Reg.As Filed With the Securities and Exchange Commission on June 8, 1998
Registration No. 333-43745
================================================================================333-51671, 333-51671-01
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DCD.C. 20549
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Amendment No.AMENDMENT NO. 1
ToTO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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HIGHWOODS PROPERTIES, INC.---------------
Highwoods Properties, Inc. Highwoods/Forsyth Limited Partnership
(Exact Namename of Registrantregistrants as Specifiedspecified in Its Charter)their respective governing documents)
Maryland North Carolina
(State or other jurisdiction of incorporation or organization of each
registrant)
56-1871668 (State of Incorporation)56-1869557
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
3100 Smoketree Court, Suite 600
Raleigh, North Carolina 27604
(919) 872-4924
(Address, including zip code, and telephone number, including area code, of
agent for service)
With Copies to:each registrant's principal executive offices)
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Ronald P. Gibson, President
Brad S. Markoff, Esq.
Highwoods Properties, Inc. Alston & Bird LLP
3100 Smoketree Court, Suite 600
Raleigh, North Carolina 27604
(919) 872-4924
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copy To:
BRAD S. MARKOFF, Esq.
Alston & Bird LLP
3605 Glenwood Avenue, Suite 310
Raleigh, North Carolina 27604 Raleigh, North Carolina 27612
(919) 872-4924 (919) 420-2210420-2200
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Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this registration statement.
If the only securities being registered on this formForm are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|[ ]
If any of the securities being registered on this formForm are to bebeing offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. |X|[X]
If this Formform is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|[ ]
If this Formform is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|[ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|[X]
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CALCULATION OF REGISTRATION FEE
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Calculation of Registration Fee
Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Registered Offering Price per Unit(1)Being Registered(1) Aggregate Offering PricePrice(2) Registration Fee
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Highwoods Properties, Inc.
Common Stock, 3,090,141 $35.4375 $109,506,872 $33,184
Warrants(2) 1,479,290 $35.4375$.01 par value(6)......................................
Preferred Stock, $.01 par value......................................
Depositary Shares(7) ................................................ $ 52,422,340 $15,886830,000,000(3) $ 251,516(3)
Guarantees(8) .......................................................
Highwoods/Forsyth Limited Partnership Non-convertible Debt Securities $ 420,000,000 $ 127,273
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(1) Computed pursuantThis registration statement also covers contracts that may be issued by the
registrants under which the counterparty may be required to purchase Debt
Securities, Preferred Stock, Depositary Shares or Common Stock covered
hereby.
(2) In U.S. Dollars or the equivalent thereof denominated in one or more
foreign currencies or units of two or more foreign currencies or composite
currencies (such as European Currency Units).
(3) Pursuant to Rule 457(c)429 under the Securities Act of 1933, as amended, solelythe
Prospectus included in this registration statement also relates to an
aggregate of $68,012,249 of securities of Highwoods Properties, Inc. (the
"Company") previously registered pursuant to registration statement
333-31183, for which a filing fee of $20,610 has previously been paid at
the purpose of calculating thetime such registration statement was originally filed.
(4) Filing fee on the
basispreviously paid.
(5) Calculated pursuant to Rule 457(c) of the average highrules and low pricesregulations under the
Securities Act of the Registrant's common stock
reported on the New York Stock Exchange on December 29, 1997.
(2) Includes the resale1933, as amended.
(6) The Company also registers hereunder an indeterminate number of up to 1,444,290 shares of
Common Stock issuable
upon exercise of 1,444,290 Warrants, which Warrantsthat may be deemedissued upon conversion of Preferred Stock or
Depositary Shares. No separate consideration will be received for Common
Stock as may from time to time be issued upon conversion of Preferred
Stock or Depositary Shares.
(7) To be represented by Depositary Receipts representing an interest in all or
a specified portion of a share of Preferred Stock.
(8) Debt Securities issued by Highwoods/Forsyth Limited Partnership may be
accompanied by a Guarantee to be heldissued by affiliatesthe Company. No separate
consideration will be received for any Guarantee.
Pursuant to Rule 429 under the Securities Act of 1933, the Prospectus
included in this registration statement is a combined Prospectus and relates to
registration statement no. 333-31183 previously filed by the Company and
declared effective on July 24, 1997. This registration statement, which is a
new registration statement, also constitutes post-effective amendment no. 1 to
registration statement no. 333-31183, and such post-effective amendment shall
hereafter become effective concurrently with the effectiveness of this
registration statement in accordance with section 8(c) of the Company.Securities Act of
1933.
The Registrantregistrants hereby amendsamend this Registration Statementregistration statement on such date or
dates as may be necessary to delay its effective date until the Registrantregistrants
shall file a further amendment which specifically states that this Registration Statementregistration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statementregistration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS HIGHWOODS PROPERTIES, INC.
3,090,141 SHARES OF COMMON STOCK
and
1,479,290 WARRANTS
All of the shares of common stock, par value $.01 per share (the "Common
Stock"), and warrants to purchase shares ofDATED JUNE 8, 1998
PROSPECTUS
$1,318,012,249
Highwoods Properties, Inc.
Common Stock, (the "Warrants") ofPreferred Stock and Depositary Shares
Highwoods/Forsyth Limited Partnership
Debt Securities
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Highwoods Properties, Inc. (the "Company") offered herebymay from time to time offer in
one or more series (i) shares of common stock, $.01 par value per share
("Common Stock"), (ii) shares of preferred stock, $.01 par value per share
("Preferred Stock"), and (iii) shares of Preferred Stock represented by
depositary shares (the "Depositary Shares"), with an aggregate public offering
price of up to $898,012,249 (or its equivalent in another currency based on the
exchange rate at the time of sale) in amounts, at prices and on terms to be
determined at the time of offering. Highwoods/Forsyth Limited Partnership (the
"Operating Partnership") may from time to time offer in one or more series
unsecured non-convertible debt securities ("Debt Securities"), with an
aggregate public offering price of up to $420,000,000 (or its equivalent in
another currency based on the exchange rate at the time of sale) in amounts, at
prices and on terms to be determined at the time of offering. The Common Stock,
Preferred Stock, Depositary Shares and Debt Securities (collectively, the
"Securities") are
beingmay be offered, separately or together, in separate series in
amounts, at prices and on terms to be set forth in one or more supplements to
this Prospectus (each a "Prospectus Supplement"). If any Debt Securities issued
by the Selling Stockholders. See "Selling Stockholders."Operating Partnership are rated below investment grade at the time of
issuance, such Debt Securities will be fully and unconditionally guaranteed by
the Company as to payment of principal, premium, if any, and interest (the
"Guarantees"). Debt Securities rated investment grade may also be accompanied
by a Guarantee to the extent and on the terms described herein and in the
accompanying Prospectus Supplement. The Company will not receive anyconducts substantially all of
its activities through, and substantially all of its assets are held by,
directly or indirectly, the proceedsOperating Partnership. Consequently, the Company's
operating cash flow and its ability to service its financial obligations,
including the Guarantees, is dependent upon the cash flow of, and distributions
or other payments from, the saleOperating Partnership to the Company.
The specific terms of the Securities offered hereby; however,in respect of which this Prospectus
is being delivered will be set forth in the Company has agreed to bear certain expensesapplicable Prospectus Supplement
and will include, where applicable: (i) in the case of registrationCommon Stock, any
initial public offering price; (ii) in the case of Preferred Stock, the
specific title and stated value, any dividend, liquidation, redemption,
conversion, voting and other rights, and any initial public offering price;
(iii) in the case of Depositary Shares, the fractional share of Preferred Stock
represented by each such Depositary Share; and (iv) in the case of Debt
Securities, the specific title, aggregate principal amount, currency, form
(which may be registered or bearer, or certificated or global), authorized
denominations, maturity, rate (or manner of calculation thereof) and time of
payment of interest, terms for redemption at the option of the Operating
Partnership or repayment at the option of the holder, terms for sinking fund
payments, covenants, applicability of any Guarantees and any initial public
offering price. In addition, such specific terms may include limitations on
direct or beneficial ownership and restrictions on transfer of the Securities,
underin each case as may be appropriate to preserve the Federal and state securities laws.
SEE "RISK FACTORS" AT PAGE 5 FOR CERTAIN FACTORS RELEVANT TO AN INVESTMENT
IN THE SECURITIES.
The Common Stock is listed onstatus of the New York Stock Exchange (the "NYSE")
under the symbol "HIW." To ensure that the Company retains its status as a
real estate investment trust ("REIT"), ownership by for Federal income tax purposes.
The applicable Prospectus Supplement will also contain information, where
applicable, about certain United States Federal income tax considerations
relating to, and any person is limited to 9.8%listing on a securities exchange of, the outstanding shares of Common Stock, with certain exceptions.Securities
covered by such Prospectus Supplement.
SEE "RISK FACTORS" BEGINNING ON PAGE 3 OF THIS PROSPECTUS FOR A
DESCRIPTION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PURCHASERS OF THE
SECURITIES. ----------------
The Warrants
are not listed on an exchange.
The Selling StockholdersSecurities may be offered directly, through agents designated from
time to time may offer and sellby the Company or the Operating Partnership, or to or through
underwriters or dealers. If any agents or underwriters are involved in the sale
of any of the Securities, held by them directly, indirectly through brokers or dealers or in a
distribution by one or more underwriters on a firm commitment or best efforts
basis, in the over-the-counter market, on any national securities exchange on
which the Securities are listed or traded, in privately negotiated transactions
or otherwise, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices. To the extent
required, thetheir names, of any agent or broker-dealer and applicable commissions or
discounts and any other required information with respect to any particular
offerapplicable purchase price, fee,
commission or discount arrangement between or among them, will be set forth, or
will be calculable from the information set forth, in an accompanying
Prospectus Supplement. See "Plan of Distribution." The Selling Stockholders and any agents or broker-dealers that participate
with the Selling Stockholders in the distribution of theNo Securities may be deemed to be "underwriters" withinsold
without delivery of a Prospectus Supplement describing the meaningmethod and terms of
the Securities Actoffering of 1933, as
amended (the "Securities Act"), and any commission received by them and any
profit on the resalesuch series of the Securities may be deemed to be underwriting
commissions or discounts under the Securities Act. See "Plan of Distribution"
for a description of certain indemnification arrangements between the Company
and the Selling Stockholders.Securities.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.PROSPEC-TUS. ANY REPRESENTATION TO THE CONTRARY IS
A
CRIMINAL OFFENSE.
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The date of this Prospectus is February 10,June , 1998.
AVAILABLE INFORMATION
The Company isand the Operating Partnership are subject to the information
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and in accordance therewith the Company files reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). and the Operating Partnership files reports with the
Commission. Such reports, proxy statements and other information may be
inspected and copied, at prescribed rates, at the public reference facilities
of the Commission at 450 Fifth Street, N.W., Washington, DCD.C. 25049, Room 1024,
and at the Commission's New York regional office at Seven World Trade Center,
New York, New York 10048 and at the Commission's Chicago regional office at
Citicorp Center, 500 W. Madison Street, Chicago, Illinois 60661. Such
information, when available, also may be accessed through the Commission's
electronic data gathering, analysis and retrieval system ("EDGAR") via
electronic means, including the Commission's home page on the Internet (http://www.sec.gov). TheIn addition, the Common Stock of the Company, iscertain series of
Preferred Stock and Depositary Shares of the Company and certain debt
securities of the Operating Partnership are listed on the NYSE,New York Stock
Exchange ("NYSE"), and such materialsimilar information concerning the Company or the
Operating Partnership can also be inspected and copied at the offices of the NYSE,
20 Broad Street, New York, New York 10005.
The Company hasand the Operating Partnership have filed with the Commission a
registration statement on Form S-3 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the Securities registered hereby.Securities. This prospectus
("Prospectus"), which constitutes a part of the Registration Statement,registration statement, does
not contain all of the information set forth in the Registration Statementregistration statement and
in the exhibits and schedules thereto. For further information with respect to
the Company, the Operating Partnership and such Common
Stock,the Securities, reference is hereby
made to such Registration Statement,registration statement, exhibits and schedules. The Registration Statementregistration
statement may be inspected without charge at, or copies obtained upon payment
of prescribed fees from, the Commission and its regional offices at the
locations listed above. Any statements contained herein concerning a provision
of any document are not necessarily complete, and, in each instance, reference
is made to the copy of such document filed as an exhibit to the Registration Statementregistration
statement or otherwise filed with the Commission. Each such statement is
qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company or the Operating Partnership
with the Commission pursuant to the Exchange Act are incorporated herein by
reference and made a part hereof:
a. The Company's annual report on Form 10-K for the year ended December
31, 1996;1997 (as amended on April 29, 1998 and May 19, 1998);
b. The Operating Partnership's annual report on Form 10-K for the year
ended December 31, 1997 (as amended on April 29, 1998 and May 19, 1998);
c. The Company's quarterly report on Form 10-Q for the quarter ended
March 31, 1998;
d. The Operating Partnership's quarterly report on Form 10-Q for the
quarter ended March 31, 1998;
e. The Company's current reports on Form 8-K, dated January 9, 1997 (as
amended on February 7, 1997, March 10, 1997 and April 28, 1998), August
27, 1997 (as amended on September 23, 1997), October 1, 1997, November
17, 1997, January 22, 1998, February 2, 1998, February 4, 1998, April 20,
1998 and April 29, 1998;
f. The Operating Partnership's current reports on Form 8-K, dated January
9, 1997 (as amended on February 7, 1997, March 10, 1997 and April 28,
1998), October 1, 1997, November 17, 1997, January 22, 1998, February 2,
1998, February 4, 1998, April 20, 1998 and April 29, 1998; and
g. The description of the Common Stock of the Company included in the
Company's Registration Statementregistration statement on Form 8-A, dated May 16, 1994;
c. The Company's Current Reports on Form 8-K, dated April 1, 1996 (as
amended on June 3, 1996 and June 18, 1996), April 29, 1996 (as
amended on June 3, 1996 and June 18, 1996) (except for the financial
statements of AP Fontaine III Partners, L.P. for the period from
October 28, 1993 (date of inception) through December 31, 1993, and
the combined balance sheet of Southeast Realty Corp., AP Southeast
Portfolio Partners, L.P. and AP Fontaine III Partners, L.P., which
are not incorporated herein), January 9, 1997 (as amended on
February 7, 1997 and March 10, 1997), February 12, 1997, August 27,
1997 (as amended on September 23, 1997), September 18, 1997,
September 25, 1997, October 1, 1997, October 4, 1997, November 17,
1997, and December 22, 1997; and
d. The Company's quarterly reports on Form 10-Q for the periods ended
March 31, 1997, June 30, 1997 and September 30, 1997.1994.
All documents filed by the Company or the Operating Partnership with the
Commission pursuant to Sections 13(a) and 13(c) of the Exchange Act and any
definitive proxy statements so filed pursuant to Section 14 of the Exchange Act
and any reports filed pursuant to Section 15(d) of the Exchange Act after the
date of this Prospectus and prior to the termination of the offering of the
Securities to which this Prospectus relates shall be
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deemed to be incorporated by reference into this Prospectus and to be a part
hereof from the date of filing of such documents. Any statement contained in a
document incorporated by reference herein shall 2
be deemed to be modified or
superseded for the purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document whichthat is
incorporated by reference herein modifies or supersedes such earlier statement.
Any such statements modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company will furnish without charge upon written or oral request to
each person to whom a copy of this Prospectus is delivered, including any
beneficial owner, a copyCopies of any or all of the documents specifically incorporated herein by
reference (not including the exhibits to such documents, unless such exhibits
are specifically incorporated by reference in such documents). will be furnished
without charge to each person to whom a copy of this Prospectus is delivered
upon written or oral request. Requests should be made to: Highwoods Properties,
Inc., Investor Relations, 3100 Smoketree Court, Suite 600, Raleigh, North
Carolina 27604.
The Company's telephone number
is (919) 872-4924.
THE COMPANY AND THE OPERATING PARTNERSHIP
The Company is a self-administered and self-managed real estate investment
trust ("REIT") that began operations through a predecessor in 1978. TheAt March
31, 1998, the Company ownsowned a portfolio of 480 in-service382 office and 148 industrial
(including 80 service center) properties (the "Properties") encompassing, and 895 acres (and
had agreed to purchase an additional 395 acres) of undeveloped land suitable
for future development (the "Development Land"). In addition, as of March 31,
1998, an additional 32 properties (the "Development Projects"), which will
encompass approximately 31.03.6 million rentable square feet.feet, were under
development. The Properties consist of 341 office properties and 139 industrial properties
(including 73 service centers),are located in 19 markets in North Carolina,
Florida, Tennessee, Georgia, Virginia, Georgia, South Carolina, Maryland and Alabama. As
of September 30, 1997,March 31, 1998, the Properties wereconsisted of approximately 91%33.9 million
rentable square feet and were leased to approximately 3,2003,400 tenants.
In addition, the Company has 33 properties (26 office properties and seven
industrial properties (collectively, the "Development Projects")) under
development in North Carolina, Virginia, Tennessee, Maryland and South Carolina,
which will encompass approximately 3.1 million square feet. The Company also
owns approximately 800 acres (and has agreed to purchase an additional 337
acres) of land for future development (collectively, the "Development Land").
The Development Land is zoned and available for office and/or industrial
development, substantially all of which has utility infrastructure already in
place.
The Company conducts substantially all of its activities through, and
substantially all of its interests in the Properties are held directly or
indirectly by, Highwoods/Forsyth Limited
Partnership (the "Operating Partnership").the Operating Partnership. The Company is the sole general
partner of the Operating Partnership and owns 82%as of March 31, 1998, 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 or, at the Company's option, one share (subject to certain
adjustments) of the Common Stock. With each such exchange, the number of Common
Units owned by the Company and, therefore, the Company's percentage interest in
the Operating Partnership, will increase.
In addition to owning the Properties, the Development Projects and the
Development Land, the Company provides leasing, property management, real
estate development, construction and miscellaneous tenant services for its propertiesthe Properties
as well as for third parties. The Company conducts its third-party fee-based
services through Highwoods Services, Inc., a subsidiary of the Operating
Partnership ("Highwoods Services"), and through Highwoods/ Tennessee
Properties, Inc., a wholly owned subsidiary of the Company, and Highwoods Services, Inc., a wholly owned
subsidiary of the Operating Partnership.Company.
The Company is a Maryland corporation that was formedincorporated in Maryland1994. The
Operating Partnership is a North Carolina limited partnership formed in 1994.
The Company's and the Operating Partnership's executive officersoffices are located at
3100 Smoketree Court, Suite 600, Raleigh, North Carolina 27604, and itstheir
telephone number is (919) 872-4924. The Company also maintains
regional offices in Winston-Salem, Greensboro and Charlotte, North Carolina;
Richmond, Virginia; Nashville and Memphis, Tennessee; Atlanta, Georgia; and
Tampa and Boca Raton, Florida.
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each of
its primary markets.
RISK FACTORS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS. THESE STATEMENTS ARE
IDENTIFIED BY WORDS SUCH AS "EXPECT," "ANTICIPATE," "SHOULD" AND WORDS OF
SIMILAR IMPORT. ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THOSE PROJECTED IN
THE FORWARD- LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW UNDER "RISK FACTORS." AN
INVESTMENT IN THE COMMON STOCK INVOLVES VARIOUS RISKS. THE FOLLOWING
INFORMATION, IN CONJUNCTION WITH THE OTHER INFORMATION CONTAINED IN THIS
PROSPECTUS, SHOULD BE CAREFULLY CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
SHARES.
Geographic ConcentrationProspective investors should carefully consider, among other factors, the
matters described below before purchasing offered Securities.
Dependence of the Company's Operating Performance on Southeastern Markets
The Company's revenues and the value of its Propertiesproperties may be affected by
a number of factors, including the local economic climate (which may be
adversely affectedimpacted by business layoffs or downsizing, industry slowdowns,
changing demographics and other factors) and local real estate conditions (such
as oversupply of or reduced demand for office, industrial and other competing
commercial properties). TheAs of March 31, 1998, the Properties arewere located in 18 southeastern19
markets
and, based on September 1997 results, approximately 34% of the total annualized
rental revenue is represented by Properties located in North Carolina, Florida, Tennessee, Georgia, Virginia, South
Carolina,
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Maryland and Alabama. Based on March 1998 results, approximately 37% of the
rental revenue from the Properties is derived from properties in Florida and
approximately 35%31% of the total annualized rentalsuch revenue is represented by
Properties locatedderived from properties in Florida.North Carolina.
The Company's performance and its ability to make distributions to stockholders
is thereforeparticularly dependent on the economic and real estate conditions in the
Southeast particularly inand its Florida and North Carolina and Florida.markets in particular. There can
be no assurance as to the continued growth of the economy in the Company's
southeastern economy.markets.
Conflicts of Interest in the Business of the Company
Potential Tax Consequences upon Sale or Refinancing of PropertiesProperties. Holders
of Common Units may suffer adverse tax consequences upon the sale or
refinancing of any of the Company's properties; therefore, such holders,
including certain of the Company's officers and directors, and the Company may
have different objectives regarding the appropriate pricing and timing of any
sale or refinancing of such properties. Although the Company, as the sole
general partner of the Operating Partnership, has the exclusive authority as to
whether and on what terms to sell or refinance an individual property, those
members of the Company's management and Boardboard of Directorsdirectors of the Company who
hold Common Units may influence the Company not to sell or refinance certain
properties even though such sale or refinancing might otherwise be financially
advantageous to the Company.
LimitationsPotential Inability to Eliminate Conflicts of Interests. The Company has
adopted certain policies relating to conflicts of interest. These policies
include a bylaw provision requiring all transactions in which executive
officers or directors have a conflicting interest to be approved by a majority
of the independent directors of the Company or a majority of the shares of
capital stock held by disinterested stockholders. There can be no assurance
that the Company's policies will be successful in eliminating the influence of
such conflicts, and if they are not successful, decisions could be made that
might fail to reflect fully the interests of all stockholders.
Potential Anti-Takeover Effect of Certain Provisions of Maryland Law and the
Governing Documents of the Company and Operating Partnership
Limitation on AcquisitionOwnership of the Company's Capital Stock. The Company's
Amended and Change in Control
Ownership Limit. The Company'sRestated Articles of Incorporation prohibit ownership of more than
9.8% of the outstanding Common Stockcapital stock of the Company by any person. Such
restriction is likely to have the effect of delaying, deferring or precluding
an acquisition of control of the Company by a third party without consent of
the Boardboard of Directorsdirectors even if a change in control were in the best interest of
stockholders.
Required Consent of the Operating Partnership for Significant Corporate
Action. The Company may not engage in certain change of control transactions
without the approval of the holders of a majority of the outstanding Common
Units. Should the Company ever own less than a majority of the outstanding
Common Units, this voting requirement might limit the possibility fordelay, defer or preclude an
acquisition or change in the control of the Company. TheAs of March 31, 1998, the
Company ownsowned approximately 82%83% of the Common Units.
Staggered Board.Difficulty in Removing Current Directors. The Boardboard of Directorsdirectors of the
Company has three classes of directors, the terms of which will expire in staggered,1999,
2000 and 2001. Directors for each class are generally chosen for a three-year
intervals.term. The staggered terms for directors may affect the stockholders' ability to
change control of the Company even if a change in control were in the
stockholders' best interest.
Anti-Takeover Protections of Operating Partnership Agreement. The
Operating Partnership Agreement was
recentlyhas been amended to clarify the provisions
relating to limited partners' redemption rights in the event of certain changes
of control of the Company.
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Because these provisions require an acquiror to make
provision under certain circumstances to maintain the Operating Partnership
structure and maintain a limited partner's right to continue to hold Common
Units with future redemption rights, thethis amendment could have the effect of
discouraging a third party from making an acquisition proposal for the Company.
ShareholdersDilutive Effect of Shareholders' Rights Plan. On October 4, 1997, the
Company's Boardboard of Directorsdirectors adopted a ShareholdersShareholders' Rights Plan and declared a
distribution of one preferred share purchase right (a "Right") for each
outstanding share of Common Stock. The Rights were issued on October 16, 1997
to each shareholder of record on such date. The Rights have certain
anti-takeover effects. The Rights will cause substantial dilution to a person
or group that attempts to acquire the Company on terms not approved by the
Company's Boardboard of Directors.directors. The Rights should not interfere with any merger
or other business combination approved by the Boardboard
4
of Directorsdirectors since the Rights may be redeemed by the Company for $.01 per Right
prior to the time that a person or group has acquired beneficial ownership of
15% or more of the Common Stock.
Adverse Impact on Distributions of Failure to Qualify as a REIT
The Company and the Operating Partnership intend to operate in a manner so
as to permit the Company to remain qualified as a REIT under the Internal
Revenue Code of 1986, as amended (the "Code"). Although the Company believes
that it will operate in such a manner, no assurance can be given that the
Company will remain qualified as a REIT. If in any taxable year the Company
were to fail to qualify as a REIT, the Company would not be allowed a deduction
for distributions to stockholders in computing taxable income and would be
subject to Federal income tax (including any applicable alternative minimum
tax) on its taxable income at regular corporate rates.
Real Estate Investment Risks
General Risks.Factors that Could Cause Poor Operating Performance of the Properties
Reliance on Performance of Properties. Real property investments are
subject to varying degrees of risk. The yields available from equity
investments in real estate depend in large part on the amount of income
generated and expenses incurred. If the Company's properties do not generate
revenues sufficient to meet operating expenses, including debt service, tenant
improvements, leasing commissions and other capital expenditures, the Company may have to borrow additional amounts to
cover fixed costs, and the Company's cash flow and
ability to make distributions to its stockholders willand the Operating
Partnership's ability to make payments of interest and principal on any Debt
Securities may be adversely affected.
The Company's revenues and the value of its properties may be adversely
affected by a number of factors, including the national economic climate; the
local economic climate; local real estate conditions; the perceptions of
prospective tenants of the attractiveness of theeach property; the ability of the
Company to provide adequate management, maintenance and insurance; and
increased operating costs (including real estate taxes and utilities). In
addition, real estate values and income from properties are also affected by
such factors as applicable laws, including tax laws, interest rate levels and
the availability of financing.
Competition.Potential Adverse Effect of Competition on Operating Performance. Numerous
office and industrial properties compete with the Company's properties in
attracting tenants to lease space. Some of these competing properties are newer
or better located than some of the Company's properties. Significant
development of office or industrial properties in a particular area could have
a material effect on the Company's ability to lease space in its properties and
on the rents charged.
Bankruptcy andor Weak Financial Condition of Tenants. At any time, a tenant
of the Company's properties may seek the protection of the bankruptcy laws,
which could result in the rejection and termination of such tenant's lease and
thereby cause a reduction in the cash flow available for distribution by the
Company. Although the Company has not experienced material losses from tenant
bankruptcies, no assurance can be given that tenants will not file for
bankruptcy protection in the future or, if any tenants file, that they will
affirm their leases and continue to make rental payments in a timely manner. In
addition, a tenant from time to time may experience a downturn in its business,
which may weaken its financial condition and result in the failure to make
rental payments when due. If tenant leases are not 5
affirmed following
bankruptcy or if a tenant's financial condition weakens, the Company's income
and its stockholder distributions and the Operating Partnership's ability to
make payments of interest and principal on any Debt Securities may be adversely
affected.
Uncertainty in Renewal of Leases and Re-lettingReletting of Space. The Company will
be subject to the risks that upon expiration of leases for space located in its
properties, the leases may not be renewed, the space may not be re-letrelet or the
terms of renewal or re-lettingreletting (including the cost of required renovations) may
be less favorable than current lease terms. If the Company were unable to promptly
re-letrelet
or renew promptly the leases for all or a substantial portion of this space or
if the rental rates upon such renewal or re-lettingreletting were significantly lower
than expected rates, then the Company's cash flow and ability to make expected
distributions to stockholders and the Operating Partnership's ability to make
payments of interest and principal on any Debt Securities may be adversely
affected.
Illiquidity of Real Estate. Equity real estate investments are relatively
illiquid. Such liquidityilliquidity will tend to limit the ability of the Company to
vary its portfolio promptly in response to changes in economic or other
conditions. In addition, the Code limits the Company's ability to sell
properties held for fewer than four years,
5
which may affect the Company's ability to sell properties without adversely
affecting returnsits financial performance or at a time that would otherwise be in the
best interest of stockholders.
Potential Adverse Effect on Results of Operations Due to holders of Common Stock. Changes in Laws.
Because increases in income, service or transfer taxes are generally not passed
through to tenants under leases, such increases may adversely affect the
Company's cash flow and its ability to make distributions to stockholders. The
PropertiesCompany's properties are also subject to various Federal, state and local
regulatory requirements, such as requirements of the Americans with
Disabilities Act and state and local fire and life safety requirements. Failure
to comply with these requirements could result in the imposition of fines by
governmental authorities or awards of damages to private litigants. The Company
believes that the Properties are currentlycomply in complianceall material respects with all such
regulatory requirements. However, there can be no assurance that these
requirements will not be changed or that new requirements will not be imposed
whichthat would require significant unanticipated expenditures by the Company and
which
could have an adverse effect on the Company's cash flow and expected
distributions.
Risk ofPotential Problems in Development, Construction and Acquisition Activities
The Company intends to actively continue development and construction of office and
industrial properties, including development on the Development Land.Land and the
completion of the Development Projects. Risks associated with the Company's
development and construction activities, including activities relating to the
Development Land and the Development Projects, may include: abandonment of
development opportunities; construction costs of a property exceeding original
estimates, possibly making the property uneconomical; occupancy rates and rents
at a newly completed property may not be sufficient to make the property
profitable; financing may not be available on favorable terms for development
of a property; and construction and lease-up may not be completed on schedule,
resulting in increased debt service expense and construction costs. In
addition, new development activities, regardless of whether or not they are
ultimately successful, typically require a substantial portion of management's
time and attention. Development activities are also subject to risks relating
to the inability to obtain, or delays in obtaining, all necessary zoning,
land-use, building, occupancy, and other required governmental permits and
authorizations. These risks may adversely affect the Company's results of
operations and ability to make distributions to its stockholders and the
Operating Partnership's ability to service its debt.
The Company intends to actively continue to acquire office and industrial
properties. Acquisitions of office and industrial properties entail risks that
investments will fail to perform in accordance with expectations.expectations, adversely
affecting the Company's operations and stockholder distributions and the
Operating Partnership's ability to service its debt. Estimates of the costs of
improvements to bring an acquired property up to standards established for the
market position intended for that property may prove inaccurate. In addition, there are general investment risks associatedFurthermore,
while the Company is likely to be involved in negotiations (at various stages)
to acquire one or more properties or portfolios, no assurances can be given
that any or all of such proposed acquisitions will be consummated.
Although the Company has limited its development, acquisition, management
and leasing business primarily to markets and property types with anywhich
management is familiar, the Company may expand its business to new real estate investment.
Financing Risksgeographic
areas and property types. Management believes that much of its past success has
been a result of its local expertise in the Southeast and its experience in the
ownership, management and development of suburban office and industrial
properties. The Company may not initially possess the same level of familiarity
with new geographic areas and property types to develop, acquire, manage or
lease newly acquired properties as profitably as it does for its existing
properties.
Potential Adverse Effect of Incurrence of Debt
Potential Inflexibility of Debt Financing. The Company and the Operating
Partnership are subject to the risks associated with debt financing, including
the risk that the cash provided by operating activities will be insufficient to
meet required payments of principal and interest, the risk of rising interest
rates on floating rate debt, the risk that the Company and the Operating
Partnership will not be able to prepay or refinance existing indebtedness
(which generally will not have been fully amortized at maturity) or that the
terms of such refinancing will not be as favorable as the terms of existing
6
indebtedness. If refinancing of such indebtedness could not be secured on
acceptable terms, the Company and/or the Operating Partnership might be forced
to dispose of properties upon disadvantageous terms, which might result in
losses and might adversely affect the cash flow available for distribution to
equity holders or for debt service. An inability to secure refinancing could also
cause
6
the Company to issue equity securities when its valuation is low, which could
adversely affect the market price of such securities. In addition, if a
property or properties are mortgaged to secure payment of indebtedness and the
Company is unable to meet mortgage payments, the mortgage securing the property
could be foreclosed upon by, or the property could be otherwise transferred to,
the mortgagee with a consequent loss of income and asset value to the Company.
RiskCompany
and potential adverse effect on stockholder distributions and the Operating
Partnership's ability to service its debt.
Adverse Effect of RisingPotential Increase in Market Interest Rates. The Company
and the Operating Partnership have incurred and expect in the future to incur
floatingvariable rate indebtedness in connection with the acquisition and development
of properties, as well as for other purposes. Also, additional indebtedness
that the Company and the Operating Partnership may incur under the existing
revolving credit facility bearsfacilities will bear interest at a floating rate.variable rates. Accordingly,
increases in interest rates would increase interest costs (to the extent that
the related indebtedness was not protected by interest rate protection
arrangements)., which could adversely affect the Company's and the Operating
Partnership's results of operations and the Company's ability to pay expected
distributions to stockholders and the Operating Partnership's ability to
service its debt.
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,laws, an owner or operator of real estate is liable for
the costs of removal or remediation of certain hazardous or toxic substances on
or in such property as well as certain other costs, including governmental
fines and injuries to persons and property. Such laws often impose such
liability without regard to whether the owner or operator knew of, or was
responsible for, the presence of such hazardous or toxic substances. The
presence of such substances, or the failure to remediate such substances
properly, may adversely affect the owner's or operator's ability to sell or
rent such property or to borrow using such property as collateral. Persons who
arrange for the disposal or treatment of hazardous or toxic substances may also
be liable for the costs of removal or remediation of such substances at a
disposal or treatment facility, whether or not such facility is owned or
operated by such person. Certain environmental laws impose liability for
release of asbestos- containingasbestos-containing materials ("ACM"), and third parties may seek
recovery from owners or operators of real property for personal injuries
associated with ACM. A number of the Properties contain ACM or material that is
presumed to be ACM. In connection with the ownership and operation of its
properties, the Company may be liable for such costs. In addition, it is not
unusual for property owners to encounter on-site contamination caused by
off-site sources, and the presence of hazardous or toxic substances at a site
in the vicinity of a property could require the property owner to participate
in remediation activities in certain cases or could have an adverse effect on
the value of such property. In a few situations,
contaminationContamination from adjacent properties has migrated
onto propertyat least three properties owned by the Company; however, based on current
information, management of the Company does not believe that any significant
remedial action is necessary at these affected sites.sites
As of the date hereof, substantially all99% of the Properties hadhave been subjected to a
Phase I environmental assessment. These assessments have not revealed, nor is
management of the Company aware of, any environmental liability that it
believes would have a material adverse effect on the Company's results
offinancial
position, operations liquidity or financial positionliquidity taken as a whole. This projection, however,
could prove to be incorrect depending on certain factors. For example, the
Company's assessments may not reveal all environmental liabilities or may
underestimate the scope and severity of environmental conditions observed, with
the result that there may be material environmental liabilities of which the
Company is unaware, or material environmental liabilities may have arisen after
the assessments were performed of which the Company is unaware. In addition,
assumptions regarding groundwater flow and the existence and source of
contamination are based on available sampling data, and there are no assurances
that the data is reliable in all cases. Moreover, there can be no assurance
that (i) future laws, ordinances or regulations will not impose any material
environmental liability or (ii) the current environmental condition of the
Properties will not be affected by tenants, by the condition of land or
operations in the vicinity of the Properties, or by third parties unrelated to
the Company.
7
Some tenants use or generate hazardous substances in the ordinary course
of their respective businesses. These tenants are required under their leases
to comply with all applicable laws and are responsible to the Company for any
damages resulting from the tenants' use of the property. The Company is not
aware of any material environmental problems resulting from tenants' use or
generation of hazardous substances. There are no
7
assurances, however, that all tenants will comply with the terms of their
leases or remain solvent and that the Company may not at some point be
responsible for contamination caused by such tenants.
USE OF PROCEEDS
ThisUnless otherwise specified in the applicable Prospectus relatesSupplement, the
Company and the Operating Partnership intend to Securities being offered and sold foruse the accounts of the Selling Securityholders. The Company will not receive anynet proceeds from the
sale of Securities for general corporate purposes, including the development
and acquisition of additional properties and other acquisition transactions,
the payment of certain outstanding debt, and improvements to certain properties
in the Company's portfolio. The Company is required, by the terms of the
partnership agreement of the Operating Partnership (the "Operating Partnership
Agreement"), to invest the net proceeds of any sale of Common Stock, Preferred
Stock or Depositary Shares in the Operating Partnership in exchange for
additional partnership interests.
RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
The ratios of earnings to fixed charges for both the Company and the
Operating Partnership for the three months ended March 31, 1998 was 2.51x. The
ratios of earnings to fixed charges for the Company for the years ended
December 31, 1997 and 1996 were 2.56x and 2.53x, respectively. The ratios of
earnings to fixed charges for the Operating Partnership for the years ended
December 31, 1997 and 1996 were 2.54x and 2.55x, respectively. The ratios of
earnings to fixed charges for both the Company and the Operating Partnership
for the year ended December 31, 1995 and the period from June 14, 1994 to
December 31, 1994 were 3.00x and 2.43x, respectively. Earnings were inadequate
to cover fixed charges by $171,000 for the year ended December 31, 1993. This
deficiency occurred prior to the Company's initial public offering (the "IPO")
of Common Stock in June 1994. Prior to the completion of the IPO, the Company's
predecessor (the "Highwoods Group") operated in a manner as to minimize taxable
income to the owners. As a result, although its properties generated positive
net cash flow, the Highwoods Group had a net loss for the year ended December
31, 1993. The IPO allowed the Company to significantly deleverage its
properties and improve its ratio of earnings to fixed charges.
On February 12, 1997, the Company issued 125,000 8 5/8% Series A
Cumulative Redeemable Preferred Shares (the "Series A Preferred Shares"), which
was its first issuance of Preferred Stock. See "Description of Series A
Preferred Shares." On September 25, 1997, the Company issued 6,900,000 8%
Series B Cumulative Redeemable Preferred Shares (the "Series B Preferred
Shares"), which was its second issuance of Preferred Stock. See "Description of
Series B Preferred Shares." On April 23, 1998, the Company issued 4,000,000
Depositary Shares, each representing 1/10 of an 8% Series D Cumulative
Redeemable Preferred Share (the "Series D Preferred Shares"), which was its
third issuance of Preferred Stock. See "Description of Series D Preferred
Shares." For the three months ended March 31, 1998, the ratio of earnings to
combined fixed charges and preferred stock dividends was 1.94x for the Company
and 1.93x for the Operating Partnership. For the year ended December 31, 1997,
the ratio of earnings to combined fixed charges and preferred stock dividends
was 2.07x for the Company and 2.05x for the Operating Partnership.
The ratio of earnings to combined fixed charges and preferred stock
dividends is computed as income from operations before extraordinary items plus
fixed charges (excluding capitalized interest) divided by fixed charges and
preferred stock dividends. Fixed charges and preferred stock dividends consist
of interest costs, including amortization and debt discount and deferred
financing fees, whether capitalized or expensed, the interest component of
rental expense, plus any dividends on outstanding preferred stock.
DESCRIPTION OF DEBT SECURITIES
Unless otherwise specified in the applicable Prospectus Supplement, the
Debt Securities but will pay all expenses relatedbe issued under an indenture dated as of December 1, 1996
(the "Indenture"), between the Operating Partnership, the Company and First
Union National Bank, as trustee (together with any other trustees appointed in
a supplemental indenture with respect to a particular series, the "Trustee").
The Indenture has been filed as an exhibit to the registration statement of
which this Prospectus is a part and is available for inspection at the
corporate trust office of the Securities.
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
GeneralTrustee or as described above under "Available
Information." The authorized capital stockIndenture is subject to, and governed by,
8
the Trust Indenture Act of the Company consists of 110,000,000 shares
of capital stock, $.01 par value, of which 100,000,000 shares are classified1939, as Common Stock and 10,000,000 shares are classified as preferred stock ("Preferred
Stock"amended (the "TIA"). The following descriptionstatements made
hereunder relating to the Indenture and the Debt Securities to be issued
thereunder are summaries of the termscertain provisions thereof and provisions of the shares of
capital stock of the Company and certain other matters doesdo not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all provisions of the Indenture and such Debt Securities. All section
references appearing herein are to sections of the Indenture, and capitalized
terms used but not defined herein shall have the respective meanings set forth
in the Indenture.
General
The Debt Securities will be direct, unsecured obligations of the Operating
Partnership and will rank equally with all other unsecured and unsubordinated
indebtedness of the Operating Partnership. At March 31, 1998, the total
outstanding debt of the Operating Partnership was approximately $1.2 billion,
approximately $354 million of which was secured debt. The Debt Securities may
be issued without limit as to aggregate principal amount, in one or more
series, in each case as established from time to time in or pursuant to
authority granted by a resolution of the board of directors of the Company as
sole general partner of the Operating Partnership or as established in one or
more indentures supplemental to the Indenture. All Debt Securities of one
series need not be issued at the same time and, unless otherwise provided, a
series may be reopened, without the consent of the holders of the Debt
Securities of such series, for issuances of additional Debt Securities of such
series (Section 301).
If any Debt Securities are rated below investment grade at the time of
issuance, such Debt Securities will be fully and unconditionally guaranteed by
the Company as to payment of principal, premium, if any, and interest.
The Indenture provides that there may be more than one Trustee thereunder,
each with respect to one or more series of Debt Securities. Any Trustee under
the Indenture may resign or be removed with respect to one or more series of
Debt Securities, and a successor Trustee may be appointed to act with respect
to such series (Section 608). In the event that two or more persons are acting
as Trustee with respect to different series of Debt Securities, each such
Trustee shall be a trustee of a trust under the Indenture separate and apart
from the trust administered by any other Trustee (Section 609), and, except as
otherwise indicated herein, any action described herein to be taken by a
Trustee may be taken by each such Trustee with respect to, and only with
respect to, the one or more series of Debt Securities for which it is Trustee
under the Indenture.
Reference is made to the Prospectus Supplement relating to the series of
Debt Securities being offered for the specific terms thereof, including:
(1) the title of such Debt Securities;
(2) the aggregate principal amount of such Debt Securities and any limit
on such aggregate principal amount;
(3) the percentage of the principal amount at which such Debt Securities
will be issued and, if other than the principal amount thereof, the
portion of the principal amount thereof payable upon declaration of
acceleration of the maturity thereof;
(4) the date or dates, or the method for determining such date or dates,
on which the principal of such Debt Securities will be payable;
(5) the rate or rates (which may be fixed or variable), or the method by
which such rate or rates shall be determined, at which such Debt
Securities will bear interest, if any;
(6) the date or dates, or the method for determining such date or dates,
from which any interest will accrue, the dates on which any such
interest will be payable, the record dates for such interest payment
dates, or the method by which any such date shall be determined, the
person to whom such interest shall be payable, and the basis upon which
interest shall be calculated if other than that of a 360-day year of
twelve 30-day months;
(7) the place or places where the principal of (and premium, if any) and
interest, if any, on such Debt Securities will be payable, such Debt
Securities may be surrendered for registration of transfer or exchange
and notices or demands to or upon the Operating Partnership in respect
of such Debt Securities and the Indenture may be served;
9
(8) the period or periods within which, the price or prices at which and
the terms and conditions upon which such Debt Securities may be
redeemed, as a whole or in part, at the option of the Operating
Partnership, if the Operating Partnership is to have such an option;
(9) the obligation, if any, of the Operating Partnership to redeem, repay
or purchase such Debt Securities pursuant to any sinking fund or
analogous provision or at the option of a holder thereof, and the
period or periods within which, the price or prices at which and the
terms and conditions upon which such Debt Securities will be redeemed,
repaid or purchased, as a whole or in part, pursuant to such
obligation;
(10) if other than U.S. dollars, the currency or currencies in which such
Debt Securities are denominated and payable, which may be a foreign
currency or units of two or more foreign currencies or a composite
currency or currencies, and the terms and conditions relating thereto;
(11) whether the amount of payments of principal of (and premium, if any)
or interest, if any, on such Debt Securities may be determined with
reference to an index, formula or other method (which index, formula or
method may, but need not be, based on a currency, currencies, currency
unit or units or composite currency or currencies) and the manner in
which such amounts shall be determined;
(12) the events of default or covenants of such Debt Securities, to the
extent different from or in addition to those described herein;
(13) whether such Debt Securities will be issued in certificated and/or
book-entry form;
(14) whether such Debt Securities will be in registered or bearer form
and, if in registered form, the denominations thereof if other than
$1,000 and any integral multiple thereof and, if in bearer form, the
denominations thereof if other than $5,000 and terms and conditions
relating thereto;
(15) with respect to any series of Debt Securities rated below investment
grade at the time of issuance, the Guarantees (the "Guaranteed
Securities");
(16) if the defeasance and covenant defeasance provisions described herein
are to be inapplicable or any modification of such provisions;
(17) whether and under what circumstances the Operating Partnership will
pay additional amounts on such Debt Securities in respect of any tax,
assessment or governmental charge and, if so, whether the Operating
Partnership will have the option to redeem such Debt Securities in lieu
of making such payment;
(18) with respect to any Debt Securities that provide for optional
redemption or prepayment upon the occurrence of certain events (such as
a change of control of the Operating Partnership), (i) the possible
effects of such provisions on the market price of the Operating
Partnership's or the Company's securities or in deterring certain
mergers, tender offers or other takeover attempts, and the intention of
the Operating Partnership to comply with the requirements of Regulation
14E under the Exchange Act and any other applicable securities laws in
connection with such provisions; (ii) whether the occurrence of the
specified events may give rise to cross-defaults on other indebtedness
such that payment on such Debt Securities may be effectively
subordinated; and (iii) the existence of any limitation on the
Operating Partnership's financial or legal ability to repurchase such
Debt Securities upon the occurrence of such an event (including, if
true, the lack of assurance that such a repurchase can be effected) and
the impact, if any, under the Indenture of such a failure, including
whether and under what circumstances such a failure may constitute an
Event of Default;
(19) if other than the Trustee, the identify of each security registrar
and/or paying agent; and
(20) any other terms of such Debt Securities.
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
("Original Issue Discount Securities"). If material or applicable, special U.S.
Federal income tax, accounting and other considerations applicable to Original
Issue Discount Securities will be described in the applicable Prospectus
Supplement.
10
Except as described under " -- Merger, Consolidation or Sale" and " --
Certain Covenants" or as may be set forth in any Prospectus Supplement, the
Indenture does not contain any other provisions that would limit the ability of
the Operating Partnership to incur indebtedness or that would afford holders of
the Debt Securities protection in the event of (i) a highly leveraged or
similar transaction involving the Operating Partnership, the management of the
Operating Partnership or the Company, or any affiliate of any such party, (ii)
a change of control, or (iii) a reorganization, restructuring, merger or
similar transaction involving the Operating Partnership or the Company. In
addition, subject to the limitations set forth under " -- Merger, Consolidation
or Sale," the Operating Partnership or the Company may, in the future, enter
into certain transactions, such as the sale of all or substantially all of its
assets or the merger or consolidation of the Operating Partnership or the
Company, that would increase the amount of the Operating Partnership's
indebtedness or substantially reduce or eliminate the Operating Partnership's
assets, which may have an adverse effect on the Operating Partnership's ability
to service its indebtedness, including the Debt Securities. In addition,
restrictions on ownership and transfers of the Company's Common Stock and
Preferred Stock which are designed to preserve its status as a REIT may act to
prevent or hinder a change of control. See "Description of Common Stock --
Certain Provisions Affecting Change of Control" and "Description of Preferred
Stock -- Restrictions on Ownership." Reference is made to the applicable
Prospectus Supplement for information with respect to any deletions from,
modifications of or additions to the events of default or covenants that are
described below, including any addition of a covenant or other provision
providing event risk or similar protection.
Reference is made to " -- Certain Covenants" below and to the description
of any additional covenants with respect to a series of Debt Securities in the
applicable Prospectus Supplement. Except as otherwise described in the
applicable Prospectus Supplement, compliance with such covenants generally may
not be waived with respect to a series of Debt Securities by the board of
directors of the Company as sole general partner of the Operating Partnership
or by the Trustee unless the Holders of at least majority in principal amount
of all outstanding Debt Securities of such series consent to such waiver,
except to the extent that the defeasance and covenant defeasance provisions of
the Indenture described under " -- Discharge, Defeasance and Covenant
Defeasance" below apply to such series of Debt Securities. See " --
Modification of the Indenture."
Guarantees
The Company will fully, unconditionally and irrevocably guarantee the due
and punctual payment of principal, premium, if any, and interest on any Debt
Securities rated below investment grade at the time of issuance by the
Operating Partnership, and the due and punctual payment of any sinking fund
payments thereon, when and as the same shall become due and payable, whether at
a maturity date, by declaration of acceleration, call for redemption or
otherwise. In addition, Debt Securities rated investment grade may also be
accompanied by a Guarantee to the extent and on the terms described in the
applicable Prospectus Supplement.
Denominations, Interest, Registration and Transfer
Unless otherwise described in the applicable Prospectus Supplement, the
Debt Securities of any series that are registered securities, other than
registered securities issued in global form (which may be of any denomination),
shall be issuable in denominations of $1,000 and any integral multiple thereof
and the Debt Securities that are bearer securities, other than bearer
securities issued in global form (which may be of any denomination), shall be
issuable in denominations of $5,000 (Section 302).
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and premium, if any) and interest on any series of Debt
Securities will be payable at the corporate trust office of the Trustee,
provided that, at the option of the Operating Partnership, payment of interest
may be made by check mailed to the address of the Person entitled thereto as it
appears in the applicable Security Register or by wire transfer of funds to
such Person at an account maintained within the United States (Sections 301,
307 and 1002).
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the Holder on the applicable Regular Record
Date and may either be paid to the Person in whose name such Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to the Holder of such Debt Security not
less than 10 days prior to
11
such Special Record Date, or may be paid at any time in any other lawful
manner, all as more completely described in the Indenture.
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
other Debt Securities of the same series and of a like aggregate principal
amount and tenor of different authorized denominations upon surrender of such
Debt Securities at the corporate trust office of the Trustee referred to above.
In addition, subject to certain limitations imposed upon Debt Securities issued
in book-entry form, the Debt Securities of any series may be surrendered for
registration of transfer thereof at the corporate trust office of the Trustee
referred to above. Every Debt Security surrendered for registration of transfer
or exchange shall be duly endorsed or accompanied by a written instrument of
transfer. No service charge will be made for any registration of transfer or
exchange of any Debt Securities, but the Trustee or the Operating Partnership
may require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith (Section 305). If the applicable
Prospectus Supplement refers to any transfer agent (in addition to the Trustee)
initially designated by the Operating Partnership with respect to any series of
Debt Securities, the Operating Partnership may at any time rescind the
designation of any such transfer agent or approve a change in the location
through which any such transfer agent acts, except that Operating Partnership
will be required to maintain a transfer agent in each place of payment for such
series. The Operating Partnership may at any time designate additional transfer
agents with respect to any series of Debt Securities (Section 1002).
Neither the Operating Partnership nor the Trustee shall be required (i) to
issue, register the transfer of or exchange any Debt Security if such Debt
Security may be among those selected for redemption during a period beginning
at the opening of business 15 days before selection of the Debt Securities to
be redeemed and ending at the close of business on the day of such selection,
or (ii) to register the transfer of or exchange any Registered Security so
selected for redemption in whole or in part, except, in the case of any
Registered Security to be redeemed in part, the portion thereof not to be
redeemed, or (iii) to exchange any Bearer Security so selected for redemption
except that such a Bearer Security may be exchanged for a Registered Security
of that series and like tenor, provided that such Registered Security shall be
simultaneously surrendered for redemption, or (iv) to issue, register the
transfer of or exchange any Security which has been surrendered for repayment
at the option of the Holder, except the portion, if any, of such Debt Security
not to be so repaid (Section 305).
Merger, Consolidation or Sale
The Operating Partnership or the Company may consolidate with, or sell,
lease or convey all or substantially all of its assets to, or merge with or
into, any other entity, provided that (a) the Operating Partnership or the
Company, as the case may be, shall be the continuing entity, or the successor
entity (if other than the Operating Partnership or the Company, as the case may
be) formed by or resulting from any such consolidation or merger or which shall
have received the transfer of such assets shall expressly assume payment of the
principal of (and premium, if any) and interest on all the Debt Securities and
the due and punctual performance and observance of all of the covenants and
conditions contained in the Indenture; (b) immediately after giving effect to
such transaction, no Event of Default under the Indenture, and no event which,
after notice or the lapse of time, or both, would become such an Event of
Default, shall have occurred and be continuing; and (c) an officer's
certificate and legal opinion covering such conditions shall be delivered to
the Trustee (Sections 801 and 803).
Certain Covenants
Limitations on Incurrence of Debt. The Operating Partnership will not, and
will not permit any Subsidiary to, incur any Debt (as defined below), other
than intercompany debt (representing Debt to which the only parties are the
Company, the Operating Partnership and any of their Subsidiaries (but only so
long as such Debt is held solely by any of the Company, the Operating
Partnership and any Subsidiary) that is subordinate in right of payment to the
Debt Securities) if, immediately after giving effect to the incurrence of such
additional Debt, the aggregate principal amount of all outstanding Debt of the
Operating Partnership and its Subsidiaries on a consolidated basis determined
in accordance with generally accepted accounting principles is greater than 60%
of the sum of (i) the Operating Partnership's Total Assets (as defined below)
as of the end of the calendar quarter covered in the Operating Partnership's
annual report on Form 10-K or quarterly report on Form 10-Q, as the case may
be, most recently filed with the Commission (or, if such filing is not
permitted under the Exchange
12
Act, with the Trustee) prior to the incurrence of such additional Debt and (ii)
the increase in Total Assets from the end of such quarter including, without
limitation, any increase in Total Assets resulting from the incurrence of such
additional Debt (such increase together with the Operating Partnership's Total
Assets shall be referred to as the "Adjusted Total Assets") (Section 1011).
In addition to the foregoing limitations on the incurrence of Debt, the
Operating Partnership will not, and will not permit any Subsidiary to, incur
any Debt secured by any mortgage, lien, charge, pledge, encumbrance or security
interest of any kind upon any of the property of the Operating Partnership, or
any Subsidiary ("Secured Debt"), whether owned at the date of the Indenture or
thereafter acquired, if, immediately after giving effect to the incurrence of
such additional Secured Debt, the aggregate principal amount of all outstanding
Secured Debt of the Operating Partnership and its Subsidiaries on a
consolidated basis is greater than 40% of the Operating Partnership's Adjusted
Total Assets (Section 1011).
In addition to the foregoing limitations on the incurrence of Debt, the
Operating Partnership will not, and will not permit any Subsidiary to, incur
any Debt if the ratio of Consolidated Income Available for Debt Service to the
Annual Service Charge (in each case as defined below) for the four consecutive
fiscal quarters most recently ended prior to the date on which such additional
Debt is to be incurred shall have been less than 1.5 to 1.0 on a pro forma
basis after giving effect to the incurrence of such Debt and to the application
of the proceeds therefrom, and calculated on the assumption that (i) such Debt
and any other Debt incurred by the Operating Partnership or its Subsidiaries
since the first day of such four-quarter period and the application of the
proceeds therefrom, including to refinance other Debt, had occurred at the
beginning of such period, (ii) the repayment or retirement of any other Debt by
the Operating Partnership or its Subsidiaries since the first day of such four-
quarter period had been incurred, repaid or retired at the beginning of such
period (except that, in making such computation, the amount of Debt under any
revolving credit facility shall be computed based upon the average daily
balance of such Debt during such period), (iii) the income earned on any
increase in Adjusted Total Assets since the end of such four-quarter period had
been earned, on an annualized basis, during such period, and (iv) in the case
of any acquisition or disposition by the Operating Partnership or any
Subsidiary of any asset or group of assets since the first day of such
four-quarter period, including, without limitation, by merger, stock purchase
or sale, or asset purchase or sale, such acquisition or disposition or any
related repayment of Debt had occurred as of the first day of such period with
the appropriate adjustments with respect to such acquisition or disposition
being included in such pro forma calculation (Section 1011).
For purposes of the foregoing provisions regarding the limitation on the
incurrence of Debt, Debt shall be deemed to be "incurred" by the Operating
Partnership and its Subsidiaries on a consolidated basis whenever the Operating
Partnership and its Subsidiaries on a consolidated basis shall create, assume,
guarantee or otherwise become liable in respect thereof.
Maintenance of Total Unencumbered Assets. The Operating Partnership is
required to maintain Total Unencumbered Assets of not less than 200% of the
aggregate outstanding principal amount of all outstanding Unsecured Debt
(Section 1012).
Existence. Except as permitted under " -- Merger, Consolidation or Sale,"
the Operating Partnership and the Company are required to do or cause to be
done all things necessary to preserve and keep in full force and effect their
existence, rights and franchises; provided, however, that neither the Operating
Partnership nor the Company shall be required to preserve any right or
franchise if it determines that the preservation thereof is no longer desirable
in the conduct of its business and that the loss thereof is not disadvantageous
in any material respect to the Holders of the Debt Securities (Section 1007).
Maintenance of Properties. The Operating Partnership is required to cause
all of its material properties used or useful in the conduct of its business or
the business of any Subsidiary to be maintained and kept in good condition,
repair and working order and supplied with all necessary equipment and to cause
to be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Operating Partnership may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that the
Operating Partnership and its Subsidiaries shall not be prevented from selling
or otherwise disposing for value their respective properties in the ordinary
course of business (Section 1005).
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Insurance. The Operating Partnership is required to, and is required to
cause each of its Subsidiaries to, keep all of its insurable properties insured
against loss or damage at least equal to their then full insurable value with
financially sound and reputable insurance companies (Section 1006).
Payment of Taxes and Other Claims. Each of the Operating Partnership and
the Company is required to pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (i) all taxes, assessments and
governmental charges levied or imposed upon it or any Subsidiary or upon its
income, profits or property or that of any Subsidiary, and (ii) all lawful
claims for labor, materials and supplies that, if unpaid, might by law become a
lien upon the property of the Operating Partnership, the Company, or any
Subsidiary; provided, however, that the Operating Partnership and the Company
shall not be required to pay or discharge or cause to be paid or discharged any
such tax, assessment, charge or claim whose amount, applicability or validity
is being contested in good faith by appropriate proceedings (Section 1013).
Provision of Financial Information. The Holders of Debt Securities will be
provided with copies of the annual reports and quarterly reports of the
Operating Partnership. Whether or not the Operating Partnership is subject to
Section 13 or 15(d) of the Exchange Act and for so long as any Debt Securities
are outstanding, the Operating Partnership will, to the extent permitted under
the Exchange Act, be required to file with the Commission the annual reports,
quarterly reports and other documents that the Operating Partnership would have
been required to file with the Commission pursuant to such Section 13 or 15(d)
(the "Financial Statements") if the Operating Partnership were so subject, such
documents to be filed with the Commission on or prior to the respective dates
(the "Required Filing Dates") by which the Operating Partnership would have
been required so to file such documents if the Operating Partnership were so
subject. The Operating Partnership will also in any event (x) within 15 days of
each Required Filing Date (i) transmit by mail to all Holders of Debt
Securities, as their names and addresses appear in the Security Register,
without cost to such Holders, copies of the annual reports and quarterly
reports which the Operating Partnership would have been required to file with
the Commission pursuant to Section 13 or 15(d) of the Exchange Act if the
Operating Partnership were subject to such Sections and (ii) file with the
Trustee copies of the annual reports, quarterly reports and other documents
that the Operating Partnership would have been required to file with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act if the Operating
Partnership were subject to such Sections and (y) if filing such documents by
the Operating Partnership with the Commission is not permitted under the
Exchange Act, promptly upon written request and payment of the reasonable cost
of duplication and delivery, supply copies of such documents to any prospective
Holder (Section 1014).
As used herein and in the Prospectus Supplement:
"Annual Service Charge" as of any date means the amount that is expensed
in any 12-month period for interest on Debt.
"Consolidated Income Available for Debt Service" for any period means
Consolidated Net Income (as defined below) of the Operating Partnership and its
Subsidiaries (i) plus amounts which have been deducted for (a) interest on Debt
of the Operating Partnership and its Subsidiaries, (b) provision for taxes of
the Operating Partnership and its Subsidiaries based on income, (c)
amortization of debt discount, (d) depreciation and amortization, (e) the
effect of any noncash charge resulting from a change in accounting principles
in determining Consolidated Net Income for such period, (f) amortization of
deferred charges, (g) provisions for or realized losses on properties and (h)
charges for early extinguishment of debt and (ii) less amounts that have been
included for gains on properties.
"Consolidated Net Income" for any period means the amount of consolidated
net income (or loss) of the Operating Partnership and its Subsidiaries for such
period determined on a consolidated basis in accordance with generally accepted
accounting principles ("GAAP").
"Debt" means any indebtedness, whether or not contingent, in respect of
(i) borrowed money evidenced by bonds, notes, debentures or similar
instruments, (ii) indebtedness secured by any mortgage, pledge, lien, charge,
encumbrance or any security interest existing on property, (iii) the
reimbursement obligations, contingent or otherwise, in connection with any
letters of credit actually issued or amounts representing the balance deferred
and unpaid of the purchase price of any property except any such balance that
constitutes an accrued expense or trade payable or (iv) any lease of property
which would be reflected on a consolidated balance sheet as a capitalized lease
in accordance with GAAP, in the case of items of indebtedness under (i) through
(iii) above to the
14
extent that any such items (other than letters of credit) would appear as a
liability on a consolidated balance sheet in accordance with GAAP, and also
includes, to the extent not otherwise included, any obligation to be liable
for, or to pay, as obligor, guarantor or otherwise (other than for purposes of
collection in the ordinary course of business), indebtedness of another person.
"Subsidiary" means a corporation, partnership or limited liability
company, a majority of the outstanding voting stock, partnership interests or
membership interests, as the case may be, of which is owned or controlled,
directly or indirectly, by the Operating Partnership or by one or more other
subsidiaries of the Operating Partnership. For the purposes of this definition,
"voting stock" means stock having the voting power for the election of
directors, general partners, managers or trustees, as the case may be, whether
at all times or only so long as no senior class of stock has such voting power
by reason of any contingency.
"Total Assets" as of any date means the sum of (i) the Undepreciated Real
Estate Assets and (ii) all other assets of the Operating Partnership and its
Subsidiaries on a consolidated basis determined in accordance with GAAP (but
excluding intangibles and accounts receivable).
"Total Unencumbered Assets" means the sum of (i) those Undepreciated Real
Estate Assets not subject to an encumbrance and (ii) all other assets of the
Operating Partnership and its Subsidiaries not subject to an encumbrance
determined in accordance with GAAP (but excluding intangibles and accounts
receivable).
"Undepreciated Real Estate Assets" as of any date means the cost (original
cost plus capital improvements) of real estate assets of the Operating
Partnership and its Subsidiaries on such date, before depreciation and
amortization, determined on a consolidated basis in accordance with GAAP.
"Unsecured Debt" means Debt of the Operating Partnership or any Subsidiary
that is not secured by any mortgage, lien, charge, pledge or security interest
of any kind upon any of the properties owned by the Operating Partnership or
any of its Subsidiaries.
Additional Covenants. Any additional or different covenants of the
Operating Partnership or the Company with respect to any series of Debt
Securities will be set forth in the Prospectus Supplement relating thereto.
Events of Default, Notice and Waiver
The Indenture provides that the following events are "Events of Default"
with respect to any series of Debt Securities issued thereunder: (a) default
for 30 days in the payment of any installment of interest on any Debt Security
of such series; (b) default in the payment of the principal of (or premium, if
any on) any Debt Security of such series at its maturity; (c) default in making
any sinking fund payment as required for any Debt Security of such series; (d)
default in the performance of any other covenant of the Operating Partnership
or the Company contained in the Indenture (other than a covenant added to the
Indenture solely for the benefit of a series of Debt Securities issued
thereunder other than such series), such default having continued for 60 days
after written notice as provided in the Indenture; (e) default in the payment
of an aggregate principal amount exceeding $5,000,000 of any evidence of
recourse indebtedness of the Operating Partnership or the Company or any
mortgage, indenture or other instrument under which such indebtedness is issued
or by which such indebtedness is secured, such default having occurred after
the expiration of any applicable grace period and having resulted in the
acceleration of the maturity of such indebtedness, but only if such
indebtedness is not discharged or such acceleration is not rescinded or
annulled, such default having continued for 10 days after notice as provided in
the Indenture; (f) certain events of bankruptcy, insolvency or reorganization,
or court appointment of a receiver, liquidator or trustee of the Operating
Partnership, the Company or any Significant Subsidiary or any of their
respective property; and (g) any other Event of Default provided with respect
to a particular series of Debt Securities. The term "Significant Subsidiary"
means each significant subsidiary (as defined in Regulation S-X promulgated
under the Securities Act) of the Operating Partnership or the Company (Section
501).
If an Event of Default under the Indenture with respect to Debt Securities
of any series at the time Outstanding occurs and is continuing, then in every
such case the Trustee or the Holders of not less than 25% in principal amount
of the Outstanding Debt Securities of that series may declare the principal
amount (or, if the Debt Securities of that series are Original Issue Discount
Securities or Indexed Securities, such portion of the principal amount as may
be specified in the terms thereof) of all of the Debt Securities of that series
to be due and payable immediately by written notice thereof to the Operating
Partnership and the Company (and to the Trustee if given by the Holders);
provided, that in the case of an Event of Default described under provision (f)
15
of the preceding paragraph, acceleration is automatic. However, at any time
after such a declaration of acceleration with respect to Debt Securities of
such series (or of all Debt Securities then Outstanding under the Indenture, as
the case may be) has been made, but before a judgment or decree for payment of
the money due has been obtained by the Trustee, the Holders of not less than a
majority in principal amount of Outstanding Debt Securities of such series (or
of all Debt Securities then Outstanding under the Indenture, as the case may
be) may rescind and annul such declaration and its consequences if (a) the
Operating Partnership or the Company shall have deposited with the Trustee all
payments of the principal of (and premium, if any) and interest on the Debt
Securities of such series (or of all Debt Securities then Outstanding under the
Indenture, as the case may be), plus certain fees, expenses, disbursements and
advances of the Trustee and (b) all Events of Default, other than the
non-payment of accelerated principal of (or specified portion thereof), or
premium (if any) or interest on the Debt Securities of such series (or of all
Debt Securities then Outstanding under the Indenture, as the case may be) have
been cured or waived as provided in the Indenture (Section 502). The Indenture
also provides that the Holders of not less than a majority in principal amount
of the Outstanding Debt Securities of any series (or of all Debt Securities
then Outstanding under the Indenture, as the case may be) may waive any past
default with respect to such series and its consequences, except a default (x)
in the payment of the principal of (or premium, if any) or interest on any Debt
Security of such series or (y) in respect of a covenant or provision contained
in the Indenture that cannot be modified or amended without the consent of the
Holder of each Outstanding Debt Security affected thereby (Section 513).
The Trustee will be required to transmit notice to the Holders of a series
of Debt Securities within 90 days of a default under the Indenture unless such
default has been cured or waived; provided, however, that the Trustee may
withhold notice to the Holders of any series of Debt Securities of any default
with respect to such series (except a default in the payment of the principal
of (or premium, if any) or interest on any Debt Security of such series or in
the payment of any sinking fund installment in respect of any Debt Security of
such series) if specified Responsible Officers of the Trustee consider such
withholding to be in the interest of such Holders (Section 602).
The Indenture provides that no Holders of Debt Securities of any series
may institute any proceedings, judicial or otherwise, with respect to the
Indenture or for any remedy thereunder, except in the case of failure of the
Trustee, for 60 days, to act after it has received a written request to
institute proceedings in respect of an Event of Default from the Holders of not
less than 25% in principal amount of the Outstanding Debt Securities of such
series, as well as an offer of indemnity reasonably satisfactory to it (Section
507). This provision will not prevent, however, any holder of Debt Securities
from instituting suit for the enforcement of payment of the principal of (and
premium, if any) and interest on such Debt Securities at the respective due
dates thereof (Section 508).
The Trustee is under no obligation to exercise any of its rights or powers
under the Indenture at the request or direction of any Holders of any series of
Debt Securities then Outstanding under the Indenture, unless such Holders shall
have offered to the Trustee thereunder reasonable security or indemnity
(Section 601). The Holders of not less than a majority in principal amount of
the Outstanding Debt Securities of any series shall have the right to direct
the time, method and place of conducting any proceeding for any remedy
available to the Trustee, or of exercising any trust or power conferred upon
the Trustee with respect to the Debt Securities of such series. However, the
Trustee may refuse to follow any direction which is in conflict with any law or
the Indenture or would subject the Trustee to personal liability, or which may
be unduly prejudicial to the Holders of Debt Securities of such series not
joining therein (Section 512).
Within 120 days after the close of each fiscal year, the Operating
Partnership and the Company (if the Debt Securities are Guaranteed Securities)
must deliver to the Trustee a certificate, signed by one of several specified
officers of the Company, stating whether or not such officer has knowledge of
any default under the Indenture and, if so, specifying each such default and
the nature and status thereof (Sections 1009 and 1010).
Modification of the Indenture
Modifications and amendments of the Indenture will be permitted to be made
only with the consent of the Holders of not less than a majority in principal
amount of all Outstanding Debt Securities or series of Outstanding Debt
Securities that are affected by such modification or amendment; provided,
however, that no such modification or amendment may, without the consent of the
Holder of each such Debt Security affected thereby, (a)
16
change the Stated Maturity of the principal of, or premium (if any) or any
installment of interest on, any such Debt Security, reduce the principal amount
of, or the rate or amount of interest on, or any premium payable on redemption
of, any such Debt Security, or reduce the amount of principal of an Original
Issue Discount Security that would be due and payable upon declaration of
acceleration of the maturity thereof or would be provable in bankruptcy, or
adversely affect any right or repayment of the holder of any such Debt
Security, change the place of payment, or the coin or currency, for payment of
principal of, premium, if any, or interest on any such Debt Security or impair
the right to institute suit for the enforcement of any payment on or with
respect to any such Debt Security; (b) reduce the above-stated percentage of
Outstanding Debt Securities of any series necessary to modify or amend the
Indenture, to waive compliance with certain provisions thereof or certain
defaults and consequences thereunder or to reduce the quorum or voting
requirements set forth in the Indenture; (c) modify or affect in any manner
adverse to the Holders the terms and conditions of the obligations of the
Company in respect of the payment of principal (and premium, if any) and
interest on any Guaranteed Securities; or (d) modify any of the foregoing
provisions or any of the provisions relating to the waiver of certain past
defaults or certain covenants, except to increase the required percentage to
effect such action or to provide that certain other provisions may not be
modified or waived without the consent of the Holder of such Debt Security
(Section 902).
The Indenture provides that the Holders of not less than a majority in
principal amount of a series of Outstanding Debt Securities have the right to
waive compliance by the Operating Partnership and/or the Company with certain
covenants relating to such series of Debt Securities in the Indenture (Section
1008).
Modifications and amendments of the Indenture will be permitted to be made
by the Operating Partnership, the Company and the Trustee without the consent
of any Holder of Debt Securities for any of the following purposes: (i) to
evidence the succession of another Person to the Operating Partnership as
obligor or the Company as guarantor under the Indenture; (ii) to add to the
covenants of the Operating Partnership or the Company for the benefit of the
Holders of all or any series of Debt Securities or to surrender any right or
power conferred upon the Operating Partnership or the Company in the Indenture;
(iii) to add Events of Default for the benefit of the Holders of all or any
series of Debt Securities; (iv) to add or change any provisions of the
Indenture to facilitate the issuance of, or to liberalize certain terms of,
Debt Securities in bearer form, or to permit or facilitate the issuance of Debt
Securities in uncertificated form, provided that such action shall not
adversely affect the interests of the Holders of the Debt Securities of any
series in any material respect; (v) to amend or supplement any provisions of
the Indenture, provided that no such amendment or supplement shall materially
adversely affect the interests of the Holders of any Debt Securities then
Outstanding; (vi) to secure the Debt Securities; (vii) to establish the form or
terms of Debt Securities of any series; (viii) to provide for the acceptance of
appointment by a successor Trustee to facilitate the administration of the
trusts under the Indenture by more than one Trustee; (ix) to cure any
ambiguity, defect or inconsistency in the Indenture, provided that such action
shall not adversely affect the interests of Holders of Debt Securities of any
series in any material respect; or (x) to supplement any of the provisions of
the Indenture to the extent necessary to permit or facilitate defeasance and
discharge of any series of such Debt Securities, provided that such action
shall not adversely affect the interests of the Holders of the Debt Securities
of any series in any material respect (Section 901). In addition, with respect
to Guaranteed Securities, without the consent of any Holder of Debt Securities,
the Company, or a Subsidiary thereof, may directly assume the due and punctual
payment of the principal of, any premium and interest on all the Guaranteed
Securities and the performance of every covenant of the Indenture on the part
of the Operating Partnership to be performed or observed. Upon any such
assumption, the Company or such subsidiary shall succeed to, and be substituted
for and may exercise every right and power of, the Operating Partnership under
the Indenture with the same effect as if the Company or such subsidiary had
been the issuer of the Guaranteed Securities and the Operating Partnership
shall be released from all obligations and covenants with respect to the
Guaranteed Securities. No such assumption shall be permitted unless the Company
has delivered to the Trustee (i) an officer's certificate and an opinion of
counsel, stating, among other things, that the Guarantee and all other
covenants of the Company in the Indenture remain in full force and effect and
(ii) an opinion of independent counsel that the Holders of Guaranteed
Securities shall have no United States Federal tax consequences as a result of
such assumption, and that, if any Debt Securities are then listed on the NYSE,
that such Debt Securities shall not be delisted as a result of such assumption
(Section 805).
The Indenture provides that in determining whether the Holders of the
requisite principal amount of Outstanding Debt Securities of a series have
given any request, demand, authorization, direction, notice, consent or
17
waiver thereunder or whether a quorum is present at a meeting of Holders of
Debt Securities, (i) the principal amount of an Original Issue Discount
Security that shall be deemed to be Outstanding shall be the amount of the
principal thereof that would be due and payable as of the date of such
determination upon declaration of acceleration of the maturity thereof, (ii)
the principal amount of a Debt Security denominated in a foreign currency that
shall be deemed Outstanding shall be the U.S. dollar equivalent, determined on
the issue date for such Debt Security, of the principal amount (or, in the case
of an Original Issue Discount Security, the U.S. dollar equivalent on the issue
date of such Debt Security of the amount determined as provided in (i) above),
(iii) the principal amount of an Indexed Security that shall be deemed
Outstanding shall be the principal face amount of such Indexed Security at
original issuance, unless otherwise provided with respect to such Indexed
Security pursuant to the Indenture, and (iv) Debt Securities owned by the
Operating Partnership, the Company or any other obligor upon the Debt
Securities or any affiliate of the Operating Partnership, the Company or of
such other obligor shall be disregarded.
The Indenture contains provisions for convening meetings of the Holders of
Debt Securities of a series (Section 1501). A meeting will be permitted to be
called at any time by the Trustee, and also, upon request, by the Operating
Partnership, the Company (in respect of a series of Guaranteed Securities) or
the holders of at least 10% in principal amount of the Outstanding Debt
Securities of such series, in any such case upon notice given as provided in
the Indenture (Section 1502). Except for any consent that must be given by the
Holder of each Debt Security affected by certain modifications and amendments
of the Indenture, any resolution presented at a meeting or adjourned meeting
duly reconvened at which a quorum is present will be permitted to be adopted by
the affirmative vote of the Holders of a majority in principal amount of the
Outstanding Debt Securities of that series; provided, however, that, except as
referred to above, any resolution with respect to any request, demand,
authorization, direction, notice, consent, waiver or other action that may be
made, given or taken by the Holders of a specified percentage, which is less
than a majority, in principal amount of the Outstanding Debt Securities of a
series may be adopted at a meeting or adjourned meeting duly reconvened at
which a quorum is present by the affirmative vote of the Holders of such
specified percentage in principal amount of the Outstanding Debt Securities of
that series. Any resolution passed or decision taken at any meeting of Holders
of Debt Securities of any series duly held in accordance with the Indenture
will be binding on all Holders of Debt Securities of that series. The quorum at
any meeting called to adopt a resolution, and at any reconvened meeting, will
be Persons holding or representing a majority in principal amount of the
Outstanding Debt Securities of a series; provided, however, that if any action
is to be taken at such meeting with respect to a consent or waiver which may be
given by the Holders of not less than a specified percentage in principal
amount of the Outstanding Debt Securities of a series, the Persons holding or
representing such specified percentage in principal amount of the Outstanding
Debt Securities of such series will constitute a quorum (Section 1504).
Notwithstanding the foregoing provisions, any action to be taken at a
meeting of Holders of Debt Securities of any series with respect to any action
that the Indenture expressly provides may be taken by the Holders of a
specified percentage which is less than a majority in principal amount of the
Outstanding Debt Securities of a series may be taken at a meeting at which a
quorum is present by the affirmative vote of Holders of such specified
percentage in principal amount of the Outstanding Debt Securities of such
series (Section 1504).
Discharge, Defeasance and Covenant Defeasance
The Operating Partnership may discharge certain obligations to Holders of
any series of Debt Securities that have not already been delivered to the
Trustee for cancellation and that either have become due and payable or will
become due and payable within one year (or scheduled for redemption within one
year) by irrevocably depositing with the Trustee, in trust, funds in such
currency or currencies, currency unit or units or composite currency or
currencies in which such Debt Securities are payable in an amount sufficient to
pay the entire indebtedness on such Debt Securities in respect of principal
(and premium, if any) and interest to the date of such deposit (if such Debt
Securities have become due and payable) or to the Stated Maturity or Redemption
Date, as the case may be (Section 401).
Unless otherwise provided in the applicable Prospectus Supplement, the
Operating Partnership may elect either (a) to defease and discharge itself and
the Company (if such Debt Securities are Guaranteed Securities) from any and
all obligations with respect to such Debt Securities (except for the obligation
to pay additional amounts, if any, upon the occurrence of certain events of
tax, assessment or governmental charge with respect
18
to payments on such Debt Securities and the obligations to register the
transfer or exchange of such Debt Securities, to replace temporary or
mutilated, destroyed, lost or stolen Debt Securities, to maintain an office or
agency in respect of such Debt Securities and to hold moneys for payment in
trust) ("defeasance") or (b) to release itself and the Company (if such Debt
Securities are Guaranteed Securities) from their obligations with respect to
such Debt Securities under certain sections of the Indenture (including the
restrictions described under " -- Certain Covenants") and if provided pursuant
to Section 301 of the Indenture, their obligations with respect to any other
covenant, and any omission to comply with such obligations shall not constitute
a default or an Event of Default with respect to such Debt Securities
("covenant defeasance"), in either case upon the irrevocable deposit by the
Operating Partnership or the Company (if the Debt Securities are Guaranteed
Securities) with the Trustee, in trust, of an amount, in such currency or
currencies, currency unit or units or composite currency or currencies in which
such Debt Securities are payable at Stated Maturity, or Government Obligations
(as defined below), or both, applicable to such Debt Securities that through
the scheduled payment of principal and interest in accordance with their terms
will provide money in an amount sufficient to pay the principal of (and
premium, if any) and interest on such Debt Securities, and any mandatory
sinking fund or analogous payments thereon, on the scheduled due dates therefor
(Section 402).
Such a trust will only be permitted to be established if, among other
things, the Operating Partnership or the Company (if the Debt Securities are
Guaranteed Securities) has delivered to the Trustee an Opinion of Counsel (as
specified in the Indenture) to the effect that the Holders of such Debt
Securities will not recognize income, gain or loss for U.S. Federal income tax
purposes as a result of such defeasance or covenant defeasance and will be
subject to U.S. Federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such defeasance or covenant
defeasance had not occurred, and such Opinion of Counsel, in the case of
defeasance, must refer to and be based upon a ruling of the Internal Revenue
Service or a change in applicable United States Federal income tax law
occurring after the date of the Indenture (Section 402).
"Government Obligations" means securities that are (i) direct obligations
of the United States of America or the government that issued the foreign
currency in which the Debt Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged or (ii) obligations
of a person controlled or supervised by and acting as an agency or
instrumentality of the United States of America or such government that issued
the foreign currency in which the Debt Securities of such series are payable,
the payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America or such other government, and that,
in either case, are not callable or redeemable at the option of the issuer
thereof, and shall also include a depository receipt issued by a bank or trust
company as custodian with respect to any such Government Obligation or a
specific payment of interest on or principal of any such Government Obligation
held by such custodian for the account of the holder of a depository receipt,
provided that (except as required by law) such custodian is not authorized to
make any deduction from the amount payable to the holder of such depository
receipt from any amount received by the custodian in respect of the Government
Obligation or the specific payment of interest on or principal of the
Government Obligation evidenced by such depository receipt.
Unless otherwise provided in the applicable Prospectus Supplement, if
after the Operating Partnership or the Company (if the Debt Securities are
Guaranteed Securities) has deposited funds and/or Government Obligations to
effect defeasance or covenant defeasance with respect to Debt Securities of any
series, (a) the Holder of a Debt Security of such series is entitled to, and
does, elect pursuant to the Indenture or the terms of such Debt Security to
receive payment in a currency, currency unit or composite currency other than
that in which such deposit has been made in respect of such Debt Security, or
(b) a Conversion Event (as defined below) occurs in respect of the currency,
currency unit or composite currency in which such deposit has been made, the
indebtedness represented by such Debt Security shall be deemed to have been,
and will be, fully discharged and satisfied through the payment of the
principal of (and premium, if any) and interest on such Debt Security as they
become due out of the proceeds yielded by converting the amount so deposited in
respect of such Debt Security into the currency, currency unit or composite
currency in which such Debt Security becomes payable as a result of such
election or such Conversion Event based on the applicable market exchange rate
(Section 402). "Conversion Event" means the cessation of use of (i) a currency,
currency unit or composite currency both by the government of the country that
issued such currency and for the settlement of transactions by a central bank
or other public institutions of or within the international banking community,
(ii) the ECU both within the European Monetary System and for the settlement of
transactions by public institutions of or within the European Union or (iii)
any currency unit or composite currency other than the ECU for the purposes for
which it
19
was established. Unless otherwise provided in the applicable Prospectus
Supplement, all payments of principal of (and premium, if any) and interest on
any Debt Security that is payable in a foreign currency that ceases to be used
by its government of issuance shall be made in U.S. dollars.
If the Operating Partnership effects covenant defeasance with respect to
any Debt Securities and such Debt Securities are declared due and payable
because of the occurrence of any Event of Default other than the Event of
Default described in clause (d) under " -- Events of Default, Notice and
Waiver" with respect to Sections no longer applicable to such Debt Securities
or described in clause (g) under " -- Events of Default, Notice and Waiver"
with respect to any other covenant as to which there has been covenant
defeasance, the amount in such currency, currency unit or composite currency in
which such Debt Securities are payable, and Government Obligations on deposit
with the Trustee, will be sufficient to pay amounts due on such Debt Securities
at the time of their Stated Maturity but may not be sufficient to pay amounts
due on such Debt Securities at the time of the acceleration resulting from such
Event of Default. However, the Operating Partnership and the Company (if such
Debt Securities are Guaranteed Securities) would remain liable to make payment
of such amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions,
if any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
No Conversion Rights
The Debt Securities will not be convertible into or exchangeable for any
capital stock of the Company or equity interest in the Operating Partnership.
Global Securities
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities (the "Global Securities") that will be
deposited with, or on behalf of, a depositary (the "Depositary") identified in
the applicable Prospectus Supplement relating to such series. Global Securities
may be issued in either registered or bearer form and in either temporary or
permanent form. The specific terms of the depositary arrangement with respect
to a series of Debt Securities will be described in the applicable Prospectus
Supplement relating to such series.
DESCRIPTION OF PREFERRED STOCK
General
The Company is authorized to issue 10,000,000 shares of preferred stock,
$.01 par value per share, of which 125,000 8 5/8% Series A Cumulative
Redeemable Preferred Shares, 6,900,000 8% Series B Cumulative Redeemable
Preferred Shares and 400,000 8% Series D Cumulative Redeemable Preferred Shares
have been issued and are outstanding as of the date hereof. See "Description of
Series A Preferred Shares," "Description of Series B Preferred Shares" and
"Description of Series D Preferred Shares."
The following description of the Preferred Stock sets forth certain
general terms and provisions of the Preferred Stock to which any Prospectus
Supplement may relate. The statements below describing the Preferred Stock are
in all respects subject to and qualified in itstheir entirety by reference to the
applicable provisions of Maryland lawthe Company's Amended and the Company'sRestated Articles of
Incorporation (the "Articles of Incorporation") and Bylaws, as amended.
Common Stock
Each holder of Common Stock is entitledbylaws and any applicable
amendment to one vote at stockholder
meetings for each share of Common Stock held. Neither the Articles of Incorporation nor the Bylaws provide for cumulative voting for the electiondesignating terms of directors.a series of
Preferred Stock (a "Designating Amendment").
Terms
Subject to the priorlimitations prescribed by the Articles of Incorporation,
the board of directors is authorized to fix the number of shares constituting
each series of Preferred Stock and the designations and powers, preferences and
relative, participating, optional or other special rights and qualifications,
limitations or restrictions thereof, including such provisions as may be
desired concerning voting, redemption, dividends, dissolution or the
distribution of assets, conversion or exchange, and such other subjects or
matters as may be fixed by resolution of the
20
board of directors. The Preferred Stock will, when issued, be fully paid and
nonassessable by the Company and will have no preemptive rights.
Reference is made to the Prospectus Supplement relating to the Preferred
Stock offered thereby for specific terms, including:
(1) the title and stated value of such Preferred Stock;
(2) the number of shares of such Preferred Stock offered, the liquidation
preference per share and the offering price of such Preferred Stock;
(3) the dividend rate(s), period(s) and/or payment date(s) or method(s) of
calculation thereof applicable to such Preferred Stock;
(4) the date from which dividends on such Preferred Stock shall
accumulate, if applicable;
(5) the procedures for any auction and remarketing, if any, for such
Preferred Stock;
(6) the provision for a sinking fund, if any, for such Preferred Stock;
(7) the provision for redemption, if applicable, of such Preferred Stock;
(8) any listing of such Preferred Stock on any securities exchange;
(9) the terms and conditions, if applicable, upon which such Preferred
Stock will be convertible into Common Stock of the Company, including
the conversion price or manner of calculation thereof;
(10) whether interests in such Preferred Stock will be represented by
Depositary Shares;
(11) any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock;
(12) a discussion of Federal income tax considerations applicable to such
Preferred Stock;
(13) the relative ranking and preferences of such Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up
of the affairs of the Company;
(14) any limitations on issuance of any series of Preferred Stock ranking
senior to or on a parity with such series of Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up
of the affairs of the Company; and
(15) any limitations on direct or beneficial ownership and restrictions on
transfer, in each case as may be appropriate to preserve the status of
the Company as a REIT.
Rank
Unless otherwise specified in the Prospectus Supplement, the Preferred
Stock will, with respect to dividend rights and rights upon liquidation,
dissolution or winding up of the Company, rank (i) senior to all classes or
series of Common Stock of the Company, and to all equity securities ranking
junior to such Preferred Stock; (ii) on a parity with all equity securities
issued by the Company the terms of which specifically provide that such equity
securities rank on a parity with the Preferred Stock; and (iii) junior to all
equity securities issued by the Company the terms of which specifically provide
that such equity securities rank senior to the Preferred Stock. The term
"equity securities" does not include convertible debt securities.
Dividends
Holders of the Preferred Stock of each series will be entitled to receive,
when, as and if declared by the board of directors of the Company, out of
assets of the Company legally available for payment, cash dividends at such
rates and on such dates as will be set forth in the applicable Prospectus
Supplement. Each such dividend shall be payable to holders of record as they
appear on the share transfer books of the Company on such record dates as shall
be fixed by the board of directors of the Company.
Dividends on any series of the Preferred Stock may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the board of directors of the Company
fails to declare a dividend
21
payable on a dividend payment date on any series of the Preferred Stock for
which dividends are non-cumulative, then the holders of such series of the
Preferred Stock will have no right to receive a dividend in respect of the
dividend period ending on such dividend payment date, and the Company will have
no obligation to pay the dividend accrued for such period, whether or not
dividends on such series are declared payable on any future dividend payment
date.
If Preferred Stock of any series is outstanding, no dividends will be
declared or paid or set apart for payment on any capital stock of the Company
of any other series ranking, as to dividends, on a parity with or junior to the
Preferred Stock of such series for any period unless (i) if such series of
Preferred Stock has a cumulative dividend, full cumulative dividends have been
or contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for such payment on the Preferred Stock of such
series for all past dividend periods and the then current dividend period or
(ii) if such series of Preferred Stock does not have a cumulative dividend,
full dividends for the then current dividend period have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for such payment on the Preferred Stock of such
series. When dividends are not paid in full (or a sum sufficient for such full
payment is not so set apart) upon Preferred Stock of any series and the shares
of any other series of Preferred Stock ranking on a parity as to dividends with
the Preferred Stock of such series, all dividends declared upon Preferred Stock
of such series and any other series of Preferred Stock ranking on a parity as
to dividends with such Preferred Stock shall be declared pro rata so that the
amount of dividends declared per share of Preferred Stock of such series and
such other series of Preferred Stock shall in all cases bear to each other the
same ratio that accrued dividends per share on the Preferred Stock of such
series (which shall not include any accumulation in respect of unpaid dividends
for prior dividend periods if such Preferred Stock does not have a cumulative
dividend) and such other series of Preferred Stock bear to each other. No
interest, or sum of money in lieu of interest, shall be payable in respect of
any dividend payment or payments on Preferred Stock of such series that may be
classifiedin arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Stock has a cumulative dividend, full cumulative
dividends on the Preferred Stock of such series have been or contemporaneously
are declared and issued, holderspaid or declared and a sum sufficient for the payment thereof
set apart for payment for all past dividend periods and the then current
dividend period, and (ii) if such series of Preferred Stock does not have a
cumulative dividend, full dividends on the Preferred Stock of such series have
been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for payment for the then current
dividend period, no dividends (other than in shares of Common Stock or other
capital shares ranking junior to the Preferred Stock of such series as to
dividends and upon liquidation) shall be declared or paid or set aside for
payment or other distribution shall be declared or made upon the Common Stock,
or any other capital shares of the Company ranking junior to or on a parity
with the Preferred Stock of such series as to dividends or upon liquidation,
nor shall any shares of Common Stock, or any other capital shares of the
Company ranking junior to or on a parity with the Preferred Stock of such
series as to dividends or upon liquidation be redeemed, purchased or otherwise
acquired for any consideration (or any moneys be paid to or made available for
a sinking fund for the redemption of any such shares) by the Company (except by
conversion into or exchange for other capital shares of the Company ranking
junior to the Preferred Stock of such series as to dividends and upon
liquidation).
Redemption
If so provided in the applicable Prospectus Supplement, the Preferred
Stock will be subject to mandatory redemption or redemption at the option of
the Company, as a whole or in part, in each case upon the terms, at the times
and at the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Stock that is
subject to mandatory redemption will specify the number of shares of such
Preferred Stock that shall be redeemed by the Company in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon
(which shall not, if Preferred Stock does not have a cumulative dividend,
include any accumulation in respect of unpaid dividends for prior dividend
periods) to the date of redemption. The redemption price may be payable in cash
or other property, as specified in the applicable Prospectus Supplement. If the
redemption price for Preferred Stock of any series is payable only from the net
proceeds of the issuance of capital shares of the Company, the terms of such
Preferred Stock may provide that, if
22
no such capital shares shall have been issued or to the extent the net proceeds
from any issuance are insufficient to pay in full the aggregate redemption
price then due, such Preferred Stock shall automatically and mandatorily be
converted into the applicable capital shares of the Company pursuant to
conversion provisions specified in the applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred
Stock has a cumulative dividend, full cumulative dividends on all shares of any
series of Preferred Stock have been or contemporaneously are declared and paid
or declared and a sum sufficient for the payment thereof set apart for payment
for all past dividend periods and the then current dividend period, and (ii) if
such series of Preferred Stock does not have a cumulative dividend, full
dividends of the Preferred Stock of any series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for the then current dividend period, no shares of any
series of Preferred Stock shall be redeemed unless all outstanding Preferred
Stock of such series is simultaneously redeemed; provided, however, that the
foregoing shall not prevent the purchase or acquisition of Preferred Stock of
such series to preserve the REIT status of the Company or pursuant to a
purchase or exchange offer made on the same terms to holders of all outstanding
Preferred Stock of such series. In addition, unless (i) if such series of
Preferred Stock has a cumulative dividend, full cumulative dividends on all
outstanding shares of any series of Preferred Stock have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for payment for all past dividends periods and
the then current dividend period, and (ii) if such series of Preferred Stock
does not have a cumulative dividend, full dividends on the Preferred Stock of
any series have been or contemporaneously are declared and paid or declared and
a sum sufficient for the payment thereof set apart for payment for the then
current dividend period, the Company shall not purchase or otherwise acquire
directly or indirectly any shares of Preferred Stock of such series (except by
conversion into or exchange for capital shares of the Company ranking junior to
the Preferred Stock of such series as to dividends and upon liquidation);
provided, however, that the foregoing shall not prevent the purchase or
acquisition of Preferred Stock of such series to preserve the REIT status of
the Company or pursuant to a purchase or exchange offer made on the same terms
to holders of all outstanding Preferred Stock of such series.
If fewer than all of the outstanding shares of Preferred Stock of any
series are to be redeemed, the number of shares to be redeemed will be
determined by the Company and such shares may be redeemed pro rata from the
holders of record of such shares in proportion to the number of such shares
held or for which redemption is requested by such holder (with adjustments to
avoid redemption of fractional shares) or by lot in a manner determined by the
Company.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Stock of
any series to be redeemed at the address shown on the share transfer books of
the Company. Each notice shall state: (i) the redemption date; (ii) the number
of shares and series of the Preferred Stock to be redeemed; (iii) the
redemption price; (iv) the place or places where certificates for such
Preferred Stock are to be surrendered for payment of the redemption price; (v)
that dividends on the shares to be redeemed will cease to accrue on such
redemption date; and (vi) the date upon which the holder's conversion rights,
if any, as to such shares shall terminate. If fewer than all the shares of
Preferred Stock of any series are to be redeemed, the notice mailed to each
such holder thereof shall also specify the number of shares of Preferred Stock
to be redeemed from each such holder. If notice of redemption of any Preferred
Stock has been given and if the funds necessary for such redemption have been
set aside by the Company in trust for the benefit of the holders of any
Preferred Stock so called for redemption, then from and after the redemption
date dividends will cease to accrue on such Preferred Stock, and all rights of
the holders of such shares will terminate, except the right to receive the
redemption price.
Liquidation Preference
Upon any voluntary or involuntary liquidation, dissolution or winding up
of the affairs of the Company, then, before any distribution or payment shall
be made to the holders of any Common Stock or any other class or series of
capital shares of the Company ranking junior to the Preferred Stock in the
distribution of assets upon any liquidation, dissolution or winding up of the
Company, the holders of each series of Preferred Stock shall be entitled to
receive pro
rata,out of assets of the Company legally available for distribution to
stockholders liquidating
23
distributions in the amount of the liquidation preference per share (set forth
in the applicable Prospectus Supplement), plus an amount equal to all dividends
accrued and unpaid thereon (which shall not include any accumulation in respect
of unpaid dividends for prior dividend periods if such Preferred Stock does not
have a cumulative dividend). After payment of the full amount of the
liquidating distributions to which they are entitled, the holders of Preferred
Stock will have no right or claim to any of the remaining assets of the
Company. If, upon any such voluntary or involuntary liquidation, dissolution or
winding up, the available assets of the Company are insufficient to pay the
amount of the liquidating distributions on all outstanding Preferred Stock and
the corresponding amounts payable on all shares of other classes or series of
capital shares of the Company ranking on a parity with the Preferred Stock in
the distribution of assets, then the holders of the Preferred Stock and all
other such classes or series of capital shares shall share ratably in any such
distribution of assets in proportion to the full liquidating distributions to
which they would otherwise be respectively entitled.
If liquidating distributions shall have been made in full to all holders
of Preferred Stock, the remaining assets of the Company shall be distributed
among the holders of any other classes or series of capital shares ranking
junior to the Preferred Stock upon liquidation, dissolution or winding up,
according to their respective rights and preferences and in each case according
to their respective number of shares. For such purposes, the consolidation or
merger of the Company with or into any other corporation, trust or entity, or
the sale, lease or conveyance of all or substantially all of the property or
business of the Company, shall not be deemed to constitute a liquidation,
dissolution or winding up of the Company.
Voting Rights
Holders of the Preferred Stock will not have any voting rights, except as
set forth below or as otherwise from time to time required by law or as
indicated in the applicable Prospectus Supplement.
Whenever dividends on any shares of Preferred Stock shall be in arrears
for six or more consecutive quarterly periods, the holders of such shares of
Preferred Stock (voting separately as maya class with all other series of
preferred stock upon which like voting rights have been conferred and are
exercisable) will be declaredentitled to vote for the election of two additional
directors of the Company at a special meeting called by the Boardholders of Directors outrecord
of funds
legally available therefor,at least 10% of any series of Preferred Stock so in arrears (unless such
request is received less than 90 days before the date fixed for the next annual
or special meeting of the stockholders) or at the next annual meeting of
stockholders, and also are entitledat each subsequent annual meeting until (i) if such series of
Preferred Stock has a cumulative dividend, all dividends accumulated on such
shares of Preferred Stock for the past dividend periods and the then current
dividend period shall have been fully paid or declared and a sum sufficient for
the payment thereof set aside for payment or (ii) if such series of Preferred
Stock does not have a cumulative dividend, four consecutive quarterly dividends
shall have been fully paid or declared and a sum sufficient for the payment
thereof set aside for payment. In such case, the entire board of directors of
the Company will be increased by two directors.
Unless provided otherwise for any series of Preferred Stock, so long as
any shares of Preferred Stock remain outstanding, the Company will not, without
the affirmative vote or consent of the holders of at least two-thirds of the
shares of each series of Preferred Stock outstanding at the time, given in
person or by proxy, either in writing or at a meeting (such series voting
separately as a class), (i) authorize or create, or increase the authorized or
issued amount of, any class or series of capital stock ranking prior to share, pro rata,such
series of Preferred Stock with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up or
reclassify any authorized capital stock of the Company into such shares, or
create, authorize or issue any obligation or security convertible into or
evidencing the right to purchase any such shares; or (ii) amend, alter or
repeal the provisions of the Company's Articles of Incorporation or the
Designating Amendment for such series of Preferred Stock, whether by merger,
consolidation or otherwise (an "Event"), so as to materially and adversely
affect any right, preference, privilege or voting power of such series of
Preferred Stock or the holders thereof; provided, however, with respect to the
occurrence of any of the Events set forth in (ii) above, so long as the
Preferred Stock remains outstanding with the terms thereof materially
unchanged, taking into account that upon the occurrence of an Event, the
Company may not be the surviving entity, the occurrence of any such Event shall
not be deemed to materially and adversely affect such rights, preferences,
privileges or voting power of holders of Preferred Stock and provided further
that (x) any increase in the amount of the authorized Preferred Stock or the
creation or issuance of any other distributionsseries of Preferred Stock, or (y) any
increase in the amount of authorized shares of such series or any other series
of Preferred Stock, in each case ranking on a parity with or junior to
stockholders.24
the Preferred Stock of such series with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up, shall not
be deemed to materially and adversely affect such rights, preferences,
privileges or voting powers.
The Company currently pays regular
quarterly dividendsforegoing voting provisions will not apply if, at or prior to holdersthe time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of Common Stock. Holderssuch series of Preferred Stock shall
have been redeemed or called for redemption and sufficient funds shall have
been deposited in trust to effect such redemption.
Conversion Rights
The terms and conditions, if any, upon which any series of Preferred Stock
is convertible into shares of Common Stock do not
have any preemptive rights or other rights to subscribe for additional shares.
Thewill be set forth in the applicable
Prospectus Supplement relating thereto. Such terms will include the number of
shares of Common Stock is listedinto which the shares of Preferred Stock are
convertible, the conversion price (or manner of calculation thereof), the
conversion period, provisions as to whether conversion will be at the option of
the holders of the Preferred Stock or the Company, the events requiring an
adjustment of the conversion price and provisions affecting conversion in the
event of the redemption of such series of Preferred Stock.
Stockholder Liability
As discussed below under "Description of Common Stock -- General,"
applicable Maryland law provides that no stockholder, including holders of
Preferred Stock, shall be personally liable for tradingthe acts and obligations of the
Company and that the funds and property of the Company shall be the only
recourse for such acts or obligations.
Restrictions on Ownership
As discussed below under "Description of Common Stock -- Certain
Provisions Affecting Change of Control -- Ownership Limitations and
Restrictions on Transfers," for the New YorkCompany to qualify as a REIT under the
Code, not more than 50% in value of its outstanding capital shares may be
owned, directly or indirectly, by five or fewer individuals (as defined in the
Code to include certain entities) during the last half of a taxable year. To
ensure that the Company remains a qualified REIT, the Articles of Incorporation
provide that no holder (other than persons approved by the directors at their
option and in their discretion) may own, or be deemed to own by virtue of the
attribution provisions of the Code, more than 9.8% of the issued and
outstanding capital stock of the Company. To assist the Company in meeting this
requirement, the Company may take certain actions to limit the beneficial
ownership, directly or indirectly, by a single person of the Company's
outstanding equity securities, including any Preferred Stock Exchange (the
"NYSE").
Seriesof the Company.
Therefore, the Designating Amendment for each series of Preferred Stock may
contain provisions restricting the ownership and transfer of the Preferred
Stock. The applicable Prospectus Supplement will specify any additional
ownership limitation relating to a series of Preferred Stock.
Registrar and Transfer Agent
The Registrar and Transfer Agent for the Preferred Stock will be set forth
in the applicable Prospectus Supplement.
DESCRIPTION OF SERIES A Preferred SharesPREFERRED SHARES
The following description of the Company's 8 5/8% Series A Cumulative
Redeemable Preferred Shares, par value $.01 per share (the "Series A Preferred
Shares"), is in all respects subject to and qualified in its entirety by
reference to the applicable provisions of the Company's Articles of
Incorporation, including the Articles Supplementary applicable to the Series A
Preferred Shares. The Company is authorized to issue 143,750 Series A Preferred
Shares, 125,000 of which were issued and outstanding as of the date hereof.
With respect to the payment of dividends and amounts upon liquidation, the
Series A Preferred Shares rank pari passu with the Series B Preferred Shares,
(discussed below)the Series D Preferred Shares and with any other equity securities of the Company
the terms of which provide that such equity securities rank on a parity with
the Series A Preferred
25
Shares and rank senior to the Common Stock and any other equity securities of
the Company whichthat by their terms rank junior to the Series A Preferred Shares.
Dividends on the Series A Preferred Shares are cumulative from the date of
original issue and are payable quarterly on or about the last day of February,
May, August and November of each year commencing May 31, 1997, at the rate of
8 5/8% of the liquidation preference per annum (equivalent to $86.25 per annum
per share). Dividends on the Series A Preferred Shares will accrue whether or
not the Company has earnings, whether or notnor there are funds legally available
for the payment of such dividends and whether or not such dividends are
declared. The Series
8
A Preferred Shares have a liquidation preference of $1,000
per share, plus an amount equal to any accrued and unpaid dividends.
The Series A Preferred Shares are not redeemable prior to February 12,
2027. On and after February 12, 2027, the Series A Preferred Shares will be
redeemable for cash at the option of the Company, in whole or in part, at
$1,000 per share, plus any accrued and unpaid dividends thereon to the date
fixed for redemption. The redemption price (other than the portion thereof
consisting of accrued and unpaid dividends) is payable solely out of the sale
proceeds of other capital stock of the Company, which may include other series
of Preferred Stock, and from no other source.
If dividends on the Series A Preferred Shares are in arrears for six or
more quarterly periods, whether or not such quarterly periods are consecutive,
holders of the Series A Preferred Shares (voting separately as a class with all
other series of Preferred Stock upon which like voting rights have been
conferred and are exercisable) will be entitled to vote for the election of two
additional directors to serve on the Boardboard of Directorsdirectors of the Company until
all dividend arrearages have been paid.
The Series A Preferred Shares are not convertible or exchangeable for any
other property or securities of the Company. The Series A Preferred Shares are
subject to certain restrictions on ownership intended to preserve the Company's
status as a REIT for Federal income tax purposes. SeriesSee "Description of Preferred
Stock -- Restrictions on Ownership" and "Description of Common Stock -- Certain
Provisions Affecting Change of Control -- Ownership Limitations and
Restrictions on Transfers."
DESCRIPTION OF SERIES B Preferred SharesPREFERRED SHARES
The following description of the Company's 8% Series B Cumulative
Redeemable Preferred Shares, par value $.01 per share (the "Series B Preferred
Shares"), is in all respects subject to and qualified in its entirety by
reference to the applicable provisions of the Company's Articles of
Incorporation, including the Articles Supplementary applicable to the Series B
Preferred Shares. The Company is authorized to issue 6,900,000 Series B
Preferred Shares, all of which were issued and outstanding as of the date
hereof.
With respect to the payment of dividends and amounts upon liquidation, the
Series B Preferred Shares rank pari passu with the Series A Preferred Shares,
the Series D Preferred Shares and
with any other equity securities of the Company
the terms of which provide that such equity securities rank on a parity with
the Series B Preferred Shares and rank senior to the Common Stock and any other
equity securities of the Company which by their terms rank junior to the Series
B Preferred Shares. Dividends on the Series B Preferred Shares are cumulative
from the date of original issue and are payable quarterly on March 15, June 15,
September 15 and December 15 of each year, commencing December 15, 1997, at the
rate of 8% of the $25 liquidation preference per annum (equivalent to $2.00 per
annum per share). Dividends on the Series B Preferred Shares will accrue
whether or not the Company has earnings, whether or not there are funds legally
available for the payment of such dividends and whether or not such dividends
are declared. The Series B Preferred Shares have a liquidation preference of
$25 per share, plus an amount equal to any accrued and unpaid dividends.
The Series B Preferred Shares are not redeemable prior to September 25,
2002. On and after September 25, 2002, the Series B Preferred Shares will be
redeemable for cash at the option of the Company, in whole or in part, at $25
per share, plus any accrued and unpaid dividends thereon to the date fixed for
redemption. The redemption price (other than the portion thereof consisting of
accrued and unpaid dividends) is payable solely out of the sale proceeds of
other capital stock of the Company, which may include other series of preferred
stock,Preferred
Stock, and from no other source.
If dividends on the Series B Preferred Shares are in arrears for six or
more quarterly periods, whether or not such quarterly periods are consecutive,
holders of the Series B Preferred Shares (voting separately as a class with all
other series of preferred stockPreferred Stock upon which like voting rights have been
conferred and are exercisable)
26
will be entitled to vote for the election of two additional directors to serve
on the Boardboard of Directorsdirectors of the Company until all dividend arrearages have
been paid.
The Series B Preferred Shares are not convertible or exchangeable for any
other property or securities of the Company. The Series B Preferred Shares are
subject to certain restrictions on ownership intended to preserve the Company's
status as a REIT for Federal income tax purposes. 9
See "Description of Preferred
Stock Under-- Restrictions on Ownership" and "Description of Common Stock -- Certain
Provisions Affecting Change of Control -- Ownership Limitations and
Restrictions on Transfers."
DESCRIPTION OF SERIES D PREFERRED SHARES
The following description of the Company's 8% Series D Cumulative
Redeemable Preferred Shares, par value $.01 per share (the "Series D Preferred
Shares"), is in all respects subject to and qualified in its entirety by
reference to the applicable provisions of the Company's Articles of
Incorporation, including the BoardArticles Supplementary applicable to the Series D
Preferred Shares. The Company is authorized to issue 400,000 Series D Preferred
Shares, all of Directorswhich were issued and outstanding as of the date hereof.
In April 1998, the Company offered and sold 4,000,000 depositary shares
(the "Series D Depositary Shares"), each representing a 1/10 fractional
interest in a Series D Preferred Share. The Series D Preferred Shares were
deposited with First Union National Bank, as preferred share depositary (the
"Series D Depositary"), under a Deposit Agreement, dated April 23, 1998 (the
"Series D Deposit Agreement"), among the Company, the Series D Depositary and
the holders from time to time of the depositary receipts (the "Series D
Depositary Receipts") issued by the Series D Depositary thereunder. The Series
D Depositary Receipts evidence the Series D Depositary Shares. Subject to the
terms of the Series D Deposit Agreement, each holder of a Series D Depositary
Receipt evidencing a Series D Depositary Share will be entitled to all the
rights and preferences of a 1/10 fractional interest in a Series D Preferred
Share (including dividend, voting, redemption and liquidation rights and
preferences).
With respect to the payment of dividends and amounts upon liquidation, the
Series D Preferred Shares rank pari passu with the Series A Preferred Shares,
the Series B Preferred Shares and any other equity securities of the Company
the terms of which provide that such equity securities rank on a parity with
the Series D Preferred Shares and rank senior to the Common Stock and any other
equity securities of the Company that by their terms rank junior to the Series
D Preferred Shares. Dividends on the Series D Preferred Shares represented by
the Series D Depositary Shares are cumulative from the date of original issue
and are payable quarterly in arrears on or about the last day of January,
April, July and October of each year, commencing July 31, 1998, at the rate of
8% of the liquidation preference per annum (equivalent to $20.00 per annum per
Series D Preferred Share). Dividends on the Series D Preferred Shares will
accrue whether or not the Company has earnings, whether or not there are funds
legally available for the payment of such dividends and whether or not such
dividends are declared. The Series D Preferred Shares have a liquidation
preference of $250 per share (equivalent to $25.00 per Series D Depositary
Share), plus an amount equal to any accrued and unpaid dividends.
The Series D Preferred Shares are not redeemable prior to April 23, 2003.
On and after April 23, 2003, the Series D Preferred Shares will be redeemable
for cash at the option of the Company, in whole or in part, at $250 per share,
plus any accrued and unpaid dividends thereon to the date fixed for redemption.
The redemption price (other than the portion thereof consisting of accrued and
unpaid dividends) is payable solely out of the sale proceeds of other capital
stock of the Company, which may include other series of Preferred Stock, and
from no other source.
If dividends on the Series D Preferred Shares are in arrears for six or
more quarterly periods, whether or not such quarterly periods are consecutive,
holders of Series D Depositary Shares representing the Series D Preferred
Shares (voting separately as a class with all other series of Preferred Stock
upon which like voting rights have been conferred and are exercisable) will be
entitled to vote for the election of two additional directors to serve on the
board of directors of the Company until all dividend arrearages have been paid.
The Series D Preferred Shares are not convertible or exchangeable for any
other property or securities of the Company. The Series D Preferred Shares are
subject to certain restrictions on ownership intended to preserve the Company's
status as a REIT for federal income tax purposes. See "Description of Preferred
Stock --
27
Restrictions on Ownership" and "Description of Common Stock -- Certain
Provisions Affecting Change of Control -- Ownership Limitations and
Restrictions on Transfers."
DESCRIPTION OF DEPOSITARY SHARES
General
The Company may issue without any further actionreceipts ("Depositary Receipts") for Depositary
Shares, each of which will represent a fractional interest of a share of a
particular series of Preferred Stock, as specified in the applicable Prospectus
Supplement. Shares of Preferred Stock of each series represented by Depositary
Shares will be deposited under a separate deposit agreement (each, a "Deposit
Agreement") among the Company, the depositary named therein (a "Preferred Stock
Depositary") and the holders from time to time of the Depositary Receipts.
Subject to the terms of the applicable Deposit Agreement, each owner of a
Depositary Receipt will be entitled, in proportion to the fractional interest
of a share of a particular series of Preferred Stock represented by the
stockholders, sharesDepositary Shares evidenced by such Depositary Receipt, to all the rights and
preferences of capital stock
in one or more series havingthe Preferred Stock represented by such preferences,Depositary Shares
(including dividend, voting, conversion, redemption and other rights,
voting powers, restrictions, limitations as to dividends, qualifications and
terms and conditions of redemption as the Board of Directors may determine and
as mayliquidation rights).
The Depositary Shares will be evidenced by Articles SupplementaryDepositary Receipts issued
pursuant to the Articlesapplicable Deposit Agreement. Immediately following the
issuance and delivery of Incorporation
adoptedthe Preferred Stock by the BoardCompany to a Preferred
Stock Depositary, the Company will cause such Preferred Stock Depositary to
issue, on behalf of Directors.
Through its powerthe Company, the Depositary Receipts. Copies of the
applicable form of Deposit Agreement and Depositary Receipt may be obtained
from the Company upon request, and the statements made hereunder relating to
establishDeposit Agreements and the preferencesDepositary Receipts to be issued thereunder are
summaries of certain anticipated provisions thereof and rightsdo not purport to be
complete and are subject to, and qualified in their entirety by reference to,
all of additional
seriesthe provisions of capital stock without further stockholder vote, the Boardapplicable Deposit Agreement and related
Depositary Receipts.
Dividends and Other Distributions
A Preferred Stock Depositary will be required to distribute all cash
dividends or other cash distributions received in respect of Directorsthe applicable
Preferred Stock to the record holders of Depositary Receipts evidencing the
related Depositary Shares in proportion to the number of such Depositary
Receipts owned by such holders, subject to certain obligations of holders to
file proofs, certificates and other information and to pay certain charges and
expenses to such Preferred Stock Depositary.
In the event of a distribution other than in cash, a Preferred Stock
Depositary will be required to distribute property received by it to the record
holders of Depositary Receipts entitled thereto, subject to certain obligations
of holders to file proofs, certificates and other information and to pay
certain charges and expenses to such Preferred Stock Depositary, unless such
Preferred Stock Depositary determines that it is not feasible to make such
distribution, in which case such Preferred Stock Depositary may, affordwith the
approval of the Company, sell such property and distribute the net proceeds
from such sale to such holders.
No distribution will be made in respect of any Depositary Share to the
extent that it represents any Preferred Stock that has been converted or
exchanged.
Withdrawal of Stock
Upon surrender of the Depositary Receipts at the corporate trust office of
the applicable Preferred Stock Depositary (unless the related Depositary Shares
have previously been called for redemption or converted), the holders thereof
will be entitled to delivery at such office, to or upon each such holder's
order, of the number of whole or fractional shares of the applicable Preferred
Stock and any seriesmoney or other property represented by the Depositary Shares
evidenced by such Depositary Receipts. Holders of senior capital stock preferences, powers
and rights, votingDepositary Receipts will be
entitled to receive whole or otherwise, senior tofractional shares of the rightsrelated Preferred Stock
on the basis of the proportion of Preferred Stock represented by each
Depositary Share as specified in the applicable Prospectus Supplement, but
holders of Common
Stock. The issuancesuch shares of any such senior capital stock could havePreferred Stock will not thereafter be entitled to
receive Depositary Shares therefor. If the effect of
delaying or preventing a change in control of the Company.
Warrants
Beginning October 1, 2002, each Warrant entitlesDepositary Receipts delivered by the
holder thereof to
purchase, at a purchase price per share of $32.50, subject to adjustments
relating to stock splits or the issuance of stock dividends, rights, options,
warrants, convertible or exchangeable securities or distributions of securities
(the "Purchase Price"),evidence a number of sharesDepositary Shares in excess of Common Stock less than or equal tothe number of
Depositary Shares representing the number of shares of Preferred Stock to be
withdrawn, the applicable Preferred Stock Depositary will be required to
deliver to such holder at the same time a new Depositary Receipt evidencing
such excess number of Depositary Shares.
28
Redemption of Depositary Shares
Whenever the Company redeems shares of Preferred Stock held by a Preferred
Stock Depositary, such Preferred Stock Depositary will be required to redeem as
of the same redemption date the number of Depositary Shares representing shares
of the Preferred Stock so redeemed, provided the Company shall have paid in
full to such Preferred Stock Depositary the redemption price of the Preferred
Stock to be redeemed plus an amount equal to any accrued and unpaid dividends
thereon to the date fixed for redemption. The redemption price per Depositary
Share will be equal to the redemption price and any other amounts per share
payable with respect to the Preferred Stock. If fewer than all the Depositary
Shares are to be redeemed, the Depositary Shares to be redeemed will be
selected pro rata (as nearly as may be practicable without creating fractional
Depositary Shares) or by any other equitable method determined by the Company.
From and after the date fixed for redemption, all dividends in respect of
the shares of Preferred Stock so called for redemption will cease to accrue,
the Depositary Shares so called for redemption will no longer be deemed to be
outstanding and all rights of the holders of the Depositary Receipts evidencing
the Depositary Shares so called for redemption will cease, except the right to
receive any moneys payable upon such redemption and any money or other property
to which the holders of such Depositary Receipts were entitled upon such
redemption upon surrender thereof to the applicable Preferred Stock Depositary.
Voting of the Preferred Stock
Upon receipt of notice of any meeting at which the holders of the
applicable Preferred Stock are entitled to vote, a Preferred Stock Depositary
will be required to mail the information contained in such notice of meeting to
the record holders of the Depositary Receipts evidencing the Depositary Shares
that represent such Preferred Stock. Each record holder of Depositary Receipts
evidencing Depositary Shares on the record date (which will be the same date as
the record date for the Preferred Stock) will be entitled to instruct such
Preferred Stock Depositary as to the exercise of the voting rights pertaining
to the amount of Preferred Stock represented by such holder's Depositary
Shares. Such Preferred Stock Depositary will be required to vote the amount of
Preferred Stock represented by such Depositary Shares in accordance with such
instructions, and the Company will agree to take all reasonable action that may
be deemed necessary by such Preferred Stock Depositary in order to enable such
Preferred Stock Depositary to do so. Such Preferred Stock Depositary will be
required to abstain from voting the amount of Preferred Stock represented by
such Depositary Shares to the extent it does not receive specific instructions
from the holders of Depositary Receipts evidencing such Depositary Shares. A
Preferred Stock Depositary will not be responsible for any failure to carry out
any instruction to vote, or for the manner or effect of any such vote made, as
long as any such action or non-action is in good faith and does not result from
negligence or willful misconduct of such Preferred Stock Depositary.
Liquidation Preference
In the event of the liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the holders of each Depositary Receipt will
be entitled to the fraction of the liquidation preference accorded each share
of Preferred Stock represented by the Depositary Share evidenced by such
Depositary Receipt, as set forth in the applicable Prospectus Supplement.
Conversion of Preferred Stock
The Depositary Shares, as such, will not be convertible into Common Stock
or any other securities or property of the Company. Nevertheless, if so
statedspecified in eachthe applicable Prospectus Supplement relating to an offering of
Depositary Shares, the Depositary Receipts may be surrendered by holders
thereof to the applicable Preferred Stock Depositary with written instructions
to such Warrant.
Alternatively,Preferred Stock Depositary to instruct the holderCompany to cause conversion
of a Warrant may, at his election, opt to receive a
number ofthe Preferred Stock represented by the Depositary Shares evidenced by such
Depositary Receipts into whole shares of Common Stock, other shares of
Preferred Stock of the Company or other shares of stock, and the Company will
agree that upon receipt of such instructions and any amounts payable in respect
thereof, it will cause the conversion thereof utilizing the same procedures as
those provided for delivery of Preferred Stock to effect such conversion. If
the Depositary Shares evidenced by a Depositary Receipt are to be converted in
part only, a new Depositary Receipt or Receipts will be issued for any
Depositary Shares not to be converted. No fractional shares of Common Stock
will be issued upon conversion, and if such conversion will
29
result in a fractional share being issued, an amount will be paid in cash by
the Company equal to the quotient of (i) the value of the Warrant(s) exercised, wherefractional interest based upon the
closing price of the Common Stock on the last business day prior to the
conversion.
Amendment and Termination of a Deposit Agreement
Any form of Depositary Receipt evidencing Depositary Shares that will
represent Preferred Stock and any provision of a Deposit Agreement will be
permitted at any time to be amended by agreement between the Company and the
applicable Preferred Stock Depositary. However, any amendment that materially
and adversely alters the rights of the holders of Depositary Receipts or that
would be materially and adversely inconsistent with the rights granted to the
holders of the related Preferred Stock will not be effective unless such
valueamendment has been approved by the existing holders of at least two-thirds of
the applicable Depositary Shares evidenced by the applicable Depositary
Receipts then outstanding. No amendment shall impair the right, subject to
certain anticipated exceptions in the Deposit Agreements, of any holder of
Depositary Receipts to surrender any Depositary Receipt with instructions to
deliver to the holder the related Preferred Stock and all money and other
property, if any, represented thereby, except in order to comply with law.
Every holder of an outstanding Depositary Receipt at the time any such
amendment becomes effective shall be deemed, by continuing to hold such
Depositary Receipt, to consent and agree to such amendment and to be bound by
the applicable Deposit Agreement as amended thereby.
A Deposit Agreement will be permitted to be terminated by the Company upon
not less that 30 days' prior written notice to the applicable Preferred Stock
Depositary if (i) such termination is calculatednecessary to preserve the Company's
status as a REIT or (ii) a majority of each series of Preferred Stock affected
by such termination consents to such termination, whereupon such Preferred
Stock Depositary will be required to deliver or make available to each holder
of Depositary Receipts, upon surrender of the Depositary Receipts held by such
holder, such number of whole or fractional shares of Preferred Stock as are
represented by the Depositary Shares evidenced by such Depositary Receipts
together with any other property held by such Preferred Stock Depositary with
respect to such Depositary Receipts. The Company will agree that if a Deposit
Agreement is terminated to preserve the Company's status as a REIT, then the
Company will use its best efforts to list the Preferred Stock issued upon
surrender of the related Depositary Shares on a national securities exchange.
In addition, a Deposit Agreement will automatically terminate if (i) all
outstanding Depositary Shares thereunder shall have been redeemed, (ii) there
shall have been a final distribution in respect of the related Preferred Stock
in connection with any liquidation, dissolution or winding up of the Company
and such distribution shall have been distributed to the holders of Depositary
Receipts evidencing the Depositary Shares representing such Preferred Stock or
(iii) each share of the related Preferred Stock shall have been converted into
stock of the Company not so represented by Depositary Shares.
Charges of a Preferred Stock Depositary
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of a Deposit Agreement. In addition, the
Company will pay the fees and expenses of a Preferred Stock Depositary in
connection with the performance of its duties under a Deposit Agreement.
However, holders of Depositary Receipts will pay certain other transfer and
other taxes and governmental charges as well as the productfees and expenses of (a)a
Preferred Stock Depositary for any duties required by such holders to be
performed which are outside of those expressly provided for in the numberapplicable
Deposit Agreement.
Resignation and Removal of shares coveredDepositary
A Preferred Stock Depositary will be permitted to resign at any time by
delivering to the Company notice of its election to do so, and the Company will
be permitted at any time to remove a Preferred Stock Depositary, any such
resignation or removal to take effect upon the appointment of a successor
Preferred Stock Depositary. A successor Preferred Stock Depositary will be
required to be appointed within 60 days after delivery of the notice of
resignation or removal and will be required to be a bank or trust company
having its principal office in the United States and having a combined capital
and surplus of at least $50,000,000.
30
Miscellaneous
A Preferred Stock Depositary will be required to forward to holders of
Depositary Receipts any reports and communications from the Company that are
received by such Preferred Stock Depositary with respect to the related
Preferred Stock.
Neither a Preferred Stock Depositary nor the Company will be liable if it
is prevented from or delayed in, by law or any circumstances beyond its
control, performing its obligations under a Deposit Agreement. The obligations
of the Company and a Preferred Stock Depositary under a Deposit Agreement will
be limited to performing their duties thereunder in good faith and without
negligence (in the case of any action or inaction in the voting of Preferred
Stock represented by the exerciseapplicable Depositary Shares), gross negligence or
willful misconduct, and neither the Company nor any applicable Preferred Stock
Depositary will be obligated to prosecute or defend any legal proceeding in
respect of any Depositary Receipts, Depositary Shares or shares of Preferred
Stock represented thereby unless satisfactory indemnity is furnished. The
Company and any Preferred Stock Depositary will be permitted to rely on written
advice of counsel or accountants, or information provided by persons presenting
shares of Preferred Stock represented thereby for deposit, holders of
Depositary Receipts or other persons believed in good faith to be competent to
give such Warrant(s) times (b)information, and on documents believed in good faith to be genuine
and signed by a proper party.
In the excessevent a Preferred Stock Depositary shall receive conflicting
claims, requests or instructions from any holders of Depositary Receipts, on
the one hand, and the Company, on the other hand, such Preferred Stock
Depositary shall be entitled to act on such claims, requests or instructions
received from the Company.
DESCRIPTION OF COMMON STOCK
General
The authorized capital stock of the fair marketCompany includes 100 million shares of
Common Stock, $.01 par value per share. Each outstanding share of Common Stock
overentitles the Purchase Price
dividedholder to one vote on all matters presented to stockholders for a
vote. Holders of Common Stock have no preemptive rights. As of March 31, 1998,
there were approximately 51.0 million shares of Common Stock outstanding, and
approximately 10.8 million shares reserved for issuance upon exchange of
outstanding Common Units.
Shares of Common Stock currently outstanding are listed for trading on the
NYSE. The Company will apply to the NYSE to list the additional shares of
Common Stock to be sold pursuant to any Prospectus Supplement.
All shares of Common Stock issued will be duly authorized, fully paid, and
non-assessable. Distributions may be paid to the holders of Common Stock if and
when declared by (ii) the fair valueboard of a singledirectors of the Company out of funds legally
available therefor. The Company intends to continue to pay quarterly dividends.
Under Maryland law, stockholders are generally not liable for the
Company's debts or obligations. If the Company is liquidated, subject to the
right of any holders of Preferred Stock, if any, to receive preferential
distributions, each outstanding share of Common Stock.Stock will be entitled to
participate pro rata in the assets remaining after payment of, or adequate
provision for, all known debts and liabilities of the Company.
The Warrants
have not been approved for listing on any national securities exchange.
Classification of Board of Directors; Removal of Directors; Other Provisions
The Company's Articles of Incorporation provide for the Boardboard of Directorsdirectors to be
divided into three classes of directors, with each class to consist as nearly as
possible of an equal numberone-third of the directors. At each annual meeting of stockholders,
the class of directors to be elected at such meeting will be elected for a
three-year term and the directors in the other two classes will continue in
office. Because holdersThe overall effect of the provisions in the Articles of Incorporation
with respect to the classified board may be to render more difficult a change
of control of the Company or removal of incumbent management. Holders of Common
Stock will have no right to cumulative voting for the election of directors,directors.
Consequently, at each annual meeting of stockholders, the holders of a
majorityplurality of the shares of Common Stock will beare able to elect all of the successors
of the class of directors whose term expires at that meeting. The Articles of Incorporation also provide that, except for any directors
who may be elected by holders of a class or series of capital stock other than
Common Stock, directorsDirectors may be
removed only for cause and only by the
affirmative vote of stockholders holding at least two-thirds of the votes
entitled to be cast for the election of directors. Vacancies on the Board of
Directors may be filled bywith the affirmative vote of the remaining directors.
These provisions may make it more difficult and time-consuming to change
majority controlholders of
two-thirds of the Boardshares of Directors of the Company and, thus, may reduce
the vulnerability of the Companycapital stock entitled to an unsolicited proposal for the takeover of
the Company or the removal of incumbent management. The Company's officers and
directors are and will be indemnified under Maryland law, the Articles of
Incorporation of the Company and the agreement of limited partnership of the
Operating Partnership (the "Operating Partnership Agreement") against certain
liabilities, including liabilities under the Securities Act. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling the Company, the Company
has been informed thatvote in the opinionelection of
the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
10
directors.
Certain Provisions Affecting Change of Control
General. Pursuant to the Company's Articles of Incorporation and the Maryland
General Corporation Lawgeneral corporation law (the "MGCL"), the Company cannot merge into or
consolidate with another corporation or enter into a statutory share exchange
31
transaction in which it is not the surviving entity or sell all or
substantially all of the assets of the Company unless the Boardboard of Directorsdirectors
adopts a resolution declaring the proposed transaction advisable and a majority
of stockholders entitled to vote thereon (voting together as a single class)
approve the transaction. In addition, the Operating Partnership Agreement
requires that any such merger or sale of all or substantially all of the assets
of the Operating Partnership be approved by a majority of the holders of Common
Units (including Common Units owned by the Company).
Maryland Business Combination and Control Share Statutes. The MGCL
establishes special requirements with respect to business combinations between
Maryland corporations and interested stockholders unless exemptions are
applicable. Among other things, the law prohibits for a period of five years a
merger and other specified or similar transactions between a company and an
interested stockholder and requires a super majoritysupermajority vote for such transactions
after the end of the five-year period. The Company's Articles of Incorporation contain a
provision exempting the Company from the requirements and provisions of the
Maryland business combination statute. There can be no assurance that such
provision will not be amended or repealed at any point in the future.
The MGCL also provides that control shares of a Maryland corporation
acquired in a control share acquisition have no voting rights except to the
extent approved by a vote of two-thirds of the votes entitled to be cast on the
matter, excluding shares owned by the acquiror or by officers or directors who
are employees of the Company. The control share acquisition statute does not
apply to shares acquired in a merger, consolidation or share exchange if the
Company is a party to the transaction, or to acquisitions approved or exempted
by the Articles of Incorporation or bylaws of the Company. The Company's bylaws
contain a provision exempting from the control share acquisition statute any
and all acquisitions by any person of the Company's stock. There can be no
assurance that such provision will not be amended or repealed, in whole or in
part, at any point in the future.
The Company's Articles of Incorporation (including the provision exempting the
Company from the Maryland business combination statute) may not be amended
without the affirmative vote of at least a majority of the shares of capital
stock outstanding and entitled to vote thereon voting together as a single
class, provided that certain provisions of the Articles of Incorporation may
not be amended without the approval of the holders of two-thirds of the shares
of capital stock of the Company outstanding and entitled to vote thereon voting
together as a single class. The Company's bylaws may be amended by the Boardboard of
Directorsdirectors or a majority of the shares cast of capital stock entitled to vote
thereupon at a duly constituted meeting of stockholders.
If either of the foregoing exemptions in the Articles of Incorporation or
bylaws is amended, the Maryland business combination statute or the control
share acquisition statute could have the effect of discouraging offers to
acquire the Company and of increasing the difficulty of consummating any such
offer.
Ownership Limitations and Restrictions on Transfers. For the Company to
remain qualified as a REIT under the Code, not more than 50% in value of its
outstanding shares of capital stockCommon Stock may be owned, directly or indirectly, by
five or fewer individuals (defined in the Code to include certain entities)
during the last half of a taxable year, and such shares must be beneficially
owned by 100 or more persons during at least 335 days of a taxable year of 12
months or during a proportionate part of a shorter taxable year. To ensure that
the Company remains a qualified REIT, the Articles of Incorporation provide
that no holder (other than persons approved by the directors at their option
and in their discretion) may own, or be deemed to own by virtue of the
attribution provisions of the Code, more than 9.8% (the "Ownership Limit") of
the issued and outstanding capital stock of the Company. The Boardboard of Directorsdirectors
may waive the Ownership Limit if evidence satisfactory to the Boardboard of
Directorsdirectors and the Company's tax counsel is presented that the changes in
ownership will not jeopardize the Company's status as a REIT.
11
If any stockholder purports to transfer shares to a person and either the
transfer would result in the Company failing to qualify as a REIT, or the
stockholder knows that such transfer would cause the transferee to hold more
than the Ownership Limit, the purported transfer shall be null and void, and
the stockholder will be deemed not to have transferred the shares. In addition,
if any person holds shares of capital stock in excess of the Ownership Limit,
such person will be deemed to hold the excess shares in trust for the Company,
will not receive distributions with respect to such shares and will not be
entitled to vote such shares. The person will be required to sell such shares
to the Company for the lesser of the amount paid for the shares orand the average
closing price for the 10 trading days immediately preceding the redemption or
to sell such shares at the direction of the Company, in which case the Company
will be reimbursed for its expenses in connection with the sale and will
receive any amount of such proceeds that exceeds the amount such person paid
for the shares. If the Company repurchases such shares, it may pay for the
shares with Common Units. The foregoing restrictions on transferability
32
and ownership will not apply if the Boardboard of Directorsdirectors and the stockholders (by
the affirmative vote of the holders of two-thirds of the outstanding shares of
capital stock entitled to vote on the matter) determine that it is no longer in
the best interests of the Company to continue to qualify as a REIT.
All certificates representing shares of capital stockCommon Stock bear a legend
referring to the restrictions described above.
Every beneficial owner of more than 5% (or such lower percentage as
required by the Code or regulations thereunder) of the issued and outstanding
shares of capital stock must file a written notice with the Company no later
than January 30 of each year, containing the name and address of such
beneficial owner, the number of shares of Common Stock and/or Preferred Stock
owned and a description of how the shares are held. In addition, each
stockholder shall be required upon demand to disclose to the Company in writing
such information as the Company may request in order to determine the effect of
such stockholder's direct, indirect and constructive ownership of such shares
on the Company's status as a REIT.
These ownership limitations could have the effect of precluding
acquisition of control of the Company by a third party unless the Boardboard of
Directorsdirectors and the stockholders determine that maintenance of REIT status is no
longer in the best interest of the Company.
Operating Partnership Agreement. The Operating Partnership Agreement
requires that any merger (unless the surviving entity contributes substantially
all of theits assets ofto the Operating Partnership for Common Units) or sale of all
or substantially all of the assets of the Operating Partnership be approved by
a majority of the holders of Common Units (including Common Units owned by the
Company). The Operating Partnership Agreement also contains provisions relating
to a limited partner's redemption right in the event of certain changes of
control of the Company and under certain circumstances allows for limited
partners to continue to hold Common Units in the Operating Partnership
following such a change of control, thereby maintaining the tax basis in their
Common Units. The covered changes of control (each, a "Trigger Event") are: (i)
a merger involving the companyCompany in which the Company is not the surviving
entity; (ii) a merger involving the Company in which the Company is the
survivor but all or part of the Company's shares are converted into securities
of another entity or the right to receive cash; and (iii) the transfer by the
Company to another entity of substantially all of the assets or earning power
of the Company or the Operating Partnership.
Upon occurrence of a Trigger Event, the rights of a limited partner to
receive a share of the Company's common stock (a "REIT Share") or cash equal to
the fair market value of a REIT Share upon redemption of a Common Unit is
converted into the right to receive a share (a "Replacement Share") or cash
equal to the fair market value thereof of the acquiror or a parent of the
acquiror. If the acquiror does not have publicly traded securities and a parent
of the acquiror does, the publicly traded equity securities of the parent
entity with the highest market capitalization will be the Replacement Shares.
If neither the acquiror nor any parent has publicly traded equity securities,
the Replacement Shares will be the equity securities of the entity with the
highest market capitalization. The number of Replacement Shares to be received
by a limited partner (or to be used to calculate the cash payment due) upon a
redemption of Common Units shall be equal to the number of REIT Shares issuable
prior to the Trigger Event multiplied by (i) the number of Replacement Shares
the holder of a single REIT Share would have received as a result of the
Trigger Event or, if the Replacement Shares have not been publicly traded for
one year, (ii) a fraction, the numerator of which is the Average 12
Trading Price
(as defined in the Operating Partnership Agreement) of a REIT Share as of the
Trigger Event and the denominator of which is the Average Trading Price of a
Replacement Share as of the Trigger Event.
If the acquiror in a Trigger Event is a REIT, it must make provision to
preserve an operating partnership structure with terms no less favorable to the
limited partners than currently in place. In addition, the Operating
Partnership Agreement provides that, if a distribution of cash or property is
made in respect of a Replacement Share, the Operating Partnership will
distribute the same amount in respect of a Common Unit as would have been
received by a limited partner had such partner's Common Units been redeemed for
Replacement Shares prior to such distribution.
Because the Operating Partnership Agreement requires an acquiror to make
provision under certain circumstances to maintain the Operating Partnership
structure and maintain a limited partner's right to continue to hold Common
Units with future redemption rights, the terms of the Operating Partnership
Agreement could also have the effect of discouraging a third party from making
an acquisition proposal for the Company.
33
These provisions of the Operating Partnership Agreement may only be waived
or amended upon the consent of limited partners holding at least 75% of the
Common Units (excluding those held by the Company).
ShareholdersShareholders' Rights Plan. On October 4, 1997, the Company's Boardboard of
Directorsdirectors adopted a ShareholdersShareholders' Rights Plan and declared a distribution of
one preferred share purchase right (a "Right") for each outstanding share of
Common Stock. The Rights were issued on October 16, 1997 to each shareholder of
record on such date. The Rights have certain anti-takeover effects. The Rights
will cause substantial dilution to a person or group that attempts to acquire
the Company on terms not approved by the Company's Boardboard of Directors.directors. The
Rights should not interfere with any merger or other business combination
approved by the Boardboard of Directorsdirectors since the Rights may be redeemed by the
Company for $.01 per Right prior to the time that a person or group has
acquired beneficial ownership of 15% or more of the Common Stock.
Registrar and Transfer Agent
The Registrar and Transfer Agent for the Common Stock and all shares of
Preferred Stock is First Union
National Bank, Charlotte, North Carolina.
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain Federal income tax considerations to the
Company is based on current law, is for general purposes only, and is not tax
advice. The summary addresses the material Federal income tax considerations
relating to the Company's REIT status, as well as material Federal income tax
considerations relating to the Operating Partnership and the Company's
stockholders.Partnership. The federal income tax treatment of a
holder of any investor inof the Securities will vary depending upon the terms of the
specific securities acquired by such investor'sholder, as well as his or her particular
situations.situation, and this discussion does not attempt to address any aspects of
Federal income taxation relating to holders of Securities. Certain Federal
income tax considerations relevant to holders of the Securities will be
provided in the applicable Prospectus Supplement relating thereto.
EACH INVESTOR IS ADVISED TO CONSULT HIS OR HER OWN TAX ADVISOR REGARDING
THE TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE, OWNERSHIP AND SALE OF THE
OFFERED SECURITIES, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
Taxation of the Company as a REIT
General. Commencing with its taxable year ended December 31, 1994, the
Company has elected to be taxed as a real estate investment trust under
Sections 856 through 860 of the Code. The Company believes that, commencing
with its taxable year ended December 31, 1994, it has been organized and has
operated in such a manner as to qualify for taxation as a REIT under the Code,
and the Company intends to continue to operate in such a manner, but no
assurance can be given that it has operated or will operate in a manner so as
to qualify or remain qualified.
13
These sections of the Code are highly technical and complex. The following
sets forth the material aspects of the sections that govern the Federal income
tax treatment of a REIT and its stockholders. This summary is qualified in its
entirety by the applicable Code provisions, rules and regulations promulgated
thereunder, and administrative and judicial interpretation thereof.
Alston & Bird LLP has acted as tax counsel to the Company in connection
with the offering of the Securities and the Company's election to be taxed as a
REIT. Alston & Bird LLP is of the opinion that the Company has been organized
and has operated in conformity with the requirements for qualification and
taxation as a REIT under the Code for its taxable years ended December 31, 1994
through 1996,1997, and that the Company is in a position to continue its
qualification and taxation as a REIT within the definition of Section 856(a) of
the Code for the taxable year ended December 31, 1997, and the taxable year that will end December 31, 1998. This opinion is
based on factual representations of the Company concerning its business
operations and its properties and Alston & Bird LLP has not independently
verified these facts. In addition, the Company's qualification and taxationstatus as a REIT at any time
during the 1997 and 1998 years is dependent, among other things, upon itsthe Company meeting the
requirements of Section 856(a)856 through 860 of the Code throughout each of such yearsthe year and for
eachthe year as a whole. Accordingly, because the Company's satisfaction of the REITsuch
requirements for
such years will
34
depend upon future events, including the precise terms and factsconditions of
proposed transactions, and the final determination of operational results and the
effect of certain provisions contained in the President's Budget Proposal for
the Fiscal Year 1999 on the Company's REIT status, no assurance can be given
that the actual results ofCompany will satisfy the Company's operations for
the taxable year ended December 31, 1997, orrequirements to be a REIT during the taxable
year that will end December 31, 1998, will satisfy the REIT requirements.1998.
Federal Income Taxation of the Company
If the Company qualifies for taxation as a REIT, it generally will not be
subject to Federal corporate income tax on that portion of its ordinary income
or capital gain that is currently distributed to stockholders. The REIT
provisions of the Code generally allow a REIT to deduct distributions paid to
its stockholders, substantially eliminating the Federal "double taxation" on
earnings (once at the corporate level when earned and once again at the
stockholder level when distributed) that usually results from investments in a
corporation. Nevertheless, the Company will be subject to Federal income tax as
follows. First, the Company will be taxed at regular corporate rates on its
undistributed REIT taxable income, including undistributed net capital gains.
Second, under certain circumstances, the Company may be subject to the
"alternative minimum tax" as a consequence of its items of tax preference.
Third, if the Company has net income from the sale or other disposition of
"foreclosure property" that is held primarily for sale to customers in the
ordinary course of business or other non-qualifying income from foreclosure
property, it will be subject to tax at the highest corporate rate on such
income. Fourth, if the Company has net income from prohibited transactions
(which are, in general, certain sales or other dispositions of property other
than foreclosure property held primarily for sale to customers in the ordinary
course of business), such income will be subject to a 100% tax. Fifth, if the
Company should fail to satisfy either of the 75% or 95% gross income tests
(discussed below) but has nonetheless maintained its qualification as a REIT
because certain other requirements have been met, it will be subject to a 100%
tax on the net income attributable to the greater of the amount by which the
Company fails either the 75% or 95% test, multiplied by a fraction intended to
reflect the Company's profitability. Sixth, if the Company fails to distribute
during each year at least the sum of (i) 85% of its ordinary income for such
year, (ii) 95% of its capital gain net income for such year, and (iii) any
undistributed taxable income from prior periods, the Company will be subject to
a 4% excise tax on the excess of such required distribution over the amounts
actually distributed. Seventh, if the Company should acquire any asset from a C
corporation (i.e., a corporation generally subject to full corporate-level tax)
in a carryover-basis transaction and the Company subsequently recognizes gain
on the disposition of such asset during the 10-year period (the "Recognition
Period") beginning on the date on which the asset was acquired by the Company,
then, to the extent of the excess of (a) the fair market value of the asset as
of the beginning of the applicable Recognition Period over (b) the Company's
adjusted basis in such asset as of the beginning of such Recognition Period
(the "Built-In Gain"), such gain will be subject to tax at the highest regular
corporate rate, pursuant to guidelines issued by the Internal Revenue Service
("IRS") (the "Built-In Gain Rules").
14
Requirements for Qualification
To qualify as a REIT, the Company must elect to be so treated and must
meet the requirements, discussed below, relating to the Company's organization,
sources of income, and nature of assets.
Organizational Requirements. The Code defines a REIT as a corporation,
trust or association: (i) that is managed by one or more trustees or directors,
(ii) the beneficial ownership of which is evidenced by transferable shares or
by transferable certificates of beneficial interest, (iii) that would be
taxable as a domestic corporation but for the REIT requirements, (iv) that is
neither a financial institution nor an insurance company subject to certain
provisions of the Code, (v) the beneficial ownership of which is held by 100 or
more persons, (vi) during the last half of each taxable year, not more than 50%
in value of the outstanding stock of which is owned, directly or indirectly,
through the application of certain attribution rules, by five or fewer
individuals (as defined in the Code to include certain entities), (vii) files
an election to be taxed as a REIT on its return for each taxable year, and
(viii) satisfies the 95% and 75% income tests and the 75%, 25%, 10%, and 5%
asset tests, as described below .below. The Code provides that conditions (i) through
(iv), inclusive, must be met during the entire taxable year and that condition
(v) must be met during at least 335 days of a taxable year of 12 months or
during a proportionate part of a taxable year of less than 12 months. For
purposes of condition (v), certain pension funds and other tax-exempt entities
are treated as persons. For purposes of condition (vi), the beneficiaries of a
pension or profit-sharing trust under section 401(a) of the Code are treated as
REIT stockholders. In addition,
35
the
Company's Articles of Incorporation currently include certain restrictions regarding
transfer of its Common Stock, which restrictions are intended (among other
things) to assist the Company in continuing to satisfy conditions (v) and (vi)
above.
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the
income of the partnership attributable to such share. In addition, the
character of the assets and gross income of the partnership retain the same
character in the hands of the REIT for purposes of Section 856 of the Code,
including satisfying the gross income tests and asset tests. Thus, the
Company's proportionate share of the assets, liabilities, and items of income
of the Operating Partnership (including the Operating Partnership's share of
the assets, liabilities, and items of income with respect to any partnership in
which it holds an interest) will be treated as assets, liabilities and items of
income of the Company for purposes of applying the requirements described
herein.
Income Tests. In order to maintain qualification as a REIT, the Company
annually must satisfy two gross income requirements. First, at least 75% of the
Company's gross income (excluding gross income from prohibited transactions)
for each taxable year must be derived directly or indirectly from investments
relating to real property, including investments in other REITs or mortgages on
real property (including "rents from real property" and, in certain
circumstances, interest). Second, at least 95% of the Company's gross income
(excluding gross income from prohibited transactions) for each taxable year
must be derived from such real property investments, dividends, interest, and
gain from the sale or disposition of stock or securities (or from any
combination of the foregoing). In addition, for taxable years ended on or
before December 31, 1997, short-term gain from the sale or other disposition of
stock or securities, gain from prohibited transactions and gain on the sale or
other disposition of real property held for less than four years (apart from
involuntary conversions and sales of foreclosure property) must represent less
than 30% of the Company's gross income (including gross income from prohibited
transactions). The Taxpayer Relief Act of 1997, enacted August 5, 1997
("Taxpayer Relief Act"), repeals the 30% gross income test for taxable years
beginning after August 5, 1997. Accordingly, the 30% gross income test will not
apply to the Company beginning with its taxable year that will end December 31,
1998.
Rents received by the Company will qualify as "rents from real property"
in satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in
whole or in part on the income or profits of any person but can be based on a
fixed percentage of gross receipts or gross sales. Second, "rents from real
property" excludes any amount received directly or indirectly from any tenant
if the Company, or an owner of 10% of more of the Company, directly or
constructively, owns 10% or more of such tenant taking into consideration the
applicable attribution rules (a "Related Party Tenant"). Third, rent
attributable to personal 15
property is excluded from "rents from real property"
except where such personal property is leased in connection with a lease of
real property and the rent attributable to such personal property is less than
or equal to 15% of the total rent received under the lease. Finally, amounts
that are attributable to services furnished or rendered in connection with the
rental of real property, whether or not separately stated, will not constitute
"rents from real property" unless such services are customarily provided in the
geographic area. Customary services that are not provided to a particular
tenant (e.g., furnishing heat and light, the cleaning of public entrances, and
the collection of trash) can be provided directly by the Company. Where, on the
other hand, such services are provided primarily for the convenience of the
tenants and are provided to such tenants, such services must be provided by an
independent contractor. In the event that an independent contractor provides
such services, the Company must adequately compensate the independent
contractor, the Company must not derive any income from the independent
contractor, and neither the independent contractor nor certain of its
shareholders may, directly or indirectly, own more than 35% of the Company,
taking into consideration the applicable ownership rules. Pursuant to the
Taxpayer Relief Act and beginning with the Company's taxable year that will end
December 31, 1998, the Company's rental income will not cease to qualify as
"rents from real property" merely because the Company performs a de minimis
amount of impermissible services to the tenants. For purposes of the preceding
sentence, (i) the amount of income received from such impermissible services
cannot exceed one percent of all amounts received or accrued during such
taxable year, directly or indirectly, by the Company with respect to such
property and (ii) the amount treated as received by the Company for such
impermissible services cannot be less than 150 percent of the direct cost of
the Company in furnishing or rendering such services.
36
The Company does not currently charge and does not anticipate charging
rent that is based in whole or in part on the income or profits of any person.
The Company also does not anticipate either deriving rent attributable to
personal property leased in connection with real property that exceeds 15% of
the total rents or receiving rent from Related Party Tenants.
The Operating Partnership does provide certain services with respect to
the Properties. The Company believes that the services with respect to the
Properties that are and will be provided directly are usually or customarily
rendered in connection with the rental of space for occupancy only and are not
otherwise rendered to particular tenants and, therefore, that the provision of
such services will not cause rents received with respect to the Properties to
fail to qualify as rents from real property. Services with respect to the
Properties that the Company believes may not be provided by the Company or the
Operating Partnership directly without jeopardizing the qualification of rent
as "rents from real property" are and will be performed by independent
contractors.
The Operating Partnership and the Company receive fees in consideration of
the performance of property management and brokerage and leasing services with
respect to certain Properties not owned entirely by the Operating Partnership.
Such fees will not qualify under the 75% or the 95% gross income test. The
Operating Partnership also may receive certain other types of income with
respect to the properties it owns that will not qualify for either of these
tests. In addition, dividends on the Operating Partnership's stock in Highwoods
Services will not qualify under the 75% gross income test. The Company
believes, however, that the aggregate amount of such fees and other
non-qualifying income in any taxable year will not cause the Company to exceed
the limits on non-qualifying income under either the 75% or the 95% gross
income test.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for that year
if it is eligible for relief under a certain provision of the Code. This relief
provision generally will be available if (i) the Company's failure to meet
these tests was due to reasonable cause and not due to willful neglect, (ii)
the Company attaches a schedule of the nature and amount of each item of income
to its Federal income tax return and (iii) the inclusion of any incorrect
information on such schedule is not due to fraud with intent to evade tax. It
is not possible, however, to state whether in all circumstances the Company
would be entitled to the benefit of this relief provision. For example, if the
Company fails to satisfy the gross income tests because non-qualifying income
that the Company intentionally incurs exceeds the limits on such income, the
IRS could conclude that the Company's failure to satisfy the tests was not due
to reasonable cause. As discussed above in " --- Federal Income Taxation of the
Company," even if this relief provision applies, a 100% tax would be imposed
with respect to the portion of the Company's taxable income that fails the 75%
or 95% gross income test.
16
Asset Tests. At the close of each quarter of its taxable year, the Company
also must satisfy four tests relating to the nature and diversification of its
assets. First, at least 75% of the value of the Company's total assets must be
represented by real estate assets, cash and cash items (including receivables),
and government securities. Second, no more than 25% of the value of the
Company's total assets may be represented by securities other than those in the
75% asset class. Third, not more than 5% of the value of the Company's assets
may consist of securities of any one issuer (other than those securities
includible in the 75% asset test). Fourth, not more than 10% of the outstanding
voting securities of any one issuer may be held by the Company (other than
those securities includible in the 75% asset test).
The 5% test generally must be met for any quarter in which the Company
acquires securities of an issuer. Thus, this requirement must be satisfied not
only on the date on which the Company through the Operating Partnership
acquired the securities of Highwoods Services, but also each time the Company
increases its ownership of its respective securities (including as a result of
increasing its interest in the Operating Partnership as limited partners
exercise their redemption rights). Although the Company plans to take steps to
ensure that it satisfies the 5% value test for any quarter with respect to
which retesting is to occur, there can be no assurance that such steps will
always be successful or will not require a reduction in the Company's overall
interest in Highwoods Services.
The Operating Partnership owns 100% of the nonvoting stock and 1% of the
voting stock of Highwoods Services, and by virtue of its ownership of Common
Units, the Company will be considered to own its pro rata share of such stock.
See "The Company and the Operating Partnership." Neither the Company nor the
Operating Partnership, however, will own more than 1% of the voting securities
of Highwoods Services. In addition, the Company and its senior management do
not believe that the Company's pro rata share of the value of the
37
securities of Highwoods Services exceeds 5% of the total value of the Company's
assets. The Company's belief is based in part upon its analysis of the
estimated value of the securities of Highwoods Services owned by the Operating
Partnership relative to the estimated value of the other assets owned by the
Operating Partnership. No independent appraisals will be obtained to support
this conclusion, and Alston & Bird LLP, in rendering its opinion as to the
qualification and taxation of the Company as a REIT, is relying on the
conclusions of the Company and its senior management as to the value of the
securities of Highwoods Services. There can be no assurance, however, that the
IRS might not contend that the value of such securities held by the Company
(through the Operating Partnership) exceeds the 5% value limitation.
After initially meeting the asset tests at the close of any quarter, the
Company will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset
values. If the failure to satisfy the asset tests results from an acquisition
of securities or other property during a quarter, the failure can be cured by
disposition of sufficient non-qualifying assets within 30 days after the close
of that quarter. The Company intends to maintain adequate records of the value
of its assets to ensure compliance with the asset tests and to take such other
actions within 30 days after the close of any quarter as may be required to
cure any noncompliance.
Annual Distribution Requirements
In order to be taxed as a REIT, the Company is required to make
distributions (other than capital gain distributions) to its stockholders in an
amount at least equal to (a) the sum of (i) 95% of the Company's "REIT taxable
income" (computed without regard to the dividends-paid deduction and the
Company's capital gain) and (ii) 95% of the net income, if any, from
foreclosure property in excess of the special tax on income from foreclosure
property, minus (b) the sum of certain items of non-cash income. Such
distributions must be paid in the taxable year to which they relate. Dividends
paid in the subsequent year, however, will be treated as if paid in the prior
year for purposes of such prior year's 95% distribution requirement if one of
the following two sets of criteria are satisfied: (i) the dividends were
declared in October, November, or December, the dividends were payable to
stockholders of record on a specified date in such a month, and the dividends
were actually paid during January of the subsequent year; or (ii) the dividends
were declared before the Company timely files its Federal income tax return for
such year, the dividends were distributed in the twelve month period following
the close of the prior year and not later than the first regular dividend
payment after such declaration, and the Company elected on its Federal income
tax return for the prior year to have a specified amount of the subsequent
dividend treated as if paid in the prior year. Even if the Company satisfies
the foregoing distribution requirements, the Company will be subject to tax
thereon at regular capital gains or ordinary corporate tax rates to the 17
extent
that it does not distribute all of its net capital gain or "REIT taxable
income" as adjusted. Furthermore, if the Company should fail to distribute
during each calendar year at least the sum of (a) 85% of its ordinary income
for that year, (b) 95% of its capital gain net income for that year, and (c)
any undistributed taxable income from prior periods, the Company would be
subject to a 4% excise tax on the excess of such required distribution over the
amounts actually distributed. In addition, during its Recognition Period, if
the Company disposes of any asset subject to the Built-In Gain Rules, the
Company will be required, pursuant to guidance issued by the IRS, to distribute
at least 95% of the Built-In Gain (after tax), if any, recognized on the
disposition of the asset.
The Company intends to make timely distributions sufficient to satisfy the
annual distribution requirements. In this regard, the Operating Partnership
Agreement authorizes the Company, as general partner, to take such steps as may
be necessary to cause the Operating Partnership to distribute to its partners
an amount sufficient to permit the Company to meet these distribution
requirements.
It is expected that the Company's REIT taxable income will be less than
its cash flow due to the allowance of depreciation and other non-cash charges
in computing REIT taxable income. Accordingly, the Company anticipates that it
generally will have sufficient cash or liquid assets to enable it to satisfy
the 95% distribution requirement. It is possible, however, that the Company,
from time to time, may not have sufficient cash or other liquid assets to meet
the 95% distribution requirement or to distribute such greater amount as may be
necessary to avoid income and excise taxation. In such event, the Company may
find it necessary to arrange for borrowings or, if possible, pay taxable stock
dividends in order to meet the distribution requirement.
38
In the event that the Company is subject to an adjustment to its REIT
taxable income (as defined in Section 860(d)(2) of the Code) resulting from an
adverse determination by either a final court decision, a closing agreement
between the Company and the IRS under Section 7121 of the Code, or an agreement
as to tax liability between the Company and an IRS district director, the
Company may be able to rectify any resulting failure to meet the 95% annual
distribution requirement by paying "deficiency dividends" to stockholders that
relate to the adjusted year but that are paid in a subsequent year. To qualify
as a deficiency dividend, the distribution must be made within 90 days of the
adverse determination and the Company also must satisfy certain other
procedural requirements. If the statutory requirements of Section 860 of the
Code are satisfied, a deduction is allowed for any deficiency dividend
subsequently paid by the Company to offset an increase in the Company's REIT
taxable income resulting from the adverse determination. The Company, however,
will be required to pay statutory interest on the amount of any deduction taken
for deficiency dividends to compensate for the deferral of the tax liability.
Failure to Qualify
If the Company fails to qualify for taxation as a REIT in any taxable year
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to stockholders in any year in which the
Company fails to qualify will not be deductible by the Company nor will they be
required to be made. In such event, to the extent of positive current and
accumulated earnings and profits, all distributions to stockholders will be
dividends, taxable as ordinary income, except that, subject to certain
limitations of the Code, corporate distributees may be eligible for the
dividends-received deduction. Unless the Company is entitled to relief under
specific statutory provisions, the Company also will be disqualified from
taxation as a REIT for the four taxable years following the year during which
qualification was lost. It is not possible to state whether in all
circumstances the Company would be entitled to such statutory relief. For
example, if the Company fails to satisfy the gross income tests because
non-qualifying income that the Company intentionally incurs exceeds the limit
on such income, the IRS could conclude that the Company's failure to satisfy
the tests was not due to reasonable cause.
Taxation of U.S. Stockholders
As used herein, the term "U.S. Stockholder" means a holder of Common Stock
that (for Federal income tax purposes) (a) is a citizen or resident of the
United States, (b) is a corporation or partnership (including an entity treated
as a corporation or partnership for United States Federal income tax purposes)
created or organized in or under the laws 18
of the United States or of any
political subdivision thereof, (c) is an estate, the income of which is subject
to Federal income taxation regardless of its source or (d) is any trust if a
court within the United States is able to exercise primary supervision over the
administration of the trust, and one or more United States persons have the
authority to control all substantial decisions of the trust. For any taxable
year for which the Company qualifies for taxation as a REIT, amounts
distributed to taxable U.S. Stockholders will be taxed as discussed below.
Distributions Generally. Distributions to U.S. Stockholders, other than
capital gain dividends discussed below, will constitute dividends up to the
amount of the Company's positive current and accumulated earnings and profits
and, to that extent, will be taxable to the U.S. Stockholders as ordinary
income. These distributions are not eligible for the dividends-received
deduction for corporations. To the extent that the Company makes a distribution
in excess of its positive current and accumulated earnings and profits, the
distribution will be treated first as a tax-free return of capital, reducing
the tax basis in the U.S. Stockholder's Common Stock, and then the distribution
in excess of such basis will be taxable as gain realized from the sale of its
Common Stock. Dividends declared by the Company in October, November, or
December of any year payable to a U.S. Stockholder of record on a specified
date in any such month shall be treated as both paid by the Company and
received by the stockholders on December 31 of the year, provided that the
dividends are actually paid by the Company during January of the following
calendar year. U.S. Stockholders are not allowed to include on their own
Federal income tax returns any tax losses of the Company.
The Company will be treated as having sufficient earnings and profits to
treat as a dividend any distribution by the Company up to the amount required
to be distributed in order to avoid imposition of the 4% excise tax discussed
in " - --- Federal Income Taxation of the Company" above.
39
Capital Gain Distributions. Distributions to U.S. Stockholders that are
properly designated by the Company as capital gain distributions will be
treated as long-term capital gains (to the extent they do not exceed the
Company's actual net capital gain) for the taxable year without regard to the
period for which the U.S. Stockholder has held his or her stock. However,
corporate stockholders may be required to treat up to 20% of certain capital
gain dividends as ordinary income. Capital gain dividends are not eligible for
the dividends-received deduction for corporations.
Pursuant to the Taxpayer Relief Act and beginning with the Company's
taxable year that will end December 31, 1998, the Company may elect to retain
and pay income tax on net long-term capital gain that it received during the
tax year. If such election is made, (i) the U.S. Stockholders will include in
their income their proportionate share of the undistributed long-term capital
gains as designated by the Company; (ii) the U.S. Stockholders will be deemed
to have paid their proportionate share of the tax, which would be credited or
refunded to such stockholders, and (iii) the basis of the U.S. Stockholders'
shares will be increased by the amount of the undistributed long-term capital
gains (less the amount of capital gains tax paid by the Company) included in
such stockholders' long-term capital gains.
As a result of the changes made to the capital gain rates by the Taxpayer
Relief Act (See "-Certain Disposition" -- Certain Dispositions of Shares"), the IRS recently issued Notice
97-64 outlining (i) when a REIT may designate its dividends as either a 20%
rate gain distribution, an unrecaptured section 1250 gain distribution (taxed
at 25% as noted below in " - Certain"Certain Disposition of Shares"), or a 28% rate gain
distribution and (ii) how to calculate the amount of such distributions, which
may be subject to certain deferral or bifurcation adjustments. When a REIT
designates a distribution as a capital gain dividend, which is attributable to
a taxable year ending after May 7, 1997, for purposes of the annual
distribution requirement, the REIT also may designate such dividend as a 20%
rate gain distribution, as unrecaptured section 1250 gain distribution, or a
28% rate gain distribution. Where no such designation is provided, the dividend
will be treated as a 28% rate gain distribution. These additional designations
by the REIT are effective only to the extent that they do not exceed certain
limitations. For example, the maximum amount of each distribution that can be
classified as either a 20% rate gain distribution, an unrecaptured section 1250
gain distribution, or a 28% rate gain distribution must be calculated in
accordance with the Code and the IRS Notice.
Passive Activity Loss and Investment Interest Limitations. Distributions
from the Company and gain from the disposition of Common Stock will not be
treated as passive activity income and, therefore, U.S. Stockholders will not
be able to apply any "passive losses" against such income. Dividends from the
Company (to the extent they do not constitute a return of capital) generally
will be treated as investment income for purposes of the investment interest
19
limitation. Net capital gain from the disposition of Common Stock or capital
gain dividends generally will be excluded from investment income unless the
U.S. Stockholder elects to have such gain taxed at ordinary income rates.
Certain Dispositions of Shares. In general, U.S. Stockholders will realize
capital gain or loss on the disposition of Common Stock equal to the difference
between (i) the amount of cash and the fair market value of any property
received on such disposition, and (ii) such stockholders' adjusted basis in
such Common Stock. Losses incurred on the sale or exchange of Common Stock held
for less than six months (after applying certain holding period rules) will be
deemed long-term capital loss to the extent of any capital gain dividends
received by the selling U.S. Stockholder from those shares. As a result of the
Taxpayer Relief Act, the maximum rate of tax on net capital gains on
individuals, trusts, and estates from the sale or exchange of assets held for
more than 18 months has been reduced to 20%, and such maximum rate is further
reduced to 18% for assets acquired after December 31, 2000, and held for more
than five years. For 15% percent bracket taxpayers, the maximum rate on net
capital gains is reduced to 10%, and such maximum rate is further reduced to 8%
for assets sold after December 31, 2000, and held for more than five years. The
maximum rate for net capital gains attributable to the sale of depreciable real
property held for more than 18 months is 25% to the extent of the deductions
for depreciation with respect to such property. Long-term capital gain
allocated to U.S. Stockholders by the Company will be subject to the 25% rate
to the extent that the gain does not exceed depreciation on real property sold
by the Company. The maximum rate of capital gains tax for capital assets held
more than one year but not more than 18 months remains at 28%. The taxation of
capital gains of corporations was not changed by the Taxpayer Relief Act.
40
Treatment of Tax-Exempt Stockholders. Distributions from the Company to a
tax-exempt employee pension trust or other domestic tax-exempt stockholder
generally will not constitute "unrelated business taxable income" ("UBTI")
unless the stockholder has borrowed to acquire or carry its Common Stock.
Qualified trusts that hold more than 10% (by value) of the shares of
pension-held REITs may be required to treat a certain percentage of such a
REIT's distributions as UBTI. This requirement will apply only if (i) the REIT
would not qualify as such for Federal income tax purposes but for the
application of a "look-through" exception to the five or fewer requirement
applicable to shares held by qualified trusts and (ii) the REIT is
"predominantly held" by qualified trusts. A REIT is predominantly held if
either (i) at least one qualified trust holds more than 25% by value of the
REIT interests or (ii) one or more qualified trusts, each owning more than 10%
by value of the REIT interests, hold in the aggregate more than 50% of the REIT
interests. The percentage of any REIT dividend treated as UBTI is equal to the
ratio of (a) the UBTI earned by the REIT (treating the REIT as if it were a
qualified trust and therefore subject to tax on UBTI) to (b) the total gross
income (less certain associated expenses) of the REIT. In the event that this
ratio is less than 5% for any year, then the qualified trust will not be
treated as having received UBTI as a result of the REIT dividend. For these
purposes, a qualified trust is any trust described in Section 401(a) of the
Code and exempt from tax under Section 501(a) of the Code. The restrictions on
ownership of Common Stock in the Articles of Incorporation generally will
prevent application of the provisions treating a portion of REIT distributions
as UBTI to tax-exempt entities purchasing Common Stock, absent a waiver of the
restrictions by the board of directors.
Special Tax Considerations for Non-U.S. Stockholders
The rules governing United States income taxation of non-resident alien
individuals, foreign corporations, foreign partnerships, and foreign trusts and
estates (collectively, "Non-U.S. Stockholders") are complex, and the following
discussion is intended only as a summary of these rules. This discussion is
based on current law, which is subject to change, and assumes that the Company
qualifies for taxation as a REIT. Prospective Non-U.S. Stockholders should
consult with their own tax advisors to determine the impact of Federal, state,
local, and foreign income tax laws on an investment in the Company, including
any reporting requirements.
A distribution by the Company that is not attributable to gain from the
sale or exchange by the Company of a United States real property interest and
that is not designated by the Company as a capital gain distribution will be
treated as an ordinary income dividend to the extent that it is made out of
current or accumulated earnings and profits of the Company. Generally, any
ordinary income dividend will be subject to a Federal income tax equal to 30%
of the gross amount of the dividend unless this tax is reduced by an applicable
tax treaty. Such a distribution in excess of the Company's earnings and profits
will be treated first as a return of capital that will reduce a Non-U.S.
Stockholder's basis 20
in its Common Stock (but not below zero) and then as gain
from the disposition of such shares, the tax treatment of which is described
under the rules discussed below with respect to dispositions of Common Stock.
Distributions by the Company that are attributable to gain from the sale
or exchange of a United States real property interest will be taxed to a
Non-U.S. Stockholder under the Foreign Investment in Real Property Tax Act of
1980 ("FIRPTA"). Under FIRPTA, such distributions are taxed to a Non-U.S.
Stockholder as if the distributions were gains "effectively connected" with a
United States trade or business. Accordingly, a Non-U.S. Stockholder will be
taxed at the normal capital gain rates applicable to a U.S. Stockholder
(subject to any applicable alternative minimum tax and a special alternative
minimum tax in the case of non-resident alien individuals). Distributions that
are taxable under FIRPTA also may be subject to a 30% branch profits tax when
made to a foreign corporation that is not entitled to an exemption or reduced
branch profits tax rate under an income tax treaty.
Although tax treaties may reduce the Company's withholding obligations,
the Company generally will be required to withhold from distributions to
Non-U.S. Stockholders, and remit to the IRS, (i) 35% of designated capital gain
dividends (or, if greater, 35% of the amount of any distributions that could be
designated as capital gain dividends) and (ii) 30% of ordinary dividends paid
out of earnings and profits. In addition, if the Company designates prior
distributions as capital gain dividends, subsequent distributions, up to the
amount of such prior distributions that were designated as capital gains
dividends, will be treated as capital gain dividends for purposes of
withholding. A distribution in excess of the Company's earnings and profits may
be subject to 30% dividend withholding (unless such Non-U.S. Stockholder is
entitled to a lower rate under an income tax treaty) or 10% FIRPTA withholding.
If the amount of tax withheld by the Company with respect to a distribution to
a
41
Non-U.S. Stockholder exceeds the stockholder's United States tax liability with
respect to such distribution, the Non-U.S. Stockholder may file for a refund of
such excess from the IRS.
Unless the Common Stock constitutes a "United States real property
interest" within the meaning of FIRPTA, a sale of Common Stock by a Non-U.S.
Stockholder generally will not be subject to Federal income taxation. The
Common Stock will not constitute a United States real property interest if the
Company is a "domestically controlled REIT." A domestically controlled REIT is
a REIT in which at all times during a specified testing period less than 50% in
value of its shares is held directly or indirectly by Non-U.S. Stockholders. It
currently is anticipated that the Company will be a domestically controlled
REIT and, therefore, that the sale of Common Stock will not be subject to
taxation under FIRPTA. However, because the Common Stock will be publicly
traded, no assurance can be given that the Company will be a domestically
controlled REIT. If the Company were not a domestically controlled REIT, a
Non- U.S.Non-U.S. Stockholder's sale of Common Stock would be subject to tax under
FIRPTA as a sale of a United States real property interest unless the Common
Stock were "regularly traded" on an established securities market (such as the
New York Stock Exchange)NYSE) on which the Common Stock will be listed and the selling stockholder
owned no more than 5% of the Common Stock throughout the testing period. If the
gain on the sale of Common Stock were subject to taxation under FIRPTA, the
Non-U.S. Stockholder would be subject to the same treatment as a U.S.
Stockholder with respect to the gain (subject to applicable alternative minimum
tax and a special alternative minimum tax in the case of non-resident alien
individuals). Notwithstanding the foregoing, capital gains not subject to
FIRPTA will be taxable to a Non- U.S.Non-U.S. Stockholder if the Non-U.S. Stockholder is
a non-resident alien individual who is present in the United States for 183
days or more during the taxable year and certain other conditions apply, in
which case the non-resident alien individual will be subject to a 30% tax on
his or her U.S. source capital gains.
A purchaser of Common Stock from a Non-U.S. Stockholder will not be
required to withhold under FIRPTA on the purchase price if the purchased Common
Stock is "regularly traded" on an established securities market or if the
Company is a domestically controlled REIT. Otherwise, the purchaser of Common
Stock from a Non-U.S. Stockholder may be required to withhold 10% of the
purchase price and remit this amount to the IRS. The Company's Common Stock
currently is a regularly traded security on the New York Stock Exchange.NYSE. The Company believes that
it qualifies under both the regularly traded and the domestically controlled
REIT exceptions to withholding but cannot provide any assurance to that effect.
21
Information Reporting Requirements and Backup Withholding Tax
Under certain circumstances, U.S. Stockholders may be subject to backup
withholding at a rate of 31% on payments made with respect to, or cash proceeds
of a sale or exchange of, Common Stock. Backup withholding will apply only if
(i) the payee fails to furnish his or her taxpayer identification number
("TIN") (which, for an individual, would be his or her Social Security Number)
to the payor as required, (ii) the IRS notifies the payor that the taxpayer
identification number furnished by the payee is incorrect, (iii) the IRS has
notified the payee that such payee has failed to properly include reportable
interest and dividends in the payee's return or has failed to file the
appropriate return and the IRS has assessed a deficiency with respect to such
underreporting, or (iv) the payee has failed to certify to the payor, under
penalties of perjury, that the payee is not subject to withholding. In
addition, backup withholding will not apply with respect to payments made to
certain exempt recipients, such as corporations and tax-exempt organizations.
U.S. Stockholders should consult their own tax advisors regarding their
qualifications for exemption from backup withholding and the procedure for
obtaining such an exemption. Backup withholding is not an additional tax.
Rather, the amount of any backup withholding with respect to a payment to a
U.S. Stockholder will be allowed as a credit against the U.S. Stockholder's
United States Federal income tax liability and may entitle the U.S. Stockholder
to a refund, provided that the required information is furnished to the IRS.
Additional issues may arise pertaining to information reporting and backup
withholding for Non-U.S. Stockholders. Non-U.S. Stockholders should consult
their tax advisors with regard to U.S. information reporting and backup
withholding.
Warrants
Upon a holder's exercise of a Warrant, the holder will, in general, (i)
not recognize any income, gain, or loss for federal income tax purposes, (ii)
receive an initial tax basis in the Common Stock received equal to the sum of
the holder's tax basis in the exercised Warrant and the exercise price paid for
such Common Stock, and (iii) have a holding period for the Common Stock received
beginning on the date of exercise. If a holder of a Warrant sells or otherwise
disposes of such Warrant (other than by its exercise), the holder generally will
recognize capital gain or loss equal to the difference between (i) the cash and
fair market value of other property received and (ii) the holder's tax basis (on
the date of disposition) in the Warrant sold. Such a holder generally will
recognize a capital loss upon the expiration of an unexercised Warrant equal to
the holder's tax basis in the Warrant on the expiration date. HOLDERS OF
WARRANTS PARTICIPATING IN STRADDLE TRANSACTIONS SHOULD CONSULT THEIR OWN TAX
ADVISORS WITH RESPECT TO THE ADDITIONAL RULES THAT APPLY TO STRADDLE
TRANSACTIONS.
Tax Aspects of the Operating Partnership
General. Substantially all of the Company's investments are held through
the Operating Partnership. In general, partnerships are "pass-through" entities
which are not subject to Federal income tax. Rather, partners
42
are allocated their proportionate shares of the items of income, gain, loss,
deduction, and credit of a partnership, and are potentially subject to tax
thereon, without regard to whether the partners receive a distribution from the
partnership. The Company includes in its income its proportionate share of the
foregoing Operating Partnership items for purposes of the various REIT income
tests and in the computation of its REIT taxable income. Moreover, for purposes
of the REIT asset tests, the Company includes its proportionate share of assets
held by the Operating Partnership.
Tax Allocations with Respect to the Properties. Pursuant to Section 704(c)
of the Code, income, gain, loss, and deduction attributable to appreciated or
depreciated property (such as the Properties) that is contributed to a
partnership in exchange for an interest in the partnership, must be allocated
in a manner such that the contributing partner is charged with, or benefits
from the unrealized gain or unrealized loss, respectively, associated with the
property at the time of the contribution. The amount of such unrealized gain or
unrealized loss is generally is equal to the difference between the fair market
value of contributed property at the time of contribution and the adjusted tax
basis of such property at the time of contribution (a "Book-Tax Difference").
Such allocations are solely for Federal income tax purposes and do not affect
the book capital accounts or other economic or legal arrangements among the
partners. The
22
Operating Partnership was formed by way of contributions of
appreciated property (including the Properties). Consequently, the Operating
Partnership Agreement requires such allocations to be made in a manner
consistent with Section 704(c) of the Code.
In general, the partners who have contributed partnership interests in the
Properties to the Operating Partnership (the "Contributing Partners") will be
allocated lower amounts of depreciation deductions for tax purposes than such
deductions would be if determined on a pro rata basis. In addition, in the
event of the disposition of any of the contributed assets (including the
Properties) that have a Book-Tax Difference, all taxable income attributable to
such Book-Tax Difference generally will be allocated to the Contributing
Partners, and the Company generally will be allocated only its share of capital
gains attributable to appreciation, if any, occurring after the closing of the
acquisition of such properties. This will tend to eliminate the Book-Tax
Difference over the life of the Operating Partnership. However, the special
allocation rules of Section 704(c) of the Code do not always entirely eliminate
the Book-Tax Difference on an annual basis or with respect to a specific
taxable transaction such as a sale. Thus, the carryover basis of the
contributed assets in the hands of the Operating Partnership will cause the
Company to be allocated lower depreciation and other deductions and possibly
amounts of taxable income in the event of a sale of such contributed assets in
excess of the economic or book income allocated to it as a result of such sale.
This may cause the Company to recognize taxable income in excess of cash
proceeds, which might adversely affect the Company's ability to comply with the
REIT distribution requirements. See " --- Annual Distribution Requirements."
Treasury Regulations under Section 704(c) of the Code provide partnerships
with a choice of several methods of accounting for Book-Tax Differences,
including the "traditional method" that may leave some of the Book-Tax
Differences unaccounted for, or the election of certain methods which would
permit any distortions caused by a Book- TaxBook-Tax Difference at this time to be
entirely rectified on an annual basis or with respect to a specific taxable
transaction such as a sale. The Operating Partnership and the Company have
determined to use the "traditional method" for accounting for Book-Tax
Differences with respect to the Properties contributed to the Partnership. As a
result of such determination, distributions to stockholders will be comprised
of a greater portion of taxable income rather than a return of capital. The
Operating Partnership and the Company have not determined which of the
alternative methods of accounting for Book-Tax Differences will be elected with
respect to Properties contributed to the Partnership in the future.
With respect to any property purchased by the Operating Partnership, such
property initially will have a tax basis equal to its fair market value and
Section 704(c) of the Code will not apply.
Basis in Operating Partnership Interest. The Company's adjusted tax basis
in its interest in the Operating Partnership generally (i) will be equal to the
amount of cash and the basis of any other property contributed to the Operating
Partnership by the Company, (ii) will be increased by (a) its allocable share
of the Operating Partnership's income and (b) its allocable share of
indebtedness of the Operating Partnership and (iii) will be reduced, but not
below zero, by the Company's allocable share of (a) losses suffered by the
Operating Partnership, (b) the amount of cash distributed to the Company, and
(c) constructive distributions resulting from a reduction in the Company's
share of indebtedness of the Operating Partnership.
43
If the allocation of the Company's distributive share of the Operating
Partnership's loss exceeds the adjusted tax basis of the Company's partnership
interest in the Operating Partnership, the recognition of such excess loss will
be deferred until such time and to the extent that the Company has an adjusted
tax basis in its partnership interest. To the extent that the Operating
Partnership's distributions, or any decrease in the Company's share of the
indebtedness of the Operating Partnership (such decreases being considered a
cash distribution to the partners) exceed the Company's adjusted tax basis,
such excess distributions (including such constructive distributions)
constitute taxable income to the Company. Such taxable income normally will be
characterized as a capital gain if the Company's interest in the Operating
Partnership has been held for longer than one year, subject to reduced tax
rates described above (See " -- Taxation of U.S. Stockholders --- Capital Gain
Distributions"). Under current law, capital gains and ordinary income of
corporations generally are taxed at the same marginal rates.
23
Sale of the Properties. The Company's share of gain realized by the
Operating Partnership on the sale of any property held by the Operating
Partnership as inventory or other property held primarily for sale to customers
in the ordinary course of the Operating Partnership's trade or business will be
treated as income from a prohibited transaction that is subject to a 100%
penalty tax. See " --- Requirements for Qualification --- Income Tests." Such
prohibited transaction income also may have an adverse effect upon the
Company's ability to satisfy the income tests for qualification as a REIT.
Under existing law, whether property is held as inventory or primarily for sale
to customers in the ordinary course of the Operating Partnership's trade or
business is a question of fact that depends on all the facts and circumstances
with respect to the particular transaction. The Operating Partnership intends
to hold the Properties for investment with a view to long-term appreciation, to
engage in the business of acquiring, developing, owning, and operating the
Properties (and other properties) and to make such occasional sales of the
Properties, including peripheral land, as are consistent with the Operating
Partnership's investment objectives.
Other Tax Considerations
A portion of the amounts to be used to fund distributions to stockholders
is expected to come from the Operating Partnership through distributions on
stock of Highwoods Services held by the Operating Partnership. Highwoods
Services will not qualify as a REIT and will pay Federal, state, and local
income taxes on its taxable income at normal corporate rates. Any Federal,
state, or local income taxes that Highwoods Services is required to pay will
reduce the cash available for distribution by the Company to its stockholders.
As described above, the value of the securities of Highwoods Services held
by the Company cannot exceed 5% of the value of the Company's assets at a time
when a Common Unit holder in the Operating Partnership exercises his or her
redemption right (or the Company otherwise is considered to acquire additional
securities of Highwoods Services). See " --- Federal Income Taxation of the
Company." This limitation may restrict the ability of Highwoods Services to
increase the size of its business unless the value of the assets of the Company
is increasing at a commensurate rate.
State and Local Tax
The Company and its stockholders may be subject to state and local tax in
various states and localities, including those in which it or they transact
business, own property, or reside. The tax treatment of the Company and the
stockholders in such jurisdictions may differ from the Federal income tax
treatment described above. Consequently, prospective stockholders should
consult their own tax advisors regarding the effect of state and local tax laws
on an investment in the Common Stock of the Company.
SELLING SECURITYHOLDERS
This Prospectus relatesProposed Legislation
Under current law, the Company cannot own more than 10% of the outstanding
voting securities (other than those securities includible in the 75% asset
test) of any one issuer and qualify for taxation as a REIT. See " --
Requirements for Qualification -- Asset Tests". For example, the Operating
Partnership owns 100% of the nonvoting stock and 1% of the voting stock of
Highwoods Services, and by virtue of its ownership of Common Units, the Company
is considered to own its pro rata share of such stock. Neither the Company nor
the Operating Partnership, however, own more than 1% of the voting securities
of Highwoods Services and the 10% test is satisfied.
44
The Company conducts its third-party fee-based services (i.e., leasing,
property management, real estate development, construction and other
miscellaneous services) through Highwoods Services. The President's Budget
Proposal for Fiscal Year 1999 ("Budget Proposal") includes a provision to
restrict these types of activities conducted by REITs under current law by
expanding the ownership limitation from no more than 10% of the voting
securities of an issuer to no more than 10% of the vote or value of all classes
of the issuer's stock. The Company, therefore, could not own stock (either
directly or indirectly through the Operating Partnership) possessing more than
10% of the vote or value of all classes of any issuer's stock.
The Budget Proposal would be effective only with respect to stock directly
or indirectly acquired by the Company on or after the date of first committee
action. To the extent that the Company's stock ownership in Highwoods Services
is grandfathered by virtue of this effective date, that grandfathered status
will terminate if Highwoods Services engages in a trade or business that it is
not engaged in on the date of first committee action or acquires substantial
new assets on or after that date. Such restriction, if enacted, would adversely
affect the ability to expand the business of Highwoods Services.
PLAN OF DISTRIBUTION
The Company and the Operating Partnership may sell the Securities to one
or more underwriters for public offering and sale by them or may sell the
Securities to investors directly or through agents or through a combination of
any such method of sale. Any such underwriter or agent involved in the offer
and sale by the holders thereof from
time to time of up to (i) 117,617 shares (the "Original Shares") of the
Company's Common Stock; (ii) 2,972,524 shares (the "Redemption Shares") of
Common Stock by which shares may be issued by the Company to the extent that
holders of up to 2,972,524 Common Units exercise their right to redeem such
Units and the Company elects to satisfy such redemption right through the
issuance of Common Stock; (iii) 1,444,290 shares (the "Warrants Shares") of
Common Stock issuable upon the exercise of up to 1,444,290 Warrants, which
Warrants may be deemed to be held by affiliates of the Company; and (iv)
1,479,290 Warrants.
The Company has agreed to indemnify the Selling Securityholders against
certain civil liabilities, including liabilities under the Securities Act of
1933, as amended (the "Securities Act"), or to contribute to payments the
Selling Securityholders may be required to make in respect thereof. Insofar as
indemnification of the Selling Securityholders for liabilities arising under the
Securities Act may be permitted pursuant to such agreements, the Company has
been informed that, in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
24
Because the Selling Securityholders may offer all or some of the Securities and because there are currently no agreements, arrangements or
understandings with respect to the sale of any of the Securities that will be held by the Selling Securityholders after completion of the offering, no
estimate can be given as to the principal amount of the Securities that will be
held by the Selling Securityholders after completion of the offering.
The Selling Securityholders and any broker or dealer to or through whom
any of the Securities are sold may be deemed to be underwriters within the
meaning of the Securities Act with respect to the Securities offered hereby, and
any profits realized by the Selling Securityholders or such brokers or dealers
may be deemed to be underwriting commissions. Brokers' commissions and dealers'
discounts, taxes and other selling expenses to be borne by the Selling
Securityholders are not expected to exceed normal selling expenses for sales.
The registration of the offering of the Securities by the selling
Securityholders under the Securities Act shall not be deemed an admission by the
Selling Securityholders or the Company that the Selling Securityholders are
underwriters for purposes of the Securities Act of any Securities offered under
this Prospectus.
The Securities offered by this Prospectus may be offered from time to time
by the Selling Securityholders named below. The following table provides the
name of each Selling Securityholder and the number of shares of Common Stock or
Warrants beneficially owned and offered hereby by each Selling Securityholder.
The number of shares of Common Stock provided in the following table includes
the number of shares that may be acquired by each Selling Securityholder upon
redemption of Units or upon exercise of Warrants.applicable Prospectus
Supplement.
The Securities offered by this Prospectus may be offered from time to time
by the Selling Securityholders named below:
Number of Shares Number of Shares
of Common Stock of Common Number of Number of
Name of Selling Owned Prior to Stock Warrants Owned Warrants
Securityholder Offering offered hereby prior to Offering offered hereby
- -------------- -------- -------------- ----------------- --------------
James R. Heistand(1) 1,491,660(2) 1,491,660(2) 852,575 852,575
Allen C. de 835,350(2) 835,350(2) 488,165 488,165
Olazarra(3)
Dale Johannes(3) 203,171(2) 203,171(2) 103,550 103,550
Karen Blakely NA NA 10,000 10,000
Mary L. Demetree 25,309 25,309 NA NA
William G. Evans 1,539 1,539 NA NA
Robert Turner NA NA 10,000 10,000
Mark Walsh NA NA 15,000 15,000
Starwood Capital 1,761,539(2) 1,761,539(2) NA NA
Group
Starwood Exchange 215,863(2) 215,863(2) NA NA
Partners, L.P.
- ----------
(1) Executive officer. Company has agreed to name Mr. Heistand a director
prior to October 7, 1998.
(2) Number of shares shown includes Redemption Shares that may be issued upon
redemption of outstanding Units even if not currently redeemable and
Warrant Shares issuable upon exercise of outstanding Warrants even if not
currently exercisable.
25
(3) The Selling Securityholder's Redemption Shares and Warrant Shares are
being registered hereby should such stockholder be deemed to be an
underwriter under Rule 145 of the Securities Act or an affiliate. The
Company disclaims that the Selling Securityholder is an underwriter or an
affiliate of the Company.
PLAN OF DISTRIBUTION
The sale or distribution of all or any portion of the Securities may be effected from time to time by the Selling Securityholders directly, indirectly
through brokersin
transactions at a fixed price or dealers or in a distribution by one or more underwriters on a
firm commitment or best efforts basis, in the over-the-counter market, on any
national securities exchange onprices, which such Securities are listed or traded, in
privately negotiated transactions or otherwise,may be changed, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. The Company will not receive any ofand the proceedsOperating Partnership also
may, from time to time, authorize underwriters acting as their agents to offer
and sell the Securities upon the terms and conditions as are set forth in the
applicable Prospectus Supplement. In connection with the sale of the Securities.
The methods by which the Securities,
underwriters may be solddeemed to have received compensation from the Company or
distributed include,
without limitation, (i) a block trade (whichthe Operating Partnership in the form of underwriting discounts or commissions
and may involve crosses)also receive commissions from purchasers of Securities for whom they
may act as agent. Underwriters may sell Securities to or through dealers, and
such dealers may receive compensation in which the brokerform of discounts, concessions or
dealer so engaged will attempt to sellcommissions from the Shares as agent but may
position and resell a portion of the block as principal to facilitate the
transaction, (ii) purchases by a broker or dealer as principal and resale by
such broker or dealer for its account pursuant to this Prospectus, (iii)
exchange distributionsunderwriters and/or secondary distributions in accordance withcommissions from the rules ofpurchasers for
whom they may act as agent.
Any underwriting compensation paid by the national securities exchange on which such Securities are listed,
if any, (iv) ordinary brokerage transactions and transactions in whichCompany or the broker solicits purchasers, (v) pro rata distributions as part of the
liquidation and winding up of the affairs of the Selling Securityholders, and
(vi) privately negotiated transactions.
The Company will pay all expensesOperating
Partnership to underwriters or agents in connection with the registration of
the offering of
Securities, and any discounts, concessions or commissions allowed by
underwriters to participating dealers, are set forth in the Securities byapplicable
Prospectus Supplement. Underwriters, dealers and agents participating in the
Selling Securityholders. The Selling
Securityholders will pay for any brokerage or underwriting commissions and taxes
of any kind (including, without limitation, transfer taxes) with respect to any
disposition, sale or transfer of the Securities.
Securities not sold pursuant to the registration statement on Form S-3 of
which this Prospectus is a part (the "Registration Statement") may be subject to
certain restrictions under the Securities Act and could be sold, if at all, only
pursuant to Rule 144 or another exemption from the registration requirements of
the Securities Act. In general, under Rule 144, a person (or persons whose
Securities are aggregated) who has satisfied a one-year holding period may,
under certain circumstances, sell within any three-month period a number of
Securities which does not exceed the greater of one percent of the Company's
outstanding Common Stock or the average weekly reported trading volume of the
Company's Common Stock during the four calendar weeks prior to such sale. Rule
144 also permits, under certain circumstances, the sale of Securities by a
person who is not an affiliate of the Company and who has satisfied a two-year
holding period without any volume limitation.
Therefore, both during and after the effectiveness of the Registration
Statement, salesdistribution of the Securities may be madedeemed to be underwriters, and any
discounts and commissions received by them and any profit realized by them on
resale of the Selling SecurityholdersSecurities may be deemed to be underwriting discounts and
commissions, under the Securities Act. Underwriters, dealers and agents may be
entitled, under agreements entered into with the Company and the Operating
Partnership, to indemnification against and contribution toward certain civil
liabilities, including liabilities under the Securities Act.
If so indicated in the applicable Prospectus Supplement, the Company and
the Operating Partnership will authorize dealers acting as their agents to
solicit offers by certain institutions to purchase Securities from them at the
public offering price set forth in such Prospectus Supplement pursuant to
Rule 144.Delayed Delivery Contracts ("Contracts") providing for payment and delivery on
the date or dates stated in such Prospectus Supplement. Each Contract will be
for an amount not less than, and the aggregate principal amount of Securities
sold pursuant to Contracts shall be not less nor more than, the respective
amounts stated in the applicable Prospectus Supplement. Institutions with whom
Contracts, when authorized, may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions, and other institutions but will in all cases be
subject to the approval of the Company and the Operating Partnership. Contracts
will not be subject to any conditions except (i) the purchase by an institution
of the Securities covered by its Contracts shall not at the time of delivery be
prohibited under the laws of any jurisdiction in the United States to which
such institution is subject, and (ii) if the Securities are being sold to
underwriters, the Company and the Operating Partnership shall have sold to such
underwriters the total principal amount of the Securities less the principal
amount thereof covered by Contracts.
45
Certain of the underwriters and their affiliates may be customers of,
engage in transactions with and perform services for the Company and the
Operating Partnership in the ordinary course of business.
EXPERTS
The consolidated financial statements and schedule of Highwoods
Properties, Inc., incorporated herein by reference from the Company's annual
report (Form 10-K) for the year ended December 31, 1996,1997 (as amended on Form
10-K/A filed on April 29, 1998 and May 19, 1998), and of Highwoods/Forsyth
Limited Partnership, incorporated herein by reference from the Operating
Partnership's annual report (Form 10-K) for the year ended December 31, 1996,1997
(as amended on Form 10-K/A filed on April 29, 1998 and May 19, 1998), the
statement of revenues and certain expenses of Garcia Properties for the year
ended December 31, 1997 incorporated herein by reference from the Company's
current report on Form 8-K dated February 4, 1998, the statements of revenuerevenues
and certain expenses of Shelton Properties, Riparius Properties and Winners
Circle for the year ended December 31, 1996 incorporated herein by reference
from the Company's current report inon Form 8-K dated November 17, 1997, and the
financial statements of revenue and certain expenses ofwith respect to Anderson Properties, Inc. and the
financial statements with respect to Century Center Group for the year ended December
31, 1996 incorporated herein
by reference from the Company's current report on Form 8-K dated January 9,
1997 (as amended on Forms 8-K/A datedfiled on February 7, 1997, and March 10, 1997), the combined financial statements1997 and
schedule of Eakin &
Smith as of and for the year ended December 31, 1995, incorporated by reference
from the Company's current report on Form 8-K dated April 1, 1996 (as amended on
Forms 8-K/A filed June 3, 1996 and June 18, 1996), and the Historical Summary of
Gross Income and Direct Operating Expenses for certain properties owned by
Towermarc Corporation for
26
the year ended December 31, 1995, incorporated herein by reference from the
Company's Current Report on Form 8-K dated April 29, 1996 (as amended on Forms
8-K/A filed June 3, 1996 and June 18, 1996)28, 1998), have been audited by Ernst & Young LLP, independent auditors,
as set forth in their reports thereon included therein and incorporated herein
by reference. Such financial statements are incorporated herein by reference in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
The combined statement of revenue and certain operating expenses of the
Associated Capital Properties Portfolio for the year ended December 31, 1996,
and the combined statement of revenue and certain operating expenses of the
1997 Pending Acquisitions for the year ended December 31, 1996, incorporated by
reference herein from the Company's current reports on Form 8-K dated August
27, 1997(as1997 (as amended on Form 8-K/A filed September 23, 1997), and dated October
1, 1997, and the Operating Partnership's current report on Form 8-K dated
October 1, 1997, have been so incorporated in reliance upon the reports of
Coopers & Lybrand L.L.P., independent accountants, given on the authority of
said firm as experts in accounting and auditing.
LEGAL MATTERS
The consolidated financial statements of Crocker Realty Trust, Inc. as of
December 31, 1995 and for the year then ended, the financial statements of
Crocker & Sons, Inc. as of December 31, 1994 and for the year then ended, and
the financial statements of Crocker Realty Investors, Inc. as of December 31,
1994 and 1993, and for eachvalidity of the years in the two year period ended December
31, 1994, have been incorporated by reference herein from the Company's current
report on Form 8-K dated April 29, 1996 (as amended on Forms 8-K/A filed June 3,
1996 and June 18, 1996), in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
The combined financial statements of Southeast Realty Corp., AP Southeast
Portfolio Partners, L.P. and AP Fontaine III Partners, L.P. for the year ended
December 31, 1994 incorporated herein by reference from the Company's current
report on Form 8-K dated April 29, 1996 (as amended on Forms 8-K/A filed June 3,
1996 and June 18, 1996), have been audited by Deloitte & Touche LLP, independent
auditors, as set forth in their reports thereon included therein and
incorporated herein by reference and are included in reliance upon the reports
of such firm given upon their authority as experts in accounting and auditing.
The financial statements of AP Southeast Portfolio Partners, L.P. for the
period from its date of inception (November 17, 1993) through December 31, 1993
incorporated herein by reference from the Company's current report on Form 8-K
dated April 29, 1996 (as amended on Forms 8-K/A filed June 3, 1996 and June 18,
1996), have been so included in reliance on the reports of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
LEGAL MATTERS
Certain legal matters have beenSecurities offered hereby is being passed upon for the
Company and the Operating Partnership by Alston & Bird LLP, Raleigh, North
Carolina. In addition, the description of Federal income tax consequences
contained in this Prospectus entitled "Federal Income Tax Considerations" is
based upon the opinion of Alston & Bird LLP has rendered
its opinion with respect to certain Federal income tax matters relating to the
Company.
27LLP.
46
PART IIII. SUPPLEMENTAL INFORMATION
ITEMItem 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth estimates of the various expenses to be
paid by Highwoods Properties, Inc. (the "Company") in connection with the
registration of the offering of the Securities by the selling Securityholders.
Securities and Exchange Commission Registration Fee..............$49,070
Fees andOther Expenses of Counsel......................................12,500Issuance and Distribution.
SEC Registration Fee ......................... $ 378,789
Legal fees and expenses ...................... 300,000
Printing fees ................................ 150,000
Accounting fees and expenses ................. 150,000
New York Stock Exchange listing fees ......... 100,000
Trustee expenses and fees .................... 32,500
Fees of rating agencies ...................... 150,000
Miscellaneous .....................................................8,430
TOTAL......................................................$70,000
ITEM................................ 38,711
----------
Total ..................................... $1,300,000
==========
Item 15. INDEMNIFICATION OF DIRECTORS AND OFFICERSIndemnification of Directors and Officers.
The Company's officers and directors are and will be indemnified against
certain liabilities in accordance with the MGCL, the Articles of Incorporation
and bylaws of the Company and the Operating Partnership Agreement. The Articles
of Incorporation require the Company to indemnify its directors and officers to
the fullest extent permitted from time to time by the MGCL. The MGCL permits a
corporation to indemnify its directors and officers, among others, against
judgments, penalties, fines, settlements and reasonable expenses actually
incurred by them in connection with any proceeding to which they may be made a
party by reasonreasons of their service in those or other capacities unless it is
established that the act or omission of the director or officer was material to
the matter giving rise to the proceeding and was committed in bad faith or was
the result of active and deliberate dishonesty, or the director or officer
actually received an improper personal benefit in money, property or services,
or in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful.
The Operating Partnership Agreement also provides for indemnification of
the Company and its officers and directors to the same extent indemnification
is provided to officers and directors of the Company in its Articles of
Incorporation and limits the liability of the Company and its officers and
directors to the Operating Partnership and its partners to the same extent
liability of officers and directors of the Company to the Company and its
stockholders is limited under the Company's Articles of Incorporation.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
ITEMItem 16. EXHIBITS
EXHIBIT NO. DESCRIPTION
2.1 Master Agreement of Merger and Acquisition by and among the Company, the
Operating Partnership, Associated Capital Properties, Inc. and its
shareholders dated August 27, 1997 (incorporated by reference to the
Company's Current Report on Form 8-K dated August 27, 1997)Exhibits
Exhibit No. Description
- ------------- ----------------------------------------------------------------------------------------
1.1 (1) Form of Underwriting Agreement for Debt Securities
1.2 (1) Form of Underwriting Agreement for Common Stock, Preferred Stock and Depositary
Shares
2.1 (2) 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 (3) 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 (3) Agreement and Plan of Merger by and among the Company, Crocker Realty Trust, Inc.
and Cedar Acquisition Corporation, dated as of April 29, 1996
2.4 (4) Contribution and Exchange Agreement by and among Century Center group, the
Operating Partnership and the Company, dated December 31, 1996
2.5 (4) Master Agreement of Merger and Acquisition by and among the Company, the Operating
Partnership, Anderson Properties, Inc., Gene Anderson, and the partnerships and limited
liability companies listed therein, dated January 31, 1997
(incorporated
II-1
Exhibit No. Description
- --------------- -------------------------------------------------------------------------------------------
2.6 (5) 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 (6) 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 (7) Agreement and Plan of Merger by and among the Company, Jackson Acquisition Corp.
and J.C. Nichols Company dated December 22, 1997
2.9 Amendment No. 1 to Agreement and Plan of Merger by and among the Company,
Jackson Acquisition Corp. and J.C. Nichols Company dated April 23, 1998
4.1 (8) Amended and Restated Articles of Incorporation of the Company
4.2 (9) Indenture dated as of December 1, 1996 among the Company, the Operating Partnership
and First Union National Bank, as trustee
4.3 (10) Rights Agreement, dated as of October 6, 1997, between the Company and First Union
National Bank
4.4 (7) Purchase Agreement between the Company, UBS Limited and Union Bank of
Switzerland, London Branch, dated as of August 28, 1997
4.5 (7) Forward Stock Purchase Agreement between the Company and Union Bank of
Switzerland, London Branch, dated as of August 28, 1997
4.6 (7) Agreement to furnish certain instruments defining the rights of long-term debt holders
4.7 (11) Deposit Agreement dated April 23, 1998 between the Registrant and First Union National
Bank, as preferred share depositary
4.8 (11) Form of Depositary Receipt evidencing the Series D Depositary Shares
4.9 (12) Form of certificate representing Series A Preferred Shares
4.10(13) Form of certificate representing Series B Preferred Shares
4.11(11) Form of certificate representing Series D Preferred Shares
4.12(14) Form of certificate representing shares of Common Stock
5 Opinion of Alston & Bird LLP re legality
8 Opinion of Alston & Bird LLP re tax matters
12.1 Statement of computation of ratio of earnings to fixed charges and ratio of earnings to
combined fixed charges and preferred stock dividends of the Company
12.2 Statement of computation of ratio of earnings to fixed charges and ratio of earnings to
combined fixed charges and preferred unit dividends of the Operating Partnership
23.1 Consent of Alston & Bird LLP (included as part of Exhibits 5 and 8)
23.2 Consent of Ernst & Young LLP
23.3 Consent of Coopers & Lybrand LLP
24(15) Power of Attorney
25(15) Statement of Eligibility of Trustee on Form T-1
- ----------
(1) Previously filed. See Registration Statement Nos. 333-3890 and 333-3890-01.
(2) Filed as part of the Company's Current Report on Form 8-K dated April 1,
1996 and incorporated herein by reference toreference.
(3) Filed as part of the Company's Current Report on Form 8-K dated April 29,
1996 and incorporated herein by reference.
(4) Filed as part of the Company's Current Report on Form 8-K dated January 9,
1997)
28
2.3 Agreement1997 and Planincorporated herein by reference.
(5) Filed as part of MergerRegistration Statement No. 33-88364 with the Securities
and Exchange Commission and incorporated herein by and among the Company, Crocker Realty
Trust, Inc. and Cedar Acquisition Corporation datedreference.
(6) Filed as part of April 29, 1996
(incorporated by reference to the Company's Current Report on Form 8-K dated April 29, 1996)
2.4 Master AgreementAugust 27,
1997 and incorporated herein by reference.
(7) Filed as part of Merger and Acquisition by and among the Company, the
Operating Partnership, Eakin & Smith, Inc. and the partnerships and
limited liability companies listed therein, dated April 1, 1996
(incorporated by reference to the Company's CurrentAnnual Report on Form 8-K
dated April 1, 1996)
3.1 Amended10-K for the year
ended December 31, 1997 and Restated Articlesincorporated herein by reference.
II-2
(8) Filed as part of Incorporation (incorporated by
reference to the Company's Current Report on Form 8-K dated September
25, 1997)
3.2 Bylaws (incorporated1997 and amended by reference to the Company's Registration
Statement on Form S-11(File No. 33- 76952))
4.1 Rights Agreement, datedarticles supplementary filed as part of October 6, 1997, between Highwoods
Properties, Inc. and First Union National Bank, including the form of
Right Certificate as Exhibit A and the Summary of Rights to Purchase
Preferred Shares as Exhibit C (incorporated by reference to the
Company's Current Report on Form 8-K dated October 4, 1997)
4.2 Indenture1997 and articles
supplementary filed as part of the Company's Current Report on Form 8-K
dated April 20, 1998, each of which is incorporated herein by reference.
(9) Filed as part of December 1, 1996, between the Operating
Partnership, the Company and First Union National Bank (incorporated by
reference to the Operating Partnership's Current Report on Form 8-K
dated December 2, 1996)
4.3 Articles Supplementary of the Company dated October 10, 1997 designating
the terms of the Series C Preferred Shares (incorporated1996 and incorporated herein by reference to
Exhibit 4.1reference.
(10) Filed as part of the Company's Current Report on Form 8-K dated October 4,
1997)
5.1 Opinion of Alston & Bird LLP regarding the legality of the shares of
Common Stock being registered
8.1 Opinion of Alston & Bird LLP regarding certain federal tax matters
23.1 Consent of Alston & Bird LLP (included1997 and incorporated herein by reference.
(11) Filed as part of Exhibits 5.1the Company's Current Report on Form 8-K dated April 20,
1998 and 8.1)
23.2 Consentincorporated herein by reference.
(12) Filed as part of Ernst & Young LLP
23.3 Consentthe Company's Current Report on Form 8-K dated February
12, 1997 and incorporated herein by reference.
(13) Filed as part of KPMG Peat Marwick LLP
23.4 Consentthe Company's Current Report on Form 8-K dated September
25, 1997 and incorporated herein by reference.
(14) Filed as part of Deloitte & Touche LLP
23.5 ConsentRegistration Statement No. 33-76952 with the Securities
and Exchange Commission and incorporated herein by reference.
(15) Previously filed.
Item 17. Undertakings
(a) Each of Price Waterhouse LLP
23.6 Consent of Coopers & Lybrand LLP
24.1** Power of Attorney of O. Temple Sloan, Jr.
24.2** Power of Attorney of Ronald P. Gibson
24.3** Power of Attorney of John L. Turner
24.4** Power of Attorney of Gene H. Anderson
24.5** Power of Attorney of John W. Eakin
24.6** Power of Attorney of William T. Wilson, III
29
24.7** Power of Attorney of William E. Graham, Jr.
24.8** Power of Attorney of Stephen Timko
24.9 Power of Attorney of L. Glenn Orr
24.10 Power of Attorney of Thomas W. Adler
** Previously filed
ITEM 17. UNDERTAKINGS
(a) Thethe undersigned registrantregistrants hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statementregistration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement; provided, however, thatstatement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statementregistration statement or any
material change to such information in the Registration Statement;
provided,registration statement;
Provided, however, that the undertakings set forth in paragraphs (i)1(i) and
(ii) also shall1(ii) do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed with or furnished to the Commission by the registrant pursuant to Section
13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this registration statement.
(2) That, for the purposepurposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(b) TheEach of the undersigned registrantregistrants hereby further undertakes that,
for purposes of determining any liability under the Securities Act of 1933,
each filing of thesuch registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated
II-3
by reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA FIDEbona
fide offering thereof.
(c) Insofar as indemnification for liability arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrantregistrants pursuant to the foregoing provisions described underin Item 15 of this
Registration Statement,above, or
otherwise, the Registrant hasregistrants have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event 30
that a claim for indemnification against such liabilities (other than
the payment by the Registrantregistrant of expenses incurred or paid by a director,
officer or controlling person of the Registrantregistrants in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrantregistrants will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it isor against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
31(d) Each of the undersigned registrants hereby further undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, theeach
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
registration
statementAmendment No. 1 to Registration Statement Nos. 333-51671 and 333-51671-01 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Raleigh, State of North Carolina, on February 6, 1998June 8, 1998.
HIGHWOODS PROPERTIES, INC.
By: /s//s/ CARMAN J. LIUZZO
--------------------------------------------
Carman J. Liuzzo
------------------------------------------Vice President and
Chief Financial Officer
Highwoods/Forsyth Limited Partnership
By: Highwoods Properties, Inc. in its capacity
as General Partner
By:/s/ CARMAN J. LIUZZO
--------------------------------------------
Carman J. Liuzzo
Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this registration statementAmendment
No. 1 to Registration Statement Nos. 333-51671 and 333-51671-01 has been signed
by the following persons in the capacities and on the dates indicated:date indicated;
Name TitleSignature Capacity Date
- ------------------------------------- ---------------------------------------- -------------
/s/ O. Temple Sloan, Jr.TEMPLE SLOAN, JR.* Chairman of the Board of Directors February 6,June 8, 1998
- ------------------------------------------------------------------
O. Temple Sloan, Jr.
/s/ RonaldRONALD P. Gibson*GIBSON* President, Chief Executive Officer and February 6,June 8, 1998
- ------------------------------------------------------------------ Director
Ronald P. Gibson
/s/ JohnJOHN L. Turner* Chief Investment Officer andTURNER* Vice Chairman February 6, 1998
- ------------------------------ of the Board of Directorsand Chief June 8, 1998
- ------------------------------------ Investment Officer
John L. Turner
/s/ GeneGENE H. Anderson*ANDERSON* Senior Vice President and Director February 6,June 8, 1998
- ------------------------------------------------------------------
Gene H. Anderson
/s/ JohnJOHN W. Eakin*EAKIN* Senior Vice President and Director February 6,June 8, 1998
- ------------------------------------------------------------------
John W. Eakin
Senior Vice President and Director
- ------------------------------------
James R. Heisband
/s/ William T. Wilson, III*THOMAS W. ADLER* Director February 6,June 8, 1998
- ------------------------------
William T. Wilson, III
32
/s/ Thomas W. Adler* Director February 6, 1998
- ------------------------------------------------------------------
Thomas W. Adler
/s/ William E. Graham, Jr.* Director
February 6, 1998
- ------------------------------------------------------------------
William E. Graham, Jr.
/s/ L. Glenn Orr, Jr.GLENN ORR, JR.* Director February 6,June 8, 1998
- ------------------------------------------------------------------
L. Glenn Orr, Jr.
/s/ WILLARD H. SMITH, JR.* Director February 6,June 8, 1998
- ------------------------------------------------------------------
Willard H. Smith Jr.
II-5
Signature Capacity Date
- ------------------------------------- ------------------------------------- -------------
Director
- ------------------------------------
Stephen Timko
Director
- ------------------------------------
William T. Wilson III
/s/ Stephen Timko* Director February 6,CARMAN J. LIUZZO Vice President and Chief Financial June 8, 1998
- ------------------------------
Stephen Timko
/s/------------------------------------ Officer (Principal Financial Officer
Carman J. Liuzzo Vice President, Chief Financial Officer and February 6, 1998
- ------------------------------ Treasurer (PrincipalPrincipal Accounting Officer)
and Treasurer
*By: /s/ CARMAN J. LIUZZO
----------------------------------------
Carman J. Liuzzo
* By /s/ Carman J. Liuzzo
-----------------------------------
Carman J. Liuzzo (Attorney-in-Fact)
33(Attorney-in-fact)
II-6