closings on December 23, 1997 and January 8, 1998, the Operating
Partnership completed a business combination with Riparius Development
Corporation in Baltimore, Maryland involving the acquisition of a portfolio of
five office properties encompassing 369,000 square feet, two office development
projects encompassing 235,000 square feet, 11 acres of development land and 101
additional acres of development land to be acquired over the next three years
(the "Riparius Transaction"). The cost of the Riparius Transaction consisted of
a cash payment of $43.6 million. In addition, the Operating Partnership has
assumed the two office development projects with an anticipated cost of $26.2
million expected to be paid in 1998, and will pay out $23.9 million over the
next three years for the 101 additional acres of development land.
On February 4, 1998, the Operating Partnership acquired substantially all
of a portfolio consisting of 28 office properties encompassing 787,000 rentable
square feet, seven service center properties encompassing 471,000 square feet
and 66 acres of development land in Tampa, Florida (the "Garcia Transaction").
The cost of the Garcia Transaction consists of a cash payment of approximately
$87 million and the assumption of approximately $24 million in secured debt.
The Operating Partnership expects to close on the one remaining property by
April 4, 1998.
Pending Acquisitions
On December 22, 1997, the Operating Partnership entered into a merger
agreement (the "Merger Agreement") with J.C. Nichols Company, a publicly traded
Kansas City real extate operating company ("J.C. Nichols"), pursuant to which
the Operating Partnership would acquire J.C. Nichols with the view that the
Operating Partnership would combine its property operations with J.C. Nichols
(the "J.C. Nichols Transaction").
J.C. Nichols owns or has an ownership interest in 27 office properties
encompassing approximately 1.5 million rentable square feet, 13 industrial
properties encompassing approximately 337,000 rentable square feet, 33 retail
properties encompassing approximately 2.5 million rentable square feet and 16
multifamily communities with 1,816 apartment units in Kansas City, Missouri and
Kansas. Additionally, J.C. Nichols has an ownership interest in 21 office
properties encompassing approximately 1.3
F-23
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued)
12. SUBSEQUENT EVENTS -- Continued
million rentable square feet, one industrial property encompassing
approximately 200,000 rentable square feet and one multifamily community with
418 apartment units in Des Moines, Iowa.
Consummation of the J.C. Nichols Transaction is subject, among other
things, to the approval of 66 2/3% of the shareholders of J.C. Nichols. Under
the terms of the Merger Agreement, the Operating Partnership would acquire all
of the outstanding common stock, $.01 par value, of J.C. Nichols ("J.C. Nichols
Common Stock"). Under the Merger Agreement, J.C. Nichols shareholders may elect
to receive either 1.84 shares of Common Stock or $65 in cash for each share of
J.C. Nichols Common Stock. However, the cash payment to J.C. Nichols
shareholders cannot exceed 40% of the total consideration and the Operating
Partnership may limit the amount of Common Stock issued to 75% of the total
consideration. The exchange ratio is fixed and reflects the average closing
price of the Common Stock over the 20 trading days preceding the effective date
of the Merger Agreement. The cost of the J.C. Nichols Transaction under the
Merger Agreement is approximately $570 million, including assumed debt of
approximately $250 million, net of cash of approximately $65 million. The
Merger Agreement provides for payment by J.C. Nichols to the Company of a
termination fee and expenses of up to $17.2 million if J.C. Nichols enters into
an acquisition proposal other than the Merger Agreement and certain other
conditions are met. The failure of J.C. Nichols shareholders to approve the
J.C. Nichols Transaction, however, will not trigger the payment of a
termination fee, except for a fee of $2.5 million, if, among other things, J.C.
Nichols enters into another acquisition proposal before December 22, 1998.
No assurance can be given that all or part of the J.C. Nichols Transaction
will be consummated or that, if consummated, it would follow the terms set
forth in the Merger Agreement. As of the date hereof, certain third parties
have expressed an interest to J.C. Nichols and/or certain of its shareholders
in purchasing all or a portion of the outstanding J.C. Nichols Common Stock at
a price in excess of $65 per share. No assurance can be given that a third
party will not make an offer to J.C. Nichols or its shareholders to purchase
all or a portion of the outstanding J.C. Nichols Common Stock at a price in
excess of $65 per share or that the board of directors of J.C. Nichols would
reject any such offer. The Company and/or J.C. Nichols may terminate the Merger
Agreement if the J.C. Nichols Transaction is not consummated by June 30, 1998.
The Operating Partnership has entered into an agreement with The
Easton-Babcock Companies, a real estate operating company in Miami, Florida
("Easton-Babcock"), pursuant to which the Operating Partnership will combine
its property operations with Easton-Babcock and acquire a portfolio of 11
industrial properties encompassing 1.8 million rentable square feet, three
office properties encompassing 197,000 rentable square feet and 110 acres of
land for development, of which 88 acres will be acquired over a three-year
period (the "Easton-Babcock Transaction"). As of December 31, 1997, the
industrial properties to be acquired in the Easton-Babcock Transaction were 88%
leased and the office properties to be acquired in the Easton-Babcock
Transaction were 50% leased. The cost of the Easton-Babcock Transaction is $143
million and will consist of an undetermined combination of the issuance of
Common Units, the assumption of mortgage debt and a cash payment. Also in
connection with the Easton-Babcock Transaction, the Company will issue to
certain affiliates of Easton-Babcock warrants to purchase 926,000 shares of
Common Stock at $33.50 per share.
Financing Activities and Liquidity
On January 27, 1998, the Company sold 2,000,000 shares of Common Stock in
an underwritten public offering for net proceeds of approximately $68.2
million.
F-24
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued)
12. SUBSEQUENT EVENTS -- Continued
On February 2, 1998, the Operating Partnership sold $125 million of 6.835%
MandatOry Par Put Remarketed Securities ("MOPPRS") due February 1, 2013 and
$100 million of 7 1/8% notes due February 1, 2008.
On February 12, 1998, the Company sold an aggregate of 1,553,604 shares of
Common Stock in two underwritten public offerings for net proceeds of
approximately $51.2 million.
On March 30, 1998, the Company sold 428,572 shares of Common Stock in an
underwritten public offering for net proceeds of approximately $14.2 million.
On February 12, 1998, the Company sold an aggregate of 1,553,604 shares of
Common Stock in two underwritten public offerings for net proceeds of
approximately $51.2 million.
13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
Selected quarterly financial data for the years ended December 31, 1997
and 1996 is as follows (in thousands except per share amounts):
<TABLE>
<CAPTION>
For the year ended December 31, 1996*
-------------------------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter Total
--------------- ---------------- --------------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
Revenues ................... $ 23,757 $ 27,440 $ 32,881 $ 48,224 $132,302
======== ======== ======== ======== ========
Income before extraordinary
item ..................... 9,002 9,960 13,710 14,002 46,674
Extraordinary item ......... -- -- (2,432) -- (2,432)
-------- -------- -------- -------- --------
Net (loss) income .......... $ 9,002 $ 9,960 $ 11,278 $ 14,002 $44,242
======== ======== ======== ======== ========
Per Common Unit:
Income before
extraordinary
item -- Basic ........... $ 0.39 $ 0.42 $ 0.39 $ 0.38 $ 1.56
======== ======== ======== ======== ========
Income before
extraordinary
item -- Diluted ......... $ 0.39 $ 0.42 $ 0.38 $ 0.38 $ 1.55
======== ======== ======== ======== ========
</TABLE>
F-25
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued)
13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED): -- Continued
<TABLE>
<CAPTION>
For the year ended December 31, 1997*
-------------------------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter Total
--------------- ---------------- --------------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
Revenues ................... $ 57,776 $ 60,873 $ 63,302 $ 91,214 $273,165
======== ======== ======== ======== ========
Income before extraordinary
item ..................... 17,670 17,535 18,399 31,476 91,552
Extraordinary item ......... (3,973) -- (1,561) (1,358) (6,945)
-------- -------- -------- -------- --------
Net (loss) income .......... $ 13,697 $ 17,535 $ 16,838 $ 30,118 $84,607
======== ======== ======== ======== ========
Per Common Unit:
Income before
extraordinary
item -- Basic ........... $ .42 $ .42 $ .43 $ .55 $ 1.97
======== ======== ======== ======== ========
Income before
extraordinary
item -- Diluted ......... $ .42 $ .41 $ .42 $ .55 $ 1.96
======== ======== ======== ======== ========
</TABLE>
- ----------
* The total of the four quarterly amounts for net income per Common Unit do not
equal the total for the year due to the use of a weighted average to compute
the average number of Units outstanding.
F-26
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP, INC.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1997
(In thousands)
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent Gross Amount at
Initial Cost to Acquisition Which Carried at Close of Period
Building & Building & Building &
Description Encumbrance Land Improvements Land Improvements Land Improvements Total (16)
- -------------------------------- ------------- ------- -------------- ------ -------------- -------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ridgefield 200 1,685 636 3,607 -- 176 636 3,783 4,419
Ridgefield 300 1,837 910 5,157 -- 21 910 5,178 6,088
1765 The Exchange -- 767 6,325 -- 66 767 6,391 7,158
Two Point Royal -- 1,793 14,951 -- -- 1,793 14,951 16,744
400 North Business Park -- 979 6,174 -- 21 979 6,195 7,174
50 Glenlake -- 2,500 20,000 -- 60 2,500 20,060 22,560
6348 N.E. Expressway 1,437 277 1,646 -- 7 277 1,653 1,930
6438 N.E. Expressway 1,629 181 2,225 -- 27 181 2,252 2,433
Bluegrass Place 1 -- 491 2,036 -- -- 491 2,036 2,527
Bluegrass Place 2 -- 412 2,555 -- -- 412 2,555 2,967
1700 Century Circle -- 1,115 3,148 -- 240 1,115 3,388 4,503
1800 Century Boulevard -- 1,441 28,939 -- 98 1,441 29,037 30,478
1875 Century Boulevard -- -- 8,790 -- 27 -- 8,817 8,817
1900 Century Boulevard -- -- 4,721 -- 138 -- 4,859 4,859
2200 Century Parkway -- -- 14,318 -- 231 -- 14,549 14,549
2600 Century Parkway -- -- 10,357 -- 11 -- 10,368 10,368
2635 Century Parkway -- -- 21,230 -- 80 -- 21,310 21,310
2800 Century Parkway -- -- 20,149 -- 6 -- 20,155 20,155
Chattahoochee Avenue -- 248 1,840 -- 175 248 2,015 2,263
Chastain Place I -- 472 3,011 -- 416 472 3,427 3,899
Corporate Lakes Distribution -- 1,275 7,242 -- 274 1,275 7,516 8,791
Center
Cosmopolitan North -- 2,855 4,155 -- 105 2,855 4,260 7,115
1035 Fred Drive -- 270 1,246 -- 1 270 1,247 1,517
1077 Fred Drive -- 384 1,195 -- 15 384 1,210 1,594
5125 Fulton Industrial Blvd -- 578 3,147 -- 31 578 3,178 3,756
Fulton Corporate Center -- 542 2,048 -- 26 542 2,074 2,616
Gwinnett Distribution Center -- 1,128 5,943 -- 226 1,128 6,169 7,297
Kennestone Corporate Center -- 518 4,874 -- -- 518 4,874 5,392
Lavista Business Park -- 821 5,244 -- 211 821 5,455 6,276
Norcross, I, II -- 326 1,989 -- -- 326 1,989 2,315
Oakbrook I 2,013 873 4,948 -- 53 873 5,001 5,874
Oakbrook II 3,463 1,579 8,950 -- 563 1,579 9,513 11,092
Oakbrook III 3,931 1,480 8,388 -- 115 1,480 8,503 9,983
Oakbrook IV 2,381 953 5,400 -- 25 953 5,425 6,378
Oakbrook V 5,664 2,206 12,501 -- 149 2,206 12,650 14,856
Oakbrook Summitt 4,600 950 6,596 -- 29 950 6,625 7,575
Oxford Lake Business Center -- 855 7,085 -- 6 855 7,091 7,946
Southside Distribution Center -- 810 4,527 -- 23 810 4,550 5,360
Steel Drive -- 171 1,219 -- -- 171 1,219 1,390
9690 Deereco Road -- 1,188 16,460 -- -- 1,188 16,460 17,648
Atrium Building -- 1,390 9,964 -- -- 1,390 9,964 11,354
Business Center at Owings -- 827 1,597 -- -- 827 1,597 2,424
Mills-7
Business Center at Owings -- 786 2,263 -- -- 786 2,263 3,049
Mills-8
Business Center at Owings -- 960 6,187 -- -- 960 6,187 7,147
Mills-9
Grandview I 5,154 1,895 10,739 -- 56 1,895 10,795 12,690
Highwoods Square -- 2,586 14,657 -- 315 2,586 14,972 17,558
Highwoods Plaza -- 1,772 10,042 -- 128 1,772 10,170 11,942
One Boca Place -- 5,736 32,505 -- 336 5,736 32,841 38,577
4101 Stuart -- 70 510 -- 234 70 744 814
Andrew Blvd.
4105 Stuart -- 26 189 -- 13 26 202 228
Andrew Blvd.
4109 Stuart -- 87 636 -- 9 87 645 732
Andrew Blvd.
4201 Stuart -- 110 809 -- 28 110 837 947
Andrew Blvd.
<CAPTION>
Life on
Which
Accumulated Date of Depreciation
Description Depreciation Construction is Computed
- -------------------------------- -------------- -------------- -------------
<S> <C> <C> <C>
Ridgefield 200 129 1987 5-40 yrs.
Ridgefield 300 176 1989 5-40 yrs.
1765 The Exchange 38 1983 5-40 yrs.
Two Point Royal 16 1997 5-40 yrs.
400 North Business Park 114 1985 5-40 yrs.
50 Glenlake 22 1997 5-40 yrs.
6348 N.E. Expressway 37 1978 5-40 yrs.
6438 N.E. Expressway 50 1981 5-40 yrs.
Bluegrass Place 1 19 1995 5-40 yrs.
Bluegrass Place 2 24 1996 5-40 yrs.
1700 Century Circle 87 1972 5-40 yrs.
1800 Century Boulevard 702 1975 5-40 yrs.
1875 Century Boulevard 213 1976 5-40 yrs.
1900 Century Boulevard 131 1971 5-40 yrs.
2200 Century Parkway 365 1971 5-40 yrs.
2600 Century Parkway 251 1973 5-40 yrs.
2635 Century Parkway 518 1980 5-40 yrs.
2800 Century Parkway 488 1983 5-40 yrs.
Chattahoochee Avenue 67 1970 5-40 yrs.
Chastain Place I 91 1997 5-40 yrs.
Corporate Lakes Distribution 195 1988 5-40 yrs.
Center
Cosmopolitan North 104 1980 5-40 yrs.
1035 Fred Drive 30 1973 5-40 yrs.
1077 Fred Drive 29 1973 5-40 yrs.
5125 Fulton Industrial Blvd 77 1973 5-40 yrs.
Fulton Corporate Center 51 1973 5-40 yrs.
Gwinnett Distribution Center 143 1991 5-40 yrs.
Kennestone Corporate Center 87 1985 5-40 yrs.
Lavista Business Park 126 1973 5-40 yrs.
Norcross, I, II 44 1970 5-40 yrs.
Oakbrook I 179 1981 5-40 yrs.
Oakbrook II 395 1983 5-40 yrs.
Oakbrook III 313 1984 5-40 yrs.
Oakbrook IV 183 1985 5-40 yrs.
Oakbrook V 436 1985 5-40 yrs.
Oakbrook Summitt 151 1981 5-40 yrs.
Oxford Lake Business Center 128 1985 5-40 yrs.
Southside Distribution Center 101 1988 5-40 yrs.
Steel Drive 27 1975 5-40 yrs.
9690 Deereco Road 17 1989 5-40 yrs.
Atrium Building 10 1986 5-40 yrs.
Business Center at Owings 2 1989 5-40 yrs.
Mills-7
Business Center at Owings 2 1989 5-40 yrs.
Mills-8
Business Center at Owings 7 1988 5-40 yrs.
Mills-9
Grandview I 364 1989 5-40 yrs.
Highwoods Square 501 1989 5-40 yrs.
Highwoods Plaza 344 1980 5-40 yrs.
One Boca Place 1,101 1987 5-40 yrs.
4101 Stuart 67 1984 5-40 yrs.
Andrew Blvd.
4105 Stuart 15 1984 5-40 yrs.
Andrew Blvd.
4109 Stuart 42 1984 5-40 yrs.
Andrew Blvd.
4201 Stuart 59 1982 5-40 yrs.
Andrew Blvd.
</TABLE>
F-27
<PAGE>
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent
Initial Cost to Acquisition
Building & Building &
Description Encumbrance Land Improvements Land Improvements
- --------------------------------- ------------- --------- -------------- ------ --------------
<S> <C> <C> <C> <C> <C>
4205 Stuart -- 134 979 -- 16
Andrew Blvd.
4209 Stuart -- 91 665 -- 18
Andrew Blvd.
4215 Stuart -- 133 978 -- 26
Andrew Blvd.
4301 Stuart -- 232 1,702 -- 33
Andrew Blvd.
4321 Stuart -- 73 534 -- 5
Andrew Blvd.
First Citizens -- 647 5,528 -- 153
English Oak 1,968 750 4,248 -- 34
Laurel Oak 1,448 471 2,671 -- 248
Live Oak 1,403 5,611 -- 563
Scarlet Oak 2,177 1,073 6,078 -- 40
Twin Oaks 3,406 1,243 7,044 -- 65
Willow Oak 1,234 442 2,505 -- 206
Water Oak 5,097 1,623 9,196 -- 482
Pinebrook -- 846 4,739 -- 41
Parkway Plaza -- 1,110 4,741 -- 155
Building 1
Parkway Plaza -- 1,694 6,777 -- 1,009
Building 2
Parkway Plaza -- 1,570 6,282 -- 376
Building 3
Parkway Plaza -- -- 2,438 -- 510
Building 6
Parkway Plaza -- -- 4,648 -- 73
Building 7
Parkway Plaza -- -- 4,698 -- 30
Building 8
Parkway Plaza -- -- 6,008 -- 13
Building 9
Steele Creek Park Building A (4) 499 1,998 -- 146
Steele Creek Park Building B (4) 110 441 -- 8
Steele Creek Park Building E (4) 188 751 -- 292
Steele Creek Park Building G-1 (4) 196 783 -- 25
Steele Creek Park Building H (4) 169 677 -- 153
Steele Creek Park Building K (4) 148 592 -- 5
Center Point I 3,549 1,313 7,441 -- 30
Center Point II -- 1,183 6,702 1 1,328
Center Point V -- 265 1,279 -- 107
Fontaine I 3,520 1,219 6,907 -- 191
Fontaine II 1,807 941 5,335 -- 686
Fontaine III -- 853 4,833 -- 78
Fontaine V 1,192 395 2,237 -- --
6348 Burnt Poplar -- 721 2,883 -- 7
6350 Burnt Poplar -- 339 1,365 -- 5
Deep River I 2,305 1,033 5,855 -- 162
Copier Consultants (3) 252 1,008 -- 12
East - Building 01 (3) 377 1,510 -- 46
East - Building 02 (3) 461 1,842 -- 22
East - Building 03 (3) 321 1,283 -- 61
East-Building 06 -- 103 526 -- 159
Hewlett Packard -- 149 727 -- 193
Inacom -- 106 478 -- 293
East - Building A (3) 541 2,913 -- 279
East - Building B (3) 779 3,200 -- 255
East - Building C (3) 2,384 9,535 -- 298
East - Building D -- 271 3,213 -- 654
Service Center 1 (3) 275 1,099 -- 81
Service Center 2 (3) 222 889 -- 20
Service Center 3 (3) 304 1,214 -- 62
Service Center 4 (3) 224 898 -- 12
Service Court (3) 194 774 -- 36
Warehouse 1 (3) 384 1,535 -- 39
Warehouse 2 (3) 372 1,488 -- 28
<CAPTION>
Gross Amount at
Which Carried at Close of Period
Life on
Which
Building & Accumulated Date of Depreciation
Description Land Improvements Total (16) Depreciation Construction is Computed
- --------------------------------- --------- -------------- ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
4205 Stuart 134 995 1,129 65 1982 5-40 yrs.
Andrew Blvd.
4209 Stuart 91 683 774 47 1982 5-40 yrs.
Andrew Blvd.
4215 Stuart 133 1,004 1,137 70 1982 5-40 yrs.
Andrew Blvd.
4301 Stuart 232 1,735 1,967 115 1982 5-40 yrs.
Andrew Blvd.
4321 Stuart 73 539 612 34 1982 5-40 yrs.
Andrew Blvd.
First Citizens 647 5,681 6,328 523 1989 5-40 yrs.
English Oak 750 4,282 5,032 147 1984 5-40 yrs.
Laurel Oak 471 2,919 3,390 128 1984 5-40 yrs.
Live Oak 1,403 6,174 7,577 217 1989 5-40 yrs.
Scarlet Oak 1,073 6,118 7,191 216 1982 5-40 yrs.
Twin Oaks 1,243 7,109 8,352 236 1985 5-40 yrs.
Willow Oak 442 2,711 3,153 95 1982 5-40 yrs.
Water Oak 1,623 9,678 11,301 370 1985 5-40 yrs.
Pinebrook 846 4,780 5,626 43 1986 5-40 yrs.
Parkway Plaza 1,110 4,896 6,006 264 1982 5-40 yrs.
Building 1
Parkway Plaza 1,694 7,786 9,480 471 1983 5-40 yrs.
Building 2
Parkway Plaza 1,570 6,658 8,228 404 1984 5-40 yrs.
Building 3
Parkway Plaza -- 2,948 2,948 108 1996 5-40 yrs.
Building 6
Parkway Plaza -- 4,721 4,721 241 1985 5-40 yrs.
Building 7
Parkway Plaza -- 4,728 4,728 240 1986 5-40 yrs.
Building 8
Parkway Plaza -- 6,021 6,021 308 1984 5-40 yrs.
Building 9
Steele Creek Park Building A 499 2,144 2,643 187 1989 5-40 yrs.
Steele Creek Park Building B 110 449 559 33 1985 5-40 yrs.
Steele Creek Park Building E 188 1,043 1,231 93 1985 5-40 yrs.
Steele Creek Park Building G-1 196 808 1,004 67 1989 5-40 yrs.
Steele Creek Park Building H 169 830 999 108 1987 5-40 yrs.
Steele Creek Park Building K 148 597 745 43 1985 5-40 yrs.
Center Point I 1,313 7,471 8,784 246 1988 5-40 yrs.
Center Point II 1,184 8,030 9,214 257 1996 5-40 yrs.
Center Point V 265 1,386 1,651 31 1997 5-40 yrs.
Fontaine I 1,219 7,098 8,317 229 1985 5-40 yrs.
Fontaine II 941 6,021 6,962 320 1987 5-40 yrs.
Fontaine III 853 4,911 5,764 172 1988 5-40 yrs.
Fontaine V 395 2,237 2,632 74 1990 5-40 yrs.
6348 Burnt Poplar 721 2,890 3,611 208 1990 5-40 yrs.
6350 Burnt Poplar 339 1,370 1,709 99 1992 5-40 yrs.
Deep River I 1,033 6,017 7,050 226 1989 5-40 yrs.
Copier Consultants 252 1,020 1,272 73 1990 5-40 yrs.
East - Building 01 377 1,556 1,933 131 1990 5-40 yrs.
East - Building 02 461 1,864 2,325 134 1986 5-40 yrs.
East - Building 03 321 1,344 1,665 103 1986 5-40 yrs.
East-Building 06 103 685 788 28 1997 5-40 yrs.
Hewlett Packard 149 920 1,069 88 1996 5-40 yrs.
Inacom 106 771 877 61 1996 5-40 yrs.
East - Building A 541 3,192 3,733 272 1986 5-40 yrs.
East - Building B 779 3,455 4,234 290 1988 5-40 yrs.
East - Building C 2,384 9,833 12,217 729 1990 5-40 yrs.
East - Building D 271 3,867 4,138 107 1997 5-40 yrs.
Service Center 1 275 1,180 1,455 96 1985 5-40 yrs.
Service Center 2 222 909 1,131 64 1985 5-40 yrs.
Service Center 3 304 1,276 1,580 107 1985 5-40 yrs.
Service Center 4 224 910 1,134 65 1985 5-40 yrs.
Service Court 194 810 1,004 63 1990 5-40 yrs.
Warehouse 1 384 1,574 1,958 121 1985 5-40 yrs.
Warehouse 2 372 1,516 1,888 113 1985 5-40 yrs.
</TABLE>
F-28
<PAGE>
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent
Initial Cost to Acquisition
Building & Building &
Description Encumbrance Land Improvements Land Improvements
- ------------------------- ------------- -------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
Warehouse 3 (3) 370 1,480 -- 26
Warehouse 4 (3) 657 2,628 -- 28
Highland Industries (3) 175 699 -- 7
206 South Westgate Dr. -- 91 664 -- 64
207 South Westgate Dr. -- 138 1,012 -- 8
300 South Westgate Dr. -- 68 496 -- 3
305 South Westgate Dr. -- 30 220 -- 17
307 South Westgate Dr. -- 66 485 -- 6
309 South Westgate Dr. -- 68 496 -- 13
311 South Westgate Dr. -- 75 551 -- 26
315 South Westgate Dr. -- 54 396 -- 7
317 South Westgate Dr. -- 81 597 -- 7
319 South Westgate Dr. -- 54 396 -- 3
4600 Dundas Circle -- 62 456 -- 26
4602 Dundas Circle -- 68 498 -- 18
7906 Industrial -- 62 455 -- 5
Village Rd.
7908 Industrial -- 62 455 -- 11
Village Rd.
7910 Industrial -- 62 455 -- 14
Village Rd.
Airpark North - DC1 (3) 723 2,891 -- 57
Airpark North - DC2 (3) 1,094 4,375 -- 83
Airpark North - DC3 (3) 378 1,511 -- 240
Airpark North - DC4 (3) 377 1,508 -- 75
2606 Phoenix Dr. - 100 -- 63 466 -- --
2606 Phoenix Dr. - 200 -- 63 466 -- 3
2606 Phoenix Dr. - 300 -- 31 229 -- 37
2606 Phoenix Dr. - 400 -- 52 382 -- 8
2606 Phoenix Dr. - 500 -- 64 471 -- 9
2606 Phoenix Dr. - 600 -- 78 575 -- 10
2616 Phoenix Dr. -- 135 990 -- 44
5 Dundas Circle -- 72 531 -- 10
7 Dundas Circle -- 75 552 -- 11
8 Dundas Circle -- 84 617 -- 18
9 Dundas Circle -- 51 373 -- 3
302 Pomona Dr. -- 84 617 -- 42
304 Pomona Dr. -- 22 163 -- --
306 Pomona Dr. -- 50 368 -- 8
308 Pomona Dr. -- 72 531 -- 2
500 Radar Rd. -- 202 1,484 -- 82
502 Radar Rd. -- 39 285 -- 43
504 Radar Rd. -- 39 285 -- 3
506 Radar Rd. -- 39 285 -- 5
Regency One -- 515 2,352 -- 571
Regency Two -- 435 1,864 -- 503
Sears Cenfact -- 861 3,446 -- 21
4000 Spring Garden St. -- 127 933 -- 34
4002 Spring Garden St. -- 39 290 -- 2
4004 Spring Garden St. -- 139 1,019 -- 57
R.F. Micro Devices -- 512 7,674 -- --
West Airpark I (4) 954 3,817 -- 365
West Airpark II (4) 887 3,536 (3) 138
West Airpark IV (4) 226 903 -- 120
West Airpark V (4) 242 966 -- 29
West Airpark VI (4) 326 1,308 -- 89
7327 W. Friendly Ave. -- 60 441 -- 6
7339 W. Friendly Ave. -- 63 465 -- 14
7341 W. Friendly Ave. -- 113 831 -- 64
7343 W. Friendly Ave. -- 72 531 -- 7
7345 W. Friendly Ave. -- 66 485 -- 11
7347 W. Friendly Ave. -- 97 709 -- 57
7349 W. Friendly Ave. -- 53 388 -- 13
7351 W. Friendly Ave. -- 106 778 -- 28
7353 W. Friendly Ave. -- 123 901 -- 12
7355 W. Friendly Ave. -- 72 525 -- 7
<CAPTION>
Gross Amount at
Which Carried at Close of Period
Life on
Which
Building & Accumulated Date of Depreciation
Description Land Improvements Total (16) Depreciation Construction is Computed
- ------------------------- -------- -------------- ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Warehouse 3 370 1,506 1,876 109 1986 5-40 yrs.
Warehouse 4 657 2,656 3,313 191 1988 5-40 yrs.
Highland Industries 175 706 881 51 1990 5-40 yrs.
206 South Westgate Dr. 91 728 819 41 1986 5-40 yrs.
207 South Westgate Dr. 138 1,020 1,158 63 1986 5-40 yrs.
300 South Westgate Dr. 68 499 567 31 1986 5-40 yrs.
305 South Westgate Dr. 30 237 267 14 1985 5-40 yrs.
307 South Westgate Dr. 66 491 557 32 1985 5-40 yrs.
309 South Westgate Dr. 68 509 577 31 1985 5-40 yrs.
311 South Westgate Dr. 75 577 652 41 1985 5-40 yrs.
315 South Westgate Dr. 54 403 457 25 1985 5-40 yrs.
317 South Westgate Dr. 81 604 685 39 1985 5-40 yrs.
319 South Westgate Dr. 54 399 453 25 1985 5-40 yrs.
4600 Dundas Circle 62 482 544 30 1985 5-40 yrs.
4602 Dundas Circle 68 516 584 34 1985 5-40 yrs.
7906 Industrial 62 460 522 28 1985 5-40 yrs.
Village Rd.
7908 Industrial 62 466 528 30 1985 5-40 yrs.
Village Rd.
7910 Industrial 62 469 531 31 1985 5-40 yrs.
Village Rd.
Airpark North - DC1 723 2,948 3,671 212 1986 5-40 yrs.
Airpark North - DC2 1,094 4,458 5,552 324 1987 5-40 yrs.
Airpark North - DC3 378 1,751 2,129 147 1988 5-40 yrs.
Airpark North - DC4 377 1,583 1,960 114 1988 5-40 yrs.
2606 Phoenix Dr. - 100 63 466 529 29 1989 5-40 yrs.
2606 Phoenix Dr. - 200 63 469 532 30 1989 5-40 yrs.
2606 Phoenix Dr. - 300 31 266 297 16 1989 5-40 yrs.
2606 Phoenix Dr. - 400 52 390 442 27 1989 5-40 yrs.
2606 Phoenix Dr. - 500 64 480 544 33 1989 5-40 yrs.
2606 Phoenix Dr. - 600 78 585 663 37 1989 5-40 yrs.
2616 Phoenix Dr. 135 1,034 1,169 63 1985 5-40 yrs.
5 Dundas Circle 72 541 613 38 1987 5-40 yrs.
7 Dundas Circle 75 563 638 36 1986 5-40 yrs.
8 Dundas Circle 84 635 719 43 1986 5-40 yrs.
9 Dundas Circle 51 376 427 25 1986 5-40 yrs.
302 Pomona Dr. 84 659 743 40 1987 5-40 yrs.
304 Pomona Dr. 22 163 185 10 1987 5-40 yrs.
306 Pomona Dr. 50 376 426 27 1987 5-40 yrs.
308 Pomona Dr. 72 533 605 33 1987 5-40 yrs.
500 Radar Rd. 202 1,566 1,768 102 1981 5-40 yrs.
502 Radar Rd. 39 328 367 22 1986 5-40 yrs.
504 Radar Rd. 39 288 327 18 1986 5-40 yrs.
506 Radar Rd. 39 290 329 18 1986 5-40 yrs.
Regency One 515 2,923 3,438 173 1996 5-40 yrs.
Regency Two 435 2,367 2,802 149 1996 5-40 yrs.
Sears Cenfact 861 3,467 4,328 249 1989 5-40 yrs.
4000 Spring Garden St. 127 967 1,094 66 1983 5-40 yrs.
4002 Spring Garden St. 39 292 331 19 1983 5-40 yrs.
4004 Spring Garden St. 139 1,076 1,215 72 1983 5-40 yrs.
R.F. Micro Devices 512 7,674 8,186 40 1997 5-40 yrs.
West Airpark I 954 4,182 5,136 433 1984 5-40 yrs.
West Airpark II 884 3,674 4,558 290 1985 5-40 yrs.
West Airpark IV 226 1,023 1,249 95 1985 5-40 yrs.
West Airpark V 242 995 1,237 76 1985 5-40 yrs.
West Airpark VI 326 1,397 1,723 137 1985 5-40 yrs.
7327 W. Friendly Ave. 60 447 507 27 1987 5-40 yrs.
7339 W. Friendly Ave. 63 479 542 31 1989 5-40 yrs.
7341 W. Friendly Ave. 113 895 1,008 55 1988 5-40 yrs.
7343 W. Friendly Ave. 72 538 610 33 1988 5-40 yrs.
7345 W. Friendly Ave. 66 496 562 33 1988 5-40 yrs.
7347 W. Friendly Ave. 97 766 863 57 1988 5-40 yrs.
7349 W. Friendly Ave. 53 401 454 27 1988 5-40 yrs.
7351 W. Friendly Ave. 106 806 912 53 1988 5-40 yrs.
7353 W. Friendly Ave. 123 913 1,036 56 1988 5-40 yrs.
7355 W. Friendly Ave. 72 532 604 33 1988 5-40 yrs.
</TABLE>
F-29
<PAGE>
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent
Initial Cost to Acquisition
Building & Building &
Description Encumbrance Land Improvements Land Improvements
- ------------------------------- ------------- --------- -------------- ------ --------------
<S> <C> <C> <C> <C> <C>
Nations Bank Plaza -- 642 9,349 -- 69
Brookfield Plaza 4,768 1,489 8,437 -- 294
Brookfield-Jacobs-Sirrine 12,049 3,022 17,125 -- --
Brookfield-YMCA 429 33 189 -- 8
Patewood I -- 942 5,066 -- --
Patewood II -- 942 5,066 -- --
Patewood III 5,417 835 4,733 -- 141
Patewood IV (13) 1,210 6,856 -- --
Patewood V 4,779 1,677 9,503 -- --
Patewood Business Center 2,576 1,312 7,436 -- 25
Belfort Park I -- 1,322 4,285 -- --
Belfort Park II -- 831 5,066 -- --
Belfort Parkway III -- 647 4,063 -- 387
The Cigna Building -- 381 1,592 -- --
Harry James Building -- 272 1,360 -- 34
Independent Square -- 3,985 47,495 -- 67
Three Oaks Plaza -- 1,630 14,036 -- 107
The Reflections 6,750 958 9,877 -- 8
Southpoint Office Building -- 594 3,987 -- (1)
Towermarc Plaza -- 1,143 6,476 -- 8
100 West Bay Street Building -- 184 4,750 -- 54
Atrium I & II -- 1,530 6,121 40 125
Centrum Building -- 1,013 5,523 -- 27
Medical Properties, Inc. -- 398 2,256 -- 1
Highwoods Office Center at -- 1,005 3,816 -- 714
Southwind
International Place -- 4,847 27,469 -- 1,004
Phase II
Kirby Centre -- 525 2,973 -- 13
Southwind Office -- 996 5,643 -- 4
Center A
Southwind Office -- 1,356 7,684 -- 22
Center B
Battlefield I 2,717 774 4,387 -- --
Greenbrier Business Center 2,768 936 5,305 -- 47
Riverside Plaza -- 1,495 5,998 483 --
3401 Westend -- 4,956 19,845 -- 788
5310 Maryland Way -- 1,555 6,239 -- 12
BNA 11,649 -- 19,610 -- 299
Century City Plaza I -- 903 3,612 -- 153
Eastpark 1, 2, 3 4,099 2,371 9,505 -- 497
Grassmere I 2,856 1,251 7,091 -- 373
Grassmere II 4,401 2,260 12,804 -- 130
Grassmere III 5,053 1,340 7,592 -- 5
Highwoods Plaza I -- 1,772 6,380 -- 2,596
Highwoods Plaza II -- 1,448 6,948 -- 417
Harpeth II -- 1,419 5,677 1 141
Harpeth on the -- 1,658 6,633 2 121
Green III
Harpeth on the -- 1,709 6,835 5 355
Green IV
Lakeview -- 1,768 6,291 -- 124
EMI/Sparrow -- 1,262 5,047 -- 39
100 Winner's Circle -- 1,495 7,148 -- --
Campus Crusade -- 1,505 9,875 -- --
ACP-W -- 4,700 18,865 -- --
Corporate Square -- 900 1,717 -- 6
Executive Point Towers -- 2,200 7,230 -- 30
Lakeview Office Park -- 5,400 13,998 -- 60
2699 Lee Road -- 1,500 6,003 -- (2)
Metrowest I 3,530 1,344 7,618 -- 96
One Winter Park 2,354 1,000 3,652 -- 5
The Palladium -- 1,400 5,555 -- --
201 Pine Street -- 4,400 30,118 -- (1)
Premiere Point North -- 800 3,061 -- --
Premiere Point South -- 600 3,429 -- 20
Shoppes of Interlachen 2,105 1,100 2,716 -- 4
<CAPTION>
Gross Amount at
Which Carried at Close of Period
Life on
Which
Building & Accumulated Date of Depreciation
Description Land Improvements Total (16) Depreciation Construction is Computed
- ------------------------------- --------- -------------- ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Nations Bank Plaza 642 9,418 10,060 52 1973 5-40 yrs.
Brookfield Plaza 1,489 8,731 10,220 298 1987 5-40 yrs.
Brookfield-Jacobs-Sirrine 3,022 17,125 20,147 565 1990 5-40 yrs.
Brookfield-YMCA 33 197 230 8 1990 5-40 yrs.
Patewood I 942 5,066 6,008 112 1985 5-40 yrs.
Patewood II 942 5,066 6,008 112 1987 5-40 yrs.
Patewood III 835 4,874 5,709 195 1989 5-40 yrs.
Patewood IV 1,210 6,856 8,066 226 1989 5-40 yrs.
Patewood V 1,677 9,503 11,180 313 1990 5-40 yrs.
Patewood Business Center 1,312 7,461 8,773 249 1983 5-40 yrs.
Belfort Park I 1,322 4,285 5,607 23 1988 5-40 yrs.
Belfort Park II 831 5,066 5,897 27 1988 5-40 yrs.
Belfort Parkway III 647 4,450 5,097 21 1988 5-40 yrs.
The Cigna Building 381 1,592 1,973 8 1972 5-40 yrs.
Harry James Building 272 1,394 1,666 7 1982 5-40 yrs.
Independent Square 3,985 47,562 51,547 287 1975 5-40 yrs.
Three Oaks Plaza 1,630 14,143 15,773 74 1972 5-40 yrs.
The Reflections 958 9,885 10,843 52 1985 5-40 yrs.
Southpoint Office Building 594 3,986 4,580 21 1980 5-40 yrs.
Towermarc Plaza 1,143 6,484 7,627 214 1991 5-40 yrs.
100 West Bay Street Building 184 4,804 4,988 25 1964 5-40 yrs.
Atrium I & II 1,570 6,246 7,816 162 1984 5-40 yrs.
Centrum Building 1,013 5,550 6,563 41 1979 5-40 yrs.
Medical Properties, Inc. 398 2,257 2,655 74 1988 5-40 yrs.
Highwoods Office Center at 1,005 4,530 5,535 4 1997 5-40 yrs.
Southwind
International Place 4,847 28,473 33,320 931 1988 5-40 yrs.
Phase II
Kirby Centre 525 2,986 3,511 100 1984 5-40 yrs.
Southwind Office 996 5,647 6,643 188 1991 5-40 yrs.
Center A
Southwind Office 1,356 7,706 9,062 255 1990 5-40 yrs.
Center B
Battlefield I 774 4,387 5,161 145 1987 5-40 yrs.
Greenbrier Business Center 936 5,352 6,288 176 1984 5-40 yrs.
Riverside Plaza 1,978 5,998 7,976 32 1988 5-40 yrs.
3401 Westend 4,956 20,633 25,589 924 1982 5-40 yrs.
5310 Maryland Way 1,555 6,251 7,806 268 1994 5-40 yrs.
BNA -- 19,909 19,909 863 1985 5-40 yrs.
Century City Plaza I 903 3,765 4,668 161 1987 5-40 yrs.
Eastpark 1, 2, 3 2,371 10,002 12,373 515 1978 5-40 yrs.
Grassmere I 1,251 7,464 8,715 260 1984 5-40 yrs.
Grassmere II 2,260 12,934 15,194 446 1985 5-40 yrs.
Grassmere III 1,340 7,597 8,937 251 1990 5-40 yrs.
Highwoods Plaza I 1,772 8,976 10,748 406 1996 5-40 yrs.
Highwoods Plaza II 1,448 7,365 8,813 40 1997 5-40 yrs.
Harpeth II 1,420 5,818 7,238 195 1984 5-40 yrs.
Harpeth on the 1,660 6,754 8,414 195 1987 5-40 yrs.
Green III
Harpeth on the 1,714 7,190 8,904 197 1989 5-40 yrs.
Green IV
Lakeview 1,768 6,415 8,183 271 1986 5-40 yrs.
EMI/Sparrow 1,262 5,086 6,348 163 1982 5-40 yrs.
100 Winner's Circle 1,495 7,148 8,643 8 1987 5-40 yrs.
Campus Crusade 1,505 9,875 11,380 52 1990 5-40 yrs.
ACP-W 4,700 18,865 23,565 99 1966-1992 5-40 yrs.
Corporate Square 900 1,723 2,623 9 1971 5-40 yrs.
Executive Point Towers 2,200 7,260 9,460 38 1978 5-40 yrs.
Lakeview Office Park 5,400 14,058 19,458 74 1975 5-40 yrs.
2699 Lee Road 1,500 6,001 7,501 31 1974 5-40 yrs.
Metrowest I 1,344 7,714 9,058 260 1988 5-40 yrs.
One Winter Park 1,000 3,657 4,657 19 1982 5-40 yrs.
The Palladium 1,400 5,555 6,955 29 1988 5-40 yrs.
201 Pine Street 4,400 30,117 34,517 158 1980 5-40 yrs.
Premiere Point North 800 3,061 3,861 16 1983 5-40 yrs.
Premiere Point South 600 3,449 4,049 18 1983 5-40 yrs.
Shoppes of Interlachen 1,100 2,720 3,820 14 1987 5-40 yrs.
</TABLE>
F-30
<PAGE>
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent Gross Amount at
Initial Cost to Acquisition Which Carried at Close of Period
Building & Building & Building &
Description Encumbrance Land Improvements Land Improvements Land Improvements Total (16)
- ----------------------------- ------------- -------- -------------- ------ -------------- -------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Signature Plaza -- 4,300 30,611 -- 129 4,300 30,740 35,040
Skyline Center -- 700 2,773 -- 4 700 2,777 3,477
Southwest Corporate Center 3,717 991 5,613 -- -- 991 5,613 6,604
Blue Ridge II -- 434 -- 29 1,433 463 1,433 1,896
2500 Blue Ridge -- 722 4,552 -- 871 722 5,423 6,145
Qualex -- 879 3,522 -- 1 879 3,523 4,402
Fairfield II -- 910 3,647 -- 367 910 4,014 4,924
3600 Glenwood Avenue -- -- -- -- 10,994 -- 10,994 10,994
ONCC - 3645 Trust Drive 1,778 520 2,949 -- 50 520 2,999 3,519
4020 Roxboro -- 675 2,708 -- 49 675 2,757 3,432
4101 Roxboro -- 1,059 4,243 -- 186 1,059 4,429 5,488
Fairfield I -- 805 3,227 -- 105 805 3,332 4,137
4201 Building -- 1,204 7,715 -- 2,388 1,204 10,103 11,307
4301 Building -- 900 7,425 -- 607 900 8,032 8,932
4401 Building -- 1,249 8,929 -- 4,806 1,249 13,735 14,984
4501 Building -- 785 4,448 -- 675 785 5,123 5,908
4800 North Park -- 2,678 17,673 -- 233 2,678 17,906 20,584
4900 North Park 1,486 770 1,989 -- 230 770 2,219 2,989
5000 North Park -- 1,010 4,697 -- 879 1,010 5,576 6,586
5200 Green's Dairy Road 593 169 959 -- 17 169 976 1,145
5220 Green's Dairy Road 1,072 382 2,165 -- 60 382 2,225 2,607
5301 Departure Drive 2,466 882 5,000 -- 6 882 5,006 5,888
4000 Aerial Center -- 541 2,163 -- 5 541 2,168 2,709
Amica -- 289 1,544 -- 52 289 1,596 1,885
Arrowwood -- 955 3,406 -- 202 955 3,608 4,563
Aspen -- 560 2,104 -- 244 560 2,348 2,908
Birchwood -- 201 911 -- (4) 201 907 1,108
Cedar East -- 563 2,498 -- 238 563 2,736 3,299
Cedar West -- 563 2,487 -- 380 563 2,867 3,430
Colony Corporate Center -- 613 3,296 -- 442 613 3,738 4,351
Concourse -- 986 12,069 -- 465 986 12,534 13,520
Cape Fear -- 131 -- -- 2,586 131 2,586 2,717
Creekstone Crossing -- 728 3,891 -- 50 728 3,941 4,669
Cotton Building -- 460 1,844 -- 113 460 1,957 2,417
Catawba -- 125 -- -- 1,897 125 1,897 2,022
Cottonwood -- 609 3,253 -- 8 609 3,261 3,870
Cypress -- 567 1,747 -- 104 567 1,851 2,418
Dogwood -- 766 2,790 -- (4) 766 2,786 3,552
EPA Annex/ -- 2,601 10,920 -- 91 2,601 11,011 13,612
Administration
Expressway One Warehouse -- 242 -- 4 1,854 246 1,854 2,100
Global Software -- 465 5,358 -- 2,127 465 7,485 7,950
Hawthorn -- 904 3,782 -- 73 904 3,855 4,759
Holiday Inn -- 867 2,748 -- 123 867 2,871 3,738
Holly -- 300 1,170 -- 18 300 1,188 1,488
Healthsource -- 1,294 10,593 10 1,609 1,304 12,202 13,506
Highwoods Tower -- 203 16,948 -- 478 203 17,426 17,629
Ironwood -- 319 1,276 -- 215 319 1,491 1,810
Kaiser -- 133 3,625 -- 28 133 3,653 3,786
Laurel -- 884 2,537 -- 13 884 2,550 3,434
Lake Plaza East -- 856 4,893 -- 644 856 5,537 6,393
Leatherwood -- 213 851 -- 243 213 1,094 1,307
MSA -- 717 3,418 -- 1,297 717 4,715 5,432
North Park - Building One -- 405 -- -- 3,273 405 3,273 3,678
Phase I 1,988 768 4,353 -- 43 768 4,396 5,164
W Building 3,789 1,163 6,592 -- 279 1,163 6,871 8,034
Pamlico -- 269 -- 20 10,868 289 10,868 11,157
Phoenix -- 394 2,019 -- 50 394 2,069 2,463
Rexwoods Center (4) 775 -- 103 3,686 878 3,686 4,564
Rexwoods II -- 355 -- 7 1,823 362 1,823 2,185
Rexwoods III -- 886 -- 34 2,858 920 2,858 3,778
Rexwoods IV -- 586 -- -- 3,616 586 3,616 4,202
Riverbirch -- 448 -- 21 4,231 469 4,231 4,700
Situs I -- 693 2,917 -- 1,473 693 4,390 5,083
Six Forks Center I -- 666 2,688 -- 262 666 2,950 3,616
Six Forks Center II -- 1,086 4,370 -- 336 1,086 4,706 5,792
<CAPTION>
Life on
Which
Accumulated Date of Depreciation
Description Depreciation Construction is Computed
- ----------------------------- -------------- -------------- -------------
<S> <C> <C> <C>
Signature Plaza 164 1986 5-40 yrs.
Skyline Center 15 1985 5-40 yrs.
Southwest Corporate Center 185 1984 5-40 yrs.
Blue Ridge II 405 1988 5-40 yrs.
2500 Blue Ridge 441 1982 5-40 yrs.
Qualex 216 1985 5-40 yrs.
Fairfield II 250 1989 5-40 yrs.
3600 Glenwood Avenue 218 1986 5-40 yrs.
ONCC - 3645 Trust Drive 97 1984 5-40 yrs.
4020 Roxboro 168 1989 5-40 yrs.
4101 Roxboro 269 1984 5-40 yrs.
Fairfield I 206 1987 5-40 yrs.
4201 Building 1,499 1991 5-40 yrs.
4301 Building 554 1989 5-40 yrs.
4401 Building 2,132 1987 5-40 yrs.
4501 Building 591 1985 5-40 yrs.
4800 North Park 1,618 1985 5-40 yrs.
4900 North Park 210 1984 5-40 yrs.
5000 North Park 640 1980 5-40 yrs.
5200 Green's Dairy Road 36 1984 5-40 yrs.
5220 Green's Dairy Road 72 1984 5-40 yrs.
5301 Departure Drive 165 1984 5-40 yrs.
4000 Aerial Center 56 1992 5-40 yrs.
Amica 191 1983 5-40 yrs.
Arrowwood 389 1979 5-40 yrs.
Aspen 234 1980 5-40 yrs.
Birchwood 100 1983 5-40 yrs.
Cedar East 287 1981 5-40 yrs.
Cedar West 319 1981 5-40 yrs.
Colony Corporate Center 329 1985 5-40 yrs.
Concourse 1,178 1986 5-40 yrs.
Cape Fear 1,262 1980 5-40 yrs.
Creekstone Crossing 263 1990 5-40 yrs.
Cotton Building 99 1972 5-40 yrs.
Catawba 1,020 1980 5-40 yrs.
Cottonwood 296 1983 5-40 yrs.
Cypress 208 1980 5-40 yrs.
Dogwood 248 1983 5-40 yrs.
EPA Annex/ 796 1966 5-40 yrs.
Administration
Expressway One Warehouse 343 1990 5-40 yrs.
Global Software 557 1996 5-40 yrs.
Hawthorn 1,701 1987 5-40 yrs.
Holiday Inn 259 1984 5-40 yrs.
Holly 121 1984 5-40 yrs.
Healthsource 493 1996 5-40 yrs.
Highwoods Tower 2,986 1991 5-40 yrs.
Ironwood 185 1978 5-40 yrs.
Kaiser 1,175 1988 5-40 yrs.
Laurel 227 1982 5-40 yrs.
Lake Plaza East 560 1984 5-40 yrs.
Leatherwood 127 1979 5-40 yrs.
MSA 220 1996 5-40 yrs.
North Park - Building One 63 1997 5-40 yrs.
Phase I 146 1981 5-40 yrs.
W Building 220 1983 5-40 yrs.
Pamlico 2,057 1980 5-40 yrs.
Phoenix 191 1990 5-40 yrs.
Rexwoods Center 836 1990 5-40 yrs.
Rexwoods II 191 1993 5-40 yrs.
Rexwoods III 473 1992 5-40 yrs.
Rexwoods IV 417 1994 5-40 yrs.
Riverbirch 1,050 1987 5-40 yrs.
Situs I 274 1996 5-40 yrs.
Six Forks Center I 162 1982 5-40 yrs.
Six Forks Center II 269 1983 5-40 yrs.
</TABLE>
F-31
<PAGE>
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent Gross Amount at
Initial Cost to Acquisition Which Carried at Close of Period
Building & Building & Building &
Description Encumbrance Land Improvements Land Improvements Land Improvements Total (16)
- ----------------------------- -------------- -------- -------------- ------ -------------- -------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Six Forks Center III -- 862 4,444 -- 93 862 4,537 5,399
Smoketree Tower -- 2,353 11,922 -- 1,959 2,353 13,881 16,234
South Square I (4) 606 3,785 -- 415 606 4,200 4,806
South Square II -- 525 4,742 -- 159 525 4,901 5,426
Sycamore -- 255 -- -- 6,057 255 6,057 6,312
Triangle Business Center - (4) 377 4,004 -- 660 377 4,664 5,041
Building 2A
Triangle Business Center - (4) 118 1,225 -- 192 118 1,417 1,535
Building 2B
Triangle Business Center - (4) 409 5,349 -- 571 409 5,920 6,329
Building 3
Triangle Business Center - (4) 414 6,301 -- 243 414 6,544 6,958
Building 7
Willow Oak -- 458 4,685 -- 1,769 458 6,454 6,912
Highwoods Airport Center -- 708 4,374 -- 1,140 708 5,514 6,222
East Cary Street Building -- 171 685 -- 48 171 733 904
DEQ Office -- 1,324 5,305 -- 154 1,324 5,459 6,783
DEQ Tech Center -- 541 2,166 -- 100 541 2,266 2,807
Grove Park I -- 349 2,685 -- 86 349 2,771 3,120
Highwoods One -- 1,846 8,613 -- 1,935 1,846 10,548 12,394
Highwoods Two -- 785 5,170 -- 756 785 5,926 6,711
Liberty Mutual Building 3,431 1,205 4,819 -- 111 1,205 4,930 6,135
Markel American (5) 585 2,347 -- 114 585 2,461 3,046
Aetna -- 2,163 8,659 -- 140 2,163 8,799 10,962
Proctor-Silex (5) 1,086 4,344 -- 56 1,086 4,400 5,486
One Shockoe Plaza -- -- -- -- 19,232 -- 19,232 19,232
Westshore I -- 358 1,431 -- 23 358 1,454 1,812
Westshore II -- 545 2,181 -- 30 545 2,211 2,756
West Shore III -- 961 3,601 -- 592 961 4,193 5,154
Innsbrook Tech I -- 264 1,058 -- 7 264 1,065 1,329
Virginia Center -- 1,438 5,858 -- 257 1,438 6,115 7,553
Vantage Place II -- 203 811 -- 79 203 890 1,093
Vantage Place IV -- 233 931 -- 30 233 961 1,194
Vantage Place I -- 235 940 -- 31 235 971 1,206
Vantage Place III -- 218 873 -- 183 218 1,056 1,274
Vantage Point -- 1,089 4,354 -- 170 1,089 4,524 5,613
2828 Coral Way Building -- 1,100 4,303 -- 6 1,100 4,309 5,409
Atrium at Coral Gables -- 3,000 16,528 -- 29 3,000 16,557 19,557
Atrium West 4,242 1,300 5,598 -- -- 1,300 5,598 6,898
Avion Building -- 800 4,357 -- -- 800 4,357 5,157
Centrum Plaza 2,861 1,000 3,574 -- -- 1,000 3,574 4,574
Comeau Building -- 460 3,719 -- -- 460 3,719 4,179
Corporate Square -- 1,750 3,402 -- 22 1,750 3,424 5,174
Dadeland Office Complex 6,579 3,700 18,571 -- 51 3,700 18,622 22,322
Desigh Center Plaza -- 1,000 4,040 -- 3 1,000 4,043 5,043
Doral Financial Plaza -- 3,423 13,692 -- -- 3,423 13,692 17,115
1800 Eller Drive -- -- 9,724 -- 71 -- 9,795 9,795
Emerald Hills Plaza I -- 1,450 5,861 -- 13 1,450 5,874 7,324
Emerald Hills Plaza II -- 1,450 7,095 -- -- 1,450 7,095 8,545
Gulf Atlantic Center -- -- 11,237 -- -- -- 11,237 11,237
Palm Beach Gardens Office -- 1,000 4,554 -- 12 1,000 4,566 5,566
Park
Pine Island Commons 3,089 1,750 4,216 -- 6 1,750 4,222 5,972
Venture Corporate -- 1,867 7,532 -- 44 1,867 7,576 9,443
Center I
Venture Corporate -- 1,867 8,906 -- 1 1,867 8,907 10,774
Center II
Venture Corporate -- 1,867 8,838 -- -- 1,867 8,838 10,705
Center III
5400 Gray Street -- 350 295 -- -- 350 295 645
Atrium -- 1,639 9,286 -- 61 1,639 9,347 10,986
Benjamin Center #7 -- 296 1,678 -- 41 296 1,719 2,015
Benjamin Center #9 -- 300 1,699 -- 1 300 1,700 2,000
Crossroads Office Center -- 561 3,375 -- 27 561 3,402 3,963
Cypress West 2,139 615 5,043 -- 215 615 5,258 5,873
Day Care Center -- 61 347 -- 24 61 371 432
Expo Building -- 171 969 -- 21 171 990 1,161
<CAPTION>
Life on
Which
Accumulated Date of Depreciation
Description Depreciation Construction is Computed
- ----------------------------- -------------- -------------- -------------
<S> <C> <C> <C>
Six Forks Center III 386 1987 5-40 yrs.
Smoketree Tower 1,373 1984 5-40 yrs.
South Square I 407 1988 5-40 yrs.
South Square II 448 1989 5-40 yrs.
Sycamore 82 1997 5-40 yrs.
Triangle Business Center - 609 1984 5-40 yrs.
Building 2A
Triangle Business Center - 144 1984 5-40 yrs.
Building 2B
Triangle Business Center - 785 1988 5-40 yrs.
Building 3
Triangle Business Center - 593 1988 5-40 yrs.
Building 7
Willow Oak 803 1995 5-40 yrs.
Highwoods Airport Center 83 1997 5-40 yrs.
East Cary Street Building 20 1987 5-40 yrs.
DEQ Office 296 1991 5-40 yrs.
DEQ Tech Center 123 1991 5-40 yrs.
Grove Park I 16 1997 5-40 yrs.
Highwoods One 511 1996 5-40 yrs.
Highwoods Two 48 1997 5-40 yrs.
Liberty Mutual Building 129 1990 5-40 yrs.
Markel American 188 1988 5-40 yrs.
Aetna 343 1989 5-40 yrs.
Proctor-Silex 270 1986 5-40 yrs.
One Shockoe Plaza 508 1996 5-40 yrs.
Westshore I 61 1995 5-40 yrs.
Westshore II 86 1995 5-40 yrs.
West Shore III 35 1997 5-40 yrs.
Innsbrook Tech I 65 1991 5-40 yrs.
Virginia Center 509 1985 5-40 yrs.
Vantage Place II 69 1987 5-40 yrs.
Vantage Place IV 60 1988 5-40 yrs.
Vantage Place I 62 1987 5-40 yrs.
Vantage Place III 65 1988 5-40 yrs.
Vantage Point 294 1990 5-40 yrs.
2828 Coral Way Building 23 1985 5-40 yrs.
Atrium at Coral Gables 87 1984 5-40 yrs.
Atrium West 29 1983 5-40 yrs.
Avion Building 14 1985 5-40 yrs.
Centrum Plaza 19 1988 5-40 yrs.
Comeau Building 20 1926 5-40 yrs.
Corporate Square 18 1981 5-40 yrs.
Dadeland Office Complex 98 1972 5-40 yrs.
Desigh Center Plaza 21 1982 5-40 yrs.
Doral Financial Plaza 14 1987 5-40 yrs.
1800 Eller Drive 51 1983 5-40 yrs.
Emerald Hills Plaza I 31 1979 5-40 yrs.
Emerald Hills Plaza II 37 1979 5-40 yrs.
Gulf Atlantic Center 12 1986 5-40 yrs.
Palm Beach Gardens Office 24 1984 5-40 yrs.
Park
Pine Island Commons 22 1985 5-40 yrs.
Venture Corporate 41 1982 5-40 yrs.
Center I
Venture Corporate 47 1982 5-40 yrs.
Center II
Venture Corporate 46 1982 5-40 yrs.
Center III
5400 Gray Street 2 1973 5-40 yrs.
Atrium 309 1989 5-40 yrs.
Benjamin Center #7 70 1991 5-40 yrs.
Benjamin Center #9 56 1989 5-40 yrs.
Crossroads Office Center 18 1981 5-40 yrs.
Cypress West 27 1985 5-40 yrs.
Day Care Center 12 1986 5-40 yrs.
Expo Building 32 1981 5-40 yrs.
</TABLE>
F-32
<PAGE>
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent
Initial Cost to Acquisition
Building & Building &
Description Encumbrance Land Improvements Land Improvements
- ------------------------------- -------------- -------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
Feathersound II 2,319 800 7,362 -- 168
Fireman's Fund Building -- 500 4,148 -- 33
Grand Plaza (Office) -- 1,100 7,752 -- 29
Grand Plaza (Retail) -- 840 10,754 -- --
Horizon (2) -- 6,174 -- --
Lakeside (2) -- 7,272 -- 5
Lakepoint (2) 2,100 31,390 -- 34
Lakeside Technology Center -- 1,325 8,164 -- 32
Mariner Square 2,508 650 2,855 -- --
Parkside (2) -- 9,285 -- 27
Pavillion (2) -- 16,183 -- --
Progressive Insurance -- 1,366 7,742 -- 1,370
Registry I -- 744 4,216 -- 97
Registry II -- 908 5,147 -- 166
Registry Square -- 344 1,951 -- --
Sabal Business Center I -- 375 2,127 -- --
Sabal Business Center II 1,235 342 1,935 -- --
Sabal Business Center III 852 290 1,642 -- 16
Sabal Business Center IV 2,107 819 4,638 -- --
Sabal Business Center V 2,532 1,026 5,813 -- 3
Sabal Business Center VI 5,919 1,609 9,116 -- 38
Sabal Business 4,815 1,519 8,605 -- 32
Center VII
Sabal Lake Building -- 572 3,241 -- 142
Sabal Park Plaza -- 611 3,460 -- 6
Sabal Tech Center -- 548 3,107 -- --
Spectrum (2) 1,450 14,315 -- --
Sunrise Office Center -- 422 3,513 -- --
Telecom Technology Center -- 1,250 11,336 -- 172
Tower Place -- 3,194 18,098 -- 104
Zurn Building -- 795 4,537 -- 29
Blair Stone Building -- 1,550 33,262 -- --
Stratford -- 2,777 11,459 -- 105
Chesapeake (4) 1,236 4,944 -- 8
Forsyth I 1,963 326 1,850 -- 450
370 Knollwood (3) 1,819 7,451 -- 459
380 Knollwood (3) 2,977 11,912 -- 687
3288 Robinhood -- 290 1,159 -- 85
101 S. Stratford-First Union -- 1,205 6,826 -- --
Consolidated Center I -- 625 2,130 -- --
Consolidated Center II -- 625 4,380 -- --
Consolidated Center III -- 680 3,525 -- --
Consolidated Center IV -- 376 1,629 -- --
Champion-Madison -- 1,725 6,280 -- --
Park II
USAIR Buildings -- 2,625 14,889 -- --
UCC Building 03 -- 429 1,771 -- 102
UCC Building 04 -- 514 2,058 -- 150
UCC SR-1 -- 276 1,155 -- 55
UCC SR-2 01/02 -- 215 859 -- 113
UCC SR-3 -- 167 668 -- 19
UCC W-1 -- 203 812 -- --
UCC W-2 -- 196 786 -- 8
BMF Warehouse (1) 795 3,181 -- --
LUWA Bahnson Building -- 346 1,384 -- 1
WP-3 & 4 (1) 120 480 -- 2
WP-11 (1) 393 1,570 -- 57
WP-12 (1) 382 1,531 -- 34
WP-13 (1) 297 1,192 -- 32
Fairchild Building -- 640 2,577 -- --
WP-5 -- 178 590 -- 265
One Point Royal -- -- 1 -- --
EKA Chemicals -- -- 1 -- --
Glenlakes -- -- -- 2,908 --
Northern Telecom -- -- (2) -- --
Newpoint Place III -- -- -- 628 --
<CAPTION>
Gross Amount at
Which Carried at Close of Period
Life on
Which
Building & Accumulated Date of Depreciation
Description Land Improvements Total (16) Depreciation Construction is Computed
- ------------------------------- -------- -------------- ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Feathersound II 800 7,530 8,330 39 1986 5-40 yrs.
Fireman's Fund Building 500 4,181 4,681 22 1982 5-40 yrs.
Grand Plaza (Office) 1,100 7,781 8,881 41 1985 5-40 yrs.
Grand Plaza (Retail) 840 10,754 11,594 57 N/A 5-40 yrs.
Horizon -- 6,174 6,174 32 1980 5-40 yrs.
Lakeside -- 7,277 7,277 38 1978 5-40 yrs.
Lakepoint 2,100 31,424 33,524 165 1986 5-40 yrs.
Lakeside Technology Center 1,325 8,196 9,521 43 1984 5-40 yrs.
Mariner Square 650 2,855 3,505 15 1973 5-40 yrs.
Parkside -- 9,312 9,312 49 1979 5-40 yrs.
Pavillion -- 16,183 16,183 85 1982 5-40 yrs.
Progressive Insurance 1,366 9,112 10,478 255 1988 5-40 yrs.
Registry I 744 4,313 5,057 149 1985 5-40 yrs.
Registry II 908 5,313 6,221 184 1987 5-40 yrs.
Registry Square 344 1,951 2,295 64 1988 5-40 yrs.
Sabal Business Center I 375 2,127 2,502 70 1982 5-40 yrs.
Sabal Business Center II 342 1,935 2,277 64 1984 5-40 yrs.
Sabal Business Center III 290 1,658 1,948 55 1984 5-40 yrs.
Sabal Business Center IV 819 4,638 5,457 153 1984 5-40 yrs.
Sabal Business Center V 1,026 5,816 6,842 193 1988 5-40 yrs.
Sabal Business Center VI 1,609 9,154 10,763 301 1988 5-40 yrs.
Sabal Business 1,519 8,637 10,156 284 1990 5-40 yrs.
Center VII
Sabal Lake Building 572 3,383 3,955 114 1986 5-40 yrs.
Sabal Park Plaza 611 3,466 4,077 114 1987 5-40 yrs.
Sabal Tech Center 548 3,107 3,655 102 1989 5-40 yrs.
Spectrum 1,450 14,315 15,765 75 1984 5-40 yrs.
Sunrise Office Center 422 3,513 3,935 18 1974 5-40 yrs.
Telecom Technology Center 1,250 11,508 12,758 60 1991 5-40 yrs.
Tower Place 3,194 18,202 21,396 599 1988 5-40 yrs.
Zurn Building 795 4,566 5,361 24 1983 5-40 yrs.
Blair Stone Building 1,550 33,262 34,812 175 1994 5-40 yrs.
Stratford 2,777 11,564 14,341 841 1991 5-40 yrs.
Chesapeake 1,236 4,952 6,188 356 1993 5-40 yrs.
Forsyth I 326 2,300 2,626 108 1985 5-40 yrs.
370 Knollwood 1,819 7,910 9,729 639 1994 5-40 yrs.
380 Knollwood 2,977 12,599 15,576 998 1990 5-40 yrs.
3288 Robinhood 290 1,244 1,534 110 1989 5-40 yrs.
101 S. Stratford-First Union 1,205 6,826 8,031 22 1986 5-40 yrs.
Consolidated Center I 625 2,130 2,755 7 1983 5-40 yrs.
Consolidated Center II 625 4,380 5,005 14 1983 5-40 yrs.
Consolidated Center III 680 3,525 4,205 11 1989 5-40 yrs.
Consolidated Center IV 376 1,629 2,005 5 1989 5-40 yrs.
Champion-Madison 1,725 6,280 8,005 20 1993 5-40 yrs.
Park II
USAIR Buildings 2,625 14,889 17,514 47 1970-1987 5-40 yrs.
UCC Building 03 429 1,873 2,302 136 1985 5-40 yrs.
UCC Building 04 514 2,208 2,722 170 1986 5-40 yrs.
UCC SR-1 276 1,210 1,486 95 1983 5-40 yrs.
UCC SR-2 01/02 215 972 1,187 89 1983 5-40 yrs.
UCC SR-3 167 687 854 49 1984 5-40 yrs.
UCC W-1 203 812 1,015 58 1983 5-40 yrs.
UCC W-2 196 794 990 57 1983 5-40 yrs.
BMF Warehouse 795 3,181 3,976 229 1986 5-40 yrs.
LUWA Bahnson Building 346 1,385 1,731 100 1990 5-40 yrs.
WP-3 & 4 120 482 602 35 1988 5-40 yrs.
WP-11 393 1,627 2,020 121 1988 5-40 yrs.
WP-12 382 1,565 1,947 112 1988 5-40 yrs.
WP-13 297 1,224 1,521 87 1988 5-40 yrs.
Fairchild Building 640 2,577 3,217 185 1990 5-40 yrs.
WP-5 178 855 1,033 117 1995 5-40 yrs.
One Point Royal -- 1 1 -- N/A N/A
EKA Chemicals -- 1 1 -- N/A N/A
Glenlakes 2,908 -- 2,908 -- N/A N/A
Northern Telecom -- (2) (2) -- N/A N/A
Newpoint Place III 628 -- 628 -- N/A N/A
</TABLE>
F-33
<PAGE>
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent
Initial Cost to Acquisition
Building & Building &
Description Encumbrance Land Improvements Land Improvements
- ---------------------------------- ------------- ----------- -------------- ------------------- --------------
<S> <C> <C> <C> <C> <C>
Newpoint Place -- -- -- 1,550 --
Atlanta Tradeport -- -- -- 8,052 --
NationsFord Business Park -- 1,206 -- 5 --
Center Point VI -- -- -- 265 --
Airport Center Drive -- 1,600 -- (565)(10) --
Airpark East Expansion -- -- -- 1,280 --
Airpark East Land -- 1,932 -- (616)(8) --
Airpark North Land -- 804 -- -- --
385 Building 1 -- 1,413 1,401 -- 81
385 Land -- -- -- 1,800 --
Patewood VI -- -- -- -- 22
Belfort Park Land Annex -- -- -- 2,600 --
Southwind Land Annex -- -- -- 679 --
Highwoods Plaza at -- -- -- -- 29
International Place
International Place -- -- -- 1,566 --
Phase III
Ayers Land -- -- -- 1,164 --
Cool Springs - -- -- -- 3,089 --
Building II
Grassmere -- -- -- -- --
Ridge Development -- 1,960 -- (1,531)(11) --
Grassmere/Thousdale Land -- 760 -- -- --
Westwood South -- -- -- 2,106 --
Maitland Building B -- -- -- 1,115 --
Maitland Building C -- -- -- 743 --
Pine Street - Building II -- -- -- 2,000 --
Pine Street Parking -- -- -- 4,000 --
Capital Center -- 851 -- (629)(9) --
Clintrials -- -- -- -- 209
Highwoods Health Club -- 142 564 -- (26)
Highwoods Office Center -- 1,555 49 (839)(7) --
North
Highwoods Office Center -- 2,518 -- -- --
South
Martin Land -- -- -- 3,409 --
Creekstone Park -- 1,255 -- (1,106)(6) --
North Park - Wake Forest - Land -- 962 -- 132 --
Research Commons -- 1,349 -- -- --
Rexwoods V -- -- -- -- 3
Highwoods Distribution Center -- -- -- 3,270 --
East Shore One -- -- -- 114 --
East Shore Two -- -- -- 907 --
End of Cox Road Land -- 966 -- -- --
Sadler & Cox Land -- -- -- 296 --
Development Opportunity -- 26 -- -- --
Strip
Shockoe Alleghany Warehouse -- -- -- -- 1
Virginia Mutual -- -- -- 900 --
Tampa Fairgrounds -- 1,412 5,647 -- 42
Fireman's fund Land -- -- -- 1,000 --
Tampa Bay Land -- -- -- 2,000 --
Sabal Pavilion - Phase II -- -- -- 661 --
Sabal Industrial -- -- -- 301 --
Park Land
West Point -- 1,759 -- (518)(12) --
------ ----- ------ ---
Business Park
$362,584 $2,040,143 $ 43,493 $143,311
======== ========== =========== ========
<CAPTION>
Gross Amount at
Which Carried at Close of Period
Life on
Which
Building & Accumulated Date of Depreciation
Description Land Improvements Total (16) Depreciation Construction is Computed
- ---------------------------------- ----------- -------------- ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Newpoint Place 1,550 -- 1,550 -- N/A N/A
Atlanta Tradeport 8,052 -- 8,052 -- N/A N/A
NationsFord Business Park 1,211 -- 1,211 -- N/A N/A
Center Point VI 265 -- 265 -- N/A N/A
Airport Center Drive 1,035 -- 1,035 -- N/A N/A
Airpark East Expansion 1,280 -- 1,280 -- N/A N/A
Airpark East Land 1,316 -- 1,316 -- N/A N/A
Airpark North Land 804 -- 804 -- N/A N/A
385 Building 1 1,413 1,482 2,895 13 N/A 5-40 yrs.
385 Land 1,800 -- 1,800 -- N/A N/A
Patewood VI -- 22 22 -- N/A N/A
Belfort Park Land Annex 2,600 -- 2,600 -- N/A N/A
Southwind Land Annex 679 -- 679 -- N/A N/A
Highwoods Plaza at -- 29 29 -- N/A N/A
International Place
International Place 1,566 -- 1,566 -- N/A N/A
Phase III
Ayers Land 1,164 -- 1,164 -- N/A N/A
Cool Springs - 3,089 -- 3,089 -- N/A N/A
Building II
Grassmere 1,779 -- 1,779 -- N/A N/A
Ridge Development 429 -- 429 -- N/A N/A
Grassmere/Thousdale Land 760 -- 760 -- N/A N/A
Westwood South 2,106 -- 2,106 -- N/A N/A
Maitland Building B 1,115 -- 1,115 -- N/A N/A
Maitland Building C 743 -- 743 -- N/A N/A
Pine Street - Building II 2,000 -- 2,000 -- N/A N/A
Pine Street Parking 4,000 -- 4,000 -- N/A N/A
Capital Center 222 -- 222 -- N/A N/A
Clintrials -- 209 209 -- N/A N/A
Highwoods Health Club 142 538 680 14 N/A 5-40 yrs.
Highwoods Office Center 716 49 765 13 N/A 5-40 yrs.
North
Highwoods Office Center 2,518 -- 2,518 -- N/A N/A
South
Martin Land 3,409 -- 3,409 -- N/A N/A
Creekstone Park 149 -- 149 -- N/A N/A
North Park - Wake Forest - Land 1,094 -- 1,094 -- N/A N/A
Research Commons 1,349 -- 1,349 -- N/A N/A
Rexwoods V -- 3 3 -- N/A N/A
Highwoods Distribution Center 3,270 -- 3,270 -- N/A N/A
East Shore One 114 -- 114 -- N/A N/A
East Shore Two 907 -- 907 -- N/A N/A
End of Cox Road Land 966 -- 966 -- N/A N/A
Sadler & Cox Land 296 -- 296 -- N/A N/A
Development Opportunity 26 -- 26 -- N/A N/A
Strip
Shockoe Alleghany Warehouse -- 1 1 -- N/A N/A
Virginia Mutual 900 -- 900 -- N/A N/A
Tampa Fairgrounds 1,412 5,689 7,101 6 N/A N/A
Fireman's fund Land 1,000 -- 1,000 -- N/A N/A
Tampa Bay Land 2,000 -- 2,000 -- N/A N/A
Sabal Pavilion - Phase II 661 -- 661 -- N/A N/A
Sabal Industrial 301 -- 301 -- N/A N/A
Park Land
West Point 1,241 -- 1,241 -- N/A N/A
----- ----- ------- --
Business Park
$406,077 $2,183,454 $2,589,531 85,602
======== ========== ========== ======
</TABLE>
- --------
(1) These assets are pledged as collateral for a $5,668,000 first mortgage
loan.
(2) These assets are pledged as collateral for a $43,465,000 first mortgage
loan.
(3) These assets are pledged as collateral for an $39,630,000 first mortgage
loan.
(4) These assets are pledged as collateral for a $30,951,000 first mortgage
loan.
F-34
<PAGE>
(5) These assets are pledged as collateral for a $4,850,000 first mortgage
loan.
(6) Reflects land transferred to the Willow Oak property, Highwoods Centre
property, Sycamore property.
(7) Reflects land transferred to the Global property, Red Oak property.
(8) Reflects land transferred to Hewlett Packard property, Inacom property,
East Building D property, East Building 6 property.
(9) Reflects land transferred to Situs II property.
(10) Reflects land transferred to Airport Center I property.
(11) Reflects land transferred to Lakeview Ridge II property, Lakeview Ridge 3
property.
(12) Reflects sale of land.
(13) Patewood III and IV are considered one property for encumbrance purposes.
(14) The aggregate cost for Federal Income Tax purposes was approximately
$1,828,000,000.
F-35
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP, INC.
NOTE TO SCHEDULE III
(in thousands)
As of December 31, 1997, 1996 and 1995
A summary of activity for real estate and accumulated depreciation is as
follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------
1997 1996 1995
-------------- -------------- -----------
<S> <C> <C> <C>
Real Estate:
Balance at beginning of year ........................ $1,376,638 $ 598,536 $218,699
Additions:
Acquisitions, development and improvements ......... 1,216,247 779,256 381,936
Cost of real estate sold ............................ (3,356) (1,154) (2,099)
---------- ---------- --------
Balance at close of year (a) .......................... $2,688,257 $1,376,638 $598,536
========== ========== ========
Accumulated Depreciation:
Balance at beginning of year ........................ $ 42,004 $ 21,452 $ 11,003
Depreciation expense ................................ 43,732 20,562 10,483
Real estate sold .................................... (134) (10) (34)
---------- ---------- --------
Balance at close of year (b) ........................ $ 85,602 $ 42,004 $ 21,452
========== ========== ========
</TABLE>
- ----------
(a) Reconciliation of total cost to balance sheet caption at December 31, 1997,
1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -----------
<S> <C> <C> <C>
Total per schedule III ...................... $2,589,531 $1,376,638 $598,536
Construction in progress exclusive
of land included in Schedule III .......... 95,387 28,841 15,508
Furniture, fixtures and equipment ........... 3,339 2,096 1,288
---------- ---------- --------
Total real estate assets at cost ............ $2,688,257 $1,407,575 $615,332
========== ========== ========
</TABLE>
(b) Reconciliation of total accumulated depreciation to balance sheet caption
at December 31, 1997, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Total per schedule III ............................................ $85,602 $42,004 $21,452
Accumulated depreciation -- furniture, fixtures and equipment...... 1,444 965 814
------- ------- -------
Total accumulated depreciation .................................... $87,046 $42,969 $22,266
======= ======= =======
</TABLE>
F-36
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
HIGHWOODS PROPERTIES, INC.,
JACKSON ACQUISITION CORP.,
AND
J.C. NICHOLS COMPANY
Dated as of December 22, 1997
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of December 22, 1997, by and among HIGHWOODS PROPERTIES, INC.
("Highwoods"), a Maryland corporation; JACKSON ACQUISITION CORP. ("Sub"), a
Maryland corporation; and J.C. Nichols Company ("JCN"), a Missouri corporation.
PREAMBLE
The respective Boards of Directors of JCN, Sub and Highwoods are of the
opinion that the transactions described herein are in the best interests of the
parties to this Agreement and their respective shareholders. This Agreement
provides for the acquisition of JCN by Highwoods pursuant to the merger of JCN
with and into Sub. At the effective time of such merger, the outstanding shares
of the capital stock of JCN shall be converted into the right to receive shares
of the common stock of Highwoods (except as provided herein). The transactions
described in this Agreement are subject to the approvals of the shareholders of
JCN and the satisfaction of certain other conditions described in this
Agreement. It is the intention of the parties to this Agreement that the Merger
for federal income tax purposes shall qualify as a "reorganization" within the
meaning of Section 368(a)(1)(A) of the Internal Revenue Code.
Certain terms used in this Agreement are defined in Section 11.1 of this
Agreement.
NOW, THEREFORE, in consideration of the above and the mutual warranties,
representations, covenants, and agreements set forth herein, the parties agree
as follows:
ARTICLE 1
TRANSACTIONS AND TERMS OF MERGER
1.1 Merger. Subject to the terms and conditions of this Agreement, at the
Effective Time, JCN shall be merged with and into Sub in accordance with the
provisions of Section 351.440 of the GBCL and with the effect provided in
Section 351.450 of the GBCL and in accordance with Section 3-105 of the MGCL and
with the effect provided in Section 3-114 of the MGCL (the "Merger"). Sub shall
be the Surviving Corporation resulting from the Merger and shall remain a wholly
owned Subsidiary of Highwoods and shall continue to be governed by the Laws of
the State of Maryland. The Merger shall be consummated pursuant to the terms of
this Agreement, which has been approved and adopted by the respective Boards of
Directors of JCN, Sub and Highwoods and by Highwoods, as the sole shareholder of
Sub.
1.2 Time and Place of Closing. The closing of the transactions
contemplated hereby (the "Closing") will take place at 9:00 A.M. on the date
that the Effective Time occurs (or the immediately preceding day if the
Effective Time is earlier than 9:00 A.M.), or at such other time as the Parties,
acting through their authorized officers, may mutually agree. The Closing shall
be held at such location as may be mutually agreed upon by the Parties.
1
1.3 Effective Time. The Merger and other transactions contemplated by
this Agreement shall become effective on the later of the date and at the time
the Articles of Merger reflecting the Merger shall become effective with the
Secretary of State of the State of Missouri and the Articles of Merger
reflecting the Merger become effective with the Department of Assessments and
Taxation of the State of Maryland (the "Effective Time"). Subject to the terms
and conditions hereof, unless otherwise mutually agreed upon in writing by the
authorized officers of each Party, the Parties shall use their reasonable
efforts to cause the Effective Time to occur on the second business day
following the last to occur of (i) the effective date (including expiration of
any applicable waiting period) of the last required Consent referred to in
Section 9.1(b) hereof, and (ii) the date on which the shareholders of JCN
approve this Agreement to the extent such approval is required by applicable
Law; provided, however, in the event the Effective Time, as otherwise determined
hereunder, would be any date within 15 business days prior to the last day of a
calendar quarter, the Effective Time shall be the first business day of the next
calendar quarter.
ARTICLE 2
TERMS OF MERGER
2.1 Charter. The Articles of Incorporation of Sub in effect immediately
prior to the Effective Time shall be the Articles of Incorporation of the
Surviving Corporation until duly amended or repealed.
2.2 Bylaws. The Bylaws of Sub in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation until duly
amended or repealed.
2.3 Directors and Officers. The directors of Sub in office immediately
prior to the Effective Time, together with such additional persons as may
thereafter be elected, shall serve as the directors of the Surviving Corporation
from and after the Effective Time in accordance with the Bylaws of the Surviving
Corporation. The officers of Sub in office immediately prior to the Effective
Time, together with such additional persons as may thereafter be elected, shall
serve as the officers of the Surviving Corporation from and after the Effective
Time in accordance with the Bylaws of the Surviving Corporation.
ARTICLE 3
MANNER OF CONVERTING SHARES
3.1 Conversion of Shares. Subject to the provisions of this Article 3, at
the Effective Time, by virtue of the Merger and without any action on the part
of Highwoods, JCN, Sub or the shareholders of any of the foregoing, the shares
of the constituent corporations shall be converted as follows:
(a) Each share of capital stock of Highwoods issued and
outstanding immediately prior to the Effective Time shall remain issued and
outstanding from and after the Effective Time.
2
(b) Each share of Sub Common Stock issued and outstanding
immediately prior to the Effective Time shall remain issued and outstanding from
and after the Effective Time.
(c) Subject to the rights granted in Section 3.2, each share of
JCN Common Stock (including any associated JCN Rights, but excluding shares held
by any JCN Entity or any Highwoods Entity, and excluding shares held by
shareholders who perfect their statutory dissenters' rights as provided in
Section 3.5) issued and outstanding immediately prior to the Effective Time
shall cease to be outstanding and shall be converted into and exchanged for the
right to receive 1.84 shares (the "Exchange Ratio") of Highwoods Common Stock
(the "Per Share Stock Consideration"). Pursuant to the Highwoods Rights
Agreement, each share of Highwoods Common Stock issued in connection with the
Merger upon conversion of JCN Common Stock shall be accompanied by a Highwoods
Right.
3.2 Cash Election. Holders of JCN Common Stock shall be provided with an
opportunity to elect to receive cash consideration in lieu of receiving
Highwoods Common Stock in the Merger, in accordance with the election procedures
set forth below in this Section 3.2. Holders who are to receive cash in lieu of
exchanging their shares of JCN Common Stock for Highwoods Common Stock as
specified below shall receive $65 per share of JCN Common Stock in cash (the
"Per Share Cash Consideration"). The amount determined by multiplying $65 by the
number of Dissenting Shares shall be defined herein as the "Dissenting Share
Amount." The aggregate Per Share Cash Consideration to be paid in the Merger,
plus the Dissenting Share Amount, shall be limited to 40% of the aggregate
consideration paid in exchange for shares of JCN Common Stock and shall be
defined herein as the "Cash Amount." Furthermore, in the event the aggregate Per
Share Stock Consideration to be paid for the JCN Common Stock is in excess of
75% of the aggregate consideration to be paid in exchange for shares of JCN
Common Stock, Highwoods shall have the option to limit the aggregate Per Share
Stock Consideration to as low as 75% of such consideration (such limiting amount
as may be elected by Highwoods shall be referred to as the "Maximum Share
Amount") and to make a corresponding increase in the aggregate Per Share Cash
Consideration. For purposes of calculating the aggregate consideration to be
paid in exchange for shares of JCN Common Stock for purposes of this Section
3.2, the aggregate Per Share Stock Consideration shall be determined by using
the price of Highwoods Common Stock used to calculate the Exchange Ratio in
Section 3.1 hereof.
A form for use by JCN shareholders to elect cash and to state their
intent to retain Highwoods Common Stock to be received pursuant to the Merger
and other appropriate and customary transmittal material (which shall specify
that delivery shall be effected only upon proper delivery of the certificates
theretofore representing JCN Common Stock ("Old Certificates") to an exchange
agent designated by Highwoods (the "Exchange Agent")) in such form as Highwoods
and JCN shall mutually agree ("Election Form") shall be mailed concurrently with
the mailing of the Proxy Statement required by Section 8.1 hereof, or on such
other date as Highwoods and JCN shall mutually agree ("Mailing Date") to each
holder of record of JCN Common Stock on the record date ("Record Date") for the
JCN shareholders entitled to vote at the shareholders' meeting to approve the
Merger as required by Section 8.1 (the "JCN Shareholders Meeting").
3
Each Election Form shall permit a holder (or the beneficial owner through
appropriate and customary documentation and instructions) of JCN Common Stock to
elect to receive cash with respect to all or a portion of such holder's JCN
Common Stock and to state an intent to retain Highwoods Common Stock to be
received pursuant to the Merger.
Any shares of JCN Common Stock with respect to which the holder (or the
beneficial owner, as the case may be) elects to receive cash and does not
dissent shall be referred to herein as the "Cash Election Shares." Any shares of
JCN Common Stock with respect to which the holder (or the beneficial owner, as
the case may be) does not elect to receive cash, states an intention to retain
Highwoods Common Stock to be received pursuant to the Merger and does not
dissent shall be referred to herein as "Stock Retained Shares." Any shares of
JCN Common Stock with respect to which the holder (or the beneficial owner, as
the case may be) does not elect to receive cash, does not state an intention to
retain Highwoods Common Stock to be received pursuant to the Merger and does not
dissent shall be referred to herein as "Stock Non-Retained Shares." Any shares
of JCN Common Stock with respect to which the holder (or the beneficial owner,
as the case may be) shall not have submitted to the Exchange Agent an effective,
properly completed Election Form on or before 5:00 p.m. on the fifth business
day prior to the date of the JCN Shareholders Meeting (or such other time and
date as Highwoods and JCN may mutually agree) (the "Election Deadline") shall be
referred to herein as "No Election Shares."
Any of the elections set forth in the foregoing paragraph shall have been
properly made only if the Exchange Agent shall have actually received a properly
completed Election Form by the Election Deadline. Any Election Form may be
revoked or changed by the person submitting a subsequent Election Form at or
prior to the Election Deadline. In the event an Election Form is revoked prior
to the Election Deadline, the shares of JCN Common Stock represented by such
Election Form shall become No Election Shares. Subject to the terms of this
Agreement and of the Election Form, the Exchange Agent shall have reasonable
discretion to determine whether any election, revocation or change has been
properly or timely made and to disregard immaterial defects in the Election
Forms, and any good faith decisions of the Exchange Agent regarding such matters
shall be binding and conclusive. The Exchange Agent shall promptly notify JCN of
any defect in an Election Form other than an immaterial defect disregarded in
good faith by the Exchange Agent. Subject to the foregoing sentence, neither
Highwoods nor the Exchange Agent shall be under any obligation to notify any
person of any defect in an Election Form.
Within three business days after the Election Deadline, Highwoods shall
cause the Exchange Agent to effect the allocation among the holders of JCN
Common Stock in accordance with the Election Forms, subject to the following:
(i) Cash Elections More Than the Cash Amount. If the amount
of cash that would be issued upon the conversion of the Cash
Election Shares is greater than the amount by which the Cash
Amount exceeds the Dissenting Share Amount (the "Maximum Cash
Election Amount"), then the Exchange Agent shall convert a
sufficient number of Cash Election Shares (other than Dissenting
Shares) into the right to receive
4
the Per Share Stock Consideration, which Cash Election Shares
shall be selected pro rata from among all of the holders thereof,
based upon the aggregate number of Cash Election Shares held by
each of such holders, such that the amount of cash that will be
issued in the Merger to satisfy the non-converted Cash Election
Shares equals as closely as practicable the Maximum Cash Election
Amount.
(ii) Stock Elections More than Maximum Share Amount. If the
value of Highwoods Common Stock that would be issued in the Merger
upon conversion of all shares of JCN Common Stock other than Cash
Election Shares and Dissenting Shares (whose value for purposes of
this determination is presumed to be $65 per share) is greater
than the Maximum Share Amount and Highwoods has elected to
exercise its option to limit the aggregate Per Share Stock
Consideration to an amount equal to the Maximum Share Amount, then
the Exchange Agent shall:
(1) convert a sufficient number of No Election
Shares (other than Dissenting Shares) into the right
to receive the Per Share Cash Consideration, which No
Election Shares shall be selected pro rata from among
all of the holders thereof, based upon the aggregate
number of No Election Shares held by each such
holder, such that the amount of Highwoods Common
Stock to be issued in the Merger equals as close as
practicable the Maximum Share Amount; and
(2) to the extent that such conversion of No
Election Shares does not reduce the value of
Highwoods Common Stock that would be issued in the
Merger to the Maximum Share Amount, convert a
sufficient number of Stock Non-Retained Shares into
the right to receive the Per Share Cash
Consideration, which Stock Non-Retained Shares shall
be selected pro rata from among all of the holders
thereof, based upon the aggregate number of Stock
Non-Retained Shares held by each such holder, such
that the amount of Highwoods Common Stock to be
issued in the Merger equals as close as practicable
the Maximum Share Amount; and
(3) to the extent that such conversions of the
No Election Shares and Stock Non-Retained Shares does
not reduce the value of Highwoods Common Stock that
would be issued in the Merger to the Maximum Share
Amount, convert a sufficient number of Stock Retained
Shares into the right to receive the Per Share Cash
Consideration, which Stock Retained Shares shall be
selected pro rata from among all of the holders
thereof, based upon the aggregate number of Stock
Retained Shares held by each such holder, such that
the amount of Highwoods Common Stock to be issued in
the Merger equals as close as practicable the Maximum
Share Amount.
5
Highwoods shall, at least two business days prior to the date of
the JCN Shareholders Meeting, communicate to JCN the aggregate allocation
of stock and cash, the amount of stock and cash going to each of JCN's
shareholders, and the method in which such amounts were calculated.
3.3 Anti-Dilution Provisions. In the event Highwoods (i) changes the
number of shares of Highwoods Common Stock issued and outstanding prior to the
Effective Time as a result of a stock split, stock dividend, or similar
recapitalization with respect to such stock; (ii) makes any distribution to its
shareholders other than in the ordinary course (such as Highwoods regular
quarterly dividend in an amount generally consistent with past practices,
including typical annual increases); (iii) issues any Highwoods security or
other right to receive any Highwoods security except upon receipt of reasonably
equivalent value or pursuant to any Highwoods (or its Affiliates) stock option
or other benefit plans, and the record date therefor (in the case of a stock
dividend) or the effective date thereof (in the case of a stock split or similar
recapitalization for which a record date is not established) shall be prior to
the Effective Time, the Exchange Ratio shall be proportionately adjusted.
3.4 Shares Held by JCN or Highwoods. Each of the shares of JCN Common
Stock held by any JCN Entity or by any Highwoods Entity shall be canceled and
retired at the Effective Time and no consideration shall be issued in exchange
therefor.
3.5 Dissenting Shareholders. Any holder of shares of JCN Common Stock who
perfects his dissenters' rights in accordance with and as contemplated by
Section 351.455 of the GBCL shall be entitled to receive the value of such
shares in cash as determined pursuant to such provision of Law; provided, that
no such payment shall be made to any dissenting shareholder unless and until
such dissenting shareholder has complied with the applicable provisions of the
GBCL and surrendered to the Surviving Corporation the certificate or
certificates representing the shares for which payment is being made. In the
event that after the Effective Time a dissenting shareholder of JCN fails to
perfect, or effectively withdraws or loses, his right to appraisal and of
payment for his shares, Highwoods shall issue and deliver the consideration to
which such holder of shares of JCN Common Stock would have been entitled under
this Article 3 (without interest) had such shares been No Election Shares upon
surrender by such holder of the certificate or certificates representing shares
of JCN Common Stock held by him. If and to the extent required by applicable
Law, the Surviving Corporation will establish (or cause to be established) an
escrow account with an amount sufficient to satisfy the maximum aggregate
payment that may be required to be paid to dissenting shareholders. Upon
satisfaction of all claims of dissenting shareholders, the remaining escrowed
amount, reduced by payment of the fees and expenses of the escrow agent, will be
returned to the Surviving Corporation. In the event that the Surviving
Corporation is liquidated prior to the fulfillment of all obligations of the
Surviving Corporation under this Section 3.5, such obligations shall be assumed
by Highwoods.
3.6 Fractional Shares. Notwithstanding any other provision of this
Agreement, each holder of shares of JCN Common Stock exchanged pursuant to the
Merger who would otherwise
6
have been entitled to receive a fraction of a share of Highwoods Common Stock
(after taking into account all certificates delivered by such holder) shall
receive, in lieu thereof, cash (without interest) in an amount equal to such
fractional part of a share of Highwoods Common Stock multiplied by the market
value of one share of Highwoods Common Stock at the Effective Time. For purposes
of this Section 3.6, the market value of one share of Highwoods Common Stock at
the Effective Time shall be equal to the price of Highwoods Common Stock used to
calculate the Exchange Ratio in Section 3.1 hereof. No such holder will be
entitled to dividends, voting rights, or any other rights as a shareholder in
respect of any fractional shares.
3.7 Conversion of Stock Options.
(a) At the Effective Time, each option or other Equity Right to
purchase shares of JCN Common Stock pursuant to stock options or stock
appreciation rights ("JCN Options") granted by JCN under the JCN Stock Plans,
which are outstanding at the Effective Time, whether or not exercisable, shall
be converted into and become rights with respect to Highwoods Common Stock, and
Highwoods shall assume each JCN Option, in accordance with the terms of the JCN
Stock Plan and stock option agreement by which it is evidenced, except that from
and after the Effective Time, (i) Highwoods and its Compensation Committee shall
be substituted for JCN and the committee of JCN's Board of Directors (including,
if applicable, the entire Board of Directors of JCN) administering such JCN
Stock Plan, (ii) each JCN Option assumed by Highwoods may be exercised solely
for shares of Highwoods Common Stock (or cash, if so provided under the terms of
such JCN Option), (iii) the number of shares of Highwoods Common Stock subject
to such JCN Option shall be equal to the number of shares of JCN Common Stock
subject to such JCN Option immediately prior to the Effective Time multiplied by
the Exchange Ratio, (iv) the per share exercise price under each such JCN Option
shall be adjusted by dividing the per share exercise price under each such JCN
Option by the Exchange Ratio and rounding up to the nearest cent, (v) each JCN
Option that would have become fully exercisable under a JCN Stock Plan as a
result of a "change in control" will continue to be fully exercisable into
shares of Highwoods Common Stock upon consummation of the Merger, and (vi)
employment by Highwoods of a JCN employee upon consummation of the Merger will
not be deemed a termination of employment by JCN that would limit such
employee's rights to exercise any JCN Option under the provisions hereof.
Notwithstanding the provisions of clause (iii) of the preceding sentence,
Highwoods shall not be obligated to issue any fraction of a share of Highwoods
Common Stock upon exercise of JCN Options and any fraction of a share of
Highwoods Common Stock that otherwise would be subject to a converted JCN Option
shall represent the right to receive a cash payment upon exercise of such
converted JCN Option equal to the product of such fraction and the difference
between the market value of one share of Highwoods Common Stock at the time of
exercise of such Option and the per share exercise price of such Option. For
purposes of this Section 3.7, the market value of one share of Highwoods Common
Stock at the time of exercise of a JCN Option shall be the closing price of such
common stock on the NYSE-Composite Transactions List (as reported by The Wall
Street Journal or, if not reported thereby, any other authoritative source
selected by Highwoods) on the last trading day preceding the date of exercise.
In addition, notwithstanding the provisions of clauses (iii) and (iv) of the
first sentence of this Section 3.7,
7
each JCN Option which is an "incentive stock option" shall be adjusted as
required by Section 424 of the Internal Revenue Code, and the regulations
promulgated thereunder, so as not to constitute a modification, extension or
renewal of the option, within the meaning of Section 424(h) of the Internal
Revenue Code. Each of JCN and Highwoods agrees to take all necessary steps to
effectuate the foregoing provisions of this Section 3.7, including using its
reasonable efforts to obtain from each holder of a JCN Option any reasonable
Consent or Contract that may be deemed reasonably necessary or advisable in
order to effect the transactions contemplated by this Section 3.7. Anything in
this Agreement to the contrary notwithstanding, Highwoods shall have the right,
in its sole discretion, not to deliver the consideration provided in this
Section 3.7 to a former holder of a JCN Option who has not delivered such
Consent or Contract.
(b) As soon as practicable after the Effective Time, Highwoods
shall deliver to the participants in each JCN Stock Plan an appropriate notice
setting forth such participant's rights pursuant thereto and the grants subject
to such JCN Stock Plan shall continue in effect on the same terms and conditions
(subject to the adjustments required by Section 3.7(a) after giving effect to
the Merger), and Highwoods shall comply with the terms of each JCN Stock Plan to
ensure, to the extent required by, and subject to the provisions of, such JCN
Stock Plan, that JCN Options which qualified as incentive stock options prior to
the Effective Time continue to qualify as incentive stock options after the
Effective Time. At or prior to the Effective Time, Highwoods shall take all
corporate action necessary to reserve for issuance sufficient shares of
Highwoods Common Stock for delivery upon exercise of JCN Options assumed by it
in accordance with this Section 3.7. As soon as practicable after the Effective
Time, Highwoods shall file a registration statement on Form S3 or Form S8, as
the case may be (or any successor or other appropriate forms), with respect to
the shares of Highwoods Common Stock subject to such options and shall use its
reasonable efforts to maintain the effectiveness of such registration statements
(and maintain the current status of the prospectus or prospectuses contained
therein) for so long as such options remain outstanding. With respect to those
individuals who subsequent to the Merger will be subject to the reporting
requirements under Section 16(a) of the 1934 Act, where applicable, Highwoods
shall administer the JCN Stock Plan assumed pursuant to this Section 3.7 in a
manner that complies with Rule 16b3 promulgated under the 1934 Act.
(c) All contractual restrictions or limitations on transfer with
respect to JCN Common Stock awarded under the JCN Stock Plan or any other plan,
program, Contract or arrangement of any JCN Entity, to the extent that such
restrictions or limitations shall not have already lapsed (whether as a result
of the Merger or otherwise), and except as otherwise expressly provided in such
plan, program, Contract or arrangement, shall remain in full force and effect
with respect to shares of Highwoods Common Stock into which such restricted
stock is converted pursuant to Section 3.1.
3.8 Extraordinary Dividend. In the event that the consolidated earnings
and profits of JCN (as defined in Section 312 of the Internal Revenue Code)
would otherwise exceed $20,000,000 as of the Effective Time, the directors of
JCN shall take all necessary action to cause the distribution of an
extraordinary dividend to the shareholders of JCN prior to the Effective Date
8
in such amount that as of the Effective Date such consolidated earnings and
profits will be no more than $20,000,000. The amount of earnings and profits
shall be determined by an earnings and profits study to be performed by either
KPMG Peat Marwick or Ernst & Young, L.L.P. in consultation with the other,
including an estimate for the period beginning as of the day following the date
of the latest available JCN Financial Statements and ending on the probable
Effective Time. In making the earnings and profits study, the interest accrued
by the Company on the ESOT (as defined below) debt and the Bowser limited
partnership debt shall be excluded from taxable income. The per share amount of
the extraordinary dividend so distributed, if any, shall reduce the value of the
JCN Common Stock in an equivalent amount, and the Per Share Stock Consideration,
the Per Share Cash Consideration and the Exchange Ratio shall be proportionately
adjusted, as appropriate.
ARTICLE 4
EXCHANGE OF SHARES
4.1 Exchange Procedures.
(a) At or prior to the Effective Time, Highwoods shall deposit, or
shall cause to be deposited, with the Exchange Agent, for the benefit of the
holders of Old Certificates for exchange in accordance with this Article IV
certificates representing the shares of Highwoods Common Stock ("New
Certificates") and an estimated amount of cash (such cash and New Certificates,
together with any dividends or distributions with respect thereto (without any
interest thereon), being hereinafter referred to as the "Exchange Fund") to be
paid pursuant to this Article IV in exchange for outstanding shares of JCN
Common Stock.
(b) As promptly as practicable after the Effective Date, Highwoods
shall send or cause to be sent to each former holder of record of shares of JCN
Common Stock (other than Cash Election Shares, shares of JCN Common Stock held
in treasury by JCN or Dissenting Shares) of JCN Common Stock immediately prior
to the Effective Time transmittal materials for use in exchanging such
stockholder's Old Certificates for the consideration set forth in this Article
IV. Highwoods shall cause the New Certificates into which shares of a
stockholder's JCN Common Stock are converted on the Effective Date and/or any
check in respect of the Per Share Cash Consideration and any fractional share
interests or dividends or distributions which such person shall be entitled to
receive to be delivered to such stockholder upon delivery to the Exchange Agent
of Old Certificates representing such shares of JCN Common Stock (or indemnity
reasonably satisfactory to Highwoods and the Exchange Agent, if any of such
certificates are lost, stolen or destroyed) owned by such stockholder. No
interest will be paid on any such cash to be paid pursuant to this Article IV
upon such delivery.
(c) Notwithstanding the foregoing, neither the Exchange Agent nor
any party hereto shall be liable to any former holder of JCN Common Stock for
any amount properly delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
9
(d) No dividends or other distributions with respect to Highwoods
Common Stock with a record date occurring after the Effective Time shall be paid
to the holder of any unsurrendered Old Certificate representing shares of JCN
Common Stock converted in the Merger into shares of such Highwoods Common Stock
until the holder thereof shall surrender such Old Certificate in accordance with
this Article IV. After the surrender of an Old Certificate in accordance with
this Article IV, the record holder thereof shall be entitled to receive any such
dividends or other distributions, without any interest thereon, which
theretofore had become payable with respect to shares of Highwoods Common Stock
represented by such Old Certificates.
(e) To the extent permitted by Law, any portion of the Exchange
Fund that remains unclaimed by the stockholders of JCN for twelve months after
the Effective Time shall be paid to Highwoods. Any stockholders of JCN who have
not theretofore complied with this Article IV shall thereafter look only to
Highwoods for payment of the shares of Highwoods Common Stock, cash in lieu of
any fractional shares and unpaid dividends and distributions on the Highwoods
Common Stock deliverable in respect of each share of JCN Common Stock such
stockholder holds as determined pursuant to this Agreement, in each case,
without any interest thereon.
4.2 Rights of Former JCN Shareholders. At the Effective Time, the stock
transfer books of JCN shall be closed as to holders of JCN Common Stock
immediately prior to the Effective Time and no transfer of JCN Common Stock by
any such holder shall thereafter be made or recognized. Until surrendered for
exchange in accordance with the provisions of Section 4.1, each Certificate
theretofore representing shares of JCN Common Stock (other than shares to be
canceled pursuant to Sections 3.4 and 3.5) shall from and after the Effective
Time represent for all purposes only the right to receive the consideration
provided in Sections 3.1 through 3.6 in exchange therefor, subject, however, to
the Surviving Corporation's obligation (or Highwoods' obligation following any
liquidation of the Surviving Corporation) to pay any dividends or make any other
distributions with a record date prior to the Effective Time which have been
declared or made by JCN in respect of such shares of JCN Common Stock in
accordance with the terms of this Agreement and which remain unpaid at the
Effective Time. To the extent permitted by Law, former shareholders of record of
JCN shall be entitled to vote after the Effective Time at any meeting of
Highwoods shareholders the number of whole shares of Highwoods Common Stock into
which their respective shares of JCN Common Stock are converted, regardless of
whether such holders have exchanged their Old Certificates for New Certificates
representing Highwoods Common Stock in accordance with the provisions of this
Agreement.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF JCN
JCN hereby represents and warrants to Highwoods as follows:
5.1 Organization, Standing, and Power. JCN is a corporation duly
organized, validly existing, and in good standing under the Laws of the State of
Missouri, and has the corporate power and authority to carry on its business as
now conducted and to own, lease and operate its
10
Assets. JCN is duly qualified or licensed to transact business as a foreign
corporation in good standing in the States of the United States and foreign
jurisdictions where the character of its Assets or the nature or conduct of its
business requires it to be so qualified or licensed, except for such
jurisdictions in which the failure to be so qualified or licensed is not
reasonably likely to have a JCN Material Adverse Effect. The minute book and
other organizational documents for JCN have been made available to Highwoods for
its review and, except as disclosed in Section 5.1 of the JCN Disclosure
Memorandum, are complete in all material respects as in effect as of the date of
this Agreement and accurately reflect in all material respects all amendments
thereto and all proceedings of the Board of Directors and shareholders thereof.
5.2 Authority of JCN; No Breach By Agreement.
(a) JCN has the corporate power and authority necessary to
execute, deliver, and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby. The execution, delivery, and
performance of this Agreement and the consummation of the transactions
contemplated herein, including the Merger, have been duly and validly authorized
by all necessary corporate action in respect thereof on the part of JCN, subject
to the approval of this Agreement by the holders of two-thirds of the
outstanding shares of JCN Common Stock, which is the only vote of JCN
shareholders required for approval of this Agreement and consummation of the
Merger by JCN. Subject to such requisite shareholder approval, this Agreement
represents a legal, valid, and binding obligation of JCN, enforceable against
JCN in accordance with its terms (except in all cases as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, receivership,
conservatorship, moratorium, or similar Laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought).
(b) Neither the execution and delivery of this Agreement by JCN,
nor the consummation by JCN of the transactions contemplated hereby, nor
compliance by JCN with any of the provisions hereof, will (i) conflict with or
result in a breach of any provision of JCN's Articles of Incorporation or Bylaws
or the certificate or articles of incorporation or bylaws of any JCN Subsidiary
or any resolution adopted by the board of directors or the shareholders of any
JCN Entity, or (ii) except as disclosed in Section 5.2 of the JCN Disclosure
Memorandum, constitute or result in a Default under, or require any Consent
pursuant to, or result in the creation of any Lien on any Asset of any JCN
Entity under, any Contract or Permit of any JCN Entity, where such Default or
Lien, or any failure to obtain such Consent, is reasonably likely to have,
individually or in the aggregate, a JCN Material Adverse Effect, or, (iii)
subject to receipt of the requisite Consents referred to in Section 9.1(b) and
9.1(c), constitute or result in a Default under, or require any Consent pursuant
to, any Law or Order applicable to any JCN Entity or any of their respective
material Assets.
(c) Other than in connection or compliance with the provisions of
the Securities Laws, applicable state corporate and securities Laws, and rules
of the NASD, and other than
11
Consents required from Regulatory Authorities, and other than notices to or
filings with the Internal Revenue Service or the Pension Benefit Guaranty
Corporation with respect to any employee benefit plans, or under the HSR Act,
and other than Consents, filings, or notifications which, if not obtained or
made, are not reasonably likely to have, individually or in the aggregate, a JCN
Material Adverse Effect, no notice to, filing with, or Consent of, any public
body or authority is necessary for the consummation by JCN of the Merger and the
other transactions contemplated in this Agreement.
5.3 Capital Stock.
(a) The authorized capital stock of JCN consists of (i) 10,000,000
shares of JCN Common Stock, of which 4,529,357 shares are issued and outstanding
as of the date of this Agreement and not more than 4,857,387 shares will be
issued and outstanding at the Effective Time. All of the issued and outstanding
shares of capital stock of JCN are duly and validly issued and outstanding and
are fully paid and nonassessable under the GBCL. None of the outstanding shares
of capital stock of JCN has been issued in violation of any preemptive rights of
the current or past shareholders of JCN.
(b) Except as set forth in Section 5.3(a), or as set forth in the
Call Right granted to KH/JCN LLC, or as disclosed in Section 5.3(b) of the JCN
Disclosure Memorandum, there are no shares of capital stock or other equity
securities of JCN outstanding and no outstanding Equity Rights relating to the
capital stock of JCN.
5.4 JCN Subsidiaries. JCN has disclosed in Section 5.4 of the JCN
Disclosure Memorandum all of the JCN Subsidiaries that are corporations
(identifying its jurisdiction of incorporation, each jurisdiction in which it is
qualified and/or licensed to transact business, and the number of shares owned
and percentage ownership interest represented by such share ownership) and all
of the JCN Subsidiaries that are general or limited partnerships, limited
liability companies, or other non-corporate entities (identifying the Law under
which such entity is organized, each jurisdiction in which it is qualified
and/or licensed to transact business, and the amount and nature of the ownership
interest therein). Except as disclosed in Section 5.4 of the JCN Disclosure
Memorandum, JCN or one of its Subsidiaries owns all of the issued and
outstanding shares of capital stock (or other equity interests) of each JCN
Subsidiary. No capital stock (or other equity interest) of any JCN Subsidiary is
or may become required to be issued (other than to another JCN Entity) by reason
of any Equity Rights, and there are no Contracts by which any JCN Subsidiary is
bound to issue (other than to another JCN Entity) additional shares of its
capital stock (or other equity interests) or Equity Rights or by which any JCN
Entity is or may be bound to transfer any shares of the capital stock (or other
equity interests) of any JCN Subsidiary (other than to another JCN Entity).
There are no Contracts relating to the rights of any JCN Entity to vote or to
dispose of any shares of the capital stock (or other equity interests) of any
JCN Subsidiary. All of the shares of capital stock (or other equity interests)
of each JCN Subsidiary held by a JCN Entity are fully paid and nonassessable
under the applicable corporation Law of the jurisdiction in which such
Subsidiary is incorporated or organized and are owned by
12
the JCN Entity free and clear of any Lien. Except as disclosed in Section 5.4 of
the JCN Disclosure Memorandum, each JCN Subsidiary is a corporation, and each
JCN Subsidiary is duly organized, validly existing, and (as to corporations) in
good standing under the Laws of the jurisdiction in which it is incorporated or
organized, and has the corporate power and authority necessary for it to own,
lease, and operate its Assets and to carry on its business as now conducted.
Each JCN Subsidiary is duly qualified or licensed to transact business as a
foreign corporation or organization, as the case may be, in good standing in the
States of the United States where the character of its Assets or the nature or
conduct of its business requires it to be so qualified or licensed, except for
such jurisdictions in which the failure to be so qualified or licensed is not
reasonably likely to have, individually or in the aggregate, a JCN Material
Adverse Effect. The minute book and other organizational documents for each JCN
Subsidiary have been made available to Highwoods for its review, and, except as
disclosed in Section 5.4 of the JCN Disclosure Memorandum, are complete in all
material respects as in effect as of the date of this Agreement and accurately
reflect in all material respects all amendments thereto and all proceedings of
the Board of Directors and shareholders thereof; provided, however, that for
purposes of this sentence all representations relating to the period prior to
January 1, 1996, are based solely on the Knowledge of JCN.
5.5 SEC Filings; Financial Statements.
(a) JCN has timely filed and made available to Highwoods all SEC
Documents required to be filed by JCN since November 30, 1996 (the "JCN SEC
Reports"). The JCN SEC Reports (i) at the time filed, complied in all material
respects with the applicable requirements of the Securities Laws and other
applicable Laws and (ii) did not, at the time they were filed (or, if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated in such JCN SEC Reports or necessary in
order to make the statements in such JCN SEC Reports, in light of the
circumstances under which they were made, not misleading. No JCN Subsidiary is
required to file any SEC Documents.
(b) Each of the JCN Financial Statements (including, in each case,
any related notes) contained in the JCN SEC Reports, including any JCN SEC
Reports filed after the date of this Agreement until the Effective Time,
complied as to form in all material respects with the applicable published rules
and regulations of the SEC with respect thereto, was prepared in accordance with
GAAP applied on a consistent basis throughout the periods involved (except as
may be indicated in the notes to such financial statements or, in the case of
unaudited interim statements, as permitted by Form 10-Q of the SEC), and fairly
presented in all material respects the consolidated financial position of JCN
and its Subsidiaries as at the respective dates and the consolidated results of
operations and cash flows for the periods indicated, except that the unaudited
interim financial statements were or are subject to normal and recurring
year-end adjustments which were not or are not expected to be material in amount
or effect.
13
5.6 Absence of Undisclosed Liabilities. Except as set forth in Section
5.6 of the JCN Disclosure Memorandum, no JCN Entity has any Liabilities that are
reasonably likely to have a JCN Material Adverse Effect, except Liabilities
which are accrued or reserved against in the consolidated balance sheets of JCN
as of September 30, 1997 or December 31, 1996, included in the JCN Financial
Statements delivered prior to the date of this Agreement or reflected in the
notes thereto.
5.7 Absence of Certain Changes or Events. Since December 31, 1996, except
as disclosed in the JCN Financial Statements delivered prior to the date of this
Agreement or as disclosed in Section 5.7 of the JCN Disclosure Memorandum, there
have been no events, changes, or occurrences which have had, or are reasonably
likely to have a JCN Material Adverse Effect.
5.8 Tax Matters.
(a) To the Knowledge of JCN, no Tax Return is or has been
delinquent and, except as set forth in Section 5.8 of the JCN Disclosure
Memorandum, all Tax Returns filed are complete and accurate in all material
respects. All Taxes shown on filed Tax Returns have been paid. There is no audit
examination, deficiency, or refund Litigation with respect to any Taxes, except
as reserved against in the JCN Financial Statements delivered prior to the date
of this Agreement or as disclosed in Section 5.8 of the JCN Disclosure
Memorandum. The statute of limitations on JCN's federal income Tax Returns have
run for all periods prior to December 31, 1987. All Taxes and other Liabilities
due with respect to completed and settled examinations or concluded Litigation
have been paid. There are no Liens with respect to Taxes upon any of the Assets
of the JCN Entities, except for any such Liens which are not reasonably likely
to have a JCN Material Adverse Effect.
(b) Except as may result from the extension of JCN's federal
income Tax Returns described in Section 5.8 of the JCN Disclosure Memorandum or
from of an adjustment by the Internal Revenue Service of JCN's income, none of
the JCN Entities has executed an extension or waiver of any statute of
limitations on the assessment or collection of any Tax due to any State taxing
authority that is currently in effect.
(c) Except as set forth in Section 5.8 of the JCN Disclosure
Memorandum, the provision for any Taxes due or to become due for any of the JCN
Entities for the period or periods through and including the date of the
respective JCN Financial Statements that has been made and is reflected on such
JCN Financial Statements is sufficient to cover all such Taxes.
(d) Except as set forth in Section 5.8 of the JCN Disclosure
Memorandum, deferred taxes of the JCN Entities have been provided for in
accordance with GAAP.
(e) None of the JCN Entities is a party to any Tax allocation or
sharing agreement, none of the JCN Entities has been a member of an affiliated
group filing a consolidated federal income Tax Return (other than a group the
common parent of which was JCN), and none of the
14
JCN Entities has any Liability for Taxes of any Person (other than JCN and its
Subsidiaries) under Treasury Regulation Section 1.15026 (or any similar
provision of state, local or foreign Law) as a transferee or successor or by
Contract or otherwise.
(f) Each of the JCN Entities is in compliance with, and its
records contain all information and documents (including properly completed IRS
Forms W9) necessary to comply with, all applicable information reporting and Tax
withholding requirements under federal, state, and local Tax Laws, and such
records identify with specificity all accounts subject to backup withholding
under Section 3406 of the Internal Revenue Code, except for such instances of
noncompliance and such omissions as are not reasonably likely to have,
individually or in the aggregate, a JCN Material Adverse Effect.
(g) Except as disclosed in Section 5.8 of the JCN Disclosure
Memorandum, none of the JCN Entities has made any payments, is obligated to make
any payments, or is a party to any Contract that could obligate it to make any
payments that would be disallowed as a deduction under Section 280G or 162(m) of
the Internal Revenue Code.
(h) Except as disclosed in Section 5.8 of the JCN Disclosure
Memorandum, there has not been an ownership change, as defined in Internal
Revenue Code Section 382(g), of the JCN Entities that occurred during or after
any taxable period in which the JCN Entities incurred a net operating loss that
carries over to any taxable period ending after December 31, 1996.
(i) No JCN Entity has or has had in any foreign country a
permanent establishment, as defined in any applicable tax treaty or convention
between the United States and such foreign country.
5.9 Assets.
(a) Except as disclosed in Section 5.9 or 5.14 of the JCN
Disclosure Memorandum, or as disclosed or reserved against in the JCN Financial
Statement, the JCN Entities have good and marketable title, free and clear of
all Liens to all of their respective Assets, except for any such Liens or other
defects of title which are not reasonably likely to have a JCN Material Adverse
Effect. All material personal property used in the business of the JCN Entities
are in good condition, reasonable wear and tear excepted, and are usable in the
ordinary course of business consistent with such entities past practices.
(b) None of the JCN Entities has received notice from any
insurance carrier that (i) any policy of insurance will be canceled or that
coverage thereunder will be reduced or eliminated, or (ii) premium costs with
respect to such policy of insurance will be substantially increased. Except as
set forth in Section 5.9 of the JCN Disclosure Memorandum, there are presently
no claims for amounts exceeding in any individual case $50,000 pending under
such policies of insurance and no notices of claims in excess of such amounts
have been given by any JCN Entity under such policies.
(c) JCN will make available to Highwoods a true and correct copy
of all Leases.
(d) Except as set forth in Section 5.9 of the JCN Disclosure
Memorandum and except for such matters which would not reasonably be expected to
have a JCN Material Adverse Effect, as of the last day of the calendar month
immediately preceding the date hereof, no tenant under any of the Leases has
asserted any claim of which JCN or any Subsidiary has received written notice
which would materially affect the collection of rent from such tenant and
neither JCN nor any JCN Subsidiary has received written notice of any material
default or breach on the part of JCN or any
15
Subsidiary under any of the Leases which has not been cured.
(e) Section 5.9 of the JCN Disclosure Memorandum sets forth all
space leases under which JCN or any JCN Subsidiary is a lessee (except where the
underlying real property is owned by JCN). True and correct copies of such
leases have been delivered or made available to Highwoods.
5.10 Environmental Matters.
(a) Each JCN Entity, its Operating Properties and, to the
Knowledge of JCN, its Participation Facilities are, and have been, in compliance
with all Environmental Laws, except for violations which are not reasonably
likely to have, individually or in the aggregate, a JCN Material Adverse Effect.
(b) There is no Litigation pending or, to the Knowledge of JCN,
threatened before any court, governmental agency, or authority or other forum in
which any JCN Entity or any of its Operating Properties or Participation
Facilities (or JCN in respect of such Operating Property or Participation
Facility) has been or, with respect to threatened Litigation, may be named as a
defendant (i) for alleged noncompliance (including by any predecessor) with any
Environmental Law or (ii) relating to the release, discharge, spillage, or
disposal into the environment of any Hazardous Material, whether or not
occurring at, on, under, adjacent to, or affecting (or potentially affecting) a
site owned, leased, or operated by any JCN Entity or any of its Operating
Properties or Participation Facilities, except such as is not reasonably likely
to have, individually or in the aggregate, a JCN Material Adverse Effect.
(c) During the period of (i) any JCN Entity's ownership or
operation of any of their respective current properties, (ii)any JCN Entity's
participation in the management of any Participation Facility, or (iii) any JCN
Entity's holding of a security interest in an Operating Property, there have
been no releases, discharges, spillages, or disposals of Hazardous Material in,
on, under, adjacent to, or affecting (or potentially affecting) such properties,
except such as are not reasonably likely to have, individually or in the
aggregate, a JCN Material Adverse Effect. To the Knowledge of JCN, prior to the
period of (i) any JCN Entity's ownership or operation of any of their respective
current properties, (ii) any JCN Entity's participation in the management of any
Participation Facility, or (iii) any JCN Entity's holding of a security interest
in an Operating Property, there were no releases, discharges, spillages, or
disposals of Hazardous
16
Material in, on, under, or affecting any such property, Participation Facility
or Operating Property, except such as are not reasonably likely to have,
individually or in the aggregate, a JCN Material Adverse Effect.
5.11 Compliance with Laws. Each JCN Entity has in effect all Permits
necessary for it to own, lease, or operate its material Assets and to carry on
its business as now conducted, except for those Permits the absence of which are
not reasonably likely to have, individually or in the aggregate, a JCN Material
Adverse Effect, and there has occurred no Default under any such Permit, other
than Defaults which are not reasonably likely to have a JCN Material Adverse
Effect. Except as disclosed in Section 5.11 of the JCN Disclosure Memorandum,
none of the JCN Entities:
(a) is in Default under any of the provisions of its Certificate
of Incorporation or Bylaws (or other governing instruments);
(b) is in Default under any Laws, Orders, or Permits applicable to
its business, except for Defaults which are not reasonably likely to have,
individually or in the aggregate, a JCN Material Adverse Effect; or
(c) since January 1, 1993, has received any notification or
communication from any agency or department of federal, state, or local
government or any Regulatory Authority or the staff thereof (i) asserting that
any JCN Entity is not in compliance with any of the Laws or Orders which such
governmental authority or Regulatory Authority enforces, where such
noncompliance is reasonably likely to have a JCN Material Adverse Effect, (ii)
threatening to revoke any Permits, the revocation of which is reasonably likely
to have a JCN Material Adverse Effect, or (iii) requiring any JCN Entity to
enter into or consent to the issuance of a cease and desist order, formal
agreement, directive, commitment or memorandum of understanding, or to adopt any
Board resolution or similar undertaking, which restricts materially the conduct
of its business.
Copies of all material reports, correspondence, notices and other documents
relating to any inspection, audit, monitoring or other form of review or
enforcement action by a Regulatory Authority have been made available to
Highwoods.
5.12 Labor Relations. No JCN Entity is the subject of any Litigation
asserting that it or any other JCN Entity has committed an unfair labor practice
(within the meaning of the National Labor Relations Act or comparable state law)
or seeking to compel it or any other JCN Entity to bargain with any labor
organization as to wages or conditions of employment, nor, except as disclosed
in Section 5.12 of the JCN Disclosure Memorandum, is any JCN Entity party to any
collective bargaining agreement, nor is there any strike or other labor dispute
involving any JCN Entity, pending or, to the Knowledge of JCN, threatened, or to
the Knowledge of JCN, is there any activity involving any JCN Entity's employees
seeking to certify a collective bargaining unit or engaging in any other
organization activity.
17
5.13 Employee Benefit Plans.
(a) JCN has disclosed in Section 5.13 of the JCN Disclosure
Memorandum, and has delivered or made available to Highwoods prior to the
execution of this Agreement copies in each case of, all pension, retirement,
profit-sharing, deferred compensation, stock option, employee stock ownership,
severance pay, vacation, bonus, or other incentive plan, all other written
employee programs, arrangements, or agreements, all medical, vision, dental, or
other health plans, all life insurance plans, and all other employee benefit
plans or fringe benefit plans, including "employee benefit plans" as that term
is defined in Section 3(3) of ERISA, currently adopted, maintained by, sponsored
in whole or in part by, or contributed to by any JCN Entity or ERISA Affiliate
thereof for the benefit of employees, retirees, dependents, spouses, directors,
independent contractors, or other beneficiaries and under which employees,
retirees, dependents, spouses, directors, independent contractors, or other
beneficiaries are eligible to participate (collectively, the "JCN Benefit
Plans"). Any of the JCN Benefit Plans which is an "employee pension benefit
plan," as that term is defined in Section 3(2) of ERISA, is referred to herein
as a "JCN ERISA Plan." Each JCN ERISA Plan which is also a "defined benefit
plan" (as defined in Section 414(j) of the Internal Revenue Code) is referred to
herein as a "JCN Pension Plan." Except as disclosed in Section 5.13 of the JCN
Disclosure Memorandum, no JCN Pension Plan is or has been a multiemployer plan
within the meaning of Section 3(37) of ERISA.
(b) Except as disclosed in Section 5.13 of the JCN Disclosure
Memorandum, all JCN Benefit Plans are in compliance with the applicable terms of
ERISA, the Internal Revenue Code, and any other applicable Laws the breach or
violation of which are reasonably likely to have a JCN Material Adverse Effect.
Each JCN ERISA Plan which is intended to be qualified under Section 401(a) of
the Internal Revenue Code has received a favorable determination letter from the
Internal Revenue Service, and JCN is not aware of any circumstances likely to
result in revocation of any such favorable determination letter. To the
Knowledge of JCN, no JCN Entity has engaged in a transaction with respect to any
JCN Benefit Plan that, assuming the taxable period of such transaction expired
as of the date hereof, would subject any JCN Entity to a Tax imposed by either
Section 4975 of the Internal Revenue Code or Section 502(i) of ERISA.
(c) Except as disclosed in Section 5.13 of the JCN Disclosure
Memorandum, no JCN Pension Plan has any "unfunded current liability," as that
term is defined in Section 302(d)(8)(A) of ERISA, and the fair market value of
the assets of any such plan exceeds the plan's "benefit liabilities," as that
term is defined in Section 4001(a)(16) of ERISA, when determined under actuarial
factors that would apply if the plan terminated in accordance with all
applicable legal requirements. Since the date of the most recent actuarial
valuation, there has been (i) no material change in the financial position of
any JCN Pension Plan, (ii) no change in the actuarial assumptions with respect
to any JCN Pension Plan, and (iii) no increase in benefits under any JCN Pension
Plan as a result of plan amendments or changes in applicable Law which is
reasonably likely to have a JCN Material Adverse Effect or materially adversely
affect the funding status of any such plan. Neither any JCN Pension Plan nor any
"single-employer plan," within the meaning of Section 4001(a)(15) of ERISA,
currently or formerly maintained by any JCN Entity,
18
or the single-employer plan of any entity which is considered one employer with
JCN under Section 4001 of ERISA or Section 414 of the Internal Revenue Code or
Section 302 of ERISA (whether or not waived) (an "ERISA Affiliate") has an
"accumulated funding deficiency" within the meaning of Section 412 of the
Internal Revenue Code or Section 302 of ERISA, which is reasonably likely to
have a JCN Material Adverse Effect. No JCN Entity has provided, or is required
to provide, security to a JCN Pension Plan or to any single-employer plan of an
ERISA Affiliate pursuant to Section 401(a)(29) of the Internal Revenue Code.
(d) No Liability under Subtitle C or D of Title IV of ERISA has
been or is expected to be incurred by any JCN Entity with respect to any
ongoing, frozen, or terminated single-employer plan or the single-employer plan
of any ERISA Affiliate, which Liability is reasonably likely to have a JCN
Material Adverse Effect. No JCN Entity has incurred any withdrawal Liability
with respect to a multiemployer plan under Subtitle B of Title IV of ERISA
(regardless of whether based on contributions of an ERISA Affiliate), which
Liability is reasonably likely to have a JCN Material Adverse Effect. No notice
of a "reportable event," within the meaning of Section 4043 of ERISA for which
the 30-day reporting requirement has not been waived, has been required to be
filed for any JCN Pension Plan or by any ERISA Affiliate within the 12-month
period ending on the date hereof.
(e) Except as disclosed in Section 5.13 of the JCN Disclosure
Memorandum, no JCN Entity has any Liability for retiree health and life benefits
under any of the JCN Benefit Plans and there are no restrictions on the rights
of such JCN Entity to amend or terminate any such retiree health or benefit Plan
without incurring any Liability.
(f) Except as disclosed in Section 5.13 of the JCN Disclosure
Memorandum, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including severance, unemployment compensation, golden parachute, or
otherwise) becoming due to any director or any employee of any JCN Entity from
any JCN Entity under any JCN Benefit Plan or otherwise, (ii) increase any
benefits otherwise payable under any JCN Benefit Plan, or (iii) result in any
acceleration of the time of payment or vesting of any such benefit.
(g) The actuarial present values of all accrued deferred
compensation entitlements (including entitlements under any executive
compensation, supplemental retirement, or employment agreement) of employees and
former employees of any JCN Entity and their respective beneficiaries, other
than entitlements accrued pursuant to funded retirement plans subject to the
provisions of Section 412 of the Internal Revenue Code or Section 302 of ERISA,
have been fully reflected on the JCN Financial Statements to the extent required
by and in accordance with GAAP.
5.14 Material Contracts. Except as disclosed in Section 5.14 of the JCN
Disclosure Memorandum or otherwise reflected in the JCN Financial Statements,
none of the JCN Entities, nor any of their respective Assets, businesses, or
operations, is a party to, or is bound or affected
19
by, or receives benefits under, (i) any employment, severance, termination,
consulting, or retirement Contract providing for aggregate payments to any
Person in any calendar year in excess of $50,000, (ii) any Contract relating to
the borrowing of money by any JCN Entity or the guarantee by any JCN Entity of
any such obligation (other than Contracts evidencing trade payables and
Contracts relating to borrowings or guarantees made in the ordinary course of
business), (iii) any Contract which materially prohibits or restricts any JCN
Entity from engaging in any business activities in any geographic area, line of
business or otherwise in competition with any other Person, other than
restrictions in Leases intended to protect certain tenant interests, all of
which restrictions are normal and customary in the business of JCN, (iv) any
Material Contract between or among JCN Entities, (v) any Material Contract
involving Intellectual Property (other than Contracts entered into in the
ordinary course with customers and "shrink-wrap" software licenses), (vi) any
Contract relating to the provision of data processing, network communication, or
other technical services to or by any JCN Entity, (vii) any Contract relating to
the purchase or sale of any goods or services (other than Contracts entered into
in the ordinary course of business and involving payments under any individual
Contract not in excess of $50,000), (viii) any Material Contract for property
management or property operations, and (ix) any other Contract or amendment
thereto that would be required to be filed as an exhibit to a Form 10-K filed by
JCN with the SEC as of the date of this Agreement (together with all Contracts
referred to in Sections 5.9 and 5.13(a), the "JCN Contracts"). With respect to
each JCN Contract and except as disclosed in Section 5.14 of the JCN Disclosure
Memorandum: (i) the Contract is in full force and effect; (ii) no JCN Entity is
in Default thereunder, other than Defaults which are not reasonably likely to
have a JCN Material Adverse Effect; (iii) no JCN Entity has repudiated or waived
any material provision of any such Contract; and (iv) no other party to any such
Contract, to the Knowledge of JCN, is, in Default in any respect, other than
Defaults which are not reasonably likely to have a JCN Material Adverse Effect,
or has repudiated or waived any material provision thereunder.
5.15 Legal Proceedings. Except as disclosed in Section 5.15 of the JCN
Disclosure Memorandum, there is no Litigation instituted or pending, or, to the
Knowledge of JCN, threatened (or unasserted but considered probable of assertion
and which if asserted would have at least a reasonable probability of an
unfavorable outcome) against any JCN Entity, or against any director, employee
or employee benefit plan of any JCN Entity, or against any Asset, interest, or
right of any of them, that is reasonably likely to have a JCN Material Adverse
Effect, nor are there any Orders of any Regulatory Authorities, other
governmental authorities, or arbitrators outstanding against any JCN Entity,
that are reasonably likely to have a JCN Material Adverse Effect. Section 5.15
of the JCN Disclosure Memorandum contains a summary of all Litigation as of the
date of this Agreement to which any JCN Entity is a party and which names a JCN
Entity as a defendant or cross-defendant or for which any JCN Entity has any
potential uninsured Liability in excess of $50,000.
5.16 Reports. Since January 1, 1993, or the date of organization if
later, each JCN Entity has timely filed all reports and statements, together
with any amendments required to be made with respect thereto, that it was
required to file with Regulatory Authorities, except for those
20
which the failure to file are not reasonably likely to have a JCN Material
Adverse Effect). To the Knowledge of JCN, as of their respective dates, each of
such reports and documents, including the financial statements, exhibits, and
schedules thereto, complied in all material respects with all applicable Laws.
As of its respective date, each such report and document did not, in all
material respects, contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading, except for those untrue statements or omissions not
reasonably expected to have a JCN Material Adverse Effect.
5.17 Statements True and Correct. No certificate or instrument furnished
by any JCN Entity or any officer, director or employee thereof to Highwoods
pursuant to this Agreement or pursuant to any other document, agreement, or
instrument referred to herein contains or will contain any untrue statement of
material fact or will omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. None of the information supplied or to be supplied by any JCN
Entity or any officer, director or employee thereof for inclusion in the
Registration Statement to be filed by Highwoods with the SEC will, when the
Registration Statement becomes effective, be false or misleading with respect to
any material fact, or omit to state any material fact necessary to make the
statements therein not misleading. None of the information supplied or to be
supplied by any JCN Entity or any officer, director or employee thereof for
inclusion in the Proxy Statement to be mailed to JCN's shareholders in
connection with the JCN Shareholders Meeting, and any other documents to be
filed by a JCN Entity or any officer, director or employee thereof with the SEC
or any other Regulatory Authority in connection with the transactions
contemplated hereby, will, at the respective time such documents are filed, and
with respect to the Proxy Statement, when first mailed to the shareholders of
JCN, be false or misleading with respect to any material fact, or omit to state
any material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or, in the case of the
Proxy Statement or any amendment thereof or supplement thereto, at the time of
the JCN Shareholders Meeting, be false or misleading with respect to any
material fact, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of any
proxy for the JCN Shareholders Meeting. All documents that any JCN Entity is
responsible for filing with any Regulatory Authority in connection with the
transactions contemplated hereby will comply as to form in all material respects
with the provisions of applicable Law.
5.18 Tax and Regulatory Matters. No JCN Entity or any officer or director
thereof has taken or agreed to take any action or has any Knowledge of any fact
or circumstance that is reasonably likely to (i) prevent the Merger from
qualifying as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code, or (ii) materially impede or delay receipt of any
Consents of Regulatory Authorities referred to in Section 9.1(b).
5.19 State Takeover Laws. Each JCN Entity has taken all necessary action
to exempt the transactions contemplated by this Agreement from, or, if
necessary, to challenge the validity or applicability of, any applicable
"moratorium," "fair price," "business combination," "control share," or other
anti-takeover Laws (collectively, "Takeover Laws"), including Section 351.459 of
the GBCL.
5.20 Charter Provisions. Each JCN Entity has taken all action so that the
entering into of this Agreement and the consummation of the Merger and the other
transactions contemplated by this Agreement do not and will not result in the
grant of any rights to any Person under the Certificate of Incorporation, Bylaws
or other governing instruments of any JCN Entity or restrict or impair the
ability of Highwoods or any of its Subsidiaries to vote, or otherwise to
exercise the rights of a shareholder with respect to, shares of any JCN Entity
that may be directly or indirectly acquired or controlled by them.
5.21 Rights Agreement. JCN has taken all necessary action (including, if
required, redeeming all of the outstanding JCN Rights or amending or terminating
the JCN Rights Agreement) so that
21
the entering into of this Agreement, the acquisition of shares pursuant to the
consummation of the Merger and the other transactions contemplated hereby do not
and will not result in any Person becoming able to exercise any JCN Rights under
the JCN Rights Agreement or enabling or requiring the JCN Rights to be separated
from the shares of JCN Common Stock to which they are attached or to be
triggered or to become exercisable.
5.22 Opinion of Financial Advisor. JCN has received the opinion of Morgan
Stanley, Dean Witter, Discover & Co., dated the date of this Agreement, to the
effect that the consideration to be received in the Merger by the holders of JCN
Common Stock is fair, from a financial point of view, to such holders, a signed
copy of which has been delivered to Highwoods.
5.23 Board Recommendation. The Board of Directors of JCN, at a meeting
duly called and held, has validly adopted resolutions (which resolutions have
not been withdrawn or revoked) stating that the Board of Directors of JCN has
(i) determined that this Agreement and the transactions contemplated hereby,
including the Merger and the transactions contemplated thereby, taken together,
are fair to and in the best interests of the shareholders and (ii) resolved to
recommend that the holders of the shares of JCN Common Stock approve this
Agreement.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF HIGHWOODS
Highwoods hereby represents and warrants to JCN as follows:
6.1 Organization, Standing, and Power. Highwoods is a corporation duly
organized, validly existing, and in good standing under the Laws of the State of
Maryland, and has the corporate power and authority to carry on its business as
now conducted and to own, lease and operate its material Assets. Highwoods is
duly qualified or licensed to transact business as a foreign corporation in good
standing in the States of the United States and foreign jurisdictions where the
character of its Assets or the nature or conduct of its business requires it to
be so
22
qualified or licensed, except for such jurisdictions in which the failure to be
so qualified or licensed is not reasonably likely to have, individually or in
the aggregate, a Highwoods Material Adverse Effect.
6.2 Authority; No Breach By Agreement.
(a) Highwoods has the corporate power and authority necessary to
execute, deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated herein, including the Merger, have been duly and validly authorized
by all necessary corporate action in respect thereof on the part of Highwoods.
This Agreement represents a legal, valid, and binding obligation of Highwoods,
enforceable against Highwoods in accordance with its terms (except in all cases
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, receivership, conservatorship, moratorium, or similar Laws
affecting the enforcement of creditors' rights generally and except that the
availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceeding may
be brought).
(b) Neither the execution and delivery of this Agreement by
Highwoods, nor the consummation by Highwoods of the transactions contemplated
hereby, nor compliance by Highwoods with any of the provisions hereof, will (i)
conflict with or result in a breach of any provision of Highwoods' Amended and
Restated Articles of Incorporation or Bylaws, or (ii) constitute or result in a
Default under, or require any Consent pursuant to, or result in the creation of
any Lien on any Asset of any Highwoods Entity under, any Contract or Permit of
any Highwoods Entity, where such Default or Lien, or any failure to obtain such
Consent, is reasonably likely to have a Highwoods Material Adverse Effect, or,
(iii) subject to receipt of the requisite Consents referred to in Section
9.1(b), constitute or result in a Default under, or require any Consent pursuant
to, any Law or Order applicable to any Highwoods Entity or any of their
respective material Assets (including any Highwoods Entity or any JCN Entity
becoming subject to or liable for the payment of any Tax or any of the Assets
owned by any Highwoods Entity or any JCN Entity being reassessed or revalued by
any taxing authority).
(c) Other than in connection or compliance with the provisions of
the Securities Laws, applicable state corporate and securities Laws, and rules
of the NYSE, and other than Consents required from Regulatory Authorities, and
other than notices to or filings with the Internal Revenue Service or the
Pension Benefit Guaranty Corporation with respect to any employee benefit plans,
or under the HSR Act, and other than Consents, filings, or notifications which,
if not obtained or made, are not reasonably likely to have a Highwoods Material
Adverse Effect, no notice to, filing with, or Consent of, any public body or
authority is necessary for the consummation by Highwoods of the Merger and the
other transactions contemplated in this Agreement.
6.3 Capital Stock.
(a) The authorized capital stock of Highwoods consists of (i)
100,000,000 shares of Highwoods Common Stock, of which 37,948,435 shares are
issued and outstanding as of the date of this Agreement, and (ii) 10,000,000
shares of Highwoods Preferred Stock, of which 7,025,000 shares are issued and
outstanding. All of the issued and outstanding shares of Highwoods Capital Stock
are, and all of the shares of Highwoods Common Stock to be issued in exchange
for shares of JCN Common Stock upon consummation of the Merger, when issued in
accordance with the terms of this Agreement, will be, duly and validly issued
and outstanding and fully paid and nonassessable under the MGCL. None of the
outstanding shares of Highwoods Capital Stock has been, and none of the shares
of Highwoods Common Stock to be issued in exchange for shares of JCN Common
Stock upon consummation of the Merger will be, issued in violation of any
preemptive rights of the current or past shareholders of Highwoods.
(b) Except as set forth in Section 6.3(a), or as provided pursuant
to the Highwoods Stock Plans or the Highwoods Rights Agreement, or as disclosed
in Section 6.3 of the Highwoods
23
Disclosure Memorandum, there are no shares of capital stock or other equity
securities of Highwoods outstanding and no outstanding Equity Rights relating to
the capital stock of Highwoods.
6.4 Highwoods Subsidiaries. Highwoods has disclosed in Section 6.4 of the
Highwoods Disclosure Memorandum all of the Highwoods Subsidiaries as of the date
of this Agreement that are corporations (identifying its jurisdiction of
incorporation and percentage ownership interest represented by such share
ownership) and all of the Highwoods Subsidiaries that are general or limited
partnerships or other non-corporate entities (identifying the Law under which
such entity is organized and the amount and nature of the ownership interest
therein). Except as disclosed in Section 6.4 of the Highwoods Disclosure
Memorandum, Highwoods and/or one of its Subsidiaries owns all of the issued and
outstanding shares of capital stock (or other equity interests) of each
Highwoods Subsidiary. No capital stock (or other equity interest) of any
Highwoods Subsidiary are or may become required to be issued (other than to
another Highwoods Entity) by reason of any Equity Rights, and there are no
Contracts (except for property acquisition contracts utilizing the issuance of
partnership interests in Highwoods/Forsyth Limited Partnership and for which the
partnership is receiving reasonable equivalent value or as otherwise disclosed
in Section 6.13 of the Highwoods Disclosure Memorandum) by which any Highwoods
Subsidiary is bound to issue (other than to another Highwoods Entity) additional
shares of its capital stock (or other equity interests) or Equity Rights or by
which any Highwoods Entity is or may be bound to transfer any shares of the
capital stock (or other equity interests) of any Highwoods Subsidiary (other
than to another Highwoods Entity). There are no Contracts relating to the rights
of any Highwoods Entity to vote or to dispose of any shares of the capital stock
(or other equity interests) of any Highwoods Subsidiary. All of the shares of
capital stock (or other equity interests) of each Highwoods Subsidiary held by a
Highwoods Entity are fully paid and nonassessable under the applicable
corporation Law of the jurisdiction in which such Subsidiary is incorporated or
organized and are owned by the Highwoods Entity free and clear of any Lien.
Except as disclosed in Section 6.4 of the Highwoods Disclosure Memorandum), each
Highwoods Subsidiary is a
24
corporation, and each Highwoods Subsidiary is duly organized, validly existing,
and (as to corporations) in good standing under the Laws of the jurisdiction in
which it is incorporated or organized, and has the corporate power and authority
necessary for it to own, lease and operate its Assets and to carry on its
business as now conducted. Each Highwoods Subsidiary is duly qualified or
licensed to transact business as a foreign corporation or organization, as the
case may be, is in good standing in the States of the United States and foreign
jurisdictions where the character of its Assets or the nature or conduct of its
business requires it to be so qualified or licensed, except for such
jurisdictions in which the failure to be so qualified or licensed is not
reasonably likely to have a Highwoods Material Adverse Effect.
6.5 SEC Filings; Financial Statements.
(a) Highwoods and Highwoods/Forsyth Limited Partnership has timely
filed and made available to JCN all SEC Documents required to be filed by
Highwoods or Highwoods/Forsyth Limited Partnership since June 14, 1994 (the
"Highwoods SEC Reports"). The Highwoods SEC Reports (i) at the time filed,
complied in all material respects with the applicable requirements of the
Securities Laws and other applicable Laws and (ii) did not, at the time they
were filed (or, if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact required to be stated in such
Highwoods SEC Reports or necessary in order to make the statements in such
Highwoods SEC Reports, in light of the circumstances under which they were made,
not misleading. Except for Highwoods/Forsyth Limited Partnership, no Highwoods
Subsidiary is required to file any SEC Documents.
(b) Each of the Highwoods Financial Statements (including, in each
case, any related notes) contained in the Highwoods SEC Reports, including any
Highwoods SEC Reports filed after the date of this Agreement until the Effective
Time, complied as to form in all material respects with the applicable published
rules and regulations of the SEC with respect thereto, was prepared in
accordance with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes to such financial statements
or, in the case of unaudited interim statements, as permitted by Form 10-Q of
the SEC), and fairly presented in all material respects the consolidated
financial position of Highwoods and its Subsidiaries as at the respective dates
and the consolidated results of operations and cash flows for the periods
indicated, except that the unaudited interim financial statements were or are
subject to normal and recurring year-end adjustments which were not or are not
expected to be material in amount or effect.
6.6 Absence of Undisclosed Liabilities. No Highwoods Entity has any
Liabilities that are reasonably likely to have a Highwoods Material Adverse
Effect, except Liabilities which are accrued or reserved against in the
consolidated balance sheets of Highwoods as of September 30, 1997 or December
31, 1996, included in the Highwoods Financial Statements delivered prior to the
date of this Agreement or reflected in the notes thereto.
25
6.7 Absence of Certain Changes or Events. Since December 31, 1996, except
as disclosed in the Highwoods Financial Statements delivered prior to the date
of this Agreement or as disclosed in Section 6.7 of the Highwoods Disclosure
Memorandum, there have been no events, changes or occurrences which have had, or
are reasonably likely to have a Highwoods Material Adverse Effect.
6.8 Tax Matters.
(a) All Tax Returns required to be filed by or on behalf of any of
the Highwoods Entities have been timely filed or requests for extensions have
been timely filed, granted, and have not expired for periods ended on or before
September 30, 1997, and on or before the date of the most recent fiscal year end
immediately preceding the Effective Time, and all Tax Returns filed are complete
and accurate in all material. All Taxes shown on filed Tax Returns have been
paid. As of the date of this Agreement, there is no audit examination,
deficiency, or refund Litigation with respect to any Taxes that is reasonably
likely to result in a determination that would have a Highwoods Material Adverse
Effect, except as reserved against in the Highwoods Financial Statements or as
disclosed in Section 6.8 of the Highwoods Disclosure Memorandum.
(b) Highwoods, based on its current and intended method of
operation, meets the requirements for qualification as a REIT under Sections
856-860 of the Internal Revenue Code.
6.9 Assets. Except as disclosed in Section 6.9 of the Highwoods
Disclosure Memorandum or as disclosed or reserved against in the Highwoods
Financial Statements, the Highwoods Entities have good and marketable title,
free and clear of all Liens, to all of their respective Assets, except for any
such Liens or other defects of title which are not reasonably likely to have a
Highwoods Material Adverse Effect. All Material personal properties used in the
businesses of the Highwoods Entities are in good condition, reasonable wear and
tear excepted, and are usable in the ordinary course of business consistent with
Highwoods' past practices.
6.10 Environmental Matters.
(a) Each Highwoods Entity, its Operating Properties, and, to the
Knowledge of Highwoods, its Participating Facilities are, and have been, in
compliance with all Environmental Laws, except for violations which are not
reasonably likely to have a Highwoods Material Adverse Effect.
(b) There is no Litigation pending or, to the Knowledge of
Highwoods, threatened before any court, governmental agency, or authority or
other forum in which any Highwoods Entity or any of its Operating Properties or
Participation Facilities (or Highwoods in respect of such Operating Property or
Participation Facility) has been or, with respect to threatened Litigation, may
be named as a defendant (i) for alleged noncompliance (including by any
predecessor) with any Environmental Law or (ii) relating to the release,
discharge, spillage, or disposal into the environment of any Hazardous Material,
whether or not occurring at, on, under,
26
adjacent to, or affecting (or potentially affecting) a site owned, leased, or
operated by any Highwoods Entity or any of its Operating Properties or
Participation Facilities, except such as is not reasonably likely to have a
Highwoods Material Adverse Effect.
(c) During the period of (i) any Highwoods Entity's ownership or
operation of any of their respective current properties, (ii) any Highwoods
Entity's participation in the management of any Participation Facility, or (iii)
any Highwoods Entity's holding of a security interest in an Operating Property,
there have been no releases, discharges, spillages, or disposals of Hazardous
Material in, on, under, adjacent to, or affecting (or potentially affecting)
such properties, except such as are not reasonably likely to have a Highwoods
Material Adverse Effect. To the Knowledge of Highwoods, prior to the period of
(i) any Highwoods Entity's ownership or operation of any of their respective
current properties, (ii) any Highwoods Entity's participation in the management
of any Participation Facility, or (iii) any Highwoods Entity's holding of a
security interest in an Operating Property, there were no releases, discharges,
spillages, or disposals of Hazardous Material in, on, under, or affecting any
such property, Participation Facility or Operating Property, except such as are
not reasonably likely to have a Highwoods Material Adverse Effect.
6.11 Compliance with Laws. Each Highwoods Entity has in effect all
Permits necessary for it to own, lease or operate its material Assets and to
carry on its business as now conducted, except for those Permits the absence of
which are not reasonably likely to have a Highwoods Material Adverse Effect, and
there has occurred no Default under any such Permit, other than Defaults which
are not reasonably likely to have a Highwoods Material Adverse Effect. Except as
disclosed in Section 6.11 of the Highwoods Disclosure Memorandum, none of the
Highwoods Entities:
(a) is in Default under its Amended and Restated Articles of
Incorporation or Bylaws (or other governing instruments); or
(b) is in Default under any Laws, Orders or Permits applicable to
its business or employees conducting its business, except for Defaults which are
not reasonably likely to have, individually or in the aggregate, a Highwoods
Material Adverse Effect; or
(c) since January 1, 1993, has received any notification or
communication from any agency or department of federal, state, or local
government or any Regulatory Authority or the staff thereof (i) asserting that
any Highwoods Entity is not in compliance with any of the Laws or Orders which
such governmental authority or Regulatory Authority enforces, where such
noncompliance is reasonably likely to have a Highwoods Material Adverse Effect,
(ii) threatening to revoke any Permits, the revocation of which is reasonably
likely to have a Highwoods Material Adverse Effect, or (iii) requiring any
Highwoods Entity to enter into or consent to the issuance of a cease and desist
order, formal agreement, directive, commitment or memorandum of understanding,
or to adopt any board resolution or similar undertaking, which restricts
materially the conduct of its business.
27
6.12 Labor Relations. No Highwoods Entity is the subject of any
Litigation asserting that it or any other Highwoods Entity has committed an
unfair labor practice (within the meaning of the National Labor Relations Act or
comparable state law) or seeking to compel it or any other Highwoods Entity to
bargain with any labor organization as to wages or conditions of employment, nor
is any Highwoods Entity party to any collective bargaining agreement, nor is
there any strike or other labor dispute involving any Highwoods Entity, pending
or threatened, or to the Knowledge of Highwoods, is there any activity involving
any Highwoods Entity's employees seeking to certify a collective bargaining unit
or engaging in any other organization activity.
6.13 Employee Benefit Plans.
(a) Highwoods has disclosed in Section 6.13 of the Highwoods
Disclosure Memorandum, and has delivered or made available to JCN prior to the
execution of this Agreement copies in each case of, all pension, retirement,
profit-sharing, deferred compensation, stock option, employee stock ownership,
severance pay, vacation, bonus, or other incentive plan, all other written
employee programs, arrangements, or agreements, all medical, vision, dental, or
other health plans, all life insurance plans, and all other employee benefit
plans or fringe benefit plans, including "employee benefit plans" as that term
is defined in Section 3(3) of ERISA, currently adopted, maintained by, sponsored
in whole or in part by, or contributed to by any Highwoods Entity or ERISA
Affiliate thereof for the benefit of employees, retirees, dependents, spouses,
directors, independent contractors, or other beneficiaries and under which
employees, retirees, dependents, spouses, directors, independent contractors, or
other beneficiaries are eligible to participate (collectively, the "Highwoods
Benefit Plans"). Any of the Highwoods Benefit Plans which is an "employee
pension benefit plan," as that term is defined in Section 3(2) of ERISA, is
referred to herein as a "Highwoods ERISA Plan." Each Highwoods ERISA Plan which
is also a "defined benefit plan" (as defined in Section 414(j) of the Internal
Revenue Code) is referred to herein as a "Highwoods Pension Plan." No Highwoods
Pension Plan is or has been a multiemployer plan within the meaning of Section
3(37) of ERISA.
(b) All Highwoods Benefit Plans are in compliance with the
applicable terms of ERISA, the Internal Revenue Code, and any other applicable
Laws the breach or violation of which are reasonably likely to have a Highwoods
Material Adverse Effect. Each Highwoods ERISA Plan which is intended to be
qualified under Section 401(a) of the Internal Revenue Code has received a
favorable determination letter from the Internal Revenue Service, and Highwoods
is not aware of any circumstances likely to result in revocation of any such
favorable determination letter. To the Knowledge of Highwoods, no Highwoods
Entity has engaged in a transaction with respect to any Highwoods Benefit Plan
that, assuming the taxable period of such transaction expired as of the date
hereof, would subject any Highwoods Entity to a Tax imposed by either Section
4975 of the Internal Revenue Code or Section 502(i) of ERISA.
(c) No Highwoods Pension Plan has any "unfunded current
liability," as that term is defined in Section 302(d)(8)(A) of ERISA, and the
fair market value of the assets of any such
28
plan exceeds the plan's "benefit liabilities," as that term is defined in
Section 4001(a)(16) of ERISA, when determined under actuarial factors that would
apply if the plan terminated in accordance with all applicable legal
requirements. Since the date of the most recent actuarial valuation, there has
been (i) no material change in the financial position of any Highwoods Pension
Plan, (ii) no change in the actuarial assumptions with respect to any Highwoods
Pension Plan, and (iii) no increase in benefits under any Highwoods Pension Plan
as a result of plan amendments or changes in applicable Law which is reasonably
likely to have a Highwoods Material Adverse Effect or materially adversely
affect the funding status of any such plan. Neither any Highwoods Pension Plan
nor any "single-employer plan," within the meaning of Section 4001(a)(15) of
ERISA, currently or formerly maintained by any Highwoods Entity, or the
single-employer plan of any entity which is considered an ERISA Affiliate of
Highwoods has an "accumulated funding deficiency" within the meaning of Section
412 of the Internal Revenue Code or Section 302 of ERISA, which is reasonably
likely to have a Highwoods Material Adverse Effect. No Highwoods Entity has
provided, or is required to provide, security to a Highwoods Pension Plan or to
any single-employer plan of an ERISA Affiliate pursuant to Section 401(a)(29) of
the Internal Revenue Code.
(d) No Liability under Subtitle C or D of Title IV of ERISA has
been or is expected to be incurred by any Highwoods Entity with respect to any
ongoing, frozen, or terminated single-employer plan or the single-employer plan
of any ERISA Affiliate, which Liability is reasonably likely to have a Highwoods
Material Adverse Effect. No Highwoods Entity has incurred any withdrawal
Liability with respect to a multiemployer plan under Subtitle B of Title IV of
ERISA (regardless of whether based on contributions of an ERISA Affiliate),
which Liability is reasonably likely to have a Highwoods Material Adverse
Effect. No notice of a "reportable event," within the meaning of Section 4043 of
ERISA for which the 30-day reporting requirement has not been waived, has been
required to be filed for any Highwoods Pension Plan or by any ERISA Affiliate
within the 12-month period ending on the date hereof.
(e) Except as disclosed in Section 6.13 of the Highwoods
Disclosure Memorandum, no Highwoods Entity has any Liability for retiree health
and life benefits under any of the Highwoods Benefit Plans and there are no
restrictions on the rights of such Highwoods Entity to amend or terminate any
such retiree health or benefit Plan without incurring any Liability.
(f) The actuarial present values of all accrued deferred
compensation entitlements (including entitlements under any executive
compensation, supplemental retirement, or employment agreement) of employees and
former employees of any Highwoods Entity and their respective beneficiaries,
other than entitlements accrued pursuant to funded retirement plans subject to
the provisions of Section 412 of the Internal Revenue Code or Section 302 of
ERISA, have been fully reflected on the Highwoods Financial Statements to the
extent required by and in accordance with GAAP.
6.14 Legal Proceedings. There is no Litigation instituted or pending, or,
to the Knowledge of Highwoods, threatened (or unasserted but considered probable
of assertion and which if
29
asserted would have at least a reasonable probability of an unfavorable outcome)
against any Highwoods Entity, or against any director, employee or employee
benefit plan of any Highwoods Entity, or against any Asset, interest, or right
of any of them, that is reasonably likely to have a Highwoods Material Adverse
Effect, nor are there any Orders of any Regulatory Authorities, other
governmental authorities, or arbitrators outstanding against any Highwoods
Entity, that are reasonably likely to have a Highwoods Material Adverse Effect.
6.15 Reports. Since January 1, 1993, or the date of organization if
later, each Highwoods Entity has timely filed all reports and statements,
together with any amendments required to be made with respect thereto, that it
was required to file with Regulatory Authorities except for those which the
failure to file are not reasonably likely to have a Highwoods Material Adverse
Effect). To the Knowledge of Highwoods, as of their respective dates, each of
such reports and documents, including the financial statements, exhibits, and
schedules thereto, complied in all material respects with all applicable Laws.
As of its respective date, each such report and document did not, in all
material respects, contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading, except for those untrue statements or omissions not
reasonably expected to have a Highwoods Material Adverse Effect.
6.16 Statements True and Correct. No statement, certificate, instrument
or other writing furnished or to be furnished by any Highwoods Entity or any
Affiliate thereof to JCN pursuant to this Agreement or any other document,
agreement or instrument referred to herein contains or will contain any untrue
statement of material fact or will omit to state a material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. None of the information supplied or to be supplied by any
Highwoods Entity or any Affiliate thereof for inclusion in the Registration
Statement to be filed by Highwoods with the SEC, will, when the Registration
Statement becomes effective, be false or misleading with respect to any material
fact, or omit to state any material fact necessary to make the statements
therein not misleading. None of the information supplied or to be supplied by
any Highwoods Entity or any Affiliate thereof for inclusion in the Proxy
Statement to be mailed to JCN's shareholders in connection with the JCN
Shareholders Meeting, and any other documents to be filed by any Highwoods
Entity or any Affiliate thereof with the SEC or any other Regulatory Authority
in connection with the transactions contemplated hereby, will, at the respective
time such documents are filed, and with respect to the Proxy Statement, when
first mailed to the shareholders of JCN, be false or misleading with respect to
any material fact, or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, or, in the case of the Proxy Statement or any amendment thereof
or supplement thereto, at the time of the JCN Shareholders Meeting, be false or
misleading with respect to any material fact, or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of any proxy for the JCN Shareholders Meeting. All documents
that any Highwoods Entity or any Affiliate thereof is responsible for filing
with any Regulatory Authority in connection with the transactions
30
contemplated hereby will comply as to form in all material respects with the
provisions of applicable Law.
6.17 Authority of Sub. Sub is a corporation duly organized, validly
existing and in good standing under the Laws of the State of Maryland as a
wholly owned Subsidiary of Highwoods. The authorized capital stock of Sub
consists of 1,000 shares of Sub Common Stock, all of which is validly issued and
outstanding, fully paid and nonassessable and is owned by Highwoods free and
clear of any Lien. Sub has the corporate power and authority necessary to
execute, deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated herein, including the Merger, have been duly and validly authorized
by all necessary corporate action in respect thereof on the part of Sub. This
Agreement represents a legal, valid, and binding obligation of Sub, enforceable
against Sub in accordance with its terms (except in all cases as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar Laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought).
6.18 Tax and Regulatory Matters. No Highwoods Entity or any Affiliate
thereof has taken or agreed to take any action or has any Knowledge of any fact
or circumstance that is reasonably likely to (i) prevent the Merger from
qualifying as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code, or (ii) materially impede or delay receipt of any
Consents of Regulatory Authorities referred to in Section 9.1(b) or result in
the imposition of a condition or restriction of the type referred to in the last
sentence of Section 9.1(b).
6.19 Rights Agreement. Execution of this Agreement and consummation of
the Merger and the other transactions contemplated by this Agreement will not
result in the grant of any rights to any Person under the Highwoods Rights
Agreement (other than as contemplated by Section 3.1) or enable or require the
Highwoods Rights to be exercised, distributed or triggered.
ARTICLE 7
CONDUCT OF BUSINESS PENDING CONSUMMATION
7.1 Affirmative Covenants of JCN. From the date of this Agreement until
the earlier of the Effective Time or the termination of this Agreement, unless
the prior written consent of Highwoods shall have been obtained, and except as
otherwise expressly contemplated herein or as set forth in the capital budget
for JCN as detailed in Section 7.1 of the JCN Disclosure Memorandum, JCN shall
and shall cause each of its Subsidiaries to (a) operate its business only in the
usual, regular, and ordinary course, (b) preserve intact its business
organization and Assets and maintain its rights and franchises, (c) take no
action which would (i) adversely affect the ability of any Party to obtain any
Consents required for the transactions contemplated hereby without imposition of
a condition or restriction of the type referred to in the last sentences of
31
Section 9.1(b) or 9.1(c), or (ii) adversely affect the ability of any Party to
perform its covenants and agreements under this Agreement, and (d) aggressively
take such actions as may reasonably be necessary to prevent any violation of Law
by any Person suggesting a competing Acquisition Proposal without first
obtaining the endorsement of the JCN Board of Directors for such Acquisition
Proposal.
7.2 Negative Covenants of JCN. From the date of this Agreement until the
earlier of the Effective Time or the termination of this Agreement, unless the
prior written consent of Highwoods shall have been obtained, and except as
otherwise expressly contemplated herein, JCN covenants and agrees that it will
not do or agree or commit to do, or permit any of its Subsidiaries to do or
agree or commit to do, any of the following:
(a) amend the Certificate of Incorporation, Bylaws or other
governing instruments of any JCN Entity; or
(b) other than as provided in Section 7.2(b) of the JCN Disclosure
Memorandum, incur any additional debt obligation or other obligation for
borrowed money (other than indebtedness of a JCN Entity to another JCN Entity)
in excess of an aggregate of $250,000 (for the JCN Entities on a consolidated
basis) except in the ordinary course of the business of JCN Subsidiaries
consistent with past practices, or impose, or suffer the imposition, on any
Asset of any JCN Entity of any Lien or permit any such Lien to exist (other than
in connection with Liens in effect as of the date hereof that are disclosed in
the JCN Disclosure Memorandum); or
(c) repurchase, redeem, or otherwise acquire or exchange (other
than in settlement of obligations then owed by the ESOT (as defined below) to
JCN as reasonably approved by Highwoods and other than exchanges in the ordinary
course under employee benefit plans), directly or indirectly, any shares, or any
securities convertible into any shares, of the capital stock of any JCN Entity,
or declare or pay any dividend or make any other distribution in respect of
JCN's capital stock; or
(d) except for this Agreement, or pursuant to the exercise of
stock options outstanding as of the date hereof and pursuant to the terms
thereof in existence on the date hereof or as disclosed in Section 7.2(d) of the
JCN Disclosure Memorandum, issue, sell, pledge, encumber, authorize the issuance
of, enter into any Contract to issue, sell, pledge, encumber, or authorize the
issuance of, or otherwise permit to become outstanding, any additional shares of
JCN Common Stock or any other capital stock of any JCN Entity, or any stock
appreciation rights, or any option, warrant, or other Equity Right; or
(e) except as provided in Section 7.2(e) of the JCN Disclosure
Memorandum, adjust, split, combine or reclassify any capital stock of any JCN
Entity or issue or authorize the issuance of any other securities in respect of
or in substitution for shares of JCN Common Stock, or sell, lease, mortgage or
otherwise dispose of or otherwise encumber (x) any shares of capital stock of
any JCN Subsidiary (unless any such shares of stock are sold or otherwise
transferred to another
32
JCN Entity) or (y) any Asset having a book value or gross lease value (with
respect to any new Lease of a JCN Property) in excess of $50,000 other than in
the ordinary course of business for reasonable and adequate consideration; or
(f) except for purchases of U.S. Treasury securities or U.S.
Government agency securities, which in either case have maturities of three
years or less, purchase any securities or make any material investment, either
by purchase of stock of securities, contributions to capital, Asset transfers,
or purchase of any Assets, in any Person other than a wholly owned JCN
Subsidiary, or otherwise acquire direct or indirect control over any Person,
other than in connection with (i) foreclosures in the ordinary course of
business, or (ii) the creation of new wholly owned Subsidiaries organized to
conduct or continue activities otherwise permitted by this Agreement; or
(g) grant any increase in compensation or benefits to the
employees or officers of any JCN Entity, except in accordance with past practice
disclosed in Section 7.2(g) of the JCN Disclosure Memorandum and as reasonably
approved by Highwoods or as required by Law; pay any severance or termination
pay or any bonus other than pursuant to written policies or written Contracts in
effect on the date of this Agreement and disclosed in Section 7.2(g) of the JCN
Disclosure Memorandum; enter into or amend any severance agreements with
officers of any JCN Entity; grant any material increase in fees or other
increases in compensation or other benefits to directors of any JCN Entity
except in accordance with past practice disclosed in Section 7.2(g) of the JCN
Disclosure Memorandum; or
(h) enter into or amend any employment Contract between any JCN
Entity and any Person (unless such amendment is required by Law) that the JCN
Entity does not have the unconditional right to terminate without Liability
(other than Liability for services already rendered), at any time on or after
the Effective Time; or
(i) except as provided in Section 7.2(i) of the JCN Disclosure
Memorandum, adopt any new employee benefit plan of any JCN Entity or terminate
or withdraw from, or make any material change in or to, any existing employee
benefit plans of any JCN Entity other than any such change that is required by
Law or that, in the opinion of counsel, is necessary or advisable to maintain
the tax qualified status of any such plan, or make any distributions from such
employee benefit plans, except as required by Law, the terms of such plans or
consistent with past practice; or
(j) make any significant change in any Tax or accounting methods
or systems of internal accounting controls, except as may be appropriate to
conform to changes in Tax Laws or regulatory accounting requirements or GAAP; or
(k) commence any Litigation other than in accordance with past
practice, settle any Litigation involving any Liability of any JCN Entity for
material money damages or restrictions
33
upon the operations of any JCN Entity without first providing notice thereof to
Highwoods and obtaining Highwoods consent, which consent shall not be
unreasonably withheld; or
(l) make any payments or accommodations to the Employee Stock
Ownership Trust of the J.C. Nichols Company ("ESOT") or any other shareholder
relating directly or indirectly to any of the costs, expenses or other charges
(including break-up fees owed to any third-party) of the ESOT or any other
shareholder related to or arising out of directly or indirectly any of the
transactions contemplated by this Agreement without first obtaining Highwoods
consent; or
(m) without first providing notice thereof to Highwoods and
obtaining Highwoods consent, which consent shall not be unreasonably withheld
and, except in the ordinary course of business, enter into, modify, amend or
terminate any material Contract (including any loan Contract with an unpaid
balance exceeding $50,000) or waive, release, compromise or assign any material
rights or claims.
7.3 Covenants of Highwoods. From the date of this Agreement until the
earlier of the Effective Time or the termination of this Agreement, unless the
prior written consent of JCN shall have been obtained, and except as otherwise
expressly contemplated herein, Highwoods covenants and agrees that it shall (a)
continue to conduct its business and the business of its Subsidiaries in a
manner designed in its reasonable judgment, to continue it to meet the
requirements for qualification as a real estate investment trust under Sections
856-860 of the Internal Revenue Code and to enhance the long-term value of the
Highwoods Common Stock and the business prospects of the Highwoods Entities and
to the extent consistent therewith use all reasonable efforts to preserve intact
the Highwoods Entities' core businesses and goodwill with their respective
employees and the communities they serve, (b) take no action which would (i)
materially adversely affect the ability of any Party to obtain any Consents
required for the transactions contemplated hereby without imposition of a
condition or restriction of the type referred to in the last sentences of
Section 9.1(b) or 9.1(c), or (ii) materially adversely affect the ability of any
Party to perform its covenants and agreements under this Agreement; provided,
that the foregoing shall not prevent any Highwoods Entity from acquiring any
Assets or other businesses or from discontinuing or disposing of any of its
Assets or business if such action is, in the judgment of Highwoods, desirable in
the conduct of the business of Highwoods and its Subsidiaries. Highwoods further
covenants and agrees that it will not, without the prior written consent of JCN,
which consent shall not be unreasonably withheld, amend the Amended and Restated
Articles of Incorporation or Bylaws of Highwoods, in each case, in any manner
adverse to the holders of JCN Common Stock as compared to rights of holders of
Highwoods Common Stock generally as of the date of this Agreement. Highwoods
shall take all action necessary under the MGCL prior to the Effective Time for
Sub to enter into and consummate the transactions contemplated hereunder,
including the Merger.
7.4 Adverse Changes in Condition.
34
(a) Each Party agrees to give written notice promptly to the other
Party upon becoming aware of the occurrence or impending occurrence of any event
or circumstance relating to it or any of its Subsidiaries which (i) is
reasonably likely to have, individually or in the aggregate, a JCN Material
Adverse Effect or a Highwoods Material Adverse Effect, as applicable, or (ii)
would cause or constitute a material breach of any of its representations,
warranties, or covenants contained herein, and to use its reasonable efforts to
prevent or promptly to remedy the same.
(b) Unless JCN, based upon the advice of tax counsel, is
reasonably satisfied that JCN shareholders receiving only Highwoods Common Stock
in the Merger will incur no income tax liability as a result of the Merger, the
parties shall develop a mutually acceptable plan that carries out as nearly as
possible the economic results provided herein without resulting in income tax
liability for JCN shareholders receiving only Highwoods Common Stock.
7.5 Reports. Each Party and its Subsidiaries shall file all reports
required to be filed by it with Regulatory Authorities between the date of this
Agreement and the Effective Time and shall deliver to the other Party copies of
all such reports promptly after the same are filed. If financial statements are
contained in any such reports filed with the SEC, such financial statements will
fairly present the consolidated financial position of the entity filing such
statements as of the dates indicated and the consolidated results of operations,
changes in shareholders' equity, and cash flows for the periods then ended in
accordance with GAAP (subject in the case of interim financial statements to
normal recurring year-end adjustments that are not material). As of their
respective dates, such reports filed with the SEC will comply in all material
respects with the Securities Laws and will not contain any untrue statement of a
material fact or omit to state a 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. Any financial statements contained
in any other reports to another Regulatory Authority shall be prepared in
accordance with Laws applicable to such reports.
ARTICLE 8
ADDITIONAL AGREEMENTS
8.1 Registration Statement; Proxy Statement; Shareholder Approval. As
soon as reasonably practicable after execution of this Agreement, Highwoods
shall prepare and file the Registration Statement with the SEC, and shall use
its reasonable efforts to cause the Registration Statement to become effective
under the 1933 Act and take any action required to be taken under the applicable
state Blue Sky or securities Laws in connection with the issuance of the shares
of Highwoods Common Stock upon consummation of the Merger. JCN shall cooperate
in the preparation and filing of the Registration Statement and shall furnish
all information concerning it and the holders of its capital stock as Highwoods
may reasonably request in connection with such action. JCN shall call the JCN
Shareholders Meeting, to be held as soon as reasonably practicable after the
Registration Statement is declared effective by the SEC, for the purpose of
voting upon approval of this Agreement and such other related matters as it
deems appropriate.
35
In connection with the JCN Shareholders Meeting, (i) JCN shall prepare and file
with the SEC a Proxy Statement and mail such Proxy Statement to its
shareholders, (ii) the Parties shall furnish to each other all information
concerning them that they may reasonably request in connection with such Proxy
Statement, (iii) the Board of Directors of JCN shall recommend to its
shareholders the approval of the matters submitted for approval (subject to the
Board of Directors of JCN, after having consulted with outside counsel,
reasonably determining in good faith that the making of such recommendation, or
the failure to withdraw or modify its recommendation, would be inconsistent with
the fiduciary duties of the members of such Board of Directors to JCN's
shareholders under applicable law), and (iv) the Board of Directors and officers
of JCN shall use their reasonable efforts to obtain such shareholders' approval
(subject to the Board of Directors of JCN, after having consulted with outside
counsel, reasonably determining in good faith the taking of such actions would
be inconsistent with the fiduciary duties of the members of such Board of
Directors to JCN's shareholders under applicable law). Highwoods and JCN shall
make all necessary filings with respect to the Merger under the Securities Laws.
8.2 Exchange Listing. Highwoods shall cause to be listed, prior to the
Effective Time, on the NYSE, subject to official notice of issuance, the shares
of Highwoods Common Stock to be issued to the holders of JCN Common Stock
pursuant to the Merger, and Highwoods shall give all notices and make all
filings with the NYSE required in connection with the transactions contemplated
herein.
8.3 Applications; Antitrust Notification. Highwoods shall promptly
prepare and file, and JCN shall cooperate in the preparation and, where
appropriate, filing of, applications with all Regulatory Authorities having
jurisdiction over the transactions contemplated by this Agreement seeking the
requisite Consents necessary to consummate the transactions contemplated by this
Agreement. To the extent required by the HSR Act, each of the Parties will
promptly file with the United States Federal Trade Commission and the United
States Department of Justice the notification and report form required for the
transactions contemplated hereby and any supplemental or additional information
which may reasonably be requested in connection therewith pursuant to the HSR
Act and will comply in all material respects with the requirements of the HSR
Act. The Parties shall deliver to each other copies of all filings,
correspondence and orders to and from all Regulatory Authorities in connection
with the transactions contemplated hereby. The Parties agree that the
consummation of the Merger does not require any filings or approvals under the
HSR Act.
8.4 Filings with State Offices. Upon the terms and subject to the
conditions of this Agreement, Sub shall execute and file the Articles of Merger
with the Secretary of State of the State of Missouri and the Articles of Merger
with the Department of Assessment and Taxation of the State of Maryland in
connection with the Closing.
8.5 Agreement as to Efforts to Consummate. Subject to the terms and
conditions of this Agreement, each Party agrees to use, and to cause its
Subsidiaries to use, its reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary,
36
proper, or advisable under applicable Laws to consummate and make effective, as
soon as reasonably practicable after the date of this Agreement, the
transactions contemplated by this Agreement, including using its reasonable
efforts to lift or rescind any Order adversely affecting its ability to
consummate the transactions contemplated herein and to cause to be satisfied the
conditions referred to in Article 9; provided, that nothing herein shall
preclude either Party from exercising its rights under this Agreement. Each
Party shall use, and shall cause each of its Subsidiaries to use, its reasonable
efforts to obtain all Consents necessary or desirable for the consummation of
the transactions contemplated by this Agreement.
8.6 Investigation and Confidentiality.
(a) Prior to the Effective Time, each Party shall keep the other
Party advised of all material developments relevant to its business and to
consummation of the Merger and shall permit the other Party to make or cause to
be made such investigation of the business and properties of it and its
Subsidiaries and of their respective financial and legal conditions as the other
Party reasonably requests, provided that such investigation shall be reasonably
related to the transactions contemplated hereby and shall not interfere
unnecessarily with normal operations. No investigation by a Party shall affect
the representations and warranties of the other Party.
(b) In addition to the Parties' respective obligations under the
Confidentiality Agreement, which is hereby reaffirmed and adopted, and
incorporated by reference herein, each Party shall, and shall cause its advisers
and agents to, maintain the confidentiality of all confidential information
furnished to it by the other Party concerning its and its Subsidiaries'
businesses, operations, and financial positions and shall not use such
information for any purpose except in furtherance of the transactions
contemplated by this Agreement. If this Agreement is terminated prior to the
Effective Time, each Party shall promptly return or certify the destruction of
all documents and copies thereof, and all work papers containing confidential
information received from the other Party.
(c) Each Party agrees to give the other Party notice as soon as
practicable after any determination by it of any fact or occurrence relating to
the other Party which it has discovered through the course of its investigation
and which represents, or is reasonably likely to represent, either a material
breach of any representation, warranty, covenant or agreement of the other Party
or which has had or is reasonably likely to have a JCN Material Adverse Effect
or a Highwoods Material Adverse Effect, as applicable. Each party hereby
represents and warrants that it knows of no such fact or occurrence as of the
date of this Agreement.
8.7 Press Releases. Prior to the Effective Time, JCN and Highwoods shall
consult with each other as to the form and substance of any press release or
other public disclosure materially related to this Agreement or any other
transaction contemplated hereby; provided, that nothing in this Section 8.7
shall be deemed to prohibit any Party from making any disclosure which its
counsel deems necessary or advisable in order to satisfy such Party's disclosure
obligations imposed by Law.
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8.8 Certain Actions. (a) Except with respect to this Agreement and the
transactions contemplated hereby, no JCN Entity nor any officer or director
thereof nor any Representatives thereof retained by any JCN Entity shall
directly or indirectly solicit any Acquisition Proposal by any Person. Except to
the extent the Board of Directors of JCN, after having consulted with and
considered the advice of outside counsel, reasonably determines in good faith
that the failure to take such actions would constitute a breach of fiduciary
duties of the members of such Board of Directors to JCN's shareholders under
applicable law, no JCN Entity or any officer or director or Representative
thereof shall furnish any non-public information that it is not legally
obligated to furnish, negotiate with respect to, or enter into any Contract with
respect to, any Acquisition Proposal. JCN may communicate information about such
an Acquisition Proposal to its shareholders if and to the extent that it is
required to do so in order to comply with its legal obligations as advised by
outside counsel. JCN shall promptly advise Highwoods following the receipt of
any Acquisition Proposal or any inquiry concerning a possible Acquisition
Proposal and the details thereof, and advise Highwoods of any developments with
respect to such Acquisition Proposal or inquiry promptly upon the occurrence
thereof. JCN shall (i) immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any Persons conducted heretofore
with respect to any of the foregoing, and (ii) use its reasonable efforts to
cause all of its Affiliates and Representatives not to engage in any of the
foregoing. JCN also agrees to take reasonable efforts to prevent any employee of
any JCN Entity from committing any of the foregoing acts.
(b) During the period from the date of this Agreement through the
Effective Time (or earlier termination hereof), none of the JCN Entities shall
terminate, amend, modify or waive any provision of any confidentiality or
standstill agreement to which it is a party. During such period, the JCN
Entities shall enforce, to the fullest extent permitted under applicable law,
the provisions of any such agreement, including, but not limited to, by
obtaining injunctions to prevent any breaches of any such agreements and to
enforce specifically the terms and provisions thereof in any court having
jurisdiction.
8.9 Tax Treatment. Each of the Parties undertakes and agrees to use its
reasonable efforts to cause the Merger, and to take no action which would cause
the Merger not, to qualify for or as a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code for federal income tax purposes,
including obtaining letters or other written instruments evidencing investment
intent from the requisite number of JCN Shareholders.
8.10 State Takeover Laws. Each JCN Entity shall take all necessary steps
to exempt the transactions contemplated by this Agreement from, or if necessary
to challenge the validity or applicability of, any applicable Takeover Law,
including Section 351.459 of the GBCL.
8.11 Charter Provisions. Each JCN Entity shall take all necessary action
to ensure that the entering into of this Agreement and the consummation of the
Merger and the other transactions contemplated hereby do not and will not result
in the grant of any rights to any Person under the Certificate of Incorporation,
Bylaws or other governing instruments of any JCN Entity or restrict
38
or impair the ability of Highwoods or any of its Subsidiaries to vote, or
otherwise to exercise the rights of a shareholder with respect to, shares of any
JCN Entity that may be directly or indirectly acquired or controlled by them.
8.12 Agreement of Affiliates. JCN has disclosed in Section 8.12 of the
JCN Disclosure Memorandum all Persons it reasonably believes are an "affiliate"
of JCN for purposes of Rule 145 under the 1933 Act. JCN shall use its reasonable
efforts to cause each such Person to deliver to Highwoods not later than 30 days
prior to the Effective Time, a written agreement providing that such Person will
not sell, pledge, transfer, or otherwise dispose of the shares of Highwoods
Common Stock to be received by such Person upon consummation of the Merger
except in compliance with applicable provisions of the 1933 Act and the rules
and regulations thereunder. Highwoods shall not be required to maintain the
effectiveness of the Registration Statement under the 1933 Act for the purposes
of resale of Highwoods Common Stock by such affiliates who do not enter into
such written agreements.
8.13 Employee Benefits and Contracts. Following the Effective Time,
Highwoods shall provide generally to officers and employees of the JCN Entities
employee benefits under employee benefit and welfare plans (other than stock
option or other plans involving the potential issuance of Highwoods Common
Stock), on terms and conditions which when taken as a whole are substantially
similar to those currently provided by the Highwoods Entities to their similarly
situated officers and employees. For purposes of participation, vesting and
(except in the case of Highwoods retirement plans) benefit accrual under
Highwoods' employee benefit plans, the service of the employees of the JCN
Entities prior to the Effective Time shall be treated as service with a
Highwoods Entity participating in such employee benefit plans. Highwoods also
shall cause the Surviving Corporation and its Subsidiaries to honor in
accordance with their terms all employment, severance, consulting and other
compensation Contracts disclosed in Section 8.13 of the JCN Disclosure
Memorandum to Highwoods between any JCN Entity and any current or former
director, officer, or employee thereof, and all provisions for vested benefits
or other vested amounts earned or accrued through the Effective Time under the
JCN Benefit Plans.
8.14 Indemnification.
(a) For a period of six years after the Effective Time,
Highwoods shall, and shall cause the Surviving Corporation to, indemnify, defend
and hold harmless the present and former directors, officers, employees and
agents of the JCN Entities (each, an "Indemnified Party") against all
Liabilities arising out of actions or omissions arising out of the Indemnified
Party's service or services as directors, officers, employees or agents of any
JCN Entity or, at any JCN Entity's request, of another corporation, partnership,
joint venture, trust or other enterprise occurring at or prior to the Effective
Time (including the transactions contemplated by this Agreement) to the fullest
extent permitted under Missouri Law and by the Certificate of Incorporation and
Bylaws and any other organizational instruments of the applicable JCN Entity as
in effect on the date hereof, including provisions relating to advances of
expenses incurred in the defense of any Litigation and whether or not any
Highwoods Entity is insured against any such
39
matter. Without limiting the foregoing, in any case in which approval by the
Surviving Corporation is required to effectuate any indemnification, the
Surviving Corporation shall direct, at the election of the Indemnified Party,
that the determination of any such approval shall be made by independent counsel
mutually agreed upon between Highwoods and the Indemnified Party.
(b) Highwoods shall, or shall cause the Surviving
Corporation to, use its reasonable efforts (and JCN shall cooperate prior to the
Effective Time in these efforts) to maintain in effect for a period of three
years after the Effective Time JCN's existing directors' and officers' liability
insurance policy (provided that Highwoods may substitute therefor (i) policies
of at least the same coverage and amounts containing terms and conditions which
are substantially no less advantageous or (ii) with the consent of JCN given
prior to the Effective Time, any other policy) with respect to claims arising
from facts or events which occurred prior to the Effective Time and covering
persons who are currently covered by such insurance; provided, that neither
Highwoods nor the Surviving Corporation shall be obligated to make aggregate
premium payments for such three-year period in respect of such policy (or
coverage replacing such policy) which exceed, for the portion related to JCN's
directors and officers, 200% of the annual premium payments on JCN's current
policy in effect as of the date of this Agreement (the "Maximum Amount"). If the
amount of the premiums necessary to maintain or procure such insurance coverage
exceeds the Maximum Amount, Highwoods shall use its reasonable efforts to
maintain the most advantageous policies of directors' and officers' liability
insurance obtainable for a premium equal to the Maximum Amount.
(c) Any Indemnified Party wishing to claim indemnification
under paragraph (a) of this Section 8.14, upon learning of any such Liability or
Litigation, shall promptly notify Highwoods thereof. In the event of any such
Litigation (whether arising before or after the Effective Time), (i) Highwoods
or the Surviving Corporation shall have the right (but only subsequent to the
Effective Time) to assume the defense thereof and neither Highwoods nor the
Surviving Corporation shall be liable to such Indemnified Parties for any legal
expenses of other counsel or any other expenses subsequently incurred by such
Indemnified Parties in connection with the defense thereof, except that if
Highwoods or the Surviving Corporation elects not to assume such defense or
counsel for the Indemnified Parties advises that there are substantive issues
which raise conflicts of interest between Highwoods or the Surviving Corporation
and the Indemnified Parties, the Indemnified Parties may retain counsel
satisfactory to them, and Highwoods or the Surviving Corporation shall pay all
reasonable fees and expenses of such counsel for the Indemnified Parties
promptly as statements therefor are received; provided, that Highwoods and the
Surviving Corporation shall be obligated pursuant to this paragraph (c) to pay
for only one firm of counsel for all Indemnified Parties in any jurisdiction,
(ii) the Indemnified Parties will cooperate in the defense of any such
Litigation, and (iii) neither Highwoods nor the Surviving Corporation shall be
liable for any settlement effected without its prior written consent, which
consent shall not be unreasonably withheld; and provided further that neither
Highwoods nor the Surviving Corporation shall have any obligation hereunder to
any Indemnified Party when and if a court of competent jurisdiction shall
determine, and such determination shall have become
40
final, that the indemnification of such Indemnified Party in the manner
contemplated hereby is prohibited by applicable Law.
(d) If Highwoods or the Surviving Corporation or any
successors or assigns shall consolidate with or merge into any other Person and
shall not be the continuing or surviving Person of such consolidation or merger
or shall transfer all or substantially all of its assets to any Person, then and
in each case, proper provision shall be made so that the successors and assigns
of Highwoods or the Surviving Corporation shall assume the obligations set forth
in this Section 8.14.
(e) The provisions of this Section 8.14 are intended to be
for the benefit of and shall be enforceable by, each Indemnified Party and their
respective heirs and representatives.
8.15 Tenant Estoppels. JCN shall endeavor to use reasonable commercial
efforts to obtain prior to the Effective Date, tenant estoppel certificates for
the 100 largest Leases (based on gross rental payments) with respect to the JCN
Properties in form reasonably acceptable to Highwoods.
8.16 Maintenance of Organizational Structure. Highwoods acknowledges that
its present operating structure enables a level of operational flexibility that
facilitates the growth of Highwoods and its business. Highwoods shall not alter
its current operating structure in any material respect, except to the extent
the Board of Directors of Highwoods determines in good faith that such
alteration is in the best interests of the shareholders of Highwoods.
8.17 Maintenance of Plaza Redevelopment Plan. Highwoods acknowledges the
economic and social significance of the Country Club Plaza district (the
"Plaza") to Kansas City, Missouri and surrounding communities, and further
acknowledges the importance of the development and redevelopment of the Plaza by
the JCN Entities. From and after the Effective Time, Highwoods shall continue to
pursue each portion of the Plaza redevelopment plan unless the economics of any
single portion of the redevelopment plan, or changes in circumstances beyond the
reasonable control of Highwoods, causes the Board of Directors of Highwoods to
determine in good faith, after consideration of available alternatives, that
such redevelopment plan or portion thereof is contrary to the best interests of
the shareholders of Highwoods.
8.18 Maintenance of Charitable Contributions. From and after the
Effective Time, Highwoods shall make annual charitable contributions and provide
community support in the geographic areas in which the business of JCN is
currently operated, at levels substantially comparable to or greater than the
levels of charitable contributions and community support provided by JCN
Entities within such areas during calendar year 1996 and the period from January
1, 1997 through the date of this Agreement.
8.19 Maintenance of Merchant Support. From and after the Effective Time,
Highwoods shall provide annual financial assistance and marketing support to
merchants' associations relating to properties currently owned or operated by
any JCN Entity, at levels substantially comparable
41
to or greater than the levels of such support provided by JCN Entities during
calendar year 1996 and the period from January 1, 1997 through the date of this
Agreement.
8.20 Member of Board of Directors. Highwoods shall appoint to its Board
of Directors an individual (who would qualify as an independent director under
Highwoods' Articles of Incorporation and bylaws) designated by JCN's Board of
Directors, which designee shall be reasonably acceptable to the Highwoods Board
of Directors to serve until the next annual shareholders meeting, at which time
the Highwoods Board of Directors will nominate and recommend such designee for a
three-year term on Highwoods Board of Directors.
ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
9.1 Conditions to Obligations of Each Party. The respective obligations
of each Party to perform this Agreement and consummate the Merger and the other
transactions contemplated hereby are subject to the satisfaction of the
following conditions, unless waived by both Parties pursuant to Section 11.6:
(a) Shareholder Approval. The shareholders of JCN shall have
approved this Agreement, and the consummation of the transactions contemplated
hereby, including the Merger, as and to the extent required by Law, by the
provisions of any governing instruments, or by the rules of the NASD, if
applicable.
(b) Regulatory Approvals. All Consents of, filings and
registrations with, and notifications to, all Regulatory Authorities required
for consummation of the Merger shall have been obtained or made and shall be in
full force and effect and all waiting periods required by Law shall have
expired.
(c) Third Party Consents and Approvals. Each Party shall have
obtained any and all Consents required for consummation of the Merger (other
than those referred to in Section 9.1(b)), which as to JCN, the parties agree
shall include only those Consents set forth in Section 9.1 of the JCN Disclosure
Memorandum. In the event such third party does not make such payment within ten
days of demand therefor by Highwoods, the payment shall be an obligation of JCN
and shall be paid by JCN within two business days of notice to JCN by Highwoods.
In addition to the Consents set forth in Section 9.1 to the JCN Disclosure
Memorandum, to the extent required by the applicable contract, mortgage,
document or other instrument, JCN shall use commercially reasonable efforts to
obtain the consent of (i) any lender to JCN and (ii) any other party reasonably
identified by Highwoods. No Consent so obtained which is necessary to consummate
the transactions contemplated hereby shall be conditioned or restricted in a
manner which in the reasonable judgment of the Board of Directors of Highwoods
would so materially adversely impact the economic or business benefits of the
transactions contemplated by this Agreement that, had such condition or
requirement been known, such Party would not, in its reasonable judgment, have
entered into this Agreement.
42
(d) Legal Proceedings. No court or governmental or regulatory
authority of competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any Law or Order (whether temporary, preliminary or
permanent) or taken any other action which prohibits, restricts or makes illegal
consummation of the transactions contemplated by this Agreement.
(e) Registration Statement. The Registration Statement shall be
effective under the 1933 Act, no stop orders suspending the effectiveness of the
Registration Statement shall have been issued, no action, suit, proceeding or
investigation by the SEC to suspend the effectiveness thereof shall have been
initiated and be continuing, and all necessary approvals under state securities
Laws or the 1933 Act or the 1934 Act relating to the issuance or trading of the
shares of Highwoods Common Stock issuable pursuant to the Merger shall have been
received.
(f) Exchange Listing. The shares of Highwoods Common Stock
issuable pursuant to the Merger shall have been approved for listing on the
NYSE, subject to official notice of issuance.
9.2 Conditions to Obligations of Highwoods. The obligations of Highwoods
to perform this Agreement and consummate the Merger and the other transactions
contemplated hereby are subject to the satisfaction of the following conditions,
unless waived by Highwoods pursuant to Section 11.6(a):
(a) Representations and Warranties. For purposes of this Section
9.2(a), the accuracy of the representations and warranties of JCN set forth in
this Agreement shall be assessed as of the date of this Agreement and as of the
Effective Time with the same effect as though all such representations and
warranties had been made on and as of the Effective Time (provided that
representations and warranties which are confined to a specified date shall
speak only as of such date). The representations and warranties set forth in
Section 5.3 shall be true and correct (except for inaccuracies which are de
minimus in amount). The representations and warranties set forth in Sections
5.18, 5.19, and 5.20 shall be true and correct in all material respects. No
representation or warranty of JCN set forth in this Agreement shall be deemed
untrue or incorrect, and no JCN Entity shall be deemed to have breached a
representation or warranty, as a consequence of the existence of any fact,
circumstance or event unless such fact, circumstance or event, individually or
taken together with other facts, circumstances or events inconsistent with any
other representation or warranty has had, or is expected to have, a JCN Material
Adverse Effect; provided that, for purposes of this sentence only, those
representations and warranties which are qualified by references to "material"
or "Material Adverse Effect" or to the "Knowledge" of any Person shall be deemed
not to include such qualifications.
(b) Performance of Agreements and Covenants. Each and all of the
agreements and covenants of JCN to be performed and complied with pursuant to
this Agreement and the other agreements contemplated hereby prior to the
Effective Time shall have been duly performed and complied with in all material
respects, as of the Effective Time.
43
(c) Certificates. JCN shall have delivered to Highwoods (i) a
certificate, dated as of the Effective Time and signed on its behalf by its
chief executive officer and its chief financial officer, to the effect that the
conditions set forth in Section 9.1 as relates to JCN and in Section 9.2(a) and
9.2(b) have been satisfied, and (ii) certified copies of resolutions duly
adopted by JCN's Board of Directors and shareholders evidencing the taking of
all corporate action necessary to authorize the execution, delivery and
performance of this Agreement, and the consummation of the transactions
contemplated hereby, all in such reasonable detail as Highwoods and its counsel
shall request.
(d) Opinion of Counsel. Highwoods shall have received an opinion
of Blackwell Sanders Matheny Weary & Lombardi L.L.P., counsel to JCN, dated as
of the Closing, in form reasonably satisfactory to Highwoods, as to the matters
set forth in Exhibit 1.
(e) Accountant's Letters. Highwoods shall have received from KPMG
Peat Marwick LLP letters dated not more than five days prior to (i) the date of
the Proxy Statement and (ii) the Effective Time, with respect to certain
financial information regarding JCN, in form and substance reasonably
satisfactory to Highwoods, which letters shall be based upon customary specified
procedures undertaken by such firm in accordance with Statement of Auditing
Standard Nos. 72 and 75.
(f) Rights Agreement. Neither this Agreement and any agreements
related hereto nor consummation of the Merger shall have caused or shall cause
any of the JCN Rights to become non-redeemable or exercisable for capital stock
of Highwoods or JCN.
(g) Shareholders' Equity. JCN's shareholders' equity as of the
Closing shall not be less than JCN's shareholders' equity as of March 31, 1997,
excluding for purposes of the calculation of such shareholders' equity the
effects of (i) all costs, fees and charges, including fees and charges of JCN's
accountants, counsel and financial advisors, whether or not accrued or paid,
that are related to the transactions contemplated by this Agreement and (ii) any
reductions in JCN's shareholders' equity resulting from any actions or changes
in policies of JCN taken at the request of Highwoods.
9.3 Conditions to Obligations of JCN. The obligations of JCN to
perform this Agreement and consummate the Merger and the other transactions
contemplated hereby are subject to the satisfaction of the following conditions,
unless waived by JCN pursuant to Section 11.6(b):
(a) Representations and Warranties. For purposes of this Section
9.3(a), the accuracy of the representations and warranties of Highwoods set
forth in this Agreement shall be assessed as of the date of this Agreement and
as of the Effective Time with the same effect as though all such representations
and warranties had been made on and as of the Effective Time (provided that
representations and warranties which are confined to a specified date shall
speak only as of such date). The representations and warranties of Highwoods set
forth in Section 6.15
44
shall be true and correct in all material respects. No representation or
warranty of Highwoods set forth in this Agreement shall be deemed untrue or
incorrect, and no Highwoods Entity shall be deemed to have breached a
representation or warranty, as a consequence of the existence of any fact,
circumstance or event unless such fact, circumstance or event, individually or
taken together with all other facts, circumstances or events inconsistent with
any other representation or warranty has had, or is expected to have, a
Highwoods Material Adverse Effect; provided that, for purposes of this sentence
only, those representations and warranties which are qualified by references to
"material" or "Material Adverse Effect" or to the "Knowledge" of any Person
shall be deemed not to include such qualifications.
(b) Performance of Agreements and Covenants. Each and all of the
agreements and covenants of Highwoods to be performed and complied with pursuant
to this Agreement and the other agreements contemplated hereby prior to the
Effective Time shall have been duly performed and complied with in all material
respects.
(c) Certificates. Highwoods shall have delivered to JCN (i) a
certificate, dated as of the Effective Time and signed on its behalf by its
chief executive officer and its chief financial officer, to the effect that the
conditions set forth in Section 9.1 as relates to Highwoods and in Section
9.3(a) and 9.3(b) have been satisfied, and (ii) certified copies of resolutions
duly adopted by Highwoods' Board of Directors and Sub's Board of Directors and
sole shareholder evidencing the taking of all corporate action necessary to
authorize the execution, delivery and performance of this Agreement, and the
consummation of the transactions contemplated hereby, all in such reasonable
detail as JCN and its counsel shall request.
(d) Opinion of Counsel. JCN shall have received an opinion of (i)
Alston & Bird LLP, counsel to Highwoods, dated as of the Effective Time, in form
reasonably acceptable to JCN, as to the matters set forth in Exhibit 2 and (ii)
a tax opinion of Blackwell Sanders Matheny Weary & Lombardi, L.L.P., to the
effect that the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code and that JCN shareholders receiving
only Highwoods Common Stock will incur no income tax liability.
(e) Fairness Opinion. JCN shall not have received notice from
Morgan Stanley, Dean Witter, Discover & Co. prior to the date of the Proxy
Statement, indicating withdrawal of its prior opinion that the consideration to
be received by JCN shareholders in connection with the Merger is fair, from a
financial point of view, to such shareholders and shall have received an update
to such opinion immediately prior to the shareholder meeting at which approval
of this Agreement will be considered.
(f) Exchange Agent Certification. The Exchange Agent shall have
delivered to JCN a certificate, dated as of the Effective Time, to the effect
that the Exchange Agent has received from Highwoods appropriate instructions and
authorization for the Exchange Agent to issue a sufficient number of shares of
Highwoods Common Stock in exchange for outstanding shares of JCN Common Stock
and that Highwoods has deposited with the Exchange Agent
45
sufficient funds to pay a reasonable estimate of the cash payments necessary to
make all fractional share payments as required by Section 3.6.
ARTICLE 10
TERMINATION
10.1 Termination. Notwithstanding any other provision of this Agreement,
and notwithstanding the approval of this Agreement by the shareholders of JCN,
this Agreement may be terminated and the Merger abandoned at any time prior to
the Effective Time:
(a) By mutual consent of Highwoods and JCN; or
(b) By either Party (provided that the terminating Party is not
then in material breach of any representation, warranty, covenant, or other
agreement contained in this Agreement) in the event of a material breach by the
other Party of any representation or warranty contained in this Agreement which
cannot be or has not been cured within 30 days after the giving of written
notice to the breaching Party of such breach and which breach is reasonably
likely, in the opinion of the non-breaching Party, to have, individually or in
the aggregate, a JCN Material Adverse Effect or a Highwoods Material Adverse
Effect, as applicable, on the breaching Party; or
(c) By either Party (provided that the terminating Party is not
then in material breach of any representation, warranty, covenant, or other
agreement contained in this Agreement) in the event of a material breach by the
other Party of any covenant or agreement contained in this Agreement which
cannot be or has not been cured within 30 days after the giving of written
notice to the breaching Party of such breach; or
(d) By either Party (provided that the terminating Party is not
then in material breach of any representation, warranty, covenant, or other
agreement contained in this Agreement) in the event (i) any Consent of any
Regulatory Authority required for consummation of the Merger and the other
transactions contemplated hereby shall have been denied by final nonappealable
action of such authority or if any action taken by such authority is not
appealed within the time limit for appeal, or (ii) the shareholders of JCN fail
to vote their approval of the matters relating to this Agreement and the
transactions contemplated hereby at the JCN Shareholders Meeting where such
matters were presented to such shareholders for approval and voted upon; or
(e) By either Party in the event that the Merger shall not have
been consummated by June 30, 1998, if the failure to consummate the transactions
contemplated hereby on or before such date is not caused by any breach of this
Agreement by the Party electing to terminate pursuant to this Section 10.1(e);
or
(f) By Highwoods or JCN, in the event that the Board of Directors
of JCN shall have failed to recommend to its shareholders the approval of the
Merger and the transactions contemplated by this Agreement (to the exclusion of
any other Acquisition Proposal), or shall have resolved not to recommend to its
shareholders the approval of the Merger, or shall have affirmed, recommended or
authorized entering into any other Acquisition Proposal or other transaction
involving a merger, share exchange, consolidation or transfer of substantially
all of the Assets of JCN, or shall fail to call and hold a JCN Shareholders
Meeting for purposes of voting on the approval of the Merger and the transaction
contemplated hereby.
10.2 Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 10.1, this Agreement shall
become void and have no effect, except that (i) the provisions of this Section
10.2 and Article 11 and Section 8.6(b) shall survive any such termination and
abandonment, and (ii) a termination pursuant to Sections 10.1(b) or 10.1(c)
shall not relieve the breaching Party from Liability for an uncured willful
breach of a representation, warranty, covenant, or agreement giving rise to such
termination.
10.3 Non-Survival of Representations and Covenants. The respective
representations, warranties, obligations, covenants, and agreements of the
Parties shall not survive the Effective Time except this Section 10.3 and
Articles 1, 2, 3, 4 and 11 and Sections 8.13 and 8.14.
ARTICLE 11
MISCELLANEOUS
11.1 Definitions.
(a) Except as otherwise provided herein, the capitalized terms set
forth below shall have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as
amended.
"1934 Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Acquisition Proposal" with respect to a Party shall mean
any tender offer or exchange offer or any proposal for a merger, acquisition of
all of the stock or assets of, or other business combination involving the
acquisition of such Party or any of its Subsidiaries or the
46
acquisition of a substantial equity interest in, or a substantial portion of the
assets of, such Party or any of its Subsidiaries.
"Affiliate" of a Person shall mean: (i) any other Person
directly, or indirectly through one or more intermediaries, controlling,
controlled by or under common control with such Person; (ii) any officer,
director, partner, employer, or direct or indirect beneficial owner of any 10%
or greater equity or voting interest of such Person.
"Agreement" shall mean this Agreement and Plan of Merger,
including the Exhibits delivered pursuant hereto and incorporated herein by
reference.
"Articles of Merger" shall mean, collectively, the Articles
of Merger to be executed by JCN and Sub and filed with the Secretary of State of
the State of Missouri relating to the Merger as contemplated by Section 1.1, and
the Articles of Merger to be executed by JCN and Sub and filed with the
Department of Assessments and Taxation of the State of Maryland relating to the
Merger as contemplated by Section 1.1.
"Assets" of a Person shall mean all of the assets,
properties, businesses and rights of such Person of every kind, nature,
character and description, whether real, personal or mixed, tangible or
intangible, accrued or contingent, or otherwise relating to or utilized in such
Person's business, directly or indirectly, in whole or in part, whether or not
carried on the books and records of such Person, and whether or not owned in the
name of such Person or any Affiliate of such Person and wherever located.
"Cash Amount" shall have the meaning set forth in Section
3.2.
"Closing Date" shall mean the date on which the Closing
occurs.
"Confidentiality Agreement" shall mean that certain
Confidentiality Agreement, dated November 24, 1997, between JCN and Highwoods.
"Consent" shall mean any consent, approval, authorization,
clearance, exemption, waiver, or similar affirmation required from any Person
pursuant to any Contract, Law, Order, or Permit.
"Contract" shall mean any written or oral agreement,
arrangement, authorization, commitment, contract, indenture, instrument, lease,
obligation, plan, practice, restriction, understanding, or undertaking of any
kind or character, or other document to which any Person is a party or that is
binding on any Person or its capital stock, Assets or business.
47
"Default" shall mean (i) any breach or violation of, default
under, contravention of, or conflict with, any Contract, Law, Order, or Permit,
(ii) any occurrence of any event that with the passage of time or the giving of
notice or both would constitute a breach or violation of, default under,
contravention of, or conflict with, any Contract, Law, Order, or Permit, or
(iii) any occurrence of any event that with or without the passage of time or
the giving of notice would give rise to a right of any Person to exercise any
remedy or obtain any relief under, terminate or revoke, suspend, cancel, or
modify or change the current terms of, or renegotiate, or to accelerate the
maturity or performance of, or to increase or impose any Liability under, any
Contract, Law, Order, or Permit.
"Dissenting Shares" shall mean those shares of JCN Common
Stock as to which the holders thereof elect to exercise their dissenter's rights
in accordance with and as contemplated by Section 351.455 of the GBCL and as
provided for in Section 3.5 hereof.
"Environmental Laws" shall mean all Laws relating to
pollution or protection of human health and the environment (including ambient
air, surface water, ground water, land surface, or subsurface strata) and which
are administered, interpreted, or enforced by the United States Environmental
Protection Agency or state and local agencies with jurisdiction over, and
including published court decisions interpreting the foregoing pollution or
protection of the environment, including the Comprehensive Environmental
Response Compensation and Liability Act, as amended, 42 U.S.C. 9601 et seq.
("CERCLA"), the Resource Conservation and Recovery Act, as amended, 42 U.S.C.
6901 et seq. ("RCRA"), and other Laws relating to emissions, discharges,
releases, or threatened releases of any Hazardous Material, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of any Hazardous Material.
"Equity Rights" shall mean all arrangements, calls,
commitments, Contracts, options, rights to subscribe to, scrip, understandings,
warrants, or other binding obligations of any character whatsoever relating to,
or securities or rights convertible into or exchangeable for, shares of the
capital stock of a Person or by which a Person is or may be bound to issue
additional shares of its capital stock or other Equity Rights.
"ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended.
"Exhibits" 1 through 2, inclusive, shall mean the Exhibits
so marked, copies of which are attached to this Agreement. Such Exhibits are
hereby incorporated by reference herein and made a part hereof, and may be
referred to in this Agreement and any other related instrument or document
without being attached hereto.
"GAAP" shall mean generally accepted accounting principles,
consistently applied during the periods involved.
"GBCL" shall mean the General and Business Corporation Law
of Missouri.
48
"Hazardous Material" shall mean (i) any hazardous substance,
hazardous material, hazardous waste, regulated substance, or toxic substance (as
those terms are defined by any applicable Environmental Laws) and (ii) any
chemicals, pollutants, contaminants, petroleum, petroleum products, or oil (and
specifically shall include asbestos requiring abatement, removal, or
encapsulation pursuant to any Environmental Law and any polychlorinated
biphenyls).
"Highwoods Capital Stock" shall mean, collectively, the
Highwoods Common Stock, the Highwoods Preferred Stock and any other class or
series of capital stock of Highwoods.
"Highwoods Common Stock" shall mean the $.01 par value
common stock of Highwoods.
"Highwoods Disclosure Memorandum" shall mean the written
information entitled "Highwoods Properties, Inc. Disclosure Memorandum"
delivered prior to the date of this Agreement to JCN describing in reasonable
detail the matters contained therein and, with respect to each disclosure made
therein, specifically referencing each Section of this Agreement under which
such disclosure is being made. Information disclosed with respect to one Section
shall not be deemed to be disclosed for purposes of any other Section not
specifically referenced with respect thereto.
"Highwoods Entities" shall mean, collectively, Highwoods and
all Highwoods Subsidiaries.
"Highwoods Financial Statements" shall mean (i) the
consolidated balance sheets (including related notes and schedules, if any) of
Highwoods as of September 30, 1997, and as of December 31, 1996 and 1995, and
the related statements of operations, changes in shareholders' equity, and cash
flows (including related notes and schedules, if any) for the nine months ended
September 30, 1997, and for each of the three fiscal years ended December 31,
1996, 1995 and 1994, as filed by Highwoods in SEC Documents, and (ii) the
consolidated balance sheets of Highwoods (including related notes and schedules,
if any) and related statements of operations, changes in shareholders' equity,
and cash flows (including related notes and schedules, if any) included in SEC
Documents filed with respect to periods ended subsequent to September 30, 1997.
"Highwoods Material Adverse Effect" shall mean an event,
change or occurrence which, individually or together with any other event,
change or occurrence, has a material adverse impact on (i) the financial
position, business, or results of operations of Highwoods and its Subsidiaries,
taken as a whole, or (ii) the ability of Highwoods to perform its obligations
under this Agreement or to consummate the Merger or the other transactions
contemplated by this Agreement.
"Highwoods Preferred Stock" shall mean, collectively, the 8
5/8% Series A Cumulative Redeemable Preferred Shares of which 125,000 shares are
outstanding and the 8% Series
49
B Cumulative Redeemable Preferred Shares of which 6,900,000 shares are
outstanding, of Highwoods.
"Highwoods Rights Agreement" shall mean that certain
Shareholders Rights Agreement, dated October 4, 1997, between Highwoods and
First Union National Bank, as Rights Agent.
"Highwoods Rights" shall mean the preferred stock purchase
rights issued pursuant to the Highwoods Rights Agreement.
"Highwoods Stock Plans" shall mean the existing stock option
and other stock-based compensation plans of Highwoods designated as follows: the
Amended and Restated 1994 Stock Option Plan; the Dividend Reinvestment Plan and
the 1997 Employee Stock Purchase Plan.
"Highwoods Subsidiaries" shall mean the Subsidiaries of
Highwoods, which shall include Highwoods/Forsyth Limited Partnership and the
other Highwoods Subsidiaries described in Section 6.4 and any corporation or
other organization acquired as a Subsidiary of Highwoods in the future and held
as a Subsidiary by Highwoods at the Effective Time.
"HSR Act" shall mean Section 7A of the Clayton Act, as added
by Title II of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations promulgated thereunder.
"Intellectual Property" shall mean copyrights, patents,
trademarks, service marks, service names, trade names, applications therefor,
technology rights and licenses, computer software (including any source or
object codes therefor or documentation relating thereto), trade secrets,
franchises, know-how, inventions, and other intellectual property rights.
"Internal Revenue Code" shall mean the Internal Revenue Code
of 1986, as amended, and the rules and regulations promulgated thereunder.
"JCN Common Stock" shall mean the $.01 par value common
stock of JCN.
"JCN Disclosure Memorandum" shall mean the written
information entitled "J.C. Nichols Company Disclosure Memorandum" delivered
prior to the date of this Agreement to Highwoods describing in reasonable detail
the matters contained therein and, with respect to each disclosure made therein,
specifically referencing each Section of this Agreement under which such
disclosure is being made. Information disclosed with respect to one Section
shall not be deemed to be disclosed for purposes of any other Section not
specifically referenced with respect thereto.
50
"JCN Entities" shall mean, collectively, JCN and all JCN
Subsidiaries.
"JCN Financial Statements" shall mean (i) the consolidated
balance sheets (including related notes and schedules, if any) of JCN as of
September 30, 1997, and as of December 31, 1996 and 1995, and the related
statements of income, changes in shareholders' equity, and cash flows (including
related notes and schedules, if any) for the nine months ended September 30,
1997, and for each of the three fiscal years ended December 31, 1996, 1995, and
1994, as filed by JCN in SEC Documents, and (ii) the consolidated balance sheets
of JCN (including related notes and schedules, if any) and related statements of
operations, changes in shareholders' equity, and cash flows (including related
notes and schedules, if any) included in SEC Documents filed with respect to
periods ended subsequent to September 30, 1997.
"JCN Material Adverse Effect" shall mean an event, change or
occurrence which, individually or together with any other event, change or
occurrence, has a material adverse impact on (i) the financial position,
business, or results of operations of JCN and its Subsidiaries, taken as a
whole, or (ii) the ability of JCN to perform its obligations under this
Agreement or to consummate the Merger or the other transactions contemplated by
this Agreement.
"JCN Rights" shall mean the common stock purchase rights
issued pursuant to the JCN Rights Agreement.
"JCN Rights Agreement" shall mean that certain Shareholders
Rights Agreement, dated July 28, 1997, between JCN and American Stock Transfer &
Trust Company, as Rights Agent.
"JCN Stock Plans" shall mean the existing stock option and
other stock-based compensation plans of JCN designated as follows: the Amended
and Restated 1996 Stock Option Plans.
"JCN Subsidiaries" shall mean the Subsidiaries of JCN, which
shall include the JCN Subsidiaries described in Section 5.4 and any corporation
or other organization acquired as a Subsidiary of JCN in the future and held as
a Subsidiary by JCN at the Effective Time; provided, however, that neither
KH/JCN L.L.C., a Missouri limited liability company, nor the ESOT shall be
deemed a JCN Subsidiary.
"Knowledge" as used with respect to a Person (including
references to such Person being aware of a particular matter) shall mean those
facts that are known or should reasonably have been known after due inquiry by
the chairman, president, chief financial officer, chief accounting officer,
chief operating officer, general counsel, any assistant or deputy general
counsel, or any senior, executive or other vice president of such Person and the
Knowledge of any such persons obtained or which would have been obtained from a
reasonable investigation.
51
"Law" shall mean any code, law, ordinance, regulation,
reporting or licensing requirement, rule, or statute applicable to a Person or
its Assets, Liabilities, or business, including those promulgated, interpreted
or enforced by any Regulatory Authority.
"Lease" shall mean any lease of more than 10,000 rentable
square feet in effect as of the date hereof and as to which JCN is the lessor.
"Liability" shall mean any direct or indirect, primary or
secondary, liability, indebtedness, obligation, penalty, cost or expense
(including costs of investigation, collection and defense), claim, deficiency,
guaranty or endorsement of or by any Person (other than endorsements of notes,
bills, checks, and drafts presented for collection or deposit in the ordinary
course of business) of any type, whether accrued, absolute or contingent,
liquidated or unliquidated, matured or unmatured, or otherwise.
"Lien" shall mean any conditional sale agreement, default of
title, easement, encroachment, encumbrance, hypothecation, infringement, lien,
mortgage, pledge, reservation, restriction, security interest, title retention
or other security arrangement, or any adverse right or interest, charge, or
claim of any nature whatsoever of, on, or with respect to any property or
property interest, other than (i) liens for current property Taxes not yet due
and payable, and (iii) liens which do not materially impair the use of or title
to the Assets subject to such lien.
"Litigation" shall mean any action, arbitration, cause of
action, claim, complaint, criminal prosecution, governmental or other
examination or investigation, hearing, administrative or other proceeding to
which a Party is a party or of which a Party's, business or Assets (including
Contracts related to it) are the subject, or relating in any way to the
transactions contemplated by this Agreement.
"Material" for purposes of this Agreement shall be
determined in light of the facts and circumstances of the matter in question;
provided that any specific monetary amount stated in this Agreement shall
determine materiality in that instance.
"MGCL" shall mean the Maryland General Corporation Law.
"NASD" shall mean the National Association of Securities
Dealers, Inc.
"NYSE" shall mean the New York Stock Exchange, Inc.
"Operating Property" shall mean any property owned, leased,
or operated by the Party in question or by any of its Subsidiaries and, where
required by the context, includes the owner or operator of such property, but
only with respect to such property.
52
"Order" shall mean any administrative decision or award,
decree, injunction, judgment, order, quasi-judicial decision or award, ruling,
or writ of any federal, state, local or foreign or other court, arbitrator,
mediator, tribunal, administrative agency, or Regulatory Authority.
"Participation Facility" shall mean any facility or property
in which the Party in question or any of its Subsidiaries participates in the
management and, where required by the context, said term means the owner or
operator of such facility or property, but only with respect to such facility or
property.
"Party" shall mean either JCN or Highwoods, and "Parties"
shall mean both JCN and Highwoods.
"Permit" shall mean any federal, state, local, and foreign
governmental approval, authorization, certificate, easement, filing, franchise,
license, notice, permit, or right to which any Person is a party or that is or
may be binding upon or inure to the benefit of any Person or its securities,
Assets, or business.
"Per Share Cash Consideration" shall have the meaning set
forth in Section 3.2.
"Per Share Stock Consideration" shall have the meaning set
forth in Section 3.1.
"Person" shall mean a natural person or any legal,
commercial or governmental entity, such as, but not limited to, a corporation,
general partnership, joint venture, limited partnership, limited liability
company, trust, business association, group acting in concert, or any person
acting in a representative capacity.
"Proxy Statement" shall mean the proxy statement used by JCN
to solicit the approval of its shareholders of the transactions contemplated by
this Agreement, which shall include the prospectus of Highwoods relating to the
issuance of the Highwoods Common Stock to holders of JCN Common Stock.
"Registration Statement" shall mean the Registration
Statement on Form S4, or other appropriate form, including any pre-effective or
post-effective amendments or supplements thereto, filed with the SEC by
Highwoods under the 1933 Act with respect to the shares of Highwoods Common
Stock to be issued to the shareholders of JCN in connection with the
transactions contemplated by this Agreement.
53
"Regulatory Authorities" shall mean, collectively, the SEC,
the NYSE, the NASD, the Federal Trade Commission, the United States Department
of Justice, and all other federal, state, county, local or other governmental or
regulatory agencies, authorities (including self-regulatory authorities),
instrumentalities, commissions, boards or bodies having jurisdiction over the
Parties and their respective Subsidiaries.
"Representative" shall mean any investment banker, financial
advisor, attorney, accountant, consultant, or other representative engaged by a
Person.
"SEC Documents" shall mean all forms, proxy statements,
registration statements, reports, schedules, and other documents filed, or
required to be filed, by a Party or any of its Subsidiaries with any Regulatory
Authority pursuant to the Securities Laws.
"Securities Laws" shall mean the 1933 Act, the 1934 Act, the
Investment Company Act of 1940, as amended, the Investment Advisors Act of 1940,
as amended, the Trust Indenture Act of 1939, as amended, and the rules and
regulations of any Regulatory Authority promulgated thereunder.
"Sub Common Stock" shall mean the $.01 par value common
stock of Sub.
"Subsidiaries" shall mean all those corporations,
associations, or other business entities of which the entity in question either
(i) owns or controls 50% or more of the outstanding equity securities either
directly or through an unbroken chain of entities as to each of which 50% or
more of the outstanding equity securities is owned directly or indirectly by its
parent (provided, there shall not be included any such entity the equity
securities of which are owned or controlled in a fiduciary capacity), (ii) in
the case of partnerships, serves as a general partner, (iii) in the case of a
limited liability company, serves as a managing member, or (iv) otherwise has
the ability to elect a majority of the directors, trustees or managing members
thereof.
"Surviving Corporation" shall mean Sub as the surviving
corporation resulting from the Merger.
"Tax Return" shall mean any report, return, information
return, or other information required to be supplied to a taxing authority in
connection with Taxes, including any return of an affiliated or combined or
unitary group that includes a Party or its Subsidiaries.
"Tax" or "Taxes" shall mean any federal, state, county,
local, or foreign taxes, charges, fees, levies, imposts, duties, or other
assessments, including income, gross receipts, excise, employment, sales, use,
transfer, license, payroll, franchise, severance, stamp, occupation, windfall
profits, environmental, federal highway use, commercial rent, customs duties,
capital stock, paid-up capital, profits, withholding, Social Security, single
business and
54
unemployment, disability, real property, personal property, registration, ad
valorem, value added, alternative or add-on minimum, estimated, or other tax or
governmental fee of any kind whatsoever, imposed or required to be withheld by
the United States or any state, county, local or foreign government or
subdivision or agency thereof, including any interest, penalties, and additions
imposed thereon or with respect thereto.
(b) The terms set forth below shall have the meanings
ascribed thereto in the referenced sections:
Business Combination Section 11.2
Cash Election Shares Section 3.2
Closing Section 1.2
Dissenting Share Amount Section 4.2
Effective Time Section 1.3
Election Deadline Section 3.2
Election Form Section 3.2
ERISA Affiliate Section 5.13(c)
ESOT Section 7.2(l)
Exchange Agent Section 3.2
Exchange Fund Section 4.1(a)
Exchange Ratio Section 3.1(c)
Highwoods Benefit Plans Section 6.13(a)
Highwoods ERISA Plan Section 6.13(a)
Highwoods Option Amount Section 3.2(ii)
Highwoods Pension Plan Section 6.13(a)
Highwoods SEC Reports Section 6.5(a)
JCN Benefit Plans Section 5.13(a)
JCN Contracts Section 5.14
JCN ERISA Plan Section 5.13(a)
JCN Options Section 3.7(a)
JCN Pension Plan Section 5.13(a)
JCN Retained Shares Section 3.2
JCN Non-Retained Shares Section 3.2
JCN Properties Section 5.9(a)
JCN Permitted Encumbrances Section 5.9(a)
JCN SEC Reports Section 5.5(a)
JCN Shareholders Meeting Section 3.2
Leases Section 5.9(b)
Mailing Date Section 3.2
Maximum Amount Section 8.14
Maximum Cash Election Amount Section 3.2(i)
Maximum Share Amount Section 3.2
55
Merger Section 1.1
New Certificates Section 4.1(a)
No Election Shares Section 3.2
Old Certificates Section 3.2
Record Date Section 3.2
Takeover Laws Section 5.19
(c) Any singular term in this Agreement shall be deemed to include
the plural, and any plural term the singular. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed
followed by the words "without limitation."
11.2 Expenses.
(a) Except as otherwise provided in this Section 11.2, each of the
Parties shall bear and pay all direct costs and expenses incurred by it or on
its behalf in connection with the transactions contemplated hereunder, including
filing, registration and application fees, printing fees, and fees and expenses
of its own financial or other consultants, investment bankers, accountants, and
counsel.
(b) Notwithstanding the foregoing,
(i) if this Agreement is terminated by Highwoods
pursuant to any of Sections 10.1(b), 10.1(c) or 10.1(f); or
(ii) if the Merger is not consummated as a result of
the failure of JCN to satisfy any of the conditions set forth in
Section 9.2,
then JCN shall promptly pay Highwoods the sum of $2,500,000, which amount
represents the costs and expenses of Highwoods (including reasonable costs of
counsel, investment bankers, actuaries and accountants).
(c) Notwithstanding the foregoing,
(i) if this Agreement is terminated by JCN pursuant to
either of Sections 10.1(b) or 10.1(c); or
(ii) if the Merger is not consummated as a result of the
failure of Highwoods to satisfy any of the conditions set forth in
Section 9.3,
then Highwoods shall promptly pay JCN $2,500,000, which amount represents
the costs and expenses of JCN (including reasonable costs of counsel, investment
bankers, actuaries and accountants).
56
(d) In addition to the foregoing, if within twelve (12) months
following:
(i) any termination of this Agreement by Highwoods pursuant
to Sections 10.1(b), 10.1(c), or 10.1(f); or
(ii) failure to consummate the Merger by reason of any
failure of JCN to satisfy the conditions enumerated in Section
9.2; or
any third-party shall acquire, merge with, combine with, purchase more
than 40% of the Assets of, or engage in any other business combination with, or
purchase any equity securities involving the acquisition of 50% or more of the
voting stock of JCN or a transaction which results in a Person owning 50% or
more of the voting stock of JCN, or enter into any binding agreement to do any
of the foregoing (collectively, a "Business Combination"), such third-party that
is a party to the Business Combination shall pay to Highwoods, prior to the
earlier of consummation of the Business Combination or execution of any letter
of intent or definitive agreement with JCN or any JCN Entity relating to such
Business Combination, an amount in cash equal to the sum of
(x) $ 14,700,000, plus
(y) the amount described in subsection (b) of this Section 11.2
(if not previously paid to Highwoods);
provided, however, that in the event: (i) there has been no Business
Combination consummated or a letter of intent or definitive agreement relating
to a Business Combination entered into at or prior to the time of the JCN
Shareholders Meeting, (ii) this Agreement is terminated or terminable by
Highwoods under Section 10.1(f), and (iii) within 12 months of such meeting or
such termination, a Business Combination is consummated, then such third party
shall pay to Highwoods, at the time of consummation of the Business Combination,
an amount in cash equal to the sum of
(xx) $7,350,000; plus
(yy) the amount described in subsection (b) of this Section 11.2
(if not previously paid to Highwoods);
which payments represent additional compensation for Highwoods' loss as
the result of the transactions contemplated by this Agreement not being
consummated. In the event such third-party shall refuse to pay such amounts
within ten days of demand therefor by Highwoods, the amounts shall be an
obligation of JCN and shall be paid by JCN within two business days of notice to
JCN by Highwoods. Notwithstanding anything herein to the contrary, if: (i)
Highwoods would not have had the right to terminate this Agreement under Section
10.1(f) above, and (ii) JCN has not intentionally taken any action reasonably
likely to afford Highwoods the right to terminate this Agreement pursuant to
10.1(b) or 10.1(c) or JCN has not intentionally failed to
57
satisfy any of the conditions set forth in Section 9.2, then no payments shall
be due to Highwoods pursuant to this Section 11.2(d).
(e) Notwithstanding the foregoing, if
(i) this Agreement is not terminable by Highwoods pursuant to
Section 10.1(f); and
(ii) this Agreement is terminated by either Party pursuant to
Section 10.1(d)(ii);and
(iii) at the time of the JCN Shareholders Meeting there is public
knowledge of an identifiable third party's financially superior proposal to
purchase all of the then outstanding JCN Common Stock; and
(iv) the proposal by such third party referred to in clause (iii)
above is accepted and closes within 12 months of the date of this Agreement,
then the third party making such proposal shall pay to Highwoods,
upon consummation of the transaction, the sum of $2,500,000, which amount
represents the costs and expenses of Highwoods (including reasonable costs of
counsel, investment bankers, actuaries and accountants). In the event such third
party does not make such payment within ten days of demand therefor by
Highwoods, the payment shall be an obligation of JCN and shall be paid by JCN
within two business days of notice to JCN by Highwoods.
11.3 Brokers and Finders. Except for Morgan Stanley, Dean Witter,
Discover & Co. as to JCN and except for J.P. Morgan Securities Inc. as to
Highwoods, each of the Parties represents and warrants that neither it nor any
of its officers, directors or employees has employed any broker or finder or
incurred any Liability for any financial advisory fees, investment bankers'
fees, brokerage fees, commissions, or finders' fees in connection with this
Agreement or the transactions contemplated hereby. In the event of a claim by
any broker or finder based upon his or its representing or being retained by or
allegedly representing or being retained by JCN or by Highwoods, each of JCN and
Highwoods, as the case may be, agrees to indemnify and hold the other Party
harmless of and from any Liability in respect of any such claim.
11.4 Entire Agreement. Except as otherwise expressly provided herein,
this Agreement (including the documents and instruments referred to herein)
constitutes the entire agreement between the Parties with respect to the
transactions contemplated hereunder and supersedes all prior arrangements or
understandings with respect thereto, written or oral (except, as to Section
8.6(b), for the Confidentiality Agreement). Nothing in this Agreement expressed
or implied, is intended to confer upon any Person, other than the Parties or
their respective successors, any rights, remedies, obligations, or liabilities
under or by reason of this Agreement, other than as provided in Sections 8.13
and 8.14.
58
11.5 Amendments. To the extent permitted by Law, this Agreement may be
amended by a subsequent writing signed by each of the Parties upon the approval
of each of the Parties, whether before or after shareholder approval of this
Agreement has been obtained; provided, that after any such approval by the
holders of JCN Common Stock, there shall be made no amendment that reduces or
modifies in any material respect the consideration to be received by holders of
JCN Common Stock.
11.6 Waivers.
(a) Prior to or at the Effective Time, Highwoods, acting through
its Board of Directors, chief executive officer or other authorized officer,
shall have the right to waive any Default in the performance of any term of this
Agreement by JCN, to waive or extend the time for the compliance or fulfillment
by JCN of any and all of its obligations under this Agreement, and to waive any
or all of the conditions precedent to the obligations of Highwoods under this
Agreement, except any condition which, if not satisfied, would result in the
violation of any Law. No such waiver shall be effective unless in writing signed
by a duly authorized officer of Highwoods.
(b) Prior to or at the Effective Time, JCN, acting through its
Board of Directors, chief executive officer or other authorized officer, shall
have the right to waive any Default in the performance of any term of this
Agreement by Highwoods, to waive or extend the time for the compliance or
fulfillment by Highwoods of any and all of its obligations under this Agreement,
and to waive any or all of the conditions precedent to the obligations of JCN
under this Agreement, except any condition which, if not satisfied, would result
in the violation of any Law. No such waiver shall be effective unless in writing
signed by a duly authorized officer of JCN.
(c) The failure of any Party at any time or times to require
performance of any provision hereof shall in no manner affect the right of such
Party at a later time to enforce the same or any other provision of this
Agreement. No waiver of any condition or of the breach of any term contained in
this Agreement in one or more instances shall be deemed to be or construed as a
further or continuing waiver of such condition or breach or a waiver of any
other condition or of the breach of any other term of this Agreement.
11.7 Assignment. Except as expressly contemplated hereby, neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any Party hereto (whether by operation of Law or otherwise) without
the prior written consent of the other Party. 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.
11.8 Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered by hand, by
facsimile transmission, by registered or certified mail, postage pre-paid, or by
courier or overnight carrier, to the persons
59
at the addresses set forth below (or at such other address as may be provided
hereunder), and shall be deemed to have been delivered as of the date so
delivered:
JCN:
J.C. Nichols Company
310 Ward Parkway
Kansas City, Missouri 64112
Telecopy Number: (816) 561-3456
Attention: Barrett Brady
Copy to Counsel:
Blackwell Sanders Matheny Weary & Lombardi L.L.P.
Two Pershing Square, Suite 1100
Kansas City, Missouri 64108
Telecopy Number: (816) 983-8080
Attention: Steve Carman
and to:
Weil, Gotshal & Manges L.L.P.
767 Fifth Avenue
New York, New York 10153
Telecopy Number: (212) 310-8007
Attention: Steve Jacobs
Highwoods:
Highwoods Properties, Inc.
3100 Smoketree Court, Suite 600
Raleigh, North Carolina 27604
Telecopy Number: (919) 876-6929
Attention: Mack D. Pridgen, III,
Vice President and General Counsel
Copy to Counsel:
Alston & Bird LLP
3605 Glenwood Avenue, Suite 310
Raleigh, North Carolina 27612
Telecopy Number: (919) 881-3175
Attention: Brad S. Markoff
60
11.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the Laws of the State of Missouri, without regard to any
applicable conflicts of Laws.
11.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
11.11 Captions; Articles and Sections. The captions contained in this
Agreement are for reference purposes only and are not part of this Agreement.
Unless otherwise indicated, all references to particular Articles or Sections
shall mean and refer to the referenced Articles and Sections of this Agreement.
11.12 Interpretations. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against any party, whether under
any rule of construction or otherwise. No party to this Agreement shall be
considered the draftsman. The parties acknowledge and agree that this Agreement
has been reviewed, negotiated, and accepted by all parties and their attorneys
and shall be construed and interpreted according to the ordinary meaning of the
words used so as fairly to accomplish the purposes and intentions of all parties
hereto.
11.13 Enforcement of Agreement. The Parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement was
not performed in accordance with its specific terms or was 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 hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
11.14 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
61
IN WITNESS WHEREOF, each of the Parties has caused this Agreement
to be executed on its behalf by its duly authorized officers as of the day and
year first above written.
HIGHWOODS PROPERTIES, INC.
By: /s/ Ronald P. Gibson
______________________________
President
JACKSON ACQUISITION CORP.
By: /s/ Ronald P. Gibson
______________________________
President
J.C. NICHOLS COMPANY
By: /s/ Barrett Brady
______________________________
President
62
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Page
ARTICLE 1 TRANSACTIONS AND TERMS OF MERGER......................................................................1
1.1 Merger..........................................................................................1
1.2 Time and Place of Closing.......................................................................1
1.3 Effective Time..................................................................................2
ARTICLE 2 TERMS OF MERGER.......................................................................................2
2.1 Charter.........................................................................................2
2.2 Bylaws..........................................................................................2
2.3 Directors and Officers..........................................................................2
ARTICLE 3 MANNER OF CONVERTING SHARES...........................................................................2
3.1 Conversion of Shares............................................................................2
3.2 Cash Election...................................................................................3
3.3 Anti-Dilution Provisions........................................................................6
3.4 Shares Held by JCN or Highwoods.................................................................6
3.5 Dissenting Shareholders.........................................................................6
3.6 Fractional Shares...............................................................................7
3.7 Conversion of Stock Options.....................................................................7
3.8 Extraordinary Dividend..........................................................................8
ARTICLE 4 EXCHANGE OF SHARES......................................................................................9
4.1 Exchange Procedures.............................................................................9
4.2 Rights of Former JCN Shareholders..............................................................10
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF JCN..................................................................10
5.1 Organization, Standing, and Power..............................................................11
5.2 Authority of JCN; No Breach By Agreement.......................................................11
5.3 Capital Stock..................................................................................12
5.4 JCN Subsidiaries...............................................................................12
5.5 SEC Filings; Financial Statements..............................................................13
5.6 Absence of Undisclosed Liabilities.............................................................14
5.7 Absence of Certain Changes or Events...........................................................14
5.8 Tax Matters....................................................................................14
5.9 Assets.........................................................................................15
5.10 Environmental Matters..........................................................................16
5.11 Compliance with Laws...........................................................................17
5.12 Labor Relations................................................................................17
5.13 Employee Benefit Plans.........................................................................18
5.14 Material Contracts.............................................................................19
5.15 Legal Proceedings..............................................................................20
5.16 Reports........................................................................................20
i
5.17 Statements True and Correct....................................................................21
5.18 Tax and Regulatory Matters.....................................................................21
5.19 State Takeover Laws............................................................................22
5.20 Charter Provisions.............................................................................22
5.21 Rights Agreement...............................................................................22
5.22 Opinion of Financial Advisor...................................................................22
5.23 Board Recommendation...........................................................................22
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF HIGHWOODS..........................................................22
6.1 Organization, Standing, and Power..............................................................22
6.2 Authority; No Breach By Agreement..............................................................23
6.3 Capital Stock..................................................................................24
6.4 Highwoods Subsidiaries.........................................................................24
6.5 SEC Filings; Financial Statements..............................................................25
6.6 Absence of Undisclosed Liabilities.............................................................25
6.7 Absence of Certain Changes or Events...........................................................26
6.8 Tax Matters....................................................................................26
6.9 Assets.........................................................................................26
6.10 Environmental Matters..........................................................................26
6.11 Compliance with Laws...........................................................................27
6.12 Labor Relations................................................................................28
6.13 Employee Benefit Plans.........................................................................28
6.14 Legal Proceedings..............................................................................29
6.15 Reports........................................................................................30
6.16 Statements True and Correct....................................................................30
6.17 Authority of Sub...............................................................................31
6.18 Tax and Regulatory Matters.....................................................................31
6.19 Rights Agreement...............................................................................31
ARTICLE 7 CONDUCT OF BUSINESS PENDING CONSUMMATION.............................................................31
7.1 Affirmative Covenants of JCN...................................................................31
7.2 Negative Covenants of JCN......................................................................32
7.3 Covenants of Highwoods.........................................................................34
7.4 Adverse Changes in Condition...................................................................34
7.5 Reports........................................................................................35
ARTICLE 8 ADDITIONAL AGREEMENTS................................................................................35
8.1 Registration Statement; Proxy Statement; Shareholder Approval..................................35
8.2 Exchange Listing...............................................................................36
8.3 Applications; Antitrust Notification...........................................................36
8.4 Filings with State Offices.....................................................................36
8.5 Agreement as to Efforts to Consummate..........................................................36
8.6 Investigation and Confidentiality..............................................................37
ii
8.7 Press Releases.................................................................................37
8.8 Certain Actions................................................................................38
8.9 Tax Treatment..................................................................................38
8.10 State Takeover Laws............................................................................38
8.11 Charter Provisions.............................................................................38
8.12 Agreement of Affiliates........................................................................39
8.13 Employee Benefits and Contracts................................................................39
8.14 Indemnification................................................................................39
8.15 Tenant Estoppels...............................................................................41
8.16 Maintenance of Organizational Structure........................................................41
8.17 Maintenance of Plaza Redevelopment Plan........................................................41
8.18 Maintenance of Charitable Contributions........................................................41
8.19 Maintenance of Merchant Support................................................................41
8.20 Member of Board of Directors...................................................................42
ARTICLE 9 CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE....................................................42
9.1 Conditions to Obligations of Each Party........................................................42
9.2 Conditions to Obligations of Highwoods.........................................................43
9.3 Conditions to Obligations of JCN...............................................................44
ARTICLE 10 TERMINATION.........................................................................................46
10.1 Termination....................................................................................46
10.2 Effect of Termination..........................................................................47
10.3 Non-Survival of Representations and Covenants..................................................47
ARTICLE 11 MISCELLANEOUS.......................................................................................47
11.1 Definitions....................................................................................47
11.2 Expenses.......................................................................................57
11.3 Brokers and Finders............................................................................59
11.4 Entire Agreement...............................................................................59
11.5 Amendments.....................................................................................60
11.6 Waivers........................................................................................60
11.7 Assignment.....................................................................................60
11.8 Notices........................................................................................60
11.9 Governing Law..................................................................................62
11.10 Counterparts...................................................................................62
11.11 Captions; Articles and Sections................................................................62
11.12 Interpretations................................................................................62
11.13 Enforcement of Agreement.......................................................................62
11.14 Severability...................................................................................62
</TABLE>
iii
LIST OF EXHIBITS
Exhibit Number Description
-------------- -----------
1. Matters as to which Blackwell Sanders
Matheny Weary & Lombardi will opine (ss.
9.2(d)).
2. Matters as to which Alston & Bird LLP will
opine (ss.9.3(d)).
Exhibit 1
MATTERS AS TO WHICH BLACKWELL SANDERS MATHENY WEARY &
LOMBARDI LLP WILL OPINE
1. JCN is a corporation duly organized, validly existing and in good
standing under the laws of the State of Missouri, with full corporate power and
authority to carry on the business in which it is engaged and to own and use its
Assets.
2. The authorized capital stock of JCN consists of shares of
________________________ JCN Common Stock, of which __________________ shares
were issued and outstanding as of ____________________, 19__. Subsequent to
September 1995, no shares of JCN Common Stock have been issued in violation of
any statutory preemptive rights of shareholders, and all shares issued since
such date were duly issued and are fully paid and nonassessable under the
Missouri Business Corporation Act. To our knowledge, except as set forth above
or as disclosed in Section 5.3 of the JCN Disclosure Memorandum, as of , 19___
there were no shares of capital stock or other equity securities of JCN
outstanding and no outstanding Equity Rights relating to the capital stock of
JCN.
3. The execution and delivery of the Agreement and compliance with its
terms do not and will not violate or contravene any provision of the Articles of
Incorporation or Bylaws of JCN or, to our knowledge but without any independent
investigation, result in any conflict with, breach of, or default or
acceleration under any Law or Order to which JCN is a party or by which JCN is
bound, except as may be disclosed in the JCN Disclosure Memorandum.
4. The Agreement has been duly and validly executed and delivered by
JCN and, assuming valid authorization, execution and delivery by Highwoods and
Sub, constitutes a valid and binding agreement of JCN enforceable in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally, provided, however, that we express no opinion as to the availability
of the equitable remedy of specific performance.
Exhibit 2
MATTERS AS TO WHICH ALSTON & BIRD LLP WILL OPINE
1. Highwoods is a corporation duly organized, validly existing and in
good standing under the laws of the State of Maryland with full corporate power
and authority to carry on the business in which it is engaged, and to own and
use its Assets.
2. Sub is a corporation duly organized and validly existing and in good
standing under the laws of the State of Maryland with full corporate power and
authority to carry on the business in which it is engaged, and to own and use
its Assets.
3. The execution and delivery of the Agreement and compliance with its
terms do not and will not violate or contravene any provision of the Amended and
Restated Articles of Incorporation or Bylaws of Highwoods or, to our knowledge
but without any independent investigation, any Law or Order to which Highwoods
is a party or by which Highwoods is bound. The adoption of the Agreement and
compliance with its terms do not and will not violate or contravene any
provision of the Articles of Incorporation or Bylaws of Sub or, to our knowledge
but without any independent investigation, any Law or Order to which Sub is a
party or by which Sub is bound.
4. The Agreement has been duly and validly executed and delivered by
Highwoods and Sub, and assuming valid authorization, execution and delivery by
JCN, constitutes a valid and binding agreement of Highwoods and Sub enforceable
in accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, or similar laws affecting creditors'
rights generally, provided, however, that we express no opinion as to the
availability of the equitable remedy of specific performance.
5. The shares of Highwoods Common Stock to be issued to the
shareholders of JCN as contemplated by the Agreement have been registered under
the Securities Act of 1933, as amended, and when properly issued and delivered
following consummation of the Merger will be fully paid and non-assessable under
the General Corporation Law of Maryland.
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT is made as of the 28th day of August, 1997, by and
among Highwoods Properties, Inc. (the "Company"), a corporation organized under
the laws of the State of Maryland and UBS Limited, an English corporation ("UBS
Limited") and Union Bank of Switzerland, London Branch, acting through its agent
UBS Securities LLC ("UBS-LB") (UBS Limited and UBS-LB being hereinafter
collectively called the "UBS Parties" and sometimes individually, a UBS Party").
IN CONSIDERATION of the mutual covenants contained in this Purchase
Agreement, the Company and the UBS Parties agree as follows:
SECTION 1. Authorization of Sale of the Shares. Subject to the terms and
conditions of this Purchase Agreement, the Company has authorized the sale to
UBS Limited of up to an aggregate of 1,800,000 shares of common stock (the
"Common Shares"), $.01 par value per share (the "Purchase Shares"), of the
Company. In addition, the Company may issue to UBS-LB additional Common Shares
in settlement of certain of its obligations under the Forward Stock Purchase,
dated August 28, 1997 (the "Forward Stock Purchase Agreement"), between the
Company and UBS-LB (the "Additional Shares"). The Purchase Shares and the
Additional Shares are hereinafter collectively called the "Shares".
SECTION 2. Agreement to Sell and Purchase the Purchase Shares. Subject to
the terms and conditions of this Purchase Agreement, on the Closing Date (as
defined in Section 3 hereof), the Company will sell to UBS Limited the Purchase
Shares, the number of which shall equal 1,800,000, for a per share purchase
price equal to the Closing Price. The "Closing Price" shall equal the closing
price reported on the New York Stock Exchange for a Common Share on the business
day immediately preceding the Closing Date.
SECTION 3. Delivery of the Shares at the Closing.
3.1. Closing. The completion of the purchase and sale of the Purchase
Shares (the "Closing") shall occur as soon as practicable, on such date to be
agreed upon by the Company and the UBS Parties (hereinafter, the "Closing
Date").
3.2. Conditions. At Closing, the Company shall deliver to the UBS Limited
one or more stock certificates registered in the name of UBS Limited
representing the number of Purchase Shares set forth in Section 2 above.
The Company's obligation to complete the purchase and sale of the Purchase
Shares and deliver such stock certificate(s) to UBS Limited at the Closing shall
be subject to the following conditions, any one or more of which may be waived
by the Company: (i) receipt by the Company of Federal Funds (or other mutually
agreed upon form of payment) in the full
<PAGE>
amount of the purchase price for the Purchase Shares being purchased hereunder,
(ii) the accuracy in all material respects, as of the Closing Date, of the
representations and warranties made by the UBS Parties herein and the
fulfillment of in all material respects those undertakings of the UBS Parties
therein to be fulfilled prior to the Closing, (iii) the Forward Stock Purchase
Agreement shall have been fully executed by the parties thereto and (iv) receipt
by the Company of a cross-receipt with respect to the Purchase Shares executed
by UBS Limited and a certificate by an officer or authorized representative of
UBS Limited to the effect that the representations and warranties of UBS Limited
set forth in Section 5 hereof are true and correct as of the date of this
Agreement and as of the Closing Date.
UBS Limited's obligation to accept delivery of such stock certificate(s)
and to pay for the Purchase Shares evidenced thereby shall be subject to the
following conditions: (i) the accuracy in all material respects, as of the
Closing Date, of the representations and warranties made by the Company herein
and the fulfillment in all material respects, as of the Closing Date, of those
undertakings of the Company to be fulfilled prior to Closing; and (ii) the UBS
Parties shall have received all opinions and certificates to be delivered
pursuant to this Agreement.
SECTION 4. Representations, Warranties and Covenants of the Company. The
Company hereby represents and warrants to, and covenants with, the UBS Parties
as follows:
4.1. Organization and Qualification. The Company is a corporation duly
organized, validly existing and in good standing under the laws of Maryland and
has all requisite corporate power and authority to conduct its business as
currently conducted.
4.2. Authorized Capital Stock. The Company has authorized and outstanding
capital stock as set forth in the Most Recent Financial Statements (as defined
below); the issued and outstanding shares of the Company's Common Shares have
been duly authorized and validly issued, are fully paid and nonassessable, have
been issued in compliance with all federal and state securities laws, were not
issued in violation of or subject to any preemptive rights or other rights to
subscribe for or purchase securities, and conform to the description thereof
incorporated by reference in the Registration Statement. Other than as described
in the Company's SEC Filings (as defined below), the Company does not have
outstanding any options to purchase, or any preemptive rights or other rights to
subscribe for or to purchase, any securities or obligations convertible into, or
any contracts or commitments to issue or sell, shares of its capital stock or
any such options, rights, convertible securities or obligations. The description
of the Company's stock, stock bonus and other stock plans or arrangements and
the options or other rights granted and exercised thereunder in the Company's
SEC Fillings accurately and fairly presents the information required to be shown
with respect to such plans, arrangements, options and rights.
4.3. Issuance, Sale and Delivery of the Shares. The Purchase Shares to be
sold by the Company have been duly authorized and, when issued, delivered and
paid for in the manner set forth in this Agreement, will be duly authorized,
validly issued, fully paid and nonassessable, and will conform to the
description thereof incorporated by reference in the Registration Statement. The
Additional Shares, if and when issued pursuant to the Forward Stock Purchase
Agreement, will be duly authorized, validly issued, fully paid and
nonassessable, and will
2
<PAGE>
conform to the description thereof incorporated by reference in the Registration
Statement. None of the Shares when issued and delivered to the UBS Parties shall
be subject to any lien, security interest, claim, charge or encumbrance of any
nature. Other than the UBS Parties, no shareholder of the Company has any right,
which has not been waived or has not expired by reason of lapse of time
following notification of the Company's intent to file the Registration
Statement (as defined below), to require the Company to register the sale of any
shares owned by such shareholder under the Securities Act of 1933, as amended
(the "Securities Act"), in the Registration Statement. No further approval or
authority of the shareholders or the Board of Directors of the Company will be
required for the issuance and/or sale of the Shares to be sold by the Company as
contemplated herein or in the Forward Stock Purchase Agreement, except such as
shall have been obtained on or before the Closing Date. The issuance and/or sale
of the Shares to the UBS Parties by the Company pursuant to this Agreement or
the Forward Stock Purchase Agreement (as the case may be), the compliance by the
Company with the other provisions of this Agreement or the Forward Stock
Purchase Agreement and the consummation of the other transactions contemplated
hereby or thereby do not require the consent, approval, authorization,
registration or qualification of or with any governmental authority, except such
as shall have been obtained on or before the Closing Date other than the
registration of the resale of the Shares by the UBS Parties with the Securities
and Exchange Commission (the "SEC") and any required Blue Sky filings within the
States. The Company meets and will continue to meet the requirements for use of
Form S-3 under the Securities Act and the rules and regulations promulgated
thereunder (the "Rules and Regulations"). The Company has filed and will file
all documents which it is required to file under the Securities Exchange Act of
1934, as amended (the "Exchange Act") and all such documents (the "Company's SEC
Filings") comply in all material respects with the requirements of the Exchange
Act and the rules and regulations thereunder, as applicable, and none of such
documents, when so filed, contained or will contain any untrue statement of a
material fact or omitted to state a 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, and any documents so
filed and incorporated by reference subsequent to the effective date of the
Registration Statement shall, when they are filed with the SEC, conform in all
material respects with the requirements of the Securities Act and the Rules and
Regulations and the Exchange Act and the rules and regulations thereunder, as
applicable. No Registration Statement filed in respect of any of the Shares,
when so filed, contained or will contain any untrue statement of a 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.
4.4. Due Execution, Delivery and Performance of the Agreement. The Company
has full legal right, power and authority to enter into the Purchase Agreement
and the Forward Stock Purchase Agreement and perform the transactions
contemplated hereby and thereby. The Purchase Agreement and the Forward Stock
Purchase Agreement have been duly authorized, executed and delivered by the
Company. The making and performance of the Purchase Agreement and the Forward
Stock Purchase Agreement by the Company and the consummation of the transactions
herein and therein contemplated will not violate any provision of the articles
of incorporation or bylaws, or other organizational documents, of the Company,
and will not conflict with, result in the breach or violation of, or constitute,
either by itself or upon notice or
3
<PAGE>
the passage of time or both, a default under any material agreement, mortgage,
deed of trust, lease, franchise, license, indenture, permit or other instrument
to which the Company is a party or by which the Company or its properties may be
bound or affected, any statute or any authorization, judgment, decree, order,
rule or regulation of any court or any regulatory body, administrative agency or
other governmental body applicable to the Company or any of its properties. No
consent, approval, authorization or other order of any court, regulatory body,
administrative agency or other governmental body is required for the execution
and delivery of this Agreement, the Forward Stock Purchase Agreement or the
consummation of the transactions contemplated hereby or thereby, except in
connection with the filing of any Registration Statements pursuant to Section 7
below or for compliance with the Blue Sky laws applicable to the offering of the
Shares. Upon the execution and delivery hereof, each of the Purchase Agreement
and the Forward Stock Purchase Agreement will constitute the valid and binding
obligation of the Company, enforceable in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' and contracting
parties' rights generally and except as enforceability may be subject to general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law) and except as the indemnification agreements
of the Company in Section 7.5 hereof may be legally unenforceable.
4.5. Accountants. The Company's independent certified public accountants,
who have expressed their opinion with respect to the Most Recent Financial
Statements (as defined below) are independent accountants as required by the
Securities Act and the Rules and Regulations. The Company shall cause the
independent certified public accountants to deliver, on the effective date of
Registration Statement, and at the time of sale pursuant to the Registration
Statement of Shares, a letter stating that such accountants are independent
public accountants within the meaning of the Securities Act and otherwise in
customary form and covering such financial and accounting matters as are
customarily covered by letters of independent certified public accountants
delivered in connection with underwritten public offerings of equity securities.
4.6. No Defaults. Except as to defaults, violations and breaches which
individually or in the aggregate would not be material to the Company, the
Company is not in violation or default of any provision of its articles of
incorporation or bylaws, or other organizational documents, or is not in breach
of or default with respect to any provision of any agreement, judgment, decree,
order, mortgage, deed of trust, lease, franchise, license, indenture, permit or
other instrument to which it is a party or by which it or any of its properties
are bound; and there does not exist any state of fact which constitutes an event
of default on the part of the Company as defined in such documents or which,
with notice or lapse of time or both, would constitute such an event of default
except such defaults which individually or in the aggregate would not be
material to the Company.
4.7. Contracts. Neither the Company, nor to the best of the Company's
knowledge, any other party is in breach of or default under any of such
contracts to which the Company is a party except such breach or default which
individually or in the aggregate would not be material to the Company.
4
<PAGE>
4.8. No Actions. There are no legal or governmental actions, suits or
proceedings pending or, to the best of the Company's knowledge, threatened to
which the Company is or may be a part or of which property owned or leased by
the Company is or may be the subject, or related to environmental or
discrimination matters, which actions, suits or proceedings might, individually
or in the aggregate, prevent or adversely affect the transactions contemplated
by this Agreement or result in a material adverse change in the condition
(financial or otherwise), of the properties, business, results of operations or
prospects of the Company, and no labor disturbance by the employees of the
Company exists or is imminent which might be expected to affect adversely such
condition, properties, business, results of operations or prospects. The Company
is neither a party nor subject to the provisions of any material injunction,
judgment, decree or order of any court, regulatory body administrative agency or
other governmental body.
4.9. Properties. The Company has good and marketable title to all the
properties and assets reflected as owned by it in the financial statements
included in the Most Recent Financial Statements, subject to no lien, mortgage,
pledge, charge or encumbrance of any kind except (i) those, if any, reflected in
such financial statements or the Company's SEC Filings, or (ii) those which are
not material in amount and do not adversely affect the use made and promised to
be made of such property by the Company. The Company holds its leased properties
under valid and binding leases, with such exceptions as are not materially
significant in relation to the business of the Company. The Company owns or
leases all such properties as are necessary to its operations as now conducted.
The Company qualified as a real estate investment trust under the Internal
Revenue Code of 1986, as amended, with respect to its taxable years ended
December 31, 1994, December 31, 1995 and December 31, 1996, and is organized in
conformity with the requirements for qualification as a real estate investment
trust, and its manner of operation has enabled it to meet the requirements for
qualification as a real estate investment trust as of the date hereof, and its
proposed manner of operation will enable it to meet the requirements for
qualification as a real estate investment trust in the future.
4.10. No Material Change. Since the date of the Most Recent Financial
Statements, and except as otherwise disclosed in the Company's SEC Filings as of
the Closing Date or in writing to the UBS Parties (i) the Company has not
incurred any material liabilities or obligations, indirect, or contingent, or
entered into any material verbal or written agreement or other transaction which
is not in the ordinary course of business (it being agreed that for purposes of
this sentence the Company's ordinary course of business shall include the
acquisition, directly indirectly, of real estate properties or businesses of a
type that may be owned by a "real estate investment trust" (as defined under the
Internal Revenue Code) or which could reasonably be expected to result in a
material reduction in the future earnings of the Company; (ii) the Company has
not sustained any material loss or interference with its businesses or
properties from fire, flood, windstorm, accident or other calamity, whether or
not covered by insurance; (iii) the Company is not in default in the payment of
principal or interest on any outstanding debt obligations; (iv) there has not
been any change in the capital stock of the Company (other than the sale of the
Purchase Shares hereunder and the sale of Common Stock under the Company's
5
<PAGE>
Dividend Reinvestment and Stock Purchase Plan), or indebtedness material to the
Company (other than in the ordinary course of business); and (v) there has not
been any material adverse change in the condition (financial or otherwise),
business, properties, results of operations or prospects of the Company.
4.11. Intellectual Property. The Company believes it has sufficient
trademarks, trade names, patent rights, copyrights, licenses, approvals and
governmental authorizations to conduct its businesses as now conducted; and the
Company has no knowledge of any material infringement by it of trademark, trade
name rights, patent rights, copyrights, licenses, trade secrets or other similar
rights of others, and no claim has been made against the Company regarding
trademark, trade name, patent, copyright, license, trade secrecy or other
infringement which could have a material adverse effect on the condition
(financial or otherwise), business, results of operations or prospects of the
Company.
4.12. Compliance. The Company has not been advised, and has no reason to
believe, that it is not conducting business in compliance with all applicable
laws, rules and regulations of the jurisdictions in which it is conducting
business, including, without limitation, all applicable local, state and federal
environmental laws and regulations; except where failure to be so in compliance
would not materially adversely affect the condition (financial or otherwise),
business, results of operations or prospects of the Company.
4.13. Taxes. The Company has filed all necessary federal, state and foreign
income and franchise tax returns and has paid or accrued all taxes shown as due
thereon, and the Company has no knowledge of any tax deficiency which has been
or might be asserted or threatened against the Company which could materially
adversely affect the business condition (financial or otherwise), results of
operations or prospects of the Company.
4.14. Transfer Taxes. On the Closing Date, all stock transfer or other
taxes (other than income taxes) which are required to be paid in connection with
the sale and transfer of the Purchase Shares to be sold to UBS Limited hereunder
will be, or will have been, fully paid or provided for by the Company and all
laws imposing such taxes will be or will have been fully complied with.
4.15. Investment Company. The Company is not required to register as an
"investment company" as such term is defined in the Investment Company Act of
1940, as amended.
4.16. Offering Materials. The Company has not distributed and will not
distribute prior to the Closing Date any offering material in connection with
the offering and sale of the Purchase Shares other than the documents provided
to the UBS Parties pursuant to Section 4.18, except as set forth at Section 5.5.
4.17. Insurance. The Company maintains insurance (or insurance is
maintained on its behalf) of the types and in the amounts generally deemed
adequate under customary industry standards for its business, including, but not
limited to, insurance covering all real and
6
<PAGE>
personal property owned or leased by the Company against theft, damage,
destruction, acts of vandalism and all other risks customarily insured against,
all of which insurance is in full force and effect.
4.18. SEC Filings. The Company represents and warrants that the information
contained in the following documents, which the Company has furnished to the UBS
Parties, or will furnish prior to the Closing, is or will be true and correct in
all material respects as of their respective filing dates:
(a) Annual Report on Form 10-K for the year ended December 31, 1996, which
Annual Report includes the Company's most recently available audited
financial statements together with the report thereon of the
independent certified public accountants (the "Most Recent Financial
Statements");
(b) Quarterly Report on Form 10-Q for the quarters ended March 31, 1997
and June 30, 1997;
(c) the Company's proxy statements on Form 14A relating to (i) the most
recent Annual Meeting of the Company's Shareholders and (ii) any
Special Meetings of the Company's Shareholders which occurred during
the 12-month period prior to the date hereof or for which a meeting
date has been fixed and a proxy statement distributed; and
(d) all other documents, if any, filed by or with respect to the Company
with the SEC since January 1, 1997 pursuant to Sections 13, 15(d) or
16(a) of the Exchange Act; and
(e) a covenant compliance certification stating that the Company and its
subsidiaries are not in default under the $280 million unsecured
revolving line of credit from a syndicate of lenders, evidenced by
that certain Credit Agreement by and among Highwoods/Forsyth Limited
Partnership as borrower, the Company and certain subsidiaries as
guarantors, the lenders named therein, NationsBank, N.A. as
administrative agent and First Union National Bank as documentation
agent.
4.19. Legal Opinion. Prior to the Closing, counsel to the Company will
deliver its legal opinion to the UBS Parties in substantially the form of
Exhibit A hereto.
4.20 ERISA. The Company and its affiliates are in compliance in all
material respects with all applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended and the rules and regulations
promulgated thereunder ("ERISA"). Neither a Reportable Event (as defined under
ERISA) nor a Prohibited Transaction (as defined under ERISA) has occurred with
respect to any Plan (as defined below) of the Company and/or its affiliates; no
notice of intent to terminate a Plan has been filed nor has any Plan been
terminated
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within the past five years; no circumstance exists which constitutes grounds
under Section 402 of ERISA entitling the Pension Benefit Guaranty Corporation
("PBGC") to institute proceedings to terminate, or appoint a trustee to
administer, a Plan, nor has the PBGC instituted any such proceedings; the
Company and its affiliates have not completely or partially withdrawn under
Sections 4201 or 4202 of ERISA from any Multiemployer Plan (as defined therein);
the Company and its affiliates have met the minimum funding requirements of
Section 412 of the Internal Revenue Code of 1986, as amended (the "Code") and
Section 302 of ERISA with respect to each Plan and there is no unfunded current
liability (as defined below) with respect to any Plan; the Company and its
affiliates have not incurred any liability to the PBGC under ERISA (other than
for the payment of premiums under Section 4007 of ERISA); no part of the funds
to be used by the Company in satisfaction of its obligations under this Purchase
Agreement or the Forward Stock Purchase Agreement constitute "plan assets" of
any "employee benefit plan" within the meaning of ERISA or of any "plan" within
the meaning of Section 4975(e)(1) of the Code, as interpreted by the Internal
Revenue Service and the U.S. Department of Labor in rules, regulations, releases
and bulletins or as interpreted under applicable case law. As used below, "Plan"
means an "employee benefit plan" or "plan" as described in Section 3(3) of
ERISA; and "unfunded current liability" has the meaning provided in Section
302(d)(8)(A) of ERISA.
4.21. Certificate. A certificate of the Company executed by the Chairman of
the Board or President and the chief financial or accounting officer of the
Company, to be dated the Closing Date in form and substance satisfactory to the
UBS Parties to the effect that the representations and warranties of the Company
set forth in this Section 4 are true and correct as of the date of this
Agreement and as of the Closing Date, and the Company has complied with all the
agreements and satisfied all the conditions on its part to be performed or
satisfied on or prior to such Closing Date.
4.23 Environmental Protection. To the Company's knowledge, except as
disclosed in the Company's SEC Filings, none of the Company's or its affiliates'
properties contain any Hazardous Materials that, under any Environmental Law,
(i) would impose liability on the Company or any affiliate that is likely to
have a material adverse effect on the condition (financial or other), business,
results of operations, or prospects, of the Company or (ii) is likely to result
in the imposition of a lien on any assets owned, directly or indirectly, by the
Company. To the Company's knowledge, neither it nor any affiliate is subject to
any existing, pending or threatened investigation or proceeding by any
governmental agency or authority with respect or pursuant to any Environmental
Law, except any which, if adversely determined, would not have a material
adverse effect on the condition (financial or other), business, results of
operations or prospects of the Company. As used herein, "Environmental Laws"
mean all federal, state, local and foreign environmental, health and safety
laws, codes and ordinances and all rules and regulations promulgated thereunder,
including, without limitation laws relating to emissions, discharges, releases
or threatened releases of pollutants, contaminants, chemicals, or industrial,
toxic or hazardous substances or wastes into the environment (including, without
limitation, air, surface water, ground water, land surface or subsurface strata)
or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants, contaminants,
chemicals, or industrial, solid, toxic or hazardous substances or wastes; and
"Hazardous Material" includes, without limitation, (i) all substances which are
designated
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pursuant to Section 311(b)(2)(A) of the Federal Water Pollution Control Act
("FWPCA"), 33 U.S.C ss.1251 et seq.; (ii) any element, compound, mixture,
solution, or substance which is designated pursuant to Section 102 of the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"),
42 U.S.C. ss.9601 et seq.; (iii) any hazardous waste having the characteristics
which are identified under or listed pursuant to Section 3001 of the Resource
Conservation and Recovery Act ("RCRA"), 42 U.S.C. ss.6901 et seq.; (iv) any
toxic pollutant listed under Section 307(a) of the FWPCA; (v) any hazardous air
pollutant which is listed under Section 112 of the Clean Air Act, 42 U.S.C.
ss.7401 et seq.; (vi) any imminently hazardous chemical substance or mixture
with respect to which action has been taken pursuant to Section 7 of the Toxic
Substances Control Act, 15 U.S.C. ss.2601 et seq.; and (vii) petroleum,
petroleum products, petroleum by-products, petroleum decomposition by-products,
and waste oil.
SECTION 5. Representations, Warranties and Covenants of the UBS Parties.
5.1. Investment. UBS Limited and/or UBS-LB represents and warrants to, and
covenants with, the Company that: (i) UBS Limited, taking into account the
personnel and resources it can practically bring to bear on the purchase of the
Purchase Shares contemplated hereby, is knowledgeable, sophisticated and
experienced in making, and is qualified to make, decisions with respect to
investments in shares presenting an investment decision like that involved in
the purchase of the Purchase Shares, including investments in securities issued
by the Company, and has requested, received, reviewed and considered all
information it deems relevant in making an informed decision to purchase the
Purchase Shares; (ii) UBS Limited is acquiring the number of Purchase Shares set
forth in Section 2 above in the ordinary course of its business and for its own
account for investment (as defined for purposes of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 and the regulations thereunder) only and with
no present intention of distributing any of such Purchase Shares or any
arrangement or understanding with any other persons regarding the distribution
of such Shares (this representation and warranty not limiting the rights of
either UBS Party to sell pursuant to any Registration Statement); (iii) neither
UBS Party will, directly or indirectly, sell or otherwise dispose of (or solicit
any offers to purchase or otherwise acquire) any of the Shares except in
compliance with the Securities Act, the Rules and Regulations and any applicable
state securities or blue sky laws or pursuant to an available exemption or
exclusion therefrom; (iv) each UBS Party has completed or caused to be completed
the Registration Statement Questionnaire and the Stock Certificate
Questionnaire, both attached hereto as Appendix I, for use in preparation of the
Registration Statement and the answers thereto are true and correct to the best
knowledge of the UBS Parties as of the date hereof and will be true and correct
as of the effective date of the Registration Statement; (v) the UBS Parties
have, in connection with their decision to purchase the number of Purchase
Shares set forth in Section 2 above, relied solely upon the documents identified
in Section 4.18, the information referred to in Section 5.5 and the
representations and warranties of the Company contained herein; (vi) each of the
UBS Parties is an "accredited investor" within the meaning of Rule 501 of
Regulation D promulgated under the Securities Act; (vii) the UBS Parties do not
directly or indirectly have an interest of five percent or more of the Common
Shares outstanding as shown in the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1997 and (viii) the Purchaser understands that the
Shares will contain a legend to the following effect:
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THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933. THE SHARES HAVE
BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED
OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THESE SHARES UNDER THE SECURITIES ACT OF 1933 OR
AN OPINION OF THE COMPANY'S COUNSEL THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT.
5.2. Resale. Each UBS Party acknowledges and agrees that the Shares are not
transferable on the books of the Company unless the certificate submitted to the
transfer agent evidencing the Shares is accompanied by a separate officer's
certificate: (i) in the form of Appendix II hereto, (ii) executed by an officer
of, or other authorized person designated by, the UBS Parties, and (iii) to the
effect that (A) the Shares have been sold in accordance with the Registration
Statement, the Securities Act and the Rules and Regulations and any applicable
state securities or blue sky laws or pursuant to valid exemptions or exclusions
therefrom and (B) the requirement under the Securities Act of delivering a
current prospectus has been satisfied. Each UBS Party acknowledges that there
may occasionally be times when the Company must suspend the right of the UBS
Parties to effect sales of the Shares through use of the Prospectus forming a
part of the Registration Statement until such time as an amendment to the
Registration Statement has been filed by the Company and declared effective by
the SEC, or until such time as the Company has filed an appropriate report with
the SEC pursuant to the Exchange Act (each, a "Black-out Period"); provided that
no Black-out Period shall exceed 60 consecutive days and such Black-out Periods
shall not during any 12-month period exceed 120 days in the aggregate. Each UBS
Party hereby covenants that it will not sell any Shares pursuant to said
Prospectus during the period commencing at the time at which the Company gives
the UBS Parties written notice of the suspension of the use of said Prospectus
and ending at the time the Company gives the UBS Parties written notice that the
UBS Parties may thereafter effect sales pursuant to said Prospectus. Each UBS
Party further covenants to notify the Company promptly of the sale of all of its
Shares.
5.3. Due Execution, Delivery and Performance of this Agreement. The UBS
Parties further represent and warrant to, and covenant with, the Company that
(i) each UBS Party has full right, power, authority and capacity to enter into
this Agreement and to consummate the transactions contemplated hereby and has
taken all necessary action to authorize the execution, delivery and performance
of this Agreement, and (ii) upon the execution and delivery of this Agreement,
this Agreement shall constitute a valid and binding obligation of the UBS
Parties enforceable in accordance with its terms, except as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' and contracting parties' rights generally and
except as enforceability may be subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law) and except as the indemnification agreements of the UBS
Parties in Section 7.3 hereof may be legally unenforceable.
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5.4 Residence of UBS Limited. UBS Limited is organized under the laws of
England and has its principal place of business in London.
5.5 Pending Acquisition. UBS Limited represents and warrants to the Company
that: (i) UBS Limited has been informed by the Company of a non-public material
pending acquisition (the "Transaction"), which is the subject of a letter of
intent between the Company and certain sellers dated as of August 14, 1997, and
that UBS Limited has had the opportunity to discuss fully the Transaction with
the Company's officers; (ii) UBS Limited has been informed by the Company that
(x) such discussions and any written material regarding the Transaction contain
forward-looking statements and (y) actual results could differ materially from
those contained in the forward-looking statements as a result of factors such as
increased development of office space in the Company's markets or changes in the
financial condition of the Company's tenants or other factors detailed in the
Company's Annual Report on Form 10-K for the year ending December 31, 1996,
(iii) no UBS Party will disclose any information regarding the Transaction and
(iv) no UBS Party will trade in securities of the Company (other than the
purchase of the Shares contemplated hereby) until two business days after the
Company has made a public announcement regarding the Transaction.
SECTION 6. Survival of Representations, Warranties and Agreements.
Notwithstanding any investigation made by any party to this Purchase Agreement,
all covenants, agreements, representations and warranties made by the Company,
and the UBS Parties herein and in the certificates for the Shares delivered
pursuant hereto shall survive the execution of this Purchase Agreement, the
Forward Stock Purchase Agreement, the delivery to UBS Limited of the Purchase
Shares being purchased and the payment therefor.
SECTION 7. Registration of the Shares; Compliance with the Securities Act.
7.1. Registration Procedures and Expenses. The Company shall:
(a) as soon as practicable after the Closing, prepare and file with the
SEC a Registration Statement (as defined below) covering the resale by
the UBS Parties, from time to time, of up to a number of Shares equal
to 130% of the number of Purchase Shares through the facilities of the
New York Stock Exchange, the automated quotation system of The Nasdaq
Stock Market or the facilities of any other national securities
exchange on which the Company's common stock is then traded or in
privately negotiated transactions (the "Initial Registration
Statement"). If the total number of Shares exceeds the number of
Shares covered by the Initial Registration Statement, then the Company
shall prepare and file with the SEC such additional Registration
Statement or Statements as shall be necessary to cover the resale by
UBS-LB of such excess Shares in the same manner as contemplated by the
Initial Registration Statement for the Shares covered thereby (each,
an "Additional Registration Statement"); provided that prior to
issuing any such excess Shares to UBS-LB, the Company shall cause such
Registration Statement to have become effective. For purposes of
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this Purchase Agreement, "Registration Statement" means a registration
statement under the Securities Act on Form S-3 covering the resale by
one or both UBS Parties of up to a specified number of Shares, filed
and maintained effective by the Company pursuant to the provisions of
this Section 7, including the Prospectus (as defined below) contained
therein, any amendments and supplements to such registration
statement, including all post-effective amendments thereto, and all
exhibits and all material incorporated by reference into such
registration statement;
(b) use all reasonable best efforts to cause the SEC to notify the Company
of the SEC's willingness to declare the Initial Registration Statement
effective within 60 days after the Registration Statement is filed by
the Company; provided that the Company will use its best efforts to
cause such Initial Registration Statement to become effective no later
than 90 days after the Closing Date;
(c) prepare and file with the SEC such amendments and supplements to the
Registration Statement and the prospectus used in connection therewith
(the "Prospectus") as may be necessary to keep the Registration
Statement effective until the date on which the Shares may be resold
by the UBS Parties without registration, by reason of Rule 144(k)
under the Securities Act or any other rule of similar effect;
(d) furnish to the UBS Parties with respect to the Shares registered under
the Registration Statement (and to each underwriter, if any, of such
Shares) such reasonable number of copies of Prospectuses, including
any supplements and amendments thereto, an opinion from counsel to the
Company covering the matters set forth on Exhibit B hereto and such
other documents as the UBS Parties may reasonably request, in order to
facilitate the public sale or other disposition of all or any of the
Shares by the UBS Parties;
(e) use its best efforts to prevent the happening of any event that would
cause such Registration Statement to contain a material misstatement
or omission or to be not effective and usable for resale of the Shares
during the period that such Registration Statement is required to be
effective and usable; provided that this paragraph (e) shall in no way
limit the Company's right to suspend the right of the UBS Parties to
effect sales under the Registration Statement during any Black-out
Period as specified at Section 5.2 above.
(f) file documents required of the Company for normal blue sky clearance
in states specified in writing by the UBS Parties, provided, however,
that the Company shall not be required to qualify to do business or
consent to
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service of process in any jurisdiction in which it is not now so
qualified or has not so consented; and
(g) bear all expenses in connection with the procedures in paragraphs (a)
through (f) of this Section 7.1 and the registration of the Shares
pursuant to the Registration Statement, including the fees and
expenses of counsel or other advisers to the UBS Parties, other than
underwriting discounts, brokerage fees and commissions incurred by the
UBS Parties, if any.
7.2. Covenants in Connection With Registration.
(a) The Company hereby covenants with the UBS Parties that (i) it shall not
file any Registration Statement or Prospectus or any amendment or supplement
thereto, unless a copy thereof shall have been first submitted to the UBS
Parties and the UBS Parties did not object thereto in good faith (provided that
if the UBS Parties do not object within two business days of receiving any such
material, they shall be deemed to have no objection thereto); (ii) it shall
immediately notify the UBS Parties of the issuance by the SEC of any stop order
suspending the effectiveness of such Registration Statement or the initiation of
any proceedings for such purpose; (iii) it shall make every reasonable effort to
obtain the withdrawal of any order suspending the effectiveness of such
Registration Statement at the earliest possible moment; (iv) it shall notify the
UBS Parties of the receipt of any notification with respect to the suspension of
the qualification of the Shares for sale under the securities or blue sky laws
of any jurisdiction or the initiation of any proceeding for such purpose; and
(v) it shall as soon as practicable notify the UBS Parties in writing of the
existence of any fact which results in any Registration Statement, any amendment
or post-effective amendment thereto, the Prospectus, any prospectus supplement,
or any document incorporated therein by reference containing an untrue statement
of a material fact or omitting to state a material fact required to be stated
therein or necessary to make the statements therein not misleading and shall
prepare a supplement or post-effective amendment to such Registration Statement
or the Prospectus or any document incorporated therein by reference or file any
other required document so that, as thereafter delivered to the purchasers of
the Shares, the Prospectus will not contain an untrue statement of a material
fact or omit to state any material fact necessary to make the statements therein
not misleading; provided that this clause (v) shall in no way limit the
Company's right to suspend the right of the UBS Parties to effect sales under
the Registration Statement during any Black-out Period as specified at Section
5.2 above.
(b) The UBS Parties shall notify the Company at least two business days
prior to the date on which it intends to commence effecting any resales of
Shares under a Registration Statement and if the Company does not, within such
two-day period, advise the UBS Parties of the existence of any facts of the type
referred to in Section 7.2(a)(iv) above, then the Company shall be deemed to
have certified and represented to the UBS Parties that no such facts then exist
and the UBS Parties may rely on such certificate and representation in making
such sales. The preceding sentence shall in no way limit the Company's
obligations under Section 7.2(a) above.
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7.3. Extension of Required Effectiveness. In the event that the Company
shall give any notice required by Section 7.2(a)(v) hereof, the period during
which the Company is required to keep such Registration Statement effective and
useable shall be extended by the number of days during the period from and
including the date of the giving of such notice to and including the date when
the UBS Parties are advised in writing by the Company that the use of the
Prospectus may be resumed.
7.4. Transfer of Shares After Registration. Each UBS Party agrees that it
will not effect any disposition of the Shares or its right to purchase the
Shares that would constitute a sale within the meaning of the Securities Act or
pursuant to any applicable state securities or blue sky laws except as
contemplated in each Registration Statement referred to in Section 7.1 or except
pursuant to any exemption from the registration requirements of the Securities
Act (including, without limitation, Rule 144 promulgated thereunder and any
successor thereto) and that it will promptly notify the Company of any changes
in the information set forth in any such Registration Statement regarding the
UBS Parties or its Plan of Distribution.
7.5. Indemnification. For the purpose of this Section 7.5, the term
"Registration Statement" shall include any final prospectus, exhibit, supplement
or amendment included in or relating to any Registration Statement referred to
in Section 7.1.
(a) Indemnification by Company. The Company agrees to indemnify and hold
harmless the UBS Parties and each person, if any, who controls either UBS Party
within the meaning of the Securities Act, against any losses, claims, damages,
liabilities or expenses, joint or several, to which the UBS Parties or such
controlling person may become subject (including in settlement of any
litigation, if such settlement is effected with the written consent of the
Company), insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof as contemplated below) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in any Registration Statement, including the Prospectus, financial statements
and schedules, and all other documents filed as a part thereof, as amended at
the time of effectiveness of such Registration Statement, including any
information deemed to be a part thereof as of the time of effectiveness pursuant
to paragraph (b) of Rule 430A, or pursuant to Rule 434, of the Rules and
Regulations, or the Prospectus, in the form first filed with the SEC pursuant to
Rule 424(b) of the Regulations, or filed as part of such Registration Statement
at the time of effectiveness if no Rule 424(b) filing is required, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state in any of them a material fact required to be
stated therein or necessary to make the statements in any of them not
misleading, and will reimburse each UBS Party and each such controlling person
for any legal and other expenses as such expenses are reasonably incurred by the
UBS Parties or such controlling person in connection with investigating,
defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action. The Company will also indemnify selling brokers,
dealers and similar securities industry professionals participating in the sale
or resale of the Shares, their officers, directors and partners and each person
who controls any such person within the meaning of the Securities Act, provided,
however, that the Company will not be liable in any such case to the extent that
any such loss, claim, damage, liability or expense arises out of or is based
upon an untrue statement
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or alleged untrue statement or omission or alleged omission made in such
Registration Statement, such Prospectus or any amendment or supplement thereto
in reliance upon and in conformity with written information furnished to the
Company (i) by or on behalf of the UBS Parties expressly for use therein or (ii)
any statement or omission in any Prospectus that is corrected in any subsequent
Prospectus that was delivered to a UBS Party prior to the pertinent sale or
sales by such UBS Party and not delivered by such UBS Party in connection with
such sale or sales.
(b) Indemnification by UBS Parties. The UBS Parties will indemnify and hold
harmless the Company, each of its directors, each of its officers who signed any
Registration Statement and each person, if any, who controls the Company within
the meaning of the Securities Act, against any losses, claims, damages,
liabilities or expenses, joint and several, to which the Company, each of its
directors, each of its officers who signed any Registration Statement or any
controlling person may become subject (including in settlement of any
litigation, if such settlement is effected with the written consent of the UBS
Parties) insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof as contemplated below) arise out of or are based upon
any untrue or alleged untrue statement of any material fact contained in such
Registration Statement, such Prospectus, or any amendment or supplement thereto,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in such Registration Statement, such Prospectus, or
any amendment or supplement thereto, in reliance upon and in conformity with
written information furnished to the Company by or on behalf of the UBS Parties
expressly for use therein, and will reimburse the Company, each of its
directors, each of its officers who signed such Registration Statement and each
controlling person for any legal and other expense reasonably incurred by the
Company, each of its directors, each of its officers who signed such
Registration Statement or controlling person in connection with investigating,
defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action.
(c) Proceedings. Promptly after receipt by an indemnified party under this
Section 7.5 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against an indemnifying party
under this Section 7.5 notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party for
contribution or otherwise than under the indemnity agreement contained in this
Section 7.5 or to the extent it is not prejudiced as a proximate result of such
failure. In case any such action is brought against any indemnified party and
such indemnified party seeks or intends to seek indemnity from an indemnifying
party, the indemnifying party will be entitled to participate in, and, to the
extent that it may wish, jointly with all other indemnifying parties similarly
notified, to assume the defense thereof with counsel reasonably satisfactory to
such indemnified party; provided, however, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be a conflict
between the positions of the indemnifying party and the indemnified party in
conducting the defense of any such action or that there may be legal defenses
available to it
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and/or other indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnified party or parties shall have
the right to select separate counsel to assume such legal defenses and to
otherwise participate in the defense of such action on behalf of such
indemnified party or parties. Upon receipt of notice from the indemnifying party
to such indemnified party of its election so to assume the defense of such
action and approval by the indemnified party of counsel, the indemnifying party
will not be liable to such indemnified party under this Section 7.5 for any
reasonable legal or other expenses subsequently incurred by such indemnified
party in connection with the defense thereof unless (i) the indemnified party
shall have employed such counsel in connection with the assumption of legal
defenses in accordance with the proviso to the preceding sentence (it being
understood, however, that the indemnifying party shall be not liable for the
expenses of more than one separate counsel, approved by such indemnifying party
in the case of paragraph (a), representing the indemnified parties who are
parties to such action) or (ii) the indemnifying party shall not have employed
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of commencement of
action, in each of which cases the fees and expenses of counsel shall be at the
expense of the indemnifying party.
(d) Contribution. If the indemnification provided for in this Section 7.5
is required by its terms but is for any reason held to be unavailable to or
otherwise insufficient to hold harmless an indemnified party under paragraphs
(a), (b) or (c) of this Section 7.5 in respect of any losses, claims, damages,
liabilities or expenses referred to herein, then each applicable indemnifying
party shall contribute to the amount paid or payable by such indemnified party
as a result of any losses, claims, damages, liabilities or expenses referred to
herein in such proportion as is appropriate to reflect the relative benefits
received by the Company and the UBS Parties from the purchase and sale of the
Shares and the relative fault of the Company and the UBS Parties in connection
with the statements or omissions or inaccuracies in the representations and
warranties in this Agreement which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The respective relative benefits received by the Company on the one hand and the
UBS Parties on the other shall be deemed to be in the same proportion as the
amount paid by the UBS Parties to the Company pursuant to this Agreement for the
Shares purchased by the UBS Parties that were sold pursuant to any Registration
Statement bears to the difference (the "Difference") between the amount the UBS
Parties paid for the Shares that were sold pursuant to such Registration
Statement and the amount received by the UBS Parties from such sale. The
relative fault of the Company and the UBS Parties shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
or the inaccurate or the alleged inaccurate representation and/or warranty
relates to information supplied by the Company or by the UBS Parties and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The amount paid or payable by a
party as a result of the losses, claims, damages, liabilities and expenses
referred to above shall be deemed to include, subject to the limitations set
forth in paragraph (c) of this Section 7.5 any reasonable legal or other fees or
expenses incurred by such party in connection with investigating or defending
any action or claim. The provisions set forth in paragraph (c) of this Section
7.5 with respect to notice of commencement of any action shall apply if a claim
for contribution is to be made under this paragraph (d); provided, however, that
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no additional notice shall be required with respect to any action for which
notice has been given under paragraph (c) for purposes of indemnification. The
Company and the UBS Parties agree that it would not be just and equitable if
contribution pursuant to this Section 7.5 were determined solely by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in this paragraph. Notwithstanding the
provisions of this Section 7.5, the UBS Parties shall not be required to
contribute any amount in excess of the amount by which the aggregate proceeds
received by the UBS Parties from the transactions contemplated hereby exceeds
the amount of any damages that the UBS Parties has otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
7.6. Termination of Conditions and Obligations. The conditions precedent
imposed by Section 5 or this Section 7 upon the transferability of the Shares
shall cease and terminate as to any particular number of the Purchase Shares
upon the passage of twenty-four months from the purchase of such Shares by UBS
Limited, as to any particular number of the Additional Shares upon the passage
of twenty-four months from the issuance of such Shares to UBS-LB or as to any
particular number of the Shares at such time as an opinion of counsel
satisfactory to the Company shall have been rendered to the effect that such
conditions are not necessary in order to comply with the Securities Act. At such
time, the Company's obligation to maintain an effective Registration Statement
with respect to such Shares shall cease.
7.7. Information Available. So long as any Registration Statement covering
the resale of any Shares owned by either UBS Party is effective, the Company
will furnish to the UBS Parties:
(a) as soon as practicable after available, one copy of (i) its Annual
Report to Shareholders, (ii) its Annual Report on Form 10-K, (iii) its
Quarterly Reports to Shareholders, (iv) its quarterly reports on Form
10-Q, (v) a full copy of the particular Registration Statement
covering the Shares (the foregoing, in each case, excluding exhibits)
and (vi) upon request, any or all other public filings under the
Exchange Act by the Company; and
(b) upon the reasonable request of either UBS Party, a reasonable number
of copies of the Prospectuses to supply to any other party requiring
such Prospectuses;
and the Company, upon the reasonable request of the UBS Parties, will meet with
the UBS Parties or a representative thereof at the Company's headquarters to
discuss all information relevant for disclosure in such Registration Statement
covering the Shares, subject to appropriate confidentiality limitations.
7.8 Non-Exclusivity. The rights and remedies provided under Section 7.5
hereof shall not be in limitation or exclusion of any other rights or remedies
available to a party, whether
17
<PAGE>
by agreement, at law, in equity or otherwise, with respect to the inaccuracy of
any representation or warranty by, or the breach of any covenant of, the other
party made herein or in the Forward Stock Purchase Agreement.
7.9 Notice Requirement. The Company covenants and agrees that it will
notify the UBS Parties at any time it becomes aware that as a result of a change
in the Company's capital stock the UBS Parties beneficially hold more than 4.9%
of the Company's Common Shares.
7.10 Transfer of Shares. The Company covenants and agrees to use its best
efforts to cause the transfer agent to effect promptly any transfer of the
Shares requested by the UBS Parties and to cause the transfer agent to remove
promptly the restrictive legend from the Shares upon presentation to the
transfer agent of all necessary documentation.
SECTION 8. Registration Exemptions. For so long as the Company is subject
to the reporting requirements of Section 13 or 15 of the Exchange Act, the
Company covenants that it will file the reports required to be filed by it under
the Securities Act and Section 13(a) and 15(d) of the Exchange Act and the rules
and regulations adopted by the Commission thereunder.
SECTION 9. Broker's Fee. Other than any fees payable under or in connection
with the Forward Stock Purchase Agreement, each of the parties hereto hereby
represents that, on the basis of any actions and agreements by it, there are no
brokers or finders entitled to compensation in connection with the sale or
issuance of the Shares to the UBS Parties.
SECTION 10. Notices. All notices, requests, consents and other
communications hereunder shall be in writing, shall be mailed by first-class
registered or certified airmail, by telegram or telecopy or sent by nationally
recognized overnight express courier postage prepaid, and shall be deemed given
when so mailed or for telecopies, when transmitted and receipt confirmed, and
shall be delivered as addressed as follows:
(a) if to the Company, to:
3100 Smoketree Court
Suite 600
Raleigh, North Carolina 27604
Attn: Mark D. Pridgen, III
with a copy so mailed to:
Smith Helms Mulliss & Moore, L.L.P.
2800 Two Hanover Square
Raleigh, North Carolina 27601
Attn: Brad S. Markoff
18
<PAGE>
or to such other person at such other place as the
Company shall designate to the UBS Parties in
writing; and
(b) if to the UBS Parties, c/o UBS Securities, LLC, 299
Park Avenue, New York, New York 10171, or at such
other address or addresses as may have been furnished
to the Company in writing.
SECTION 11. Changes. This Agreement may not be modified or amended except
pursuant to an instrument in writing signed by the Company and the UBS Parties.
SECTION 12. Headings. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be part of this Agreement.
SECTION 13. Severability. In case any provision contained in this Agreement
should be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby.
SECTION 14. Governing Law; Jurisdiction.
14.1 This Agreement shall be governed by and construed in accordance with
the laws of the State of New York (without regard to the conflicts of law
principles thereof) and of the federal law of the United States of America.
14.2 The Company (i) hereby irrevocably submits to the jurisdiction of, and
agrees that any suit shall be brought in, the state and federal courts located
in the City and County of New York for the purpose of any suit, action or other
proceeding arising out of or based upon this Agreement or the transactions
contemplated hereby and (ii) hereby waives to the extent not prohibited by
applicable law, and agrees not to assert, by way of motion, as a defense or
otherwise, in any such proceeding, any claim that it is not subject personally
to the jurisdiction of the above-named courts, that its property is exempt or
immune from attachment or execution, that any such proceeding brought in one of
the above-named courts is brought in an inconvenient forum, that the venue of
any such proceeding brought in one of the above-named courts is improper, or
that this Agreement, or the transactions contemplated hereby may not be enforced
in or by such court.
SECTION 15. Transfer to Affiliate. Notwithstanding anything herein to the
contrary, UBS Limited may transfer the Purchase Shares to any affiliate of UBS
Limited, together with all of UBS Limited's rights hereunder; provided that (i)
such affiliate shall assume and be subject to all of UBS Limited's obligations
hereunder; (ii) such affiliate shall be an "accredited investor" within the
meaning of Rule 501 of Regulation D promulgated under the Securities Act; and
(iii) such transfer shall be consistent with the investment representations set
forth at Section 5.1 hereto. In the event of such an assignment, such affiliate
shall in all respects be substituted for UBS Limited as a party hereto.
19
<PAGE>
SECTION 16. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one instrument, and shall become effective
when one or more counterparts have been signed by each party hereto and
delivered to the other parties.
SECTION 17. Waiver of Trial by Jury. EACH PARTY HEREBY IRREVOCABLY WAIVES
ANY RIGHT IT MAY HAVE TO JURY TRIAL IN CONNECTION WITH ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT.
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the day and year first
above written.
Highwood Properties, Inc.
By:________________________________
Name:
Title:
UBS Limited
By:________________________________
Name:
Title:
By:________________________________
Name:
Title:
Union Bank of Switzerland
London Branch
By:________________________________
Name:
Title:
By:________________________________
Name:
Title:
21
<PAGE>
Appendix I
(one of two)
STOCK CERTIFICATE QUESTIONNAIRE
Pursuant to Section 3 of the Agreement, please provide us with the
following information:
1. The exact name that your Shares are to be registered in (this is the name
that will appear on your stock certificate(s)). You may use a nominee name
if appropriate: ____________________________
2. All relationships between each UBS Party and the Registered Holder listed
in response to Item 1 above:
____________________________
____________________________
____________________________
3. The mailing address of the Registered Holder listed in response to item 1
above:
____________________________
____________________________
____________________________
____________________________
4. The Social Security Number or Tax Identification Number of the Registered
Holder listed in response to item 1 above:
____________________________
<PAGE>
Appendix I
(two of two)
REGISTRATION STATEMENT QUESTIONNAIRE
In connection with the preparation of the Registration Statement, please
provide us with the following information:
1. Pursuant to the "Selling Shareholders" section of the Registration
Statement, please state your or your organization's name exactly as it
should appear in the Registration Statement:
2. Please provide the number of shares that you or your organization
will own immediately after Closing, including those Shares purchased by you
or your organization pursuant to this Purchase Agreement and those shares
purchased by you or your organization through other transactions:
3. Have you or your organization had any position, office or other
material relationship within the past three years with the Company or its
affiliates?
_____ Yes _____ No
If yes, please indicate the nature of any such relationships below:
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
<PAGE>
APPENDIX II
Attention:
PURCHASER'S CERTIFICATE OF SUBSEQUENT SALE
The undersigned, [an officer of, or other person duly authorized by]
_______________________________________ hereby certifies that he/she [fill in
official name of individual or institution] [said institution] is the Purchaser
of the shares evidenced by the attached certificate, and as such, sold such
shares on _______ in accordance with Registration Statement
[date]
number ___________________________________________________________________,
[fill in the number of or otherwise identify Registration Statement]
the Securities Act of 1933, as amended, and any applicable state securities or
blue sky laws and the requirement of delivering a current prospectus by the
Company has been complied with in connection with such sale.
Print or Type:
Name of Purchaser
(Individual or
Institution): ____________________________________
Name of Individual
representing
Purchaser (if an
Institution) ____________________________________
Title of Individual
representing
Purchaser (if an
Institution): ____________________________________
Signature by:
Individual Purchaser
or Individual repre-
senting Purchaser: ____________________________________
<PAGE>
EXHIBIT A
[Form of Closing Opinion of Counsel to the Company]
August __, 1997
Union Bank of Switzerland
London Branch
[Address]
Ladies and Gentlemen:
We have acted as counsel to Highwood Properties, Inc., a Maryland real
estate investment trust (the "Company"), in connection with (i) the issuance and
sale by the Company of [Number] shares of the Company's common stock, par value
$.01 per share ("Common Shares"), pursuant to that certain Purchase Agreement,
dated August __, 1997 (the "Purchase Agreement"), by and between the Company and
Union Bank of Switzerland, London Branch, acting through its agent UBS
Securities LLC, (the "Purchaser") and (ii) the forward stock purchase
transaction evidenced by the letter agreement, dated August __, 1997 (the
"Confirmation") between the Company and the Purchaser. This opinion is being
rendered to you pursuant to Section 4.17 of the Purchase Agreement in connection
with the Closing of the sale of the Shares. Capitalized terms not otherwise
defined in this opinion have the meaning given them in the Purchase Agreement.
In connection with the opinions expressed herein we have made such
examination of matters of law and of fact as we considered appropriate or
advisable for purposes hereof. As to matters of fact material to the opinions
expressed herein, we have relied upon the representations and warranties as to
factual matters contained in and made by the Company pursuant to the Purchase
Agreement and upon certificates and statements of government officials and of
officers of the Company. We have also examined originals or copies of such
corporate documents or records of the Company as we have considered appropriate
for the opinions expressed herein. We have assumed for the purposes of this
opinion that the signatures on documents and instruments examined by us are
authentic, that each document is what it purports to be, and that all documents
submitted to us as copies conform with the originals, which facts we have not
independently verified.
<PAGE>
Union Bank of Switzerland
London Branch
[Date]
Page 2
In rendering this opinion we have also assumed that the Purchase Agreement
and the Confirmation have each been duly and validly executed and delivered by
the other parties to such agreements and constitute valid, binding and
enforceable obligations of such other parties.
In our capacity as counsel to the Company, we have examined, among other
things, originals, or copies identified to our satisfaction as being true
copies, of the following: [List]
This opinion relates solely to the laws of the State of _________, and the
federal securities law of the United States, and we express no opinion with
respect to the effect or applicability of the laws in other areas or of other
jurisdictions.
Our opinion in paragraph 4 below is subject to the effect of bankruptcy,
insolvency, moratorium, fraudulent conveyance and similar laws relating to or
affecting creditors' rights generally and we express no opinion with respect to
the application of equitable principles in any proceeding, whether at law or in
equity.
Based upon the foregoing and subject to the limitations, exceptions,
qualifications and assumptions set forth herein, we are of the opinion that as
of the date hereof:
1. The Company is a real estate investment trust duly organized, validly
existing and in good standing under the laws of the State of Maryland, and the
Company has the requisite corporate power and authority to own its properties
and to conduct its business as presently conducted.
2. The Purchase Shares and the Additional Shares have been duly authorized
and, when issued and delivered by the Company in accordance with and subject to
the terms of the Purchase Agreement or the Confirmation (as the case may be),
will be validly issued, nonassessable and fully paid, and are not subject to any
preemptive or similar rights.
3. The Company has the power and authority to execute, deliver and perform
the Purchase Agreement and the Confirmation, including issuing, selling and
delivering the Purchase Shares and Additional Shares as contemplated thereby.
4. Each of the Purchase Agreement and the Confirmation have been duly
authorized, executed and delivered by the Company and is a valid and binding
obligation of the Company, enforceable in accordance with its terms.
5. The execution and delivery by the Company of, and the performance by the
Company of its obligations under, the Purchase Agreement and the Confirmation
will not contravene any provision of applicable law or the declaration of trust
or bylaws of the Company, or, to the best of our knowledge, any judgment order
or decree of any governmental body, agency or court having jurisdiction over the
Company or any of its property, or, to the best of our
23
<PAGE>
Union Bank of Switzerland
London Branch
[Date]
Page 3
knowledge, constitute a breach or default under any agreement or other
instrument binding upon the Company and filed as an exhibit to the Company's
filings with the Securities and Exchange Commission.
6. No consent, approval, authorization or order of or qualification with
any governmental body or agency is required for the performance by the Company
of its obligations under the Purchase Agreement and the Confirmation, except
such as may be required by the securities or blue sky laws of the various states
(on which we express no opinion) in connection with the purchase and sale of the
Shares and except such as may be required in connection with providing the
registration statements contemplated by the Purchase Agreement or the
Confirmation.
7. To the best of our knowledge, and except as disclosed in the Company's
public filings with the Securities and Exchange Commission, there is no action,
suit or proceeding pending or threatened in writing against the Company, at law
or in equity, or before any court or governmental agency or instrumentality
which, if resolved against the Company, may materially adversely affect the
financial or business condition of the Company or would prevent the Company from
entering into or performing its obligations under the Purchase Agreement or the
Confirmation.
8. The authorized capital stock of the Company conforms as to legal matters
in all material respects under the heading ["Capitalization"] in the Company's
public filings with the Securities and Exchange Commission, and the form of
certificate used to evidence the Shares complies in all material respects with
all applicable statutory requirements. The outstanding shares of Common Stock of
the Company have been duly and validly authorized and issued, and are, to our
knowledge, fully paid and nonassessable.
[While we have not verified, and are not passing upon and do not assume any
responsibility for, the accuracy, completeness or fairness of the statements
contained in the Registration Statement or Final Prospectus, we have
participated in reviews and discussions in connection with the preparation of
the Registration Statement and Final Prospectus, and advise you that, in the
course of such reviews and discussions, nothing has come to our attention which
would lead us to believe (i) that the Registration Statement at the time it
became effective (except for the financial statements and the notes thereto and
the other financial data included or incorporated by reference therein, as to
which we express no belief) contained any untrue statement of a material fact or
omitted to state any material fact necessary to make the statements therein not
misleading or (ii) that the Final Prospectus on the date thereof or on the date
of this opinion (except for the financial statements and the notes thereto and
the other financial data included or incorporated by reference therein, as to
which we express no belief) contained any untrue statement of a material fact or
omitted to state any material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.]
24
<PAGE>
Union Bank of Switzerland
London Branch
[Date]
Page 4
Our opinions expressed above are specifically subject to the following
limitations, exceptions, qualifications and assumptions:
(A) We are not called upon to express, and do not express, any view,
opinion or belief as to the financial statements, schedules, statistical data
and other financial data contained in any filings with the Securities and
Exchange Commission.
(B) We express no opinion as to the Company's compliance or noncompliance
with applicable federal or state antitrust statutes, laws, rules and
regulations.
(C) We express no opinion concerning the past, present or future fair
market value of any securities.
This opinion is rendered solely for your benefit in connection with the
Purchase Agreement and the Confirmation and may not be delivered to, quoted or
relied upon by any person other than you, or for any other purpose, without our
prior written consent. Our opinion is expressly limited to the matters set forth
above and we render no opinion, whether by implication or otherwise, as to any
other matters relating to the Company. We assume no obligation to advise you of
facts, circumstances, events or developments which hereinafter may be brought to
our attention and which may alter, affect or modify the opinions expressed
herein.
Very truly yours,
Smith Helms Mulliss & Moore, L.L.P.
<PAGE>
EXHIBIT B
Opinion Matters for Additional Registration Statements
[opinion paragraphs to be delivered in connection with resale registration
statements]
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Maryland, and the Company has the
requisite corporate power and authority to own its properties and to conduct is
business as presently conducted.
2. The Additional Shares have been duly authorized and are validly issued,
nonassessable and fully paid, and are not subject to any preemptive or similar
rights.
3. The Registration Statement has been declared effective under the
Securities Act; to our knowledge, no stop order suspending the effectiveness of
the Registration Statement has been issued and no proceedings for that purpose
have been instituted or threatened; and the Registration Statement, the Final
Prospectus, and each amendment thereof or supplement thereto (except for the
financial statements, schedules and the notes thereto and the other financial
data included or incorporated by reference therein, as to which we express no
opinion) comply as to form in all material respects with the requirements of the
Securities Act and the Exchange Act and the respective rules of the Commission
thereunder.
While we have not verified, and are not passing upon and do not assume any
responsibility for, the accuracy, completeness or fairness of the statements
contained in the Registration Statement or Final Prospectus, we have
participated in reviews and discussions in connection with the preparation of
the Registration Statement and Final Prospectus, and advise you that, in the
curse of such reviews and discussions, nothing has come to our attention which
would lead us to believe (i) that the Registration Statement at the time it
became effective (except for the financial statements and the notes thereto and
the other financial data included or incorporated by reference therein, as to
which we express no belief) contained any untrue statement of a material fact or
omitted to state any material fact necessary to make the statements therein not
misleading or (ii)that the Final Prospectus on the date thereof or on the date
of this opinion (except for the financial statements and the notes thereto and
the other financial data included or incorporated by reference therein, as to
which we express no belief) contained any untrue statement of a material fact or
omitted to state any material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
Forward Stock Purchase
28-Aug-97, 03:51:24 PM
To: Highwoods Properties, Inc.
3100 Smoketree Court
Suite 600
Raleigh, NC 27604
Attn: Mr. Carmen Liuzzo
From: Union Bank of Switzerland, London Branch
c/o UBS Securities LLC, as agent
299 Park Avenue
New York, NY 10171
Date: 25 August 1997
Ladies and Gentlemen:
The purpose of this letter agreement (this "Confirmation") is to confirm the
terms and conditions of the Transaction entered into between us on the Trade
Date specified below (the "Transaction"). This Confirmation constitutes a
"Confirmation" as referred to in the ISDA Master Agreement specified below.
The definitions and provisions contained in the 1991 ISDA Definitions (as
published by the International Swaps and Derivatives Association, Inc.) are
incorporated into this Confirmation. In the event of any inconsistency between
those definitions and provisions and this Confirmation, this Confirmation will
govern. References herein to the "Transaction" shall be deemed to be references
to a "Swap Transaction" for the purposes of the 1991 ISDA Definitions.
This Confirmation evidences a complete binding agreement between you and us as
to the terms of the Transaction to which this Confirmation relates. In addition,
you and we agree to use all reasonable efforts promptly to negotiate, execute
and deliver an agreement in the form of the ISDA Master Agreement
(Multicurrency-Cross Border) (the "ISDA Form"), with such modifications as you
and we will in good faith agree. Upon the execution by you and us of such an
agreement, this Confirmation will supplement, form a part of, and be subject to
that agreement. All provisions contained or incorporated by reference in that
agreement upon its execution will govern this Confirmation except as expressly
modified below. Until we execute and deliver that agreement, this Confirmation,
together with all other documents referring to the ISDA Form (each a
"Confirmation") confirming transactions (each a "Transaction") entered into
between us (notwithstanding anything to the contrary in a Confirmation), shall
supplement, form a part of, and be subject to an agreement in the form of the
ISDA Form as if we had executed an agreement in such form m(but without any
Schedule) on the Trade Date of the firm such Transaction between us. In the
event of any inconsistency between the provisions of that agreement and this
Confirmation, this Confirmation will prevail for the purpose of this
Transaction.
The Agreement and each Confirmation thereunder will be governed by and construed
in accordance with the laws of the State of New York without reference to choice
of law doctrine.
<PAGE>
Forward Stock Purchase
I. The Transaction
This Transaction is a commitment by Highwoods Properties, Inc. (the "Company")
to purchase, and Union Bank of Switzerland, London Branch ("UBS") acting through
UBS Securities LLC as its agent for each purchase or sale of Securities ("UBS
LLC") to sell, common shares of beneficial interest, par value $0.01 per share,
of the Company ("Common Shares") up to an aggregate of 1,800,000, in exchange
for cash or Common Shares of the Company on the terms more particularly
specified herein (the "Confirmation").
II. Settlement
A. Notice and Settlement Amount
1. The Company may on any Exchange Trading Day up to and including the
Maturity Date, upon the giving of five (5) Business Days telephonic notice
to UBS, settle all or part of this Transaction. Such notice shall specify:
(i) the number of Underlying Shares subject to such settlement
(the "Settlement Shares"),
(ii) the settlement method (Cash, Stock or Net Stock Settlement,
as such methods are described below), and
(iii) the date upon which such settlement shall begin ("Day S"),
which must be an Exchange Trading Day; provided however, that if
in UBS' reasonable judgment the settlement of the Settlement
Shares would potentially violate or contravene any legal or
regulatory prohibition or requirement applicable to UBS or cause
UBS to contravene any established UBS corporate policy or
compliance policy (other than any corporate policy limiting the
amount of UBS's investment in another entity), then UBS shall at
least three (3) Business Days prior to the proposed Day S, notify
the Company telephonically (confirmed by writing) of any such
impediment and its estimate of the period during which such
impediment will preclude UBS' ability to settle all or part of
this Transaction, in which case the Company may upon telephonic
notice to UBS at least one (1) Exchange Trading Day prior to the
proposed Day S withdraw its settlement notice.
Such notice shall be effective only if the notice requirements specified
above are fulfilled, provided, that if no settlement method is specified,
then the settlement method shall be deemed to be Cash Settlement.
In the case of any partial settlement ("Partial Settlement"), following
such settlement the number of Underlying Shares to which this Transaction
shall relate shall be adjusted by subtracting the number of Settlement
Shares from the number of Underlying Shares to which the Transaction
related (as the same may have been adjusted prior to such Partial
Settlement) immediately prior to such partial settlement. The Settlement
Shares shall not be subject to forward accretion and shall be treated
separately from the remaining Underlying Shares, during any Unwind Period.
2. On Day S, the Settlement Price for the Settlement Shares and the Settlement
Amount shall be determined for Day S.
3. The Settlement Amount shall be settled pursuant to the settlement method
(B, C, or D of this Article II) selected by the Company in its sole
discretion.
4. If settlement with respect to the Settlement Shares (this section does not
apply for Interim Net Stock Settlement) shall occur on or before the 180th
day following the Effective Date, then the Settlement Price for purposes of
such settlement shall be increased by any positive amount, calculated by
UBS as follows:
-2-
<PAGE>
Forward Stock Purchase
Spread x Forward Price x (180 - calendar days since Trade Date)
--------------------------------------
360
5. It shall be a condition precedent to any right of the Company to elect
Stock Settlement (II. C. below) or Net Stock Settlement (II. D. below),
that the Company must (i) notify UBS of such election at least 5 Business
Days prior to Day S and (ii) prior to Day S, cause to be filed with the
Securities and Exchange Commission (the "Commission") and cause to become
effective under the Securities Act of 1933, as amended (the "Securities
Act") a resale registration statement covering all Common Shares to be
delivered by the Company to UBS LLC for the account of UBS in effecting
such Stock Settlement or Net Stock Settlement, such registration statement
to include one or more preliminary prospectuses, prospectuses, and any
amendments and supplements thereto such that any preliminary prospectus or
prospectus, as amended or supplemented, shall not contain any 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 not
misleading in light of the circumstances under which they are made The
Company further agrees that it will cause any such Registration Statement
to remain in effect until the earliest of the date on which (i) all Common
Shares issued pursuant hereto and not required to be delivered to the
Company hereunder have been sold by UBS LLC for the account of UBS and UBS
agrees to notify the Company of such fact, within two (2) Business Days of
its occurrence, (ii) UBS LLC for the account of UBS is able to sell the
Common Shares subject thereto under Rule 144(k), or (iii) UBS has advised
the Company that it no longer requires that such registration statement be
effective.
B. Cash Settlement
The Company shall settle by delivering cash in an amount equal to the
Settlement Amount in exchange for the Settlement Shares ("Cash Settlement")
on the Exchange Trading Day immediately succeeding Day S. UBS LLC for the
account of UBS shall deliver the Settlement Shares to the Company on the
Exchange Trading Day immediately succeeding Day S upon receipt of such Cash
Settlement.
C. Stock Settlement
If the Company elects to meet its payment obligations by delivering Common
Shares in exchange for the Settlement Shares ("Stock Settlement"), the
number of Common Shares to be delivered (the "Stock Settlement Shares")
shall be equal to (a) the Settlement Amount divided by (b) the Stock
Settlement Unwind Price. The mechanics for settlement are set forth in II.
E.2. below and Article V.
D. Net Stock Settlement
If the Company determines that it will elect to meet its payment
obligations under II.A. or its delivery obligations under III.A. on a net
stock basis ("Net Stock Settlement"), the number of net stock settlement
shares (the "Net Stock Settlement Shares") shall equal:
i) the number of Settlement Shares, times
ii) the Settlement Price minus the Stock Settlement Unwind Price,
divided by
iii) the Stock Settlement Unwind Price.
If such calculation yields a negative number, this shall indicate the
number of Common Shares to be delivered from UBS LLC for the account of UBS
to the Company. The mechanics for settlement are set forth in II. E. below
and Article V.
-3-
<PAGE>
Forward Stock Purchase
E. Stock and Net Stock Settlement Mechanics
1. Preliminary Stock Settlement. If the Company has chosen Stock
Settlement, the Company shall deliver to UBS LLC for the account of
UBS, by 11:00 a.m. on Day S, that number of Common Shares, registered,
for resale under an effective registration statement (the "Preliminary
Stock Settlement Shares"), equal to the product of (i)(a) the
Settlement Amount divided by (b) the closing price of the Common
Shares on the Exchange Trading Day immediately preceding Day S, times
(ii) 110%. Upon receipt of the Preliminary Stock Settlement Shares,
UBS will deposit the Settlement Shares in the Company's Margin
Account.
2. Preliminary Net Stock Settlement. If the Company has chosen Net Stock
Settlement and if the Settlement Price exceeds the closing price of
the Common Shares on the Exchange Trading Day immediately preceding
Day S, the Company shall deliver to UBS LLC for the account of UBS by
11:00 a.m. on Day S, that number of Common Shares (the "Preliminary
Net Stock Settlement Shares) equal to (i)(a) the number of Settlement
Shares times (b) the difference between the Settlement Price and the
closing price of the Common Shares on the Exchange Trading Day
immediately preceding Day S divided by (ii) the closing price of the
Common Shares on the Exchange Trading Day immediately preceding Day S
times (iii) 125%. If the closing price of the Common Shares on the
Exchange Trading Day immediately preceding Day S exceeds the
Settlement Price, the Company shall not be required to deliver any
shares to UBS LLC for the account of UBS under this subsection II.E.2.
3. By 11:00 a.m. on every fifth (5th) Exchange Trading Day during the
Unwind Period and on the Business Day following the final Exchange
Trading Day of the Unwind Period:
(a) For Stock Settlement:
Stock Settlement Shares shall be calculated as if such Exchange
Trading Day were Day S, except that (a) there shall be no adjustment
to the Settlement Amount and (b) for purposes of calculating the Stock
Settlement Unwind Price, the Unwind Period shall be deemed to have
ended on the Exchange Trading Day on which the calculation is made.
(i) if Stock Settlement Shares are greater than the sum of (a)
Preliminary Stork Settlement Shares plus (b) any shares previously
delivered pursuant to this settlement under this subparagraph (i),
then the Company shall deliver that number of registered, freely
tradable Common Shares equal to the difference between Stock
Settlement Shares and Preliminary Stock Settlement Shares to UBS LLC
for the account of UBS, and
(ii) on the final day of the Unwind Period, if the sum of (a)
Preliminary Stock Settlement Shares plus (b) any shares previously
delivered pursuant to this settlement under this subparagraph (i) are
greater than Stock Settlement Shares, then UBS LLC, for the account of
UBS, shall deliver Common Shares equal to the difference between the
sum of (a) and (b) above and Stock Settlement Shares to the Company's
Margin Account,
(b) For Net Stock Settlement:
Net Stock Settlement Shares shall be calculated as if such Exchange
Trading Day were Day S except that (a) there shall be no adjustment to
the Settlement Amount and (b) for purposes of calculating the Stock
Settlement Unwind Price, the Unwind Period shall be deemed to have
ended on the Exchange Trading Day on which the calculation is made.
(i) if Net Stock Settlement Shares are greater than the sum of (a)
Preliminary Net Stock Settlement Shares plus (b) any shares previously
delivered pursuant to this settlement under this subparagraph (i),
then the Company shall deliver Common Shares (which Common Shares may
be delivered
-4-
<PAGE>
Forward Stock Purchase
from its Margin Account) registered for resale under an effective
registration statement equal in number to the difference between Net
Stock Settlement Shares and the sum of (a) and (b) to UBS LLC for the
account of UBS, or
(ii) on the final day of the Unwind Period, if the sum of a)
Preliminary Net Stock Settlement Shares plus b) any shares previously
delivered pursuant to this settlement under this subparagraph (i) are
greater than Net Stock Settlement Shares, UBS LLC for the account of
UBS shall deliver Common Shares equal in number to the difference
between sum of (a) and (b) above and Net Stock Settlement Shares to
the Company's Margin Account.
4. The Company shall cause all shares delivered by it to UBS LLC for the
account of UBS to be fully and effectively registered under the
Securities Act.
5. On the Exchange Trading Day following the final Exchange Trading Day
of the Unwind Period, UBS LLC for the account of UBS shall release
claims to Common Shares held in the Company's Margin Account,
including any Underlying Shares delivered pursuant to Stock Settlement
(II. E. 1. above), and deliver all such Common Shares to the Company
with the dollar value of all fractional shares settled in cash.
6. In the event of Stock or Net Stock Settlement (this section does not
apply for Interim Net Stock Settlement), the Company shall pay an
unwind accretion fee, in cash or stock, calculated in accordance with
the following formula:
Settlement Amount x (days in Unwind Period) x [1 month USD LIBOR + Spread]
--------------------- --------------------------
2 360
7. In the event of Stock or Net Stock Settlement (this section does not
apply for Interim Net Stock Settlement), the Company shall pay a
placement fee to UBS LLC for the account of UBS calculated as:
Settlement Amount x 0.50%
III. Interim Net Stock Settlement
A. On each Reset Date, if the Forward Price exceeds the closing price of the
Common Shares on such Reset Date, on the Business Day following the Fifth
Exchange Trading Day thereafter the Company shall deliver Common Shares
registered for resale by URS to UBS LLC (if the Company is restricted by
law or regulation or self-regulatory requirements or related policies and
procedures, whether or not such requirements, policies or procedures are
imposed by law directly or have been voluntarily adopted by the Company to
insure compliance with applicable laws or in its reasonable judgment is
otherwise unable or unwilling to deliver registered Common Shares, see
III.B. below) for the account of UBS equal to the Interim Settlement
Shares.
B. In the event that the Company fails to deliver registered shares pursuant
to Paragraph III.A. due to an inability described in such paragraph, the
Company shall deliver cash collateral in an amount equal to the market
value of the Interim Settlement Shares specified in III.A. to a collateral
account at UBS. Such collateral account will earn interest at USD LIBOR for
a designated maturity of 1 month, adjusted for any interest breakage costs
(whether positive or negative). All other aspects of Interim Net Stock
Settlement shall be unaffected. At the Company's option, upon delivering an
effective resale registration statement to UBS LLC for the account of UBS,
the Company may deliver freely salable registered shares to UBS equal in
salable market value, based on closing market prices during a commercially
reasonable valuation period, to the value of the collateral held in the
collateral account at UBS. On the day after the last day of such
commercially reasonable valuation period, UBS shall release all claims to
collateral held in the collateral account and deliver such amounts to the
Company.
-5-
<PAGE>
Forward Stock Purchase
C. If the Company fails to deliver an effective resale registration statement
within 90 days of the Trade Date, until an effective resale registration
statement is provided and an Interim Net Stock Settlement can be effected,
the Company shall deliver cash collateral in an amount calculated as
specified in III.A. to a collateral account at UBS. Such collateral account
will earn interest at USD LIBOR for a designated maturity of 1 month,
adjusted for any interest breakage costs. Monitoring of the Transaction on
a cash collateral basis (using standards set forth above) shall be effected
bi-weekly (every 2 weeks) until an Interim Net Settlement can be effected
or the transaction is settled on a Cash Settlement basis. At the Company's
option, upon delivering an effective resale registration statement to UBS
LLC for the account of UBS, the Company may deliver freely salable
registered shares to UBS equal in salable market value, based on closing
market prices during a commercially reasonable valuation period, to the
value of the collateral held in the collateral account at UBS. On the day
after the last day of .such commercially reasonable valuation period, UBS
shall release all claims to collateral held in the collateral account and
deliver such amounts to the Company.
IV. Definitions
For the purposes of this Confirmation, the following terms shall have the
meanings set opposite:
Ability to Settle in Stock: As of the date hereof, the Company has not, and
after the date hereof, the Company will not, enter
into any obligation that would contractually
prohibit the Company from Stock Settlement of any
shares under this Agreement.
Adjustment to Forward Price: In the event of:
(a) a subdivision, consolidation or
reclassification of the Common Shares, or a free
distribution or dividend of any Common Shares to
all existing holders of Common Shares by way of
bonus, capitalization or similar issue;
(b) a distribution or dividend to all existing
holders of Common Shares of (i) additional Common
Shares or (ii) other share capital or securities
granting right to payment of dividends and/or the
proceeds of liquidation of the Company equally or
proportionally with such payments to holders of
Common Shares or (iii) and other type of
securities, warrants or other assets, in any case
for payment (cash or otherwise) at less than the
prevailing market price; or
(c) any other event that has a diluting or
concentrative effect on the value of the
Underlying Shares, an adjustment shall thereupon
be effected to the Forward Price and/or the
Underlying Shares at the time of such event with
the intent that following such adjustment, the
value of this Transaction is economically
equivalent to the value immediately prior to the
occurrence of the event causing the adjustment.
Calculation Agent: UBS, whose calculations and determinations shall
be made in a commercially reasonable manner and
shall be binding absent manifest error.
Compounding Period: Means each period commencing on and including:
(i) in the case of the first Compounding Period,
the Effective Date and ending on but excluding the
first Reset Date, and
(ii) for each period thereafter, a Reset Date and
ending on (but excluding) the next following Reset
Date.
Daycount: Actual/360
-6-
<PAGE>
Forward Stock Purchase
Dividend Amount: Means, on each Reset Date, or Early Termination
Date, or Maturity Date, an amount in U.S. Dollars
equal to:
(i) the sum of all cash distributions paid on a
single Common Share during the relevant
Compounding Period; plus
(ii) an amount representing interest that could
have been earned on such distributions at a USD
LIBOR having a Designated Maturity of 1 month for
the period from the date that such distributions
would have been received by a holder of such
Common Shares until such Reset Date.
Separately, and not included in Dividend Amount,
all cash dividends, having gone ex-dividend but
not paid prior to the end of the final Compounding
Period for any settlement, on a number of shares
equal to the Underlying Shares, or on a reduced
number shares during an Unwind Period, will be
paid to the Company by UBS LLC for the account of
UBS on the Business Day after the relevant
dividend payment date declared by the Company's
Board of Directors.
Effective Date: 25 August 1997
Exchange Trading Day: Each day on which the Relevant Exchange is open
for trading.
Forward Price: On any day, the Forward Price shall be determined
for such day by:
a) (i) compounding the Initial Price for each
Compounding Period at the USD LIBOR rate plus
Spread for a Designated Maturity of 3 months or
the Designated Maturity which corresponds to the
Compounding Period if less than 3 months
(Actual/360 day count fraction) to such Reset Date
and
(ii) subtracting the Dividend Amount at that date,
and
b) provided however that if the Company delivers
shares pursuant to III., the Forward Price for
purposes of determining the Initial Price for the
next Reset Date, shall be adjusted to a price
equal to the closing price of the Common Shares on
the Exchange Trading Day immediately prior to the
current Reset Date, Early Termination Date or
Maturity Date adjusted up for any positive result
or down for any negative result of the following
formula:
(ii) the Interim Settlement Amount
minus,
(i) (a) Interim Settlement Shares times (b) the
average closing price of the Common Shares on the
five (5) Exchange Trading Days immediately
following the receipt of shares by UBS pursuant to
III. above.
such result divided by,
(iii) the number of Underlying Shares.
Initial Price: Means,
-7-
<PAGE>
Forward Stock Purchase
a) for the Compounding Period ending on the first
Reset Date, an amount in U.S. Dollars equal to
[closing price], and
b) for each subsequent Reset Date, the Forward
Price as calculated on or adjusted as of the prior
Reset Date.
Interim Settlement Amount: On any day, the product of (a) the number of
Underlying, Shares, and (b) the amount by which
the Forward Price exceeds the closing price of the
Common Shares on the Exchange Trading Day
immediately prior to such day.
Interim Settlement Shares: (i) 110% times (ii) Interim Settlement Amount
divided by (iii) the closing price of the Common
Shares on the Exchange Trading Day immediately
prior to such Reset Date.
Mandatory Unwind Mandatory
Thresholds: Unwind Thresholds Unwind Share Limit
----------------- ------------------
70.0% of current price up to 25% of shares
65.0% 50%
62.5% 75%
60.0% 100%
Maturity Date: One (1) year after the Effective Date, subject to
extension upon the written approval of UBS in its
sole discretion.
Relevant Exchange: Means, with respect to any Exchange Trading Day,
the principal Stock Exchange on which the Common
Shares are traded on that day.
Reset Dates: 25 November 1997, 25 February 1998, 25 May 1998,
25 August 1998.
Settlement Amount: The product of the Settlement Price and the
Settlement Shares.
Settlement Disruption Event: Means an event beyond the control of the parties
as a result of which The Depository Trust Company
("DTC") or any successor depository cannot effect
a transfer of the Settlement Shares or the Common
Shares. If there is a Settlement Disruption Event
on a Valuation Date, then the transfer of the
Common Shares that would otherwise be due to be
made by UBS LLC for the account of UBS or the
transfer of the Common Shares that would otherwise
be due to be made by the Company, as applicable,
on that date shall take place on the first
succeeding Exchange Trading Dy on which settlement
can take place through DTC, provided that if such
a Settlement Disruption Event persists for five
consecutive Business Days, then the Party obliged
to deliver such Settlement Shares shall use its
best efforts to cause such Shares to be delivered
promptly thereafter to the other Party in any
commercially reasonable manner.
Settlement Price: If Day S is a Reset Date, the Forward Price. If
Day S is not a Reset Date, the Forward Price
adjusted for LIBOR breakage adjustments (either
positive or negative) for the Settlement Shares
for the period from Day S to the next following
Reset Date. Any breakage adjustments shall be
calculated by the Calculation Agent in accordance
with normal industry standards.
Spread: 0.75% per annum.
Stock Exchange: Means the New York Stock Exchange, the American
Stock Exchange or
-8-
<PAGE>
Forward Stock Purchase
NASDAQ.
Stock Settlement
Unwind Price: The daily average closing price of the Common
Shares for Exchange Trading Days during the Unwind
Period.
Trade Date: 25 August 1997
Unwind Period: In the event of Stock Settlement or Net Stock
Settlement, the 35 Exchange Trading Day period
(subject to change based on mutual agreement)
beginning on Day S; provided that UBS may extend
such period for such additional number of Exchange
Trading Days required to complete its hedging
activities in a commercially reasonable manner or
upon the occurrence of a Market Disruption Event.
Underlying Shares: 1,800,000 Common Shares of the Company (ticker
"HIW")
Valuation Date: In the case of determining any Cash Settlement
value, Net Stock Settlement Shares or Stock
Settlement Shares, Day S, the day preceding Day S
and all Exchange Trading Days during the Unwind
Period; in the case of determining any Preliminary
Stock Settlement Shares or Preliminary Net Stock
Settlement Shares, the Exchange Trading Day
immediately preceding Day S.
Valuation Time: 4:00 pm EST, or in the event the Relevant Market
closes early, such closing time.
V. Certain Covenants and Other Provisions
-9-
<PAGE>
Forward Stock Purchase
Mandatory Unwind Event: If at any time prior to the Maturity Date:
(i) the average closing price on the Relevant
Exchange of the Common Shares on an Exchange
Trading Days, other than a day on which a Market
Disruption Event has occurred, is equal to or less
than any of the Mandatory Unwind Thresholds, then
on the Mandatory Unwind Date the Parties agree to
settle, all or a portion of the Transaction, up to
the Unwind Share Limit for the corresponding
Mandatory Unwind Threshold settling such amounts
pursuant to Article II. above,
Once a Mandatory Unwind Event has occurred, if the
Common Shares trade below a lower Mandatory Unwind
Threshold at any time, the Parties agree to
settle, all or a portion of the Transaction, up to
the corresponding Unwind Share Limit.
Or,
(ii) if any of the following events occur:
(1) any Financial Covenant Default as more
particularly described in Exhibit A attached
hereto,
(2) any Event of Default under the outstanding
$280 million unsecured credit line, evidenced by
that certain Credit Agreement by and among
Highwoods/Forsyth Limited Partnership as borrower
the Company and certain subsidiaries as
guarantors, the lenders named therein,
NationsBank, N.A. as administrative agent and
First Union National Bank of North Carolina as
documentation agent, dated September 27, 1996,
(3) any Event of Default under any other unsecured
lending agreement involving the Company,
(4) Bankruptcy or Insolvency, and/or
(5) any failure of the Company to post cash
collateral pursuant to III. B. herein.
then, UBS LLC for the account of UBS may, on
giving 5 Business Days notice to the Company
require all or part of the Transaction to be
settled early on such date (such date and amount
being "Day S" and "Settlement Shares" for the
purposes of the "Settlement" provisions above).
The Company may elect the method of settlement for
such early settlement in accordance with the
settlement provisions set forth herein.
however,
in the event (1) no resale Registration Statement
has been provided and declared effective prior to
Day S or (2) any resale Registration Statement so
provided and declared effective becomes, on Day S
or during an unwind period, the subject of a stop
order suspending its effectiveness or is the
subject of any proceeding for that purpose or any
such proceeding is threatened by the Commission,
then the Company at its sole option may choose to
(A) cash collateralize 125% of its obligation to
UBS in a manner similar to that described in
Section III.3., (B) effect Cash Settlement as to
all of the Settlement Shares in accordance with
-10-
<PAGE>
Forward Stock Purchase
Section II.B. hereof on the Exchange Trading Day
immediately succeeding the occurrence of one of
the events specified in (1) or (2) above or (C)
effect settlement with Common Shares that are not
subject to a resale Registration Statement to
allow UBS to unwind the Transaction and liquidate
any position it may hold in such unregistered
Settlement Shares by means of negotiated private
resales, to the extent and in the manner permitted
by applicable federal and state securities laws.
In recognition that such negotiated private
resales, if any, are likely to be completed at
prices reflective of a discount to the prevailing
open market prices for any freely tradable Common
Shares, the Company agrees to deliver such number
of supplemental Common Shares as UBS may
reasonably request to which UBS shall assign a
dollar price in order to approximate an aggregate
amount equal to the aggregate discount accepted by
UBS in connection with the resale of the
Settlement Shares or the Company shall pay an
amount to UBS equal to the aggregate discount
accepted by UBS in connection with the resale of
the Settlement Shares.
Upon receipt of full payment from the Company to
UBS LLC for the account of UBS, UBS LLC for the
account of UBS will promptly return all shares in
the Company's Margin Account to the Company.
Market Disruption Event: The occurrence or existing or existence on any
Exchange Trading Day during the one-half hour
period that ends at the Valuation Time of any
suspension of or limitation imposed on trading on
(i) any of the Relevant Exchanges or (ii) any of
the Related Exchanges in options or futures
contracts on the Common Shares of the Company if,
in the reasonable determination of the Calculation
Agent, such suspension or limitation is material.
In the event that a Market Disruption Event occurs
or is continuing on a Valuation Date, then any
determination of the closing pricing of the Common
Shares shall be postponed to the first succeeding
Exchange Trading Day on which there is no Market
Disruption Event, provided that if there is a
Market Disruption Event on each of the five
Exchange Trading Days immediately following the
original Valuation Date that but for the Market
Disruption Event would have been a day on which
the closing price of the Common Shares would have
been determined, such fifth Exchange Trading Day
shall be deemed to be such Valuation Date
notwithstanding the Market Disruption Event and
the Calculation Agent shall, in consultation with
the Company, determine the closing price for that
Valuation Date based upon the last closing price
prior to such Market Disruption Event, and if
applicable, shall effect the settlement of the
Underlying Shares by using such last closing price
for the determination of the Settlement Amount
under Paragraph II.A.3. above.
The Calculation Agent shall within one (1 )
Business Day notify the other party of the
existence or occurrence of a Market Disruption
Event on any day that but for the occurrence or
existence of a Market Disruption Event would have
been a Valuation Date.
Regulatory Compliance: Each party agrees that if the delivery of shares
upon settlement is subject to any restriction
imposed by a regulatory authority, it shall not be
an event of default, and the parties will
negotiate in good faith a procedure to effect
settlement of such shares in a manner which
complies with any relevant rules of such
regulatory authority and which is satisfactory in
form and substance to their respective counsel.
-11-
<PAGE>
Forward Stock Purchase
Securities Law Compliance: Each party agrees that it will comply, in
connection with this Transaction and all related
or contemporaneous sales and purchases of the
Company's Common Shares, with the applicable
provisions of the Securities Act, the Securities
Exchange Act of 1934 (the "Exchange Act") and the
rules and regulations thereunder.
Settlement Stock Delivery: Pursuant to the Stock Settlement and Net Stock
Settlement provisions under Section II. above, UBS
LLC for the account of UBS shal1 deliver all
Settlement Shares to the Company's Margin Account.
Such Common Shares will be owned by the Company,
and will serve as collateral until released by UBS
LLC for the account of UBS in accordance with the
settlement mechanics noted under II.E. above.
The Company covenants and agrees with UBS that
Common Shares delivered by the Company pursuant to
settlement events in accordance herewith will be
duly authorized, validly issued, fully paid and
nonassessable. The issuance of such Common Shares
will not require the consent, approval,
authorization, registration, or qualification of
any government authority, except such as shall
have been obtained on or before the delivery date
to UBS LLC for the account of UBS in connection
with any registration statement filed with respect
to any shares.
Stock Settlement Transfer: All settlements shall occur through DTC or any
other mutually acceptable depository.
Solvency: Immediately following the execution of this
agreement, the Company will be solvent and able to
pay its debts as they mature, will have capital
sufficient to carry on business and all businesses
in which it engages, and will have assets which
will have a present fair market valuation greater
than the amount of all of its liabilities.
Trading Authorization: The following individuals and /or any individual
authorized in writing by the Treasurer of the
Company are authorized by the Company to provide
trading instructions to UBS LLC for the account of
UBS with regard to this transaction.
Ronald P. Gibson
Carman J. Liuzzo
Mack D. Pridgen III
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<PAGE>
Forward Stock Purchase
VI. Delivery Instructions:
Party A: Chase, NYC
UBS Securities LLC
ABA 021000021
A/C No. ###-##-####
Attn: GED
Party B:
Please confirm that the foregoing correctly sets
forth the terms of our agreement by executing the
copy of this Confirmation enclosed for that
purpose and returning it to Ms. Gale Herzing, 29th
Floor.
Yours faithfully,
Union Bank of Switzerland, London Branch
By: ________________________ By: _______________________________
Name: Name:
Title: Title:
Date: Date:
Highwoods Properties Inc.
By: ____________________________ By: _____________________________
Name: Carman J. Liuzzo Name: Mack D. Pridgen III
Title: Vice President and Chief Title: Vice President and
Financial Officer General Counsel
Date: August 28, 1997 Date: August 28, 1997
-13-
<PAGE>
Forward Stock Purchase
Exhibit A
Financial Covenants
<TABLE>
<CAPTION>
Financial Covenants * Test Period Threshold
- --------------------- ----------- ---------
<S> <C> <C>
Adjusted NOI to Total Liabilities Rolling 4Q >= 16 5%
Minimum Tangible Net Worth NA (1)
Total Liabilities to Total Market Capitalization NA <= 45%
Total Liabilities to Total Property Assets at Cost NA <= 50%
EBITDA to Interest Expense (plus Capex) Rolling 4Q >= 2 20x
Unencumbered Assets to Unsecured Debt Rolling 4Q >= 2.25x
Secured Debt to Total Property Assets at Cost Rolling 4Q <= 30NO
Unencumbered Adjusted NOI to Unsecured Interest Expense Rolling 4Q >= 2 25x
Unencumbered Adjusted NOI to Unsecured Debt Rolling 4Q >= 18%
Speculative Land to Improved Properties Rolling 4Q <= 3 .0%
</TABLE>
Any above capitalized terms shall be defined pursuant to the Company's $280
million Credit Agreement by and among Highwoods/Forsyth Limited Partnership as
borrower, the Company and certain subsidiaries as guarantors, the lenders named
therein, NationsBank, N.A. as administrative agent and First Union National Bank
of North Carolina as documentation agent, dated September 27, 1996.
(1) Greater than or equal to the sum of (i) $700 million plus (ii) 85% of the
Net Cash Proceeds of any Equity Issuance subsequent to the Closing Date of the
Credit Agreement by and among Highwoods/Forsyth Limited Partnership as borrower
the Company and certain subsidiaries as guarantors, the lenders named therein,
NationsBank, N A as administrative agent and First Union National Bank of North
Carolina as documentation agent, dated September 27, 1996.
* ($ millions where appropriate)
-14-
CREDIT AGREEMENT
among
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP,
as Borrower
AND
HIGHWOODS PROPERTIES, INC.,
and certain Subsidiaries of the Borrower and Highwoods Properties, Inc.
as Guarantors
AND
NATIONSBANK, N.A.,
as Agent and a Lender
AND
THE OTHER LENDERS IDENTIFIED HEREIN (IF ANY)
DATED AS OF December 15, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION 1 DEFINITIONS AND ACCOUNTING TERMS....................................1
1.1 Definitions................................................................1
1.2 Computation of Time Periods and Other Definitional Provisions..............8
SECTION 2 CREDIT FACILITIES. .................................................9
2.1 Revolving Loans............................................................9
SECTION 3 GENERAL PROVISIONS APPLICABLE TO LOANS.............................11
3.1 Interest..................................................................11
3.2 Place and Manner of Payments..............................................11
3.3 Prepayments...............................................................12
3.4 Unused Fees...............................................................12
3.5 Payment in full at Maturity...............................................13
3.6 Computations of Interest and Fees.........................................13
3.7 Pro Rata Treatment........................................................14
3.8 Sharing of Payments.......................................................14
3.9 Capital Adequacy..........................................................15
3.10 Inability To Determine Eurodollar Rate...................................15
3.11 Illegality to Make Eurodollar Loans......................................16
3.12 Changes in Requirements of Law...........................................16
3.13 Taxes....................................................................17
3.14 Indemnity as to Eurodollar Loans.........................................18
SECTION 4 GUARANTY...........................................................19
4.1 Guaranty of Payment.......................................................18
4.2 Obligations Unconditional.................................................19
4.3 Modifications.............................................................19
4.4 Waiver of Rights..........................................................20
4.5 Reinstatement.............................................................20
4.6 Remedies..................................................................20
4.7 Limitation of Guaranty....................................................21
SECTION 5 CONDITIONS PRECEDENT...............................................21
5.1 Closing Conditions........................................................21
5.2 Conditions to All Loans...................................................23
SECTION 6 REPRESENTATIONS AND WARRANTIES.....................................25
SECTION 7 AFFIRMATIVE COVENANTS..............................................25
SECTION 8 NEGATIVE COVENANTS.................................................26
i
<PAGE>
SECTION 9 EVENTS OF DEFAULT..................................................26
9.2 Events of Default.........................................................27
9.3 Acceleration; Remedies....................................................27
9.4 Allocation of Payments After Event of Default.............................28
SECTION 10 AGENCY PROVISIONS.................................................29
10.1 Appointment..............................................................29
10.2 Delegation of Duties.....................................................29
10.3 Exculpatory Provisions...................................................29
10.4 Reliance on Communications...............................................30
10.5 Notice of Default........................................................30
10.6 Non-Reliance on Agent and Other Lenders..................................31
10.7 Indemnification..........................................................31
10.8 Agent in Its Individual Capacity.........................................32
10.9 Successor Agent..........................................................32
SECTION 11 MISCELLANEOUS......................................................33
11.1 Notices..................................................................32
11.2 Right of Set-Off.........................................................33
11.3 Benefit of Agreement.....................................................33
11.4 No Waiver; Remedies Cumulative...........................................35
11.5 Payment of Expenses; Indemnification.....................................35
11.6 Amendments, Waivers and Consents.........................................36
11.7 Counterparts.............................................................36
11.8 Headings.................................................................37
11.9 Defaulting Lender........................................................37
11.10 Survival of Indemnification and
Representations and Warranties.........................................37
11.11 Governing Law..........................................................37
11.12 Arbitration............................................................37
11.13 Time...................................................................38
11.14 Severability...........................................................38
11.15 Entirety...............................................................38
ii
<PAGE>
SCHEDULES
Schedule 1.1(a) Commitment Percentages
Schedule 11.1 Notices
EXHIBITS
Exhibit 2.1(b) Form of Notice of Borrowing
Exhibit 2.1(d) Form of Notice of Continuation/Conversion
Exhibit 2.1(f) Form of Revolving Note
Exhibit 7.1(c) Form of Officer's Certificate
Exhibit 7.16 Form of Joinder Agreement
Exhibit 11.3 Form of Assignment Agreement
iii
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of December 15, 1997 (this "Credit
Agreement"), is entered into by and among HIGHWOODS/FORSYTH LIMITED PARTNERSHIP,
a North Carolina limited partnership (the "Borrower"), HIGHWOODS PROPERTIES,
INC., a Maryland corporation ("Highwoods Properties") (Highwoods Properties and
certain Subsidiaries of the Borrower and Highwoods Properties, individually a
"Guarantor" and collectively the "Guarantors"), the Lenders (as defined herein)
and NATIONSBANK, N.A., (the "Bank"), as Agent for the Lenders.
R E C I T A L S
WHEREAS, the Borrower has requested that the Lenders provide a $150,000,000
credit facility for the purposes hereinafter set forth; and
WHEREAS, the Lenders have agreed to make the requested credit facility
available to the Borrower on the terms and conditions hereinafter set forth.
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
SECTION 1
DEFINITIONS AND ACCOUNTING TERMS
1.1 Definitions.
As used herein, the following terms shall have the meanings herein
specified unless the context otherwise requires. Defined terms herein shall
include in the singular number the plural and in the plural the singular:
"Additional Credit Party" means each Person that becomes a Guarantor
under the Related Facility.
"Adjusted Base Rate" means the Base Rate plus the Applicable
Percentage.
"Adjusted Eurodollar Rate" means the Eurodollar Rate plus the
Applicable Percentage.
"Agent" means NationsBank, N.A. (or any successor thereto) or any
successor administrative agent appointed pursuant to Section 10.
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"Affiliate" means a Person: (a) which directly or indirectly through
one or more intermediaries controls or is controlled by, or is under common
control of the Borrower or a Guarantor; or (b) which beneficially owns or
holds five percent (5%) or more of any class of the voting stock of a
Guarantor or more than five percent (5%) of the partnership interests of
the Borrower; or (c) of which five percent (5%) or more of the voting stock
(or in the case of a Person which is not a corporation, five percent (5%)
or more of the equity interest) is beneficially owned or held by the
Borrower or a Guarantor.
"Applicable Percentage" means, at any time, and with respect to all
Eurodollar Loans and Base Rate Loans then outstanding, the applicable
percentage as follows:
APPLICABLE APPLICABLE
PERCENTAGE PERCENTAGE
FOR EURODOLLAR BASE RATE
LOANS LOANS
----- -----
0.90% 0%
"Authorized Officer" means the President, Chief Executive Officer,
Chief Operating Officer, Chief Financial Officer, Secretary or Chairman of
the Board of Highwoods Properties.
"Bankruptcy Code" means the Bankruptcy Code in Title 11 of the United
States Code, as amended, modified, succeeded or replaced from time to time.
"Base Rate" means, for any day, the rate per annum (rounded upwards,
if necessary, to the nearest whole multiple of 1/100 of 1%) equal to the
greater of (a) the Federal Funds Rate in effect on such day plus 1/2 of 1%
or (b) the Prime Rate in effect on such day. If for any reason the Agent
shall have determined (which determination shall be conclusive absent
manifest error) that it is unable after due inquiry to ascertain the
Federal Funds Rate for any reason, including the inability or failure of
the Agent to obtain sufficient quotations in accordance with the terms
hereof, the Base Rate shall be determined without regard to clause (a) of
the first sentence of this definition until the circumstances giving rise
to such inability no longer exist. Any change in the Base Rate due to a
change in the Prime Rate or the Federal Funds Rate shall be effective on
the effective date of such change in the Prime Rate or the Federal Funds
Rate, respectively.
"Base Rate Loan" means any Loan bearing interest at a rate determined
by reference to the Base Rate.
"Borrower" means Highwoods/Forsyth Limited Partnership, a North
Carolina limited partnership, together with any permitted successors and
assigns.
"Business Day" means any day other than a Saturday or Sunday or a
legal holiday in Charlotte, North Carolina, or a day on which banking
institutions are authorized by law or
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other governmental action to close; provided, however, if the applicable
day relates to the determination of the Eurodollar Rate, such day must also
be a day upon which banks are open for the transaction of business in
London, England and dealings in U.S. dollar deposits are carried on in the
London interbank market.
"Closing Date" means the date hereof.
"Commitments" means the commitment of each Lender with respect to the
Revolving Committed Amount.
"Credit Documents" means, collectively, this Agreement and the Note.
"Credit Parties" means the Borrower and the Guarantors and "Credit
Party" means any one of them.
"Credit Party Obligations" means, without duplication all of the
obligations of the Credit Parties to the Lenders and the Agent, whenever
arising, under this Credit Agreement, the Notes, or any of the other Credit
Documents to which the Borrower or any Guarantor is a party.
"Default" means any event, act or condition which with notice or lapse
of time, or both, would constitute an Event of Default.
"Defaulting Lender" means, at any time, any Lender that, (a) has
failed to make a Loan required pursuant to the terms of this Credit
Agreement, (b) has failed to pay to the Agent or any Lender an amount owed
by such Lender pursuant to the terms of this Credit Agreement (but only for
so long as such amount has not been repaid) or (c) has been deemed
insolvent or has become subject to a bankruptcy or insolvency proceeding or
to a receiver, trustee or similar official.
"Dollars" and "$" means dollars in lawful currency of the United
States of America.
"Effective Date" means the date on which the conditions set forth in
Section 5.1 shall have been fulfilled (or waived in the sole discretion of
the Lenders) and on which the initial Loans shall have been made.
"Eligible Assignee" means (a) any Lender or Affiliate or subsidiary of
a Lender and (b) any other commercial bank, financial institution,
institutional lender or "accredited investor" (as defined in Regulation D
of the Securities and Exchange Commission) with total assets of at least
$10 billion and with a rating on their long term unsecured debt of at least
BBB with S&P or its equivalent and organized under the laws of the United
States or a state thereof.
"Environmental Claim" means any investigation, written notice,
violation, written demand, written allegation, action, suit, injunction,
judgment, order, consent decree, penalty, fine, lien, proceeding, or
written claim whether administrative, judicial, or private
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in nature arising (a) pursuant to, or in connection with, an actual or
alleged violation of, any Environmental Law, (b) in connection with any
Hazardous Material, (c) from any assessment, abatement, removal, remedial,
corrective, or other response action in connection with an Environmental
Law or other order of a Governmental Authority or (d) from any actual or
alleged damage, injury, threat, or harm to health, safety, natural
resources, or the environment.
"Environmental Laws" means any current or future legal requirement of
any Governmental Authority pertaining to (a) the protection of health,
safety, and the indoor or outdoor environment, (b) the conservation,
management, or use of natural resources and wildlife, (c) the protection or
use of surface water and groundwater, (d) the management, manufacture,
possession, presence, use, generation, transportation, treatment, storage,
disposal, release, threatened release, abatement, removal, remediation or
handling of, or exposure to, any hazardous or toxic substance or material
or (e) pollution (including any release to land surface water and
groundwater) and includes, without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended
by the Superfund Amendments and Reauthorization Act of 1986, 42 USC 9601 et
seq., Solid Waste Disposal Act, as amended by the Resource Conservation and
Recovery Act of 1976 and Hazardous and Solid Waste Amendment of 1984, 42
USC 6901 et seq., Federal Water Pollution Control Act, as amended by the
Clean Water Act of 1977, 33 USC 1251 et seq., Clean Air Act of 1966, as
amended, 42 USC 7401 et seq., Toxic Substances Control Act of 1976, 15 USC
2601 et seq., Hazardous Materials Transportation Act, 49 USC App. 1801 et
seq., Occupational Safety and Health Act of 1970, as amended, 29 USC 651 et
seq., Oil Pollution Act of 1990, 33 USC 2701 et seq., Emergency Planning
and Community Right-to-Know Act of 1986, 42 USC 11001 et seq., National
Environmental Policy Act of 1969, 42 USC 4321 et seq., Safe Drinking Water
Act of 1974, as amended, 42 USC 300(f) et seq., any analogous implementing
or successor law, and any amendment, rule, regulation, order, or directive
issued thereunder.
"Eurodollar Loan" means a Loan bearing interest based at a rate
determined by reference to the Eurodollar Rate.
"Eurodollar Rate" means, for the Interest Period for each Eurodollar
Loan comprising part of the same borrowing (including conversions,
extensions and renewals), a per annum interest rate determined pursuant to
the following formula:
Eurodollar Rate = London Interbank Offered Rate
---------------------------------
1 - Eurodollar Reserve Percentage
"Eurodollar Reserve Percentage" means for any day, that percentage
(expressed as a decimal) which is in effect from time to time under
Regulation D of the Board of Governors of the Federal Reserve System (or
any successor), as such regulation may be amended from time to time or any
successor regulation, as the maximum reserve requirement (including,
without limitation, any basic, supplemental, emergency, special, or
marginal reserves) applicable with respect to Eurocurrency liabilities as
that term is defined in Regulation D (or against any other category of
liabilities that includes deposits by reference to which the interest rate
of Eurodollar Loans is determined), whether or not a Lender has any
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<PAGE>
Eurocurrency liabilities subject to such reserve requirement at that time.
Eurodollar Loans shall be deemed to constitute Eurocurrency liabilities and
as such shall be deemed subject to reserve requirements without benefits of
credits for proration, exceptions or offsets that may be available from
time to time to a Lender. The Eurodollar Rate shall be adjusted
automatically on and as of the effective date of any change in the
Eurodollar Reserve Percentage.
"Event of Default" means any of the events or circumstances described
in Section 9.
"Extension of Credit" means the making of any loans (including the
extension of, or conversion into, a Eurodollar Loans).
"Federal Funds Rate" means for any day the rate per annum (rounded
upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members
of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business
Day next succeeding such day; provided that (a) if such day is not a
Business Day, the Federal Funds Rate for such day shall be such rate on
such transactions on the next preceding Business Day and (b) if no such
rate is so published on such next preceding Business Day, the Federal Funds
Rate for such day shall be the average rate quoted to the Agent on such day
on such transactions as determined by the Agent.
"Fee Letter" means that certain letter agreement, dated as of Closing
Date, between the Bank and the Borrower, as amended, modified, supplemented
or replaced from time to time.
"GAAP" means generally accepted accounting principles in the United
States applied on a consistent basis.
"Governmental Authority" means any Federal, state, local, provincial
or foreign court or governmental agency, authority, instrumentality or
regulatory body.
"Guarantors" means Highwoods Properties, Inc., a Maryland corporation,
each of the Subsidiaries of Highwoods Properties and the Borrower (other
than the Non-Guarantor Subsidiaries) and each Additional Credit Party that
has executed a Joinder Agreement.
"Interest Payment Date" means (a) as to Base Rate Loans, on the
fifteenth (15th) day of each month and on the Revolving Loan Maturity Date
and (b) as to Eurodollar Loans, on the last day of each applicable Interest
Period and on the Revolving Loan Maturity Date.
"Interest Period" means, as to Eurodollar Loans, a period of one
month's duration, commencing, in each case, on the date of the borrowing
(including continuations and conversions thereof); provided, however, (a)
if any Interest Period would end on a day which is not a Business Day, such
Interest Period shall be extended to the next succeeding Business Day
(except that when the next succeeding Business Day falls in the next
succeeding calendar month, then on the next preceding Business Day), (b) no
Interest
5
<PAGE>
Period shall extend beyond the Revolving Loan Maturity Date and (c) where
an Interest Period begins on a day for which there is no numerically
corresponding day in the calendar month in which the Interest Period is to
end, such Interest Period shall end on the last Business Day of such
calendar month.
"Lender" means any of the Persons identified as a "Lender" on the
signature pages hereto, and any Person which may become a Lender by way of
assignment in accordance with the terms hereof, together with their
successors and permitted assigns.
"Lien" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, security interest, encumbrance, lien (statutory or otherwise),
preference, priority or charge of any kind, including, without limitation,
any agreement to give any of the foregoing, any conditional sale or other
title retention agreement, and any lease in the nature thereof.
"Loan" or "Loans" mean revolving loans made hereunder.
"London Interbank Offered Rate" means, with respect to any Eurodollar
Loan for the Interest Period applicable thereto, the rate of interest per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing
on Telerate Page 3750 (or any successor page) as the London interbank
offered rate for deposits in Dollars at approximately 11:00 A.M. (London
time) two Business Days prior to the first day of such Interest Period for
a term comparable to such Interest Period; provided, however, if more than
one rate is specified on Telerate Page 3750, the applicable rate shall be
the arithmetic mean of all such rates. If, for any reason, such rate is not
available, the term "London Interbank Offered Rate" shall mean, with
respect to any Eurodollar Loan for the Interest Period applicable thereto,
the rate of interest per annum (rounded upwards, if necessary, to the
nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the London
interbank offered rate for deposits in Dollars at approximately 11:00 A.M.
(London time) two Business Days prior to the first day of such Interest
Period for a term comparable to such Interest Period; provided, however, if
more than one rate is specified on Reuters Screen LIBO Page, the applicable
rate shall be the arithmetic mean of all such rates.
"Material Adverse Effect" means a material adverse effect on (a) the
operations, financial condition, business or prospects of the Borrower or a
Guarantor, (b) the ability of the Borrower or a Guarantor to perform its
respective obligations under this Credit Agreement or any of the other
Credit Documents, or (c) the validity or enforceability of this Credit
Agreement, any of the other Credit Documents, or the rights and remedies of
the Lenders hereunder or thereunder taken as a whole.
"Non-Excluded Taxes" has the meaning set forth in Section 3.13.
"Non-Guarantor Subsidiaries" means AP Southeast Portfolio Partners,
L.P., AP-GP Southeast Portfolio Partners, L.P., a Delaware limited
partnership, Highwoods Realty GP Corp., a Delaware limited partnership and
Forsyth-Carter Brokerage, L.L.C.
6
<PAGE>
"Note" or "Notes" means the Revolving Loan Notes, individually or
collectively, as appropriate.
"Notice of Borrowing" means a request by the Borrower for a Revolving
Loan, in the form of Exhibit 2.1(b).
"Notice of Continuation/Conversion" means a request by the Borrower to
continue an existing Eurodollar Loan to a new Interest Period or to convert
a Eurodollar Loan to a Base Rate Loan or a Base Rate Loan to a Eurodollar
Loan, in the form of Exhibit 2.1(d).
"Person" means any individual, partnership, joint venture, firm,
corporation, limited liability company, association, trust or other
enterprise (whether or not incorporated), or any Governmental Authority.
"Prime Rate" means the per annum rate of interest established from
time to time by the Bank at its principal office in Charlotte, North
Carolina (or such other principal office of the Bank as communicated in
writing to the Borrower and the Lenders) as its Prime Rate. Any change in
the interest rate resulting from a change in the Prime Rate shall become
effective as of 12:01 a.m. of the Business Day on which each change in the
Prime Rate is announced by the Bank. The Prime Rate is a reference rate
used by the Bank in determining interest rates on certain loans and is not
intended to be the lowest rate of interest charged on any extension of
credit to any debtor.
"Related Credit Agreement" means that certain Credit Agreement between
the Credit Parties, NationsBank, N.A., as "Agent", First Union National
Bank of North Carolina, as "Documentation Agent", and certain other
financial institutions identified therein as "Lenders" dated as of
September 27, 1996, as amended by (i) that certain First Amendment and
Restatement of Credit Agreement dated as of May 27, 1997, and (ii) that
certain letter agreement among such parties dated August 20, 1997 (the
"Letter Agreement"), and as further amended, modified, extended or replaced
from time to time.
"Related Credit Facilities" means those credit facilities provided
under the Related Credit Agreement.
"Related Credit Facility Lenders" means those lenders party to the
Related Credit Agreement.
"Required Lenders" means all Lenders; provided, however, that if any
Lender shall be a Defaulting Lender at such time then such Defaulting
Lender shall be excluded from the determination of Required Lenders at such
time.
"Requirement of Law" means, as to any Person, the articles or
certificate of incorporation and by-laws or other organizational or
governing documents of such Person, and any law, treaty, rule or regulation
or final, non-appealable determination of an arbitrator or a court or other
Governmental Authority, in each case applicable to or binding upon such
Person or to which any of its material property is subject.
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"Revolving Committed Amount" means ONE HUNDRED FIFTY MILLION DOLLARS
($150,000,000).
"Revolving Loan Commitment Percentage" means, for each Lender, the
percentage identified as its Revolving Loan Commitment Percentage on
Schedule 1.1(a), as such percentage may be modified in connection with any
assignment made in accordance with the provisions of Section 11.3.
"Revolving Loan Maturity Date" means June 30, 1998.
"Revolving Loans" means the Revolving Loans made to the Borrower
pursuant to Section 2.
"Revolving Note" or "Revolving Notes" means the promissory notes of
the Borrower in favor of each of the Lenders evidencing the Revolving Loans
provided pursuant to Section 2, individually or collectively, as
appropriate, as such promissory notes may be amended, modified,
supplemented, extended, renewed or replaced from time to time and as
evidenced in the form of Exhibit 2.1f.
"S&P" means Standard & Poor's Ratings Group, a division of McGraw
Hill, Inc., or any successor or assignee of the business of such division
in the business of rating securities.
"Subsidiary" means, as to any Person, (a) any corporation more than
50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such
corporation (irrespective of whether or not at the time, any class or
classes of such corporation shall have or might have voting power by reason
of the happening of any contingency) is at the time owned by such Person
directly or indirectly through Subsidiaries, and (b) any partnership,
association, joint venture or other entity in which such person directly or
indirectly through Subsidiaries has more than a 50% equity interest at any
time.
"Unused Commitment" means, for any period, the amount by which (a) the
then applicable aggregate Revolving Committed Amount exceeds (b) the daily
average sum for such period of the outstanding aggregate principal amount
of all Revolving Loans.
"Unused Fee Percentage" means 0.15% per annum.
1.2 Computation of Time Periods and Other Definitional Provisions.
For purposes of computation of periods of time hereunder, the word "from"
means "from and including" and the words "to" and "until" each mean "to but
excluding." References in this Agreement to "Articles", "Sections", "Schedules"
or "Exhibits" shall be to Articles, Sections, Schedules or Exhibits of or to
this Agreement unless otherwise specifically provided.
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SECTION 2
CREDIT FACILITIES
2.1 Revolving Loans.
(a) Revolving Loan Commitment. Subject to the terms and conditions set
forth herein, each Lender severally agrees to make revolving loans (each a
"Revolving Loan" and collectively the "Revolving Loans") to the Borrower, in
Dollars, at any time and from time to time, during the period from and including
the Effective Date to but not including the Revolving Loan Maturity Date (or
such earlier date if the Revolving Committed Amount has been terminated as
provided herein); provided, however, that (i) the sum of the aggregate amount of
Revolving Loans outstanding shall not exceed the Revolving Committed Amount and
(ii) with respect to each individual Lender, the Lender's pro rata share of
outstanding Revolving Loans shall not exceed such Lender's Revolving Loan
Commitment Percentage of the Revolving Committed Amount. Subject to the terms of
this Credit Agreement (including Section 3.3), the Borrower may borrow, repay
and reborrow Revolving Loans.
(b) Method of Borrowing for Revolving Loans. By no later than 10:00 a.m.
(i) one Business Day prior to the requested borrowing of Revolving Loans that
will be Base Rate Loans or (ii) two Business Days prior to the date of the
requested borrowing of Revolving Loans that will be Eurodollar Loans, the
Borrower shall submit a written Notice of Borrowing in the form of Exhibit
2.1(b) to the Agent (which notice may be by telecopy with the original to
follow) setting forth (A) the amount requested, (B) whether such Revolving Loans
shall accrue interest at the Adjusted Base Rate or the Adjusted Eurodollar Rate,
(C) how the proceeds from such Revolving Loans will be used and (D)
certification that the Borrower has complied in all respects with Section 5;
(c) Funding of Revolving Loans. Upon receipt of a Notice of Borrowing, the
Agent shall promptly inform the Lenders as to the terms thereof. Each Lender
shall make its Revolving Loan Commitment Percentage of the requested Revolving
Loans available to the Agent by 2:00 p.m. on the date specified in the Notice of
Borrowing by deposit, in Dollars, of immediately available funds at the offices
of the Agent at its principal office in Charlotte, North Carolina or at such
other address as the Agent may designate in writing. The amount of the requested
Revolving Loans will then be made available to the Borrower by the Agent by
crediting the account of the Borrower on the books of such office of the Agent,
to the extent the amount of such Revolving Loans are made available to the
Agent.
No Lender shall be responsible for the failure or delay by any other Lender
in its obligation to make Revolving Loans hereunder; provided, however, that the
failure of any Lender to fulfill its obligations hereunder shall not relieve any
other Lender of its obligations hereunder. Unless the Agent shall have been
notified by any Lender prior to the date of any such Revolving Loan that such
Lender does not intend to make available to the Agent its portion of the
Revolving Loans to be made on such date, the Agent may assume that such Lender
has made such amount available to the
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Agent on the date of such Revolving Loans, and the Agent in reliance upon such
assumption, may (in its sole discretion but without any obligation to do so)
make available to the Borrower a corresponding amount. If such corresponding
amount is not in fact made available to the Agent, the Agent shall be able to
recover such corresponding amount from such Lender. If such Lender does not pay
such corresponding amount forthwith upon the Agent's demand therefor, the Agent
will promptly notify the Borrower, and the Borrower shall immediately pay such
corresponding amount to the Agent. The Agent shall also be entitled to recover
from the Lender or the Borrower, as the case may be, interest on such
corresponding amount in respect of each day from the date such corresponding
amount was made available by the Agent to the Borrower to the date such
corresponding amount is recovered by the Agent at a per annum rate equal to (i)
from the Borrower at the applicable rate for such Revolving Loan pursuant to the
Notice of Borrowing and (ii) from a Lender at the Federal Funds Rate.
(d) Continuations and Conversions. Upon receipt of a Notice of
Continuation/Conversion, the Agent shall promptly inform the Lenders as to the
terms thereof. Subject to the terms of Section 5.2, the Borrower shall have the
option, on any Business Day, to continue existing Eurodollar Loans for a
subsequent Interest Period, to convert Base Rate Loans into Eurodollar Loans or
to convert Eurodollar Loans into Base Rate Loans; provided, however, that (i)
each such continuation or conversion must be requested by the Borrower pursuant
to a written Notice of Continuation/Conversion, in the form of Exhibit 2.1(d),
in compliance with the terms set forth below, (ii) except as provided in Section
3.11, Eurodollar Loans may only be continued or converted into Base Rate Loans
on the last day of the Interest Period applicable thereto, (iii) Eurodollar
Loans may not be continued nor may Base Rate Loans be converted into Eurodollar
Loans during the existence and continuation of a Default or Event of Default and
(iv) any request to continue a Eurodollar Loan that fails to comply with the
terms hereof or any failure to request a continuation of a Eurodollar Loan at
the end of an Interest Period shall constitute a conversion to a Base Rate Loan
on the last day of the applicable Interest Period. Each continuation or
conversion must be requested by the Borrower no later than 11:00 a.m. (A) one
Business Day prior to a requested conversion of a Eurodollar Loan to a Base Rate
Loan or (B) two Business Days prior to the date for a requested continuation of
a Eurodollar Loan or conversion of a Base Rate Loan to a Eurodollar Loan, in
each case pursuant to a written Notice of Continuation/Conversion submitted to
the Agent.
(e) Minimum Amounts. Each request for a borrowing, conversion or
continuation shall be subject to the requirements that (i) each Eurodollar Loan
shall be in a minimum amount of $5,000,000 and in integral multiples of $500,000
in excess thereof, (ii) each Base Rate Loan shall be in a minimum amount of the
lesser of $1,000,000 (and integral multiples of $500,000 in excess thereof) or
the remaining amount available under the Revolving Committed Amount and (iii) no
more than five (5) Eurodollar Loans shall be outstanding hereunder at any one
time.
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(f) Notes. The Revolving Loans made by each Lender shall be evidenced by a
duly executed promissory note of the Borrower to each applicable Lender in the
face amount of its Revolving Loan Commitment Percentage of the Revolving
Committed Amount in substantially the form of Exhibit 2.1(f).
SECTION 3
GENERAL PROVISIONS APPLICABLE TO LOANS
3.1 Interest.
(a) Interest Rate. All Base Rate Loans shall accrue interest at the
Adjusted Base Rate and all Eurodollar Loans shall accrue interest at the
Adjusted Eurodollar Rate.
(b) Default Rate of Interest. Upon the occurrence, and during the
continuance, of an Event of Default, the principal of and, to the extent
permitted by law, interest on the Loans and any other amounts owing hereunder or
under the other Credit Documents (including without limitation fees and
expenses) shall bear interest, payable on demand, at a per annum rate equal to
4% plus the rate which would otherwise be applicable (or if no rate is
applicable, then the rate for Revolving Loans that are Base Rate Loans plus four
percent (4%) per annum).
(c) Late Charges. In the event any payment of interest or principal is
delinquent more than fifteen (15) days, the Borrower will pay to the Agent for
the benefit of the Lenders a late charge of four percent (4%) of the amount of
the overdue payment. This provision for late charges shall not be deemed to
extend the time for payment or be a "grace period" or "cure period" that gives
the Borrower a right to cure a Default or Event of Default. Imposition of such
late charges is not contingent upon giving of any notice or the lapse of any
cure period provided for in the Credit Agreement.
(d) Interest Payments. Interest on Loans shall be due and payable in
arrears on each Interest Payment Date. If an Interest Payment Date falls on a
date which is not a Business Day, such Interest Payment Date shall be deemed to
be the next succeeding Business Day, except that in the case of Eurodollar Loans
where the next succeeding Business Day falls in the next succeeding calendar
month, then on the next preceding Business Day.
3.2 Place and Manner of Payments.
All payments of principal, interest, fees, expenses and other amounts to be
made by a Credit Party under this Agreement shall be received not later than
12:00 noon on the date when due, in Dollars and in immediately available funds,
by the Agent at its offices in Charlotte, North Carolina. Payments received
after such time shall be deemed to have been received on the next Business Day.
The Borrower shall, at the time it makes any payment under this Agreement,
specify to the Agent, the Loans, fees or other amounts payable by the Borrower
hereunder to which such payment is to be
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applied (and in the event that it fails to specify, or if such application would
be inconsistent with the terms hereof, the Agent shall, subject to Section 3.7,
distribute such payment to the Lenders in such manner as the Agent may deem
appropriate). The Agent will distribute such payments to the Lenders on the date
received if any such payment is received prior to 12:00 p.m.; otherwise the
Agent will distribute such payment to the Lenders on the next succeeding
Business Day. Whenever any payment hereunder shall be stated to be due on a day
which is not a Business Day, the due date thereof shall be extended to the next
succeeding Business Day (subject to accrual of interest and fees for the period
of such extension), except that in the case of Eurodollar Loans, if the
extension would cause the payment to be made in the next following calendar
month, then such payment shall instead be made on the next preceding Business
Day. If the Agent fails to timely forward payment to a Lender it shall pay such
Lender interest at the Federal Funds Rate until such payment is made.
3.3 Prepayments.
(a) Voluntary Prepayments. The Borrower shall have the right to prepay
Loans in whole or in part from time to time without premium or penalty;
provided, however, that (i) Eurodollar Loans may only be prepaid on two Business
Days' prior written notice to the Agent and any prepayment of Eurodollar Loans
will be subject to Section 3.14 and (ii) each such partial prepayment of Loans
shall be in the minimum principal amount of $100,000 and integral multiples of
$100,000 in excess thereof.
(b) Mandatory Prepayments. If at any time the sum of the aggregate amount
of Revolving Loans outstanding exceeds the Revolving Committed Amount, the
Borrower shall immediately make a principal payment to the Agent in the manner
and in an amount necessary to be in compliance with Section 2.1.
(c) Application of Prepayments. All amounts required to be paid pursuant to
Section 3.3(b) shall be applied first to Base Rate Loans. If the amount required
to be paid under Section 3.3(b) exceeds the aggregate amount of Base Rate Loans
outstanding, such excess shall be applied second to Eurodollar Loans. All
prepayments hereunder shall be subject to Section 3.14.
3.4 Unused Fees.
In consideration of the Revolving Committed Amount being made available by
the Lenders hereunder, the Borrower agrees to pay to the Agent, for the pro rata
benefit of each applicable Lender (based on each Lender's Revolving Loan
Percentage of the Revolving Committed Amount), a fee equal to the Unused Fee
Percentage on the Unused Commitment (the "Unused Fees"). The accrued Unused Fees
shall commence to accrue on the Closing Date, shall be calculated as of the last
day of December 1997 and March 1998 and the Revolving Loan Maturity Date and
shall be due and payable in arrears on January 15 and April 15, 1998 (as well as
on the Revolving Loan Maturity Date and on any date that the Revolving Committed
Amount is reduced) for the immediately preceding calendar quarter (or portion
thereof), beginning with the first of such dates to occur after the Closing
Date.
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3.5 Payment in full at Maturity.
On the Revolving Loan Maturity Date, the entire outstanding principal
balance of all Revolving Loans, together with accrued but unpaid interest and
all other sums owing with respect thereto, shall be due and payable in full,
unless accelerated sooner pursuant to Section 9.
3.6 Computations of Interest and Fees.
(a) All computations of interest and fees hereunder shall be made on the
basis of the actual number of days elapsed over a year of 360 days. Interest
shall accrue from and include the date of borrowing (or continuation or
conversion) but exclude the date of payment.
(b) It is the intent of the Lenders and the Credit Parties to conform to
and contract in strict compliance with applicable usury law from time to time in
effect. All agreements between the Lenders and the Borrower are hereby limited
by the provisions of this paragraph which shall override and control all such
agreements, whether now existing or hereafter arising and whether written or
oral. In no way, nor in any event or contingency (including but not limited to
prepayment or acceleration of the maturity of any obligation), shall the
interest taken, reserved, contracted for, charged, or received under this Credit
Agreement, under the Notes or otherwise, exceed the maximum nonusurious amount
permissible under applicable law. If, from any possible construction of any of
the Credit Documents or any other document, interest would otherwise be payable
in excess of the maximum nonusurious amount, any such construction shall be
subject to the provisions of this paragraph and such documents shall be
automatically reduced to the maximum nonusurious amount permitted under
applicable law, without the necessity of execution of any amendment or new
document. If any Lender shall ever receive anything of value which is
characterized as interest on the Loans under applicable law and which would,
apart from this provision, be in excess of the maximum lawful amount, an amount
equal to the amount which would have been excessive interest shall, without
penalty, be applied to the reduction of the principal amount owing on the Loans
and not to the payment of interest, or refunded to the Borrower or the other
payor thereof if and to the extent such amount which would have been excessive
exceeds such unpaid principal amount of the Loans. The right to demand payment
of the Loans or any other indebtedness evidenced by any of the Credit Documents
does not include the right to receive any interest which has not otherwise
accrued on the date of such demand, and the Lenders do not intend to charge or
receive any unearned interest in the event of such demand. All interest paid or
agreed to be paid to the Lenders with respect to the Loans shall, to the extent
permitted by applicable law, be amortized, prorated, allocated, and spread
throughout the full stated term (including any renewal or extension) of the
Loans so that the amount of interest on account of such indebtedness does not
exceed the maximum nonusurious amount permitted by applicable law.
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3.7 Pro Rata Treatment.
Except to the extent otherwise provided herein each Revolving Loan
borrowing, each payment or prepayment of principal and/or interest of any Loan,
each payment of fees (other than the Administrative Fees retained by the Agent
for its own account), each reduction of the Revolving Committed Amount, and each
conversion or continuation of any Loan, shall (except as otherwise provided in
Section 3.11) be allocated pro rata among the relevant Lenders in accordance
with the respective Revolving Loan Commitment Percentages of such Lenders (or,
if the Commitments of such Lenders have expired or been terminated, in
accordance with the respective principal amounts of the outstanding Loans of
such Lenders); provided that, if any Lender shall have failed to pay its
applicable pro rata share of any Revolving Loan, then any amount to which such
Lender would otherwise be entitled pursuant to this subsection (a) shall instead
be payable to the Agent until the share of such Loan not funded by such Lender
has been repaid; provided further, that in the event any amount paid to any
Lender pursuant to this subsection (a) is rescinded or must otherwise be
returned by the Agent, each Lender shall, upon the request of the Agent, repay
to the Agent the amount so paid to such Lender, with interest for the period
commencing on the date such payment is returned by the Agent until the date the
Agent receives such repayment at a rate per annum equal to, during the period to
but excluding the date two Business Days after such request, the Federal Funds
Rate, and thereafter, the Base Rate plus two percent (2%) per annum; and
3.8 Sharing of Payments.
The Lenders agree among themselves that, except to the extent otherwise
provided herein, in the event that any Lender shall obtain payment in respect of
any Loan or any other obligation owing to such Lender under this Credit
Agreement through the exercise of a right of setoff, banker's lien or
counterclaim, or pursuant to a secured claim under Section 506 of the Bankruptcy
Code or other security or interest arising from, or in lieu of, such secured
claim, received by such Lender under any applicable bankruptcy, insolvency or
other similar law or otherwise, or by any other means, in excess of its pro rata
share of such payment as provided for in this Credit Agreement, such Lender
shall promptly pay in cash or purchase from the other Lenders a participation in
such Loans and other obligations in such amounts, and make such other
adjustments from time to time, as shall be equitable to the end that all Lenders
share such payment in accordance with their respective ratable shares as
provided for in this Credit Agreement. The Lenders further agree among
themselves that if payment to a Lender obtained by such Lender through the
exercise of a right of setoff, banker's lien, counterclaim or other event as
aforesaid shall be rescinded or must otherwise be restored, each Lender which
shall have shared the benefit of such payment shall, by payment in cash or a
repurchase of a participation theretofore sold, return its share of that benefit
(together with its share of any accrued interest payable with respect thereto)
to each Lender whose payment shall have been rescinded or otherwise restored.
The Borrower agrees that any Lender so purchasing such a participation may, to
the fullest extent permitted by law, exercise all rights of payment, including
setoff, banker's lien or counterclaim, with respect to such participation as
fully as if such Lender were a holder of such Loan or other obligation in the
amount of such participation. Except as otherwise expressly provided in this
Credit Agreement, if any Lender or an Agent shall fail to remit to the Agent or
any other Lender an amount payable by such Lender or such Agent to such Agent or
such other Lender pursuant to this Credit Agreement on the date when such amount
is due, such payments shall be made together with interest thereon for each date
from
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the date such amount is due until the date such amount is paid to such Agent or
such other Lender at a rate per annum equal to the Federal Funds Rate. If under
any applicable bankruptcy, insolvency or other similar law, any Lender receives
a secured claim in lieu of a setoff to which this Section 3.8 applies, such
Lender shall, to the extent practicable, exercise its rights in respect of such
secured claim in a manner consistent with the rights of the Lenders under this
Section 3.8 to share in the benefits of any recovery on such secured claim.
3.9 Capital Adequacy.
If, after the date hereof, any Lender has determined that the adoption or
the becoming effective of, or any change in, or any change by any Governmental
Authority, central bank or comparable agency charged with the interpretation or
administration thereof in the interpretation or administration of, any
applicable law, rule or regulation regarding capital adequacy, or compliance by
such Lender, or its parent corporation, with any request or directive regarding
capital adequacy (whether or not having the force of law) of any such authority,
central bank or comparable agency, has or would have the effect of reducing the
rate of return on such Lender's (or parent corporation's) capital or assets as a
consequence of its commitments or obligations hereunder to a level below that
which such Lender, or its parent corporation, could have achieved but for such
adoption, effectiveness, change or compliance (taking into consideration such
Lender's (or parent corporation's) policies with respect to capital adequacy),
then, upon notice from such Lender to the Borrower, the Borrower shall be
obligated to pay to such Lender such additional amount or amounts as will
compensate such Lender on an after-tax basis (after taking into account
applicable deductions and credits in respect of the amount indemnified) for such
reduction. Each determination by any such Lender of amounts owing under this
Section shall, absent manifest error, be conclusive and binding on the parties
hereto. This covenant shall survive the termination of this Credit Agreement and
the payment of the Loans and all other amounts payable hereunder.
3.10 Inability To Determine Eurodollar Rate.
If prior to the first day of any Interest Period, the Agent shall have
determined in good faith (which determination shall be conclusive and binding
upon the Borrower) that, by reason of circumstances affecting the relevant
market, adequate and reasonable means do not exist for ascertaining the
Eurodollar Rate for such Interest Period, the Agent shall give telecopy or
telephonic notice thereof to the Borrower and the Lenders as soon as practicable
thereafter, and will also give prompt written notice to the Borrower when such
conditions no longer exist. If such notice is given (a) any Eurodollar Loans
requested to be made on the first day of such Interest Period shall be made as
Base Rate Loans, (b) any Loans that were to have been converted on the first day
of such Interest Period to or continued as Eurodollar Loans shall be converted
to or continued as Base Rate Loans and (c) any outstanding Eurodollar Loans
shall be converted, on the first day of such Interest Period, to Base Rate
Loans. Until such notice has been withdrawn by the Agent, no further Eurodollar
Loans shall be made or continued as such, nor shall the Borrower have the right
to convert Base Rate Loans to Eurodollar Loans.
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3.11 Illegality to Make Eurodollar Loans.
Notwithstanding any other provision herein, if the adoption of or any
change in any Requirement of Law or in the interpretation or application thereof
occurring after the Closing Date shall make it unlawful for any Lender to make
or maintain Eurodollar Loans as contemplated by this Credit Agreement, (a) such
Lender shall promptly give written notice of such circumstances to the Borrower
and the Agent (which notice shall be withdrawn whenever such circumstances no
longer exist), (b) the commitment of such Lender hereunder to make Eurodollar
Loans, continue Eurodollar Loans as such and convert a Base Rate Loan to
Eurodollar Loans shall forthwith be canceled and, until such time as it shall no
longer be unlawful for such Lender to make or maintain Eurodollar Loans, such
Lender shall then have a commitment only to make a Base Rate Loan when a
Eurodollar Loan is requested and (c) such Lender's Loans then outstanding as
Eurodollar Loans, if any, shall be converted automatically to Base Rate Loans on
the respective last days or the then current Interest Periods with respect to
such Loans or within such earlier period as required by law. If any such
conversion of a Eurodollar Loan occurs on a day which is not the last day of the
then current Interest Period with respect thereto, the Borrower shall pay to
such Lender such amounts, if any, as may be required pursuant to Section 3.14.
3.12 Changes in Requirements of Law.
If the adoption of or any change in any Requirement of Law or in the
interpretation or application thereof applicable to any Lender, or compliance by
any Lender with any request or directive (whether or not having the force of
law) from any central bank or other Governmental Authority, in each case made
subsequent to the Closing Date (or, if later, the date on which such Lender
becomes a Lender):
(a) shall subject such Lender to any tax of any kind whatsoever with
respect to any Eurodollar Loans made by it or its obligation to make
Eurodollar Loans, or change the basis of taxation of payments to such
Lender in respect thereof (except for Non-Excluded Taxes covered by Section
3.13 (including Non-Excluded Taxes imposed solely by reason of any failure
of such Lender to comply with its obligations under Section 3.13(b)) and
changes in taxes measured by or imposed upon the overall net income, or
franchise tax (imposed in lieu of such net income tax), of such Lender or
its applicable lending office, branch, or any affiliate thereof);
(b) shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances, loans or
other extensions of credit by, or any other acquisition of funds by, any
office of such Lender which is not otherwise included in the determination
of the Eurodollar Rate hereunder; or
(c) shall impose on such Lender any other condition (excluding any tax
of any kind whatsoever);
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting into,
continuing or maintaining Eurodollar
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Loans or to reduce any amount receivable hereunder in respect thereof, then, in
any such case, upon notice to the Borrower from such Lender, through the Agent,
in accordance herewith, the Borrower shall be obligated to promptly pay such
Lender, upon its demand, any additional amounts necessary to compensate such
Lender on an after-tax basis (after taking into account applicable deductions
and credits in respect of the amount indemnified) for such increased cost or
reduced amount receivable, provided that, in any such case, the Borrower may
elect to convert the Eurodollar Loans made by such Lender hereunder to Base Rate
Loans by giving the Agent at least one Business Day's notice of such election,
in which case the Borrower shall promptly pay to such Lender, upon demand,
without duplication, such amounts, if any, as may be required pursuant to
Section 3.14. If any Lender becomes entitled to claim any additional amounts
pursuant to this Section 3.12, it shall provide prompt notice thereof to the
Borrower, through the Agent, certifying (x) that one of the events described in
this Section 3.12 has occurred and describing in reasonable detail the nature of
such event, (y) as to the increased cost or reduced amount resulting from such
event and (z) as to the additional amount demanded by such Lender and a
reasonably detailed explanation of the calculation thereof. Such a certificate
as to any additional amounts payable pursuant to this Section 3.12 submitted by
such Lender, through the Agent, to the Borrower shall be conclusive and binding
on the parties hereto in the absence of manifest error. This covenant shall
survive the termination of this Credit Agreement and the payment of the Loans
and all other amounts payable hereunder.
3.13 Taxes.
Except as provided below in this Section 3.13, all payments made by the
Borrower under this Credit Agreement and any Notes shall be made free and clear
of, and without deduction or withholding for or on account of, any present or
future income, stamp or other taxes, levies, imposts, duties, charges, fees,
deductions or withholdings, now or hereafter imposed, levied, collected,
withheld or assessed by any court, or governmental body, agency or other
official, excluding taxes measured by or imposed upon the overall net income of
any Lender or its applicable lending office, or any branch or affiliate thereof,
and all franchise taxes, branch taxes, taxes on doing business or taxes on the
overall capital or net worth of any Lender or its applicable lending office, or
any branch or affiliate thereof, in each case imposed in lieu of net income
taxes: (i) by the jurisdiction under the laws of which such Lender, applicable
lending office, branch or affiliate is organized or is located, or in which its
principal executive office is located, or any nation within which such
jurisdiction is located or any political subdivision thereof; or (ii) by reason
of any connection between the jurisdiction imposing such tax and such Lender,
applicable lending office, branch or affiliate other than a connection arising
solely from such Lender having executed, delivered or performed its obligations,
or received payment under or enforced, this Credit Agreement or any Notes. If
any such non-excluded taxes, levies, imposts, duties, charges, fees, deductions
or withholdings ("Non-Excluded Taxes") are required to be withheld from any
amounts payable to an Agent or any Lender hereunder or under any Notes, (A) the
amounts so payable to an Agent or such Lender shall be increased to the extent
necessary to yield to an Agent or such Lender (after payment of all Non-Excluded
Taxes) interest or any such other amounts payable hereunder at the rates or in
the amounts specified in this Credit Agreement and any Notes, provided, however,
that the Borrower shall be entitled to deduct and withhold any Non-Excluded
Taxes and shall not be required to increase any such amounts payable to any
Lender that is not organized under the laws of the United States of America or a
state thereof if such Lender fails to comply with the requirements of paragraph
(b) of this Section 3.13 whenever any Non-Excluded Taxes are payable by the
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Borrower, and (B) as promptly as possible after requested the Borrower shall
send to such Agent for its own account or for the account of such Lender, as the
case may be, a certified copy of an original official receipt received by the
Borrower showing payment thereof. If the Borrower fails to pay any Non-Excluded
Taxes when due to the appropriate taxing authority or fails to remit to the
Agent the required receipts or other required documentary evidence, the Borrower
shall indemnify the Agent and any Lender for any incremental taxes, interest or
penalties that may become payable by the Agent or any Lender as a result of any
such failure. The agreements in this subsection shall survive the termination of
this Credit Agreement and the payment of the Loans and all other amounts payable
hereunder.
3.14 Indemnity as to Eurodollar Loans.
The Borrower promises to indemnify each Lender and to hold each Lender
harmless from any loss or expense which such Lender may sustain or incur as a
consequence of (a) default by the Borrower in making a borrowing of, conversion
into or continuation of Eurodollar Loans after the Borrower has given a notice
requesting the same in accordance with the provisions of this Credit Agreement,
(b) default by the Borrower in making any prepayment of a Eurodollar Loan after
the Borrower has given a notice thereof in accordance with the provisions of
this Credit Agreement and (c) the making of a prepayment of Eurodollar Loans on
a day which is not the last day of an Interest Period with respect thereto. Such
indemnification may include an amount equal to (i) the amount of interest which
would have accrued on the amount so prepaid, or not so borrowed, converted or
continued, for the period from the date of such prepayment or of such failure to
borrow, convert or continue to the last day of the applicable Interest Period
(or, in the case of a failure to borrow, convert or continue, the Interest
Period that would have commenced on the date of such failure) in each case at
the applicable rate of interest for such Eurodollar Loans provided for herein
(excluding, however, the Applicable Percentage included therein, if any) minus
(ii) the amount of interest (as reasonably determined by such Lender) which
would have accrued to such Lender on such amount by placing such amount on
deposit for a comparable period with leading banks in the interbank Eurodollar
market. The agreements in this Section shall survive the termination of this
Credit Agreement and the payment of the Loans and all other amounts payable
hereunder.
SECTION 4
GUARANTY
4.1 Guaranty of Payment.
Subject to Section 4.7 below, each of the Guarantors hereby, jointly and
severally, unconditionally guarantees to each Lender and the Agent the prompt
payment of the Credit Party Obligations in full when due (whether at stated
maturity, as a mandatory prepayment, by acceleration or otherwise). The
Guarantors additionally, jointly and severally, unconditionally guarantee to
each Lender, and the Agent the timely performance of all other obligations under
the Credit Documents. This Guaranty is a guaranty of payment and not of
collection and is a continuing guaranty and shall apply to all Credit Party
Obligations whenever arising.
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4.2 Obligations Unconditional.
The obligations of the Guarantors hereunder are absolute and unconditional,
irrespective of the value, genuineness, validity, regularity or enforceability
of any of the Credit Documents, or any other agreement or instrument referred to
therein, to the fullest extent permitted by applicable law, irrespective of any
other circumstance whatsoever which might otherwise constitute a legal or
equitable discharge or defense of a surety or guarantor. Each Guarantor agrees
that this Guaranty may be enforced by the Lenders without the necessity at any
time of resorting to or exhausting any other security or collateral and without
the necessity at any time of having recourse to the Notes or any other of the
Credit Documents or any collateral, if any, hereafter securing the Credit Party
Obligations or otherwise and each Guarantor hereby waives the right (including,
without limitation, any rights under Section 26-7 et seq. of North Carolina
General Statutes) to require the Lenders to proceed against the Borrower or any
other Person (including a co-guarantor) or to require the Lenders to pursue any
other remedy or enforce any other right. Each Guarantor further agrees that it
shall have no right of subrogation, indemnity, reimbursement or contribution
against the Borrower or any other Guarantor of the Credit Party Obligations for
amounts paid under this Guaranty until such time as the Lenders have been paid
in full, all Commitments under the Credit Agreement have been terminated and no
Person or Governmental Authority shall have any right to request any return or
reimbursement of funds from the Lenders in connection with monies received under
the Credit Documents. Each Guarantor further agrees that nothing contained
herein shall prevent the Lenders from suing on the Notes or any of the other
Credit Documents or foreclosing its security interest in or Lien on any
collateral, if any, securing the Credit Party Obligations or from exercising any
other rights available to it under this Credit Agreement, the Notes, any other
of the Credit Documents, or any other instrument of security, if any, and the
exercise of any of the aforesaid rights and the completion of any foreclosure
proceedings shall not constitute a discharge of any of any Guarantor's
obligations hereunder; it being the purpose and intent of each Guarantor that
its obligations hereunder shall be absolute, independent and unconditional under
any and all circumstances. Neither any Guarantor's obligations under this
Guaranty nor any remedy for the enforcement thereof shall be impaired, modified,
changed or released in any manner whatsoever by an impairment, modification,
change, release or limitation of the liability of the Borrower or by reason of
the bankruptcy or insolvency of the Borrower. Each Guarantor waives any and all
notice of the creation, renewal, extension or accrual of any of the Credit Party
Obligations and notice of or proof of reliance of by any Agent or any Lender
upon this Guarantee or acceptance of this Guarantee. The Credit Party
Obligations, and any of them, shall conclusively be deemed to have been created,
contracted or incurred, or renewed, extended, amended or waived, in reliance
upon this Guarantee. All dealings between the Borrower and any of the
Guarantors, on the one hand, and the Agent and the Lenders, on the other hand,
likewise shall be conclusively presumed to have been had or consummated in
reliance upon this Guarantee.
4.3 Modifications.
Each Guarantor agrees that (a) all or any part of the security now or
hereafter held for the Credit Party Obligations, if any, may be exchanged,
compromised or surrendered from time to time; (b) the Lenders shall not have any
obligation to protect, perfect, secure or insure any such security interests,
liens or encumbrances now or hereafter held, if any, for the Credit Party
Obligations or the properties subject thereto; (c) the time or place of payment
of the Credit Party Obligations may be
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changed or extended, in whole or in part, to a time certain or otherwise, and
may be renewed or accelerated, in whole or in part; (d) the Borrower and any
other party liable for payment under the Credit Documents may be granted
indulgences generally; (e) any of the provisions of the Notes or any of the
other Credit Documents may be modified, amended or waived; (f) any party
(including any co-guarantor) liable for the payment thereof may be granted
indulgences or be released; and (g) any deposit balance for the credit of the
Borrower or any other party liable for the payment of the Credit Party
Obligations or liable upon any security therefor may be released, in whole or in
part, at, before or after the stated, extended or accelerated maturity of the
Credit Party Obligations, all without notice to or further assent by such
Guarantor, which shall remain bound thereon, notwithstanding any such exchange,
compromise, surrender, extension, renewal, acceleration, modification,
indulgence or release.
4.4 Waiver of Rights.
Each Guarantor expressly waives to the fullest extent permitted by
applicable law: (a) notice of acceptance of this Guaranty by the Lenders and of
all extensions of credit to the Borrower by the Lenders; (b) presentment and
demand for payment or performance of any of the Credit Party Obligations; (c)
protest and notice of dishonor or of default (except as specifically required in
the Credit Agreement) with respect to the Credit Party Obligations or with
respect to any security therefor; (d) notice of the Lenders obtaining, amending,
substituting for, releasing, waiving or modifying any security interest, lien or
encumbrance, if any, hereafter securing the Credit Party Obligations, or the
Lenders' subordinating, compromising, discharging or releasing such security
interests, liens or encumbrances, if any; (e) all other notices to which such
Guarantor might otherwise be entitled; and (f) demand for payment under this
Guaranty.
4.5 Reinstatement.
The obligations of the Guarantors under this Section 4 shall be
automatically reinstated if and to the extent that for any reason any payment by
or on behalf of any Person in respect of the Credit Party Obligations is
rescinded or must be otherwise restored by any holder of any of the Credit Party
Obligations, whether as a result of any proceedings in bankruptcy or
reorganization or otherwise, and each Guarantor agrees that it will indemnify
the Agent and each Lender on demand for all reasonable costs and expenses
(including, without limitation, reasonable fees of counsel) incurred by the
Agent or such Lender in connection with such rescission or restoration,
including any such costs and expenses incurred in defending against any claim
alleging that such payment constituted a preference, fraudulent transfer or
similar payment under any bankruptcy, insolvency or similar law.
4.6 Remedies.
The Guarantors agree that, as between the Guarantors, on the one hand, and
the Agent and the Lenders, on the other hand, the Credit Party Obligations may
be declared to be forthwith due and payable as provided in Section 9 (and shall
be deemed to have become automatically due and payable in the circumstances
provided in Section 9) notwithstanding any stay, injunction or other prohibition
preventing such declaration (or preventing such Credit Party Obligations from
becoming automatically due and payable) as against any other Person and that, in
the event of such
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declaration (or such Credit Party Obligations being deemed to have become
automatically due and payable), such Credit Party Obligations (whether or not
due and payable by any other Person) shall forthwith become due and payable by
the Guarantors.
4.7 Limitation of Guaranty.
Notwithstanding any provision to the contrary contained herein or in any of
the other Credit Documents, to the extent the obligations of any Guarantor shall
be adjudicated to be invalid or unenforceable for any reason (including, without
limitation, because of any applicable state or federal law relating to
fraudulent conveyances or transfers) then the obligations of such Guarantor
hereunder shall be limited to the maximum amount that is permissible under
applicable law (whether federal or state and including, without limitation, the
Bankruptcy Code).
SECTION 5
CONDITIONS PRECEDENT
5.1 Closing Conditions.
The obligation of the Lenders to enter into this Credit Agreement and make
the initial Extension of Credit is subject to satisfaction of the following
conditions:
(a) Executed Credit Documents. Receipt by the Agent of duly executed
copies of: (i) this Credit Agreement; (ii) the Notes; and (iii) all other
Credit Documents, each in form and substance reasonably acceptable to the
Agent in its sole discretion.
(b) Partnership Documents. Receipt by the Agent of the following:
(i) Certificates of Authorization. Certificate of authorization
of the general partner of the Borrower (and each other Credit Party
that is a partnership) as of the Effective Date, approving and
adopting the Credit Documents to be executed by the Borrower (or such
other Credit Party) and authorizing the execution and delivery
thereof.
(ii) Partnership Agreement. Certified copies of the partnership
agreement of the Borrower (and each other Credit Party that is a
partnership), together with all amendments thereto.
(iii) Certificates of Good Standing or Existence. Certificate of
good standing or existence for the Borrower (and each other Credit
Party that is a partnership) issued as of a recent date by its state
of organization and each other state where the failure to qualify or
be in good standing could have a Material Adverse Effect.
(c) Corporate Documents. Receipt by the Agent of the following:
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(i) Charter Documents. Copies of the articles or certificates of
incorporation or other charter documents of Highwoods Properties (and
each other Credit Party that is a corporation) certified to be true
and complete as of a recent date by the appropriate Governmental
Authority of the state or other jurisdiction of its incorporation and
certified by a secretary or assistant secretary of Highwoods
Properties (and each other Credit Party that is a corporation) to be
true and correct as of the Effective Date.
(ii) Bylaws. A copy of the bylaws of Highwoods Properties (and
each other Credit Party that is a corporation) certified by a
secretary or assistant secretary of Highwoods Properties to be true
and correct as of the Effective Date.
(iii) Resolutions. Copies of resolutions of the Board of
Directors of Highwoods Properties (and each other Credit Party that is
a corporation) approving and adopting the Credit Documents to which it
is a party, the transactions contemplated therein and authorizing
execution and delivery thereof, certified by a secretary or assistant
secretary of Highwoods Properties (and each other Credit Party that is
a corporation) to be true and correct and in force and effect as of
the Effective Date.
(iv) Good Standing. Copies of (A) certificates of good standing,
existence or its equivalent with respect to Highwoods Properties (and
each other Credit Party that is a corporation) certified as of a
recent date by the appropriate Governmental Authorities of the state
or other jurisdiction of incorporation and each other jurisdiction in
which the failure to so qualify and be in good standing could have a
Material Adverse Effect and (B) to the extent available, a certificate
indicating payment of all corporate franchise taxes certified as of a
recent date by the appropriate governmental taxing authorities.
(v) Incumbency. An incumbency certificate of Highwoods Properties
(and each other Credit Party that is a corporation) certified by a
secretary or assistant secretary to be true and correct as of the
Effective Date.
(d) Financial Statements. Receipt by the Agent and the Lenders of the
audited consolidated financial statements of the Credit Parties, dated as
of December 31, 1996, and the unaudited consolidated financial statements
of the Credit Parties dated as of September 30, 1997.
(e) Opinion of Counsel. Receipt by the Agent of an opinion, or
opinions (which shall cover, among other things, authority, legality,
validity, binding effect, and enforceability), reasonably satisfactory to
the Agent, addressed to the Agent on behalf of the Lenders and dated as of
the Effective Date, from legal counsel to the Credit Parties.
(f) Evidence of Insurance. Receipt by the Agent of copies of insurance
policies or certificates of insurance of the Credit Parties evidencing
liability and casualty insurance
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meeting the requirements set forth in the Credit Documents, including, but
not limited to, naming the Agent as secondary loss payee on behalf of the
Lenders subject only to a first priority loss payee clause relating to the
Related Credit Facilities.
(g) Material Adverse Effect. There shall not have occurred a change
since December 31, 1996 that has had or could reasonably be expected to
have a Material Adverse Effect.
(h) Litigation. There shall not exist any pending or threatened
action, suit, investigation or proceeding against a Credit Party that would
have or would reasonably be expected to have a Material Adverse Effect.
(i) Officer's Certificates. The Agent shall have received a
certificate or certificates executed by the general partner of the Borrower
and the chief financial officer of the Highwoods Properties as of the
Effective Date stating that (i) each of the Borrower and Highwoods
Properties is in compliance with all existing material financial
obligations, (ii) no action, suit, investigation or proceeding is pending
or threatened in any court or before any arbitrator or governmental
instrumentality that purports to effect any Credit Party or any transaction
contemplated by the Credit Documents, if such action, suit, investigation
or proceeding could have or could be reasonably expected to have a Material
Adverse Effect, (iii) the financial statements and information delivered
pursuant to Section 5.1(d) are true and accurate in all material respects
and (iv) except for the matters noted in such certificates, immediately
after giving effect to this Credit Agreement, the other Credit Documents
and all the transactions contemplated therein to occur on such date, (A)
each Credit Party is Solvent, (B) no Default or Event of Default exists,
(C) all representations and warranties contained herein and in the other
Credit Documents are true and correct in all material respects, and (D) the
Credit Parties are in compliance with all requirements of the Related
Credit Facilities.
(j) Fees and Expenses. Payment by the Credit Parties of all fees and
expenses owed by them to the Lenders and the Agent, including, without
limitation, payment to the Agent of the fees set forth in the Fee Letter.
(k) Other. Receipt by the Lenders of such other documents,
instruments, agreements or information as reasonably and timely requested
by any Lender, including, but not limited to, information regarding
litigation, tax, accounting, labor, insurance, pension liabilities (actual
or contingent), real estate leases, material contracts, debt agreements,
property ownership and contingent liabilities of the Credit Parties.
5.2 Conditions to All Loans.
In addition to the conditions precedent stated elsewhere herein, the
Lenders shall not be obligated to make Loans (or continue or convert Loans)
unless:
(a) Notice. The Borrower shall have delivered a Notice of Borrowing,
duly executed and completed, by the time specified in Section 2.1.
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(b) Representations and Warranties. The representations and warranties
made by the Credit Parties in any Credit Document are true and correct in
all material respects at and as if made as of such date except to the
extent they expressly relate to an earlier date;
(c) No Default. No Default or Event of Default shall exist or be
continuing either prior to or after giving effect thereto;
(d) No Material Adverse Effect. There shall not have occurred any
Material Adverse Effect;
(e) Availability. Immediately after giving effect to the making of a
Revolving Loan (and the application of the proceeds thereof), the sum of
the Revolving Loans outstanding shall not exceed the Revolving Commitment
Amount; and
(f) Related Facility Conditions. All other conditions precedent to the
obligation of the Related Facility Lenders to make a loan under the Related
Credit Facility shall have been and remain satisfied;
provided that the matters referred to in the certificate required by Section
5.1(i) hereto shall not excuse a Lender from its obligations hereunder. The
delivery of each Notice of Borrowing and each Notice of Continuation/Conversion
shall constitute a representation and warranty by the Borrower of the
correctness of the matters specified in this Section 5.2.
SECTION 6
REPRESENTATIONS AND WARRANTIES
6.1 Incorporation. The representations and warranties contained in the
Related Credit Agreement (the "Incorporated Representations") as in effect as of
the date thereof are incorporated herein by reference as such Incorporated
Representations relate to the Closing Date, this Agreement and the credit
facilities provided hereunder with the same effect as if stated at length. The
Credit Parties affirm and represent and warrant to the Agent and the Lenders
that the Incorporated Representations are true and correct in all material
respects as of the date hereof, provided that (i) such Incorporated
Representations as incorporated herein shall reflect that they are delivered to
and run in favor of the Agent and the Lenders hereunder, and references therein
to the "Credit Agreement" and "Credit Documents" shall be deemed for purposes
hereof to include this Credit Agreement and the Credit Documents relating
hereto, (ii) any amendments or modifications to such Incorporated
Representations subsequent to the date hereof must be consented to in writing by
the Lenders hereunder, and (iii) in the event that the Related Credit Agreement
shall be refinanced or replaced by another credit agreement or shall otherwise
expire or terminate, then the Incorporated Representations shall be as in effect
immediately prior to such refinancing, replacement, expiration or termination.
All capitalized terms used in such Incorporated Representations shall have the
meaning ascribed thereto in the Related Credit
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Agreement, but as such meaning would be determined relative to this Credit
Agreement and the Credit Documents.
6.2 Material Adverse Effect. The financial statements delivered by the
Credit Parties pursuant to Section 5.1(d) accurately reflect the financial
condition of the Credit Parties as of the respective dates of such financial
statements and there has been no material change in the financial condition of
the Credit Parties since September 30, 1997 and no other change in the business
or assets of the Credit Parties which has resulted or could result in a Material
Adverse Effect.
SECTION 7
AFFIRMATIVE COVENANTS
7.1 Incorporation. The affirmative covenants contained in the Related
Credit Agreement other than those set forth in all of Section 7.10 (other than
Section 7.10(c) which is incorporated hereby), and Section 7.12 thereof (the
"Incorporated Affirmative Covenants") as in effect as of the date thereof are
incorporated herein by reference as such Incorporated Affirmative Covenants
relate to the Closing Date, this Agreement and the credit facilities provided
hereunder with the same effect as if stated at length. The Credit Parties affirm
and represent and warrant to the Agent and the Lenders that the Incorporated
Affirmative Covenants shall be as binding on the Credit Parties as if fully set
forth herein, provided that (i) such Incorporated Affirmative Covenants as
incorporated herein shall reflect that they are delivered to and run in favor of
the Agent and the Lenders hereunder, and references therein to the "Credit
Agreement" and "Credit Documents" shall be deemed for purposes hereof to include
this Credit Agreement and the Credit Documents relating hereto, (ii) any
amendments or modifications to such Incorporated Affirmative Covenants
subsequent to the date hereof must be consented to in writing by the Lenders
hereunder, and (iii) in the event that the Related Credit Agreement shall be
refinanced or replaced by another credit agreement or shall otherwise expire or
terminate, then the Incorporated Representations shall be as in effect
immediately prior to such refinancing, replacement, expiration or termination.
Notwithstanding the above, the prior waivers and consents affecting such
Incorporated Affirmative Covenants granted pursuant to that Letter Agreement
constituting a portion of the Related Credit Agreement shall also apply to such
Incorporated Affirmative Covenants under this Credit Agreement. All capitalized
terms used in such Incorporated Affirmative Covenants shall have the meaning
ascribed thereto in the Related Credit Agreement, but as such meaning would be
determined relative to this Credit Agreement and the Credit Documents.
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SECTION 8
NEGATIVE COVENANTS
8.1 Incorporation. The negative covenants contained in the Related Credit
Agreement (the "Incorporated Negative Covenants") as in effect as of the date
thereof are incorporated herein by reference as such Incorporated Negative
Covenants relate to the Closing Date, this Agreement and the credit facilities
provided hereunder with the same effect as if stated at length. The Credit
Parties affirm and represent and warrant to the Agent and the Lenders that the
Incorporated Negative Covenants shall be as binding on the Credit Parties as if
fully set forth herein, provided that (i) such Incorporated Negative Covenants
as incorporated herein shall reflect that they are delivered to and run in favor
of the Agent and the Lenders hereunder, and references therein to the "Credit
Agreement" and "Credit Documents" shall be deemed for purposes hereof to include
this Credit Agreement and the Credit Documents relating hereto, (ii) any
amendments or modifications to such Incorporated Negative Covenants subsequent
to the date hereof must be consented to in writing by the Lenders hereunder, and
(iii) in the event that the Related Credit Agreement shall be refinanced or
replaced by another credit agreement or shall otherwise expire or terminate,
then the Incorporated Negative Covenants shall be as in effect immediately prior
to such refinancing, replacement, expiration or termination. Notwithstanding the
above, the prior waivers and consents affecting such Incorporated Negative
Covenants granted pursuant to that Letter Agreement constituting a portion of
the Related Credit Agreement shall also apply to such Incorporated Negative
Covenants under this Credit Agreement. All capitalized terms used in such
Incorporated Negative Covenants shall have the meaning ascribed thereto in the
Related Credit Agreement, but as such meaning would be determined relative to
this Credit Agreement and the Credit Documents.
SECTION 9
EVENTS OF DEFAULT
9.1 Incorporation. The events of default contained in the Related Credit
Agreement (the "Incorporated Events of Default") as in effect as of the date
thereof are incorporated herein by reference as such Incorporated Events of
Default relate to the Closing Date, this Agreement and the credit facilities
provided hereunder with the same effect as if stated at length. The Credit
Parties acknowledge and agree that the Incorporated Events of Default as
incorporated herein shall reflect that they are for the benefit of the Agent and
the Lenders hereunder, and references therein to the "Credit Agreement" and
"Credit Documents" shall be deemed for purposes hereof to include this Credit
Agreement and the Credit Documents relating hereto, (ii) any amendments or
modifications to such Incorporated Events of Default subsequent to the date
hereof must be consented to in writing by the Lenders hereunder, and (iii) in
the event that the Related Credit Agreement shall be refinanced or replaced by
another credit agreement or shall otherwise expire or terminate, then the
Incorporated Events of Default shall be as in effect immediately prior to such
refinancing, replacement, expiration or termination. All capitalized terms used
in such Incorporated Events of Default shall have the meaning ascribed thereto
in the Related Credit
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Agreement, but as such meaning would be determined relative to this Credit
Agreement and the Credit Documents.
9.2 Additional Events of Default.
Except as set forth in the proviso of Section 5.2, an Event of Default
shall exist upon the occurrence of any of the following specified events (each
an "Event of Default"):
(a) Payment. Any Credit Party shall default in the payment within five
(5) days of when due of (i) any principal of any of the Loans or (ii) any
interest on the Loans or (iii) any fees or other amounts owing hereunder,
under any of the other Credit Documents or in connection herewith.
(b) Breach of Representations or Covenants. (i) Any representation,
warranty or statement made or deemed to be made by any Credit Party herein,
in any of the other Credit Documents, or in any statement or certificate
delivered or required to be delivered pursuant hereto or thereto shall
prove untrue in any material respect on the date as of which it was made or
deemed to have been made or (ii) any Credit Party shall default in the due
performance or observance of any covenant or the terms and conditions set
forth in the Credit Documents, and such default shall continue unremedied
for the time period, if any, provided for in the Incorporated Events of
Default.
(c) Related Credit Agreement. An Event of Default (as defined therein)
shall occur under the Related Credit Agreement.
9.3 Acceleration; Remedies.
Upon the occurrence of an Event of Default, and at any time thereafter
(including with respect to an Event of Default under section 9.2(c) any time
after such Event of Default (as defined therein) may be waived under the Related
Credit Agreement) unless and until such Event of Default has been waived in
writing by the Required Lenders hereunder (or the Lenders as may be required
hereunder), the Agent shall, upon the request and direction of the Required
Lenders, (or if in the reasonable judgment of the Agent there is not sufficient
time to obtain the consent of the Required Lenders then on its own) by written
notice to the Borrower, take any of the following actions without prejudice to
the rights of the Agent or any Lender to enforce its claims against the Credit
Parties, except as otherwise specifically provided for herein:
(a) Termination of Commitments. Declare the Commitments terminated
whereupon the Commitments shall be immediately terminated.
(b) Acceleration of Loans. Declare the unpaid principal of and any
accrued interest in respect of all Loans and any and all other indebtedness
or obligations of any and every kind owing by a Credit Party to any of the
Lenders hereunder to be due whereupon the same shall be immediately due and
payable without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by the Credit Parties.
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(c) Enforcement of Rights. Enforce any and all rights and interests
created and existing under the Credit Documents, including, without
limitation, all rights and remedies against the Guarantors and all rights
of set-off.
Notwithstanding the foregoing, if an Event of Default specified in Section 9.1
shall occur as a result of the incorporation of Section 9.1(f) of the Related
Credit Agreement, then the Commitments shall automatically terminate and all
Loans, all accrued interest in respect thereof, all accrued and unpaid fees and
other indebtedness or obligations owing to the Lenders hereunder shall
immediately become due and payable without the giving of any notice or other
action by the Agent or the Lenders, which notice or other action is expressly
waived by the Credit Parties.
Notwithstanding the fact that enforcement powers reside primarily with the
Agent, each Lender has, to the extent permitted by law, a separate right of
payment and shall be considered a separate "creditor" holding a separate "claim"
within the meaning of Section 101(5) of the Bankruptcy Code or any other
insolvency statute.
9.4 Allocation of Payments After Event of Default.
Notwithstanding any other provisions of this Credit Agreement, after the
occurrence and during the continuance of an Event of Default, all amounts
collected or received by the Agent or any Lender on account of amounts
outstanding under any of the Credit Documents shall be paid over or delivered as
follows:
FIRST, to the payment of all reasonable out-of-pocket costs and
expenses (including without limitation reasonable attorneys' fees) of the
Agent in connection with enforcing the rights of the Lenders under the
Credit Documents;
SECOND, to payment of any fees owed to the Agent;
THIRD, to the payment of all reasonable out-of-pocket costs and
expenses, (including, without limitation, reasonable attorneys' fees) of
each of the Lenders in connection with enforcing its rights under the
Credit Documents;
FOURTH, to the payment of all accrued fees and interest payable to the
Lenders hereunder;
FIFTH, to the payment of the outstanding principal amount of the
Loans;
SIXTH, to all other obligations which shall have become due and
payable under the Credit Documents and not repaid pursuant to clauses
"FIRST" through "FIFTH" above; and
SEVENTH, to the payment of the surplus, if any, to whoever may be
lawfully entitled to receive such surplus.
In carrying out the foregoing, (a) amounts received shall be applied in the
numerical order provided until exhausted prior to application to the next
succeeding category; and (b) each of the Lenders
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shall receive an amount equal to its pro rata share (based on the proportion
that the then outstanding Loans, held by such Lender bears to the aggregate then
outstanding Loans) of amounts available to be applied pursuant to clauses
"THIRD", "FOURTH," "FIFTH," and "SIXTH" above.
SECTION 10
AGENCY PROVISIONS
10.1 Appointment.
Each Lender hereby designates and appoints NationsBank, N.A. as Agent of
such Lender to act as specified herein and the other Credit Documents, and each
such Lender hereby authorizes the Agent, as the agent for such Lender, to take
such action on its behalf under the provisions of this Credit Agreement and the
other Credit Documents and to exercise such powers and perform such duties as
are expressly delegated by the terms hereof and of the other Credit Documents,
together with such other powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary elsewhere herein and in the other
Credit Documents, the Agent shall not have any duties or responsibilities,
except those expressly set forth herein and therein, or any fiduciary
relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Credit Agreement or any of the other Credit Documents, or shall otherwise exist
against the Agent. The provisions of this Section are solely for the benefit of
the Agent and the Lenders and none of the Credit Parties shall have any rights
as a third party beneficiary of the provisions hereof. In performing its
functions and duties under this Credit Agreement and the other Credit Documents,
the Agent shall act solely as an agent of the Lenders and does not assume and
shall not be deemed to have assumed any obligation or relationship of agency or
trust with or for any Credit Party.
10.2 Delegation of Duties.
The Agent may execute any of its duties hereunder or under the other Credit
Documents by or through agents or attorneys-in-fact and shall be entitled to
advice of counsel concerning all matters pertaining to such duties. The Agent
shall not be responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by it with reasonable care.
10.3 Exculpatory Provisions.
Neither the Agent nor any of its officers, directors, employees, agents,
attorneys-in-fact or affiliates shall be (a) liable for any action lawfully
taken or omitted to be taken by it or such Person under or in connection
herewith or in connection with any of the other Credit Documents (except for its
or such Person's own gross negligence or willful misconduct) or (b) responsible
in any manner to any of the Lenders for any recitals, statements,
representations or warranties made by any of the Credit Parties contained herein
or in any of the other Credit Documents or in any certificate, report, document,
financial statement or other written or oral statement referred to or provided
for in, or received by an Agent under or in connection herewith or in connection
with the other Credit Documents, or enforceability or sufficiency therefor of
any of the other Credit Documents, or for
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any failure of the Borrower to perform its obligations hereunder or thereunder.
The Agent shall not be responsible to any Lender for the effectiveness,
genuineness, validity, enforceability, collectibility or sufficiency of this
Credit Agreement, or any of the other Credit Documents or for any
representations, warranties, recitals or statements made herein or therein or
made by the Borrower or any Credit Party in any written or oral statement or in
any financial or other statements, instruments, reports, certificates or any
other documents in connection herewith or therewith furnished or made by the
Agent to the Lenders or by or on behalf of the Credit Parties to the Agent or
any Lender or be required to ascertain or inquire as to the performance or
observance of any of the terms, conditions, provisions, covenants or agreements
contained herein or therein or as to the use of the proceeds of the Loans or of
the existence or possible existence of any Default or Event of Default or to
inspect the properties, books or records of the Credit Parties. The Agent is a
not trustee for the Lenders and owes no fiduciary duty to the Lenders. The Agent
shall administer the facility evidenced by the Credit Documents similar to other
credits in which the Agent holds 100% of the credit exposure.
10.4 Reliance on Communications.
The Agent shall be entitled to rely, and shall be fully protected in
relying, upon any note, writing, resolution, notice, consent, certificate,
affidavit, letter, cablegram, telegram, telecopy, telex or teletype message,
statement, order or other document or conversation believed by it to be genuine
and correct and to have been signed, sent or made by the proper Person or
Persons and upon advice and statements of legal counsel (including, without
limitation, counsel to any of the Credit Parties, independent accountants and
other experts selected by the Agent with reasonable care). The Agent may deem
and treat the Lenders as the owner of its interests hereunder for all purposes
unless a written notice of assignment, negotiation or transfer thereof shall
have been filed with the Agent in accordance with Section 11.3(b). The Agent
shall be fully justified in failing or refusing to take any action under this
Credit Agreement or under any of the other Credit Documents unless it shall
first receive such advice or concurrence of the Required Lenders as it deems
appropriate or it shall first be indemnified to its satisfaction by the Lenders
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, hereunder or under any
of the other Credit Documents in accordance with a request of the Required
Lenders (or to the extent specifically provided in Section 11.6, all the
Lenders) and such request and any action taken or failure to act pursuant
thereto shall be binding upon all the Lenders (including their successors and
assigns).
10.5 Notice of Default.
An Agent shall not be deemed to have knowledge or notice of the occurrence
of any Default or Event of Default hereunder (other than Section 9.1(a)) unless
such Agent has received notice from a Lender or a Credit Party referring to the
Credit Document, describing such Default or Event of Default and stating that
such notice is a "notice of default." In the event that the Agent receives such
a notice, the Agent shall give prompt notice thereof to the Lenders. The Agent
shall take such action with respect to such Default or Event of Default as shall
be reasonably directed by the Required Lenders.
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10.6 Non-Reliance on Agent and Other Lenders.
Each Lender expressly acknowledges that neither the Agent, NationsBanc
Montgomery Securities, Inc. ("NMSI") nor any of their officers, directors,
employees, agents, attorneys-in-fact or affiliates has made any representations
or warranties to it and that no act by the Agent, NMSI or any affiliate thereof
hereinafter taken, including any review of the affairs of any Credit Party,
shall be deemed to constitute any representation or warranty by the Agent or
NMSI to any Lender. Each Lender represents to the Agent and NMSI that it has,
independently and without reliance upon the Agent or NMSI or any other Lender,
and based on such documents and information as it has deemed appropriate, made
its own appraisal of and investigation into the business, assets, operations,
property, financial and other conditions, prospects and creditworthiness of the
Credit Parties and made its own decision to make its Loans hereunder and enter
into this Credit Agreement. Each Lender also represents that it will,
independently and without reliance upon the Agent, NMSI or any other Lender, and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit analysis, appraisals and decisions in
taking or not taking action under this Credit Agreement, and to make such
investigation as it deems necessary to inform itself as to the business, assets,
operations, property, financial and other conditions, prospects and
creditworthiness of the Credit Parties. The Agent shall promptly provide to the
Lenders (a) copies of all notices of Defaults or Events of Default or other
notices received in accordance with Section 11.1, (b) copies of all financial
statements, certificates and other information sent to it by the Borrower
pursuant to Article 7, (c) any written information it receives regarding the
unsecured debt rating of Highwoods Properties and (d) such other documents or
notices received by the Agent pursuant to this Agreement and requested in
writing by a Lender. Except for notices, reports and other documents expressly
required to be furnished to the Lenders by the Agent hereunder, the Agent and
NMSI shall not have any duty or responsibility to provide any Lender with any
credit or other information concerning the business, operations, assets,
property, financial or other conditions, prospects or creditworthiness of the
Credit Parties which may come into the possession of the Agent, NMSI or any of
their officers, directors, employees, agents, attorneys-in-fact or affiliates.
10.7 Indemnification.
The Lenders agree to indemnify the Agent in its capacity as such but not in
its capacity as a Lender (to the extent not reimbursed by the Borrower and
without limiting the obligation of the Borrower to do so), ratably according to
their respective Commitments (or if the Commitments have expired or been
terminated, in accordance with the respective principal amounts of outstanding
Loans of the Lenders), from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind whatsoever which may at any time (including without
limitation at any time following payment in full of the Credit Party
Obligations) be imposed on, incurred by or asserted against an Agent in its
capacity as such in any way relating to or arising out of this Credit Agreement
or the other Credit Documents or any documents contemplated by or referred to
herein or therein or the transactions contemplated hereby or thereby or any
action taken or omitted by an Agent under or in connection with any of the
foregoing; provided that no Lender shall be liable for the payment of any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements (i) resulting from the gross
negligence or willful misconduct of the Agent, (ii) arising
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solely from an internal or regulatory matter relating only to the Agent (i.e. a
legal lending limit violation by the Agent) or (iii) resulting from and related
solely to a dispute between the Agent and one or more Lenders in which it is
reasonably determined that the Agent did not prevail. If any indemnity furnished
to the Agent for any purpose shall, in the reasonable judgment of the Agent, be
insufficient or become impaired, the Agent may call for additional indemnity and
cease, or not commence, to do the acts indemnified against until such additional
indemnity is furnished. The agreements in this Section shall survive the payment
of the Credit Party Obligations and all other amounts payable hereunder and
under the other Credit Documents.
10.8 Agent in Its Individual Capacity.
The Agent and its affiliates may make loans to, accept deposits from and
generally engage in any kind of business with the Borrower or any other Credit
Party as though the Agent were not the Agent hereunder. With respect to the
Loans made and all obligations owing to it, the Agent shall have the same rights
and powers under this Credit Agreement as any Lender and may exercise the same
as though they were not the Agent, and the terms "Lender" and "Lenders" shall
include the Agent in its individual capacity.
10.9 Successor Agent.
The Agent may, at any time, resign upon 20 days written notice to the
Lenders. Upon any such resignation, the Required Lenders shall have the right to
appoint a successor Agent; provided that if no successor Agent shall have been
appointed by the Required Lenders, and shall have accepted such appointment,
within 45 days after the notice of resignation, then the retiring Agent shall
select a successor Agent. In either case, whether selected by the Required
Lenders or the retiring Agent, the successor Agent must be either an existing
Lender hereunder or a commercial bank organized under the laws of the United
States of America or of any State thereof and have total assets of at least $25
billion and a long term unsecured debt rating of at least BBB+ with S&P or its
equivalent. Upon the acceptance of any appointment as the Agent hereunder by a
successor, such successor Agent shall thereupon succeed to and become vested
with all the rights, powers, privileges and duties of the retiring Agent, and
the retiring Agent shall be discharged from its duties and obligations as the
Agent, as appropriate, under this Credit Agreement and the other Credit
Documents and the provisions of this Section 10.9 shall inure to its benefit as
to any actions taken or omitted to be taken by it while it was the Agent under
this Credit Agreement.
SECTION 11
MISCELLANEOUS
11.1 Notices.
Except as otherwise expressly provided herein, all notices and other
communications shall have been duly given and shall be effective (a) when
delivered by hand, (b) when transmitted via telecopy (or other facsimile device)
to the number set out below, (c) the Business Day following the day on which the
same has been delivered prepaid to a reputable national overnight air courier
service, or (d) the third Business Day following the day on which the same is
sent by certified or
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registered mail, postage prepaid, in each case to the respective parties at the
address or telecopy numbers set forth on Schedule 11.1, or at such other address
as such party may specify by written notice to the other parties hereto.
11.2 Right of Set-Off.
In addition to any rights now or hereafter granted under applicable law or
otherwise, and not by way of limitation of any such rights, upon the occurrence
of an Event of Default and the commencement of remedies described in Section
9.3, each Lender is authorized at any time and from time to time, without
presentment, demand, protest or other notice of any kind (all of which rights
being hereby expressly waived), to set-off and to appropriate and apply any and
all deposits (general or special) and any other indebtedness at any time held or
owing by such Lender (including, without limitation, branches, agencies or
Affiliates of such Lender wherever located) to or for the credit or the account
of any Credit Party against obligations and liabilities of such Credit Party to
the Lenders hereunder, under the Notes, the other Credit Documents or otherwise,
irrespective of whether the Agent or the Lenders shall have made any demand
hereunder and although such obligations, liabilities or claims, or any of them,
may be contingent or unmatured, and any such set-off shall be deemed to have
been made immediately upon the occurrence of an Event of Default even though
such charge is made or entered on the books of such Lender subsequent thereto.
The Credit Parties hereby agree that any Person purchasing a participation in
the Loans and Commitments hereunder pursuant to Section 11.3(c) or 3.8 may
exercise all rights of set-off with respect to its participation interest as
fully as if such Person were a Lender hereunder.
11.3 Benefit of Agreement.
(a) Generally. This Credit Agreement shall be binding upon and inure
to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto; provided that none of the Credit Parties may
assign and transfer any of its interests without the prior written consent
of the Lenders; and provided further that the rights of each Lender to
transfer, assign or grant participation in its rights and/or obligations
hereunder shall be limited as set forth below in subsections (b) and (c) of
this Section 11.3. Notwithstanding the above (including anything set forth
in subsections (b) and (c) of this Section 11.3), nothing herein shall
restrict, prevent or prohibit any Lender from (A) pledging its Loans
hereunder to a Federal Reserve Bank in support of borrowings made by such
Lender from such Federal Reserve Bank, or (B) granting assignments or
participation in such Lender's Loans and/or Commitments hereunder to its
parent company and/or to any Affiliate of such Lender or to any existing
Lender or Affiliate thereof. No action permitted by this Section 11.3(a)
shall require a fee to be paid to the Agent.
(b) Assignments. In addition to the assignments permitted in Section
11.3(a), each Lender may, with the prior written consent of the Agent which
shall not be unreasonably withheld, assign all or a portion of its rights
and obligations hereunder pursuant to an assignment agreement substantially
in the form of Exhibit 11.3 to one or more Eligible Assignees; provided
that (i) any such assignment shall be in a minimum aggregate amount of
$10,000,000 of the Commitments and in integral multiples of $1,000,000
above such amount (or the remaining amount of Commitments held by such
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<PAGE>
Lender) and (ii) each such assignment shall be of a constant, not varying,
percentage of all of the assigning Lender's rights and obligations under
the Commitment being assigned. Any assignment hereunder shall be effective
upon satisfaction of the conditions set forth above and delivery to the
Agent of a duly executed assignment agreement together with a transfer fee
of $3,500 payable to the Agent for its own account. Upon the effectiveness
of any such assignment, the assignee shall become a "Lender" for all
purposes of this Credit Agreement and the other Credit Documents and, to
the extent of such assignment, the assigning Lender shall be relieved of
its obligations hereunder to the extent of the Loans and Commitment
components being assigned. Along such lines the Borrower agrees that upon
notice of any such assignment and surrender of the appropriate Note or
Notes, it will promptly provide to the assigning Lender and to the assignee
separate promissory notes in the amount of their respective interests
substantially in the form of the original Note or Notes (but with notation
thereon that it is given in substitution for and replacement of the
original Note or Notes or any replacement notes thereof).
By executing and delivering an assignment agreement in accordance with this
Section 11.3(b), the assigning Lender thereunder and the assignee
thereunder shall be deemed to confirm to and agree with each other and the
other parties hereto as follows: (i) such assigning Lender warrants that it
is the legal and beneficial owner of the interest being assigned thereby
free and clear of any adverse claim and the assignee warrants that it is an
Eligible Assignee; (ii) except as set forth in clause (i) above, such
assigning Lender makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or
representations made in or in connection with this Credit Agreement, any of
the other Credit Documents or any other instrument or document furnished
pursuant hereto or thereto, or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Credit Agreement,
any of the other Credit Documents or any other instrument or document
furnished pursuant hereto or thereto or the financial condition of any
Credit Party or the performance or observance by any Credit Party of any of
its obligations under this Credit Agreement, any of the other Credit
Documents or any other instrument or document furnished pursuant hereto or
thereto; (iii) such assignee represents and warrants that it is legally
authorized to enter into such assignment agreement; (iv) such assignee
confirms that it has received a copy of this Credit Agreement, the other
Credit Documents and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
assignment agreement; (v) such assignee will independently and without
reliance upon the Agent, such assigning Lender or any other Lender, and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking
action under this Credit Agreement and the other Credit Documents; (vi)
such assignee appoints and authorizes the Agent to take such action on its
behalf and to exercise such powers under this Credit Agreement or any other
Credit Document as are delegated to the Agent by the terms hereof or
thereof, together with such powers as are reasonably incidental thereto;
and (vii) such assignee agrees that it will perform in accordance with
their terms all the obligations which by the terms of this Credit Agreement
and the other Credit Documents are required to be performed by it as a
Lender.
34
<PAGE>
(c) Participations. Each Lender may sell, transfer, grant or assign
participations in all or any part of such Lender's interests and
obligations hereunder; provided that (i) such selling Lender shall remain a
"Lender" for all purposes under this Credit Agreement (such selling
Lender's obligations under the Credit Documents remaining unchanged) and
the participant shall not constitute a Lender hereunder, (ii) no such
participant shall have, or be granted, rights to approve any amendment or
waiver relating to this Credit Agreement or the other Credit Documents
except to the extent any such amendment or waiver would (A) reduce the
principal of or rate of interest on or fees in respect of any Loans in
which the participant is participating or increase any Commitments with
respect thereto, (B) postpone the date fixed for any payment of principal
(including the extension of the final maturity of any Loan or the date of
any mandatory prepayment), interest or fees in which the participant is
participating, or (C) release all or substantially all of the collateral or
guaranties (except as expressly provided in the Credit Documents)
supporting any of the Loans or Commitments in which the participant is
participating, (iii) sub-participations by the participant (except to an
Affiliate, parent company or Affiliate of a parent company of the
participant) shall be prohibited and (iv) any such participations shall be
in a minimum aggregate amount of $10,000,000 of the Commitments and in
integral multiples of $1,000,000 in excess thereof. In the case of any such
participation, the participant shall not have any rights under this Credit
Agreement or the other Credit Documents (the participant's rights against
the selling Lender in respect of such participation to be those set forth
in the participation agreement with such Lender creating such
participation) and all amounts payable by the Borrower hereunder shall be
determined as if such Lender had not sold such participation; provided,
however, that such participant shall be entitled to receive additional
amounts under Sections 3.9, 3.12, 3.13 and 3.14 to the same extent that the
Lender from which such participant acquired its participation would be
entitled to the benefit of such cost protection provisions.
11.4 No Waiver; Remedies Cumulative.
No failure or delay on the part of an Agent or any Lender in exercising any
right, power or privilege hereunder or under any other Credit Document and no
course of dealing between the Borrower or any Credit Party and the Agent or any
Lender shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, power or privilege hereunder or under any other Credit
Document preclude any other or further exercise thereof or the exercise of any
other right, power or privilege hereunder or thereunder. The rights and remedies
provided herein are cumulative and not exclusive of any rights or remedies which
the Agent or any Lender would otherwise have. No notice to or demand on any
Credit Party in any case shall entitle any Credit Party to any other or further
notice or demand in similar or other circumstances or constitute a waiver of the
rights of the Agent or the Lenders to any other or further action in any
circumstances without notice or demand.
11.5 Payment of Expenses; Indemnification.
The Credit Parties agree to: (a) pay all reasonable out-of-pocket costs and
expenses of (i) the Agent and the Lenders in connection with (A) the
negotiation, preparation, execution and delivery and administration of this
Credit Agreement and the other Credit Documents and the documents and
instruments referred to therein (including, without limitation, the reasonable
fees
35
<PAGE>
and expenses of Moore & Van Allen, PLLC, special counsel to the Agent); provided
that reimbursement to any Lender (other than the Agent) for fees and expenses
shall be limited to $7,500 per Lender and (B) any amendment, waiver or consent
relating hereto and thereto including, but not limited to, any such amendments,
waivers or consents resulting from or related to any work-out, renegotiation or
restructure relating to the performance by the Credit Parties under this Credit
Agreement and (ii) the Agent and the Lenders in connection with (A) enforcement
of the Credit Documents and the documents and instruments referred to therein,
including, without limitation, in connection with any such enforcement, the
reasonable fees (at standard hourly rates) and disbursements of counsel for the
Agent and each of the Lenders, and (B) any bankruptcy or insolvency proceeding
of a Credit Party; provided that the Credit Parties shall not be responsible for
the legal fees of the Agent and the Lenders in connection with any proceeding in
which a Credit Party is the prevailing party as determined by a court of
competent jurisdiction, and (b) indemnify the Agent, and each Lender, its
officers, directors, employees, representatives and agents from and hold each of
them harmless against any and all losses, liabilities, claims, damages or
expenses incurred by any of them as a result of, or arising out of, or in any
way related to, or by reason of, any investigation, litigation or other
proceeding (whether or not any Agent or Lender is a party thereto) related to
(i) the entering into and/or performance of any Credit Document or the use of
proceeds of any Loans (including other extensions of credit) hereunder or the
consummation of any other transactions contemplated in any Credit Document,
including, without limitation, the reasonable fees and disbursements of counsel
incurred in connection with any such investigation, litigation or other
proceeding (but excluding any such losses, liabilities, claims, damages or
expenses to the extent incurred by reason of gross negligence or willful
misconduct on the part of the Person to be indemnified), (ii) any Environmental
Claim and (iii) any claims for Non-Excluded Taxes.
11.6 Amendments, Waivers and Consents.
Neither this Credit Agreement nor any other Credit Document nor any of the
terms hereof or thereof may be amended, changed, waived, discharged or
terminated unless such amendment, change, waiver, discharge or termination is in
writing and signed by the Agent, the Required Lenders and the Credit Parties.
Notwithstanding the fact that the consent of all the Lenders is required in
certain circumstances as set forth above, (x) each Lender is entitled to vote as
such Lender sees fit on any reorganization plan that affects the Loans, and each
Lender acknowledges that the provisions of Section 1126(c) of the Bankruptcy
Code supersedes the unanimous consent provisions set forth herein and (y) the
Required Lenders may consent to allow a Credit Party to use cash collateral in
the context of a bankruptcy or insolvency proceeding.
11.7 Counterparts.
This Credit Agreement may be executed in any number of counterparts, each
of which where so executed and delivered shall be an original, but all of which
shall constitute one and the same instrument. It shall not be necessary in
making proof of this Credit Agreement to produce or account for more than one
such counterpart.
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<PAGE>
11.8 Headings.
The headings of the sections and subsections hereof are provided for
convenience only and shall not in any way affect the meaning or construction of
any provision of this Credit Agreement.
11.9 Defaulting Lender.
Each Lender understands and agrees that if such Lender is a Defaulting
Lender then notwithstanding the provisions of Section 11.6 it shall not be
entitled to vote on any matter requiring the consent of the Required Lenders or
to object to any matter requiring the consent of all the Lenders; provided,
however, that all other benefits and obligations under the Credit Documents
shall apply to such Defaulting Lender.
11.10 Survival of Indemnification and Representations and Warranties.
All indemnities set forth herein and all representations and warranties
made herein shall survive the execution and delivery of this Credit Agreement,
the making of the Loans and other obligations and the termination of the
commitments hereunder.
11.11 Governing Law.
THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH
CAROLINA.
11.12 Arbitration.
Any controversy or claim between or among the parties hereto including, but
not limited to, those arising out of or relating to this Agreement or any
related agreements or instruments, including any claim based on or arising from
an alleged tort, shall be determined by binding arbitration in accordance with
the Federal Arbitration Act (or if not applicable, the applicable state law),
the Rules of Practice and Procedure for the Arbitration of Commercial Disputes
of Judicial Arbitration and Mediation Services, Inc. (J.A.M.S.), and the
"Special Rules" set forth below. In the event of any inconsistency, the Special
Rules shall control. Judgment upon any arbitration award may be entered in any
court having jurisdiction. Any party to this Agreement may bring an action,
including a summary or expedited proceeding, to compel arbitration of any
controversy or claim to which this Agreement applies in any court having
jurisdiction over such action.
(a) Special Rules. The arbitration shall be conducted in the city of
the Borrower's domicile at time of this Agreement's execution and
administered by J.A.M.S. who will appoint an arbitrator; if J.A.M.S. is
unable or legally precluded from administering the arbitration, then the
American Arbitration Association will serve. All arbitration hearings will
be commenced within ninety (90) days of the demand for arbitration;
further, the arbitrator shall only, upon a showing of cause, be permitted
to extend the commencement of such hearing for up to an additional sixty
(60) days.
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(b) Reservations of Rights. Nothing in this Agreement shall be deemed
to (i) limit the applicability of any otherwise applicable statutes of
limitation or repose and any waivers contained in this Agreement; or (ii)
be a waiver by the Lenders of the protection afforded to it by 12 U.S.C.
Section 91 or any substantially equivalent state law; or (iii) limit the
right of the Lenders (A) to exercise self help remedies such as (but not
limited to) setoff, or (B) to foreclose against any real or personal
property collateral, or (C) to obtain from a court provisional or ancillary
remedies such as (but not limited to) injunctive relief or the appointment
of a receiver. The Lenders may exercise such self help rights, foreclose
upon such property, or obtain such provisional or ancillary remedies
before, during or after the pendency of any arbitration proceeding brought
pursuant to this Agreement. At the Lenders' option, foreclosure under the
Credit Documents may be accomplished by the exercise of a power of sale or
a judicial sale under the Credit Documents or by judicial foreclosure.
Neither the exercise of self help remedies nor the institution or
maintenance of an action for foreclosure or provisional or ancillary
remedies shall constitute a waiver of the right of any party, including the
claimant in any such action, to arbitrate the merits of the controversy or
claim occasioning resort to such remedies.
11.13 Time.
All references to time herein shall be references to Eastern Standard Time
or Eastern Daylight time, as the case may be, unless specified otherwise.
11.14 Severability.
If any provision of any of the Credit Documents is determined to be
illegal, invalid or unenforceable, such provision shall be fully severable and
the remaining provisions shall remain in full force and effect and shall be
construed without giving effect to the illegal, invalid or unenforceable
provisions.
11.15 Entirety.
This Credit Agreement together with the other Credit Documents represent
the entire agreement of the parties hereto and thereto, and supersede all prior
agreements and understandings, oral or written, if any, including any commitment
letters or correspondence relating to the Credit Documents or the transactions
contemplated herein and therein.
[remainder of page intentionally left blank]
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<PAGE>
Each of the parties hereto has caused a counterpart of this Credit
Agreement to be duly executed and delivered as of the date first above written,
the Credit Parties doing so under seal.
BORROWER:
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP,
a North Carolina limited partnership
ATTEST:
By: Highwoods Properties, Inc.,
By:___________________ a Maryland corporation, its sole general
partner
Title:_______________
By: __________________________________________
[CORPORATE SEAL] Name: ________________________________________
Title: _______________________________________
GUARANTORS: HIGHWOODS PROPERTIES, INC.,
a Maryland corporation
ATTEST:
By: __________________________________________
By:__________________ Name: ________________________________________
Title:________________ Title: _______________________________________
[CORPORATE SEAL]
HIGHWOODS SERVICES, INC.,
a North Carolina corporation
ATTEST:
By: __________________________________________
By:__________________ Name: ________________________________________
Title:________________ Title: _______________________________________
[CORPORATE SEAL]
SOUTHEAST REALTY OPTIONS CORP.,
a Delaware corporation
ATTEST:
By: __________________________________________
By:__________________ Name: ________________________________________
Title:________________ Title: _______________________________________
[CORPORATE SEAL]
<PAGE>
HIGHWOODS/FLORIDA GP CORP.,
a Delaware corporation
ATTEST:
By: __________________________________________
By:__________________ Name: ________________________________________
Title:________________ Title: _______________________________________
[CORPORATE SEAL]
HIGHWOODS/FLORIDA HOLDINGS GP, L.P.,
a Delaware corporation
By: Highwoods/Florida GP Corp.,
a Delaware corporation, its sole
general partner
AATTEST:
By: __________________________________________
By:__________________ Name: ________________________________________
Title:________________ Title: _______________________________________
[CORPORATE SEAL]
HIGHWOODS/FLORIDA HOLDINGS L.P.,
a Delaware corporation
By: Highwoods/Florida Holdings GP, L.P.,
a Delaware limited
partnership, its sole general partner
By: Highwoods/Florida GP Corp.,
a Delaware corporation, its sole
general partner
ATTEST:
By: __________________________________________
By:__________________ Name: ________________________________________
Title:________________ Title: _______________________________________
[CORPORATE SEAL]
<PAGE>
HIGHWOODS/TENNESSEE PROPERTIES,
a Tennessee corporation
ATTEST:
By: __________________________________________
By:__________________ Name: ________________________________________
Title:________________ Title: _______________________________________
[CORPORATE SEAL]
HIGHWOODS/TENNESSEE HOLDINGS GP, L.P.,
a Tennessee limited partnership
By: Highwoods/Tennessee Properties, Inc.,
a Tennessee corporation, its sole
general partner
ATTEST:
By: __________________________________________
By:__________________ Name: ________________________________________
Title:________________ Title: _______________________________________
[CORPORATE SEAL]
HIGHWOODS/TENNESSEE HOLDINGS L.P.,
a Tennessee limited partnership
By: Highwoods/Tennessee Holdings GP, L.P.,
a Tennessee limited
partnership, its sole general partner
By: Highwoods/Tennessee Properties, Inc.,
a Delaware corporation, its sole
general partner
ATTEST:
By: __________________________________________
By:__________________ Name: ________________________________________
Title:________________ Title: _______________________________________
[CORPORATE SEAL]
<PAGE>
LENDERS:
NATIONSBANK, N.A.,
individually in its capacity as a
Lender and in its capacity as Agent
By: __________________________________________
Name: ________________________________________
Title: _______________________________________
<PAGE>
Schedule 1.1(a)
COMMITMENT PERCENTAGE
Revolving
Revolving Commitment
Lender Committed Amount Percentage
- ------ ---------------- ----------
NationsBank, N.A., $ 150,000,000 100%
<PAGE>
Schedule 11.1
Notices
Lender Address for All Notices
- ------ -----------------------
NationsBank, N.A. NationsBank, N.A.
One Hannover Square, Suite 301
Raleigh, NC 27611-7287
Attn: Patty Gardenhire
Ph: (919) 829-6683
Fax: (919) 829-6713
with a copy to:
Mark S. Cagley
Senior Vice President
NationsBank
Real Estate Banking Group
100 N. Tryon Street
11th Floor
NC1-007-11-07
Charlotte, NC 28255
Phone: (704) 386-7449
Fax: (704) 388-0617
<PAGE>
Exhibit 2.1(b)
FORM OF NOTICE OF BORROWING
TO: NATIONSBANK, N.A., as Agent
NATIONSBANK CORPORATE CENTER
CHARLOTTE, NORTH CAROLINA 28255
RE: Credit Agreement dated as of December ___, 1997 among
Highwoods/Forsyth Limited Partnership (the "Borrower")
Highwoods Properties, Inc., the Subsidiaries of the Borrower
and Highwoods Properties, Inc., NationsBank, N.A., as Agent,
and the Lenders party thereto (as the same may be amended,
modified, extended or restated from time to time, the "Credit
Agreement")
DATE: _____________, 199__
________________________________________________________________
1. This Notice of Borrowing is made pursuant to the terms of the Credit
Agreement. All capitalized terms used herein unless otherwise defined
shall have the meanings set forth in the Credit Agreement.
2. Please be advised that the Borrower is requesting Revolving Loans in
the amount of $__________ to be funded on ____________, 199__ at the
interest rate option set forth in paragraph 3 below. Subsequent to the
funding of the requested Revolving Loans, the aggregate amount of
outstanding Revolving Loans will be $_________, which is less than or
equal to the Revolving Committed Amount.
3. The interest rate option applicable to the requested Revolving Loans
shall be:
a. ________ the Adjusted Base Rate
b. ________ the Adjusted Eurodollar Rate for an Interest Period
of one (1) month
4. The proceeds from the Revolving Loans shall be used for
________________________________________ which is in compliance with
Section 7 of the Credit Agreement.
5. The representations and warranties made by the Credit Parties in the
Credit Documents are true and correct in all material respects at and
as if made on the date hereof except to the extent they expressly
relate to an earlier date.
<PAGE>
6. As of the date hereof, no Default or Event of Default has occurred and
is continuing or would be caused by this Notice of Borrowing.
7. No Material Adverse Effect has occurred since the Closing Date.
8. The Borrower is in compliance with all requirements of the Related
Credit Agreement. In furtherance of this certification, Borrower
represents that the ratio of (a) Total Liabilities (as defined in the
Related Credit Agreement) to (b) Market Capitalization (as defined in
the Related Credit Agreement) is less than or equal to 0.45 to 1.0.
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
By: Highwoods Properties, Inc., its sole general partner
By:____________________________
Name:__________________________
Title:_________________________
<PAGE>
Exhibit 2.1(d)
FORM OF NOTICE OF CONTINUATION/CONVERSION
TO: NATIONSBANK, N.A., as Agent
NATIONSBANK CORPORATE CENTER
CHARLOTTE, NORTH CAROLINA 28255
RE: Credit Agreement dated as of December ____, 1997 among
Highwoods/Forsyth Limited Partnership (the "Borrower")
Highwoods Properties, Inc., the Subsidiaries of the Borrower
and Highwoods Properties, Inc., NationsBank, N.A., as Agent,
and the Lenders party thereto (as the same may be amended,
modified, extended or restated from time to time, the "Credit
Agreement")
DATE: _____________, 199__
____________________________________________________________
1. This Notice of Continuation/Conversion is made pursuant to the terms of
the Credit Agreement. All capitalized terms used herein unless
otherwise defined shall have the meanings set forth in the Credit
Agreement.
2. Please be advised that the Borrower is requesting that a portion of the
current outstanding Revolving Loans in the amount of $__________
currently accruing interest at _________ be extended or converted as of
_____________ at the interest rate option set forth in paragraph 3
below.
3. The interest rate option applicable to the extension or conversion of
all or part of the existing Revolving Loans shall be:
a. ________ the Adjusted Base Rate
b. ________ the Adjusted Eurodollar Rate for an Interest Period
of one (1) month
4. The representations and warranties made by the Credit Parties in the
Credit Documents are true and correct in all material respects at and
as if made on the date hereof except to the extent they expressly
relate to an earlier date.
5. As of the date hereof, no Default or Event of Default has occurred and
is continuing or would be caused by this Notice of
Continuation/Conversion.
6. No Material Adverse Effect has occurred since the Closing Date.
<PAGE>
7. The Borrower is in compliance with all requirements of the Related
Credit Agreement. In furtherance of this certification, Borrower
represents that the ratio of (a) Total Liabilities (as defined in the
Related Credit Agreement) to (b) Market Capitalization (as defined in
the Related Credit Agreement) is less than or equal to .45 to 1.0.
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
By: Highwoods Properties, Inc., its sole general partner
By:____________________________
Name:__________________________
Title:_________________________
<PAGE>
Exhibit 2.1(f)
FORM OF
REVOLVING NOTE
$____________ _______ ____, 1997
FOR VALUE RECEIVED, Highwoods/Forsyth Limited Partnership, a North Carolina
limited partnership, (the "Borrower"), hereby promises to pay to the order of
___________________ (the "Lender"), at the office of NationsBank, N.A. (the
"Agent") as set forth in that certain Credit Agreement dated as of December 15,
1997 between the Borrower, Highwoods Properties, Inc., the Subsidiaries of the
Borrower and Highwoods Properties, Inc., the Lenders named therein (including
the Lender), and NationsBank, N.A., as Agent (as modified and supplemented and
in effect from time to time, the "Credit Agreement"), the principal sum of
$______________ (or such lesser amount as shall equal the aggregate unpaid
principal amount of the Revolving Loans made by the Lender to the Borrower under
the Credit Agreement), in lawful money of the United States of America and in
immediately available funds, on the dates and in the principal amounts provided
in the Credit Agreement, and to pay interest on the unpaid principal amount of
each such Revolving Loan, at such office, in like money and funds, for the
period commencing on the date of such Revolving Loan until such Revolving Loan
shall be paid in full, at the rates per annum and on the dates provided in the
Credit Agreement.
This Note is one of the Revolving Notes referred to in the Credit Agreement
and evidences Revolving Loans made by the Lender thereunder. Capitalized terms
used in this Revolving Note and not otherwise defined shall have the respective
meanings assigned to them in the Credit Agreement and the terms and conditions
of the Credit Agreement are expressly incorporated herein and made a part
hereof.
The Credit Agreement provides for the acceleration of the maturity of the
Revolving Loans evidenced by this Revolving Note upon the occurrence of certain
events (and for payment of collection costs in connection therewith) and for
prepayments of Revolving Loans upon the terms and conditions specified therein.
In the event this Revolving Note is not paid when due at any stated or
accelerated maturity, the Borrower agrees to pay, in addition to the principal
and interest, all costs of collection, including reasonable attorney fees.
The date, amount, type, interest rate and duration of Interest Period (if
applicable) of each Revolving Loan made by the Lender to the Borrower, and each
payment made on account of the principal thereof, shall be recorded by the
Lender on its books; provided that the failure of the Lender to make any such
recordation or endorsement shall not affect the obligations of the Borrower to
make a payment when due of any amount owing hereunder or under this Revolving
Note in respect of the Revolving Loans to be evidenced by this Revolving Note,
and each such recordation or endorsement shall be prima facie evidence of such
information.
<PAGE>
THIS REVOLVING NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NORTH CAROLINA.
IN WITNESS WHEREOF, the Borrower has caused this Revolving Note to be
executed as of the date first above written.
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
By: Highwoods Properties, Inc., its sole general partner
By:____________________________
Name:__________________________
Title:_________________________
<PAGE>
Exhibit 7.1(c)
FORM OF OFFICER'S CERTIFICATE
For the fiscal quarter ended _________________, 19___.
I, ______________________, chief financial officer of Highwoods Properties,
Inc., the sole general partner of Highwoods/Forsyth Limited Partnership (the
"Borrower") hereby certify on behalf of the Borrower that, with respect to that
certain Credit Agreement dated as of December 15, 1997 (as it may be amended,
modified, extended or restated from time to time, the "Credit Agreement"; all of
the capitalized terms herein shall have the meanings set forth in the Credit
Agreement) among the Borrower, the other Credit Parties party thereto, the
Lenders party thereto and NationsBank, N.A., as Agent:
a. Attached hereto as Schedule 1 are calculations demonstrating
compliance by the Credit Parties with the financial covenants contained in
Section 7.2 of the Related Credit Agreement as of the end of the fiscal
period referred to above.
b. No Default or Event of Default has occurred under the Credit
Agreement(1).
c. The quarterly financial statements which accompany this certificate
fairly present in all material respects the financial condition of the
Credit Parties, on a consolidated basis, and have been prepared in
accordance with GAAP, subject to changes resulting from normal year-end
audit adjustments.
This ______ day of ___________, 19__.
HIGHWOODS PROPERTIES, INC.,
sole general partner of Highwoods/Forsyth
Limited Partnership
By:_________________________________
Name:_______________________________
Title: Chief Financial Officer
- -----------------
(1) If a Default or Event of Default shall have occurred an explanation of such
Default or Event of Default shall be provided on a separate page together
with an explanation of the action taken or proposed to be taken by the
Credit Parties with respect thereto.
<PAGE>
Exhibit 7.16
FORM OF JOINDER AGREEMENT
THIS JOINDER AGREEMENT (this "Agreement"), dated as of _____________, 199_,
is entered into between _____________________, a ___________________ (the "New
Subsidiary") and NATIONSBANK, N.A., in its capacity as Agent (the "Agent") under
that certain Credit Agreement, dated as of December 15, 1997, among
Highwoods/Forsyth Limited Partnership (the "Borrower"), Highwoods Properties,
Inc., the Subsidiaries of the Borrower and Highwoods Properties, Inc., the
Lenders party thereto and the Agent (as the same may be amended, modified,
extended or restated from time to time, the "Credit Agreement"). All capitalized
terms used herein and not otherwise defined shall have the meanings set forth in
the Credit Agreement.
The New Subsidiary and the Agent, for the benefit of the Lenders, hereby
agree as follows:
1. The New Subsidiary hereby acknowledges, agrees and confirms that, by its
execution of this Agreement, the New Subsidiary will be deemed to be a Credit
Party under the Credit Agreement and a "Guarantor" for all purposes of the
Credit Agreement and shall have all of the obligations of a Guarantor thereunder
as if it had executed the Credit Agreement. The New Subsidiary hereby ratifies,
as of the date hereof, and agrees to be bound by, all of the terms, provisions
and conditions contained in the Credit Agreement, including without limitation
(a) all of the representations and warranties of the Credit Parties set forth in
Section 6 of the Credit Agreement, (b) all of the affirmative and negative
covenants set forth in Sections 7 and 8 of the Credit Agreement and (c) all of
the guaranty obligations set forth in Section 4 of the Credit Agreement. Without
limiting the generality of the foregoing terms of this paragraph 1, the New
Subsidiary, subject to the limitations set forth in Section 4.7 of the Credit
Agreement, hereby guarantees, jointly and severally with the other Guarantors,
to the Agent and the Lenders, as provided in Section 4 of the Credit Agreement,
the prompt payment and performance of the Credit Party Obligations in full when
due (whether at stated maturity, as a mandatory prepayment, by acceleration or
otherwise) strictly in accordance with the terms thereof and agrees that if any
of the Credit Party Obligations are not paid or performed in full when due
(whether at stated maturity, as a mandatory prepayment, by acceleration or
otherwise), the New Subsidiary will, jointly and severally together with the
other Guarantors, promptly pay and perform the same, without any demand or
notice whatsoever, and that in the case of any extension of time of payment or
renewal of any of the Credit Party Obligations, the same will be promptly paid
in full when due (whether at extended maturity, as a mandatory prepayment, by
acceleration or otherwise) in accordance with the terms of such extension or
renewal.
2. The address of the New Subsidiary for purposes of Section 11.1 of the
Credit Agreement is as follows:
____________________________
____________________________
____________________________
____________________________
<PAGE>
3. The New Subsidiary hereby waives acceptance by the Agent and the Lenders
of the guaranty by the New Subsidiary under the Credit Agreement upon the
execution of this Agreement by the New Subsidiary.
4. This Agreement may be executed in any number of counterparts, each of
which when so executed and delivered shall be an original, but all of which
shall constitute one and the same instrument.
5. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF NORTH CAROLINA.
IN WITNESS WHEREOF, the New Subsidiary has caused this Agreement to be duly
executed by its authorized officer, and the Agent, for the benefit of the
Lenders, has caused the same to be accepted by its authorized officer, as of the
day and year first above written.
[NEW SUBSIDIARY]
By:___________________________
Name:_________________________
Title:________________________
Acknowledged and accepted:
NATIONSBANK, N.A., as Agent
By:___________________________
Name:_________________________
Title:________________________
<PAGE>
Exhibit 11.3
FORM OF
ASSIGNMENT AGREEMENT
Reference is made to that certain Credit Agreement dated as of December 15,
1997 (as the same may be amended, modified, extended or restated from time to
time, the "Credit Agreement") among Highwoods/Forsyth Limited Partnership (the
"Borrower"), Highwoods Properties, Inc., the Subsidiaries of the Borrower and
Highwoods Properties, Inc. the Lenders identified therein and NationsBank, N.A.,
as Agent. All capitalized terms used herein and not otherwise defined shall have
the meanings set forth in the Agreement.
1. The Assignor (as defined below) hereby sells and assigns, without
recourse, to the Assignee (as defined below), and the Assignee hereby purchases
and assumes, without recourse, from the Assignor, effective as of effective date
of the assignment as designated below (the "Effective Date"), the interests set
forth below (the "Assigned Interest") in the Assignor's rights and obligations
under the Credit Agreement, including, without limitation, (a) the interests set
forth below in the Revolving Loan Commitment Percentage of the Assignor on the
Effective Date and (b) the Loans owing to the Assignor in connection with the
Assigned Interest which are outstanding on the Effective Date. The purchase of
the Assigned Interest shall be at par and periodic payments made with respect to
the Assigned Interest which (i) accrued prior to the Effective Date shall be
remitted to the Assignor and (ii) accrue from and after the Effective Date shall
be remitted to the Assignee. From and after the Effective Date, the Assignee, if
it is not already a Lender under the Credit Agreement, shall become a "Lender"
for all purposes of the Credit Agreement and the other Credit Documents and, to
the extent of such assignment, the assigning Lender shall be relieved of its
obligations under the Credit Agreement.
2. The Assignor represents and warrants to the Assignee that it is the
holder of the Assigned Interest and the Loans related thereto and it has not
previously transferred or encumbered such Assigned Interest or Loans.
3. The Assignee represents and warrants to the Assignor that it is an
Eligible Assignee.
4. This Assignment shall be effective only upon (a) to the extent required,
the consent of the Agent under Section 11.3(b) of the Credit Agreement and (b)
delivery to the Agent of this Assignment Agreement together with the transfer
fees, if applicable, set forth in Section 11.3(b) of the Credit Agreement.
5. The Assignor and the Assignee confirm to and agree with each other and
the other parties to the Credit Agreement as to the terms set forth in paragraph
2 of Section 11.3(b) of the Credit Agreement.
6. This Assignment shall be governed by and construed in accordance with
the laws of the State of North Carolina.
<PAGE>
7. Terms of Assignment
(a) Date of Assignment _________________
(b) Legal Name of Assignor _________________
(c) Legal Name of Assignee _________________
(d) Effective Date of Assignment _________________
(e) Revolving Loan Commitment
Percentage assigned _________________
(f) Total Revolving Loans
outstanding as of Effective Date $_________________
(g) Principal Amount of Revolving
Loans assigned on Effective Date
(the amount set forth in (f)
multiplied by the
percentage set forth in (e)) $_________________
(h) Revolving Committed
Amount $_________________
(i) Principal Amount of Revolving
Committed Amount Assigned on the
Effective Date (the amount set forth
in (h) multiplied by
the percentage set forth in (e)) $_________________
<PAGE>
The terms set forth above
are hereby agreed to:
_______________________, as Assignor
By:____________________________________
Name:__________________________________
Title:_________________________________
____________________, as Assignee
By:____________________________________
Name:__________________________________
Title:_________________________________
CONSENTED TO (if applicable):
NATIONSBANK, N.A., as Agent
By:____________________________________
Name:__________________________________
Title:_________________________________
Exhibit 4.16
Agreement to Furnish Certain Instruments Defining the Rights of Long-Term
Debt Holders.
The Company hereby agrees to furnish, upon request, any and all instruments
defining the rights of long-term debt holders not contained as an exhibit to
this Form 10-K.
HIGHWOODS PROPERTIES, INC.
1997 PERFORMANCE AWARD PLAN
SECTION 1. GENERAL PURPOSE OF THE PLAN: DEFINITIONS
The name of the plan is the Highwoods Properties, Inc. 1997 Performance
Award Plan (the APlan"). The purpose of the Plan is to encourage and enable the
officers and employees of Highwoods Properties, Inc. (the ACompany") and its
Subsidiaries upon whose judgement, initiative and efforts the Company largely
depends for the successful conduct of its business to acquire and/or increase
their proprietary interests in the Company. It is anticipated that such persons
having a direct stake in the Company=s welfare, including the ability to receive
rights similar to dividends as provided under the terms hereof, will assure a
closer identification of their interests with those of the Company and its
shareholders, thereby stimulating their efforts on the Company=s behalf and
strengthening their desire to remain with the Company.
The following terms shall be defined as set forth below:
"ACT" means the Securities Exchange Act of 1934, as amended.
"AGREEMENT" shall mean the written agreement evidencing an Award
hereunder between the Company and the recipient of such Award.
"APPLICABLE STOCK OPTION" is defined at Section 5(b)(i).
"AWARD" or "AWARDS" means a grant of a DER Award.
"ABOARD" means the Board of Directors of the Company.
"CAUSE" means and shall be limited to a vote of the Board resolving
that the participant should be dismissed as a result of (i) any material breach
by the participant of any agreement to which the participant and the Company are
parties, (ii) any act (other than retirement) or omission to act by the
participant which may have a material and adverse effect on the business of the
Company or any Subsidiary or on the participant=s ability to perform services
for the Company or any Subsidiary, including, without limitation, the commission
of any crime (other than ordinary traffic violations), or (iii) any material
misconduct or neglect of duties by the participant in connection with the
business or affairs of the Company or any Subsidiary.
"CHANGE OF CONTROL" is defined in Section 10.
"CODE" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
"COMMITTEE" means the Board or any Committee of the Board referred to
in Section 2.
<PAGE>
"DIVIDEND EQUIVALENT RIGHTS AWARD" OR ADER AWARD" or APERFORMANCE
AWARD" shall mean a right, contingent upon the attainment of specified
Performance Measures within a specified Performance Period, to receive a
reduction in the exercise price of the Applicable Stock Option.
"DISABILITY" means disability as set forth in Section 22(e)(3) of the
Code.
"EFFECTIVE DATE" means April 29, 1997, the date on which the Plan was
approved by the Board.
"FAIR MARKET VALUE" on any given date means the last reported sale
price at which the Shares are traded on such date or, if no Shares are traded on
such date, on the next most recent date on which the Shares were traded, as
reflected on the New York Stock Exchange or, if applicable, any other national
stock exchange on which the Shares are traded.
"NON-EMPLOYEE DIRECTOR" means a director who qualified as such under
Rule 16b-3(b)(3) promulgated under the Act or any successor definition under the
Act.
"OPTION" or ASTOCK OPTION" means any option to purchase Shares granted
pursuant to the Amended and Restated 1994 Stock Option Plan of the Company (the
AStock Option Plan").
"PERFORMANCE MEASURES" shall mean the criteria and objectives,
established by the Committee, which shall be satisfied or met during the
applicable Performance Period as a condition to the holder=s receipt of the DER
Award. Such criteria and objectives may include, without limitation, one or more
of the following: the attainment by a Share of a specified Fair Market Value for
a specified period of time, earnings per share, Shareholder Return (including
dividends), return on equity, earnings of the Company, revenues, market share,
funds from operations, cash flow or cost reduction goals, or any combination of
the foregoing. The Committee may, in its sole discretion, amend or adjust the
Performance Measures or other terms and conditions of an outstanding award in
recognition of unusual or nonrecurring events affecting the Company or its
financial statements or changes in law or accounting principles. If the
Committee consists solely of Aoutside directors" (within the meaning of Section
162(m) of the Code and the regulations promulgated thereunder) and the Committee
desires that compensation payable pursuant to any award subject to Performance
Measures shall be Aqualified performance-based compensation" within the meaning
of Section 162(m) of the Code, the Performance Measures (i) shall be established
by the Committee no later than the end of the first quarter of the Performance
Period, as applicable (or such other time permitted pursuant to Treasury
Regulations promulgated under Section 162(m) of the Code or otherwise permitted
by the Internal Revenue Service) and (ii) shall satisfy all other applicable
requirements imposed under Treasury Regulations promulgated under Section 162(m)
of the Code, including the requirement that such Performance Measures be stated
in terms of an objective formula or standard.
"PERFORMANCE PERIOD" shall mean any period designated by the Committee
for which the Performance Measures shall be calculated.
"SHARE" or "SHARES" means one or more, respectively, of the Company=s
shares of common stock, par value $.01 per share, subject to adjustments
pursuant to Section 3.
<PAGE>
"SHAREHOLDER RETURN" shall mean the per annum compounded rate of
increase in the Fair Market Value of an investment in a Share on the first day
of the Performance Period (assuming purchase of the Share at its Fair Market
Value on such day) through the last day of the Performance Period, plus all
dividends or distributions paid with respect to such Share during the
Performance Period, and assuming reinvestment in Shares of all such dividends
and distributions, adjusted to give effect to Section 3 of this Plan.
"SUBSIDIARY" means Highwoods/Forsyth Limited Partnership and any
corporation or other entity (other than the Company) in any unbroken chain of
corporations or other entities, beginning with the Company, if each of the
corporations or entities (other than the last corporation or entity in the
unbroken chain) owns stock or other interests possessing 50% or more of the
economic interest or the total combined voting power of all classes of stock or
other interests in one of the other corporations or entities in the chain.
SECTION 2. ADMINISTRATION OF PLAN: COMMITTEE AUTHORITY TO SELECT PARTICIPANTS
AND DETERMINE AWARDS
(a) COMMITTEE. The Plan shall be administered by the executive
compensation committee of the Board, or any other committee of not less than two
Non-Employee Directors performing similar functions, as appointed by the Board
from time to time. Only Non-Employee Directors may vote with respect to
transactions involving an Award.
(b) POWERS OF COMMITTEE. The Committee shall have the power and
authority to grant Awards consistent with the terms of the Plan, including the
power and authority:
(i) to select participants to whom Awards may be granted from
time to time;
(ii) to determine the time or times of a grant of an Award;
(iii) to determine the number of Shares to be covered by an
Award;
(iv) to determine and modify the terms and conditions,
including restrictions, not inconsistent with the terms of the Plan, of any
Award, which terms and conditions may differ among individual Awards and
participants, and to approve the form of written instruments evidencing the
Awards;
(v) to accelerate the exercisability or vesting of all or any
portion of any Award;
(vi) to extend the period in which an Award may be settled;
(vii) to determine whether, to what extent, and under what
circumstances amounts payable with respect to an Award shall be
deferred, whether automatically or at the election of the participant,
and whether and to what extent the Company shall pay or credit amounts
constituting dividends or deemed dividends on such deferrals; and
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<PAGE>
(viii) to adopt, alter and repeal such rules, guidelines and
practices for administration of the Plan and for its own acts and
proceedings as it shall deem advisable; to interpret the terms and
provisions of the Plan and any Awards (including related written
instruments); to make all determinations it deems advisable for the
administration of the Plan; to decide all disputes arising in
connection with the Plan; and to otherwise supervise the administration
of the Plan.
All decisions and interpretations of the Committee shall be binding on
all persons, including the Company and Plan participants
SECTION 3. MERGERS; SUBSTITUTIONS
STOCK DIVIDENDS, MERGERS, ETC. In the event of any stock split, stock
dividend, recapitalization, reorganization, merger, consolidation, combination,
exchange of shares, liquidation, spin-off or other similar change in
capitalization or similar dividend, the terms of each outstanding DER Award
shall be appropriately adjusted by the Committee. The decision of the Committee
regarding any such adjustment shall be final, binding and conclusive.
SECTION 4. ELIGIBILITY
Participants in the Plan will be such full or part-time officers and
other employees of the Company and its Subsidiaries who are responsible for or
contribute to the management, growth, or profitability of the Company and its
Subsidiaries and who are selected from time to time by the Committee, in its
sole discretion.
SECTION 5. DIVIDEND EQUIVALENT RIGHTS
(a) DIVIDEND EQUIVALENT RIGHTS. The Committee may, in its discretion,
grant DER Awards to such eligible persons as may be selected by the Committee.
(b) TERMS OF DER AWARDS. DER Awards shall be subject to the following
terms and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of this Plan, as the Committee shall in its
discretion deem advisable.
(i) GRANT OF DER AWARDS. A DER Award may be granted only in
tandem with a Stock Option (the AApplicable Stock Option") which is
being or was granted under the Stock Option Plan, such Stock Option to
be so designated by the Committee. The Performance Period and
Performance Measure of a DER Award also shall be as designated by the
Committee.
(ii) VESTING AND FORFEITURE. The Agreement relating to a DER
Award shall provide, in the manner determined by the Committee in its
discretion and subject to the provisions of this Plan, for the vesting
of such award if specified Performance Measure(s) are satisfied
4
<PAGE>
or met during the specified Performance Period, and for the forfeiture
of such award if specified Performance Measure(s) are not satisfied or
met during the specified Performance Period. (iii) SETTLEMENT OF VESTED
PERFORMANCE AWARDS. Vested DER Awards shall be settled as a reduction
in the exercise price of the Applicable Stock Option upon the
expiration of the Performance Period at any time prior to the
expiration of the Applicable Stock Option. The amount of the settlement
shall be a portion, as determined in the applicable Agreement, of the
sum (without interest or compounding) of all dividends and
distributions per Share (subject to adjustment as provided in Section
3) during the Performance Period and thereafter through any subsequent
exercise of Applicable Stock Options, multiplied by the number of such
Shares purchased upon such exercise. Except to the extent otherwise
provided in the Agreement relating to a Performance Award, in the event
of a Change of Control the Performance Period shall expire and the
Performance Measure shall be computed through such date and the
applicable DER Award shall forthwith be settled in cash on the date of
such Change of Control or, if later, upon exercise of the Applicable
Stock Options.
(c) TERMINATION OF EMPLOYMENT OR SERVICE.
(a) DISABILITY, DEATH AND INVOLUNTARY TERMINATION WITHOUT
CAUSE. Except to the extent otherwise set forth in the Agreement
relating to a DER Award, if the employment of the holder of a DER Award
is terminated by reason of Disability, death or involuntary termination
by the Company without Cause, the Performance Period with respect to
such DER Award shall terminate and the Performance Measure shall be
computed through such date and the applicable DER Award shall be
settled as described in Section 5(b)(iii) as soon as practicable within
10 days thereafter, or if later, upon exercise of the Applicable Stock
Option.
(b) OTHER TERMINATION. Except to the extent otherwise set
forth in the Agreement relating to a DER Award, if the holder=s
employment with the Company terminates for any reason other than
Disability, death, or involuntary termination by the Company without
Cause, then the Performance Period for such DER Award shall be deemed
to end on the date of such termination, no Performance Measure shall be
recognized or deemed attained, satisfied or met, and the holder=s DER
Award shall be forfeited to and canceled by the Company.
SECTION 6. TAX WITHHOLDING
(a) PAYMENT BY PARTICIPANT. Each participant shall, no later than the
date as of which the value of an Award or amounts received thereunder first
becomes includable in the gross income of the participant for federal income tax
purposes, pay to the Company, or make arrangements satisfactory to the Committee
regarding payment of any federal, state, or local taxes of any kind required by
law to be withheld with respect to such income. The Company and its Subsidiaries
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind
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<PAGE>
otherwise due to the participant and to require payment by the participant of
any taxes required to be withheld, prior to the delivery of any Shares upon the
exercise of an Applicable Stock Option.
(b) PAYMENT IN SHARES. A participant may elect to have such tax
withholding obligation satisfied, in whole or in part, by (i) authorizing the
Company to withhold from the Shares to be issued pursuant to an exercise of an
Applicable Stock Option a number of Shares with an aggregate Fair Market Value
(as of the date the withholding is effected) that would satisfy the withholding
amount due, or (ii) transferring to the Company Shares owned by the participant
with an aggregate Fair Market Value (as of the date the withholding is effected)
that would satisfy the withholding amount due.
SECTION 7. TRANSFER, LEAVE OF ABSENCE, ETC.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer to the employment of the Company from a Subsidiary or from
the Company to a Subsidiary, or from one Subsidiary to another; or
(b) an approved leave of absence for military service or sickness, or for
any other purposes approved by the Company, if the employee's right to
re-employment is guaranteed either by a statute or by contract or under the
policy pursuant to which the leave of absence was granted or if the Committee
otherwise so provides in writing.
SECTION 8. AMENDMENTS AND TERMINATION
The Board may, at any time, amend or discontinue the Plan and the
Committee may, at any time, amend or cancel any outstanding Award for the
purpose of satisfying changes in law without the Holder=s consent. No amendment,
however, may impair the rights of a holder of an outstanding Award without the
consent of such holder.
SECTION 9. STATUS OF PLAN
With respect to the portion of any Award which has not been exercised
and any payments of consideration not received by a participant, a participant
shall have no rights greater than those of a general creditor of the Company
unless the Committee shall otherwise expressly determine in connection with any
Award or Awards. In its sole discretion, the Committee may authorize the
creation of trusts or other arrangements to meet the Company's obligations to
deliver Shares or make payments with respect to Awards hereunder, provided that
the existence of such trusts or other arrangements is consistent with the
provisions of the foregoing sentence.
SECTION 10. CHANGE OF CONTROL PROVISIONS
Upon the occurrence of a Change of Control as defined in this Section
10:
6
<PAGE>
(a) The Performance Period for DER Awards will expire and the
Performance Measures will be computed through the date of such change of control
and the applicable Award will be settled in cash on the date of such change in
control or, if later, upon exercise of the Applicable Stock Options.
(b) "CHANGE OF CONTROL" shall mean the occurrence of any one of the
following events:
(i) any "PERSON," as such term is used in Section 13(d) and
14(d) of the Act (other than the Company, any of its Subsidiaries, any
trustee, fiduciary or other person or entity holding securities under
any employee benefit plan of the Company or any of its Subsidiaries),
together with all "affiliates" and "associates" (as such terms are
defined in Rule 12b-2 under the Act) of such person, shall become the
"beneficial owner" (as such term is defined in Rule 13d-3 under the
Act), directly or indirectly, of securities of the Company representing
40% or more of either (A) the combined voting power of the Company's
then outstanding securities having the right to vote in an election of
the Company's Board of Directors ("Voting Securities") or (B) the then
outstanding Shares of the Company (in either such case other than as a
result of acquisition of securities directly from the Company); or
(ii) persons who, as of May 1, 1994, constitute the Company's
Board of Directors (the "Incumbent Directors") cease for any reason,
including, without limitation, as a result of a tender offer, proxy
contest, merger or similar transaction, to constitute at least a
majority of the Board, provided that any person becoming a director of
the Company subsequent to May 1, 1994 whose election or nomination for
election was approved by a vote of at least a majority of the Incumbent
Directors shall, for purposes of this Plan, be considered an Incumbent
Director; or
(iii) the stockholders of the Company shall approve (A) any
consolidation or merger of the Company or any Subsidiary where the
stockholders of the Company, immediately prior to the consolidation or
merger, would not, immediately after the consolidation or merger,
beneficially own (as such term is defined in Rule 13d-3 under the Act),
directly or indirectly, shares representing in the aggregate 50% of the
voting shares of the corporation issuing cash or securities in the
consolidation or merger (or of its ultimate parent corporation, if
any), (B) any sale, lease, exchange or other transfer (in one
transaction or a series of transactions contemplated or arranged by an
party as a single plan) of all or substantially all of the assets of
the Company or (C) any plan or proposal for the liquidation or
dissolution of the Company.
Notwithstanding the foregoing, a "Change of Control" shall not be
deemed to have occurred for purposes of the foregoing clause (i) solely as the
result of an acquisition of securities by the Company which, by reducing the
number of Shares or other voting securities outstanding, increases (x) the
proportionate number of Shares beneficially owned by any person to 40% or more
of the Shares then outstanding or (y) the proportionate voting power represented
by the voting securities beneficially owned by any person to 40% or more of the
combined voting power of all then outstanding voting securities; PROVIDED,
HOWEVER, that if any person referred to in clause (x) or (y)
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<PAGE>
of this sentence
shall thereafter become the beneficial owner of any additional Shares or other
voting securities (other than pursuant to a stock split, stock dividend, or
similar transaction), then a "Change of Control" shall be deemed to have
occurred for purposes of the foregoing clause (i).
SECTION 11. EFFECTIVE DATE OF PLAN
This Plan became effective on April 29, 1997 upon approval by the Board.
SECTION 12. GOVERNING LAW
This Plan shall be governed by North Carolina law except to the extent such law
is preempted by federal law.
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
1997 UNIT OPTION PLAN
SECTION 1. GENERAL PURPOSE OF THE PLAN: DEFINITIONS
The name of the plan is the Highwoods/Forsyth Limited Partnership 1997
Unit Option Plan (the "Plan"). The purpose of the Plan is to supplement the
Amended and Restated 1994 Stock Option Plan of Highwoods Properties, Inc. (the
"Company") and thereby encourage and enable the officers, employees, independent
contractors and directors of Highwoods Properties, Inc. (the "Company") and its
Subsidiaries, including Highwoods/Forsyth Limited Partnership (the
"Partnership") upon whose judgment, initiative and efforts the Company largely
depends for the successful conduct of its business to acquire a proprietary
interest in the Partnership. Providing such persons with a direct stake in the
Company's welfare through awards of Units, as defined below, in the Partnership
will assure a closer identification of their interests with those of the
Company, thereby stimulating their efforts on the Company's behalf and
strengthening their desire to remain with the Company.
The following terms shall be defined as set forth below:
"ACT" means the Securities Exchange Act of 1934, as amended.
"AWARD" or "AWARDS", except where referring to a particular grant under
the Plan, shall include Unit Option, Unit Appreciation Right, Phantom Unit and
Restricted Unit Awards.
"BOARD" means the Board of Directors of the Company.
"CAUSE" means and shall be limited to a vote of the Board resolving
that the participant should be dismissed as a result of (i) any material breach
by the participant of any agreement to which the participant and the Company are
parties, (ii) any act (other than retirement) or omission to act by the
participant which may have a material and adverse effect on the business of the
Company or any Subsidiary or on the participant's ability to perform services
for the Company or any Subsidiary, including, without limitation, the commission
of any crime (other than ordinary traffic violations), or (iii) any material
misconduct or neglect of duties by the participant in connection with the
business or affairs of the Company or any Subsidiary.
"CHANGE OF CONTROL" is defined in Section 13.
"CODE" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
"COMMITTEE" means the Board or any Committee of the Board referred to
in Section 2.
"DISABILITY" means disability as set forth in Section 22(e)(3) of the
Code.
"EFFECTIVE DATE" means the date on which the Plan is approved by the
Board of Directors of the Company in its capacity as general partner of the
Partnership.
<PAGE>
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the related rules, regulations and interpretations.
"FAIR MARKET VALUE" on any given date means the last reported sale
price at which the Shares are traded on such date or, if no Shares are traded on
such date, the most recent date on which the Shares were traded, as reflected on
the New York Stock Exchange or, if applicable, any other national stock exchange
on which the Shares are traded.
"GENERAL PARTNER" means the Company in its capacity as the general
partner of the Partnership.
"INDEPENDENT DIRECTOR" means a member of the Board who is not also an
employee of the Company or any Subsidiary. A director emeritus shall not be
considered as an active Board member for purposes of this definition.
"NON-EMPLOYEE DIRECTOR" means a director who qualifies as such under
Rule 16b-3(b)(3) promulgated under the Act or any successor definition under the
Act.
"OPTION" OR "UNIT OPTION" means any option to purchase Units granted
pursuant to Section 5.
"PHANTOM UNIT" means Awards granted pursuant to Section 8.
"RESTRICTED UNIT AWARD" means Awards granted pursuant to Section 7.
"RESTRICTED UNITS" means Units subject to restrictions as provided in
Section 7 and the subject of a Restricted Stock Award.
"SHARE" means one or more, respectively, of the Company's shares of
common stock, par value $.01 per share, subject to adjustments pursuant to
Section 3.
"SUBSIDIARY" means the Partnership, Highwoods Services, Inc. and any
corporation or other entity (other than the Company) in any unbroken chain of
corporations or other entities, beginning with the Company, if each of the
corporations or entities (other than the last corporation or entity in the
unbroken chain) owns stock or other interests possessing 50% or more of the
economic interest or the total combined voting power of all classes of stock or
other interests in one of the other corporations or entities in the chain.
"UNIT" means one of the Class A common ownership interests in the
Partnership as defined in and subject to the provisions of the First Amended and
Restated Agreement of Limited Partnership of the Partnership (the "Partnership
Agreement"), except that Units to be awarded hereby or to be received upon the
exercise of Unit Options shall not be redeemable for Shares as allowed by
Section 8.6 of the Partnership Agreement unless and until such action is
permitted by applicable state and federal securities laws and the rules and
regulations of the applicable securities exchange.
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"UNIT APPRECIATION RIGHTS" ("UAR") means Awards granted pursuant to
Section 6.
SECTION 2. ADMINISTRATION OF PLAN: COMMITTEE AUTHORITY TO SELECT PARTICIPANTS
AND DETERMINE AWARDS
(a) COMMITTEE. Except as set forth in Section 2(c), the Plan
shall be administered by the executive compensation committee of the
Board of the General Partner, or any other committee of not less than
two Non-Employee Directors performing similar functions, as appointed
by the Board from time to time. Only Non-Employee Directors may vote
with respect to transactions involving an Award or other acquisition of
Units from the Partnership.
(b) POWERS OF COMMITTEE. The Committee shall have the power
and authority to grant Awards consistent with the terms of the Plan,
including the power and authority:
(i) to select participants to whom Awards may be
granted from time to time;
(ii) to determine the time or times of grant, and the
extent of Awards, or any combination of Awards, granted to any
one or more participants;
(iii) to determine the number of Units to be covered
by any Award;
(iv) to determine and modify the terms and
conditions, including restrictions, not inconsistent with the
terms of the Plan, of any Award, which terms and conditions
may differ among individual Awards and participants, and to
approve the form of written instruments evidencing the Awards
provided, however that in no event shall the Committee take
any action in furtherance hereof which shall reduce or delay
the realization of the economic benefit accruing to any
grantee of any Award upon the occurrence of an event described
in this Section 3(b);
(v) to accelerate the exercisability or vesting of
all or any portion of any Award;
(vi) subject to the provisions of Section 5(a)(iii),
to extend the period in which Unit Options may be exercised;
(vii) to determine whether, to what extent, and under
what circumstances Units and other amounts payable with
respect to an Award shall be deferred either automatically or
at the election of the participant and whether and to what
extent the Company shall pay or credit amounts constituting
interest (at rates determined by the Committee) or dividends
or deemed dividends on such deferrals; and
(viii) to adopt, alter and repeal such rules,
guidelines and practices for administration of the Plan and
for its own acts and proceedings as it shall deem
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advisable; to interpret the terms and provisions of the Plan
and any Awards (including related written instruments); to
make all determinations it deems advisable for the
administration of the Plan; to decide all disputes arising in
connection with the Plan; and to otherwise supervise the
administration of the Plan.
All decisions and interpretations of the Committee shall be
binding on all persons, including the Company, the Partnership and Plan
participants.
SECTION 3. UNITS AVAILABLE UNDER THE PLAN; MERGERS; SUBSTITUTIONS
(a) UNITS ISSUABLE. The maximum number of Units reserved and available
for issuance under the Plan shall be 1,500,000 Units. For purposes of this
limitation, the Units underlying any Awards which are forfeited, canceled,
reacquired by the Partnership, satisfied without the issuance of Units or
otherwise terminated (other than by exercise) shall be added back to the Units
available for issuance under the Plan so long as the participants to whom such
Awards had been previously granted received no benefits of ownership of the
underlying Units to which the Award related. Subject to such overall limitation,
Units may be issued up to such maximum number pursuant to any type or types of
Award.
(b) STOCK DIVIDENDS, MERGERS, ETC. In the event of a stock dividend,
stock split or similar change in capitalization affecting the Shares, the
Committee shall make appropriate adjustments in (i) the number and kind of Units
on which Awards may thereafter be granted, (ii) the number and kind of Units
remaining subject to outstanding Awards, and (iii) the option or purchase price
in respect of such Units. Except as otherwise provided in any applicable
severance or employment agreement with any grantee hereunder, in the event of
any merger, consolidation, dissolution or liquidation of the Company, the
Committee in its sole discretion shall, as to any outstanding Awards, make such
substitution or adjustment in the aggregate number of Units reserved for
issuance under the Plan and the number and purchase price (if any) of Units
subject to such Awards as it may determine and as may be permitted by the terms
of such transaction, or amend or terminate such Awards upon such terms and
conditions as it shall provide (which, in the case of the termination of or
modification relating to the vested portion of any Award, shall require payment
or other consideration which the Committee deems equitable in the
circumstances), provided, however that in no event shall the Committee take any
action in furtherance hereof which shall reduce or delay the realization of the
economic benefit accruing to any grantee of any Award upon the occurrence of an
event described in this Section 3(b).
(c) SUBSTITUTE AWARDS. The Committee may grant Awards under the Plan in
substitution for stock and stock-based awards held by employees of another
corporation who concurrently become employees of the Company or a Subsidiary as
the result of a merger or consolidation of the employing corporation with the
Company or a Subsidiary or the acquisition by the Company or a Subsidiary of
property or stock of the employing corporation. The Committee may direct that
the substitute awards be granted on such terms and conditions as the Committee
considers appropriate in the circumstances.
SECTION 4. ELIGIBILITY
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Participants in the Plan will be such directors, full or part-time
officers and other employees and independent contractors of the Company and its
Subsidiaries who are responsible for or contribute to the management, growth, or
profitability of the Company and its Subsidiaries and who are selected from time
to time by the Committee, in its sole discretion.
SECTION 5. UNIT OPTIONS
Any Unit Option granted under the Plan shall be in such form as the
Committee may from time to time approve.
(a) Unit Options Granted to Employees. The Committee in its discretion
may grant Unit Options to employees of the Company or any Subsidiary or
independent contractors engaged by the Company or its Subsidiaries. Unit Options
granted pursuant to this Section 5(a) shall be subject to the following terms
and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable:
(i) Exercise Price. The exercise price per Unit for the Units
covered by a Unit Option granted pursuant to this Section 5(a) shall be
determined by the Committee at the time of grant but shall not be less
than 25% of the Fair Market Value on the date of grant.
(ii) Option Term. The term of each Unit Option shall be fixed
by the Committee.
(iii) Exercisability; Rights of a Unitholder. Unit Options
shall become vested and exercisable at such time or times, whether or
not in installments, as shall be determined by the Committee at the
grant date. The Committee may at any time accelerate the exercisability
of all or any portion of any Unit Option. An optionee shall have the
rights of a unitholder only as to Units acquired upon the exercise of a
Unit Option and not as to unexercised Unit Options.
(iv) Method of Exercise. Unit Options may be exercised in
whole or in part, by giving written notice of exercise to the Company
as General Partner in the Partnership, specifying the number of Shares
to be purchased. Payment of the purchase price may be made by one or
more of the following methods or by such other method as the Committee
may allow:
(A) In cash, by certified or bank check or other
instrument acceptable to the Committee;
(B) In the form of Shares or Units that are not then
subject to restrictions under any Company plan and that have
been held by the optionee for at least six months, if
permitted by the Committee in its discretion. Such surrendered
Shares or Units shall be valued at Fair Market Value on the
exercise date; or
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(v) Admission to the Partnership. The delivery of an amendment
to the Partnership Agreement admitting the optionee as a partner
pursuant to the exercise of a Unit Option will be contingent upon
receipt from the optionee of the full purchase price for such Units and
the fulfillment of any other requirements contained in the Unit Option
grant or applicable provisions or laws and an agreement to be bound by
the terms and conditions of the Partnership Agreement.
(vi) Non-transferability of Options. No Unit Option shall be
transferable by the optionee otherwise than by will or by the laws of
descent and distribution and all Unit Options shall be exercisable,
during the optionee's lifetime, only by the optionee.
(vii) Termination by Reason of Death. If any optionee's
employment by the Company and its Subsidiaries terminates by reason of
death, the Unit Option may thereafter be exercised, to the extent
exercisable at the date of death, by the legal representative or
legatee of the optionee, for a period of six months (or such longer
periods as the Committee shall specify at any time) from the date of
death, or until the expiration of the stated term of the Option, if
earlier.
(viii) Termination by Reason of Disability.
(A) Any Unit Option held by an optionee whose
employment by the Company and its Subsidiaries has terminated
by reason of Disability may thereafter be exercised, to the
extent it was exercisable at the time of such termination, for
a period of six months (or such longer period as the Committee
shall specify at any time) from the date of such termination
of employment, or until the expiration of the stated term of
the Option, if earlier.
(B) The Committee shall have sole authority and
discretion to determine whether a participant's employment has
been terminated by reason of Disability.
(C) Except as otherwise provided by the Committee at
the time of grant, the death of an optionee during a period
provided in this Section 5(a)(viii) for the exercise of a Unit
Option, shall extend such period of six months from the date
of death, subject to termination on the expiration of the
stated term of the Option, if earlier.
(ix) Termination for Cause. If any optionee's employment by
the Company and its Subsidiaries has been terminated for Cause except
as otherwise provided in any applicable severance or employment
agreement with any grantee hereunder, any Unit Option held by such
optionee shall immediately terminate and be of no further force and
effect; provided, however, that the Committee may, in its sole
discretion, provide that such Unit Option can be exercised for a period
of up to 30 days from the date of termination of employment or until
the expiration of the stated term of the Option, if earlier.
(x) Other Termination. Unless otherwise determined by the
Committee or except as
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otherwise provided in any applicable severance or employment agreement
with any grantee hereunder, if an optionee's employment by the Company
and its Subsidiaries terminates for any reason other than death,
Disability, or for Cause, any Unit Option held by such optionee may
thereafter be exercised, to the extent it was exercisable on the date
of termination of employment for three months (or such longer period as
the Committee shall specify at any time) from the date of termination
of employment or until the expiration of the stated term of the Option,
if earlier.
(xi) Units Issued in Settlement. Units issued upon exercise of
a Unit Option shall be free of all restrictions under the Plan, except
as otherwise provided in this Plan.
(b) Unit Options Granted to Independent Directors.
(i) Discretionary Grant of Options. The Committee in its
discretion may grant Unit Options to Independent directors and provide
for an exercise price per Unit for the Units covered by a Unit Option
granted as it establishes in its sole discretion.
(ii) Exercise; Termination; Non-transferability.
(A) Options granted under Section 5(b)(i) may be
exercised at any time and upon such conditions as established
by the Committee.
(B) The rights of an Independent Director in an
Option granted under Section 5(b)(i) shall be as provided or
allowed by the Committee.
(C) No Unit Option granted under this Section 5(b)
shall be transferable by the optionee otherwise than by Will
or by the laws of descent and distribution, and such Options
shall be exercisable, during the optionee's lifetime only by
the optionee. Any Option granted to an Independent Director
pursuant to Section 5(b)(i) and outstanding on the date of his
death may be exercised by the legal representative or legatee
of the optionee for a period of six months from the date of
death or until the expiration of the stated term of the
Option, if earlier.
(D) Options granted under this Section 5(b) may be
exercised only by written notice to the General Partner
specifying the number of Units to be purchased. Payment of the
full purchase price of the Units to be purchased may be made
by one or more of the methods specified in Section 5(a)(iv).
An optionee shall have the rights of a unitholder only as to
Units acquired upon the exercise of an Option and not as to
unexercised Options.
SECTION 6. UNIT APPRECIATION RIGHTS
The Committee may from time to time grant UARs unrelated to Options or
related to Options or portions of Options granted to participants under the
Plan. Each UAR shall be evidenced by a written instrument and shall be subject
to such terms and conditions as the Committee may
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determine. Subject to such terms and conditions established by the Committee,
the participant may exercise a UAR or portion thereof, and thereupon shall be
entitled to receive payment of an amount equal to the aggregate appreciation in
value of the Units as to which the UAR is awarded, as measured by the difference
between the purchase price of such Units and their Fair Market Value at the date
of exercise. Such payments may be made in cash, in Units valued at Fair Market
Value as of the date of exercise, or in any combination thereof, as the
Committee in its discretion shall determine.
SECTION 7. RESTRICTED UNIT AWARDS
(a) Nature of Restricted Unit Award. The Committee may grant Restricted
Unit Awards to any participant under the Plan. A Restricted Unit Award is an
Award entitling the recipient to acquire, at no cost or for a purchase price
determined by the Committee, Units subject to such restrictions and conditions
as the Committee may determine at the time of grant. Conditions may be based on
continuing employment and/or achievement of pre-established performance goals
and objectives.
(b) Acceptance of Award. A participant who is granted a Restricted Unit
Award shall have no rights with respect to such Award unless the participant
shall have accepted the Award within 60 days (or such shorter date as the
Committee may specify) following the award date by making payment to the
Company, if required, by certified or bank check or other instrument or form of
payment acceptable to the Committee in an amount equal to the specified purchase
price, if any, of the Units covered by the Award and by executing and delivering
to the Company a written instrument that sets forth the terms and conditions of
the Restricted Units in such form as the Committee shall determine.
(c) Rights as a Unitholder. Upon complying with Section 7(b) above, a
participant shall have all the rights of a unitholder with respect to the
Restricted Units including voting and distribution rights, subject to
non-transferability restrictions and Company repurchase or forfeiture rights
described in this Section 7 and subject to such conditions contained in the
written instrument evidencing the Restricted Unit Award.
(d) Restrictions. Restricted Units may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of except as
specifically provided herein. In the event of termination of employment by the
Company and its Subsidiaries, or in the case of Independent Directors, an
Independent Director ceases to be a director, for any reason (including death,
retirement, Disability, or for Cause), the Company shall have the right, at the
discretion of the Committee, to repurchase at their original purchase price as
established at Section 7(a) above Restricted Units with respect to which
conditions have not lapsed, or except as otherwise provided in any applicable
severance or employment agreement with any grantee hereunder to require
forfeiture of such Units to the Company if acquired at no cost, from the
participant or the participant's legal representative. The Company must exercise
such right of repurchase or forfeiture not later than the 90th day following
such termination of employment (unless otherwise specified in the written
instrument evidencing the Restricted Unit Award).
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(e) Vesting of Restricted Units. Except as otherwise provided in any
applicable severance or employment agreement with any grantee hereunder, the
Committee at the time of grant shall specify the date or dates and/or the
attainment of pre-established performance goals, objectives and other conditions
on which the non-transferability of the Restricted Units and the Company's right
of repurchase or forfeiture shall lapse. Subsequent to such date or dates and/or
the attainment of such pre-established performance goals, objectives and other
conditions, the Units on which all restrictions have lapsed shall no longer be
Restricted Units and shall be deemed "vested."
(F) Waiver, Deferral and Reinvestment of Distributions. The written
instrument evidencing the Restricted Unit Award may require or permit the
immediate payment, waiver, deferral or investment of distributions paid on the
Restricted Units.
SECTION 8. PHANTOM UNITS.
The Committee may from time to time grant Phantom Unit Awards to any
participant under the Plan. Each Phantom Unit Award shall be evidenced by a
written instrument and shall be subject to such terms and conditions as the
Committee may determine. Subject to such terms and conditions as may be
established by the Committee, the participant may exercise a Phantom Unit Award
or portion thereof, and thereupon shall be entitled to receive payment of an
amount equal to the Fair Market Value at the date of exercise of the Units as to
which the Phantom Unit is awarded. Such payments may be made in cash, in Units
valued at Fair Market Value as of the date of exercise, or in any combination
thereof, as the Committee in its discretion shall determine.
SECTION 9. TAX WITHHOLDING
(a) Payment by Participant. Each participant shall, no later than the
date as of which the value of an Award of any Units or other amounts received
thereunder first becomes includable in the gross income of the participant for
federal income tax purposes, pay to the Company, or make arrangements
satisfactory to the Committee regarding payment of any federal, state, or local
taxes of any kind required by law to be withheld with respect to such income.
The Company and its Subsidiaries shall, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due to the
participant.
(b) Payment in Units. A participant may elect to have such tax
withholding obligation satisfied, in whole or in part, by (i) authorizing the
Company to withhold from the Units to be issued pursuant to any Award a number
of Units with an aggregate Fair Market Value (as of the date the withholding is
effected) that would satisfy the withholding amount due, or (ii) transferring to
the Company Units owned by the participant with an aggregate Fair Market Value
(as of the date the withholding is effected) that would satisfy the withholding
amount due. With respect to any participant who is subject to Section 17 of the
Act, the following additional restrictions shall apply:
(A) the election to satisfy tax withholding obligations
relating to an Award in the manner permitted by this Section 9(b) shall
be made either (1) during the period beginning on the third business
day following
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the date of release of quarterly or annual summary statements of
revenues of the Company and ending on the twelfth business day
following such date, or (2) at least six months prior to the date as of
which the receipt of such Award first becomes a taxable event for
federal income tax purposes;
(B) such election shall be irrevocable;
(C) such election shall be subject to the consent or
disapproval of the Committee, and
(D) the Units withheld to satisfy tax withholding must pertain
to an Award which has been outstanding for at least six
months.
SECTION 10. TRANSFER, LEAVE OF ABSENCE, ETC.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer to the employment of the Company from a Subsidiary or
from the Company to a Subsidiary, or from one Subsidiary to another; or
(b) an approved leave of absence for military service or sickness, or
for any other purposes approved by the Company, if the employee's right to
re-employment is guaranteed either by a statute or by contract or under the
policy pursuant to which the leave of absence was granted or if the Committee
otherwise so provides in writing.
SECTION 11. AMENDMENTS AND TERMINATION
The Board may, at any time, amend or discontinue the Plan and the
Committee may, at any time, amend or cancel any outstanding Award (or provide
substitute Awards at the same or reduced exercise or purchase price or with no
exercise or purchase price, but such price, if any, must satisfy the
requirements which would apply to the substitute or amended Award as if it were
then initially granted under this Plan) for the purpose of satisfying changes in
law without the holder's consent, provided, however that in no event shall the
Board or the Committee take any action which shall reduce or delay the
realization of the economic benefit accruing to any grantee of any Award.
SECTION 12. STATUS OF PLAN
With respect to the portion of any Award which has not been exercised
and any payments in cash, Units or other consideration not received by a
participant, a participant shall have no rights greater than those of a general
creditor of the Company unless the Committee shall otherwise expressly determine
in connection with any Award or Awards. In its sole discretion, the Committee
may authorize the creation of trusts or other arrangements to meet the Company's
obligations to deliver Units or make payments with respect to Awards hereunder,
provided that the existence of such trusts or other arrangements is consistent
with the provisions of the foregoing sentence.
SECTION 13. CHANGE OF CONTROL PROVISIONS
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Upon the occurrence of a Change of Control as defined in this Section
13:
(a) Each outstanding Unit Option shall automatically become fully
exercisable notwithstanding any provision to the contrary herein.
(b) Restrictions and conditions on Restricted Unit Awards shall
automatically be deemed waived, and the recipients of such Awards shall
become entitled to receipt of the Units subject to such Awards unless
the Committee shall otherwise expressly provide at the time of grant.
(c) "CHANGE OF CONTROL" shall mean the occurrence of any one of the
following events:
(i) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20% or more of either (a) the then
outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or (b) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally
in the election of directors (the "Outstanding Company Voting
Securities"); provided, however that the following acquisitions shall
not constitute a Chance of Control: (I) any acquisition directly from
the Company (excluding an acquisition by virtue of the exercise of a
conversion privilege), (II) any acquisition by the Company, (III) any
acquisition by any employee benefit plan (or related trust) sponsored
or maintained by the Company or any corporation controlled by the
Company or (IV) any acquisition by any corporation pursuant to a
reorganization, merger or consolidation, if, following such
reorganization, merger or consolidation, the conditions described in
clauses (I), (II) and (III) of subsection (i) of this Section 1(c) are
satisfied; or
(ii) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any individual
becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was approved by
a vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual were a
member of the Incumbent Board, but excluding, for this purpose, any
such individual whose initial assumption of office occurs as a result
of either an actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board; or
(iii) Approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, unless,
following such reorganization, merger or consolidation, (a) more than
60% of, respectively, the then outstanding shares of common stock of
the corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote
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generally in the election of directors is then beneficially owned,
directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such reorganization, merger or
consolidation in substantially the same proportions, as their
ownership, immediately prior to such reorganization, merger or
consolidation, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, (b) no Person (excluding
the Company, any employee benefit plan (or related trust) of the
Company or such corporation resulting from such reorganization, merger
or consolidation and any Person beneficially owning, immediately prior
to such reorganization, merger or consolidation, directly or
indirectly, 20% or more of the Outstanding Company Common Stock or
Outstanding Voting Securities, as the case may be) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then
outstanding shares of common stock of the corporation resulting from
such reorganization, merger or consolidation or the combined voting
power of the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors and (c) at
least a majority of the members of the board of directors of the
corporation resulting from such reorganization, merger or consolidation
were members of the Incumbent Board at the time of the execution of the
initial agreement providing for such reorganization, merger or
consolidation; or
(iv) Approval by the shareholders of the Company of (a) a
complete liquidation or dissolution of the Company or (b) the sale or
other disposition of all or substantially all of the assets of the
Company, other than to a corporation, with respect to which following
such sale or other disposition, (I) more than 60% of, respectively, the
then outstanding shares of common stock of such corporation and the
combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors is
then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were beneficial
owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such sale or
other disposition in substantially the same proportion as their
ownership, immediately prior to such sale or other disposition, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (II) no Person (excluding the Company
and any employee benefit plan (or related trust) of the Company or such
corporation and any Person beneficially owning, immediately prior to
such sale or other disposition, directly or indirectly, 20% or more of
the Outstanding Company Common Stock or Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares
of common stock of such corporation and the combined voting power of
the then outstanding voting securities of such corporation entitled to
vote generally in the election of directors and (III) at least a
majority of the members of the board of directors of such corporation
were members of the Incumbent Board at the time of the execution of the
initial agreement or action of the Board providing for such sale or
other disposition of assets of the Company.
Notwithstanding the foregoing, a "Change of Control" shall not be
deemed to have occurred for purposes of the foregoing clause (i) solely as the
result of an acquisition of securities by the
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Company which, by reducing the number of Shares or other Voting Securities
outstanding, increases (x) the proportionate number of Shares beneficially owned
by any person to 40% or more of the Shares then outstanding or (y) the
proportionate voting power represented by the Voting Securities beneficially
owned by any person to 40% or more of the combined voting power of all then
outstanding Voting Securities; PROVIDED, HOWEVER, that if any person referred to
in clause (x) or (y) of this sentence shall thereafter become the beneficial
owner of any additional Shares or other Voting Securities (other than pursuant
to a stock split, stock dividend, or similar transaction), then a "Change of
Control" shall be deemed to have occurred for purposes of the foregoing clause
(i).
SECTION 14. GENERAL PROVISIONS
(a) NO DISTRIBUTION: COMPLIANCE WITH LEGAL REQUIREMENTS. The Committee
may require each person acquiring Units pursuant to an Award to represent to and
agree with the Company in writing that such person is acquiring the Units
without a view to distribution thereof.
No Units shall be issued pursuant to an Award until all applicable
securities laws and other legal and stock exchange requirements have been
satisfied. The Committee may require the placing of such stop-orders and
restrictive legends on certificates for Units and Awards as it deems
appropriate.
(b) OTHER COMPENSATION ARRANGEMENTS: NO EMPLOYMENT RIGHTS. Nothing
contained in this Plan shall prevent the Partnership from adopting other or
additional compensation arrangements, including trusts, subject to limited
partnership approval if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific cases. The adoption
of the Plan and the grant of Awards do not confer upon any employee any right to
continued employment with the Company or any Subsidiary.
SECTION 16. GOVERNING LAW
This Plan shall be governed by North Carolina law except to the extent such law
is preempted by federal law.
Highwoods/Forsyth Limited Partnership
By: Highwoods Properties, Inc.
By:
Title:
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EMPLOYMENT AGREEMENT
AGREEMENT, made and entered into as of the 7th day of October, 1997, by and
among Highwoods Properties, Inc., a Maryland corporation, and Highwoods/Forsyth
Limited Partnership, of which Highwoods Properties, Inc. is the general partner,
(the "Company") and James R. Heistand, a resident of Windermiar, Florida (the
"Employee").
W I T N E S S E T H :
WHEREAS, the Company desires to obtain the services of Employee, for its
own benefit and for the benefit of any existing and future Affiliated Company
(defined as any corporation or other business entity that directly or indirectly
controls, is controlled by, or is under common control with the Company), and
Employee desires to secure employment from the Company upon the following terms
and conditions;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties agree that the following provisions shall
constitute their agreement of employment:
1. Employment. The Company hereby employs the Employee, and the Employee
hereby accepts employment with the Company, for the term set forth in Section 2
below, in the position and with the duties and responsibilities set forth in
Section 3 below, and upon the other terms and conditions hereinafter stated.
2. Period of Employment. The term of this Agreement (the "Period of
Employment") shall commence on the date hereof and shall continue through the
earlier of the third anniversary of such date or the date of termination as
otherwise provided hereinafter. Subject to the provisions of Section 7, the
Company shall pay the Employee compensation as provided in Section 4 through the
end of the Period of Employment, and thereafter the Company's obligations
hereunder shall end.
<PAGE>
In the event that this Agreement expires and a new written agreement is not
entered into by the parties, the provisions of Sections 9 and 10 of this
Agreement will apply with respect to any continued employment of the Employee by
the Company or by any successor to the business of the Company.
3. Position; Duties; Extent of Services.
(a) Duties; Position. The Employee shall serve initially as Vice President
-Florida division of the Company, and he shall have responsibilities,
duties and authorities and shall perform such services of an executive
character as shall be designated from time to time by the Board of
Directors of the Company (the "Board"), so long as such
responsibilities, duties, authorities and services are consistent with
his position described above and are to be performed in Orlando,
Florida. The Company shall retain full direction and control of the
means and methods by which Employee performs the above services.
(b) Other Activities. Except upon the prior written consent of the Board,
Employee, during the Period of Employment, will not (i) accept any
other employment, or (ii) engage, directly or indirectly, in any other
business activity (whether or not pursued for pecuniary advantage), in
each case that is or may be competitive with, or that might place him
in a competing position to that of the Company or any Affiliated
Company with respect to the development, acquisition, operation,
management or leasing of any industrial, office, research and
development, or warehouse and distribution properties.
4. Compensation. In consideration of the services to be rendered by the
Employee to the Company and in consideration of the Employee's other covenants
hereunder, the Employee will receive a base salary at the rate of $190,000 per
year, payable at such intervals as may be established
2
<PAGE>
by the Company from time to time for salary payments to its executive employees.
The Employee shall receive such salary increases and/or bonuses as the Board may
from time to time approve in its discretion. In no event, however, will the
Employee's gross annual salary be less than $190,000. The Employee shall also be
entitled to participate in such incentive compensation plans as the Company may
from time to time maintain for its executive employees generally with a bonus
percentage of up to 100% of base salary.
5. Employee Benefits. The Employee will be entitled to participate, in
accordance with the provisions thereof, in the employee benefit plans (including
car allowance benefits) made available by the Company to its senior executive
employees generally and which plans as currently available are summarized on
Schedule A hereto. In the event of the death or total disability of the
Employee, the Employee or his estate or beneficiaries shall also be entitled to
benefits in accordance with Section 7 hereof.
6. Business Expense Reimbursements. During the period of his employment
under this Agreement, the Employee will be entitled to reimbursement for all
reasonable, out-of-pocket expenses incurred by him in performing services
hereunder, including, but not limited to, an automobile allowance of $500 per
month and a cellular phone allowance up to $150 per month, provided that such
expenses are incurred in accordance with the applicable policies of the Company
for its executive employees generally. The Employee shall be entitled to such
reimbursement upon presentation by the Employee, from time to time, of an
itemized account of such expenses and appropriate documentation therefor.
7. Termination of Employment.
3
<PAGE>
(a) Death. In the event of the death of the Employee during his employment
under this Agreement, the following payments shall be made to the
Employee's designated beneficiary, or, in the absence of such
designation, to the estate or other legal representative of the
Employee: (i) his base salary for the month in which his death occurs,
(ii) such bonuses (if any), determined on an annualized pro-rata basis,
as has been earned by the Employee and not paid to him at the time of
his death, and (iii) reimbursement of expenses pursuant to Section 6
hereof. Any rights and benefits the Employee or his estate or any other
person may have under employee benefit plans, incentive compensation
plans, and programs of the Company generally in the event of the
Employee's death shall be determined in accordance with the terms of
such plans and programs. Except as provided in this Section 7, neither
the Employee's estate nor any other person shall have any rights or
claims arising out of wages or employee benefits against the Company in
the event of the death of the Employee during his employment hereunder.
(b) Long-Term Disability. In the event of the Employee's disability (as
hereinafter defined) during his employment under this Agreement, the
Period of Employment may be terminated by the Company. For the first
six months following termination of employment due to disability, the
Employee shall be paid his base salary at the rate in effect at the
time of the commencement of disability. Thereafter, the Employee shall
be entitled to benefits in accordance with and subject to the terms and
provisions of the Company's long-term disability plan for executive
employees, as in effect at the time of the commencement of disability.
For purposes of this Agreement, "disability" shall have the same
meaning as given that term under the Company's long-term disability
plan for
4
<PAGE>
executive employees, as in effect from time to time. Anything herein to
the contrary notwithstanding, if, during the six-month period following
a termination of employment under this Section 7(b) in which salary
continuation payments are payable by the Company, the Employee becomes
reemployed or otherwise engaged (whether as an employee, partner,
consultant, or otherwise), any salary or other remuneration or benefits
earned by him from such employment or engagement shall offset any
payments due him under this Section 7(b). In the event of the
Employee's disability, any rights and benefits the Employee may have
under employee benefit plans, incentive compensation plans, and
programs of the Company generally shall be determined in accordance
with the terms of such plans and programs. Upon termination of the
Employee's employment by reason of disability under this Section 7, the
Employee shall be entitled, in addition to the other payments provided
for in this Section 7, to payment of such bonuses (if any), determined
on an annualized pro-rata basis, as may have been earned by the
Employee and not paid to him at the time of such termination. Except as
provided in Sections 5, 6 and 7, neither the Employee nor his estate,
or any other person, shall have any rights or claims arising out of
wages or employee benefits against the Company in the event of the
termination of the Employee's employment by reason of disability.
(c) Termination for Cause. Nothing herein shall prevent the Company from
terminating the Period of Employment for Cause (as hereinafter
defined). Upon termination for Cause, the Employee shall receive his
base salary only through the date of termination, and neither the
Employee nor any other person shall, except as provided in Section 6,
be entitled to any further payments from the Company arising under this
Agreement or as a
5
<PAGE>
result of Employee's employment relationship with the Company (except
as otherwise provided herein) for salary or unpaid bonuses. Any rights
and benefits the Employee may have under employee benefit plans and
programs of the Company generally following a termination of the
Employee's employment for Cause shall be determined in accordance with
the terms of such plans and programs. For purposes of this Agreement,
termination for Cause shall mean (i) termination due to (y) willful or
gross neglect of duties for which employed which is not cured within
five (5) days of Employee's receipt of notice of such neglect, or (z)
willful misconduct in the performance of duties for which employed, in
either such instance so as to cause material harm to the Company, all
such facts to be determined in good faith by the Board, (ii)
termination due to the Employee's committing fraud, misappropriation or
embezzlement in the performance of his duties as an employee of the
Company, or (iii) termination due to the Employee's committing any
felony for which he is convicted and which, as determined in good faith
by the Board, constitutes a crime involving moral turpitude.
(d) Termination by the Company Other than for Cause. Notwithstanding any
other term or provision of this Agreement, the Company may terminate
the Period of Employment at any time and for whatever reason it deems
appropriate, or for no reason. In the event such termination by the
Company occurs and is not due to disability as provided in Section 7(b)
above or for Cause as provided in Section 7(c) above, the Employee
shall be entitled to payment of his base salary, at the rate in effect
at the time of such termination, until the later of the third
anniversary of the date hereof, or the expiration of twelve months from
the date of such termination; provided, however, that such salary
continuation payments
6
<PAGE>
shall cease in the event of the Employee's death prior to completion of
such payments. The Employee shall also be entitled to such bonuses (if
any), determined on an annualized pro-rata basis, as have been earned
by the Employee and not paid to him at the time of such termination.
Any rights and benefits the Employee may have under employee benefit
plans and programs of the Company generally following a termination of
the Employee's employment under the circumstances described in this
Section 7(d) shall be determined in accordance with the terms of such
plans and programs. Except as provided in Sections 5, 6 and 7(d),
neither the Employee nor any other person shall have any rights or
claims arising out of wages or employee benefits against the Company by
reason of the termination of the Employee's employment under the
circumstances described in this Section 7(d). In the event of a
termination under this Section 7(d), any "lock-up provision" affecting
any Class A Units or shares of the Company's common stock (the
"Shares") held by Employee in the Company which is longer than one year
from the date of issuance of such Class A Units or Shares to Employee
shall be limited to one year from the date of issuance of such Class A
Units or Shares to Employee.
(e) By Employee For Good Reason. Employee may terminate, without liability,
the Period of Employment for Good Reason (as defined below) upon ten
(10) days' advance written notice to the Company. If Employee
terminates his employment pursuant to this Section 7(e), the Employee
shall be entitled to payment of his base salary, at the rate in effect
at the time of such termination, until the later of the third
anniversary of the date hereof, or the expiration of twelve months from
the date of such termination; provided, however, that such salary
continuation payments shall cease in the event of the Employee's death
prior to
7
<PAGE>
completion of such payments. The Employee shall also be entitled to
such bonus (if any), determined on an annualized pro-rata basis, as has
been earned by the Employee and not paid to him at the time of such
termination. Any rights and benefits the Employee may have under
employee benefit plans and programs of the Company generally following
a termination of the Employee's employment under the circumstances
described in this Section 7(e) shall be determined in accordance with
the terms of such plans and programs. Except as provided in Section 5,
6 and 7(e), neither the Employee nor any other person shall have any
rights of claims arising out of wages or employee benefits against the
Company by reason of the termination of the Employee's employment under
the circumstances described in this Section 7(e). In the event of a
termination under this Section 7(e), any "lock-up provision" affecting
any Class A Units held by Employee which is longer than one year from
the date of issuance of such Class A Units to Employee shall be limited
to one year from the date of issuance of such Class A Units to
Employee. Good Reason shall exist if: (i) there is an assignment to
Employee of any duties materially inconsistent with or which constitute
a material reduction in Employee's position, duties, responsibilities,
or status with the Company, or a material reduction in Employee's
reporting responsibilities, title or offices or a change in geographic
location inconsistent with that established in Section 3(a); (ii) the
Company acts in any way that would have a disproportionately material
adverse effect on Employee's participation in or disproportionately and
materially reduce Employee's benefit under any benefit plan of the
Company in which Employee is participating or deprive Employee of any
material fringe benefit enjoyed by Employee when compared to other
executives of the Company except those plans which are based on and the
benefits of which
8
<PAGE>
are related to the Employee's personal performance of his duties hereunder; or
(iii) any material breach of this Agreement by the Company.
(f) Voluntary Termination by the Employee. At any time, Employee may
terminate, without liability, the Period of Employment for any reason,
by giving thirty (30) days advance written notice to the Company. If
Employee terminates his employment pursuant to this Section 7(f), the
Company shall have the option, in its complete discretion, to terminate
Employee immediately without the running of the notice period. The
Company shall pay Employee the compensation to which he is entitled
pursuant to Section 4 through the end of the notice period, or through
the day upon which early termination is elected pursuant to the
foregoing sentence, and thereafter, all obligations of the Company
hereunder shall terminate.
8. Covenants Not to Compete.
(a) Except as provided in Section 8(c), the Employee promises and agrees
that, until the expiration of one year following the termination or
expiration of the Period of Employment or while receiving any severance
payments under Section 7(d) or (e), he will not for himself or any
third party, directly or indirectly (i) engage in the development,
operation, management or leasing of any industrial, office or
distribution properties in any town, city, county, municipality or
metropolitan area in Florida in which the Company is engaged in
business at the time of such termination without the written consent of
either the Chief Executive Officer or the Board, or (ii) interfere
with, disrupt or attempt to disrupt the relationship, contractual or
otherwise, between the Company and any third party, including but not
limited to its employees, contractors, tenants and lessees.
9
<PAGE>
(b) It is the desire and intent of the parties that the provisions of this
Section 8 shall be enforced to the fullest extent permitted under the
laws and public policies of each jurisdiction in which enforcement is
sought. Accordingly, if any particular portion of this Section 8 shall
be adjudicated to be invalid or unenforceable, such adjudication shall
apply only with respect to the operation of that portion in the
particular jurisdiction in which such adjudication is made, and all
other portions shall continue in full force and effect.
(c) It is expressly agreed that the provisions and covenants in Section
8(a)(i) shall not apply and shall be of no force or effect in the event
the Company terminates the Employee's employment under this Agreement
and such termination is not due to disability or for Cause, or in the
event the Employee terminates this Agreement for Good Reason under
Section 7(e) above.
(d) Notwithstanding anything to the contrary herein, if at any time after
one year from the date hereof, James R. Heistand is not a member of the
Board and such event is due neither to his voluntary resignation from
the Board nor his voluntary decision not to stand for election or
reelection, Employee may elect at any time thereafter to have the
remaining term of his Period of Employment reduced to six months from
the date of such election and likewise have the term of the covenant
provided by Section 8(a)(i) above reduced to six months. However, for a
period of one year following the termination of his Period of
Employment under this Section 8(d), Employee shall not pursue, engage
in, participate in or take advantage either of any existing or proposed
corporate opportunity of the Company or any Affiliated Company at the
date of termination of employment or any project or proposed project
which was considered or under consideration for acquisition,
management,
10
<PAGE>
development, or joint venture by the Company during the twelve month
period immediately preceding the date of the Employee's termination of
employment without the prior written approval of Highwoods.
9. Confidential Information: Rights to Materials.
(a) Confidential Information. The Employee promises and agrees that he
will not, either while in the Company's employ or at any time thereafter
and without the Company's prior written consent, disclose to any person not
employed by the Company, or not engaged to render services to the Company,
or use, for himself or any other person, firm, corporation or entity, any
confidential information of the Company obtained by him while in the employ
of the Company, including, without limitation, any of the Company's
methods, processes, techniques, practices, research data, marketing and
sales information, personnel data, customer lists, financial data, plans,
know-how, trade secrets, and proprietary information of the Company;
provided, however, that this provision shall not preclude the Employee from
use or disclosure of information known generally to the public (other than
information known generally to the public as a result of a violation of
this Section 9(a) by the Employee), from use or disclosure of information
acquired by the Employee outside of his affiliation with the Company, from
disclosure required by law or court order, or from disclosure or use
appropriate and in the ordinary course of carrying out his duties as an
employee of the Company.
(b) Rights to Materials. The Employee further promises and agrees that,
upon termination of his employment for whatever reason and at whatever
time, he will not take with him, without the prior written consent of an
officer authorized to act in the matter by
11
<PAGE>
the Board, any records, files, memoranda, reports, customer lists,
drawings, plans, sketches, documents, specifications, and the like (or any
copies thereof) relating to the business of the Company or any of its
current or future Affiliated Companies.
10. Injunctive Relief. The Employee acknowledges and agrees that the
Company would suffer irreparable injury in the event of a breach by him of
any of the provisions of Section 8 or Section 9 of this Agreement and that
the Company shall be entitled to an injunction restraining him from any
breach or threatened breach thereof. The Employee further agrees that, in
the event of his breach of any provision of Section 8 or 9 hereof, the
Company shall be entitled to cease any payments otherwise due and payable
to the Employee hereunder. Nothing herein shall be construed, however, as
prohibiting the Company from pursuing any other remedies at law or in
equity which it may have for any such breach or threatened breach of any
provision of Section 8 or 9 hereof, including the recovery of damages from
the Employee.
11. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the Employee and his personal
representatives, estate and heirs and the Company and its successors and
assigns, including without limitation any corporation or other entity to
which the Company may transfer all or substantially all of its assets and
business (by operation of law or otherwise) and to which the Company may
assign this Agreement. The Employee may not assign this Agreement or any
part hereof without the prior written consent of the Company, which consent
may be withheld by the Company for any reason it deems appropriate.
12. Entire Agreement. This Agreement contains the entire agreement of
the parties with respect to the employment of the Employee by the Company
and supersedes and replaces all other
12
<PAGE>
understandings and agreements, whether oral or in writing, if any there be,
previously entered into be the parties with respect to such employment.
13. Amendment; Waiver. No provisions of this Agreement may be amended,
modified or waived unless such amendment, modification or waiver is agreed
to in writing and signed by the Employee and by a duly authorized officer
of the Company. No waiver by either party of any breach by the other party
of any provision of this Agreement shall be deemed a waiver of any other
breach.
14. Notices. Any notice to be given hereunder shall be in writing and
delivered personally, or sent by certified mail or registered mail, postage
prepaid, return receipt requested, addressed to the party concerned, if to
the Company, at its principal office, and if to the Employee, at his home
address.
15. Severability. If any one or more of the provisions contained in
this Agreement shall be invalid, illegal, or unenforceable in any respect
under any applicable law, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
16. Withholding. Anything herein to the contrary notwithstanding, all
payments made by the Company hereunder shall be subject to the withholding
of such amounts relating to taxes as the Company may reasonably determined
it should withhold pursuant to any applicable law or regulation.
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws and judicial decisions of the State of North
Carolina.
13
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first above written. HIGHWOODS PROPERTIES, INC.
By: ____________________________________
Title: ____________________________________
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
By: HIGHWOODS PROPERTIES, INC.,
ITS GENERAL PARTNER
By: ____________________________________
Title: ____________________________________
EMPLOYEE
____________________________________(SEAL)
James R. Heistand
14
<PAGE>
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, HYPOTHECATED OR
OTHERWISE ASSIGNED WITHOUT COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION
PROVISIONS OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR APPLICABLE
EXEMPTIONS THEREFROM.
THE SECURITIES REPRESENTED BY THIS WARRANT ARE SUBJECT TO A REGISTRATION RIGHTS
AND LOCK-UP AGREEMENT DATED AS OF OCTOBER 1, 1997 (AS THE SAME MAY BE AMENDED,
MODIFIED OR SUPPLEMENTED, THE "REGISTRATION RIGHTS AGREEMENT"), A COPY OF WHICH
IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY AND MAY BE OBTAINED UPON
WRITTEN REQUEST AND WITHOUT CHARGE.
Warrant No.
Date of Issuance: October __, 1997
Right to Purchase ________ Shares of Common
Stock, $.01 par value per share, of Highwoods
Properties, Inc.
HIGHWOODS PROPERTIES, INC.
Common Stock Purchase Warrant
-----------------------------
Highwoods Properties, Inc., a corporation incorporated under the laws
of the State of Maryland (the "Company"), hereby certifies that, for value
received, __________ or assigns, is entitled, subject to the terms set forth
below, to purchase from the Company at any time or from time to time on or after
October 1, 2002, 10,000 fully paid and nonassessable shares of Common Stock,
$.01 par value per share, of the Company, at a purchase price per share of
$32.50 per share (such purchase price per share as adjusted from time to time as
herein provided is referred to herein as the "Purchase Price"). The number and
character of such shares of Common Stock and the Purchase Price are subject to
adjustment as provided herein.
This Warrant is one of the Common Stock Purchase Warrants (the
"Warrants") evidencing the right to purchase shares of Common Stock of the
Company issued pursuant to that certain Master Agreement of Merger and
Acquisition (as the same may be amended, modified or supplemented, the "Merger
Agreement"), dated as of August 27, 1997, by and among the Company,
Highwoods/Forsyth Limited Partnership, Associated Capital Properties, Inc.
("ACP") and the shareholders of ACP, and subject to the Registration Rights
Agreement, copies of which agreements are on file at the principal office of the
Company, and the holder of this Warrant shall be entitled to all of the benefits
of the Registration Rights Agreement, as provided therein.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
<PAGE>
(a) The term "Company" shall include any corporation which
shall succeed to or assume the obligations of the Company under this Warrant.
(b) The term "Common Stock" includes the Company's Common
Stock, $.01 par value per share, as authorized on the date of the Merger
Agreement and any other securities into which or for which any of such Common
Stock may be converted or exchanged pursuant to a plan of recapitalization,
reorganization, merger, sale of assets or otherwise.
(c) The term "Fair Market Value" means, in any case in which
the Common Stock is publicly traded, the daily closing price per share of Common
Stock on the date of exercise of a Warrant. The closing price for any day shall
be the last sale price or, in case no sale takes place on such day, the average
of the closing bid and asked prices in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Common Stock is listed
or admitted to trading; or, if not listed or admitted to trading on any national
securities exchange, the last quoted price (or, if not so quoted, the average of
the last quoted high bid and low asked prices) in the over-the-counter market,
as reported by the National Association of Securities Dealers Automated
Quotations System or such other system then in use; or, if on any such date no
bids are quoted by any such organization, the average of the closing bid and
asked prices as furnished by a professional market maker making a market in such
security reasonably selected by the Board of Directors of the Company with
utmost good faith to the holder of this Warrant. If on any such date, no market
maker is making a market in the Common Stock, the Fair Market Value of such
security on such date shall be determined reasonably and with utmost good faith
to the holder of this Warrant by the Board of Directors of the Company. If the
Common Stock is not publicly held or not so listed or traded, "Fair Market
Value" shall mean the fair value per share determined reasonably and with utmost
good faith to the holder of this Warrant by the Board of Directors of the
Company.
1. Exercise of Warrant.
1.1. Full Exercise. This Warrant may be exercised in full by
the holder hereof by surrender of this Warrant, with the form of subscription at
the end hereof duly executed by such holder, to the Company at its principal
office, accompanied by payment, in cash or by certified or official bank check
payable to the order of the Company, in the amount obtained by multiplying the
number of shares of Common Stock for which this Warrant is then exercisable by
the Purchase Price then in effect.
1.2. Partial Exercise. This Warrant may be exercised in part
by surrender of this Warrant in the manner and at the place provided in
Subsection 1.1 except that the amount payable by the holder on such partial
exercise shall be the amount obtained by multiplying (a) the number of shares of
Common Stock designated by the holder in the subscription at the end hereof by
(b) the Purchase Price then in effect. On any such partial exercise the Company
at its expense will immediately issue and deliver to or upon the order of the
holder hereof a new Warrant or Warrants
2
<PAGE>
of like tenor, in the name of the holder hereof or as such holder may request,
calling in the aggregate on the face or faces thereof for the number of shares
of Common Stock for which such Warrant or Warrants may still be exercised.
1.3. Net Issue Election. The holder hereof may elect to
receive, without the payment by such holder of any additional consideration,
shares equal to the value of this Warrant or any portion hereof by the surrender
of this Warrant or such portion to the Company, with the form of subscription at
the end hereof duly executed by such holder, at the office of the Company.
Thereupon, the Company shall issue to such holder such number of fully paid and
nonassessable shares of Common Stock as is computed using the following formula:
X = Y (A-B)
-------
A
where X = the number of shares to be issued to such holder pursuant to this
Subsection 1.3.
Y = the number of shares covered by this Warrant in respect of which
the net issue election is made pursuant to this Subsection 1.3.
A = the Fair Market Value of one share of Common Stock as of the date
on which the net exercise election is made pursuant to this Subsection 1.3.
B = the Purchase Price in effect under this Warrant at the time the net
issue election is made pursuant to this Subsection 1.3.
1.4. Company Acknowledgment. The Company will, at the time of
the exercise of the Warrant, upon the request of the holder hereof, acknowledge
in writing its continuing obligation to afford to such holder any rights to
which such holder shall continue to be entitled after such exercise in
accordance with the provisions of this Warrant and the Registration Rights
Agreement. If the holder shall fail to make any such request, such failure shall
not affect the continuing obligation of the Company to afford to such holder any
such rights.
1.5. Trustee for Warrant Holders. In the event that a bank or
trust company shall have been appointed as trustee for the holders of the
Warrants pursuant to Subsection 4.2, such bank or trust company shall have all
the powers and duties of a warrant agent appointed pursuant to Section 12 and
shall accept, in its own name for the account of the Company or such successor
person as may be entitled thereto, all amounts otherwise payable to the Company
or such successor, as the case may be, on exercise of this Warrant pursuant to
this Section 1.
2. Delivery of Stock Certificates, etc., on Exercise. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within ten (10) days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued in the name
of and delivered to the holder hereof, or as such holder may direct, a
certificate
3
<PAGE>
or certificates for the number of fully paid and nonassessable shares of Common
Stock to which such holder shall be entitled on such exercise, plus, in lieu of
any fractional share to which such holder would otherwise be entitled, cash
equal to such fraction multiplied by the then current Fair Market Value of one
full share, together with any other stock or other securities and property
(including cash, where applicable) to which such holder is entitled upon such
exercise, pursuant to Section 1 or otherwise.
3. Adjustments.
(a) If the outstanding shares of Common Stock shall be
subdivided into a greater number of shares or a dividend in Common Stock shall
be declared or distributed in respect of the Common Stock or the outstanding
shares of Common Stock shall be combined or reclassified into a smaller number
of shares, the Purchase Price in effect immediately after the record date for
such dividend or distribution or the effective date of such subdivision,
combination or reclassification shall be adjusted so that it shall equal the
price determined by multiplying the Purchase Price in effect immediately prior
thereto by a fraction, of which the numerator shall be the number of shares of
Common Stock outstanding immediately before such dividend, distribution,
subdivision, combination or reclassification, and of which the denominator shall
be the number of shares of Common Stock outstanding immediately after such
dividend, distribution, subdivision, combination or reclassification. Such
adjustment shall be made successively whenever any event specified above shall
occur.
(b) If the Company shall fix a record date for the issuance of
rights, options, warrants or convertible or exchangeable securities to all
holders of Common Stock entitling them to subscribe for or purchase shares of
Common Stock at a price per share of Common Stock less than the Fair Market
Value per share of Common Stock on such record date, the Purchase Price shall be
adjusted immediately thereafter so that it shall equal the price determined by
multiplying the Purchase Price in effect immediately prior thereto by a
fraction, of which the numerator shall be the number of shares of Common Stock
outstanding on such record date (plus the number of shares of Common Stock which
the aggregate offering price of the total number of shares of Common Stock so
offered would purchase at the Fair Market Value per share of Common Stock on
such record date), and of which the denominator shall be the number of shares of
Common Stock outstanding on such record date plus the number of additional
shares of Common Stock offered for subscription or purchase. Such adjustment
shall be made successively whenever such a record date is fixed. Notwithstanding
the foregoing, if the securities referred to in this Subsection 3(b) entitle the
holder on some future date or upon the happening of some future event to
subscribe for or purchase shares of Common Stock at a price per share less than
the Fair Market Value per share on such record date, then the Purchase Price
adjustment referred to above shall be made on such future date or upon the
happening of such future event. If this Warrant is exercised after such record
date but prior to such future time or the happening of such future event, the
holder of this Warrant shall receive upon the exercise hereof (in addition to
the number of shares of Common Stock set forth above, as adjusted, if necessary,
in accordance with the provisions hereof) such rights, options, warrants or
convertible or exchangeable securities that such holder would have been entitled
to receive if, immediately prior
4
<PAGE>
to such record date, such holder had held the number of shares of Common Stock
which were then purchasable upon the exercise of this Warrant. To the extent
that any rights, options, warrants or convertible or exchangeable securities
referred to in this Subsection 3(b) are not so issued or expire unexercised, the
Purchase Price then in effect shall be readjusted to the Purchase Price that
would then be in effect if such unissued or unexercised rights, options,
warrants or convertible or exchangeable securities had not been issuable.
(c) In case the Company shall fix a record date for the making
of a distribution to all holders of shares of Common Stock (i) of shares of any
class other than Common Stock or (ii) of evidences of its indebtedness or (iii)
of assets (excluding cash dividends or distributions (other than extraordinary
cash dividends or distributions), and dividends or distributions referred to in
Subsection 3(a) hereof) or (iv) of rights, options, warrants or convertible or
exchangeable securities (excluding those rights, options, warrants or
convertible or exchangeable securities referred to in Subsection 3(b) hereof),
then in each such case the Purchase Price in effect immediately thereafter shall
be determined by multiplying the Purchase Price in effect immediately prior
thereto by a fraction, of which the numerator shall be the total number of
shares of Common Stock outstanding on such record date multiplied by the Fair
Market Value per share of Common Stock on such record date, less the aggregate
fair market value as determined in good faith by the Board of Directors of the
Company of said shares or evidences of indebtedness or assets or rights,
options, warrants or convertible or exchangeable securities so distributed, and
of which the denominator shall be the total number of shares of Common Stock
outstanding on such record date multiplied by the Fair Market Value per share of
Common Stock on such record date. Such adjustment shall be made successively
whenever such a record date is fixed. In the event that such distribution is not
so made, the Purchase Price then in effect shall be readjusted to the Purchase
Price which would then be in effect if such record date had not been fixed.
(d) In case the Company shall sell and issue Common Stock or
rights, options, warrants or convertible or exchangeable securities containing
the right to subscribe for or purchase shares of Common Stock, for a
consideration consisting, in whole or in part, of property (other than cash) or
services or its equivalent, then in determining the "price per share of Common
Stock" referred to in Subsection 3(b) above, the Board of Directors of the
Company shall determine, in good faith and on a reasonable basis, the fair value
of said property.
(e) When any adjustment is required to be made in the Purchase
Price as a result of the operation of Subsections 3(a), 3(b) or 3(c) hereof, the
number of shares of Common Stock purchasable upon the exercise of this Warrant
shall be changed to the number determined by dividing (i) an amount equal to the
number of shares issuable upon the exercise of this Warrant immediately prior to
such adjustment, multiplied by the Purchase Price in effect immediately prior to
such adjustment, by (ii) the Purchase Price in effect immediately after such
adjustment.
(f) If there shall occur any capital reorganization or
reclassification of or other change in the Common Stock (other than a change in
par value or a subdivision or combination as provided for in Subsection 3(a)
above), or any consolidation or merger of the Company with or into
5
<PAGE>
another entity (other than a merger or consolidation in which the Company is the
surviving corporation and which does not result in any reclassification of the
outstanding shares of Common Stock or the conversion of such outstanding shares
of Common Stock into shares of other stock or other securities or property), or
a transfer of all or substantially all of the assets of the Company then, as
part of any such reorganization, reclassification, consolidation, merger or
transfer, as the case may be, lawful provision shall be made so that the holder
of this Warrant shall receive upon the exercise hereof the kind and amount of
shares of stock or other securities or property which such holder would have
been entitled to receive if, immediately prior to any such reorganization,
reclassification, consolidation, merger or transfer as the case may be, such
holder had held the number of shares of Common Stock which were then purchasable
upon the exercise of this Warrant, provided that, in all cases, appropriate
adjustment (as reasonably determined in good faith by the Board of Directors of
the Company) shall be made in the application of the provisions set forth herein
with respect to the rights and interests thereafter of the holder of this
Warrant, such that the provisions set forth in this Section 3 (including
provisions with respect to adjustment of the Purchase Price) shall thereafter be
applicable, as nearly as is reasonably practicable, in relation to any shares of
stock or other securities or property thereafter deliverable upon the exercise
of this Warrant, and in the case of any consolidation or merger, the successor
or acquiring entity (if other than the Company) shall expressly assume the due
and punctual observance and performance of each and every provision of this
Warrant.
4. No Dilution or Impairment. The Company will not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of the Warrants, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the holders of the
Warrants against dilution or other impairment. Without limiting the generality
of the foregoing, the Company (a) will not increase the par value of any shares
of stock receivable on the exercise of the Warrants above the amount payable
therefor on such exercise, (b) will take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of stock on the exercise of all Warrants from time to
time outstanding, and (c) will not transfer all or substantially all of its
properties and assets to any other person (corporate or otherwise), or
consolidate with or merge into any other person or permit any such person to
consolidate with or merge into the Company (if the Company is not the surviving
person), unless such other person shall expressly assume in writing and will be
bound by all the terms of the Warrants.
5. Accountants' Certificate as to Adjustments. In each case of any
adjustment or readjustment in the shares of Common Stock issuable on the
exercise of the Warrants, the Company at its expense will promptly cause
independent certified public accountants of recognized standing selected by the
Company to compute such adjustment or readjustment in accordance with the terms
of the Warrants and prepare a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based, including a statement of (a) the consideration received
or receivable by the Company for any additional shares of Common Stock
6
<PAGE>
issued or sold or deemed to have been issued or sold, (b) the number of shares
of Common Stock outstanding or deemed to be outstanding, and (c) the Purchase
Price and the number of shares of Common Stock to be received upon exercise of
this Warrant, in effect immediately prior to such issue or sale and as adjusted
and readjusted as provided in this Warrant. The Company will forthwith mail a
copy of each such certificate to each holder of a Warrant, and will, on the
written request at any time of any holder of a Warrant, furnish to such holder a
like certificate setting forth the Purchase Price at the time in effect and
showing how it was calculated.
6. Notices of Record Date, etc. In the event of
(a) any taking by the Company of a record of the holders of
any class or securities for the purpose of determining the holders
thereof who are entitled to receive any dividend or other distribution
(excluding cash dividends or distributions (other than extraordinary
cash dividends or distributions)), or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any
other securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company or any transfer of all or substantially all the assets of the
Company to or consolidation or merger of the Company with or into any
other person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then and in each such event the Company will mail or cause to be mailed to each
holder of a Warrant a notice specifying (i) the date on which any such record is
to be taken for the purpose of such dividend, distribution or right, and stating
the amount and character of such dividend, distribution or right, (ii) the date
on which any such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up is to take place,
and the time, if any is to be fixed, as of which the holders of record of Common
Stock shall be entitled to exchange their shares of Common Stock for securities
or other property deliverable on such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up, and (iii) the amount and character of any stock or other securities,
or rights or options with respect thereto, proposed to be issued or granted, the
date of such proposed issue or grant and the persons or class of persons to whom
such proposed issue or grant is to be offered or made. Such notice shall be
mailed at least ten (10) days prior to the date specified in such notice on
which any such action is to be taken. Failure to mail such notice or any defect
therein shall not affect the validity of any such action.
7. Reservation of Stock, etc., Issuable on Exercise of Warrants. The
Company will at all times reserve and keep available, solely for issuance and
delivery on the exercise of the Warrants, all shares of Common Stock from time
to time issuable on the exercise of the Warrants.
7
<PAGE>
8. Exchange of Warrants. On surrender for exchange of any Warrant,
properly endorsed, to the Company, the Company at its expense will issue and
deliver to or on the order of the holder thereof a new Warrant or Warrants of
like tenor, in the name of such holder or as such holder (on payment by such
holder of any applicable transfer taxes) may direct, calling in the aggregate on
the face or faces thereof for the number of shares of Common Stock called for on
the face or faces of the Warrant or Warrants so surrendered.
9. Replacement of Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Warrant and, in the case of any such loss, theft or destruction of any Warrant,
on delivery of an indemnity agreement or security reasonably satisfactory in
form and amount to the Company or, in the case of any such mutilation, on
surrender and cancellation of such Warrant, the Company at its expense will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
10. Warrant Agent. The Company may, by written notice to each holder of
a Warrant, appoint an agent for the purpose of issuing Common Stock on the
exercise of the Warrants pursuant to Section 1, exchanging Warrants pursuant to
Section 8, and replacing Warrants pursuant to Section 9, or any of the
foregoing, and thereafter any such issuance, exchange or replacement, as the
case may be, shall be made at such office by such agent.
11. Negotiability, etc. This Warrant is issued upon the following
terms, to all of which each holder or owner hereof by the taking hereof consents
and agrees:
(a) title to this Warrant may be transferred by: (i)
endorsement (by the holder hereof executing the form of assignment at
the end hereof) and (ii) delivery in the same manner as in the case of
a negotiable instrument transferable by endorsement and delivery;
(b) any person in possession of this Warrant properly endorsed
is authorized to represent himself as absolute owner hereof and is
empowered to transfer absolute title hereto by endorsement and delivery
hereof to a bona fide purchaser hereof for value; each prior taker or
owner waives and renounces all of his equities or rights in this
Warrant in favor of each such bona fide purchaser, and each such bona
fide purchaser shall acquire absolute title hereto and to all rights
represented hereby; and
(c) until this Warrant is transferred on the books of the
Company, the Company may treat the registered holder hereof as the
absolute owner hereof for all purposes, notwithstanding any notice to
the contrary.
12. Notices, etc. All notices and other communications from the Company
to the holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, or by Federal Express or other recognized
overnight courier, to such address as may have been furnished to the Company in
writing by such holder or, until any such holder furnishes to the Company an
8
<PAGE>
address, then to, and at the address of, the last holder of this Warrant who has
so furnished an address to the Company.
13. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the laws of the State of North Carolina. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. This Warrant is being executed as an instrument
under seal. The invalidity or unenforceability of any provision hereof shall in
no way affect the validity or enforceability of any other provision.
Dated: October __, 1997 HIGHWOODS PROPERTIES, INC.
By: _______________________________________
Name: Mack D. Pridgen, III
Title: Vice President and General Counsel
9
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO HIGHWOODS PROPERTIES, INC.:
The undersigned, the holder of the within Warrant, hereby elects
to exercise all or a portion of this Warrant for, and to purchase thereunder,
.......... shares of Common Stock of Highwoods Properties, Inc. and herewith
either (a) makes payment of $......... therefor, or (b) elects to exercise this
Warrant in the amount indicated on a net basis, and in any event, requests that
the certificates for such shares be issued in the name of, and delivered to
................, whose address is
.................................
Dated: ........................
(Signature must conform to name of holder as
specified on the face of the Warrant)
............................................
(Address)
10
<PAGE>
------------------------
FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto .............. the right represented by the within Warrant to
purchase ................. shares of Common Stock of Highwoods Properties, Inc.
to which the within Warrant relates, and appoints ........................,
Attorney to transfer such right on the books of Highwoods Properties, Inc. with
full power of substitution in the premises.
Dated: ........................
(Signature must conform to name of holder as
specified on the face of the Warrant)
............................................
(Address)
Signed in the presence of:
....................................
11
<PAGE>
Exhibit 21
SCHEDULE OF SUBSIDIARIES
<TABLE>
<S> <C>
1. AP Southeast Portfolio Partners, L.P., a Delaware limited partnership
2. Highwoods/Florida Holdings, L.P., a Delaware limited partnership
3. Highwoods/Tennessee Holdings, L.P., a Tennessee limited partnership
</TABLE>
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-3 Nos. 33-93572, 33-97712, 333-08985, 333-13519, 333-24165, 333-31183,
333-39247 and 333-43475 and Form S-8 Nos. 333-12117, 333-29759 and 333-29763)
and related Prospectuses of Highwoods Properties, Inc. and in the Registration
Statement (Form S-3 No. 333-31183-01) and related Prospectus of
Highwoods/Forsyth Limited Partnership of our report dated February 20, 1998 with
respect to the consolidated financial statements and schedule of Highwoods/
Forsyth Limited Partnership included in the Annual Report (Form 10-K) for the
year ended December 31, 1997.
/s/ ERNST & YOUNG LLP
Raleigh, North Carolina
March 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> OCT-01-1996 JAN-01-1996
<PERIOD-END> DEC-31-1996 DEC-31-1996
<CASH> 19,157,000 19,157,000
<SECURITIES> 0 0
<RECEIVABLES> 17,413,000 17,413,000
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 34,261,000 34,261,000
<PP&E> 1,407,575,000 1,407,575,000
<DEPRECIATION> 42,969,000 42,969,000
<TOTAL-ASSETS> 1,429,488,000 1,429,488,000
<CURRENT-LIABILITIES> 27,632,000 27,632,000
<BONDS> 555,876,000 555,876,000
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 845,980,000 845,980,000
<TOTAL-LIABILITY-AND-EQUITY> 1,429,488,000 1,429,488,000
<SALES> 46,511,000 125,987,000
<TOTAL-REVENUES> 48,224,000 132,302,000
<CGS> 12,564,000 33,657,000
<TOTAL-COSTS> 21,113,000 54,762,000
<OTHER-EXPENSES> 1,849,000 5,636,000
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 11,260,000 25,230,000
<INCOME-PRETAX> 14,002,000 46,674,000
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 14,002,000 46,674,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 2,432,000
<CHANGES> 0 0
<NET-INCOME> 14,002,000 44,242,000
<EPS-PRIMARY> .38 1.48
<EPS-DILUTED> .38 1.47
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Highwoods/Forsyth
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> OCT-01-1997 JAN-01-1997
<PERIOD-END> DEC-31-1997 DEC-31-1997
<CASH> 18,157,000 18,157,000
<SECURITIES> 0 0
<RECEIVABLES> 27,053,000 27,053,000
<ALLOWANCES> 555,000 555,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 62,230,000 62,230,000
<PP&E> 2,688,257,000 2,688,251,000
<DEPRECIATION> 87,046,000 87,046,000
<TOTAL-ASSETS> 2,707,240,000 2,707,240,000
<CURRENT-LIABILITIES> 52,152,000 52,152,000
<BONDS> 978,558,000 978,558,000
0 0
288,155,000 288,155,000
<COMMON> 0 0
<OTHER-SE> 1,388,375,000 1,388,375,000
<TOTAL-LIABILITY-AND-EQUITY> 2,707,240,000 2,707,240,000
<SALES> 89,687,000 266,933,000
<TOTAL-REVENUES> 91,214,000 273,165,000
<CGS> 27,748,000 76,743,000
<TOTAL-COSTS> 44,093,000 124,003,000
<OTHER-EXPENSES> 3,522,000 10,216,000
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 12,623,000 47,394,000
<INCOME-PRETAX> 30,976,000 91,552,000
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 30,976,000 91,552,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 1,411,000 6,945,000
<CHANGES> 0 0
<NET-INCOME> 23,420,000 71,490,000
<EPS-PRIMARY> .41 1.54
<EPS-DILUTED> .41 1.53
</TABLE>
