FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
x | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the fiscal year ended December 31, 2004
OR
¨ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission file number 1-13100
HIGHWOODS PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
Maryland | 56-1871668 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
3100 Smoketree Court, Suite 600
Raleigh, N.C. 27604
(Address of principal executive offices) (Zip Code)
919-872-4924
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class |
Name of Each Exchange on Which Registered |
|
Common Stock, $.01 par value | New York Stock Exchange | |
8 5 / 8 % Series A Cumulative Redeemable Preferred Shares | New York Stock Exchange | |
8% Series B Cumulative Redeemable Preferred Shares | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Exchange Act. Yes ¨ No x
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act. Yes ¨ No x
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ No x
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K. ¨
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act). Yes x No ¨
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act). Yes ¨ No x
The aggregate market value of the shares of common stock, par value $0.01 per share, held by non-affiliates (based upon the closing sale price on the New York Stock Exchange) on June 30, 2005 was approximately $1.6 billion. As of November 30, 2005, there were 54,030,309 shares of common stock outstanding.
TABLE OF CONTENTS
Item No. |
Page No.
|
|||
1. |
Business | 4 | ||
1A. |
Risk Factors | 7 | ||
1B. |
Unresolved Staff Comments | 11 | ||
2. |
Properties | 12 | ||
3. |
Legal Proceedings | 17 | ||
4. |
Submission of Matters to a Vote of Security Holders | 17 | ||
X. |
Executive Officers of the Registrant | 18 | ||
5. |
20 | |||
6. |
21 | |||
7. |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
22 | ||
7A. |
52 | |||
8. |
52 | |||
9. |
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
53 | ||
9A. |
53 | |||
9B. |
58 | |||
10. |
59 | |||
11. |
63 | |||
12. |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
72 | ||
13. |
73 | |||
14. |
74 | |||
15. |
77 |
2
EXPLANATORY NOTE
This 2004 Annual Report of Highwoods Properties, Inc. is being mailed to stockholders on or about December 29, 2005. Unlike in prior years, this mailing does not include an accompanying proxy statement or proxy card relating to an annual meeting of stockholders. As a result, substantially all of the information that has historically been incorporated by reference from an accompanying proxy statement has been included directly in this Annual Report. This information is set forth in Part II, Item 5, and Part III, Items 9B, 10, 11, 12, 13 and 14 of this Annual Report.
As discussed more fully in ITEM 9B. OTHER INFORMATION, we expect that our next annual meeting will be held during May 2006, although the exact date will be determined by our Board of Directors in the future. Prior to that meeting, we will mail to stockholders a proxy statement and form of proxy relating to the meeting together with our 2005 Annual Report.
If you have any questions, please contact us as follows:
Highwoods Properties, Inc.
Investor Relations
3100 Smoketree Court
Suite 600
Raleigh, North Carolina 27604
Phone: (919) 872-4924
3
We refer to (1) Highwoods Properties, Inc. as the Company, (2) Highwoods Realty Limited Partnership as the Operating Partnership, (3) the Companys common stock as Common Stock, (4) the Companys preferred stock as Preferred Stock, (5) the Operating Partnerships common partnership interests as Common Units, (6) the Operating Partnerships preferred partnership interests as Preferred Units and (7) in-service properties (excluding apartment units) to which the Company has title and 100.0% ownership rights as the Wholly Owned Properties.
General
The Company is a fully-integrated, self-administered and self-managed equity REIT that began operations through a predecessor in 1978. We are one of the largest owners and operators of suburban office, industrial and retail properties in the southeastern and midwestern United States. At December 31, 2004, we:
| wholly owned 444 in-service office, industrial and retail properties, encompassing approximately 33.9 million rentable square feet, and 125 apartment units; |
| owned an interest (50.0% or less) in 66 in-service office and industrial properties, encompassing approximately 6.9 million rentable square feet, and 418 apartment units. One of these in-service properties has been sold but is consolidated at December 31, 2004 as a result of our continuing involvement in accordance with SFAS No. 66. See Note 1 to the Consolidated Financial Statements for a description of the Companys accounting policy for investments in joint ventures; |
| wholly owned 1,115 acres of undeveloped land that is suitable to develop approximately 14 million rentable square feet of office, industrial and retail space; |
| were developing an additional eight properties, which will encompass approximately 1.1 million rentable square feet (including four properties encompassing 430,000 rentable square feet that we are developing with 50.0% joint venture partners); and |
| owned a 50.0% interest in a joint venture that is developing a multi-family property, consisting of 156 apartment units on 7.8 acres of land, and that is consolidated under provisions of FIN 46. |
The Company conducts substantially all of its activities through, and substantially all of its interests in the properties are held directly or indirectly by, the Operating Partnership. The Company is the sole general partner of the Operating Partnership. At December 31, 2004, the Company owned 100.0% of the Preferred Units and 89.8% of the Common Units in the Operating Partnership. Limited partners (including certain officers and directors of the Company) own the remaining Common Units. Each Common Unit is redeemable by the holder for the cash value of one share of Common Stock or, at the Companys option, one share of Common Stock. The Preferred Units in the Operating Partnership were issued to the Company in connection with the Companys Preferred Stock offerings that occurred in 1997 and 1998.
The Company was incorporated in Maryland in 1994. The Operating Partnership was formed in North Carolina in 1994. Our executive offices are located at 3100 Smoketree Court, Suite 600, Raleigh, North Carolina 27604 and our telephone number is (919) 872-4924. We maintain offices in each of our primary markets.
The business of the Company is the acquisition, development and operation of rental real estate properties. The Company operates office, industrial and retail properties and apartment units. There are no material inter-segment transactions. See Note 17 to the Consolidated Financial Statements for a summary of the rental income, net operating income and assets for each reportable segment.
In addition to this Annual Report, we file or furnish quarterly and current reports, proxy statements and other information with the SEC. All documents that we file or furnish with the SEC are made available as soon as reasonably practicable free of charge on our corporate website, which is http://www.highwoods.com. The information on this website is not and should not be considered part of this Annual Report and is not incorporated by reference in this document. This website is only intended to be an inactive textual reference. You may also read and
4
copy any document that we file or furnish at the public reference facilities of the SEC at 100 F. Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at (800) 732-0330 for further information about the public reference facilities. These documents also may be accessed through the SECs electronic data gathering, analysis and retrieval system (EDGAR) via electronic means, including the SECs home page on the Internet (http://www.sec.gov). In addition, since some of our securities are listed on the New York Stock Exchange, you can read similar information about us at the offices of the New York Stock Exchange at 20 Broad Street, New York, New York 10005.
Customers
The following table sets forth information concerning the 20 largest customers of our Wholly Owned Properties as of December 31, 2004:
Customer |
Rental
Square Feet |
Annualized
Rental Revenue (1) |
Percent of Total
Annualized Rental Revenue (1) |
Weighted Average
Remaining Lease Term in Years |
||||||
(in thousands) | ||||||||||
Federal Government |
789,696 | $ | 16,466 | 3.87 | % | 6.7 | ||||
AT&T (2) |
537,529 | 10,008 | 2.35 | 4.1 | ||||||
PricewaterhouseCoopers |
297,795 | 7,385 | 1.74 | 5.3 | ||||||
State of Georgia |
361,687 | 7,070 | 1.66 | 4.2 | ||||||
T-Mobile USA |
205,394 | 4,757 | 1.12 | 4.5 | ||||||
Sara Lee |
1,195,383 | 4,682 | 1.10 | 2.7 | ||||||
IBM |
194,649 | 4,100 | 0.96 | 1.2 | ||||||
Northern Telecom |
246,000 | 3,651 | 0.86 | 3.2 | ||||||
Volvo |
270,774 | 3,483 | 0.82 | 4.6 | ||||||
US Airways (3) |
295,046 | 3,376 | 0.79 | 3.0 | ||||||
Lockton Companies |
132,718 | 3,303 | 0.78 | 10.2 | ||||||
BB&T |
229,459 | 3,252 | 0.77 | 6.7 | ||||||
CHS Professional Services |
168,436 | 2,994 | 0.70 | 2.1 | ||||||
ITC Deltacom (4) |
147,379 | 2,989 | 0.70 | 0.4 | ||||||
Ford Motor Company |
125,989 | 2,729 | 0.64 | 5.1 | ||||||
IKON |
181,361 | 2,610 | 0.61 | 1.7 | ||||||
MCI (5) |
127,268 | 2,533 | 0.60 | 1.5 | ||||||
Hartford Insurance |
116,010 | 2,508 | 0.59 | 1.8 | ||||||
Aspect Communications |
116,692 | 2,343 | 0.55 | 1.9 | ||||||
Jacobs Engineering |
229,626 | 2,258 | 0.53 | 11.3 | ||||||
|
|
|
|
|
|
|||||
Total (6) |
5,968,891 | $ | 92,497 | 21.74 | % | 4.5 | ||||
|
|
|
|
|
|
(1) | Annualized Rental Revenue is rental revenue (base rent plus operating expense pass-throughs) for the month of December 2004 multiplied by 12. |
(2) | According to recently published information, the merger of AT&T and SBC Communications, Inc. was completed on November 18, 2005. At December 31, 2004, SBC Communications, Inc. leased 5,119 square feet from us with $0.1 million in annualized revenue. |
(3) | On September 12, 2004, US Airways filed voluntary petitions for reorganization under Chapter 11. US Airways plan of reorganization under Chapter 11 was approved by the US Bankruptcy Court on September 16, 2005, and US Airways completed a merger with America West Airlines on September 27, 2005. |
(4) | ITC Deltacom (formerly Business Telecom) leased space in a property that was under contract for sale as of December 31, 2004 and which sale occurred in March 2005. |
(5) | According to recently published information, the acquisition of MCI, Inc. by Verizon Communications Inc. is expected to be completed later in 2005 or early in 2006. |
(6) | Excludes properties recorded on our Balance Sheet that were sold but accounted for as financings under SFAS No. 66. See Note 3 to the Consolidated Financial Statements. |
5
Operating Strategy
Efficient, Customer Service-Oriented Organization . We provide a complete line of real estate services to our customers and third parties. We believe that our in-house development, acquisition, construction management, leasing and property management services allow us to respond to the many demands of our existing and potential customer base. We provide our customers with cost-effective services such as build-to-suit construction and space modification, including tenant improvements and expansions. In addition, the breadth of our capabilities and resources provides us with market information not generally available. We believe that the operating efficiencies achieved through our fully integrated organization also provide a competitive advantage in setting our lease rates and pricing other services.
Capital Recycling Program. Our strategy has been to focus our real estate activities in markets where we believe our extensive local knowledge gives us a competitive advantage over other real estate developers and operators. Through our capital recycling program, we generally seek to:
| selectively dispose of non-core properties in order to use the net proceeds to improve our balance sheet by reducing outstanding debt and preferred stock balances, for new investments or other purposes; |
| engage in the development of office and industrial projects in our existing geographic markets, primarily in suburban in-fill business parks; and |
| acquire selective suburban office and industrial properties in our existing geographic markets at prices below replacement cost that offer attractive returns. |
Our capital recycling activities benefit from our local market presence and knowledge. Our division officers have significant real estate experience in their respective markets. Based on this experience, we believe that we are in a better position to evaluate capital recycling opportunities than many of our competitors. In addition, our relationships with our customers and those tenants at properties for which we conduct third-party fee-based services may lead to development projects when these tenants seek new space.
The following summarizes the changes in square footage in our Wholly Owned Properties during each of the three years ended December 31, 2004:
2004
|
2003
|
2002
|
|||||||
(rentable square feet in thousands) | |||||||||
Office, Industrial and Retail Properties: |
|||||||||
Dispositions (includes 225 in 2002 related to the Eastshore transaction) |
(1,263 | ) | (3,298 | ) | (2,270 | ) | |||
Contributions to Joint Ventures (includes 205 related to SF-HIW Harborview, LLP in 2002) |
(1,270 | ) (1) | (291 | ) | (205 | ) | |||
Developments Placed In-Service |
141 | 191 | 2,214 | ||||||
Redevelopment/Other |
(21 | ) | (221 | ) | (52 | ) | |||
Acquisitions (1) |
1,357 | 1,429 | 205 | ||||||
|
|
|
|
|
|
||||
Net Change of In-Service Wholly Owned Properties |
(1,056 | ) | (2,190 | ) | (108 | ) | |||
|
|
|
|
|
|
(1) | Includes 1,270,000 square feet of properties in Orlando, Florida acquired from MG-HIW, LLP in March 2004 and contributed to HIW-KC Orlando, LLC in June 2004. |
In addition, we sold 88 apartment units during 2004.
Conservative and Flexible Balance Sheet . We are committed to maintaining a conservative and flexible balance sheet that allows us to capitalize on favorable development and acquisition opportunities as they arise. Accordingly, we expect to meet our long-term liquidity requirements through a combination of any one or more of:
| cash flow from operating activities; |
| borrowings under our $250.0 million unsecured revolving credit facility (the Revolving Loan); |
6
| the issuance of unsecured debt; |
| the issuance of secured debt; |
| the issuance of equity securities by both the Company and the Operating Partnership; |
| the selective disposition of non-core land and other assets; and |
| private equity capital raised from unrelated joint venture partners that may involve the sale or contribution of our Wholly Owned Properties, development projects or development land to joint ventures formed with such partners. |
Geographic Diversification . We do not believe that our operations are significantly dependent upon any particular geographic market. Today, including our various joint ventures, our portfolio consists primarily of office properties throughout the Southeast and retail and office properties in Kansas City, Missouri, including one significant mixed retail and office property, and office properties in Des Moines, Iowa (joint venture).
Competition
Our properties compete for tenants with similar properties located in our markets primarily on the basis of location, rent, services provided and the design and condition of the facilities. We also compete with other REITs, financial institutions, pension funds, partnerships, individual investors and others when attempting to acquire, develop and operate properties.
Employees
As of December 31, 2004, the Company employed 553 persons.
An investment in our equity and debt securities involves various risks. All investors should carefully consider the following risk factors in conjunction with the other information contained in this Annual Report before trading in our securities. If any of these risks actually occur, our business, operating results, prospects and financial condition could be harmed.
Our performance is subject to risks associated with real estate investment . We are a real estate company that derives most of our income from the ownership and operation of our properties. There are a number of factors that may adversely affect the income that our properties generate, including the following:
| Economic Downturns . Downturns in the national economy, particularly in the Southeast, generally will negatively impact the demand and rental rates for our properties. |
| Oversupply of Space . An oversupply of space in our markets would typically cause rental rates and occupancies to decline, making it more difficult for us to lease space at attractive rental rates. |
| Competitive Properties . If our properties are not as attractive to tenants (in terms of rents, services, condition or location) as other properties that are competitive with ours, we could lose tenants to those properties or receive lower rental rates. |
| Renovation Costs . In order to maintain the quality of our properties and successfully compete against other properties, we periodically have to spend money to maintain, repair and renovate our properties. |
| Customer Risk . Our performance depends on our ability to collect rent from our customers. While our top customer accounted for less than 4.0% of our total revenue at December 31, 2004, our financial condition could nonetheless be adversely affected by financial difficulties experienced by a major customer, or by a number of smaller customers, including bankruptcies, insolvencies or general downturns in business. |
7
| Reletting Costs . As leases expire, we try to either relet the space to the existing customer or attract a new customer to occupy the space. In either case, we likely will incur significant costs in the process, including potentially substantial tenant improvement expense or lease incentives. In addition, if market rents have declined since the time the expiring lease was executed, the terms of any new lease signed likely will not be as favorable to us as the terms of the expiring lease, thereby reducing the rental revenue earned from that space. |
| Regulatory Costs . There are a number of government regulations, including zoning, tax and accessibility laws that apply to the ownership and operation of real estate properties. Compliance with existing and newly adopted regulations may require us to incur significant costs on our properties. |
| Fixed Nature of Costs . Most of the costs associated with owning and operating our properties are not necessarily reduced when circumstances such as market factors and competition cause a reduction in rental revenues from the property. Increases in such fixed operating expenses, such as increased real estate taxes, would reduce our net income. |
| Environmental Problems . Federal, state and local laws and regulations relating to the protection of the environment may require a current or previous owner or operator of real property to investigate and clean up hazardous or toxic substances or petroleum product releases at the property. The clean up can be costly. The presence of or failure to clean up contamination may adversely affect our ability to sell or lease a property or to borrow funds using a property as collateral. |
| Competition . A number of other major real estate investors with significant capital compete with us. These competitors include publicly-traded REITs, private REITs, private real estate investors and private institutional investment funds. |
Future acquisitions and development properties may fail to perform in accordance with our expectations and may require development and renovation costs exceeding our estimates. In the normal course of business, we typically evaluate potential acquisitions, enter into non-binding letters of intent, and may, at any time, enter into contracts to acquire additional properties. However, changing market conditions, including competition from others, may diminish our opportunities for making attractive acquisitions. Once made, our investments may fail to perform in accordance with our expectations. In addition, the renovation and improvement costs we incur in bringing an acquired property up to market standards may exceed our estimates. Although we anticipate financing future acquisitions and renovations through a combination of advances under the Revolving Loan and other forms of secured or unsecured financing, no assurance can be given that we will have the financial resources to make suitable acquisitions or renovations on favorable terms or at all.
In addition to acquisitions, we periodically consider developing and constructing properties. Risks associated with development and construction activities include:
| the unavailability of favorable financing; |
| construction costs exceeding original estimates; |
| construction and lease-up delays resulting in increased debt service expense and construction costs; and |
| insufficient occupancy rates and rents at a newly completed property causing a property to be unprofitable. |
If new developments are financed through construction loans, there is a risk that, upon completion of construction, permanent financing for newly developed properties will not be available or will be available only on disadvantageous terms. Development activities are also subject to risks relating to our inability to obtain, or delays in obtaining, all necessary zoning, land-use, building, occupancy and other required governmental and utility company authorizations.
Illiquidity of real estate investments and the tax effect of dispositions could significantly impede our ability to sell assets or to respond to favorable or adverse changes in the performance of our properties. Because real estate investments are relatively illiquid, our ability to promptly sell one or more properties in our
8
portfolio in response to changing economic, financial and investment conditions is limited. In addition, approximately $1.3 billion of our real assets (undepreciated book value) are encumbered by $822.6 million in mortgage loans as of December 31, 2004 under which we could incur significant prepayment penalties if such loans were paid off in connection with the sale of the underlying real estate assets. Such loans, even if assumed by a buyer rather than being paid off, could reduce the sale proceeds if we decided to sell such assets.
We intend to continue to sell some of our properties in the future. However, we cannot predict whether we will be able to sell any property for the price or on the terms set by us, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We also cannot predict the length of time needed to find a willing purchaser and to close the sale of a property.
Certain of our properties have low tax bases relative to their fair value, and accordingly, the sale of such assets would generate significant taxable gains unless we sold such properties in a tax-free exchange under Section 1031 of the Internal Revenue Code or another tax-free or tax-deferred transaction. For an exchange to qualify for tax-deferred treatment under Section 1031, the net proceeds from the sale of a property must be held by an escrow agent until applied toward the purchase of real estate qualifying for gain deferral. Given the competition for properties meeting our investment criteria, there could be a delay in reinvesting such proceeds. Any delay in using the reinvestment proceeds to acquire additional income producing assets would reduce our income from operations.
In addition, the sale of certain properties acquired in the J.C. Nichols Company merger in July 1998 would require us to pay corporate-level tax under Section 1374 of the Internal Revenue Code on the built-in gain relating to such properties unless we sold such properties in a tax-free exchange under Section 1031 of the Internal Revenue Code or another tax-free or tax-deferred transaction. This tax will no longer apply after we have owned the assets for ten years or more. As a result, we may be limited or restricted in our ability to sell any of these properties even if management determines that such a sale would otherwise be in the best interests of our stockholders. Although we have no current plans to dispose of any properties in a manner that would require us to pay corporate-level tax under Section 1374, we would consider doing so if our management determines that a sale of a property would be in our best interests based on consideration of a number of factors, including the price being offered for the property, the operating performance of the property, the tax consequences of the sale and other factors and circumstances surrounding the proposed sale.
Because holders of our Common Units, including some of our officers and directors, may suffer adverse tax consequences upon the sale of some of our properties, it is possible that the Company may sometimes make decisions that are not in your best interest . Holders of Common Units may suffer adverse tax consequences upon the Companys sale of certain properties. Therefore, holders of Common Units, including certain of our officers and directors, may have different objectives than our stockholders regarding the appropriate pricing and timing of a propertys sale. Although we are the sole general partner of the Operating Partnership and have the exclusive authority to sell all of our individual Wholly Owned Properties, officers and directors who hold Common Units may seek to influence us not to sell certain properties even if such sale might be financially advantageous to stockholders or influence us to enter into tax deferred exchanges with the proceeds of such sales when such a reinvestment might not otherwise be in the best interests of the Company.
The success of our joint venture activity depends upon our ability to work effectively with financially sound partners. Instead of owning properties directly, we have in some cases invested, and may continue to invest, as a partner or a co-venturer with one or more third parties. Under certain circumstances, this type of investment may involve risks not otherwise present, including the possibility that a partner or co-venturer might become bankrupt or that a partner or co-venturer might have business interests or goals inconsistent with ours. Also, such a partner or co-venturer may take action contrary to our instructions or requests or contrary to provisions in our joint venture agreements that could harm us, including jeopardizing our qualification as a REIT.
Our insurance coverage on our properties may be inadequate. We carry comprehensive insurance on all of our properties, including insurance for liability, fire and flood. Insurance companies, however, limit coverage against certain types of losses, such as losses due to terrorist acts, named windstorms and toxic mold. Thus, we may not have insurance coverage, or sufficient insurance coverage, against certain types of losses and/or there may be decreases in the limits of insurance available. Should an uninsured loss or a loss in excess of our insured limits occur, we could lose all or a portion of the capital we have invested in a property or properties, as well as the anticipated future revenue from the property or properties. If any of our properties were to experience a catastrophic loss, it could disrupt our operations, delay revenue and result in large expenses to repair or rebuild the property. Such events could adversely affect our ability to pay dividends to our stockholders. Our existing property and casualty insurance policies have been renewed through June 30, 2006.
9
Our use of debt to finance our operations could have a material adverse effect on our cash flow and ability to make distributions. We are subject to risks normally associated with debt financing, such as the insufficiency of cash flow to meet required payment obligations, difficulty in complying with financial ratios and other covenants and the inability to refinance existing indebtedness. Increases in interest rates on our variable rate debt would increase our interest expense. If we fail to comply with the financial ratios and other covenants under our Revolving Loan, we would likely not be able to borrow any further amounts under the Revolving Loan, which could adversely affect our ability to fund our operations, and our lenders could accelerate outstanding debt. Unwaived defaults, if any, under our debt instruments could result in an acceleration of some of our outstanding debt. If our debt cannot be paid, refinanced or extended at maturity, in addition to our failure to repay our debt, we may not be able to pay dividends to stockholders at expected levels or at all. Furthermore, if any refinancing is done at higher interest rates, the increased interest expense could adversely affect our cash flow and ability to pay dividends to stockholders. Any such refinancing could also impose tighter financial ratios and other covenants that could restrict our ability to take actions that could otherwise be in our stockholders best interest, such as funding new development activity, making opportunistic acquisitions, repurchasing our securities or paying distributions. If we do not meet our mortgage financing obligations, any properties securing such indebtedness could be foreclosed on, which would have a material adverse effect on our cash flow and ability to make distributions.
We may be subject to taxation as a regular corporation if we fail to maintain our REIT status . Our failure to qualify as a REIT would have serious adverse consequences to our stockholders. Many of the requirements for taxation as a REIT are highly technical and complex and depend upon various factual matters and circumstances that may not be totally within our control. For example, to qualify as a REIT, at least 95.0% of our gross income must come from certain sources that are itemized in the REIT tax laws. We are also required to distribute to stockholders at least 90.0% of our REIT taxable income, excluding capital gains. The fact that we hold our assets through the Operating Partnership and its subsidiaries further complicates the application of the REIT requirements. Even a technical or inadvertent mistake could jeopardize our REIT status. Furthermore, Congress and the IRS might change the tax laws and regulations and the courts might issue new rulings that make it more difficult, or impossible, for us to remain qualified as a REIT.
If we fail to qualify as a REIT, we would be subject to federal income tax at regular corporate rates. Also, unless the IRS granted us relief under certain statutory provisions, we would remain disqualified as a REIT for four years following the year we first failed to qualify. If we failed to qualify as a REIT, we would have to pay significant income taxes and would, therefore, have less cash available for investments or to pay dividends to stockholders. This would likely have a significant adverse effect on the value of our securities. In addition, we would no longer be required to pay dividends to stockholders if we lost our REIT status.
Because provisions contained in Maryland law, our charter and our bylaws may have an anti-takeover effect, investors may be prevented from receiving a control premium for their shares. Provisions contained in our charter and bylaws as well as Maryland general corporation law may have anti-takeover effects that delay, defer or prevent a takeover attempt, and thereby prevent stockholders from receiving a control premium for their shares. For example, these provisions may defer or prevent tender offers for our Common Stock or purchases of large blocks of our Common Stock, thus limiting the opportunities for our stockholders to receive a premium for their Common Stock over then-prevailing market prices. These provisions include the following:
| Ownership limit . Our charter prohibits direct or constructive ownership by any person of more than 9.8% of our outstanding capital stock. Any attempt to own or transfer shares of our capital stock in excess of the ownership limit without the consent of our Board of Directors will be void. |
| Preferred Stock . Our charter authorizes our Board of Directors to issue Preferred Stock in one or more classes and to establish the preferences and rights of any class of Preferred Stock issued. These actions can be taken without soliciting stockholder approval. The issuance of Preferred Stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders best interest. |
10
| Staggered board . Our Board of Directors is divided into three classes. As a result, each director generally serves for a three-year term. This staggering of our Board may discourage offers for us or make an acquisition of us more difficult, even when an acquisition is in the best interest of our stockholders. |
| Maryland control share acquisition statute . Maryland law limits the voting rights of control shares of a corporation in the event of a control share acquisition. |
| Maryland unsolicited takeover statute. Under Maryland law, our Board of Directors could adopt various anti-takeover provisions without the consent of stockholders. The adoption of such measures could discourage offers for us or make an acquisition of us more difficult, even when an acquisition is in the best interest of our stockholders. |
| Anti-takeover protections of Operating Partnership agreement . Upon a change in control of the Company, the limited partnership agreement of the Operating Partnership requires certain acquirors to maintain an UPREIT structure with terms at least as favorable to the limited partners as are currently in place. For instance, the acquiror would be required to preserve the limited partners right to continue to hold tax-deferred partnership interests that are redeemable for capital stock of the acquirer. Some change of control transactions involving the Company could require the approval of two-thirds of the limited partners of the Operating Partnership (other than the Company). These provisions may make a change of control transaction involving the Company more complicated and therefore might limit the possibility of such a transaction occurring, even if such a transaction would be in the best interest of the Companys stockholders. |
| Dilutive effect of stockholder rights plan . We currently have in effect a stockholder rights plan pursuant to which our existing stockholders would have the ability to acquire additional Common Stock at a significant discount in the event a person or group attempts to acquire us on terms of which our Board of Directors does not approve. These rights are designed to deter a hostile takeover by increasing the takeover cost. As a result, such rights could discourage offers for us or make an acquisition of us more difficult, even when an acquisition is in the best interest of our stockholders. The rights plan should not interfere with any merger or other business combination the Board of Directors approves since we may generally terminate the plan at any time at nominal cost. |
SEC investigation. As previously disclosed, the SECs Division of Enforcement has issued a confidential formal order of investigation in connection with the Companys previous restatement of its financial results. Even though we are cooperating fully, we cannot assure you that the SECs Division of Enforcement will not take any action that would adversely affect us.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
11
Wholly Owned Properties
As of December 31, 2004, we owned 100.0% interests in 444 in-service office, industrial and retail properties, encompassing approximately 33.9 million rentable square feet, and 125 apartment units. The following table sets forth information about our Wholly Owned Properties at December 31, 2004:
Market |
Rentable Square Feet |
Occupancy |
Percentage of Annualized Rental Revenue (1)
|
|||||||||||||||
Office
|
Industrial
|
Retail
|
Total
|
|||||||||||||||
Raleigh (2) |
4,597,000 | 83.8 | % | 15.7 | % | 0.2 | % | | 15.9 | % | ||||||||
Atlanta |
6,826,000 | 83.7 | 11.7 | 3.1 | | 14.8 | ||||||||||||
Tampa |
4,196,000 | 71.0 | 13.4 | | | 13.4 | ||||||||||||
Kansas City |
2,308,000 | (3) | 94.1 | 4.2 | | 8.5 | % | 12.7 | ||||||||||
Nashville |
2,870,000 | 93.3 | 11.9 | | | 11.9 | ||||||||||||
Piedmont Triad (4) |
6,651,000 | 92.5 | 6.3 | 4.2 | | 10.5 | ||||||||||||
Richmond |
1,835,000 | 94.1 | 7.0 | | | 7.0 | ||||||||||||
Memphis |
1,216,000 | 83.2 | 4.5 | | | 4.5 | ||||||||||||
Charlotte |
1,492,000 | 72.9 | 3.9 | | | 3.9 | ||||||||||||
Greenville |
1,127,000 | 80.5 | 3.1 | 0.1 | | 3.2 | ||||||||||||
Columbia |
426,000 | 60.4 | 1.0 | | | 1.0 | ||||||||||||
Orlando |
222,000 | 93.3 | 0.9 | | | 0.9 | ||||||||||||
Other |
100,000 | 61.3 | 0.3 | | | 0.3 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Total (5) |
33,866,000 | 85.0 | % | 83.9 | % | 7.6 | % | 8.5 | % | 100.0 | % | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Annualized Rental Revenue is rental revenue (base rent plus operating expense pass-throughs) for the month of December 2004 multiplied by 12. |
(2) | Raleigh market encompasses the Raleigh, Cary and Durham metropolitan area. |
(3) | Excludes basement space in the Country Club Plaza property of 430,000 square feet. |
(4) | Piedmont Triad market encompasses the Greensboro and Winston-Salem metropolitan area. |
(5) | Excludes properties recorded on our Balance Sheet that were sold but accounted for as financings under SFAS No. 66. |
12
The following table sets forth information about our Wholly Owned Properties and our development properties as of December 31, 2004 and 2003:
December 31, 2004
|
December 31, 2003
|
|||||||||
Rentable
Square Feet |
Percent
Pre-Leased |
Rentable
Square Feet |
Percent
Leased/ Pre-Leased |
|||||||
In-Service: |
||||||||||
Office (1) |
24,628,000 | 82.7 | % | 25,303,000 | 79.2 | % | ||||
Industrial |
7,829,000 | 90.2 | 8,092,000 | 85.7 | ||||||
Retail (2) |
1,409,000 | 97.3 | 1,527,000 | 96.3 | ||||||
|
|
|
|
|
|
|||||
Total or Weighted Average |
33,866,000 | 85.0 | % | 34,922,000 | 81.5 | % | ||||
|
|
|
|
|
|
|||||
Development: |
||||||||||
CompletedNot Stabilized (3) |
||||||||||
Office (1) |
| | 140,000 | 36.0 | % | |||||
Industrial |
353,000 | 100.0 | % | | | |||||
|
|
|
|
|
|
|||||
Total or Weighted Average |
353,000 | 100.0 | % | 140,000 | 36.0 | % | ||||
|
|
|
|
|
|
|||||
In Process (4) |
||||||||||
Office (1) |
358,000 | 100.0 | % | 112,000 | 100.0 | % | ||||
Industrial |
| | 350,000 | 100.0 | ||||||
Retail |
9,600 | 44.0 | | | ||||||
|
|
|
|
|
|
|||||
Total or Weighted Average |
367,600 | 98.5 | % | 462,000 | 100.0 | % | ||||
|
|
|
|
|
|
|||||
Total: |
||||||||||
Office (1) |
24,986,000 | 25,555,000 | ||||||||
Industrial |
8,182,000 | 8,442,000 | ||||||||
Retail (2) |
1,418,600 | 1,527,000 | ||||||||
|
|
|||||||||
Total or Weighted Average (4) (5) |
34,586,600 | 35,524,000 | ||||||||
|
|
(1) | Substantially all of our office properties are located in suburban markets. |
(2) | Excludes basement space in the Country Club Plaza property of 430,000 square feet. |
(3) | Not stabilized is defined as less than 95.0% occupied or less than a year from completion. |
(4) | Excludes a 156-unit multi-family residential development that is 50.0% owned and which is consolidated under the provisions of FIN 46. This development commenced in late 2004. |
(5) | Excludes properties recorded on our Balance Sheet that were sold but accounted for as financings or profit sharing arrangements under SFAS No. 66. |
Development Land
We estimate that we can develop approximately 14 million square feet of office, industrial and retail space on our 1,115 acres of development land that was wholly owned as of December 31, 2004. All of this development land is zoned and available for office, industrial or retail development, substantially all of which has utility infrastructure already in place. We believe that our commercially zoned and unencumbered land in existing business parks gives us a development advantage over other commercial real estate development companies in many of our markets. Any future development, however, is dependent on the demand for office, industrial or retail space in the area, the availability of favorable financing and other factors, and no assurance can be given that any construction will take place on the development land. In addition, if construction is undertaken on the development land, we will be subject to the risks associated with construction activities, including the risks that occupancy rates and rents at a newly completed property may not be sufficient to make the property profitable, construction costs may exceed original estimates and construction and lease-up may not be completed on schedule, resulting in increased debt service expense and construction expense. We may also develop properties other than office, industrial and retail on certain parcels with unrelated joint venture partners. We consider slightly less than half of our development land to be non-core assets as such excess land is not necessary for our foreseeable future development needs. We are actively working to dispose of such non-core development land through sales to other parties or contributions to joint ventures.
13
Other Properties
As of December 31, 2004, we owned an interest (50.0% or less) in 66 in-service office and industrial properties, one of which we have a 20.0% joint venture interest, but such property is consolidated as a result of our continuing involvement with the property. The properties encompass approximately 6.9 million rentable square feet and 418 apartment units. These properties exclude approximately 431,000 square feet of properties under development that have not yet achieved stabilization. The following table sets forth information about these properties at December 31, 2004:
Market |
Rentable Square Feet |
Occupancy |
Percentage of Annualized Rental Revenue (1)
|
||||||||||||||||||
Office
|
Industrial
|
Retail
|
Multi-Family
|
Total
|
|||||||||||||||||
Des Moines |
2,253,000 | (2) | 91.4 | % (3) | 28.6 | % | 3.6 | % | 1.0 | % | 3.5 | % | 36.7 | % | |||||||
Orlando |
1,683,000 | 89.7 | 25.7 | | | | 25.7 | ||||||||||||||
Atlanta |
835,000 | 92.5 | 12.9 | | | | 12.9 | ||||||||||||||
Raleigh (4) |
455,000 | 99.5 | 3.7 | | | | 3.7 | ||||||||||||||
Kansas City |
428,000 | 86.4 | 8.4 | | | | 8.4 | ||||||||||||||
Piedmont Triad (5) |
364,000 | 100.0 | 4.0 | | | | 4.0 | ||||||||||||||
Tampa |
205,000 | 99.1 | 2.1 | | | | 2.1 | ||||||||||||||
Charlotte |
148,000 | 100.0 | 0.8 | | | | 0.8 | ||||||||||||||
Richmond |
413,000 | 99.7 | 5.2 | | | | 5.2 | ||||||||||||||
Other |
110,000 | 100.0 | 0.5 | | | | 0.5 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total |
6,894,000 | 92.9 | % | 91.9 | % | 3.6 | % | 1.0 | % | 3.5 | % | 100.0 | % | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Annualized Rental Revenue is rental revenue (base rent plus operating expense pass-throughs) for the month of December 2004 multiplied by 12. |
(2) | Excludes Des Moines apartment units. |
(3) | Excludes Des Moines apartment occupancy percentage of 95.7%. |
(4) | Raleigh market encompasses the Raleigh, Cary and Durham metropolitan area. |
(5) | Piedmont Triad market encompasses the Greensboro and Winston-Salem metropolitan area. |
As of December 31, 2004, we owned 50.0% interests in two joint ventures that are developing 430,000 rentable square feet of office properties. The following table sets forth information about these properties at December 31, 2004 ($ in thousands):
Property |
%
Ownership |
Market
|
Rentable
Square Feet |
Anticipated
Total Investment |
Investment
at 12/31/2004 |
Pre-leasing
|
Actual
Completion Date |
Actual or
Estimated Stabilization Date |
|||||||||||||
Plaza Colonnade, LLC |
50.0% | Kansas City | 285,000 | $ | 71,500 | (1) | $ | 65,099 | (1) | 76.0 | % | 4Q04 | 3Q05 | ||||||||
Summit |
50.0% | Des Moines | 35,000 | 3,559 | 3,435 | 75.0 | 3Q04 | 3Q05 | |||||||||||||
Pinehurst |
50.0% | Des Moines | 35,000 | 3,559 | 3,497 | 79.0 | 3Q04 | 3Q05 | |||||||||||||
Sonoma |
50.0% | Des Moines | 75,000 | 9,364 | 202 | | 2Q05 | 2Q06 | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
Total or Weighted Average |
430,000 | $ | 87,982 | $ | 72,233 | 63.0 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
(1) | Includes $16.2 million in investment cost that has been funded by tax increment financing. |
14
Lease Expirations
The following tables set forth scheduled lease expirations for existing leases at our Wholly Owned Properties (excluding apartment units) as of December 31, 2004. The table includes the effects of any early renewals exercised by tenants as of December 31, 2004.
Office Properties (1):
Lease Expiring |
Rentable
Square Feet Subject to Expiring Leases |
Percentage of
Leased Square Footage Represented by Expiring Leases |
Annualized
Rental Revenue Under Expiring Leases (2) |
Average
Rental Rate
|
Percent of
Annualized Rental Revenue Represented by Expiring Leases (2) |
|||||||||
($ in thousands) | ||||||||||||||
2005 (3) |
3,114,226 | 15.2 | % | $ | 56,694 | $ | 18.20 | 15.9 | % | |||||
2006 |
3,179,399 | 15.5 | 59,037 | 18.57 | 16.6 | |||||||||
2007 |
2,069,793 | 10.2 | 35,202 | 17.01 | 9.9 | |||||||||
2008 |
3,111,840 | 15.3 | 50,196 | 16.13 | 14.1 | |||||||||
2009 |
2,838,459 | 13.9 | 49,006 | 17.27 | 13.7 | |||||||||
2010 |
1,913,500 | 9.4 | 34,812 | 18.19 | 9.8 | |||||||||
2011 |
1,389,886 | 6.8 | 25,769 | 18.54 | 7.2 | |||||||||
2012 |
766,121 | 3.8 | 14,066 | 18.36 | 3.9 | |||||||||
2013 |
480,340 | 2.4 | 8,087 | 16.84 | 2.3 | |||||||||
2014 |
419,418 | 2.1 | 7,868 | 18.76 | 2.2 | |||||||||
Thereafter |
1,099,229 | 5.4 | 15,834 | 14.40 | 4.4 | |||||||||
|
|
|
|
|
|
|
|
|
||||||
20,382,211 | 100.0 | % | $ | 356,571 | $ | 17.49 | 100.0 | % | ||||||
|
|
|
|
|
|
|
|
|
||||||
Industrial Properties: |
|
|||||||||||||
Lease Expiring |
Rentable
Square Feet Subject to Expiring Leases |
Percentage of
Square Footage
|
Annualized
Rental Revenue Under Expiring Leases (2) |
Average
Annual Rental Rate Per Square Foot for Expirations |
Percent of
Annualized Rental Revenue Represented by Expiring Leases (2) |
|||||||||
($ in thousands) | ||||||||||||||
2005 (4) |
1,981,682 | 28.2 | % | $ | 8,377 | $ | 4.23 | 25.9 | % | |||||
2006 |
964,023 | 13.7 | 4,821 | 5.00 | 14.9 | |||||||||
2007 |
1,897,292 | 26.9 | 8,746 | 4.61 | 27.1 | |||||||||
2008 |
627,041 | 8.9 | 2,851 | 4.55 | 8.8 | |||||||||
2009 |
644,325 | 9.1 | 3,598 | 5.58 | 11.1 | |||||||||
2010 |
159,418 | 2.3 | 795 | 4.99 | 2.5 | |||||||||
2011 |
150,822 | 2.1 | 713 | 4.73 | 2.2 | |||||||||
2012 |
171,340 | 2.4 | 435 | 2.54 | 1.3 | |||||||||
2013 |
102,384 | 1.5 | 621 | 6.07 | 1.9 | |||||||||
2014 |
206,731 | 2.9 | 799 | 3.86 | 2.5 | |||||||||
Thereafter |
142,170 | 2.0 | 596 | 4.19 | 1.8 | |||||||||
|
|
|
|
|
|
|
|
|
||||||
7,047,228 | 100.0 | % | $ | 32,352 | $ | 4.59 | 100.0 | % | ||||||
|
|
|
|
|
|
|
|
|
(1) | Excludes properties recorded on our Balance Sheet that were sold but accounted for as financings under SFAS No. 66. |
(2) | Annualized Rental Revenue is rental revenue (base rent plus operating expense pass-throughs) for the month of December 2004 multiplied by 12. |
(3) | Includes 104,000 square feet of leases that are on a month-to-month basis or 0.4% of total annualized rental revenue. |
(4) | Includes 212,000 square feet of leases that are on a month-to-month basis or 0.2% of total annualized rental revenue. |
15
Retail Properties:
Lease Expiring |
Rentable
Square Feet Subject to Expiring Leases |
Percentage of
Leased Square Footage Represented by Expiring Leases |
Annualized
Rental Revenue Under Expiring Leases (1) |
Average
Rental Rate
|
Percent of
Annualized Rental Revenue Represented by Expiring Leases (1) |
|||||||||
($ in thousands) | ||||||||||||||
2005 (2) |
64,184 | 4.7 | % | $ | 1,747 | $ | 27.22 | 4.8 | % | |||||
2006 |
101,607 | 7.4 | 2,498 | 24.58 | 6.9 | |||||||||
2007 |
79,810 | 5.8 | 2,197 | 27.53 | 6.1 | |||||||||
2008 |
131,003 | 9.6 | 3,711 | 28.33 | 10.3 | |||||||||
2009 |
190,401 | 13.9 | 4,735 | 24.87 | 13.1 | |||||||||
2010 |
88,790 | 6.5 | 2,989 | 33.66 | 8.3 | |||||||||
2011 |
58,071 | 4.2 | 1,867 | 32.15 | 5.2 | |||||||||
2012 |
140,336 | 10.2 | 3,923 | 27.95 | 10.9 | |||||||||
2013 |
108,866 | 7.9 | 2,681 | 24.63 | 7.4 | |||||||||
2014 |
83,349 | 6.1 | 1,570 | 18.84 | 4.3 | |||||||||
Thereafter |
324,988 | 23.7 | 8,212 | 25.27 | 22.7 | |||||||||
|
|
|
|
|
|
|
|
|
||||||
1,371,405 | 100.0 | % | $ | 36,130 | $ | 26.35 | 100.0 | % | ||||||
|
|
|
|
|
|
|
|
|
||||||
Total (3): |
||||||||||||||
Lease Expiring |
Rentable
Square Feet Subject to Expiring Leases |
Percentage of
Square Footage
|
Annualized
Rental Revenue Under Expiring Leases (1) |
Average
Annual Rental Rate Per Square Foot for Expirations |
Percent of
Annualized Rental Revenue Represented by Expiring Leases (1) |
|||||||||
($ in thousands) | ||||||||||||||
2005 (4) |
5,160,092 | 17.9 | % | $ | 66,818 | $ | 12.95 | 15.6 | % | |||||
2006 |
4,245,029 | 14.7 | 66,356 | 15.63 | 15.6 | |||||||||
2007 |
4,046,895 | 14.1 | 46,145 | 11.40 | 10.9 | |||||||||
2008 |
3,869,884 | 13.4 | 56,758 | 14.67 | 13.4 | |||||||||
2009 |
3,673,185 | 12.8 | 57,339 | 15.61 | 13.5 | |||||||||
2010 |
2,161,708 | 7.5 | 38,596 | 17.85 | 9.1 | |||||||||
2011 |
1,598,779 | 5.6 | 28,349 | 17.73 | 6.7 | |||||||||
2012 |
1,077,797 | 3.7 | 18,424 | 17.09 | 4.3 | |||||||||
2013 |
691,590 | 2.4 | 11,389 | 16.47 | 2.7 | |||||||||
2014 |
709,498 | 2.5 | 10,237 | 14.43 | 2.4 | |||||||||
Thereafter |
1,566,387 | 5.4 | 24,642 | 15.73 | 5.8 | |||||||||
|
|
|
|
|
|
|
|
|
||||||
28,800,844 | 100.0 | % | $ | 425,053 | $ | 14.76 | 100.0 | % | ||||||
|
|
|
|
|
|
|
|
|
(1) | Annualized Rental Revenue is rental revenue (base rent plus operating expense pass-throughs) for the month of December 2004 multiplied by 12. |
(2) | Includes 10,000 square feet of leases that are on a month-to-month basis or 0.1% of total annualized rental revenue. |
(3) | Excludes properties recorded on our Balance Sheet that were sold but accounted for as financings under SFAS No. 66. |
(4) | Includes 326,000 square feet of leases that are on a month-to-month basis or 0.7% of total annualized rental revenue. |
16
We are from time to time a party to a variety of legal proceedings, claims and assessments arising in the ordinary course of our business. We regularly assess the liabilities and contingencies in connection with these matters based on the latest information available. For those matters where it is probable that we have incurred or will incur a loss and the loss or range of loss can be reasonably estimated, reserves are recorded in the Consolidated Financial Statements. In other instances, because of the uncertainties related to both the probable outcome and amount or range of loss, a reasonable estimate of liability, if any, cannot be made. Based on the current expected outcome of any such matters, none of these proceedings, claims or assessments is expected to have a material adverse effect on our business, financial condition and results of operations.
Notwithstanding the above, as previously disclosed, the SECs Division of Enforcement has issued a confidential formal order of investigation in connection with the Companys previous restatement of its financial results. Even though we are cooperating fully, we cannot assure you that the SECs Division of Enforcement will not take any action that would adversely affect us.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
17
ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information with respect to our executive officers:
Name |
Age
|
Position and Background |
||
Edward J. Fritsch |
46 | Director, President and Chief Executive Officer. | ||
Mr. Fritsch became our chief executive officer on July 1, 2004 and our president in December 2003. Prior to that, Mr. Fritsch was our chief operating officer from January 1998 to July 2004 and was a vice president and secretary from June 1994 to January 1998. Mr. Fritsch joined our predecessor in 1982 and was a partner of that entity at the time of our initial public offering in June 1994. Mr. Fritsch serves on the University of North Carolinas Board of Visitors, the Board of Trustees of St. Timothys Episcopal School and the Board of Directors of the YMCA of the Triangle. | ||||
Michael E. Harris |
56 | Executive Vice President and Chief Operating Officer. | ||
Mr. Harris became chief operating officer in July 2004. Prior to that, Mr. Harris was a senior vice president and was responsible for our operations in Tennessee, Missouri, Kansas and Charlotte. Mr. Harris was executive vice president of Crocker Realty Trust prior to its merger with us in 1996. Before joining Crocker Realty Trust, Mr. Harris served as senior vice president, general counsel and chief financial officer of Towermarc Corporation, a privately owned real estate development firm. Mr. Harris is a member of the Advisory Board of Directors of SouthTrust Bank of Memphis and Allen & Hoshall, Inc. | ||||
Terry L. Stevens |
57 | Vice President and Chief Financial Officer. | ||
Prior to joining us in December 2003, Mr. Stevens was executive vice president, chief financial officer and trustee for Crown American Realty Trust, a public company. Before joining Crown American Realty Trust, Mr. Stevens was director of financial systems development at AlliedSignal, Inc., a large multi-national manufacturer. Mr. Stevens was also an audit partner with Price Waterhouse for approximately seven years. Mr. Stevens currently serves as trustee, chairman of the Audit Committee and member of the Compensation and the Finance Committees of First Potomac Realty Trust, a public company. | ||||
Gene H. Anderson |
60 | Director, Senior Vice President and Regional Manager. | ||
Mr. Anderson has been a senior vice president since our combination with Anderson Properties, Inc. in February 1997. Mr. Anderson manages our Atlanta and oversees our Triad operations. Mr. Anderson served as president of Anderson Properties, Inc. from 1978 to February 1997. Mr. Anderson was past president of the Georgia chapter of the National Association of Industrial and Office Properties and is a national board member of the National Association of Industrial and Office Properties. | ||||
Michael F. Beale |
52 | Senior Vice President and Regional Manager. | ||
Mr. Beale manages our Orlando and oversees our Tampa operations. Prior to joining us in 2000, Mr. Beale served as vice president of Koger Equity, Inc., where he was responsible for Kogers acquisitions and developments throughout the Southeast. Mr. Beale is currently the president of the Central Florida Chapter of the National Association of Industrial and Office Properties and also serves on various committees for the Mid-Florida Economic Development Commission. Mr. Beale is a Certified Commercial Investment Member (CCIM). |
18
Name |
Age
|
Position and Background |
||
Robert G. Cutlip |
56 | Senior Vice President and Regional Manager. | ||
Mr. Cutlip manages our Raleigh and oversees our Richmond operations. Prior to joining us in September 2003, Mr. Cutlip was vice president of real estate for Progress Energy, a public company, where he was responsible for the development and facilities management in North Carolina, South Carolina and Florida. Before joining Progress Energy in 2001, Mr. Cutlip was executive vice president for the Carolinas and Tennessee Region of Duke Realty Corporation. Mr. Cutlip is chairman of the National Association of Industrial and Office Properties. | ||||
Mack D. Pridgen III |
56 | Vice President, General Counsel and Secretary. | ||
Prior to joining us in 1997, Mr. Pridgen was a partner with Smith Helms Mulliss & Moore, L.L.P. and prior to that a partner with Arthur Andersen & Co. Mr. Pridgen is an attorney and a certified public accountant. | ||||
W. Brian Reames |
42 | Senior Vice President and Regional Manager. | ||
Mr. Reames became senior vice president and regional manager in August 2004. Mr. Reames manages our Nashville and oversees our Memphis, Greenville and Columbia operations. Prior to that, Mr. Reames was vice president responsible for the Nashville division, a position he held since 1996. Mr. Reames was a partner and owner at Eakin & Smith, Inc., a Nashville-based office real estate firm, from 1989 until its merger with us in 1996. |
19
ITEM 5. MARKET FOR REGISTRANTS COMMON STOCK, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
The Common Stock is traded on the New York Stock Exchange (NYSE) under the symbol HIW. The following table sets forth the quarterly high and low stock prices per share reported on the NYSE for the quarters indicated and the dividends paid per share during such quarter.
2004
|
2003
|
|||||||||||||||||
Quarter Ended |
High
|
Low
|
Dividend
|
High
|
Low
|
Dividend
|
||||||||||||
March 31 |
$ | 27.64 | $ | 25.40 | $ | .425 | $ | 22.38 | $ | 20.00 | $ | .585 | ||||||
June 30 |
26.25 | 20.85 | .425 | 22.77 | 20.17 | .425 | ||||||||||||
September 30 |
25.08 | 22.67 | .425 | 23.97 | 22.31 | .425 | ||||||||||||
December 31 |
27.95 | 24.81 | .425 | 26.02 | 24.32 | .425 |
On November 30, 2005, the last reported stock price of the Common Stock on the NYSE was $28.83 per share and the Company had 1,567 stockholders of record.
The Company intends to continue to pay quarterly dividends to holders of shares of Common Stock and make distributions to holders of Common Units. Future dividends and distributions will be at the discretion of the Board of Directors and will depend on the actual funds from operations of the Company, its financial condition, capital requirements, the annual dividend requirements under the REIT provisions of the Internal Revenue Code and such other factors as the Board of Directors deems relevant. See Managements Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources Stockholder Dividends.
During 2004, the Companys Common Stock dividends totaled $1.70 per share, $1.30 of which represented return of capital for income tax purposes. The minimum dividend per share of Common Stock required for the Company to maintain its REIT status (excluding any net capital gains) was $0.00 in 2004 and $0.07 per share in 2003.
The Company did not issue any Common Stock during the fourth quarter of 2004 that was not registered under the Securities Act of 1933 nor did the Company repurchase any Common Stock or Preferred Stock during such period.
The Company has a Dividend Reinvestment and Stock Purchase Plan under which holders of Common Stock may elect to automatically reinvest their dividends in additional shares of Common Stock and may make optional cash payments for additional shares of Common Stock. The administrator of the Dividend Reinvestment and Stock Purchase Plan has been instructed by the Company to purchase Common Stock in the open market for purposes of satisfying the Companys obligations thereunder. However, the Company may in the future elect to satisfy such obligations by issuing additional shares of Common Stock.
The Company has an Employee Stock Purchase Plan for all active employees. Generally, at the end of each three-month offering period, each participants account balance is applied to acquire shares of Common Stock at a cost that is calculated at 85.0% of the lower of the average closing price on the NYSE on the five consecutive days preceding the first day of the quarter or the five days preceding the last day of the quarter. Participants may contribute up to 25.0% of their pay. The Company issued 33,693 shares of Common Stock to employees under the Employee Stock Purchase Plan during 2004.
For information about our equity compensation plans, see ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
20
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data as of December 31, 2004 and 2003 and for each of the three years ended December 31, 2004 is derived from the Companys audited Consolidated Financial Statements included elsewhere herein. The selected financial data as of December 31, 2002, 2001 and 2000 and for each of the two years ended December 31, 2001 is derived from previously issued financial statements adjusted for matters related to the restatement discussed below.
The Company has restated its results for the four-year period from 2000 to 2003 and the first three quarters of 2004. The restatement resulted from adjustments primarily related to the accounting for lease incentives, depreciation and amortization expense, straight-line ground lease expense on one ground lease, gain recognition on a 2003 land condemnation, accounting for an embedded derivative, land cost allocations, the write-off of undepreciated tenant improvements and commissions, capitalization of interest costs and internal leasing, construction and development costs on development properties, and purchase accounting for acquisitions completed in 1995 to 1998. Refer to Note 19 to the Consolidated Financial Statements for further discussion of the restatement adjustments. The information in the following table should be read in conjunction with the Companys audited Consolidated Financial Statements and related notes included herein ($ in thousands, except per share data):
Year Ended December 31,
|
||||||||||||||||||||
2004
|
2003
|
2002
|
2001
|
2000
|
||||||||||||||||
(restated) | (restated) | (restated) | (restated) | |||||||||||||||||
Rental and other revenues |
$ | 464,724 | $ | 492,505 | $ | 510,415 | $ | 525,155 | $ | 515,892 | ||||||||||
Operating expenses: |
||||||||||||||||||||
Rental property and other expenses |
168,431 | 172,838 | 166,255 | 165,178 | 153,635 | |||||||||||||||
Depreciation and amortization |
132,417 | 139,101 | 136,451 | 123,989 | 112,193 | |||||||||||||||
Impairment of assets held for use |
1,270 | | 9,919 | | | |||||||||||||||
General and administrative |
41,761 | 26,023 | 29,350 | 24,261 | 24,745 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total operating expenses |
343,879 | 337,962 | 341,975 | 313,428 | 290,573 | |||||||||||||||
Interest expense: |
||||||||||||||||||||
Contractual |
106,205 | 119,618 | 120,327 | 126,137 | 115,495 | |||||||||||||||
Amortization of deferred financing costs |
3,698 | 4,398 | 3,646 | 4,030 | 2,660 | |||||||||||||||
Financing obligations |
10,123 | 17,811 | 12,604 | 11,953 | 2,063 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total interest expense |
120,026 | 141,827 | 136,577 | 142,120 | 120,218 | |||||||||||||||
Other income/expense: |
||||||||||||||||||||
Interest and other income |
6,302 | 5,487 | 8,896 | 13,925 | 9,317 | |||||||||||||||
Settlement of bankruptcy claim |
14,435 | | | | | |||||||||||||||
Loss on debt extinguishments |
(12,457 | ) | (14,653 | ) | (360 | ) | | (2,938 | ) | |||||||||||
Gain on extinguishment of co-venture obligation |
| 16,301 | | 2,463 | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total other income |
8,280 | 7,135 | 8,536 | 16,388 | 6,379 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Income before disposition of property, co-venture expense, minority interest and equity in earnings of unconsolidated affiliates |
9,099 | 19,851 | 40,399 | 85,995 | 111,480 | |||||||||||||||
Gains on disposition of property, net |
21,636 | 9,552 | 22,772 | 16,560 | 1,533 | |||||||||||||||
Co-venture expense |
| (4,588 | ) | (7,730 | ) | (6,859 | ) | (158 | ) | |||||||||||
Minority interest in the Operating Partnership |
(849 | ) | (3 | ) | (3,794 | ) | (9,027 | ) | (10,603 | ) | ||||||||||
Equity in earnings of unconsolidated affiliates |
7,398 | 4,760 | 5,422 | 7,162 | 2,623 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Income from continuing operations |
37,284 | 29,572 | 57,069 | 93,831 | 104,875 | |||||||||||||||
Discontinued operations net of minority interest |
4,293 | 13,077 | 22,983 | 15,961 | 16,532 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net income |
41,577 | 42,649 | 80,052 | 109,792 | 121,407 | |||||||||||||||
Dividends on preferred stock |
(30,852 | ) | (30,852 | ) | (30,852 | ) | (31,500 | ) | (32,580 | ) | ||||||||||
Excess of preferred stock carrying value over repurchase value |
| | | 1,012 | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net income available for common stockholders |
$ | 10,725 | $ | 11,797 | $ | 49,200 | $ | 79,304 | $ | 88,827 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net income per common share basic: |
||||||||||||||||||||
Income/(loss) from continuing operations |
$ | 0.12 | $ | (0.02 | ) | $ | 0.50 | $ | 1.17 | $ | 1.22 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net income |
$ | 0.20 | $ | 0.22 | $ | 0.93 | $ | 1.47 | $ | 1.50 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net income per common share diluted: |
||||||||||||||||||||
Income/(loss) from continuing operations |
$ | 0.12 | $ | (0.02 | ) | $ | 0.50 | $ | 1.17 | $ | 1.22 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net income |
$ | 0.20 | $ | 0.22 | $ | 0.93 | $ | 1.46 | $ | 1.50 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Dividends declared per common share |
$ | 1.70 | $ | 1.86 | $ | 2.34 | $ | 2.31 | $ | 2.25 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
December 31,
|
|||||||||||||||
2004
|
2003
|
2002
|
2001
|
2000
|
|||||||||||
(restated) | (restated) | (restated) | (restated) | ||||||||||||
Balance Sheet Data: |
|||||||||||||||
Total assets |
$ | 3,239,658 | $ | 3,513,224 | $ | 3,745,269 | $ | 3,950,918 | $ | 4,023,117 | |||||
Total mortgages and notes payable |
$ | 1,572,574 | $ | 1,718,274 | $ | 1,796,167 | $ | 1,964,312 | $ | 1,832,464 | |||||
Financing obligations |
$ | 65,309 | $ | 125,777 | $ | 122,666 | $ | 77,687 | $ | 75,166 | |||||
Co-venture obligation |
$ | | $ | | $ | 43,511 | $ | 40,482 | $ | 36,046 | |||||
Cumulative redeemable preferred shares |
$ | 377,445 | $ | 377,445 | $ | 377,445 | $ | 377,445 | $ | 397,500 | |||||
Number of wholly owned in-service properties |
444 | 465 | 493 | 498 | 493 | ||||||||||
Total rentable square feet, in service - Wholly Owned Properties |
33,866,000 | 34,922,000 | 37,112,000 | 37,221,000 | 36,183,000 |
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with the accompanying Consolidated Financial Statements and related notes contained elsewhere in this Annual Report.
D ISCLOSURE R EGARDING F ORWARD -L OOKING S TATEMENTS
Some of the information in this Annual Report may contain forward-looking statements. Such statements include, in particular, statements about our plans, strategies and prospects under this section and under the heading Business. You can identify forward-looking statements by our use of forward-looking terminology such as may, will, expect, anticipate, estimate, continue or other similar words. Although we believe that our plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, we cannot assure you that our plans, intentions or expectations will be achieved. When considering such forward-looking statements, you should keep in mind the following important factors that could cause our actual results to differ materially from those contained in any forward-looking statement:
| speculative development activity by our competitors in our existing markets could result in an excessive supply of office, industrial and retail properties relative to tenant demand; |
| the financial condition of our tenants could deteriorate; |
| we may not be able to complete development, acquisition, reinvestment, disposition or joint venture projects as quickly or on as favorable terms as anticipated; |
| we may not be able to lease or release space quickly or on as favorable terms as old leases; |
| unexpected increases in interest rates would increase our debt service costs; |
| we may not be able to meet our liquidity requirements on favorable terms; |
| we could lose key executive officers; and |
| our southeastern and midwestern markets may suffer unexpected declines in economic growth. |
This list of risks and uncertainties, however, is not intended to be exhaustive. You should also review the other cautionary statements we make in Business Risk Factors set forth elsewhere in this Annual Report.
Given these uncertainties, you should not place undue reliance on forward-looking statements. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances or to reflect the occurrence of unanticipated events.
22
O VERVIEW
We are a fully integrated, self-administered and self-managed equity REIT that provides leasing, management, development, construction and other customer-related services for our properties and for third parties. As of December 31, 2004, we owned or had an interest in 510 in-service office, industrial and retail properties, encompassing approximately 40.8 million square feet and 543 apartment units. As of that date, we also owned 1,115 acres of development land, which is suitable to develop approximately 14 million rentable square feet of office, industrial and retail space. We are based in Raleigh, North Carolina, and our properties and development land are located in Florida, Georgia, Iowa, Kansas, Maryland, Missouri, North Carolina, South Carolina, Tennessee and Virginia.
As more fully described in Notes 19 and 20 to the Consolidated Financial Statements, the Company has restated its results for the years ended December 31, 2003 and 2002 and for the first three quarters of 2004. The restatement resulted from adjustments primarily related to the accounting for lease incentives, depreciation and amortization expense, straight-line ground lease expense on one ground lease, gain recognition on a 2003 land condemnation, accounting for an embedded derivative, land cost allocations, the write-off of undepreciated tenant improvements and commissions, capitalization of interest costs and internal leasing, construction and development costs on development properties, and purchase accounting for acquisitions completed in 1995 to 1998.
Results of Operations
During 2004, approximately 84% of our rental and other revenue was derived from our office properties. As a result, while we own and operate a limited number of industrial and retail properties, our operating results depend heavily on successfully leasing our office properties. Furthermore, since most of our office properties are located in Florida, Georgia and North Carolina, economic growth in those states is and will continue to be an important determinative factor in predicting our future operating results.
The key components affecting our revenue stream are average occupancy and rental rates. Average occupancy generally increases during times of improving economic growth, as our ability to lease space outpaces vacancies that occur upon the expirations of existing leases, while average occupancy generally declines during times of slower economic growth, when new vacancies tend to outpace our ability to lease space. Asset acquisitions and dispositions also impact our rental revenues and could impact our average occupancy, depending upon the occupancy percentage of the properties that are acquired or sold. A further indicator of the predictability of future revenues is the expected lease expirations of our portfolio. As of September 30, 2005, leases representing 6.0% of our rentable square feet with respect to our Wholly Owned Properties were expiring on or before December 31, 2005, representing approximately 5.0% of our annualized revenue. As a result, in addition to seeking to increase our average occupancy by leasing current vacant space, we also must concentrate our leasing efforts on renewing leases on expiring space. For more information regarding our lease expirations, see Properties Lease Expirations.
Whether or not our rental revenue tracks average occupancy proportionally depends upon whether rents under new leases signed are higher or lower than the rents under the previous leases. During 2004, the average rental rate per square foot on new leases signed in our Wholly Owned Properties was 1.5% lower than the rent under the previous leases (based on straight line rental rates).
At December 31, 2004, the occupancy rate for our Wholly Owned Properties was 85.0%. As of September 30, 2005, the occupancy rate for our Wholly Owned Properties increased to 85.8%.
Our expenses primarily consist of rental property expenses, depreciation and amortization, general and administrative expenses and interest expense. Rental property expenses are expenses associated with our ownership and operation of rental properties and include variable expenses, such as common area maintenance and utilities, and fixed expenses, such as property taxes and insurance. Some of these variable expenses may be lower when our average occupancy declines, while the fixed expenses remain constant regardless of average occupancy. Depreciation and amortization is a non-cash expense associated with the ownership of real property and generally remains relatively consistent each year, unless we buy or sell assets, since we depreciate our properties on a straight-line basis over a fixed life. General and administrative expenses, net of amounts capitalized, consist primarily of management and employee salaries and other personnel costs, corporate overhead and long-term incentive compensation. Interest expense depends upon the amount of our borrowings, the weighted average interest rates on our debt and the amount of interest capitalized on development projects.
23
We also record income from our investments in unconsolidated affiliates. We record in equity in earnings of unconsolidated affiliates our proportionate share of the unconsolidated joint ventures net income or loss. During 2004, income earned from these unconsolidated joint ventures aggregated $7.4 million, which, net of minority interest, represented approximately 16.0% of our total net income.
Additionally, SFAS No. 144 requires us to record net income received from properties sold or held for sale that qualify as discontinued operations under SFAS No. 144 separately as income from discontinued operations. As a result, we separately record revenues and expenses from these qualifying properties. During 2004, income, including gains and losses from the sale of properties, from discontinued operations, net of minority interest, accounted for
Liquidity and Capital Resources
We incur capital expenditures to lease space to our customers and to maintain the quality of our properties to successfully compete against other properties. Tenant improvements are the costs required to customize the space for the specific needs of the customer. Lease commissions are costs incurred to find the customer for the space. Lease incentives are costs paid to or on behalf of tenants to induce them to enter into leases and which do not relate to customizing the space for the tenants specific needs. Building improvements are recurring capital costs not related to a customer to maintain the buildings. As leases expire, we either attempt to relet the space to an existing customer or attract a new customer to occupy the space. Generally, customer renewals require lower leasing capital expenditures than reletting to new customers. However, market conditions such as supply of available space on the market, as well as demand for space, drive not only customer rental rates but also tenant improvement costs. Leasing capital expenditures are amortized over the term of the lease and building improvements are depreciated over the appropriate useful life of the assets acquired. Both are included in depreciation and amortization in results of operations.
Because we are a REIT, we are required under the federal tax laws to distribute at least 90.0% of our REIT taxable income, excluding capital gains, to our stockholders. We generally use rents received from customers to fund our operating expenses, recurring capital expenditures and stockholder dividends. To fund property acquisitions, development activity or building renovations, we incur debt from time to time. As of December 31, 2004, we had $822.6 million of secured debt outstanding and $750.0 million of unsecured debt outstanding. Our debt generally consists of mortgage debt, unsecured debt securities and borrowings under our Revolving Loan. As of November 30, 2005, we had approximately $90.2 million of additional borrowing availability under our Revolving Loan and $6.5 million in available cash and short-term investments.
Our Revolving Loan and the indenture governing our outstanding long-term unsecured debt securities require us to satisfy various operating and financial covenants and performance ratios. As a result, to ensure that we do not violate the provisions of these debt instruments, we may from time to time be limited in undertaking certain activities that may otherwise be in the best interest of our stockholders, such as repurchasing capital stock, acquiring additional assets, increasing the total amount of our debt or increasing stockholder dividends. We review our current and expected operating results, financial condition and planned strategic actions on an ongoing basis for the purpose of monitoring our continued compliance with these covenants and ratios. Any unwaived event of default could result in an acceleration of some or all of our debt, severely restrict our ability to incur additional debt to fund short- and long-term cash needs or result in higher interest expense. See Note 5 to the Consolidated Financial Statements for information regarding certain amendments and waivers relating to covenants under our Revolving Loan.
To generate additional capital to fund our growth and other strategic initiatives and to lessen the ownership risks typically associated with owning 100.0% of a property, we may sell some of our properties or contribute them to joint ventures. When we create a joint venture with a strategic partner, we usually contribute one or more properties that we own and/or vacant land to a newly formed entity in which we retain an interest of 50.0% or less. In exchange for our equal or minority interest in the joint venture, we generally receive cash from the partner and retain some or all of the management income relating to the properties in the joint venture. The joint venture itself will frequently borrow money on its own behalf to finance the acquisition of, and/or leverage the return upon, the properties being acquired by the joint venture or to build or acquire additional buildings. Such borrowings are typically on a non-recourse or limited recourse basis. We generally are not liable for the debts of our joint ventures, except to the extent of our equity investment, unless we have directly guaranteed any of that debt. In most cases, we and/or our strategic partners are required to guarantee customary exceptions to non-recourse liability in non-recourse loans. See Note 15 to the Consolidated Financial Statements for additional information on certain debt guarantees.
24
We have historically also sold additional Common Stock or Preferred Stock or issued Common Units to fund additional growth or to reduce our debt, but we have limited those efforts during the past five years because funds generated from our capital recycling program in recent years have provided sufficient funds to satisfy our liquidity needs. In addition, we used funds from our capital recycling program to redeem Preferred Stock in 2005 and repurchase Common Stock in 2003 and 2002. We have also redeemed Common Units for cash in 2002 through 2005.
Managements Analysis
We believe that funds from operations (FFO) and FFO per share are beneficial to management and investors and are important indicators of the performance of any equity REIT. Because FFO and FFO per share calculations exclude such factors as depreciation and amortization of real estate assets and gains or losses from sales of real estate (which can vary among owners of identical assets in similar conditions based on historical cost accounting and useful life estimates), they facilitate comparisons of operating performance between periods and between other REITs. Our management believes that historical cost accounting for real estate assets in accordance with U.S. Generally Accepted Accounting Principles (GAAP) implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. As a result, management believes that the use of FFO and FFO per share, together with the required GAAP presentations, provide a more complete understanding of our performance relative to competitors and a more informed and appropriate basis on which to make decisions involving operating, financing and investing activities. See Funds From Operations.
25
R ESULTS OF O PERATIONS
Comparison of 2004 to 2003
The following table sets forth information regarding our results of operations for the years ended December 31, 2004 and 2003 ($ in millions):
Year Ended December 31,
|
2004
to 2003
|
%
Change |
|||||||||||||
2004
|
2003
|
||||||||||||||
(restated) | |||||||||||||||
Rental and other revenues |
$ | 464.7 | $ | 492.5 | $ | (27.8 | ) | (5.6 | )% | ||||||
Operating expenses: |
|||||||||||||||
Rental property and other expenses |
168.4 | 172.8 | (4.4 | ) | (2.5 | ) | |||||||||
Depreciation and amortization |
132.4 | 139.1 | (6.7 | ) | (4.8 | ) | |||||||||
Impairment of assets held for use |
1.3 | | 1.3 | 100.0 | |||||||||||
General and administrative |
41.8 | 26.0 | 15.8 | 60.8 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||
Total operating expenses |
343.9 | 337.9 | 6.0 | 1.8 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||
Interest expense: |
|||||||||||||||
Contractual |
106.2 | 119.6 | (13.4 | ) | (11.2 | ) | |||||||||
Amortization of deferred financing costs |
3.7 | 4.4 | (0.7 | ) | (15.9 | ) | |||||||||
Financing obligations |
10.1 | 17.8 | (7.7 | ) | (43.3 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||
120.0 | 141.8 | (21.8 | ) | (15.4 | ) | ||||||||||
Other income/expense: |
|||||||||||||||
Interest and other income |
6.3 | 5.5 | 0.8 | 14.5 | |||||||||||
Settlement of bankruptcy claim |
14.4 | | 14.4 | 100.0 | |||||||||||
Loss on debt extinguishments |
(12.4 | ) | (14.7 | ) | 2.3 | (15.6 | ) | ||||||||
Gain on extinguishment of co-venture obligation |
| 16.3 | (16.3 | ) | (100.0 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||
8.3 | 7.1 | 1.2 | 16.9 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||
Income before disposition of property, co-venture expense, minority interest and equity in earnings of unconsolidated affiliates |
9.1 | 19.9 | (10.8 | ) | (54.3 | ) | |||||||||
Gains on disposition of property, net |
21.6 | 9.6 | 12.0 | 125.0 | |||||||||||
Co-venture expense |
| (4.6 | ) | 4.6 | (100.0 | ) | |||||||||
Minority interest in the Operating Partnership |
(0.8 | ) | | (0.8 | ) | 100.0 | |||||||||
Equity in earnings of unconsolidated affiliates |
7.4 | 4.7 | 2.7 | 57.4 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||
Income from continuing operations |
37.3 | 29.6 | 7.7 | 26.0 | |||||||||||
Discontinued operations: |
|||||||||||||||
Income from discontinued operations, net of minority interest |
1.5 | 3.3 | (1.8 | ) | (54.5 | ) | |||||||||
Gain on sale of discontinued operations, net of minority interest |
2.8 | 9.8 | (7.0 | ) | (71.4 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||
4.3 | 13.1 | (8.8 | ) | (67.2 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||
Net income |
41.6 | 42.7 | (1.1 | ) | (2.6 | ) | |||||||||
Dividends on preferred stock |
(30.9 | ) | (30.9 | ) | | | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||
Net income available for common stockholders |
$ | 10.7 | $ | 11.8 | $ | (1.1 | ) | (9.3 | )% | ||||||
|
|
|
|
|
|
|
|
|
|
|
Rental and Other Revenues
The decrease in rental and other revenues from continuing operations was primarily the result of the disposition of certain properties in 2003 and 2004 that were not included in discontinued operations and a decrease of approximately $2.2 million in lease termination fees paid in 2004 from 2003. Partly offsetting these decreases was an increase of approximately $1.2 million in property management fees in 2004 from 2003 due to increased efforts in our third-party management services and the contribution of certain properties to joint ventures in 2004 where we retained the management of the properties and received customary fees.
During the year ended December 31, 2004, 1,037 second generation leases representing 8.2 million square feet of office, industrial and retail space were executed with respect to our Wholly Owned Properties. The average rate per square foot on a GAAP basis over the lease term for these leases was 1.5% lower than the GAAP rent under the previous lease.
26
As of the date of this filing, we are beginning to see a modest improvement in employment trends in a few of our markets and an improving economic climate in the Southeast. There has been modest positive absorption of office space in most of our markets during the past year. Also, we expect to deliver approximately 713,000 square feet of office and industrial fully leased new development properties by the end of 2005. Accordingly, we expect our occupancy rate to increase at December 31, 2005 as compared to December 31, 2004.
Operating Expenses
Rental and other operating expenses from continuing operations (real estate taxes, utilities, insurance, repairs and maintenance and other property-related expenses) decreased in 2004 compared to 2003, primarily as a result of the disposition of certain properties in 2003 and 2004 that were not included in discontinued operations. This decrease was offset by general inflationary increases in certain fixed operating expenses, such as salaries, benefits, utility costs and real estate taxes.
Our operating margin, defined as rental and other revenue less rental property and other expenses expressed as a percentage of rental and other revenues, decreased from 64.9% in 2003 to 63.8% in 2004. This decrease in margin was primarily caused by operating expenses increasing from inflationary pressure and other factors at a higher rate than rental revenues, which increased from rising occupancy in 2004, offset by slightly lower average rental rates from rent roll-downs.
We expect rental and other operating expenses to decrease slightly in 2005 due to the disposition of certain properties in 2004 and 2005. This decrease will be partly offset by inflationary increases in certain fixed operating expenses.
The decrease in depreciation and amortization from continuing operations is primarily related to the disposition of certain properties in 2003 and 2004, which were not included in discontinued operations. In addition, the contribution of certain properties to a joint venture in 2004 reduced depreciation and amortization by $1.1 million. We expect depreciation and amortization to decrease slightly in 2005 due to a further net reduction of our Wholly Owned portfolio.
In 2004, an impairment loss of $1.3 million was recognized in connection with an 18,079 rentable square foot office property that was classified as held for use. This asset was later sold in 2005.
The increase in general and administrative expenses in 2004 as compared to 2003 primarily relates to (1) $4.6 million recognized in 2004 in connection with a retirement package for our former chief executive officer, as described in Note 21 to the Consolidated Financial Statements; (2) a $7.8 million increase primarily relating to costs of personnel, consultants and our independent auditors in connection with (a) implementation of Section 404 of the Sarbanes-Oxley Act, (b) evaluation of a strategic transaction in 2004, and (c) the preparation and audit of the Consolidated Financial Statements included herein; and (3) the remaining $3.3 million net increase primarily relates to higher long-term incentive compensation costs, salary, fringe benefit and employee relocation costs.
In 2005, general and administrative expenses are expected to decrease because of the non-recurring nature of costs recorded in 2004 related to the former chief executive officers retirement package, the evaluation of a strategic transaction in 2004, and the abnormally high costs associated with the preparation and audit of the Consolidated Financial Statements for the 2004 fiscal year. These decreases will be partly offset by an increase in general and administrative expenses related to inflationary increases in compensation, benefits and other costs expected in 2005.
Interest Expense
The decrease in contractual interest was primarily due to a decrease in average borrowings from $1,821 million in the year ended December 31, 2003 to $1,657 million in the year ended December 31, 2004 and a decrease in average interest rates on outstanding debt from 6.63% in the year ended December 31, 2003 to 6.46% in the year ended December 31, 2004, primarily due to debt refinancings completed in December 2003 and in June 2004.
The decrease in interest expense on financing obligations was primarily a result of the purchase of our partners interest in the Orlando City Group properties in MG-HIW, LLC in March 2004 which eliminated the requirement to record financing obligation interest expense with respect to the Orlando City Group properties from March 2, 2004 (See Note 3 to the Consolidated Financial Statements for additional information on real estate sales that are accounted for as financing transactions).
27
Total interest expense is expected to decline in 2005 primarily due to the June 2004 refinancing of the $100.0 million of Exercisable Put Option Notes with borrowings on the Revolving Loan which currently has lower floating rate interest and the repayment through December 1, 2005 of $131.6 million of mortgage loans payable, which had interest rates ranging from 5.3% to 9.0%, or a weighted average interest rate of 7.2%. In addition, an increase in capitalized interest due to additional development activity is expected to further decrease net interest expense. These declines will be partly offset by expected increases in average interest rates on our variable rate debt in 2005.
Other Income/Expense
The increase in interest and other income is primarily related to the interest received in 2004 related to a note receivable acquired in connection with the disposition of certain properties in 2003 and higher interest rates earned on cash reserves.
In 2004, we received net proceeds of $14.4 million as a result of the settlement of the bankruptcy of WorldCom (See Note 21 to our Consolidated Financial Statements for further discussion on this settlement).
Loss on debt extinguishments decreased $2.3 million from $14.7 million in 2003 to $12.4 million in 2004. In 2004, a $12.3 million loss was recorded related to the retirement of the Exercisable Put Option Notes described in Note 5 to the Consolidated Financial Statements. In 2003, a $14.7 million loss was recorded related to the retirement of the $125.0 million of MandatOry Par Put Remarketed Securities (MOPPRS) described in Note 5 to the Consolidated Financial Statements.
In 2003, we recorded a $16.3 gain on extinguishment of co-venture obligation, which relates to the operations of the MG-HIW, LLC non-Orlando City Group properties which were accounted for as a profit-sharing arrangement until July 2003, at which time we acquired our partners interest in the non-Orlando City Group properties.
Gains on Disposition of Property; Co-Venture Expense; Minority Interest; Equity in Earnings of Unconsolidated Affiliates
During 2004, we sold approximately 1.3 million rentable square feet of office, industrial and retail properties and 88 apartment units for gross proceeds of $96.5 million and also sold 213.7 acres of development land for gross proceeds of $35.7 million. The Company also contributed approximately 1.3 million of properties to a joint venture, HIW-KC Orlando LLC, in which we have a 40% interest. During 2003, we sold approximately 3.3 million rentable square feet of office, industrial and retail properties and 122.8 acres of revenue-producing land for $202.9 million and also sold 108.5 acres of non-core development land for gross proceeds of $18.7 million. In addition, we contributed approximately 0.3 million square feet to Highwoods-Markel Associates, LLC, a joint venture in which we have a 50% interest.
Net gains on the dispositions of properties that did not qualify for discontinued operations presentation aggregated $21.6 million in 2004, up from $9.6 million in 2003. The largest gain in 2004 was $15.9 million from the contribution of properties to HIW-KC Orlando. Net gains on the dispositions of properties that are classified as discontinued operations were $2.8 million in 2004, down from $9.8 million in 2003; these amounts are shown net of minority interest. Included in the net $2.8 million for 2004 were $6.3 million of impairment losses.
The decrease in co-venture expense is due to our acquisition of our partners interest in the non-Orlando City Group properties in July 2003 and the resultant elimination of recording co-venture expense as of that date. Co-venture expense relates to the operations of the MG-HIW, LLC non-Orlando City Group properties which were accounted for as a profit-sharing arrangement until July 2003.
Minority interest in the continuing operations of the Operating Partnership, after Preferred Unit distributions, increased from $0.0 million in the year ended December 31, 2003 to $0.8 million in the year ended December 31, 2004 due to a corresponding increase in the Operating Partnerships income from continuing operations.
28
The increase in equity in earnings from continuing operations of unconsolidated affiliates was primarily a result of (1) a gain of $1.1 million recognized in 2004 by a certain joint venture related to the disposition of land, of which our portion was $0.5 million; (2) an increase related to the formation of the HIW-KC Orlando, LLC joint venture in 2004, which contributed approximately $1.1 million to equity in earnings from continuing operations of unconsolidated affiliates in 2004; and (3) an increase of $0.9 million related to the addition of three office properties in 2004 to the Highwoods-Markel Associates, LLC joint venture. Partially offsetting these increases was a decrease in average occupancy of buildings owned by certain joint ventures and a land sale by one of our joint ventures in 2003, which resulted in a $0.4 million decrease in equity in earnings from continuing operations of unconsolidated affiliates in 2004 as compared to 2003.
Discontinued Operations
In accordance with SFAS No. 144, we classified net income of $4.3 million and $13.1 million, net of minority interest, as discontinued operations for the years ended December 31, 2004 and 2003, respectively. These amounts pertained to 2.0 million square feet of property, 92 apartment units and 122.8 acres of revenue-producing land sold during 2004 and 2003 and 85,681 square feet of property held for sale at December 31, 2004. These amounts include gain on the sale of these properties, net of impairment charges related to discontinued operations, of $2.8 million and $9.8 million, net of minority interest, in the years ended December 31, 2004 and 2003, respectively.
Net Income
We recorded net income in the year ended December 31, 2004 of $41.6 million, which was a 2.6% decrease from net income of $42.7 million in the year ended December 31, 2003. The decrease was primarily due to the disposition of certain properties in 2004 and 2003 and increases in general and administrative costs as described above. These amounts were offset by lower rental property expenses, depreciation and amortization expense, contractual interest expense, interest expense on financing obligations and co-venture expense and an increase in gains on disposition of property as described above. In 2005, we expect net income to be higher as compared to 2004 due to slightly rising average occupancy and lower operating expenses, depreciation and amortization, general and administrative expenses and interest expense.
29
Comparison of 2003 to 2002
The following table sets forth information regarding our restated results of operations for the years ended December 31, 2003 and 2002 ($ in millions):
Year Ended December 31,
|
2003 to 2002 $ Change |
%
Change |
|||||||||||||
2003
|
2002
|
||||||||||||||
Rental and other revenues |
$ | 492.5 | $ | 510.4 | $ | (17.9 | ) | (3.5 | )% | ||||||
Operating expenses: |
|||||||||||||||
Rental property and other expenses |
172.8 | 166.2 | 6.6 | 4.0 | |||||||||||
Depreciation and amortization |
139.1 | 136.5 | 2.6 | 1.9 | |||||||||||
Impairment of assets held for use |
| 9.9 | (9.9 | ) | (100.0 | ) | |||||||||
General and administrative |
26.0 | 29.4 | (3.4 | ) | (11.6 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||
Total operating expenses |
337.9 | 342.0 | (4.1 | ) | (1.2 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||
Interest expense: |
|||||||||||||||
Contractual |
119.6 | 120.3 | (0.7 | ) | (0.6 | ) | |||||||||
Amortization of deferred financing costs |
4.4 | 3.6 | 0.8 | 22.2 | |||||||||||
Financing obligations |
17.8 | 12.6 | 5.2 | 41.3 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||
141.8 | 136.5 | 5.3 | 3.9 | ||||||||||||
Other income/expense: |
|||||||||||||||
Interest and other income |
5.5 | 8.9 | (3.4 | ) | (38.2 | ) | |||||||||
Loss on debt extinguishments |
(14.7 | ) | (0.4 | ) | (14.3 | ) | 3,575.0 | ||||||||
Gain on extinguishment of co-venture obligation |
16.3 | | 16.3 | 100.0 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||
7.1 | 8.5 | (1.4 | ) | (16.5 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||
Income before disposition of property, co-venture expense, minority interest and equity in earnings of unconsolidated affiliates |
19.9 | 40.4 | (20.5 | ) | (50.7 | ) | |||||||||
Gains on disposition of property, net |
9.6 | 22.8 | (13.2 | ) | (57.9 | ) | |||||||||
Co-venture expense |
(4.6 | ) | (7.7 | ) | 3.1 | (40.3 | ) | ||||||||
Minority interest in the Operating Partnership |
| (3.8 | ) | 3.8 | (100.0 | ) | |||||||||
Equity in earnings of unconsolidated affiliates |
4.7 | 5.4 | (0.7 | ) | (13.0 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||
Income from continuing operations |
29.6 | 57.1 | (27.5 | ) | (48.2 | ) | |||||||||
Discontinued operations: |
|||||||||||||||
Income from discontinued operations, net of minority interest |
3.3 | 11.4 | (8.1 | ) | (71.1 | ) | |||||||||
Gain on sale of discontinued operations, net of minority interest |
9.8 | 11.6 | (1.8 | ) | (15.5 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||
13.1 | 23.0 | (9.9 | ) | (43.0 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||
Net income |
42.7 | 80.1 | (37.4 | ) | (46.7 | ) | |||||||||
Dividends on preferred stock |
(30.9 | ) | (30.9 | ) | | | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||
Net income available for common stockholders |
$ | 11.8 | $ | 49.2 | $ | (37.4 | ) | (76.0 | )% | ||||||
|
|
|
|
|
|
|
|
|
|
|
Rental and Other Revenues
The decrease in rental and other revenues from continuing operations was primarily the result of (1) a decrease in average occupancy rates in our Wholly Owned Properties from 86.8% for the year ended December 31, 2002 to 83.7% for the year ended December 31, 2003, and (2) the effect of properties sold in 2003 and 2002 that were not accounted for as discontinued operations. The decrease in average occupancy was primarily a result of the disposition of certain properties, the contribution of certain properties to joint ventures and the bankruptcies of WorldCom and US Airways, which decreased average occupancy rates by 2.8% and rental and other revenues from continuing operations by $15.4 million. Amounts partly offsetting these decreases were: (1) $3.1 million of straight-line rent receivables were written off in 2002 in connection with the bankruptcy of WorldCom; (2) 2.0 million square feet of development properties were placed in-service and, as a result, increased rental and other revenues from continuing operations by $8.6 million in 2003; and (3) rental revenues in 2002 only included a partial year of rental revenues from the Harborview Plaza transaction which occurred in June 2002, increasing 2003 rental revenues by $3.8 million. Recovery income from certain operating expenses decreased in the year ended December 31, 2003 due to lower occupancy.
During the year ended December 31, 2003, 954 second generation leases representing 7.5 million square feet of office, industrial and retail space were executed with respect to our Wholly Owned Properties. The average rate per square foot on a GAAP basis over the lease term for leases executed in the year ended December 31, 2003 was 0.7% lower than the rent paid by previous customers.
30
Operating Expenses
The increase in rental and other operating expenses from continuing operations (real estate taxes, utilities, insurance, repairs and maintenance and other property-related expenses) primarily resulted from general inflationary increases in certain fixed operating expenses, such as compensation, utility costs, real estate taxes and insurance. In addition, we had 2.0 million square feet of development properties placed in service during 2002 that resulted in an increase in rental and other operating expenses from continuing operations. Partly offsetting these increases was a decrease in rental and other operating expenses from continuing operations of properties sold in 2003 and 2002 that were not accounted for as discontinued operations.
Rental and other operating expenses as a percentage of rental and other revenue increased from 32.6% for the year ended December 31, 2002 to 35.1% for the year ended December 31, 2003. The increase was a result of the increases in rental and other operating expenses as described above and a decrease in rental and other revenues, primarily due to lower average occupancy.
The increase in depreciation and amortization from continuing operations in 2003 related to $14.0 million in depreciation from buildings, leasing commissions and tenant improvement expenditures for properties placed in-service during 2002 and $4.5 million from the write-off of deferred leasing costs and tenant improvements for customers who vacated their space prior to lease expiration. Partly offsetting these increases was a decrease in depreciation and amortization from continuing operations of properties sold in 2003 and 2002 that were not accounted for as discontinued operations.
Because there were no properties held for use with indicators of impairment and with a carrying value exceeding the sum of their undiscounted future cash flows, no impairment loss related to properties held for use was recognized during the year ended December 31, 2003. For the year ended December 31, 2002, the impairment loss on properties held for use with a carrying value exceeding the sum of their undiscounted future cash flows was $0.8 million. We also recognized a $9.1 million impairment loss related to one office property, which had a carrying value in excess of the sum of the propertys undiscounted future cash flows, that has been demolished and may be redeveloped into a class A suburban office property in the future.
General and administrative expenses, net of amounts capitalized, decreased $3.4 million for the year ended December 31, 2003 compared to the year ended December 31, 2002. The decrease occurred because 2002 included $3.7 million of stock option expense related to option exercises; there was no corresponding expense in 2003. This decrease was offset by a decrease in 2003 of capitalization of certain general and administrative costs due to the decrease in development and leasing activity, an increase in long-term incentive compensation expense as a result of the issuance of restricted and phantom stock during 2003 and 2002, and higher expenses related to employee compensation from normal salary increases.
Interest Expense
Contractual interest expense decreased by $0.7 million in 2003. As a result of decreased development activity in 2003, capitalized interest decreased from $5.5 million for the year ended December 31, 2002 to $1.4 million for the year ended December 31, 2003, resulting in an increase in interest expense from continuing operations in 2003. Offsetting this increase was a decrease in interest caused by a decrease in the average outstanding debt balances from $1,915 million in 2002 to $1,821 million in 2003, and an increase in average interest rates from 6.57% in 2002 to 6.63% in 2003.
Interest expense for the years ended December 31, 2003 and 2002 included $4.4 million and $3.6 million, respectively, of amortization of deferred financing costs.
Interest expense on financing obligations increased by $5.2 million in 2003 (See Note 3 to the Consolidated Financial Statements for additional information on our financing transactions). Of the total $5.2 million increase, $4.6 million occurred because 2002 only included a partial year of interest expense on financing obligations from the Harborview and Eastshore transactions which closed in September 2002 and in November 2002, respectively. The remainder of the increase relates to interest on the MG-HIW Orlando financing transaction.
31
Other Income/Expense
The decrease in interest and other income in 2003 is primarily related to the collection of a legal settlement amounting to $1.6 million recorded as other income in the year ended December 31, 2002 related to previously completed mergers and acquisitions.
Loss on debt extinguishments increased $14.3 million from 2002 to 2003 due primarily to the $14.7 million loss recorded in early 2003 related to the MOPPRS debt retirement transaction described in Note 5 to the Consolidated Financial Statements.
In July 2003, we acquired our partners interest in the MG-HIW, LLC non-Orlando City Group properties and recognized a $16.3 million gain upon settlement of the $44.5 million co-venture obligation that was recorded on our books. As described in Note 3 to the Consolidated Financial Statements, the non-Orlando City Group properties in MG-HIW, LLC were accounted for as a profit sharing arrangement.
Gains on Disposition of Property; Co-venture Expense; Minority Interest; Equity in Earnings of Unconsolidated Affiliates
During 2003, we sold approximately 3.3 million rentable square feet of office, industrial and retail properties and 122.8 acres of revenue-producing land for $202.9 million and also sold 108.5 acres of non-core development land for gross proceeds of $18.7 million. In addition, we contributed approximately 0.3 million square feet to Highwoods-Markel Associates, LLC, a joint venture in which we have a 50% interest. During 2002, we sold approximately 2.0 million rentable square feet of office and industrial properties for gross proceeds of $213.9 million and also sold 137.7 acres of development land for gross proceeds of $21.3 million.
Net gains on the dispositions of properties that did not qualify for discontinued operations presentation aggregated $9.6 million in 2003, down from $22.8 million in 2002. Net gains on the dispositions of properties that are classified as discontinued operations were $9.8 million in 2003, down from $11.6 million in 2002; these amounts are shown net of minority interest.
Co-venture expense relates to the operations of the MG-HIW, LLC non-Orlando City Group properties accounted for as a profit-sharing arrangement, as more fully described in Note 3 to the Consolidated Financial Statements. The decrease of $3.1 million in co-venture expense in 2003 is largely due to our acquisition of our partners interest in the non-Orlando City Group properties in July 2003 and the resultant elimination of recording co-venture expense as of that date.
Minority interest in the continuing operations income of the Operating Partnership, after Preferred Unit distributions, decreased from $3.8 million in 2002 to $0.0 million in 2003 because of a corresponding reduction in the Operating Partnerships income from continuing operations.
The decrease in equity in earnings from continuing operations of unconsolidated affiliates was primarily a result of lower occupancy in 2003 for certain joint ventures. Partly offsetting this decrease was an increase of $0.5 million in equity in earnings in 2003 related to a charge taken by a joint venture in 2002 related to an early extinguishment of debt loss resulting in a decrease in equity in earnings of $0.3 million in 2002 and an increase in equity in earnings in 2003 of $0.2 million as a result of a gain recognized by a joint venture related to the disposition of land in 2003.
Discontinued Operations
In accordance with SFAS No. 144, we classified net income of $13.1 million and $23.0 million, net of minority interest, as discontinued operations for the years ended December 31, 2003 and 2002, respectively. These amounts related to 3.5 million square feet of property, 92 apartment units and 122.8 acres of revenue-producing land sold during 2004, 2003 and 2002 and 85,681 square feet of property held for sale at December 31, 2004. These amounts include gain on the sale of these properties, net of impairment charges related to discontinued operations, of $9.8 million and $11.6 million, net of minority interest, in 2003 and 2002, respectively.
32
Net Income
We recorded net income in 2003 of $42.7 million, which was a 46.7% decrease from net income of $80.1 million in 2002. This decrease was primarily due to a decrease in rental revenues as a result of lower occupancy and the bankruptcies of WorldCom and US Airways, the effects on continuing and discontinued operations from being a net seller in 2003 and 2002 of operating properties under our capital recycling plan, an increase in interest expense and increased loss on debt extinguishments in 2003. These decreases were offset by the contribution of development properties placed in service during 2003 and by the gain on settlement of the co-venture obligation related to the MG-HIW, LLC non-Orlando properties.
33
L IQUIDITY AND C APITAL R ESOURCES
Statement of Cash Flows
As required by GAAP, we report and analyze our cash flows based on operating activities, investing activities and financing activities. The following table sets forth the changes in the Companys cash flows from 2003 to 2004 ($ in thousands):
Year Ended December 31,
|
Change |
|||||||||||
2004
|
2003
|
|||||||||||
(restated) | ||||||||||||
Cash Provided by Operating Activities |
$ | 172,582 | $ | 166,566 | $ | 6,016 | ||||||
Cash Provided by Investing Activities |
48,188 | 118,921 | (70,733 | ) | ||||||||
Cash Used in Financing Activities |
(217,984 | ) | (279,587 | ) | 61,603 | |||||||
|
|
|
|
|
|
|
|
|
||||
Total Cash Flows |
$ | 2,786 | $ | 5,900 | $ | (3,114 | ) | |||||
|
|
|
|
|
|
|
|
|
In calculating cash flow from operating activities, GAAP requires us to add depreciation and amortization, which are non-cash expenses, back to net income. As a result, we have historically generated a significant positive amount of cash from operating activities. From period to period, cash flow from operations depends primarily upon changes in our net income, as discussed more fully above under Results of Operations, changes in receivables and payables and net additions or decreases in our overall portfolio, which affect the amount of depreciation and amortization expense.
Cash provided by or used in investing activities generally relates to capitalized costs incurred for leasing and major building improvements and our acquisition, development, disposition and joint venture activity. During periods of significant net acquisition and/or development activity, our cash used in such investing activities will generally exceed cash provided by investing activities, which typically consist of cash received upon the sale of properties. During 2004 and 2003, since our disposition activity has outpaced our investment, development and acquisition activity, we recorded positive cash flow from investing activities in both years.
Cash used in financing activities generally relates to stockholder dividends, distributions on our Common Units, incurrence and repayment of debt and sales, repurchases or redemptions of Common Stock, Common Units and Preferred Stock. As discussed previously, we use a significant amount of our cash to fund stockholder dividends and Common Unit distributions. Whether or not we incur significant new debt during a period depends generally upon the net effect of our acquisition, disposition, development and joint venture activity. We use our Revolving Loan for working capital purposes, which means that during any given period, in order to minimize interest expense associated with balances outstanding under the Revolving Loan, we will likely record significant repayments and borrowings under the Revolving Loan.
The increase of $6.0 million in cash provided by operating activities was primarily a result of the timing of receipt of revenues and payment of expenses, partly offset by lower net income due to the disposition of certain properties under our capital recycling program.
The decrease of $70.7 million in cash provided by investing activities was primarily a result of a decrease in proceeds from dispositions of real estate assets of $71.3 million and our contribution to the Highwoods KC Glenridge, LP joint venture of $9.9 million in 2004. Slightly offsetting this decrease was an increase in distributions of capital from unconsolidated affiliates of $5.9 million, mainly due to the financing of the Highwoods KC Glenridge, LP joint venture and a decrease in additions to real estate assets of $5.1 million, for the year ended December 31, 2004.
Cash used in financing activities decreased $61.6 million from 2003 to 2004. For the year ended December 31, 2004, net repayments on the unsecured Revolving Loan, mortgages and notes payable decreased by $66.4 million, distributions paid on Common Stock and Common Units decreased by $10.2 million and cash paid for the repurchase of Common Stock and Common Units decreased by $17.9 million. Offsetting these effects was a payment on financing obligations of $62.5 million, which is further discussed in Note 3 to the Consolidated Financial Statements, and the effect of payments in 2003 of $26.2 million on our co-venture obligation, which is also discussed in Note 3 to the Consolidated Financial Statements. We recorded payments on debt extinguishments of $12.5 million related to the X-POS refinancing in 2004 and $16.3 million related to the MOPPRS refinancing in 2003, which are both further discussed in Note 5 to the Consolidated Financial Statements.
34
In 2005, we have continued our capital recycling program of selectively disposing of non-core land and other assets and using the net proceeds for reduction of outstanding debt and preferred stock balances, investments or other purposes. During the nine months ended September 30, 2005, we have closed on the sale or contribution of 4.4 million square feet of properties and land aggregating $337.1 million in gross sales proceeds. These transactions include most of the properties held for sale at December 31, 2004.
During 2005, we expect to have positive cash flows from operating activities. The net cash flows from investing activities in 2005 are expected to be positive in 2005 based on our level of property dispositions, property acquisitions, development, and capitalized leasing and improvement costs. Positive cash flows from operating and investing activities in 2005 have been or are expected to be used to pay stockholder and unitholder distributions, scheduled debt maturities, principal amortization payments and paydown of debt and redemption of preferred stock.
Capitalization
The following table sets forth our capitalization as of December 31, 2004 and December 31, 2003 (in thousands, except per share amounts):
December 31, 2004 |
December 31, 2003 |
|||||
(restated) | ||||||
Mortgages and notes payable, at recorded book value |
$ | 1,572,574 | $ | 1,718,274 | ||
Financing obligations |
$ | 65,309 | $ | 125,777 | ||
Preferred stock, at redemption value |
$ | 377,445 | $ | 377,445 | ||
Common Stock and Common Units outstanding |
59,915 | 59,677 | ||||
Per share stock price at period end |
$ | 27.70 | $ | 25.40 | ||
Market value of common equity |
$ | 1,659,646 | $ | 1,515,796 | ||
|
|
|
|
|||
Total market capitalization with debt |
$ | 3,674,974 | $ | 3,737,292 | ||
|
|
|
|
Based on our total market capitalization of approximately $3.7 billion at December 31, 2004 (at the December 31, 2004 per share stock price of $27.70 and assuming the redemption for shares of Common Stock of the 6.1 million Common Units in the Operating Partnership not owned by the Company), our mortgages and notes payable represented 42.8% of our total market capitalization. Mortgages and notes payable at December 31, 2004 was comprised of $822.6 million of secured indebtedness with a weighted average interest rate of 6.9% and $750.0 million of unsecured indebtedness with a weighted average interest rate of 5.9%. As of December 31, 2004, our outstanding mortgages and notes payable were secured by real estate assets with an aggregate undepreciated book value of approximately $1.3 billion.
We do not intend to reserve funds to retire existing secured or unsecured debt upon maturity. For a more complete discussion of our long-term liquidity needs, see Liquidity and Capital Resources - Current and Future Cash Needs.
35
Contractual Obligations
The following table sets forth a summary regarding our known contractual obligations at December 31, 2004 ($ in thousands):
Total |
Amounts due during year ending December 31,
|
Thereafter |
|||||||||||||||||||
2005
|
2006
|
2007
|
2008
|
2009
|
|||||||||||||||||
Fixed Rate Debt: |
|||||||||||||||||||||
Unsecured |
|||||||||||||||||||||
Notes (1) |
$ | 460,000 | $ | | $ | 110,000 | $ | | $ | 100,000 | $ | 50,000 | $ | 200,000 | |||||||
Secured: |
|||||||||||||||||||||
Mortgage Loans Payable (2) |
756,001 | 82,322 | 21,103 | 82,339 | 15,090 | 156,533 | 398,614 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total Fixed Rate Debt |
1,216,001 | 82,322 | 131,103 | 82,339 | 115,090 | 206,533 | 598,614 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Variable Rate Debt: |
|||||||||||||||||||||
Unsecured: |
|||||||||||||||||||||
Term Loans |
120,000 | 120,000 | | | | | | ||||||||||||||
Revolving Loan |
170,000 | | 170,000 | | | | | ||||||||||||||
Secured: |
|||||||||||||||||||||
Mortgage Loans Payable (2) |
50,732 | 291 | 47,273 | 3,168 | | | | ||||||||||||||
Construction Loan |
15,841 | | | 15,841 | | | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total Variable Rate Debt |
356,573 | 120,291 | 217,273 | 19,009 | | | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total Mortgages and Notes Payable |
1,572,574 | 202,613 | 348,376 | 101,348 | 115,090 | 206,533 | 598,614 | ||||||||||||||
Operating Lease Obligations: |
|||||||||||||||||||||
Land Leases (3) |
50,400 | 1,160 | 1,113 | 1,110 | 1,126 | 1,166 | 44,725 | ||||||||||||||
Purchase Obligations: |
|||||||||||||||||||||
Completion Contracts (3) |
27,135 | 27,135 | | | | | | ||||||||||||||
Other Long Term Liabilities Reflected on the Balance Sheet: |
|||||||||||||||||||||
Capitalized Lease Obligations |
453 | 179 | 175 | 86 | 13 | | | ||||||||||||||
Plaza Colonnade Lease Guarantee (3) |
58 | | | | | 58 | | ||||||||||||||
Highwoods DLF 97/26 DLF 99/32 LP Lease Guarantee (3) |
855 | | | | 855 | | |||||||||||||||
RRHWoods and Dallas County Partners Lease Guarantee (3) |
649 | | | | | | 649 | ||||||||||||||
Capital One Lease Guarantee (4) |
1,366 | 204 | 11 | 398 | 407 | 346 | | ||||||||||||||
Industrial Portfolio Lease Guarantee (4) |
1,497 | 991 | 506 | | | | | ||||||||||||||
SF-HIW Harborview, LP Financing Obligation (5) |
14,808 | | | | | | 14,808 | ||||||||||||||
Eastshore Financing Obligation (5) |
28,777 | 28,777 | | | | | |||||||||||||||
Tax Increment Financing Obligation (6) |
19,946 | 709 | 797 | 876 | 929 | 993 | 15,642 | ||||||||||||||
DLF Payable (7) |
3,093 | 216 | 250 | 286 | 325 | 368 | 1,648 | ||||||||||||||
BTI Financing Obligation (8) |
1,778 | 1,778 | | | | | | ||||||||||||||
KC Orlando, LLC Lease Guarantee (3) |
594 | 83 | 92 | 97 | 97 | 97 | 128 | ||||||||||||||
KC Orlando, LLC Accrued Lease Commissions, Tenant Improvements and Building Improvements (3) |
1,718 | 1,718 | | | | | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total |
$ | 1,725,701 | $ | 265,563 | $ | 351,320 | $ | 104,201 | $ | 118,842 | $ | 209,561 | $ | 676,214 | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | The unsecured notes of $460.0 million bear interest at rates ranging from 7.0% to 8.125% with interest payable semi-annually in arrears. Any premium and discount related to the issuance of the unsecured notes, together with other issuance costs, is being amortized over the life of the respective notes as an adjustment to interest expense. All of the unsecured notes are redeemable at any time prior to maturity at our option, subject to certain conditions including the payment of make-whole amounts. |
(2) | The mortgage loans payable are secured by real estate assets with an aggregate undepreciated book value of approximately $1.3 billion at December 31, 2004. Our fixed rate mortgage loans generally are either locked out to prepayment for all or a portion of their term or are prepayable subject to certain conditions including prepayment penalties. |
(3) | See Note 15 to the Consolidated Financial Statements for further discussion. |
(4) | These liabilities represent gains that were deferred in accordance with SFAS No. 66 when we sold these properties to third parties. We defer gains on sales of real estate up to our maximum exposure to contingent loss. See Note 15 to the Consolidated Financial Statements for further discussion. |
36
(5) | These liabilities represent our financing obligation to either our partner in the respective joint venture or the third party buyer as a result of accounting for these transactions as a financing arrangement. See Note 3 to the Consolidated Financial Statements for further discussion. |
(6) | In connection with tax increment financing for construction of a public garage related to an office building constructed by us, we are obligated to pay fixed special assessments over a 20-year period. The net present value of these assessments, discounted at 6.93%, is shown as a financing obligation in the balance sheet. We also receive special tax revenues and property tax rebates which are intended, but not guaranteed, to provide funds to pay the special assessments. |
(7) | Represents a fixed obligation we owe our partner in Highwoods DLF 98/29, LP. This amount arose from an excess contribution from our partner at the formation of the joint venture and is recorded in other liabilities. See Note 2 to the Consolidated Financial Statements for further discussion. |
(8) | This liability represents a capitalized lease obligation to the lessor of land on which we own a building. We are obligated to make fixed payments to the lessor through March 2010. The net present value of these payments discounted at 7.13% is shown as a liability in our balance sheet, which accretes each month for the difference between the interest on the financing obligation and the fixed payments. The accretion continues until the liability equals the residual value of the land. As of March 31, 2005, this liability was settled as a result of the sale of the building and assumption by the third party buyer of our ground lease. |
Refinancings in 2004
In 1997, the Operating Partnership sold $100.0 million of Exercisable Put Option Notes due June 15, 2011 (the Put Option Notes). The Put Option Notes bore an interest rate of 7.19% from the date of issuance through June 15, 2004. After June 15, 2004, the interest rate to maturity on the Put Option Notes was required to be 6.39% plus the applicable spread determined as of June 10, 2004. In connection with the initial issuance of the Put Option Notes, a counter party was granted an option to purchase the Put Option Notes on June 15, 2004 at 100.0% of the principal amount. The counter party exercised this option and acquired the Put Option Notes on June 15, 2004. On that same date, the Company exercised its option to acquire the Put Option Notes from the counter party for a purchase price equal to the sum of the present value of the remaining scheduled payments of principal and interest (assuming an interest rate of 6.39%) on the Put Option Notes, or $112.3 million. The difference between the $112.3 million and the $100.0 million was charged to loss on extinguishment of debt in the quarter ended June 30, 2004. The Company borrowed funds from its Revolving Loan to make the $112.3 million payment.
In late June 2004, we repaid $51.0 million of borrowings under our Revolving Loan with proceeds from the sale of a 60.0% interest in five office buildings in Orlando, Florida and from the sale of a building at Highwoods Preserve in Tampa, Florida. See Notes 3 and 4 to the Consolidated Financial Statements for further details of these asset sales.
Refinancings in 2005
Through December 1, 2005, we paid off $151.6 million of outstanding loans, excluding any normal debt amortization, which included the following transactions. In early April 2005, we paid off $40.9 million of callable secured mortgage debt; in mid-July 2005, we paid off another $26.0 million of callable secured mortgage debt; and on August 1, 2005, we paid off $47.0 million of secured variable rate mortgage debt that was due January 1, 2006. In September 2005, we paid off our $20.0 million term loan at maturity and three secured loans totaling $3.5 million. In November 2005, we extended the maturity date on our $100.0 million term loan to July 17, 2006 and lowered the interest rate. On December 1, 2005, we paid off $2.1 million of secured variable rate mortgage debt that was due February 2, 2006. In addition, on December 1, 2005, we exercised our option to pay down $9.4 million on our AEGON loan that matures in 2009. We also used some of the proceeds from our disposition activity to redeem, in August 2005, all of our outstanding Series D Preferred Shares and a portion of our outstanding Series B Preferred Shares, aggregating $130.0 million plus accrued dividends. These reductions in outstanding debt and preferred stock balances were made primarily from proceeds from property dispositions that closed in 2005.
Operating and Financial Covenants and Performance Ratios
The terms of the Revolving Loan, the $120.0 million bank term loans and the indenture that governs our outstanding notes require us to comply with certain operating and financial covenants and performance ratios. No circumstance currently exists that would result in an acceleration of any of this outstanding debt. However, depending upon our future operating performance and property and financing transactions, we cannot assure you that no such circumstance would exist in the future.
37
If any of our lenders ever accelerated outstanding debt due to an event of default, we would not be able to borrow any further amounts under the Revolving Loan, which would adversely affect our ability to fund our operations. If our debt cannot be paid, refinanced or extended at maturity or upon acceleration, in addition to our failure to repay our debt, we may not be able to make distributions to stockholders at expected levels or at all. Furthermore, if any refinancing is done at higher interest rates, the increased interest expense would adversely affect our cash flows and ability to make distributions to stockholders. Any such refinancing could also impose tighter financial ratios and other covenants that would restrict our ability to take actions that would otherwise be in our stockholders best interest, such as funding new development activity, making opportunistic acquisitions, repurchasing our securities or paying distributions.
Our Revolving Loan and the bank term loans have identical ratio and financial covenants. If we fail to satisfy any of the covenants after the expiration of any applicable cure periods, the lenders under our Revolving Loan and our bank term loans could accelerate amounts outstanding thereunder, which aggregated $290.0 million at December 31, 2004. At December 31, 2004 and as of the date of this filing, we were in compliance with these covenants as amended or waived by the lenders as discussed below.
In March 2004, we amended the Revolving Loan and our then outstanding two bank term loans. The changes modified certain definitions used in all three loans to determine amounts that are used to compute financial covenants and also adjusted one of the financial ratio covenants.
In June 2004, we amended the Revolving Loan and our then outstanding two bank term loans. The changes excluded the $12.5 million charge taken related to the refinancing of the Put Option Notes from the calculations used to compute financial covenants.
In August 2004, we further amended the Revolving Loan and our then outstanding two bank term loans. The changes excluded the effects of accounting for three sales transactions as financing or profit sharing arrangements under SFAS No. 66 from the calculations used to compute financial covenants, adjusted one financial covenant and temporarily adjusted a second financial covenant until the earlier of December 31, 2004 or the period when we could record income from the then anticipated settlement of a claim against WorldCom, which occurred in September 2004 (see Note 21 to the Consolidated Financial Statements).
In October 2004, we obtained a waiver from the lenders under the Revolving Loan and our then outstanding two bank term loans for certain covenant violations caused by the effects of the loss on debt extinguishment from the MOPPRS transaction in early 2003.
In June, July, August and September 2005, we obtained waivers from the lenders under the Revolving Loan and our then outstanding two bank loans related to timely reporting to the lenders of annual and quarterly financial statements and to covenant violations that could arise from future redemptions of preferred stock due to the reclassification of the preferred stock from equity to a liability during the period of time from the announcement of the redemption until the redemption is completed.
The aforementioned modifications did not change the economic terms of the loans. In connection with these modifications, we incurred certain loan costs that are capitalized and amortized over the remaining term of the loans.
The Revolving Loan carries an interest rate based upon our senior unsecured credit ratings. As a result, interest currently accrues on borrowings under the Revolving Loan at LIBOR plus 105 basis points. The terms of the Revolving Loan require us to pay an annual base facility fee equal to .25% of the aggregate amount of the Revolving Loan. We currently have a credit rating of BBB- assigned by Standard & Poors and Fitch Ratings and Ba1 assigned by Moodys Investor Service. In January 2005, Moodys Investor Service confirmed our Ba1 rating with a stable outlook. If Standard and Poors or Fitch Ratings were to lower our credit ratings without a corresponding increase by Moodys, the interest rate on borrowings under the Revolving Loan would be automatically increased by 60 basis points.
In November 2005, we amended our $100.0 million bank term loan to extend the maturity date to July 17, 2006 and reduce the spread over the LIBOR interest rate from 130 basis points to 100 basis points.
38
As of the date of this filing, the Operating Partnership has not yet satisfied its requirement under the indenture governing our unsecured notes to file timely SEC reports, but expects to do so as soon as practicable after the filing of our Annual Report. Under the indenture, the notes may be accelerated if the trustee or 25% of the holders provide written notice of a default and such default remains uncured after 60 days. To date, neither the trustee nor any holder has sent us any such default notice. The Operating Partnership is in compliance with all other covenants under the indenture and is current on all payments required thereunder.
Current and Future Cash Needs
Rental revenue, together with construction management, maintenance, leasing and management fees, are our principal source of funds to meet our short-term liquidity requirements, which primarily consist of operating expenses, debt service, stockholder dividends, any guarantee obligations and recurring capital expenditures. In addition, we could incur tenant improvements and lease commissions related to any releasing of vacant space.
We expect to fund our short-term liquidity requirements through a combination of available working capital, cash flows from operations and the following:
| the selective disposition of non-core land and other assets; |
| borrowings under our Revolving Loan (which has up to $90.2 million of availability as of November 30, 2005); |
| the sale or contribution of some of our Wholly Owned Properties, development projects and development land to strategic joint ventures to be formed with unrelated investors, which would have the net effect of generating additional capital through such sale or contributions; |
| the issuance of secured debt (at November 30, 2005, we had approximately $1.9 billion of unencumbered real estate assets at undepreciated cost); and |
| the issuance of new unsecured debt. |
Our long-term liquidity needs generally include the funding of existing and future development activity. As of September 30, 2005, we had approximately $128 million of development activity in process, with $54.8 million funded at September 30, 2005 and the remainder expected to be funded in the next 27 months. Our long-term liquidity needs also include the funding of selective asset acquisitions and the retirement of mortgage debt, amounts outstanding under the Revolving Loan and long-term unsecured debt. Our goal is to maintain a conservative and flexible balance sheet. Accordingly, we expect to meet our long-term liquidity needs through a combination of (1) the issuance by the Operating Partnership of additional unsecured debt securities, (2) the issuance of additional equity securities by the Company and the Operating Partnership as well as (3) the sources described above with respect to our short-term liquidity. We expect to use such sources to meet our long-term liquidity requirements either through direct payments or repayments of borrowings under the unsecured Revolving Loan. As mentioned above, we do not intend to reserve funds to retire existing secured or unsecured indebtedness upon maturity. Instead, we will seek to refinance such debt at maturity or retire such debt through the issuance of equity or debt securities.
We anticipate that our available cash and cash equivalents and cash flows from operating activities, with cash available from borrowings and other sources, will be adequate to meet our capital and liquidity needs in both the short and long term. However, if these sources of funds are insufficient or unavailable, our ability to pay dividends to stockholders and satisfy other cash payments may be adversely affected.
Stockholder Dividends
To maintain our qualification as a REIT, we must distribute to stockholders at least 90.0% of our REIT taxable income, excluding capital gains. REIT taxable income, the calculation of which is determined by the federal tax laws, does not necessarily equal net income under GAAP. We generally expect to use our cash flow from operating activities for dividends to stockholders and for payment of recurring capital expenditures. Future dividends will be
39
made at the discretion of our Board of Directors. The following factors will affect our cash flows and, accordingly, influence the decisions of the Board of Directors regarding dividends:
| debt service requirements after taking into account debt covenants and the repayment and restructuring of certain indebtedness; |
| scheduled increases in base rents of existing leases; |
| changes in rents attributable to the renewal of existing leases or replacement leases; |
| changes in occupancy rates at existing properties and execution of leases for newly acquired or developed properties; and |
| operating expenses and capital replacement needs, including tenant improvements and leasing costs. |
Off Balance Sheet Arrangements
We have several off balance sheet joint venture and guarantee arrangements. The joint ventures were formed with unrelated investors to generate additional capital to fund property acquisitions, repay outstanding debt or fund other strategic initiatives and to lessen the ownership risks typically associated with owning 100.0% of a property. When we create a joint venture with a strategic partner, we usually contribute one or more properties that we own to a newly formed entity in which we retain an interest of 50.0% or less. In exchange for an equal or minority interest in the joint venture, we generally receive cash from the partner and frequently retain the management income relating to the properties in the joint venture. For financial reporting purposes, the sales of assets we sold to two of our joint ventures are accounted for as financing and/or profit-sharing arrangements.
As required by GAAP, we use the equity method of accounting for our unconsolidated joint ventures in which we exercise significant influence but do not control the major operating and financial policies of the entity regarding encumbering the entities with debt and the acquisition or disposal of properties. As a result, the assets and liabilities of these joint ventures are not included on our balance sheet and the results of operations of these joint ventures are not included on our income statement, other than as equity in earnings of unconsolidated affiliates. Generally, we are not liable for the debts of our joint ventures, except to the extent of our equity investment, unless we have directly guaranteed any of that debt. In most cases, we and/or our strategic partners are required to guarantee customary limited exceptions to non-recourse liability in non-recourse loans.
As of December 31, 2004, our unconsolidated joint ventures had $826.3 million of total assets and $607.5 million of total liabilities as reflected in their financial statements. At December 31, 2004, our weighted average equity interest based on the total assets of these unconsolidated joint ventures was 40.6%. During 2004, these unconsolidated joint ventures earned $15.7 million of total net income, of which our share, after appropriate purchase accounting and other adjustments, was $7.4 million. For a more detailed discussion of our unconsolidated joint venture activity, see Note 2 to the Consolidated Financial Statements.
As of December 31, 2004, our unconsolidated joint ventures had $578.9 million of outstanding mortgage debt. All of this joint venture debt is non-recourse to us except (1) in the case of customary exceptions pertaining to such matters as misuse of funds, environmental conditions and material misrepresentations and (2) those guarantees and loans described in the following paragraphs. The following table sets forth the scheduled maturities of our share of the outstanding debt of our unconsolidated joint ventures as of December 31, 2004 ($ in thousands):
2005 |
$ | 3,251 | |
2006 |
5,571 | ||
2007 |
12,626 | ||
2008 |
10,272 | ||
2009 |
14,687 | ||
Thereafter |
198,958 | ||
|
|
||
$ | 245,365 | ||
|
|
In connection with the Des Moines joint ventures, we guaranteed certain debt and the maximum potential amount of future payments that we could be required to make under the guarantees is $24.7 million. Of this amount, $8.6 million arose from housing revenue bonds that require credit enhancements in addition to the real estate
40
mortgages. The bonds bear a floating interest rate, which at December 31, 2004 averaged 2.00%, and mature in 2015. Guarantees of $9.4 million of debt of the Des Moines joint ventures will expire upon two industrial buildings becoming 93.8% and 95.0% leased or when the related loans mature. As of December 31, 2004, these buildings were 93.2% and 75.0% leased, respectively. The remaining $6.7 million in guarantees of debt of the Des Moines joint ventures relate to loans on four office buildings that were in the lease-up phase at the time the loans were initiated. Each of the loans will mature by May 2008. The average occupancy of the four buildings at December 31, 2004 was 94.0%. If the joint ventures are unable to repay the outstanding balances under the loans that we have guaranteed, we will be required, under the terms of the agreements, to repay the outstanding balances. Recourse provisions exist that enable us to recover some or all of such payments from the joint ventures assets and/or the other partners. The joint ventures currently generate sufficient cash flow to cover the debt service required by the loans. As a result, no liability has been recorded on our balance sheet.
In connection with the RRHWoods, LLC joint venture, we renewed our guarantee of $6.2 million to a bank in July 2003; this guarantee expires in August 2006 and may be renewed by us. The bank provides a letter of credit securing industrial revenue bonds, which mature in 2015. We would be required to perform under the guarantee should the joint venture be unable to repay the bonds. We have recourse provisions in order to recover from the joint ventures assets and the other partner for amounts paid in excess of our proportionate share. The property collateralizing the bonds is 100.0% leased and currently generates sufficient cash flow to cover the debt service required by the bond financing. As a result, no liability has been recorded in our balance sheet.
On December 9, 2004, the Plaza Colonnade, LLC joint venture refinanced its construction loan with a $50.0 million non-recourse permanent loan, thereby releasing us from our former guarantees of a construction loan agreement and a construction completion agreement, which arose from the formation of the joint venture to construct an office building. The $50.0 million mortgage bears a fixed interest rate of 5.72%, requires monthly principal and interest payments and matures on January 31, 2017. We and our joint venture partner have signed a contingent master lease limited to 30,772 square feet for five years. Our maximum exposure under this master lease is $2.1 million. However, the current occupancy level of the building is sufficient to cover all debt service requirements. The likelihood of us paying on the master lease is remote.
On March 30, 2004, the Industrial Development Authority of the City of Kansas City, Missouri issued $18.5 million in non-recourse bonds to finance public improvements made by the Plaza Colonnade, LLC joint venture for the benefit of the Kansas City Missouri Public Library. Since the joint venture leases the land for the office building from the library, the joint venture was obligated to build certain public improvements. The net bond proceeds were $18.1 million and will be used for project and debt service costs. The joint venture has recorded this obligation on its balance sheet. The bonds are ultimately paid by the tax increment financing revenue generated by the building and its tenants.
In the Highwoods DLF 97/26 DLF 99/32, LP joint venture, a single tenant currently leases an entire building under a lease scheduled to expire on June 30, 2008. The tenant also leases space in other buildings owned by us. In conjunction with an overall restructuring of the tenants leases with us and with this joint venture, we agreed to certain changes to the lease with the joint venture in September 2003. The modifications included allowing the tenant to vacate the premises on January 1, 2006, and reducing the rent obligation by 50.0% and converting the net lease to a full service lease with the tenant liable for 50.0% of these costs at that time. In turn, we agreed to compensate the joint venture for any economic losses incurred as a result of these lease modifications. Based on the lease guarantee agreement, in September 2003, we recorded $0.9 million in other liabilities and $0.9 million as a deferred charge in other assets on our Consolidated Balance Sheet. However, should new tenants occupy the vacated space during the two and a half year guarantee period, our liability under the guarantee would diminish. Our maximum potential amount of future payments with regard to this guarantee was $1.1 million as of December 31, 2004. No recourse provisions exist to enable us to recover any amounts paid to the joint venture under this lease guarantee arrangement.
On December 29, 2003, we contributed three in-service office properties encompassing 290,853 rentable square feet at an agreed upon value of $35.6 million to the existing Highwoods-Markel, LLC joint venture. The joint ventures other partner, Markel Corporation, contributed an additional $3.6 million in cash to maintain its 50.0% ownership interest and the joint venture borrowed and refinanced $40.0 million from a third party lender. We retained our 50.0% ownership interest in the joint venture and received net cash proceeds of $31.9 million. We are the manager and leasing agent for the properties and receive customary management fees and leasing commissions.
41
In July 2003, we entered into an option agreement with our partner, Miller Global, to acquire its 50.0% interest in the assets of MG-HIW Metrowest I, LLC and MG-HIW Metrowest II, LLC for $3.2 million. We had previously guaranteed $3.7 million (50.0%) of the $7.4 million construction loan to fund the development of this property, of which $7.3 million was outstanding at December 31, 2003. On March 2, 2004, we exercised our option and acquired our partners 50.0% equity interest in the assets of MG-HIW Metrowest I, LLC and MG-HIW Metrowest II, LLC for $3.2 million. The assets in MG-HIW Metrowest I, LLC and MG-HIW Metrowest II, LLC include 87,832 square feet of property and 7.0 acres of development land zoned for the development of 90,000 square feet of office space. The $7.4 million construction loan to fund the development of this property was paid in full by us at closing.
On February 25, 2004, we and Kapital-Consult, a European investment firm, formed Highwoods KC Glenridge, LP, which on February 26, 2004 acquired from a third party Glenridge Point Office Park, consisting of two office buildings aggregating 185,100 square feet located in the Central Perimeter sub-market of Atlanta. At December 31, 2004, the buildings were 89.8% occupied. We contributed $10.0 million to the joint venture in return for a 40.0% equity interest and Kapital-Consult contributed $14.9 million for a 60.0% equity interest in the partnership. The joint venture entered into a $16.5 million ten-year secured loan on the assets. We are the manager and leasing agent for this property and receive customary management fees and leasing commissions. The acquisition also included 2.9 acres of development land.
RRHWOODS, LLC and Dallas County Partners each developed a new office building in Des Moines, Iowa. On June 25, 2004, the joint ventures financed both buildings with a $7.4 million ten-year loan from a lender. As an inducement to make the loan at a 6.3% long-term rate, we and our partner agreed to master lease the vacant space and each guaranteed $0.8 million of the debt with limited recourse. As leasing improves, the guarantee obligations under the loan agreement diminish. As of December 2004, we expensed our share of the master lease payments totaling $0.2 million and recorded $0.6 million in other liabilities and $0.6 million as a deferred charge included in other assets on our Consolidated Balance Sheet with respect to this guarantee. The maximum potential amount of future payments that we could be required to make based on the current leases in place is approximately $3.6 million as of December 31, 2004. The likelihood of us paying on our $0.8 million guarantee is believed to be remote since the master lease payments enable the joint ventures to satisfy the minimum debt coverage ratio and should we be required to pay our portion of the guarantee, we would recover the $0.8 million from other joint venture assets.
On June 28, 2004, Kapital-Consult, a European investment firm, bought an interest in HIW-KC Orlando, LLC, an entity formed by us. HIW-KC Orlando, LLC owns five in-service office properties, encompassing 1.3 million rentable square feet, located in the central business district of Orlando, Florida which were valued under the joint venture agreement at $212.0 million, including amounts related to our guarantees described below, and which were subject to a $136.2 million secured mortgage loan. Our partner contributed $42.1 million in cash and received a 60.0% equity interest in the entity. The joint venture borrowed $143.0 million under a ten-year fixed rate mortgage loan from a third party lender and repaid the original $136.2 million loan. We retained a 40.0% equity interest in the joint venture and received net cash proceeds of $46.6 million, of which $33.0 million was used to pay down our Revolving Loan and $13.6 million was used to pay down additional debt. In connection with this transaction, we agreed to guarantee rent to the joint venture for 3,248 rentable square feet commencing in August 2004 and expiring in April 2011. In connection with this guarantee, as of June 30, 2004, we included $0.6 million in other liabilities and reduced the total amount of gain to be recognized by the same amount. Additionally, we agreed to guarantee re-tenanting costs for approximately 11% of the joint ventures total square footage. We recorded a $4.1 million contingent liability with respect to such guarantee as of June 30, 2004 and reduced the total amount of gain to be recognized by the same amount. During 2004, we paid $2.4 million in re-tenanting costs related to this guarantee. We believe our estimate related to the re-tenanting costs guarantee is accurate. However, if our assumptions prove to be incorrect, future losses may occur. The contribution was accounted for as a partial sale as defined by SFAS No. 66 and we recognized a $15.9 million gain in June 2004. Since we have an ongoing 40.0% financial interest in the joint venture and since we are engaged by the joint venture to provide management and leasing services for the joint venture, for which we receive customary management fees and leasing commissions, the operations of these properties were not reflected as discontinued operations consistent with SFAS No. 144 and the related gain on sale was included in continuing operations in the second quarter of 2004.
On September 27, 2004, we and an affiliate of Crosland, Inc. formed Weston Lakeside, LLC, in which we have a 50.0% ownership interest. On June 29, 2005, we contributed 22.4 acres of land at an agreed upon value of $3.9 million to this joint venture, and our partner contributed approximately $2.0 million in cash; immediately thereafter, the joint venture distributed approximately $1.9 million to us. Crosland, Inc. will develop, manage and operate this joint venture, which will construct approximately 332 rental residential units at a total estimated cost of
42
approximately $32.0 million expected to be completed by the second quarter of 2007. Crosland, Inc. will receive 3.5% of gross revenue of the joint venture in management fees and 4.25% in development fees. The joint venture expects to finance the development with a $28.4 million construction loan that will be guaranteed by Crosland, Inc. We will provide limited development services for the project and will receive a fee equal to 1.0% of the development costs excluding land. We will account for this joint venture using the equity method of accounting.
On December 22, 2004, we and Easlan Investment Group, Inc. formed The Vinings at University Center, LLC. We contributed 7.8 acres of land at an agreed upon value of $1.6 million to the joint venture in December 2004 in return for a 50.0% equity interest and Easlan Investment Group contributed $1.1 million in the form of a non-interest bearing promissory note for a 50.0% equity interest in the entity. Upon formation, the joint venture entered into a $9.7 million secured construction loan to complete the construction of 156 apartment units on the 7.8 acres of land, which is expected to be completed by the fourth quarter of 2005; $392,000 was borrowed on the construction loan at December 31, 2004. Our joint venture partner has guaranteed this construction loan. The Easlan Investment Group, Inc. will be the manager and leasing agent for these apartment units and receive customary management fees and leasing commissions. We will receive development fees throughout the construction project and management fees of 1.0% of gross revenues at the time the apartments are 80.0% occupied. We are currently consolidating this joint venture under the provisions of FIN 46. As such, our balance sheet at December 31, 2004 includes $1.8 million of development in process and a $0.4 million construction note payable.
Financing and Profit-Sharing Arrangements
The following summarizes sale transactions that were or continue to be accounted for as financing and/or profit-sharing arrangements under paragraphs 25 through 29 of SFAS No. 66.
- SF-HIW Harborview, LP
On September 11, 2002, we contributed Harborview Plaza, an office building located in Tampa, Florida, to SF-HIW Harborview Plaza, LP (Harborview LP), a newly formed entity, in exchange for a 20.0% limited partnership interest and $35.4 million in cash. The other partner contributed $12.6 million of cash and a new loan was obtained by the partnership for $22.8 million. In connection with this disposition, we entered into a master lease agreement with Harborview LP for five years on the then vacant space in the building (approximately 20% of the building); occupancy was 99.7% at December 31, 2004. We also guaranteed to Harborview LP the payment of tenant improvements and lease commissions of $1.2 million. Our maximum exposure to loss under the master lease agreement was $2.1 million at September 11, 2002 and was $1.1 million at December 31, 2004. Additionally, our partner in Harborview LP was granted the right to put its 80.0% equity interest in Harborview LP to us in exchange for cash at any time during the one-year period commencing on September 11, 2014. The value of the 80.0% equity interest will be determined at the time that such partner elects to exercise its put right, if ever, based upon the then fair market value of Harborview LPs assets and liabilities, less 3.0%, which amount was intended to cover the normal costs of a sale transaction.
Because of the put option and the master lease agreement, this transaction is accounted for as a financing transaction, as described in Note 1 to the Consolidated Financial Statements. Accordingly, the assets, liabilities and operations related to Harborview Plaza, the property owned by Harborview LP, including any new financing by the partnership, remain on our books. As a result, we have established a financing obligation equal to the net equity contributed by the other partner. At the end of each reporting period, the balance of the financing obligation is adjusted to equal the current fair value, which is $14.8 million at December 31, 2004, but not less than the original financing obligation. This adjustment is amortized prospectively through September 2014. Additionally, the net income from the operations before depreciation of Harborview Plaza allocable to the 80.0% partner is recorded as interest expense on financing obligation. We continue to depreciate the property and record all of the depreciation on our books. Any payments made under the master lease agreement were expensed as incurred ($0.1 million, $0.4 million and $0.3 million was expensed during the years ended December 31, 2004, 2003 and 2002, respectively) and any amounts paid under the tenant improvement and lease commission guarantee are capitalized and amortized to expense over the remaining lease term. At such time as the put option expires or is otherwise terminated, we will record the transaction as a sale and recognize gain on sale.
- Eastshore
On November 26, 2002, we sold three buildings located in Richmond, Virginia (the Eastshore transaction) for a total price of $28.5 million in cash, which was paid in full by the buyer at closing. Each of the sold properties is a single tenant building leased on a triple-net basis to Capital One Services, Inc., a subsidiary of Capital One Financial Services, Inc.
43
In connection with the sale, we entered into a rental guarantee agreement for each building for the benefit of the buyer to guarantee any shortfalls that may be incurred in the payment of rent and re-tenanting costs for a five-year period from the date of sale (through November 2007). Our maximum exposure to loss under the rental guarantee agreements was $18.7 million at the date of sale and was $12.4 million as of December 31, 2004. No payments were made during 2003 or 2002 in respect of these rent guarantees. However, in June 2004, we began to make monthly payments to the buyer, at an annual rate of $0.1 million, as a result of the existing tenant renewing a lease in one building at a lower rental rate.
These rent guarantees are a form of continuing involvement as discussed in paragraph 28 of SFAS No. 66. Because the guarantees cover the entire space occupied by a single tenant under a triple-net lease arrangement, our guarantees are considered a guaranteed return on the buyers investment for an extended period of time. Therefore, the transaction has been accounted for as a financing transaction following the accounting method described in Note 1 to the Consolidated Financial Statements. Accordingly, the assets, liabilities and operations are included in the Consolidated Financial Statements, and a financing obligation of $28.8 million was recorded which represents the amount received from the buyer, adjusted for subsequent activity. The income from the operations of the properties, other than depreciation, is allocated 100.0% to the owner as interest expense on a financing obligation. Payments made under the rent guarantees are charged to expense as incurred. This transaction was recorded as a completed sale transaction in the third quarter of 2005 when the maximum exposure to loss under the guarantees became less than the related gain; deferred gain will be recognized in future periods as the maximum exposure under the guarantees is reduced.
- MG-HIW, LLC
On December 19, 2000, we formed a joint venture with Miller Global, MG-HIW, LLC, pursuant to which we sold or contributed to MG-HIW, LLC 19 in-service office properties in Raleigh, Atlanta, Tampa (the Non-Orlando City Group) and Orlando (collectively the City Groups), at an agreed upon value of $335.0 million. As part of the formation of MG-HIW, LLC, Miller Global contributed $85.0 million in cash for an 80.0% ownership interest and the joint venture borrowed $238.8 million from a third-party lender. We retained a 20.0% ownership interest and received net cash proceeds of $307.0 million. During 2001, we contributed a 39,000 square foot development project to MG-HIW, LLC in exchange for $5.1 million. The joint venture borrowed an additional $3.7 million under its existing debt agreement with a third party and we retained our 20.0% ownership interest and received net cash proceeds of $4.8 million. The assets of each of the City Groups were legally acquired by four separate LLCs of which MG-HIW, LLC was the sole member.
The Non-Orlando City Group consisted of 15 properties encompassing 1.3 million square feet and were located in Atlanta, Raleigh and Tampa. Based on the nature and extent of certain rental guarantees made by us with respect to these properties, the transaction did not qualify for sale treatment under SFAS No. 66. The transaction was accounted for as a profit-sharing arrangement, and accordingly, the assets, liabilities and operations of the properties remained on our books and a co-venture obligation was established for the amount of equity contributed by Miller Global related to the Non-Orlando City Group properties. The income from operations of the properties, excluding depreciation, was allocated 80.0% to Miller Global and reported as co-venture expense in our Consolidated Financial Statements. We continue to depreciate the properties and record all of the depreciation on our books. In addition to the co-venture expense, we recorded expense of $1.3 million and $0.7 million related to payments made under the rental guarantees for the years ended December 31, 2003 and 2002, respectively. No payments were made under the rental guarantees for the year ended December 31, 2004.
On July 29, 2003, we acquired our partners 80.0% equity interest in the Non-Orlando City Group. We paid Miller Global $28.1 million in cash, repaid $41.4 million of debt related to the properties and assumed $64.7 million of debt. We recognized a $16.3 million gain on the settlement of the $43.5 million co-venture obligation recorded on our books.
With respect to the Orlando City Group, which consists of five properties encompassing 1.3 million square feet located in the central business district of Orlando, we assumed obligations to make improvements to the assets as well as master lease obligations and guarantees on certain vacant space. Additionally, we guaranteed a leveraged internal rate of return (IRR) of 20.0% on Miller Globals equity. The contribution of these Orlando properties was
44
accounted for as a financing arrangement under SFAS No. 66. Consequently, the assets, liabilities and operations related to the properties remained on our books and a financing obligation was established for the amount of equity contributed by Miller Global related to the Orlando City Group. The income from operations of the properties, excluding depreciation, was allocated 80.0% to Miller Global and reported as interest on financing obligation in our Consolidated Financial Statements. This financing obligation was also adjusted each period by accreting the obligation up to the 20.0% guaranteed internal rate of return by a charge to interest expense, such that the financing obligation equaled at the end of each period the amount due to Miller Global including the 20.0% guaranteed return. We recorded interest expense on the financing obligation of $3.2 million, $11.6 million and $10.1 million, which includes amounts related to this IRR guarantee and payments made under the rental guarantees, for the years ended 2004, 2003 and 2002, respectively. We continued to depreciate the Orlando properties and record all of the depreciation on our books until June 2004 when the assets were contributed to a 40% owned joint venture, HIW-KC Orlando, LLC.
On July 29, 2003, we also entered into an option agreement to acquire Miller Globals 80.0% interest in the Orlando City Group. On March 2, 2004, we exercised our option and acquired our partners 80.0% equity interest in the Orlando City Group. The properties were 86.8% leased as of December 31, 2004 and encumbered by $136.2 million of floating rate debt with interest based on LIBOR plus 200 basis points. At the closing of the transaction, we paid our partner, Miller Global, $62.5 million and a $7.5 million letter of credit delivered to the seller in connection with the original execution of the option agreement was cancelled. Since the initial contribution of these assets was accounted for as a financing arrangement and since the financing obligation was adjusted each period for the IRR guarantee, no gain or loss was recognized upon the extinguishment of the financing obligation. As previously described, we sold a 60.0% interest in these assets in June 2004.
Interest Rate Hedging Activities
To meet in part our long-term liquidity requirements, we borrow funds at a combination of fixed and variable rates. Borrowings under our Revolving Loan and bank term loans bear interest at variable rates. Our long-term debt, which consists of secured and unsecured long-term financings and the unsecured issuance of debt securities, typically bears interest at fixed rates although some loans bear interest at variable rates. In addition, we have assumed fixed rate and variable rate debt in connection with acquiring properties. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, from time to time we may enter into interest rate hedge contracts such as collars, swaps, caps and treasury lock agreements in order to mitigate our interest rate risk with respect to various debt instruments. We do not hold or issue these derivative contracts for trading or speculative purposes.
The following table sets forth information regarding our interest rate hedge contract as of December 31, 2004 ($ in thousands):
Type of Hedge |
Notional Amount |
Maturity Date |
Reference Rate
|
Fixed Rate |
Fair Market Value |
||||||||
Interest Rate Swap |
$ | 20,000 | 6/1/2005 | 1 month USD-LIBOR-BBA | 1.590 | % | $ | 101 |
The interest rate on all of our variable rate debt is adjusted at one and three month intervals, subject to settlements under these interest rate hedge contracts. We also enter into treasury lock agreements from time to time in order to limit our exposure to an increase in interest rates with respect to future debt offerings. During 2004, only a nominal amount was received from counter parties under interest rate hedge contracts. The interest rate swap that matured on June 1, 2005 was not renewed or extended. We currently have no outstanding interest rate hedge contracts.
As further described below under - Related Party Transactions, the Company had an embedded derivative as part of the land purchase arrangement with GAPI, Inc.
Related Party Transactions
We have previously reported that we have had a contract to acquire development land in the Bluegrass Valley office development project from GAPI, Inc., a corporation controlled by Gene H. Anderson, an executive officer and director of the Company. Under the terms of the contract, the development land is to be purchased in phases, and the purchase price for each phase or parcel is settled for in cash and/or Common Units. The price for the various parcels
45
is based on an initial value for each parcel, adjusted for an interest factor, currently 6.88% per annum, applied up to the closing date and also for changes in the value of the Common Units. On January 17, 2003, we acquired an additional 23.5 acres of this land from GAPI, Inc. for 85,520 shares of Common Stock and $384,000 in cash for total consideration of $2.3 million. In May 2003, 4.0 acres of the remaining acres not yet acquired by us was taken by the Georgia Department of Transportation to develop a roadway interchange for consideration of $1.8 million. The Department of Transportation took possession and title of the property in June 2003. As part of the terms of the contract between us and GAPI, Inc., we were entitled to and received in 2003 the $1.8 million proceeds from the condemnation. In July 2003, we appealed the condemnation and are currently seeking additional payment from the state; the recognition of any gain has been deferred pending resolution of the appeal process. In April 2005, we acquired for cash an additional 12.1 acres of the Bluegrass Valley land from GAPI, Inc. and also settled for cash the final purchase price with GAPI, Inc. on the 4.0 acres that were taken by the Georgia Department of Transportation, which aggregated approximately $2.7 million, of which $0.7 million was recorded as a payable to GAPI, Inc. on the Companys financial statements as of December 31, 2004. In August 2005, we acquired 12.7 acres, representing the last parcel of land to be acquired, for cash aggregating $3.2 million. We believe that the purchase price with respect to each land parcel was at or below market value. These transactions were unanimously approved by the full Board of Directors with Mr. Anderson abstaining from the vote. The contract provided that the land parcels could be paid in Common Units or in cash, at the option of the seller. This feature constituted an embedded derivative pursuant to SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. The embedded derivative feature is accounted for separately and adjusted based on changes in the fair value of the Common Units. This resulted in an increase to other income of $1.3 million in 2002, and a decrease to other income of $0.7 and $0.4 million in 2003 and 2004, respectively. In 2005, an additional $0.2 million expense was recorded related to the embedded derivative, which expired upon the closing of the final land transaction in August 2005.
We entered into a series of agreements in January and February 2005, pursuant to which we, through a third party broker, sold on February 28, 2005 and April 15, 2005, three non-core industrial buildings in Winston-Salem, North Carolina to John L. Turner, a director of the Company, and certain of his affiliates in exchange for a gross sales price of approximately $27.0 million, of which $20.3 million was paid in cash and the remainder from the surrender of 256,508 Common Units in the Operating Partnership. We recorded a gain of approximately $4.8 million upon the closing of these sales. We believe that the purchase price paid for these assets by Mr. Turner and his affiliates was equal to their fair market value. The sales were unanimously approved by the full Board of Directors with Mr. Turner not being present to discuss or vote on the matter.
C RITICAL A CCOUNTING E STIMATES
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the reporting period. Actual results could differ from our estimates.
The policies and estimates used in the preparation of our Consolidated Financial Statements are described in Note 1 to our Consolidated Financial Statements for the year ended December 31, 2004. However, certain of our significant accounting policies contain an increased level of assumptions used or estimates made in determining their impact on our Consolidated Financial Statements. Management has reviewed our critical accounting policies and estimates with the audit committee of the Companys Board of Directors and the Companys independent auditors.
We consider our critical accounting estimates to be those used in the determination of the reported amounts and disclosure related to the following:
| Real estate and related assets; |
| Sales of real estate; |
| Allowance for doubtful accounts; and |
| Property operating expense recoveries. |
46
Real Estate and Related Assets
Real estate and related assets are recorded at cost and stated at cost less accumulated depreciation. Renovations, replacements and other expenditures that improve or extend the life of an asset are capitalized and depreciated over their estimated useful lives. Expenditures for ordinary maintenance and repairs are charged to operating expense as incurred. Depreciation is computed using the straight-line method over the estimated useful life of 40 years for buildings and depreciable land infrastructure costs, 15 years for building improvements and five to seven years for furniture, fixtures and equipment. Tenant improvements are amortized over the life of the respective leases using the straight-line method.
Expenditures directly related to the development and construction of real estate assets are included in net real estate assets and are stated at cost in the Consolidated Balance Sheets. Our capitalization policy on development properties is in accordance with SFAS No. 67, Accounting for Costs and the Initial Rental Operations of Real Estate Properties, SFAS No. 34, Capitalization of Interest Costs, and SFAS No. 58, Capitalization of Interest Cost in Financial Statements That Include Investments Accounted for by the Equity Method. Development expenditures include pre-construction costs essential to the development of properties, development and construction costs, interest costs, real estate taxes, salaries and related costs and other costs incurred during the period of development. Interest and other carrying costs are capitalized until the building is ready for its intended use. We consider a construction project as substantially completed and held available for occupancy upon the completion of tenant improvements, but no later than one year from cessation of major construction activity. We cease capitalization on the portion substantially completed and occupied or held available for occupancy, and capitalize only those costs associated with the portion under construction.
Expenditures directly related to the leasing of properties are included in deferred leasing costs and are stated at cost in the Consolidated Balance Sheets. We capitalize initial direct costs related to our leasing efforts in accordance with SFAS No. 91, Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases. All leasing commissions paid to third parties for new leases or lease renewals are capitalized. Internal leasing costs include primarily compensation, benefits and other costs such as legal fees related to leasing activities that are incurred in connection with successfully securing leases on the properties. Capitalized leasing costs are amortized on a straight-line basis over the estimated lives of the respective leases. Estimated costs related to unsuccessful activities are expensed as incurred. If our assumptions regarding the successful efforts of leasing are incorrect, the resulting adjustments could impact earnings.
Upon the acquisition of real estate, we assess the fair value of acquired tangible assets such as land, buildings and tenant improvements, intangible assets such as above and below market leases, acquired-in place leases and other identified intangible assets and assumed liabilities in accordance with SFAS No. 141, Business Combinations. We allocate the purchase price to the acquired assets and assumed liabilities based on their relative fair values. We assess and consider fair value based on estimated cash flow projections that utilize appropriate discount and/or capitalization rates as well as available market information. The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant.
Above and below market leases acquired are recorded at their fair value. Fair value is calculated as the present value of the difference between (1) the contractual amounts to be paid pursuant to each in-place lease and (2) managements estimate of fair market lease rates for each corresponding in-place lease, using a discount rate that reflects the risks associated with the leases acquired and measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed rate renewal options for below-market leases. The capitalized above-market lease values are amortized as a reduction of base rental revenue over the remaining term of the respective leases and the capitalized below-market lease values are amortized as an increase to base rental revenue over the remaining term of the respective leases and any below market option periods. If a tenant vacates its space prior to its contractual expiration date, any unamortized balance is adjusted through rental revenue.
The value of in-place leases is based on our evaluation of the specific characteristics of each tenants lease. Factors considered include estimates of carrying costs during hypothetical expected lease-up periods, current market conditions and costs to execute similar leases. In estimating carrying costs, we include real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods, depending on local market conditions. In estimating costs to execute similar leases, we consider tenant
47
improvements, leasing commissions and legal and other related expenses. The value of in-place leases is amortized to depreciation and amortization expense over the remaining term of the respective leases. If a tenant vacates its space prior to its contractual expiration date, any unamortized balance of its related intangible asset is expensed.
The value of a tenant relationship is based on our overall relationship with the respective tenant. Factors considered include the tenants credit quality and expectations of lease renewals. The value of a tenant relationship is amortized to expense over the initial term and any renewal periods defined in the respective leases. Based on our acquisitions since the adoption of SFAS No. 141 and SFAS No. 142, we have deemed tenant relationships to be immaterial and have not allocated any amounts to this intangible asset.
Real estate and leasehold improvements are classified as long-lived assets held for sale or as long-lived assets to be held for use. Real estate is classified as held for sale when the criteria set forth in SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, are satisfied; this determination requires management to make estimates and assumptions, including assessing the probability that potential sales transactions may or may not occur. Actual results could differ from those assumptions. In accordance with SFAS No. 144, we record assets held for sale at the lower of the carrying amount or estimated fair value. Fair value of assets held for sale is equal to the estimated or contracted sales price with a potential buyer less costs to sell. The impairment loss is the amount by which the carrying amount exceeds the estimated fair value. With respect to assets classified as held for use, if events or changes in circumstances, such as a significant decline in occupancy and change in use, indicate that the carrying value may be impaired, an impairment analysis is performed. Such analysis consists of determining whether the assets carrying amount will be recovered from its undiscounted estimated future operating cash flows. These cash flows are estimated based on a number of assumptions that are subject to economic and market uncertainties including, among others, demand for space, competition for tenants, changes in market rental rates and costs to operate each property. If the carrying amount of a held for use asset exceeds the sum of its undiscounted future operating and residual cash flows, an impairment loss is recorded for the difference between estimated fair value of the asset and the net carrying amount. We generally estimate the fair value of assets held for use by using discounted cash flow analysis; in some instances, appraisal information may be available and is used in addition to the discounted cash flow analysis. As the factors used in generating these cash flows are difficult to predict and are subject to future events that may alter our assumptions, the discounted and/or undiscounted future operating and residual cash flows estimated by us in our impairment analyses or those established by appraisal may not be achieved and we may be required to recognize future impairment losses on our properties held for sale and held for use.
Sales of Real Estate
We account for sales of real estate in accordance with SFAS No. 66. For sales transactions meeting the requirements of SFAS No. 66 for full profit recognition, the related assets and liabilities are removed from the balance sheet and the resultant gain or loss is recorded in the period the transaction closes. For sales transactions that do not meet the criteria for full profit recognition, we account for the transactions in accordance with the methods specified in SFAS No. 66. For sales transactions with continuing involvement after the sale, if the continuing involvement with the property is limited by the terms of the sales contract, profit is recognized at the time of sale and is reduced by the maximum exposure to loss related to the nature of the continuing involvement. Sales to entities in which we have an interest are accounted for in accordance with partial sale accounting provisions as set forth in SFAS No. 66.
For sales transactions that do not meet sale criteria as set forth in SFAS No. 66, we evaluate the nature of the continuing involvement, including put and call provisions, if present, and account for the transaction as a financing arrangement, profit-sharing arrangement or other alternate method of accounting rather than as a sale, based on the nature and extent of the continuing involvement. Some transactions may have numerous forms of continuing involvement. In those cases, we determine which method is most appropriate based on the substance of the transaction.
If we have an obligation to repurchase the property at a higher price or at a future indeterminable value (such as fair market value), or we guarantee the return of the buyers investment or a return on that investment for an extended period, we account for such transaction as a financing transaction. If we have an option to repurchase the property at a higher price and it is likely we will exercise this option, the transaction is accounted for as a financing transaction. For transactions treated as financings, we record the amounts received from the buyer as a financing obligation and continue to keep the property and related accounts recorded on our books. The results of operations
48
of the property, net of expenses other than depreciation (net operating income), will be reflected as interest expense on the financing obligation. If the transaction includes an obligation or option to repurchase the asset at a higher price, additional interest is recorded to accrete the liability to the repurchase price. For options or obligations to repurchase the asset at fair market value at the end of each reporting period, the balance of the liability is adjusted to equal the current fair value to the extent fair value exceeds the original financing obligation. The corresponding debit or credit will be recorded to a related discount account and the revised debt discount is amortized over the expected term until termination of the option or obligation. If it is unlikely such option will be exercised, the transaction is accounted for under the deposit method or profit-sharing method. If we have an obligation or option to repurchase at a lower price, the transaction is accounted for as a leasing arrangement. At such time as these repurchase obligations expire, a sale will be recorded and gain recognized.
If we retain an interest in the buyer and provide certain rent guarantees or other forms of support where the maximum exposure to loss exceeds the gain, we account for such transaction as a profit-sharing arrangement. For transactions treated as profit-sharing arrangements, we record a profit-sharing obligation for the amount of equity contributed by the other partner and continue to keep the property and related accounts recorded on our books. The results of operations of the property, net of expenses other than depreciation (net operating income), will be allocated to the other partner for their percentage interest and reflected as co-venture expense in our Consolidated Financial Statements. In future periods, a sale is recorded and profit is recognized when the remaining maximum exposure to loss is reduced below the amount of gain deferred.
Allowance for Doubtful Accounts
Accounts receivable are reduced by an allowance for amounts that may become uncollectible in the future. Our receivable balance is comprised primarily of rents and operating cost recoveries due from tenants as well as accrued straight-line rents receivable. We regularly evaluate the adequacy of our allowance for doubtful accounts. The evaluation primarily consists of reviewing past due account balances and considering such factors as the credit quality of our tenant, historical trends of the tenant and/or other debtor, current economic conditions and changes in customer payment terms. Additionally, with respect to tenants in bankruptcy, we estimate the expected recovery through bankruptcy claims and increase the allowance for amounts deemed uncollectible. If our assumptions regarding the collectibility of accounts receivable prove incorrect, we could experience write-offs of accounts receivable or accrued straight-line rents receivable in excess of our allowance for doubtful accounts.
Property Operating Expense Recoveries
Property operating cost recoveries from tenants (or cost reimbursements) are determined on a lease-by-lease basis. The most common types of cost reimbursements in our leases are common area maintenance (CAM) and real estate taxes, where the tenant pays a share of operating and administrative expenses and real estate taxes, as determined in each lease.
The computation of cost reimbursements from tenants for CAM and real estate taxes is complex and involves numerous judgments, including the interpretation of terms and other tenant lease provisions. Leases are not uniform in dealing with such cost reimbursements and there are many variations in the computations. Many tenants make monthly fixed payments of CAM, real estate taxes and other cost reimbursement items. We record these payments as income each month. We also make adjustments, positive or negative, to cost recovery income to adjust the recorded amounts to our best estimate of the final amounts to be billed and collected with respect to the cost reimbursements. After the end of the calendar year, we compute each tenants final cost reimbursements and, after considering amounts paid by the tenant during the year, issue a bill or credit for the appropriate amount to the tenant. The differences between the amounts billed less previously received payments and the accrual adjustment are recorded as increases or decreases to cost recovery income when the final bills are prepared, usually beginning in March and completed by mid-year. The net amounts of any such adjustments have not been material in the years presented.
F UNDS F ROM O PERATIONS
We believe that FFO and FFO per share are beneficial to management and investors and are important indicators of the performance of any equity REIT. Because FFO and FFO per share calculations exclude such factors as depreciation and amortization of real estate assets and gains or losses from sales of operating real estate assets (which can vary among owners of identical assets in similar conditions based on historical cost
49
accounting and useful life estimates), they facilitate comparisons of operating performance between periods and between other REITs. Our management believes that historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. As a result, management believes that the use of FFO and FFO per share, together with the required GAAP presentations, provide a more complete understanding of the Companys performance relative to its competitors and a more informed and appropriate basis on which to make decisions involving operating, financing and investing activities.
FFO and FFO per share as disclosed by other REITs may not be comparable to our calculation of FFO and FFO per share as described below. However, you should be aware that FFO and FFO per share are non-GAAP financial measures and therefore do not represent net income or net income per share as defined by GAAP. Net income and net income per share as defined by GAAP are the most relevant measures in determining our operating performance because FFO and FFO per share include adjustments that investors may deem subjective, such as adding back expenses such as depreciation and amortization. Furthermore, FFO per share does not depict the amount that accrues directly to the stockholders benefit. Accordingly, FFO and FFO per share should never be considered as alternatives to net income or net income per share as indicators of our operating performance.
Our calculation of FFO, which we believe is consistent with the calculation of FFO as defined by the National Association of Real Estate Investment Trusts (NAREIT) and which appropriately excludes the cost of capital improvements and related capitalized interest, is as follows:
| Net income (loss) computed in accordance with GAAP; |
| Less dividends to holders of Preferred Stock; |
| Plus depreciation and amortization of assets uniquely significant to the real estate industry; |
| Less gains, or plus losses, from sales of depreciable operating properties (but excluding impairment losses) and items that are classified as extraordinary items under GAAP; |
| Plus minority interest; |
| Plus or minus adjustments for unconsolidated partnerships and joint ventures (to reflect funds from operations on the same basis); and |
| Plus or minus adjustments for depreciation and amortization and gains/(losses) on sales and minority interest related to discontinued operations. |
Other REITs may not define FFO in accordance with the current NAREIT definition or may interpret the current NAREIT definition differently than we do.
50
FFO and FFO per share for the years ended December 31, 2004, 2003 and 2002 are summarized in the following table ($ in thousands, except per share amounts):
2004
|
2003
|
2002
|
||||||||||||||||||||||
(restated) | (restated) | |||||||||||||||||||||||
Amount
|
Per Share Diluted |
Amount
|
Per Share Diluted |
Amount
|
Per Share Diluted |
|||||||||||||||||||
Funds from operations: |
||||||||||||||||||||||||
Net income |
$ | 41,577 | $ | 42,649 | $ | 80,052 | ||||||||||||||||||
Dividends to preferred shareholders |
(30,852 | ) | (30,852 | ) | (30,852 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
||||||||||||||||
Net income applicable to common shareholders |
10,725 | $ | 0.20 | 11,797 | $ | 0.22 | 49,200 | $ | 0.93 | |||||||||||||||
Add/(Deduct): |
||||||||||||||||||||||||
Depreciation and amortization of real estate assets |
129,538 | 2.16 | 136,231 | 2.28 | 133,732 | 2.20 | ||||||||||||||||||
(Gain) on disposition of depreciable real estate assets |
(18,880 | ) | (0.31 | ) | (8,572 | ) | (0.14 | ) | (15,180 | ) | (0.25 | ) | ||||||||||||
Minority interest from the Operating Partnership in income from operations |
849 | | 3 | | 3,794 | | ||||||||||||||||||
Unconsolidated affiliates: |
||||||||||||||||||||||||
Depreciation and amortization of real estate assets |
9,044 | 0.15 | 7,469 | 0.12 | 7,778 | 0.13 | ||||||||||||||||||
Discontinued operations: |
||||||||||||||||||||||||
Depreciation and amortization of real estate assets |
1,768 | 0.03 | 4,317 | 0.07 | 9,053 | 0.15 | ||||||||||||||||||
(Gain) on sale |
(9,380 | ) | (0.16 | ) | (10,874 | ) | (0.18 | ) | (17,191 | ) | (0.28 | ) | ||||||||||||
Minority interest from the Operating Partnership in income from discontinued operations |
496 | | 1,347 | | 3,119 | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Funds from operations |
$ | 124,160 | $ | 2.07 | $ | 141,718 | $ | 2.37 | $ | 174,305 | $ | 2.88 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Dividend payout data: |
||||||||||||||||||||||||
Dividends paid per common share/common unit |
$ | 1.70 | $ | 1.86 | $ | 2.34 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
||||||||||||||||
As a % of funds from operations |
82.1 | % | 78.5 | % | 81.3 | % | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
||||||||||||||||
Weighted average shares outstanding - diluted |
60,024 | 59,911 | 60,562 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
51
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The effects of potential changes in interest rates are discussed below. Our market risk discussion includes forward-looking statements and represents an estimate of possible changes in fair value or future earnings that would occur assuming hypothetical future movements in interest rates. These disclosures are not precise indicators of expected future effects, but only indicators of reasonably possible effects. As a result, actual future results may differ materially from those presented. See Managements Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources and the Notes to Consolidated Financial Statements for a description of our accounting policies and other information related to these financial instruments.
To meet in part our long-term liquidity requirements, we borrow funds at a combination of fixed and variable rates. Borrowings under our Revolving Loan and bank term loans bear interest at variable rates. Our long-term debt, which consists of secured and unsecured long-term financings and the issuance of unsecured debt securities, typically bears interest at fixed rates although some loans bear interest at variable rates. In addition, we have assumed fixed rate and variable rate debt in connection with acquiring properties. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, from time to time we enter into interest rate hedge contracts such as collars, swaps, caps and treasury lock agreements in order to mitigate our interest rate risk with respect to various debt instruments. We do not hold or issue these derivative contracts for trading or speculative purposes.
As of December 31, 2004, we had $1,216 million of fixed rate debt outstanding. The estimated aggregate fair value of this debt at December 31, 2004 was $1,313 million. If interest rates increase by 100 basis points, the aggregate fair market value of our fixed rate debt as of December 31, 2004 would decrease by approximately $59.7 million. If interest rates decrease by 100 basis points, the aggregate fair market value of our fixed rate debt as of December 31, 2004 would increase by approximately $64.7 million.
As of December 31, 2004, we had $356.6 million of variable rate debt outstanding. Of that amount, $336.6 million was not protected by interest rate hedge contracts. If the weighted average interest rate on this variable rate debt is 100 basis points higher or lower, our annual interest expense would be decreased or increased $3.4 million.
For a discussion of our interest rate hedge contract in effect at December 31, 2004, see Managements Discussion and Analysis of Financial Conditions and Results of Operations Liquidity and Capital Resources Interest Rate Hedging Activities. If interest rates increase by 100 basis points, the aggregate fair market value of this interest rate hedge contract as of December 31, 2004 would have increased by $0.06 million. If interest rates decrease by 100 basis points, the aggregate fair market value of this interest rate hedge contract as of December 31, 2004 would have decreased by $0.07 million. This interest rate hedge contract matured on June 1, 2005 and was not renewed or extended. We currently have no outstanding interest rate hedge contracts.
At December 31, 2004, we had an embedded derivative as part of a land purchase arrangements, as described under ITEM 7. MANAGEMENTS DICUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources Related Party Transactions. In 2005, a loss of $0.2 million was recorded on this embedded derivative which expired in August 2005 upon closing of the final land parcel under the arrangement.
In addition, we are exposed to certain losses in the event of nonperformance by the counter parties under any outstanding hedge contracts. We expect the counter parties, which are major financial institutions, to perform fully under any such contracts. However, if any of the counter parties was to default on its obligation under an interest rate hedge contract, we could be required to pay the full rates on our debt, even if such rates were in excess of the rate in the contract.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See page F-1 of the financial report included herein.
52
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
G ENERAL
The purpose of this section is to discuss the effectiveness of our disclosure controls and procedures and our internal control over financial reporting. The statements in this section represent the conclusions of Edward J. Fritsch, who became our CEO on July 1, 2004, and Terry L. Stevens, who became our CFO on December 1, 2003.
The CEO and CFO evaluations of our disclosure controls and procedures and our internal control over financial reporting include a review of the controls objectives and design, the controls implementation by us and the effect of the controls on the information generated for use in this Annual Report. We seek to identify data errors, control problems or acts of fraud and confirm that appropriate corrective action, including process improvements, is undertaken. Our disclosure controls and procedures and our internal control over financial reporting are also evaluated on an ongoing basis by or through the following:
| activities undertaken and reports issued by employees in our internal audit department; |
| managements evaluation of the results of audits provided by our independent auditors in connection with their audit activities; |
| other personnel in our finance and accounting organization; |
| members of our internal disclosure committee; and |
| members of the audit committee of our Board of Directors. |
Our management, including our CEO and CFO, do not expect that our disclosure controls and procedures and internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
M ANAGEMENT S A NNUAL R EPORT ON I NTERNAL C ONTROL O VER F INANCIAL R EPORTING
Our management is required to establish and maintain internal control over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. As defined in Rule 13a-15(f) under the Exchange Act, internal control over financial reporting includes those policies and procedures that:
| pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of assets; |
| provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of management and directors; and |
53
| provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. |
Under the supervision of our CEO and CFO, our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2004 based on the criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
A material weakness is a control deficiency, or a combination of control deficiencies, that results in there being more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. As part of our work to assess the effectiveness of internal control over financial reporting, we have identified the following three material weaknesses at December 31, 2004:
| Capitalization of interest and carrying costs during lease-up and internal leasing, development and construction costs . A material weakness existed in our accounting processes for capitalizing interest and carrying costs during lease-up and internal leasing, development and construction costs, including: (a) ineffective and inadequate policies and procedures to ensure compliance with GAAP; (b) ineffective procedures to properly identify and classify eligible costs on which to record the capitalization of interest and carrying costs during the lease-up phase of newly constructed buildings; and (c) ineffective procedures to determine the amount and recoverability of capitalized internal leasing, development and construction costs. This material weakness resulted in adjustments which primarily affected capitalized interest and other costs, depreciation expense and gains from sales of real estate assets, as more fully described in Notes 19 and 20 to the Consolidated Financial Statements. |
| Fixed asset and lease incentive accounting . A material weakness existed in our fixed asset and lease incentive accounting processes, including: (a) ineffective and inadequate policies and procedures to ensure compliance with GAAP; (b) inadequate controls to ensure the timely start of depreciation on certain tenant and building improvements; (c) inadequate controls to properly identify, classify and record lease incentives; (d) ineffective fixed asset account reconciliations; (e) ineffective controls to ensure proper allocation of costs to land parcels; (f) ineffective controls to ensure proper classification and depreciation of depreciable infrastructure costs; (g) ineffective controls to ensure proper depreciation of newly constructed buildings during the lease-up phase; (h) inadequate controls to ensure proper allocation of purchase price in real estate acquisitions; and (i) ineffective and inadequate procedures to assess and quantify impairment of fixed assets. This material weakness resulted in adjustments which primarily affected interest expense, depreciation expense, gains on sale of real estate assets, and other income, as more fully described in Notes 19 and 20 to the Consolidated Financial Statements. |
| Financial statement close process . A material weakness existed in our financial statement close process related to our use of and dependence upon manually prepared spreadsheets in accumulating and consolidating the restatement adjustments recorded in connection with our amended 2003 Annual Report and those restatement adjustments as more fully described in Notes 19 and 20 to the Consolidated Financial Statements included in this Annual Report that have an ongoing effect on our historical financial statements. This material weakness did not result in any required adjustments to the Consolidated Financial Statements. |
The first two material weaknesses described above also affected the accounts of all joint ventures for which we are primarily responsible for the preparation of financial statements, which in turn affected the equity in earnings of unconsolidated affiliates in our Consolidated Financial Statements.
The first two material weaknesses resulted in adjustments to restate our financial statements for the years ended December 31, 2003 and 2002 and the first three quarters of 2004 as more fully described in Notes 19 and 20 to the Consolidated Financial Statements. Adjustments were also recorded in the fourth quarter of 2004.
As a result of the identified material weaknesses, our management has concluded that, as of December 31, 2004, our internal control over financial reporting was not effective. Ernst & Young LLP, our independent registered public accounting firm, has issued their attestation report, which is included below, on managements assessment of our internal control over financial reporting and the effectiveness of internal control over financial reporting as of December 31, 2004.
54
R EPORT OF I NDEPENDENT R EGISTERED P UBLIC A CCOUNTING F IRM ON I NTERNAL C ONTROL OVER F INANCIAL R EPORTING
The Board of Directors and Stockholders of
Highwoods Properties, Inc.
We have audited managements assessment, included in the accompanying Managements Annual Report on Internal Control over Financial Reporting, that Highwoods Properties, Inc. did not maintain effective internal control over financial reporting as of December 31, 2004, because of the effect of material weaknesses identified in managements assessment relating to the capitalization of interest and carrying costs during lease-up and internal leasing, development and construction costs, fixed asset and lease incentive accounting and the financial statement close process, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Highwoods Properties, Inc.s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on managements assessment and an opinion on the effectiveness of the companys internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating managements assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that the receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The following material weaknesses have been identified and included in managements assessment:
| Capitalization of interest and carrying costs during lease-up and internal leasing, development and construction costs . A material weakness existed in the Companys accounting processes for capitalizing interest and carrying costs during lease-up and internal leasing, development and construction costs, including: (a) ineffective and inadequate policies and procedures to ensure compliance with GAAP; (b) ineffective procedures to properly identify and classify eligible costs on which to record the capitalization of interest and carrying costs during the lease-up phase of newly constructed buildings; and (c) ineffective procedures to determine the amount and recoverability of capitalized internal leasing, development and construction costs. This material weakness resulted in adjustments which primarily affected capitalized interest and other costs, depreciation expense and gains from sales of real estate assets, as more fully described in Notes 19 and 20 to the Consolidated Financial Statements. |
55
| Fixed asset and lease incentive accounting . A material weakness existed in the Companys fixed asset and lease incentive accounting processes, including: (a) ineffective and inadequate policies and procedures to ensure compliance with GAAP; (b) inadequate controls to ensure the timely start of depreciation on certain tenant and building improvements; (c) inadequate controls to properly identify, classify and record lease incentives; (d) ineffective fixed asset account reconciliations; (e) ineffective controls to ensure proper allocation of costs to land parcels; (f) ineffective controls to ensure proper classification and depreciation of depreciable infrastructure costs; (g) ineffective controls to ensure proper depreciation of newly constructed buildings during the lease-up phase; (h) inadequate controls to ensure proper allocation of purchase price in real estate acquisitions; and (i) ineffective and inadequate procedures to assess and quantify impairment of fixed assets. This material weakness resulted in adjustments which primarily affected interest expense, depreciation expense, gains on sale of real estate assets, and other income, as more fully described in Notes 19 and 20 to the Consolidated Financial Statements. |
| Financial statement close process . A material weakness existed in the Companys financial statement close process related to the use of and dependence upon manually prepared spreadsheets in accumulating and consolidating the restatement adjustments as recorded in connection with the Companys amended 2003 Annual Report and those restatement adjustments more fully described in Notes 19 and 20 to the Consolidated Financial Statements included in this Annual Report that have an ongoing effect on the Companys historical financial statements. This material weakness did not result in any required adjustments to the Consolidated Financial Statements. |
The first two material weaknesses described above also affected the accounts of all joint ventures for which the Company is primarily responsible for the preparation of financial statements, which in turn affected the equity in earnings of unconsolidated affiliates in the Companys Consolidated Financial Statements.
The first two material weaknesses resulted in the Company recording adjustments to restate its financial statements for the years ended December 31, 2003 and 2002 and the first three quarters of 2004 as more fully described in Notes 19 and 20 to the Consolidated Financial Statements. Adjustments were also recorded in the fourth quarter of 2004.
These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2004 financial statements, and this report does not affect our report dated December 16, 2005 on those financial statements.
In our opinion, managements assessment that Highwoods Properties, Inc. did not maintain effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on the COSO control criteria. Also, in our opinion, because of the effect of the material weaknesses described above on the achievement of the objectives of the control criteria, Highwoods Properties, Inc. has not maintained effective internal control over financial reporting as of December 31, 2004, based on the COSO control criteria.
/s/ Ernst & Young LLP
Raleigh, North Carolina
December 16, 2005
56
Changes in Internal Control Over Financial Reporting. In our amended 2003 Annual Report, we reported that Ernst & Young LLP had advised our audit committee on October 26, 2004 that they identified the following material weaknesses during their audits of the restated financial statements for 2003, 2002 and 2001: inadequate procedures for appropriately assessing and applying accounting principles to complex transactions; lack of adequate finance and accounting staff to appropriately identify and evaluate accounting for transactions; inadequate procedures to ensure critical information regarding a transaction is known by the persons accounting for such transaction; and lack of application of GAAP to transactions due to perceived immateriality of transactions. As a result of the actions described below, the material weaknesses relating to inadequate procedures to ensure critical information regarding a transaction is known by the persons accounting for such transaction and the lack of application of GAAP to transactions due to perceived immateriality of transactions were each deemed to be remediated and no longer existing as of December 31, 2004. The material weakness relating to a lack of adequate finance and accounting staff to appropriately identify and evaluate accounting for transactions was deemed to have been sufficiently remediated such that it no longer constituted a material weakness as of December 31, 2004. Finally, the material weakness relating to not having adequate procedures for appropriately assessing and applying GAAP to complex transactions was deemed to have been remediated. However, the results of our assessment as of December 31, 2004 indicated that we had ineffective and inadequate procedures relative to fixed asset and lease incentive accounting, the capitalization of interest and carrying costs during lease-up and internal leasing, development and construction costs, and the financial statement close process, as described above in Managements Annual Report in Internal Control Over Financial Reporting.
Since late 2002, we have added several experienced staff to our Finance and Accounting Departments. These included an Assistant Controller (new position), a Director of Financial Standards and Compliance (new position), a Senior Director of Investor Relations (replacement) and a new Chief Financial Officer (replacement, as the former CFO assumed a new position within the Company). During 2003 and 2004 (including during the fourth quarter of 2004), we improved our internal control over financial reporting by, among other things (i) expanding supervisory activities and monitoring techniques, (ii) increasing and improving the education of personnel on our accounting staff and in our various divisional operating offices, including issue-specific informal mentoring and on-the-job training, (iii) strengthening our procedures designed to ensure that information relating to transactions directly or indirectly involving the Company and its subsidiaries is made known to persons responsible for preparing our financial statements, including implementing a policy to make frequent inquiries of our personnel, requiring all divisional vice presidents, other executive officers and certain members of our accounting staff to execute sub-certifications about the accuracy of the financial records and internal controls and enhancing and formalizing the functioning of our disclosure committee meetings, which include members of senior management and accounting staff, and (iv) preparing and implementing revised checklists to ensure appropriate assessment and application of GAAP to all transactions, particularly complex transactions, such as sales of real estate with continuing involvement that are governed by SFAS No. 66.
Our management is working closely with the audit committee to monitor the ongoing remediation of the material weaknesses in our internal control over financial reporting that existed as of December 31, 2004.
In 2005, we have undertaken the following additional improvements to our internal control over financial reporting. First, we have developed and implemented or are developing remediation plans for the specific material weaknesses described above and for other control deficiencies that were identified but not considered to be material weaknesses. Second, we have begun the process of developing and implementing a Company-wide policy and procedures manual for use by our divisional and accounting staff, intended to ensure consistent and appropriate assessment and application of GAAP. The first phase of this process has focused on the preparation of formal written policies and procedures with respect to accounting for fixed assets and leasing costs. We engaged Grant Thornton LLP this year to assist us with the first phase of this process to develop and implement such policies and procedures. Third, we plan to provide training for our accounting staff and employees in our various divisional operating offices to educate our personnel with respect to the accounting adjustments that have been made to our historical financial statements in this Annual Report and in our amended 2003 Annual Report and to the material weaknesses and other control deficiencies in our internal control over financial reporting that existed as of December 31, 2004. Fourth, we have formed a permanent committee to monitor and oversee the ongoing remediation of all deficiencies identified from time to time in our annual assessment of our internal control over financial reporting. This committee consists of our CFO, COO, corporate controller and representatives from appropriate business functions within the Company. Fifth, we are in the process of hiring a Chief Accounting Officer (new position).
57
We believe that the actions taken in 2005, as described above, have resulted in significant improvements to our internal control over financial reporting. However, the time and staff resources involved to complete the restatement of the financial statements for 2002, 2003 and first three quarters of 2004 and to complete this Annual Report have limited our time and ability to remediate all control deficiencies that existed at December 31, 2004. Accordingly, although we have not yet completed our assessment, we expect that one or more of the material weaknesses identified as of December 31, 2004 will not have been sufficiently remediated as of December 31, 2005. Therefore, we currently expect to report in our 2005 Annual Report on Form 10-K that our internal control over financial reporting was not effective as of December 31, 2005.
D ISCLOSURE C ONTROLS A ND P ROCEDURES
SEC rules also require us to maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our annual and periodic reports filed with the SEC is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms. As defined in Rule 13a-15(e) under the Exchange Act, disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us is accumulated and communicated to our management, including our CEO and CFO, to allow timely decisions regarding required disclosure. Based solely on the material weaknesses described above in Managements Annual Report on Internal Control Over Financial Reporting, our CEO and CFO do not believe that our disclosure controls and procedures were effective
ITEM 9B. OTHER INFORMATION
New York Stock Exchange rules require that listed companies hold an annual meeting with respect to each fiscal year. We have requested that the Exchange grant us an extension to hold our 2005 annual meeting simultaneously with our 2006 annual meeting. We expect that our next annual meeting will be held during May 2006, although the exact date will be determined by the Board of Directors in the future. To be considered for inclusion in the proxy material for our next annual meeting, the compensation and governance committee has determined that proposals of stockholders to be presented at our next annual meeting must be received by our secretary prior to January 16, 2006. Our bylaws have been amended effective as of the date of this filing to provide that, if a stockholder wishes to present a proposal at the next annual meeting, whether or not the proposal is intended to be included in the proxy material, such stockholder must give advance written notice to our secretary not less than 60 nor more than 90 days prior to May 16, 2006. If a stockholder is permitted to present a proposal at our next annual meeting but the proposal was not included in the proxy material, we believe that our proxy holder would have the discretionary authority granted by the proxy card (and as permitted under SEC rules) to vote on the proposal if the proposal was received after February 14, 2006, which is 45 calendar days prior to the anniversary of the mailing of the 2004 proxy statement.
58
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information regarding our executive officers, see ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT. Our Board of Directors currently consists of the following 13 members:
Thomas W. Adler , 65, has been a director since June 1994. Mr. Adler is chairman of PSF Management Co. in Cleveland, Ohio. Mr. Adler formerly served on the board of directors of the National Association of Realtors and the boards of governors of the American Society of Real Estate Counselors and the National Association of Real Estate Investment Trusts and is a past national president of the Society of Industrial and Office Realtors. Mr. Adler is currently active in the Urban Land Institute. Mr. Adler was re-elected by our stockholders in 2002 for a three-year term.
Gene H. Anderson , 60, has been a director and senior vice president since our combination with Anderson Properties, Inc. in February 1997. Mr. Anderson manages our Atlanta regional operations. Mr. Anderson served as president of Anderson Properties, Inc. from 1978 to February 1997. Mr. Anderson was past president of the Georgia chapter of the National Association of Industrial and Office Properties and is a national board member of the National Association of Industrial and Office Properties. Mr. Anderson was re-elected by our stockholders in 2003 for a three-year term.
Kay N. Callison , 62, has been a director since our merger with J.C. Nichols Company in July 1998. Ms. Callison had served as a director of J.C. Nichols Company since 1982. Ms. Callison is active in charitable activities in the Kansas City metropolitan area. Ms. Callison was re-elected by our stockholders in 2002 for a three-year term.
Edward J. Fritsch , 46, has been a director since January 2001. Mr. Fritsch became our chief executive officer on July 1, 2004 and our president in December 2003. Prior to that, Mr. Fritsch was our chief operating officer from January 1998 to July 2004 and was a vice president and secretary from June 1994 to January 1998. Mr. Fritsch joined our predecessor in 1982 and was a partner of that entity at the time of our initial public offering in June 1994. Mr. Fritsch serves on the University of North Carolinas Board of Visitors, the Board of Trustees of St. Timothys Episcopal School and the Board of Directors of the Triangle Chapter of the YMCA. Mr. Fritsch was re-elected by our stockholders in 2004 for a three-year term.
Ronald P. Gibson , 61, has been a director since March 1994. Mr. Gibson was our chief executive officer from March 1994 until his retirement in June 2004. Mr. Gibson also served as our president from March 1994 until December 2003. Mr. Gibson was a founder of our predecessor and served as its managing partner following its formation in 1978. Mr. Gibson is a director of Capital Associated Industries. Mr. Gibson was re-elected by our stockholders in 2003 for a three-year term.
William E. Graham, Jr. , 75, has been a director since June 1994. Mr. Graham is a lawyer in private practice with the firm of Hunton & Williams. Before joining Hunton & Williams on January 1, 1994, Mr. Graham was vice chairman of Carolina Power & Light Company and had previously served as its general counsel. Mr. Graham is a former member of the board of directors of Carolina Power & Light Company and former chairman of the Raleigh board of directors of Bank of America Corporation. Mr. Graham served on the board of trustees of BB&T Mutual Funds Group until December 31, 2003. Mr. Graham was re-elected by our stockholders in 2004 for a one-year term.
Lawrence S. Kaplan , 63, has been a director since November 2000. Mr. Kaplan is a certified public accountant and retired in 2000 as a partner from Ernst & Young LLP where he was the national director of that firms REIT Advisory Services group. Mr. Kaplan has served on the board of governors of the National Association of Real Estate Investment Trusts and has been actively involved in REIT legislative and regulatory matters for over 20 years. Mr. Kaplan is a director of Endeavor Real Estate Securities, a private REIT, Maguire Properties, Inc., a publicly traded office REIT based in California, and Feldman Mall Properties, Inc., a publicly traded mall REIT based in Arizona. Mr. Kaplan was re-elected by our stockholders in 2004 for a three-year term.
Sherry A. Kellett, 61, has been a director since November 2005. Ms. Kellett is a certified public accountant. Ms. Kellett served as senior executive vice president and controller of BB&T Corporation from 1995 until her retirement
59
on August 1, 2003. Ms. Kellett had served as corporate controller of Southern National Corporation from 1991 until 1995 when it merged with BB&T Corporation. Ms. Kellett previously served in several positions at Arthur Andersen & Co. Ms. Kellett is a director of MidCountry Financial Corp., a private financial services holding company based in Macon, GA. Ms. Kellett is a board member of the North Carolina School of the Arts Foundation and has also served on the boards of the Piedmont Kiwanis Club, Senior Services Inc., The Winston-Salem Foundation, the Piedmont Club and the N.C. Center for Character Education. Ms. Kellett was elected by our Board of Directors in November 2005 to fill a vacancy created by an increase in the number of independent directors on the Board. Under Maryland law, a director elected by the board of directors to fill a vacancy serves until the next annual meeting of stockholders and until his or her successor is elected and qualifies.
L. Glenn Orr, Jr. , 65, has been a director since February 1995. Mr. Orr has been president and chief executive officer of The Orr Group since 1995. Mr. Orr was chairman of the board of directors, president and chief executive officer of Southern National Corporation from 1990 until its merger with BB&T Corporation in 1995. Mr. Orr previously served as president and chief executive officer of Forsyth Bank and Trust Co., president of Community Bank in Greenville, S.C. and president of the North Carolina Bankers Association. Mr. Orr is a member of the boards of directors of Medical Properties Trust, Inc., The International Group, Inc., Village Tavern, Inc. and Broyhill Management Fund, and he is a trustee of Wake Forest University. Mr. Orr was re-elected by our stockholders in 2004 for a three-year term.
O. Temple Sloan, Jr. , 66, is chairman of the Board of Directors, a position he has held since March 1994. Mr. Sloan was a founder of our predecessor. He is chairman and chief executive officer of The International Group, Inc., a distributor of automotive replacement parts. Mr. Sloan is a director of Bank of America Corporation and Lowes Companies, Inc. Mr. Sloan was re-elected by our stockholders in 2003 for a three-year term.
Willard H. Smith Jr. , 69, has been a director since April 1996. Mr. Smith previously served as a managing director of Merrill Lynch from 1983 to 1995. Mr. Smith is a member of the boards of directors of the Cohen & Steers Family of Funds, Essex Property Trust, Inc., Realty Income Corporation and Crest Net Lease, Inc. Mr. Smith was re-elected by our stockholders in 2002 for a three-year term.
John L. Turner , 59, has been a director since February 1995. Mr. Turner served as vice chairman of the Board of Directors from our merger with Forsyth Partners in February 1995 until the end of 2003, and served as our chief investment officer from February 1995 to December 2001. Mr. Turner co-founded the predecessor of Forsyth Partners in 1975 and served as the chairman of its board of directors and chief executive officer prior to joining us. Mr. Turner is the managing member of Gateway Holdings LLC. Mr. Turner was re-elected by our stockholders in 2002 for a three-year term.
F. William Vandiver, Jr. , 63, has been a director since July 2002. Mr. Vandiver served as corporate risk management executive at Bank of America from 1998 until his retirement in 2002. Mr. Vandiver serves as trustee of the Presbyterian Hospital Foundation and is vice chairman of the Queens University of Charlotte board of trustees. He formerly served on the board of directors of the United Way of Central Carolinas, Inc. and the Clemson University Foundation. Mr. Vandiver was re-elected by our stockholders in 2003 for a three-year term.
Independent Directors
At least a majority of our directors and all of the members of the audit committee and the compensation and governance committee must meet the test of independence as defined by the New York Stock Exchange. The New York Stock Exchange standards provide that to qualify as an independent director, in addition to satisfying certain bright-line criteria, the Board of Directors must affirmatively determine that a director has no material relationship with us (either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company). The Board of Directors has determined that any relationship or arrangement between us and one or more affiliates of a director that does not require disclosure pursuant to Item 404 of SEC Regulation S-K does not, by itself, preclude a determination of independence (except with respect to members of the audit committee). The Board of Directors has determined that each of Messrs. Adler, Graham, Kaplan, Orr, Sloan, Smith and Vandiver and Ms. Callison and Ms. Kellett satisfies the bright-line criteria and that none has a relationship with us that would interfere with such persons ability to exercise independent judgment as a member of the Board. Therefore, we believe that each of such directors is independent under the New York Stock Exchange rules.
60
Committees of the Board of Directors
Audit Commitee. From January 1, 2004 until October 31, 2005, the audit committee consisted of Messrs. Kaplan, Smith and Vandiver and Ms. Callison. Ms. Kellett joined the audit committee on November 1, 2005 after becoming a director. Mr. Kaplan serves as chairman of the audit committee.
The audit committee approves the engagement of independent public accountants, reviews with the independent public accountants the plans and results of the audit engagement, approves professional services provided by the independent public accountants, reviews the independence of the independent public accountants, approves audit and non-audit fees and reviews the adequacy of our internal accounting controls.
The Board of Directors has made the following determinations about the composition of the current and contemplated members of the audit committee:
| Messrs. Kaplan, Smith and Vandiver and Ms. Callison and Ms. Kellett are each independent under the rules and regulations of the New York Stock Exchange. |
| Each member is financially literate. |
| At least two members, Mr. Kaplan and Ms. Kellett, both of whom are certified public accountants, are financial experts. |
| No member has accepted any consulting, advisory or other compensatory fee from us other than as set forth below under Compensation of Directors. |
During 2004, the audit committee held five in-person meetings and 10 conference calls.
The audit committee has adopted a process for stockholders to send communications to the audit committee with concerns or complaints concerning our regulatory compliance, accounting, audit or internal controls issues. Written communications may be addressed to the Chairman of the Audit Committee, Highwoods Properties, Inc., 3100 Smoketree Court, Suite 600, Raleigh, North Carolina 27604. To view an online version of the audit committees charter, please visit the Investor Relations/Governance Documents section of our website at www.highwoods.com . This information is also available in print to any stockholder who requests it by writing Investor Relations, Highwoods Properties, Inc., 3100 Smoketree Court, Suite 600, Raleigh, North Carolina 27604.
Compensation and Governance Committee . Since January 1, 2004, our compensation and governance committee has consisted of Messrs. Graham, Orr and Sloan. Mr. Orr serves as chairman of the compensation and governance committee. The Board of Directors has determined that each of the current and former members of the compensation and governance committee is independent under the rules and regulations of the New York Stock Exchange.
The compensation and governance committee determines compensation for our executive officers and implements our long-term incentive plans, including the Amended and Restated 1994 Stock Option Plan (the Stock Option Plan). The committee also makes recommendations concerning board member qualification standards, director nominees, board responsibilities and compensation, board access to management and independent advisors and management succession. On an annual basis, the compensation and governance committee assesses the appropriate skills and characteristics of existing and new board members. This assessment includes consideration as to the members independence, diversity, age, skills and experience in the context of the needs of the Board. The same criteria are used by the compensation and governance committee in evaluating nominees for directorship.
During 2004, the compensation and governance committee held four in-person meetings and two conference calls.
In making any nominee recommendations to the Board, the compensation and governance committee will typically consider persons recommended by stockholders so long as the recommendation is submitted to the committee prior to the date which is 120 days before the anniversary of the mailing of the prior years proxy statement. However, since our next annual meeting will be held more than 30 days after the anniversary of our last annual meeting on May 18, 2004, the deadline for the submission by stockholders of nominee recommendations for
61
the annual meeting expected to be held in May 2006 is January 16, 2006. Any such nominations, together with appropriate biographical information, should be submitted to the Chairman of the Compensation and Governance Committee, Highwoods Properties, Inc., 3100 Smoketree Court, Suite 600, Raleigh, North Carolina 27604. However, the compensation and governance committee may, in its sole discretion, reject any such recommendation for any reason.
The compensation and governance committees charter is available on our website for review at www.highwoods.com in the Investor Relations/Governance Documents section. This information is also available in print to any stockholder who requests it by writing Investor Relations, Highwoods Properties, Inc., 3100 Smoketree Court, Suite 600, Raleigh, North Carolina 27604.
Investment Committee . Since January 1, 2004, our investment committee has consisted of Messrs. Adler, Anderson, Fritsch, Gibson, Sloan and Turner. The investment committee oversees the acquisition, new development, redevelopment and asset disposition process. The investment committee generally meets on call to review new opportunities and to make recommendations to the Board of Directors concerning such opportunities.
Executive Committee . Since January 1, 2004, our executive committee has consisted of Messrs. Adler, Orr, Sloan and Vandiver. In addition, our Chief Executive Officer serves as an ex-officio member of the committee. The executive committee meets on call by the Chairman of the Board of Directors and may exercise all of the powers of the Board of Directors, subject to the limitations imposed by applicable law, the bylaws or the Board of Directors. Our corporate governance guidelines require each of the members of the executive committee (other than the Chief Executive Officer) to be independent under the rules and regulations of the New York Stock Exchange. During 2004, the executive committee held four in-person meetings and ten conference calls.
Meetings of the Board of Directors; Independent Director Executive Sessions
The Board of Directors held five in-person meetings and five conference calls in 2004. At each in-person meeting of the Board of Directors, our independent directors meet in executive session without the presence of any current or former members of management. The Chairman of the Board of Directors (or, in the Chairmans absence, another independent director designated by the Chairman) has been appointed to preside over such executive sessions. Each of the directors attended at least 75% of the aggregate of the total number of meetings of the Board of Directors and the total number of meetings of all committees of the Board of Directors on which the director served. The Board of Directors encourages its members to attend each annual meeting of stockholders. Three members of the Board of Directors attended our last annual meeting.
Corporate Governance Matters
The Board of Directors, in its role as primary governing body, provides oversight of our affairs and strives to improve and build on the Companys strong corporate governance practices. To this end, we have adopted corporate governance guidelines and a code of business conduct and ethics applicable to directors, officers and employees. We have also adopted a separate code of ethics for our chief executive officer and our senior financial officers. This information is available in print to any stockholder who requests it by writing Investor Relations, Highwoods Properties, Inc., 3100 Smoketree Court, Suite 600, Raleigh, North Carolina 27604. We intend to satisfy the disclosure requirement under Item 5.05 (formerly Item 10) of Form 8-K regarding any amendment to, or any waiver from, a provision of these Codes of Ethics by posting such information on our website as identified below. Our website includes our Codes of Ethics, our committee charters and our corporate governance guidelines. The Board of Directors has also established a process for interested parties, including stockholders, to communicate directly with the independent directors. Written communications may be addressed to the Chairman of the Board of Directors, Highwoods Properties, Inc., 3100 Smoketree Court, Suite 600, Raleigh, North Carolina 27604. All of the foregoing information is also available by visiting the Investor Relations/ Governance Documents section of our website at www.highwoods.com .
During 2004, we filed unqualified Section 303A certifications with the New York Stock Exchange. We have also filed the CEO and CFO certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 as exhibits to this Annual Report.
62
Section 16(a) Beneficial Ownership Reporting Compliance
Each director and executive officer is required to file with the SEC, by a specified date, reports regarding his or her transactions involving Common Stock. To our knowledge, based solely on the information furnished to us and written representations that no other reports were required, all such filing requirements were complied with during 2004, except that: Messrs. Cutlip and Reames were each late in reporting his initial beneficial ownership of our securities upon becoming a section 16 reporting officer; Messrs. Anderson and Harris each reported two Common Stock dispositions late; Messrs. Beale, Cutlip, Fritsch, Gibson and Pridgen each reported one Common Stock disposition late; and Mr. Turner reported one phantom stock disposition late.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation of each person who served as our Chief Executive Officer and our four other most highly compensated executive officers (the Named Executive Officers) for the
Summary Compensation Table
Annual Compensation
|
Long-Term Compensation
|
||||||||||||||||||
Name and Principal Position |
Year
|
Salary
|
Bonus (1)
|
Other Annual Compensation (2) |
Restricted Stock Awards (3) |
Securities Underlying Options (4) |
All Other Compensation (5) |
||||||||||||
Edward J. Fritsch
|
2004
2003 2002 |
$
$ $ |
380,085
325,219 316,796 |
$
$ $ |
302,104
171,885 148,236 |
$
$ $ |
475
5,048 |
$
$ $ |
485,831
235,732 223,211 |
171,775
112,198 84,989 |
$
$ $ |
20,624
20,399 8,250 |
|||||||
Ronald P. Gibson
|
2004
2003 2002 |
$
$ $ |
206,406
400,808 390,404 |
$
$ $ |
240,083 207,042 |
$
$ $ |
19,495
36,687 24,706 |
$
$ $ |
716,222
476,129 464,340 |
222,076
226,621 171,656 |
$
$ $ |
2,353,181
25,654 8,250 |
|||||||
Michael E. Harris
|
2004
2003 2002 |
$
$ $ |
280,385
223,492 217,677 |
$
$ $ |
201,491
102,375 87,944 |
$
$ $ |
83,540
3,736 3,244 |
$
$ $ |
202,349
90,007 87,750 |
77,369
42,837 32,444 |
$
$ $ |
9,225
9,000 8,250 |
|||||||
Terry L. Stevens
|
2004
2003 2002 |
$
$ $ |
240,000
18,462 |
$
$ $ |
158,550
9,988 |
$
$ $ |
56,729
2,006 |
$
$ $ |
134,411
|
51,396
|
$
$ $ |
9,225
|
|||||||
Mack D. Pridgen, III
|
2004
2003 2002 |
$
$ $ |
226,600
225,092 219,250 |
$
$ $ |
149,698
118,965 102,600 |
$
$ $ |
22,092
15,957 11,085 |
$
$ $ |
209,146
163,143 159,108 |
62,391
77,654 58,824 |
$
$ $ |
24,636
24,411 8,250 |
|||||||
Gene H. Anderson
|
2004
2003 2002 |
$
$ $ |
225,000
223,492 217,677 |
$
$ $ |
100,000
102,375 87,944 |
$
$ $ |
7,473
6,953 9,880 |
$
$ $ |
90,008
90,007 87,750 |
34,417
42,837 32,444 |
$
$ $ |
9,225
9,000 8,250 |
(1) | Includes amounts earned in the indicated period that were paid in the following year. |
(2) | We have established a deferred compensation plan pursuant to which executive officers can defer a portion of their salary and/or bonus that would otherwise be paid to the executive officer for investment in units of phantom stock or in various unrelated mutual funds, based on such officers election. At the end of each quarter, each executive officer who defers compensation into phantom stock that otherwise would have been paid in cash is credited with units of phantom stock at a 15% discount. Dividends on the phantom stock are assumed to be issued in additional phantom stock at a 15% discount. The amounts set forth above include the value attributable to the issuance of phantom stock at a 15% discount during the period in which the deferral election is made (regardless of when the salary and/or bonus had been earned) and the value attributable to the assumed issuance of additional phantom stock at a 15% discount upon the declaration of a dividend, but do not take into account fluctuations in the implied value of such phantom stock based on the trading of Common Stock thereafter. If any of these officers leaves our employ for any reason (other than death, disability, normal retirement or voluntary termination by us) within two years after the end of the year in which such officer has deferred compensation, at a minimum, the 15% discount and any deemed dividends are forfeited. For Mr. Harris, in addition to the value attributable to |
63
the issuance of phantom stock at a 15% discount, the amount set forth above in 2004 also includes $63,386 in relocation and travel costs related to moving to Raleigh in connection with becoming Executive Vice President and COO on July 1, 2004 and $16,873 of additional perquisites earned during 2004. For Mr. Stevens, the amount set forth above in 2004 includes $47,311 in relocation and travel costs related to moving to Raleigh in connection with becoming Vice President and CFO on December 1, 2003 and $9,417 of additional perquisites earned during 2004.
(3) | Represents the dollar value of restricted stock awards calculated by multiplying the closing market price of Common Stock on the date of grant by the number of shares of restricted stock awarded. This valuation does not take into account the diminution in value attributable to the restrictions applicable to the shares of restricted stock. The restricted stock awards vest 50% on the third anniversary and 50% on the fifth anniversary of the date of grant. The shares of restricted stock issued to Mr. Gibson during 2004 vested upon his retirement on June 30, 2004. Dividends are paid on all restricted stock awards at the same rate and on the same date as on shares of Common Stock. See Restricted Stock Holdings. |
(4) | Options are nonqualified stock options. Options have varying vesting schedules of no less than four year ratable vesting. Amounts shown include the number of options granted during the indicated period with respect to the prior years performance. |
(5) | Consists of amounts contributed by us under the Salary Deferral and Profit Sharing Plan and, if applicable, for term life insurance premiums. For Mr. Gibson, such amount during 2004 also includes the total cost recognized under GAAP for his retirement package. See Retirement of Former Chief Executive Officer. |
(6) | Mr. Gibson retired as our CEO on June 30, 2004. |
Restricted Stock Holdings
The total restricted stock holdings and their fair market value based on the per share closing price of $27.70 as of December 31, 2004 are set forth below. The values do not reflect diminution of value attributable to the restrictions applicable to the shares of restricted stock. All of the shares of restricted stock issued on or before December 31, 2004 vest 50% on the third anniversary and 50% on the fifth anniversary of the date of grant. Dividends are paid on all restricted stock, whether or not vested, at the same rate and on the same date as on shares of Common Stock. As part of his retirement package, all shares of Mr. Gibsons restricted stock vested on June 30, 2004 and, accordingly, are excluded from this table.
Name |
Total Shares of Restricted Stock |
Value at December 31, 2004 |
|||
Edward J. Fritsch |
50,182 | $ | 1,390,041 | ||
Michael E. Harris |
21,488 | $ | 595,218 | ||
Gene H. Anderson |
17,192 | $ | 476,218 | ||
Mack D. Pridgen, III |
31,677 | $ | 877,453 | ||
Terry L. Stevens |
5,140 | $ | 142,378 |
The following table sets forth information with respect to options granted in 2004 to the Named Executive Officers:
Option Grants in 2004
Name |
Number of Securities Underlying Options (1) |
Percent of Total Options Granted to Employees in 2004 |
Exercise Price Per Share |
Expiration Date |
Grant Date Present Value (2) |
||||||||
Edward J. Fritsch |
171,775 | 21 | % | $ | 26.15 | February 28, 2014 | $ | 267,969 | |||||
Ronald P. Gibson |
182,076 | 22 | % | $ | 26.15 | February 28, 2014 | $ | 284,039 | |||||
40,000 | 5 | % | $ | 22.44 | June 7, 2005 | $ | 38,400 | ||||||
Michael E. Harris |
77,369 | 9 | % | $ | 26.15 | February 28, 2014 | $ | 120,696 | |||||
Gene H. Anderson |
34,417 | 4 | % | $ | 26.15 | February 28, 2014 | $ | 53,691 | |||||
Mack D. Pridgen, III |
62,391 | 7 | % | $ | 26.15 | February 28, 2014 | $ | 97,330 | |||||
Terry L. Stevens |
51,396 | 6 | % | $ | 26.15 | February 28, 2014 | $ | 80,178 |
(1) | Options granted in 2004 were based on 2003 performance. Options granted in 2004 generally vest ratably over a four-year period. The 40,000 stock options granted to Mr. Gibson in 2004 with an expiration date of June 7, 2005 vested immediately. |
(2) | As permitted by SEC rules, we have elected to illustrate the present value of the stock options at the date of grant set forth in this table using the Black-Scholes option-pricing model. Our use of this model should not be construed as an endorsement of |
64
its accuracy at valuing options. All stock option models require a prediction about the future movement of the share price. Except for the 40,000 stock options granted to Mr. Gibson in 2004 with an expiration date of June 7, 2005, the following assumptions were made for purposes of calculating grant date present value: expected time of exercise of 10 years, volatility of 16.0%, risk-free interest of 4.0% and a dividend yield of 6.5%. For the 40,000 stock options granted to Mr. Gibson in 2004 with an expiration date of June 7, 2005, the following assumptions were made for purposes of calculating grant date present value: expected time of exercise of one year, volatility of 16.4%, risk-free interest of 2.0% and a dividend yield of 7.5%. The real value of the options in this table depends upon the actual performance of Common Stock during the applicable period the options are exercisable.
The following table sets forth information with respect to options held by the Named Executive Officers as of December 31, 2004:
2004 Year-End Option Values
Name |
Shares Acquired on Exercise |
Value Realized |
Number of Securities Underlying Options at 2004 Year End (1) |
Value of Unexercised In the Money Options at 2004 Year End (2) (3) |
|||||||||||
Exercisable
|
Unexercisable
|
Exercisable
|
Unexercisable
|
||||||||||||
Edward J. Fritsch |
| | 365,246 | 320,748 | $ | 2,071,701 | $ | 917,341 | |||||||
Ronald P. Gibson |
40,000 | $ | 62,768 | 1,055,500 | | $ | 4,518,907 | | |||||||
Michael E. Harris |
| | 159,958 | 134,242 | $ | 671,183 | $ | 368,500 | |||||||
Gene H. Anderson |
| | 79,755 | 91,290 | $ | 738,496 | $ | 301,924 | |||||||
Mack D. Pridgen, III |
| | 245,813 | 165,495 | $ | 1,526,511 | $ | 547,328 | |||||||
Terry L. Stevens |
| | | 51,396 | | $ | 79,664 |
(1) | Options include incentive stock options and nonqualified stock options. Unexercisable options have varying vesting schedules of no less than four year ratable vesting. |
(2) | Represents the difference between a closing price of $27.70 per share of Common Stock on December 31, 2004 and the options exercise prices as adjusted by any dividend equivalent right (DER) as described in Note (3) below. |
(3) | Certain nonqualified stock options granted to the Named Executive Officers in 1997 were accompanied by a DER pursuant to the 1997 Performance Award Plan. That plan provided that if the total return on a share of Common Stock exceeded certain thresholds during the five-year vesting period ending in 2002, the exercise price of such stock options with a DER would be reduced under a formula based on dividends and other distributions made with respect to such a share during the period beginning on the date of grant and ending upon exercise of such stock option. Based on the performance of the Common Stock during the five-year vesting period and the level of dividends paid on Common Stock through December 31, 2004, the exercise price per share of remaining options with a DER was reduced by $9.06 as of December 31, 2004. Effective as of December 4, 2004, the DER feature was fixed by agreement with the Named Executive Officers at an exercise price per share reduction of $9.06. As of December 31, 2004, an aggregate of 126,968 of these options held by the Named Executive Officers remain outstanding. |
Employment and Change-In-Control Contracts
We entered into a three-year employment contract with Mr. Harris on July 1, 2004. The contract is thereafter extended automatically for additional three-year periods unless we give notice to Mr. Harris during the 60-day period ending one year prior to expiration of the contract. Mr. Harris may terminate the contract at any time upon 30 days prior written notice to us. The contract provides for a minimum annual base salary at the rate of $305,000 for Mr. Harris, which may be increased by the Board of Directors. His contract includes provisions restricting him from competing with us during employment and, except in certain circumstances, for a one-year period after termination of employment. His employment contract provides for severance payments in the event of termination by us without cause or termination by Mr. Harris for good reason equal to his base salary then in effect for the greater of one year from the date of termination or the remaining term of the contract.
The Company has change in control contracts in effect with each of Messrs. Anderson, Fritsch, Harris, Pridgen and Stevens. The contracts generally provide that, if within 36 months from the date of a change in control (as defined below), the employment of the executive officer is terminated without cause, including a voluntary termination because such executive officers responsibilities are changed, salary is reduced or responsibilities are diminished or because of a voluntary termination for any reason in months 13, 14 or 15 following the change of control, such executive officer will be entitled to receive 2.99 times a base amount. An executives base amount for these purposes is equal to 12 times the highest monthly salary paid to the executive during the 12-month period ending prior to the change of control plus the greater of (1) the average annual bonus for the preceding three years or
65
(2) the last annual bonus paid or payable to the executive. Additionally, the Stock Option Plan and the 1999 Shareholder Value Plan provide for the immediate vesting of all options and benefits upon a change of control. Certain of the executives also receive a lump sum cash payment equal to a stated multiple of the value of all of the executives unexercised stock options. The multiple is three times for Mr. Fritsch, two times for Mr. Harris and one time for Messrs. Anderson and Pridgen. The contracts for each of the Named Executive Officers have varying expiration dates, but are automatically extended for one additional year on each of their respective anniversary dates. For purposes of these contracts, change in control generally means any of the following events:
| the acquisition by a third party of 20% or more of the then-outstanding Common Stock; |
| individuals who currently constitute the Board of Directors (or individuals who subsequently become a director whose election or nomination was approved by at least a majority of the directors currently constituting the Board of Directors) cease for any reason to constitute a majority of the Board of Directors; |
| approval by our stockholders of a reorganization, merger or consolidation in which we are not the surviving entity; or |
| approval by our stockholders of a complete liquidation or dissolution or the sale or other disposition of all or substantially all of our assets. |
Retirement of Former Chief Executive Officer
Mr. Gibson retired as our Chief Executive Officer on June 30, 2004. In connection with his retirement, the Board of Directors approved a retirement package for him that included a lump sum cash payment, accelerated vesting of stock options and restricted stock, extended lives of stock options and continued coverage under our health and life insurance plan for three years at our expense. Under GAAP, the changes to existing stock options and restricted stock give rise to new measurement dates and revised compensation computations. The total cost recognized under GAAP during 2004 for Mr. Gibsons retirement was $4.6 million, comprised of a $2.2 million cash payment, $0.6 million related to the vesting of stock options, $1.7 million related to the vesting of restricted stock and approximately $100,000 for continued insurance coverage and other benefits.
Compensation and Governance Committee Interlocks and Insider Participation
During 2004, the compensation and governance committee consisted of Messrs. Orr, Graham and Sloan. None of these directors is a current or past employee and each was and is independent under the rules and regulations of the New York Stock Exchange. Mr. Sloan was a founder and former officer of our predecessor prior to our initial public offering in 1994.
Compensation and Governance Committee Report
The committee directs the administration of the Stock Option Plan and other management incentive compensation plans. The committees compensation policies are designed to (a) attract and retain key individuals critical to our success, (b) motivate and reward such individuals based on corporate, business unit and individual performance and (c) align executives and stockholders interests through equity-based incentives. During 2004, the compensation and governance committee met six times and set compensation levels in compliance with the executive compensation program adopted in 1999, which was based upon extensive input from and the recommendation of William M. Mercer, Incorporated, an independent compensation consulting firm.
Compensation for executives is based generally on the following principles:
| variable compensation should comprise a significant part of an executives compensation with the percentage at-risk increasing at increased levels of responsibility; |
| employee stock ownership aligns the interests of employees and stockholders; |
| compensation must be competitive with that offered by companies that compete with us for executive talent; and |
66
| differences in executive compensation within the Company should reflect differing levels of responsibility and performance. |
A key determinant of overall levels of compensation remains the pay practices of public equity REITs that have revenues comparable to us. This peer group was chosen by our independent compensation and benefit consultants. Overall compensation is intended to be at, above or below competitive levels depending upon our performance relative to our targeted performance and the performance of our peer group.
There are three components to our executive compensation program: base salary; annual bonus; and long-term incentive compensation. The more senior the position, the greater the portion of compensation that varies with performance.
Base Salaries and Annual Bonuses. Executive salaries other than that of the Chief Executive Officer are recommended to the committee by the Chief Executive Officer and are designed to be competitive with the peer group companies described above. Changes in base salaries are based on the peer groups practices, our performance, the individuals performance, experience and responsibility and increases in cost of living indices. Base salaries are reviewed for adjustment annually and adjustments, if any, are effective in April. The Chief Executive Officers base salary is determined by the committee. No changes were made in 2004 to executive officer base salaries.
Our executive officers participate in an annual bonus program whereby they are eligible for bonuses based on a percentage of their annual base salary as of the prior December. In addition to considering the pay practices of our peer group in determining each executives bonus percentage, the committee also considers the executives ability to influence our overall performance. Each executive has a target annual incentive bonus percentage that ranges from 30% to 85% of base salary depending on the executives position. The executives actual incentive bonus for the year is the product of the target annual incentive bonus percentage times a bonus performance factor, which can range from zero to 200%. This bonus performance factor depends upon the relationship between how various performance criteria compare with predetermined goals. For an executive who has division responsibilities, goals for certain performance criteria are based on the divisions budget for the year, and goals for other criteria are fixed objectives that are the same for all divisions. For corporate executives, the bonus performance factor is based on the average of the factors achieved by the division executives.
Performance criteria for 2004, which were equally weighted, were the following: average occupancy rates relative to budgeted rates; net operating income relative to budgeted amounts; and average payback on leases (i.e., a metric that compares the investment in a lease to the amount of revenue to be received under the lease) relative to a fixed goal. These criteria provide an objective basis for the committee to determine bonuses for division level and corporate level executive officers. The bonus performance factors for 2004 for division executives ranged from 59% to 134%, and the average bonus performance factor for corporate executives was 88%. Notwithstanding the foregoing criteria, the committee has retained the authority to pay bonuses in its discretion. For 2004, actual incentive bonuses for the Named Executive Officers ranged from 44% to 75% of each officers current base salary (not including the effect of any deferral for deemed investment by us in units of phantom stock at a 15% discount as discussed in the next paragraph).
The committee has established a nonqualified deferred compensation plan pursuant to which each executive officer can elect to defer a portion of his base salary and annual bonus for investment in units of phantom stock or in various unrelated mutual funds, based on such officers election. At the end of each calendar quarter, any executive officer who defers compensation into phantom stock is credited with units of phantom stock at a 15% discount. Dividends on the phantom units are assumed to be issued in additional units of phantom stock at a 15% discount. If an officer that has elected to defer compensation under this plan leaves our employ voluntarily or for cause within two years after the end of the year in which such officer has deferred compensation for units of phantom stock, at a minimum, the 15% discount and any deemed dividends are forfeited. In July 2005, we modified the plan to preclude any deferrals into phantom stock after December 31, 2005.
Long-Term Incentives . In addition to the annual bonus and as an incentive to retain executive officers, our long-term incentive plan for officers provides for annual grants of stock options and restricted stock under the Stock Option Plan and other awards under the 1999 Shareholder Value Plan. The stock options issued prior to 2005 vest ratably over four years and remain outstanding for 10 years. The value of such options as of the date of grant is calculated using the Black-Scholes option-pricing model. The shares of restricted stock issued prior to 2005 vest 50% after three years and 50% after five years.
67
The 1999 Shareholder Value Plan was intended to reward our executive officers when the total shareholder returns measured by increases in the market value of shares of Common Stock plus the dividends on those shares exceeds a comparable index of our peers over a three-year period. A payout for this program, which can be in cash or other consideration, is determined by the percent change in our shareholder return compared to the composite index of our peer group. If our performance is not at least 100% of the peer group index, no payout is made. To the extent performance exceeds the peer group, the payout increases. A new three-year plan cycle begins each year under this program. No payments were earned under this program in 2004.
Section 162(m) of the Internal Revenue Code generally denies a deduction for compensation in excess of $1 million paid to certain executive officers, unless certain performance, disclosure and stockholder approval requirements are met. Option grants and certain other awards under the Stock Option Plan and the 1999 Shareholder Value Plan are intended to qualify as performance-based compensation not subject to Section 162(m) deduction limitation. The committee believes that a substantial portion of compensation awarded under our compensation program would be exempted from the $1 million deduction limitation. The committees intention is to qualify, to the extent reasonable, a substantial portion of each executive officers compensation for deductibility under applicable tax laws.
Chief Executive Officer Compensation . Effective June 30, 2004, Ronald P. Gibson retired from his position as our Chief Executive Officer. Prior to his retirement, his salary and long-term incentive awards were determined by the committee substantially in conformity with the policies described above for all other executive officers. As in 2003, Mr. Gibsons base salary remained $403,500 in 2004. As of the date of his retirement, Mr. Gibson had earned $206,406 of his base salary in 2004. Because of his retirement, Mr. Gibson did not receive a bonus in 2004 under the annual bonus program. In 2003, Mr. Gibsons bonus was $240,083. In addition, during 2004, Mr. Gibson was granted long-term incentive compensation consisting of shares of restricted stock valued at $716,222 on the date of grant, which vested upon his retirement on June 30, 2004. This was an increase of $240,093, or 50%, in restricted stock compensation for 2004 as compared to his restricted stock compensation of $476,129 for 2003. Finally, Mr. Gibson received 222,076 stock options during 2004 with 182,076 having an exercise price of $26.15 and 40,000 having an exercise price of $22.44, the fair market value of Common Stock on the respective dates of grant. Mr. Gibson was also eligible to participate in the 1999 Shareholder Value Plan; however, no payouts were made to Mr. Gibson under this plan in 2004.
Effective July 1, 2004, Edward J. Fritsch assumed the responsibilities of Chief Executive Officer upon Mr. Gibsons retirement. Mr. Fritschs salary and long-term incentive awards were determined by the committee substantially in conformity with the policies described above for all other executive officers. Upon becoming Chief Executive Officer, Mr. Fritschs annual base salary was set at $403,500. For 2004, Mr. Fritsch earned total base salary of $380,085, which included six months of service as President and Chief Operating Officer. Mr. Fritsch earned a bonus of $302,104 in 2004, which was equal to 75% of his annual base salary as Chief Executive Officer. In addition, during 2004, Mr. Fritsch was granted long-term incentive compensation consisting of shares of restricted stock valued at $485,831 on the date of grant, which vest 50% on the third anniversary and 50% on the fifth anniversary of the date of grant. Finally, Mr. Fritsch received 171,775 stock options during 2004 at an exercise price of $26.15, which was the fair market value of Common Stock on the date of grant. Mr. Fritsch was also eligible to participate in the 1999 Shareholder Value Plan; however, no payouts were made to Mr. Fritsch under this plan in 2004.
The committee believes that the total compensation received by each of Messrs. Gibson and Fritsch during 2004 were reasonable, not excessive and consistent with the pay practices of public equity REITs that have revenues comparable to us.
Compensation Changes in 2005. For 2005, the annual incentive bonus program will operate similarly as in 2004, except that the following four performance criteria will be used for 2005, all of which are weighted equally: average occupancy rates relative to budgeted rates; net operating income relative to budgeted amounts; average payback on leases relative to a fixed goal; and average lease term relative to a fixed goal. These criteria provide an objective basis for the committee to determine bonuses for division level and corporate level executive officers. Notwithstanding the foregoing criteria, the committee has retained the authority to pay bonuses at its discretion.
68
Effective for 2005, options that are issued to executive officers under the Stock Option Plan will continue to vest ratably over a four-year period, but the option term will be seven years instead of 10 years. The value of such options as of the date of grant will be calculated using the Black-Scholes option-pricing model. The exercise price per share for such options will be based on the average of the daily closing prices for Common stock over the 10-day period preceding the date of grant, rather than the closing price for Common Stock on the date immediately preceding the date of grant.
We have also prospectively replaced the 1999 Shareholder Value Plan for years beginning in 2005 with a performance-based restricted stock plan under which all or a portion of additional grants of restricted stock will vest if our total shareholder returns exceed the average total returns of a selected group of peer companies over a three-year period. If our performance is not at least 100% of the peer group index, none of the restricted stock will vest at the end of the three-year period. To the extent performance equals or exceeds the peer group, the portion of issued shares that vest can range from 50% to 100%, and for exceptional levels of performance, additional shares can be granted at the end of the three year period up to 100% of the original restricted stock that was issued. These additional shares, if any, would be fully vested when issued. A new three-year plan cycle begins each year under the program. Effective for 2005, shares of time-based restricted stock that are issued to executive officers under the Stock Option Plan will vest one-third on the third anniversary, one-third on the fourth anniversary and one-third on the fifth anniversary of the date of grant.
In addition to time-based restricted stock, a portion of the restricted stock issued to executive officers in 2005 will be subject to Company-wide performance-based criteria. For 2005, the performance-based criteria is based on whether or not we meet or exceed operating goals established under our Strategic Management Plan for the four following areas relative to established goals by the end of 2007: average occupancy rates; long-term debt plus preferred equity as a percentage of total assets; fixed charge coverage ratio; and ratio of dividends to cash available for distribution.
To the extent performance equals or exceeds the threshold performance goals, the portion of issued shares of restricted stock that vest can range from 50% to 100%, and for exceptional levels of performance, additional shares can be granted at the end of the three year period up to 50% of the original restricted shares that were issued. These additional shares, if any, would be fully vested when issued.
Notwithstanding the foregoing criteria, the committee has retained the authority to issue long-term incentive awards at its discretion.
Compensation and Governance Committee
William E. Graham, Jr. |
L. Glenn Orr, Jr. (chair) | O. Temple Sloan, Jr. |
Compensation of Directors
We pay directors who are not our employees fees for their services as directors. During 2004, independent directors received annual compensation of $23,000 plus a fee of $1,250 (plus out-of-pocket expenses) for attendance in person at each meeting of the Board of Directors, $500 for each committee meeting attended, $250 for each telephone meeting of the Board of Directors and between $250 and $400 for each telephone meeting of a committee. In addition, independent directors on the investment committee each received an additional annual retainer of $12,000 and between $500 and $1,000 per day for property visits in 2004 and the chairman of the audit committee received an additional annual retainer of $10,000 and $1,000 per day for non-scheduled audit committee activities.
In addition, each person serving as an independent director on February 3, 2004 received 500 shares of restricted stock under the Stock Option Plan. Mr. Sloan, who serves as Chairman of the Board of Directors, received an additional 750 shares of restricted stock. The restricted stock awards vest 25% on each anniversary of the date of grant. Dividends are paid on all restricted stock awards at the same rate and on the same date as on shares of Common Stock.
Upon becoming a director, each independent director received options to purchase 10,000 shares of Common Stock at an exercise price equal to the fair market value on the date of grant. Independent directors may elect to defer a portion of their retainer and meeting fees for investment in stock options or units of phantom stock under the Stock Option Plan. At the end of each calendar quarter, any director that elects to defer fees in such a manner is credited with units of phantom stock at a 15% discount or with stock options. Dividends on the phantom units are assumed to be issued in additional units of phantom stock at a 15% discount.
69
In order to ensure the continued recruitment and retention of qualified board members and reduce the administrative burden of calculating and documenting independent director compensation, the compensation and governance committee has approved certain changes with respect to independent director compensation after conducting an internal review of the director compensation practices of our public REIT competitors. Effective after the regularly scheduled Board meeting on January 25, 2005, independent directors now receive annual compensation of $35,000, but no longer receive additional fees for attendance at meetings or participation in conference calls of the Board of Directors or its committees. Members of the audit, executive and compensation and governance committees now receive additional annual retainers of $5,000 for each committee, except that the chairman of the compensation and governance committee receives $10,000 and the chairman of the audit committee receives $20,000. Independent directors on the investment committee now receive an additional annual retainer of $12,000 and $500 per day for property visits. The annual restricted stock award for each independent director has also been increased by 250 shares to 750 shares. No changes have been made with respect to the eligibility of independent directors to receive awards under the Stock Option Plan, including restricted stock awards, nor with respect to the option for independent directors to defer a portion of their retainer and meeting fees for investment in stock options under the Stock Option Plan. However, directors will no longer be able to defer fees for phantom stock after December 31, 2005.
Officers who are directors are not paid any director fees.
70
Stock Price Performance Graph
The following stock price performance graph compares our performance to the S&P 500, the Russell 2000 and the index of equity REITs prepared by National Association of Real Estate Investment Trusts (NAREIT). The stock price performance graph assumes an investment of $100 in Common Stock and the two indices on December 31, 1999 and further assumes the reinvestment of all dividends. Equity REITs are defined as those that derive more than 75% of their income from equity investments in real estate assets. The NAREIT equity index includes all tax-qualified REITs listed on the New York Stock Exchange, the American Stock Exchange or the NASDAQ National Market System. Stock price performance is not necessarily indicative of future results.
Period Ending
|
||||||||||||
Index |
12/31/99
|
12/31/00
|
12/31/01
|
12/31/02
|
12/31/03
|
12/31/04
|
||||||
Highwoods Properties, Inc. |
100.00 | 115.96 | 132.54 | 124.24 | 155.13 | 181.28 | ||||||
S&P 500 |
100.00 | 91.20 | 80.42 | 62.64 | 80.62 | 89.47 | ||||||
Russell 2000 |
100.00 | 96.98 | 99.39 | 79.03 | 116.38 | 137.71 | ||||||
NAREIT All Equity REIT Index |
100.00 | 126.37 | 143.97 | 149.47 | 204.98 | 269.70 |
71
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table sets forth the beneficial ownership of shares of Common Stock as of December 31, 2004 for each person or group known to us to be holding more than 5% of the Common Stock, each director, each Named Executive Officer and our directors and executive officers as a group. The number of shares shown represents the number of shares of Common Stock the person beneficially owns, as determined by the rules of the SEC, including the number of shares that may be issued upon redemption of Common Units.
Name of Beneficial Owner |
Number of Shares Beneficially Owned |
Percent of All Shares (1) |
|||
O. Temple Sloan, Jr. (2) |
604,623 | 1.11 | % | ||
Edward J. Fritsch (3) |
571,389 | 1.05 | % | ||
Ronald P. Gibson (4) |
1,269,367 | 2.31 | % | ||
Michael E. Harris (5) |
237,185 | * | |||
Gene H. Anderson (6) |
999,142 | 1.83 | % | ||
Mack D. Pridgen, III (7) |
350,793 | * | |||
Terry L. Stevens (8) |
34,058 | * | |||
Thomas W. Adler (9) |
110,164 | * | |||
Kay N. Callison (10) |
606,821 | 1.13 | % | ||
William E. Graham, Jr. (11) |
45,052 | * | |||
Lawrence S. Kaplan (12) |
22,244 | * | |||
Sherry A. Kellett |
| | |||
L. Glenn Orr, Jr. (13) |
41,541 | * | |||
Willard H. Smith Jr. (14) |
41,086 | * | |||
John L. Turner (15) |
545,550 | 1.00 | % | ||
F. William Vandiver, Jr (16) |
7,000 | * | |||
AEW Capital Management, L.P. (17) |
2,693,800 | 5.01 | % | ||
Cohen & Steers Capital Management, Inc. (18) |
4,126,125 | 7.67 | % | ||
Deutsche Bank AG and its affiliates (19) |
6,797,649 | 12.63 | % | ||
All executive officers and directors as a group (19 persons) |
5,760,474 | 9.88 | % |
* | Less than 1% |
(1) | The total number of shares outstanding used in calculating this percentage assumes that no Common Units, stock options or warrants held by other persons are exchanged for shares of Common Stock. |
(2) | Number of shares beneficially owned includes 228,059 shares issuable upon exercise of options and 261,635 shares issuable upon redemption of Common Units. |
(3) | Number of shares beneficially owned includes 479,814 shares issuable upon exercise of options and 9,344 shares issuable upon redemption of Common Units. |
(4) | Number of shares beneficially owned includes 1,055,500 shares issuable upon exercise of options and 50,241 shares issuable upon redemption of Common Units. |
(5) | Number of shares beneficially owned includes 206,643 shares issuable upon exercise of options. |
(6) | Number of shares beneficially owned includes 115,702 shares issuable upon exercise of options and 785,326 shares issuable upon redemption of Common Units. |
(7) | Number of shares beneficially owned includes 310,980 shares issuable upon exercise of options. |
(8) | Number of shares beneficially owned includes 12,849 shares issuable upon exercise of options. |
(9) | Number of shares beneficially owned includes 89,829 shares issuable upon exercise of options. |
(10) | Number of shares beneficially owned includes 26,000 shares issuable upon exercise of options. Ms. Callison disclaims beneficial ownership of 37,636 shares held in trust for the benefit of her child for which her spouse is trustee and for which she has no voting or investment power. Ms. Callison also disclaims beneficial ownership of 40,000 shares held in trust for the benefit of her husband for which she has no voting or investment power. |
(11) | Number of shares beneficially owned includes 40,830 shares issuable upon exercise of options. |
72
(12) | Number of shares beneficially owned includes 17,228 shares issuable upon exercise of options. The number of shares beneficially owned includes 1,000 shares held in trust for the benefit of his child for which Mr. Kaplan has investment making power. Mr. Kaplans spouse is the trustee and Mr. Kaplan disclaims beneficial ownership of those shares. |
(13) | Number of shares beneficially owned includes 36,000 shares issuable upon exercise of options. |
(14) | Number of shares beneficially owned includes 36,000 shares issuable upon exercise of options. |
(15) | Number of shares beneficially owned includes 116,857 shares issuable upon exercise of options, 35,000 shares issuable upon exercise of warrants and 381,000 shares issuable upon redemption of Common Units. |
(16) | Number of shares beneficially owned includes 5,000 shares issuable upon exercise of options. |
(17) | AEW Capital Management, L.P. is located at World Trade Center East, Two Seaport Lane, Boston, MA 02110-2021. Information obtained from Schedule 13G filed with the SEC. |
(18) | Cohen & Steers Capital Management, Inc. is located at 757 Third Avenue, New York, New York 10017. Information obtained from Schedule 13G filed with the SEC. |
(19) | Deutsche Bank AG is located at Taunusanlage 12, D-60325, Frankfurt am Main, Federal Republic of Germany. Information obtained from Schedule 13G filed with the SEC. |
The following table provides information as of December 31, 2004 with respect to the shares of Common Stock that may be issued under our existing equity compensation plans:
Plan Category |
Number of Securities to be Issued Upon Exercise of Outstanding Options |
Weighted Average Exercise Price of Outstanding Options |
Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans |
||||
Equity Compensation Plans Approved by Stockholders (1) |
4,632,691 | $ | 24.51 | 2,531,330 | |||
Equity Compensation Plans Not Approved by Stockholders (2) |
| | 211,150 |
(1) | Consists of the Stock Option Plan, under which the compensation and governance committee may grant stock options, phantom stock, stock appreciation rights and restricted stock to our employees, officers and directors. |
(2) | Consists of the 2000 Employee Stock Purchase Plan, under which all eligible employees have the option to defer a portion of their base salary at the end of each quarter to acquire shares of Common Stock at a 15% discount. |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We have previously reported that we have had a contract to acquire development land in the Bluegrass Valley office development project from GAPI, Inc., a corporation controlled by Gene H. Anderson, an executive officer and director of the Company. Under the terms of the contract, the development land is to be purchased in phases, and the purchase price for each phase or parcel is settled for in cash and/or Common Units. The price for the various parcels is based on an initial value for each parcel, adjusted for an interest factor, currently 6.88% per annum, applied up to the closing date and also for changes in the value of the Common Units. On January 17, 2003, we acquired an additional 23.5 acres of this land from GAPI, Inc. for 85,520 shares of Common Stock and $384,000 in cash for total consideration of $2.3 million. In May 2003, 4.0 acres of the remaining acres not yet acquired by us was taken by the Georgia Department of Transportation to develop a roadway interchange for consideration of $1.8 million. The Department of Transportation took possession and title of the property in June 2003. As part of the terms of the contract between us and GAPI, Inc., we were entitled to and received in 2003 the $1.8 million proceeds from the condemnation. In July 2003, we appealed the condemnation and are currently seeking additional payment from the state; the recognition of any gain has been deferred pending resolution of the appeal process. In April 2005, we acquired for cash an additional 12.1 acres of the Bluegrass Valley land from GAPI, Inc. and also settled for cash the final purchase price with GAPI, Inc. on the 4.0 acres that were taken by the Georgia Department of Transportation, which aggregated approximately $2.7 million. In August 2005, we acquired 12.7 acres, representing the last parcel of land to be acquired, for cash aggregating $3.2 million. We believe that the purchase price with respect to each land parcel was at or below market value. These transactions were unanimously approved by the full Board of Directors with Mr. Anderson abstaining from the vote.
We entered into a series of agreements in January and February 2005, pursuant to which we, through a third party broker, sold on February 28, 2005 and April 15, 2005, three non-core industrial buildings in Winston-Salem,
73
North Carolina to Mr. Turner and certain of his affiliates in exchange for a gross sales price of approximately $27.0 million, of which $20.3 million was paid in cash and the remainder from the surrender of 256,508 Common Units. We recorded a gain of approximately $4.8 million upon the closing of these sales. We believe that the purchase price paid for these assets by Mr. Turner and his affiliates was equal to their fair market value. The sales were approved by the Board of Directors with Mr. Turner not being present to discuss or vote on the matter.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Committee Report
Purpose and Function of the Audit Committee . The audit committee oversees the financial reporting process on behalf of the Board of Directors. Management is responsible for our financial statements and the financial reporting process, including implementing and maintaining effective internal control over financial reporting and for the assessment of, and reporting on, the effectiveness of internal control over financial reporting. The independent auditors are responsible for expressing opinions on the conformity of the audited financial statements with U.S. Generally Accepted Accounting Principles, on the effectiveness of our internal control over financial reporting and on managements assessment of the effectiveness of our internal control over financial reporting.
In fulfilling its oversight responsibilities, the audit committee has reviewed with management and the independent auditors our audited financial statements for the year ended December 31, 2004 and the reports on the effectiveness of internal controls over financial reporting as of December 31, 2004 contained in this Annual Report, including a discussion of the reasonableness of significant judgments and the clarity of disclosures in the financial statements. The audit committee also reviewed and discussed with management and the independent auditors the disclosures made in ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS and ITEM 9A. CONTROLS AND PROCEDURES included elsewhere in this Annual Report.
In addition, the audit committee received written disclosures from the independent accountants required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), and the audit committee discussed with the independent accountants that firms independence from management and us and considered the compatibility of non-audit services with the auditors independence.
Recommendations of the Audit Committee. In reliance on the reviews and discussions referred to above, the audit committee recommended to the Board of Directors (and the Board has approved) that the audited financial statements be included in this Annual Report for filing with the SEC.
Audit Committee
Lawrence S. Kaplan (chair) | Kay N. Callison | Sherry A. Kellett | ||||||||
Willard H. Smith Jr. | F. William Vandiver, Jr. |
Principal Accountant Fees
Aggregate fees for professional services rendered by Ernst & Young LLP for the 2004 and 2003 fiscal years were as follows:
2004
|
2003
|
|||||
Audit Fees (1) |
$ | 7,068,541 | $ | 486,720 | ||
Audit Related Fees (2) |
$ | 91,986 | $ | 154,006 | ||
Tax Fees (3) |
$ | 33,358 | $ | 26,506 | ||
All Other Fees (4) |
$ | | $ | 71,059 |
(1) | In 2004, audit fees consisted of fees related to audits of (a) the restated historical financial statements included in our amended 2003 Annual Report on Form 10-K, (b) the historical financial statements included in this Annual Report, including the restated 2002 and 2003 financial statements, and (c) our internal control over financial reporting and managements assessment of such control included in this Annual Report as required by Section 404 of the Sarbanes-Oxley Act of 2002. |
74
(2) | Audit-related services generally include 401(k) audits, accounting analysis of business acquisitions and dispositions, accounting consultations and SEC filings. |
(3) | Tax services generally include tax compliance, tax planning, tax advice and joint venture tax return review. |
(4) | In 2003, a $71,059 fee was paid related to payment of an agreed upon percentage of a refund resulting from an IRS interest netting study. |
Pre-Approval Policies
The audit committee has adopted a policy requiring the pre-approval of all fees paid to our independent auditor. All fees paid to our independent auditor for services rendered during 2004 were pre-approved in accordance with the committees policies. Before an independent auditor is engaged to render any service, the proposed services must either be specifically pre-approved by the audit committee or such services must fall within a category of services that are pre-approved by the audit committee without specific case-by-case consideration.
The audit committee pre-approved without specific case-by-case consideration the provision by the independent auditor of the following services during or with respect to 2005:
| Services associated with SEC registration statements, periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings (e.g. consents) and assisting in responding to SEC comment letters in an amount not to exceed $190,000; |
| Services required in connection with capital transactions (including comfort letters) in an amount not to exceed $30,000; |
| Due diligence services related to property acquisitions and dispositions (including title-holding entity due diligence) in an amount not to exceed $30,000; |
| Financial statement audits of property acquisitions if and when Rule 3-14 threshold requirements are met in an amount not to exceed $30,000; |
| Consultations with our management as to the accounting or disclosure treatment of transactions or events and/or the actual or potential impact of final or proposed rules, standards or interpretations by the SEC, FASB, PCAOB or other regulatory or standard-setting bodies in an amount not to exceed $80,000; |
| Review of federal, state, local, franchise and other tax returns in an amount not to exceed $25,000; |
| Federal, state, local, franchise and other tax services, including consulting services, other than advocacy-related services such as representation before any taxing or judicial authority with respect to returns under examination or to obtain rulings in advance of proposed transactions, in an amount not to exceed $75,000; and |
| Review of joint venture tax returns in an amount not to exceed $12,600. |
The audit committee pre-approved without specific case-by-case consideration the provision by the independent auditor of the following services during or with respect to the first four months of 2006:
| Services associated with SEC registration statements, periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings (e.g. consents) and assisting in responding to SEC comment letters in an amount not to exceed $37,500; |
| Due diligence services related to property acquisitions and dispositions (including title-holding entity due diligence) in an amount not to exceed $7,000; |
| Financial statement audits of property acquisitions if and when Rule 3-14 threshold requirements are met in an amount not to exceed $7,000; |
75
| Consultations with our management as to the accounting or disclosure treatment of transactions or events and/or the actual or potential impact of final or proposed rules, standards or interpretations by the SEC, FASB, PCAOB or other regulatory or standard-setting bodies in an amount not to exceed $30,000; and |
| Federal, state, local, franchise and other tax services, including consulting services, other than advocacy-related services such as representation before any taxing or judicial authority with respect to returns under examination or to obtain rulings in advance of proposed transactions, in an amount not to exceed $25,000. |
Any services in excess of these pre-approved amounts, or any services not described above, require the pre-approval of the audit committee chair, with a review by the audit committee at its next scheduled meeting.
The audit committee has determined that the rendering of the non-audit services by Ernst & Young LLP has been compatible with maintaining the auditors independence.
The audit committee discussed with our internal and independent auditors the overall scope and plans for their respective audits.
76
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) | List of Documents Filed as a Part of this Report |
1. | Consolidated Financial Statements, Consolidated Financial Statement Schedules and Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements. See Index on Page F-1 |
2. | Financial Statement Schedules (see above) |
3. | Exhibits |
Ex.
|
Description |
|
3.1 | Amended and Restated Articles of Incorporation of the Company (filed as part of the Companys Current Report on Form 8-K dated September 25, 1997 and amended by articles supplementary filed as part of the Companys Current Report on Form 8-K dated October 4, 1997 and articles supplementary filed as part of the Companys Current Report on Form 8-K dated April 20, 1998) | |
3.2 | Amended and Restated Bylaws of the Company | |
4.1 | Indenture among the Operating Partnership, the Company and First Union National Bank of North Carolina dated as of December 1, 1996 (filed as part of the Operating Partnerships Current Report on Form 8-K dated December 2, 1996) | |
4.2 | Rights Agreement, dated as of October 6, 1997, between the Company and First Union National Bank, as rights agent (filed as part of the Companys Current Report on Form 8-K dated October 4, 1997) | |
4.3 | Amendment No. 1, dated as of October 7, 2003, to the Rights Agreement, dated as of October 7, 1997, between the Company and Wachovia Bank, N.A., as rights agent (filed as part of the Companys Quarterly Report on Form 10-Q for the quarter ended September 30, 2003) | |
10.1 | Second Restated Agreement of Limited Partnership, dated as of January 1, 2000, of the Operating Partnership | |
10.2 | Amendment No. 1, dated as of July 22, 2004, to the Second Restated Agreement of Limited Partnership, dated as of January 1, 2000, of the Operating Partnership | |
10.3 | Amended and Restated 1994 Stock Option Plan (filed as part of the Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2002) | |
10.4 | Form of Executive Supplemental Employment Agreement between the Company and Named Executive Officers (filed as part of the Companys Annual Report on Form 10-K for the year ended December 31, 1998) | |
10.5 | Form of warrants to purchase Common Stock of the Company issued to former shareholders of Associated Capital Properties, Inc. (filed as part of the Companys Annual Report on Form 10-K for the year ended December 31, 1997) | |
10.6 | 1999 Shareholder Value Plan (filed as part of the Companys Annual Report on Form 10-K for the year ended December 31, 1999) | |
10.7 | 2005 Shareholder Value Plan | |
10.8 | Amended and Restated Credit Agreement among the Operating Partnership, the Company, the Subsidiaries named therein and the Lenders named therein, dated as of July 17, 2003 (filed as part of the Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2003) | |
10.9 | First Amendment to Credit Agreement among the Operating Partnership, the Company, the Subsidiaries named therein and the Lenders named therein, dated as of March 29, 2004 (filed as part of the Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2004) |
77
Ex.
|
Description |
|
10.10 | Second Amendment to Credit Agreement among the Operating Partnership, the Company, the Subsidiaries named therein and the Lenders named therein, dated as of June 10, 2004 | |
10.11 | Third Amendment to Credit Agreement among the Operating Partnership, the Company, the Subsidiaries named therein and the Lenders named therein, executed in August 2004 and effective June 30, 2004 | |
10.12 | Fourth Amendment to Credit Agreement among the Operating Partnership, the Company, the Subsidiaries named therein and the Lenders named therein, dated as of November 1, 2005 | |
10.13 | Agreement between the Operating Partnership and G-T Gateway, LLC, effective as of February 11, 2005 | |
10.14 | Agreement among Winston-Salem Industrial, LLC, the Operating Partnership and G-T Gateway, LLC, effective as of January 28, 2005 | |
10.15 | Agreement among the Operating Partnership, John L. Turner and Robert Goldman, effective as of January 28, 2005 | |
10.16 | Agreement among the Operating Partnership, John L. Turner, Robert Goldman and Henry P. Royster, Jr., effective as of February 11, 2005 | |
21 | Schedule of subsidiaries of the Company | |
23 | Consent of Ernst & Young LLP | |
31.1 | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act | |
31.2 | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act | |
32.1 | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act | |
32.2 | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act |
78
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Raleigh, State of North Carolina, on December 22, 2005.
HIGHWOODS PROPERTIES, INC. | ||
By: |
/s/ E DWARD J. F RITSCH |
|
Edward J. Fritsch | ||
President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacity and on the dates indicated.
Signature |
Title |
Date
|
||
/s/ O. Temple Sloan, Jr. O. Temple Sloan, Jr. |
Chairman of the Board of Directors |
December 22, 2005 | ||
/s/ Edward J. Fritsch Edward J. Fritsch |
President, Chief Executive Officer, and Director |
December 22, 2005 | ||
/s/ Gene H. Anderson Gene H. Anderson |
Senior Vice President and Director |
December 22, 2005 | ||
/s/ Thomas W. Adler Thomas W. Adler |
Director |
December 22, 2005 | ||
/s/ Kay N. Callison Kay N. Callison |
Director |
December 22, 2005 | ||
/s/ Ronald P. Gibson Ronald P. Gibson |
Director |
December 22, 2005 | ||
/s/ William E. Graham, Jr. William E. Graham, Jr. |
Director |
December 22, 2005 | ||
/s/ Lawrence S. Kaplan Lawrence S. Kaplan |
Director |
December 22, 2005 | ||
/s/ Sherry A. Kellett Sherry A. Kellett |
Director |
December 22, 2005 | ||
/s/ L. Glenn Orr, Jr. L. Glenn Orr, Jr. |
Director |
December 22, 2005 | ||
/s/ Willard H. Smith, Jr. Willard H. Smith, Jr. |
Director |
December 22, 2005 | ||
/s/ John L. Turner John L. Turner |
Director |
December 22, 2005 | ||
/s/ F. William Vandiver, Jr. F. William Vandiver, Jr. |
Director |
December 22, 2005 | ||
/s/ Terry L. Stevens Terry L. Stevens |
Vice President and Chief Financial Officer |
December 22 2005 |
79
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
The Consolidated Financial Statements for the years ended December 31, 2002 and 2003 and for the first, second and third quarters of 2004 have been restated, as described in Notes 19 and 20.
All other schedules are omitted because they are not applicable or because the required information is included in the Consolidated Financial Statements or notes thereto.
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON THE CONSOLIDATED FINANCIAL STATEMENTS
The Board of Directors and Stockholders
of Highwoods Properties, Inc.
We have audited the accompanying consolidated balance sheets of Highwoods Properties, Inc. as of December 31, 2004 and 2003, and the related consolidated statements of income, stockholders equity, and cash flows for each of the three years in the period ended December 31, 2004. Our audits also included the financial statement schedules listed in the index at Item 15(a). These financial statements and schedules are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Highwoods Properties, Inc. at December 31, 2004 and 2003, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
As discussed in Notes 1 and 19 to the consolidated financial statements, the accompanying consolidated balance sheet as of December 31, 2003, and the related consolidated statements of income, stockholders equity, and cash flows for each of the two years in the period ended December 31, 2003 have been restated.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Highwoods Properties, Inc.s internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated December 16, 2005 expressed an unqualified opinion on managements assessment and an adverse opinion on the effectiveness of internal control over financial reporting.
/S/ ERNST & YOUNG LLP
Raleigh, North Carolina
December 16, 2005
F-2
Consolidated Balance Sheets
(in thousands, except share and per share data)
December 31,
|
||||||||
2004
|
2003
|
|||||||
(restated) | ||||||||
Assets: |
||||||||
Real estate assets, at cost: |
||||||||
Land |
$ | 412,913 | $ | 440,766 | ||||
Buildings and tenant improvements |
2,898,526 | 3,074,012 | ||||||
Development in process |
26,349 | 9,637 | ||||||
Land held for development |
182,945 | 191,713 | ||||||
Furniture, fixtures and equipment |
22,403 | 22,124 | ||||||
|
|
|
|
|
|
|||
3,543,136 | 3,738,252 | |||||||
Less accumulated depreciation |
(598,380 | ) | (542,445 | ) | ||||
|
|
|
|
|
|
|||
Net real estate assets |
2,944,756 | 3,195,807 | ||||||
Property held for sale |
33,411 | 70,014 | ||||||
Cash and cash equivalents |
24,482 | 21,696 | ||||||
Restricted cash |
3,875 | 4,457 | ||||||
Accounts receivable, net of allowance of $1,171 and $1,235, respectively |
15,423 | 15,455 | ||||||
Notes receivable |
8,447 | 8,791 | ||||||
Accrued straight-line rents receivable, net of allowance of $1,422 and $0, respectively |
61,353 | 59,378 | ||||||
Investments in unconsolidated affiliates |
72,610 | 60,811 | ||||||
Other assets: |
||||||||
Deferred leasing costs |
110,881 | 101,266 | ||||||
Deferred financing costs |
16,686 | 19,286 | ||||||
Prepaid expenses and other |
10,206 | 9,188 | ||||||
|
|
|
|
|
|
|||
137,773 | 129,740 | |||||||
Less accumulated amortization |
(62,472 | ) | (52,925 | ) | ||||
|
|
|
|
|
|
|||
Other assets, net |
75,301 | 76,815 | ||||||
|
|
|
|
|
|
|||
Total Assets |
$ | 3,239,658 | $ | 3,513,224 | ||||
|
|
|
|
|
|
|||
Liabilities, Minority Interest in the Operating Partnership and Stockholders Equity: |
||||||||
Mortgages and notes payable |
$ | 1,572,574 | $ | 1,718,274 | ||||
Accounts payable, accrued expenses and other liabilities |
119,935 | 105,124 | ||||||
Financing obligations |
65,309 | 125,777 | ||||||
|
|
|
|
|
|
|||
Total Liabilities |
1,757,818 | 1,949,175 | ||||||
Minority interest in the Operating Partnership |
113,730 | 124,516 | ||||||
Stockholders Equity: |
||||||||
Preferred stock, $.01 par value, 50,000,000 authorized shares; |
||||||||
8 5 / 8 % Series A Cumulative Redeemable Preferred Shares (liquidation preference $1,000 per share), 104,945 shares issued and outstanding at December 31, 2004 and 2003 |
104,945 | 104,945 | ||||||
8% Series B Cumulative Redeemable Preferred Shares (liquidation preference $25 per share), 6,900,000 shares issued and outstanding at December 31, 2004 and 2003 |
172,500 | 172,500 | ||||||
8% Series D Cumulative Redeemable Preferred Shares (liquidation preference $250 per share), 400,000 shares issued and outstanding at December 31, 2004 and 2003 |
100,000 | 100,000 | ||||||
Common stock, $.01 par value, 200,000,000 authorized shares; 53,813,422 and 53,474,403 shares issued and outstanding at December 31, 2004 and 2003, respectively |
538 | 535 | ||||||
Additional paid-in capital |
1,416,130 | 1,408,277 | ||||||
Distributions in excess of net earnings |
(419,078 | ) | (338,605 | ) | ||||
Accumulated other comprehensive loss |
(2,814 | ) | (3,650 | ) | ||||
Deferred compensation |
(4,111 | ) | (4,469 | ) | ||||
|
|
|
|
|
|
|||
Total Stockholders Equity |
1,368,110 | 1,439,533 | ||||||
|
|
|
|
|
|
|||
Total Liabilities, Minority Interest in the Operating Partnership and Stockholders Equity |
$ | 3,239,658 | $ | 3,513,224 | ||||
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-3
Consolidated Statements of Income
(in
For the Years Ended December 31, 2004, 2003 and 2002
2004
|
2003
|
2002
|
||||||||||
(restated) | (restated) | |||||||||||
Rental and other revenues |
$ | 464,724 | $ | 492,505 | $ | 510,415 | ||||||
Operating expenses: |
||||||||||||
Rental property and other expenses |
168,431 | 172,838 | 166,255 | |||||||||
Depreciation and amortization |
132,417 | 139,101 | 136,451 | |||||||||
Impairment of assets held for use |
1,270 | | 9,919 | |||||||||
General and administrative |
41,761 | 26,023 | 29,350 | |||||||||
|
|
|
|
|
|
|
|
|
||||
Total operating expenses |
343,879 | 337,962 | 341,975 | |||||||||
|
|
|
|
|
|
|
|
|
||||
Interest expense: |
||||||||||||
Contractual |
106,205 | 119,618 | 120,327 | |||||||||
Amortization of deferred financing costs |
3,698 | 4,398 | 3,646 | |||||||||
Financing obligations |
10,123 | 17,811 | 12,604 | |||||||||
|
|
|
|
|
|
|
|
|
||||
120,026 | 141,827 | 136,577 | ||||||||||
|
|
|
|
|
|
|
|
|
||||
Other income/(expense): |
||||||||||||
Interest and other income |
6,302 | 5,487 | 8,896 | |||||||||
Settlement of bankruptcy claim |
14,435 | | | |||||||||
Loss on debt extinguishments |
(12,457 | ) | (14,653 | ) | (360 | ) | ||||||
Gain on extinguishment of co-venture obligation |
| 16,301 | | |||||||||
|
|
|
|
|
|
|
|
|
||||
8,280 | 7,135 | 8,536 | ||||||||||
|
|
|
|
|
|
|
|
|
||||
Income before disposition of property, co-venture expense, minority interest and equity in earnings of unconsolidated affiliates |
9,099 | 19,851 | 40,399 | |||||||||
Gains and impairments on disposition of property, net |
21,636 | 9,552 | 22,772 | |||||||||
Co-venture expense |
| (4,588 | ) | (7,730 | ) | |||||||
Minority interest in the Operating Partnership |
(849 | ) | (3 | ) | (3,794 | ) | ||||||
Equity in earnings of unconsolidated affiliates |
7,398 | 4,760 | 5,422 | |||||||||
|
|
|
|
|
|
|
|
|
||||
Income from continuing operations |
37,284 | 29,572 | 57,069 | |||||||||
Discontinued operations: |
||||||||||||
Income from discontinued operations, net of minority interest |
1,510 | 3,260 | 11,392 | |||||||||
Net gains on sale and impairments of discontinued operations, net of minority interest |
2,783 | 9,817 | 11,591 | |||||||||
|
|
|
|
|
|
|
|
|
||||
4,293 | 13,077 | 22,983 | ||||||||||
|
|
|
|
|
|
|
|
|
||||
Net income |
41,577 | 42,649 | 80,052 | |||||||||
Dividends on preferred stock |
(30,852 | ) | (30,852 | ) | (30,852 | ) | ||||||
|
|
|
|
|
|
|
|
|
||||
Net income available for common stockholders |
$ | 10,725 | $ | 11,797 | $ | 49,200 | ||||||
|
|
|
|
|
|
|
|
|
||||
Net income/(loss) per common share basic: |
||||||||||||
Income/(loss) from continuing operations |
$ | 0.12 | $ | (0.02 | ) | $ | 0.50 | |||||
Income from discontinued operations |
0.08 | 0.24 | 0.43 | |||||||||
|
|
|
|
|
|
|
|
|
||||
Net income |
$ | 0.20 | $ | 0.22 | $ | 0.93 | ||||||
|
|
|
|
|
|
|
|
|
||||
Weighted average common shares outstanding basic |
53,323 | 52,950 | 52,974 | |||||||||
|
|
|
|
|
|
|
|
|
||||
Net income/(loss) per common share diluted: |
||||||||||||
Income/(loss) from continuing operations |
$ | 0.12 | $ | (0.02 | ) | $ | 0.50 | |||||
Income from discontinued operations |
0.08 | 0.24 | 0.43 | |||||||||
|
|
|
|
|
|
|
|
|
||||
Net income |
$ | 0.20 | $ | 0.22 | $ | 0.93 | ||||||
|
|
|
|
|
|
|
|
|
||||
Weighted average common shares outstanding diluted |
60,024 | 59,911 | 60,562 | |||||||||
|
|
|
|
|
|
|
|
|
||||
Dividends declared per common share |
$ | 1.70 | $ | 1.86 | $ | 2.34 | ||||||
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-4
Consolidated Statements of Stockholders Equity
($ in thousands)
For the Years Ended December 31, 2004, 2003 and 2002
Number of
Common Shares |
Common
Stock |
Series A
Preferred |
Series B
Preferred |
Series D
Preferred |
Additional
Paid-In Capital |
Deferred
Compen- sation |
Accumulated
Loss |
Distributions
of Net
|
Total
|
|||||||||||||||||||||||||||
Balance at December 31, 2001 |
52,891,822 | $ | 529 | $ | 104,945 | $ | 172,500 | $ | 100,000 | $ | 1,395,994 | $ | (4,190 | ) | $ | (9,441 | ) | $ | (151,510 | ) | $ | 1,608,827 | ||||||||||||||
Restatement adjustments |
| | | | | (206 | ) | | | (24,547 | ) | (24,753 | ) | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Restated Balance at December 31, 2001 |
52,891,822 | 529 | 104,945 | 172,500 | 100,000 | 1,395,788 | (4,190 | ) | (9,441 | ) | (176,057 | ) | 1,584,074 | |||||||||||||||||||||||
Issuance of Common Stock |
249,297 | 2 | | | | 5,604 | | | | 5,606 | ||||||||||||||||||||||||||
Conversion of Common Units to Common Stock |
257,121 | 3 | | | | 7,471 | | | | 7,474 | ||||||||||||||||||||||||||
Common Stock dividends |
| | | | | | | | (124,378 | ) | (124,378 | ) | ||||||||||||||||||||||||
Preferred Stock dividends |
| | | | | | | | (30,852 | ) | (30,852 | ) | ||||||||||||||||||||||||
Adjustment to minority interest of unitholders in the Operating Partnership |
| | | | | (2,062 | ) | | | | (2,062 | ) | ||||||||||||||||||||||||
Issuance of deferred compensation |
48,562 | | | | | 1,346 | (1,346 | ) | | | | |||||||||||||||||||||||||
Amortization of deferred compensation |
| | | | | | 1,501 | | | 1,501 | ||||||||||||||||||||||||||
Repurchase of Common Stock |
(46,607 | ) | | | | | (1,174 | ) | | | | (1,174 | ) | |||||||||||||||||||||||
Other comprehensive income |
| | | | | | | 237 | | 237 | ||||||||||||||||||||||||||
Net income, as restated |
| | | | | | | | 80,052 | 80,052 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Restated Balance at December 31, 2002 |
53,400,195 | 534 | 104,945 | 172,500 | 100,000 | 1,406,973 | (4,035 | ) | (9,204 | ) | (251,235 | ) | 1,520,478 | |||||||||||||||||||||||
Issuance of Common Stock |
99,039 | 1 | | | | 1,975 | | | | 1,976 | ||||||||||||||||||||||||||
Conversion of Common Units to Common Stock |
318,249 | 3 | | | | 7,824 | | | | 7,827 | ||||||||||||||||||||||||||
Common Stock dividends |
| | | | | | | | (99,167 | ) | (99,167 | ) | ||||||||||||||||||||||||
Preferred Stock dividends |
| | | | | | | | (30,852 | ) | (30,852 | ) | ||||||||||||||||||||||||
Adjustment to minority interest of unitholders in the Operating Partnership |
| | | | | (2,859 | ) | | | | (2,859 | ) | ||||||||||||||||||||||||
Issuance of deferred compensation |
103,520 | 1 | | | | 3,324 | (3,325 | ) | | | | |||||||||||||||||||||||||
Fair market value of options granted |
| | | | | 313 | (313 | ) | | | | |||||||||||||||||||||||||
Amortization of deferred compensation |
| | | | | | 3,204 | | | 3,204 | ||||||||||||||||||||||||||
Repurchase of Common Stock |
(446,600 | ) | (4 | ) | | | | (9,273 | ) | | | | (9,277 | ) | ||||||||||||||||||||||
Other comprehensive income |
| | | | | | | 5,554 | | 5,554 | ||||||||||||||||||||||||||
Net income, as restated |
| | | | | | | | 42,649 | 42,649 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Restated Balance at December 31, 2003 |
53,474,403 | 535 | 104,945 | 172,500 | 100,000 | 1,408,277 | (4,469 | ) | (3,650 | ) | (338,605 | ) | 1,439,533 | |||||||||||||||||||||||
Issuance of Common Stock |
173,313 | 2 | | | | 3,270 | | | | 3,272 | ||||||||||||||||||||||||||
Conversion of Common Units to Common Stock |
54,308 | | | | | 1,404 | | | | 1,404 | ||||||||||||||||||||||||||
Common Stock dividends |
| | | | | | | | (91,198 | ) | (91,198 | ) | ||||||||||||||||||||||||
Preferred Stock dividends |
| | | | | | | | (30,852 | ) | (30,852 | ) | ||||||||||||||||||||||||
Adjustment to minority interest of unitholders in the Operating Partnership |
| | | | | (883 | ) | | | | (883 | ) | ||||||||||||||||||||||||
Issuance of deferred compensation |
111,398 | 1 | | | | 2,806 | (2,807 | ) | | | | |||||||||||||||||||||||||
Fair market value of options granted |
| | | | | 1,256 | (1,256 | ) | | | | |||||||||||||||||||||||||
Amortization of deferred compensation |
| | | | | | 4,421 | | | 4,421 | ||||||||||||||||||||||||||
Other comprehensive income |
| | | | | | | 836 | | 836 | ||||||||||||||||||||||||||
Net income |
| | | | | | | | 41,577 | 41,577 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance at December 31, 2004 |
53,813,422 | $ | 538 | $ | 104,945 | $ | 172,500 | $ | 100,000 | $ | 1,416,130 | $ | (4,111 | ) | $ | (2,814 | ) | $ | (419,078 | ) | $ | 1,368,110 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-5
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2004, 2003 and 2002
2004
|
2003
|
2002
|
||||||||||
(restated) | (restated) | |||||||||||
Operating activities: |
||||||||||||
Income from continuing operations |
$ | 37,284 | $ | 29,572 | $ | 57,069 | ||||||
Adjustments to reconcile income from continuing operations to net cash provided by operating activities: |
||||||||||||
Depreciation |
115,837 | 122,001 | 119,423 | |||||||||
Amortization of lease commissions |
16,580 | 17,100 | 17,028 | |||||||||
Amortization of lease incentives |
966 | 796 | 551 | |||||||||
Impairment of assets held for use |
1,270 | | 9,919 | |||||||||
Amortization of deferred compensation |
4,421 | 3,204 | 1,501 | |||||||||
Amortization of deferred financing costs |
3,698 | 4,398 | 3,646 | |||||||||
Amortization of accumulated other comprehensive loss |
757 | 1,688 | 1,543 | |||||||||
Loss on debt extinguishments |
12,457 | 14,653 | 360 | |||||||||
Gain on extinguishment of co-venture obligation |
| (16,301 | ) | | ||||||||
Gains and impairments on disposition of property, net |
(21,636 | ) | (9,552 | ) | (22,772 | ) | ||||||
Minority interest in the Operating Partnership |
849 | 3 | 3,794 | |||||||||
Equity in earnings of unconsolidated affiliates |
(7,398 | ) | (4,760 | ) | (5,422 | ) | ||||||
Discontinued operations |
3,951 | 7,995 | 22,021 | |||||||||
Change in financing obligations |
2,719 | 3,720 | 4,291 | |||||||||
Change in co-venture obligation |
| (987 | ) | 3,029 | ||||||||
Distributions of earnings from unconsolidated affiliates |
6,775 | 4,558 | 5,949 | |||||||||
Changes in operating assets and liabilities: |
||||||||||||
Accounts receivable, net |
32 | 1,087 | 10,134 | |||||||||
Prepaid expenses and other assets |
481 | 9,147 | (8,500 | ) | ||||||||
Accrued straight-line rents receivable |
(7,401 | ) | (8,840 | ) | (5,141 | ) | ||||||
Accounts payable, accrued expenses and other liabilities |
940 | (12,916 | ) | (670 | ) | |||||||
|
|
|
|
|
|
|
|
|
||||
Net cash provided by operating activities |
172,582 | 166,566 | 217,753 | |||||||||
|
|
|
|
|
|
|
|
|
||||
Investing activities: |
||||||||||||
Additions to real estate assets and deferred leasing costs |
(126,995 | ) | (132,071 | ) | (129,763 | ) | ||||||
Proceeds from disposition of real estate assets |
174,132 | 245,471 | 235,399 | |||||||||
Repayments from unconsolidated affiliates |
| | 788 | |||||||||
Distributions of capital from unconsolidated affiliates |
9,156 | 3,283 | 3,149 | |||||||||
Net repayments in notes receivable |
1,399 | 3,563 | 6,443 | |||||||||
Contributions to unconsolidated affiliates |
(9,866 | ) | | | ||||||||
Other investing activities |
362 | (1,325 | ) | 2,383 | ||||||||
|
|
|
|
|
|
|
|
|
||||
Net cash provided by investing activities |
48,188 | 118,921 | 118,399 | |||||||||
|
|
|
|
|
|
|
|
|
||||
Financing activities: |
||||||||||||
Distributions paid on common stock and common units |
(101,643 | ) | (111,804 | ) | (141,176 | ) | ||||||
Settlement of interest rate swap agreement |
| 3,866 | | |||||||||
Dividends paid on preferred stock |
(30,852 | ) | (30,852 | ) | (30,852 | ) | ||||||
Net proceeds from the sale of common stock |
3,272 | 1,976 | 5,606 | |||||||||
Repurchase of common stock and common units |
(1,165 | ) | (19,072 | ) | (4,408 | ) | ||||||
Borrowings on revolving loans |
403,500 | 279,500 | 211,500 | |||||||||
Repayment of revolving loans |
(288,500 | ) | (282,000 | ) | (382,500 | ) | ||||||
Borrowings on mortgages and notes payable |
15,490 | 247,500 | 74,537 | |||||||||
Repayment of mortgages and notes payable |
(140,375 | ) | (321,250 | ) | (95,030 | ) | ||||||
Borrowings on financing obligations |
| | 41,226 | |||||||||
Payments on financing obligations |
(63,187 | ) | (609 | ) | (538 | ) | ||||||
Payments on co-venture obligation |
| (26,223 | ) | | ||||||||
Additions to deferred financing costs |
(2,067 | ) | (4,337 | ) | (1,517 | ) | ||||||
Payments on debt extinguishments |
(12,457 | ) | (16,282 | ) | (378 | ) | ||||||
|
|
|
|
|
|
|
|
|
||||
Net cash used in financing activities |
(217,984 | ) | (279,587 | ) | (323,530 | ) | ||||||
|
|
|
|
|
|
|
|
|
||||
Net increase in cash and cash equivalents |
2,786 | 5,900 | 12,622 | |||||||||
Cash and cash equivalents at beginning of the year |
21,696 | 15,796 | 3,174 | |||||||||
|
|
|
|
|
|
|
|
|
||||
Cash and cash equivalents at end of the year |
$ | 24,482 | $ | 21,696 | $ | 15,796 | ||||||
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-6
HIGHWOODS PROPERTIES, INC.
Consolidated Statements of Cash Flows - Continued
(in thousands)
For the Years Ended December 31, 2004, 2003 and 2002
Supplemental disclosure of cash flow information:
2004
|
2003
|
2002
|
|||||||
(restated) | (restated) | ||||||||
Cash paid for interest |
$ | 107,503 | $ | 125,102 | $ | 128,474 | |||
|
|
|
|
|
|
Supplemental disclosure of non-cash investing and financing activities:
The following table summarizes the net assets acquired/disposed subject to mortgage notes payable and other non-cash transactions:
2004
|
2003
|
2002
|
||||||||||
(restated) | (restated) | |||||||||||
Assets: |
||||||||||||
Net real estate assets |
$ | (147,202 | ) | $ | 706 | $ | 29,960 | |||||
Cash and cash equivalents |
| | 353 | |||||||||
Accounts receivable |
| (1,797 | ) | 139 | ||||||||
Notes receivable |
1,055 | 2,794 | 447 | |||||||||
Investment in unconsolidated affiliates |
11,131 | 4,377 | (1,099 | ) | ||||||||
Deferred leasing costs |
260 | (156 | ) | (513 | ) | |||||||
Prepaid and other |
(104 | ) | 855 | | ||||||||
Accumulated amortization |
| 13 | 31 | |||||||||
|
|
|
|
|
|
|
|
|
||||
$ | (134,860 | ) | $ | 6,792 | $ | 29,318 | ||||||
|
|
|
|
|
|
|
|
|
||||
Liabilities: |
||||||||||||
Mortgages and notes payable |
$ | (135,815 | ) | $ | | $ | 23,366 | |||||
Accounts payable, accrued expenses and other liabilities |
955 | 6,792 | 6,934 | |||||||||
|
|
|
|
|
|
|
|
|
||||
$ | (134,860 | ) | $ | 6,792 | $ | 30,300 | ||||||
|
|
|
|
|
|
|
|
|
||||
Minority Interest and Stockholders Equity: |
$ | | $ | | $ | (982 | ) | |||||
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-7
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
(tabular dollar amounts in thousands, except per share data)
1. D ESCRIPTION OF B USINESS AND S IGNIFICANT A CCOUNTING P OLICIES
Description of the Company
Highwoods Properties, Inc., together with its consolidated subsidiaries (the Company), is a fully-integrated, self-administered and self-managed equity real estate investment trust (REIT) that operates in the southeastern and midwestern United States. As of December 31, 2004, the Companys wholly owned assets included: 444 in-service office, industrial and retail properties; 125 apartment units; 1,115 acres of undeveloped land suitable for future development; and an additional four properties under development.
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 Realty Limited Partnership (the Operating Partnership). The Company is the sole general partner of the Operating Partnership. At December 31, 2004, the Company owned 100.0% of the preferred partnership interests (Preferred Units) and 89.8% of the common partnership interests (Common Units) in the Operating Partnership. Limited partners (including certain officers and directors of the Company) own the remaining Common Units. Each Common Unit is redeemable for the cash value of one share of the Companys common stock, $.01 par value (the Common Stock), or, at the Companys option, one share of Common Stock. In 2004, the Company redeemed in cash from limited partners 46,588 Common Units and converted 54,308 Common Units to shares of Common Stock, which increased the percentage of Common Units owned by the Company from 89.5% at December 31, 2003 to 89.8% at December 31, 2004. The three series of Preferred Units in the Operating Partnership as of December 31, 2004 were issued to the Company in connection with the Companys three preferred stock offerings in 1997 and 1998 (the Preferred Stock). The net proceeds raised from each of the three Preferred Stock issuances were contributed by the Company to the Operating Partnership in exchange for the Preferred Units. The terms of each series of Preferred Units generally parallel the terms of the respective Preferred Stock as to dividends, liquidation and redemption rights as more fully described in Note 9.
Basis of Presentation
The Consolidated Financial Statements of the Company include the Operating Partnership, wholly owned subsidiaries and those subsidiaries in which the Company owns a majority voting interest with the ability to control operations of the subsidiaries and where no approval, veto or other important rights have been granted to the minority stockholders. In accordance with Statement of Position 78-9, Accounting for Investments in Real Estate Ventures, the Company consolidates partnerships, joint ventures and limited liability companies when the Company controls the major operating and financial policies of the entity through majority ownership or in its capacity as general partner or managing member. The Company does not consolidate entities where the other interest holders have important rights, including the right to approve decisions to encumber the entities with debt and acquire or dispose of properties. In addition, the Company consolidates those entities, if any, where the Company is deemed to be the primary beneficiary in a variable interest entity (as defined by FASB Interpretation No. 46 (revised December 2003) Consolidation of Variable Interest Entities (FIN 46)). All significant intercompany transactions and accounts have been eliminated.
The Company has elected and expects to continue to qualify as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the Code). As a REIT, the Company generally will not be subject to federal or state income taxes on its net income that it distributes to stockholders. Continued qualification as a REIT depends on the Companys ability to satisfy the dividend distribution tests, stock ownership requirements and various other qualification tests prescribed in the Code. In June 1994, the Company formed a taxable REIT subsidiary, as permitted under the Code, through which it conducts certain business activities. The taxable REIT subsidiary is subject to federal and state income taxes on its net taxable income and the Company records provisions for such taxes, to the extent required, based on its income recognized for financial statement purposes, including the effects of temporary differences between such income and the amount recognized for tax purposes.
F-8
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
1. D ESCRIPTION OF B USINESS AND S IGNIFICANT A CCOUNTING P OLICIES - Continued
Restated and Reclassified Financial Data
As more fully described in Notes 19 and 20, the Company has restated its Consolidated Financial Statements for the years ended December 31, 2003 and 2002 and for the first, second and third quarters of 2004. The restatement resulted from adjustments primarily related to the accounting for lease incentives, depreciation and amortization expense, straight-line ground lease expense on one ground lease, gain recognition on a 2003 land condemnation, land cost allocations, the write-off of undepreciated tenant improvements and commissions, capitalization of interest and internal leasing, construction and development costs on development properties, and purchase accounting for acquisitions completed in 1995 to 1998. The following provides the impact of these restatement adjustments on net income for the years ended December 31, 2004, 2003 and 2002, respectively:
Years Ended December 31,
|
||||||||||||
2004
|
2003
|
2002
|
||||||||||
Depreciation and amortization expense |
$ | (1,305 | ) | $ | (1,529 | ) | $ | (1,118 | ) | |||
Ground lease straight line rent expense |
(225 | ) | (239 | ) | (251 | ) | ||||||
Gain on land condemnation |
| (1,038 | ) | | ||||||||
Embedded derivatives |
(406 | ) | (680 | ) | 1,299 | |||||||
Allocation of land costs |
(10 | ) | (2,157 | ) | 427 | |||||||
Write-off of undepreciated tenant improvements and lease commissions |
3,085 | (1,466 | ) | (889 | ) | |||||||
Property operating cost recovery income accruals |
112 | (703 | ) | (223 | ) | |||||||
Internal cost capitalization (1) |
416 | 514 | 320 | |||||||||
Interest capitalization (1) |
1,853 | 1,516 | (551 | ) | ||||||||
Purchase accounting (1) |
(625 | ) | 1,221 | (449 | ) | |||||||
Other |
428 | (1,564 | ) | (595 | ) | |||||||
Minority interest |
(341 | ) | 830 | 205 | ||||||||
|
|
|
|
|
|
|
|
|
||||
Total |
$ | 2,982 | $ | (5,295 | ) | $ | (1,825 | ) | ||||
|
|
|
|
|
|
|
|
|
||||
Net income per share diluted |
$ | 0.05 | $ | (0.08 | ) | $ | (0.03 | ) | ||||
|
|
|
|
|
|
|
|
|
(1) | The effects from these adjustments are shown net of related depreciation expense and gains or losses on sales caused by changes made to the value of real estate assets. |
Minority Interest in the Operating Partnership
Minority interest in the accompanying Consolidated Financial Statements relates to the common ownership interests in the Operating Partnership owned by various individuals and entities other than the Company. As of December 31, 2004, the minority interest in the Operating Partnership consisted of 6.1 million Common Units. Minority interest in the net income of the Operating Partnership is computed by applying the weighted average percentage of Common Units not owned by the Company (as a percent of the total number of outstanding Common Units) to the Operating Partnerships net income after deducting distributions on Preferred Units. The result is the amount of minority interest expense recorded for the period. In addition, when a Common Unitholder redeems a Common Unit for a share of Common Stock or cash, the minority interest is reduced and the Companys share in the Operating Partnership is increased. At the end of each reporting period, the Company determines the amount that represents the minority unitholders share of the net assets (at book value) of the Operating Partnership and compares this amount to the minority interest balance that resulted from transactions during the period involving minority interest. The Company adjusts the minority interest liability to the computed share of net assets with an offsetting adjustment to the Companys paid in capital.
F-9
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
1. D ESCRIPTION OF B USINESS AND S IGNIFICANT A CCOUNTING P OLICIES - Continued
Following is the minority interest in the net income of the Operating Partnership:
Years Ended December 31,
|
|||||||||
2004
|
2003
|
2002
|
|||||||
(restated) | (restated) | ||||||||
Amount shown as minority interest in continuing operations |
$ | 849 | $ | 3 | $ | 3,794 | |||
Amount related to income from discontinued operations |
173 | 418 | 1,576 | ||||||
Amount related to gain on sale of discontinued operations |
323 | 929 | 1,543 | ||||||
|
|
|
|
|
|
||||
Total minority interest in net income of the Operating Partnership |
$ | 1,345 | $ | 1,350 | $ | 6,913 | |||
|
|
|
|
|
|
Real Estate and Related Assets
Real estate and related assets are recorded at cost and stated at cost less accumulated depreciation. Renovations, replacements and other expenditures that improve or extend the life of an asset are capitalized and depreciated over their estimated useful lives. Expenditures for ordinary maintenance and repairs are charged to operating expense as incurred. Depreciation is computed using the straight-line method over the estimated useful life of 40 years for buildings and depreciable land infrastructure costs, 15 years for building improvements and five to seven years for furniture, fixtures and equipment. Tenant improvements are amortized over the life of the respective leases, using the straight-line method.
Expenditures directly related to the development and construction of real estate assets are included in net real estate assets and are stated at cost in the Consolidated Balance Sheets. The Companys capitalization policy on development properties is in accordance with SFAS No. 67, Accounting for Costs and the Initial Rental Operations of Real Estate Properties, SFAS No. 34, Capitalization of Interest Costs, and SFAS No. 58, Capitalization of Interest Cost in Financial Statements That Include Investments Accounted for by the Equity Method. Development expenditures include pre-construction costs essential to the development of properties, development and construction costs, interest costs, real estate taxes, salaries and related costs and other costs incurred during the period of development. Interest and other carrying costs are capitalized until the building is ready for its intended use. The Company considers a construction project as substantially completed and held available for occupancy upon the completion of tenant improvements, but no later than one year from cessation of major construction activity. The Company ceases capitalization on the portion substantially completed and occupied or held available for occupancy, and capitalizes only those costs associated with the portion under construction.
Expenditures directly related to the leasing of properties are included in deferred leasing costs and are stated at cost in the Consolidated Balance Sheets. The Company capitalizes initial direct costs related to its leasing efforts in accordance with SFAS No. 91 Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases. All leasing commissions paid to third parties for new leases or lease renewals are capitalized. Internal leasing costs include primarily compensation, benefits and other costs such as legal fees related to leasing activities that are incurred in connection with successfully securing leases on the properties. Capitalized leasing costs are amortized on a straight-line basis over the estimated lives of the respective leases. Estimated costs related to unsuccessful activities are expensed as incurred. If the Companys assumptions regarding the successful efforts of leasing are incorrect, the resulting adjustments could impact earnings.
Upon the acquisition of real estate, the Company assesses the fair value of acquired tangible assets such as land, buildings and tenant improvements, intangible assets such as above and below market leases, acquired-in place leases and other identified intangible assets and assumed liabilities in accordance with SFAS No. 141, Business Combinations. The Company allocates the purchase price to the acquired assets and assumed liabilities based on their relative fair values. The Company assesses and considers fair value based on estimated cash flow projections that utilize appropriate discount and/or capitalization rates as well as available market information. The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant.
F-10
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
1. D ESCRIPTION OF B USINESS AND S IGNIFICANT A CCOUNTING P OLICIES - Continued
Above and below market leases acquired are recorded at their fair value. Fair value is calculated as the present value of the difference between (1) the contractual amounts to be paid pursuant to each in-place lease and (2) managements estimate of fair market lease rates for each corresponding in-place lease, using a discount rate that reflects the risks associated with the leases acquired and measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed rate renewal options for below-market leases. The capitalized above-market lease values are amortized as a reduction of base rental revenue over the remaining term of the respective leases and the capitalized below-market lease values are amortized as an increase to base rental revenue over the remaining term of the respective leases and any below market option periods. If a tenant vacates its space prior to its contractual expiration date, any unamortized balance is adjusted through rental revenue.
The value of in-place leases is based on the Companys evaluation of the specific characteristics of each tenants lease. Factors considered include estimates of carrying costs during hypothetical expected lease-up periods, current market conditions and costs to execute similar leases. In estimating carrying costs, the Company includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods, depending on local market conditions. In estimating costs to execute similar leases, the Company considers tenant improvements, leasing commissions and legal and other related expenses. The value of in-place leases is amortized to depreciation and amortization expense over the remaining term of the respective leases. If a tenant vacates its space prior to its contractual expiration date, any unamortized balance of its related intangible asset is expensed.
The value of a tenant relationship is based on the Companys overall relationship with the respective tenant. Factors considered include the tenants credit quality and expectations of lease renewals. The value of a tenant relationship is amortized to expense over the initial term and any renewal periods defined in the respective leases. Based on the Companys acquisitions since the adoption of SFAS No. 141 and SFAS No. 142, the Company has deemed tenant relationships to be immaterial and has not allocated any amounts to this intangible asset.
Real estate and leasehold improvements are classified as long-lived assets held for sale or as long-lived assets to be held for use. Real estate is classified as held for sale when the criteria set forth in SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, are satisfied; this determination requires management to make estimates and assumptions, including assessing the probability that potential sales transactions may or may not occur. Actual results could differ from those assumptions. In accordance with SFAS No. 144, the Company records assets held for sale at the lower of the carrying amount or estimated fair value. Fair value of assets held for sale is equal to the estimated or contracted sales price with a potential buyer, less costs to sell. The impairment loss is the amount by which the carrying amount exceeds the estimated fair value. With respect to assets classified as held for use, if events or changes in circumstances, such as a significant decline in occupancy and change in use, indicate that the carrying value may be impaired, an impairment analysis is performed. Such analysis consists of determining whether the assets carrying amount will be recovered from its undiscounted estimated future operating cash flows. These cash flows are estimated based on a number of assumptions that are subject to economic and market uncertainties including, among others, demand for space, competition for tenants, changes in market rental rates and costs to operate each property. If the carrying amount of a held for use asset exceeds the sum of its undiscounted future operating and residual cash flows, an impairment loss is recorded for the difference between estimated fair value of the asset and the net carrying amount. The Company generally estimates the fair value of assets held for use by using discounted cash flow analysis; in some instances, appraisal information may be available and is used in addition to the discounted cash flow analysis. As the factors used in generating these cash flows are difficult to predict and are subject to future events that may alter the Companys assumptions, the discounted and/or undiscounted future operating and residual cash flows estimated by the Company in its impairment analyses or those established by appraisal may not be achieved and the Company may be required to recognize future impairment losses on its properties held for sale and held for use.
F-11
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
1. D ESCRIPTION OF B USINESS AND S IGNIFICANT A CCOUNTING P OLICIES - Continued
Sales of Real Estate
The Company accounts for sales of real estate in accordance with SFAS No. 66. For sales transactions meeting the requirements of SFAS No. 66 for full profit recognition, the related assets and liabilities are removed from the balance sheet and the resultant gain or loss is recorded in the period the transaction closes. For sales transactions that do not meet the criteria for full profit recognition, the Company accounts for the transactions in accordance with the methods specified in SFAS No. 66. For sales transactions with continuing involvement after the sale, if the continuing involvement with the property is limited by the terms of the sales contract, profit is recognized at the time of sale and is reduced by the maximum exposure to loss related to the nature of the continuing involvement. Sales to entities in which the Company has an interest are accounted for in accordance with partial sale accounting provisions as set forth in SFAS No. 66.
For sales transactions that do not meet sale criteria as set forth in SFAS No. 66, the Company evaluates the nature of the continuing involvement, including put and call provisions, if present, and accounts for the transaction as a financing arrangement, profit-sharing arrangement or other alternate method of accounting rather than as a sale, based on the nature and extent of the continuing involvement. Some transactions may have numerous forms of continuing involvement. In those cases, the Company determines which method is most appropriate based on the substance of the transaction.
If the Company has an obligation to repurchase the property at a higher price or at a future indeterminable value (such as fair market value), or it guarantees the return of the buyers investment or a return on that investment for an extended period, the Company accounts for such transaction as a financing transaction. If the Company has an option to repurchase the property at a higher price and it is likely it will exercise this option, the transaction is accounted for as a financing transaction. For transactions treated as financings, the Company records the amounts received from the buyer as a financing obligation and continues to keep the property and related accounts recorded on its books. The results of operations of the property, net of expenses other than depreciation (net operating income), will be reflected as interest expense on the financing obligation. If the transaction includes an obligation or option to repurchase the asset at a higher price, additional interest is recorded to accrete the liability to the repurchase price. For options or obligations to repurchase the asset at fair market value at the end of each reporting period, the balance of the liability is adjusted to equal the current fair value to the extent fair value exceeds the original financing obligation. The corresponding debit or credit will be recorded to a related discount account and the revised debt discount is amortized over the expected term until termination of the option or obligation. If it is unlikely such option will be exercised, the transaction is accounted for under the deposit method or profit-sharing method. If the Company has an obligation or option to repurchase at a lower price, the transaction is accounted for as a leasing arrangement. At such time as these repurchase obligations expire, a sale will be recorded and gain recognized.
If the Company retains an interest in the buyer and provides certain rent guarantees or other forms of support where the maximum exposure to loss exceeds the gain, the Company accounts for such transaction as a profit-sharing arrangement. For transactions treated as profit-sharing arrangements, the Company records a profit-sharing obligation for the amount of equity contributed by the other partner and continues to keep the property and related accounts recorded on its books. The results of operations of the property, net of expenses other than depreciation (net operating income), are allocated to the other partner for their percentage interest and reflected as co-venture expense in the Companys Consolidated Financial Statements. In future periods, a sale is recorded and profit is recognized when the remaining maximum exposure to loss is reduced below the amount of gain deferred.
Lease Incentives
The Company accounts for lease incentive costs, which are payments made to or on behalf of a tenant, as an incentive to sign the lease, in accordance with FASB Technical Bulletin (FTB) 88-1, Issues Relating to Accounting for Leases. These costs are capitalized in deferred leasing costs and amortized on a straight-line basis over the respective lease terms as a reduction of rental revenues.
F-12
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
1. D ESCRIPTION OF B USINESS AND S IGNIFICANT A CCOUNTING P OLICIES - Continued
Discontinued Operations
Properties that are sold or classified as held for sale are classified as discontinued operations in accordance with SFAS No. 144, provided that (1) the operations and cash flows of the property will be eliminated from the ongoing operations of the Company and (2) the Company will not have any significant continuing involvement in the operations of the property after it is sold. If the property is sold to a joint venture in which the Company retains an interest, the property will not be accounted for as a discontinued operation due to the Companys ongoing interest in the operations through its joint venture interest. If the Company is retained to provide property management, leasing and/or other services for the property owner after the sale, the property will not be accounted for as discontinued operations due to the Companys ongoing interest in the operations through its providing of such services. The operations of properties classified as held for sale in which the Company could potentially provide future property management, leasing and/or other services are also not classified as discontinued operations. See Note 12 for further discussion.
Investments in Joint Ventures
The Company accounts for its investments in unconsolidated affiliates under the equity method of accounting as the Company exercises significant influence, but does not control the major operating and financial policies of the entity regarding encumbering the entities with debt and the acquisition or disposal of properties. These investments are initially recorded at cost, as investments in unconsolidated affiliates, and are subsequently adjusted for the Companys share of earnings and cash contributions and distributions. To the extent the Companys cost basis is different than the basis reflected at the joint venture level, the basis difference is amortized over the life of the related asset and included in the Companys share of equity in earnings of unconsolidated affiliates.
From time to time, the Company contributes real estate assets to a joint venture in exchange for a combination of cash and an equity interest in the venture. The Company assesses its continuing involvement in the joint venture and accounts for the transaction according to the nature and extent of the involvement. If substantially all the risks and rewards of ownership have transferred, a gain is recognized to the extent of the third party investors interest and the Company accounts for its interest in the joint venture under the equity method of accounting as an unconsolidated affiliate as described in the preceding paragraph. However, if substantially all the risks and rewards have not transferred, depending upon the nature and extent of the involvement, the transaction is accounted for as a financing or profit-sharing arrangement or other alternate method of accounting rather than as a sale under paragraph 25 through 29 of SFAS No. 66 and the assets, liabilities and operations of such joint ventures are included on the Companys Consolidated Financial Statements. See also Sales of real estate above.
Additionally, the joint ventures will frequently borrow money on their own behalf to finance the acquisition of, and/or leverage the return upon, the properties being acquired by the joint venture or to build or acquire additional buildings. Such borrowings are typically on a non-recourse or limited recourse basis. The Company generally is not liable for the debts of its joint ventures, except to the extent of the Companys equity investment, unless the Company has directly guaranteed any of that debt. (See Note 15 for further discussion). In most cases, the Company and/or its joint venture partners are required to guarantee customary limited exceptions to non-recourse liability in non-recourse loans.
F-13
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
1. D ESCRIPTION OF B USINESS AND S IGNIFICANT A CCOUNTING P OLICIES - Continued
Rental and Other Revenues
Rental and other revenues from continuing operations consist of the following:
Years Ended December 31,
|
||||||||||||
2004
|
2003
|
2002
|
||||||||||
(restated) | (restated) | |||||||||||
Contractual rents |
$ | 405,118 | $ | 429,653 | $ | 451,109 | ||||||
Straight-line rental income, net |
7,369 | 8,512 | 5,576 | |||||||||
Lease incentive amortization |
(966 | ) | (796 | ) | (551 | ) | ||||||
Property operating cost recovery income |
36,672 | 39,854 | 44,223 | |||||||||
Lease termination fees |
3,939 | 6,091 | 4,158 | |||||||||
Fee income |
4,648 | 3,435 | 3,292 | |||||||||
Other miscellaneous operating income |
7,944 | 5,756 | 2,608 | |||||||||
|
|
|
|
|
|
|
|
|
||||
$ | 464,724 | $ | 492,505 | $ | 510,415 | |||||||
|
|
|
|
|
|
|
|
|
In accordance with U.S. Generally Accepted Accounting Principles (GAAP), rental revenue is recognized on a straight-line basis over the terms of the respective leases. This means that, with respect to a particular lease, actual amounts billed in accordance with the lease during any given period may be higher or lower than the amount of rental revenue recognized for the period. Accrued straight-line rents receivable represents the amount by which straight-line rental revenue exceeds rents currently billed in accordance with lease agreements. Termination fees are recognized as revenue when the following four conditions are met: a fully executed lease termination agreement has been delivered; the tenant has vacated the space; the amount of the fee is determinable; and collectibility of the fee is reasonably assured.
Property operating cost recoveries from tenants (or cost reimbursements) are determined on a lease-by-lease basis. The most common types of cost reimbursements in the Companys leases are common area maintenance (CAM) and real estate taxes, where the tenant pays its pro-rata share of operating and administrative expenses and real estate taxes.
The computation of cost reimbursements from tenants for CAM and real estate taxes is complex and involves numerous judgments, including the interpretation of terms and other tenant lease provisions. Leases are not uniform in dealing with such cost reimbursements and there are many variations in the computation. Many tenants make monthly fixed payments of CAM, real estate taxes and other cost reimbursement items. The Company records these payments as income each month. The Company makes adjustments, positive or negative, to cost recovery income to adjust the recorded amounts to the Companys best estimate of the final amounts to be billed and collected with respect to the cost reimbursements. After the end of the calendar year, the Company computes each tenants final cost reimbursements and, after considering amounts paid by the tenants during the year, issues a bill or credit for the appropriate amount to the tenant. The differences between the amounts billed less previously received payments and the accrual adjustment are recorded as increases or decreases to cost recovery income when the final bills are prepared, usually beginning in March and completed by mid-year. The net amounts of any such adjustments have not been material in any of the years presented.
F-14
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
1. D ESCRIPTION OF B USINESS AND S IGNIFICANT A CCOUNTING P OLICIES - Continued
Operating Expenses Rental Property and Other Expenses
Rental property and other operating expenses from continuing operations consist of the following:
Years Ended December 31,
|
|||||||||
2004
|
2003
|
2002
|
|||||||
(restated) | (restated) | ||||||||
Maintenance, cleaning and general building |
$ | 60,083 | $ | 62,112 | $ | 62,004 | |||
Utility, insurance and real estate taxes |
87,635 | 90,525 | 88,674 | ||||||
Division and allocated administrative |
12,702 | 13,326 | 11,329 | ||||||
Other miscellaneous operating expenses |
8,011 | 6,875 | 4,248 | ||||||
|
|
|
|
|
|
||||
$ | 168,431 | $ | 172,838 | $ | 166,255 | ||||
|
|
|
|
|
|
Allowance for Doubtful Accounts
Accounts receivable are reduced by an allowance for amounts that may become uncollectible in the future. The Companys receivable balance is comprised primarily of rents and operating cost recoveries due from tenants as well as accrued straight-line rents receivable. The Company regularly evaluates the adequacy of its allowance for doubtful accounts. The evaluation primarily consists of reviewing past due account balances and considering such factors as the credit quality of the tenant, historical trends of the tenant and/or other debtor, current economic conditions and changes in customer payment terms. Additionally, with respect to tenants in bankruptcy, the Company estimates the expected recovery through bankruptcy claims and increases the allowance for amounts deemed uncollectible. If the Companys assumptions regarding the collectibility of accounts receivable and accrued straight-line rents receivable prove incorrect, the Company could experience write-offs of accounts receivable or accrued straight-line rents receivable in excess of its allowance for doubtful accounts.
Cash Equivalents
The Company considers highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
Restricted Cash
Restricted cash includes security deposits for the Companys commercial properties and construction-related escrows. In addition, the Company maintains escrow and reserve funds for debt service, real estate taxes and property insurance established pursuant to certain mortgage financing arrangements.
Income Taxes
The Company is a REIT for federal income tax purposes. A corporate REIT is a legal entity that holds real estate assets and, through the payment of dividends to stockholders, is permitted to reduce or avoid the payment of federal and state income taxes at the corporate level. As of December 31, 2004, to maintain qualification as a REIT, the Company was required to distribute to its stockholders at least 90.0% of its REIT taxable income, excluding capital gains.
No provision has been made for federal and state income taxes during the years ended December 31, 2004, 2003 and 2002 because the Company qualified as a REIT, distributed the necessary amount of taxable income and, therefore, incurred no income tax expense during the periods. In addition, no provision has been required for federal and state income taxes with respect to the Companys taxable REIT subsidiary because it has had no taxable income for financial reporting purposes since its formation. If the Company decided to sell certain properties acquired in prior years, the Company would incur a corporate-level tax under Section 1374 of the Internal Revenue Code on the built-in gain relating to such properties unless such properties were sold in a tax-free exchange under Section 1031 of the Internal Revenue Code or another tax-free or tax-deferred transaction. This situation applies solely to assets acquired in the merger with J.C. Nichols Company in July 1998 and the tax under Section 1374 does not apply after the Company has owned the assets for 10 years or more.
F-15
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
1. D ESCRIPTION OF B USINESS AND S IGNIFICANT A CCOUNTING P OLICIES - Continued
Concentration of Credit Risk
Management of the Company performs ongoing credit evaluations of its tenants. As of December 31, 2004, the properties (excluding apartment units) to which the Company holds title and has 100.0% ownership rights (the Wholly Owned Properties) were leased to 2,546 tenants in 13 geographic locations. The Companys tenants engage in a wide variety of businesses. No single tenant of the Companys Wholly Owned Properties currently generates more than 4.0% of the Companys consolidated revenues. In addition, as described in Note 15, in connection with various real estate sales transactions, the Company has guaranteed to the buyers the rental income during various future periods due from Capital One Services, Inc., a subsidiary of Capital One Financial Services, Inc. The maximum exposure under these guarantees related to Capital One Services, Inc. aggregated $13.8 million at December 31, 2004.
Stock Compensation
The Company generally grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. As described in Note 14, the Company elected to follow Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for its stock options issued through December 31, 2002. During 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 148, Accounting for Stock-Based Compensation Transition and Disclosure, which provides methods of transition to the fair value based method of accounting for stock-based employee compensation. This standard is effective for financial statements issued for fiscal years beginning after December 15, 2002. The Company elected the prospective method as defined by SFAS No. 148 for options issued on or after January 1, 2003.
Awards granted under the Companys Shareholder Value Plans are accounted for using variable plan accounting. See Note 6 for further discussion.
Restricted Stock Grants
The Company has a long-term incentive plan under which it makes annual grants of restricted shares of Common Stock. The restricted shares generally vest 50.0% three years from the date of grant and the remaining 50.0% five years from date of grant. Restricted shares are recorded at market value on date of grant and amortized to expense over the vesting periods.
Fair Value of Derivative Instruments
In the normal course of business, the Company is exposed to the effect of interest rate changes. The Company limits its exposure by following established risk management policies and procedures, including the use of derivatives. To mitigate its exposure to unexpected changes in interest rates, derivatives are used primarily to hedge against rate movements on the Companys variable rate debt. The Company is required to recognize all derivatives as either assets or liabilities in its Consolidated Balance Sheets and to measure those instruments at fair value. Changes in fair value will affect either stockholders equity or net income depending on whether the derivative instrument qualifies as a hedge for accounting purposes.
To determine the fair value of derivative instruments, the Company uses a variety of methods and assumptions that are based on market conditions and risks existing at each balance sheet date. For the majority of financial instruments, including most derivatives, standard market conventions and techniques such as discounted cash flow analysis, option pricing models, replacement cost and termination cost are used to determine fair value. All methods of assessing fair value result in a general approximation of value, and such value may never actually be realized.
F-16
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
1. D ESCRIPTION OF B USINESS AND S IGNIFICANT A CCOUNTING P OLICIES - Continued
Earnings Per Share
The Company computes earnings per share in accordance with SFAS No. 128, Earnings per Share. Basic earnings per share is computed by dividing net income available for common stockholders by the weighted average number of shares of Common Stock outstanding. Diluted earnings per share is computed by dividing net income available for common stockholders plus minority interest in the operating partnership by the weighted average number of shares of Common Stock plus the dilutive effect of options, warrants and convertible securities outstanding, including Common Units, using the treasury stock method. Earnings per share data is required for all periods for which an income statement or summary of earnings is presented, including summaries outside the basic financial statements.
Use of Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Impact of Newly Adopted and Issued Accounting Standards
In January 2003, the FASB issued FIN 46, Consolidation of Variable Interest Entities (VIEs), the primary objective of which is to provide guidance on the identification of entities for which control is achieved through means other than voting rights and to determine when and which business enterprise should consolidate VIEs. This new model applies when either (1) the equity investors (if any) do not have a controlling financial interest or (2) the equity investment at risk is insufficient to finance the entitys activities without additional financial support. FIN 46 also requires additional disclosures. According to FIN 46 (revised December 2003), entities shall apply FIN 46 only to special-purpose entities subject to FIN 46 no later than December 31, 2003 and all other entities no later than March 31, 2004. Special-purpose entities are defined as any entity whose activities are primarily related to securitizations or other forms of asset-backed financings or single-lessee leasing arrangements. Given that the Company has no significant variable interests in special-purpose entities, FIN 46 became effective March 31, 2004. See Note 2 for further discussion of the Companys variable interest in The Vinings at University Center, LLC.
In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, with some exceptions, and for hedging relationships designated after June 30, 2003. The guidance was applied prospectively. The provisions of SFAS No. 149 did not have an impact on our financial condition and results of operations. See Note 10 for further discussion of the Companys derivative instruments.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. SFAS No. 150 establishes standards on the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in certain circumstances). SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective July 1, 2003. It is to be implemented by reporting the cumulative effect of a change in an accounting principle for financial instruments created before the issuance date of SFAS No. 150 and still existing at the beginning of the interim period of adoption. At its October 29, 2003 meeting, the FASB voted to defer indefinitely SFAS No. 150 as it relates to non-controlling interests in finite-life entities. As of December 31, 2004, the provisions of SFAS No. 150 do not have a material impact on the Companys financial condition or results of operations.
F-17
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
1. D ESCRIPTION OF B USINESS AND S IGNIFICANT A CCOUNTING P OLICIES - Continued
In July 2005, the FASB issued Staff Position (FSP) SOP 78-9-1, Interaction of AICPA Statement of Position 78-9 and EITF Issue No. 04-5. The EITF reached a consensus on EITF Issue No. 04-5, Determining Whether a General Partner or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights, stating that a general partner is presumed to control a limited partnership and should consolidate the limited partnership unless the limited partners possess substantive kick-out rights or the limited partners possess substantive participating rights. This FSP eliminates the concept of important rights of SOP 78-9 and replaces it with the concepts of kick-out rights and substantive participating rights as defined in Issue 04-5. This FSP is effective after June 29, 2005 for general partners of all new partnerships formed and for existing partnerships for which the partnership agreements are modified. For general partners in all other partnerships, the guidance in this FSP is effective no later than January 1, 2006. The Company currently expects to consolidate one of its existing joint ventures upon the adoption of this FSP in January 2006.
In December 2004, the FASB issued SFAS No. 123 (R), Share-Based Payment, which revises SFAS No. 123, Accounting for Stock-Based Compensation and supercedes APB Opinion No. 25, Accounting for Stock Issued to Employees to require all share-based payments to employees to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. SFAS No. 123 (R) must be adopted no later than January 1, 2006. On January 1, 2006, the Company plans to adopt the modified prospective method in which compensation cost is based on the requirements of SFAS No. 123 (R) for all share-based payments granted after the effective date and based on the requirements of SFAS No. 123 for all awards granted to employees prior to the effective date of SFAS 123 (R) that remain unvested on the effective date. Because the Company has used a fair value based method of accounting for stock-based compensation costs for all employee stock compensation awards granted, modified or settled since January 1, 2003 and does not expect to have significant unvested awards from periods prior to January 1, 2003 outstanding at January 1, 2006, the Company does not expect the adoption of SFAS No. 123 (R) to have a material impact on its financial condition and results of operations upon adoption.
In December 2004, the FASB issued Statement of Financial Accounting Standard No. 153, Exchange of Nonmonetary Assets, an amendment of APB Opinion No. 29 (SFAS No. 153). The amendment eliminates the use of the similar productive assets concept to account for nonmonetary exchanges at book value with no gain being recognized and requires that nonmonetary exchanges be accounted for at fair value, recognizing any gain or loss, if the transactions meet a commercial-substance criterion and fair value is determinable. The Statement is effective for nonmonetary exchanges occurring in fiscal periods beginning after June 15, 2005. The Company does not expect the adoption of SFAS No. 153 to have a material impact on its financial condition and results of operations upon adoption.
In May 2005, the FASB issued Statement of Financial Accounting Standard No. 154, Accounting Changes and Error Corrections (SFAS No. 154). The Statement replaces Accounting Principles Board Opinion No. 20, Accounting Changes (APB Opinion No. 20) and Statement of Financial Accounting Standard No. 3, Reporting Accounting Changes in Interim Financial Statements and changes the requirements for the accounting for and reporting of a change in accounting principle. APB Opinion No. 20 previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. This Statement requires retrospective application to prior periods financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. The Statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company does not expect the adoption of SFAS No. 154 to have a material impact on its financial condition and results of operations upon adoption.
F-18
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
2. I NVESTMENTS IN U NCONSOLIDATED AND O THER A FFILIATES
During the past several years, the Company has formed various joint ventures with unrelated investors. The Company has retained minority equity interests ranging from 12.50% to 50.00% in these joint ventures. The Company generally has accounted for its unconsolidated joint ventures using the equity method of accounting. As a result, the assets and liabilities of these joint ventures for which the Company uses the equity method of accounting are not included on the Companys consolidated balance sheet. One joint venture is accounted for as a financing arrangement pursuant to SFAS No. 66, as described in Note 3, and another joint venture is consolidated pursuant to FIN 46. These two joint ventures are not reflected in the tables below.
Office Property |
Location |
Total Rentable
Square Feet |
Ownership
Interest |
||||
Board of Trade Investment Company |
Kansas City, MO | 165,714 | 49.00 | % | |||
Dallas County Partners I, LP |
Des Moines, IA | 641,223 | 50.00 | % | |||
Dallas County Partners II, LP |
Des Moines, IA | 272,490 | 50.00 | % | |||
Dallas County Partners III, LP |
Des Moines, IA | 6,500 | 50.00 | % | |||
Fountain Three |
Des Moines, IA | 710,197 | 50.00 | % | |||
RRHWoods, LLC |
Des Moines, IA | 768,783 | 50.00 | % | |||
Kessinger/Hunter, LLC |
Kansas City, MO | | 26.50 | % | |||
4600 Madison Associates, LLC |
Kansas City, MO | 261,980 | 12.50 | % | |||
Plaza Colonnade, LLC |
Kansas City, MO | 285,015 | 50.00 | % | |||
Highwoods DLF 98/29, LP |
Atlanta, GA; Charlotte, NC; Greensboro, NC; Raleigh, NC; Orlando, FL; Baltimore, MD |
1,199,194 | 22.81 | % | |||
Highwoods DLF 97/26 DLF 99/32, LP |
Atlanta, GA; Greensboro, NC; Orlando, FL |
821,867 | 42.93 | % | |||
Highwoods KC Glenridge Office, LP |
Atlanta, GA | 185,141 | 40.00 | % | |||
Highwoods KC Glenridge Land, LP |
Atlanta, GA | | 40.00 | % | |||
HIW-KC Orlando LLC |
Orlando, FL | 1,270,058 | 40.00 | % | |||
Concourse Center Associates, LLC |
Greensboro, NC | 118,098 | 50.00 | % | |||
Highwoods-Markel Associates, LLC |
Richmond, VA | 412,534 | 50.00 | % | |||
Weston Lakeside, LLC |
Raleigh, NC | | 50.00 | % | |||
|
|||||||
Total | 7,118,794 | ||||||
|
Combined summarized financial information for our unconsolidated joint ventures is as follows:
December 31,
|
||||||
2004
|
2003
|
|||||
(restated) | ||||||
Balance Sheets: |
||||||
Assets: |
||||||
Real estate, net of accumulated depreciation |
$ | 735,370 | $ | 495,028 | ||
Other assets |
90,883 | 62,084 | ||||
|
|
|
|
|||
Total assets |
$ | 826,253 | $ | 557,112 | ||
|
|
|
|
|||
Liabilities and Partners and Shareholders Equity: |
||||||
Mortgage debt (1) |
$ | 578,944 | $ | 374,949 | ||
Other liabilities |
28,573 | 17,309 | ||||
Partners and shareholders equity |
218,736 | 164,854 | ||||
|
|
|
|
|||
Total Liabilities and Partners and Shareholders Equity Assets |
$ | 826,253 | $ | 557,112 | ||
|
|
|
|
|||
The Companys share of historical partners and shareholders equity |
$ | 61,547 | $ | 46,140 | ||
Net excess of cost of investments over the net book value of underlying net assets (net of accumulated depreciation of $1,615 and $1,360, respectively) (2) |
11,063 | 14,671 | ||||
|
|
|
|
|||
Carrying value of investments in unconsolidated joint ventures |
$ | 72,610 | $ | 60,811 | ||
|
|
|
|
|||
The Companys share of unconsolidated non-recourse mortgage debt (1) |
$ | 245,365 | $ | 158,741 | ||
|
|
|
|
F-19
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
2. I NVESTMENTS IN U NCONSOLIDATED AND O THER A FFILIATES Continued
(1) | The Companys share of the mortgage debt through maturity as of December 31, 2004 is as follows: |
2005 |
$ | 3,251 | |
2006 |
5,571 | ||
2007 |
12,626 | ||
2008 |
10,272 | ||
2009 |
14,687 | ||
Thereafter |
198,958 | ||
|
|
||
$ | 245,365 | ||
|
|
The Company generally is not liable for any of this debt, except to the extent of its investment, unless the Company has directly guaranteed any of the debt (see Note 15). In most cases, the Company and/or its strategic partners are required to guarantee customary limited exceptions to non-recourse liability in non-recourse loans.
(2) | This amount represents the aggregate difference between the Companys historical cost basis and the basis reflected at the joint venture level, which is typically amortized over the life of the related asset. In addition, certain acquisition, transaction and other costs may not be reflected on the net assets at the joint venture level. |
For the Years Ended December 31,
|
|||||||||
2004
|
2003
|
2002
|
|||||||
(restated) | (restated) | ||||||||
Income Statements: |
|||||||||
Revenues |
$ | 115,828 | $ | 93,728 | $ | 96,954 | |||
|
|
|
|
|
|
||||
Expenses: |
|||||||||
Interest expense and loan cost amortization |
27,764 | 22,397 | 23,409 | ||||||
Depreciation and amortization |
24,357 | 18,901 | 19,445 | ||||||
Operating expenses |
48,018 | 40,066 | 39,620 | ||||||
|
|
|
|
|
|
||||
Total expenses |
100,139 | 81,364 | 82,474 | ||||||
|
|
|
|
|
|
||||
Net income |
$ | 15,689 | $ | 12,364 | $ | 14,480 | |||
|
|
|
|
|
|
||||
The Companys share of: |
|||||||||
Net income |
$ | 7,398 | $ | 4,760 | $ | 5,422 | |||
|
|
|
|
|
|
||||
Interest expense and loan cost amortization |
$ | 11,469 | $ | 9,188 | $ | 9,652 | |||
|
|
|
|
|
|
||||
Depreciation and amortization (real estate related) |
$ | 9,044 | $ | 7,469 | $ | 7,778 | |||
|
|
|
|
|
|
The following summarizes the formation and principal activities of the various unconsolidated joint ventures in which the Company has a minority equity interest.
Board of Trade Investment Company; Kessinger/Hunter, LLC; 4600 Madison Associates, LP
In connection with the Companys merger with J.C. Nichols Company in July 1998, the Company acquired a 49.0% interest in Board of Trade Investment Company, a 30.0% interest in Kessinger/Hunter, LLC and a 12.5% interest in 4600 Madison Associates, L.P. The Company is the property manager for the Board of Trade Investment Company and 4600 Madison Associates, L.P. joint ventures, for which it receives property management fees. In addition, Kessinger/Hunter, LLC provides property management, leasing and brokerage services and provides certain construction related services to certain Wholly Owned Properties of the Company. Kessinger/Hunter, LLC received $3.7 million, $2.7 million and $3.0 million from the Company for these related services in 2004, 2003 and 2002, respectively. During 2002, the Company decreased its ownership interest in Kessinger/Hunter, LLC from 30.0% to 26.5%.
F-20
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
2. I NVESTMENTS IN U NCONSOLIDATED AND O THER A FFILIATES Continued
Des Moines Joint Ventures
Also in connection with the Companys merger with J.C. Nichols Company in July 1998, the Company succeeded to the interests of J.C. Nichols Company in a strategic alliance with R&R Investors, Ltd. pursuant to which R&R Investors manages and leases certain joint venture properties located in the Des Moines area. As a result of the merger, the Company acquired an ownership interest of 50.0% or more in a series of nine joint ventures with R&R Investors (the Des Moines Joint Ventures). Certain of these properties were previously included in the Companys Consolidated Financial Statements. On June 2, 1999, the Company agreed with R&R Investors to reorganize its respective ownership interests in the Des Moines Joint Ventures such that each would own a 50.0% interest.
Highwoods DLF 98/29, L.P.
On March 15, 1999, the Company closed a transaction with Schweiz-Deutschland-USA Dreilander Beteiligung Objekt DLF 98/29-Walker Fink-KG (DLF) pursuant to which the Company sold or contributed certain office properties at an agreed upon value of $142.0 million to a newly created limited partnership (the DLF I Joint Venture). DLF contributed $56.0 million for a 77.19% interest in the DLF I Joint Venture and the DLF I Joint Venture borrowed $71.0 million from third-party lenders. The Company retained the remaining 22.81% interest in the DLF I Joint Venture, received net cash proceeds of $124.0 million and is the property manager and leasing agent of the DLF I Joint Ventures properties. At the formation of this joint venture, the amount DLF contributed in cash to the venture was determined to be in excess of the amount required based on its ownership interest and on the final agreed-upon value of the real estate assets. The Company agreed to repay this amount to DLF over 14 years. The payments of $7.2 million were discounted to net present value of $3.8 million using a discount rate of 9.62% specified in the agreement. Payments of $0.5 million were made in each of the years ended December 31, 2004, 2003 and 2002, of which $0.3 million in each year represented imputed interest expense.
Highwoods DLF 97/26 DLF 99/32, L.P.
On May 9, 2000, the Company closed a transaction with Dreilander-Fonds 97/26 and 99/32 (DLF II) pursuant to which the Company contributed five in-service office properties encompassing 570,000 rentable square feet and a 246,000-square-foot development project at an agreed upon value of $110.0 million to a newly created limited partnership (the DLF II Joint Venture). DLF II contributed $24.0 million in cash for a 40.0% ownership interest in the DLF II Joint Venture and the DLF II Joint Venture borrowed $50.0 million from a third-party lender. The Company initially retained the remaining 60.0% interest in the DLF II Joint Venture and received net cash proceeds of $73.0 million. During 2001 and 2000, DLF II contributed an additional $10.7 million in cash to the DLF II Joint Venture. As a result, the Company decreased its ownership percentage to 42.93% as of December 31, 2001. The Company is the property manager and leasing agent of the DLF II Joint Ventures properties and receives customary management and leasing commissions.
Highwoods-Markel Associates, LLC; Concourse Center Associates, LLC
During 1999 and 2001, the Company closed two transactions with Highwoods-Markel Associates, LLC and Concourse Center Associates, LLC pursuant to which the Company sold or contributed certain properties to newly created limited liability companies. Unrelated investors contributed cash for a 50.0% ownership interest in the joint ventures. The Company retained the remaining 50.0% interest, received net cash proceeds and is the property manager and leasing agent of the joint ventures properties.
F-21
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
2. I NVESTMENTS IN U NCONSOLIDATED AND O THER A FFILIATES Continued
On December 29, 2003, the Company contributed an additional three in-service office properties encompassing 290,853 rentable square feet at an agreed upon value of $35.6 million to the Highwoods-Markel, LLC joint venture. The joint ventures other partner, Markel Corporation, contributed an additional $3.6 million in cash to maintain its 50.0% ownership interest and the joint venture borrowed and refinanced $40.0 million from a third party lender. The Company retained its 50.0% ownership interest in the joint venture and received net cash proceeds of $31.9 million. As a result, the Company recognized a $2.7 million gain in accordance with SFAS No. 66, which represents the extent of the Companys interest sold to outside parties. The Company is the manager and leasing agent for the properties and receives customary management fees and leasing commissions.
MG-HIW Development Joint Ventures
On December 19, 2000, the Company formed or agreed to form four development joint ventures with Denver-based Miller Global Properties, LLC (Miller Global) pursuant to which the Company contributed $7.5 million of development land to various newly created limited liability companies and retained a 50.0% ownership interest. Three of these joint ventures have developed a total of three properties that encompass an aggregate of 347,000 rentable square feet and cost $50.4 million in the aggregate. The Company was the developer of these properties. In addition, the Company is the property manager and leasing agent for the properties in all of these joint ventures. The fourth joint venture, MG-HIW Metrowest I, LLC, did not develop a property but holds development land.
On June 26, 2002, the Company acquired Miller Globals interest in MG-HIW Rocky Point, LLC, which owned Harborview Plaza, a 205,000 rentable square foot office property, to bring its ownership interest in that entity to 100.0%. At that time, the Company consolidated the assets and liabilities and recorded revenues and expenses of that entity on a consolidated basis. (See also Note 3 for SF-HIW Harborview, LP discussion).
As a part of the MG-HIW, LLC acquisition on July 29, 2003 (see Note 3), the Company was assigned Miller Globals 50.0% equity interest in MG-HIW Peachtree Corners III, LLC, which increased the Companys ownership interest to 100.0%; the Company consolidated this entity beginning on July 29, 2003. The entity owned a single property encompassing 53,896 square feet. The construction loan, which was made to this joint venture by a wholly owned affiliate of the Company, Highwoods Finance, LLC, had an interest rate of LIBOR plus 200 basis points and was paid in full on July 29, 2003 in connection with the assignment.
On July 29, 2003, the Company entered into an option agreement with its partner, Miller Global, to acquire Miller Globals 50.0% interest in the assets encompassing 87,832 square feet of property and 7.0 acres of development land (zoned for the development of 90,000 square feet of office space) of MG-HIW Metrowest I, LLC and MG-HIW Metrowest II, LLC for $3.2 million, to bring its ownership interest in these entities to 100.0%.
On March 2, 2004, the Company exercised its option to acquire its partners 50.0% equity interest in the assets of MG-HIW Metrowest I, LLC and MG-HIW Metrowest II, LLC for $3.2 million. At that time, the Company consolidated the assets and liabilities and recorded revenues and expenses of that entity on a consolidated basis. A $7.4 million construction loan to fund the development of this property, of which $7.3 million was outstanding at December 31, 2003, was paid in full by the Company at closing.
Plaza Colonnade, LLC
On June 14, 2002, the Company contributed $1.1 million in cash to Plaza Colonnade, LLC, a limited liability company, for the construction of a 285,000 square foot multi-tenant office property. The Company has retained a 50.0% interest in this joint venture. On February 12, 2003, Plaza Colonnade, LLC signed a $61.3 million construction loan to fund the development of this property. The Company and its joint venture partner each guaranteed 50.0% of the loan. In addition to the construction loan, the partners collectively provided $12.0 million in letters of credit, $6.0 million by the Company and $6.0 million by its partner. In December 2004, the joint venture secured a $50.0 million non-recourse permanent loan and the construction loan was paid off. The related letters of credit were cancelled and the aforementioned guarantee obligations terminated when the construction loan was paid off. (See Note 15 for further discussion).
F-22
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
2. I NVESTMENTS IN U NCONSOLIDATED AND O THER A FFILIATES Continued
Highwoods KC Glenridge, LP
On February 25, 2004, the Company and Kapital-Consult, a European investment firm, formed Highwoods KC Glenridge, LP, which on February 26, 2004 acquired from a third party Glenridge Point Office Park, consisting of two office buildings aggregating 185,100 square feet located in the Central Perimeter sub-market of Atlanta. At December 31, 2004, the buildings were 89.8% occupied. The Company contributed $10.0 million to the joint venture in return for a 40.0% equity interest and Kapital-Consult contributed $14.9 million for a 60.0% equity interest in the partnership. The joint venture entered into a $16.5 million ten-year secured loan on the assets. The Company is the manager and leasing agent for this property and receives customary management fees and leasing commissions. The acquisition also included 2.9 acres of development land.
The Vinings at University Center, LLC
On December 22, 2004, the Company and Easlan Investment Group, Inc. formed The Vinings at University Center, LLC. The Company contributed 7.8 acres of land at an agreed upon value of $1.6 million to the joint venture in December 2004 in return for a 50.0% equity interest and Easlan Investment Group contributed $1.1 million, in the form of a non-interest bearing promissory note, for a 50.0% equity interest in the entity. Upon formation, the joint venture entered into a $9.7 million secured construction loan to complete the construction of 156 apartment units on the 7.8 acres of land, which is expected to be completed by the fourth quarter of 2005; $392,000 was borrowed on the construction loan at December 31, 2004. The Companys joint venture partner has guaranteed this construction loan. The Easlan Investment Group, Inc. will be the manager and leasing agent for these apartment units and receive customary management fees and leasing commissions. The Company will receive development fees throughout the construction project and management fees of 1.0% of gross revenues at the time the apartments are 80.0% occupied. The Company is currently consolidating this joint venture under the provisions of FIN 46. As such, the Companys balance sheet at December 31, 2004 includes $1.8 million of development in process and a $0.4 million construction note payable.
HIW-KC Orlando, LLC
See Note 4 for information regarding this joint venture.
Weston Lakeside, LLC
On September 27, 2004, the Company and an affiliate of Crosland, Inc. formed Weston Lakeside, LLC, in which the Company has a 50.0% ownership interest. On June 29, 2005, the Company contributed 22.4 acres of land at an agreed upon value of $3.9 million to this joint venture, and its partner contributed approximately $2.0 million in cash; immediately thereafter, the joint venture distributed approximately $1.9 million to the Company and a gain of $1.9 million was recorded. Crosland, Inc. will develop, manage and operate this joint venture, which will construct approximately 332 rental residential units at a total estimated cost of approximately $32.0 million expected to be completed by the second quarter of 2007. Crosland, Inc. will receive 3.5% of gross revenue of the joint venture in management fees and 4.25% in development fees. The Company will provide limited development services for the project and will receive a fee equal to 1.0% of the development costs excluding land. The joint venture expects to finance the development with a $28.4 million construction loan that will be guaranteed by Crosland, Inc. The Company has accounted for this joint venture using the equity method of accounting.
F-23
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
2. I NVESTMENTS IN U NCONSOLIDATED AND O THER A FFILIATES Continued
Development, Leasing and Management Fees
As discussed above, the Company receives development, management and leasing fees for services provided to certain of its joint ventures. These fees are recognized as income to the extent of the other joint venture partners interest and are shown in rental and other revenues. They are as follows for 2004, 2003 and 2002:
Years Ended December 31,
|
|||||||||
2004
|
2003
|
2002
|
|||||||
Development fees |
$ | 171 | $ | 205 | $ | 35 | |||
Management and leasing fees |
1,631 | 1,229 | 1,415 | ||||||
|
|
|
|
|
|
||||
Total fees |
$ | 1,802 | $ | 1,434 | $ | 1,450 | |||
|
|
|
|
|
|
3. F INANCING AND P ROFIT -S HARING A RRANGEMENTS
The following summarizes sale transactions that were accounted for as financing and/or profit-sharing arrangements under paragraphs 25 through 29 of SFAS No. 66.
SF-HIW Harborview, LP
On September 11, 2002, the Company contributed Harborview Plaza, an office building located in Tampa, Florida, to SF-HIW Harborview Plaza, LP (Harborview LP), a newly formed entity, in exchange for a 20.0% limited partnership interest and $35.4 million in cash. The other partner contributed $12.6 million of cash and a new loan was obtained by the partnership for $22.8 million. In connection with this disposition, the Company entered into a master lease agreement with Harborview LP for five years on the then vacant space in the building (approximately 20% of the building); occupancy was 99.7% at December 31, 2004. The Company also guaranteed to Harborview LP the payment of tenant improvements and lease commissions of $1.2 million. The Companys maximum exposure to loss under the master lease agreement was $2.1 million at September 11, 2002 and was $1.1 million at December 31, 2004. Additionally, the Companys partner in Harborview LP was granted the right to put its 80.0% equity interest in Harborview LP to the Company in exchange for cash at any time during the one-year period commencing on September 11, 2014. The value of the 80.0% equity interest will be determined at the time that such partner elects to exercise its put right, if ever, based upon the then fair market value of Harborview LPs assets and liabilities less 3.0%, which amount was intended to cover the normal costs of a sale transaction.
Because of the put option and the master lease agreement, this transaction is accounted for as a financing transaction as described in Note 1. Accordingly, the assets, liabilities and operations related to Harborview Plaza, the property owned by Harborview LP, including any new financing by the partnership, remain in the financial statements of the Company. As a result, the Company has established a financing obligation equal to the net equity contributed by the other partner. At the end of each reporting period, the balance of the financing obligation is adjusted to equal the current fair value, which is $14.8 million at December 31, 2004, but not less than the original financing obligation. This adjustment is amortized prospectively through September 2014. Additionally, the net income from the operations before depreciation of Harborview Plaza allocable to the 80.0% partner is recorded as interest expense on financing obligation. The Company continues to depreciate the property and record all of the depreciation on its books. Any payments made under the master lease agreement were expensed as incurred ($0.1 million, $0.4 million and $0.3 million was expensed during the years ended December 31, 2004, 2003 and 2002, respectively) and any amounts paid under the tenant improvement and lease commission guarantee are capitalized and amortized to expense over the remaining lease term. At such time as the put option expires or is otherwise terminated, the Company will record the transaction as a sale and recognize gain on sale.
F-24
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
3. F INANCING AND P ROFIT -S HARING A RRANGEMENTS - Continued
Eastshore
On November 26, 2002, the Company sold three buildings located in Richmond, Virginia (the Eastshore transaction) for a total price of $28.5 million in cash, which was paid in full by the buyer at closing. Each of the sold properties is a single tenant building leased on a triple-net basis to Capital One Services, Inc., a subsidiary of Capital One Financial Services, Inc.
In connection with the sale, the Company entered into a rental guarantee agreement for each building for the benefit of the buyer to guarantee any shortfalls that may be incurred in the payment of rent and re-tenanting costs for a five-year period from the date of sale (through November 2007). The Companys maximum exposure to loss under the rental guarantee agreements was $18.7 million at the date of sale and was $12.4 million as of December 31, 2004. No payments were made by the Company during 2003 and 2002 in respect of these rent guarantees. However, in June 2004, the Company began to make monthly payments to the buyer at an annual rate of $0.1 million as a result of the existing tenant renewing a lease in one building at a lower rental rate.
These rent guarantees are a form of continuing involvement as discussed in paragraph 28 of SFAS No. 66. Because the guarantees cover the entire space occupied by a single tenant under a triple-net lease arrangement, the Companys guarantees are considered a guaranteed return on the buyers investment for an extended period of time. Therefore, the transaction has been accounted for as a financing transaction, following the accounting method described in Note 1. Accordingly, the assets, liabilities and operations are included in these Consolidated Financial Statements, and a financing obligation of $28.8 million is recorded which represents the amount received from the buyer, adjusted for subsequent activity. The income from the operations of the properties, other than depreciation, is allocated 100.0% to the owner as interest expense on financing obligation. Payments made under the rent guarantees are charged to expense as incurred. This transaction was recorded as a completed sale transaction in the third quarter of 2005 when the maximum exposure to loss under the guarantees became less than the related gain; deferred gain will be recognized in future periods as the maximum exposure under the guarantees is reduced.
MG-HIW, LLC
On December 19, 2000, the Company formed a joint venture with Miller Global, MG-HIW, LLC, pursuant to which the Company sold or contributed to MG-HIW, LLC 19 in-service office properties in Raleigh, Atlanta, Tampa (the Non-Orlando City Group) and Orlando (collectively the City Groups) for an agreed upon value of $335.0 million. As part of the formation of MG-HIW, LLC, Miller Global contributed $85.0 million in cash for an 80.0% ownership interest and the joint venture borrowed $238.8 million from a third-party lender. The Company retained a 20.0% ownership interest and received net cash proceeds of $307.0 million. During 2001, the Company contributed a 39,000 square foot development project to MG-HIW, LLC in exchange for $5.1 million. The joint venture borrowed an additional $3.7 million under its existing debt agreement with a third party and the Company retained its 20.0% ownership interest and received net cash proceeds of $4.8 million. The assets of each of the City Groups were legally acquired by four separate LLCs for which MG-HIW, LLC was the sole member.
The Non-Orlando City Group consisted of 15 properties encompassing 1.3 million square feet and were located in Atlanta, Raleigh and Tampa. Based on the nature and extent of certain rental guarantees made by the Company with respect to these properties, the transaction did not qualify for sale treatment under SFAS No. 66. The transaction has been accounted for as a profit-sharing arrangement, and accordingly, the assets, liabilities and operations of the properties remain on the books of the Company and a co-venture obligation was established for the amount of equity contributed by Miller Global related to the Non-Orlando City Group properties. The income from operations of the properties, excluding depreciation, was allocated 80.0% to Miller Global (which represents its interest in the joint venture) and reported as co-venture expense in these Consolidated Financial Statements. The Company continues to depreciate the properties and record all of the depreciation on its books. In addition to the co-venture expense, the Company recorded expense of $1.3 million and $0.7 million related to payments made under the rental guarantees for the years ended December 31, 2003 and 2002, respectively. No expense was recorded related to payments made under the rental guarantees for the year ended December 31, 2004.
F-25
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
3. F INANCING AND P ROFIT -S HARING A RRANGEMENTS - Continued
On July 29, 2003, the Company acquired its partners 80.0% equity interest in the Non-Orlando City Group. The Company paid Miller Global $28.1 million, repaid $41.4 million of debt related to the properties and assumed $64.7 million of debt. The Company recognized a $16.3 million gain in 2003 on the settlement of the $43.5 million co-venture obligation recorded on the books of the Company.
With respect to the Orlando City Group, which consists of five properties encompassing 1.3 million square feet located in the central business district of Orlando, the Company assumed obligations to make improvements to the assets as well as master lease obligations and guarantees on certain vacant space. Additionally, the Company guaranteed a leveraged internal rate of return (IRR) of 20.0% on Miller Globals equity. The contribution of these Orlando properties is accounted for as a financing arrangement under SFAS No. 66. Consequently, the assets, liabilities and operations related to the properties remained on the books of the Company and a financing obligation was established for the amount of equity contributed by Miller Global related to the Orlando City Group. The income from operations of the properties, excluding depreciation, is being allocated 80.0% to Miller Global and reported as interest on financing obligation in these Consolidated Financial Statements. This financing obligation was also adjusted each period by accreting the obligation up to the 20.0% guaranteed internal rate of return by a charge to interest expense, such that the financing obligation equaled at the end of each period the amount due to Miller Global including the 20.0% guaranteed return. The Company recorded interest expense on the financing obligation of $3.2 million, $11.6 million and $10.1 million, which includes amounts related to this IRR guarantee and payments made under the rental guarantees, for the years ended 2004, 2003 and 2002, respectively. The Company continued to depreciate the Orlando properties and record all of the depreciation in its financial statements until June 2004 when the assets were sold to a 40% owned joint venture, HIW-KC Orlando, LLC.
On July 29, 2003, the Company
also entered into an option agreement to acquire Miller Globals 80.0% interest in the Orlando City Group. On March 2, 2004, the Company exercised its option and acquired its partners 80.0% equity interest in the Orlando City
Group of MG-HIW, LLC. The properties were 86.8% leased as of December 31, 2004 and were encumbered by $136.2 million of floating rate debt with interest based on LIBOR plus 200 basis points. At the closing of the transaction, the Company
paid its partner, Miller Global, $62.5 million and a $7.5 million letter of credit delivered to the seller in connection with the option was cancelled. Since the initial contribution of these assets was accounted for as a financing arrangement and
since the financing obligation was adjusted each period for the IRR guarantee, no gain or loss was recognized upon the extinguishment of the financing obligation. In June 2004, the Company contributed these assets to HIW-KC Orlando, LLC for a 40.0%
4. A SSET D ISPOSITIONS
Gains and impairments on disposition of properties, net, excluding gains or losses from discontinued operations, consisted of the following:
F-26
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
4. A SSET D ISPOSITIONS - Continued
As described in more detail in the following paragraphs, during 2004 the Company sold approximately 1.3 million rentable square feet of office, industrial and retail properties and 88 apartment units for gross proceeds of $96.5 million and also sold 213.7 acres of development land for gross proceeds of $35.7 million. The Company also contributed approximately 1.3 million square feet of buildings and land to joint ventures. The resultant gains and impairments are shown in the preceding table. The larger 2004 transactions are described below.
On June 16, 2004, the Company sold a 177,000 square foot building (the network operations center) located in the Highwoods Preserve Office Park in Tampa, Florida. Highwoods Preserve is a 816,000 square foot office park that WorldCom vacated as of December 31, 2002. Net proceeds from the sale were $18.5 million. The asset had a net book value of $21.8 million. The Company recognized an impairment loss of $3.0 million in discontinued operations in April 2004 when the planned sale met the criteria to be classified as held for sale. In connection with the sale of the network operations center, the buyer also agreed to purchase a 3.3 acre tract of development land located in the office park for $1.4 million, which is subject to the Company securing certain development rights for the land from the local municipality. The net book value of the land is $0.9 million and was classified as held for sale in accordance with SFAS No. 144 in April 2004. This land sale is subject to customary closing conditions and no assurances can be provided that the disposition will occur. The remaining assets in the office park were classified as held for use as of December 31, 2003 and continued to be so classified at December 31, 2004 in accordance with SFAS No. 144.
On June 28, 2004, Kapital-Consult, a European investment firm, bought an interest in HIW-KC Orlando, LLC, an entity formed by the Company. HIW-KC Orlando, LLC owns the Orlando City Group assets which had an agreed upon value under the joint venture agreement of $212.0 million, including amounts related to the Companys guarantees described below, and which were subject to a $136.2 million secured mortgage loan. Kapital-Consult contributed $42.1 million in cash and received a 60.0% equity interest in the entity. The joint venture borrowed $143.0 million under a ten-year fixed rate mortgage loan from a third party lender and repaid the $136.2 million loan. The Company retained a 40.0% equity interest in the joint venture and received net cash proceeds of $46.6 million, of which $33.0 million was used to pay down the Companys Revolving Loan and $13.6 million was used to pay down additional debt. In connection with this transaction, the Company agreed to guarantee rent to the joint venture for 3,248 rentable square feet commencing in August 2004 and expiring in April 2011. In connection with this guarantee, as of June 30, 2004, the Company included $0.6 million in other liabilities and reduced the total amount of gain to be recognized by the same amount. Additionally, the Company agreed to guarantee re-tenanting costs for approximately 11% of the joint ventures total square footage. The Company recorded a $4.1 million liability with respect to such guarantee as of June 30, 2004 and reduced the total amount of gain to be recognized by the same amount. During 2004, the Company paid $2.4 million in re-tenanting costs related to this guarantee. The Company believes its estimate related to the re-tenanting costs guarantee is accurate. However, if its assumptions prove to be incorrect, future losses may occur. The contribution was accounted for as a partial sale as defined by SFAS No. 66 and the Company recognized a $16.3 million gain in June 2004. Since the Company has an ongoing 40.0% financial interest in the joint venture and since the Company is engaged by the joint venture to provide management and leasing services for the joint venture, for which the Company receives customary management fees and leasing commissions, the operations of these properties were not reflected as discontinued operations consistent with SFAS No. 144 and the related gain on sale was included in continuing operations in the second quarter of 2004.
In the fourth quarter of 2004, the Company sold an additional 14 buildings encompassing 514,191 square feet and one 88 unit apartment building for gross proceeds of $37.5 million and recorded an approximate $5.0 million gain on sales in discontinued operations. The Company also sold a 165,000 square foot building located in Orlando, Florida with a net book value of approximately $9.8 million. Gross proceeds from the sale were approximately $6.8 million. The Company had recognized an impairment loss of approximately $3.2 million in the fourth quarter 2004 prior to the closing of the sale.
F-27
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
4. A SSET D ISPOSITIONS - Continued
During 2004, the Company also contributed 7.8 acres of land to the Vinings at University Center, LLC in which the Company has a 50.0% equity interest. See Note 2 for further discussion of this joint venture.
During 2003, the Company sold approximately 3.3 million rentable square feet of office, industrial and retail properties and 122.8 acres of revenue-producing land for $202.9 million and also sold 108.5 acres of non-core development land for gross proceeds of $18.7 million. In addition, the Company contributed three properties consisting of 290,853 rentable square feet to Highwoods-Markel Associates, LLC in which the Company has a 50.0% equity interest. The resultant gains and impairments are shown in the preceding table.
During 2002, the Company sold approximately 2.0 million rentable square feet of office and industrial properties for gross proceeds of $213.9 million and also sold 137.7 acres of development land for gross proceeds of $21.3 million. The resultant gains and impairments are shown in the preceding table. The Company also sold three buildings in the Eastshore transaction, which was accounted for as a financing arrangement. See Note 3 for further discussion. In September 2002, the Company contributed an office property to SF-HIW Harborview, LP and accounted for the contribution as a financing arrangement. See Note 3 for further discussion. No gains or losses were recorded from these financing arrangements.
From January 1, 2005 through September 30, 2005, the Company sold properties aggregating 4.4 million square feet for total gross sales proceeds of approximately $337.1 million. These dispositions included:
| two office buildings located in Raleigh, North Carolina, which were sold in a single transaction on February 24, 2005 for aggregate gross sale proceeds of $9.0 million; |
| industrial buildings sold to a director and certain other parties, as more fully disclosed in Note 8, for aggregate gross sale proceeds of approximately $27.0 million; |
| an office building in Raleigh, North Carolina that closed on March 31, 2005 for aggregate gross sale proceeds of approximately $27.2 million; |
| two buildings at the Highwoods Preserve office campus in Tampa, Florida, which were sold in a single transaction that closed on June 30, 2005 for aggregate gross sale proceeds of approximately $24.5 million; |
| one office and two industrial buildings, located in Atlanta, Georgia, which were sold in a single transaction on June 30, 2005 for aggregate gross sale proceeds of approximately $13.3 million; |
| the Companys portfolio of office buildings and certain development land in the Charlotte, North Carolina market and its buildings in Sabal Business Park in Tampa, Florida, which were sold in a single transaction on July 22, 2005 for gross sale proceeds of $228.0 million; |
| 24 apartment units located in Kansas City, Missouri that closed on August 2, 2005 for gross sale proceeds of $1.6 million; and |
| two office buildings located in Raleigh, North Carolina, which were sold in a single transaction on August 29, 2005 for aggregate gross sale proceeds of $6.5 million. |
In addition, during the same period, the Company sold 63.1 acres of non-core development land aggregating $13.4 million in gross sales proceeds and contributed 22.4 acres of non-core development land to the newly formed Weston Lakeside, LLC joint venture (discussed further in Note 2) for an additional $1.9 million in cash proceeds and a 50.0% equity interest in the joint venture.
F-28
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
4. A SSET D ISPOSITIONS - Continued
Proceeds from these asset dispositions in 2005 were used to pay-off debt and redeem preferred stock, as further described in Note 5.
On November 30, 2005, the Company announced that it had executed a contract to sell $143.0 million of non-core properties encompassing 1.9 million square feet of office and industrial properties in Atlanta, Columbia and Tampa. It is expected to close in January 2006; however, completion of this transaction is subject to the absence of any material adverse due diligence findings and satisfaction of other closing conditions.
5. M ORTGAGES , N OTES P AYABLE AND F INANCING O BLIGATIONS
The Companys consolidated mortgages and notes payable consisted of the following at December 31, 2004 and 2003:
2004
|
2003
|
||||||
Mortgage loans payable: |
|||||||
9.0% mortgage loan due 2005 |
$ | 34,165 | $ | 35,170 | |||
8.1% mortgage loan due 2005 |
26,446 | 27,257 | |||||
8.2% mortgage loan due 2007 |
65,221 | 66,896 | |||||
7.8% mortgage loan due 2009 |
86,567 | 88,322 | |||||
7.9% mortgage loan due 2009 |
77,247 | 88,404 | |||||
7.8% mortgage loan due 2010 |
137,969 | 140,498 | |||||
6.0% mortgage loan due 2013 |
141,864 | 143,713 | |||||
5.7% mortgage loan due 2013 |
127,541 | 127,500 | |||||
5.2% to 9.0% mortgage loans due between 2005 and 2017 (1) |
58,981 | 60,598 | |||||
Variable rate mortgage loan due 2006 |
46,985 | 200,883 | (2) | ||||
Variable rate mortgage loan due 2007 |
3,747 | 4,033 | |||||
Variable rate construction loans due 2006 and 2007 |
15,841 | | |||||
|
|
|
|
|
|||
822,574 | 983,274 | ||||||
|
|
|
|
|
|||
Unsecured indebtedness: |
|||||||
7.0% notes due 2006 |
110,000 | 110,000 | |||||
7.125% notes due 2008 |
100,000 | 100,000 | |||||
8.125% notes due 2009 |
50,000 | 50,000 | |||||
Put Option Notes due 2011 (3) |
| 100,000 | |||||
7.5% notes due 2018 |
200,000 | 200,000 | |||||
Term loan due 2005 |
20,000 | 20,000 | |||||
Term loan due 2005 |
100,000 | 100,000 | |||||
Revolving loan due 2006 |
170,000 | 55,000 | |||||
|
|
|
|
|
|||
750,000 | 735,000 | ||||||
|
|
|
|
|
|||
Total |
$ | 1,572,574 | $ | 1,718,274 | |||
|
|
|
|
|
(1) | Includes $22.8 million related to SF-HIW Harborview, LP, which has been accounted for as a financing arrangement and is included in the Companys mortgages and notes payable in its Consolidated Balance Sheets. See Note 3. |
(2) | Includes $136.2 million related to MG-HIW, LLC, which was accounted for as a financing arrangement and included in the Companys mortgages and notes payable in its Consolidated Balance Sheet at December 31, 2003. See Note 3. |
F-29
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
5. M ORTGAGES , N OTES P AYABLE AND F INANCING O BLIGATIONS Continued
(3) | In 1997, the Operating Partnership sold $100.0 million of Exercisable Put Option Notes due June 15, 2011 (the Put Option Notes). The Put Option Notes bore an interest rate of 7.19% from the date of issuance through June 15, 2004. After June 15, 2004, the interest rate to maturity on the Put Option Notes was required to be 6.39% plus the applicable spread determined as of June 10, 2004. In connection with the initial issuance of the Put Option Notes, a counter party was granted an option to purchase the Put Option Notes on June 15, 2004 at 100.0% of the principal amount. The counter party exercised this option and acquired the Put Option Notes on June 15, 2004. On that same date, the Company exercised its option to acquire the Put Option Notes from the counter party for a purchase price equal to the sum of the present value of the remaining scheduled payments of principal and interest (assuming an interest rate of 6.39%) on the Put Option Notes, or $112.3 million. The difference between the $112.3 million and the $100.0 million was charged to loss on extinguishment of debt in the quarter ended June 30, 2004. The Company borrowed funds from its Revolving Loan to make the $112.3 million payment. |
The following table sets forth the principal payments, including amortization, due on the Companys mortgages and notes payable as of December 31, 2004:
Amounts due during year ending December 31,
|
|||||||||||||||||||||
Total
|
2005
|
2006
|
2007
|
2008
|
2009
|
Thereafter
|
|||||||||||||||
Fixed Rate Debt: |
|||||||||||||||||||||
Unsecured (1) : |
|||||||||||||||||||||
Notes |
$ | 460,000 | $ | | $ | 110,000 | $ | | $ | 100,000 | $ | 50,000 | $ | 200,000 | |||||||
Secured: |
|||||||||||||||||||||
Mortgage loans payable (2) |
756,001 | 82,322 | 21,103 | 82,339 | 15,090 | 156,533 | 398,614 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total Fixed Rate Debt |
1,216,001 | 82,322 | 131,103 | 82,339 | 115,090 | 206,533 | 598,614 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Variable Rate Debt: (3) |
|||||||||||||||||||||
Unsecured: |
|||||||||||||||||||||
Term Loans |
120,000 | 120,000 | | | | | | ||||||||||||||
Revolving Loan (4) |
170,000 | | 170,000 | | | | | ||||||||||||||
Secured: |
|||||||||||||||||||||
Mortgage loans payable (2) |
50,732 | 291 | 47,273 | 3,168 | | | | ||||||||||||||
Construction Loan |
15,841 | | | 15,841 | | | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total Variable Rate Debt |
356,573 | 120,291 | 217,273 | 19,009 | | | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total Mortgages and Notes Payable |
$ | 1,572,574 | $ | 202,613 | $ | 348,376 | $ | 101,348 | $ | 115,090 | $ | 206,533 | $ | 598,614 | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | The $460.0 million of unsecured notes bear interest at rates ranging from 7.0% to 8.125% with interest payable semi-annually in arrears. Any premium and discount related to the issuance of the unsecured notes, together with other issuance costs, is being amortized to interest expense over the life of the respective notes as an adjustment to interest expense. All of the unsecured notes are redeemable at any time prior to maturity at the Companys option, subject to certain conditions including the payment of make-whole amounts. As of the date of this filing, the Operating Partnership has not yet satisfied its requirement under the indenture governing its unsecured notes to file timely SEC reports, but expects to do so as soon as practicable after filing of the Companys Annual Report. Under the indenture, the notes may be accelerated if the trustee or 25% of the holders provide written notice of a default and such default remains uncured after 60 days. To date, neither the trustee nor any holder has sent the Company or the Operating Partnership any such default notice. The Operating Partnership is in compliance with all other covenants under the indenture and is current on all payments required thereunder. |
(2) | The mortgage loans payable are secured by real estate assets with an aggregate undepreciated book value of $1.3 billion at December 31, 2004. The Companys fixed rate mortgage loans generally are either locked out to prepayment for all or a portion of their term or are prepayable subject to certain conditions including prepayment penalties. |
(3) | The Company had one interest rate hedging arrangement at December 31, 2004, as described in Note 10 to the Consolidated Financial Statements. |
F-30
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
5. M ORTGAGES , N OTES P AYABLE AND F INANCING O BLIGATIONS - Continued
(4) | In July 2003, the Company amended and restated its existing revolving loan and two bank term loans. The amended and restated $250.0 million revolving loan (the Revolving Loan) is from a group of eight lender banks and matures in July 2006. |
In March 2004, the Company amended the Revolving Loan and its then outstanding two bank term loans. The changes modified certain definitions used in all three loans to determine amounts that are used to compute financial covenants and also adjusted one of the financial ratio covenants.
In June 2004, the Company further amended the Revolving Loan and its then outstanding two bank term loans. The changes excluded the $12.5 million charge taken related to the refinancing of the Put Option Notes from the calculations used to compute financial covenants.
In August 2004, the Company further amended the Revolving Loan and its then outstanding two bank term loans. The changes excluded the effects of accounting for three sales transactions as financing and/or profit sharing arrangements under SFAS No. 66 from the calculations used to compute financial covenants, adjusted one financial covenant and temporarily adjusted a second financial covenant until the earlier of December 31, 2004 or the period when the Company could record income from the anticipated settlement of a claim against WorldCom, which occurred in September 2004 (see Note 21).
In October 2004, the Company obtained a waiver from the lenders under the Revolving Loan and its then outstanding two bank term loans for certain covenant violations caused by the effects of the loss on debt extinguishment from the MOPPRS transaction in early 2003, as described below.
In June, July, August and September 2005, the Company obtained waivers from the lenders under the Revolving Loan and its then outstanding two bank loans related to timely reporting to the lenders of annual and quarterly financial statements and to covenant violations that could arise from future redemptions of preferred stock due to the reclassification of the preferred stock from equity to a liability during the period of time from the announcement of the redemption until the redemption is completed.
The aforementioned modifications did not change the economic terms of the loans. In connection with these modifications, the Company incurred certain loan costs that are capitalized and amortized to interest expense over the remaining term of the loans.
The Revolving Loan carries an interest rate based upon the Companys senior unsecured credit ratings. As a result, interest currently accrues on borrowings under the Revolving Loan at an average rate of LIBOR plus 105 basis points. The terms of the Revolving Loan require the Company to pay an annual facility fee equal to .25% of the aggregate amount of the Revolving Loan. The Company currently has a credit rating of BBB- assigned by Standard & Poors and Fitch Ratings and Ba1 assigned by Moodys Investor Service. In January 2005, Moodys Investor Service confirmed the Companys Ba1 rating, with a stable outlook. If Standard and Poors or Fitch Ratings were to lower the Companys credit ratings without a corresponding increase by Moodys, the interest rate on borrowings under the Revolving Loan would be automatically increased by 60 basis points.
In November 2005, the Company amended its $100.0 million bank term loan to extend the maturity date to July 17, 2006 and reduce the spread over the LIBOR interest rate from 130 basis points to 100 basis points.
Other Information
The terms of the Revolving Loan, the $120.0 million bank loans and the indenture that governs the Companys outstanding notes require the Company to comply with certain operating and financial covenants and performance ratios. No circumstance currently exists that would result in an acceleration of any of this debt.
F-31
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
5. M ORTGAGES , N OTES P AYABLE AND F INANCING O BLIGATIONS - Continued
On February 2, 1998, the Company (through the Operating Partnership) sold $125.0 million of MandatOry Par Put Remarketed Securities (MOPPRS) which were originally expected to mature on February 1, 2013. The fixed interest rate was 6.835% through January 31, 2003, and would be reset at that date at 5.715% plus a spread as determined under the terms of the MOPPRS. In connection with the original issuance, the Company granted a remarketing option to one of the underwriters for the MOPPRS, the consideration for which was reflected in the premium price of the bonds and aggregated $3.5 million. This consideration was deferred and included in deferred financing cost and was amortized to income over the term of the MOPPRS. The option, if exercised, allowed the option holder to purchase the MOPPRS on January 31, 2003 from the holders for $125.0 million and then resell the MOPPRS in a new offering to new investors at the reset interest rate (5.715% plus the spread). If the option holder did not exercise the option, the Company would be required to repurchase the MOPPRS for $125.0 million plus any accrued interest. The Company also had a one-time right to redeem the MOPPRS from the option holder on January 31, 2003 for $125.0 million plus the then present value of the remarketing option.
On January 28, 2003, the Company, the option holder and an intermediary entered into an agreement under which the option holder agreed to exercise its option to acquire the MOPPRS on January 31, 2003 and the intermediary agreed to acquire the MOPPRS from the option holder for $142.7 million. The intermediary and the Company also agreed to exchange the MOPPRS for new Company debt instruments in the future, subject to certain terms and conditions. The MOPPRS transaction between the option holder and the intermediary occurred on January 31, 2003 and the interest rate on the MOPPRS was reset at 8.975%. On February 4, 2003, a new $142.8 million mortgage loan with a third party, secured by 24 of the Companys properties, was executed; this loan bears a fixed interest rate of 6.03% and matures in February 2013. The intermediary received the proceeds from the new mortgage loan, and the mortgage loan and the MOPPRS were then exchanged between the Company and the intermediary. The Company then retired the MOPPRS. The retirement of the MOPPRS has been accounted for as an extinguishment. Accordingly, $14.7 million was charged to loss on extinguishment of debt in the quarter ended March 31, 2003.
Total interest capitalized was $1.1 million, $1.4 million and $5.5 million for the years ended December 31, 2004, 2003 and 2002, respectively
Refinancings in 2005
Through December 1, 2005, the Company paid off $151.6 million of outstanding loans, excluding any normal debt amortization, which included the following transactions. In early April 2005, the Company paid off $40.9 million of callable secured mortgage debt; in mid-July 2005, the Company paid off another $26.0 million of callable secured mortgage debt; and on August 1, 2005, the Company paid off $47.0 million of secured variable rate mortgage debt that was due January 1, 2006. In September 2005, the Company paid off its $20.0 million term loan at maturity and three secured loans totaling $3.5 million. In November 2005, the Company extended the maturity date on its $100.0 million term loan to July 17, 2006 and lowered the interest rate. On December 1, 2005, the Company paid off $2.1 million of secured variable rate mortgage debt that was due February 2, 2006. In addition, on December 1, 2005, the Company exercised its option to pay down $9.4 million on its AEGON loan that matures in 2009. The Company also used some of the proceeds from its disposition activity to redeem, in August 2005, all of the Companys outstanding Series D Preferred Shares and a portion of the outstanding Series B Preferred Shares, aggregating $130.0 million plus accrued dividends. These reductions in outstanding debt and preferred stock balances were made primarily from proceeds from property dispositions that closed in 2005.
F-32
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
5. M ORTGAGES , N OTES P AYABLE AND F INANCING O BLIGATIONS - Continued
Deferred Financing Costs
As of December 31, 2004, the Company had $16.7 million of deferred financing costs, with $6.6 million of accumulated amortization. Deferred financing costs include loan fees, loan closing costs, premium and discounts on bonds, notes payable and debt issuance costs. Amortization of bond premiums and discounts is included in contractual interest expense. All other amortization is shown as amortization of deferred financing costs. The scheduled future amortization of these deferred financings costs will be as follows:
Contractual
Interest |
Deferred
Financing |
Total
|
|||||||
2005 |
$ | 250 | $ | 3,223 | $ | 3,473 | |||
2006 |
239 | 1,710 | 1,949 | ||||||
2007 |
111 | 853 | 964 | ||||||
2008 |
70 | 667 | 737 | ||||||
2009 |
37 | 506 | 543 | ||||||
Thereafter |
299 | 2,107 | 2,406 | ||||||
|
|
|
|
|
|
||||
$ | 1,006 | $ | 9,066 | $ | 10,072 | ||||
|
|
|
|
|
|
In June 2004, $0.9
million of unamortized deferred financing costs were written off in connection with the early extinguishment of the $136.2 million secured loan related to the MG-HIW Orlando assets sold to a 40.0% owned joint venture with Kapital Consult, as
Financing Obligations
The Companys financing obligations consisted of the following at December 31, 2004 and 2003:
December 31,
2004 |
December 31,
2003 |
|||||
(restated) | ||||||
SF-HIW Harborview, LP financing obligation (1) |
$ | 14,808 | $ | 13,566 | ||
Eastshore financing obligation (1) |
28,777 | 28,873 | ||||
MG-HIW, LLC financing obligation (1) |
| 60,991 | ||||
Capitalized ground lease obligation (2) |
1,778 | 1,714 | ||||
Tax increment financing obligation (3) |
19,946 | 20,633 | ||||
|
|
|
|
|||
Total |
$ | 65,309 | $ | 125,777 | ||
|
|
|
|
(1) | See Note 3 for further discussion of these financing obligations. |
(2) | This liability represents a capitalized lease obligation to the lessor of land on which the Company owned a building. The Company was obligated to make fixed payments to the lessor through March 2010. The net present value of these payments discounted at 7.13% is shown as a liability in the balance sheet, which accretes each month for the difference between the interest on the financing obligation and the fixed payments. The accretion would continue until the liability equals the residual value of the land. As of March 31, 2005, this liability was settled as a result of the sale of the building and assumption by the buyer of the Companys ground lease. |
(3) | In connection with tax increment financing for construction of a public garage related to an office building constructed by the Company, the Company is obligated to pay fixed special assessments over a 20-year period. The net present value of these assessments, discounted at 6.93%, is shown as a financing obligation in the balance sheet. The Company also receives special tax revenues and property tax rebates which are intended, but not guaranteed, to provide funds to pay the special assessments. |
F-33
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
5. M ORTGAGES , N OTES P AYABLE AND F INANCING O BLIGATIONS - Continued
The following table sets forth the expected payment obligations on financing obligations as of December 31, 2004:
2005 |
$ | 31,264 | |
2006 |
797 | ||
2007 |
876 | ||
2008 |
929 | ||
2009 |
993 | ||
Thereafter |
30,450 | ||
|
|
||
$ | 65,309 | ||
|
|
6. E MPLOYEE B ENEFIT P LANS
Management Compensation Program
The Companys officers participate in an annual bonus program whereby they are eligible for bonuses based on a percentage of their annual base salary as of the prior December. Each officers target level bonus is determined by competitive analysis and the executives ability to influence overall performance of the executives business unit and/or of the Company as a whole and, ranges from 30.0% to 85.0% of base salary depending on position in the Company. The executives actual incentive bonus for the year is the product of the target annual incentive bonus percentage times a performance factor, which can range from zero to 200%. This performance factor depends upon the relationship between how various performance criteria compare with predetermined goals. For an executive who has division responsibilities, goals for certain performance criteria are based on the divisions budget for the year, and goals for other criteria are fixed objectives that are the same for all divisions. For corporate executives, the performance factor is based on the average of the factors achieved by the division executives. Bonuses are accrued and expensed in the year earned and are generally paid in the first quarter of the following year.
Certain other members of management participate in an annual cash incentive bonus program whereby a target level cash bonus is established based upon the job responsibilities of their position. Cash bonus eligibility ranges from 10.0% to 40.0% of annual base salary as of the prior December. The actual cash bonus is determined by the overall performance of the Company and the individuals performance during each year. These bonuses are also accrued and expensed in the year earned and are generally paid in the first quarter of the following year.
In addition to the annual bonus and as an incentive to retain executive officers, the Companys long-term incentive plan for officers provides for annual grants of stock options and restricted stock under the Amended and Restated 1994 Stock Option Plan (the Stock Option Plan) and other awards under the 1999 Shareholder Value Plan.
The stock options issued prior to 2005 vest ratably over four years and remain outstanding for 10 years. The value of such options as of the date of grant is calculated using the Black-Scholes option-pricing model.
F-34
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
6. E MPLOYEE B ENEFIT P LANS - Continued
The restricted shares issued prior to 2005 generally vest 50.0% three years from the date of grant and the remaining 50.0% five years from date of grant. Such shares are no longer restricted after the vesting date. The restricted share awards are amortized to expense over the explicit service periods, which is the vesting period. Recipients are eligible to receive dividends on restricted stock issued. Restricted stock and annual expense information is as follows:
Year Ended December 31,
|
||||||||||||
2004
|
2003
|
2002
|
||||||||||
Restricted shares outstanding at January 1 |
334,182 | 252,355 | 211,669 | |||||||||
Number of restricted shares awarded |
118,257 | 104,076 | 78,969 | |||||||||
Restricted shares vested (1) |
(137,932 | ) | (21,693 | ) | (7,876 | ) | ||||||
Restricted shares repurchased upon cancellation or forfeiture |
(6,859 | ) | (556 | ) | (30,407 | ) | ||||||
|
|
|
|
|
|
|
|
|
||||
Restricted shares outstanding at December 31 |
307,648 | 334,182 | 252,355 | |||||||||
|
|
|
|
|
|
|
|
|
||||
Annual expense (1) |
$ | 3,721 | $ | 1,937 | $ | 1,158 | ||||||
|
|
|
|
|
|
|
|
|
||||
Average grant date market value for all restricted shares outstanding |
$ | 24.02 | $ | 24.03 | $ | 24.90 | ||||||
|
|
|
|
|
|
|
|
|
(1) | Vested shares for 2004 include 106,059 shares that had accelerating vesting upon the retirement of the Companys Chief Executive Officer on June 30, 2004; annual expense for 2004 includes $1.7 million related to these accelerated vested shares. |
The 1999 Shareholder Value Plan was intended to reward the executive officers of the Company when the total shareholder returns measured by increases in the market value of Common Stock plus dividends exceeds a comparable index of the Companys peers over a three-year period. A payout for this program, which can be in cash or other consideration, is determined by the Companys percentage change in shareholder return compared to the composite index of its peer group. If the Companys performance is not at least 100% of the peer group, no payout is made. To the extent performance exceeds the peer group, the payout increases. A new three-year plan cycle begins each year under this program. There were no cash payouts under this plan for the years ended December 31, 2004, 2003 or 2002, respectively. This plan is accounted for under variable plan accounting and accordingly, at each period-end, a liability equal to the current computed fair value under the plan for all outstanding plan units, adjusted for the three-year vesting period, is recorded with corresponding charges or credits to compensation expense. Compensation expense recognized under this plan amounted to $0 in 2004, $0 in 2003 and $(846,000) in 2002.
In 1997, the Company adopted the 1997 Performance Award Plan under which 349,990 nonqualified stock options granted to certain executive officers were accompanied by a dividend equivalent right (DER). No other options granted by the Company since 1997 have been accompanied by a DER. The plan provided that if the total return on a share of Common Stock exceeded certain thresholds during the five-year vesting period ending in 2002, the exercise price of such options with a DER would be reduced under a formula based on dividends and other distributions made with respect to such a share during the period beginning on the date of grant and ending upon exercise of such stock option. At the end of the five-year vesting period, the total return performance resulted in a reduction in the option exercise price of $6.098 per share. The exercise price per option share was further reduced by $2.964 as of December 31, 2004 as a result of the dividend payments on Common Stock from January 1, 2003 through December 31, 2004. Because of the exercise price reduction feature, the stock options accompanied by a DER were accounted for using variable accounting as provided in FASB Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation. As a result, the Company recorded compensation expense of $0.06 million, $1.2 million and $0.4 million for the years ended December 31, 2004, 2003 and 2002, respectively. In December 2004, the Company entered into an agreement with the participants to cease the additional reduction in the option exercise price, which fixed the exercise price per share reduction at $9.06. As a result, variable accounting is no longer required as both the number of options and the amount required to exercise is known. As of December 31, 2004, there were 168,948 outstanding options with an accompanying DER.
F-35
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
6. E MPLOYEE B ENEFIT P LANS - Continued
The Company has also established a deferred compensation plan pursuant to which various officers can defer a portion of their salary and/or bonus that would otherwise be paid to such officers for investment in units of phantom Company Common Stock or in various, unrelated mutual funds, based on the officers elections. The Company records compensation expense for the full amount of compensation deferred by participating officers in each deferral period. At the end of each quarter, any officer who defers compensation into phantom stock that otherwise would have been paid in cash is credited with units of phantom stock at a 15.0% discount. Dividends on the phantom stock are assumed to be issued in additional phantom stock at a 15.0% discount. If the officer leaves employment for any reason (other than death, disability, normal retirement or voluntary termination by the Company) within two years after the end of the year in which such officer has deferred compensation, at a minimum, the 15.0% discount and any deemed dividends are forfeited. Over the two-year vesting period, the Company records additional compensation expense equal to the 15.0% discount, the accrued dividends and any changes in the market value of the Companys Common Stock from the date of the deferral, which aggregated $0.5 million, $0.7 million and $0.2 million for the years ended December 31, 2004, 2003 and 2002, respectively. In July 2005, the Company modified the plan to preclude any deferrals into phantom stock after December 31, 2005.
For 2005, the annual incentive bonus program will operate similarly as in 2004, except that the following four performance criteria will be used for 2005, all of which are weighted equally: (1) average occupancy rates relative to budgeted rates; (2) net operating income relative to budgeted amounts; (3) average payback on leases relative to a fixed goal; and (4) average lease term relative to a fixed goal. These criteria provide an objective basis for the compensation and governance committee of the Companys board of directors to determine bonuses for division level and corporate level executive officers. Notwithstanding the foregoing criteria, the compensation and governance committee has retained the authority to pay bonuses at its discretion.
Effective for 2005, options that are issued to executive officers under the Stock Option Plan will continue to vest ratably over a four-year period, but the option term will be seven years instead of 10 years. The value of such options as of the date of grant will be calculated using the Black-Scholes option-pricing model. The exercise price per share for such options will be based on the average of the daily closing prices for the Companys Common Stock over the 10-day period preceding the date of grant, rather than the closing price for the Companys Common Stock on the date immediately preceding the date of grant.
Beginning in 2005, the Company has also replaced the 1999 Shareholder Value Plan with a performance-based restricted stock plan under which all or a portion of additional grants of restricted stock will vest if the total return of the Companys Common Stock exceeds the average total returns of a selected group of peer companies over a three-year period. If the Companys performance is not at least 100% of the peer group, none of the restricted stock will vest at the end of the three-year period. To the extent performance equals or exceeds the peer group, the portion of issued shares that vest can range from 50.0% to 100.0%, and for exceptional levels of performance, additional shares can be granted at the end of the three-year period up to 100.0% of the original restricted stock that was issued. These additional shares, if any, would be fully vested when issued. A new three-year plan cycle begins each year under the program.
Effective for 2005, shares of time-based restricted stock that are issued to executive officers under the Stock Option Plan will vest one-third on the third anniversary, one-third on the fourth anniversary and one-third on the fifth anniversary of the date of grant.
F-36
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
6. E MPLOYEE B ENEFIT P LANS - Continued
In addition to time-based restricted stock, a portion of the restricted stock issued to executive officers in 2005 will be subject to company-wide performance-based criteria. For 2005, the performance-based criteria is based on whether or not the Company meets or exceeds operating goals established under the Companys Strategic Management Plan for the four following areas relative to established goals by the end of 2007: (1) average occupancy rates; (2) long-term debt plus preferred equity as a percentage of total assets; (3) fixed charge coverage ratio; and (4) ratio of dividends to cash available for distribution. To the extent performance equals or exceeds the threshold performance goals, the portion of issued shares of restricted stock that vest can range from 50.0% to 100.0%, and for exceptional levels of performance, additional shares can be granted at the end of the three-year period up to 50.0% of the original restricted shares that were issued. These additional shares, if any, would be fully vested when issued.
Notwithstanding the foregoing criteria, the compensation and governance committee of the Companys board of directors has retained the authority to issue long-term incentive awards at its discretion.
Dividends received on restricted stock under all prior and current grants are non-forfeitable by the officer and are paid at the same rate and on the same date as on shares of the Companys Common Stock on all shares held, whether or not vested.
401(k) Savings Plan
The Company has a 401(k) savings plan covering substantially all employees who meet certain age and employment criteria. The Company contributes amounts for each participant at a rate of 75% of the employees contribution (up to 6% of each employees salary). During 2004, 2003 and 2002, the Company contributed $1.2 million, $1.0 million and $0.9 million, respectively, to the 401(k) savings plan. Administrative expenses of the plan are paid by the Company.
Employee Stock Purchase Plan
The Company has an Employee Stock Purchase Plan for all active employees under which employees can elect to contribute up to 25.0% of their base compensation. At the end of each three-month offering period, the contributions in each participants account balance, which includes accrued dividends, is applied to acquire shares of Common Stock at a cost that is calculated at 85.0% of the lower of the average closing price on the New York Stock Exchange on the five consecutive days preceding the first day of the quarter or the five days preceding the last day of the quarter. During the years ended December 31, 2004, 2003 and 2002, the Company issued 33,693, 50,812 and 47,488 new shares of Common Stock, respectively under the Employee Stock Purchase Plan. The discount on issued shares is expensed by the Company as additional compensation and aggregated $0.2 million, $0.2 million and $0.1 million in 2004, 2003 and 2002, respectively.
F-37
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
7. R ENTAL I NCOME
The Companys real estate assets are leased to tenants under operating leases, substantially all of which expire over the next 10 years. The minimum rental amounts under the leases are generally either subject to scheduled fixed increases or adjustments based on the Consumer Price Index. Generally, the leases also require that the tenants reimburse the Company for increases in certain costs above the base-year costs.
Expected future minimum rents to be received over the next five years and thereafter from tenants for leases in effect at December 31, 2004 for the Companys Wholly Owned Properties are as follows:
2005 |
$ | 377,310 | |
2006 |
336,603 | ||
2007 |
286,978 | ||
2008 |
235,047 | ||
2009 |
180,788 | ||
Thereafter |
513,857 | ||
|
|
||
$ | 1,930,583 | ||
|
|
8. R ELATED P ARTY T RANSACTIONS
The Company has previously reported that it had a contract to acquire development land in the Bluegrass Valley office development project from GAPI, Inc., a corporation controlled by Gene H. Anderson, an executive officer and director of the Company. Under the terms of the contract, the development land is to be purchased in phases, and the purchase price for each phase or parcel is settled for in cash and/or Common Units. The price for the various parcels is based on an initial value for each parcel, adjusted for an interest factor, currently 6.88% per annum, applied up to the closing date and also for changes in the value of the Common Units. On January 17, 2003, the Company acquired an additional 23.5 acres of this land from GAPI, Inc. for 85,520 shares of Common Stock and $384,000 in cash for total consideration of $2.3 million. In May 2003, 4.0 acres of the remaining acres not yet acquired by the Company was taken by the Georgia Department of Transportation to develop a roadway interchange for consideration of $1.8 million. The Department of Transportation took possession and title of the property in June 2003. As part of the terms of the contract between the Company and GAPI, Inc., the Company was entitled to and received in 2003 the $1.8 million proceeds from the condemnation. In July 2003, the Company appealed the condemnation and is currently seeking additional payment from the state; the recognition of any gain has been deferred pending resolution of the appeal process. In April 2005, the Company acquired for cash an additional 12.1 acres of the Bluegrass Valley land from GAPI, Inc. and also settled for cash the final purchase price with GAPI, Inc. on the 4.0 acres that were taken by the Georgia Department of Transportation, which aggregated approximately $2.7 million, of which $0.7 million was recorded as a payable to GAPI, Inc. on the Companys financial statements as of December 31, 2004. In August 2005, the Company acquired 12.7 acres, representing the last parcel of land to be acquired, for cash aggregating $3.2 million. The Company believes that the purchase price with respect to each land parcel was at or below market value. These transactions were unanimously approved by the full Board of Directors with Mr. Anderson abstaining from the vote. The contract provided that the land parcels could be paid in Common Units or in cash, at the option of the seller. This feature constituted an embedded derivative pursuant to SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. The embedded derivative feature is accounted for separately and adjusted based on changes in the fair value of the Common Units. This results in an increase to other income of $1.3 million in 2002, and a decrease to other income of $0.7 and $0.4 million in 2003 and 2004, respectively. In 2005, an additional $0.2 million expense was recorded related to the embedded derivative, which expired upon the closing of the final land transaction in August 2005.
F-38
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
8. R ELATED P ARTY T RANSACTIONS - Continued
The Company entered into a series of agreements in January and February 2005, pursuant to which the Company, through a third party broker, sold on February 28, 2005 and April 15, 2005, three non-core industrial buildings in Winston-Salem, North Carolina to John L. Turner, a director of the Company, and certain of his affiliates in exchange for a gross sales price of approximately $27.0 million, of which $20.3 million was paid in cash and the remainder from the surrender of 256,508 Common Units in the Operating Partnership. The Company recorded a gain of approximately $4.8 million upon the closing of these sales. The Company believes that the purchase price paid for these assets by Mr. Turner and his affiliates was equal to their fair market value. The sales were unanimously approved by the full Board of Directors with Mr. Turner not being present to discuss or vote on the matter.
9. S TOCKHOLDERS E QUITY
Common Stock Dividends
Quarterly dividends paid per share of Common Stock aggregated $1.70, $1.86 and $2.34 for the years ended December 31, 2004, 2003 and 2002, respectively.
The following table summarizes the estimated taxability of dividends paid for federal income tax purposes:
2004
|
2003
|
2002
|
|||||||
(restated) | (restated) | ||||||||
Per share: |
|||||||||
Ordinary income |
$ | 0.30 | $ | 0.39 | $ | 1.26 | |||
Capital gains |
0.10 | 0.29 | 0.55 | ||||||
Return of capital |
1.30 | 1.18 | 0.53 | ||||||
|
|
|
|
|
|
||||
Total |
$ | 1.70 | $ | 1.86 | $ | 2.34 | |||
|
|
|
|
|
|
The Companys tax returns have not been examined by the IRS and, therefore, the taxability of dividends is subject to change. As of December 31, 2004, the tax basis of the Companys assets and liabilities was approximately $2.4 billion and $1.6 billion, respectively.
On January 25, 2005, the
Board of Directors declared a cash dividend of $0.425 per share of Common Stock payable on March 4, 2005 to stockholders of record on February 7, 2005. On April 26, 2005, the Board of Directors declared a cash dividend
of $0.425 per share of Common Stock payable on June 3, 2005 to stockholders of record on May 17, 2005. On July, 26, 2005, the Board of Directors declared a cash dividend of $0.425 per share of Common Stock payable on
September 2, 2005 to stockholders of record on August 8, 2005. On November 15, 2005, the Board of Directors declared a cash dividend of $0.425 per share of Common Stock payable on December 16, 2005 to
Preferred Stock
Below is a tabular presentation of the Companys Preferred Stock as of December 31, 2004:
Preferred Stock Issuances |
Issue Date |
Number of
Shares Issued Originally |
Number of
Shares Outstanding |
Carrying
Value |
Liquidation
Preference Per Share |
Optional
Redemption Date |
Annual
Dividends Payable Per Share |
||||||||||
(in thousands) | (in thousands) | ||||||||||||||||
8
5
/
8
%
Series A Cumulative
|
2/12/1997 | 125 | 105 | $ | 104,945 | $ | 1,000 | 02/12/2027 | $ | 86.25 | |||||||
8% Series B Cumulative
|
9/25/1997 | 6,900 | 6,900 | $ | 172,500 | $ | 25 | 09/25/2002 | $ | 2.00 | |||||||
8% Series D Cumulative
|
4/23/1998 | 400 | 400 | $ | 100,000 | $ | 250 | 04/23/2003 | $ | 20.00 |
F-39
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
9. S TOCKHOLDERS E QUITY - Continued
The net proceeds raised from each of three Preferred Stock issuances were contributed by the Company to the Operating Partnership in exchange for Preferred Units in the Operating Partnership. The terms of each series of Preferred Units generally parallel the terms of the respective Preferred Stock as to distributions, liquidation and redemption rights. All three series of Preferred Stock are non-voting.
Of the $86.25 dividend paid per Series A Preferred Share in 2004, $64.42 was taxable as ordinary income and $21.83 was taxable as capital gain. Of the $2.00 dividend paid per Series B Preferred Share in 2004, $1.49 was taxable as ordinary income and $0.51 was taxable as capital gain. Of the $20.00 dividend paid per Series D Preferred Share in 2004, $14.94 was taxable as ordinary income and $5.06 was taxable as capital gain.
On August 22, 2005, the Company redeemed all of the outstanding Series D Preferred Shares at a redemption value aggregating $100.0 million plus accrued dividends and a portion of its Series B Preferred Shares at a redemption value aggregating $30.0 million plus accrued dividends. In accordance with EITF Topic D-42, net income allocable to common shareholders in the third quarter of 2005 will be reduced by approximately $4.3 million, or $0.07 per share, representing the amount of original issuance costs related to the redeemed Preferred Stock.
Stockholder Rights Plan
The Company currently has in effect a stockholder rights plan pursuant to which existing stockholders would have the ability to acquire additional Common Stock at a significant discount in the event a person or group attempts to acquire the Company on terms of which the Companys current board does not approve. These rights are designed to deter a hostile takeover by increasing the takeover cost. As a result, such rights could discourage offers for the Company or make an acquisition of the Company more difficult, even when an acquisition is in the best interest of the Companys stockholders. The rights plan should not interfere with any merger or other business combination the board of directors approves since the Company may generally terminate the plan at any time at nominal cost.
Dividend Reinvestment Plan
The Company has instituted a Dividend Reinvestment and Stock Purchase Plan under which holders of Common Stock may elect to automatically reinvest their dividends in additional shares of Common Stock and may make optional cash payments for additional shares of Common Stock. The administrator of the Dividend Reinvestment and Stock Purchase Plan has been instructed by the Company to purchase Common Stock in the open market for purposes of satisfying the Companys obligations thereunder. However, the Company may in the future elect to satisfy such obligations by issuing additional shares of Common Stock.
10. D ERIVATIVE F INANCIAL I NSTRUMENTS
SFAS No. 133, as amended by SFAS No. 149, requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or will be recognized in Accumulated Other Comprehensive Loss (AOCL) until the hedged item is recognized in earnings. The ineffective portion of a derivatives change in fair value is recognized in earnings.
The Companys interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower overall borrowing costs. To achieve these objectives, from time to time the Company may enter into interest rate hedge contracts such as collars, swaps, caps and treasury lock agreements in order to mitigate its interest rate risk with respect to various debt instruments. The Company does not hold these derivatives for trading or speculative purposes.
F-40
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
10. D ERIVATIVE F INANCIAL I NSTRUMENTS - Continued
The interest rate on all of the Companys variable rate debt is adjusted at one to three month intervals, subject to settlements under these contracts. The Company received only a nominal amount of payments under interest rate hedge contracts in 2004 and 2003. Net payments made to counter parties under interest rate hedge contracts were $0.4 million in 2002 and were recorded as increases to interest expense.
The Company is exposed to certain losses in the event of nonperformance by the counter party under any outstanding hedge contracts. The Company expects the counter parties, which are major financial institutions, to perform fully under any such contracts. However, if any counter party was to default on its obligation under an interest rate hedge contract, the Company could be required to pay the full rates on its debt, even if such rates were in excess of the rate in the contract.
On the date that the Company enters into a derivative contract, the Company designates the derivative as (1) a hedge of the variability of cash flows that are to be received or paid in connection with a recognized liability (a cash flow hedge), (2) a hedge of changes in the fair value of an asset or a liability attributable to a particular risk (a fair value hedge) or (3) an instrument that is held as a non-hedge derivative. Changes in the fair value of highly effective cash flow hedges, to the extent that the hedges are effective, are recorded in AOCL, until earnings are affected by the hedged transaction (i.e., until periodic settlements of a variable-rate liability are recorded in earnings). Any hedge ineffectiveness (which represents the amount by which the changes in the fair value of the derivative exceed the variability in the cash flows of the transaction) is recorded in current-period earnings. For derivatives designated as fair value hedges, changes in the fair value of the derivative and the hedged item related to the hedged risk are recognized in current-period earnings. Changes in the fair value of non-hedging instruments are reported in current-period earnings.
The Company formally documents all relationships between hedging instruments and hedged items as well as its risk-management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as cash flow hedges to (1) specific assets and liabilities on the balance sheet or (2) forecasted transactions. The Company also assesses and documents, both at the hedging instruments inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows associated with the hedged items. When the Company determines that a derivative is not (or has ceased to be) highly effective as a hedge, the Company discontinues hedge accounting prospectively.
During 2002, the Company entered into and terminated two $24.0 million treasury lock agreements related to an anticipated fixed rate financing with two financial counterparties, which effectively lock the treasury rate at 3.7%. These treasury lock agreements are designated as cashflow hedges and the effective portion of the cumulative loss on the derivative instruments was $1.1 million at December 31, 2004 and is being reported as a component of AOCL in stockholders equity with the related offset included in other assets. These costs will be recognized into earnings in the same period or periods during which the hedged transaction affects earnings (as the underlying debt is paid down). The Company expects that the portion of the cumulative loss recorded in AOCL at December 31, 2004 associated with the derivative instruments which will be recognized within the next 12 months will be approximately $0.3 million.
During the year ended December 31, 2003, the Company entered into and subsequently terminated a treasury lock agreement to hedge the change in the fair market value of the MOPPRS and related remarketing option issued by the Operating Partnership. The termination of this treasury lock agreement resulted in a payment of $1.5 million to the Company, which was included as part of the $14.7 million loss on extinguishment recorded in early 2003 (see Note 5).
F-41
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
10. D ERIVATIVE F INANCIAL I NSTRUMENTS - Continued
In addition, during the year ended December 31, 2003, the Company entered into and subsequently terminated three interest rate swap agreements related to a ten-year fixed rate financing completed on December 1, 2003. These swap agreements were designated as cash flow hedges. The unamortized effective portion of the cumulative gain on these derivative instruments was $3.5 million at December 31, 2004 and is being reported as a component of AOCL in stockholders equity with the related offset included in other assets. This deferred gain will be recognized in net income as a reduction of interest expense in the same period or periods during which interest expense on the hedged fixed rate financing affects net income. The Company expects that $0.3 million will be recognized in the next 12 months.
In 2003, the Company also entered into two interest rate swaps related to a floating rate credit facility. The swaps effectively fixed the one-month LIBOR rate on $20.0 million of floating rate debt at 0.99% from August 1, 2003 to January 1, 2004 and at 1.59% from January 2, 2004 until June 1, 2005. These swap agreements are designated as cash flow hedges and the effective portion of the cumulative gain on these derivative instruments was $0.1 million at December 31, 2004 and is being reported as a component of AOCL in stockholders equity with the related offset included in other assets. The Company expects that the portion of the cumulative gain recorded in AOCL at December 31, 2004 associated with these derivative instruments, which will be recognized within the next 12 months, will be $0.1 million.
At December 31, 2004, $5.3 million of deferred financing costs from past cash flow hedging instruments is being reported as a component of AOCL in stockholders equity. These costs will be recognized as interest expense as the underlying debt is repaid. The Company expects that the portion of the cumulative loss recorded in AOCL at December 31, 2004 associated with these derivative instruments, which will be recognized as interest expense within the next 12 months, will be approximately $0.7 million.
As described in Note 8, the land purchase agreement with GAPI, Inc. included an embedded derivative feature due to the price for the land parcels being determined by the fair value of Common Units, which was accounted for in accordance with SFAS No. 133.
11. O THER C OMPREHENSIVE I NCOME
Other comprehensive income represents net income plus the results of certain stockholders equity changes not reflected in the Consolidated Statements of Income. The components of other comprehensive income are as follows:
December 31, 2004 |
December 31, 2003 |
December 31, 2002 |
||||||||
(restated) | ||||||||||
Net income |
$ | 41,577 | $ | 42,649 | $ | 80,052 | ||||
Other comprehensive income: |
||||||||||
Realized derivative gains on cashflow hedges |
79 | 3,866 | (1,306 | ) | ||||||
Amortization as interest expense of hedging gains and losses included in other comprehensive income |
757 | 1,688 | 1,543 | |||||||
|
|
|
|
|
|
|
||||
Total other comprehensive income |
836 | 5,554 | 237 | |||||||
|
|
|
|
|
|
|
||||
Total comprehensive income |
$ | 42,413 | $ | 48,203 | $ | 80,289 | ||||
|
|
|
|
|
|
|
F-42
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
12. D ISCONTINUED O PERATIONS AND THE I MPAIRMENT OF L ONG -L IVED A SSETS
In October 2001, the FASB issued SFAS No. 144, which supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be disposed of and the accounting and reporting provisions for disposals of a segment of a business as addressed in APB Opinion No. 30. SFAS No. 144 was effective as of January 1, 2002 and extended the reporting requirements of discontinued operations to include those long-lived assets that were classified as held for sale at December 31, 2003 as a result of disposal activities that were initiated subsequent to January 1, 2002, or were sold during 2002 or 2003 as a result of disposal activities that were initiated subsequent to January 1, 2002. The operations and cash flows of qualifying dispositions have been or will be eliminated from the ongoing operations of the Company and the Company will not have any significant continuing involvement in the operations after the disposal transaction.
Per SFAS No. 144, those long-lived assets that were sold during 2002 as a result of disposal activities initiated prior to January 1, 2002 should be accounted for in accordance with SFAS No. 121 and APB Opinion No. 30. During 2002, the Company sold three properties as a result of disposal activities initiated prior to January 1, 2002, and the gains realized on these sales are included in the gains and impairments on disposition of property, net in the Companys Consolidated Statements of Income.
As part of its business strategy, the Company will from time to time selectively dispose of non-core properties in order to use the net proceeds for investments or other purposes. The table below sets forth the net operating results and net carrying value of those assets classified as discontinued operations in the Companys Consolidated Financial Statements. These assets classified as discontinued operations comprise 3.5 million square feet of office and industrial property, 92 apartment units and 122.8 acres of revenue-producing land sold during 2002, 2003 and 2004 and 0.09 million square feet of property held for sale at December 31, 2004. These long-lived assets relate to disposal activities that were initiated subsequent to the effective date of SFAS No. 144, or that met certain stipulations prescribed by SFAS No. 144. The operations and cash flows of these assets have been or will be eliminated from the ongoing operations of the Company, and the Company will not have any significant continuing involvement in the operations after the disposal transaction:
Year Ended December 31,
|
||||||||||||
2004
|
2003
|
2002
|
||||||||||
(restated) | (restated) | |||||||||||
Rental and other revenues |
$ | 8,561 | $ | 15,144 | $ | 34,166 | ||||||
Operating expenses: |
||||||||||||
Rental property and other expenses |
4,410 | 6,375 | 10,841 | |||||||||
Depreciation and amortization |
1,768 | 4,317 | 9,053 | |||||||||
Impairment of assets held for use |
500 | | | |||||||||
General and administrative |
222 | | | |||||||||
|
|
|
|
|
|
|
|
|
||||
Total operating expenses |
6,900 | 10,692 | 19,894 | |||||||||
Interest expense |
| 852 | 1,483 | |||||||||
Other income |
22 | 78 | 179 | |||||||||
|
|
|
|
|
|
|
|
|
||||
Income before minority interest in the Operating Partnership and net gains on sale and impairment of discontinued operations |
1,683 | 3,678 | 12,968 | |||||||||
Minority interest in discontinued operations |
(173 | ) | (418 | ) | (1,576 | ) | ||||||
|
|
|
|
|
|
|
|
|
||||
Income from discontinued operations net of minority interest in the Operating Partnership |
1,510 | 3,260 | 11,392 | |||||||||
|
|
|
|
|
|
|
|
|
||||
Net gains on sale and impairment of discontinued operations |
3,106 | 10,746 | 13,134 | |||||||||
Minority interest in discontinued operations |
(323 | ) | (929 | ) | (1,543 | ) | ||||||
|
|
|
|
|
|
|
|
|
||||
Net gains on sale and impairment of discontinued operations, net of minority interest in the Operating Partnership |
2,783 | 9,817 | 11,591 | |||||||||
|
|
|
|
|
|
|
|
|
||||
Total discontinued operations |
$ | 4,293 | $ | 13,077 | $ | 22,983 | ||||||
|
|
|
|
|
|
|
|
|
||||
Carrying value of assets held for sale and assets sold during the year |
$ | 6,410 | $ | 94,585 | $ | 152,522 | ||||||
|
|
|
|
|
|
|
|
|
F-43
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
12. D ISCONTINUED O PERATIONS AND T HE I MPAIRMENT OF L ONG -L IVED A SSETS - Continued
SFAS No. 144 also requires that a long-lived asset classified as held for sale be measured at the lower of the carrying value or fair value less cost to sell. During 2004, the Company determined that five office properties held for sale, which have now been sold, had a carrying value that was greater than fair value less cost to sell; therefore, an impairment loss of $6.3 million, net of minority interest of $0.7 million, was recognized in net gains on sale and impairments of discontinued operations, net of minority interest, in the Consolidated Statement of Income for the year ended December 31, 2004. For 2003, an impairment loss related to one office property whose carrying value was greater than its fair value less cost to sell, which has now been sold, was $0.1 million. This impairment loss is included in net gains on sale and impairments of discontinued operations, net of minority interest, in the Consolidated Statement of Income for the year ended December 31, 2003. For 2002, the impairment loss related to two office properties whose carrying value was greater than their fair value less cost to sell, which have now been sold, was $3.6 million, net of minority interest. This impairment loss is included in net gains on sale and impairments of discontinued operations, net of minority interest of $0.5 million, in the Consolidated Statement of Income for the year ended December 31, 2002. At December 31, 2004, the Company had 248,400 rentable square feet of properties and 31.1 acres of land classified as held for sale. As of November 30, 2005, most of these properties have been sold.
The following table includes the major classes of assets and liabilities of the properties held for sale as of December 31, 2004 and 2003:
December 31,
|
||||||||
2004(1)
|
2003(2)
|
|||||||
(restated) | ||||||||
Land |
$ | 2,822 | $ | 6,418 | ||||
Land held for development |
7,546 | 25,619 | ||||||
Buildings and tenant improvements |
24,234 | 43,637 | ||||||
Development in process |
| 4 | ||||||
Accumulated depreciation |
(1,411 | ) | (6,839 | ) | ||||
|
|
|
|
|
|
|||
Net real estate assets |
33,191 | 68,839 | ||||||
Deferred leasing costs |
127 | 412 | ||||||
Accrued straight line rents receivable |
165 | 350 | ||||||
Prepaid expenses and other |
7 | 603 | ||||||
Accumulated amortization |
(79 | ) | (190 | ) | ||||
|
|
|
|
|
|
|||
Total assets |
$ | 33,411 | $ | 70,014 | ||||
|
|
|
|
|
|
|||
Tenant security deposits and deferred rents (3) |
$ | 179 | $ | 133 | ||||
|
|
|
|
|
|
(1) | Includes two office properties and a retail property. |
(2) | Includes four office properties and two retail properties. |
(3) | Included in accounts payable, accrued expenses and other liabilities. |
SFAS No. 144 also requires that if indicators of impairment exist, the carrying value of a long-lived asset classified as held for use be compared to the sum of its estimated undiscounted future cash flows. If the carrying value is greater than the sum of its undiscounted future cash flows, an impairment loss should be recognized for the excess of the carrying amount of the asset over its estimated fair value. During 2004, there were two properties held for use, one of which was later sold in 2004, with indicators of impairment where the carrying value exceeded the sum of undiscounted future cash flows. Accordingly, the Company recognized an impairment loss of $1.6 million, net of minority interest of $0.2 million, of which $0.4 million is related to the property sold in 2004 and is included in income from discontinued operations, net of minority interest, in the Consolidated Statement of Income. The remaining impairment loss is included as impairment of assets held for use. For the year ended December 31, 2003, there was no impairment loss on assets held for use. For the year ended December 31, 2002, the carrying value of one property was greater than the sum of its undiscounted future cash flows and, accordingly, an impairment loss of $0.8 million was recognized. In addition, in 2002, the Company recognized a $9.1 million impairment loss related to one office property that has been demolished and may be redeveloped into a class A suburban office property in the future. The carrying value of this property exceeded the sum of its undiscounted future cash flows. These impairment losses aggregating $9.9 million are included as impairment of assets held for use in the Consolidated Statement of Income for the year ended December 31, 2002.
F-44
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
13. E ARNINGS P ER S HARE
The following table sets forth the computation of basic and diluted earnings per share:
For the Years Ended December 31,
|
||||||||||||
2004
|
2003
|
2002
|
||||||||||
(restated) | (restated) | |||||||||||
Numerator: |
||||||||||||
Net income |
$ | 41,577 | $ | 42,649 | $ | 80,052 | ||||||
Non-convertible preferred stock dividends (1) |
(30,852 | ) | (30,852 | ) | (30,852 | ) | ||||||
|
|
|
|
|
|
|
|
|
||||
Numerator for basic earnings per share net income available for common stockholders |
$ | 10,725 | $ | 11,797 | $ | 49,200 | ||||||
|
|
|
|
|
|
|
|
|
||||
Add: |
||||||||||||
Minority interest in continuing operations |
$ | 849 | $ | 3 | $ | 3,794 | ||||||
Minority interest in discontinued operations |
496 | 1,347 | 3,119 | |||||||||
|
|
|
|
|
|
|
|
|
||||
Numerator for diluted earnings per share net income available for common stockholders after assumed conversions |
$ | 12,070 | $ | 13,147 | $ | 56,113 | ||||||
|
|
|
|
|
|
|
|
|
||||
Denominator: |
||||||||||||
Denominator for basic earnings per shareweighted-average shares (2) |
53,323 | 52,950 | 52,974 | |||||||||
Add: |
||||||||||||
Employee stock options (1) |
380 | 216 | 334 | |||||||||
Warrants (1) |
5 | 3 | 5 | |||||||||
Operating partnership units |
6,141 | 6,625 | 7,146 | |||||||||
Unvested restricted shares (2) |
175 | 117 | 103 | |||||||||
|
|
|
|
|
|
|
|
|
||||
Denominator for diluted earnings per share adjusted weighted average shares and assumed conversions |
60,024 | 59,911 | 60,562 | |||||||||
|
|
|
|
|
|
|
|
|
||||
Basic earnings per common share |
$ | 0.20 | $ | 0.22 | $ | 0.93 | ||||||
|
|
|
|
|
|
|
|
|
||||
Diluted earnings per common share |
$ | 0.20 | $ | 0.22 | $ | 0.93 | ||||||
|
|
|
|
|
|
|
|
|
(1) | For additional disclosures regarding outstanding preferred stock, employee stock options and warrants, see Notes 9 and 14 included herein. The number of additional shares has been determined using the treasury stock method. |
(2) | Weighted average shares for basic earnings per share exclude shares of restricted stock, per SFAS 128. Such shares of restricted stock are included for diluted earnings per share. |
The number of shares of Common Stock reserved for future issuance is as follows:
December 31, 2004 |
December 31, 2003 |
|||
Outstanding warrants |
921,715 | 921,715 | ||
Outstanding stock options |
4,632,691 | 4,229,461 | ||
Possible future issuance under stock option plan |
2,531,330 | 3,254,406 | ||
|
|
|||
8,085,736 | 8,405,582 | |||
|
|
As of December 31, 2004, the Company had 146,186,578 shares of Common Stock authorized to be issued under its charter.
F-45
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
14. S TOCK O PTIONS AND W ARRANTS
As of December 31, 2004, 6.0 million shares of the Companys Common Stock were authorized for issuance under the Amended and Restated 1994 Stock Option Plan. Stock options granted under this plan generally vest over a four or five-year period beginning with the date of grant.
In 1995, the FASB issued SFAS No. 123, which recommends the use of a fair value based method of accounting for an employee stock option whereby compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period (generally the vesting period of the award). However, SFAS No. 123 specifically allows an entity to continue to measure compensation cost under APB Opinion No. 25, so long as pro forma disclosures of net income and earnings per share are made as if SFAS No. 123 had been adopted. Through December 31, 2002, the Company elected to follow APB Opinion No. 25 and related interpretations in accounting for its employee stock options. In 2002 and 2001, 494,329 and 95,443 options were exercised whereby the Company simultaneously repurchased shares from the employees sufficient to pay for the option exercise price and the employees withholding taxes. Accordingly, these option exercises were considered to represent new measurement dates and the entire intrinsic value of the options was expensed in accordance with FASB Interpretation No. 44, Accounting for Certain Transactions Involving Stock Options, An Interpretation of APB Opinion No. 25. The amounts expensed aggregated $3.7 million during the year ended December 31, 2002. There were no similar option exercises during the years ended December 31, 2004 and 2003.
In December 2002, the FASB issued SFAS No. 148 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, the statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. On January 1, 2003, the Company adopted the fair value method of accounting for stock-based compensation provisions of SFAS No. 123. The Company applied the prospective method of accounting and expenses all employee stock options (and similar awards) issued on or after January 1, 2003 over the vesting period based on the fair value of the award on the date of grant. The adoption of this statement did not have a material impact on the Companys results of operations.
As more fully described in Note 1, SFAS No. 123 (R) will become effective January 1, 2006 and will require recognition of compensation costs for currently unvested options the Company granted before January 1, 2003.
Under SFAS No. 123, the fair value of a stock option is estimated by using an option-pricing model that takes into account as of the grant date the exercise price and expected life of the option, the current price of the underlying stock and its expected volatility, expected dividends on the stock and the risk-free interest rate for the expected term of the option. SFAS No. 123 provides examples of possible pricing models and includes the Black-Scholes pricing model, which the Company used to develop its pro forma disclosures. The Black-Scholes model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable rather than for use in estimating the fair value of employee stock options subject to vesting and transferability restrictions.
Because SFAS No. 123 is applicable only to options granted subsequent to December 31, 1994, only options granted subsequent to that date were valued using the Black-Scholes model. The fair values of the options granted were estimated at the grant dates using the following weighted average assumptions:
2004
|
2003
|
2002
|
|||||||
Risk free interest rate |
3.81 | % | 3.70 | % | 4.97 | % | |||
Common stock dividend yield |
6.59 | % | 11.11 | % | 8.65 | % | |||
Expected volatility |
16.05 | % | 16.32 | % | 16.37 | % | |||
Average expected option life (years) |
9.2 | 10.0 | 10.0 |
F-46
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
14. S TOCK O PTIONS AND W ARRANTS - Continued
Had the compensation cost for the Companys stock option plans for options issued before January 1, 2003 been determined based on the fair values at the grant dates for awards granted between January 1, 1995 and December 31, 2002 consistent with the provisions of SFAS No. 123, the Companys net income and net income per share would have decreased to the pro forma amounts indicated below:
Year Ended December 31,
|
||||||||||||
2004
|
2003
|
2002
|
||||||||||
(restated) | (restated) | |||||||||||
Net income available for common stockholders as reported |
$ | 10,725 | $ | 11,797 | $ | 49,200 | ||||||
Add: Stock option expense included in reported net income |
341 | (1) | 1,249 | (1) | 155 | (1) | ||||||
Deduct: Total stock option expense determined under fair value recognition method for all awards |
(784 | ) (1) | (1,838 | ) (1) | (941 | ) (1) | ||||||
|
|
|
|
|
|
|
|
|
||||
Pro forma net income available for common stockholders |
$ | 10,282 | $ | 11,208 | $ | 48,414 | ||||||
|
|
|
|
|
|
|
|
|
||||
Basic net income per common share - as reported |
$ | 0.20 | $ | 0.22 | $ | 0.93 | ||||||
Basic net income per common share - pro forma |
$ | 0.19 | $ | 0.21 | $ | 0.92 | ||||||
Diluted net income per common share - as reported |
$ | 0.20 | $ | 0.22 | $ | 0.93 | ||||||
Diluted net income per common share - pro forma |
$ | 0.19 | $ | 0.21 | $ | 0.92 |
(1) | Amounts include the effects of accounting for dividend equivalent rights. |
The following table summarizes information about stock options outstanding at December 31, 2004, 2003, 2002 and 2001:
Options Outstanding
|
||||||
Number of Shares |
Weighted Average Exercise Price |
|||||
Balances at December 31, 2001 |
3,659,788 | $ | 23.24 | |||
Options granted |
570,338 | 26.96 | ||||
Options terminated |
(204,739 | ) | 25.68 | |||
Options exercised |
(494,329 | ) | 19.64 | |||
|
|
|
|
|||
Balances at December 31, 2002 |
3,531,058 | 23.96 | ||||
Options granted |
756,953 | 21.03 | ||||
Options terminated |
(2,250 | ) | 30.34 | |||
Options exercised |
(56,300 | ) | 19.08 | |||
|
|
|
|
|||
Balances at December 31, 2003 |
4,229,461 | 23.48 | ||||
Options granted |
834,078 | 25.81 | ||||
Options terminated |
(257,007 | ) | 23.54 | |||
Options exercised |
(173,841 | ) | 19.14 | |||
|
|
|
|
|||
Balances at December 31, 2004 |
4,632,691 | $ | 24.51 | |||
|
|
|
|
|||
Options Exercisable
|
||||||
Number of Shares |
Weighted Average Exercise Price |
|||||
December 31, 2002 |
1,729,325 | $ | 23.55 | |||
December 31, 2003 |
2,478,781 | $ | 23.60 | |||
December 31, 2004 |
3,343,740 | $ | 24.12 |
F-47
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
14. S TOCK O PTIONS AND W ARRANTS - Continued
Exercise prices for options outstanding as of December 31, 2004 ranged from $11.63 to $35.00. The weighted average remaining contractual life of those options is 6.1 years. Using the Black-Scholes options valuation model, the weighted average fair values of options granted during 2004, 2003 and 2002 were $1.50, $0.19 and $1.00, respectively, per option.
Warrants
The following table sets forth information regarding warrants outstanding as of December 31, 2004:
Date of Issuance |
Number of Warrants |
Exercise Price |
|||
February 1995 |
35,000 | $ | 21.00 | ||
April 1996 |
150,000 | $ | 28.00 | ||
October 1997 |
626,715 | $ | 32.50 | ||
December 1997 |
110,000 | $ | 34.13 | ||
|
|||||
Total |
921,715 | ||||
|
The warrants granted in February 1995, April 1996 and December 1997 expire 10 years from the respective dates of issuance. All warrants are exercisable from the dates of issuance. The warrants granted in October 1997 do not have an expiration date. All of the February 1995 warrants were exercised by the holder in February 2005, and 120,000 of the April 1996 warrants were exercised by the holder in June and September 2005.
15. C OMMITMENTS AND C ONTINGENCIES
Concentration of Credit Risk
The Company maintains its cash and cash equivalent investments at financial institutions. The combined account balances at each institution typically exceed FDIC insurance coverage and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. Management of the Company believes that the potential risk of loss is remote.
Land Leases
Certain properties in the Companys wholly owned portfolio are subject to land leases expiring through 2082. Rental payments on these leases are adjusted annually based on either the consumer price index or on a predetermined schedule. Land leases subject to increases under a pre-determined schedule are accounted for under the straight-line method.
For three properties, the Company has the option to purchase the leased land during the lease term at the greater of 85.0% of appraised value or $0.03 million per acre.
The Companys payment obligations for future minimum payments on operating leases (which include scheduled fixed increases, but exclude increases based on CPI) are as follows:
2005 |
$ | 1,160 | |
2006 |
1,113 | ||
2007 |
1,110 | ||
2008 |
1,126 | ||
2009 |
1,166 | ||
Thereafter |
44,725 | ||
|
|
||
$ | 50,400 | ||
|
|
F-48
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
15. C OMMITMENTS AND C ONTINGENCIES - Continued
In addition, the Company has recorded $0.5 million in capitalized lease obligations as of December 31, 2004, which is reflected in other liabilities.
Contracts
The Company has entered into contracts related to tenant improvements and the development of certain properties totaling $58.1 million as of December 31, 2004. The amounts remaining to be paid under these contracts as of December 31, 2004 totaled $27.1 million.
Development Projects
At September 30, 2005, the Company had development projects in process with a total estimated investment at completion of approximately $128 million. At September 30, 2005, $54.8 million was incurred and the remainder expected to be funded in the next 27 months.
Environmental Matters
Substantially all of the Companys in-service properties have been subjected to Phase I environmental assessments (and, in certain instances, Phase II environmental assessments). Such assessments and/or updates have not revealed, nor is management aware of, any environmental liability that management believes would have a material adverse effect on the accompanying Consolidated Financial Statements.
Joint Ventures
Certain properties owned in joint ventures with unaffiliated parties have buy/sell options that may be exercised to acquire the other partners interest by either the Company or its joint venture partner if certain conditions are met as set forth in the respective joint venture agreement.
Guarantees and Other Obligations
The following is a tabular presentation and related discussion of various guarantees and other obligations as of December 31, 2004:
Entity or Transaction |
Type of Guarantee or Other Obligation |
Amount Recorded/Deferred |
Date Guarantee Expires |
||||
Des Moines Joint Ventures (1),(6) |
Debt | $ | |
Various through
11/2015 |
|||
RRHWoods, LLC (2),(7) |
Debt | $ | | 8/2006 | |||
Plaza Colonnade (2),(8) |
Indirect Debt (4) | $ | 58 | 12/2009 | |||
SF-HIW Harborview, LP (3),(5) |
Rent and tenant improvement (4) | $ | | 9/2007 | |||
Eastshore (Capital One) (3),(9) |
Rent (4) | $ | | 11/2007 | |||
Capital One (3),(10) |
Rent (4) | $ | 1,366 | 10/2009 | |||
Industrial (3),(11) |
Rent (4) | $ | 1,497 | 12/2006 | |||
Highwoods DLF 97/26 DLF 99/32, LP (2),(12) |
Rent (4) | $ | 855 | 6/2008 | |||
RRHWoods, LLC and Dallas County Partners (2),(13) |
Indirect Debt (4) | $ | 649 | 6/2014 | |||
HIW-KC Orlando, LLC (3),(14) |
Rent (4) | $ | 594 | 4/2011 | |||
HIW-KC Orlando, LLC (3),(14) |
Leasing Costs | $ | 1,718 | 12/2024 |
(1) | Represents guarantees entered into prior to the January 1, 2003 effective date of FIN 45 for initial recognition and measurement. |
(2) | Represents guarantees that fall under the initial recognition and measurement requirements of FIN 45. |
F-49
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
15. C OMMITMENTS AND C ONTINGENCIES - Continued
(3) | Represents guarantees that are excluded from the fair value accounting and disclosure provisions of FIN 45 since the existence of such guarantees prevents sale treatment and/or the recognition of profit from the sale transaction. |
(4) | The maximum potential amount of future payments disclosed below for these guarantees assumes the Company pays the maximum possible liability under the guaranty with no offsets or reductions. If the space is leased, it assumes the existing tenant defaults at December 31, 2004 and the space remains unleased through the remainder of the guaranty term. If the space is vacant, it assumes the space remains vacant through the expiration of the guaranty. Since it is assumed that no new tenant will occupy the space, lease commissions, if applicable, are excluded. |
(5) | As more fully described in Note 3, in 2002 the Company granted its partner in SF-HIW Harborview, LP a put option and also entered into a master lease arrangement for five years covering vacant space in the building owned by the partnership and agreed to pay certain tenant improvement costs. The maximum potential amount of future payments the Company could be required to make related to the rent guarantees and tenant improvements is $1.1 million as of December 31, 2004. |
(6) | The Company has guaranteed certain loans in connection with the Des Moines joint ventures. The maximum potential amount of future payments the Company could be required to make under the guarantees is $24.7 million. Of this amount, $8.6 million arose from housing revenue bonds that require credit enhancements in addition to the real estate mortgages. The bonds bear a floating interest rate, which at December 31, 2004 averaged approximately 2.0%, and mature in 2015. Guarantees of $9.4 million will expire upon two industrial buildings becoming 93.8% and 95.0% leased or when the related loans mature. As of December 31, 2004, these buildings were 93.2% and 75.0% leased, respectively. The remaining $6.7 million in guarantees relate to loans on four office buildings that were in the lease-up phase at the time the loans were initiated. Each of the loans will expire by May 2008. The average occupancy of the four buildings at December 31, 2004 is 94.0%. If the joint ventures are unable to repay the outstanding balances under the loans, the Company will be required, under the terms of the agreements, to repay the outstanding balances. Recourse provisions exist to enable the Company to recover some or all of such payments from the joint ventures assets and/or the other partners. The joint ventures currently generate sufficient cash flow to cover the debt service required by the loans. |
(7) | In connection with the RRHWoods, LLC joint venture, the Company renewed its guarantee of $6.2 million to a bank in July 2003; this guarantee expires in August 2006 and may be renewed by the Company. The bank provides a letter of credit securing industrial revenue bonds, which mature in 2015. The Company would be required to perform under the guarantee should the joint venture be unable to repay the bonds. The Company has recourse provisions in order to recover from the joint ventures assets and the other partner for amounts paid in excess of the Companys proportionate share. The property collateralizing the bonds is 100.0% leased and currently generates sufficient cash flow to cover the debt service required by the bond financing. As a result, no liability has been recorded in the Companys Balance Sheet. |
(8) | On December 9, 2004, the Plaza Colonnade, LLC joint venture refinanced its construction loan with a $50.0 million non-recourse permanent loan, thereby releasing the Company from its former guarantees of a construction loan agreement and a construction completion agreement, which arose from the formation of the joint venture to construct an office building. The $50.0 million mortgage bears a fixed interest rate of 5.72%, requires monthly principal and interest payments and matures on January 31, 2017. The Company and its joint venture partner have signed a contingent master lease limited to 30,772 square feet for five years. The Companys maximum exposure under this master lease is $2.1 million. However, the current occupancy level of the building is sufficient to cover all debt service requirements. The likelihood of the Company paying on the master lease is remote. |
On March 30, 2004, the Industrial Development Authority of the City of Kansas City, Missouri issued $18.5 million in non-recourse bonds to finance public improvements made by the joint venture for the benefit of the Kansas City Missouri Public Library. Since the joint venture leases the land for the office building from the library, the joint venture was obligated to build certain public improvements. The net bond proceeds were $18.1 million and will be used for project and debt service costs. The joint venture has recorded this obligation on its balance sheet. The bonds are ultimately paid by the tax increment financing revenue generated by the building and its tenants.
(9) | As more fully described in Note 3, in connection with the sale of three office buildings to a third party in 2002 (the Eastshore transaction), the Company agreed to guarantee rent shortfalls and re-tenanting costs for a five-year period of time from the date of sale (through November 2007). The Companys maximum exposure to loss under these agreements as of December 31, 2004 is $12.4 million. These three buildings are currently leased to a single tenant, Capital One Services, Inc., a subsidiary of Capital One Financial Services, Inc., under leases that expire from May 2006 to March 2010. |
F-50
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
15. C OMMITMENTS AND C ONTINGENCIES - Continued
(10) | In connection with an unrelated disposition of 298,000 square feet of property in 2003 (the Capital One transaction), which was fully leased to Capital One Services, Inc., a subsidiary of Capital One Financial Services, Inc., the Company agreed to guarantee to the buyer, over various contingency periods through October 2009, any rent shortfalls on certain space. Because of this guarantee, in accordance with SFAS No. 66, the Company deferred $4.4 million of the total $8.4 million gain. The deferred portion of the gain is recognized when each contingency period is concluded. As a result, the Company recognized $1.3 million of the deferred gain in 2003 and an additional $1.7 million during 2004. The remaining deferred gain representing the Companys contingent liability with respect to the guarantee is $1.4 million as of December 31, 2004. |
(11) | In December 2003, the Company sold 1.9 million square feet of industrial property for $58.4 million in cash, a $5.0 million note receivable that bears interest at 12.0% and a $1.7 million note receivable that bears interest at 8.0%. In addition, the Company agreed to guarantee, over various contingency periods through December 2006, any rent shortfalls on 16.3% of the rentable square footage of the industrial property, which is occupied by two tenants. The Companys contingent liability with respect to such guarantee as of December 31, 2004 is $1.5 million. The total gain as a result of the transaction was $6.4 million. Because the terms of the notes require only interest payments to be made by the buyer until 2005, in accordance with SFAS No. 66, the entire $6.4 million gain was deferred and offset against the note receivable on the balance sheet and the cost recovery method is being used for this transaction. Accordingly, once sufficient principal amounts have been paid on the note receivable so that the note receivable balance is equal to the deferred gain, the gain will be recognized as additional payments are made on the notes. On June 30, 2005, the Company agreed to modify the note receivable to reduce the amount due by $0.3 million. The modified note balance and all accrued interest aggregating $6.2 million was paid in full on July 1, 2005. Because the maximum exposure to loss from the rent guarantee at July 1, 2005 is $0.8 million, that amount of gain will remain deferred and $5.3 million of the deferred gain will be recognized at that date. |
(12) | In the Highwoods DLF 97/26 DLF 99/32, LP joint venture, a single tenant currently leases an entire building under a lease scheduled to expire on June 30, 2008. The tenant also leases space in other buildings owned by the Company. In conjunction with an overall restructuring of the tenants leases with the Company and with this joint venture, the Company agreed to certain changes to the lease with the joint venture in September 2003. The modifications included allowing the tenant to vacate the premises on January 1, 2006, and reducing the rent obligation by 50.0% and converting the net lease to a full service lease with the tenant liable for 50.0% of these costs at that time. In turn, the Company agreed to compensate the joint venture for any economic losses incurred as a result of these lease modifications. Based on the lease guarantee agreement, in September 2003, the Company recorded approximately $0.9 million in other liabilities and $0.9 million as a deferred charge in other assets on its Consolidated Balance Sheet. However, should new tenants occupy the vacated space during the two and a half year guarantee period, the Companys liability under the guarantee would diminish. The Companys maximum potential amount of future payments with regard to this guarantee as of December 31, 2004 is $1.1 million. No recourse provisions exist to enable the Company to recover any amounts paid to the joint venture under this lease guarantee arrangement. |
(13) | RRHWOODS, LLC and Dallas County Partners each developed a new office building in Des Moines, Iowa. On June 25, 2004, the joint ventures financed both buildings with a $7.4 million ten-year loan from a lender. As an inducement to make the loan at a 6.3% long-term rate, the Company and its partner agreed to master lease the vacant space and each guaranteed $0.8 million of the debt with limited recourse. As leasing improves, the guarantee obligations under the loan agreement diminish. As of December 2004, the Company expensed its share of the master lease payments totaling $0.2 million and recorded $0.6 million in other liabilities and $0.6 million as a deferred charge included in other assets on its Consolidated Balance Sheet with respect to this guarantee. The maximum potential amount of future payments that the Company could be required to make based on the current leases in place is approximately $3.6 million as of December 31, 2004. The likelihood of the Company paying on its $0.8 million guarantee is remote since the master lease payments enable the joint venture to satisfy the minimum debt coverage ratio and should the Company have to pay its portion of the guarantee, it would recover the $0.8 million from other joint venture assets. |
(14) | As more fully described in Note 4, in connection with the formation of HIW-KC Orlando, LLC, the Company agreed to guarantee rent to the joint venture for 3,248 rentable square feet commencing in August 2004 and expiring in April 2011. Additionally, the Company agreed to guarantee the initial leasing costs, currently estimated at $1.7 million, for approximately 11% of the joint ventures total square footage. The Company believes its estimate related to the leasing costs guarantee is accurate. However, if the Companys assumptions prove to be incorrect, future losses may occur. |
F-51
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
15. C OMMITMENTS AND C ONTINGENCIES - Continued
Litigation, Claims and Assessments
The Company is from time to time a party to a variety of legal proceedings, claims and assessments arising in the ordinary course of its business. The Company regularly assesses the liabilities and contingencies in connection with these matters based on the latest information available. For those matters where it is probable that the Company has incurred or will incur a loss and the loss or range of loss can be reasonably estimated, reserves are recorded in the Consolidated Financial Statements. In other instances, because of the uncertainties related to both the probable outcome and amount or range of loss, a reasonable estimate of liability, if any, cannot be made. Based on the current expected outcome of any such matters, none of these proceedings, claims or assessments is expected to have a material adverse effect on the Companys business, financial condition or results of operations.
Notwithstanding the above, the SECs Division of Enforcement has issued a confidential formal order of investigation in connection with the Companys previous restatement of its financial results. Even though the Company is cooperating fully, it cannot provide any assurances that the SECs Division of Enforcement will not take any action that would adversely affect the Company.
16. D ISCLOSURE A BOUT F AIR V ALUE OF F INANCIAL I NSTRUMENTS
The following disclosures of estimated fair value were determined by management using available market information and appropriate valuation methodologies. Considerable judgment is used to interpret market data and develop estimated fair values. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize upon disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair values. The carrying amounts and estimated fair values of the Companys financial instruments at December 31, 2004 were as follows:
Carrying
Amount |
Fair Value |
|||||
Cash and cash equivalents |
$ | 24,482 | $ | 24,482 | ||
Accounts and notes receivable |
$ | 23,870 | $ | 23,870 | ||
Mortgages and notes payable |
$ | 1,572,574 | $ | 1,670,072 | ||
Financing obligations |
$ | 65,309 | $ | 66,718 |
The fair values of the Companys fixed rate mortgages and notes payable were estimated using discounted cash flow analysis based on the Companys estimated incremental borrowing rate at December 31, 2004 for similar types of borrowing arrangements. The carrying amounts of the Companys variable rate borrowings approximate fair value.
Disclosures about the fair value of financial instruments are based on relevant information available to the Company at December 31, 2004. Although management is not aware of any factors that would have a material effect on the fair value amounts reported herein, such amounts have not been revalued since that date and current estimates of fair value may significantly differ from the amounts presented herein.
F-52
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
17. S EGMENT I NFORMATION
The sole business of the Company is the acquisition, development and operation of rental real estate properties. The Company operates office, industrial and retail properties and apartment units. There are no material inter-segment transactions.
The Companys chief operating decision maker (CDM) assesses and measures operating results based upon property level net operating income. The operating results for the individual assets within each property type have been aggregated since the CDM evaluates operating results and allocates resources on a property-by-property basis within the various property types.
The accounting policies of the segments are the same as those described in Note 1 included herein. Further, all operations are within the United States and, at December 31, 2004, no tenant of the Wholly Owned Properties comprised more than 4.0 % of the Companys consolidated revenues. The following table summarizes the rental income, net operating income and assets for each reportable segment for the years ended December 31, 2004, 2003 and 2002:
Year Ended December 31,
|
||||||||||||
2004
|
2003
|
2002
|
||||||||||
(restated) | (restated) | |||||||||||
Rental and Other Revenues (1): |
||||||||||||
Office segment |
$ | 391,063 | $ | 412,853 | $ | 432,750 | ||||||
Industrial segment |
33,858 | 40,283 | 39,529 | |||||||||
Retail segment |
38,402 | 38,007 | 36,973 | |||||||||
Apartment segment |
1,401 | 1,362 | 1,163 | |||||||||
|
|
|
|
|
|
|
|
|
||||
Total Rental and Other Revenues |
$ | 464,724 | $ | 492,505 | $ | 510,415 | ||||||
|
|
|
|
|
|
|
|
|
||||
Net Operating Income (1): |
||||||||||||
Office segment |
$ | 243,165 | $ | 260,821 | $ | 286,345 | ||||||
Industrial segment |
26,248 | 32,105 | 31,866 | |||||||||
Retail segment |
26,313 | 26,192 | 25,379 | |||||||||
Apartment segment |
567 | 549 | 570 | |||||||||
|
|
|
|
|
|
|
|
|
||||
Total Net Operating Income |
296,293 | 319,667 | 344,160 | |||||||||
Reconciliation to income before disposition of property, co-venture expense, minority interest and equity in earnings of unconsolidated affiliates: |
||||||||||||
Depreciation and amortization |
(132,417 | ) | (139,101 | ) | (136,451 | ) | ||||||
Impairment of assets held for use |
(1,270 | ) | | (9,919 | ) | |||||||
General and administrative expenses |
(41,761 | ) | (26,023 | ) | (29,350 | ) | ||||||
Interest expense |
(120,026 | ) | (141,827 | ) | (136,577 | ) | ||||||
Interest and other income |
6,302 | 5,487 | 8,896 | |||||||||
Settlement of bankruptcy claim |
14,435 | | | |||||||||
Loss on debt extinguishment |
(12,457 | ) | (14,653 | ) | (360 | ) | ||||||
Gain on extinguishment of co-venture obligation |
| 16,301 | | |||||||||
|
|
|
|
|
|
|
|
|
||||
Income before disposition of property, co-venture expense, minority interest and equity in earnings of unconsolidated affiliates |
$ | 9,099 | $ | 19,851 | $ | 40,399 | ||||||
|
|
|
|
|
|
|
|
|
||||
December 31,
|
||||||||||||
2004
|
2003
|
2002
|
||||||||||
(restated) | (restated) | |||||||||||
Total Assets: |
||||||||||||
Office segment |
$ | 2,529,577 | $ | 2,763,147 | $ | 2,936,984 | ||||||
Industrial segment |
256,340 | 269,878 | 344,457 | |||||||||
Retail segment |
262,515 | 279,733 | 275,002 | |||||||||
Apartment segment |
12,207 | 14,040 | 13,254 | |||||||||
Corporate and other |
179,019 | 186,426 | 175,572 | |||||||||
|
|
|
|
|
|
|
|
|
||||
Total Assets |
$ | 3,239,658 | $ | 3,513,224 | $ | 3,745,269 | ||||||
|
|
|
|
|
|
|
|
|
(1) | Net of discontinued operations. |
F-53
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
18. Q UARTERLY F INANCIAL D ATA (Unaudited)
The following table sets forth quarterly financial information for the Companys fiscal year ended December 31, 2004 and has been adjusted to reflect the reporting requirements of discontinued operations under SFAS No. 144:
For the Year Ended December 31, 2004
|
||||||||||||||||||||
First
Quarter |
Second
Quarter |
Third
Quarter |
Fourth
Quarter |
Total
|
||||||||||||||||
(restated) | (restated) | (restated) | ||||||||||||||||||
Rental and other revenues (1) |
$ | 120,024 | $ | 116,414 | $ | 112,980 | $ | 115,306 | $ | 464,724 | ||||||||||
Income from continuing operations |
2,411 | 9,184 | 20,159 | 5,530 | 37,284 | |||||||||||||||
Income/(loss) from discontinued operations |
3,727 | (2,716 | ) | 955 | 2,327 | 4,293 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net income |
6,138 | 6,468 | 21,114 | 7,857 | 41,577 | |||||||||||||||
Dividends on preferred stock |
(7,713 | ) | (7,713 | ) | (7,713 | ) | (7,713 | ) | (30,852 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net (loss attributable to)/income available for common stockholders |
$ | (1,575 | ) | $ | (1,245 | ) | $ | 13,401 | $ | 144 | $ | 10,725 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net (loss)/income per share-basic: |
||||||||||||||||||||
(Loss)/income from continuing operations |
$ | (0.10 | ) | $ | 0.03 | $ | 0.23 | $ | (0.04 | ) | $ | 0.12 | ||||||||
Discontinued operations |
0.07 | (0.05 | ) | 0.02 | 0.04 | 0.08 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net (loss)/income |
$ | (0.03 | ) | $ | (0.02 | ) | $ | 0.25 | $ | | $ | 0.20 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net (loss)/income per share-diluted: |
||||||||||||||||||||
(Loss)/income from continuing operations |
$ | (0.10 | ) | $ | 0.03 | $ | 0.23 | $ | (0.04 | ) | $ | 0.12 | ||||||||
Discontinued operations |
0.07 | (0.05 | ) | 0.02 | 0.04 | 0.08 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net (loss)/income |
$ | (0.03 | ) | $ | (0.02 | ) | $ | 0.25 | $ | | $ | 0.20 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Includes rental and other revenues from both continuing and discontinued operations and equity in earnings of unconsolidated affiliates. |
Quarterly financial information for the fiscal year ended December 31, 2003 which has been restated and adjusted to reflect the reporting requirements of discontinued operations under SFAS No. 144 appear in Note 20.
19. R ESTATED F INANCIAL D ATA
The Company has restated its Consolidated Financial Statements for the years ended December 31, 2003 and 2002 and for the first, second and third quarters of 2004. The restatement resulted from adjustments primarily related to accounting for lease incentives, depreciation and amortization expense, straight-line ground lease expense on one ground lease, gain recognition on a 2003 land condemnation, accounting for an embedded derivative, land cost allocations, the write-off of undepreciated tenant improvements and commissions, capitalization of interest and internal leasing, construction and development costs on development properties, and purchase accounting for acquisitions completed in 1995 to 1998. The tables that follow provide a reconciliation between amounts previously reported and the restated amounts in the Consolidated Statements of Income for the years ended December 31, 2004, 2003 and 2002 and in the Consolidated Balance Sheets as of December 31, 2004 and 2003. In addition, some of the adjustments impacted periods prior to 2002 and the net effect of these prior adjustments is a $24.8 million reduction in total Stockholders Equity at January 1, 2002. Following is a description of the primary elements of the restatement:
Lease incentives. Lease incentives are payments to tenants for costs such as moving allowances, reimbursement of rent payable to a former landlord and any other payments not associated with the physical space improvements. Pursuant to FASB Technical Bulletin 88-1, such costs should be deferred as an intangible asset and the amortization recorded as a reduction to rental revenue on a straight-line basis. The Company previously classified such costs as tenant improvements and amortized the costs on a straight-line basis over the lease term as part of depreciation and amortization expense. Amortization reclassified in the Consolidated Statements of Income as a reduction of rental income was $1.31 million, $1.02 million and $0.64 million for the years ended December 31, 2004, 2003 and 2002, respectively. This adjustment had no impact on net income.
F-54
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
19. R ESTATED F INANCIAL D ATA - Continued
Depreciation and amortization expense. The Company has made adjustments to depreciation and amortization expense related to three matters. First, additional depreciation expense was recorded to commence recording depreciation expense on tenant and building improvement costs at the appropriate times. Under the Companys prior practices, depreciation commenced in a number of instances several months after the related assets were placed in service. Second, excess depreciation expense was reversed from an isolated error whereby two buildings acquired in 1999 were set up with an incorrect useful life that was shorter than the Companys policy of 40 years. Third, additional depreciation expense was recorded on purchase price allocated to the investment in the Companys Kansas City and Des Moines joint ventures that was in excess of the net assets reflected in the joint ventures financial statements. These joint ventures were acquired as part of the 1998 JC Nichols merger. Such excess purchase price related to the fair value of the underlying real estate assets as of the acquisition date and should have been amortized over the life of the related real estate; previously, the Company did not depreciate the excess investment amount. These adjustments in the aggregate increased depreciation expense by $1.30 million, $1.53 million and $1.12 million for the years ended December 31, 2004, 2003 and 2002, respectively. These amounts exclude the depreciation expense effects directly related to adjustments to the write-off of undepreciated tenant improvements and lease commissions, purchase accounting, and capitalization of interest and internal costs described below.
Straight-line ground lease expense. Additional straight-line ground lease expense was recorded with respect to one ground lease in accordance with FAS 13, Accounting for Leases, which in prior periods had been accounted for based on cash rents paid. The additional ground lease expense amounted to $0.22 million, $0.24 million and $0.25 million for the years ended December 31, 2004, 2003 and 2002, respectively.
Land condemnation gain recognition. An adjustment was made to reverse a gain recorded in the second quarter of 2003. In 2003, the Company received $1.8 million in condemnation proceeds and recognized a $1.04 million gain related to approximately 4.0 acres of land that was taken by the Georgia Department of Transportation to develop a roadway interchange. This land was under contract to be acquired by the Company from GAPI, Inc., a corporation controlled by Gene H. Anderson, an executive officer and director of the Company. The purchase price of the land was not determinable at the time of the condemnation, as described in Note 8, but was finalized and paid for in cash in the second quarter of 2005. In July 2003, the Company appealed the condemnation and is currently seeking additional payment from the state; the recognition of any gain has been deferred pending resolution of the appeal process. In addition, the contract provided that the land parcels could be paid in Common Units or in cash, at the option of the seller. This feature constituted an embedded derivative pursuant to SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. An adjustment was recorded to account for the embedded derivative feature separately, which is adjusted each period based on changes in the value of Common Units. This resulted in an increase to other income of $1.30 million in 2002, and a decrease to other income of $0.68 and $0.41 million in 2003 and 2004, respectively.
Land cost allocations. Adjustments were made to land costs allocated to specific parcels to reflect the relative fair value of the parcels, as required by GAAP. Previously, such costs allocated to parcels were determined using methods other than relative fair value. The adjustments increased or (decreased) gains on sales of land and buildings for the years ended December 31, 2004, 2003 and 2002 by $(0.01) million, $(2.16) million and $0.43 million, respectively.
Write-off of undepreciated tenant improvements and lease commissions. These adjustments were made primarily to properly record in the correct period the write-off of undepreciated tenant allowances and lease commissions from certain early lease terminations. Such adjustments increased or (decreased) depreciation expense for the years ended December 31, 2004, 2003 and 2002 by $(3.09) million, $1.47 million and $0.89 million, respectively.
F-55
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
19. R ESTATED F INANCIAL D ATA - Continued
Property operating cost recovery income accruals. Adjustments were made to record accruals for property operating cost recovery income as of December 31, 2003, 2002 and 2001. The increase/(decrease) to rental revenues from these adjustments was $0.11 million, $(0.70) million and $(0.22) million for the years ended December 31, 2004, 2003 and 2002, respectively.
Capitalization of internal costs. Adjustments were recorded to capitalized internal leasing, development and construction costs to conform to the guidance in FAS 91 and FAS 67. Certain costs were previously over-capitalized and other costs were previously under-capitalized. On a net basis, internal costs were over-capitalized by $0.30 million, $0.27 million and $0.47 million for the years ended December 31, 2004, 2003 and 2002, respectively. Depreciation expense was reduced by $0.72 million, $0.78 million and $0.79 million for the years ended December 31, 2004, 2003 and 2002, respectively, related to adjustments to such capitalized assets made during the three years ended December 31, 2004 and in prior periods.
Capitalization of interest and related carrying costs on development property. Adjustments were recorded to correct previous over-capitalization of interest and related carrying costs, which mainly affected periods prior to 2002. These adjustments relate primarily to capitalization during the lease-up period after the building structure was complete (not to exceed one year) and other aspects of the capitalization computations including adjustments to the interest rates used, the amount of qualifying assets, the amount of qualifying carrying costs, and computation methods. Capitalized interest and other carrying costs were decreased for the years ended December 31, 2004, 2003 and 2002 by $0.06 million, $0.05 million and $2.18 million, respectively. Consequently, depreciation expense was reduced and gains on sales of real estate were increased during the years ended December 31, 2004, 2003 and 2002 by $1.92 million, $1.57 million and $1.63 million, respectively.
Purchase accounting related to acquisitions completed from 1995 to 1998. Adjustments were recorded relative to ten acquisitions and mergers completed by the Company from 1995 to 1998. The adjustments relate primarily to record assumed mortgage liabilities at estimated fair value, record the value of property management businesses acquired in two of the purchase transactions and adjust the purchase price allocated to certain assets. The effect of these adjustments on the financial statements for the years ended December 31, 2004, 2003 and 2002 was to decrease interest expense by $0.10 million, $0.26 million and $0.44 million, respectively, increase depreciation expense by $0.10 million, $0.11 million and $0.12 million, respectively, and increase/(decrease) gains on sales of real estate by $(0.63) million, $1.07 million and $(0.76) million, respectively.
F-56
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
19. R ESTATED F INANCIAL D ATA - Continued
The following condensed Consolidated Balance Sheet and Statement of Income data reconciles previously reported and restated consolidated financial information:
Balance Sheet
December 31, 2003
|
|||||||||||||||||
As Reported
|
Discontinued
Operations |
As Reported
With Discontinued Operations |
Restatement
Adjustments |
Restated
|
|||||||||||||
Net real estate assets |
$ | 3,224,214 | $ | (1,840 | ) | $ | 3,222,374 | $ | (26,567 | ) | $ | 3,195,807 | |||||
Property held for sale |
65,724 | 1,876 | 67,600 | 2,414 | 70,014 | ||||||||||||
Cash, cash equivalents and restricted cash |
26,153 | | 26,153 | | 26,153 | ||||||||||||
Accounts, notes and straight-line rents receivable, net |
87,154 | | 87,154 | (3,530 | ) | 83,624 | |||||||||||
Investments in unconsolidated affiliates |
62,417 | | 62,417 | (1,606 | ) | 60,811 | |||||||||||
Other assets, net |
77,361 | (36 | ) | 77,325 | (510 | ) | 76,815 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total Assets |
$ | 3,543,023 | $ | | $ | 3,543,023 | $ | (29,799 | ) | $ | 3,513,224 | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Mortgages and notes payable |
$ | 1,717,765 | $ | | $ | 1,717,765 | $ | 509 | $ | 1,718,274 | |||||||
Accounts payable, accrued expenses and other liabilities |
101,608 | | 101,608 | 3,516 | 105,124 | ||||||||||||
Financing obligations |
124,063 | | 124,063 | 1,714 | 125,777 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total Liabilities |
1,943,436 | | 1,943,436 | 5,739 | 1,949,175 | ||||||||||||
Minority interest |
127,776 | | 127,776 | (3,260 | ) | 124,516 | |||||||||||
Total Stockholders Equity |
1,471,811 | | 1,471,811 | (32,278 | ) | 1,439,533 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total Liabilities and Stockholders Equity |
$ | 3,543,023 | $ | | $ | 3,543,023 | $ | (29,799 | ) | $ | 3,513,224 | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
F-57
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
19. R ESTATED F INANCIAL D ATA - Continued
Income Statement
December 31, 2003
|
December 31, 2002
|
|||||||||||||||||||||||||||||||||||||||
As
Reported |
Discontinued
Operations |
As Reported
with Discontinued Operations |
Restatement
Adjustments |
Restated
|
As
Reported |
Discontinued
Operations |
As Reported
with Discontinued Operations |
Restatement
Adjustments |
Restated
|
|||||||||||||||||||||||||||||||
Rental and other revenues |
$ | 504,699 | $ | (7,804 | ) | $ | 496,895 | $ | (4,390 | ) | $ | 492,505 | $ | 521,725 | $ | (9,897 | ) | $ | 511,828 | $ | (1,413 | ) | $ | 510,415 | ||||||||||||||||
Operating expenses: |
||||||||||||||||||||||||||||||||||||||||
Rental property and other expenses |
178,412 | (4,092 | ) | 174,320 | (1,482 | ) | 172,838 | 169,563 | (3,853 | ) | 165,710 | 545 | 166,255 | |||||||||||||||||||||||||||
Depreciation and amortization |
142,103 | (3,001 | ) | 139,102 | (1 | ) | 139,101 | 140,790 | (3,714 | ) | 137,076 | (625 | ) | 136,451 | ||||||||||||||||||||||||||
Impairment of assets held and used |
| | | | | 9,919 | | 9,919 | | 9,919 | ||||||||||||||||||||||||||||||
General and administrative |
25,269 | | 25,269 | 754 | 26,023 | 28,892 | | 28,892 | 458 | 29,350 | ||||||||||||||||||||||||||||||
Interest expense: |
||||||||||||||||||||||||||||||||||||||||
Contractual |
119,526 | | 119,526 | 92 | 119,618 | 118,952 | | 118,952 | 1,375 | 120,327 | ||||||||||||||||||||||||||||||
Amortization of deferred financing costs |
4,405 | | 4,405 | (7 | ) | 4,398 | 3,469 | | 3,469 | 177 | 3,646 | |||||||||||||||||||||||||||||
Financing obligations |
17,691 | | 17,691 | 120 | 17,811 | 12,488 | | 12,488 | 116 | 12,604 | ||||||||||||||||||||||||||||||
Other income/expense: |
||||||||||||||||||||||||||||||||||||||||
Interest and other income |
6,220 | (45 | ) | 6,175 | (688 | ) | 5,487 | 7,713 | (29 | ) | 7,684 | 1,212 | 8,896 | |||||||||||||||||||||||||||
Settlement on bankruptcy claim |
| | | | | | | | | | ||||||||||||||||||||||||||||||
Loss on debt extinguishments |
(14,653 | ) | | (14,653 | ) | | (14,653 | ) | (378 | ) | | (378 | ) | 18 | (360 | ) | ||||||||||||||||||||||||
Gain on extinguishment of co-venture obligation |
16,301 | | 16,301 | | 16,301 | | | | | | ||||||||||||||||||||||||||||||
Gain and impairment on disposition of property, net |
12,316 | | 12,316 | (2,764 | ) | 9,552 | 22,692 | | 22,692 | 80 | 22,772 | |||||||||||||||||||||||||||||
Co-venture expense |
(4,588 | ) | | (4,588 | ) | | (4,588 | ) | (7,730 | ) | | (7,730 | ) | | (7,730 | ) | ||||||||||||||||||||||||
Minority interest |
(813 | ) | 84 | (729 | ) | 726 | (3 | ) | (4,347 | ) | 281 | (4,066 | ) | 272 | (3,794 | ) | ||||||||||||||||||||||||
Equity in earnings of unconsolidated affiliates |
4,952 | | 4,952 | (192 | ) | 4,760 | 5,640 | | 5,640 | (218 | ) | 5,422 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income from continuing operations |
37,028 | (672 | ) | 36,356 | (6,784 | ) | 29,572 | 61,242 | (2,078 | ) | 59,164 | (2,095 | ) | 57,069 | ||||||||||||||||||||||||||
Discontinued operations: |
||||||||||||||||||||||||||||||||||||||||
Income, net of minority interest |
2,429 | 672 | 3,101 | 159 | 3,260 | 9,055 | 2,078 | 11,133 | 259 | 11,392 | ||||||||||||||||||||||||||||||
Gain on sale, net of minority interest |
8,487 | | 8,487 | 1,330 | 9,817 | 11,580 | | 11,580 | 11 | 11,591 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
47,944 | | 47,944 | (5,295 | ) | 42,649 | 81,877 | | 81,877 | (1,825 | ) | 80,052 | ||||||||||||||||||||||||||||
Dividends on preferred stock |
(30,852 | ) | | (30,852 | ) | | (30,852 | ) | (30,852 | ) | | (30,852 | ) | | (30,852 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income available for common stockholders |
$ | 17,092 | $ | | $ | 17,092 | $ | (5,295 | ) | $ | 11,797 | $ | 51,025 | $ | | $ | 51,025 | $ | (1,825 | ) | $ | 49,200 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income/(loss) per common share basic: |
||||||||||||||||||||||||||||||||||||||||
Income/(loss) from continuing operations |
$ | 0.12 | $ | (0.01 | ) | $ | 0.11 | $ | (0.13 | ) | $ | (0.02 | ) | $ | 0.57 | $ | (0.04 | ) | $ | 0.53 | $ | (0.03 | ) | $ | 0.50 | |||||||||||||||
Discontinued operations |
0.20 | 0.01 | 0.21 | 0.03 | 0.24 | 0.39 | 0.04 | 0.43 | | 0.43 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (1) |
$ | 0.32 | $ | | $ | 0.32 | $ | (0.10 | ) | $ | 0.22 | $ | 0.96 | $ | | $ | 0.96 | $ | (0.03 | ) | $ | 0.93 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income/(loss) per common share diluted: |
||||||||||||||||||||||||||||||||||||||||
Income/(loss) from continuing operations |
$ | 0.12 | $ | (0.01 | ) | $ | 0.11 | $ | (0.13 | ) | $ | (0.02 | ) | $ | 0.57 | $ | (0.04 | ) | $ | 0.53 | $ | (0.03 | ) | $ | 0.50 | |||||||||||||||
Discontinued operations |
0.20 | 0.01 | 0.21 | 0.03 | 0.24 | 0.38 | 0.04 | 0.42 | 0.01 | 0.43 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (1) |
$ | 0.32 | $ | | $ | 0.32 | $ | (0.10 | ) | $ | 0.22 | $ | 0.95 | $ | | $ | 0.95 | $ | (0.02 | ) | $ | 0.93 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Amounts represent net income available to common stockholders per share, which is after deducting preferred dividends. |
F-58
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
20. R ESTATED Q UARTERLY F INANCIAL D ATA (Unaudited)
The Company has set forth selected quarterly financial data for the quarters ended March 31, June 30, and September 30, 2004 and each of the quarters in the year ended December 31, 2003. As discussed in Note 19, the Company restated its results for the years ended December 31, 2003 and 2002. Because certain of the data set forth in the following tables varies from amounts previously reported on the Form 10-Q for the applicable period, the following tables reconcile the previously reported quarterly financial information to the restated quarterly financial information and summarize the reason for the differences:
First Quarter 2004
|
Second Quarter 2004
|
|||||||||||||||||||||||||||||||||||||||
As
Reported |
Discontinued
Operations |
As Reported
with Discontinued Operations |
Restatement
Adjustment |
Restated
|
As
Reported |
Discontinued
Operations |
As Reported
with Discontinued Operations |
Restatement
Adjustment |
Restated
|
|||||||||||||||||||||||||||||||
Rental and other revenues |
$ | 120,924 | $ | (2,018 | ) | $ | 118,906 | $ | 1,118 | $ | 120,024 | $ | 118,481 | $ | (1,407 | ) | $ | 117,074 | $ | (660 | ) | $ | 116,414 | |||||||||||||||||
Rental property and other expenses |
44,661 | (1,101 | ) | 43,560 | 1,434 | 44,994 | 42,423 | (676 | ) | 41,747 | (156 | ) | 41,591 | |||||||||||||||||||||||||||
Depreciation and amortization |
36,004 | (707 | ) | 35,297 | (2,881 | ) | 32,416 | 34,411 | (414 | ) | 33,997 | (661 | ) | 33,336 | ||||||||||||||||||||||||||
Impairment of assets held for use |
| | | | | | | | | | ||||||||||||||||||||||||||||||
General and administrative |
10,667 | | 10,667 | 677 | 11,344 | 7,869 | | 7,869 | 624 | 8,493 | ||||||||||||||||||||||||||||||
Interest expense |
33,052 | | 33,052 | 286 | 33,338 | 29,722 | | 29,722 | 16 | 29,738 | ||||||||||||||||||||||||||||||
Other income/expense |
1,758 | (6 | ) | 1,752 | 36 | 1,788 | (10,975 | ) | (3 | ) | (10,978 | ) | 396 | (10,582 | ) | |||||||||||||||||||||||||
Gain on disposition of property, net |
1,070 | | 1,070 | (182 | ) | 888 | 14,405 | | 14,405 | 794 | 15,199 | |||||||||||||||||||||||||||||
Co-venture expense |
| | | | | | | | | | ||||||||||||||||||||||||||||||
Minority interest |
689 | 22 | 711 | (148 | ) | 563 | (166 | ) | 33 | (133 | ) | (69 | ) | (202 | ) | |||||||||||||||||||||||||
Equity in earnings of unconsolidated affiliates |
1,284 | | 1,284 | (44 | ) | 1,240 | 1,549 | | 1,549 | (36 | ) | 1,513 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income from continuing operations |
1,341 | (194 | ) | 1,147 | 1,264 | 2,411 | 8,869 | (287 | ) | 8,582 | 602 | 9,184 | ||||||||||||||||||||||||||||
Discontinued operations |
3,605 | 194 | 3,799 | (72 | ) | 3,727 | (3,471 | ) | 287 | (3,184 | ) | 468 | (2,716 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
4,946 | | 4,946 | 1,192 | 6,138 | 5,398 | | 5,398 | 1,070 | 6,468 | ||||||||||||||||||||||||||||||
Dividends on preferred stock |
(7,713 | ) | | (7,713 | ) | | (7,713 | ) | (7,713 | ) | | (7,713 | ) | | (7,713 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income available for common stockholders |
$ | (2,767 | ) | $ | | $ | (2,767 | ) | $ | 1,192 | $ | (1,575 | ) | $ | (2,315 | ) | $ | | $ | (2,315 | ) | $ | 1,070 | $ | (1,245 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income per share-basic: |
||||||||||||||||||||||||||||||||||||||||
Income/(loss) from continuing operations |
$ | (0.12 | ) | $ | | $ | (0.12 | ) | $ | 0.02 | $ | (0.10 | ) | $ | 0.02 | $ | (0.01 | ) | $ | 0.01 | $ | 0.02 | $ | 0.03 | ||||||||||||||||
Discontinued operations |
0.07 | | 0.07 | | 0.07 | (0.06 | ) | 0.01 | (0.05 | ) | | (0.05 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (1) |
$ | (0.05 | ) | $ | | $ | (0.05 | ) | $ | 0.02 | $ | (0.03 | ) | $ | (0.04 | ) | $ | | $ | (0.04 | ) | $ | 0.02 | $ | (0.02 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income per share-diluted: |
||||||||||||||||||||||||||||||||||||||||
Income/(loss) from continuing operations |
$ | (0.12 | ) | $ | | $ | (0.12 | ) | $ | 0.02 | $ | (0.10 | ) | $ | 0.02 | $ | (0.01 | ) | $ | 0.01 | $ | 0.02 | $ | 0.03 | ||||||||||||||||
Discontinued operations |
0.07 | | 0.07 | | 0.07 | (0.06 | ) | 0.01 | (0.05 | ) | | (0.05 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (1) |
$ | (0.05 | ) | $ | | $ | (0.05 | ) | $ | 0.02 | $ | (0.03 | ) | $ | (0.04 | ) | $ | | $ | (0.04 | ) | $ | 0.02 | $ | (0.02 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter 2004
|
||||||||||||||||||||
As
Reported |
Discontinued
Operations |
As Reported
with Discontinued Operations |
Restatement
Adjustment |
Restated
|
||||||||||||||||
Rental and other revenues |
$ | 114,260 | $ | (768 | ) | $ | 113,492 | $ | (512 | ) | $ | 112,980 | ||||||||
Rental property and other expenses |
41,693 | (297 | ) | 41,396 | (92 | ) | 41,304 | |||||||||||||
Depreciation and amortization |
33,419 | (199 | ) | 33,220 | (435 | ) | 32,785 | |||||||||||||
Impairment of assets held for use |
500 | (500 | ) | | | | ||||||||||||||
General and administrative |
10,089 | | 10,089 | 645 | 10,734 | |||||||||||||||
Interest expense |
27,796 | | 27,796 | (64 | ) | 27,732 | ||||||||||||||
Other income/expense |
16,170 | (1 | ) | 16,169 | (211 | ) | 15,958 | |||||||||||||
Gain on disposition of property, net |
2,308 | | 2,308 | 349 | 2,657 | |||||||||||||||
Co-venture expense |
| | | | | |||||||||||||||
Minority interest |
(1,491 | ) | (24 | ) | (1,515 | ) | 49 | (1,466 | ) | |||||||||||
Equity in earnings of unconsolidated affiliates |
2,631 | | 2,631 | (46 | ) | 2,585 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Income from continuing operations |
20,381 | 203 | 20,584 | (425 | ) | 20,159 | ||||||||||||||
Discontinued operations |
1,178 | (203 | ) | 975 | (20 | ) | 955 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net income |
21,559 | | 21,559 | (445 | ) | 21,114 | ||||||||||||||
Dividends on preferred stock |
(7,713 | ) | | (7,713 | ) | | (7,713 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net income available for common stockholders |
$ | 13,846 | $ | | $ | 13,846 | $ | (445 | ) | $ | 13,401 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net income per share-basic: |
||||||||||||||||||||
Income/(loss) from continuing operations |
$ | 0.24 | $ | | $ | 0.24 | $ | (0.01 | ) | $ | 0.23 | |||||||||
Discontinued operations |
0.02 | | 0.02 | | 0.02 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net income (1) |
$ | 0.26 | $ | | $ | 0.26 | $ | (0.01 | ) | $ | 0.25 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net income per share-diluted: |
||||||||||||||||||||
Income/(loss) from continuing operations |
$ | 0.24 | $ | | $ | 0.24 | $ | (0.01 | ) | $ | 0.23 | |||||||||
Discontinued operations |
0.02 | | 0.02 | | 0.02 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net income (1) |
$ | 0.26 | $ | | $ | 0.26 | $ | (0.01 | ) | $ | 0.25 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Amounts represent net income available to common stockholders per share, which is after deducting preferred dividends. |
F-59
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
20. R ESTATED Q UARTERLY F INANCIAL D ATA (Unaudited) - Continued
First Quarter 2003
|
Second Quarter 2003
|
|||||||||||||||||||||||||||||||||||||||
As
Reported |
Discont.
Oper. |
As Reported
with Discont. Oper. |
Re-statement
Adj. |
Restated
|
As
Reported |
Discont.
Oper. |
As Reported
with Discont. Oper. |
Re-statement
Adj. |
Restated
|
|||||||||||||||||||||||||||||||
Rental and other revenues |
$ | 127,476 | $ | (1,910 | ) | $ | 125,566 | $ | (576 | ) | $ | 124,990 | $ | 126,821 | $ | (1,906 | ) | $ | 124,915 | $ | (709 | ) | $ | 124,206 | ||||||||||||||||
Rental property and other expenses |
43,422 | (980 | ) | 42,442 | (61 | ) | 42,381 | 44,283 | (1,006 | ) | 43,277 | 7 | 43,284 | |||||||||||||||||||||||||||
Depreciation and amortization |
36,385 | (690 | ) | 35,695 | (404 | ) | 35,291 | 36,010 | (717 | ) | 35,293 | (543 | ) | 34,750 | ||||||||||||||||||||||||||
Impairment of assets held for use |
| | | | | | | | | | ||||||||||||||||||||||||||||||
General and administrative |
4,672 | | 4,672 | 41 | 4,713 | 6,960 | | 6,960 | 100 | 7,060 | ||||||||||||||||||||||||||||||
Interest expense |
35,933 | | 35,933 | 37 | 35,970 | 35,357 | | 35,357 | (53 | ) | 35,304 | |||||||||||||||||||||||||||||
Other income/expense |
(13,476 | ) | (14 | ) | (13,490 | ) | 256 | (13,234 | ) | 1,881 | (4 | ) | 1,877 | (366 | ) | 1,511 | ||||||||||||||||||||||||
Gain on disposition of property, net |
804 | | 804 | (579 | ) | 225 | 1,610 | | 1,610 | (1,538 | ) | 72 | ||||||||||||||||||||||||||||
Co-venture expense |
(2,086 | ) | | (2,086 | ) | | (2,086 | ) | (2,169 | ) | | (2,169 | ) | | (2,169 | ) | ||||||||||||||||||||||||
Minority interest |
1,582 | 29 | 1,611 | 55 | 1,666 | 62 | 21 | 83 | 252 | 335 | ||||||||||||||||||||||||||||||
Equity in earnings of unconsolidated affiliates |
1,149 | | 1,149 | (48 | ) | 1,101 | 1,377 | | 1,377 | (53 | ) | 1,324 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income from continuing operations |
(4,963 | ) | (225 | ) | (5,188 | ) | (505 | ) | (5,693 | ) | 6,972 | (166 | ) | 6,806 | (1,925 | ) | 4,881 | |||||||||||||||||||||||
Discontinued operations |
874 | 225 | 1,099 | 72 | 1,171 | 1,710 | 166 | 1,876 | 50 | 1,926 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
(4,089 | ) | | (4,089 | ) | (433 | ) | (4,522 | ) | 8,682 | | 8,682 | (1,875 | ) | 6,807 | |||||||||||||||||||||||||
Dividends on preferred stock |
(7,713 | ) | | (7,713 | ) | | (7,713 | ) | (7,713 | ) | | (7,713 | ) | | (7,713 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income available for common stockholders |
$ | (11,802 | ) | $ | | $ | (11,802 | ) | $ | (433 | ) | $ | (12,235 | ) | $ | 969 | $ | | $ | 969 | $ | (1,875 | ) | $ | (906 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income per share-basic: |
||||||||||||||||||||||||||||||||||||||||
Income from continuing operations |
$ | (0.24 | ) | $ | | $ | (0.24 | ) | $ | (0.01 | ) | $ | (0.25 | ) | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.03 | ) | $ | (0.05 | ) | |||||||||||
Discontinued operations |
0.02 | | 0.02 | | 0.02 | 0.03 | 0.01 | 0.04 | (0.01 | ) | 0.03 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (1) |
$ | (0.22 | ) | $ | | $ | (0.22 | ) | $ | (0.01 | ) | $ | (0.23 | ) | $ | 0.02 | $ | | $ | 0.02 | $ | (0.04 | ) | $ | (0.02 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income per share-diluted: |
||||||||||||||||||||||||||||||||||||||||
Income from continuing operations |
$ | (0.24 | ) | $ | | $ | (0.24 | ) | $ | (0.01 | ) | $ | (0.25 | ) | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.03 | ) | $ | (0.05 | ) | |||||||||||
Discontinued operations |
0.02 | | 0.02 | | 0.02 | 0.03 | 0.01 | 0.04 | (0.01 | ) | 0.03 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (1) |
$ | (0.22 | ) | $ | | $ | (0.22 | ) | $ | (0.01 | ) | $ | (0.23 | ) | $ | 0.02 | $ | | $ | 0.02 | $ | (0.04 | ) | $ | (0.02 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter 2003
|
Fourth Quarter 2003
|
|||||||||||||||||||||||||||||||||||||||
As
Reported |
Discont.
Oper. |
As Reported
with Discont. Oper. |
Re-statement
Adj. |
Restated
|
As Reported
|
Discont.
Oper. |
As Reported
with Discont. Oper. |
Re-statement
Adj. |
Restated
|
|||||||||||||||||||||||||||||||
Rental and other revenues |
$ | 123,334 | $ | (1,954 | ) | $ | 121,380 | $ | 122 | $ | 121,502 | $ | 127,068 | $ | (2,034 | ) | $ | 125,034 | $ | (3,227 | ) | $ | 121,807 | |||||||||||||||||
Rental property and other expenses |
43,799 | (1,056 | ) | 42,743 | 452 | 43,195 | 46,908 | (1,050 | ) | 45,858 | (1,880 | ) | 43,978 | |||||||||||||||||||||||||||
Depreciation and amortization |
34,567 | (835 | ) | 33,732 | 46 | 33,778 | 35,141 | (759 | ) | 34,382 | 900 | 35,282 | ||||||||||||||||||||||||||||
Impairment of assets held for use |
| | | | | | | | | | ||||||||||||||||||||||||||||||
General and administrative |
6,750 | | 6,750 | 94 | 6,844 | 6,887 | | 6,887 | 519 | 7,406 | ||||||||||||||||||||||||||||||
Interest expense |
36,123 | | 36,123 | (109 | ) | 36,014 | 34,209 | | 34,209 | 330 | 34,539 | |||||||||||||||||||||||||||||
Other income/expense |
17,730 | (5 | ) | 17,725 | (316 | ) | 17,409 | 1,733 | (22 | ) | 1,711 | (262 | ) | 1,449 | ||||||||||||||||||||||||||
Gain on disposition of property, net |
5,556 | | 5,556 | (808 | ) | 4,748 | 4,346 | | 4,346 | 161 | 4,507 | |||||||||||||||||||||||||||||
Co-venture expense |
(333 | ) | | (333 | ) | | (333 | ) | | | | | | |||||||||||||||||||||||||||
Minority interest |
(1,992 | ) | 8 | (1,984 | ) | 62 | (1,922 | ) | (465 | ) | 26 | (439 | ) | 357 | (82 | ) | ||||||||||||||||||||||||
Equity in earnings of unconsolidated affiliates |
1,081 | | 1,081 | (40 | ) | 1,041 | 1,345 | | 1,345 | (51 | ) | 1,294 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income from continuing operations |
24,137 | (60 | ) | 24,077 | (1,463 | ) | 22,614 | 10,882 | (221 | ) | 10,661 | (2,891 | ) | 7,770 | ||||||||||||||||||||||||||
Discontinued operations |
7,947 | 60 | 8,007 | 1,429 | 9,436 | 385 | 221 | 606 | (62 | ) | 544 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
32,084 | | 32,084 | (34 | ) | 32,050 | 11,267 | | 11,267 | (2,953 | ) | 8,314 | ||||||||||||||||||||||||||||
Dividends on preferred stock |
(7,713 | ) | | (7,713 | ) | | (7,713 | ) | (7,713 | ) | | (7,713 | ) | | (7,713 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income available for common stockholders |
$ | 24,371 | $ | | $ | 24,371 | $ | (34 | ) | $ | 24,337 | $ | 3,554 | $ | | $ | 3,554 | $ | (2,953 | ) | $ | 601 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income per share-basic: |
||||||||||||||||||||||||||||||||||||||||
Income from continuing operations |
$ | 0.31 | $ | | $ | 0.31 | $ | (0.03 | ) | $ | 0.28 | $ | 0.06 | $ | | $ | 0.06 | $ | (0.06 | ) | $ | | ||||||||||||||||||
Discontinued operations |
0.15 | | 0.15 | 0.03 | 0.18 | 0.01 | | 0.01 | | 0.01 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (1) |
$ | 0.46 | $ | | $ | 0.46 | $ | | $ | 0.46 | $ | 0.07 | $ | | $ | 0.07 | $ | (0.06 | ) | $ | 0.01 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income per share-diluted: |
||||||||||||||||||||||||||||||||||||||||
Income from continuing operations |
$ | 0.31 | $ | | $ | 0.31 | $ | (0.03 | ) | $ | 0.28 | $ | 0.06 | $ | | $ | 0.06 | $ | (0.06 | ) | $ | | ||||||||||||||||||
Discontinued operations |
0.15 | | 0.15 | 0.03 | 0.18 | 0.01 | | 0.01 | | 0.01 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (1) |
$ | 0.46 | $ | | $ | 0.46 | $ | | $ | 0.46 | $ | 0.07 | $ | | $ | 0.07 | $ | (0.06 | ) | $ | 0.01 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Amounts represent net income available to common stockholders per share, which is after deducting preferred dividends. |
F-60
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)
21. O THER E VENTS
Retirement of Former Chief Executive Officer
The Companys former Chief Executive Officer retired on June 30, 2004. In connection with his retirement, the Companys Board of Directors approved a retirement package for him that included a lump sum cash payment, accelerated vesting of stock options and restricted stock, extended lives of stock options and continued coverage under the Companys health and life insurance plan for three years at the Companys expense. Under GAAP, the changes to existing stock options and restricted stock give rise to new measurement dates and revised compensation computations. The total cost recognized under GAAP for the six months ended June 30, 2004 was $4.6 million, comprised of a $2.2 million cash payment, $0.6 million related to the vesting of stock options, $1.7 million related to the vesting of restricted shares and about $0.1 million for continued insurance coverage. Certain components of this retirement package were required to be recognized as of the Boards approval date, which was in the first quarter, while other components were required to be amortized from that date until his June 30, 2004 retirement date. Accordingly, $3.2 million was expensed in the first quarter of 2004 and the remaining $1.4 million was expensed in the second quarter of 2004.
WorldCom/MCI Settlement
On July 21, 2002, WorldCom filed a voluntary petition with the United States Bankruptcy Court seeking relief under Chapter 11 of the United States Bankruptcy Code. In connection with the bankruptcy filing, WorldCom rejected leases with the Company encompassing 819,653 square feet, including the entire 816,000 square foot Highwoods Preserve office campus in Tampa, Florida. The Company submitted bankruptcy claims against WorldCom aggregating $21.2 million related to these rejected leases and other matters. WorldCom emerged from bankruptcy (now MCI, Inc.) on April 20, 2004. On August 27, 2004, the Company and various MCI subsidiaries and affiliates (the MCI Entities) executed a settlement agreement pursuant to which the MCI Entities paid the Company $8.6 million in cash and transferred to it approximately 340,000 shares of new MCI, Inc. stock in September 2004. The Company subsequently sold the stock for net proceeds of approximately $5.8 million, and recorded the full settlement of $14.4 million as Other Income in the third quarter of 2004.
F-61
SCHEDULE II
(In Thousands)
For the years ended December 31, 2004, 2003 and 2002
A summary of activity for Valuation and Qualifying Accounts and Reserves
Balance at
January 1, 2004 |
Additions:
Charged to Expense |
Deductions:
Adjustments and Settlements |
Balance at
December 31, 2004 |
||||||
Allowance for Bad Debt - Deferred Rent |
| 1,708 | (286 | ) | 1,422 | ||||
Allowance for Doubtful Accounts - Accounts Receivable |
1,235 | 2,742 | (2,806 | ) | 1,171 | ||||
Allowance for Doubtful Accounts - Notes Receivable |
| 122 | | 122 | |||||
Disposition Reserve |
750 | 162 | (732 | ) | 180 | ||||
|
|
|
|
|
|||||
Total Allowances |
1,985 | 4,734 | (3,824 | ) | 2,895 | ||||
|
|
|
|
|
|||||
Balance at
January 1, 2003 |
Additions:
Charged to Expense |
Deductions:
Adjustments and Settlements |
Balance at
December 31, 2003 |
||||||
Allowance for Doubtful Accounts - Accounts Receivable |
1,457 | 1,519 | (1,741 | ) | 1,235 | ||||
Balance at
January 1, 2002 |
Additions:
Charged to Expense |
Deductions:
Adjustments and Settlements |
Balance at
December 31, 2002 |
||||||
Allowance for Doubtful Accounts - Accounts Receivable |
1,213 | 2,813 | (2,569 | ) | 1,457 |
F-62
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
12/31/2004
(In Thousands)
Initial Costs
|
Cost Capitalized
Subsquent to Acquisition |
Gross Value at
Close of Period |
||||||||||||||||||||||||||
Description |
City
|
2004
Encumberance(10) |
Beginning
Land |
Beginning
Building |
Land
|
Building &
Improvements |
Final
Land |
Bldg-
Final |
Total
Assets |
Accumulated
Depr-Final |
Date of
Construction |
Life on Which
Depreciation is Calculated |
||||||||||||||||
Atlanta, GA |
||||||||||||||||||||||||||||
1700 Century Center |
Atlanta | | 3,168 | (286 | ) | 2,882 | 2,882 | 304 | 1972 | 5-40 yrs. | ||||||||||||||||||
1700 Century Circle |
Atlanta | 1,117 | 2,482 | 2 | 1,187 | 1,119 | 3,669 | 4,788 | 831 | 1983 | 5-40 yrs. | |||||||||||||||||
1800 Century Boulevard |
Atlanta | 1,443 | 29,081 | | 9,193 | 1,443 | 38,274 | 39,717 | 7,735 | 1975 | 5-40 yrs. | |||||||||||||||||
1825 Century Center (CDC) |
Atlanta | 864 | | 302 | 15,173 | 1,166 | 15,173 | 16,339 | 1,178 | 2002 | 5-40 yrs. | |||||||||||||||||
1875 Century Boulevard |
Atlanta | | 8,924 | | 1,839 | | 10,763 | 10,763 | 2,182 | 1976 | 5-40 yrs. | |||||||||||||||||
1900 Century Boulevard |
Atlanta | | 4,744 | | 689 | | 5,433 | 5,433 | 1,375 | 1971 | 5-40 yrs. | |||||||||||||||||
2200 Century Parkway |
Atlanta | | 14,432 | | 1,580 | | 16,012 | 16,012 | 3,553 | 1971 | 5-40 yrs. | |||||||||||||||||
2400 Century Center |
Atlanta | | | 406 | 14,770 | 406 | 14,770 | 15,175 | 1,832 | 1998 | 5-40 yrs. | |||||||||||||||||
2600 Century Parkway |
Atlanta | | 10,679 | | 1,049 | | 11,728 | 11,728 | 2,545 | 1973 | 5-40 yrs. | |||||||||||||||||
2635 Century Parkway |
Atlanta | | 21,643 | | 2,214 | | 23,856 | 23,856 | 4,727 | 1980 | 5-40 yrs. | |||||||||||||||||
2800 Century Parkway |
Atlanta | | 20,449 | | 384 | | 20,833 | 20,833 | 4,198 | 1983 | 5-40 yrs. | |||||||||||||||||
400 North Business Park |
Atlanta | 979 | 6,235 | | 664 | 979 | 6,899 | 7,878 | 1,367 | 1985 | 5-40 yrs. | |||||||||||||||||
50 Glenlake |
Atlanta | 2,500 | 20,006 | | 211 | 2,500 | 20,217 | 22,717 | 3,567 | 1997 | 5-40 yrs. | |||||||||||||||||
6348 Northeast Expressway |
Atlanta | 275 | 1,655 | | 182 | 275 | 1,837 | 2,112 | 355 | 1978 | 5-40 yrs. | |||||||||||||||||
6438 Northeast Expressway |
Atlanta | 180 | 2,216 | | 130 | 180 | 2,346 | 2,525 | 509 | 1981 | 5-40 yrs. | |||||||||||||||||
Bluegrass Valley Land |
Atlanta | 19,711 | | (5,387 | ) | 14,324 | 14,324 | N/A | N/A | |||||||||||||||||||
Bluegrass Lakes I |
Atlanta | 816 | | 336 | 3,273 | 1,152 | 3,273 | 4,425 | 702 | 1999 | 5-40 yrs. | |||||||||||||||||
Bluegrass Place I |
Atlanta | 491 | 2,061 | | 55 | 491 | 2,116 | 2,607 | 402 | 1995 | 5-40 yrs. | |||||||||||||||||
Bluegrass Place II |
Atlanta | 412 | 2,583 | | 11 | 412 | 2,594 | 3,006 | 478 | 1996 | 5-40 yrs. | |||||||||||||||||
Bluegrass Valley |
Atlanta | 1,500 | | 409 | 4,102 | 1,909 | 4,102 | 6,011 | 907 | 2000 | 5-40 yrs. | |||||||||||||||||
Century Plaza I |
Atlanta | 1,290 | 8,567 | | 1,240 | 1,290 | 9,807 | 11,097 | 1,622 | 1981 | 5-40 yrs. | |||||||||||||||||
Century Plaza II |
Atlanta | 1,380 | 7,733 | | 1,430 | 1,380 | 9,163 | 10,543 | 1,406 | 1984 | 5-40 yrs. | |||||||||||||||||
Chastain Place I |
Atlanta | 468 | (17 | ) | 324 | 2,862 | 792 | 2,845 | 3,637 | 553 | 1997 | 5-40 yrs. | ||||||||||||||||
Chastain Place II |
Atlanta | 599 | | 193 | 1,503 | 792 | 1,503 | 2,296 | 236 | 1998 | 5-40 yrs. | |||||||||||||||||
Chastain Place III |
Atlanta | 539 | | 173 | 1,104 | 712 | 1,104 | 1,815 | 166 | 1999 | 5-40 yrs. | |||||||||||||||||
Chattahoochee Avenue |
Atlanta | 246 | 1,861 | | 138 | 246 | 1,999 | 2,245 | 436 | 1970 | 5-40 yrs. | |||||||||||||||||
Corporate Lakes |
Atlanta | 1,265 | 7,243 | | 264 | 1,265 | 7,507 | 8,772 | 1,504 | 1988 | 5-40 yrs. | |||||||||||||||||
Cosmopolitan North |
Atlanta | 2,833 | 4,147 | | 1,294 | 2,833 | 5,442 | 8,274 | 1,216 | 1980 | 5-40 yrs. | |||||||||||||||||
Deerfield I |
Atlanta | (3) | 1,204 | 3,900 | 149 | (234 | ) | 1,353 | 3,666 | 5,019 | 1,322 | 1999 | 5-40 yrs. | |||||||||||||||
Deerfield II |
Atlanta | (3) | 1,705 | 5,521 | 202 | (356 | ) | 1,907 | 5,165 | 7,072 | 1,439 | 1999 | 5-40 yrs. | |||||||||||||||
Deerfield III |
Atlanta | 1,010 | | 161 | 3,983 | 1,171 | 3,983 | 5,154 | 302 | 2001 | 5-40 yrs. | |||||||||||||||||
EKA Chemical |
Atlanta | (1) | 609 | 9,886 | | | 609 | 9,886 | 10,495 | 1,679 | 1998 | 5-40 yrs. | ||||||||||||||||
Gwinnett Distribution Center |
Atlanta | 1,119 | 5,960 | | 709 | 1,119 | 6,669 | 7,788 | 1,469 | 1991 | 5-40 yrs. | |||||||||||||||||
Highwoods Center I at Tradeport |
Atlanta | (1) | 307 | | 139 | 3,152 | 446 | 3,152 | 3,598 | 975 | 1999 | 5-40 yrs. | ||||||||||||||||
Highwoods Center II at Tradeport |
Atlanta | (1) | 641 | | 162 | 3,798 | 803 | 3,798 | 4,601 | 1,152 | 1999 | 5-40 yrs. | ||||||||||||||||
Highwoods Center III at Tradeport |
Atlanta | (1) | 409 | | 130 | 2,153 | 539 | 2,153 | 2,692 | 171 | 2001 | 5-40 yrs. | ||||||||||||||||
Kennestone Corporate Center |
Atlanta | 518 | 4,922 | | 468 | 518 | 5,390 | 5,908 | 1,081 | 1985 | 5-40 yrs. | |||||||||||||||||
La Vista Business Park |
Atlanta | 815 | 5,224 | | 1,114 | 815 | 6,338 | 7,152 | 1,380 | 1973 | 5-40 yrs. | |||||||||||||||||
National Archives and Records Administration |
Atlanta | 15,449 | 1,484 | | | 15,468 | 1,484 | 15,468 | 16,952 | 113 | 2004 | 5-40 yrs. | ||||||||||||||||
Newpoint Place I |
Atlanta | 819 | (0 | ) | 356 | 2,433 | 1,175 | 2,432 | 3,607 | 414 | 1998 | 5-40 yrs. | ||||||||||||||||
Newpoint Place II |
Atlanta | 1,499 | | 394 | 4,084 | 1,893 | 4,084 | 5,977 | 1,095 | 1999 | 5-40 yrs. | |||||||||||||||||
Newpoint Place III |
Atlanta | 668 | | 252 | 1,652 | 920 | 1,652 | 2,572 | 251 | 1998 | 5-40 yrs. | |||||||||||||||||
Newpoint Place IV |
Atlanta | 989 | | 406 | 4,577 | 1,395 | 4,577 | 5,972 | 344 | 2001 | 5-40 yrs. | |||||||||||||||||
Newpoint Place Land |
Atlanta | 2,112 | | | 10 | 2,112 | 10 | 2,122 | 1 | N/A | N/A | |||||||||||||||||
Norcross I & II |
Atlanta | 323 | 2,000 | | 135 | 323 | 2,135 | 2,459 | 426 | 1970 | 5-40 yrs. | |||||||||||||||||
Nortel |
Atlanta | 3,342 | 32,111 | | 12 | 3,342 | 32,123 | 35,465 | 5,456 | 1998 | 5-40 yrs. | |||||||||||||||||
Oakbrook I |
Atlanta | (2) | 880 | 4,993 | | 569 | 880 | 5,562 | 6,441 | 1,260 | 1981 | 5-40 yrs. | ||||||||||||||||
Oakbrook II |
Atlanta | (2) | 1,591 | 9,030 | | 696 | 1,591 | 9,726 | 11,317 | 2,163 | 1983 | 5-40 yrs. | ||||||||||||||||
Oakbrook III |
Atlanta | (2) | 1,491 | 8,463 | | 585 | 1,491 | 9,048 | 10,539 | 1,842 | 1984 | 5-40 yrs. | ||||||||||||||||
Oakbrook IV |
Atlanta | (2) | 960 | 5,449 | | 375 | 960 | 5,824 | 6,784 | 1,376 | 1985 | 5-40 yrs. | ||||||||||||||||
Oakbrook V |
Atlanta | (2) | 2,223 | 12,613 | | 566 | 2,223 | 13,179 | 15,402 | 2,842 | 1985 | 5-40 yrs. | ||||||||||||||||
Oakbrook Summit |
Atlanta | 943 | 6,636 | | 396 | 943 | 7,032 | 7,975 | 1,482 | 1981 | 5-40 yrs. | |||||||||||||||||
Oxford Lake Business Center |
Atlanta | 855 | 7,155 | | 443 | 855 | 7,598 | 8,453 | 1,558 | 1985 | 5-40 yrs. | |||||||||||||||||
Peachtree Corners II |
Atlanta | (3) | 1,923 | 7,992 | (665 | ) | (362 | ) | 1,258 | 7,630 | 8,888 | 2,513 | 1999 | 5-40 yrs. | ||||||||||||||
Peachtree Corners III |
Atlanta | 880 | 2,014 | (72 | ) | 1,741 | 808 | 3,755 | 4,563 | 253 | 2002 | 5-40 yrs. | ||||||||||||||||
Peachtree Corners Land |
Atlanta | 1,221 | | 569 | | 1,790 | | 1,790 | | N/A | N/A | |||||||||||||||||
South Park Residential Land |
Atlanta | 50 | | 7 | | 57 | | 57 | | N/A | N/A | |||||||||||||||||
South Park Site Land |
Atlanta | 1,204 | | 770 | | 1,974 | | 1,974 | | N/A | N/A | |||||||||||||||||
Southside Distribution Center |
Atlanta | 804 | 4,553 | | 1,117 | 804 | 5,670 | 6,474 | 975 | 1988 | 5-40 yrs. | |||||||||||||||||
Tradeport I |
Atlanta | 557 | | 261 | 2,650 | 818 | 2,650 | 3,468 | 422 | 1999 | 5-40 yrs. | |||||||||||||||||
Tradeport II |
Atlanta | 557 | | 261 | 2,465 | 818 | 2,465 | 3,283 | 632 | 1999 | 5-40 yrs. | |||||||||||||||||
Tradeport III |
Atlanta | 673 | | 370 | 3,481 | 1,043 | 3,481 | 4,523 | 1,065 | 1999 | 5-40 yrs. | |||||||||||||||||
Tradeport IV |
Atlanta | 667 | | 365 | 3,412 | 1,032 | 3,412 | 4,444 | 575 | 2001 | 5-40 yrs. | |||||||||||||||||
Tradeport V |
Atlanta | 463 | | 180 | 2,328 | 643 | 2,328 | 2,971 | 199 | 2002 | 5-40 yrs. | |||||||||||||||||
Tradeport Land |
Atlanta | 5,243 | | 38 | | 5,281 | | 5,281 | | N/A | N/A | |||||||||||||||||
Two Point Royal |
Atlanta | (1) | 1,793 | 14,964 | | 81 | 1,793 | 15,045 | 16,838 | 2,596 | 1997 | 5-40 yrs. | ||||||||||||||||
Baltimore, MD |
||||||||||||||||||||||||||||
Sportsman Club Land |
Baltimore | 24,931 | | (7,987 | ) | | 16,944 | | 16,944 | | N/A | N/A |
F-63
Initial Costs
|
Cost Capitalized
Subsequent to Acquisition |
Gross Value at
Close of Period |
|||||||||||||||||||||||||
Description |
City
|
2004
Encumberance(10) |
Beginning
Land |
Beginning
Building |
Land
|
Building &
Improvements |
Final
Land |
Bldg-
Final |
Total
Assets |
Accumulated
Depr-Final |
Date of
Construction |
Life on Which
Depreciation is Calculated |
|||||||||||||||
Charlotte, NC |
|||||||||||||||||||||||||||
4601 Park Square |
Charlotte | 2,601 | 7,808 | | 1,153 | 2,601 | 8,961 | 11,562 | 1,564 | 1972 | 5-40 yrs. | ||||||||||||||||
First Citizens Building |
Charlotte | 647 | 5,505 | | 562 | 647 | 6,067 | 6,714 | 1,651 | 1989 | 5-40 yrs. | ||||||||||||||||
Mallard Creek I |
Charlotte | (4) | 1,248 | 4,184 | | 859 | 1,248 | 5,043 | 6,291 | 940 | 1986 | 5-40 yrs. | |||||||||||||||
Mallard Creek III |
Charlotte | 845 | 4,810 | | 441 | 845 | 5,251 | 6,096 | 925 | 1990 | 5-40 yrs. | ||||||||||||||||
Mallard Creek IV |
Charlotte | 348 | 1,164 | | 26 | 348 | 1,190 | 1,538 | 208 | 1993 | 5-40 yrs. | ||||||||||||||||
Mallard Creek V |
Charlotte | (4) | 1,665 | | 352 | 10,023 | 2,017 | 10,023 | 12,040 | 1,628 | 1999 | 5-40 yrs. | |||||||||||||||
Mallard Creek VI |
Charlotte | 845 | | | | 845 | | 845 | | N/A | N/A | ||||||||||||||||
Oakhill Business Park English Oak |
Charlotte | 756 | 4,286 | | 240 | 756 | 4,527 | 5,282 | 972 | 1984 | 5-40 yrs. | ||||||||||||||||
Oakhill Business Park Laurel Oak |
Charlotte | 475 | 2,695 | | 271 | 475 | 2,966 | 3,441 | 732 | 1984 | 5-40 yrs. | ||||||||||||||||
Oakhill Business Park Live Oak |
Charlotte | 1,403 | 5,620 | | 1,565 | 1,403 | 7,185 | 8,588 | 1,753 | 1989 | 5-40 yrs. | ||||||||||||||||
Oakhill Business Park Scarlet Oak |
Charlotte | 1,081 | 6,133 | | 319 | 1,081 | 6,452 | 7,534 | 1,485 | 1982 | 5-40 yrs. | ||||||||||||||||
Oakhill Business Park Twin Oak |
Charlotte | 1,252 | 7,111 | | 791 | 1,252 | 7,901 | 9,154 | 1,841 | 1985 | 5-40 yrs. | ||||||||||||||||
Oakhill Business Park Water Oak |
Charlotte | 1,635 | 9,279 | | 773 | 1,635 | 10,052 | 11,688 | 2,209 | 1985 | 5-40 yrs. | ||||||||||||||||
Oakhill Business Park Willow Oak |
Charlotte | 445 | 2,529 | | 597 | 445 | 3,126 | 3,571 | 865 | 1982 | 5-40 yrs. | ||||||||||||||||
Oakhill Land |
Charlotte | 3,899 | | (204 | ) | | 3,695 | | 3,695 | | N/A | N/A | |||||||||||||||
Pinebrook |
Charlotte | 846 | 4,630 | | 427 | 846 | 5,057 | 5,903 | 1,058 | 1986 | 5-40 yrs. | ||||||||||||||||
Ridgefield |
Charlotte | 795 | | (795 | ) | | | | | | N/A | N/A | |||||||||||||||
One Parkway Plaza Building |
Charlotte | 1,110 | 4,748 | | 973 | 1,110 | 5,721 | 6,831 | 1,504 | 1982 | 5-40 yrs. | ||||||||||||||||
Two Parkway Plaza Building |
Charlotte | 1,694 | 6,785 | | 892 | 1,694 | 7,677 | 9,371 | 2,112 | 1983 | 5-40 yrs. | ||||||||||||||||
Three Parkway Plaza Building |
Charlotte | (5) | 1,570 | 6,282 | | 825 | 1,570 | 7,107 | 8,677 | 1,698 | 1984 | 5-40 yrs. | |||||||||||||||
Six Parkway Plaza Building |
Charlotte | | | 122 | 2,864 | 122 | 2,864 | 2,986 | 543 | 1996 | 5-40 yrs. | ||||||||||||||||
Seven Parkway Plaza Building |
Charlotte | | 4,648 | | 273 | | 4,921 | 4,921 | 1,158 | 1985 | 5-40 yrs. | ||||||||||||||||
Eight Parkway Plaza Building |
Charlotte | | 4,698 | | 488 | | 5,186 | 5,186 | 1,141 | 1986 | 5-40 yrs. | ||||||||||||||||
Eleven Parkway Plaza |
Charlotte | 160 | | 98 | 2,124 | 258 | 2,124 | 2,382 | 458 | 1999 | 5-40 yrs. | ||||||||||||||||
Twelve Parkway Plaza |
Charlotte | 112 | | 69 | 1,401 | 181 | 1,401 | 1,582 | 206 | 1999 | 5-40 yrs. | ||||||||||||||||
Fourteen Parkway Plaza Building |
Charlotte | 483 | | 273 | 7,139 | 756 | 7,139 | 7,895 | 1,929 | 1999 | 5-40 yrs. | ||||||||||||||||
University Center |
Charlotte | 1,245 | | (1,245 | ) | | | | | | 2001 | 5-40 yrs. | |||||||||||||||
University Center East |
Charlotte | 1,289 | | (1,289 | ) | | | | | | N/A | N/A | |||||||||||||||
University Center - Land |
Charlotte | 7,122 | | (1,014 | ) | | 6,108 | | 6,108 | | N/A | N/A | |||||||||||||||
Columbia, SC |
|||||||||||||||||||||||||||
Centerpoint I |
Columbia | 1,323 | 7,509 | | 575 | 1,323 | 8,084 | 9,407 | 1,868 | 1988 | 5-40 yrs. | ||||||||||||||||
Centerpoint II |
Columbia | 1,192 | 8,096 | 246 | 107 | 1,438 | 8,203 | 9,641 | 1,567 | 1996 | 5-40 yrs. | ||||||||||||||||
Centerpoint V |
Columbia | 265 | | 58 | 1,334 | 323 | 1,334 | 1,657 | 247 | 1997 | 5-40 yrs. | ||||||||||||||||
Centerpoint VI |
Columbia | 276 | | | | 276 | | 276 | | N/A | N/A | ||||||||||||||||
Fontaine I |
Columbia | 1,228 | 6,960 | | 1,495 | 1,228 | 8,455 | 9,683 | 2,154 | 1985 | 5-40 yrs. | ||||||||||||||||
Fontaine II |
Columbia | 948 | 5,376 | | 389 | 948 | 5,765 | 6,713 | 1,177 | 1987 | 5-40 yrs. | ||||||||||||||||
Fontaine III |
Columbia | 859 | 4,869 | | (523 | ) | 859 | 4,346 | 5,205 | 1,116 | 1988 | 5-40 yrs. | |||||||||||||||
Fontaine V |
Columbia | 398 | 2,257 | | 16 | 398 | 2,273 | 2,671 | 473 | 1990 | 5-40 yrs. | ||||||||||||||||
Greenville, SC |
|||||||||||||||||||||||||||
385 Building 1 |
Greenville | 1,413 | | | 3,997 | 1,413 | 3,997 | 5,410 | 1,493 | 1998 | 5-40 yrs. | ||||||||||||||||
385 Land |
Greenville | 1,800 | | 27 | | 1,827 | | 1,827 | | N/A | N/A | ||||||||||||||||
770 Pelham Road |
Greenville | 705 | 2,812 | | 493 | 705 | 3,305 | 4,010 | 651 | 1989 | 5-40 yrs. | ||||||||||||||||
Bank of America Plaza |
Greenville | 642 | 9,485 | (642 | ) | (9,485 | ) | | | | | 1973 | 5-40 yrs. | ||||||||||||||
Brookfield Plaza |
Greenville | (2) | 1,500 | 8,514 | | 814 | 1,500 | 9,328 | 10,829 | 2,316 | 1987 | 5-40 yrs. | |||||||||||||||
Brookfield-Jacobs-Sirrine |
Greenville | 3,050 | 17,280 | (23 | ) | 200 | 3,027 | 17,480 | 20,507 | 3,396 | 1990 | 5-40 yrs. | |||||||||||||||
MetLife @ Brookfield |
Greenville | 1,039 | | 353 | 10,493 | 1,392 | 10,493 | 11,884 | 1,330 | 2001 | 5-40 yrs. | ||||||||||||||||
Patewood Business Center |
Greenville | 1,322 | 7,504 | | 170 | 1,322 | 7,674 | 8,996 | 1,616 | 1983 | 5-40 yrs. | ||||||||||||||||
Patewood I |
Greenville | 942 | 5,117 | | 1,250 | 942 | 6,367 | 7,309 | 1,254 | 1985 | 5-40 yrs. | ||||||||||||||||
Patewood II |
Greenville | 942 | 5,176 | | 731 | 942 | 5,907 | 6,849 | 1,311 | 1987 | 5-40 yrs. | ||||||||||||||||
Patewood III |
Greenville | (2) | 841 | 4,776 | | 180 | 841 | 4,956 | 5,797 | 1,011 | 1989 | 5-40 yrs. | |||||||||||||||
Patewood IV |
Greenville | (2) | 1,219 | 6,918 | | 211 | 1,219 | 7,129 | 8,348 | 1,476 | 1989 | 5-40 yrs. | |||||||||||||||
Patewood V |
Greenville | (2) | 1,690 | 9,589 | | 152 | 1,690 | 9,741 | 11,431 | 2,006 | 1990 | 5-40 yrs. | |||||||||||||||
Patewood VI |
Greenville | 2,360 | | 321 | 8,056 | 2,681 | 8,056 | 10,737 | 2,054 | 1999 | 5-40 yrs. | ||||||||||||||||
Verizon Wireless |
Greenville | 1,790 | | (1,790 | ) | | | | | | 2002 | 5-40 yrs. | |||||||||||||||
Jacksonville, FL |
|||||||||||||||||||||||||||
Belfort Park VI - Land |
Jacksonville | 480 | | (480 | ) | | | | | | N/A | N/A | |||||||||||||||
Belfort Park VII - Land |
Jacksonville | 1,858 | | 27 | | 1,885 | | 1,885 | | N/A | N/A | ||||||||||||||||
Kansas City, MO |
|||||||||||||||||||||||||||
Country Club Plaza |
Kansas City | (6) | 14,286 | 142,725 | 372 | 91,538 | 14,658 | 234,263 | 248,921 | 32,494 | 1920-2002 | 5-40 yrs. | |||||||||||||||
Alameda Towers |
Kansas City | | | | | | | | | N/A | N/A | ||||||||||||||||
Colonial Shops |
Kansas City | 141 | 657 | | 101 | 141 | 758 | 899 | 132 | 1907 | 5-40 yrs. | ||||||||||||||||
Corinth Executive Building |
Kansas City | 526 | 2,341 | | 541 | 526 | 2,882 | 3,408 | 576 | 1973 | 5-40 yrs. | ||||||||||||||||
Corinth Office Building |
Kansas City | 611 | 541 | 2,199 | | 399 | 541 | 2,598 | 3,139 | 496 | 1960 | 5-40 yrs. | |||||||||||||||
Corinth Shops South |
Kansas City | 1,043 | 4,447 | | 98 | 1,043 | 4,545 | 5,588 | 761 | 1953 | 5-40 yrs. | ||||||||||||||||
Corinth Square North Shops |
Kansas City | 2,756 | 11,490 | | 434 | 2,756 | 11,924 | 14,680 | 2,020 | 1962 | 5-40 yrs. | ||||||||||||||||
Fairway North |
Kansas City | 771 | 3,283 | | 343 | 771 | 3,626 | 4,396 | 726 | 1985 | 5-40 yrs. | ||||||||||||||||
Fairway Shops |
Kansas City | 2,254 | 689 | 3,215 | | (167 | ) | 689 | 3,048 | 3,737 | 583 | 1940 | 5-40 yrs. | ||||||||||||||
Fairway West |
Kansas City | 871 | 3,527 | | 293 | 871 | 3,820 | 4,691 | 653 | 1983 | 5-40 yrs. | ||||||||||||||||
Residential - Land |
Kansas City | 484 | | 127 | | 611 | | 611 | | N/A | N/A | ||||||||||||||||
Land - Hotel Land - Valencia |
Kansas City | 978 | | 1,297 | | 2,275 | | 2,275 | | N/A | N/A | ||||||||||||||||
Land - JCN Parkway 4502-1 |
Kansas City | 50 | | | | 50 | | 50 | | N/A | N/A | ||||||||||||||||
Land - JCN Parkway 4510 & 4518 |
Kansas City | 119 | | | | 119 | | 119 | | N/A | N/A | ||||||||||||||||
Land - Lionsgate |
Kansas City | 3,506 | | | | 3,506 | | 3,506 | | N/A | N/A | ||||||||||||||||
Neptune Apartments |
Kansas City | 4,023 | 1,098 | 6,282 | | 416 | 1,098 | 6,698 | 7,796 | 1,088 | 1988 | 5-40 yrs. | |||||||||||||||
Rental Houses |
Kansas City | | 764 | | 135 | | 899 | 899 | 140 | 1960 | 5-40 yrs. |
F-64
Initial Costs
|
Cost Capitalized
Subsequent to Acquisition |
Gross Value at
Close of Period |
||||||||||||||||||||||||||
Description |
City |
2004
Encumberance(10) |
Beginning
Land |
Beginning
Building |
Land
|
Building &
Improvements |
Final
Land |
Bldg-
Final |
Total
Assets |
Accumulated
Depr-Final |
Date of
Construction |
Life on Which
Depreciation is Calculated |
||||||||||||||||
St. Charles Apartments |
Kansas City | 30 | 169 | | | 30 | 169 | 199 | 28 | 1922 | 5-40 yrs. | |||||||||||||||||
Wornall Road Apartments |
Kansas City | 187 | 177 | | 21 | 187 | 198 | 385 | 34 | 1918 | 5-40 yrs. | |||||||||||||||||
Nichols Building |
Kansas City | 648 | 502 | 2,030 | | 456 | 502 | 2,486 | 2,988 | 448 | 1978 | 5-40 yrs. | ||||||||||||||||
One Ward Parkway |
Kansas City | 682 | 3,937 | | (92 | ) | 682 | 3,845 | 4,526 | 974 | 1980 | 5-40 yrs. | ||||||||||||||||
Park Plaza |
Kansas City | (6) | 1,384 | 6,410 | | 1,332 | 1,384 | 7,742 | 9,126 | 1,409 | 1983 | 5-40 yrs. | ||||||||||||||||
Parkway Building |
Kansas City | 404 | 2,044 | | 48 | 404 | 2,092 | 2,496 | 445 | 1906-1910 | 5-40 yrs. | |||||||||||||||||
Prairie Village Rest & Bank |
Kansas City | (8) | | | | 1,372 | | 1,372 | 1,372 | 202 | 1948 | 5-40 yrs. | ||||||||||||||||
Prairie Village Shops |
Kansas City | (8) | 3,366 | 14,686 | | 2,592 | 3,366 | 17,278 | 20,644 | 2,906 | 1948 | 5-40 yrs. | ||||||||||||||||
Shannon Valley Shopping Center |
Kansas City | 5,449 | 1,930 | 7,625 | | 1,344 | 1,930 | 8,969 | 10,900 | 1,813 | 1988 | 5-40 yrs. | ||||||||||||||||
Somerset |
Kansas City | 31 | 125 | | | 31 | 125 | 156 | 20 | 1998 | 5-40 yrs. | |||||||||||||||||
Two Brush Creek |
Kansas City | 984 | 4,402 | | 171 | 984 | 4,573 | 5,557 | 873 | 1983 | 5-40 yrs. | |||||||||||||||||
Valencia Place Office |
Kansas City | (6) | 1,576 | | 970 | 35,592 | 2,546 | 35,592 | 38,138 | 6,538 | 1999 | 5-40 yrs. | ||||||||||||||||
Memphis, TN |
||||||||||||||||||||||||||||
3400 Players Club Parkway |
Memphis | (2) | 1,005 | | 207 | 4,415 | 1,212 | 4,415 | 5,627 | 794 | 1997 | 5-40 yrs. | ||||||||||||||||
6000 Poplar Ave |
Memphis | 2,340 | 11,385 | | 826 | 2,340 | 12,211 | 14,551 | 1,406 | 1985 | 5-40 yrs. | |||||||||||||||||
6060 Poplar Ave |
Memphis | 1,980 | 8,677 | | 737 | 1,980 | 9,414 | 11,394 | 1,088 | 1987 | 5-40 yrs. | |||||||||||||||||
Atrium I & II |
Memphis | 1,570 | 6,253 | | 741 | 1,570 | 6,994 | 8,564 | 1,474 | 1984 | 5-40 yrs. | |||||||||||||||||
Centrum |
Memphis | 1,013 | 5,580 | | 210 | 1,013 | 5,790 | 6,803 | 1,057 | 1979 | 5-40 yrs. | |||||||||||||||||
Hickory Hill Medical Plaza |
Memphis | 401 | 2,276 | | (1,116 | ) | 401 | 1,160 | 1,561 | 567 | 1988 | 5-40 yrs. | ||||||||||||||||
International Place II |
Memphis | (4) | 4,884 | 27,782 | | 1,942 | 4,884 | 29,724 | 34,608 | 6,379 | 1988 | 5-40 yrs. | ||||||||||||||||
Shadow Creek I |
Memphis | 924 | | 242 | 7,185 | 1,166 | 7,185 | 8,352 | 1,192 | 2000 | 5-40 yrs. | |||||||||||||||||
Shadow Creek II |
Memphis | 734 | | 242 | 6,226 | 976 | 6,226 | 7,202 | 429 | 2001 | 5-40 yrs. | |||||||||||||||||
Southwind Office Center A |
Memphis | 1,004 | 5,694 | | 691 | 1,004 | 6,386 | 7,389 | 1,315 | 1991 | 5-40 yrs. | |||||||||||||||||
Southwind Office Center B |
Memphis | 1,366 | 7,754 | | 295 | 1,366 | 8,049 | 9,415 | 1,743 | 1990 | 5-40 yrs. | |||||||||||||||||
Southwind Office Center C |
Memphis | (2) | 1,070 | | 221 | 5,530 | 1,291 | 5,530 | 6,821 | 1,301 | 1998 | 5-40 yrs. | ||||||||||||||||
Southwind Office Center D |
Memphis | 744 | | 192 | 5,397 | 936 | 5,397 | 6,334 | 1,106 | 1999 | 5-40 yrs. | |||||||||||||||||
The Colonnade |
Memphis | 1,300 | 6,481 | 267 | 886 | 1,567 | 7,367 | 8,934 | 1,876 | 1998 | 5-40 yrs. | |||||||||||||||||
Nashville, TN |
||||||||||||||||||||||||||||
3322 West End |
Nashville | 3,025 | 27,490 | | 1,812 | 3,025 | 29,302 | 32,327 | 3,618 | 1986 | 5-40 yrs. | |||||||||||||||||
3401 West End |
Nashville | 5,864 | 22,917 | (1,278 | ) | (881 | ) | 4,586 | 22,036 | 26,623 | 5,581 | 1982 | 5-40 yrs. | |||||||||||||||
5310 Maryland Way |
Nashville | 1,863 | 7,201 | (400 | ) | (982 | ) | 1,463 | 6,220 | 7,682 | 1,442 | 1994 | 5-40 yrs. | |||||||||||||||
BNA Corporate Center |
Nashville | | 18,506 | | 2,436 | | 20,943 | 20,943 | 5,110 | 1985 | 5-40 yrs. | |||||||||||||||||
Century City Plaza I |
Nashville | 903 | 6,919 | | (2,644 | ) | 903 | 4,275 | 5,178 | 956 | 1987 | 5-40 yrs. | ||||||||||||||||
Cool Springs I |
Nashville | 1,583 | | (815 | ) | 13,776 | 768 | 13,776 | 14,544 | 3,307 | 1999 | 5-40 yrs. | ||||||||||||||||
Cool Springs II |
Nashville | 1,824 | | 91 | 21,721 | 1,915 | 21,721 | 23,636 | 3,120 | 1999 | 5-40 yrs. | |||||||||||||||||
Cool Springs Land |
Nashville | 7,635 | | 599 | | 8,234 | | 8,234 | | N/A | N/A | |||||||||||||||||
Eastpark I, II, & III |
Nashville | 2,840 | 10,993 | (610 | ) | 1,194 | 2,230 | 12,187 | 14,417 | 3,260 | 1978 | 5-40 yrs. | ||||||||||||||||
Harpeth on the Green II |
Nashville | (1) | 1,419 | 5,677 | | 1,061 | 1,419 | 6,738 | 8,157 | 1,473 | 1984 | 5-40 yrs. | ||||||||||||||||
Harpeth on the Green III |
Nashville | (1) | 1,660 | 6,649 | | 1,001 | 1,660 | 7,650 | 9,310 | 1,611 | 1987 | 5-40 yrs. | ||||||||||||||||
Harpeth on the Green IV |
Nashville | (1) | 1,713 | 6,842 | | 842 | 1,713 | 7,684 | 9,397 | 1,777 | 1989 | 5-40 yrs. | ||||||||||||||||
Harpeth on The Green V |
Nashville | (1) | 662 | | 197 | 5,166 | 859 | 5,166 | 6,025 | 1,602 | 1998 | 5-40 yrs. | ||||||||||||||||
Hickory Trace |
Nashville | (4) | 1,164 | | 165 | 5,713 | 1,329 | 5,713 | 7,041 | 832 | N/A | N/A | ||||||||||||||||
Highwoods Plaza I |
Nashville | (1) | 1,552 | | 321 | 8,399 | 1,873 | 8,399 | 10,272 | 2,660 | 1996 | 5-40 yrs. | ||||||||||||||||
Highwoods Plaza II |
Nashville | (1) | 1,448 | | 306 | 6,798 | 1,754 | 6,798 | 8,552 | 1,702 | 1997 | 5-40 yrs. | ||||||||||||||||
Lakeview Ridge I |
Nashville | 2,069 | 7,267 | (404 | ) | (1,026 | ) | 1,665 | 6,241 | 7,906 | 1,451 | 1986 | 5-40 yrs. | |||||||||||||||
Lakeview Ridge II |
Nashville | (1) | 605 | | 186 | 4,608 | 791 | 4,608 | 5,399 | 1,273 | 1998 | 5-40 yrs. | ||||||||||||||||
Lakeview Ridge III |
Nashville | (1) | 1,073 | | 399 | 10,670 | 1,472 | 10,670 | 12,142 | 1,783 | 1999 | 5-40 yrs. | ||||||||||||||||
Seven Springs I |
Nashville | 2,076 | | 389 | 13,222 | 2,465 | 13,222 | 15,687 | 995 | 2002 | 5-40 yrs. | |||||||||||||||||
Seven Springs - Land I |
Nashville | 3,122 | | 27 | | 3,149 | | 3,149 | | N/A | N/A | |||||||||||||||||
Seven Springs - Land II |
Nashville | 3,715 | | 342 | | 4,057 | | 4,057 | | N/A | N/A | |||||||||||||||||
SouthPointe |
Nashville | 1,655 | | 310 | 7,161 | 1,965 | 7,161 | 9,126 | 1,628 | 1998 | 5-40 yrs. | |||||||||||||||||
Southwind Land |
Nashville | 3,662 | | 3 | 448 | 3,665 | 448 | 4,113 | | N/A | N/A | |||||||||||||||||
Sparrow Building |
Nashville | 1,262 | 5,047 | | 826 | 1,262 | 5,873 | 7,135 | 1,156 | 1982 | 5-40 yrs. | |||||||||||||||||
The Ramparts at Brentwood |
Nashville | 2,394 | 12,806 | | 559 | 2,394 | 13,365 | 15,759 | 1,505 | 1986 | 5-40 yrs. | |||||||||||||||||
Westwood South |
Nashville | (1) | 2,106 | | 382 | 9,928 | 2,488 | 9,928 | 12,416 | 2,128 | 1999 | 5-40 yrs. | ||||||||||||||||
Winners Circle |
Nashville | (1) | 1,497 | 7,258 | | 642 | 1,497 | 7,900 | 9,397 | 1,535 | 1987 | 5-40 yrs. | ||||||||||||||||
Orlando, FL |
||||||||||||||||||||||||||||
Capital Plaza III |
Orlando | 2,994 | | 10 | | 3,004 | | 3,004 | 5 | N/A | N/A | |||||||||||||||||
In Charge Institute |
Orlando | 501 | | 96 | 2,683 | 597 | 2,683 | 3,280 | 606 | 2000 | 5-40 yrs. | |||||||||||||||||
Interlachen Village |
Orlando | 900 | 2,689 | (900 | ) | (2,689 | ) | | | | | 1987 | 5-40 yrs. | |||||||||||||||
Lake Mary Land |
Orlando | 9,805 | | (3,935 | ) | | 5,870 | | 5,870 | 9 | N/A | N/A | ||||||||||||||||
Landmark I |
Orlando | 6,785 | 30,652 | (6,785 | ) | (30,652 | ) | | | | | 1983 | 5-40 yrs. | |||||||||||||||
Landmark II |
Orlando | 6,785 | 29,411 | (6,785 | ) | (29,411 | ) | | | | | 1983 | 5-40 yrs. | |||||||||||||||
Metrowest Center |
Orlando | 1,354 | 7,687 | 17 | 1,029 | 1,371 | 8,716 | 10,088 | 1,871 | 1988 | 5-40 yrs. | |||||||||||||||||
Windsor at Metro Center |
Orlando | | | 2,060 | 9,224 | 2,060 | 9,224 | 11,284 | 259 | 2001 | 5-40 yrs. | |||||||||||||||||
MetroWest Land |
Orlando | 3,134 | | 1,347 | | 4,481 | | 4,481 | | N/A | N/A | |||||||||||||||||
Pine Street I |
Orlando | 2,774 | 34,359 | (2,774 | ) | (34,359 | ) | | | | | 1999 | 5-40 yrs. | |||||||||||||||
Pine Street II |
Orlando | 3,030 | 48,043 | (3,030 | ) | (48,043 | ) | | | | | 1999 | 5-40 yrs. | |||||||||||||||
Signature Plaza |
Orlando | 4,308 | 33,637 | (4,308 | ) | (33,637 | ) | | 0 | 0 | (0 | ) | 1982 | 5-40 yrs. | ||||||||||||||
Sunport Center |
Orlando | 1,505 | 9,982 | (1,505 | ) | (9,982 | ) | | | | | 1990 | 5-40 yrs. | |||||||||||||||
Piedmont Triad, NC |
||||||||||||||||||||||||||||
101 Stratford |
Piedmont Triad | 1,205 | 6,916 | | 1,041 | 1,205 | 7,957 | 9,162 | 1,403 | 1986 | 5-40 yrs. | |||||||||||||||||
150 Stratford |
Piedmont Triad | 2,788 | 11,511 | | 695 | 2,788 | 12,206 | 14,994 | 3,071 | 1991 | 5-40 yrs. | |||||||||||||||||
160 Stratford - Land |
Piedmont Triad | 966 | | | | 966 | | 966 | 19 | N/A | N/A |
F-65
Initial Costs
|
Cost Capitalized
Subsequent to Acquisition |
Gross Value at
Close of Period |
|||||||||||||||||||||||||
Description |
City |
2004
Encumberance(10) |
Beginning
Land |
Beginning
Building |
Land
|
Building &
Improvements |
Final
Land |
Bldg-
Final |
Total
Assets |
Accumulated
Depr-Final |
Date of
Construction |
Life on Which
Depreciation is Calculated |
|||||||||||||||
500 Radar Road |
Piedmont Triad | 202 | 1,507 | | 209 | 202 | 1,716 | 1,918 | 450 | 1981 | 5-40 yrs. | ||||||||||||||||
502 Radar Road |
Piedmont Triad | 39 | 285 | | 52 | 39 | 337 | 376 | 94 | 1986 | 5-40 yrs. | ||||||||||||||||
504 Radar Road |
Piedmont Triad | 39 | 292 | | 85 | 39 | 377 | 416 | 96 | 1986 | 5-40 yrs. | ||||||||||||||||
506 Radar Road |
Piedmont Triad | 39 | 285 | | 15 | 39 | 300 | 339 | 71 | 1986 | 5-40 yrs. | ||||||||||||||||
531 Northridge Office |
Piedmont Triad | 1,602 | 3,811 | (895 | ) | (2,134 | ) | 707 | 1,677 | 2,384 | 183 | 1989 | 5-40 yrs. | ||||||||||||||
531 Northridge Warehouse |
Piedmont Triad | 4,545 | 10,823 | 56 | 135 | 4,601 | 10,958 | 15,559 | 520 | 1989 | 5-40 yrs. | ||||||||||||||||
6348 Burnt Poplar |
Piedmont Triad | 724 | 2,900 | | 36 | 724 | 2,936 | 3,660 | 727 | 1990 | 5-40 yrs. | ||||||||||||||||
6350 Burnt Poplar |
Piedmont Triad | 340 | 1,374 | | 60 | 340 | 1,434 | 1,775 | 389 | 1992 | 5-40 yrs. | ||||||||||||||||
7341 West Friendly Avenue |
Piedmont Triad | 113 | 841 | | 158 | 113 | 999 | 1,112 | 261 | 1988 | 5-40 yrs. | ||||||||||||||||
7343 West Friendly Avenue |
Piedmont Triad | 72 | 555 | | 109 | 72 | 664 | 736 | 200 | 1988 | 5-40 yrs. | ||||||||||||||||
7345 West Friendly Avenue |
Piedmont Triad | 66 | 492 | | 45 | 66 | 537 | 603 | 122 | 1988 | 5-40 yrs. | ||||||||||||||||
7347 West Friendly Avenue |
Piedmont Triad | 97 | 719 | | 61 | 97 | 780 | 877 | 180 | 1988 | 5-40 yrs. | ||||||||||||||||
7349 West Friendly Avenue |
Piedmont Triad | 53 | 393 | | 52 | 53 | 445 | 498 | 109 | 1988 | 5-40 yrs. | ||||||||||||||||
7351 West Friendly Avenue |
Piedmont Triad | 106 | 788 | | 125 | 106 | 913 | 1,019 | 217 | 1988 | 5-40 yrs. | ||||||||||||||||
7353 West Friendly Avenue |
Piedmont Triad | 123 | 912 | | 52 | 123 | 964 | 1,087 | 233 | 1988 | 5-40 yrs. | ||||||||||||||||
7355 West Friendly Avenue |
Piedmont Triad | 72 | 538 | | 49 | 72 | 587 | 659 | 162 | 1988 | 5-40 yrs. | ||||||||||||||||
7906 Industrial Village Road |
Piedmont Triad | 62 | 460 | | 18 | 62 | 478 | 540 | 116 | 1985 | 5-40 yrs. | ||||||||||||||||
7908 Industrial Village Road |
Piedmont Triad | 62 | 475 | | 84 | 62 | 559 | 621 | 149 | 1985 | 5-40 yrs. | ||||||||||||||||
7910 Industrial Village Road |
Piedmont Triad | 62 | 460 | | 42 | 62 | 502 | 564 | 116 | 1985 | 5-40 yrs. | ||||||||||||||||
Airpark East-Building 1 |
Piedmont Triad | (7) | 378 | 1,516 | | 37 | 378 | 1,553 | 1,931 | 381 | 1990 | 5-40 yrs. | |||||||||||||||
Airpark East-Building 2 |
Piedmont Triad | (7) | 463 | 1,849 | | 182 | 463 | 2,031 | 2,494 | 526 | 1986 | 5-40 yrs. | |||||||||||||||
Airpark East-Building 3 |
Piedmont Triad | (7) | 322 | 1,293 | | 209 | 322 | 1,502 | 1,824 | 454 | 1986 | 5-40 yrs. | |||||||||||||||
Airpark East-Building A |
Piedmont Triad | (7) | 509 | 2,921 | | 570 | 509 | 3,491 | 4,000 | 919 | 1986 | 5-40 yrs. | |||||||||||||||
Airpark East-Building B |
Piedmont Triad | (7) | 739 | 3,237 | | 633 | 739 | 3,870 | 4,609 | 976 | 1988 | 5-40 yrs. | |||||||||||||||
Airpark East-Building C |
Piedmont Triad | (7) | 2,393 | 9,576 | | 2,037 | 2,393 | 11,613 | 14,006 | 3,069 | 1990 | 5-40 yrs. | |||||||||||||||
Airpark East-Building D |
Piedmont Triad | (7) | 850 | | 699 | 4,319 | 1,549 | 4,319 | 5,868 | 938 | 1997 | 5-40 yrs. | |||||||||||||||
Airpark East-Copier Consultants |
Piedmont Triad | (7) | 224 | 1,068 | | 342 | 224 | 1,410 | 1,634 | 471 | 1990 | 5-40 yrs. | |||||||||||||||
Airpark East-HewlettPackard |
Piedmont Triad | (7) | 465 | | 380 | 1,100 | 845 | 1,100 | 1,945 | 331 | 1996 | 5-40 yrs. | |||||||||||||||
Airpark East-Highland |
Piedmont Triad | (7) | 146 | 1,081 | | (3 | ) | 146 | 1,078 | 1,223 | 257 | 1990 | 5-40 yrs. | ||||||||||||||
Airpark East-Inacom Building |
Piedmont Triad | (7) | 265 | | 270 | 766 | 535 | 766 | 1,301 | 162 | 1996 | 5-40 yrs. | |||||||||||||||
Airpark East-Service Center 1 |
Piedmont Triad | (7) | 237 | 1,103 | | 173 | 237 | 1,276 | 1,513 | 352 | 1985 | 5-40 yrs. | |||||||||||||||
Airpark East-Service Center 2 |
Piedmont Triad | (7) | 193 | 946 | | 303 | 193 | 1,249 | 1,442 | 442 | 1985 | 5-40 yrs. | |||||||||||||||
Airpark East-Service Center 3 |
Piedmont Triad | (7) | 305 | 1,219 | | 319 | 305 | 1,538 | 1,843 | 441 | 1985 | 5-40 yrs. | |||||||||||||||
Airpark East-Service Center 4 |
Piedmont Triad | (7) | 225 | 928 | | 184 | 225 | 1,112 | 1,337 | 399 | 1985 | 5-40 yrs. | |||||||||||||||
Airpark East-Service Court |
Piedmont Triad | (7) | 171 | 777 | | 58 | 171 | 835 | 1,006 | 214 | 1990 | 5-40 yrs. | |||||||||||||||
Airpark East-Simplex |
Piedmont Triad | (7) | 271 | | 239 | 744 | 510 | 744 | 1,254 | 167 | 1997 | 5-40 yrs. | |||||||||||||||
Airpark East-Warehouse 1 |
Piedmont Triad | (7) | 355 | 1,613 | | 94 | 355 | 1,707 | 2,062 | 505 | 1985 | 5-40 yrs. | |||||||||||||||
Airpark East-Warehouse 2 |
Piedmont Triad | (7) | 373 | 1,523 | | 82 | 373 | 1,605 | 1,978 | 426 | 1985 | 5-40 yrs. | |||||||||||||||
Airpark East-Warehouse 3 |
Piedmont Triad | (7) | 341 | 1,486 | | 484 | 341 | 1,970 | 2,311 | 503 | 1986 | 5-40 yrs. | |||||||||||||||
Airpark East-Warehouse 4 |
Piedmont Triad | (7) | 660 | 2,676 | | 202 | 660 | 2,878 | 3,538 | 723 | 1988 | 5-40 yrs. | |||||||||||||||
Airpark North - DC1 |
Piedmont Triad | (7) | 860 | 2,919 | | 568 | 860 | 3,487 | 4,347 | 875 | 1986 | 5-40 yrs. | |||||||||||||||
Airpark North - DC2 |
Piedmont Triad | (7) | 1,302 | 4,392 | | 393 | 1,302 | 4,785 | 6,087 | 1,230 | 1987 | 5-40 yrs. | |||||||||||||||
Airpark North - DC3 |
Piedmont Triad | (7) | 449 | 1,517 | | 89 | 449 | 1,606 | 2,055 | 413 | 1988 | 5-40 yrs. | |||||||||||||||
Airpark North - DC4 |
Piedmont Triad | (7) | 451 | 1,514 | | 106 | 451 | 1,620 | 2,071 | 418 | 1988 | 5-40 yrs. | |||||||||||||||
Airpark South Warehouse 1 |
Piedmont Triad | 546 | | | 2,677 | 546 | 2,677 | 3,223 | 492 | 1998 | 5-40 yrs. | ||||||||||||||||
Airpark South Warehouse 2 |
Piedmont Triad | 749 | | | 2,477 | 749 | 2,477 | 3,226 | 343 | 1999 | 5-40 yrs. | ||||||||||||||||
Airpark South Warehouse 3 |
Piedmont Triad | 603 | | | 2,273 | 603 | 2,273 | 2,876 | 271 | 1999 | 5-40 yrs. | ||||||||||||||||
Airpark South Warehouse 4 |
Piedmont Triad | 499 | | | 2,043 | 499 | 2,043 | 2,542 | 323 | 1999 | 5-40 yrs. | ||||||||||||||||
Airpark South Warehouse 6 |
Piedmont Triad | 1,733 | | | 5,561 | 1,733 | 5,561 | 7,294 | 1,368 | 1999 | 5-40 yrs. | ||||||||||||||||
Airpark West 1 |
Piedmont Triad | (5) | 944 | 3,831 | | 592 | 944 | 4,423 | 5,367 | 1,294 | 1984 | 5-40 yrs. | |||||||||||||||
Airpark West 2 |
Piedmont Triad | (5) | 887 | 3,550 | | 262 | 887 | 3,812 | 4,699 | 982 | 1985 | 5-40 yrs. | |||||||||||||||
Airpark West 4 |
Piedmont Triad | (5) | 227 | 907 | | 151 | 227 | 1,058 | 1,284 | 288 | 1985 | 5-40 yrs. | |||||||||||||||
Airpark West 5 |
Piedmont Triad | (5) | 243 | 971 | | 283 | 243 | 1,254 | 1,497 | 342 | 1985 | 5-40 yrs. | |||||||||||||||
Airpark West 6 |
Piedmont Triad | (5) | 327 | 1,309 | | 82 | 327 | 1,391 | 1,718 | 354 | 1985 | 5-40 yrs. | |||||||||||||||
ALO |
Piedmont Triad | 177 | | 80 | 902 | 257 | 902 | 1,158 | 105 | 1998 | 5-40 yrs. | ||||||||||||||||
Brigham Road - Land |
Piedmont Triad | 7,059 | | 7 | | 7,066 | | 7,066 | | N/A | N/A | ||||||||||||||||
Chesapeake |
Piedmont Triad | (5) | 1,241 | 4,963 | | 7 | 1,241 | 4,970 | 6,211 | 1,230 | 1993 | 5-40 yrs. | |||||||||||||||
Chimney Rock A/B |
Piedmont Triad | 1,613 | 4,045 | | 21 | 1,613 | 4,066 | 5,679 | 665 | 1981 | 5-40 yrs. | ||||||||||||||||
Chimney Rock C |
Piedmont Triad | 605 | 1,514 | (368 | ) | (914 | ) | 237 | 600 | 836 | 99 | 1983 | 5-40 yrs. | ||||||||||||||
Chimney Rock D |
Piedmont Triad | 236 | 592 | 368 | 936 | 604 | 1,528 | 2,132 | 249 | 1983 | 5-40 yrs. | ||||||||||||||||
Chimney Rock E |
Piedmont Triad | 1,696 | 4,265 | | (73 | ) | 1,696 | 4,192 | 5,888 | 714 | 1985 | 5-40 yrs. | |||||||||||||||
Chimney Rock F |
Piedmont Triad | 1,434 | 3,608 | | (262 | ) | 1,434 | 3,346 | 4,779 | 591 | 1987 | 5-40 yrs. | |||||||||||||||
Chimney Rock G |
Piedmont Triad | 1,045 | 2,622 | | (172 | ) | 1,045 | 2,450 | 3,495 | 429 | 1987 | 5-40 yrs. | |||||||||||||||
Consolidated Center/ Building I |
Piedmont Triad | 625 | 2,183 | | 153 | 625 | 2,336 | 2,961 | 390 | 1983 | 5-40 yrs. | ||||||||||||||||
Consolidated Center/ Building II |
Piedmont Triad | 625 | 4,435 | | 207 | 625 | 4,642 | 5,267 | 822 | 1983 | 5-40 yrs. | ||||||||||||||||
Consolidated Center/ Building III |
Piedmont Triad | 680 | 3,572 | | 72 | 680 | 3,644 | 4,324 | 643 | 1989 | 5-40 yrs. | ||||||||||||||||
Consolidated Center/ Building IV |
Piedmont Triad | 376 | 1,655 | | 150 | 376 | 1,805 | 2,181 | 338 | 1989 | 5-40 yrs. | ||||||||||||||||
Deep River Corporate Center |
Piedmont Triad | 1,041 | 5,892 | 970 | 375 | 2,011 | 6,267 | 8,278 | 1,520 | 1989 | 5-40 yrs. | ||||||||||||||||
Enterprise Warehouse I |
Piedmont Triad | 453 | | 360 | 3,160 | 813 | 3,160 | 3,973 | 408 | 2002 | 5-40 yrs. | ||||||||||||||||
Forsyth Corporate Center |
Piedmont Triad | (2) | 328 | 1,867 | | 678 | 328 | 2,545 | 2,874 | 773 | 1985 | 5-40 yrs. | |||||||||||||||
Highwoods Park Building I |
Piedmont Triad | 1,993 | | (517 | ) | 8,494 | 1,476 | 8,494 | 9,970 | 672 | 2001 | 5-40 yrs. | |||||||||||||||
Highwoods Square Land |
Piedmont Triad | | | 1,828 | | 1,828 | | 1,828 | N/A | N/A | |||||||||||||||||
Jefferson Pilot Land |
Piedmont Triad | 11,759 | | (4,258 | ) | | 7,501 | | 7,501 | | N/A | N/A | |||||||||||||||
Madison Park - Building 5620 |
Piedmont Triad | 942 | 2,220 | | (20 | ) | 942 | 2,200 | 3,142 | 363 | 1983 | 5-40 yrs. | |||||||||||||||
Madison Park - Building 5630 |
Piedmont Triad | 1,488 | 3,507 | | (9 | ) | 1,488 | 3,498 | 4,985 | 574 | 1983 | 5-40 yrs. | |||||||||||||||
Madison Park - Building 5635 |
Piedmont Triad | 894 | 2,106 | | 14 | 894 | 2,120 | 3,014 | 350 | 1986 | 5-40 yrs. | ||||||||||||||||
Madison Park - Building 5640 |
Piedmont Triad | 1,831 | 6,531 | | (41 | ) | 1,831 | 6,490 | 8,321 | 1,082 | 1985 | 5-40 yrs. | |||||||||||||||
Madison Park - Building 5650 |
Piedmont Triad | 1,082 | 2,551 | | 25 | 1,082 | 2,576 | 3,658 | 432 | 1984 | 5-40 yrs. | ||||||||||||||||
Madison Park - Building 5655 |
Piedmont Triad | 1,947 | 7,123 | | 157 | 1,947 | 7,280 | 9,228 | 1,207 | 1987 | 5-40 yrs. | ||||||||||||||||
Madison Park - Building 5660 |
Piedmont Triad | 1,912 | 4,506 | | (34 | ) | 1,912 | 4,472 | 6,384 | 737 | 1984 | 5-40 yrs. |
F-66
Initial Costs
|
Cost Capitalized
Subsquent to Acquisition |
Gross Value at
Close of Period |
|||||||||||||||||||||||||
Description |
City
|
2004 Encumberance(10) |
Beginning Land |
Beginning
Building |
Land
|
Building &
Improvements |
Final
Land |
Bldg-
Final |
Total
Assets |
Accumulated
Depr-Final |
Date of
Construction |
Life on Which
Depreciation is Calculated |
|||||||||||||||
Madison Parking Deck |
Piedmont Triad | 5,755 | 8,822 | | 496 | 5,755 | 9,318 | 15,073 | 1,388 | 1987 | 5-40 yrs. | ||||||||||||||||
Regency One-Piedmont Center |
Piedmont Triad | 515 | | 383 | 2,518 | 898 | 2,518 | 3,415 | 904 | 1996 | 5-40 yrs. | ||||||||||||||||
Regency Two-Piedmont Center |
Piedmont Triad | 435 | | 288 | 1,676 | 723 | 1,676 | 2,399 | 349 | 1996 | 5-40 yrs. | ||||||||||||||||
Sears Cenfact |
Piedmont Triad | (1) | 834 | 3,459 | | 25 | 834 | 3,485 | 4,319 | 870 | 1989 | 5-40 yrs. | |||||||||||||||
The Knollwood-370 |
Piedmont Triad | 1,826 | 7,495 | | 619 | 1,826 | 8,114 | 9,940 | 2,208 | 1994 | 5-40 yrs. | ||||||||||||||||
The Knollwood-380 |
Piedmont Triad | 2,989 | 12,028 | | 1,351 | 2,989 | 13,379 | 16,368 | 3,485 | 1990 | 5-40 yrs. | ||||||||||||||||
The Knollwood -380 Retail |
Piedmont Triad | | 1 | | 149 | | 150 | 150 | 83 | 1995 | 5-40 yrs. | ||||||||||||||||
University Commercial Center-Archer 4 |
Piedmont Triad | 516 | 2,066 | | 286 | 516 | 2,352 | 2,868 | 592 | 1986 | 5-40 yrs. | ||||||||||||||||
University Commercial Center-Landmark 3 |
Piedmont Triad | 431 | 1,785 | | 573 | 431 | 2,358 | 2,788 | 571 | 1985 | 5-40 yrs. | ||||||||||||||||
University Commercial Center-Service Center 1 |
Piedmont Triad | 277 | 1,159 | | 146 | 277 | 1,305 | 1,582 | 367 | 1983 | 5-40 yrs. | ||||||||||||||||
University Commercial Center-Service Center 2 |
Piedmont Triad | 216 | 862 | | 61 | 216 | 923 | 1,139 | 237 | 1983 | 5-40 yrs. | ||||||||||||||||
University Commercial Center-Service Center 3 |
Piedmont Triad | 168 | 702 | | 341 | 168 | 1,043 | 1,210 | 379 | 1984 | 5-40 yrs. | ||||||||||||||||
University Commercial Center-Warehouse 1 |
Piedmont Triad | 204 | 815 | | 24 | 204 | 839 | 1,043 | 206 | 1983 | 5-40 yrs. | ||||||||||||||||
University Commercial Center-Warehouse 2 |
Piedmont Triad | 197 | 789 | | 42 | 197 | 831 | 1,028 | 212 | 1983 | 5-40 yrs. | ||||||||||||||||
US Airways |
Piedmont Triad | (2) | 2,625 | 15,069 | (1,175 | ) | (3,723 | ) | 1,450 | 11,346 | 12,796 | 2,026 | 1970-1987 | 5-40 yrs. | |||||||||||||
Westpoint Business Park Land |
Piedmont Triad | 868 | | 103 | | 971 | | 971 | | N/A | 5-40 yrs. | ||||||||||||||||
Westpoint Business Park-BMF |
Piedmont Triad | 798 | 3,193 | | 4 | 798 | 3,197 | 3,995 | 789 | 1986 | 5-40 yrs. | ||||||||||||||||
Westpoint Business Park-Luwabahnson |
Piedmont Triad | 347 | 1,389 | | 103 | 347 | 1,492 | 1,840 | 387 | 1990 | 5-40 yrs. | ||||||||||||||||
Westpoint Business Park-Wp 13 |
Piedmont Triad | 298 | 1,219 | | 22 | 298 | 1,241 | 1,539 | 310 | 1988 | 5-40 yrs. | ||||||||||||||||
Research Triangle, NC |
|||||||||||||||||||||||||||
3600 Glenwood Avenue |
Research Triangle | | 10,994 | | | | 10,994 | 10,994 | 2,142 | 1986 | 5-40 yrs. | ||||||||||||||||
3737 Glenwood Avenue |
Research Triangle | | | 318 | 16,651 | 318 | 16,651 | 16,969 | 3,051 | 1999 | 5-40 yrs. | ||||||||||||||||
4101 Research Commons |
Research Triangle | 1,348 | 8,346 | 221 | (698 | ) | 1,569 | 7,648 | 9,217 | 1,284 | 1999 | 5-40 yrs. | |||||||||||||||
4201 Research Commons |
Research Triangle | 1,204 | 11,858 | | (39 | ) | 1,204 | 11,819 | 13,023 | 4,408 | 1991 | 5-40 yrs. | |||||||||||||||
4301 Research Commons |
Research Triangle | 900 | 8,237 | | 29 | 900 | 8,266 | 9,166 | 1,974 | 1989 | 5-40 yrs. | ||||||||||||||||
4401 Research Commons |
Research Triangle | 1,249 | 9,387 | | 6,149 | 1,249 | 15,536 | 16,785 | 7,144 | 1987 | 5-40 yrs. | ||||||||||||||||
4501 Research Commons |
Research Triangle | 785 | 5,856 | | 106 | 785 | 5,962 | 6,747 | 2,048 | 1985 | 5-40 yrs. | ||||||||||||||||
4800 North Park |
Research Triangle | 2,678 | 17,630 | | 1,528 | 2,678 | 19,158 | 21,836 | 5,653 | 1985 | 5-40 yrs. | ||||||||||||||||
4900 North Park |
Research Triangle | 1,056 | 770 | 1,983 | | 577 | 770 | 2,560 | 3,330 | 622 | 1984 | 5-40 yrs. | |||||||||||||||
5000 North Park |
Research Triangle | (2) | 1,010 | 4,612 | | 2,067 | 1,010 | 6,679 | 7,689 | 1,964 | 1980 | 5-40 yrs. | |||||||||||||||
3645 Trust Drive - One North Commerce Center |
Research Triangle | 793 | 2,976 | | 858 | 793 | 3,835 | 4,628 | 947 | 1984 | 5-40 yrs. | ||||||||||||||||
5200 Greens Dairy-One North Commerce Center |
Research Triangle | 170 | 968 | | 158 | 170 | 1,126 | 1,297 | 234 | 1984 | 5-40 yrs. | ||||||||||||||||
5220 Greens Dairy-One North Commerce Center |
Research Triangle | 385 | 2,185 | | 340 | 385 | 2,525 | 2,909 | 563 | 1984 | 5-40 yrs. | ||||||||||||||||
Phase I - One North Commerce Center |
Research Triangle | 774 | 4,496 | | 1,437 | 774 | 5,933 | 6,707 | 1,604 | 1981 | 5-40 yrs. | ||||||||||||||||
W Building - One North Commerce Center |
Research Triangle | 1,172 | 6,865 | | 2,080 | 1,172 | 8,945 | 10,117 | 2,582 | 1983 | 5-40 yrs. | ||||||||||||||||
801 Corporate Center |
Research Triangle | 828 | | 272 | 9,463 | 1,100 | 9,463 | 10,563 | 502 | 2002 | 5-40 yrs. | ||||||||||||||||
Blue Ridge I |
Research Triangle | (1) | 722 | 4,606 | | 572 | 722 | 5,178 | 5,900 | 1,441 | 1982 | 5-40 yrs. | |||||||||||||||
Blue Ridge II |
Research Triangle | (1) | 462 | 1,410 | | 449 | 462 | 1,859 | 2,321 | 758 | 1988 | 5-40 yrs. | |||||||||||||||
BTI |
Research Triangle | | | 1,421 | 17,100 | 1,421 | 17,100 | 18,521 | | 1979 | 5-40 yrs. | ||||||||||||||||
Cape Fear |
Research Triangle | 131 | 1,630 | | 807 | 131 | 2,437 | 2,568 | 1,673 | 1979 | 5-40 yrs. | ||||||||||||||||
Catawba |
Research Triangle | 125 | 1,635 | | 1,021 | 125 | 2,656 | 2,781 | 1,451 | 1980 | 5-40 yrs. | ||||||||||||||||
CentreGreen One - Weston |
Research Triangle | (4) | 1,529 | | (392 | ) | 9,595 | 1,137 | 9,595 | 10,732 | 1,478 | 2000 | 5-40 yrs. | ||||||||||||||
CentreGreen Two - Weston |
Research Triangle | (4) | 1,653 | | (393 | ) | 9,682 | 1,260 | 9,682 | 10,942 | 1,172 | 2001 | 5-40 yrs. | ||||||||||||||
CentreGreen Three Land - Weston |
Research Triangle | 1,876 | | | 92 | 1,876 | 92 | 1,968 | | N/A | N/A | ||||||||||||||||
CentreGreen Four |
Research Triangle | (4) | 1,779 | | (394 | ) | 12,685 | 1,385 | 12,685 | 14,070 | 837 | 2002 | 5-40 yrs. | ||||||||||||||
CentreGreen Five Land - Weston |
Research Triangle | 3,062 | | 114 | | 3,176 | | 3,176 | | N/A | N/A | ||||||||||||||||
Concourse |
Research Triangle | (3) | 986 | 15,125 | | 387 | 986 | 15,512 | 16,498 | 5,041 | 1986 | 5-40 yrs. | |||||||||||||||
Cottonwood |
Research Triangle | 609 | 3,244 | | 201 | 609 | 3,445 | 4,054 | 883 | 1983 | 5-40 yrs. | ||||||||||||||||
Creekstone Crossings |
Research Triangle | 728 | 3,841 | | 217 | 728 | 4,058 | 4,786 | 1,039 | 1990 | 5-40 yrs. | ||||||||||||||||
Day Tract Residential |
Research Triangle | 7,668 | | (32 | ) | | 7,636 | | 7,636 | | N/A | N/A | |||||||||||||||
Day Tract Land |
Research Triangle | 8,524 | | (8,524 | ) | | | | | | N/A | N/A | |||||||||||||||
Dogwood |
Research Triangle | 766 | 2,769 | | 464 | 766 | 3,233 | 3,999 | 807 | 1983 | 5-40 yrs. | ||||||||||||||||
EPA |
Research Triangle | 2,601 | | 4 | 1,656 | 2,605 | 1,656 | 4,260 | 1 | 2003 | 5-40 yrs. | ||||||||||||||||
GlenLake Land |
Research Triangle | 5,335 | | 7,196 | | 12,531 | | 12,531 | | N/A | N/A | ||||||||||||||||
GlenLake Bldg I |
Research Triangle | (4) | 924 | | 705 | 21,849 | 1,629 | 21,849 | 23,478 | 1,792 | 2002 | 5-40 yrs. | |||||||||||||||
Global Software |
Research Triangle | (2) | 465 | | 279 | 6,984 | 744 | 6,984 | 7,728 | 2,462 | 1996 | 5-40 yrs. | |||||||||||||||
Hawthorn |
Research Triangle | 904 | 3,769 | | 368 | 904 | 4,137 | 5,041 | 2,478 | 1987 | 5-40 yrs. | ||||||||||||||||
Healthsource |
Research Triangle | 1,304 | | 540 | 11,712 | 1,844 | 11,712 | 13,556 | 3,152 | 1996 | 5-40 yrs. | ||||||||||||||||
Highwoods Centre-Weston |
Research Triangle | (1) | 531 | | (267 | ) | 7,268 | 264 | 7,268 | 7,532 | 1,526 | 1998 | 5-40 yrs. | ||||||||||||||
Highwoods Office Center North Land |
Research Triangle | 355 | 49 | 2 | | 357 | 49 | 406 | 21 | N/A | N/A | ||||||||||||||||
Highwoods Office Center South Land |
Research Triangle | 2,411 | | (226 | ) | | 2,185 | | 2,185 | | N/A | N/A | |||||||||||||||
Highwoods Tower One |
Research Triangle | (2) | 203 | 16,744 | | 1,373 | 203 | 18,117 | 18,320 | 6,220 | 1991 | 5-40 yrs. | |||||||||||||||
Highwoods Tower Two |
Research Triangle | 365 | | 503 | 22,454 | 868 | 22,454 | 23,322 | 2,768 | 2001 | 5-40 yrs. | ||||||||||||||||
Holiday Inn Reservations Center |
Research Triangle | 867 | 2,727 | | 1,020 | 867 | 3,747 | 4,614 | 821 | 1984 | 5-40 yrs. | ||||||||||||||||
Inveresk Land Parcel 2 |
Research Triangle | 657 | | | | 657 | | 657 | | N/A | N/A | ||||||||||||||||
Inveresk Land Parcel 3 |
Research Triangle | 548 | | | | 548 | | 548 | | N/A | N/A | ||||||||||||||||
Ironwood |
Research Triangle | 319 | 1,337 | | 603 | 319 | 1,940 | 2,259 | 511 | 1978 | 5-40 yrs. | ||||||||||||||||
Magnolia |
Research Triangle | 133 | 3,576 | | 806 | 133 | 4,382 | 4,515 | 2,159 | 1988 | 5-40 yrs. | ||||||||||||||||
Lake Plaza East |
Research Triangle | (3) | 856 | 6,325 | (856 | ) | (6,325 | ) | | | | | 1984 | 5-40 yrs. | |||||||||||||
Laurel |
Research Triangle | 884 | 2,517 | | 845 | 884 | 3,362 | 4,246 | 1,052 | 1982 | 5-40 yrs. | ||||||||||||||||
Leatherwood |
Research Triangle | 213 | 891 | | 620 | 213 | 1,511 | 1,724 | 463 | 1979 | 5-40 yrs. | ||||||||||||||||
Maplewood |
Research Triangle | (1) | 149 | | 107 | 3,496 | 256 | 3,496 | 3,752 | 631 | N/A | 5-40 yrs. | |||||||||||||||
Northpark Land - Wake Forest |
Research Triangle | 1,586 | | (815 | ) | | 771 | | 771 | | N/A | N/A | |||||||||||||||
Overlook |
Research Triangle | 398 | | 293 | 9,288 | 691 | 9,288 | 9,979 | 1,252 | 1999 | 5-40 yrs. | ||||||||||||||||
Pamlico |
Research Triangle | 289 | | | 11,798 | 289 | 11,798 | 12,087 | 5,372 | 1980 | 5-40 yrs. | ||||||||||||||||
ParkWest One - Weston |
Research Triangle | 383 | | (141 | ) | 4,035 | 242 | 4,035 | 4,277 | 687 | 2001 | 5-40 yrs. | |||||||||||||||
ParkWest Two - Weston |
Research Triangle | 503 | | (147 | ) | 3,110 | 356 | 3,110 | 3,466 | 300 | 2001 | 5-40 yrs. | |||||||||||||||
ParkWest Three - Land - Weston |
Research Triangle | 834 | | (227 | ) | | 607 | | 607 | | N/A | N/A | |||||||||||||||
Progress Center Renovation |
Research Triangle | | | | 359 | | 359 | 359 | | 2003 | 5-40 yrs. |
F-67
Initial Costs
|
Cost Capitalized
Subsquent to Acquisition |
Gross Value at
Close of Period |
|||||||||||||||||||||||||
Description |
City
|
2004
Encumberance(10) |
Beginning
Land |
Beginning
Building |
Land
|
Building &
Improvements |
Final
Land |
Bldg-
Final |
Total
Assets |
Accumulated
Depr-Final |
Date of
Construction |
Life on Which
Depreciation is Calculated |
|||||||||||||||
Raleigh Corp Center Lot D |
Research Triangle | 1,211 | | 7 | | 1,218 | | 1,218 | | N/A | N/A | ||||||||||||||||
Red Oak |
Research Triangle | 389 | | 195 | 5,853 | 584 | 5,853 | 6,437 | 1,787 | 1999 | 5-40 yrs. | ||||||||||||||||
Rexwoods Center I |
Research Triangle | (5) | 878 | 3,730 | | 391 | 878 | 4,121 | 4,999 | 1,622 | 1990 | 5-40 yrs. | |||||||||||||||
Rexwoods Center II |
Research Triangle | 362 | 1,818 | | 501 | 362 | 2,319 | 2,681 | 523 | 1993 | 5-40 yrs. | ||||||||||||||||
Rexwoods Center III |
Research Triangle | 919 | 2,816 | | 968 | 919 | 3,784 | 4,703 | 1,136 | 1992 | 5-40 yrs. | ||||||||||||||||
Rexwoods Center IV |
Research Triangle | (5) | 586 | | 127 | 3,222 | 713 | 3,222 | 3,935 | 800 | 1995 | 5-40 yrs. | |||||||||||||||
Rexwoods Center V |
Research Triangle | (2) | 1,301 | | 184 | 5,447 | 1,485 | 5,447 | 6,932 | 1,317 | 1998 | 5-40 yrs. | |||||||||||||||
Riverbirch |
Research Triangle | (2) | 469 | 4,038 | | 1,031 | 469 | 5,069 | 5,538 | 1,932 | 1987 | 5-40 yrs. | |||||||||||||||
Situs I |
Research Triangle | 692 | 4,646 | 178 | (51 | ) | 870 | 4,595 | 5,465 | 1,720 | 1996 | 5-40 yrs. | |||||||||||||||
Situs II |
Research Triangle | 718 | 6,254 | 181 | (76 | ) | 899 | 6,178 | 7,077 | 2,167 | 1998 | 5-40 yrs. | |||||||||||||||
Situs III |
Research Triangle | (3) | 440 | 4,078 | 118 | (450 | ) | 558 | 3,628 | 4,187 | 215 | 2000 | 5-40 yrs. | ||||||||||||||
Six Forks Center I |
Research Triangle | 666 | 2,665 | | 1,077 | 666 | 3,742 | 4,408 | 852 | 1982 | 5-40 yrs. | ||||||||||||||||
Six Forks Center II |
Research Triangle | 1,086 | 4,533 | | 972 | 1,086 | 5,505 | 6,591 | 1,430 | 1983 | 5-40 yrs. | ||||||||||||||||
Six Forks Center III |
Research Triangle | (2) | 862 | 4,411 | | 468 | 862 | 4,879 | 5,741 | 1,286 | 1987 | 5-40 yrs. | |||||||||||||||
Smoketree Tower |
Research Triangle | 2,353 | 11,743 | | 2,248 | 2,353 | 13,991 | 16,344 | 4,118 | 1984 | 5-40 yrs. | ||||||||||||||||
Sycamore |
Research Triangle | (2) | 255 | | 216 | 4,832 | 471 | 4,832 | 5,304 | 935 | 1997 | 5-40 yrs. | |||||||||||||||
Weston Land |
Research Triangle | 22,771 | | (5,193 | ) | 988 | 17,578 | 988 | 18,566 | 182 | N/A | N/A | |||||||||||||||
Willow Oak |
Research Triangle | (2) | 458 | | 268 | 4,843 | 726 | 4,843 | 5,569 | 1,122 | 1995 | 5-40 yrs. | |||||||||||||||
Other Property |
Research Triangle | 47 | 9,496 | 2,926 | 20,604 | 2,973 | 30,100 | 33,073 | 16,411 | N/A | N/A | ||||||||||||||||
Richmond, VA |
|||||||||||||||||||||||||||
4900 Cox Road |
Richmond | 1,324 | 5,311 | | 686 | 1,324 | 5,997 | 7,321 | 1,713 | 1991 | 5-40 yrs. | ||||||||||||||||
Colonade Building |
Richmond | (4) | 1,364 | 6,105 | | 69 | 1,364 | 6,174 | 7,538 | 461 | 2003 | 5-40 yrs. | |||||||||||||||
Dominion Place - Pitts Parcel |
Richmond | 1,101 | | 71 | 51 | 1,172 | 51 | 1,223 | | N/A | N/A | ||||||||||||||||
East Shore I |
Richmond | 1,537 | 5,971 | (337 | ) | (19 | ) | 1,200 | 5,952 | 7,152 | 1,041 | 1999 | 5-40 yrs. | ||||||||||||||
East Shore II |
Richmond | 907 | 6,853 | 443 | (83 | ) | 1,350 | 6,770 | 8,120 | 2,019 | 1999 | 5-40 yrs. | |||||||||||||||
East Shore III |
Richmond | 1,784 | 6,095 | (388 | ) | (57 | ) | 1,396 | 6,038 | 7,434 | 1,156 | 1999 | 5-40 yrs. | ||||||||||||||
East Shore IV |
Richmond | 1,445 | | (1,445 | ) | | | | | | N/A | N/A | |||||||||||||||
Grove Park I |
Richmond | 713 | | 381 | 4,675 | 1,094 | 4,675 | 5,770 | 845 | 1997 | 5-40 yrs. | ||||||||||||||||
Hamilton Beach |
Richmond | 1,086 | 4,345 | | 472 | 1,086 | 4,817 | 5,903 | 1,157 | 1986 | 5-40 yrs. | ||||||||||||||||
Highwoods Commons |
Richmond | 521 | | 1,001 | 3,322 | 1,522 | 3,322 | 4,844 | 475 | 1999 | 5-40 yrs. | ||||||||||||||||
Highwoods Five |
Richmond | 806 | | (23 | ) | 5,875 | 783 | 5,875 | 6,658 | 881 | 1998 | 5-40 yrs. | |||||||||||||||
Highwoods One |
Richmond | (2) | 1,846 | | (158 | ) | 9,690 | 1,688 | 9,690 | 11,378 | 2,275 | 1996 | 5-40 yrs. | ||||||||||||||
Highwoods Plaza |
Richmond | 909 | | 175 | 5,624 | 1,084 | 5,624 | 6,708 | 687 | 2000 | 5-40 yrs. | ||||||||||||||||
Highwoods Two |
Richmond | (4) | 786 | | 213 | 6,057 | 999 | 6,057 | 7,056 | 1,287 | 1997 | 5-40 yrs. | |||||||||||||||
Innslake Center |
Richmond | (1) | 845 | | 196 | 6,586 | 1,041 | 6,586 | 7,626 | 846 | 2001 | 5-40 yrs. | |||||||||||||||
Liberty Mutual |
Richmond | 2,708 | 1,205 | 4,825 | | 793 | 1,205 | 5,618 | 6,823 | 1,291 | 1990 | 5-40 yrs. | |||||||||||||||
North Park |
Richmond | 2,163 | 8,659 | | 763 | 2,163 | 9,422 | 11,585 | 2,065 | 1989 | 5-40 yrs. | ||||||||||||||||
North Shore Commons A |
Richmond | (4) | 1,344 | | (393 | ) | 12,285 | 951 | 12,285 | 13,236 | 1,871 | 2002 | 5-40 yrs. | ||||||||||||||
North Shore Commons B - Land |
Richmond | 2,067 | | | | 2,067 | | 2,067 | | N/A | N/A | ||||||||||||||||
North Shore Commons C - Land |
Richmond | 1,902 | | (405 | ) | | 1,497 | | 1,497 | | N/A | N/A | |||||||||||||||
North Shore Commons D - Land |
Richmond | 1,261 | | | | 1,261 | | 1,261 | | N/A | N/A | ||||||||||||||||
One Shockoe Plaza |
Richmond | | | 356 | 15,052 | 356 | 15,052 | 15,408 | 3,473 | 1996 | 5-40 yrs. | ||||||||||||||||
Pavilion |
Richmond | | 46 | 181 | | 181 | 46 | 227 | 8 | N/A | N/A | ||||||||||||||||
Sadler & Cox Land |
Richmond | 1,827 | | (104 | ) | | 1,723 | | 1,723 | | N/A | N/A | |||||||||||||||
Stony Point F Land |
Richmond | 2,078 | | (237 | ) | | 1,841 | | 1,841 | 5 | N/A | N/A | |||||||||||||||
Stony Point I |
Richmond | 1,384 | 11,630 | 52 | 1,145 | 1,436 | 12,775 | 14,211 | 2,647 | 1990 | 5-40 yrs. | ||||||||||||||||
Stony Point II |
Richmond | 1,633 | | (399 | ) | 12,227 | 1,234 | 12,227 | 13,461 | 2,593 | 1999 | 5-40 yrs. | |||||||||||||||
Stony Point III |
Richmond | 1,194 | | (205 | ) | 10,374 | 989 | 10,374 | 11,363 | 1,480 | 2002 | 5-40 yrs. | |||||||||||||||
Stony Point IV land |
Richmond | | | 1,316 | | 1,316 | | 1,316 | | N/A | N/A | ||||||||||||||||
Technology Park 1 |
Richmond | 541 | 2,166 | | 772 | 541 | 2,938 | 3,479 | 774 | 1991 | 5-40 yrs. | ||||||||||||||||
Technology Park 2 |
Richmond | 264 | 1,058 | | 32 | 264 | 1,090 | 1,354 | 252 | 1991 | 5-40 yrs. | ||||||||||||||||
Vantage Place A |
Richmond | (4) | 203 | 811 | | 100 | 203 | 911 | 1,114 | 216 | 1987 | 5-40 yrs. | |||||||||||||||
Vantage Place B |
Richmond | (4) | 233 | 931 | | 147 | 233 | 1,078 | 1,311 | 249 | 1988 | 5-40 yrs. | |||||||||||||||
Vantage Place C |
Richmond | (4) | 235 | 940 | | 91 | 235 | 1,031 | 1,266 | 239 | 1987 | 5-40 yrs. | |||||||||||||||
Vantage Place D |
Richmond | (4) | 218 | 873 | | 119 | 218 | 992 | 1,210 | 235 | 1988 | 5-40 yrs. | |||||||||||||||
Vantage Pointe |
Richmond | (4) | 1,089 | 4,500 | | 521 | 1,089 | 5,021 | 6,110 | 1,260 | 1990 | 5-40 yrs. | |||||||||||||||
Virginia Mutual |
Richmond | 1,301 | 6,036 | | (17 | ) | 1,301 | 6,019 | 7,320 | 684 | 1996 | 5-40 yrs. | |||||||||||||||
Waterfront Plaza |
Richmond | 585 | 2,347 | | 434 | 585 | 2,781 | 3,366 | 733 | 1988 | 5-40 yrs. | ||||||||||||||||
West Shore I |
Richmond | (1) | 358 | 1,431 | (26 | ) | 47 | 332 | 1,478 | 1,810 | 323 | 1995 | 5-40 yrs. | ||||||||||||||
West Shore II |
Richmond | (1) | 545 | 2,181 | (56 | ) | 163 | 489 | 2,344 | 2,833 | 537 | 1995 | 5-40 yrs. | ||||||||||||||
West Shore III |
Richmond | (1) | 961 | | 141 | 3,909 | 1,102 | 3,909 | 5,011 | 835 | 1997 | 5-40 yrs. | |||||||||||||||
South Florida |
|||||||||||||||||||||||||||
The 1800 Eller Drive Building |
South Florida | | 9,851 | | 449 | | 10,299 | 10,299 | 2,326 | 1983 | 5-40 yrs. | ||||||||||||||||
Tampa, FL |
|||||||||||||||||||||||||||
380 Park Place |
Tampa | 1,502 | | 240 | 7,608 | 1,742 | 7,608 | 9,350 | 1,355 | N/A | N/A | ||||||||||||||||
Anchor Glass |
Tampa | (3) | 1,281 | 11,318 | (970 | ) | 783 | 311 | 12,101 | 12,412 | 2,020 | 1988 | 5-40 yrs. | ||||||||||||||
Atrium |
Tampa | 1,363 | 9,373 | (2 | ) | 3,225 | 1,361 | 12,598 | 13,959 | 2,383 | 1989 | 5-40 yrs. | |||||||||||||||
Bay View Office Centre |
Tampa | 1,304 | 5,964 | (369 | ) | (500 | ) | 935 | 5,464 | 6,399 | 1,267 | 1982 | 5-40 yrs. | ||||||||||||||
Bay Vista Gardens |
Tampa | 445 | 4,806 | (9 | ) | 441 | 436 | 5,247 | 5,683 | 843 | 1982 | 5-40 yrs. | |||||||||||||||
Bay Vista Gardens II |
Tampa | 1,323 | 7,074 | 139 | (63 | ) | 1,462 | 7,011 | 8,473 | 1,028 | 1997 | 5-40 yrs. | |||||||||||||||
Bayshore |
Tampa | (3) | 2,276 | 11,817 | | 20 | 2,276 | 11,837 | 14,113 | 2,156 | 1990 | 5-40 yrs. | |||||||||||||||
Cypress Center I |
Tampa | 3,172 | 12,764 | | 783 | 3,172 | 13,547 | 16,719 | 1,724 | 1982 | 5-40 yrs. | ||||||||||||||||
Cypress Center III |
Tampa | 1,194 | 7,613 | | 814 | 1,194 | 8,427 | 9,621 | 1,182 | 1983 | 5-40 yrs. | ||||||||||||||||
Cypress Center IV - Land |
Tampa | (4) | 3,087 | 301 | 144 | 3,908 | 3,231 | 4,209 | 7,441 | 759 | N/A | N/A | |||||||||||||||
Cypress Commons |
Tampa | (4) | 1,211 | 11,477 | | 1,416 | 1,211 | 12,893 | 14,104 | 1,755 | 1985 | 5-40 yrs. | |||||||||||||||
Cypress West |
Tampa | 1,927 | 617 | 5,148 | | 835 | 617 | 5,984 | 6,600 | 1,331 | 1985 | 5-40 yrs. | |||||||||||||||
Feathersound Corporate Center II |
Tampa | 2,234 | 802 | 7,463 | | 806 | 802 | 8,269 | 9,071 | 1,462 | 1986 | 5-40 yrs. |
F-68
F-69
HIGHWOODS PROPERTIES INC.
NOTE TO SCHEDULE III
(In Thousands)
As of December 31, 2004, 2003, and 2002
A summary of activity for Real estate and accumulated depreciation is as follows
December 31,
|
|||||||||
2004
|
2003
|
2002
|
|||||||
Real Estate: |
|||||||||
Balance at beginning of year |
3,782,351 | 3,938,721 | 3,928,775 | ||||||
Additions |
|||||||||
Acquisitions, Development and Improvments |
103,187 | 98,904 | 215,739 | ||||||
Cost of real estate sold and retired |
(356,332 | ) | (255,274 | ) | (205,793 | ) | |||
|
|
|
|
|
|
||||
Balance at close of year (a) |
3,529,206 | 3,782,351 | 3,938,721 | ||||||
|
|
|
|
|
|
||||
Accumulated Depreciaition |
|||||||||
Balance at beginning of year |
535,363 | 455,667 | 361,359 | ||||||
Depreciation expense |
115,603 | 121,354 | 120,995 | ||||||
Real estate sold and retired |
(67,517 | ) | (41,658 | ) | (26,687 | ) | |||
|
|
|
|
|
|
||||
Balance at close of year (b) |
583,449 | 535,363 | 455,667 | ||||||
|
|
|
|
|
|
(a) | Reconciliation of total cost to balance sheet caption at December 31, 2004, 2003, and 2002 (in Thousands) |
2004
|
2003
|
2002
|
|||||||
Total per schedule III |
3,529,206 | 3,782,351 | 3,938,721 | ||||||
Construction in progress exclusive of land included in schedule III |
26,349 | 9,637 | 6,967 | ||||||
Furniture, fixtures and equipment |
22,403 | 22,124 | 20,966 | ||||||
Property held for sale |
(34,822 | ) | (76,853 | ) | (146,717 | ) | |||
Reclassification adjustment for discontinued operations |
993 | 3 | |||||||
|
|
|
|
|
|
||||
Total real estate assets at cost |
3,543,136 | 3,738,252 | 3,819,940 | ||||||
|
|
|
|
|
|
(b) | Reconciliation of total Accumulated Depreciation to balance sheet caption at December 31, 2004, 2003, and 2002 (in Thousands) |
2004
|
2003
|
2002
|
|||||||
Total per Schedule III |
583,449 | 535,363 | 455,667 | ||||||
Accumulated Depreciation - furniture, fixtures and equipment |
16,342 | 13,921 | 9,208 | ||||||
Property held for sale |
(1,411 | ) | (6,839 | ) | (9,898 | ) | |||
|
|
|
|
|
|
||||
Total accumulated depreciation |
598,380 | 542,445 | 454,977 | ||||||
|
|
|
|
|
|
F-70
Exhibit 3.2
AMENDED AND RESTATED BYLAWS
OF
HIGHWOODS PROPERTIES, INC.
(Effective as of December 22, 2005)
ARTICLE I
The name of the Corporation is Highwoods Properties, Inc.
ARTICLE II
OFFICES
The Corporation shall maintain a registered office in the State of Maryland as required by law. The Corporation may also have offices at other places, within or without the State of Maryland, as the business of the Corporation may require.
ARTICLE III
STOCKHOLDERS
Section 3.01. Annual Meeting . The annual meeting of the stockholders shall be held each year in May on such date and at such time as the Board of Directors designates. At each annual meeting, the stockholders shall elect the members of the Board of Directors and transact such other business as may be properly brought before the meeting.
Section 3.02. Special Meetings .
(a) Special meetings of stockholders for any purpose or purposes, described in the meeting notice, may be called by the President or the Chairman of the Board of Directors and shall be called by the President or the Chairman of the Board of Directors at the request in writing of a majority of the Directors or of the holders of a majority or more of the issued and outstanding shares of capital stock of the Corporation entitled to be voted at the meeting. Such a request shall state the purpose or purposes of the proposed meeting.
(b) In order that the Corporation may determine the stockholders entitled to request a special meeting, the Board of Directors may fix a record date to determine the stockholders entitled to make such a request (the Request Record Date). The Request Record Date shall not precede the date upon which the resolution fixing the Request Record Date is adopted by the Board of Directors and shall not be more than 10 days after the date upon which the resolution fixing the Request Record Date is adopted by the Board of Directors. Any stockholder of record seeking to have stockholders request a special meeting shall, by sending written notice to the Secretary of the Corporation by certified or registered mail, return receipt requested, request the Board of Directors to fix a Request Record Date. The Board of Directors
1
shall within 10 days after the date on which a valid request to fix a Request Record Date is received, adopt a resolution fixing the Request Record Date and shall make a public announcement of such Request Record Date. To be valid, such written request shall set forth the purpose or purposes for which the special meeting is to be held, shall be signed by one or more stockholders of record (or their duly authorized proxies or other representatives), shall bear the date of signature of each such stockholder (or proxy or other representative) and shall set forth all information relating to such stockholder that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the Exchange Act), and Rule 14a-11 thereunder.
(c) In order for a stockholder or stockholders to request a special meeting, a written request or requests for a special meeting by the holders of record as of the Request Record Date of at least a majority of the issued and outstanding shares of stock that would be entitled to vote at such a meeting must be delivered to the Corporation. To be valid, each written request by a stockholder for a special meeting shall set forth the specific purpose or purposes for which the special meeting is to be held (which purpose or purposes shall be limited to the purpose or purposes set forth in the written request to set a Request Record Date received by the Corporation pursuant to paragraph (b) of this Section 3.02), shall be signed by one or more persons who as of the Request Record Date are stockholders of record (or their duly authorized proxies or other representatives), shall bear the date of signature of each such stockholder (or proxy or other representative), and shall set forth the name and address, as they appear in the Corporations books, of each stockholder signing such request and the class and number of shares of the Corporation which are owned of record and beneficially by each such stockholder, shall be sent to the Secretary by certified or registered mail, return receipt requested, and shall be received by the Secretary within 60 days after the Request Record Date.
(d) The Corporation shall not be required to call a special meeting upon stockholder request unless, in addition to the documents required by paragraph (c) of this Section 3.02, the Secretary receives a written agreement signed by each Soliciting Stockholder (as defined below), pursuant to which each Soliciting Stockholder, jointly and severally, agrees to pay the Corporations costs of holding the special meeting, including the costs of preparing and mailing proxy materials for the Corporations own solicitation, provided that if each of the resolutions introduced by any Soliciting Stockholder at such meeting is adopted, and each of the individuals nominated by or on behalf of any Soliciting Stockholder for election as a director at such meeting is elected, then the Soliciting Stockholders shall not be required to pay such costs. For purposes of this paragraph (d), the following terms shall have the meanings set forth below:
(1) Affiliate of any Person (as defined herein) shall mean any Person controlling, controlled by or under common control with such first Person.
(2) Participant shall have the meaning assigned to such term in Rule 14a-11 promulgated under the Exchange Act.
2
(3) Person shall mean any individual, firm, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization or other entity.
(4) Proxy shall have the meaning assigned to such term in Rule 14a-1 promulgated under the Exchange Act.
(5) Solicitation shall have the meaning assigned to such term in Rule 14a-11 promulgated under the Exchange Act.
(6) Soliciting Stockholder shall mean, with respect to any special meeting requested by a stockholder or stockholders, any of the following Persons:
(i) if the number of stockholders signing the request or requests of meeting delivered to the Corporation pursuant to paragraph (c) of this Section 3.02 is 10 or fewer, each stockholder signing any such request;
(ii) if the number of stockholders signing the request or requests of meeting delivered to the Corporation pursuant to paragraph (c) of this Section 3.02 is more than 10, each Person who either (I) was a Participant in any Solicitation of such request or requests or (II) at the time of the delivery to the Corporation of the documents described in paragraph (c) of this Section 3.02 had engaged or intended to engage in any Solicitation of Proxies for use at such special meeting (other than a Solicitation of Proxies on behalf of the Corporation); or
(iii) any Affiliate of a Soliciting Stockholder, if a majority of the directors then in office determine that such Affiliate should be required to sign the written notice described in paragraph (c) of this Section 3.02 and/or the written agreement described in this paragraph (d) in order to prevent the purposes of this Section 3.02 from being evaded.
(e) Except as provided in the following sentence, any special meeting shall be held at such hour and day as may be designated by whichever of the Chairman or the Secretary shall have called such meeting. In the case of any special meeting called by the Chairman or the Secretary upon the request of stockholders (a Request Special Meeting), such meeting shall be held at such hour and day as may be designated by the Board of Directors; provided, however, that the date of any Request Special Meeting shall be not more than 60 days after the Meeting Record Date (as defined in Section 3.05); and provided further that in the event that the directors then in office fail to designate an hour and date for a Request Special Meeting within 10 days after the date that valid written requests for such meeting by the holders of record as of the Request Record Date of at least a majority of the issued and outstanding shares of stock that would be entitled to vote at such meeting are delivered to the Corporation (the Delivery Date), then such meeting shall be held at 2:00 p.m. local time on the 90th day after the Delivery Date or, if such 90th day is not a Business Day (as defined below), on the first preceding Business Day. In fixing a meeting date for any special meeting, the Chairman, the Secretary or the Board of Directors may consider such factors as he or it deems relevant within the good faith exercise of his or its business judgment, including, without limitation, the nature of the action proposed to
3
be taken, the facts and circumstances surrounding any request of such meeting, and any plan of the Board of Directors to call an annual meeting or a special meeting for the conduct of related business.
(f) The Corporation may engage regionally or nationally recognized independent inspectors of elections to act as an agent of the Corporation for the purpose of promptly performing a ministerial review of the validity of any purported written request or requests for a special meeting received by the Secretary. For the purpose of permitting the inspectors to perform such review, no purported request shall be deemed to have been delivered to the Corporation until the earlier of (i) 5 Business Days following receipt by the Secretary of such purported request and (ii) such date as the independent inspectors certify to the Corporation that the valid requests received by the Secretary represent at least a majority of the issued and outstanding shares of stock that would be entitled to vote at such meeting. Nothing contained in this paragraph (f) shall in any way be construed to suggest or imply that the Board of Directors or any stockholder shall not be entitled to contest the validity of any request, whether during or after such 5 Business Day period, or to take any other action (including, without limitation, the commencement, prosecution or defense of any litigation with respect thereto, and the seeking of injunctive relief in such litigation).
(g) For purposes of these Bylaws, Business Day shall mean any day other than a Saturday, a Sunday or a day on which banking institutions in the State of North Carolina are authorized or obligated by law or executive order to close.
Section 3.03. Place of Meeting . Meetings of stockholders possessing voting shares shall be held at such place, within or without the State of Maryland, as the Board of Directors designates.
Section 3.04. Notice of Stockholder Meetings .
(a) Required Notice . Written notice stating the place, day and hour of any annual or special stockholder meeting shall be delivered not less than 10 nor more than 90 days before the date of the meeting, either personally or by mail, by or at the direction of the President, the Board of Directors, or other persons calling the meeting, to each stockholder of record entitled to vote at such meeting and to any other stockholder entitled by the Maryland Corporations and Associations Article or the Articles of Incorporation to receive notice of the meeting. Notice shall be deemed to be effective at the earlier of: (1) when deposited in the United States mail, addressed to the stockholder at his address as it appears on the stock transfer books of the Corporation, with postage thereon prepaid; (2) on the date shown on the return receipt if sent by registered or certified mail, return receipt requested, and the receipt is signed by or on behalf of the addressee; or (3) when received.
(b) Adjourned Meeting . If any stockholder meeting is adjourned to a different date, time, or place, notice need not be given of the new date, time, and place, if the new date, time, and place is not more than 120 days after the original record date and is announced at the meeting before adjournment. But if a new record date for the adjourned meeting is or must be fixed, then notice must be given pursuant to the requirements of paragraph (a) of this Section 3.04, to those persons who are stockholders as of the new record date.
4
(c) Waiver of Notice . A stockholder may waive notice of the meeting (or any notice required by the Maryland Corporations and Associations Article, Articles of Incorporation, or these Bylaws), by a writing signed by the stockholder entitled to the notice, which is delivered to the Corporation (either before or after the date and time stated in the notice) for inclusion in the minutes or filing with the corporate records. A stockholders attendance at a meeting:
(1) waives objection to lack of notice or defective notice of the meeting unless the stockholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting; or
(2) waives objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the stockholder objects to considering the matter when it is presented.
(d) Contents of Notice . The notice of each special stockholder meeting shall include a description of the purpose or purposes for which the meeting is called. Except as provided in this Section 3.04(d), or as provided in the Corporations Articles of Incorporation, or otherwise in the Maryland Corporations and Associations Article, the notice of an annual stockholder meeting need not include a description of the purpose or purposes for which the meeting is called.
Section 3.05. Fixing of Record Date; List of Stockholders . The Board of Directors may fix, in advance, a record date not less than 10 nor more than 90 days before the date then fixed for the holding of any meeting of the stockholders. The record date shall not be prior to the close of business on the day the record date is fixed. All persons who were holders of record of shares at such time, and no others, shall be entitled to vote at such meeting and any adjournment thereof. At each meeting of stockholders, a true, full and complete list of all stockholders entitled to vote at each meeting, showing the number and class of shares held by each and certified by the transfer agent for such class or by the Secretary, shall be furnished by the Secretary. In the case of any Request Special Meeting, (i) the record date for such meeting (the Meeting Record Date) shall be not later than the 30th day after the Delivery Date and (ii) if the Board of Directors fails to fix the Meeting Record Date within 30 days after the Delivery Date, then the close of business on such 30th day shall be the Meeting Record Date.
Section 3.06. Quorum . The holders, present in person or represented by proxy, of a majority of the issued and outstanding shares of capital stock entitled to be voted at a meeting shall constitute a quorum for the transaction of business at the meeting. If less than a quorum is present, the Chairman of the meeting or the holders of a majority of such shares whose holders are so present or represented may from time to time adjourn the meeting to another place, date, or hour until a quorum is present, whereupon the meeting may be held, as adjourned, without further notice except as required by law or by Section 3.04.
Section 3.07. Voting . When a quorum is present at a meeting of the stockholders, the vote of the holders of a majority of the shares of capital stock entitled to be voted whose holders are present in person or represented by proxy shall decide any question brought before the meeting, unless the question is one upon which, by express provision of law or of the Articles of
5
Incorporation or of these Bylaws, a different vote is required. Unless otherwise provided in the Articles of Incorporation, each stockholder at a meeting of the stockholders shall be entitled to one vote in person or by proxy for each share of capital stock entitled to be voted held by such stockholder. At a meeting of the stockholders, all questions relating to the qualifications of voters, the validity of proxies, and the acceptance or rejection of votes shall be decided by the presiding officer of the meeting.
Section 3.08. Presiding Officer of Meetings . The Chairman of the Board of Directors, or in his absence the Chief Executive Officer, or in both their absence the President, shall preside at all meetings of the stockholders. In the absence of the Chairman of the Board, the Chief Executive Officer and the President, the presiding officer shall be elected by vote of the holders of a majority of the shares of capital stock entitled to be voted whose holders are present in person or represented by proxy at the meeting.
Section 3.09. Secretary of Meetings . The Secretary of the Corporation shall act as secretary of all meetings of the stockholders. In the absence of the Secretary, the presiding officer of the meeting shall appoint any other person to act as secretary of the meeting.
Section 3.10. Proxies . At all meetings of stockholders, a stockholder may vote in person or vote by proxy that is executed in writing by the stockholder or that is executed by his duly authorized attorney-in-fact. Such proxy shall be filed with the Secretary of the Corporation or other persons authorized to tabulate votes before or at the time of the meeting. No proxy shall be valid after 11 months from the date of its execution unless otherwise provided in the proxy.
Section 3.11. Stockholder Proposals . For any stockholder proposal to be presented in connection with an annual meeting of stockholders of the Corporation, including any proposal relating to the nomination of a director to be elected to the Board of Directors of the Corporation, the stockholders must have given timely written notice thereof in writing to the Secretary of the Corporation. In connection with the annual meeting to be held in May 2006, in order for such notice to be timely, such notice must be received by the Corporation not less than 60 nor more than 90 days prior to May 16, 2006. Commencing in 2007, in order for such notice to be timely, such notice must be received by the Corporation not less than 60 nor more than 90 days prior to the anniversary of the previous years annual meeting.
Section 3.12 Action Without Meeting . Any action required or permitted to be taken at any meeting of the stockholders of the Corporation may be taken without a meeting if a written consent setting forth the action is signed by each stockholder entitled to vote on the matter and such written consent is filed with the minutes of proceedings of the stockholders.
ARTICLE IV
BOARD OF DIRECTORS
Section 4.01. Powers . The business and affairs of the Corporation shall be managed under the direction of the Board of Directors, which shall exercise all such powers of the Corporation and do all such lawful acts as are not by law or by the Articles of Incorporation or by these Bylaws directed or required to be exercised or done by the stockholders.
6
Section 4.02. Number; Election; Qualification; Term .
(a) The Board of Directors shall consist of three members or such number as determined from time to time by a majority of the Board of Directors but shall in no event be less than three nor more than fifteen. The term of office of a Director shall not be affected by any decrease in the authorized number of Directors.
(b) The Board of Directors shall initially consist of the persons named as the Directors of the Corporation by the incorporator in the Articles of Incorporation and any Directors selected in accordance with Section 4.03. Beginning with the annual meeting of stockholders in 1995, at the first meeting and at each subsequent annual meeting of the stockholders, the stockholders shall elect Directors as set forth in paragraph (d) below.
(c) Unless by the terms of the action pursuant to which he was elected any special condition or conditions must be fulfilled in order for him to be qualified, a person elected as a Director shall be deemed to be qualified (1) upon his receipt of notice of election and his indication of acceptance thereof or (2) upon the expiration of ten days after notice of election is given to him without his having given notice of inability or unwillingness to serve. Directors do not need to be residents of Maryland or stockholders of the Corporation.
(d) The Directors shall be classified, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as possible. One class shall serve for a term expiring at the annual meeting of stockholders to be held in 1995. Another class shall serve for a term expiring at the annual meeting of stockholders to be held in 1996. Another class shall serve for a term expiring at the annual meeting of stockholders to be held in 1997. Each class will hold office until its successors are elected and qualified. At each annual meeting of the stockholders of the Corporation, the successors of the class of Directors whose terms expire at that meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election.
Section 4.03. Vacancies . The stockholders may elect a successor to fill a vacancy on the Board of Directors that results from the removal of a director. Whenever between annual meetings of the stockholders any vacancy exists in the Board of Directors by reason of death, resignation, removal, or increase in the authorized number of Directors, or otherwise, it may be filled by vote of a majority of the Directors in office. A director elected by the Board of Directors to fill a vacancy shall serve until the next annual meeting of stockholders and until his or her successor is elected and qualifies.
Section 4.04. Place of Meetings . Any meeting of the Board of Directors may be held either within or without the State of Maryland.
Section 4.05. Annual Meeting . There shall be an annual meeting of the Board of Directors for the election of officers and the transaction of such other business as may be brought before the meeting. The annual meeting of the Board shall be held immediately following the annual meeting of the stockholders or any adjournment thereof, at the place where the annual meeting of the stockholders was held or at such other place as a majority of the Directors who
7
are then present determine. If the annual meeting is not so held, it shall be called and held in the manner provided herein for special meetings of the Board or conducted pursuant to Section 4.12.
Section 4.06. Regular Meetings . Regular meetings of the Board of Directors, other than the annual meeting, may be held at such times and places as the Board may have fixed by resolution.
Section 4.07. Special Meetings . Special meetings of the Board of Directors may be called by the Chairman of the Board or the President and shall be called on the written request of any Director.
Section 4.08. Notice of, and Waiver of Notice for, Special Director Meetings . Unless the Articles of Incorporation provide for a longer or shorter period, notice of any special director meeting shall be given at least two days previously thereto either orally or in writing. If notice is given in writing, notice of any director meeting shall be deemed to be effective at the earlier of: (1) when received; or (2) the date shown on the return receipt if sent by registered or certified mail, return receipt requested, and the receipt is signed by or on behalf of the Director. Any Director may waive notice of any meeting. Except as provided in the next sentence, the waiver must be in writing, signed by the Director entitled to the notice, and filed with the minutes or corporate records. The attendance of a Director at a meeting shall constitute a waiver of notice of such meeting, except where a Director attends a meeting for the express purpose of objecting to the transaction of any business and at the beginning of the meeting (or promptly upon his arrival) objects to holding the meeting or transacting business at the meeting, and does not thereafter vote for or assent to action taken at the meeting. Unless required by the Articles of Incorporation, neither the business to be transacted at, nor the purpose of, any special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting.
Section 4.09. Organization . Every meeting of the Board of Directors shall be presided over by the Chairman of the Board or in his absence by the Chief Executive Officer or in both their absence the President. In the absence of the Chairman of the Board, the Chief Executive Officer, and the President, a presiding officer shall be chosen by a majority of the Directors present. The Secretary of the Corporation shall act as secretary of the meeting. In his absence the presiding officer shall appoint another person to act as secretary of the meeting.
Section 4.10. Quorum . The presence of a majority or more of the number of Directors fixed by Section 4.02(a) shall be necessary to constitute a quorum for the transaction of business at a meeting of the Board of Directors. If less than a quorum is present, a majority of the Directors present may from time to time adjourn the meeting to another time or place until a quorum is present, whereupon the meeting may be held, as adjourned, without further notice.
Section 4.11. Vote . The act of a majority of the Directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by law, by the Articles of Incorporation, or by these Bylaws. Where a vote of the Directors present results in a tie, the action proposed shall not constitute an act of the Board of Directors.
8
Section 4.12. Action in Lieu of a Meeting . Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if a unanimous written consent of the members of the Board or committee, as the case may be, is signed by each member of the Board or committee, and the writing or writings are filed with the minutes of the proceedings of the Board or committee.
Section 4.13. Conference Call Meeting . Members of the Board of Directors or of any committee thereof may participate in a meeting of the Board or committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.
Section 4.14. Removal of Director . Any Director shall be subject to removal as provided in the Articles of Incorporation.
Section 4.15. Chairman of the Board . The Board of Directors may choose a Chairman of the Board who shall, if present, preside at meetings of the Board and of the stockholders. The Chairman of the Board may be an officer of the Corporation elected pursuant to Article 6.
Section 4.16. Compensation . Unless otherwise provided in the Articles of Incorporation, each Director may receive compensation for services to the Corporation in his capacity as a Director in such manner and in such amounts as may be fixed from time to time pursuant to resolution of the Board of Directors, and expenses of attendance at each regular or special meeting of the Board of Directors. Officers of the Corporation who are Directors will not be paid director fees.
ARTICLE V
COMMITTEES
Section 5.01. Committees of the Board . The Board of Directors may, by resolution passed by a majority of the Directors in office, establish one or more committees, each committee to consist of two or more of the Directors. The Board may designate one or more Directors as alternate members of any committee, who may replace any absent or disqualified member or members at any meeting of the committee. Any such committee, to the extent provided in the resolution of the Board, shall have and may exercise all the power and authority of the Board for direction and supervision of the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers that may require it. No such committee, however, shall have power or authority to (i) amend the Articles of Incorporation or the Bylaws, (ii) adopt an agreement of merger or consolidation, (iii) recommend to the stockholders the sale, lease, or exchange of all or substantially all of the Corporations property and assets, (iv) recommend to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or (v) declare a dividend or authorize the issuance of stock.
Section 5.02. Procedures; Minutes of Meetings . Each committee shall determine its rules with respect to notice, quorum, voting, and the taking of action, provided that such rules shall be consistent with law, the rules in these Bylaws applicable to the Board of Directors, and
9
the resolution of the Board establishing the committee. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required.
ARTICLE VI
OFFICERS
Section 6.01. General . The Board of Directors shall elect the officers of the Corporation, which shall include a Chief Executive Officer, a President, a Secretary, and a Treasurer, and such other officers as in the Boards opinion are desirable for the conduct of the business of the Corporation. Any two or more offices may be held by the same person except that the President shall not hold the office of Secretary. If specifically authorized by the Board of Directors, an officer may appoint one or more officers or assistant officers.
Section 6.02. Powers and Duties . Each of the officers of the Corporation shall, unless otherwise ordered by the Board of Directors, have such powers and duties as generally pertain to his respective office, as well as such powers and duties as from time to time may be conferred upon him by the Board.
Section 6.03. Term of Office, Removal and Vacancy . Each officer shall hold his office until his successor is elected and qualified or until his earlier resignation or removal and shall be subject to removal with or without cause at any time by the affirmative vote of a majority of the Directors in office. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors.
Section 6.04. Chief Executive Officer . The Chief Executive Officer shall be the principal executive officer of the Corporation and, subject to the control of the Board of Directors and with the President, shall in general supervise and control all of the business and affairs of the Corporation and perform all duties incident to the office of Chief Executive Officer and such other duties as may be prescribed by the Board of Directors from time to time. He shall, when present and in the absence of the Chairman of the Board, preside at all meetings of the stockholders and of the Board of Directors.
Section 6.05. President . The President, subject to the control of the Board of Directors and at the direction of and with the Chief Executive Officer, shall in general supervise and control all of the business and affairs of the Corporation. He shall, when present and in the absence of the Chairman of the Board and the Chief Executive Officer, preside at all meetings of the stockholders and the Board of Directors. He may sign, with the Secretary or any other proper officer of the Corporation authorized by the Board of Directors, certificates for shares of the Corporation and deeds, mortgages, bonds, contracts, or other instruments that the Board of Directors has authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors or by these Bylaws to some other officer or agent of the Corporation, or shall be required by law to be otherwise signed or executed; and in general shall perform all duties incident to the office of President and such other duties as may be prescribed by the Chief Executive Officer or the Board of Directors from time to time.
Section 6.06. Secretary . The Secretary shall: (a) keep the minutes of the proceedings of the stockholders and of the Board of Directors in one or more books provided for that purpose;
10
(b) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law; (c) be custodian of the corporate records and of any seal of the Corporation and if there is a seal of the Corporation, see that it is affixed to all documents executed by the Corporation that require it; (d) when requested or required, authenticate any records of the Corporation; (e) keep a register of the post office address of each stockholder that shall be furnished to the Secretary by such stockholder; (f) sign with the President, or a Vice-President, certificates for shares of the Corporation, the issuance of which shall have been authorized by resolution of the Board of Directors; (g) have general charge of the stock transfer books of the Corporation; and (h) in general perform all duties incident to the Office of the Secretary and such other duties as from time to time may be assigned to him by the Chief Executive Officer, the President or the Board of Directors.
Section 6.07. Treasurer . The Treasurer shall: (a) have charge and custody of and be responsible for all funds and securities of the Corporation; (b) receive and give receipts for moneys due and payable to the Corporation from any source whatsoever, and deposit all such moneys in the name of the Corporation in such banks, trust companies, or other depositaries as shall be selected by the Board of Directors; and (c) in general perform all of the duties as from time to time may be assigned to him by the Chief Executive Officer, the President or the Board of Directors. If required by the Board of Directors, the Treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the Board of Directors shall determine.
Section 6.08. Compensation . The compensation of the officers shall be fixed from time to time by the Board of Directors.
ARTICLE VII
CAPITAL STOCK
Section 7.01. Certificates of Stock . Each stockholder is entitled to a certificate which represents and certifies the shares of capital stock he or she holds in the Corporation. A certificate may not be issued until the stock represented by it is fully paid. Certificates for shares of capital stock of the Corporation shall be in such form as the Board of Directors may from time to time prescribe and shall be signed by the President or a Vice-President and by the Secretary or the Treasurer. Any or each of the signatures on a stock certificate, including that of any transfer agent or registrar, may be a facsimile. If any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent, or registrar before the certificate is issued, the certificate may be issued by the Corporation with the same effect as if the officer, transfer agent, or registrar were the officer, transfer agent, or registrar at the date of issuance.
Section 7.02. Transfer of Stock . Subject to restrictions provided in the Articles of Incorporation, shares of stock of the Corporation shall be transferable on the books of the Corporation only by the holder of record thereof, in person or by duly authorized attorney, upon surrender and cancellation of a certificate or certificates for a like number of shares, with an assignment or power of transfer endorsed thereon or delivered therewith, duly executed, and with
11
such proof of the authenticity of the signature and of authority to transfer, and of payment of transfer taxes, as the Corporation or its agents may require.
Section 7.03. Ownership of Stock . The Corporation shall be entitled to treat the holder of record of any share or shares of stock as the owner thereof in fact and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it has express or other notice thereof, except as otherwise expressly provided by law.
Section 7.04. Lost, Stolen, or Destroyed Certificates . In case any certificate for stock of the Corporation is lost, stolen, or destroyed, the Corporation may require such proof of the fact and such indemnity to be given to it, to its transfer agent, or to its registrar, if any, as deemed necessary or advisable by it.
Section 7.05. Control Shares . Pursuant to Section 3-702(b) of the Maryland Corporations and Associations Article, the terms of Subtitle 7 of Title 3 of such law (the Control Share Statute) shall be inapplicable to any acquisition of control shares, as defined in the Control Share Statute.
ARTICLE VIII
MISCELLANEOUS
Section 8.01. Corporate Seal . The Board of Directors shall provide a suitable seal, bearing the name of the Corporation, which shall be in the charge of the Secretary. The Board of Directors may authorize one or more duplicate seals and provide for the custody thereof. If the Corporation is required to place its corporate seal to a document, it is sufficient to meet the requirement of any law, rule or regulation relating to a corporate seal to place the word Seal adjacent to the signature of the person authorized to sign the document on behalf of the Corporation.
Section 8.02. Fiscal Year . The Board of Directors shall have power to fix, and from time to time to change, the fiscal year of the Corporation. The fiscal year of the Corporation initially shall be the calendar year.
Section 8.03. Stock Ledger . The Corporation shall maintain in its principal office a stock ledger which contains: (1) the name and address of each stockholder; and (2) the number of shares of stock of each class that the stockholder holds. The stock ledger shall at all times be conclusive evidence of the ownership of all outstanding shares of stock of the Corporation, and the registered holder shown on such ledger shall be the stockholder with respect to the shares allocated to such registered holder thereon for purposes of these Bylaws and for all other purposes. The stock ledger may be in written form or in any other form which can be converted within a reasonable time into written form for visual inspection. There shall be made available upon request of any stockholder, in accordance with the General Laws of the State of Maryland, a record containing the number of shares of stock issued during a specified period not to exceed 12 months and the consideration received by the Corporation for each such share.
12
Section 8.04. Book and Records . The Corporation shall keep accurate and complete: (1) books and records of its accounts and transactions; and (2) minutes of the proceedings of its stockholders and Board of Directors and of any executive or other committee when exercising any of the powers of the Board of Directors. The books and records of the Corporation may be in written form or in any other form that can be converted within a reasonable time into written form for visual inspection. Minutes shall be recorded in written form but may be maintained in the form of a reproduction.
Section 8.05. Distributions . The Board of Directors may authorize, and the Corporation may make, distributions (including dividends on its outstanding shares) in the manner and upon the terms and conditions provided by applicable law and in the Articles of Incorporation.
ARTICLE IX
INDEMNIFICATION; TRANSACTIONS WITH INTERESTED PERSONS
Section 9.01. Procedure . Any indemnification, or payment of expenses in advance of the final disposition of any proceeding, shall be made promptly, and in any event within 60 days, upon the written request of the director or officer entitled to seek indemnification (the Indemnified Party). The right to indemnification and advances hereunder shall be enforceable by the Indemnified Party in any court of competent jurisdiction, if (i) the Corporation denies such request, in whole or in part, or (ii) no disposition thereof is made within 60 days. The Indemnified Partys costs and expenses incurred in connection with successfully establishing his right to indemnification, in whole or in part, in any such action shall also be reimbursed by the Corporation. It shall be a defense to any action for advance for expenses that (a) a determination has been made that the facts then known to those making the determination would preclude indemnification or (b) the Corporation has not received either (i) an undertaking as required by law to repay such advances in the event it shall ultimately be determined that the standard of conduct has not been met or (ii) a written affirmation by the Indemnified Party of such Indemnified Partys good faith belief that the standard of conduct necessary for indemnification by the Corporation has been met.
Section 9.02. Exclusivity, Etc. The indemnification and advance of expenses provided by the Articles of Incorporation and these bylaws (a) shall not be deemed exclusive of any other rights to which a person seeking indemnification or advance of expenses may be entitled under any law (common or statutory), or any agreement, vote of stockholders or disinterested directors or other provision that is consistent with law, both as to action in his official capacity and as to action in another capacity while holding office or while employed by or acting as agent for the Corporation, (b) shall continue in respect of all events occurring while a person was a director or officer after such person has ceased to be a director or officer, and (c) shall inure to the benefit of the estate, heirs, executors and administrators of such person. All rights to indemnification and advance of expenses under the Articles of the Corporation and hereunder shall be deemed to be a contract between the Corporation and each director or officer of the Corporation who serves or served in such capacity at any time while this bylaw is in effect. Nothing herein shall prevent the amendment of this bylaw, provided that no such amendment shall diminish the rights of any person hereunder with respect to events occurring or claims made before its adoption or as to claims made after its adoption in respect of events occurring before its adoption. Any repeal or
13
modification of this bylaw shall not in any way diminish any rights to indemnification or advance of expenses of such director or officer or the obligations of the Corporation arising hereunder with respect to events occurring, or claims made, while this bylaw or any provision hereof is in force.
Section 9.03. Transactions With Interested Persons . No contract or transaction between the Corporation and any of its Directors or officers, or between the Corporation and any other corporation, partnership, association, firm or other entity (Other Company) in which any of its Directors or officers is a director or officer or has a material financial interest, shall be entered into by the Corporation unless:
(a) the material facts as to the Directors or officers relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or a committee of the Board of Directors, and the Board of Directors or committee authorizes, approves or ratifies the contract or transaction by the affirmative vote of a majority of the disinterested Directors, even though the disinterested Directors constitute less than a quorum; or
(b) the material facts as to the Directors or officers relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is authorized, approved or ratified by a majority of the votes cast by the stockholders entitled to vote other than the votes of shares owned of record or beneficially by the interested Director, officer, corporation, firm or other entity.
Any contract or transaction authorized, approved or ratified in accordance with the foregoing shall not be void or voidable solely for the reason of the Directors or officers interest, or solely because the Director or officer is present at or participates in the meeting of the Board of Directors or committee thereof at which the contract or transaction is authorized, approved or ratified.
Section 9.04. Corporate Opportunity . Any Director or officer of the Corporation who simultaneously serves as a director, officer or employee of any Other Company shall refrain from communicating to such Other Company, and from using or otherwise acting on behalf of such Other Company, any information acquired as a result of his position as a Director or officer of the Corporation concerning any business opportunity under consideration by the Corporation for itself, Highwoods Realty Limited Partnership, or any direct or indirect subsidiary of either. If the Other Company has independently learned about a business opportunity also under consideration by the Corporation, and if such Director or officer has not participated in the consideration of the opportunity by the Corporation, then such Director or officer may participate in the consideration of that opportunity by such Other Company provided that such Director or officer abstains from all participation in the consideration of that opportunity by the Corporation unless and until such Other Company has concluded its consideration of such opportunity and determined not to pursue such opportunity further. If such Director or officer has participated or wishes to participate in the consideration of such an opportunity by the Corporation, then such Director or officer shall abstain from all participation in the consideration of the opportunity by the Other Company unless and until the Corporation has concluded its consideration of such opportunity and determined not to pursue the opportunity further. In connection with the foregoing, each such Director and officer shall be afforded a reasonable opportunity to make a
14
judgment whether he will participate with the Corporation in the consideration of any such business opportunity, including without limitation, a reasonable time to determine whether any Other Company that such Director or officer serves has learned about any such business opportunity; provided, however, that in making such judgment such Director or officer shall not have taken (or omitted to take) any action inconsistent with the first sentence of this Section 9.04. No such Director or officer shall be deemed to have participated in the consideration of any business opportunity by the Corporation unless and until such Director or officer has been afforded a reasonable opportunity to make such judgment and decision. The provisions of this Section 9.04 are in addition to any restrictions imposed by law or otherwise.
ARTICLE X
NOTICES
Section 10.01. Notice . Whenever notice is required or permitted by these Bylaws to be given to any person, it may be either (a) oral and communicated in person, by telephone, or by radio, television, or other form of voice communication, effective upon receipt by the person, or (b) in writing and communicated by being delivered by hand, by mail, or by telegraph, teletype, or other form of record communication, effective upon receipt by the person or, if earlier, upon delivery at his address as registered in the records of the Corporation for purposes of notice-giving (notice address); provided that (1) notice of a meeting of the stockholders shall be in writing, and (2) a written notice, if mailed postpaid and correctly addressed to a person at his notice address, shall be effective three business days after its deposit by the sender in the United States mail.
Section 10.02. Waiver . Whenever any notice is required to be given under the provisions of law or of the Articles of Incorporation or of these Bylaws, a waiver thereof in writing, signed by the person or persons entitled to the notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Attendance at a meeting for which notice is required shall be deemed waiver of such notice unless such attendance is for the purpose of objecting, at the beginning of the meeting, to the transaction of business on the ground that the meeting is not lawfully called or convened.
ARTICLE XI
AMENDMENT
These Bylaws may be amended or repealed, or new Bylaws may be adopted, by the stockholders at any meeting of the stockholders, or by the Board of Directors at any meeting of the Board of Directors or pursuant to Section 4.12 of these Bylaws; provided that the Board of Directors may not amend or repeal this Article, Article 9.03 or Article 9.04 or any part of these Bylaws that has been adopted by the stockholders subject to the express condition that it may not be amended or repealed except by the stockholders.
15
Exhibit 10.1
SECOND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
HIGHWOODS REALTY LIMITED PARTNERSHIP
TABLE OF CONTENTS
ARTICLE 1 |
DEFINED TERMS |
1 | ||
ARTICLE 2 |
ORGANIZATIONAL MATTERS |
13 | ||
Section 2.1 |
Organization and Continuation |
13 | ||
Section 2.2 |
Name |
13 | ||
Section 2.3 |
Registered Office and Agent; Principal Office |
13 | ||
Section 2.4 |
Power of Attorney |
14 | ||
Section 2.5 |
Term |
15 | ||
ARTICLE 3 |
PURPOSE |
15 | ||
Section 3.1 |
Purpose and Business |
15 | ||
Section 3.2 |
Powers |
15 | ||
ARTICLE 4 |
CAPITAL CONTRIBUTIONS |
16 | ||
Section 4.1 |
Capital Contributions of the Partners |
16 | ||
Section 4.2 |
Issuances of Additional Partnership Interests |
16 | ||
Section 4.3 |
Contribution of Proceeds of Issuance of REIT Shares |
18 | ||
Section 4.4 |
No Preemptive Rights |
18 | ||
Section 4.5 |
Eakin & Smith Acquisition |
18 | ||
Section 4.6 |
The Crocker Merger |
18 | ||
ARTICLE 5 |
DISTRIBUTIONS |
19 | ||
Section 5.1 |
Requirement and Characterization of Distributions |
19 | ||
Section 5.2 |
Amounts Withheld |
19 | ||
Section 5.3 |
Distributions Upon Liquidation |
20 | ||
ARTICLE 6 |
ALLOCATIONS |
20 | ||
Section 6.1 |
Allocations For Capital Account Purposes |
20 | ||
Section 6.2 |
Other Allocation Rules |
20 | ||
ARTICLE 7 |
MANAGEMENT AND OPERATIONS OF BUSINESS |
21 | ||
Section 7.1 |
Management |
21 | ||
Section 7.2 |
Certificate of Limited Partnership |
24 | ||
Section 7.3 |
Restrictions on General Partner Authority |
25 | ||
Section 7.4 |
Reimbursement of the General Partner |
25 | ||
Section 7.5 |
Outside Activities of the General Partner |
26 | ||
Section 7.6 |
Contracts with Affiliates |
27 | ||
Section 7.7 |
Indemnification |
27 | ||
Section 7.8 |
Liability of the General Partner |
30 | ||
Section 7.9 |
Other Matters Concerning the General Partner |
30 | ||
Section 7.10 |
Title to Partnership Assets |
31 | ||
Section 7.11 |
Reliance by Third Parties |
31 | ||
ARTICLE 8 |
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS |
32 | ||
Section 8.1 |
Limitation of Liability |
32 | ||
Section 8.2 |
Management of Business |
32 | ||
Section 8.3 |
Outside Activities of Limited Partners |
32 | ||
Section 8.4 |
Return of Capital |
33 |
i
Section 8.5 |
Rights of Limited Partners Relating to the Partnership |
33 | ||
Section 8.6 |
Redemption Right |
34 | ||
ARTICLE 9 |
BOOKS, RECORDS, ACCOUNTING AND REPORTS |
35 | ||
Section 9.1 |
Records and Accounting |
35 | ||
Section 9.2 |
Partnership Year |
36 | ||
Section 9.3 |
Reports |
36 | ||
ARTICLE 10 |
TAX MATTERS |
36 | ||
Section 10.1 |
Preparation of Tax Returns |
36 | ||
Section 10.2 |
Tax Elections |
37 | ||
Section 10.3 |
Tax Matters Partner |
37 | ||
Section 10.4 |
Organizational Expenses |
38 | ||
Section 10.5 |
Withholding |
38 | ||
ARTICLE 11 |
TRANSFERS AND WITHDRAWALS |
39 | ||
Section 11.1 |
Transfer |
39 | ||
Section 11.2 |
Transfer of General Partners Partnership Interests |
40 | ||
Section 11.3 |
Limited Partners Rights to Transfer |
40 | ||
Section 11.4 |
Substituted Limited Partners |
41 | ||
Section 11.5 |
Assignees |
41 | ||
Section 11.6 |
General Provisions |
42 | ||
ARTICLE 12 |
ADMISSION OF PARTNERS |
42 | ||
Section 12.1 |
Admission of Successor General Partner |
42 | ||
Section 12.2 |
Admission of Additional Limited Partners |
43 | ||
Section 12.3 |
Amendment of Agreement and Certificate of Limited Partnership |
43 | ||
ARTICLE 13 |
DISSOLUTION, LIQUIDATION AND TERMINATION |
44 | ||
Section 13.1 |
Dissolution |
44 | ||
Section 13.2 |
Winding Up |
45 | ||
Section 13.3 |
Negative Capital Accounts |
46 | ||
Section 13.4 |
Deemed Distribution and Recontribution |
46 | ||
Section 13.5 |
Rights of Limited Partners |
47 | ||
Section 13.6 |
Notice of Dissolution |
47 | ||
Section 13.7 |
Termination of Partnership and Cancellation of Certificate of Limited Partnership |
47 | ||
Section 13.8 |
Reasonable Time for Winding-Up |
47 | ||
Section 13.9 |
Waiver of Partition |
47 | ||
ARTICLE 14 |
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS |
47 | ||
Section 14.1 |
Amendments |
47 | ||
Section 14.2 |
Meetings of the Partners |
49 | ||
ARTICLE 15 |
GENERAL PROVISIONS |
50 | ||
Section 15.1 |
Addresses and Notice |
50 | ||
Section 15.2 |
Titles and Captions |
50 | ||
Section 15.3 |
Pronouns and Plurals |
50 | ||
Section 15.4 |
Further Action |
50 | ||
Section 15.5 |
Binding Effect |
51 | ||
Section 15.6 |
Creditors |
51 |
ii
Section 15.7 |
Waiver |
51 | ||
Section 15.8 |
Counterparts |
51 | ||
Section 15.9 |
Applicable Law |
51 | ||
Section 15.10 |
Invalidity of Provisions |
51 | ||
Section 15.11 |
Entire Agreement |
51 | ||
ARTICLE 16 |
CONSOLIDATION, MERGER OR SALE OF ASSETS OF THE GENERAL PARTNER |
52 | ||
Section 16.1 |
Triggering Events |
52 | ||
Section 16.2 |
From and After the Occurrence of a Triggering Event |
52 | ||
Section 16.3 |
Additional Issuer Covenants |
57 | ||
Section 16.4 |
Application to Later Transactions |
58 | ||
Section 16.5 |
Waivers and Amendments |
58 | ||
EXHIBIT B |
CAPITAL ACCOUNT MAINTENANCE |
1 | ||
EXHIBIT C |
SPECIAL ALLOCATION RULES |
1 | ||
EXHIBIT D |
VALUE OF CONTRIBUTED PROPERTY |
1 | ||
EXHIBIT E |
NOTICE OF REDEMPTION |
1 | ||
EXHIBIT F |
INDEMNIFICATION UNDER SECTION 7.7(I) |
1 | ||
EXHIBIT G |
CLASS B UNITS |
1 | ||
EXHIBIT H |
DESIGNATION OF THE VOTING POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS AND QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF THE SERIES A PREFERRED PARTNERSHIP UNITS | 1 | ||
EXHIBIT I |
DESIGNATION OF THE VOTING POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS AND QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF THE SERIES B PREFERRED PARTNERSHIP UNITS | 1 | ||
EXHIBIT J |
DESIGNATION OF THE VOTING POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS AND QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF THE SERIES D PREFERRED PARTNERSHIP UNITS | 1 |
iii
SECOND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
HIGHWOODS REALTY LIMITED PARTNERSHIP
THIS SECOND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF HIGHWOODS REALTY LIMITED PARTNERSHIP (the Agreement), dated as of January 1, 2000, integrates into one document (i) the First Amended and Restated Agreement of Limited Partnership, dated as of June 14, 1994, by and among Highwoods Properties, Inc., a Maryland corporation, as the General Partner, and the Persons whose names were set forth on Exhibit A thereto, as the Limited Partners, and (ii) all prior amendments thereto.
ARTICLE 1
DEFINED TERMS
The following definitions shall be for all purposes, unless otherwise clearly indicated to the contrary, applied to the terms used in this Agreement.
Act means the North Carolina Revised Uniform Limited Partnership Act, as it may be amended from time to time, and any successor to such statute.
Additional Limited Partner means a Person admitted to the Partnership as a Limited Partner pursuant to Section 12.2 hereof and who is shown as such on the books and records of the Partnership.
Adjusted Capital Account means the Capital Account maintained for each Partner as of the end of each Partnership Year (i) increased by any amounts which such Partner is obligated to restore pursuant to any provision of this Agreement or is deemed to be obligated to restore pursuant to the penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), and (ii) decreased by the items described in Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5), and (6). The foregoing definition of Adjusted Capital Account is intended to comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
Adjusted Capital Account Deficit means, with respect to any Partner, the deficit balance, if any, in such Partners Adjusted Capital Account as of the end of the relevant Partnership Year.
Adjusted Property means any property the Carrying Value of which has been adjusted pursuant to Exhibit B hereof. Once an Adjusted Property is deemed distributed by, and recontributed to, the Partnership for federal income tax purposes upon a termination thereof pursuant to Section 708 of the Code, such property shall thereafter constitute a Contributed Property until the Carrying Value of such property is further adjusted pursuant to Exhibit B hereof.
1
Affiliate means, with respect to any Person, (i) any Person directly or indirectly controlling, controlled by or under common control with such Person, (ii) any Person owning or controlling ten percent (10%) or more of the outstanding voting interests of such Person, (iii) any Person of which such Person owns or controls ten percent (10%) or more of the voting interests, or (iv) any officer, director, general partner or trustee of such Person or of any Person referred to in clauses (i), (ii), (iii) above.
Agreed Value means (i) in the case of any Contributed Property set forth in Exhibit D and as of the time of its contribution to the Partnership, the Agreed Value of such property as set forth in Exhibit D , which value shall reflect any liabilities either assumed by the Partnership upon such contribution or to which such property is subject when contributed, (ii) in the case of any Contributed Property not set forth in Exhibit D and as of the time of its contribution to the Partnership, the 704(c) Value of such property, reduced by any liabilities either assumed by the Partnership upon such contribution or to which such property is subject when contributed, and (iii) in the case of any property distributed to a Partner by the Partnership, the Partnerships Carrying Value of such property at the time such property is distributed, reduced by any indebtedness either assumed by such Partner upon such distribution or to which such property is subject at the time of distribution as determined under Section 752 of the Code and the Regulations thereunder.
Agreement means this Second Restated Agreement of Limited Partnership, as it may be amended, supplemented or restated from time to time.
Articles of Incorporation means the Amended and Restated Articles of Incorporation of the General Partner filed in the State of Maryland on June 10, 1994, and amended or restated from time to time.
Assignee means a Person to whom one or more Partnership Units have been transferred in a manner permitted under this Agreement, but who has not become a Substituted Limited Partner, and who has the rights set forth in Section 11.5.
Available Cash means, with respect to any period for which such calculation is being made, (i) the sum of:
(a) the Partnerships Net Income or Net Loss (as the case may be) for such period;
(b) Depreciation and all other noncash charges deducted in determining Net Income or Net Loss for such period;
(c) the amount of any reduction in the reserves of the Partnership referred to in clause (ii)(f) below (including, without limitation, reductions resulting because the General Partner determines such amounts are no longer necessary);
2
(d) the excess of proceeds from the sale, exchange, disposition, or refinancing of Partnership property for such period over the gain, if any, recognized from such sale, exchange, disposition, or refinancing during such period (excluding Terminating Capital Transactions); and
(e) all other cash received by the Partnership for such period that was not included in determining Net Income or Net Loss for such period;
(ii) | less the sum of: |
(a) all principal debt payments made by the Partnership during such period;
(b) capital expenditures made by the Partnership during such period;
(c) investments in any entity (including loans made thereto) to the extent that such investments are not otherwise described in clause (ii)(a) or (ii)(b);
(d) all other expenditures and payments not deducted in determining Net Income or Net Loss for such period;
(e) any amount included in determining Net Income or Net Loss for such period that was not received by the Partnership during such period;
(f) the amount of any increase in reserves during such period which the General Partner determines to be necessary or appropriate in its sole and absolute discretion;
(g) the amount of any working capital accounts and other cash or similar balances which the General Partner determines to be necessary or appropriate, in its sole and absolute discretion; and
(h) the amount which is not available for distribution due to regulatory, legal or other restrictions.
Notwithstanding the foregoing, Available Cash shall not include any cash received or reductions in reserves, or take into account any disbursements made or reserves established, after commencement of the dissolution and liquidation of the Partnership.
Book-Tax Disparities means, with respect to any item of Contributed Property or Adjusted Property, as of the date of any determination, the difference between the Carrying Value of such Contributed Property or Adjusted Property and the adjusted basis thereof for federal income tax purposes as of such date. A Partners share of the Partnerships Book-Tax Disparities in all of its Contributed Property and Adjusted Property will be reflected by the difference between such Partners Capital Account balance as maintained pursuant to Exhibit B and the hypothetical balance of such Partners Capital Account computed as if it had been maintained strictly in accordance with federal income tax accounting principles.
3
Business Day means any day except a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by law to close.
Capital Account means the Capital Account maintained for a Partner pursuant to Exhibit B hereof.
Capital Contribution means, with respect to any Partner, any cash, cash equivalents or the Agreed Value of Contributed Property which such Partner contributes or is deemed to contribute to the Partnership pursuant to Sections 4.1, 4.2, or 4.3 hereof.
Carrying Value means (i) with respect to a Contributed Property or Adjusted Property, the 704(c) Value of such property, reduced (but not below zero) by all Depreciation with respect to such Property charged to the Partners Capital Accounts following the contribution of or adjustment with respect to such Property, and (ii) with respect to any other Partnership property, the adjusted basis of such property for federal income tax purposes, all as of the time of determination. The Carrying Value of any property shall be adjusted from time to time in accordance with Exhibit B hereof, and to reflect changes, additions or other adjustments to the Carrying Value for dispositions and acquisitions of Partnership properties, as deemed appropriate by the General Partner.
Cash Amount means an amount of cash per Partnership Unit equal to the Value on the Valuation Date of the REIT Shares Amount.
Certificate means the Certificate of Limited Partnership relating to the Partnership filed in the office of the North Carolina Secretary of State, as amended from time to time in accordance with the terms hereof and the Act.
Class A Unit means a Partnership Unit other than a Class B Unit or any other Partnership Unit that is specifically designated by the General Partner pursuant to Section 4.2 as being of another class of Partnership Units.
Class B Units means a Partnership Unit with such designations, preferences, rights, powers and duties as are described in Exhibit G .
Code means the Internal Revenue Code of 1986, as amended and in effect from time to time, as interpreted by the applicable regulations thereunder. Any reference herein to a specific section or sections of the Code shall be deemed to include a reference to any corresponding provision of future law.
Common Partnership Unit means a Partnership Unit that is not a Preferred Partnership Unit.
4
Consent means the consent or approval of a proposed action by a Partner given in accordance with Section 14.2 hereof.
Contributed Property means each property or other asset, in such form as may be permitted by the Act, but excluding cash, contributed or deemed contributed to the Partnership (including deemed contributions to the Partnership on termination and reconstitution thereof pursuant to Section 708 of the Code). Once the Carrying Value of a Contributed Property is adjusted pursuant to Exhibit B hereof, such property shall no longer constitute a Contributed Property for purposes of Exhibit B hereof, but shall be deemed an Adjusted Property for such purposes.
Conversion Factor means 1.0, provided that in the event that the General Partner (i) declares or pays a dividend on its outstanding REIT Shares in REIT Shares or makes a distribution to all holders of its outstanding REIT Share in REIT Shares; (ii) subdivides its outstanding REIT Shares; or (iii) combines its outstanding REIT Shares into a smaller number of REIT Shares, the Conversion Factor shall be adjusted by multiplying the Conversion Factor by a fraction, the numerator of which shall be the number of REIT Shares issued and outstanding on the record date for such dividend, distribution, subdivision or combination assuming for such purpose that such dividend, distribution, subdivision or combination has occurred as of such time, and the denominator of which shall be the actual number of REIT Shares (determined without the above assumption) issued and outstanding on the record date for such dividend, distribution, subdivision or combination. Any adjustment to the Conversion Factor shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event.
Depreciation means, for each Partnership Year an amount equal to the federal income tax depreciation, amortization, or other cost recovery deduction allowable with respect to an asset for such year, except that if the Carrying Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such year or other period, Depreciation shall be an amount which bears the same ratio to such beginning Carrying Value as the federal income tax depreciation, amortization, or other cost recovery deduction for such year bears to such beginning adjusted tax basis; provided , however, that if the federal income tax depreciation, amortization, or other cost recovery deduction for such year is zero, Depreciation shall be determined with reference to such beginning Carrying Value using any reasonable method selected by the General Partner.
Dissolution Event has the meaning set forth in Section 13.1.
Effective Date means the date of closing of the initial public offering of REIT Shares pursuant to that certain purchase agreement among the General Partner and Merrill Lynch & Co., Prudential Securities Incorporated, The Robinson-Humphrey Company, Inc., and Scott & Stringfellow, Inc., as representatives of the underwriters.
General Partner means Highwoods Properties, Inc., in its capacity as the general partner of the Partnership, or its successors as general partner of the Partnership.
5
General Partner Interest means a Partnership Interest held by the General Partner that is a general partnership interest. A General Partner Interest may be expressed as a number of Partnership Units.
IRS means the Internal Revenue Service, which administers the internal revenue laws of the United States.
Immediate Family means, with respect to any natural Person, such natural Persons spouse and such natural Persons natural or adoptive parents, descendants, nephews, nieces, brothers, and sisters.
Incapacity or Incapacitated means, (i) as to any individual Partner, death, total physical disability or entry by a court of competent jurisdiction adjudicating him incompetent to manage his Person or his estate; (ii) as to any corporation which is a Partner, the filing of a certificate of dissolution, or its equivalent, for the corporation or the revocation of its charter; (iii) as to any partnership which is a Partner, the dissolution and commencement of winding up of the partnership; (iv) as to any estate which is a Partner, the distribution by the fiduciary of the estates entire interest in the Partnership; (v) as to any trustee of a trust which is a Partner, the termination of the trust (but not the substitution of a new trustee); or (vi) as to any Partner, the bankruptcy of such Partner. For purposes of this definition, bankruptcy of a Partner shall be deemed to have occurred when (a) the Partner commences a voluntary proceeding seeking liquidation, reorganization or other relief under any bankruptcy, insolvency or other similar law now or hereafter in effect, (b) the Partner is adjudged as bankrupt or insolvent, or a final and nonappealable order for relief under any bankruptcy, insolvency or similar law now or hereafter in effect has been entered against the Partner, (c) the Partner executes and delivers a general assignment for the benefit of the Partners creditors, (d) the Partner files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against the Partner in any proceeding of the nature described in clause (b) above, (e) the Partner seeks, consents to or acquiesces in the appointment of a trustee, receiver or liquidator for the Partner or for all or any substantial part of the Partners properties, (f) any proceeding seeking liquidation, reorganization or other relief of or against such Partner under any bankruptcy, insolvency or other similar law now or hereafter in effect has not been dismissed within one hundred twenty (120) days after the commencement thereof, (g) the appointment without the Partners consent or acquiescence of a trustee, receiver or liquidator has not been vacated or stayed within ninety (90) days of such appointment, or (h) an appointment referred to in clause (g) which has been stayed is not vacated within ninety (90) days after the expiration of any such stay.
Indemnitee means (i) any Person made a party to a proceeding by reason of (A) his status as the General Partner, or a director or officer of the Partnership or the General Partner, or (B) his or its liabilities, pursuant to a loan guarantee or otherwise, for any indebtedness of the Partnership or any Subsidiary of the Partnership (including, without limitation, any indebtedness which the Partnership or any Subsidiary of the Partnership has assumed or taken assets subject to), and (ii) such other Persons (including Affiliates of the General Partner or the Partnership) as the General Partner may designate from time to time (whether before or after the event giving rise to potential liability), in its sole and absolute discretion.
6
Limited Partner means the General Partner and any other Person named as a Limited Partner in Exhibit A attached hereto, as such Exhibit may be amended from time to time, or any Substituted Limited Partner or Additional Limited Partner, in such Persons capacity as a Limited Partner in the Partnership.
Limited Partner Interest means a Partnership Interest of a Limited Partner in the Partnership representing a fractional part of the Partnership Interests of all Partners and includes any and all benefits to which the holder of such a Partnership Interest may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement. A Limited Partner Interest may be expressed as a number of Partnership Units.
Liquidation Preference Amount means, with respect to any Preferred Partnership Unit, the amount payable with respect to such Preferred Partnership Unit (as established by the instrument designating such Preferred Partnership Units) upon the voluntary or involuntary dissolution, liquidation or winding up of the Partnership, or upon the earlier redemption of such Preferred Partnership Units, as the case may be.
Liquidator has the meaning set forth in Section 13.2.
Net Income means, for any Partnership Year or any portion of a Partnership Year, the excess, if any, of the Partnerships items of income and gain for such Partnership Year over the Partnerships items of loss and deduction for such Partnership Year. The items included in the calculation of Net Income shall be determined in accordance with Exhibit B . Once an item of income, gain, loss or deduction that has been included in the initial computation of Net Income is subjected to the special allocation rules in Exhibit C , Net Income or the resulting Net Loss, whichever the case may be, shall be recomputed without regard to such item.
Net Loss means, for any Partnership Year, the excess, if any, of the Partnerships items of loss and deduction for such Partnership Year over the Partnerships items of income and gain for such Partnership Year. The items included in the calculation of Net Loss shall be determined in accordance Exhibit B . Once an item of income, gain, loss or deduction that has been included in the initial computation of Net Loss is subjected to the special allocation rules in Exhibit C , Net Loss or the resulting Net Income, whichever the case may be, shall be recomputed without regard to such item.
New Securities has the meaning set forth in Section 4.2.B.
Nonrecourse Built-in Gain means, with respect to any Contributed Properties or Adjusted Properties that are subject to a mortgage or negative pledge securing a Nonrecourse Liability, the amount of any taxable gain that would be allocated to the Partners pursuant to Section 2.B of Exhibit C if such properties were disposed of in a taxable transaction in full satisfaction of such liabilities and for no other consideration.
7
Nonrecourse Deductions has the meaning set forth in Regulations Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for a Partnership Year shall be determined in accordance with the rules of Regulations Section 1.704-2(c).
Nonrecourse Liability has the meaning set forth in Regulations Section 1.752-l(a)(2).
Notice of Redemption means the Notice of Redemption substantially in the form of Exhibit E to this Agreement.
Organizational Limited Partner means Ronald P. Gibson.
Original Limited Partner means a Limited Partner, other than the General Partner, who is a Partner on the date of this Agreement and who owns one or more Original Limited Partnership Units on the date action is called for under any of the provisions hereof.
Original Limited Partnership Unit means a Partnership Unit held by an Original Limited Partner on the date of this Agreement and held by such Original Limited Partner on the date action is called for under any of the provisions hereof.
Partner means a General Partner or a Limited Partner, and Partners means the General Partner and the Limited Partners collectively.
Partner Minimum Gain means an amount, with respect to each Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if such Partner Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Regulations Section 1.704-2(i)(3).
Partner Nonrecourse Debt has the meaning set forth in Regulations Section 1.704-2(b)(4).
Partner Nonrecourse Deductions has the meaning set forth in Regulations Section 1.704-2(i)(2), and the amount of Partner Nonrecourse Deductions with respect to a Partner Nonrecourse Debt for a Partnership Year shall be determined in accordance with the rules of Regulations Section 1.704-2(i)(2).
Partnership means the limited partnership formed under the Act and pursuant to this Agreement and any successor thereto.
Partnership Interest means an ownership interest in the Partnership representing a Capital Contribution by either a Limited Partner or the General Partner and includes any and all benefits to which the holder of such a Partnership Interest may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement. A Partnership Interest may be expressed as a number of Partnership Units.
Partnership Minimum Gain has the meaning set forth in Regulations Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as any net increase or decrease in a Partnership Minimum Gain, for a Partnership Year shall be determined in accordance with the rules of Regulations Section 1.704-2(d).
8
Partnership Record Date means the record date established by the General Partner for the distribution of Available Cash pursuant to Section 5.1 hereof, which record date shall be the same as the record date established by the General Partner for a distribution to its shareholders of some of all of its portion of such distribution.
Partnership Unit means a fractional, undivided share of the Partnership Interests of all Partners issued pursuant to Sections 4.1, 4.2 and 4.3. The number of Partnership Units outstanding and the Percentage Interests in the Partnership represented by such Units are set forth in Exhibit A attached hereto, as such Exhibit may be amended from time to time. The ownership of Partnership Units shall be evidenced by such form of certificate for units as the General Partner adopts from time to time unless the General Partner determines that the Partnership Units shall be uncertificated securities. Fractional Units may be held and counted by the General Partner as necessary to meet the requirements of Section 4.1. Without limitation on the authority of the General Partner as set forth in Section 4.2 hereof, the General Partner may designate any Partnership Units, when issued, as Common Partnership Units or as Preferred Partnership Units, may establish any other class of Partnership Units, and may designate one or more series of any class of Partnership Units.
Partnership Year means the fiscal year of the Partnership, which shall be the calendar year.
Percentage Interest means, as to a Partner, with respect to any class of Partnership Units held by such Partner, its interest in such class of Partnership Units as determined by dividing the number of Partnership Units in such class owned by such Partner by the total number of Partnership Units in such class then outstanding.
Person means an individual or a corporation, partnership, limited liability company, trust, unincorporated organization, association or other entity.
Preferred Partnership Unit means any Partnership Unit issued from time to time pursuant to Section 4.2 hereof that is designated by the General Partner at the time of its issuance as a Preferred Partnership Unit. Each Preferred Partnership Unit shall have such designations, preferences and relative, participating, optional or other special rights, powers and duties, including rights, powers and duties senior to Limited Partner Interests and Common Partnership Units, all as shall be determined by the General Partner subject to the requirements of Section 4.2 hereof.
Prior Agreement means the Agreement of Limited Partnership of Highwoods Realty Limited Partnership, dated as of March 23, 1994, between Highwoods Properties, Inc., as the successor sole general partner to Highwoods Properties Company, and Ronald P. Gibson, as the sole limited partner, which Prior Agreement is amended and restated in its entirety by this Agreement as of the Effective Date.
9
Recapture Income means any gain recognized by the Partnership upon the disposition of any property or asset of the Partnership, which gain is characterized as ordinary income because it represents the recapture of deductions previously taken with respect to such property or asset.
Redeeming Partner has the meaning set forth in Section 8.6 hereof.
Redemption Right shall have the meaning set forth in Section 8.6 hereof.
Regulations means the Income Tax Regulations promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations).
REIT means a real estate investment trust under Section 856 of the Code.
REIT Share shall mean a share of common stock of the General Partner.
REIT Shares Amount shall mean a number of REIT Shares equal to the product of the number of Common Partnership Units offered for redemption by a Redeeming Partner, multiplied by the Conversion Factor, provided that in the event the General Partner issues to all holders of REIT Shares rights, options, warrants or convertible or exchangeable securities entitling the shareholders to subscribe for or purchase REIT Shares, or any other securities or property (collectively, the rights), then the REIT Shares Amount shall also include such rights that a holder of that number of REIT Shares would be entitled to receive.
Residual Gain or Residual Loss means any item of gain or loss, as the case may be, of the Partnership recognized for federal income tax purposes resulting from a sale, exchange or other disposition of Contributed Property or Adjusted Property, to the extent such item of gain or loss is not allocated pursuant to Section 2.B.l(a) or 2.B.2(a) of Exhibit C to eliminate Book-Tax Disparities.
Series A Preferred Partnership Unit means a Partnership Unit issued by the Partnership to the General Partner in consideration of the contribution by the General Partner to the Partnership of the entire net proceeds received by the General Partner from the issuance of the Series A Preferred Shares. The Series A Preferred Partnership Units shall constitute Preferred Partnership Units. The Series A Preferred Partnership Units shall have the voting powers, designations, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions as are set forth in Exhibit H , attached hereto. It is the intention of the General Partner, in establishing the Series A Preferred Partnership Units, that each Series A Preferred Partnership Unit shall be substantially the economic equivalent of a Series A Preferred Share.
Series A Preferred Shares means the 8 5 / 8 % Series A Cumulative Redeemable Preferred Shares, par value $0.01 per share, having a liquidation preference equivalent to $1,000.00 per share, issued by the General Partner.
10
Series B Preferred Partnership Unit means a Partnership Unit issued by the Partnership to the General Partner in consideration of the contribution by the General Partner to the Partnership of the entire net proceeds received by the General Partner from the issuance of the Series B Preferred Shares. The Series B Preferred Partnership Units shall constitute Preferred Partnership Units. The Series B Preferred Partnership Units shall have the voting powers, designations, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions as are set forth in Exhibit I , attached hereto. It is the intention of the General Partner, in establishing the Series B Preferred Partnership Units, that each Series B Preferred Partnership Unit shall be substantially the economic equivalent of a Series B Preferred Share.
Series B Preferred Shares means the 8% Series B Cumulative Redeemable Preferred Shares, par value $0.01 per share, having a liquidation preference equivalent to $25.00 per share, issued by the General Partner.
Series D Preferred Partnership Unit means a Partnership Unit issued by the Partnership to the General Partner in consideration of the contribution by the General Partner to the Partnership of the entire net proceeds received by the General Partner from the issuance of the Series D Preferred Shares. The Series D Preferred Partnership Units shall constitute Preferred Partnership Units. The Series D Preferred Partnership Units shall have the voting powers, designations, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions as are set forth in Exhibit J , attached hereto. It is the intention of the General Partner, in establishing the Series D Preferred Partnership Units, that each Series D Preferred Partnership Unit shall be substantially the economic equivalent of a Series D Preferred Share.
Series D Preferred Shares means the 8% Series D Cumulative Redeemable Preferred Shares, par value $0.01 per share, having a liquidation preference equivalent to $250.00 per share, issued by the General Partner.
704(c) Value of any Contributed Property means the value of such property as set forth in Exhibit D or if no value is set forth in Exhibit D , the fair market value of such property or other consideration at the time of contribution as determined by the General Partner using such reasonable method of valuation as it may adopt; provided, however, that the 704(c) Value of any property deemed contributed to the Partnership for federal income tax purposes upon termination and reconstitution thereof pursuant to Section 708 of the Code shall be determined in accordance with Exhibit B hereof. Subject to Exhibit B hereof, the General Partner shall, in its sole and absolute discretion, use such method as it deems reasonable and appropriate to allocate the aggregate of the 704(c) Values of Contributed Properties in a single or integrated transaction among the separate properties on a basis proportional to their respective fair market values.
Specified Redemption Date means the tenth ( 10th ) Business Day after receipt by the General Partner of a Notice of Redemption; provided that no Specified Redemption Date shall occur before one (1) year after the closing of the initial public offering of REIT shares by the General Partner.
11
Subsidiary means, with respect to any Person, any corporation, partnership or other entity of which a majority of either (i) the voting power of the voting equity securities or (ii) the outstanding equity interests is owned, directly or indirectly, by such Person.
Substituted Limited Partner means a Person who is admitted as a Limited Partner to the Partnership pursuant to Section 11.4.
Terminating Capital Transaction means any sale or other disposition of all or substantially all of the assets of the Partnership or a related series of transactions that, taken together, result in the sale or other disposition of all or substantially all of the assets of the Partnership.
Unrealized Gain attributable to any item of Partnership property means, as of any date of determination, the excess, if any, of (i) the fair market value of such property (as determined under Exhibit B hereof) as of such date, over (ii) the Carrying Value of such property (prior to any adjustment to be made pursuant to Exhibit B hereof) as of such date.
Unrealized Loss attributable to any item of Partnership property means, as of any date of determination, the excess, if any, of (i) the Carrying Value of such property (prior to any adjustment to be made pursuant to Exhibit B hereof) as of such date, over (ii) the fair market value of such property (as determined under Exhibit B hereof) as of such date.
Valuation Date means the date of receipt by the General Partner of a Notice of Redemption or, if such date is not a Business Day, the first Business Day thereafter.
Value means, with respect to a REIT Share, the average of the daily market price for the ten (10) consecutive trading days immediately preceding the Valuation Date. The market price for each such trading day shall be: (i) if the REIT Shares are listed or admitted to trading on any securities exchange or the NASDAQ-National Market System, the closing price, regular way, on such day, or if no such sale takes place on such day, the average of the closing bid and asked prices on such day; (ii) if the REIT Shares are not listed or admitted to trading on any securities exchange or the NASDAQ-National Market System, the last reported sale price on such day or, if no sale takes place on such day, the average of the closing bid and asked prices on such day, as reported by a reliable quotation source designated by the General Partner; or (iii) if the REIT Shares are not listed or admitted to trading on any securities exchange or the NASDAQ-National Market System and no such last reported sale price or closing bid and asked prices are available, the average of the reported high bid and low asked prices on such day, as reported by a reliable quotation source designated by the General Partner, or if there shall be no bid and asked prices on such day, the average of the high bid and low asked prices, as so reported, on the most recent day (not more than ten (10) days prior to the date in question) for which prices have been so reported; provided that if there are no bid and asked prices reported during the ten (10) days prior to the date in question, the Value of the REIT Shares shall be determined by the General Partner acting in good faith on the basis of such quotations and other information as it considers, in its reasonable judgment, appropriate. In the event the REIT Shares Amount includes rights that a holder of REIT Shares would be entitled to receive, then the Value of such rights shall be determined by the General Partner acting in good faith on the basis of such quotations and other information as it considers, in its reasonable judgment, appropriate.
12
ARTICLE 2
ORGANIZATIONAL MATTERS
Section 2.1 Organization and Continuation
The Partnership is a limited partnership organized pursuant to the provisions of the Act and upon the terms and conditions set forth in the Prior Agreement. The Partners hereby continue the Partnership and amend and restate the Prior Agreement in its entirety as of the Effective Date. Except as expressly provided herein to the contrary, the rights and obligations of the Partners and the administration and termination of the Partnership shall be governed by the Act. The Partnership Interest of each Partner shall be personal property for all purposes.
Section 2.2 Name
The name of the Partnership shall be Highwoods Realty Limited Partnership. The Partnerships business may be conducted under any other name or names deemed advisable by the General Partner, including the name of the General Partner or any Affiliate thereof. The words Limited Partnership, L.P., Ltd. or similar words or letters shall be included in the Partnerships name where necessary for the purposes of complying with the laws of any jurisdiction that so requires. The General Partner in its sole and absolute discretion may change the name of the Partnership at any time and from time to time and shall notify the Limited Partners of such change in the next regular communication to the Limited Partners.
Section 2.3 Registered Office and Agent; Principal Office
The address of the registered office of the Partnership in the State of North Carolina is 3100 Smoketree Court, Suite 700, Raleigh, North Carolina 27604 and the name and address of the registered agent for service of process on the Partnership in the State of North Carolina is Ronald P. Gibson. The principal office of the Partnership shall be located at 3100 Smoketree Court, Suite 700, Raleigh, North Carolina 27604, or such other place as the General Partner may from time to time designate by notice to the Limited Partners. The Partnership may maintain offices at such other place or places within or outside the State of North Carolina as the General Partner deems advisable.
13
Section 2.4 Power of Attorney
A. Each Limited Partner and each Assignee hereby constitutes and appoints the General Partner, any Liquidator, and authorized officers and attorneys-in-fact of each, and each of those acting singly, in each case with full power of substitution, as its true and lawful agent and attorney-in-fact, with full power and authority in its name, place and stead to:
(1) | execute, swear to, acknowledge, deliver, file and record in the appropriate public offices (a) all certificates, documents and other instruments (including, without limitation, this Agreement and the Certificate and all amendments or restatements thereof) that the General Partner or the Liquidator deems appropriate or necessary to form, qualify or continue the existence or qualification of the Partnership as a limited partnership (or a partnership in which the limited partners have limited liability) in the State of North Carolina and in all other jurisdictions in which the Partnership may or plans to conduct business or own property; (b) all instruments that the General Partner deems appropriate or necessary to reflect any amendment, change, modification or restatement of this Agreement in accordance with its terms; (c) all conveyances and other instruments or documents that the General Partner or the Liquidator deems appropriate or necessary to reflect the dissolution and liquidation of the Partnership pursuant to the terms of this Agreement, including, without limitation, a certificate of cancellation; (d) all instruments relating to the admission, withdrawal, removal or substitution of any Partner pursuant to, or other events described in, Articles 11, 12 or 13 hereof or the Capital Contribution of any Partner; and (e) all certificates, documents and other instruments relating to the determination of the rights, preferences and privileges of a Partnership Interest; and |
(2) | execute, swear to, seal, acknowledge and file all ballots, consents, approvals, waivers, certificates and other instruments appropriate or necessary, in the sole and absolute discretion of the General Partner or any Liquidator, to make, evidence, give, confirm or ratify any vote, consent, approval, agreement or other action which is made or given by the Partners hereunder or is consistent with the terms of this Agreement or appropriate or necessary, in the sole discretion of the General Partner or any Liquidator, to effectuate the terms or intent of this Agreement. |
Nothing contained herein shall be construed as authorizing the General Partner or any Liquidator to amend this Agreement except in accordance with Article 14 hereof or as may be otherwise expressly provided for in this Agreement.
B. The foregoing power of attorney is hereby declared to be irrevocable and a power coupled with an interest, in recognition of the fact that each of the Partners will be relying upon the power of the General Partner and any Liquidator to act as contemplated by this Agreement in any filing or other action by it on behalf of the Partnership, and it shall survive and not be affected by the subsequent Incapacity of any Limited Partner or Assignee and the transfer of all or any portion of such Limited Partners or Assignees Partnership Units and shall extend to such Limited Partners or
14
Assignees heirs, successors, assigns and personal representatives. Each such Limited Partner or Assignee hereby agrees to be bound by any representation made by the General Partner or any Liquidator, acting in good faith pursuant to such power of attorney, and each such Limited Partner or Assignee hereby waives any and all defenses which may be available to contest, negate or disaffirm the action of the General Partner or any Liquidator, taken in good faith under such power of attorney. Each Limited Partner or Assignee shall execute and deliver to the General Partner or the Liquidator, within fifteen (15) days after receipt of the General Partners or Liquidators request therefor, such further designation, powers of attorney and other instruments as the General Partner or the Liquidator, as the case may be, deems necessary to effectuate this Agreement and the purposes of the Partnership.
Section 2.5 Term
The term of the Partnership commenced on March 23, 1994, the date the Certificate was filed in the office of the Secretary of State of North Carolina in accordance with the Act and shall continue until December 31, 2092, unless the Partnership is dissolved sooner pursuant to the provisions of Article 13 or as otherwise provided by law.
ARTICLE 3
PURPOSE
Section 3.1 Purpose and Business
The purpose and nature of the business to be conducted by the Partnership is (i) to conduct any business that may be lawfully conducted by a limited partnership organized pursuant to the Act, provided , however , that such business shall be limited to and conducted in such a manner as to permit the General Partner at all times to be classified as a REIT, unless the General Partner ceases to qualify as a REIT for reasons other than the conduct of the business of the Partnership, (ii) to enter into any partnership, joint venture or other similar arrangement to engage in any of the foregoing or to own interests in any entity engaged in any of the foregoing, and (iii) to do anything necessary or incidental to the foregoing. In connection with the foregoing, and without limiting the General Partners right, in its sole discretion, to cease qualifying as a REIT, the Partners acknowledge the General Partners current status as a REIT inures to the benefit of all of the Partners and not solely the General Partner.
Section 3.2 Powers
The Partnership is empowered to do any and all acts and things necessary, appropriate, proper, advisable, incidental to or convenient for the furtherance and accomplishment of the purposes and business described herein and for the protection and benefit of the Partnership, provided that the Partnership shall not take, or refrain from taking, any action which, in the judgment of the General Partner, in its sole and absolute discretion, (i) could adversely affect the ability of the General Partner to continue to qualify as a REIT, (ii) could subject the General Partner to any additional taxes under Section 857 or Section 4981 of the Code, or (iii) could violate any law or
15
regulation of any governmental body or agency having jurisdiction over the General Partner or its securities, unless such action (or inaction) shall have been specifically consented to by the General Partner in writing.
ARTICLE 4
CAPITAL CONTRIBUTIONS
Section 4.1 Capital Contributions of the Partners
At the time of the execution of this agreement, the Partners shall make Capital Contributions set forth in Exhibit A to this Agreement. The Partners shall own Partnership Units in the amounts set forth for each such Partner in Exhibit A and shall have a Percentage Interest in the Partnership as set forth in Exhibit A , which Percentage Interest shall be adjusted in Exhibit A from time to time by the General Partner to the extent necessary to reflect accurately redemptions, Capital Contributions, the issuance of additional Partnership Units, or similar events having an effect on any Partners Percentage Interest. The number of Partnership Units held by the General Partner (equal to one percent (1%) of all outstanding Partnership Units from time to time) shall be deemed to be the General Partner Interest. Except as provided in Sections 4.2, 7.7(I) and 10.5, the Partners shall have no obligation to make any additional Capital Contributions or loans to the Partnership.
The General Partner shall maintain the information set forth in Exhibit A to the Agreement, as such information shall change from time to time, in such form as the General Partner deems appropriate for the conduct of the Partnership affairs, and Exhibit A shall be deemed amended from time to time to reflect the information so maintained by the General Partner, whether or not a formal amendment to the Agreement has been executed amending such Exhibit A . Such information shall reflect (and Exhibit A shall be deemed amended from time to time to reflect) the issuance of any additional Partnership Units to the General Partner or any other Person, the transfer of Partnership Units and the redemption of any Partnership Units, all as contemplated in the Agreement.
Section 4.2 Issuances of Additional Partnership Interests
A. The General Partner is hereby authorized to cause the Partnership from time to time to issue to the Partners (including the General Partner) or other Persons additional Partnership Units or other Partnership Interests in one or more classes, or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties, including rights, powers and duties senior to Limited Partner Interests, all as shall be determined by the General Partner in its sole and absolute discretion subject to North Carolina law, including, without limitation, (i) the allocations of items of Partnership income, gain, loss, deduction and credit to each such class or series of Partnership Interests; (ii) the right of each such class or series of Partnership Interests to share in Partnership distributions; and (iii) the rights of each such class or series of Partnership Interests upon dissolution and liquidation of the Partnership; provided that no such additional Partnership Units or other Partnership Interests shall be issued to the General Partner unless either
16
(a)(1) the additional Partnership Interests are issued in connection with an issuance of REIT Shares or other shares by the General Partner, which shares have designations, preferences and other rights such that the economic interests attributable to such shares are substantially similar to the designations, preferences and other rights of the additional Partnership Interests issued to the General Partner in accordance with this Section 4.2.A, and (2) the General Partner shall make a Capital Contribution to the Partnership in an amount equal to the proceeds raised in connection with the issuance of such shares of the General Partner, or
(b) the additional Partnership Units are issued to all Partners in proportion to their respective Percentage Interests.
Without limiting the foregoing, the General Partner is expressly authorized to cause the Partnership to issue Partnership Units for less than fair market value, so long as the General Partner concludes in good faith that such issuance is in the interest of the General Partner and the Partnership (for example, and not by way of limitation, the issuance of Partnership Units pursuant to an employee purchase plan providing for employee purchases of Partnership Units at a discount from fair market value or employee options that have an exercise price that is less than the fair market value of the Partnership Units, either at the time of issuance or at the time of exercise).
B. After the initial public offering of REIT Shares, the General Partner shall not issue any additional REIT Shares (other than REIT Shares issued pursuant to Section 8.6), or rights, options, warrants or convertible or exchangeable securities containing the right to subscribe for or purchase REIT Shares (collectively New Securities ) other than to all holders of REIT Shares unless (i) the General Partner shall cause the Partnership to issue to the General Partner Partnership Interests or rights, options, warrants or convertible or exchangeable securities of the Partnership having designations, preferences and other rights, all such that the economic interests are substantially similar to those of the New Securities, and (ii) the General Partner contributes to the Partnership the proceeds from the issuance of such New Securities and from the exercise of rights contained in such New Securities. Without limiting the foregoing, the General Partner is expressly authorized to issue New Securities for less than fair market value, and the General Partner is expressly authorized to cause the Partnership to issue to the General Partner corresponding Partnership Interests, so long as (x) the General Partner concludes in good faith that such issuance is in the interests of the General Partner and the Partnership (for example, and not by way of limitation, the issuance of REIT Shares and corresponding Units pursuant to an employee stock purchase plan providing for employee purchases of REIT Shares at a discount from fair market value or employee stock options that have an exercise price that is less than the fair market value of the REIT Shares, either at the time of issuance or at the time of exercise), and (y) the General Partner contributes all proceeds from such issuance and exercise to the Partnership.
C. Under the authority granted to it by Section 4.2.A, the General Partner hereby establishes an additional class of Partnership Units entitled Class B Units. Class B Units shall have the designations, preferences, rights, powers and duties as set forth in Exhibit G .
17
Section 4.3 Contribution of Proceeds of Issuance of REIT Shares
In connection with the initial public offering of REIT Shares by the General Partner and any other issuance of REIT Shares or New Securities pursuant to Section 4.2, the General Partner shall contribute to the Partnership any proceeds (or a portion thereof) raised in connection with such issuance; provided that if the proceeds actually received by the General Partner are less than the gross proceeds of such issuance as a result of any underwriters discount or other expenses paid or incurred in connection with such issuance, then the General Partner shall be deemed to have made a Capital Contribution to the Partnership in the amount equal to the sum of the net proceeds of such issuance plus the amount of such underwriters discount and other expenses paid by the General Partner.
Section 4.4 No Preemptive Rights
No Person shall have any preemptive, preferential or other similar right with respect to (i) additional Capital Contributions or loans to the Partnership; or (ii) issuance or sale of any Partnership Units or other Partnership Interests.
Section 4.5 Eakin & Smith Acquisition
Notwithstanding anything in this Agreement to the contrary, (i) the General Partner may issue REIT Shares to the shareholders of Eakin & Smith, Inc. (Eakin & Smith) as consideration for the merger of Eakin & Smiths brokerage and property management business into a wholly owned subsidiary of the Company (the Merger) and shall not be required to contribute the business and assets acquired in the Merger to the Partnership, except as the General Partner shall decide from time to time in its sole discretion and (ii) the General Partner may hold directly or through a wholly owned subsidiary the assets acquired in the Merger and such additional assets as necessary in the ordinary conduct of the business acquired in the Merger.
Section 4.6 The Crocker Merger
Notwithstanding anything in this Agreement to the contrary, in connection with the merger of the Crocker Realty Trust, Inc. into the General Partner, the General Partner may (i) own all of the outstanding stock of corporations formed to control, directly or indirectly, certain assets and liabilities, provided that the General Partners effective ownership percentage in such assets and liabilities is limited to .01% with the remaining 99.99% owned by the Partnership; and (ii) take such other actions as it deems in its discretion to be in the best interests of the Limited Partners.
18
ARTICLE 5
DISTRIBUTIONS
Section 5.1 Requirement and Characterization of Distributions
The General Partner shall distribute at least quarterly an amount equal to 100% of Available Cash generated by the Partnership during such quarter or shorter period to the Partners who are Partners on the Partnership Record Date with respect to such quarter or shorter period in the following order of priority:
(i) | First, to the holders of the Preferred Partnership Units in such amount as is required for the Partnership to pay all distributions with respect to such Preferred Partnership Units due or payable in accordance with the instruments designating such Preferred Partnership Units through the last day of such quarter; such distributions shall be made to such Partners in such order of priority and with such preferences as have been established with respect to such Preferred Partnership Units as of the last day of such calendar quarter; and then |
(ii) | to the Partners in proportion to their respective Percentage Interests in Common Partnership Units on such Partnership Record Date; |
provided that in no event may a Partner receive a distribution of Available Cash with respect to a Partnership Unit if such Partner is entitled to receive a distribution out of such Available Cash with respect to a REIT Share for which such Partnership Unit has been redeemed or exchanged. The General Partner shall take such reasonable efforts, as determined by it in its sole and absolute discretion and consistent with its qualification as a REIT, to distribute Available Cash to the Limited Partners so as to preclude any such distribution or portion thereof from being treated as part of a sale of property to the Partnership by a Limited Partner under Section 707 of the Code or the Regulations thereunder; provided that the General Partner and the Partnership shall not have liability to any Limited Partner under any circumstances as a result of any distribution to such Limited Partner being so treated.
Notwithstanding anything to the contrary contained herein, in no event shall any Partner receive a distribution of Available Cash with respect to any Common Partnership Unit with respect to any quarter until such time as the Partnership has distributed to the holders of the Preferred Partnership Units an amount sufficient to pay all distributions payable with respect to such Preferred Partnership Units through the last day of such quarter, in accordance with the instruments designating such Preferred Partnership Units.
Section 5.2 Amounts Withheld
All amounts withheld pursuant to the Code or any provisions of any state or local tax law and Section 10.5 hereof with respect to any allocation, payment or distribution to the General Partner, the Limited Partners or Assignees shall be treated as amounts distributed to the General Partner, Limited Partners, or Assignees pursuant to Section 5.1 for all purposes under this Agreement.
19
Section 5.3 Distributions Upon Liquidation
Proceeds from a Terminating Capital Transaction and any other cash received or reductions in reserves made after commencement of the liquidation of the Partnership shall be distributed to the Partners in accordance with Section 13.2.
ARTICLE 6
ALLOCATIONS
Section 6.1 Allocations For Capital Account Purposes
For purposes of maintaining the Capital Accounts and in determining the rights of the Partners among themselves, the Partnerships items of income, gain, loss and deduction (computed in accordance with Exhibit B hereof) shall be allocated among the Partners in each taxable year (or portion thereof) as provided herein below.
A. Net Income . After giving effect to the special allocations set forth in Section 1 of Exhibit C attached hereto, Net Income shall be allocated (i) first, to the General Partner to the extent that Net Losses previously allocated to the General Partner pursuant to the last sentence of Section 6.1.B exceed Net Income previously allocated to the General Partner pursuant to this clause (i) of Section 6.1.A, and (ii) thereafter, Net Income shall be allocated to the Partners who hold Common Partnership Units in proportion to their respective Percentage Interests as holders of Common Partnership Units.
B. Net Losses . After giving effect to the special allocations set forth in Section 1 of Exhibit C attached hereto, Net Losses shall be allocated to the Partners who hold Common Partnership Units in accordance with their respective Percentage Interests as holders of Common Partnership Units; provided , however, that Net Losses shall not be allocated to any Limited Partner pursuant to this Section 6.1.B to the extent that such allocation would cause such Limited Partner to have an Adjusted Capital Account Deficit at the end of such taxable year (or increase any existing Adjusted Capital Account Deficit). All Net Losses in excess of the limitations set forth in this Section 6.1.B shall be allocated to the General Partner.
Section 6.2 Other Allocation Rules.
A. Excess Nonrecourse Liabilities . Solely for purposes of determining a Partners proportionate share of the excess nonrecourse liabilities of the Partnership within the meaning of Regulations Section 1.752-3(a)(3), such excess nonrecourse liabilities first shall be allocated to those Partners who have, and in an amount equal to, such Partners built-in gain under Regulations Section 1.704-3(a)(3)(ii) less any Nonrecourse Built-in Gain, and then shall be allocated among the Partners in accordance with their respective Percentage Interests.
B. Recapture Income . Any taxable gain allocated to the Partners upon the sale or other taxable disposition of any Partnership asset shall to the extent possible, after taking into account other required allocations of gain pursuant to Exhibit C , be characterized as Recapture Income in the same proportions and to the same extent as such Partners have been allocated any deductions directly or indirectly giving rise to the treatment of such gains as Recapture Income.
20
ARTICLE 7
MANAGEMENT AND OPERATIONS OF BUSINESS
Section 7.1 Management
A. Except as otherwise expressly provided in this Agreement, all management powers over the business and affairs the Partnership are and shall be exclusively vested in the General Partner, and no Limited Partner shall have any right to participate in or exercise control or management power over the business and affairs of the Partnership. The General Partner may not be removed by the Limited Partners with or without cause. In addition to the powers now or hereafter granted to a general partner of a limited partnership under applicable law or which are granted to the General Partner under any other provision of this Agreement, the General Partner, subject to Section 7.3 hereof, shall have full power and authority to do all things deemed necessary or desirable by it to conduct the business of the Partnership, to exercise all powers set forth in Section 3.2 hereof and to effectuate the purposes set forth in Section 3.1 hereof, including, without limitation:
(1) | the making of any expenditures, the lending or borrowing of money (including, without limitation, making prepayments on loans and borrowing money to permit the Partnership to make distributions to its Partners in such amounts as will permit the General Partner (so long as the General Partner qualifies as a REIT) to avoid the payment of any federal income tax (including, for this purpose, any excise tax pursuant to Section 4981 of the Code) and to make distributions to the General Partner such that the General Partner can distribute to its shareholders amounts sufficient to permit the General Partner to maintain REIT status), the assumption or guarantee of, or other contracting for, indebtedness and other liabilities, the issuance of evidence of indebtedness (including the securing of same by deed to secure debt, mortgage, deed of trust or other lien or encumbrance on the Partnerships assets) and the incurring of any obligations it deems necessary for the conduct of the activities of the Partnership; |
(2) | the making of tax, regulatory and other filings, or rendering of periodic or other reports to governmental or other agencies having jurisdiction over the business or assets of the Partnership; |
(3) | the acquisition, disposition, mortgage, pledge, encumbrance, hypothecation or exchange of any assets of the Partnership (including the exercise or grant of any conversion, option, privilege or subscription right or other right available in connection with any assets at any time held by the Partnership) or the combination of the Partnership with or into another entity (all of the foregoing subject to any prior approval only to the extent required by Section 7.3 hereof); |
21
(4) | the use of the assets of the Partnership (including, without limitation, cash on hand) for any purpose consistent with the terms of this Agreement and on any terms it sees fit, including, without limitation, the financing of the conduct of the operations of the General Partner, the Partnership or any of the Partnerships Subsidiaries, the lending of funds to other Persons (including, without limitation, the Subsidiaries of the Partnership and/or the General Partner) and the repayment of obligations of the Partnership and its Subsidiaries and any other Person in which it has an equity investment, and the making of capital contributions to its Subsidiaries; |
(5) | the management, operation, leasing, landscaping, repair, alteration, demolition or improvement of any real property or improvements owned by the Partnership or any Subsidiary of the Partnership; |
(6) | the negotiation, execution, and performance of any contracts, conveyances or other instruments that the General Partner considers useful or necessary to the conduct of the Partnerships operations or the implementation of the General Partners powers under this Agreement, including contracting with contractors, developers, consultants, accountants, legal counsel, other professional advisors and other agents and the payment of their expenses and compensation out of the Partnerships assets; |
(7) | the distribution of Partnership cash or other Partnership assets in accordance with this Agreement; |
(8) | holding, managing, investing and reinvesting cash and other assets of the Partnership; |
(9) | the collection and receipt of revenues and income of the Partnership; |
(10) | the establishment of one or more divisions of the Partnership, the selection and dismissal of employees of the Partnership, any division of the Partnership, or the General Partner (including, without limitation, employees having titles such as president, vice president, secretary and treasurer of the Partnership, any division of the Partnership, or the General Partner), and agents, outside attorneys, accountants, consultants and contractors of the General Partner or the Partnership or any division of the Partnership, and the determination of their compensation and other terms of employment or hiring; |
22
(11) | the maintenance of such insurance for the benefit of the Partnership and the Partners as it deems necessary or appropriate; |
(12) | the formation of, or acquisition of an interest in, and the contribution of property to, any further limited or general partnerships, joint ventures or other relationships that it deems desirable (including, without limitation, the acquisition of interests in, and the contributions of property to, its Subsidiaries and any other Person in which it has an equity investment from time to time); |
(13) | the control of any matters affecting the rights and obligations of the Partnership, including the settlement, compromise, submission to arbitration or any other form of dispute resolution, or abandonment of, any claim, cause of action, liability, debt or damages, due or owing to or from the Partnership, the commencement or defense of suits, legal proceedings, administrative proceedings, arbitration or other forms of dispute, resolution, and the representation of the Partnership in all suits or legal proceedings, administrative proceedings, arbitrations or other forms of dispute resolution, the incurring of legal expense, and the indemnification of any Person against liabilities and contingencies to the extent permitted by law; |
(14) | the undertaking of any action in connection with the Partnerships direct or indirect investment in its Subsidiaries or any other Person (including, without limitation, the contribution or loan of funds by the Partnership to such Persons); |
(15) | the determination of the fair market value of any Partnership property distributed in kind using such reasonable method of valuation as the General Partner may adopt; |
(16) | the exercise, directly or indirectly, through any attorney-in-fact acting under a general or limited power of attorney, of any right, including the right to vote, appurtenant to any asset or investment held by the Partnership; |
(17) | the exercise of any of the powers of the General Partner enumerated in this Agreement on behalf of or in connection with any Subsidiary of the Partnership or any other Person in which the Partnership has a direct or indirect interest, or jointly with any such Subsidiary or other Person; |
23
(18) | the exercise of any of the powers of the General Partner enumerated in this Agreement on behalf of any Person in which the Partnership does not have an interest pursuant to contractual or other arrangements with such Person; and |
(19) | the making, execution and delivery of any and all deeds, leases, notes, deeds to secure debt, mortgages, deeds of trust, security agreements, conveyances, contracts, guarantees, warranties, indemnities, waivers, releases or legal instruments or agreement in writing necessary or appropriate in the judgment of the General Partner for the accomplishment of any of the powers of the General Partner enumerated in this Agreement. |
B. Each of the Limited Partners agrees that the General Partner is authorized to execute, deliver and perform the above-mentioned agreements and transactions on behalf of the Partnership without any further act, approval or vote of the Partners, notwithstanding any other provision of this Agreement (except as provided in Section 7.3), the Act or any applicable law, rule or regulation, to the fullest extent permitted under the Act or other applicable law. The execution, delivery or performance by the General Partner or the Partnership of any agreement authorized or permitted under this Agreement shall not constitute a breach by the General Partner of any duty that the General Partner may owe the Partnership or the Limited Partners or any other Persons under this Agreement or of any duty stated or implied by law or equity.
C. At all times from and after the date hereof, the General Partner may cause the Partnership to obtain and maintain (i) casualty, liability and other insurance on the properties of the Partnership and (ii) liability insurance for the Indemnitees hereunder.
D. At all times from and after the date hereof, the General Partner may cause the Partnership to establish and maintain at any and all times working capital accounts and other cash or similar balances in such amounts as the General Partner, in its sole and absolute discretion, deems appropriate and reasonable from time to time.
E. In exercising its authority under this Agreement and except as provided at Section 5.1, the General Partner may, but shall be under no obligation to, take into account the tax consequences to any Partner of any action taken by it. The General Partner and the Partnership shall not have liability to a Limited Partner under any circumstances as a result of an income tax liability incurred by such Limited Partner as a result of an action (or inaction) by the General Partner pursuant to its authority under this Agreement.
Section 7.2 Certificate of Limited Partnership
The General Partner has previously filed the Certificate with the Secretary of State of North Carolina as required by the Act. The General Partner shall use all reasonable efforts to cause to be
24
filed such other certificates or documents as may be reasonable and necessary or appropriate for the formation, continuation, qualification and operation of a limited partnership (or a partnership in which the limited partners have limited liability) in the State of North Carolina and any other state, or the District of Columbia, in which the Partnership may elect to do business or own property. To the extent that such action is determined by the General Partner to be reasonable and necessary or appropriate, the General Partner shall file amendments to and restatements of the Certificate and do all the things to maintain the Partnership as a limited partnership (or a partnership in which the limited partners have limited liability) under the laws of the State of North Carolina and each other state or the District of Columbia in which the Partnership may elect to do business or own property. Subject to the terms of Section 8.5.A(4) hereof, the General Partner shall not be required, before or after filing, to deliver or mail a copy of the Certificate or any amendment thereto to any Limited Partner.
Section 7.3 Restrictions on General Partner Authority
A. The General Partner may not take any action in contravention of an express prohibition or limitation of this Agreement without the written Consent of all of the Limited Partners.
B. The General Partner may not sell, exchange, transfer or otherwise dispose of all or substantially all of the Partnerships assets in a single transaction or a series of related transactions (including by way of merger, consolidation or other combination with any other Person) without the Consent of Partners holding 50% or more of the Partnership Units.
Notwithstanding anything contained herein, all references to Partnership Units of the Agreement shall be deemed to refer solely to Common Partnership Units, and not to Preferred Partnership Units.
Section 7.4 Reimbursement of the General Partner
A. Except as provided in this Section 7.4 and elsewhere in this Agreement (including the provisions of Articles 5 and 6 regarding distributions, payments, and allocations to which it may be entitled), the General Partner shall not be compensated for its services as general partner of the Partnership.
B. The General Partner shall be reimbursed on a monthly basis, or such other basis as the General Partner may determine in its sole and absolute discretion, for all expenses that it incurs relating to the ownership and operation of, or for the benefit of, the Partnership; provided that the amount of any such reimbursement shall be reduced by any interest earned by the General Partner with respect to bank accounts or other instruments or accounts held by it on behalf of the Partnership as permitted in Section 7.5.A. The Limited Partners acknowledge that, for purposes of this Section 7.4.B, all expenses of the General Partner are deemed incurred for the benefit of the Partnership. Such reimbursements shall be in addition to any reimbursement to the General Partner as a result of indemnification pursuant to Section 7.7 hereof.
25
C. As set forth in Section 4.3, the General Partner shall be treated as having made a Capital Contribution in the amount of all expenses that it incurs relating to the organization and/or reorganization of the Partnership and the General Partner, the initial public offering of REIT Shares by the General Partner, and any other issuance of additional Partnership Interests or REIT Shares pursuant to Section 4.2 hereof.
D. In the event that the General Partner elects to purchase from the shareholders of the General Partner REIT Shares for the purpose of delivering such REIT Shares to satisfy an obligation under any dividend reinvestment program adopted by the General Partner, any employee stock purchase plan adopted by the General Partner, or any similar obligation or arrangement undertaken by the General Partner in the future, the purchase price paid by the General Partner for such REIT Shares and any other expenses incurred by the General Partner in connection with such purchase shall be considered expenses of the Partnership and shall be reimbursed to the General Partner, subject to the condition that: (i) if such REIT Shares subsequently are to be sold by the General Partner, the General Partner shall pay to the Partnership any proceeds received by the General Partner for such REIT Shares (provided that a transfer of REIT Shares for Units pursuant to Section 8.6 would not be considered a sale for such purposes); and (ii) if such REIT Shares are not retransferred by the General Partner within 30 days after the purchase thereof, the General Partner shall cause the Partnership to cancel a number of Partnership Units held by the General Partner equal to the product obtained by multiplying the Conversion Factor by the number of such REIT Shares.
Section 7.5 Outside Activities of the General Partner
A. The General Partner shall not directly or indirectly enter into or conduct any business other than in connection with the ownership, acquisition and disposition of Partnership Interests as a General Partner or Limited Partner and the management of the business of the Partnership, and such activities as are incidental thereto. The General Partner shall not hold any assets other than Partnership Interests as a General Partner or Limited Partner, and other than such bank accounts or similar instruments or accounts as it deems necessary to carry out its responsibilities contemplated under this Agreement and its organizational documents. The General Partner and any Affiliates of the General Partner may acquire Limited Partner Interests and shall be entitled to exercise all rights of a Limited Partner relating to such Limited Partner Interests.
B. Except as provided in Section 7.4.D, in the event the General Partner exercises its rights under Article 6 of its Articles of Incorporation to purchase REIT Shares, then the General Partner shall cause the Partnership to purchase from it that number of Partnership Units equal to the product obtained by multiplying the number of REIT Shares to be purchased by the General Partner times the Conversion Factor on the same terms and for the same aggregate price that the General Partner purchased such REIT Shares.
Notwithstanding anything contained herein, all references to Partnership Units of the Agreement shall be deemed to refer solely to Common Partnership Units, and not to Preferred Partnership Units.
26
Section 7.6 Contracts with Affiliates
A. The Partnership may lend or contribute funds or other assets to its Subsidiaries or other Persons in which it has an equity investment and such Persons may borrow funds from the Partnership, on terms and conditions established in the sole and absolute discretion of the General Partner. The foregoing authority shall not create any right or benefit in favor of any Subsidiary or any other Person.
B. Except as provided in Section 7.5.A, the Partnership may transfer assets to joint ventures, other partnerships, corporations or other business entities in which it is or thereby becomes a participant upon such terms and subject to such conditions consistent with this Agreement and applicable law as the General Partner, in its sole and absolute discretion, believes are advisable.
C. Except as expressly permitted by this Agreement, neither the General Partner nor any of its Affiliates shall sell, transfer or convey any property to, or purchase any property from, the Partnership, directly or indirectly, except pursuant to transactions that are determined by the General Partner in good faith to be fair and reasonable and no less favorable to the Partnership than would be obtained from an unaffiliated third party.
D. The General Partner, in its sole and absolute discretion and without the approval of the Limited Partners, may propose and adopt on behalf of the Partnership employee benefit plans, stock option plans, and similar plans funded by the Partnership for the benefit of employees of the General Partner, the Partnership, Subsidiaries of the Partnership or any Affiliate of any of them in respect of services performed, directly or indirectly, for the benefit of the Partnership, the General Partner, or any of the Partnerships Subsidiaries.
E. The General Partner is expressly authorized to enter into, in the name and on behalf of the Partnership, a right of first opportunity arrangement and other conflict avoidance agreements with various Affiliates of the Partnership and the General Partner, on such terms as the General Partner, in its sole and absolute discretion, believes are advisable.
Section 7.7 Indemnification
A. Except as provided at Section 7.7(I), hereof, the Partnership shall indemnify each Indemnitee from and against any and all losses, claims, damages, liabilities, joint or several, expenses (including, without limitation, attorneys fees and other legal fees and expenses), judgments, fines, settlements, and other amounts arising from any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, that relate to the operations of the Partnership, the General Partner as set forth in this Agreement in which such Indemnitee may be involved, or is threatened to be involved, as a party or otherwise, unless it is established that: (i) the act or omission of the Indemnitee was material to the matter giving rise to the proceeding and either was committed in bad faith or was the result of active and deliberate dishonesty; (ii) the Indemnitee actually received an improper personal benefit in money, property or services; or (iii) in the case of
27
any criminal proceeding, the Indemnitee had reasonable cause to believe that the act or omission was unlawful. Without limitation, the foregoing indemnity shall extend to any liability of any Indemnitee, pursuant to a loan guaranty or otherwise for any indebtedness of the Partnership or any Subsidiary of the Partnership (including without limitation, any indebtedness which the Partnership or any Subsidiary of the Partnership has assumed or taken subject to), and the General Partner is hereby authorized and empowered, on behalf of the Partnership, to enter into one or more indemnity agreements consistent with the provisions of this Section 7.7 in favor of any Indemnitee having or potentially having liability for any such indebtedness. The termination of any proceeding by judgment, order or settlement does not create a presumption that the Indemnitee did not meet the requisite standard of conduct set forth in this Section 7.7.A with respect to the subject matter of such proceeding. The termination of any proceeding by conviction of an Indemnitee or upon a plea of nolo contendere or its equivalent by an Indemnitee, or an entry of an order of probation against an Indemnitee prior to judgment, creates a rebuttable presumption that such Indemnitee acted in a manner contrary to that specified in this Section 7.7.A. Any indemnification pursuant to this Section 7.7 shall be made only out of the assets of the Partnership, and neither the General Partner nor any Limited Partner shall have any obligation to contribute to the capital of the Partnership or otherwise provide funds, to enable the Partnership to fund its obligations under this Section 7.7.
B. Reasonable expenses incurred by an Indemnitee who is a party to a proceeding may be paid or reimbursed by the Partnership in advance of the final disposition of the proceeding upon receipt by the Partnership of (i) a written affirmation by the Indemnitee of the Indemnitees good faith belief that the standard of conduct necessary for indemnification by the Partnership as authorized in Section 7.7.A. has been met, and (ii) a written undertaking by or on behalf of the Indemnitee to repay the amount if it shall ultimately be determined that the standard of conduct has not been met.
C. The indemnification provided by this Section 7.7 shall be in addition to any other rights to which an Indemnitee or any other Person may be entitled under any agreement, pursuant to any vote of the Partners, as a matter of law or otherwise, and shall continue as to an Indemnitee who has ceased to serve in such capacity unless otherwise provided in a written agreement pursuant to which such Indemnitee is indemnified.
D. The Partnership may, but shall not be obligated to, purchase and maintain insurance, on behalf of the Indemnitees and such other Persons as the General Partner shall determine, against any liability that may be asserted against or expenses that may be incurred by such Person in connection with the Partnerships activities, regardless of whether the Partnership would have the power to indemnify such Person against such liability under the provisions of this Agreement.
E. Any liabilities which an Indemnitee incurs as a result of acting on behalf of the Partnership or the General Partner (whether as a fiduciary or otherwise) in connection with the operation, administration or maintenance of an employee benefit plan or any related trust or funding mechanism (whether such liabilities are in the form of excise taxes assessed by the Internal Revenue Service, penalties assessed by the Department of Labor, restitutions to such a plan or trust or other funding mechanism or to a participant or beneficiary of such plan, trust of other funding mechanism,
28
or otherwise) shall be treated as liabilities or judgments or fines under this Section 7.7 unless such liabilities arise as a result of (i) such Indemnitees intentional misconduct or knowing violations of the law, or (ii) any transaction in which such Indemnitee received a personal benefit in violation or breach of any provision of this Agreement or applicable law.
F. In no event may an Indemnitee subject any of the Partners to personal liability by reason of the indemnification provisions set forth in this Agreement.
G. An Indemnitee shall not be denied indemnification in whole or in part under this Section 7.7 because the Indemnitee had an interest in the transaction with respect to which the indemnification applies if the transaction was otherwise permitted by the terms of this Agreement.
H. The provisions of this Section 7.7 are for the benefit of the Indemnitees, their heirs, successors, assigns and administrators and shall not be deemed to create any rights for the benefit of any other Persons. Any amendment, modification or repeal of this Section 7.7 or any provision hereof shall be prospective only and shall not in any way affect the limitations on the Partnerships liability to any Indemnitee under this Section 7.7 as in effect immediately prior to such amendment, modification, or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted.
I. The Partners hereby acknowledge that, in conjunction with the financing and the refinancing of the property owned by the Partnership, the General Partner may agree to guarantee part or all of such debt. The Partners understand that, pursuant to Regulations Section 1.752-(2)(b)(3)(i), such guaranty obligation would, absent the indemnification provided hereinafter, serve to increase the General Partners share of such debt pursuant to Regulations Section 1.752-2(a). Inasmuch as, notwithstanding such guaranty obligation, each of the Limited Partners desires to increase his share of such debt and the General Partner desires to decrease its share of such debt (for purposes of Regulations Section 1.752-2(a)), each of the Limited Partners, to the extent provided in Exhibit F , attached hereto, hereby agrees to indemnify the General Partner in the event and to the extent that the General Partner both is required to make a payment to the lender under any such guaranty obligation and is unable to sell any or all of the assets of the Partnership for money or moneys worth to make the General Partner whole on account of such payment. This indemnification is effective only at the time, in the event and to the extent that upon a dissolution and liquidation of the Partnership, the General Partner is a creditor of the Partnership due to its guaranty of Partnership debt and the proceeds of sale in such dissolution and liquidation are insufficient to reimburse the General Partner for any amounts paid on such guaranty obligation as contemplated in this Section 7.7(H). As provided in Exhibit F , this indemnification is limited on a per Unit basis to Units owned by an indemnifying Limited Partner at the time an indemnification is due to the General Partner as provided by this Section 7.7(I), such that each Limited Partners obligation is reduced upon a redemption of Units as provided at Section 8.6 or upon any other transfer or disposition of Units. In addition, any and all indemnification as provided by this Section 7.7(I) shall terminate in full as to each and every Limited Partner in the event that both (i) the General Partner receives from tax counsel an opinion that the Original Limited Partners will be allocated an amount of excess
29
nonrecourse liabilities under the provisions of Section 6.2(A) hereof and Regulations Section 1.752-3(a)(3) equal to or greater than the amount of the indemnification requirement indicated on Exhibit F , and (ii) upon a vote of the Original Limited Partners, Units representing more than 50% of the Original Limited Partnership Units are voted in favor of terminating the indemnification required by this Section 7.7(I).
Section 7.8 Liability of the General Partner
A. Notwithstanding anything to the contrary set forth in this Agreement, the General Partner shall not be liable for monetary damages to the Partnership, any Partners or any Assignees for losses sustained or liabilities incurred as a result of errors in judgment or of any act or omission if the General Partner acted in good faith and with due care and loyalty.
B. The Limited Partners expressly acknowledge that the General Partner is acting on behalf of the Partnership and the General Partners shareholders collectively, that the General Partner is under no obligation, except as provided at Section 5.1, to consider the separate interests of the Limited Partners (including, without limitation, the tax consequences to Limited Partners or Assignees) in deciding whether to cause the Partnership to take (or decline to take) any actions, and that the General Partner shall not be liable for monetary damages for losses sustained, liabilities incurred, or benefits not derived by Limited Partners in connection with such decisions, provided that the General Partner has acted in good faith.
C. Subject to its obligations and duties as General Partner set forth in Section 7.1.A hereof, the General Partner may exercise any of the powers granted to it by this Agreement and perform any of the duties imposed upon it hereunder either directly or by or through its agents. The General Partner shall not be responsible for any misconduct or negligence on the part of any such agent appointed by the General Partner in good faith.
D. Any amendment, modification or repeal of this Section 7.8 or any provision hereof shall be prospective only and shall not in any way affect the limitations on the General Partners liability to the Partnership and the Limited Partners under this Section 7.8 as in effect immediately prior to such amendment, modification or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted.
Section 7.9 Other Matters Concerning the General Partner
A. The General Partner may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, debenture, or other paper or document believed by it in good faith to be genuine and to have been signed or presented by the proper party or parties.
B. The General Partner may consult with legal counsel, accountants, appraisers, management consultants, investment bankers, architects, engineers, environmental consultants and
30
other consultants and advisers selected by it, and any act taken or omitted to be taken in reliance upon the opinion of such Persons as to matters which such General Partner reasonably believes to be within such Persons professional or expert competence shall be conclusively presumed to have been done or omitted in good faith and in accordance with such opinion.
C. The General Partner shall have the right, in respect of any of its powers or obligations hereunder, to act through any of its duly authorized officers and a duly appointed attorney or attorneys-in-fact. Each such attorney shall, to the extent provided by the General Partner in the power of attorney, have full power and authority to do and perform all and every act and duty which is permitted or required to be done by the General Partner hereunder.
D. Notwithstanding any other provisions of this Agreement or the Act, any action of the General Partner on behalf of the Partnership or any decision of the General Partner to refrain from acting on behalf of the Partnership, undertaken in the good faith belief that such action or omission is necessary or advisable in order (i) to protect the ability of the General Partner to continue to qualify as a REIT or (ii) to avoid the General Partner incurring any taxes under Section 857 or Section 4981 of the Code, is expressly authorized under this Agreement and is deemed approved by all of the Limited Partners.
Section 7.10 Title to Partnership Assets
Title to Partnership assets, whether real, personal or mixed and whether tangible or intangible, shall be deemed to be owned by the Partnership as an entity, and no Partner, individually or collectively, shall have any ownership interest in such Partnership assets or any portion thereof. Title to any or all of the Partnership assets may be held in the name of the Partnership, the General Partner or one or more nominees, as the General Partner may determine, including Affiliates of the General Partner. The General Partner hereby declares and warrants that any Partnership assets for which legal title is held in the name of the General Partner or any nominee or Affiliate of the General Partner shall be held by the General Partner for the use and benefit of the Partnership in accordance with the provisions of this Agreement; provided, however, that the General Partner shall use its best efforts to cause beneficial and record title to such assets to be vested in the Partnership as soon as reasonably practicable. All Partnership assets shall be recorded as the property of the Partnership in its books and records, irrespective of the name in which legal title to such Partnership assets is held.
Section 7.11 Reliance by Third Parties
Notwithstanding anything to the contrary in this Agreement, any Person dealing with the Partnership shall be entitled to assume that the General Partner has full power and authority, without consent or approval of any other Partner or Person to encumber, sell or otherwise use in any manner any and all assets of the Partnership and to enter into any contracts on behalf of the Partnership, and take any and all actions on behalf of the Partnership and such Person shall be entitled to deal with the General Partner as if the General Partner were the Partnerships sole party in interest, both legally and beneficially. Each Limited Partner hereby waives any and all defenses or other remedies which may be available against such Person to contest, negate or disaffirm any action of the General Partner in
31
connection with any such dealing. In no event shall any Person dealing with the General Partner or its representatives be obligated to ascertain that the terms of this Agreement have been complied with or to inquire into the necessity or expedience of any act or action of the General Partner or its representatives. Each and every certificate, document or other instrument executed on behalf of the Partnership by the General Partner or its representatives shall be conclusive evidence in favor of any and every Person relying thereon or claiming thereunder that (i) at the time of the execution and delivery of such certificate, document or instrument, this Agreement was in full force and effect, (ii) the Person executing and delivering such certificate, document or instrument was duly authorized and empowered to do so for and on behalf of the Partnership and (iii) such certificate, document or instrument was duly executed and delivered in accordance with the terms and provisions of this Agreement and is binding upon the Partnership.
ARTICLE 8
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
Section 8.1 Limitation of Liability
The Limited Partners shall have no liability under this Agreement except as expressly provided in this Agreement, including Section 10.5 hereof, or under the Act.
Section 8.2 Management of Business
No Limited Partner or Assignee (other than the General Partner, any of its Affiliates or any officer, director, employee, partner, agent or trustee of the General Partner, the Partnership or any of their Affiliates, in their capacity as such) shall take part in the operation, management or control (within the meaning of the Act) of the Partnerships business, transact any business in the Partnerships name or have the power to sign documents for or otherwise bind the Partnership. The transaction of any such business by the General Partner, any of its Affiliates or any officer, director, employee, partner, agent or trustee of the General Partner, the Partnership or any of their Affiliates, in their capacity as such, shall not affect, impair or eliminate the limitations on the liability of the Limited Partners or Assignees under this Agreement.
Section 8.3 Outside Activities of Limited Partners
Subject to any agreements entered into pursuant to Section 7.6.E hereof and any other agreements entered into by a Limited Partner or its Affiliates with the Partnership or a Subsidiary, any Limited Partner (other than the General Partner) and any officer, director, employee, agent, trustee, Affiliate or shareholder of any Limited Partner (other than the General Partner) shall be entitled to and may have business interests and engage in business activities in addition to those relating to the Partnership, including business interests and activities that are in direct competition with the Partnership or that are enhanced by the activities of the Partnership. Neither the Partnership nor any Partners shall have any rights by virtue of this Agreement in any business ventures of any Limited Partner or Assignee. None of the Limited Partners (other than the General Partner) nor any other Person shall have any rights by virtue of this Agreement or the Partnership relationship
32
established hereby in any business ventures of any other Person (other than the General Partner to the extent expressly provided herein) and such Person shall have no obligation pursuant to this Agreement to offer any interest in any such business ventures to the Partnership, any Limited Partner or any such other Person, even if such opportunity is of a character which, if presented to the Partnership, any Limited Partner or such other Person, could be taken by such Person.
Section 8.4 Return of Capital
Except pursuant to the right of redemption set forth in Section 8.6, no Limited Partner shall be entitled to the withdrawal or return of its Capital Contribution, except to the extent of distributions made pursuant to this Agreement or upon termination of the Partnership as provided herein. Except to the extent provided by Exhibit C hereof or as permitted by Section 4.2.B, or otherwise expressly provided in this Agreement, no Limited Partner or Assignee shall have priority over any other Limited Partner or Assignee either as to the return of Capital Contributions or as to profits, losses or distributions.
Section 8.5 Rights of Limited Partners Relating to the Partnership
A. In addition to other rights provided by this Agreement or by the Act, and except as limited by Section 8.5.C hereof, each Limited Partner shall have the right, for a purpose reasonably related to such Limited Partner interest as a limited partner in the Partnership, upon written demand with a statement of the purpose of such demand and at such Limited Partners own expense (including such copying and administrative charges as the General Partner may establish from time to time):
(1) | to obtain a copy of the most recent annual and quarterly reports filed with the Securities and Exchange Commission by the General Partner pursuant to the Securities Exchange Act of 1934; |
(2) | to obtain a copy of the Partnerships federal, state and local income tax returns for each Partnership Year; |
(3) | to obtain a current list of the name and last known business, residence or mailing address of each Partner; |
(4) | to obtain a copy of this Agreement and the Certificate and all amendments thereto, together with executed copies of all powers of attorney pursuant to which this Agreement, the Certificate and all amendments thereto have been executed; and |
(5) | to obtain true and full information regarding the amount of cash and a description and statement of any other property or services contributed by each Partner and which each Partner has agreed to contribute in the future, and the date on which each became a Partner. |
33
B. The Partnership shall notify each Limited Partner upon request of the then current and applicable Conversion Factor.
C. Notwithstanding any other provision of this Section 8.5, the General Partner may keep confidential from the Limited Partners, for such period of time as the General Partner determines in its sole and absolute discretion to be reasonable, any information that (i) the General Partner reasonably believes to be in the nature of trade secrets or other information the disclosure of which the General Partner in good faith believes is not in the best interests of the Partnership or could damage the Partnership or its business or (ii) the Partnership is required by law or by agreements with an unaffiliated third party to keep confidential.
Section 8.6 Redemption Right
A. Subject to Sections 8.6.B and 8.6.C, on or after the date one (1) year after the closing of the initial public offering of REIT Shares by the General Partner, each Limited Partner, other than the General Partner, shall have the right (the Redemption Right) to require the Partnership to redeem on a Specified Redemption Date all or a portion of the Partnership Units held by such Limited Partner at a redemption price equal to and in the form of the Cash Amount to be paid by the Partnership. The Redemption Right shall be exercised pursuant to a Notice of Redemption delivered to the Partnership (with a copy to the General Partner) by the Limited Partner who is exercising the redemption right (the Redeeming Partner); provided, however, that the Partnership shall not be obligated to satisfy such Redemption Right if the General Partner elects to purchase the Partnership Units subject to the Notice of Redemption pursuant to Section 8.6.B. A Limited Partner may not exercise the Redemption Right for less than one thousand (1,000) Partnership Units or, if such Limited Partner holds less than one thousand (1,000) Partnership Units, all of the Partnership Units held by such Partner. The Redeeming Partner shall have no right, with respect to any Partnership Units so redeemed, to receive any distributions paid on or after the Specified Redemption Date. The Assignee of any Limited Partner may exercise the rights of such Limited Partner pursuant to this Section 8.6, and such Limited Partner shall be deemed to have assigned such rights to such Assignee and shall be bound by the exercise of such rights by such Assignee. In connection with any exercise of such rights by such Assignee on behalf of such Limited Partner, the Cash Amount shall be paid by the Partnership directly to such Assignee and not to such Limited Partner.
B. Notwithstanding the provisions of Section 8.6.A, a Limited Partner that exercises the Redemption Right shall be deemed to have offered to sell the Partnership Units described in the Notice of Redemption to the General Partner and the General Partner may, in its sole and absolute discretion, elect to purchase directly and acquire such Partnership Units by paying to the Redeeming Partner either the Cash Amount or the REIT Shares Amount, as elected by the General Partner (in its sole and absolute discretion), on the Specified Redemption Date, whereupon the General Partner shall acquire the Partnership Units offered for redemption by the Redeeming Partner and shall be treated for all purposes of this Agreement as the owner of such Partnership Units. If the General Partner shall elect to exercise its right to purchase Partnership Units under this Section 8.6.B with respect to a Notice of Redemption, it shall so notify the Redeeming Partner within five (5) Business
34
Days after the receipt by the General Partner of such Notice of Redemption. Unless the General Partner (in its sole and absolute discretion) shall exercise its right to purchase Partnership Units from the Redeeming Partner pursuant to its right to purchase Partnership Units under this Section 8.6.B, the General Partner shall not have any obligation to the Redeeming Partner or the Partnership with respect to the Redeeming Partners exercise of the Redemption Right. In the event the General Partner shall exercise its right to purchase Partnership Units with respect to the exercise of a Redemption Right in the manner described in the first sentence of this Section 8.6.B, the Partnership shall have no obligation to pay any amount to the Redeeming Partner with respect to such Redeeming Partners exercise of such Redemption Right, and each of the Redeeming Partner, the Partnership, and the General Partner shall treat the transaction between the General Partner and the Redeeming Partner for federal income tax purposes as a sale of the Redeeming Partners Partnership Units to the General Partner. Each Redeeming Partner agrees to execute such documents as the General Partner may reasonably require in connection with the issuance of REIT Shares upon exercise of the Redemption Right.
C. Notwithstanding the provisions of Section 8.6.A and Section 8.6.B, a Partner shall not be entitled to exercise the Redemption Right pursuant to Section 8.6.A if the delivery of REIT Shares to such Partner on the Specified Redemption Date by the General Partner pursuant to Section 8.6.B (regardless of whether or not the General Partner would in fact exercise its rights under Section 8.6.B) would be prohibited under the Articles of Incorporation.
D. Notwithstanding anything contained in Sections 8.6.A, 8.6.B and 8.6.C, no Partner shall be entitled to exercise the Redemption Right pursuant to Section 8.6.A with respect to any Preferred Partnership Unit unless (i) such Preferred Partnership Unit has been issued to and is held by a Partner other than the General Partner, and (ii) the General Partner has expressly granted to such Partner the right to redeem such Preferred Partnership Units pursuant to Section 8.6.A.
E. Preferred Partnership Units shall be redeemed, if at all, only in accordance with such redemption rights or options as are set forth with respect to such Preferred Partnership Units (or class or series thereof) in the instruments designating such Preferred Partnership Units (or class or series thereof).
ARTICLE 9
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1 Records and Accounting
The General Partner shall keep or cause to be kept at the principal office of the Partnership those records and documents required to be maintained by the Act and other books and records deemed by the General Partner to be appropriate with respect to the Partnerships business, including, without limitation, all books and records necessary to provide to the Limited Partners any information, lists and copies of documents required to be provided pursuant to Section 9.3 hereof. Any records maintained by or on behalf of the Partnership in the regular course of its business may be kept on, or be in the form of, punch cards, magnetic tape, photographs, micrographics or any other
35
information storage device, provided that the records so maintained are convertible into clearly legible written form within a reasonable period of time. The books of the Partnership shall be maintained, for financial and tax reporting purposes, on an accrual basis in accordance with generally accepted accounting principles, or such other basis as the General Partner determines to be necessary or appropriate.
Section 9.2 Partnership Year
The fiscal year of the Partnership shall be the calendar year.
Section 9.3 Reports
A. As soon as practicable, but in no event later than one hundred five (105) days after the close of each Partnership Year, the General Partner shall cause to be mailed to each Limited Partner as of the close of the Partnership Year, an annual report containing financial statements of the Partnership, or of the General Partner if such statements are prepared solely on a consolidated basis with the General Partner, for such Partnership Year, presented in accordance with generally accepted accounting principles, such statements to be audited by a nationally recognized firm of independent public accountants selected by the General Partner.
B. As soon as practicable, but in no event later than one hundred five (105) days after the close of each calendar quarter (except the last calendar quarter of each year), the General Partner shall cause to be mailed to each Limited Partner as of the last day of the calendar quarter, a report containing unaudited financial statements of the Partnership or of the General Partner, if such statements are prepared solely on a consolidated basis with the General Partner, and such other information as may be required by applicable law or regulation, or as the General Partner determines to be appropriate.
ARTICLE 10
TAX MATTERS
Section 10.1 Preparation of Tax Returns
A. The General Partner shall arrange for the preparation and timely filing of all returns of Partnership income, gains, deductions, losses and other items required of the Partnership for federal and state income tax purposes and shall use all reasonable efforts to furnish, within ninety (90) days of the close of each taxable year, the tax information reasonably required by Limited Partners for federal and state income tax reporting purposes.
36
Section 10.2 Tax Elections
Except as otherwise provided herein, the General Partner shall, in its sole and absolute discretion, determine whether to make any available election pursuant to the Code. The General Partner shall have the right to seek to revoke any such election (including, without limitation, the election under Section 754 of the Code) upon the General Partners determination in its sole and absolute discretion that such revocation is in the best interests of the Partners.
Section 10.3 Tax Matters Partner
A. The General Partner shall be the tax matters partner of the Partnership for federal income tax purposes. Pursuant to Section 6230(e) of the Code, upon receipt of notice from the IRS of the beginning of an administrative proceeding with respect to the Partnership, the tax matters partner shall furnish the IRS with the name, address, taxpayer identification number, and profit interest of each of the Limited Partners and the Assignees; provided, however, that such information is provided to the Partnership by the Limited Partners and the Assignees.
B. The tax matters partner is authorized, but not required:
(1) | to enter into any settlement with the IRS with respect to any administrative or judicial proceedings for the adjustment of Partnership items required to be taken into account by a Partner for income tax purposes (such administrative proceedings being referred to as a tax audit and such judicial proceedings being referred to as judicial review), and in the settlement agreement the tax matters partner may expressly state that such agreement shall bind all Partners, except that such settlement agreement shall not bind any Partner (i) who (within the time prescribed pursuant to the Code and Regulations) files a statement with the IRS providing that the tax matters partner shall not have the authority to enter into a settlement agreement on behalf of such Partner or (ii) who is a notice partner (as defined in Section 6231(a)(8) of the Code) or a member of a notice group (as defined in Section 6223(b)(2) of the Code); |
(2) | in the event that a notice of a final administrative adjustment at the Partnership level of any item required to be taken into account by a Partner for tax purposes (a final adjustment) is mailed to the tax matters partner, to seek judicial review of such final adjustment, including the filing of a petition for readjustment with the Tax Court or the filing of a complaint for refund with the United States Claims Court or the District Court of the United States for the district in which the Partnerships principal place of business is located; |
(3) | to intervene in any action brought by any other Partner for judicial review of a final adjustment; |
37
(4) | to file a request for an administrative adjustment with the IRS and, if any part of such request is not allowed by the IRS, to file an appropriate pleading (petition or complaint) for judicial review with respect to such request; |
(5) | to enter into an agreement with the IRS to extend the period for assessing any tax which is attributable to any item required to be taken into account by a Partner for tax purposes, or an item affected by such item; and |
(6) | to take any other action on behalf of the Partners or the Partnership in connection with any tax audit or judicial review proceeding to the extent permitted by applicable law or regulations. |
The taking of any action and the incurring of any expense by the tax matters partner in connection with any such proceeding, except to the extent required by law, is a matter in the sole and absolute discretion of the tax matters partner and the provisions relating to indemnification of the General Partner set forth in Section 7.7 of this Agreement shall be fully applicable to the tax matters partner in its capacity as such.
C. The tax matters partner shall receive no compensation for its services. All third party costs and expenses incurred by the tax matters partner in performing its duties as such (including legal and accounting fees and expenses) shall be borne by the Partnership. Nothing herein shall be construed to restrict the Partnership from engaging an accounting firm to assist the tax matters partner in discharging its duties hereunder, so long as the compensation paid by the Partnership for such services is reasonable.
Section 10.4 Organizational Expenses
The Partnership shall elect to deduct expenses, if any, incurred by it in organizing the Partnership ratably over a sixty (60) month period as provided in Section 709 of the Code.
Section 10.5 Withholding
Each Limited Partner hereby authorizes the Partnership to withhold from or pay on behalf of or with respect to such Limited Partner any amount of federal, state, local, or foreign taxes that the General Partner determines that the Partnership is required to withhold or pay with respect to any amount distributable or allocable to such Limited Partner pursuant to this Agreement, including, without limitation, any taxes required to be withheld or paid by the Partnership pursuant to Sections 1441, 1442, 1445, or 1446 of the Code. Any amount paid on behalf of or with respect to a Limited Partner shall constitute a loan by the Partnership to such Limited Partner, which loan shall be repaid by such Limited Partner within fifteen (15) days after notice from the General Partner that such payment must be made unless (i) the Partnership withholds such payment from a distribution which would otherwise be made to the Limited Partner or (ii) the General Partner determines, in its sole and absolute discretion, that such payment may be satisfied out of the available funds of the Partnership
38
which would, but for such payment, be distributed to the Limited Partner. Any amounts withheld pursuant to the foregoing clauses (i) or (ii) shall be treated as having been distributed to such Limited Partner. Each Limited Partner hereby unconditionally and irrevocably grants to the Partnership a security interest in such Limited Partners Partnership Interest to secure such Limited Partners obligation to pay to the Partnership any amounts required to be paid pursuant to this Section 10.5. In the event that a Limited Partner fails to pay any amounts owed to the Partnership pursuant to this Section 10.5 when due, the General Partner may, in its sole and absolute discretion, elect to make the payment to the Partnership on behalf of such defaulting Limited Partner, and in such event shall be deemed to have loaned such amount to such defaulting Limited Partner. Without limitation, in such event the General Partner (i) shall have the right to receive distributions that would otherwise be distributable to such defaulting Limited Partner until such time as such loan, together with all interest thereon, has been paid in full, and any such distributions so received by the General Partner shall be treated as having been distributed to the defaulting Limited Partner and immediately paid by the defaulting Limited Partner to the General Partner in repayment of such loan and (ii) shall succeed to all rights and remedies of the Partnership as against such defaulting Limited Partner. Any amounts payable by a Limited Partner hereunder shall bear interest at the lesser of (A) the base rate on corporate loans at large United States money center commercial banks, as published from time to time in the Wall Street Journal , plus four (4) percentage points, or (B) the maximum lawful rate of interest on such obligation, such interest to accrue from the date such amount is due (i.e., fifteen (15) days after demand) until such amount is paid in full. Each Limited Partner shall take such actions as the Partnership or the General Partner shall request in order to perfect or enforce the security interest created hereunder.
ARTICLE 11
TRANSFERS AND WITHDRAWALS
Section 11.1 Transfer
A. The term transfer, when used in this Article 11 with respect to a Partnership Unit, shall be deemed to refer to a transaction by which the General Partner purports to assign all or any part of its General Partner Interest to another Person or by which a Limited Partner purports to assign all or any part of its Limited Partner Interest to another Person, and includes a sale, assignment, gift, pledge, encumbrance, hypothecation, mortgage, exchange or any other disposition by law or otherwise. The term transfer when used in this Article 11 does not include any redemption of Partnership Interests by the Partnership from a Limited Partner or any acquisition of Partnership Units from a Limited Partner by the General Partner or the General Partner pursuant to Section 8.6.
B. No Partnership Interest shall be transferred, in whole or in part, except in accordance with the terms and conditions set forth in this Article 11. Any transfer or purported transfer of a Partnership Interest not made in accordance with this Article 11 shall be null and void.
39
Section 11.2 Transfer of General Partners Partnership Interests
A. The General Partner may not transfer any of its General Partner Interest or Limited Partner Interests or withdraw as General Partner except as provided in Section 11.2.B or Article 16.
B. The General Partner may transfer Limited Partner Interests held by it either to the Partnership in accordance with Section 7.5.B hereof or to a purported holder of REIT Shares in accordance with the provisions of Article 5 of the Articles of Incorporation.
C. If the General Partner is the surviving entity of a merger, it shall contribute substantially all of the assets acquired in the merger to the Partnership as a Capital Contribution in exchange for Partnership Units with a fair market value, as reasonably determined by the General Partner, equal to the 704(c) Value of the assets so contributed; provided that this requirement shall not be applicable if such merger is a Trigger Event as defined in Section 16.
Notwithstanding anything contained herein, all references to Partnership Units of the Agreement shall be deemed to refer solely to Common Partnership Units, and not to Preferred Partnership Units.
Section 11.3 Limited Partners Rights to Transfer
A. Subject to the provisions of Sections 11.3.C, 11.3.D, 11.3.E, 11.4 and 11.5, a Limited Partner may transfer, with or without the consent of the General Partner, all or any portion of its Partnership Interest, or any of such Limited Partners economic rights as a Limited Partner.
B. If a Limited Partner is subject to Incapacity, the executor, administrator, trustee, committee, guardian, conservator or receiver of such Limited Partners estate shall have all the rights of a Limited Partner, but not more rights than those enjoyed by other Limited Partners, for the purpose of selling or managing the estate and such power as the Incapacitated Limited Partner possessed to transfer all or any part of his or its interest in the Partnership. The Incapacity of a Limited Partner, in and of itself, shall not dissolve or terminate the Partnership.
C. The General Partner may prohibit any transfer by a Limited Partner of its Partnership Units if, in the opinion of legal counsel to the Partnership, such transfer would require filing of a registration statement under the Securities Act of 1933 or would otherwise violate any federal or state securities laws or regulations applicable to the Partnership or the Partnership Unit.
D. No transfer by a Limited Partner of its Partnership Units may be made to any Person if (i) in the opinion of legal counsel for the Partnership, it would result in the Partnership being treated as an association taxable as a corporation, or (ii) such transfer is effectuated through an established securities market or a secondary market (or the substantial equivalent thereof within the meaning of Section 7704 of the Code.
E. No transfer of any Partnership Units may be made to a lender to the Partnership or any Person who is related (within the meaning of Regulations Section 1.752-4(b)) to any lender to the Partnership whose loan constitutes a Nonrecourse Liability, without the consent of the General
40
Partner, in its sole and absolute discretion, provided that as a condition to such consent the lender will be required to enter into an arrangement with the Partnership and the General Partner to exchange or redeem for the Cash Amount any Partnership Units in which a security interest is held simultaneously with the time at which such lender would be deemed to be a partner in the Partnership for purposes of allocating liabilities to such lender under Section 752 of the Code.
Section 11.4 Substituted Limited Partners
A. No Limited Partner shall have the right to substitute a transferee as a Limited Partner in his place. The General Partner shall, however, have the right to consent to the admission of a transferee of the interest of a Limited Partner pursuant to this Section 11.4 as a Substituted Limited Partner, which consent may be given or withheld by the General Partner in its sole and absolute discretion. The General Partners failure or refusal to permit a transferee of any such interests to become a Substituted Limited Partner shall not give rise to any cause of action against the Partnership or any Partner.
B. A transferee who has been admitted as a Substituted Limited Partner in accordance with this Article 11 shall have all the rights and powers and be subject to all the restrictions and liabilities of a Limited Partner under this Agreement.
C. Upon the admission of a Substituted Limited Partner, the General Partner shall amend Exhibit A to reflect the name, address, number of Partnership Units, and Percentage Interest of such Substituted Limited Partner and to eliminate or adjust, if necessary, the name, address and interest of the predecessor of such Substituted Limited Partner.
Section 11.5 Assignees
If the General Partner, in its sole and absolute discretion, does not consent to the admission of any permitted transferee under Section 11.3 as a Substituted Limited Partner, as described in Section 11.4, such transferee shall be considered an Assignee for purposes of this Agreement. An Assignee shall be deemed to have had assigned to it, and shall be entitled to receive distributions from the Partnership and the share of Net Income, Net Losses, Recapture Income, and any other items, gain, loss deduction and credit of the Partnership attributable to the Partnership Units assigned to such transferee, but shall not be deemed to be a holder of Partnership Units for any other purpose under this Agreement, and shall not be entitled to vote such Partnership Units in any matter presented to the Limited Partners for a vote (such Partnership Units being deemed to have been voted on such matter in the same proportion as all other Partnership Units held by Limited Partners are voted). In the event any such transferee desires to make a further assignment of any such Partnership Units, such transferee shall be subject to all the provisions of this Article 11 to the same extent and in the same manner as any Limited Partner desiring to make an assignment of Partnership Units.
41
Section 11.6 General Provisions
A. No Limited Partner may withdraw from the Partnership other than as a result of a permitted transfer of all of such Limited Partners Partnership Units in accordance with this Article 11 or pursuant to redemption of all of its Partnership Units under Section 8.6.
B. Any Limited Partner who shall transfer all of its Partnership Units in a transfer permitted pursuant to this Article 11 shall cease to be a Limited Partner upon the admission of all Assignees of such Partnership Units as Substitute Limited Partners. Similarly, any Limited Partner who shall transfer all of its Partnership Units pursuant to a redemption of all of its Partnership Units under Section 8.6 shall cease to be a Limited Partner.
C. Transfers pursuant to this Article 11 may only be made on the first day of a fiscal quarter of the Partnership, unless the General Partner otherwise agrees.
D. If any Partnership Interest is transferred or assigned during any quarterly segment of the Partnership Year in compliance with the provisions of this Article 11 or redeemed or transferred pursuant to Section 8.6, or any day other than the first day of a Partnership Year, then Net Income, Net Losses, each item thereof and all other items attributable to such interest for such Partnership Year shall be divided and allocated between the transferor Partner and the transferee Partner by taking into account their varying interests during the Partnership Year in accordance with Section 706(d) of the Code, using the interim closing of the books method. Solely for purposes of making such allocations, each of such items for the calendar month in which the transfer or assignment occurs shall be allocated to the transferee Partner, and none of such items for the calendar month in which a redemption occurs shall be allocated to the Redeeming Partner. All distributions of Available Cash attributable to such Partnership Unit with respect to which the Partnership Record Date is before the date of such transfer, assignment, or redemption shall be made to the transferor Partner or the Redeeming Partner, as the case may be, and in the case of a transfer or assignment other than a redemption, all distributions of Available Cash thereafter attributable to such Partnership Unit shall be made to the transferee Partner.
ARTICLE 12
ADMISSION OF PARTNERS
Section 12.1 Admission of Successor General Partner
A successor to all of the General Partner Interest pursuant to Section 11.2 hereof who is proposed to be admitted as a successor General Partner shall be admitted to the Partnership as the General Partner, effective upon such transfer. Any such transferee shall carry on the business of the Partnership without dissolution. In each case, the admission shall be subject to the successor General Partner executing and delivering to the Partnership an acceptance of all of the terms and conditions of this Agreement and such other documents or instruments as may be required to effect the admission. In the case of such admission on any day other than the first day of a Partnership Year, all items attributable to the General Partner Interest for such Partnership year shall be allocated between the transferring General Partner and such successor as provided in Section 11.6.D hereof.
42
Section 12.2 Admission of Additional Limited Partners
A. After the admission to the Partnership of the initial Limited Partners on the date hereof, a Person who makes a Capital Contribution to the Partnership in accordance with this Agreement shall be admitted to the Partnership as an Additional Limited Partner only upon furnishing to the General Partner (i) evidence of acceptance in form satisfactory to the General Partner of all of the terms and conditions of this Agreement, including, without limitation, the power of attorney granted in Section 2.4 hereof and (ii) such other documents or instruments as may be required in the discretion of the General Partner in order to effect such Persons admission as an Additional Limited Partner.
B. Notwithstanding anything to the contrary in this Section 12.2, no Person shall be admitted as an Additional Limited Partner without the consent of the General Partner, which consent may be given or withheld in the General Partners sole and absolute discretion. The admission of any Person as an Additional Limited Partner shall become effective on the date upon which the name of such Person is recorded on the books and records of the Partnership, following the consent of the General Partner to such admission.
C. If any Additional Limited Partner is admitted to the Partnership on any day other than the first day of a Partnership Year, then Net Income, Net Losses, each item thereof and all other items allocable among Partners and Assignees for such Partnership Year shall be allocated among such Additional Limited Partner and all other Partners and Assignees by taking into account their varying interests during the Partnership Year in accordance with Section 706(d) of the Code, using the interim closing of the books method. Solely for purposes of making such allocations, each of such items for the calendar month in which an admission of any Additional Limited Partner occurs shall be allocated among all the Partners and Assigns including such Additional Limited Partner. All distributions of Available Cash with respect to which the Partnership Record Date is before the date of such admission shall be made solely to Partners and Assignees other than the Additional Limited and all distributions of Available Cash thereafter shall be made to all of the Partners and Assignees including such Additional Limited Partner.
Section 12.3 Amendment of Agreement and Certificate of Limited Partnership
For the admission to the Partnership of any Partner, the General Partner shall take all steps necessary and appropriate under the Act to amend the records of the Partnership and, if necessary, to prepare as soon as practical an amendment of this Agreement (including an amendment of Exhibit A ) and, if required by law, shall prepare and file an amendment to the Certificate and may for this purpose exercise the power of attorney granted pursuant to Section 2.4 hereof.
43
ARTICLE 13
DISSOLUTION, LIQUIDATION AND TERMINATION
Section 13.1 Dissolution
The Partnership shall not be dissolved by the admission of Substituted Limited Partners or Additional Limited Partners or by the admission of a successor General Partner in accordance with the terms of this Agreement. Upon the withdrawal of the General Partner, any successor General Partner shall continue the business of the Partnership. The Partnership shall dissolve, and its affairs shall be wound up, upon the first to occur of any of the following (Dissolution Events):
A. the expiration of its term as provided in Section 2.5 hereof.
B. an event of withdrawal of the General Partner, as defined in the Act (other than an event of bankruptcy), unless, within ninety (90) days after such event of withdrawal a majority in interest of the remaining Partners agree in writing to continue the business of the Partnership and to the appointment, effective as of the date of withdrawal, of a successor General Partner;
C. from and after the date of this Agreement through December 31, 2043, an election to dissolve the Partnership made by the General Partner, unless (i) at the time of such election, Original Limited Partners hold at least 10% of the Limited Partnership Units, including such Units held by the General Partner, and (ii) Original Limited Partners owning a majority of the Original Limited Partnership Units object in writing to such dissolution within thirty (30) days of receiving written notice of such election from the General Partner;
D. on or after January 1, 2044 an election to dissolve the Partnership made by the General Partner, in its sole and absolute discretion;
E. entry of a decree of judicial dissolution of the Partnership pursuant to the provisions of the Act;
F. the sale of all or substantially all of the assets and properties of the Partnership; or
G. a final and non-appealable judgment is entered by a court of competent jurisdiction ruling that the General Partner is bankrupt or insolvent, or a final and non-appealable order for relief is entered by a court with appropriate jurisdiction against the General Partner, in each case under any federal or state bankruptcy or insolvency laws as now or hereafter in effect, unless prior to the entry of such order or judgment all of the remaining Partners agree in writing to continue the business of the Partnership and to the appointment, effective as of a date prior to the date of such order or judgment, of a substitute General Partner.
44
Section 13.2 Winding Up
A. Upon the occurrence of a Dissolution Event or a Terminating Capital Transaction, the Partnership shall continue solely for the purposes of winding up its affairs in an orderly manner, liquidating its assets, and satisfying the claims of its creditors and Partners. No Partner shall take any action that is inconsistent with, or not necessary to or appropriate for, the winding up of the Partnerships business and affairs. The General Partner, or, in the event there is no remaining General Partner, any Person elected by a majority in interest of the Limited Partners (the General Partner or such other Person being referred to herein as the Liquidator), shall be responsible for overseeing the winding up and dissolution of the Partnership and shall take full account of the Partnerships liabilities and property and the Partnership property shall be liquidated as promptly as is consistent with obtaining the fair value thereof, and the proceeds therefrom (which may, to the extent determined by the General Partner, including shares of stock in the General Partner) shall be applied and distributed in the following order:
(1) | First, to the payment and discharge of all of the Partnerships debts and liabilities to creditors other than the Partners; |
(2) | Second, to the payment and discharge of all of the Partnerships debts and liabilities to the General Partner; |
(3) | Third, to the payment and discharge of all of the Partnerships debts and liabilities to the other Partners; and |
(4) | The balance, if any, after giving effect to all contributions, distributions, and allocations for all periods, to those Partners with positive Capital Account balances, to the extent of such positive Capital Account balances. |
The General Partner shall not receive any additional compensation for any services performed pursuant to this Article 13.
B. Notwithstanding the provisions of Section 13.2.A hereof which require liquidation of the assets of the Partnership, but subject to the order of priorities set forth therein, if prior to or upon dissolution of the Partnership, the Liquidator determines that an immediate sale of part or all of the Partnerships assets would be impractical or would cause undue loss to the Partners, the Liquidator may, in its sole and absolute discretion, defer for a reasonable time the liquidation of any assets except those necessary to satisfy liabilities of the Partnership (including to those Partners as creditors) and/or distribute to the Partners, in lieu of cash, as tenants in common and in accordance with the provisions of Section 13.2.A hereof, undivided interests in such Partnership assets as the Liquidator deems not suitable for liquidation. Any such distributions in kind shall be made only if, in the good faith judgment of the Liquidator, such distributions in kind are in the best interest of the Partners, and shall be subject to such conditions relating to the disposition and management of such properties as the Liquidator deems reasonable and equitable and to any agreements governing the operation of such properties at such time. The Liquidator shall determine the fair market value of any property distributed in kind using such reasonable method of valuation as it may adopt.
45
C. In the discretion of the Liquidator, a pro rata portion of the distributions that would otherwise be made to the General Partner and Limited Partners pursuant to this Article 13 may be:
(1) | distributed to a trust established for the benefit of the General Partner and Limited Partners for the purposes of liquidating Partnership assets, collecting amounts owed to the Partnership, and paying any contingent or unforeseen liabilities or obligations of the Partnership or the General Partner arising out of or in connection with the Partnership. The assets of any such trust shall be distributed to the General Partner and limited Partners from time to time, in the reasonable discretion of the Liquidator, in the same proportions as the amount distributed to such trust by the Partnership would otherwise have been distributed to the General Partner and Limited Partners pursuant to this Agreement; or |
(2) | withheld or escrowed to provide a reasonable reserve for Partnership liabilities (contingent or otherwise) and to reflect the unrealized portion of any installment obligations owed to the Partnership, provided that such withheld or escrowed amounts shall be distributed to the General Partner and Limited Partners in the manner and order of priority set forth in Section 13.2.A as soon as practicable. |
Section 13.3 Negative Capital Accounts
No Partner, General or Limited, shall be liable to the Partnership or to any other Partner for any negative balance outstanding in each such Partners Capital Account, whether such negative Capital Account results from the allocation of Net Losses or other items of deduction and loss to such Partner or from distributions to such Partner.
Section 13.4 Deemed Distribution and Recontribution
Notwithstanding any other provision of this Article 13, in the event the Partnership is considered liquidated within the meaning of Regulations Section 1.704-l(b)(2)(ii)(g), but no Dissolution Event has occurred, the Partnerships property shall not be liquidated, the Partnerships liabilities shall not be paid or discharged, and the Partnerships affairs shall not be wound up. Instead, for federal income tax purposes and for purposes of maintaining Capital Accounts pursuant to Exhibit B hereto, the Partnership shall be deemed to have distributed the property in kind to the General Partner and Limited Partners, who shall be deemed to have assumed and taken such property subject to all Partnership liabilities, all in accordance with their respective Capital Accounts. Immediately thereafter, the General Partner and Limited Partners shall be deemed to have recontributed the Partnership property in kind to the Partnership, which shall be deemed to have assumed and taken such property subject to all such liabilities.
46
Section 13.5 Rights of Limited Partners
Except as otherwise provided in this Agreement, each Limited Partner shall look solely to the assets of the Partnership for the return of its Capital Contributions and shall have no right or power to demand or receive property other than cash from the Partnership. Except as otherwise provided in this Agreement, no Limited Partner shall have priority over any other Partner as to the return of its Capital Contributions, distribution or allocations.
Section 13.6 Notice of Dissolution
In the event a Dissolution Event occurs or an event occurs that would, but for the provisions of an election or objection by one or more Partners pursuant to Section 13.1, result in a dissolution of the Partnership, the General Partner shall provide within thirty (30) days thereafter written notice thereof to each of the Partners.
Section 13.7 Termination of Partnership and Cancellation of Certificate of Limited Partnership
Upon the completion of the liquidation of the Partnership cash and property as provided in Section 13.2 hereof, the Partnership shall be terminated, a certificate of cancellation shall be filed, and all qualifications of the Partnership as a foreign limited partnership in jurisdictions other than the State of North Carolina shall be canceled and such other actions as may be necessary to terminate the Partnership shall be taken.
Section 13.8 Reasonable Time for Winding-Up
A reasonable time shall be allowed for the orderly winding-up of the business and affairs of the Partnership and the liquidation of its assets pursuant to Section 13.2 hereof, in order to minimize any losses otherwise attendant upon such winding-up, and the provisions of this Agreement shall remain in effect between the Partners during the period of liquidation.
Section 13.9 Waiver of Partition
Each Partner hereby waives any right to partition of the Partnership property.
ARTICLE 14
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS
Section 14.1 Amendments
A. Amendments to this Agreement may be proposed by the General Partner or by any Limited Partners holding ten percent (10%) or more of the Partnership Interests. Following such proposal, the General Partner shall submit any proposed amendment to the Limited Partners. The
47
General Partner shall seek the written vote of the Partners on the proposed amendment or shall call a meeting to vote thereon and to transact any other business that it may deem appropriate. For purposes of obtaining a written vote, the General Partner may require a response within a reasonable specified time, but not less than fifteen (15) days, and failure to respond in such time period shall constitute a vote which is consistent with the General Partners recommendation with respect to the proposal. Except as provided in Section 7.3.A, 7.3.B, 13.1.C, 14.1.B, 14.1.C or 14.1.D, a proposed amendment shall be adopted and be effective as an amendment hereto if it is approved by the General Partner and it receives the Consent of Partners holding a majority of the Percentage Interests of the Limited Partners (including Limited Partner Interests held by the General Partner).
B. Notwithstanding Section 14.1.A, the General Partner shall have the power, without the consent of the Limited Partners, to amend this Agreement as may be required to facilitate or implement any of the following purposes:
(1) | to add to the obligations of the General Partner or surrender any right or power granted to the General Partner or any Affiliate of the General Partner for the benefit of the Limited Partners; |
(2) | to reflect the admission, substitution, termination, or withdrawal of Partners in accordance with this Agreement. |
(3) | to set forth the designations, rights, powers, duties, and preferences of the holders of any additional Partnership Interests issued pursuant to Section 4.2.A hereof; |
(4) | to reflect a change that is of an inconsequential nature and does not adversely affect the Limited Partners in any material respect, or to cure any ambiguity, correct or supplement any provision in this Agreement not inconsistent with law or with other provisions, or make other changes with respect to matters arising under this Agreement that will not be inconsistent with law or with the provisions of this Agreement; and |
(5) | to satisfy any requirements, conditions, or guidelines contained in any order, directive, opinion, ruling or regulation of a federal or state agency or contained in federal or state law |
The General Partner shall provide notice to the Limited Partners when any action under this Section 14.1.B is taken.
C. Notwithstanding Section 14.1.A and 14.1.B hereof, this Agreement shall not be amended without the Consent of each Partner adversely affected if such amendment would (i) convert a Limited Partners interest in the Partnership into a General Partner Interest, (ii) modify the limited liability of a Limited Partner in a manner adverse to such Limited Partner, (iii) alter rights of the Partner to receive distributions pursuant to Article 5 or Article 13, or the allocations specified in
48
Article 6 (except as permitted pursuant to Section 4.2 and Section 14.1.B(3) hereof), (iv) alter or modify the Redemption Right and REIT Shares Amount as set forth in Section 8.6, and the related definitions, in a manner adverse to such Partner, (v) cause the termination of the Partnership prior to the time set forth in Sections 2.5 or 13.1, or (vi) amend this Section 14.1.C. Further, no amendment may alter the restrictions on the General Partners authority set forth in Section 7.3 without the Consent specified in that section.
D. Notwithstanding Section 14.1.A or Section 14.1.B hereof, the General Partner shall not amend Sections 4.2.A, 7.5, 7.6, 11.2 or 14.2 without the Consent of 75% of the Percentage Interests of the Limited Partners excluding Limited Partners Interests held by the General Partner.
Under this Section 14.1, references of the Agreement to Percentage Interests of the Limited Partners shall be deemed to refer solely to Percentage Interests of Limited Partners with respect to Common Partnership Units.
Section 14.2 Meetings of the Partners
A. Meetings of the Partners may be called by the General Partner and shall be called upon the receipt by the General Partner of a written request by Limited Partners holding twenty percent (20) or more of the Partnership Interests. The call shall state the nature of the business to be transacted notice of any such meeting shall be given to all Partners not less than seven (7) days nor more than thirty (30) days prior to the date of such meeting. Partners may vote in person or by proxy at such meeting. Whenever the vote or Consent of the Partners is permitted or required under this Agreement, such vote or Consent may be given at a meeting of the Partners or may be given in accordance with the procedure prescribed in Section 14.1A hereof. Except as otherwise expressly provided in this Agreement, the Consent of holders of a majority of the Percentage Interests held by Limited Partners (including Limited Partnership Interests held by the General Partner) shall control.
Reference to Partnership Interests shall be deemed to refer only to Partnership Interests held with respect to Common Partnership Units.
B. Any action required or permitted to be taken at a meeting of the Partners may be taken without a meeting if a written consent setting forth the action so taken is signed by 75% of the Percentage Interests of the Partners (or such other percentage as is expressly required by this Agreement). Such consent may be in one instrument or in several instruments and shall have the same force and effect as a vote of 75% of the Percentage Interests of the Partners (or such other percentage as is expressly required by this Agreement). Such consent shall be filed with the General Partner. An action so taken shall be deemed to have been taken at a meeting held on the effective date so certified.
C. Each Limited Partner may authorize any Person or Persons to act for him by proxy on all matters in which a Limited Partner is entitled to participate, including waiving notice of any meeting, or voting or participating at a meeting. Every proxy must be signed by the Limited Partner or his attorney-in-fact. No proxy shall be valid after the expiration of eleven (11) months from the
49
date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the Limited Partner executing it, such revocation to be effective upon the Partnerships receipt of or written notice such revocation from the Limited Partner executing such proxy.
D. Each meeting of the Partners shall be conducted by the General Partner or such other Person as the General Partner may appoint pursuant to such rules for the conduct of the meeting as the General Partner or such other Person deems appropriate. Without limitation, meetings of Partners may be conducted in the same manner as meetings of the shareholders of the General Partner and may be held at the same time, and as part of, meetings of the shareholders of the General Partner.
Under this Section 14.2, references of the Agreement to Percentage Interests of the Limited Partners shall be deemed to refer solely to Percentage Interests of Limited Partners with respect to Common Partnership Units.
ARTICLE 15
GENERAL PROVISIONS
Section 15.1 Addresses and Notice
Any notice, demand, request or report required or permitted to be given or made to a Partner or Assignee under this Agreement shall be in writing and shall be deemed given or made when delivered in person or when sent by first class United States mail or by other means of written communication to the Partner or Assignee at the address set forth in Exhibit A or such other address of which the Partner shall notify the General Partner in writing.
Section 15.2 Titles and Captions
All article or section titles or captions in this Agreement are for convenience only. They shall not be deemed part of this Agreement and in no way define, limit, extend or describe the scope or intent of any provisions hereof. Except as specifically provided otherwise, references to Articles and Sections are to Articles and Sections of this Agreement.
Section 15.3 Pronouns and Plurals
Whenever the context may require, any pronoun used in this Agreement shall include the plural and vice versa.
Section 15.4 Further Action
The parties shall execute and deliver all documents, provide all information and take or refrain from taking action as may be necessary or appropriate to achieve the purpose of this Agreement.
50
Section 15.5 Binding Effect
This Agreement shall be binding upon and inure to the benefit of the parties hereto and their heirs, executors, administrators, successors, legal representatives and permitted assigns.
Section 15.6 Creditors
Other than as expressly set forth herein with respect to the Indemnities, none of the provisions of this Agreement shall be for the benefit of, or shall be enforceable by, any creditors of the Partnership.
Section 15.7 Waiver
No failure by any party to insist upon the strict performance of any covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof shall constitute waiver of any such breach or any other covenant, duty, agreement or condition.
Section 15.8 Counterparts
This Agreement may be executed in counterparts, all of which together shall constitute one agreement binding on all the parties hereto, notwithstanding that all such parties are not signatories to the original or the same counterpart. Each party shall become bound by this Agreement immediately upon affixing its signature hereto.
Section 15.9 Applicable Law
This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of North Carolina, without regard to the principles of conflicts of law.
Section 15.10 Invalidity of Provisions
If any provision of this Agreement is or becomes invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby.
Section 15.11 Entire Agreement
This Agreement contains the entire understanding and agreement among the Partners with respect to the subject matter hereof and supersedes the Prior Agreement and any other prior written or oral understandings or agreement among them with respect thereto.
51
ARTICLE 16
CONSOLIDATION, MERGER OR SALE OF ASSETS OF THE GENERAL PARTNER
Section 16.1 Triggering Events
For the purposes of this Article 16, each of the following events shall be deemed to be a Triggering Event: (w) if the General Partner consolidates with, or merges into, any other Person, and the General Partner is not the continuing or surviving corporation of such consolidation or merger, (x) if any Person consolidates with, or merges into, the General Partner, and the General Partner is the continuing or surviving corporation of such consolidation or merger and, in connection with such consolidation or merger, all or part of the outstanding REIT Shares are converted into or exchanged for stock or other securities of any other Person or cash or any other property, or (y) if the General Partner sells or otherwise transfers (or one or more of its Subsidiaries sells or otherwise transfers) to any Person or Persons, in one or more transactions, substantially all of the assets or earning power of the General Partner or the Partnership.
Section 16.2 From and After the Occurrence of a Triggering Event
Effective on the date of each Triggering Event, the Redemption Right shall be adjusted as provided in this Section 16.2.
A. From and after the occurrence of a Trigger Event (each such occurrence, a Triggering Occurrence) and until the occurrence, if any, of a subsequent Triggering Event (in which case a further adjustment shall be made pursuant to this Section 16.2), each and every reference contained in this Agreement to a REIT Share or REIT Shares shall be deemed to be a reference to a share or shares, respectively (each a Replacement Share; collectively, Replacement Shares), of: (i) if, as a result of any Triggering Event, all of the REIT Shares are converted solely into Registered Common Stock (as hereinafter defined), such Registered Common Stock and (ii) in all other cases, the common stock, or, if such Person shall have no common stock, the equity securities or other equity interest having power to control or direct the management (the Common Stock) of (a) in the event of a Triggering Event described in clause (w) or (x) of the first sentence of Section 16.1, (1) the Person that is the issuer of any securities into which the REIT Shares are converted in such merger or consolidation, or, if there is more than one such issuer, the issuer who has the highest Market Capitalization (as hereinafter defined) and (2) if no securities are so issued, the Person that is the other party to such merger or consolidation, or if there is more than one such Person, the Person who has the highest Market Capitalization or (b) in the event of a Triggering Event described in clause (y) of the first sentence of Section 16.1, the Person that is the party receiving the largest portion of the assets or earning power transferred pursuant to such transaction or transactions, or, if the Person receiving the largest portion of the assets or earning power cannot be determined, whichever Person has the highest Market Capitalization; provided, however , that in any such case, (1) if the Common Stock of such Person is not at such time and has not been continuously over the preceding 12-month period registered (Registered Common Stock) under Section 12 of the Securities and Exchange Act of 1934, as amended (the Exchange Act), or such Person is neither a corporation nor a real estate investment trust, and such Person is a direct or indirect Subsidiary of another Person that has Registered Common Stock outstanding, Replacement Shares shall mean shares of the Common Stock of such other Person; (2) if the Common Stock of such Person is not Registered Common
52
Stock or such Person is neither a corporation nor a real estate investment trust, and such Person is a direct or indirect Subsidiary of another Person but is not a direct or indirect Subsidiary of another Person which has Registered Common Stock outstanding, Replacement Shares shall mean shares of the Common Stock of the parent entity having the highest Market Capitalization; (3) if the Common Stock of such Person is not Registered Common Stock or such Person is neither a corporation nor a real estate investment trust, and such Person is directly or indirectly controlled by more than one Person, and one of such other Persons has Registered Common Stock outstanding, Replacement Shares shall mean shares of the Common Stock of whichever of such other Persons is the issuer having the highest Market Capitalization; and (4) if the Common Stock of such Person is not Registered Common Stock or such Person is neither a corporation nor a real estate investment trust, and such Person is directly or indirectly controlled by more than one Person, and none of such other Persons have Registered Common Stock outstanding, Replacement Shares shall mean shares of the Common Stock of whichever ultimate parent entity is the corporation or real estate investment trust having the highest aggregate shareholders equity or, if no such ultimate parent entity is a corporation or a real estate investment trust, shall be deemed to refer to shares of the Common Stock of whichever ultimate parent entity is the entity having the greatest net assets. Any issuer of Replacement Shares shall be referred to as an Issuer. Market Capitalization means the dollar figure equal to the product of the number of shares of Common Stock issued and outstanding on the date of the Trigger Occurrence in question, on a fully diluted basis, not held by Affiliates (as defined under the Exchange Act) multiplied by the Average Trading Price (as hereinafter defined).
B. From and after a Trigger Occurrence, the Conversion Factor shall be adjusted by multiplying the Conversion Factor existing on the day immediately prior to such Trigger Occurrence as follows: (i) if the REIT Shares, as a result of the Trigger Occurrence, have been converted solely into the right to receive Registered Common Stock, by the number of shares of Registered Common Stock which the holder of a single REIT Share was entitled to receive as a result of the Trigger Occurrence or (ii) in all other cases, by a fraction, the numerator of which shall be the Average Trading Price of a REIT Share as of such Trigger Occurrence and the denominator of which shall be the Average Trading Price of a Replacement Share as of such Trigger Occurrence. Following a Trigger Occurrence, the Conversion Factor shall be further adjusted as set forth in the definition of Conversion Factor contained in Article I of this Agreement and as provided in this Section 16.2.
C. For the purpose of any computation hereunder, the Average Trading Price per share of Common Stock on any date shall be deemed to be the average of the daily closing prices per share of such shares for the ten consecutive trading days immediately prior to the third trading day prior to such date; provided, however, in the event the Triggering Event occurs as part of a series of related transactions which also includes a tender offer, the ten trading day period shall be the ten consecutive trading day period immediately prior to the day REIT Shares are accepted for payment pursuant to such tender offer; provided, however, further, if prior to the expiration of such requisite ten trading day period the issuer announces either (A) a dividend or distribution on such shares payable in such shares or securities convertible into such shares or (B) any subdivision, combination or reclassification of such shares, then, following the ex-dividend date for such dividend or the record date for such subdivision, as the case may be, the Average Trading Price shall be properly adjusted
53
to take into account such event. The closing price for each day shall be, if the shares are listed and admitted to trading on a national securities exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which such shares are listed or admitted to trading or, if such shares are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the high bid price in the over-the-counter market, as reported by the NASDAQ National Market System or such other system then in use, or, if on any such date such shares are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in such shares selected by the holders of a majority of the Partnership Units held by the Limited Partners (excluding the Partnership Units held by the General Partner and its Affiliates). If such shares are not publicly held or not so listed or traded or if, for the ten days prior to such date, no market maker is making market in such shares, the Average Trading Price of such shares on such date shall be deemed to be the fair value of such shares as determined as set forth in Section 16.2.D. The term trading day shall mean, if such shares are listed or admitted to trading on any national securities exchange, a day on which the principal national securities exchange on which such shares are listed or admitted to trading is open for the transaction of business or, if such shares are not so listed or admitted, a Business Day.
D. In the event that on the date of a Trigger Occurrence, the shares of a Person are not publicly held or not so listed or traded or if, for the ten days prior to such date, no market maker is making a market in the shares of a Person, the Average Trading Price of the shares of such Person shall be the fair value of the shares as determined in good faith by the holders of a majority of the Partnership Units held by the Limited Partners (excluding the Partnership Units held by the General Partner and its Affiliates) and the General Partner, which determination shall be binding on all of the Limited Partners. If the holders of a majority of the Partnership Units held by the Limited Partners (excluding the Partnership Units held by the General Partner and its Affiliates) and the General Partner have not agreed on the fair value of the shares and executed and delivered between them an agreement setting forth the same within twenty (20) days after the Trigger Occurrence in question, then either the General Partner or the holders of a majority of the Partnership Units held by the Limited Partners (excluding the Partnership Units held by the General Partner and its Affiliates) may notify the other that they or it desire to invoke the following arbitration procedure:
(1) Notice of the holders of a majority of the Partnership Units held by the Limited Partners (excluding the Partnership Units held by the General Partner and its Affiliates) or the General Partner of such parties intention to seek arbitration shall be delivered to the other parties within ten (10) days after which all parties shall, in good faith, attempt to agree on a single arbitrator to determine the fair value of the shares (the Arbitrator). If the holders of a majority of the Partnership Units held by the Limited Partners (excluding the Partnership Units held by the General Partner and its Affiliates) and the General Partner have not agreed on the Arbitrator within ten (10) days after the giving of the Arbitration Notice, then either, on behalf of both, may apply to the local office of the American Arbitration Association or any organization which is the successor thereof (the AAA) for
54
appointment of the Arbitrator, or, if the AAA shall not then exist or shall fail, refuse or be unable to act such that the Arbitrator is not appointed by the AAA within ten (10) days after application therefor, then either party may apply to any court of competent jurisdiction in the State of North Carolina (the Court) for the appointment of the Arbitrator and the other party shall not raise any question as to the Courts full power and jurisdiction to entertain the application and make the appointment. The date on which the Arbitrator is appointed, by the agreement of the parties, by appointment by the AAA or by appointment by the Court, is referred to herein as the Appointment Date. If any Arbitrator appointed hereunder shall be unwilling or unable, for any reason, to serve, or continue to serve, a replacement arbitrator shall be appointed in the same manner as the original Arbitrator.
(2) The arbitration shall be conducted in accordance with the then prevailing commercial arbitration rules of the AAA, modified as follows:
(i) To the extent that any statute imposes requirements different than those of the AAA in order for the decision of the Arbitrator to be enforceable in the courts of the Sate of North Carolina, such requirements shall be complied with in the arbitration.
(ii) The Arbitrator shall be disinterested and impartial, shall not be affiliated with the Limited Partners or the General Partner and shall have at least ten (10) years experience in the market in which the applicable Person transactions in the majority of its business.
(iii) Before hearing any testimony or receiving any evidence, the Arbitrator shall be sworn to hear and decide the controversy faithfully and fairly by an officer authorized to administer an oath and a written copy thereof shall be delivered to each of the Limited Partners and the General Partner.
(iv) Within twenty (20) days after the Appointment Date, the holders of a majority of the Partnership Units held by the Limited Partners (excluding the Partnership Units held by the General Partner and its Affiliates) and the General Partner shall deliver to the Arbitrator two (2) copies of their respective written determinations of the fair value of the shares (each, a Determination) together with such affidavits, appraisals, reports and other written evidence relating thereto as the submitting party deems appropriate. After the submission of any Determination, the submitting party may not make any additions to or deletions from, or otherwise change, such
55
Determination or the affidavits, appraisals, reports and other written evidence delivered therewith. If either party fails to so deliver its Determination within such time period, time being of the essence with respect thereto, such party shall be deemed to have irrevocably waived its right to deliver a Determination and the Arbitrator, without holding a hearing, shall accept the Determination of the submitting party as the fair value of the shares. If each party submits a Determination with respect to the fair value of the shares within the twenty (20) day period described above, the Arbitrator shall, promptly after its receipt of the second Determination, deliver a copy of each partys Determination to the other party.
(v) Not less than ten (10) days nor more than twenty (20) days after the earlier to occur of (x) the expiration of the twenty (20) day period provided for in clause (iv) of this subparagraph or (y) the Arbitrators receipt of both of the Determinations from the parties (such earlier date is referred to herein as the Submission Date) and upon not less than five (5) days notice to the parties, the Arbitrator shall hold one or more hearings with respect to the determination of the fair value of the shares. The hearings shall be held in the Raleigh/Durham metropolitan area of North Carolina at such location and time as shall be specified by the Arbitrator. Each of the parties shall be entitled to present all relevant evidence and to cross-examine witnesses at the hearings. The Arbitrator shall have the authority to adjourn any hearing to such later date as the Arbitrator shall specify, provided that in all events all hearings with respect to the determination of the fair value of the shares shall be concluded not later than thirty (30) days after the Submission Date.
(vi) The Arbitrator shall be instructed, and shall be empowered only, to select as the fair value of the shares that one of the Determinations which the Arbitrator believes is the more accurate determination of the Average Trading Price of the shares. Without limiting the generality of the foregoing, in rendering his or her decision, the Arbitrator shall not add to, subtract from or otherwise modify the provision of this Agreement or either of the Determinations.
(vii) The Arbitrator shall render his or her determination as to the selection of a Determination in a signed and acknowledged written instrument, original counterparts of which shall be sent simultaneously to Limited Partners and the General Partner, within ten (10) days after the conclusion of the hearing(s) required by clause (v) of this Section.
56
(3) This provision shall constitute a written agreement to submit any dispute regarding the determination of the Average Trading Price of the shares of a Person to arbitration.
(4) The arbitration decision, determined as provided in this Article, shall be conclusive and binding on the parties, shall constitute an award by the Arbitrator within the meaning of the AAA rules and applicable law, and judgment may be entered thereon in any court of competent jurisdiction.
(5) The Partnership shall pay all fees and expenses relating to the arbitration (including, without limitation, the fees and expenses of one counsel (including local counsel, if required) chosen by the holders of a majority of the Partnership Units held by the Limited Partners (excluding the Partnership Units held by the General Partner and its Affiliates) and of experts and witnesses retained or called by the Limited Partners). The Limited Partners counsel chosen as set forth in the preceding sentence shall represent the interests of all of the Limited Partners and the choice of counsel shall be binding on all of the Limited Partners.
E. From and after a Trigger Occurrence, each and every reference to the General Partner in Section 8.6 shall be deemed to be a reference to the Issuer of the Replacement Shares. From and after a Trigger Occurrence, the Issuer shall assume or unconditionally guaranty the performance of the General Partners obligations under this Agreement pursuant to an instrument in form and substance satisfactory to the holders of majority of the Partnership Units held by the Limited Partners (excluding the Partnership Units held by the General Partner and its Affiliates). From and after a Trigger Occurrence, the Average Trading Price of a REIT Share or a Replacement Share, as applicable shall be substituted for the Value of the same for the purposes of determining the Cash Amount.
Section 16.3 Additional Issuer Covenants
The General Partner shall (i) not enter in an agreement with any Person which would result in a Trigger Event unless such agreement provides for each of the following and (ii) from and after any Trigger Occurrence, comply with each of the following:
A. If, on the day immediately prior to a Trigger Occurrence, the Issuer is qualified as a REIT, then, substantially contemporaneously with such Trigger Occurrence, the General Partner, the Issuer and its Affiliates shall enter into such mergers, combinations, conveyances or other transactions as shall be required to cause substantially all of the assets of the General Partner and the Issuer and its Affiliates to be owned, leased or held directly or indirectly by a single operating partnership in which the Limited Partners shall hold partnership units having the rights specified by this Agreement. The agreement governing the resulting operating partnership shall be in a form substantially no less favorable to each of the Limited Partners than is this Agreement.
57
B. From and after a Trigger Occurrence, in the event a dividend or distribution consisting of cash or property (other than Replacement Shares) or both is paid by the Issuer in respect of the Replacement Shares, the General Partner shall cause the Partnership to distribute, in respect of each Partnership Unit, the same amount of cash or property the holder of a Partnership Unit would have received had such holder exercised its Redemption Right and received Replacement Shares prior to such dividend or distribution.
Section 16.4 Application to Later Transactions
This Article 16 shall apply to the initial Triggering Event and shall continue to apply to each subsequent Triggering Event.
Section 16.5 Waivers and Amendments
This Article 16 shall only be amended as provided in Section 14.1.D of this Agreement and shall be deemed included in such section for all purposes; provided that the General Partner may amend this Article 16, without the consent of the Limited Partners for the purposes set forth at Section 14.1.B(4) prior to a Trigger Occurrence.
58
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.
GENERAL PARTNER: | ||
HIGHWOODS PROPERTIES, INC. | ||
By: |
/s/ Mack D. Pridgen III |
|
Title: |
Vice President and General Counsel |
[CORPORATE SEAL]
59
LIMITED PARTNERS: |
||
By: |
|
|
Attorney-in-Fact for the Limited Partners |
||
By: |
|
|
Title: |
|
60
EXHIBIT B
CAPITAL ACCOUNT MAINTENANCE
1. Capital Accounts of the Partners
A. The Partnership shall maintain for each Partner a separate Capital Account in accordance with the rules of Regulations Section 1.704-l(b)(2)(iv). Such Capital Account shall be increased by (i) the amount of all Capital Contributions and any other deemed contributions made by such Partner to the Partnership pursuant to this Agreement and (ii) all items of Partnership income and gain (including income and gain exempt from tax) computed in accordance with Section 1.B hereof and allocated to such Partner pursuant to Section 6.1.A of the Agreement and Exhibit C hereof, and decreased by (x) the amount of cash or Agreed Value of all actual and deemed distributions of cash or property made to such Partner pursuant to this Agreement and (y) all items of Partnership deduction and loss computed in accordance with Section 1.B hereof and allocated to such Partner pursuant to Section 6.1.B of the Agreement and Exhibit C hereof.
B. For purposes of computing the amount of any item of income, gain, deduction or loss to be reflected in the Partners Capital Accounts, unless otherwise specified in this Agreement, the determination, recognition and classification of any such item shall be the same as its determination, recognition and classification for federal income tax purposes determined in accordance with Section 703(a) of the Code (for this purpose all items of income, gain, loss or deduction required to be stated separately pursuant to Section 703(a)(1) of the Code shall be included in taxable income or loss), with the following adjustments:
(1) | Except as otherwise provided in Regulations Section 1.704-l(b)(2)(iv)(m), the computation of all items of income, gain, loss and deduction shall be made without regard to any election under Section 754 of the Code which may be made by the Partnership, provided that the amounts of any adjustments to the adjusted bases of the assets of the Partnership made pursuant to Section 734 of the Code as a result of the distribution of property by the Partnership to a Partner (to the extent that such adjustments have not previously been reflected in the Partners Capital Accounts) shall be reflected in the Capital Accounts of the Partners in the manner and subject to the limitations prescribed in Regulations Section 1.704-1(b)(2)(iv)(m)(4). |
(2) | The computation of all items of income, gain, and deduction shall be made without regard to the fact that items described in Section 705(a)(2)(B) of the Code are not includible in gross income or are neither currently deductible nor capitalized for federal income tax purposes. |
(3) | Any income, gain or loss attributable to the taxable disposition of any Partnership property shall be determined as if the adjusted basis of such property as of such date of disposition were equal in amount to the Partnerships Carrying Value with respect to such property as of such date. |
1
(4) | In lieu of the depreciation, amortization and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such fiscal year. |
(5) | In the event the Carrying Value of any Partnership Asset is adjusted pursuant to Section 1.D hereof, the amount of any such adjustment shall be taken into account as gain or loss from the disposition of such asset. |
(6) | Any items specifically allocated under Section 2 of Exhibit C hereof shall not be taken into account. |
C. Generally, a transferee (including an Assignee) of a Partnership Unit shall succeed to a pro rata portion of the Capital Account of the transferor; provided, however, that, if the transfer causes a termination of the Partnership under Section 708(b)(1)(B) of the Code, the Partnerships properties shall be deemed, solely for federal income tax purposes, to have been distributed in liquidation of the Partnership to the holders of Partnership Units (including such transferee) and recontributed by such Persons in reconstitution of the Partnership. In such event, the Carrying Values of the Partnership properties shall be adjusted immediately prior to such deemed distribution pursuant to Section 1.D(2) hereof. The Capital Accounts of such reconstituted Partnership shall be maintain in accordance with the principles of this Exhibit B .
D. | (1) | Consistent with the provisions of Regulations Section 1.704-l(b)(2)(iv)(f), and as provided in Section l.D(2), the Carrying Value of all Partnership assets shall be adjusted upward or downward to reflect any Unrealized Gain or Unrealized Loss attributable to such Partnership property, as of the times of the adjustments provided in Section l.D(2) hereof, as if such Unrealized Gain or Unrealized Loss had been recognized on an actual sale of each such property and allocated pursuant to Section 6.1 of the Agreement. | ||
(2) | Such adjustments shall be made as of the following times: (a) immediately prior to the acquisition of an additional interest in the Partnership by any new or existing Partner in exchange for more than a de minimis Capital Contribution; (b) immediately prior to distribution by the Partnership to a Partner of more than a de minimis amount of property as consideration for an interest in the Partnership; and (c) immediately prior to the liquidation of the Partnership within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g), provided, however, that adjustments pursuant to clauses (a) and (b) above shall be made only if the General Partner determines that such adjustments are necessary or appropriate to reflect the relative economic interests of the Partners in the Partnership. |
2
(3) | In accordance with Regulations Section 1.704-l(b)(2)(iv)(e), the Carrying Value of Partnership assets distributed in kind shall be adjusted upward or downward to reflect any Unrealized Gain or Unrealized Loss attributable to such Partnership property, as of the time any such asset is distributed. |
(4) | In determining Unrealized Gain or Unrealized Loss for purposes of this Exhibit B, the aggregate cash amount and fair market value of all Partnership assets (including cash or cash equivalents) shall be determined by the General Partner using such reasonable method of valuation as it may adopt, or in the case of a liquidating distribution pursuant to Article 13 of the Agreement, shall be determined and allocated by the Liquidator using such reasonable methods of valuation as it may adopt. The General Partner, or the Liquidator, as the case may be, shall allocate such aggregate value among the assets of the Partnership (in such manner as it determines in its sole and absolute discretion to arrive at a fair market value for individual properties). |
E. The provisions of this Agreement (including this Exhibit B and other Exhibits to this Agreement) relating to the maintenance of Capital Accounts are intended to comply with Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner consistent with such Regulations. In the event the General Partner shall determine that it is prudent to modify the manner in which the Capital Accounts, or any debits or credits thereto (including, without limitation, debits or credits relating to liabilities which are secured by contributed or distributed property or which are assumed by the Partnership, the General Partner, or the Limited Partners) are computed in order to comply with such Regulations, the General Partner may make such modification without regard to Article 14 of the Agreement, provided that it is not likely to have a material effect on the amounts distributable to any Person pursuant to Article 13 of the Agreement upon the dissolution of the Partnership. The General Partner also shall (i) make any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the Partners and the amount of Partnership capital reflected on the Partnerships balance sheet, as computed for book purposes in accordance with Regulations Section 1.704-1(b)(2)(iv)(q), and (ii) make any appropriate modifications in the event unanticipated events might otherwise cause this Agreement not to comply with Regulations Section 1.704-1(b).
2. | No Interest |
No interest shall be paid by the Partnership on Capital Contributions or on balances in Partners Capital Accounts.
3. | No Withdrawal |
No Partner shall be entitled to withdraw any part of his Capital Contribution or his Capital Account or to receive any distribution from the Partnership, except as provided in Articles 4, 5, 7 and 13 of the Agreement.
3
EXHIBIT C
SPECIAL ALLOCATION RULES
1. | Special Allocation Rules |
Notwithstanding any other provision of the Agreement or this Exhibit C, the following special allocations shall be made in the following order:
A. Minimum Gain Chargeback . Notwithstanding the provisions of Section 6.1 of the Agreement or any other provisions of this Exhibit C, if there is a net decrease in Partnership Minimum Gain during any Partnership Year, each Partner shall be specially allocated items of Partnership income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Partners share of the net decrease in Partnership Minimum Gain, as determined under Regulations Section 1.704-2(g). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Partner pursuant thereto. The items to be so allocated shall be determined in accordance with Regulations Section 1.704-2(f)(6). This Section 1.A is intended to comply with the minimum gain chargeback requirements in Regulations Section 1.704-2(f) and shall be interpreted consistently therewith. Solely for purposes of this Section 1.A, each Partners Adjusted Capital Account Deficit shall be determined prior to any other allocations pursuant to Section 6.1 during such Partnership Year.
B Partner Minimum Gain Chargeback . Notwithstanding any other provision of Section 6.1 of this Agreement or any other provisions of this Exhibit C (except Section l.A hereof), if there is a net decrease in Partner Minimum Gain attributable to a Partner Nonrecourse Debt during any Partnership Year, each Partner who has a share of the Partner Minimum Gain attributable to such Partner Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)(5), shall be specially allocated items of Partnership income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Partners share of the net decrease in Partner Minimum Gain attributable to such Partner Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)(5). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Partner pursuant thereto. The items to be so allocated shall be determined in accordance with Regulations Section 1.704-2(i)(4). This Section 1.B is intended to comply with the minimum gain chargeback requirement in such Section of the Regulations and shall be interpreted consistently therewith. Solely for purposes of this Section l.B, each Partners Adjusted Capital Account Deficit shall be determined prior to any other allocations pursuant to Section 6.1 of the Agreement or this Exhibit with respect to such Partnership Year, other than allocations pursuant to Section l.A hereof.
C. Qualified Income Offset . In the event any Partner unexpectedly receives any adjustments, allocations or distributions described in Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-l(b)(2)(ii)(d)(5) or 1.704-1(b)(2)(ii)(d)(6), and after giving effect to he allocations required under Sections l.A and l.B hereof, such Partner has an Adjusted Capital Account Deficit, items of
1
Partnership income and gain (consisting of a pro rata portion of each item of Partnership income, including gross income and gain for the Partnership Year) shall be specifically allocated to such Partner in an amount and manner sufficient to eliminate, to the extent required by the Regulations, its Adjusted Capital Account Deficit created by such adjustments, allocations or distributions as quickly as possible.
D. Nonrecourse Deductions . Nonrecourse Deductions for any Partnership Year shall be allocated to the Partners in accordance with their respective Percentage Interests. If the General Partner determines in its good faith discretion that the Partnerships Nonrecourse Deductions must be allocated in a different ratio to satisfy the safe harbor requirements of the Regulations promulgated under Section 704(b) of the Code, the General Partner is authorized, upon notice to the Limited Partners, to revise the prescribed ratio to the numerically closest ratio for such Partnership Year which would satisfy such requirements.
E. Partner Nonrecourse Deductions . Any Partner Nonrecourse Deductions for any Partnership Year shall be specially allocated to the Partner who bears the economic risk of loss with respect to the Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable in accordance with Regulations Section 1.704-2(i).
F. Code Section 754 Adjustments. To the extent an adjustment to the adjusted tax basis of any Partnership asset pursuant to Section 734(b) or 743(b) of the Code is required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis), and such item of gain or loss shall be specially allocated to the Partners in a manner consistent with the manner in which their Capital Accounts are required to be adjusted pursuant to such Section of the Regulations.
G. Priority Allocation With Respect To Preferred Partnership Units. All or a portion of the remaining items of Partnership gross income or gain for the Partnership Year, if any, shall be specially allocated to the General Partner in an amount equal to the excess, if any, of the cumulative distributions received by the General Partner pursuant to Section 5.1(i) hereof for the current Partnership Year and all prior Partnership Years (other than any distributions that are treated as being in satisfaction of the Liquidation Preference Amount for any Preferred Partnership Units) over the cumulative allocations of Partnership gross income and gain to the General Partner under this Section 1.G for all prior Partnership Years.
2. | Allocations for Tax Purposes |
A. Except as otherwise provided in this Section 2, for federal income tax purposes, each item of income, gain, loss and deduction shall be allocated among the Partners in the same manner as its correlative item of book income, gain, loss or deduction is allocated pursuant to Section 6.1 of the Agreement and Section 1 of this Exhibit C .
2
B. In an attempt to eliminate Book-Tax Disparities attributable to a Contributed Property or Adjusted Property, items of income, gain, loss, and deduction shall be allocated for federal income tax purposes among the Partners as follows:
(1) | (a) | In the case of a Contributed Property, such items attributable thereto shall be allocated among the Partners consistent with the principles of Section 704(c) of the Code to take into account the variation between the 704(c) Value of such property and its adjusted basis at the time of contribution; and | ||||
(b) | any item of Residual Gain or Residual Loss attributable to a Contributed Property shall be allocated among the Partners in the same manner as its correlative item of book gain or loss is allocated pursuant to Section 6.1 of the Agreement and Section 1 of this Exhibit C. | |||||
(2) | (a) | In the case of an Adjusted Property, such items shall | ||||
(1) | first, be allocated among the Partners in a manner consistent with the principles of Section 704(c) of the Code to take into account the Unrealized Gain or Unrealized Loss attributable to such property and the allocations thereof pursuant to Exhibit B, and | |||||
(2) | second, in the event such property was originally a Contributed Property, be allocated among the Partners in a manner consistent with Section 2.B(1) of this Exhibit C; and | |||||
(b) | any item of Residual Gain or Residual Loss attributable to an Adjusted Property shall be allocated among the Partners in the same manner its correlative item of book gain or loss is allocated pursuant to Section 6.1 of the Agreement and Section 1 of this Exhibit C . | |||||
(3) | all other items of income, gain loss and deduction shall be allocated among the Partners the same manner as their correlative item of book gain or loss is allocated pursuant to Section 6.1 of the Agreement and Section 1 of the Exhibit C. |
C. The Partnership shall use the Traditional Method of making Section 704(c) allocations as provided by Regulations Section 1.704-3(b) to eliminate the disparities between the Carrying Value of property and its adjusted basis.
3
3. | No Withdrawal |
No Partner shall be entitled to withdraw any part of his Capital Contribution or his Capital Account or to receive any distribution from the Partnership, except as provided in Articles 4, 5, 8 and 13 of the Agreement.
4
EXHIBIT D
VALUE OF CONTRIBUTED PROPERTY
Underlying Property |
704(c) Value |
Agreed Value |
1
EXHIBIT E
NOTICE OF REDEMPTION
The undersigned Limited Partner hereby irrevocably (i) redeems Limited Partnership Units in Highwoods Realty Limited Partnership in accordance with the terms of the Amended and Restated Agreement of Limited Partnership of Highwoods Realty Limited Partnership and the Redemption Right referred to therein, (ii) surrenders such Limited Partnership Units and all right, title and interest therein, and (iii) directs that the Cash Amount of REIT Shares Amount (as determined by the General Partner) deliverable upon exercise of the Redemption Right be delivered to the address specified below, and if REIT Shares are to be delivered, such REIT Shares be registered or placed in the name(s) and at the address(es) specified below. The undersigned hereby, represents, warrants, and certifies that the undersigned (a) has marketable and unencumbered title to such Limited Partnership Units, free and clear of the rights or interests of any other person or entity, (b) has the full right, power, and authority to redeem and surrender such Limited Partnership Units as provided herein, and (c) has obtained the consent or approval of all person or entities, if any, having the right to consent or approve such redemption and surrender.
Dated: |
||
Name of Limited Partner: |
|
|
Please Print |
|
(Signature of Limited Partner) |
|
(Street Address) |
|
(City) (State) (Zip Code) |
Signature Guaranteed by: |
|
1
If REIT Shares are to be issued, issue to: |
Name: |
Please insert social security or identifying number: |
EXHIBIT F
INDEMNIFICATION UNDER SECTION 7.7(I)
Limited Partner |
Indemnification
Per Unit |
Maximum Indemnification Obligation |
||
C.S. Henline Trust |
||||
Fritsch, Edward J. |
||||
Gibson, Ronald P. |
||||
Harley, Donald L. |
||||
Harrod, Keith R. |
||||
Jones, Robert L. |
||||
Jones, Seby B. |
||||
Ramsey, Grace D. |
||||
Sloan, C. Hamilton |
||||
Sloan, C. Hamilton (Trust) |
||||
Sloan, Mark Hamilton |
||||
Sloan, Mark Hamilton (Trust) |
||||
Sloan, Jr., O. Temple |
||||
Sloan, Jr., O. Temple (Trust) |
||||
Sloan, III, O. Temple |
||||
Sloan, III, O. Temple (Trust) |
||||
Stroud, E. Stephen |
||||
Thomas J. Rek |
||||
Austin, Dan |
||||
Mullins, Bill |
||||
Bramler, L. |
||||
J.T. Hobby & Sons, Inc. |
1
EXHIBIT G
CLASS B UNITS
Notwithstanding any other provision of the Partnership Agreement, Class B Units will have the following designations, preferences, rights, powers and duties:
1. | No distributions of Available Cash as described in Section 5.1 will be made with respect to the Class B Units while such Class B Units are outstanding. If the amount of cash to be distributed to holders of Class A Units for any period (i) exceeds the amount of the distribution made with respect to the immediately preceding quarter plus 5 percent (determined on a per-Unit basis) and (ii) includes amounts that are attributable to the proceeds from a sale, exchange, disposition, or refinancing of Partnership property for the current or any prior period (Capital Proceeds), the Class B Units will share in the distribution for the period, but only to the extent of their percentage share of the Capital Proceeds determined on a pro rata basis with all Partnership Units. A distribution will include amounts attributable to Capital Proceed if, and only if, the amount of the distribution exceeds the Partnerships funds from operations (as defined by the Board of Governors of NAREIT as of December 31, 1993), which is disclosed in the Partnerships quarterly earnings release, for the period with respect to which the distribution is made. Nothing in this provision shall be construed as requiring the Partnership to make a distribution to holders of Class B Units unless and until a distribution that includes amounts attributable to Capital Proceeds, as defined above, is made to holders of the Class A Units. |
2. | A Capital Account will be maintained with respect to each holder of Class B Units. |
3. | No allocations of income and loss will be made to the Capital Accounts of the Class B Units other than allocations of income from the sale of Partnership property equal to the distributions made under paragraph 2 above in respect of and pro rata to the Class B Units and allocations of income and loss made to such Capital Accounts to the extent necessary so as to cause the balance of such Capital Accounts, relative to the aggregate balance of all the Capital Accounts for all Units, to correspond to the Percentage Interest in the Partnership represented by the Class B Units. |
4. | Except as provided above, no allocations of Partnership items of income, gain, loss and deduction will be made for tax purposes with respect to the Class B Units, except as may be required by Section 704(c) of the Code and the corresponding provisions of this Agreement. The allocations of gain on the disposition of the property, including any curative allocation, to the Partner holding the Class B Units shall be equal to the excess of (i) the lesser of (a) the gain recognized upon the disposition or (b) the Unrealized Gain with respect to the property at the time of its contribution to the Partnership over (ii) the sum of the depreciation and amortization deductions |
1
actually claimed by the Partnership for federal income tax reporting purposes with respect to the adjusted tax basis of the property existing at the time of its contribution to the Partnership. |
5. | Partners will not have the Redemption Right under Section 8.6 with respect to their Class B Units. |
6. | To the extent not inconsistent with this Exhibit G , Class B Units will have the designations, preferences, rights, powers and duties of the other Partnership Units as described in the Partnership Agreement. |
All capitalized terms used herein and not otherwise defined shall have the meanings assigned in the Partnership Agreement. Except as modified herein, all covenants, terms and conditions of the Partnership Agreement shall remain in full force and effect, which covenants, terms and conditions the General Partner hereby ratifies and affirms.
2
EXHIBIT H
DESIGNATION OF THE VOTING POWERS, DESIGNATIONS, PREFERENCES AND
RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS AND
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF THE
SERIES A PREFERRED PARTNERSHIP UNITS
The following are the terms of the Series A Preferred Partnership Units established pursuant to this Amendment:
(a) Number. The maximum number of authorized Series A Preferred Partnership Units shall be 143,750.
(b) Relative Seniority. In respect of rights to receive quarterly distributions and to participate in distributions of payments in the event of any liquidation, dissolution or winding up of the Partnership, the Series A Preferred Partnership Units shall rank senior to the Common Partnership Units and any other class or series of Partnership Units of the Partnership ranking, as to quarterly distributions and upon liquidation, junior to the Series A Preferred Partnership Units (collectively, Junior Partnership Units).
(c) Quarterly Distributions.
(1) The General Partner, in its capacity as the holder of the then outstanding Series A Preferred Partnership Units, shall be entitled to receive, when and as declared by the General Partner out of any funds legally available therefor, cumulative quarterly distributions at the rate of $86.25 per Series A Preferred Partnership Unit per year, payable quarterly in arrears in cash on the last day of February, May, August, and November of each year or, if not a Business Day (as hereinafter defined), the next succeeding Business Day, commencing May 31, 1997 (each such day being hereafter called a Quarterly Distribution Date and each period beginning on the day next following a Quarterly Distribution Date and ending on the next following Quarterly Distribution Date being hereinafter called a Distribution Period). Quarterly distributions on each Series A Preferred Partnership Unit shall accrue and be cumulative from and including the date of original issue thereof, whether or not (i) quarterly distributions on such Series A Preferred Partnership Units are earned or declared or (ii) on any Quarterly Distribution Date there shall be funds legally available for the payment of quarterly distributions. Quarterly distributions paid on the Series A Preferred Partnership Units in an amount less than the total amount of such quarterly distributions at the time accrued and payable on such Partnership Units shall be allocated pro rata on a per unit basis among all such Series A Preferred Partnership Units at the time outstanding.
Business Day shall mean any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions in New York City are authorized or required by law, regulation or executive order to close.
1
(2) The amount of any quarterly distributions accrued on any Series A Preferred Partnership Units at any Quarterly Distribution Date shall be the amount of any unpaid quarterly distributions accumulated thereon, to and including such Quarterly Distribution Date, whether or not earned or declared, and the amount of quarterly distributions accrued on any Series A Preferred Partnership Units at any date other than a Quarterly Distribution Date shall be equal to the sum of the amount of any unpaid quarterly distributions accumulated thereon, to and including the last preceding Quarterly Distribution Date, whether or not earned or declared, plus an amount calculated on the basis of the annual distribution rate for the period after such last preceding Quarterly Distribution Date to and including the date as of which the calculation is made based on a 360-day year of twelve 30-day months. When distributions are not paid in full upon the Series A Preferred Partnership Units (or a sum sufficient for such full payment is not set apart therefor), all distributions declared upon Series A Preferred Partnership Units and any other series of Preferred Partnership Units ranking on a parity as to distributions with the Series A Preferred Partnership Units shall be declared pro rata so that the amount of distributions declared per unit on the Series A Preferred Partnership Units and such other series of Preferred Partnership Units shall in all cases bear to each other the same ratio that accrued distributions per unit on the Series A Preferred Partnership Units and such other series of Preferred Partnership Units bear to each other.
(3) Except as provided in the immediately preceding paragraph, unless full cumulative distributions on the Series A Preferred Partnership Units have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment of the Series A Preferred Partnership Units for all past distribution periods and the then current distribution period, (A) no distributions shall be declared or paid or set apart for payment on the Preferred Partnership Units ranking, as to distributions, on a parity with or junior to the Series A Preferred Partnership Units for any period, and (B) no distributions (other than in Junior Partnership Units) shall be declared or paid or set aside for payment or other distribution or shall be declared or made upon the Junior Partnership Units or any other Preferred Partnership Units ranking on a parity with the Series A Preferred Partnership Units as to distributions or upon liquidation (Parity Units), nor shall any Junior Partnership Units or any Parity Units 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 Junior Partnership Units or Parity Units) by the Partnership (except by conversion into or exchange for Junior Partnership Units).
(4) Except as provided herein, the Series A Preferred Partnership Units shall not be entitled to participate in the earnings or assets of the Partnership, and no interest, or sum of money in lieu of interest, shall be payable in respect of any distribution or distributions on the Series A Preferred Partnership Units which may be in arrears.
(5) Any distribution made on the Series A Preferred Partnership Units shall be first credited against the earliest accrued but unpaid quarterly distribution due with respect to such Partnership Units which remains payable.
(6) No quarterly distributions on the Series A Preferred Partnership Units shall be authorized by the General Partner or be paid or set apart for payment by the Partnership at such time
2
as the terms and provisions of any agreement of the General Partner or the Partnership, including any agreement relating to its indebtedness, prohibits such authorization, payment or setting apart for payment or provides that such authorization, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such authorization or payment shall be restricted or prohibited by law. Notwithstanding the foregoing, quarterly distributions on the Series A Preferred Partnership Units will accrue whether or not the Partnership has earnings, whether or not there are funds legally available for the payment of such quarterly distributions and whether or not such quarterly distributions are authorized.
(d) Liquidation Rights.
(1) Upon the voluntary or involuntary dissolution, liquidation or winding up of the Partnership, the General Partner, in its capacity as the holder of the Series A Preferred Partnership Units then outstanding, shall be entitled to receive and to be paid out of the assets of the Partnership available for distribution to its partners, before any payment or distribution shall be made on any Junior Partnership Units, the amount of $1,000.00 per Series A Preferred Partnership Unit, plus accrued and unpaid quarterly distributions thereon.
(2) After the payment to the holders of the Series A Preferred Partnership Units of the full preferential amounts provided for herein, the General Partner, in its capacity as the holder of the Series A Preferred Partnership Units as such, shall have no right or claim to any of the remaining assets of the Partnership.
(3) If, upon any voluntary or involuntary dissolution, liquidation, or winding up of the Partnership, the amounts payable with respect to the preference value of the Series A Preferred Partnership Units and any other Preferred Partnership Units of the Partnership ranking as to any such distribution on a parity with the Series A Preferred Partnership Units are not paid in full, the holders of the Series A Preferred Partnership Units and of such other Preferred Partnership Units will share ratably in any such distribution of assets of the Partnership in proportion to the full respective preference amounts to which they are entitled.
(4) Neither the sale, lease or conveyance of all or substantially all of the property or business of the Partnership, nor the merger or consolidation of the Partnership into or with any other entity or the merger or consolidation of any other entity into or with the Partnership, shall be deemed to be a dissolution, liquidation or winding up, voluntary or involuntary, for the purposes hereof.
(e) Redemption.
(1) The Series A Preferred Partnership Units are not redeemable prior to February 12, 2027. On and after February 12, 2027, the General Partner may, at its option, cause the Partnership to redeem at any time all or, from time to time, part of the Series A Preferred Partnership Units at a price per unit (the Redemption Price), payable in cash, of $1,000.00, together with all accrued and unpaid distributions to and including the date fixed for redemption (the Redemption Date). The Series A Preferred Partnership Units have no stated maturity and will not be subject to any sinking fund or mandatory redemption provisions.
3
(2) Procedures of Redemption.
(i) At any time that the General Partner exercises its right to redeem all or any of the Series A Preferred Shares, the General Partner shall exercise its right to cause the Partnership to redeem an equal number of Series A Preferred Partnership Units in the manner set forth herein.
(ii) No Series A Preferred Partnership Units may be redeemed except from proceeds from the sale of capital stock of the General Partner, including but not limited to common stock, preferred stock, depositary shares, interests, participations or other ownership interests (however designated) and any rights (other than debt securities convertible into or exchangeable for equity securities) or options to purchase any of the foregoing. The proceeds of such sale of capital stock of the General Partner shall be contributed by the General Partner to the Partnership pursuant to the requirements of Section 4.2 of the Partnership Agreement.
(f) Voting Rights. Except as required by law, the General Partner, in its capacity as the holder of the Series A Preferred Partnership Units, shall not be entitled to vote at any meeting of the Partners or for any other purpose or otherwise to participate in any action taken by the Partnership or the Partners, or to receive notice of any meeting of Partners.
(g) Conversion. The Series A Preferred Partnership Units are not convertible into or exchangeable for any other property or securities of the Partnership.
(h) Restrictions on Ownership. The Series A Preferred Partnership Units shall be owned and held solely by the General Partner.
(i) General. The rights of the General Partner, in its capacity as holder of the Series A Preferred Partnership Units, are in addition to and not in limitation of any other rights or authority of the General Partner, in any other capacity, under the Partnership Agreement. In addition, nothing contained herein shall be deemed to limit or otherwise restrict any rights or authority of the General Partner under the Partnership Agreement, other than in its capacity as the holder of the Series A Preferred Partnership Units.
4
EXHIBIT I
DESIGNATION OF THE VOTING POWERS, DESIGNATIONS, PREFERENCES AND
RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS AND
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF THE
SERIES B PREFERRED PARTNERSHIP
UNITS
The following are the terms of the Series B Preferred Partnership Units established pursuant to this Amendment:
(a) Number. The maximum number of authorized Series B Preferred Partnership Units shall be 6,900,000.
(b) Relative Seniority. In respect of rights to receive quarterly distributions and to participate in distributions of payments in the event of any liquidation, dissolution or winding up of the Partnership, the Series B Preferred Partnership Units shall rank (i) senior to the Common Partnership Units and any other class or series of Partnership Units of the Partnership ranking, as to quarterly distributions and upon liquidation, junior to the Series B Preferred Partnership Units (collectively, Junior Partnership Units) and (ii) pari passu with the Series A Preferred Partnership Units and any other class or series of Partnership Units of the Partnership ranking, as to quarterly distributions and upon liquidation, pari passu with the Series B Preferred Partnership Units.
(c) Quarterly Distributions.
(1) The General Partner, in its capacity as the holder of the then outstanding Series B Preferred Partnership Units, shall be entitled to receive, when and as declared by the General Partner out of any funds legally available therefor, cumulative quarterly distributions at the rate of $2.00 per Series B Preferred Partnership Unit per year, payable quarterly in arrears in cash on March 15, June 15, September 15 and December 15 of each year or, if not a Business Day (as hereinafter defined), the next succeeding Business Day, commencing December 15, 1997 (each such day being hereafter called a Quarterly Distribution Date and each period beginning on the day next following a Quarterly Distribution Date and ending on the next following Quarterly Distribution Date being hereinafter called a Distribution Period). Quarterly distributions on each Series B Preferred Partnership Unit shall accrue and be cumulative from and including the date of original issue thereof, whether or not (i) quarterly distributions on such Series B Preferred Partnership Units are earned or declared or (ii) on any Quarterly Distribution Date there shall be funds legally available for the payment of quarterly distributions. Quarterly distributions paid on the Series B Preferred Partnership Units in an amount less than the total amount of such quarterly distributions at the time accrued and payable on such Partnership Units shall be allocated pro rata on a per unit basis among all such Series B Preferred Partnership Units at the time outstanding.
1
Business Day shall mean any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions in New York City are authorized or required by law, regulation or executive order to close.
(2) The amount of any quarterly distributions accrued on any Series B Preferred Partnership Units at any Quarterly Distribution Date shall be the amount of any unpaid quarterly distributions accumulated thereon, to and including such Quarterly Distribution Date, whether or not earned or declared, and the amount of quarterly distributions accrued on any Series B Preferred Partnership Units at any date other than a Quarterly Distribution Date shall be equal to the sum of the amount of any unpaid quarterly distributions accumulated thereon, to and including the last preceding Quarterly Distribution Date, whether or not earned or declared, plus an amount calculated on the basis of the annual distribution rate for the period after such last preceding Quarterly Distribution Date to and including the date as of which the calculation is made based on a 360-day year of twelve 30-day months. When distributions are not paid in full upon the Series B Preferred Partnership Units (or a sum sufficient for such full payment is not set apart therefor), all distributions declared upon Series B Preferred Partnership Units and any other series of Preferred Partnership Units ranking on a parity as to distributions with the Series B Preferred Partnership Units shall be declared pro rata so that the amount of distributions declared per unit on the Series B Preferred Partnership Units and such other series of Preferred Partnership Units shall in all cases bear to each other the same ratio that accrued distributions per unit on the Series B Preferred Partnership Units and such other series of Preferred Partnership Units bear to each other.
(3) Except as provided in the immediately preceding paragraph, unless full cumulative distributions on the Series B Preferred Partnership Units have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment of the Series B Preferred Partnership Units for all past distribution periods and the then current distribution period, (A) no distributions shall be declared or paid or set apart for payment on the Preferred Partnership Units ranking, as to distributions, on a parity with or junior to the Series B Preferred Partnership Units for any period, and (B) no distributions (other than in Junior Partnership Units) shall be declared or paid or set aside for payment or other distribution or shall be declared or made upon the Junior Partnership Units or any other Preferred Partnership Units ranking on a parity with the Series B Preferred Partnership Units as to distributions or upon liquidation (Parity Units), nor shall any Junior Partnership Units or any Parity Units 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 Junior Partnership Units or Parity Units) by the Partnership (except by conversion into or exchange for Junior Partnership Units).
(4) Except as provided herein, the Series B Preferred Partnership Units shall not be entitled to participate in the earnings or assets of the Partnership, and no interest, or sum of money in lieu of interest, shall be payable in respect of any distribution or distributions on the Series B Preferred Partnership Units which may be in arrears.
2
(5) Any distribution made on the Series B Preferred Partnership Units shall be first credited against the earliest accrued but unpaid quarterly distribution due with respect to such Partnership Units which remains payable.
(6) No quarterly distributions on the Series B Preferred Partnership Units shall be authorized by the General Partner or be paid or set apart for payment by the Partnership at such time as the terms and provisions of any agreement of the General Partner or the Partnership, including any agreement relating to its indebtedness, prohibit such authorization, payment or setting apart for payment or provides that such authorization, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such authorization or payment shall be restricted or prohibited by law. Notwithstanding the foregoing, quarterly distributions on the Series B Preferred Partnership Units will accrue whether or not the Partnership has earnings, whether or not there are funds legally available for the payment of such quarterly distributions and whether or not such quarterly distributions are authorized.
(d) Liquidation Rights.
(1) Upon the voluntary or involuntary dissolution, liquidation or winding up of the Partnership, the General Partner, in its capacity as the holder of the Series B Preferred Partnership Units then outstanding, shall be entitled to receive and to be paid out of the assets of the Partnership available for distribution to its partners, before any payment or distribution shall be made on any Junior Partnership Units, the amount of $25.00 per Series B Preferred Partnership Unit, plus accrued and unpaid quarterly distributions thereon.
(2) After the payment to the holders of the Series B Preferred Partnership Units of the full preferential amounts provided for herein, the General Partner, in its capacity as the holder of the Series B Preferred Partnership Units as such, shall have no right or claim to any of the remaining assets of the Partnership.
(3) If, upon any voluntary or involuntary dissolution, liquidation, or winding up of the Partnership, the amounts payable with respect to the preference value of the Series B Preferred Partnership Units and any other Preferred Partnership Units of the Partnership ranking as to any such distribution on a parity with the Series B Preferred Partnership Units are not paid in full, the holders of the Series B Preferred Partnership Units and of such other Preferred Partnership Units will share ratably in any such distribution of assets of the Partnership in proportion to the full respective preference amounts to which they are entitled.
(4) Neither the sale, lease or conveyance of all or substantially all of the property or business of the Partnership, nor the merger or consolidation of the Partnership into or with any other entity or the merger or consolidation of any other entity into or with the Partnership, shall be deemed to be a dissolution, liquidation or winding up, voluntary or involuntary, for the purposes hereof.
3
(e) Redemption.
(1) The Series B Preferred Partnership Units are not redeemable prior to September 25, 2002. On and after September 25, 2002, the General Partner may, at its option, cause the Partnership to redeem at any time all or, from time to time, part of the Series B Preferred Partnership Units at a price per unit (the Redemption Price), payable in cash, of $25.00, together with all accrued and unpaid distributions to and including the date fixed for redemption (the Redemption Date). The Series B Preferred Partnership Units have no stated maturity and will not be subject to any sinking fund or mandatory redemption provisions.
(2) Procedures of Redemption.
(i) At any time that the General Partner exercises its right to redeem all or any of the Series B Preferred Shares, the General Partner shall exercise its right to cause the Partnership to redeem an equal number of Series B Preferred Partnership Units in the manner set forth herein.
(ii) No Series B Preferred Partnership Units may be redeemed except from proceeds from the sale of capital stock of the General Partner, including but not limited to common stock, preferred stock, depositary shares, interests, participations or other ownership interests (however designated) and any rights (other than debt securities convertible into or exchangeable for equity securities) or options to purchase any of the foregoing. The proceeds of such sale of capital stock of the General Partner shall be contributed by the General Partner to the Partnership pursuant to the requirements of Section 4.2 of the Partnership Agreement.
(f) Voting Rights. Except as required by law, the General Partner, in its capacity as the holder of the Series B Preferred Partnership Units, shall not be entitled to vote at any meeting of the Partners or for any other purpose or otherwise to participate in any action taken by the Partnership or the Partners, or to receive notice of any meeting of Partners.
(g) Conversion. The Series B Preferred Partnership Units are not convertible into or exchangeable for any other property or securities of the Partnership.
(h) Restrictions on Ownership. The Series B Preferred Partnership Units shall be owned and held solely by the General Partner.
(i) General. The rights of the General Partner, in its capacity as holder of the Series B Preferred Partnership Units, are in addition to and not in limitation of any other rights or authority of the General Partner, in any other capacity, under the Partnership Agreement. In addition, nothing contained herein shall be deemed to limit or otherwise restrict any rights or authority of the General Partner under the Partnership Agreement, other than in its capacity as the holder of the Series B Preferred Partnership Units.
4
EXHIBIT J
DESIGNATION OF THE VOTING POWERS, DESIGNATIONS, PREFERENCES AND
RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS AND
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF THE
SERIES D PREFERRED PARTNERSHIP
UNITS
The following are the terms of the Series D Preferred Partnership Units established pursuant to this Amendment:
(a) Number. The maximum number of authorized Series D Preferred Partnership Units shall be 400,000.
(b) Relative Seniority. In respect of rights to receive quarterly distributions and to participate in distributions of payments in the event of any liquidation, dissolution or winding up of the Partnership, the Series D Preferred Partnership Units shall rank (i) senior to the Common Partnership Units and any other class or series of Partnership Units of the Partnership ranking, as to quarterly distributions and upon liquidation, junior to the Series D Preferred Partnership Units (collectively, Junior Partnership Units) and (ii) pari passu with the Series A Preferred Partnership Units, the Series B Preferred Partnership Units and any other class or series of Partnership Units of the Partnership ranking, as to quarterly distributions and upon liquidation, pari passu with the Series D Preferred Partnership Units.
(c) Quarterly Distributions.
(1) The General Partner, in its capacity as the holder of the then outstanding Series D Preferred Partnership Units, shall be entitled to receive, when and as declared by the General Partner out of any funds legally available therefor, cumulative quarterly distributions at the rate of $20.00 per Series D Preferred Partnership Unit per year, payable quarterly in arrears in cash on or about the last day of January, April, July and October of each year or, if not a Business Day (as hereinafter defined), the next succeeding Business Day, commencing July 31, 1998 (each such day being hereafter called a Quarterly Distribution Date and each period beginning on the day next following a Quarterly Distribution Date and ending on the next following Quarterly Distribution Date being hereinafter called a Distribution Period). Quarterly distributions on each Series D Preferred Partnership Unit shall accrue and be cumulative from and including the date of original issue thereof, whether or not (i) quarterly distributions on such Series D Preferred Partnership Units are earned or declared or (ii) on any Quarterly Distribution Date there shall be funds legally available for the payment of quarterly distributions. Quarterly distributions paid on the Series D Preferred Partnership Units in an amount less than the total amount of such quarterly distributions at the time accrued and payable on such Partnership Units shall be allocated pro rata on a per unit basis among all such Series D Preferred Partnership Units at the time outstanding.
1
Business Day shall mean any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions in New York City are authorized or required by law, regulation or executive order to close.
(2) The amount of any quarterly distributions accrued on any Series D Preferred Partnership Units at any Quarterly Distribution Date shall be the amount of any unpaid quarterly distributions accumulated thereon, to and including such Quarterly Distribution Date, whether or not earned or declared, and the amount of quarterly distributions accrued on any Series D Preferred Partnership Units at any date other than a Quarterly Distribution Date shall be equal to the sum of the amount of any unpaid quarterly distributions accumulated thereon, to and including the last preceding Quarterly Distribution Date, whether or not earned or declared, plus an amount calculated on the basis of the annual distribution rate for the period after such last preceding Quarterly Distribution Date to and including the date as of which the calculation is made based on a 360-day year of twelve 30-day months. When distributions are not paid in full upon the Series D Preferred Partnership Units (or a sum sufficient for such full payment is not set apart therefor), all distributions declared upon Series D Preferred Partnership Units and any other series of Preferred Partnership Units ranking on a parity as to distributions with the Series D Preferred Partnership Units shall be declared pro rata so that the amount of distributions declared per unit on the Series D Preferred Partnership Units and such other series of Preferred Partnership Units shall in all cases bear to each other the same ratio that accrued distributions per unit on the Series D Preferred Partnership Units and such other series of Preferred Partnership Units bear to each other.
(3) Except as provided in the immediately preceding paragraph, unless full cumulative distributions on the Series D Preferred Partnership Units have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment of the Series D Preferred Partnership Units for all past distribution periods and the then current distribution period, (A) no distributions shall be declared or paid or set apart for payment on the Preferred Partnership Units ranking, as to distributions, on a parity with or junior to the Series D Preferred Partnership Units for any period, and (B) no distributions (other than in Junior Partnership Units) shall be declared or paid or set aside for payment or other distribution or shall be declared or made upon the Junior Partnership Units or any other Preferred Partnership Units ranking on a parity with the Series D Preferred Partnership Units as to distributions or upon liquidation (Parity Units), nor shall any Junior Partnership Units or any Parity Units 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 Junior Partnership Units or Parity Units) by the Partnership (except by conversion into or exchange for Junior Partnership Units).
(4) Except as provided herein, the Series D Preferred Partnership Units shall not be entitled to participate in the earnings or assets of the Partnership, and no interest, or sum of money in lieu of interest, shall be payable in respect of any distribution or distributions on the Series D Preferred Partnership Units which may be in arrears.
2
(5) Any distribution made on the Series D Preferred Partnership Units shall be first credited against the earliest accrued but unpaid quarterly distribution due with respect to such Partnership Units which remains payable.
(6) No quarterly distributions on the Series D Preferred Partnership Units shall be authorized by the General Partner or be paid or set apart for payment by the Partnership at such time as the terms and provisions of any agreement of the General Partner or the Partnership, including any agreement relating to its indebtedness, prohibit such authorization, payment or setting apart for payment or provides that such authorization, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such authorization or payment shall be restricted or prohibited by law. Notwithstanding the foregoing, quarterly distributions on the Series D Preferred Partnership Units will accrue whether or not the Partnership has earnings, whether or not there are funds legally available for the payment of such quarterly distributions and whether or not such quarterly distributions are authorized.
(d) Liquidation Rights.
(1) Upon the voluntary or involuntary dissolution, liquidation or winding up of the Partnership, the General Partner, in its capacity as the holder of the Series D Preferred Partnership Units then outstanding, shall be entitled to receive and to be paid out of the assets of the Partnership available for distribution to its partners, before any payment or distribution shall be made on any Junior Partnership Units, the amount of $250.00 per Series D Preferred Partnership Unit, plus accrued and unpaid quarterly distributions thereon.
(2) After the payment to the holders of the Series D Preferred Partnership Units of the full preferential amounts provided for herein, the General Partner, in its capacity as the holder of the Series D Preferred Partnership Units as such, shall have no right or claim to any of the remaining assets of the Partnership.
(3) If, upon any voluntary or involuntary dissolution, liquidation, or winding up of the Partnership, the amounts payable with respect to the preference value of the Series D Preferred Partnership Units and any other Preferred Partnership Units of the Partnership ranking as to any such distribution on a parity with the Series D Preferred Partnership Units are not paid in full, the holders of the Series D Preferred Partnership Units and of such other Preferred Partnership Units will share ratably in any such distribution of assets of the Partnership in proportion to the full respective preference amounts to which they are entitled.
(4) Neither the sale, lease or conveyance of all or substantially all of the property or business of the Partnership, nor the merger or consolidation of the Partnership into or with any other entity or the merger or consolidation of any other entity into or with the Partnership, shall be deemed to be a dissolution, liquidation or winding up, voluntary or involuntary, for the purposes hereof.
3
(e) Redemption.
(1) The Series D Preferred Partnership Units are not redeemable prior to April 23, 2003. On and after April 23, 2003, the General Partner may, at its option, cause the Partnership to redeem at any time all or, from time to time, part of the Series D Preferred Partnership Units at a price per unit (the Redemption Price), payable in cash, of $250.00, together with all accrued and unpaid distributions to and including the date fixed for redemption (the Redemption Date). The Series D Preferred Partnership Units have no stated maturity and will not be subject to any sinking fund or mandatory redemption provisions.
(2) Procedures of Redemption.
(i) At any time that the General Partner exercises its right to redeem all or any of the Series D Preferred Shares, the General Partner shall exercise its right to cause the Partnership to redeem an equal number of Series D Preferred Partnership Units in the manner set forth herein.
(ii) No Series D Preferred Partnership Units may be redeemed except from proceeds from the sale of capital stock of the General Partner, including but not limited to common stock, preferred stock, depositary shares, interests, participations or other ownership interests (however designated) and any rights (other than debt securities convertible into or exchangeable for equity securities) or options to purchase any of the foregoing. The proceeds of such sale of capital stock of the General Partner shall be contributed by the General Partner to the Partnership pursuant to the requirements of Section 4.2 of the Partnership Agreement.
(f) Voting Rights. Except as required by law, the General Partner, in its capacity as the holder of the Series D Preferred Partnership Units, shall not be entitled to vote at any meeting of the Partners or for any other purpose or otherwise to participate in any action taken by the Partnership or the Partners, or to receive notice of any meeting of Partners.
(g) Conversion. The Series D Preferred Partnership Units are not convertible into or exchangeable for any other property or securities of the Partnership.
(h) Restrictions on Ownership. The Series D Preferred Partnership Units shall be owned and held solely by the General Partner.
(i) General. The rights of the General Partner, in its capacity as holder of the Series D Preferred Partnership Units, are in addition to and not in limitation of any other rights or authority of the General Partner, in any other capacity, under the Partnership Agreement. In addition, nothing contained herein shall be deemed to limit or otherwise restrict any rights or authority of the General Partner under the Partnership Agreement, other than in its capacity as the holder of the Series D Preferred Partnership Units.
4
Exhibit 10.2
AMENDMENT NO. 1
TO THE SECOND RESTATED
AGREEMENT OF
LIMITED PARTNERSHIP OF
HIGHWOODS REALTY LIMITED PARTNERSHIP
This Amendment No. 1 (this Amendment), dated as of July 22, 2004, to the Second Restated Agreement of Limited Partnership of Highwoods Realty Limited Partnership, a North Carolina limited partnership (the Partnership), dated as of January 1, 2000 (the Partnership Agreement), is hereby entered into by and among Highwoods Properties, Inc., a Maryland corporation (the General Partner) and the limited partners of the Partnership (the Limited Partners).
WHEREAS, the Partners hereby desire to amend the Partnership Agreement to revise certain provisions of Article 14 of the Partnership Agreement; and
WHEREAS, as required by Section 14.1.D. of the Partnership Agreement, the General Partner has received Consent to this Amendment from 75% of the Percentage Interests of the Limited Partners excluding Limited Partner Interests held by the General Partner;
NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Defined Terms . The capitalized terms used herein shall have the meanings ascribed thereto in the Partnership Agreement, except as otherwise defined or limited herein.
2. Effective Time of the Amendments . The amendments to the Partnership Agreement contained herein shall become effective as of the date of this Amendment.
3. Amendment of Section 14.1.D . Section 14.1.D of the Partnership Agreement is hereby amended by amending and restating Section 14.1.D to the Partnership Agreement, so that Section 14.1.D now reads in its entirety as follows:
D. Notwithstanding Section 14.1.A or Section 14.1.B hereof, the General Partner shall not amend Sections 4.2.A, 7.5, 7.6, 11.2 or 14.2 without the Consent of 66 2 / 3 % of the Percentage Interests of the Limited Partners excluding Limited Partners Interests held by the General Partner.
4. Amendment of Section 14.2.B . Section 14.2.B of the Partnership Agreement is hereby amended by amending and restating Section 14.2.B to the Partnership Agreement, so that Section 14.2.B now reads in its entirety as follows:
B. Any action required or permitted to be taken at a meeting of the Partners may be taken without a meeting if a written consent setting forth the action so taken is signed by 66 2 / 3 % of the Percentage Interests of the Partners (or such other percentage as is expressly required by this Agreement). Such consent may be in one instrument or in several instruments and shall have the same force and effect as a vote of 66 2 / 3 % of the Percentage Interests of the Partners (or such other percentage as is expressly required by this Agreement). Such consent shall be filed with the General Partner. An action so taken shall be deemed to have been taken at a meeting held on the effective date so certified.
5. Entire Agreement . Together with the Partnership Agreement (and the Exhibits thereto), this Amendment contains the entire understanding and agreement among the Partners with respect to the subject matter hereof and supersedes all prior written or oral understandings or agreements among them with respect thereto.
6. Headings . The headings of the sections of this Amendment are inserted for convenience only and shall not constitute a part hereof nor affect in any way the meaning or interpretation of this Amendment.
7. Partnership Continuation; Partnership Agreement Ratified and Confirmed . The Partners agree that this Amendment shall not dissolve the Partnership, and the business of the Partnership shall be deemed to have continued notwithstanding this Amendment, and notwithstanding any contrary rights and privileges which may be contained in the Partnership Agreement. Except as amended by this Amendment, the Partnership Agreement is hereby ratified and confirmed in all other respects and shall otherwise remain unmodified and in full force and effect.
IN WITNESS WHEREOF, the General Partner has executed this Amendment as of the date first written above.
GENERAL PARTNER: | ||
HIGHWOODS PROPERTIES, INC., | ||
a Maryland corporation | ||
By: |
/s/ Mack D. Pridgen III |
|
Name: |
Mack D. Pridgen III |
|
Title: |
Vice President and General Counsel |
Exhibit 10.7
HIGHWOODS PROPERTIES, INC.
2005 SHAREHOLDER VALUE PLAN
Section 1. General Purpose of the Plan: Definitions
The name of the plan is the Highwoods Properties, Inc. 2005 Shareholder Value Plan (the Plan). The purpose of the Plan is to further align the interests of the officers of Highwoods Properties, Inc. (the Company) and its Subsidiaries upon whose judgement, initiative and efforts the Company largely depends for the successful conduct of its business with those of the Company and its shareholders. The Plan provides that those officers selected by the Committee shall be allowed to participate in a long term incentive plan which rewards them only upon the Companys achieving shareholder returns at or above that of the Companys peers, thereby stimulating their efforts on the Companys behalf and strengthening their desire to remain with the Company.
The following terms shall be defined as set forth below:
Act means the Securities Exchange Act of 1934, as amended.
Agreement shall mean the written agreement, substantially in the form of Exhibit B attached hereto, evidencing an SVP Award hereunder between the Company and the recipient of such SVP Award.
Board means the Board of Directors of the Company.
Cause means and shall be limited to a vote of the Board resolving that the Participant should be dismissed as a result of (i) any material breach by the Participant of any agreement to which the Participant and the Company are parties, (ii) any act (other than voluntary termination of employment by the participant) or omission to act by the Participant which may have a material and adverse effect on the business of the Company or any Subsidiary or on the Participants ability to perform services for the Company or any Subsidiary, including, without limitation, the commission of any crime (other than ordinary traffic violations), or (iii) any material misconduct or neglect of duties by the Participant in connection with the business or affairs of the Company or any Subsidiary.
Change of control is defined in Section 9.
Code means the Internal Revenue Code of 1986, as amended, and any successor Code, and related rules, regulations and interpretations.
Committee means the Board or any Committee of the Board referred to in Section 2.
Disability means disability as set forth in Section 22(e)(3) of the Code.
Fair Market Value means the last reported sale price at which a share of common stock in a given company is traded on any given date or, if no such shares are traded on such date, on the next most recent date on which such shares were traded, as reflected on the New York Stock Exchange or, if applicable, any other national stock exchange on which such shares are traded.
Non-Employee Director means a director who is qualified as such under Rule 16b-3(b)(3) promulgated under the Act or any successor definition under the Act.
Participant shall mean any of the employees selected by the Committee to participate in the Plan and who executes an Agreement.
Peer Group shall mean that list of companies as determined from time to time by the Committee and as listed on Exhibit C attached hereto. The component members of the Peer Group may be changed from time to time in the reasonable discretion of the Committee.
Performance Measures shall mean the criteria and objectives, established by the Committee, which shall be satisfied or met during the applicable Plan Period as a condition to the holders receipt of an SVP Award. The Committee may, in its reasonable discretion, amend or adjust the Performance Measures or other terms and conditions of an outstanding SVP Award in recognition of unusual or nonrecurring events affecting the Company or its financial statements or changes in law or accounting principles. If the Committee consists solely of outside directors (within the meaning of Section 162(m) of the Code and the regulations promulgated thereunder) and the Committee desires that compensation payable pursuant to any SVP Award subject to Performance Measures shall be qualified performance-based compensation within the meaning of Section 162(m) of the Code, the Performance Measures (i) shall be established by the Committee no later than the end of the first quarter of the Plan Period, as applicable (or such other time permitted pursuant to Treasury Regulations promulgated under Section 162(m) of the Code or otherwise permitted by the Internal Revenue Service) and (ii) shall satisfy all other applicable requirements imposed under Treasury Regulations promulgated under Section 162(m) of the Code, including the requirement that such Performance Measures be stated in terms of an objective formula or standard.
Plan Period shall mean any period designated by the Committee for which the Performance Measures shall be calculated, but generally, shall refer to the three (3) year period beginning on each January 1.
Restricted Share means a Share, as defined below, subject to the terms, conditions and provisions hereof.
Share or Shares means one or more, respectively, of the Companys shares of common stock, par value $.01 per share, subject to adjustments pursuant to Section 3.
Shareholder Return shall mean as to the common stock of any applicable company the percentage determined by dividing (x) the fair Market Value of a share of such stock at the end of the Plan Period plus all dividends or distributions paid with respect to such share during the Plan Period and assuming reinvestment in such shares of all such dividends or distributions, adjusted to give effect to Section 3 of the Plan, by (y) the Fair Market Value of a share of stock of the applicable company on its last trading day immediately preceding the first day of the Plan Period.
Shareholder Value Plan Award or SVP Award shall mean a right stated as a grant of Restricted Shares as provided hereby, contingent upon the attainment of specified Shareholder Returns of the Company as compared to Shareholder Returns of the Peer Group within the Plan Period.
Subsidiary means Highwoods Realty Limited Partnership and any corporation or other entity (other than the Company) in any unbroken chain of corporations or other entities, beginning with the Company, if each of the corporations or entities (other than the last corporation or entity in the unbroken chain) owns stock or other interests possessing 50% or more of the economic interest or the total combined voting power of all classes of stock or other interests in one of the other corporations or entities in the chain.
Section 2. Administration of Plan: Committee Authority to Select Participants and Determine SVP Awards
(a) Committee . The Plan shall be administered by the Compensation and Governance Committee of the Board.
(b) Powers of Committee . The Committee shall have the power and authority to grant SVP Awards consistent with the terms of the Plan, including the power and authority:
(i) to select Participants to whom SVP Awards may be granted from time to time;
(ii) to determine the time or times of a grant of an SVP Award;
(iii) to determine and modify the terms and conditions, including restrictions, not inconsistent with the terms of the Plan, of any SVP Award, which terms and conditions may differ among individual SVP Awards and Participants, and to approve the form of written instruments evidencing the SVP Awards;
(iv) to accelerate the vesting of all or any portion of any SVP Award;
(v) to extend the period in which an SVP Award may be settled; and
(vi) to adopt, alter and repeal such rules, guidelines and practices for administration of the Plan and for its own acts and proceedings as it shall deem advisable; to interpret the terms and provisions of the Plan and any SVP Awards (including related written instruments); to make all determinations it deems advisable for the administration of the Plan; to decide all disputes arising in connection with the Plan; and to otherwise supervise the administration of the Plan.
All decisions and interpretations of the Committee shall be binding on all persons, including the Company and Plan Participants.
Section 3. Mergers; Substitutions
In the event of any stock split, stock dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation, spin-off or other similar change in capitalization or similar dividend affecting either the Company or a company included in the Peer Group, the terms of the Plan shall be appropriately adjusted by the Committee. The decision of the Committee regarding any such adjustment shall be final, binding and conclusive.
Section 4. Eligibility
Participants in the Plan will be such full or part-time officers of the Company and its Subsidiaries who are responsible for or contribute to the management, growth, or profitability of the Company and its Subsidiaries and who are selected from time to time by the Committee, in its sole discretion.
Section 5. Shareholder Value Plan Awards
(a) Shareholder Value Plan Awards. The Committee may, in its discretion, grant SVP Awards to such eligible persons as may be selected by the Committee.
(b) Terms of SVP Awards. SVP Awards shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall in its discretion deem advisable:
(i) | Grant of SVP Awards. An SVP Award may be granted by the Committee. The Plan Period and Performance Measures of an SVP Award also shall be as designated by the Committee. |
(ii) | Dividends and Distributions. All dividends and distributions payable with respect to a share during the Plan Period shall be paid to the Participant. |
(iii) | Vesting and Forfeiture. The Agreement relating to an SVP Award shall provide, in the manner determined by the Committee in its discretion and subject to the provisions of this Plan, for the vesting of such SVP Award if specified Performance Measure(s) are satisfied or met during the specified Plan Period, and for the forfeiture of such SVP Award if specified Performance Measure(s) are not satisfied or met during the specified Plan Period. |
(iv) | Valuation of SVP Awards. |
(a) At the date of grant of an SVP Award, each SVP Award shall be stated in terms of a grant of specific number of Shares. Such Shares shall be non-transferable during the term of the applicable Plan Period.
(b) The settlement value of an SVP Award (the Value) shall be based upon the relative percentage of Shareholder Return for a Share compared to the Shareholder Return of the shares in the Peer Group. The Value shall be determined as follows:
If the Companys Shareholder Return for the Plan Period divided by the Shareholder Return of the Peer Group (such result being termed the Index Ratio and expressed in percentage points) as of the measurement date equals or exceeds 100, then the Value of an SVP Award will be equal to the number of Restricted Shares in the SVP Award times the sum of .5 plus .025 for each percentage point that the Index Ratio exceeds 100. In no event, however, shall the Value of an SVP Award exceed 3 times the Fair Market Value of the Shares in the Award. If the Index Ratio is less than 100, then an SVP Award shall have a Value equal to $0.
An example of the computation of the Value of an SVP Award is attached at Exhibit A.
(v) Settlement of Vested SVP Awards. SVP Awards shall be settled in Shares. The Settlement Date shall be established by the Company so long as such Settlement Date occurs not later than 120 days following the expiration of the applicable Plan Period. Except to the extent otherwise provided in the Agreement relating to an SVP Award, in the event of a Change of Control the provisions of Section 9 shall apply.
(c) Termination of Employment or Service.
(i) | Disability, Death and Involuntary Termination Without Cause. Except to the extent otherwise set forth in the Agreement relating to an SVP Award, if the employment of a Participant is terminated by reason of Disability, death |
or involuntary termination by the Company without Cause, the Plan Period with respect to any SVP award held by such Participant shall terminate, the Performance Measure shall be computed through such date, the Value shall be determined and pro rated to reflect the portion of the Plan Period completed prior to the date of termination of employment and the applicable SVP Award shall be settled in Shares as soon as practicable following the termination but not later then the tenth day thereafter. |
(ii) | Other Termination. Except to the extent otherwise set forth in the Agreement relating to an SVP Award, if the Participants employment with the Company terminates for any reason other than Disability, death, or involuntary termination by the Company without Cause, then the Plan Period for such SVP Award shall be deemed to end on the date of such termination, no Performance Measure shall be recognized or deemed attained, satisfied or met, and the holders SVP Award shall be forfeited to and canceled by the Company. |
(d) Status as a Shareholder. Subject to the provisions hereof and of any applicable Agreement, the Employee receiving a grant of Restricted Shares hereby shall thereafter be a stockholder with respect to all of such Shares and shall have the rights of a stockholder with respect to such Shares, including the right to vote and the right to receive dividends and other distributions (other than liquidating or special distributions which shall not be payable with respect to Restricted Shares) paid with respect to such Shares . All Shares received by Participant as a result of any dividend on Restricted Shares, or as a result of any stock split-up, stock distribution or combination of shares affecting Restricted Shares, shall be subject to the restrictions set forth herein .
Section 6. Tax Withholding
Each Participant shall, not later than the date as of which the Value of an SVP Award or amounts received hereunder first becomes includable in the gross income of the Participant for federal income tax purposes, pay to the Company, or make arrangements satisfactory to the Committee regarding payment of any federal, state, or local taxes of any kind required by law to be withheld with respect to such income. The Committee in its discretion may require that the Company withhold from the Shares to be issued pursuant to the vesting of an SVP Award a number of Shares with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the withholding amount due.
Section 7. Transfer, Leave of Absence, Etc.
For purposes of the Plan, the following events shall not be deemed a termination of employment:
(a) a transfer to the employment of the Company from a Subsidiary or from the Company to a Subsidiary, or from one Subsidiary to another; or
(b) an approved leave of absence for military service or sickness, or for any other purposes approved by the Company, if the employees right to re-employment is guaranteed either by a statute or by contract or under the policy pursuant to which the leave of absence was granted or if the Committee otherwise so provides in writing.
Section 8. Amendments and Termination
The Board may, at any time, amend or discontinue the Plan and the Committee may, at any time, amend or cancel any outstanding SVP Award for the purpose of satisfying changes in law without the consent of any Participant. No amendment, however, may impair the rights of a holder of an outstanding SVP Award without the consent of such holder.
Section 9. Change of Control Provisions
Upon the occurrence of a Change of Control as defined in this Section 9:
(a) The Plan Period for SVP Awards will expire, the Performance Measures will be computed through the date of such Change of Control, the Value shall be determined and pro rated to reflect the portion of the Plan Period completed prior to the date of the Change of Control and the applicable SVP Award shall be settled on the date of such Change in Control.
(b) Change of Control shall mean the occurrence of any one of the following events:
(i) any person , as such term is used in Section 13(d) and 14(d) of the Act (other than the Company, any of its Subsidiaries, any trustee, fiduciary or other person or entity holding securities under any employee benefit plan of the Company or any of its Subsidiaries), together with all affiliates and associates (as such terms are defined in Rule 12b-2 under the Act) of such person, shall become the beneficial owner (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 40% or more of either (A) the combined voting power of the Companys then outstanding securities having the right to vote in an election of the Companys Board of Directors (Voting Securities) or (B) the then outstanding Shares (in either such case other than as a result of acquisition of securities directly from the Company); or
(ii) persons who, as of January 1, 2005, constitute the Companys Board of Directors (the Incumbent Directors) cease for any reason, including, without limitation, as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Board, provided that any person becoming a director of the Company subsequent to May 1, 2005 whose election or nomination for election was approved by a vote of at least a majority of the Incumbent Directors shall, for purposes of this Plan, be considered an Incumbent Director; or
(iii) the stockholders of the Company shall approve (A) any consolidation or merger of the Company or any Subsidiary where the stockholders of the Company, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, shares representing in the aggregate 50% of the voting shares of the corporation issuing cash or securities in the consolidation or merger (or of its ultimate parent corporation, if any), (B) any sale, lease, exchange or other transfer (in one transaction or a series of transactions contemplated or arranged by an party as a single plan) of all or substantially all of the assets of the Company or (C) any plan or proposal for the liquidation or dissolution of the Company.
Notwithstanding the foregoing, a Change of Control shall not be deemed to have occurred for purposes of the foregoing clause (i) solely as the result of an acquisition of securities by the Company which, by reducing the number of Shares or other voting securities outstanding, increases (x) the proportionate number of Shares beneficially owned by any person to 40% or more of the Shares then outstanding or (y) the proportionate voting power represented by the voting securities beneficially owned by any person to 40% or more of the combined voting power of all then outstanding voting securities; provided, however , that if any person referred to in clause (x) or (y) of this sentence shall thereafter become the beneficial owner of any additional Shares or other voting securities (other than pursuant to a stock split, stock dividend, or similar transaction), then a Change of Control shall be deemed to have occurred for purposes of the foregoing clause (i).
Section 10. Effective Date of Plan
The effective date of the Plan is January 1, 2005.
Section 11. Governing Law
This Plan shall be governed by North Carolina law except to the extent such law is preempted by federal law.
Section 13. Interpretation
It is the intent of the Board that benefits payable under the Plan are not taxable until such benefits are vested under the terms of the Plan. This Plan shall be interpreted at all times by the Committee in its sole discretion in such a manner so as to avoid any inconsistency or failure to meet the provisions of Section 409A of the Internal Revenue Code and the regulations thereto. No distribution of benefits hereunder may be made except in accordance with the requirements of Section 409A and in the event of any conflict between the terms hereof and the provisions thereof, the provisions of Section 409A shall control. To the extent that a distribution hereunder is delayed by this interpretive provision, the Company shall cause such distribution to made at the earliest possible time in compliance with Section 409A.
EXHIBIT A
SHAREHOLDER VALUE PLAN
Determination of Settlement Value Example
1) | Fair Market Value at 1/1/05: |
Highwoods |
$ | 25.00 | |||
Peer Group (total) |
$ | 1,200.00 |
2) | Dividends per share during Plan Period: |
Highwoods |
$ | 8.00 | |||
Peer Group (total) |
$ | 234.00 |
3) | Fair Market Value at end of Plan Period: |
Highwoods |
$ | 43.00 | |||
Peer Group |
$ | 1,920.00 |
4) | Shareholder Return: |
Highwoods:
Dividends |
$ | 8.00 | |||
Return on Dividends* |
.75 | ||||
FMV-ending |
43.00 | ||||
|
|
||||
51.75 | |||||
÷ | = 2.07 | ||||
FMV - beginning |
25.00 |
Peer Group:
Dividends |
$ | 243.00 | |||
Return on dividends* |
18.05 | ||||
FMV - ending |
1,920.00 | ||||
|
|
||||
2,181.05 | |||||
÷ | = 1.82 | ||||
FMV - beginning |
1,200.00 |
5) | Index Ratio: |
Highwoods Shareholder Return |
2.07 | |||
÷ | = 1.14 | |||
1.13 |
||||
Peer Group Shareholder Return | 1.82 |
6) | Value of an SVP Award: |
Since the Index Ratio exceeds 1.00, the Value of an SVP Award is equal to one times the sum of .5 + (.025 times the Index Ratio in percentage points less 100), or
No. of Shares in an SVP Award |
1,000 | |
.5 + (.025) (114-100) = |
.850 | |
|
||
No. of Vested Shares |
850 | |
|
Exhibit C
Peer Group
Arden Realty, Inc.
Brandywine Realty Trust
CarrAmerica Realty Corp.
CRT Properties, Inc.
Duke Realty Corp.
Equity Office Properties Trust
Kilroy Realty Corp.
Liberty Property Trust
Mack-Cali Realty Corp.
Parkway Properties, Inc.
Prentiss Properties Trust
Exhibit 10.10
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT dated as of June 10, 2004 (the Second Amendment ), is by and among HIGHWOODS REALTY LIMITED PARTNERSHIP, a North Carolina limited partnership ( Highwoods Realty ), HIGHWOODS PROPERTIES, INC., a Maryland corporation ( Highwoods Properties ), HIGHWOODS FINANCE, LLC, a Delaware limited liability company ( Highwoods Finance ), HIGHWOODS SERVICES, INC., a North Carolina corporation ( Highwoods Services ), and HIGHWOODS/TENNESSEE HOLDINGS, L.P., a Tennessee limited partnership ( Highwoods Tennessee ) (Highwoods Realty, Highwoods Properties, Highwoods Finance, Highwoods Services, and Highwoods Tennessee are hereinafter referred to individually as a Borrower and collectively as the Borrowers ), the subsidiaries of the Borrowers identified on the signature pages to the Credit Agreement referenced below or joined as parties thereto pursuant to Section 7.12 thereof, except to the extent such subsidiaries constitute Non-Guarantor Subsidiaries in accordance with the terms of the Credit Agreement, as amended hereby (such Subsidiaries party hereto are hereinafter referred to individually as a Guarantor and collectively as the Guarantors ), the Lenders (as defined in the Credit Agreement), BANK OF AMERICA, N.A., as Administrative Agent for the Lenders (in such capacity, the Administrative Agent ), BANC OF AMERICA SECURITIES LLC, as Sole Lead Arranger (in such capacity, the Sole Lead Arranger ) and Sole Book Manager (in such capacity, the Sole Book Manager ), WELLS FARGO BANK, NATIONAL ASSOCIATION, as Syndication Agent (in such capacity, the Syndication Agent ) and BRANCH BANKING & TRUST COMPANY and FLEET NATIONAL BANK OF AMERICA, as Co-Documentation Agents (in such capacity, the Documentation Agent ), and is an amendment to that certain Amended and Restated Credit Agreement dated as of July 17, 2003 by and among the Borrowers, Guarantors, Lenders, Administrative Agent, Sole Lead Arranger, Sole Book Manager, Syndication Agent and Documentation Agent, as amended by that certain First Amendment to Credit Agreement dated as of March 29, 2004 (as the same may have been otherwise or further amended, restated, supplemented or otherwise modified prior to the date hereof, the Credit Agreement ).
WITNESSETH
WHEREAS , each of the Borrowers and the Guarantors have requested and the Lenders and Administrative Agent have agreed to amend the Credit Agreement on the terms and conditions set forth herein;
NOW, THEREFORE , for good and valuable consideration, the receipt of which is hereby acknowledged by the parties hereto, the parties hereto agree as follows:
1. Amendments to Credit Agreement .
(a) The definition of Non-Guarantor Subsidiary contained in Section 1.1 of the Credit Agreement is hereby deleted in its entirety and replaced with the following:
Non-Guarantor Subsidiary means a collective reference to:
(a) those Persons listed on Schedule 1.1(b) attached hereto;
(b) any Subsidiary of any Credit Party (i) formed for or converted to (in accordance with the terms and conditions set forth herein) the specific purpose of holding title to assets which are collateral for Indebtedness owing by such Subsidiary and (ii) which is (or, immediately following its release as a Credit Party hereunder, shall be) expressly prohibited in writing from guaranteeing Indebtedness of any other Person pursuant to (A) a provision in any document, instrument or agreement evidencing such Indebtedness of such Subsidiary or (B) a provision of such Subsidiarys organizational documents, in each case, which provision was included in such organizational document or such other document, instrument or agreement as an express condition to the extension of such Indebtedness required by the third party creditor providing the subject financing; provided, that a Subsidiary meeting the above requirements shall only remain a Non-Guarantor Subsidiary for so long as (1) each of the above requirements are satisfied, (2) such Subsidiary does not guarantee any other indebtedness and (3) the Indebtedness with respect to which the restrictions noted in clause (ii) are imposed remains outstanding;
(c) any Subsidiary of any Credit Party (i) which becomes a Subsidiary of any Credit Party following the Closing Date, (ii) which is not a Wholly-Owned Subsidiary of the Credit Party, and (iii) with respect to which the Credit Party, as applicable, does not have sufficient voting power (and is unable, after good faith efforts to do so, to cause any necessary non-Credit Party equity holders to agree) to cause such Subsidiary to execute a Joinder Agreement pursuant to the terms hereof or, notwithstanding such voting power, the interests of such non-Credit Party holders have material economic value in the reasonable judgment of the Borrower that would be impaired by the execution of a Joinder Agreement; and
(d) any other Subsidiary of a Credit Party to the extent (i) such Subsidiary holds no assets; or (ii) (A) such Subsidiary holds total assets with a value of less than $500,000 and (B) the sum of the values of the total assets held by the Subsidiaries already qualifying as Non-Guarantor Subsidiaries pursuant to subclause (d)(i)(A) above plus the value of the total assets held by the applicable Subsidiary is less than $5,000,000; and
Non-Guarantor Subsidiary means any one of such Persons.
(b) The following Section 1.5 is hereby added to the Credit Agreement immediately following Section 1.4 thereof:
1.5 Exclusion of Special Charge from Covenant Calculations.
Notwithstanding anything contained herein to the contrary, the Credit Parties shall not be required to include as an expense (whether interest or otherwise) or as any form of Indebtedness certain settlement costs (in an amount not to exceed $12,500,000) associated with the Credit Parties settlement or prepayment of those certain $100 million Exercisable Put Option Notes issued by the Borrower in June 1997 in the calculation of any of the financial covenants or the components thereof contained herein.
(c) Section 7.12 of the Credit Agreement is hereby deleted in its entirety and replaced with the following:
(a) If any Person (other than a Non-Guarantor Subsidiary) becomes a Subsidiary of any Credit Party or upon the formation of any Preferred Stock Subsidiary or if at any time any Non-Guarantor Subsidiary qualifying as such as a result of clauses (a), (b) or (c) of the definition thereof could become a Credit Party without violating the terms of any material contract, agreement or document to which it is a party, the Principal Borrower shall (i) if such Person is a Domestic Subsidiary of a Credit Party or a Preferred Stock Subsidiary, cause such Person to execute a Joinder Agreement in substantially the same form as Exhibit 7.12 on or before the deadline for delivery of the next Quarterly Stock Repurchase/Joinder Statement, (ii) provide the Administrative Agent with notice thereof on a quarterly basis by delivering a Quarterly Stock Repurchase/Joinder Statement and other documentation as required in Section 7.1(l), and (iii) cause such Person to deliver such other documentation as the Administrative Agent may reasonably request in connection with the foregoing, including, without limitation, certified resolutions and other organizational and authorizing documents of such Person, favorable opinions of counsel to such Person (which shall cover, among other things, the legality, validity, binding effect and enforceability of the documentation referred to above), all in form, content and scope reasonably satisfactory to the Administrative Agent. If a Non-Guarantor Subsidiary executes and delivers a Joinder Agreement it shall no longer be deemed a Non-Guarantor Subsidiary under this Credit Agreement.
(b) Notwithstanding any other provisions of this Credit Agreement to the contrary, to the extent a Guarantor anticipates becoming or intends to become a Non-Guarantor Subsidiary
2
pursuant to any of clauses (b), (c) or (d) of the definition thereof, the Principal Borrower may request a release of such Guarantor as a Guarantor hereunder in accordance with the following:
(i) the Principal Borrower shall deliver to the Administrative Agent, not less than ten (10) days and not more than thirty (30) days prior to the anticipated or intended conversion of a Guarantor into a Non-Guarantor Subsidiary, a written request for release of the applicable Guarantor and a pro forma compliance certificate of the chief financial officer of the Principal Borrower in form and substance acceptable to the Administrative Agent, (A) demonstrating that upon such release the Credit Parties will on a pro forma basis continue to comply with (1) the financial covenants contained in Section 7.11 and (2) the financial covenants contained in each of the indentures or other agreements relating to any publicly issued debt securities of any Consolidated Party, in each case by a reasonably detailed calculation thereof (which calculation shall be in form reasonably satisfactory to the Agent and which shall include, among other things, an explanation of the methodology used in such calculation and a breakdown of the components of such calculation), (B) stating that the Credit Parties will be in compliance with each of the covenants set forth in Sections 7 and 8 of the Credit Agreement at all times following such release, (C) stating that, following such release, no Default or Event of Default will exist under the Credit Agreement or any of the other Credit Documents, or if any Default or Event of Default will exist, specifying the nature and extent thereof and what action the Credit Parties propose to take with respect thereto, and (D) attaching, pursuant to Section 6.13 of the Credit Agreement, an updated version of Schedules 6.13 to the Credit Agreement;
(ii) the Administrative Agent shall have reviewed and approved (in writing) the request for release and pro forma compliance certificate delivered pursuant to subclause (i) above; provided, that the failure of the Administrative Agent to respond to such a request within ten (10) days of its receipt thereof shall constitute the Administrative Agents approval thereof; provided, that any approval of the Administrative Agent provided pursuant to this subclause (ii) shall lapse and be null and void thirty (30) days following the granting thereof if the applicable Guarantor has not, on or prior to the completion of such period, met the criteria for qualification as a Non-Guarantor Subsidiary (as evidenced by the delivery by the Principal Borrower of a notice and certification in accordance with subclause (iii) below); and
(iii) the Principal Borrower shall, concurrently with or promptly following the applicable Guarantors satisfaction of the criteria for qualification as a Non-Guarantor Subsidiary deliver to the Administrative Agent a notice and certification of such qualification.
Notwithstanding any language to the contrary above, so long as the chief financial officer of the Principal Borrower has certified in a compliance certificate (and the Administrative Agent has no evidence or information which brings into reasonable doubt the veracity of such certifications) that: (A) upon such release the Credit Parties (1) will on a pro forma basis continue to comply with the financial covenants contained in Section 7.11, and the financial covenants contained in each of the indentures or other agreements relating to any publicly issued debt securities of any Consolidated Party, and (2) will be in compliance with each of the covenants set forth in Sections 7 and 8 of the Credit Agreement at all times following such release, (B) following such release, no Default or Event of Default will exist under the Credit Agreement or any of the other Credit Documents, or if any Default or Event of Default will exist, the nature and extent thereof and what action the Credit Parties propose to take with respect thereto will be specified, and (C) attached pursuant to Section 6.13 of the Credit Agreement, is an updated version of Schedules 6.13 to the Credit Agreement, the request for release shall be approved and issued by the Administrative Agent within the 10-day time period specified in subsection (b)(ii).
Upon satisfaction of each of the above-noted conditions, a Guarantor shall be deemed released from its obligations hereunder and under each of the Credit Documents.
3
(d) The text of Section 7.14 of the Credit Agreement is hereby deleted in its entirety and replaced with the following:
Each Credit Party shall, to the extent it exercises sufficient control over the activities of the applicable Non-Guarantor Subsidiary(ies), cause all Excess Cash Flow (as defined below) of each Non-Guarantor Subsidiary to be transferred to a Credit Party as promptly as possible but at least once a month. For the purposes of this Section 7.14, Excess Cash Flow means an amount equal to all net operating income of a Non-Guarantor Subsidiary minus all debt service payments of such Non-Guarantor Subsidiary minus all amounts required to fund reserves of such Non-Guarantor Subsidiary.
(e) The text of Section 8.15 of the Credit Agreement is hereby deleted in its entirety and replaced with the following:
Notwithstanding any other provision of this Credit Agreement, the Credit Parties shall prohibit any Non-Guarantor Subsidiary from (a) forming or acquiring any new Subsidiary; (b) incurring any Indebtedness that is recourse to any Credit Party, (c) purchasing or acquiring any new Real Property or other assets other than those used in connection with currently owned Real Property or (d) incurring any change in its ownership which has the effect of reducing the percentage thereof owned by the Credit Parties.
(f) The following Section 10.11 is hereby added to the Credit Agreement following Section 10.10 thereof:
10.11 Credit Document Guaranty Matters .
The Lenders irrevocably authorize the Administrative Agent to release any Guarantor from its obligations hereunder and under each of the other Credit Documents to the extent such release is requested by such Guarantor and the Principal Borrower in accordance the provisions set forth in Section 7.12(b) hereof and upon the satisfaction of the conditions set forth in such Section 7.12(b) (as reasonably determined by the Administrative Agent). Upon request by the Administrative Agent at any time, the Lenders will confirm in writing the Administrative Agents authority to grant releases and terminations pursuant to this Section 10.11 . Further, the Administrative Agent is hereby authorized by the Lenders, upon the request of any Guarantor released pursuant to Section 7.12(b) hereof, to execute and deliver to such Guarantor a document (in form and substance acceptable to the Administrative Agent) evidencing such release.
(g) The text of Schedule 1.1(b) attached to the Credit Agreement is hereby deleted in its entirety and replaced with the text set forth on Schedule 1.1(b) attached hereto.
(h) Each of Highwoods Orlando, LLC (f/k/a MG-HIW, LLC), a Delaware limited liability company and wholly owned subsidiary of the Operating Partnership, HIW-KC Orlando, LLC ( f/k/a MG-HIW Orlando, LLC, a Delaware limited liability company and a wholly owned subsidiary of Highwoods Orlando, LLC, and Highwoods KC Glenridge, LLC, a Delware limited liability company and wholly owned subsidiary of the Operating Partnership, is hereby released from its obligations under the Credit Agreement and each of the other Credit Documents.
(i) Notwithstanding any language to the contrary in this Second Amendment, nothing herein shall prohibit an Asset Disposition of a Non-Guarantor Subsidiary under the terms and conditions of Section 8.17 of the Credit Agreement. Upon any Asset Disposition under the terms and conditions of Section 8.17, a release shall be granted. The Lenders irrevocably authorize the Administrative Agent to grant such release upon the satisfaction of the terms and conditions of an Asset Disposition under Section 8.17.
2. Conditions Precedent . The effectiveness of this Second Amendment is subject to receipt by the Administrative Agent of each of the following, each in form and substance satisfactory to the Administrative Agent:
(a) a counterpart of this Second Amendment duly executed by each of: the Borrowers, Guarantors and Supermajority Lenders;
4
(b) payment by Borrowers of (i) any fees required by the Administrative Agent or Sole Lead Arranger in connection with this Second Amendment, (ii) a fee to each Lender executing and delivering its signature page to this Second Amendment to the Administrative Agent on or before , 2004, such fee for a particular Lender to be in an amount equal to 0.10% times the maximum amount of such Lenders Revolving Commitment, (iii) all other outstanding fees and expenses of the Administrative Agent and the Administrative Agents counsel incurred in connection with the preparation of this Second Amendment, (iv) all other fees and expenses relating to the preparation, execution and delivery of this Second Amendment or otherwise related to the Credit Agreement or the Credit Documents which are due and payable as of the date hereof, including, without limitation, payment to the Administrative Agent of attorneys fees, consultants fees, travel expenses, all fees and expenses associated with prior transactions entered into or contemplated by and between Borrowers and the Administrative Agent and (v) all other fees and expenses due and then-owing from the Borrowers to the Administrative Agent and Lenders pursuant to the terms hereof, the terms of the Credit Agreement and the terms of the other Credit Documents; and
(c) such other documents, instruments and agreements as the Administrative Agent may reasonably request.
3. Representations . Each of the Borrowers and each of the Guarantors collectively represent and warrant to the Administrative Agent and the Lenders that:
(a) Authorization . Each of the Borrowers and each of the Guarantors, respectively, has the right and power and has obtained all authorizations necessary to execute and deliver this Second Amendment and to perform its respective obligations hereunder and under the Credit Agreement, as amended by this Second Amendment, in accordance with their respective terms. This Second Amendment has been duly executed and delivered by a duly authorized officers of each of the Borrowers and each Guarantor, respectively, and each of this Second Amendment and the Credit Agreement, as amended by this Second Amendment, is a legal, valid and binding obligation of each of the Borrowers and each Guarantor (each as applicable), enforceable against each of the Borrowers and each Guarantor (each as applicable) in accordance with its respective terms, except as the same may be limited by bankruptcy, insolvency, and other similar laws affecting the rights of creditors generally and by equitable principles generally.
(b) Compliance with Laws, etc . The execution and delivery by each of the Borrowers and each of the Guarantors of this Second Amendment and the performance by each of the Borrowers and/or the Guarantors of this Second Amendment and the Credit Agreement, as amended by this Second Amendment, in accordance with their respective terms, does not and will not, by the passage of time, the giving of notice or otherwise: (i) require any approval (other than those already obtained) by any Governmental Authority or violate any law (including any Environmental Law) which is applicable to a Borrower, any Guarantors, any Consolidated Party, the Credit Documents or the transactions contemplated herein or therein; (ii) conflict with, result in a breach of or constitute a default under the organizational documents of any Borrower, any of the Guarantors or any other Consolidated Party, or any indenture, agreement/or other instrument to which any Borrower, any of the Guarantors or any other Consolidated Party is a party or by which it or any of its respective properties may be bound; or (iii) result in or require the creation or imposition of any Lien upon or with respect to any property now owned or hereafter acquired by any Borrower, any Guarantor or any other Consolidated Party other than in favor of the Administrative Agent for the benefit of the Lenders; and
(c) No Default . No Default or Event of Default has occurred and is continuing as of the date hereof nor will exist immediately after giving effect to this Second Amendment.
4. Reaffirmation of Representations . Each of the Borrowers and each of the Guarantors hereby repeat and reaffirm all representations and warranties made by such party to the Administrative Agent and the Lenders in the Credit Agreement and the other Credit Documents to which it is a party on and as of the date hereof (other than any representation or warranty expressly relating to an earlier date) with the same force and effect as if such representations and warranties were set forth in this Second Amendment in full.
5
5. Reaffirmation of Guaranty . Each of the Guarantors hereby reaffirms its continuing obligations to the Administrative Agent and the Lenders under the Credit Agreement and agrees that the transactions contemplated by this Second Amendment shall not in any way affect the validity and enforceability of their respective guaranty obligations thereunder or reduce, impair or discharge the obligations of such Guarantors thereunder.
6. Severability . If any provision of any of this Second Amendment or of the Credit Agreement, as amended hereby, is determined to be illegal, invalid or unenforceable, such provision shall be fully severable and the remaining provisions shall remain in full force and effect and shall be construed without giving effect to the illegal, invalid or unenforceable provisions.
7. Certain References . Each reference to the Credit Agreement in any of the Credit Documents shall be deemed to be a reference to the Credit Agreement as amended by this Second Amendment and this Second Amendment shall be deemed a Credit Document for purposes of the application of provisions of the Credit Agreement generally applicable thereto (including, without limitation, any arbitration provisions or waiver provisions).
8. Expenses . The Borrowers shall reimburse the Administrative Agent upon demand for all reasonable costs and expenses (including reasonable attorneys fees) incurred by the Administrative Agent in connection with the preparation, negotiation and execution of this Second Amendment and the other agreements and documents executed and delivered in connection herewith.
9. Benefits . This Second Amendment shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns.
10. Default . The failure of any of the Borrowers or any of the Guarantors to perform any of their respective obligations under this Second Amendment or the material falsity of any representation or warranty made herein shall, at the option of the Administrative Agent and/or Lenders (as determined in accordance with the Credit Agreement) after expiration of any applicable cure period, constitute an Event of Default under the Credit Documents.
11. No Novation . The parties hereto intend this Second Amendment to evidence the amendments to the terms of the existing indebtedness of the Borrowers and Guarantors to the Lenders as specifically set forth herein and do not intend for such amendments to constitute a novation in any manner whatsoever.
12. GOVERNING LAW . THIS SECOND AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NORTH CAROLINA APPLICABLE TO CONTRACTS EXECUTED, AND TO BE FULLY PERFORMED, IN SUCH STATE.
13. No Implied Agreements . Except as expressly herein amended, the terms and conditions of the Credit Agreement and the other Credit Documents remain in full force and effect. The amendments contained herein shall be deemed to have prospective application only, unless otherwise specifically stated herein.
14. Counterparts . This Second Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. It shall not be necessary in making proof of this Second Amendment to produce or account for more than one such counterpart for each of the parties hereto. Delivery by facsimile by any of the parties hereto of an executed counterpart of this Second Amendment shall be as effective as an original executed counterpart hereof and shall be deemed a representation that an original executed counterpart hereof will be delivered. Each counterpart hereof shall be deemed to be an original and shall be binding upon all parties, their successors and assigns.
15. Binding Effect . This Second Amendment shall become effective as of the date hereof at such time when all of the conditions set forth in Section 2 hereof have been satisfied or waived by the Lenders and it shall
6
have been executed by the Borrowers, the Guarantors and the Administrative Agent, and the Administrative Agent shall have received copies hereof (telefaxed or otherwise) which, when taken together, bear the signatures of the Supermajority Lenders, and thereafter this Credit Agreement shall be binding upon and inure to the benefit of the Borrowers, the Guarantors, the Administrative Agent and each Lender and their respective successors and assigns.
16. Release . Each Credit Party hereby represents and warrants that it has no claims, counterclaims, offsets, or defenses to the Credit Agreement or any of the Credit Documents, or to the performance of their respective obligations thereunder and, in consideration of the Lenders and Administrative Agents willingness to grant the amendment referenced herein, hereby releases the Administrative Agent, the Lenders, the Sole Lead Arranger, the Sole Book Manager, the Syndication Agent and the Documentation Agent and each of their respective officers, employees, representatives, agents, counsel and directors from any and all actions, causes of action, claims, demands, damages and liabilities of whatever kind or nature, in law or in equity, now known or unknown, suspected or unsuspected to the extent that any of the foregoing arises from any action or failure to act on or prior to the date hereof.
17. Definitions . All capitalized terms not otherwise defined herein are used herein with the respective definitions given them in the Credit Agreement. The interpretive provisions set forth in Sections 1.2 and 1.3 of the Credit Agreement shall apply to this Second Amendment as though set forth herein.
[Signature Pages to Follow]
7
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Second Amendment to be duly executed and delivered as of the date written above.
BORROWERS: | HIGHWOODS REALTY LIMITED PARTNERSHIP | |||
By: |
Highwoods Properties, Inc. |
|||
HIGHWOODS PROPERTIES, INC. | ||||
HIGHWOODS SERVICES, INC. | ||||
HIGHWOODS FINANCE, LLC | ||||
By: |
Highwoods Properties, Inc. |
|||
HIGHWOODS/TENNESSEE HOLDINGS, L.P. | ||||
By: |
Highwoods/Tennessee Properties, Inc. |
|||
By: |
/s/ Edward J. Fritsch |
|||
Name: |
Edward J. Fritsch |
|||
Title: |
President |
(Signatures continued on next page)
GUARANTORS: | HIGHWOODS/FLORIDA GP CORP. | |||||||
HIGHWOODS/TENNESSEE PROPERTIES, INC. | ||||||||
HIGHWOODS/FLORIDA HOLDINGS, L.P. | ||||||||
By: |
Highwoods/Florida GP Corp. |
|||||||
PINELLAS NORTHSIDE PARTNERS, LTD. | ||||||||
By: |
Highwoods/Florida Holdings, L.P. |
|||||||
By: |
Highwoods/Florida GP Corp. |
|||||||
RED RUN ASSOCIATES LLC | ||||||||
By: |
Highwoods Realty Limited Partnership |
|||||||
By: |
Highwoods Properties, Inc. |
|||||||
WINSTON-SALEM INDUSTRIAL, LLC | ||||||||
By: |
Highwoods Realty Limited Partnership |
|||||||
By: |
Highwoods Properties, Inc. |
|||||||
TAMPA TECH PRESERVE, LLC | ||||||||
By: |
581 Highwoods, L.P |
|||||||
By: |
Highwoods/Florida Holdings, L.P. |
|||||||
By: |
Highwoods/Florida GP Corp. |
|||||||
MARLEY CONTINENTAL HOMES OF KANSAS, L.L.C. | ||||||||
By: |
Highwoods Properties, Inc. |
|||||||
SOUTH PARK LAND, LLC | ||||||||
By: |
Challenger, Inc. |
|||||||
SOUTHWIND LAND HOLDINGS, LLC | ||||||||
By: |
AP Southeast Portfolio Partners, L.P. |
|||||||
By: |
Highwoods Realty GP Corp. |
|||||||
AP SOUTHEAST PORTFOLIO PARTNERS, L.P. | ||||||||
By: |
Highwoods Realty GP Corp. |
|||||||
HIGHWOODS REALTY GP CORP. | ||||||||
PINELLAS BAY VISTA PARTNERS, LTD. | ||||||||
By: |
Highwoods/Florida Holdings, L.P. |
|||||||
By: |
Highwoods/Florida GP Corp. |
(Signatures continued on next page)
DOWNTOWN CLEARWATER TOWER, LTD. | ||||
By: |
Highwoods/Florida Holdings, L.P. |
|||
By: |
Highwoods/Florida GP Corp. |
|||
SISBROS, LTD. | ||||
By: |
Highwoods/Florida Holdings, L.P. |
|||
By: |
Highwoods/Florida GP Corp. |
|||
SHOCKOE PLAZA INVESTORS, L.C. | ||||
By: |
Highwoods Realty Limited Partnership |
|||
By: |
Highwoods Properties, Inc. |
|||
RC ONE LLC | ||||
By: |
Highwoods Services, Inc. |
|||
HPI TITLE AGENCY, LLC | ||||
By: |
Highwoods Realty Limited Partnership |
|||
By: |
Highwoods Properties, Inc. |
|||
ALAMEDA TOWERS DEVELOPMENT COMPANY | ||||
CHALLENGER, INC. | ||||
GUARDIAN MANAGEMENT, INC. | ||||
HIGHWOODS/CYPRESS COMMONS LLC | ||||
By: |
AP Southeast Portfolio Partners, L.P. |
|||
By: |
Highwoods Realty GP Corp. |
|||
HIGHWOODS/INTERLACHEN HOLDINGS, L.P. | ||||
By: |
Highwoods/Florida Holdings, L.P. |
|||
By: |
Highwoods/Florida GP Corp. |
|||
4600 COX ROAD LLC | ||||
By: |
Highwoods/Florida Holdings, L.P. |
|||
By: |
Highwoods/Florida GP Corp. |
|||
PLAZA GIFT CARD, LLC | ||||
By: |
Highwoods Services, Inc. |
|||
HIGHWOODS CONSTRUCTION SERVICES, LLC | ||||
By: |
Highwoods Services, Inc. |
(Signatures continued on next page)
HIGHWOODS DLF, LLC | ||||
By: |
Highwoods Realty Limited Partnership |
|||
By: |
Highwoods Properties, Inc. |
|||
HIGHWOODS DLF II, LLC | ||||
By: |
Highwoods Realty Limited Partnership |
|||
By: |
Highwoods Properties, Inc. |
|||
PAPEC RICHMOND II, LLC | ||||
By: |
Highwoods Realty Limited Partnership |
|||
By: |
Highwoods Properties, Inc. |
|||
PAPEC WESTON I, LLC | ||||
By: |
Highwoods Realty Limited Partnership |
|||
By: |
Highwoods Properties, Inc. |
|||
PAPEC WESTON II, LLC | ||||
By: |
Highwoods Realty Limited Partnership |
|||
By: |
Highwoods Properties, Inc. |
|||
PAPEC WESTON III, LLC | ||||
By: |
Highwoods Realty Limited Partnership |
|||
By: |
Highwoods Properties, Inc. |
|||
HARBORVIEW PLAZA, LLC | ||||
By: |
Highwoods/Florida Holdings, L.P. |
|||
By: |
Highwoods/Florida GP Corp. |
|||
SPI BROOKFIELD I, LLC | ||||
By: |
Highwoods Realty Limited Partnership |
|||
By: |
Highwoods Properties, Inc. |
|||
SPI BROOKFIELD II, LLC | ||||
By: |
Highwoods Realty Limited Partnership |
|||
By: |
Highwoods Properties, Inc. |
|||
SPI BUSINESS HOLDINGS, LLC | ||||
By: |
Highwoods Realty Limited Partnership |
|||
By: |
Highwoods Properties, Inc. |
|||
SPI CENTURY PLAZA III, LLC | ||||
By: |
Highwoods Realty Limited Partnership |
|||
By: |
Highwoods Properties, Inc. |
|||
SPI JEFFERSON VILLAGE, LLC | ||||
By: |
Highwoods Realty Limited Partnership |
|||
By: |
Highwoods Properties, Inc. |
|||
SPI TRADEPORT OFFICE III, LLC | ||||
By: |
Highwoods Realty Limited Partnership |
|||
By: |
Highwoods Properties, Inc. |
(Signatures continued on next page)
[signature pages continued]
LENDERS/AGENTS: | BANK OF AMERICA, N.A., | |||
individually in its capacity as a Lender |
||||
and in its capacity as Administrative Agent |
||||
By: |
/s/ Will T. Bowers |
|||
Name: |
Will T. Bowers |
|||
Title: |
Principal |
|||
BANC OF AMERICA SECURITIES LLC, | ||||
individually in its capacity as Sole Lead Arranger and Sole Book Manager |
||||
By: |
/s/ Wesley G. Carter |
|||
Name: |
Wesley G. Carter |
|||
Title: |
Vice President |
[signature pages continued]
WELLS FARGO BANK, NATIONAL ASSOCIATION | ||
individually in its capacity as a Lender |
||
and in its capacity as Syndication Agent |
||
By: |
/s/ Authorized Signatory |
|
Name:
|
|
|
Title:
|
|
[signature pages continued]
BRANCH BANKING AND TRUST COMPANY | ||
individually in its capacity as a Lender |
||
and as a Co-Documentation Agent |
||
By: |
/s/ Authorized Signatory |
|
Name:
|
|
|
Title:
|
|
[signature pages continued]
FLEET NATIONAL BANK | ||
individually in its capacity as a Lender |
||
and as a Co-Documentation Agent |
||
By: |
/s/ Authorized Signatory |
|
Name:
|
|
|
Title:
|
|
[signature pages continued]
WACHOVIA BANK, NATIONAL ASSOCIATION | ||
individually in its capacity as a Lender |
||
By: |
/s/ Authorized Signatory |
|
Name:
|
|
|
Title:
|
|
[signature pages continued]
PNC BANK, NATIONAL ASSOCIATION | ||
individually in its capacity as a Lender |
||
By: |
/s/ Authorized Signatory |
|
Name:
|
|
|
Title:
|
|
[signature pages continued]
AMSOUTH BANK | ||
individually in its capacity as a Lender |
||
By: |
/s/ Authorized Signatory |
|
Name:
|
|
|
Title:
|
|
[signature pages continued]
SOUTHTRUST BANK | ||
individually in its capacity as a Lender |
||
By: |
/s/ Authorized Signatory |
|
Name:
|
|
|
Title:
|
|
[signature pages continued]
RBC CENTURA BANK | ||
individually in its capacity as a Lender |
||
By: |
/s/ Authorized Signatory |
|
Name:
|
|
|
Title:
|
|
[signature pages continued]
UNION PLANTERS BANK | ||
individually in its capacity as a Lender |
||
By: |
/s/ Authorized Signatory |
|
Name:
|
|
|
Title:
|
|
[end of signature pages]
Schedule 1.1(b)
Non-Guarantor Subsidiaries
HRLP, LLC, a Delaware limited liability company, is a wholly owned subsidiary of the Operating Partnership.
HIW-TN, LLC, a Delaware limited liability company, is a wholly owned subsidiary of Highwoods/Tennessee Holdings, L.P.
HIW-SE, LLC, a Delaware limited liability company, is a wholly owned subsidiary of AP Southeast Portfolio Partners, L.P.
Highwoods/Florida, LLC, a Delaware limited liability company, is a wholly owned subsidiary of Highwoods/Florida Holdings, L.P.
Highwoods Non-Orlando, LLC, a Delaware limited liability company, is a wholly owned subsidiary of the Operating Partnership.
MG-HIW Raleigh, LLC, a Delaware limited liability company, is a wholly owned subsidiary of Highwoods Non-Orlando, LLC.
MG-HIW Tampa, LLC, a Delaware limited liability company, is a wholly owned subsidiary of Highwoods Non-Orlando, LLC.
MG-HIW Atlanta, LLC, a Delaware limited liability company, is a wholly owned subsidiary of Highwoods Non-Orlando, LLC.
Highwoods Orlando, LLC (f/k/a MG-HIW, LLC), a Delaware limited liability company, is a wholly owned subsidiary of the Operating Partnership.
HIW-KC Orlando, LLC (f/k/a MG-HIW Orlando, LLC), a Delaware limited liability company, is a wholly owned subsidiary of Highwoods Orlando, LLC.
Highwoods KC Glenridge, LLC, a Delaware limited liability company, is a wholly owned subsidiary of the Operating Partnership.
Exhibit 10.11
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT dated as of June 30, 2004 (the Third Amendment ), is by and among HIGHWOODS REALTY LIMITED PARTNERSHIP, a North Carolina limited partnership ( Highwoods Realty ), HIGHWOODS PROPERTIES, INC., a Maryland corporation ( Highwoods Properties ), HIGHWOODS FINANCE, LLC, a Delaware limited liability company ( Highwoods Finance ), HIGHWOODS SERVICES, INC., a North Carolina corporation ( Highwoods Services ), and HIGHWOODS/TENNESSEE HOLDINGS, L.P., a Tennessee limited partnership ( Highwoods Tennessee ) (Highwoods Realty, Highwoods Properties, Highwoods Finance, Highwoods Services, and Highwoods Tennessee are hereinafter referred to individually as a Borrower and collectively as the Borrowers ), the subsidiaries of the Borrowers identified on the signature pages to the Credit Agreement referenced below or joined as parties thereto pursuant to Section 7.12 thereof, except to the extent such subsidiaries constitute Non-Guarantor Subsidiaries in accordance with the terms of the Credit Agreement, as amended hereby (such Subsidiaries party hereto are hereinafter referred to individually as a Guarantor and collectively as the Guarantors ), the Lenders (as defined in the Credit Agreement), BANK OF AMERICA, N.A., as Administrative Agent for the Lenders (in such capacity, the Administrative Agent ), BANC OF AMERICA SECURITIES LLC, as Sole Lead Arranger (in such capacity, the Sole Lead Arranger ) and Sole Book Manager (in such capacity, the Sole Book Manager ), WELLS FARGO BANK, NATIONAL ASSOCIATION, as Syndication Agent (in such capacity, the Syndication Agent ) and BRANCH BANKING & TRUST COMPANY and FLEET NATIONAL BANK, as Co-Documentation Agents (in such capacity, the Documentation Agent ), and is an amendment to that certain Amended and Restated Credit Agreement dated as of July 17, 2003 by and among the Borrowers, Guarantors, Lenders, Administrative Agent, Sole Lead Arranger, Sole Book Manager, Syndication Agent and Documentation Agent, as amended by that certain First Amendment to Credit Agreement dated as of March 29, 2004 and that certain Second Amendment to Credit Agreement dated as of June 10, 2004 (as the same may have been otherwise or further amended, restated, supplemented or otherwise modified prior to the date hereof, the Credit Agreement ).
WITNESSETH
WHEREAS , each of the Borrowers and the Guarantors have requested and the Lenders and Administrative Agent have agreed to amend the Credit Agreement on the terms and conditions set forth herein;
NOW, THEREFORE , for good and valuable consideration, the receipt of which is hereby acknowledged by the parties hereto, the parties hereto agree as follows:
1. Amendments to Credit Agreement .
(a) The following defined terms are hereby added to Section 1.1 of the Credit Agreement in their respective proper alphabetical order:
FAS 66 shall have the meaning given such term in Section 1.3.
Subject Period means the period commencing as of the first day of the calendar quarter ending as of June 30, 2004 and ending as of the earlier of (a) the date on which the Borrower is permitted, pursuant to GAAP, to include the gains associated with its proposed settlement with the WorldCom Corporation bankruptcy estate on its consolidated financial statements and (b) December 31, 2004.
(b) The following paragraph is hereby added to the end of Section 1.3 of the Credit Agreement immediately following the first paragraph thereof:
Notwithstanding anything contained in this Agreement to the contrary (including the preceding provisions of this Section 1.3), for all real estate transactions closing prior to June 30, 2004, the financial effects related to sold properties which are required by GAAP to remain on the consolidated financial statements of any one or more of the Consolidated Parties as a result of applying the financing, profit sharing or other alternative accounting methods prescribed by paragraphs 25 to 29 of Financial Accounting Standards Board Statement of Financial Accounting Standards No. 66,
Accounting for Sales of Real Estate, issued October, 1982 ( FAS 66 ) shall, for the duration of this Agreement, not be reflected for purposes of calculating the financial covenants contained in Sections 7 and 8 hereof and of calculating any of the components related thereto. For purposes of clarification, all real estate transactions closing after June 30, 2004 shall, for the duration of this Agreement, be accounted for using standard GAAP accounting (including application, as applicable, of paragraphs 25 to 29 of FAS 66).
(c) The text of Section 7.11(g) of the Credit Agreement is hereby deleted in its entirety and replaced with the following:
Tangible Net Worth . At all times the Tangible Net Worth shall be greater than or equal to the sum of (i) $1,450,000,000.00, plus (ii) an amount equal to 85.0% of the Net Cash Proceeds received by the Consolidated Parties in connection with any Equity Issuance subsequent to the Closing Date calculated on a cumulative basis as of the end of each fiscal quarter of the Consolidated Parties following the Closing Date, less (iii) (A) to the extent the aggregate Dollar amount paid by the Consolidated Parties for the purchase, redemption, retirement or acquisition of Capital Stock of the Principal Borrower following the Closing Date is equal to or less than the Net Cash Proceeds received by the Consolidated Parties in connection with all Equity Issuances subsequent to the Closing Date (and calculated as set forth above), an amount equal to 85.0% of the aggregate Dollar amount so paid by the Consolidated Parties for such purchase, redemption, retirement or acquisition, and (B) to the extent the aggregate Dollar amount paid by the Consolidated Parties for the purchase, redemption, retirement or acquisition of Capital Stock of the Principal Borrower following the Closing Date is in excess of the Net Cash Proceeds received by the Consolidated Parties in connection with all Equity Issuances subsequent to the Closing Date (and calculated as set forth above), 100.0% of such excess amount.
(d) The text of Section 7.11(d) of the Credit Agreement is hereby deleted in its entirety and replaced with the following:
Interest Coverage Ratio . For calculations made during or with respect to any calendar quarter ending during the Subject Period (including, without limitation, the calendar quarter ending on the last day of the Subject Period), the Interest Coverage Ratio shall be greater than 2.05 to 1.00. At all other times during the term hereof, the Interest Coverage Ratio shall be greater than 2.10 to 1.00.
(e) The text of Section 7.11(k) of the Credit Agreement is hereby deleted in its entirety and replaced with the following:
Restricted Payments . The Credit Parties will not permit the Consolidated Parties to, directly or indirectly, declare, order, make or set apart any sum for or pay any Restricted Payments to the extent that, as of the end of the calendar quarter most recently ended, the aggregate Restricted Payments made during the period commencing as of (and including) April 1, 2003 and extending through the end of such quarter is in excess of an amount equal to the greater of (i) the sum of (A) an amount equal to the amount of dividends required to be paid by Highwood Properties during such period to retain its status as a REIT and to meet the distribution requirements of Section 857 of the Code, plus (B) $5,000,000 and (ii) ninety-five percent (95%) of the sum equal to (A) one hundred percent (100%) of Cash Available for Distribution for the date of calculation, plus (B) 25% of Net Asset Sales Proceeds derived from sales of Speculative Land during such period, plus (C) 70% of Net Asset Sales Proceeds derived from sales of Properties of the Consolidated Parties not considered to be Speculative Land during such period; provided, however, that, for purposes of calculating the amount set forth in subclause (ii), the amount added pursuant to items (B) and (C) thereof (the items concerning Net Asset Sales Proceeds) shall not exceed, in the aggregate, (1) for any calculation date during the period commencing as of the date hereof and ending as of June 15, 2004, $50,000,000; (2) for any calculation date during the period commencing as of June 15, 2004 and ending as of June 30, 2005, $100,000,000; or (3) for any calculation date during the period commencing June 30, 2005 and ending as of the date 36 calendar months following the date hereof, $150,000,000.
2
2. Waivers . The Lenders hereby waive any and all technical and substantive Events of Default that may have existed during the term of the Credit Agreement resulting from the companys restatement of its financial statements and disclosures based on the application of paragraphs 25 to 29 of FAS 66 prior to the inclusion of the second paragraph of Section 1.3 thereof. For purposes of clarification, no Event of Default is being waived to the extent such Event of Default existed or may have existed pursuant to the terms of the Credit Agreement if such Event of Default would have existed regardless of the application or non-application of paragraphs 25 to 29 of FAS 66 pursuant to the provisions of Section 1.3 of the Credit Agreement, as amended.
3. Conditions Precedent . The effectiveness of this Third Amendment is subject to receipt by the Administrative Agent of each of the following, each in form and substance satisfactory to the Administrative Agent:
(a) a counterpart of this Third Amendment duly executed by each of: the Borrowers, Guarantors and Supermajority Lenders;
(b) payment by Borrowers of (i) any fees required by the Administrative Agent or Sole Lead Arranger in connection with this Third Amendment, (ii) a fee to each Lender executing and delivering its signature page to this Third Amendment to the Administrative Agent on or before the date required in the transmittal letter associated herewith, such fee for a particular Lender to be in an amount equal to 0.10% times the maximum amount of such Lenders Revolving Commitment, (iii) all other outstanding fees and expenses of the Administrative Agent and the Administrative Agents counsel in connection with the Credit Agreement, including those incurred in connection with the preparation of this Third Amendment, (iv) all other fees and expenses relating to the preparation, execution and delivery of this Third Amendment or otherwise related to the Credit Agreement or the Credit Documents which are due and payable as of the date hereof, including, without limitation, payment to the Administrative Agent of attorneys fees, consultants fees, travel expenses, all fees and expenses associated with prior transactions entered into or contemplated by and between Borrowers and the Administrative Agent and (v) all other fees and expenses due and then-owing from the Borrowers to the Administrative Agent and Lenders pursuant to the terms hereof, the terms of the Credit Agreement and the terms of the other Credit Documents; and
(c) such other documents, instruments and agreements as the Administrative Agent may reasonably request.
4. Representations . Each of the Borrowers and each of the Guarantors collectively represent and warrant to the Administrative Agent and the Lenders that:
(a) Authorization . Each of the Borrowers and each of the Guarantors, respectively, has the right and power and has obtained all authorizations necessary to execute and deliver this Third Amendment and to perform its respective obligations hereunder and under the Credit Agreement, as amended by this Third Amendment, in accordance with their respective terms. This Third Amendment has been duly executed and delivered by a duly authorized officers of each of the Borrowers and each Guarantor, respectively, and each of this Third Amendment and the Credit Agreement, as amended by this Third Amendment, is a legal, valid and binding obligation of each of the Borrowers and each Guarantor (each as applicable), enforceable against each of the Borrowers and each Guarantor (each as applicable) in accordance with its respective terms, except as the same may be limited by bankruptcy, insolvency, and other similar laws affecting the rights of creditors generally and by equitable principles generally.
(b) Compliance with Laws, etc . The execution and delivery by each of the Borrowers and each of the Guarantors of this Third Amendment and the performance by each of the Borrowers and/or the Guarantors of this Third Amendment and the Credit Agreement, as amended by this Third Amendment, in accordance with their respective terms, does not and will not, by the passage of time, the giving of notice or otherwise: (i) require any approval (other than those already obtained) by any Governmental Authority or violate any law (including any Environmental Law) which is applicable to a Borrower, any Guarantors, any Consolidated Party, the Credit Documents or the transactions contemplated herein or therein; (ii) conflict with, result in a breach of or constitute a default under the organizational documents of any Borrower, any of the Guarantors or any other Consolidated Party, or any indenture, agreement/or other instrument to
3
which any Borrower, any of the Guarantors or any other Consolidated Party is a party or by which it or any of its respective properties may be bound; or (iii) result in or require the creation or imposition of any Lien upon or with respect to any property now owned or hereafter acquired by any Borrower, any Guarantor or any other Consolidated Party other than in favor of the Administrative Agent for the benefit of the Lenders; and
(c) No Default . Except for potential financial covenant defaults resulting from the application of FAS 66, no Default or Event of Default has occurred and is continuing as of the date hereof and, in any case, no Default or Event of Default will exist immediately after giving effect to this Third Amendment.
5. Reaffirmation of Representations . Each of the Borrowers and each of the Guarantors hereby repeat and reaffirm all representations and warranties made by such party to the Administrative Agent and the Lenders in the Credit Agreement and the other Credit Documents to which it is a party on and as of the date hereof (other than any representation or warranty expressly relating to an earlier date) with the same force and effect as if such representations and warranties were set forth in this Third Amendment in full.
6. Reaffirmation of Guaranty . Each of the Guarantors hereby reaffirms its continuing obligations to the Administrative Agent and the Lenders under the Credit Agreement and agrees that the transactions contemplated by this Third Amendment shall not in any way affect the validity and enforceability of their respective guaranty obligations thereunder or reduce, impair or discharge the obligations of such Guarantors thereunder.
7. Severability . If any provision of any of this Third Amendment or of the Credit Agreement, as amended hereby, is determined to be illegal, invalid or unenforceable, such provision shall be fully severable and the remaining provisions shall remain in full force and effect and shall be construed without giving effect to the illegal, invalid or unenforceable provisions.
8. Certain References . Each reference to the Credit Agreement in any of the Credit Documents shall be deemed to be a reference to the Credit Agreement as amended by this Third Amendment and this Third Amendment shall be deemed a Credit Document for purposes of the application of provisions of the Credit Agreement generally applicable thereto (including, without limitation, any arbitration provisions or waiver provisions).
9. Expenses . The Borrowers shall reimburse the Administrative Agent upon demand for all reasonable costs and expenses (including reasonable attorneys fees) incurred by the Administrative Agent in connection with the preparation, negotiation and execution of this Third Amendment and the other agreements and documents executed and delivered in connection herewith.
10. Benefits . This Third Amendment shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns.
11. Default . The failure of any of the Borrowers or any of the Guarantors to perform any of their respective obligations under this Third Amendment or the material falsity of any representation or warranty made herein shall, at the option of the Administrative Agent and/or Lenders (as determined in accordance with the Credit Agreement) after expiration of any applicable cure period, constitute an Event of Default under the Credit Documents.
12. No Novation . The parties hereto intend this Third Amendment to evidence the amendments to the terms of the existing indebtedness of the Borrowers and Guarantors to the Lenders as specifically set forth herein and do not intend for such amendments to constitute a novation in any manner whatsoever.
13. GOVERNING LAW . THIS THIRD AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NORTH CAROLINA APPLICABLE TO CONTRACTS EXECUTED, AND TO BE FULLY PERFORMED, IN SUCH STATE.
14. No Implied Agreements . Except as expressly herein amended, the terms and conditions of the Credit Agreement and the other Credit Documents remain in full force and effect. The amendments contained herein shall be deemed to have prospective application only, unless otherwise specifically stated herein.
4
15. Counterparts . This Third Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. It shall not be necessary in making proof of this Third Amendment to produce or account for more than one such counterpart for each of the parties hereto. Delivery by facsimile by any of the parties hereto of an executed counterpart of this Third Amendment shall be as effective as an original executed counterpart hereof and shall be deemed a representation that an original executed counterpart hereof will be delivered. Each counterpart hereof shall be deemed to be an original and shall be binding upon all parties, their successors and assigns.
16. Binding Effect . This Third Amendment shall become effective as of the date hereof at such time when all of the conditions set forth in Section 2 hereof have been satisfied or waived by the Lenders and it shall have been executed by the Borrowers, the Guarantors and the Administrative Agent, and the Administrative Agent shall have received copies hereof (telefaxed or otherwise) which, when taken together, bear the signatures of the Supermajority Lenders, and thereafter this Credit Agreement shall be binding upon and inure to the benefit of the Borrowers, the Guarantors, the Administrative Agent and each Lender and their respective successors and assigns.
17. Release . Each Credit Party hereby represents and warrants that it has no claims, counterclaims, offsets, or defenses to the Credit Agreement or any of the Credit Documents, or to the performance of their respective obligations thereunder and, in consideration of the Lenders and Administrative Agents willingness to grant the amendment referenced herein, hereby releases the Administrative Agent, the Lenders, the Sole Lead Arranger, the Sole Book Manager, the Syndication Agent and the Documentation Agent and each of their respective officers, employees, representatives, agents, counsel and directors from any and all actions, causes of action, claims, demands, damages and liabilities of whatever kind or nature, in law or in equity, now known or unknown, suspected or unsuspected to the extent that any of the foregoing arises from any action or failure to act on or prior to the date hereof.
18. Definitions . All capitalized terms not otherwise defined herein are used herein with the respective definitions given them in the Credit Agreement. The interpretive provisions set forth in Sections 1.2 and 1.3 of the Credit Agreement shall apply to this Third Amendment as though set forth herein.
[Signature Pages to Follow]
5
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Third Amendment to be duly executed and delivered as of the date written above.
BORROWERS: |
HIGHWOODS REALTY LIMITED PARTNERSHIP | |||
By: | Highwoods Properties, Inc. | |||
HIGHWOODS PROPERTIES, INC. | ||||
HIGHWOODS SERVICES, INC. | ||||
HIGHWOODS FINANCE, LLC | ||||
By: | Highwoods Properties, Inc. | |||
HIGHWOODS/TENNESSEE HOLDINGS, L.P. | ||||
By: | Highwoods/Tennessee Properties, Inc. | |||
By: |
/s/ Edward J. Fritsch |
|||
Name: | Edward J. Fritsch | |||
Title: | President |
(Signatures continued on next page)
GUARANTORS: |
HIGHWOODS/FLORIDA GP CORP. | |||||||
HIGHWOODS/TENNESSEE PROPERTIES, INC. | ||||||||
HIGHWOODS/FLORIDA HOLDINGS, L.P. | ||||||||
By: | Highwoods/Florida GP Corp. | |||||||
PINELLAS NORTHSIDE PARTNERS, LTD. | ||||||||
By: | Highwoods/Florida Holdings, L.P. | |||||||
By: | Highwoods/Florida GP Corp. | |||||||
RED RUN ASSOCIATES LLC | ||||||||
By: | Highwoods Realty Limited Partnership | |||||||
By: | Highwoods Properties, Inc. | |||||||
WINSTON-SALEM INDUSTRIAL, LLC | ||||||||
By: | Highwoods Realty Limited Partnership | |||||||
By: | Highwoods Properties, Inc. | |||||||
TAMPA TECH PRESERVE, LLC | ||||||||
By: | 581 Highwoods, L.P | |||||||
By: | Highwoods/Florida Holdings, L.P. | |||||||
By: | Highwoods/Florida GP Corp. | |||||||
MARLEY CONTINENTAL HOMES OF KANSAS, L.L.C. | ||||||||
By: | Highwoods Properties, Inc. | |||||||
SOUTH PARK LAND, LLC | ||||||||
By: | Challenger, Inc. | |||||||
SOUTHWIND LAND HOLDINGS, LLC | ||||||||
By: | AP Southeast Portfolio Partners, L.P. | |||||||
By: | Highwoods Realty GP Corp. | |||||||
AP SOUTHEAST PORTFOLIO PARTNERS, L.P. | ||||||||
By: | Highwoods Realty GP Corp. | |||||||
HIGHWOODS REALTY GP CORP. | ||||||||
PINELLAS BAY VISTA PARTNERS, LTD. | ||||||||
By: | Highwoods/Florida Holdings, L.P. | |||||||
By: | Highwoods/Florida GP Corp. |
(Signatures continued on next page)
DOWNTOWN CLEARWATER TOWER, LTD. |
||||
By: |
Highwoods/Florida Holdings, L.P. | |||
By: | Highwoods/Florida GP Corp. | |||
SISBROS, LTD. |
||||
By: |
Highwoods/Florida Holdings, L.P. | |||
By: | Highwoods/Florida GP Corp. | |||
SHOCKOE PLAZA INVESTORS, L.C. |
||||
By: |
Highwoods Realty Limited Partnership | |||
By: | Highwoods Properties, Inc. | |||
RC ONE LLC |
||||
By: |
Highwoods Services, Inc. | |||
HPI TITLE AGENCY, LLC |
||||
By: |
Highwoods Realty Limited Partnership | |||
By: | Highwoods Properties, Inc. | |||
ALAMEDA TOWERS DEVELOPMENT COMPANY |
||||
CHALLENGER, INC. |
||||
GUARDIAN MANAGEMENT, INC. |
||||
HIGHWOODS/CYPRESS COMMONS LLC |
||||
By: |
AP Southeast Portfolio Partners, L.P. | |||
By: | Highwoods Realty GP Corp. | |||
HIGHWOODS/INTERLACHEN HOLDINGS, L.P. |
||||
By: |
Highwoods/Florida Holdings, L.P. | |||
By: | Highwoods/Florida GP Corp. | |||
4600 COX ROAD LLC |
||||
By: |
Highwoods/Florida Holdings, L.P. | |||
By: | Highwoods/Florida GP Corp. | |||
PLAZA GIFT CARD, LLC |
||||
By: |
Highwoods Services, Inc. | |||
HIGHWOODS CONSTRUCTION SERVICES, LLC |
||||
By: |
Highwoods Services, Inc. |
(Signatures continued on next page)
HIGHWOODS DLF, LLC |
||||
By: | Highwoods Realty Limited Partnership | |||
By: | Highwoods Properties, Inc. | |||
HIGHWOODS DLF II, LLC |
||||
By: | Highwoods Realty Limited Partnership | |||
By: | Highwoods Properties, Inc. | |||
PAPEC RICHMOND II, LLC |
||||
By: | Highwoods Realty Limited Partnership | |||
By | : Highwoods Properties, Inc. | |||
PAPEC WESTON I, LLC |
||||
By: | Highwoods Realty Limited Partnership | |||
By: | Highwoods Properties, Inc. | |||
PAPEC WESTON II, LLC |
||||
By: | Highwoods Realty Limited Partnership | |||
By: | Highwoods Properties, Inc. | |||
PAPEC WESTON III, LLC |
||||
By: | Highwoods Realty Limited Partnership | |||
By | : Highwoods Properties, Inc. | |||
HARBORVIEW PLAZA, LLC |
||||
By: | Highwoods/Florida Holdings, L.P. | |||
By: | Highwoods/Florida GP Corp. | |||
SPI BROOKFIELD I, LLC |
||||
By: | Highwoods Realty Limited Partnership | |||
By: | Highwoods Properties, Inc. | |||
SPI BROOKFIELD II, LLC |
||||
By: | Highwoods Realty Limited Partnership | |||
By: | Highwoods Properties, Inc. | |||
SPI BUSINESS HOLDINGS, LLC |
||||
By: | Highwoods Realty Limited Partnership | |||
By | : Highwoods Properties, Inc. | |||
SPI CENTURY PLAZA III, LLC |
||||
By: | Highwoods Realty Limited Partnership | |||
By: | Highwoods Properties, Inc. | |||
SPI JEFFERSON VILLAGE, LLC |
||||
By: | Highwoods Realty Limited Partnership | |||
By: | Highwoods Properties, Inc. | |||
SPI TRADEPORT OFFICE III, LLC |
||||
By: | Highwoods Realty Limited Partnership | |||
By: | Highwoods Properties, Inc. |
(Signatures continued on next page)
SPI RALEIGH CORPORATE CENTER, LLC |
||||||
By: | Highwoods Realty Limited Partnership | |||||
By: | Highwoods Properties, Inc. | |||||
HIGHWOODS COLONNADE, LLC |
||||||
By: | Highwoods Realty Limited Partnership | |||||
By: | Highwoods Properties, Inc. | |||||
SPI TRADEPORT PLACE V, LLC |
||||||
By: | Highwoods Realty Limited Partnership | |||||
By: | Highwoods Properties, Inc. | |||||
HIWTP, LLC |
||||||
By: | Highwoods Services, Inc. | |||||
MG-HIW PEACHTREE CORNERS III, LLC |
||||||
By: | Highwoods Realty Limited Partnership | |||||
By: | Highwoods Properties, Inc. | |||||
GROVE PARK SQUARE, LLC |
||||||
By: | HIGHWOODS SERVICES, INC. | |||||
HIGHWOODS WELLNESS CENTER, LLC |
||||||
By: | HIGHWOODS SERVICES, INC. | |||||
HIGHWOODS 3322, LLC |
||||||
By | HIGHWOODS/FLORIDA HOLDINGS, L.P. | |||||
By: | HIGHWOODS/FLORIDA GP CORP. | |||||
NICHOLS PLAZA WEST, INC. |
||||||
OZARK MOUNTAIN VILLAGE, INC. |
||||||
4551 COX ROAD LLC |
||||||
By: | HIGHWOODS REALTY LIMITED PARTNERSHIP | |||||
By: | HIGHWOODS PROPERTIES, INC. | |||||
MG-HIW METROWEST I, LLC |
||||||
By: | Highwoods Realty Limited Partnership | |||||
By: | Highwoods Properties, Inc. | |||||
MG-HIW METROWEST II, LLC |
||||||
By: | Highwoods Realty Limited Partnership | |||||
By: | Highwoods Properties, Inc. | |||||
5525 GRAY STREET, LLC |
||||||
By: | Highwoods Realty Limited Partnership | |||||
By: | Highwoods Properties, Inc. | |||||
HIGHWOODS SITUS II, LLC |
||||||
By: | Highwoods Realty Limited Partnership | |||||
By: | Highwoods Properties, Inc. | |||||
BAY CENTER I, LLC |
||||||
By: | Highwoods Realty Limited Partnership | |||||
By: | Highwoods Properties, Inc. | |||||
HIGHWOODS KC GLENRIDGE LAND, LLC |
||||||
By: | Highwoods Realty Limited Partnership | |||||
By: | Highwoods Properties, Inc. | |||||
581 HIGHWOODS, L.P. |
||||||
By: | Highwoods/Florida Holdings, L.P. | |||||
By: | Highwoods/Florida GP Corp. | |||||
By: |
/s/ Edward J. Fritsch |
|||||
Name: |
Edward J. Fritsch | |||||
Title: |
President |
[signature pages continued]
LENDERS/AGENTS: |
BANK OF AMERICA, N.A., | |||
individually in its capacity as a Lender | ||||
and in its capacity as Administrative Agent | ||||
By: |
/s/ Will T. Bowers |
|||
Name: | Will T. Bowers | |||
Title: | Principal | |||
BANC OF AMERICA SECURITIES LLC, | ||||
individually in its capacity as Sole Lead Arranger and Sole Book Manager | ||||
By: |
/s/ Wesley G. Carter |
|||
Name: | Wesley G. Carter | |||
Title: | Vice President |
[signature pages continued]
WELLS FARGO BANK, NATIONAL ASSOCIATION individually in its capacity as a Lender and in its capacity as Syndication Agent |
||
By: |
/s/ Authorized Signatory |
|
Name: |
|
|
Title: |
|
[signature pages continued]
BRANCH BANKING AND TRUST COMPANY individually in its capacity as a Lender and as a Co-Documentation Agent |
||
By: |
/s/ Authorized Signatory |
|
Name: |
|
|
Title: |
|
[signature pages continued]
FLEET NATIONAL BANK individually in its capacity as a Lender and as a Co-Documentation Agent |
||
By: |
/s/ Authorized Signatory |
|
Name: |
|
|
Title: |
|
[signature pages continued]
WACHOVIA BANK, NATIONAL ASSOCIATION individually in its capacity as a Lender |
||
By: |
/s/ Authorized Signatory |
|
Name: |
|
|
Title: |
|
[signature pages continued]
PNC BANK, NATIONAL ASSOCIATION individually in its capacity as a Lender |
||
By: |
/s/ Authorized Signatory |
|
Name: |
|
|
Title: |
|
[signature pages continued]
AMSOUTH BANK individually in its capacity as a Lender |
||
By: |
/s/ Authorized Signatory |
|
Name: |
|
|
Title: |
|
[signature pages continued]
SOUTHTRUST BANK individually in its capacity as a Lender |
||
By: |
/s/ Authorized Signatory |
|
Name: |
|
|
Title: |
|
[signature pages continued]
RBC CENTURA BANK individually in its capacity as a Lender |
||
By: |
/s/ Authorized Signatory |
|
Name: |
|
|
Title: |
|
[signature pages continued]
UNION PLANTERS BANK individually in its capacity as a Lender |
||
By: |
/s/ Authorized Signatory |
|
Name: |
|
|
Title: |
|
[end of signature pages]
Exhibit 10.12
FOURTH AMENDMENT TO CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO CREDIT AGREEMENT dated as of November 1, 2005 (the Fourth Amendment ), is by and among HIGHWOODS REALTY LIMITED PARTNERSHIP, a North Carolina limited partnership ( Highwoods Realty ), HIGHWOODS PROPERTIES, INC., a Maryland corporation ( Highwoods Properties ), HIGHWOODS FINANCE, LLC, a Delaware limited liability company ( Highwoods Finance ), HIGHWOODS SERVICES, INC., a North Carolina corporation ( Highwoods Services ), and HIGHWOODS/TENNESSEE HOLDINGS, L.P., a Tennessee limited partnership ( Highwoods Tennessee ) (Highwoods Realty, Highwoods Properties, Highwoods Finance, Highwoods Services, and Highwoods Tennessee are hereinafter referred to individually as a Borrower and collectively as the Borrowers ), the subsidiaries of the Borrowers identified on the signature pages to the Credit Agreement referenced below or joined as parties thereto pursuant to Section 7.12 thereof, except to the extent such subsidiaries constitute Non-Guarantor Subsidiaries in accordance with the terms of the Credit Agreement, as amended hereby (such Subsidiaries party hereto are hereinafter referred to individually as a Guarantor and collectively as the Guarantors ), the Lenders (as defined in the Credit Agreement), WELLS FARGO BANK, NATIONAL ASSOCIATION, as Administrative Agent for the Lenders (in such capacity, the Administrative Agent ), Sole Lead Arranger (in such capacity, the Sole Lead Arranger ) and Sole Book Runner (in such capacity, the Sole Book Runner ), FLEET NATIONAL BANK, as Syndication Agent (in such capacity, the Syndication Agent ) and BRANCH BANKING AND TRUST COMPANY and WACHOVIA BANK, NATIONAL ASSOCIATION, as Co-Documentation Agents (in such capacity, the Documentation Agent ), and is an amendment to that certain Credit Agreement dated as of November 20, 2003 by and among the Borrowers, Guarantors, Lenders, Administrative Agent, Sole Lead Arranger, Sole Book Runner, Syndication Agent and Documentation Agent, as amended by that certain First Amendment to Credit Agreement dated as of March 29, 2004, that certain Second Amendment to Credit Agreement dated as of June 10, 2004, and that certain Third Amendment to Credit Agreement dated as of June 30, 2004 (as the same may have been otherwise or further amended, restated, supplemented or otherwise modified prior to the date hereof, the Credit Agreement ).
WITNESSETH
WHEREAS , each of the Borrowers and the Guarantors have requested and the Lenders and Administrative Agent have agreed to amend the Credit Agreement on the terms and conditions set forth herein;
NOW, THEREFORE , for good and valuable consideration, the receipt of which is hereby acknowledged by the parties hereto, the parties hereto agree as follows:
1. Extension of Maturity Date.
(a) | The definition Maturity Date contained in Section 1.1 which did read: |
Maturity Date means the date which is two (2) years from the Closing Date, as such date may be extended pursuant to Section 2.5.
is hereby deleted in its entirety and the following is hereby inserted in lieu thereof:
Maturity Date means July 17, 2006.
1
(b) The text of Section 2.5 of the Credit Agreement entitled Extension of Maturity Date is hereby deleted in its entirety. No further rights to extend the Maturity Date are available to Borrowers.
2. Applicable Percentage .
Effective as of November 21, 2005, the definition of Applicable Percentage contained in Section 1.1 is hereby deleted in its entirety and the following is inserted in lieu thereof:
Applicable Percentage means, for any day subject to adjustment as provided in the paragraph immediately following the Pricing Level V Sub-Chart in this definition, the rate per annum set forth below opposite the applicable Unsecured Long Term Debt Rating then in effect, it being understood that the Applicable Percentage shall be the percentage set forth under the column Applicable Percentage for determining Adjusted Base Rate; provided , however , that the Applicable Percentage for LIBOR Increments shall be the percentage set forth under column Applicable Percentage for LIBOR Increments.
Pricing Level |
S&P
Rating |
Moodys Rating |
Third Debt Rating |
Applicable Percentage for LIBOR Increments |
Applicable Percentage
for determining Adjusted Base Rate |
|||||||
I |
A- or
higher |
A3 or
higher |
A-/A3 equivalent
or higher |
0.65 | % | 0.00 | % | |||||
II |
BBB+ | Baa1 |
BBB+/Baa1
equivalent |
0.70 | % | 0.00 | % | |||||
III |
BBB | Baa2 |
BBB/Baa2
equivalent |
0.85 | % | 0.00 | % | |||||
IV |
BBB- | Baa3 |
BBB-/Baa3
equivalent |
1.00 | % | 0.10 | % | |||||
V |
BB+ or
lower |
Ba1 or
lower |
BB+/Ba1
equivalent |
See Pricing Level V
Sub-Chart Below |
|
See Pricing Level V
Sub-Chart Below |
|
Pricing Level V Sub-Chart (for determination of the Applicable Percentage(s) when the applicable Unsecured Long Term Debt Rating dictates use of Pricing Level V in the chart set forth above):
Pricing Level |
TL/TA Ratio
(as calculated pursuant to the most-
pursuant to Section 7.1(c) hereof) |
Applicable Percentage for LIBOR Increments |
Applicable Percentage for determining Adjusted Base Rate |
|||||
V-A |
> 0.50 | 1.80 | % | 0.30 | % | |||
V-B |
> 0.45 to < 0.50 | 1.65 | % | 0.25 | % | |||
V-C |
> 0.35 to < 0.45 | 1.50 | % | 0.20 | % | |||
V-D |
< 0.35 | 1.35 | % | 0.15 | % |
2
The Applicable Percentage shall be adjusted effective on the next Business Day following any change in the Unsecured Long Term Debt Rating; provided, however, that to the extent the Unsecured Long Term Debt Rating causes the Applicable Percentage to be calculated pursuant to the Pricing Level V Sub-Chart, the Applicable Percentage shall be calculated, adjusted and set quarterly, effective on the next Business Day following the date Agent receives each officers certificate pursuant to Section 7.1(c) hereof (or the date Agent should have received such officers certificate if the same is not delivered within the time period specified in Section 7.1(c) ) using the information provided in such officers certificate. The Principal Borrower shall notify the Administrative Agent in writing promptly after becoming aware of any change in the Unsecured Long Term Debt Rating.
Notwithstanding anything to the contrary contained in the foregoing, to the extent the Principal Borrower fails to deliver any officers certificate as of the date required pursuant to Section 7.1(c) hereof and has a credit rating of BB+/Bal, an equivalent rating or lower, the Applicable Percentage as of the date immediately following such required date of delivery and until the delivery of such officers certificate shall be the rate specified in line V-A of the Pricing Level V Sub-Chart.
3. Adjusted LIBO Rate Calculation .
(a) The definition of LIBO Rate contained in Section 1.1 of the Credit Agreement is hereby amended by deleting the clause rounded upward, if necessary, to the nearest one-sixteenth of one percent (0.625%) therefrom, and by inserting the clause rounded upward, if necessary, to the nearest one one-hundredth of one percent (0.01%) in lieu thereof.
(b) The definition of Adjusted LIBO Rate contained in Section 1.1 of the Credit Agreement is hereby amended by deleting the clause ,rounded upward to the nearest one hundredth of one percent (0.01%) therefrom.
4. USA Patriot Act; Electronic Document Deliveries . The following paragraphs are hereby inserted immediately after Section 11.16 of the Credit Agreement:
11.17 USA PATRIOT ACT NOTICE. COMPLIANCE . The USA Patriot Act of 2001 (Public Law 107-56) and federal regulations issued with respect thereto require all financial institutions to obtain, verify and record certain information that identifies individuals or business entities which open an account with such financial institution. Consequently, Administrative Agent (for itself and/or as agent for all Lenders hereunder) may from time-to-time request, and Borrowers shall provide to Administrative Agent, Borrowers and Guarantors names, addresses, tax identification numbers and/or such other identification information as shall be necessary for Administrative Agent and each Lender to comply with federal law. An account for this purpose may include, without limitation, a deposit account, cash management service, a transaction or asset account, a credit account, a loan or other extension of credit, and/or other financial services product.
11.18 ELECTRONIC DOCUMENT DELIVERIES . Documents required to be delivered pursuant to the Credit Documents shall be delivered by electronic
3
communication and delivery, including, the Internet, e-mail or intranet websites to which the Administrative Agent and each Lender have access (including a commercial, third-party website such as www.Edgar.com <http://www.Edgar.com> or a website sponsored or hosted by the Administrative Agent or the Borrowers) provided that the Lender has not notified the Administrative Agent or Borrowers that it cannot or does not want to receive electronic communications. The Administrative Agent or the Borrowers may, in its or their discretion, agree to accept notices and other communications to it hereunder by electronic delivery pursuant to procedures approved by it for all or particular notices or communications. Documents or notices delivered electronically shall be deemed to have been delivered twenty-four (24) hours after the date and time on which the Administrative Agent or Borrowers posts such documents or the documents become available on a commercial website and the Administrative Agent or Borrowers notifies each Lender of said posting and provides a link thereto provided if such notice or other communication is not sent or posted during the normal business hours of the recipient, said posting date and time shall be deemed to have commenced as of 9:00 a.m. on the opening of business on the next business day for the recipient. Notwithstanding anything contained herein, in every instance the Borrowers shall be required to provide paper copies of the certificate required by Section 7.1(c) to the Administrative Agent and shall deliver paper copies of any documents to the Administrative Agent or to any Lender that requests such paper copies until a written request to cease delivering paper copies is given by the Administrative Agent or such Lender. Except for the certificates required by Section 7.1(c) the Administrative Agent shall have no obligation to request the delivery of or to maintain paper copies of the documents delivered electronically, and in any event shall have no responsibility to monitor compliance by the Borrowers with any such request for delivery. Each Lender shall be solely responsible for requesting delivery to it of paper copies and maintaining its paper or electronic documents.
5. Conditions Precedent . The effectiveness of this Fourth Amendment is subject to receipt by the Administrative Agent of each of the following, each in form and substance satisfactory to the Administrative Agent:
(a) a counterpart of this Fourth Amendment duly executed by each of: the Borrowers, Guarantors and all Lenders;
(b) payment by Borrowers of (i) any fees required by the Administrative Agent or Sole Lead Arranger in connection with this Fourth Amendment, (ii) a fee to each Lender executing and delivering its signature page to this Fourth Amendment to the Administrative Agent on or before the date required in the transmittal letter associated herewith, such fee for a particular Lender to be in an amount equal to 0.075% times the maximum amount of such Lenders Revolving Commitment, (iii) all other outstanding fees and expenses of the Administrative Agent and the Administrative Agents counsel in connection with the Credit Agreement, including those incurred in connection with the preparation of this Fourth Amendment, (iv) all other fees and expenses relating to the preparation, execution and delivery of this Fourth Amendment or otherwise related to the Credit Agreement or the Credit Documents which are due and payable as of the date hereof, including, without limitation, payment to the Administrative Agent of attorneys fees, consultants fees, travel expenses, all fees and expenses associated with prior transactions entered into or
4
contemplated by and between Borrowers and the Administrative Agent and (v) all other fees and expenses due and then-owing from the Borrowers to the Administrative Agent and Lenders pursuant to the terms hereof, the terms of the Credit Agreement and the terms of the other Credit Documents; and
(c) such other documents, instruments and agreements as the Administrative Agent may reasonably request.
6. Representations . Each of the Borrowers and each of the Guarantors collectively represent and warrant to the Administrative Agent and the Lenders that:
(a) Authorization. Each of the Borrowers and each of the Guarantors, respectively, has the right and power and has obtained all authorizations necessary to execute and deliver this Fourth Amendment and to perform its respective obligations hereunder and under the Credit Agreement, as amended by this Fourth Amendment, in accordance with their respective terms. This Fourth Amendment has been duly executed and delivered by a duly authorized officer of each of the Borrowers and each Guarantor, respectively, and each of this Fourth Amendment and the Credit Agreement, as amended by this Fourth Amendment, is a legal, valid and binding obligation of each of the Borrowers and each Guarantor (each as applicable), enforceable against each of the Borrowers and each Guarantor (each as applicable) in accordance with its respective terms, except as the same may be limited by bankruptcy, insolvency, and other similar laws affecting the rights of creditors generally and by equitable principles generally.
(b) Compliance with Laws, etc. The execution and delivery by each of the Borrowers and each of the Guarantors of this Fourth Amendment and the performance by each of the Borrowers and/or the Guarantors of this Fourth Amendment and the Credit Agreement, as amended by this Fourth Amendment, in accordance with their respective terms, does not and will not, by the passage of time, the giving of notice or otherwise: (i) require any approval (other than those already obtained) by any Governmental Authority or violate any law (including any Environmental Law) which is applicable to a Borrower, any Guarantors, any Consolidated Party, the Credit Documents or the transactions contemplated herein or therein; (ii) conflict with, result in a breach of or constitute a default under the organizational documents of any Borrower, any of the Guarantors or any other Consolidated Party, or any indenture, agreement/or other instrument to which any Borrower, any of the Guarantors or any other Consolidated Party is a party or by which it or any of its respective properties may be bound; or (iii) result in or require the creation or imposition of any Lien upon or with respect to any property now owned or hereafter acquired by any Borrower, any Guarantor or any other Consolidated Party other than in favor of the Administrative Agent for the benefit of the Lenders; and
(c) No Default . No Default or Event of Default has occurred and is continuing as of the date hereof and, in any case, no Default or Event of Default will exist immediately after giving effect to this Fourth Amendment.
7. Reaffirmation of Representations . Each of the Borrowers and each of the Guarantors hereby repeat and reaffirm all representations and warranties made by such party to the Administrative Agent and the Lenders in the Credit Agreement and the other Credit Documents to which it is a party on and as of the date hereof (other than any representation or warranty expressly relating to an earlier date) with the same force and effect as if such representations and warranties were set forth in this Fourth Amendment in full.
5
8. Reaffirmation of Guaranty . Each of the Guarantors hereby reaffirms its continuing obligations to the Administrative Agent and the Lenders under the Credit Agreement and agrees that the transactions contemplated by this Fourth Amendment shall not in any way affect the validity and enforceability of their respective guaranty obligations thereunder or reduce, impair or discharge the obligations of such Guarantors thereunder.
9. Severability . If any provision of any of this Fourth Amendment or of the Credit Agreement, as amended hereby, is determined to be illegal, invalid or unenforceable, such provision shall be fully severable and the remaining provisions shall remain in full force and effect and shall be construed without giving effect to the illegal, invalid or unenforceable provisions.
10. Certain References . Each reference to the Credit Agreement in any of the Credit Documents shall be deemed to be a reference to the Credit Agreement as amended by this Fourth Amendment and this Fourth Amendment shall be deemed a Credit Document for purposes of the application of provisions of the Credit Agreement generally applicable thereto (including, without limitation, any arbitration provisions or waiver provisions).
11. Expenses . The Borrowers shall reimburse the Administrative Agent upon demand for all reasonable costs and expenses (including reasonable attorneys fees) incurred by the Administrative Agent in connection with the preparation, negotiation and execution of this Fourth Amendment and the other agreements and documents executed and delivered in connection herewith.
12. Benefits . This Fourth Amendment shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns.
13. Default . The failure of any of the Borrowers or any of the Guarantors to perform any of their respective obligations under this Fourth Amendment or the material falsity of any representation or warranty made herein shall, at the option of the Administrative Agent and/or Lenders (as determined in accordance with the Credit Agreement) after expiration of any applicable cure period, constitute an Event of Default under the Credit Documents.
14. No Novation . The parties hereto intend this Fourth Amendment to evidence the amendments to the terms of the existing indebtedness of the Borrowers and Guarantors to the Lenders as specifically set forth herein and do not intend for such amendments to constitute a novation in any manner whatsoever.
15. Governing Law . THIS FOURTH AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA APPLICABLE TO CONTRACTS EXECUTED, AND TO BE FULLY PERFORMED, IN SUCH STATE.
16. No Implied Agreements . Except as expressly herein amended, the terms and conditions of the Credit Agreement and the other Credit Documents remain in full force and effect. The amendments contained herein shall be deemed to have prospective application only, unless otherwise specifically stated herein.
6
17. Counterparts . This Fourth Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. It shall not be necessary in making proof of this Fourth Amendment to produce or account for more than one such counterpart for each of the parties hereto. Delivery by facsimile by any of the parties hereto of an executed counterpart of this Fourth Amendment shall be as effective as an original executed counterpart hereof and shall be deemed a representation that an original executed counterpart hereof will be delivered. Each counterpart hereof shall be deemed to be an original and shall be binding upon all parties, their successors and assigns.
18. Binding Effect . This Fourth Amendment shall become effective as of the date hereof at such time when all of the conditions set forth in Section 3 hereof have been satisfied or waived by the Lenders and it shall have been executed by the Borrowers, the Guarantors and the Administrative Agent, and the Administrative Agent shall have received copies hereof (telefaxed or otherwise) which, when taken together, bear the signatures of all Lenders, and thereafter this Fourth Amendment shall be binding upon and inure to the benefit of the Borrowers, the Guarantors, the Administrative Agent and each Lender and their respective successors and assigns.
19. Release . Each Credit Party hereby represents and warrants that it has no claims, counterclaims, offsets, or defenses to the Credit Agreement or any of the Credit Documents, or to the performance of their respective obligations thereunder and, in consideration of the Lenders and Administrative Agents willingness to grant the amendment referenced herein, hereby releases the Administrative Agent, the Lenders, the Sole Lead Arranger, the Sole Book Runner, the Syndication Agent and the Documentation Agent and each of their respective officers, employees, representatives, agents, counsel and directors from any and all actions, causes of action, claims, demands, damages and liabilities of whatever kind or nature, in law or in equity, now known or unknown, suspected or unsuspected to the extent that any of the foregoing arises from any action or failure to act on or prior to the date hereof.
20. Definitions . All capitalized terms not otherwise defined herein are used herein with the respective definitions given them in the Credit Agreement. The interpretive provisions set forth in Sections 1.2 and 1.3 of the Credit Agreement shall apply to this Fourth Amendment as though set forth herein.
[Signature Pages to Follow]
7
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Fourth Amendment to be duly executed and delivered as of the date written above.
BORROWERS: | HIGHWOODS REALTY LIMITED | |||
PARTNERSHIP | ||||
By: Highwoods Properties, Inc. |
||||
HIGHWOODS PROPERTIES, INC. | ||||
HIGHWOODS SERVICES, INC. | ||||
HIGHWOODS FINANCE, LLC | ||||
By: Highwoods Properties, Inc. |
||||
HIGHWOODS/TENNESSEE HOLDINGS, L.P. | ||||
By: Highwoods/Tennessee Properties, Inc. |
||||
By: |
/s/ Edward J. Fritsch |
|||
Name: | Edward J. Fritsch | |||
Title: | President |
(Signatures continued on next page)
8
GUARANTORS:
HIGHWOODS/FLORIDA GP CORP. |
HIGHWOODS/TENNESSEE PROPERTIES, INC. |
HIGHWOODS/FLORIDA HOLDINGS, L.P. |
By: Highwoods/Florida GP Corp. |
PINELLAS NORTHSIDE PARTNERS, LTD. |
By: Highwoods/Florida Holdings, L.P. |
By: Highwoods/Florida GP Corp. |
RED RUN ASSOCIATES LLC |
By: Highwoods Realty Limited Partnership |
By: Highwoods Properties, Inc. |
WINSTON-SALEM INDUSTRIAL, LLC By: Highwoods Realty Limited Partnership By: Highwoods Properties, Inc. |
TAMPA TECH PRESERVE, LLC By: 581 Highwoods, L.P By: Highwoods/Florida Holdings, L.P. By: Highwoods/Florida GP Corp. |
MARLEY CONTINENTAL HOMES OF KANSAS, L.L.C. By: Highwoods Properties, Inc. |
SOUTH PARK LAND, LLC By: Challenger, Inc. |
SOUTHWIND LAND HOLDINGS, LLC By: AP Southeast Portfolio Partners, L.P. By: Highwoods Realty GP Corp. |
AP SOUTHEAST PORTFOLIO PARTNERS, L.P. By: Highwoods Realty GP Corp. |
HIGHWOODS REALTY GP CORP. |
PINELLAS BAY VISTA PARTNERS, LTD. By: Highwoods/Florida Holdings, L.P. By: Highwoods/Florida GP Corp. |
RC SITUS, LLC By: Highwoods Realty Limited Parnership By: Highwoods Properties, Inc. |
4300 SIX FORKS ROAD, LLC By: Highwoods Services, Inc. |
HIGHWOODS WESTON LAKESIDE, LLC By: Highwoods Realty Limited Partnership By: Highwoods Properties, Inc. |
DOMINION PLACE, LLC By: Highwoods Realty Limited Partnership By: Highwoods Properties, Inc. |
(Signatures continued on next page)
9
DOWNTOWN CLEARWATER TOWER, LTD. By: Highwoods/Florida Holdings, L.P. By: Highwoods/Florida GP Corp. |
SISBROS, LTD. By: Highwoods/Florida Holdings, L.P. By: Highwoods/Florida GP Corp. |
SHOCKOE PLAZA INVESTORS, L.C. By: Highwoods Realty Limited Partnership By: Highwoods Properties, Inc. |
RC ONE LLC By: Highwoods Services, Inc. |
HPI TITLE AGENCY, LLC By: Highwoods Realty Limited Partnership By: Highwoods Properties, Inc. |
ALAMEDA TOWERS DEVELOPMENT COMPANY |
CHALLENGER, INC. |
GUARDIAN MANAGEMENT, INC. |
HIGHWOODS/CYPRESS COMMONS LLC By: AP Southeast Portfolio Partners, L.P. By: Highwoods Realty GP Corp. |
HIGHWOODS/INTERLACHEN HOLDINGS, L.P. By: Highwoods/Florida Holdings, L.P. By: Highwoods/Florida GP Corp. |
4600 COX ROAD LLC By: Highwoods/Florida Holdings, L.P. By: Highwoods/Florida GP Corp. |
PLAZA GIFT CORP. |
HIGHWOODS CONSTRUCTION SERVICES, LLC By: Highwoods Services, Inc. |
(Signatures continued on next page)
10
HIGHWOODS DLF, LLC By: Highwoods Realty Limited Partnership By: Highwoods Properties, Inc. |
HIGHWOODS DLF II, LLC By: Highwoods Realty Limited Partnership By: Highwoods Properties, Inc. |
PAPEC RICHMOND II, LLC By: Highwoods Services, Inc. |
PAPEC WESTON I, LLC By: Highwoods Realty Limited Partnership By: Highwoods Properties, Inc. |
PAPEC WESTON III, LLC By: Highwoods Realty Limited Partnership By: Highwoods Properties, Inc. |
HARBORVIEW PLAZA, LLC By: Highwoods/Florida Holdings, L.P. By: Highwoods/Florida GP Corp. |
SPI BROOKFIELD II, LLC By: Highwoods Realty Limited Partnership By: Highwoods Properties, Inc. |
SPI BUSINESS HOLDINGS, LLC By: Highwoods Realty Limited Partnership By: Highwoods Properties, Inc. |
SPI CENTURY PLAZA III, LLC By: Highwoods Realty Limited Partnership By: Highwoods Properties, Inc. |
SPI JEFFERSON VILLAGE, LLC By: Highwoods Realty Limited Partnership By: Highwoods Properties, Inc. |
SPI TRADEPORT OFFICE III, LLC By: Highwoods Realty Limited Partnership By: Highwoods Properties, Inc. |
SPI RALEIGH CORPORATE CENTER, LLC By: Highwoods Realty Limited Partnership By: Highwoods Properties, Inc. |
(Signatures continued on next page)
11
HIGHWOODS COLONNADE, LLC By: Highwoods Realty Limited Partnership By: Highwoods Properties, Inc. |
||
SPI TRADEPORT PLACE V, LLC By: Highwoods Realty Limited Partnership By: Highwoods Properties, Inc. |
||
HIWTP, LLC By: Highwoods Services, Inc. |
||
MG-HIW PEACHTREE CORNERS III, LLC By: Highwoods Realty Limited Partnership By: Highwoods Properties, Inc. |
||
GROVE PARK SQUARE, LLC By: Highwoods Services, Inc. |
||
HIGHWOODS WELLNESS CENTER, LLC By: Highwoods Services, Inc. |
||
HIGHWOODS 3322, LLC By: Highwoods/Tennessee Holdings, L.P. By: Highwoods/Tennessee Properties, Inc. |
||
NICHOLS PLAZA WEST, INC. | ||
OZARK MOUNTAIN VILLAGE, INC. | ||
4551 COX ROAD LLC By: Highwoods Realty Limited Partnership By: Highwoods Properties, Inc. |
||
MG-HIW METROWEST I, LLC By: Highwoods Realty Limited Partnership By: Highwoods Properties, Inc. |
||
MG-HIW METROWEST II, LLC By: Highwoods Realty Limited Partnership By: Highwoods Properties, Inc. |
||
HIGHWOODS SITUS II, LLC By: Highwoods Realty Limited Partnership By: Highwoods Properties, Inc. |
||
BAY CENTER I, LLC By: Highwoods Realty Limited Partnership By: Highwoods Properties, Inc. |
||
HIGHWOODS KC GLENRIDGE LAND, LLC By: Highwoods Realty Limited Partnership By: Highwoods Properties, Inc. |
||
581 HIGHWOODS, LP By: Highwoods/Florida Holdings, L.P By: Highwoods/Florida GP Corp. |
||
By: |
/s/ Edward J. Fritsch |
|
Name: | Edward J. Fritsch | |
Title: | President |
[signature pages continued]
12
WELLS FARGO BANK, NATIONAL | ||
ASSOCIATION, as a Lender and as Sole Lead | ||
Arranger, Sole Book Runner and Administrative Agent | ||
By: |
/s/ Authorized Signatory |
|
Name: |
|
|
Title: |
|
|
Commitment Amount: | ||
$50,000,000.00 | ||
Lending Office and Address for Notices: | ||
2859 Paces Ferry Road, Suite 1805 | ||
Atlanta, Georgia 30339 | ||
Attn: Loan Administration | ||
Telecopier: (770) 435-2262 | ||
Telephone: (770) 435-3800 |
[signature pages continued]
13
BRANCH BANKING AND TRUST COMPANY, as a Lender and as a Documentation Agent | ||
By: |
/s/ Authorized Signatory |
|
Name: |
|
|
Title: |
|
|
Commitment Amount: | ||
$15,000,000.00 | ||
Lending Office and Address for Notices: | ||
434 Fayetteville Street Mall | ||
Raleigh, North Carolina 27601 | ||
Attn: Ann Marie Proper | ||
Telecopier: (919) 716-9356 | ||
Telephone: (919) 716-9134 |
[signature pages continued]
14
BANK OF AMERICA, N.A., successor by merger to Fleet National Bank, as a Lender and as Syndication Agent | ||
By: |
/s/ Authorized Signatory |
|
Name: |
|
|
Title: |
|
|
Commitment Amount: | ||
$20,000,000.00 | ||
Lending Office and Address for Notices: | ||
100 Federal Street | ||
Boston, Massachusetts 02110 | ||
Attn: Maria Holman | ||
Telecopier: (617) 434-1337 | ||
Telephone: (617) 434-9447 |
[signature pages continued]
15
WACHOVIA BANK, NATIONAL ASSOCIATION, as a Lender and as a Documentation Agent |
||
By: |
/s/ Authorized Signatory |
|
Name: |
|
|
Title: |
|
|
Commitment Amount: | ||
$15,000,000.00 | ||
Lending Office and Address for Notices: | ||
201 S. College Street | ||
8 th Floor | ||
Charlotte, North Carolina 28288-5708 | ||
Attn: Angela Abessinio | ||
Telecopier: (704) 383-7989 | ||
Telephone: (704) 383-9334 |
[end of signature pages]
16
Exhibit 10.13
AGREEMENT
By and Between
HIGHWOODS REALTY LIMITED PARTNERSHIP,
A North Carolina Limited Partnership
and
G-T GATEWAY, LLC,
A North Carolina Limited Liability Company
and
Allman Spry Leggett & Crumpler, P.A.
as Escrow Agent
AGREEMENT OF PURCHASE AND SALE |
1 | |
DESCRIPTION OF SUBJECT PROPERTY |
1 | |
PURCHASE PRICE |
2 | |
Binder Deposit and Escrow Agent's Duties and Rights |
3 | |
ACTIONS PENDING CLOSING |
6 | |
Survey and Plans |
6 | |
Initial Delivery of Documentation |
6 | |
Access to the Property |
7 | |
Matters of Title |
7 | |
Environmental Assessments |
7 | |
Investigation Rights |
7 | |
Termination Rights; Review Period |
8 | |
Highwoods Removal of Property from Market |
9 | |
ADDITIONAL AGREEMENTS OF THE PARTIES |
9 | |
Title to the Property |
9 | |
Permitted Exceptions |
10 | |
Representations and Warranties of Highwoods |
11 | |
Representations and Warranties of GT Gateway |
17 | |
Maintenance of the Property |
19 | |
Risk of Loss; Damage or Destruction; Condemnation |
19 | |
No Transfer of Personal Property |
20 | |
Compliance With Legal Requirements |
20 | |
Delivery of Notices |
21 | |
CONDITIONS PRECEDENT TO CLOSING |
21 | |
GT Gateways Conditions |
21 | |
Highwoods Conditions. |
24 | |
CLOSING |
25 | |
Date |
25 | |
Highwoods Closing Documents |
25 | |
GT Gateways Closing Documents |
26 | |
Closing Costs |
27 | |
Closing Adjustments |
27 | |
Taxes |
27 | |
Utilities |
28 | |
Rents |
28 | |
Calculations |
29 | |
Prepaids |
29 | |
Service Agreement Payments |
29 | |
Settlement After Closing |
30 | |
Leasing Commissions |
30 | |
Tenant Improvements |
30 | |
Equitable Adjustments |
31 | |
DEFAULT AND REMEDIES |
31 | |
OTHER PROVISIONS |
32 | |
Counterparts |
32 | |
Entire Agreement |
32 |
i
Construction |
32 | |
Applicable Law |
32 | |
Severability |
32 | |
Waiver of Covenants, Conditions and Remedies |
32 | |
Exhibits |
32 | |
Amendment |
32 | |
Relationship of Parties |
33 | |
Assignment |
33 | |
Further Acts |
33 | |
No Recording; Actions to Clear Title |
33 | |
Broker Commissions |
33 | |
Notices |
34 | |
Press Releases |
34 | |
Definition of Agreement Date |
35 | |
Survival of the Agreement |
35 |
Exhibit A - Property Description |
||
Exhibit B - Personal Property |
||
Exhibit B-1 - Excluded Personal Property |
||
Exhibit C - Leases |
||
Exhibit C-1 - Service Maintenance Contracts |
||
Exhibit D Permitted Exceptions |
||
Exhibit E Tenant Estoppel Certificate |
||
Exhibit F - Form of Assignment of Leases |
ii
STATE OF NORTH CAROLINA
AGREEMENT
COUNTY OF FORSYTH
THIS AGREEMENT (this Agreement) is made and entered into as of the 11 th day of February, 2005, by and between HIGHWOODS REALTY LIMITED PARTNERSHIP, a North Carolina limited partnership (Highwoods) and G-T GATEWAY, LLC, a North Carolina limited liability company (GT Gateway) and Allman Spry Leggett & Crumpler, P.A. (Escrow Agent).
WITNESSETH :
WHEREAS, the parties desire to enter into an agreement of purchase and sale to incorporate all prior negotiations and dealings of the parties with respect to the transaction contemplated hereby.
NOW, THEREFORE, in consideration of the mutual covenants and conditions contained herein, the payment of earnest money, and other good and valuable consideration, receipt of which is hereby acknowledged by Highwoods, the parties hereto agree as follows:
1. AGREEMENT OF PURCHASE AND SALE . Highwoods agrees to sell, assign and convey to GT Gateway, and GT Gateway agrees to purchase from Highwoods, a seventy-five percent (75%) interest in the Land, the Improvements and the Lease (defined in Sections 2(a), 2(c) and 2(e) below), and all of the Personal Property and intangibles described in Sections 2(d) and 2(e) below.
2. DESCRIPTION OF SUBJECT PROPERTY . The property owned by Highwoods which is the subject of this Agreement is as follows:
(a) that tract containing approximately 5.459 acres of land and being described on Exhibit A (attached hereto and incorporated herein by reference), together with all right-of-ways and easements appurtenant thereto (said tract being commonly known as 2599 Empire Drive, Winston-Salem, North Carolina and being hereinafter referred to as the Land).
(b) All of Highwoods right, title and interest in and to all rights, privileges, and easements appurtenant to the Land, including all water rights, rights-of-way, roadways, parking areas, roadbeds, alleyways and reversions or other appurtenances used in connection with the beneficial use of the Land.
(c) All improvements, buildings, structures, related amenities and fixtures located on the Land and owned by Highwoods including, without limitation, that warehouse building containing approximately 89,600 square feet (hereinafter referred to as the Building), any and all other buildings, structures and amenities currently located on the Land, all fixtures, apparatus, equipment, vaults, machinery and built-in appliances used in connection with the
1
operation and occupancy of the Land such as heating and air conditioning systems, electrical systems, plumbing systems, sprinkler and other fire protection and life safety systems, refrigeration, ventilation, or other facilities or services on the Land (all of which are together hereinafter called the Improvements).
(d) Except as hereinafter set forth, all personal property to be described on Exhibit B pursuant to Section 4(b) hereof located on or in or used exclusively in connection with the Land and Improvements and owned by Highwoods and used or usable in the operation of the Property (as defined below) including, without limitation, fittings, appliances, shades, furniture, furnishings, and other furnishings or items of personal property used or usable in connection with the Buildings HVAC systems, but excluding all personal property located on the Land or in the Building owned by the tenant thereof or contractors who provide service to the Building or is not otherwise owned by Highwoods (hereinafter called the Personal Property). Notwithstanding the above, the Personal Property being purchased hereby shall not include those items of Personal Property described on Exhibit B-1 , attached hereto and incorporated herein by reference. After the date of this Agreement, Highwoods shall not remove any Personal Property from the Building, Land or Improvements without the prior written consent of GT-Gateway.
(e) All of Highwoods interest, if any, in the intangible property now or hereafter owned by Highwoods and used or usable in connection with the Property, Land, Improvements or Personal Property, that lease of the Building set forth on Exhibit C (the Lease), ground leases, subleases, prepaid rent, security deposits, contract rights, escrow deposits, utility agreements, guaranties, warranties, zoning rights or other rights related to the ownership of or use and operation of said Property, but excluding the rights to use the trade style name Highwoods Properties, and derivations thereof and any other trademarks used in connection therewith. A list of the service, maintenance and/or management contracts affecting or relating to the Property (the Service Contracts), some of which GT Gateway may agree to assume prior to Closing, and all guaranties and warranties relating to the Property which are assignable together with a description of all pertinent terms and provisions of such Service Contracts, guaranties and warranties shall be set forth in Exhibit C-1 and attached hereto prior to Closing. All Service Contracts that are not assumed by GT Gateway shall be terminated at or before Closing.
All of the items of property described in Subsections (a), (b), (c), (d) and (e) above are hereinafter collectively called the Property.
It is hereby acknowledged by GT Gateway that Highwoods shall not convey to GT Gateway claims relating to any real property tax refunds or rebates for periods occurring prior to Closing, (as hereinafter defined), existing insurance claims and any existing claims against the tenant or former tenants of the Property related to claims or causes of actions which arise prior to the Closing Date, which claims shall be reserved by Highwoods.
3. PURCHASE PRICE . Subject to the terms and conditions of this Agreement, the total purchase price to be paid by GT Gateway to Highwoods for the Property shall be the sum of One Million Six Hundred Twelve Thousand Five Hundred and No/100 Dollars ($1,612,500.00) (the Purchase Price). The Purchase Price, as adjusted by all prorations as provided for herein,
2
shall be paid to GT Gateway by Highwoods at the Closing, by wire transfer of immediately available federal funds, of which the Binder Deposit shall constitute a part, subject to prorations and adjustments at Closing.
(a) Binder Deposit and Escrow Agents Duties and Rights . Within five (5) business days after the full execution of this Agreement, GT Gateway shall pay and deliver to the Escrow Agent in United States currency the sum of Twenty Thousand and No/100 Dollars ($20,000.00) as a binder deposit (such amount, together with all interest earned thereon, being referred to herein as the Binder Deposit). Escrow Agent shall hold the Binder Deposit in trust for the mutual benefit of the parties, subject to the following terms and conditions:
(i) Escrow Agent shall deposit the Binder Deposit in an interest bearing account in an institution as directed by GT Gateway, and reasonably acceptable to Highwoods, in Winston-Salem, North Carolina. The Binder Deposit, plus all accrued interest thereon, shall be returned to GT Gateway at the Closing of this transaction. Otherwise, the Binder Deposit shall be delivered by Escrow Agent to Highwoods or refunded by Escrow Agent to GT Gateway in accordance with the terms of this Agreement.
(ii) In the event the transaction contemplated by this Agreement is not closed solely because of any default on the part of Highwoods, or if any of the conditions precedent set forth in Section 6 fail to be satisfied at Closing, or GT Gateway terminates its obligations as allowed herein pursuant to any other provision of this Agreement, then the Escrow Agent shall pay to GT Gateway the Binder Deposit, including interest which has accrued thereon. To allow the interest bearing account to be opened, GT Gateways and Highwoods tax identification numbers are set forth below their signatures at the end of this Agreement. Escrow Agent is executing this Agreement to acknowledge Escrow Agents responsibilities hereunder, which may be modified only by a written amendment signed by all of the parties. No such amendment shall be binding on the Escrow Agent unless it has been signed by the Escrow Agent. Escrow Agent shall accept the Binder Deposit with the understanding of the parties that Escrow Agent is not a party to the Agreement except to the extent of its specific responsibilities hereunder; and does not assume or have any liability for the performance or non-performances of Highwoods or GT Gateway hereunder to either of them.
(iii) In the event the transaction contemplated by this Agreement is not closed solely because of any default on the part of GT Gateway, then the Escrow Agent shall pay to Highwoods the Binder Deposit including interest which has accrued thereon, and, except for GT Gateways Continuing Indemnification Obligations (as defined in Section 4(f) below), such payment shall be GT Gateways only liability to Highwoods as the result of such breach and shall be considered liquidated damages, as Highwoods actual damages as a result of GT Gateways breach of its obligation hereunder shall be difficult, if not impossible, to ascertain.
3
(iv) Within two (2) days after execution of this Agreement, GT Gateway and Highwoods shall deposit a copy of this Agreement executed by them with Escrow Agent, and, upon receipt of the Binder Deposit from GT Gateway, Escrow Agent shall immediately execute this agreement where provided below. This Agreement, together with such further instructions, if any, as the parties shall provide to Escrow Agent by written agreement, shall constitute the escrow instructions. If any requirements relating to the duties or obligations of Escrow Agent hereunder are not acceptable to Escrow Agent, or if Escrow Agent requires additional instructions, the parties hereto agree to make such deletions, substitutions and additions hereto as counsel for GT Gateway and Highwoods shall mutually approve, which additional instructions shall not substantially alter the terms of this Agreement unless otherwise expressly agreed to by Highwoods and GT Gateway.
(v) Escrow Agent shall hold the Binder Deposit in accordance with the terms and provisions of this Agreement, subject to the following:
(A) Escrow Agents duties hereunder shall be limited to investing, administering and disbursing the Binder Deposit, and Escrow Agent shall have no additional duties or responsibilities hereunder (in its role as Escrow Agent) in connection with the Closing. Escrow Agent undertakes to perform only such duties as are expressly set forth in this Agreement and no implied duties or obligations shall be read into this Agreement against Escrow Agent.
(B) Escrow Agent may act in reliance upon any writing or instrument or signature which it, in good faith, believes of any statement or assertion contained in such writing or instrument, and may assume that any person purporting to give any writing, notice, advice or instrument in connection with the provisions of this Agreement has been duly authorized to do so. Escrow Agent shall not be liable in any manner for the sufficiency or correctness as to form, manner and execution, or validity of any instrument deposited in escrow, nor as to the identity, authority, or right of any person executing the same, and Escrow Agents duties under this Agreement shall be limited to those provided in this Agreement.
(C) Unless Escrow Agent discharges any of its duties under this Agreement in a negligent manner or is guilty of willful misconduct with regard to its duties under this Agreement, Highwoods and GT Gateway shall indemnify Escrow Agent and hold it harmless from any and all claims, liabilities, losses, actions, suits or proceedings at law or in equity which it may incur or with which it may be threatened by reason of its acting as Escrow Agent under this Agreement; and in such connection Highwoods and GT Gateway shall indemnify Escrow Agent against any and all expenses including reasonable attorneys fees and the cost of defending any action, suit or proceeding or resisting any claim in such capacity.
4
(D) If the parties (including Escrow Agent) shall be in disagreement about the interpretation of this Agreement, or about their respective rights and obligations, or the propriety of any action contemplated by Escrow Agent, Escrow Agent may, but shall not be required to, file an action in interpleader to resolve the disagreement. Escrow Agent shall be indemnified for all costs and reasonable attorneys fees in its capacity as Escrow Agent in connection with any such interpleader action and shall be fully protected in suspending all or part of its activities under this Agreement until a final judgment in the interpleader action is received.
(E) Escrow Agent may consult with counsel of its own choice and have full and complete authorization and protection in accordance with the opinion of such counsel. Escrow Agent shall otherwise not be liable for any mistakes of fact or errors of judgment, or for any acts or omissions of any kind, unless caused by its negligence or willful misconduct.
(F) The Escrow Agent may in its sole discretion resign by giving thirty (30) days written notice thereof to GT Gateway and Highwoods. GT Gateway and Highwoods shall furnish to the Escrow Agent written instructions for the release of the escrow funds and escrow documents in such event. If the Escrow Agent shall not have received such written instructions, the Escrow Agent may petition any court of competent jurisdiction for the appointment of a successor Escrow Agent, and upon such appointment deliver the escrow funds and escrow documents to such successor.
(G) If costs and expenses (including attorneys fees) are incurred by Escrow Agent because of litigation of any dispute between Highwoods and GT Gateway arising out of the holding of the Binder Deposit, the non-prevailing party ( i.e. , either Highwoods or GT Gateway) shall reimburse Escrow Agent for such reasonable costs and expenses incurred. Highwoods and GT Gateway hereby agree and acknowledge that Escrow Agent assumes no liability in connection with the holding or investment of the Binder Deposit pursuant hereto, except for the negligence or willful misconduct of Escrow Agent and its employees and agents. Escrow Agent shall not be responsible for the validity, correctness or genuineness of any document or notice referred to herein; and, in the event of any dispute under this Agreement relating to the disposition of the Binder Deposit, Escrow Agent may seek advice from its own counsel and shall be fully protected in any action taken in good faith in accordance with the opinion of Escrow Agents counsel.
5
(H) Escrow Agents address for purpose of mailing or delivering documents and notices hereunder is as follows:
Allman Spry Leggett & Crumpler, P.A. |
380 Knollwood Street, Suite 700 |
Winston-Salem, NC 27103-4152 |
Attention: Thomas T. Crumpler, Esquire |
Telephone: (336) 722-2300 |
Telecopier: (336) 721-0414 |
Provisions with respect to notices set forth herein shall apply with respect to notices given by or to Escrow Agent hereunder.
4. ACTIONS PENDING CLOSING .
(a) Survey and Plans . GT Gateway may cause to be secured and delivered to GT Gateway prior to the end of the Review Period (as defined in Section 4(g) below) a current physical and boundary survey (the Survey) of the Land and Improvements prepared by a North Carolina registered land surveyor or licensed engineer which shall be certified to GT Gateway which shall contain such documentation and certifications as the Title Company (as defined in Section 5[a]) may require. GT Gateway agrees to pay for the cost of the Survey. The Survey shall be used for a description of the Land contained in the deed of conveyance of the Land from Highwoods to GT Gateway and in all other documents related to this transaction which require a legal description [including, without limitation, such description as is required for the Title Policies described under Section 5(a)]. In the event the Survey reveals anything which materially or adversely affects the Property in the sole reasonable discretion of GT Gateway, GT Gateway shall give notice to Highwoods of those matters objected to by GT Gateway in the Survey prior to the last day of the Review Period. Highwoods shall then have the right, but not the obligation, for a period of ten (10) business days to cure any defects or objectionable matters specified by GT Gateway. In the event that Highwoods fails or is unwilling to cure such defects to the reasonable satisfaction of GT Gateways counsel at Highwoods sole cost and expense, GT Gateway may proceed to a Closing subject to the defect, or by written notice to Highwoods, terminate this Agreement and receive a refund of the Binder Deposit, or otherwise allow this Agreement to expire.
(b) Initial Delivery of Documentation . At the time of the execution of this Agreement or within five (5) business days thereafter, Highwoods shall provide to GT Gateway the following: (i) a list of all the personal property described in Section 2 above which shall be attached hereto as Exhibit B , (ii) true, correct and complete copies of all service, maintenance, utility and other contracts related to the Property, including any warranties or guaranties, a list of which shall be attached hereto as Exhibit C-1 , (iii) all title information related to the Land in Highwoods possession or available to Highwoods including but not limited to, title insurance policies, attorneys opinions on title and existing surveys, (iv) all environmental, engineering or similar reports and drawing/specifications relating to the Land, Building or Improvements in Highwoods possession, (v) a true, correct and complete copy of the Lease and any amendments
6
or guaranties of such Lease, (vi) all income and expense records related to the Property for the year 2003 and 2004; and (vii) a current rent roll of the Building. To the knowledge of Highwoods, the information to be delivered to GT Gateway pursuant to this subsection is true and correct in every material respect.
(c) Access to the Property . Subject to Section 4(f) of this Agreement, Highwoods shall give GT Gateway and its agents, engineers and other representatives, reasonable access to the Property.
(d) Matters of Title . If any objection to the Title Report (as defined in Section 5[a] hereof) or the Survey (or existing survey(s), if applicable) is identified by GT Gateway, Highwoods shall use its commercially reasonable efforts to resolve such objection to GT Gateways satisfaction provided the cost of such resolution does not exceed Twenty-Fifty Thousand and No/100 Dollars ($25,000). In the event that Highwoods cannot or refuses to cure an objection to the Title Report or the Survey (or existing survey[s]) which remains unacceptable to GT Gateway, then and in that event, GT Gateway may terminate this Agreement without any further claim or obligation of any kind to Highwoods, except for GT Gateways Continuing Indemnification Obligation (as defined in Section 4(f) below) or in the alternative, consummate the Closing in accordance with the terms of Section 5(a) below.
(e) Environmental Assessments . Prior to Closing, GT Gateway, at its sole expense, and upon reasonable notice to Highwoods, may cause to be undertaken and completed a current Phase I Environmental Site Assessment of the Land (the Environmental Assessment). The Environmental Assessment shall be performed by environmental inspection and engineering firms selected by GT Gateway. GT Gateway shall determine from the Environmental Assessment and from such other information available to GT Gateway, in its sole discretion, whether or not the Property is likely to be contaminated by hazardous or toxic waste, substances or materials (including but not limited to, asbestos, PCBs or petroleum products) as defined under any applicable federal, state or local laws, statutes, orders, rules, regulations, permits or approvals. In the event that contamination or any other adverse environmental condition is found to likely exist at the Property, or in the event that such Environmental Assessment recommends additional testing and Highwoods refuses to consent to such testing (which consent may be withheld by Highwoods in its sole discretion), GT Gateway reserves the right to terminate this Agreement and receive a refund of the Binder Deposit. If Highwoods withholds its consent for GT Gateway to do additional environmental testing of the Land, and GT Gateway terminates this Agreement as the result thereof, Highwoods will pay to GT Gateway its due diligence costs reasonably incurred during the Review Period, and any fees forfeited by GT Gateway to its lender as the result of GT Gateways termination of this Agreement as the result of Highwoods refusal to allow GT Gateway to conduct further environmental tests of the Land. Highwoods has no obligation to GT Gateway to remediate any environmental contamination on the Land discovered by GT Gateway or GT Gateways engineers. As stated above, GT Gateway will not conduct a Phase II Environmental Assessment of the Property without Highwoods written consent, which consent may be withheld in Highwoods sole discretion.
(f) Investigation Rights . From the Agreement Date until such time as this Agreement is either settled or terminated, GT Gateway, GT Gateways authorized agents,
7
employees, consultants, architects, engineers and contractors, as well as others authorized by GT Gateway, shall have access to the Property and shall be entitled to enter upon the Property and make such surveying, architectural, engineering, topographical, geological, soil, subsurface, environmental, water drainage, traffic, and other studies related to the availability of water, sewer, natural gas, and other utility services in sufficient quantities to meet GT Gateways requirements and such other investigations, inspections, evaluations, studies, tests and measurements (collectively, the Investigations) as GT Gateway deems necessary or advisable. Provided, however, GT Gateways rights hereunder to conduct Investigations shall be subject to the following requirements and limitations: (i) any entry upon the Property by GT Gateway, GT Gateways authorized agents and employees, as well as others authorized by GT Gateway shall require at least twenty-four (24) hours advance notice to Highwoods of the date and time of the entry and the specific Investigations to be conducted in connection with the entry, (ii) the Investigations shall not result in any adverse change to the physical characteristics of the Property (and GT Gateway shall be obligated to completely repair and restore any damage to the Property resulting from the Investigations), and (iii) the Investigations will not substantially or adversely interfere with the rights of the tenant in the Building to use and enjoy its leased space therein according to its Lease thereof. GT Gateway agrees to indemnify and hold Highwoods harmless from and against any and all claims, costs, expenses, and liabilities, including reasonable attorneys fees, arising out of claims for injury, including death, to persons or physical injury to property resulting from the Investigations (hereinafter the GT Gateways Continuing Indemnification Obligations); provided, however, GT Gateway shall not be obligated to indemnify Highwoods from and against any claims, costs, expenses, and liabilities caused by or arising out of the acts or omissions of Highwoods or Highwoods employees, representatives or agents, or from the presence or release of Hazardous Substances (as defined in Section 5(c) herein) not introduced onto the Property by GT Gateway or GT Gateways authorized agents and employees or other entities conducting the Investigations. Highwoods shall be entitled to have one or more representatives present to observe the Investigations on the Property. GT Gateway shall not be entitled to conduct any environmental Investigations on the Property beyond a Phase I environmental site assessment ( i.e. no sampling, drilling, etc.) without first obtaining Highwoods prior written consent, which consent may be withheld by Highwoods, in Highwoods sole discretion. Notwithstanding any term or provision herein to the contrary, the provisions in this Agreement [including in this Section 4(f)] relating to the Investigations shall apply to all Investigations conducted by the Distributess and GT Gateways authorized agents, employees, consultants, architects, engineers and contractors both prior to the Agreement Date and from and after the Agreement Date.
GT Gateway will remain responsible and liable to Highwoods for the Continuing Indemnification Obligations and the full amount of actual damages suffered by Highwoods resulting from GT Gateways Investigation after the completion of the Closing hereunder, the termination of this Agreement by GT Gateway or Highwoods or a default by GT Gateway under this Agreement.
(g) Termination Rights; Review Period . GT Gateway shall have the unqualified right, in GT Gateways sole and absolute discretion, to terminate this Agreement by giving written notice of such election at any time from the Agreement Date until 5:00 p.m. Eastern Standard time on the February 28, 2005 (30 th ) (such period of time until February 28,
8
2005 being referred to herein as the Review Period). In the event GT Gateway properly and timely terminates this Agreement pursuant to this Section 4(g); Escrow Agent shall promptly refund all but One Hundred and No/100 Dollars ($100) of the Binder Deposit to GT Gateway (such $100 payment to Highwoods being the consideration paid by GT Gateway for the right to terminate this Agreement pursuant to this Section 4(g)), whereupon the parties hereto shall have no further rights, obligation or liabilities to each other hereunder, except for GT Gateways Continuing Indemnification Obligations. Time is of the essence with respect to this right to terminate. The failure of GT Gateway to provide such notice of termination prior to the expiration of the Review Period shall be deemed conclusively a waiver of GT Gateways termination rights under this Section 4(g); and in such event, except in the case of a default by Highwoods hereunder (which shall be governed by the terms of Section 8 herein) or failure of any condition precedent to GT Gateways obligation to close, and except in the event of the termination of this Agreement by either party pursuant to any specific termination right set forth herein which requires the return of the Binder Deposit to GT Gateway, the Binder Deposit shall be deemed for all purposes under this Agreement to be nonrefundable to GT Gateway and earned by Highwoods.
(h) Highwoods Removal of Property From Market . Until the end of the Review Period, or earlier termination of this Agreement, Highwoods shall remove the Property from the market and not have discussions with prospective purchasers thereof, and will not solicit or accept any offers, whether or not binding, regarding the Property during the Review Period and thereafter until the Closing of the transaction contemplated hereby occurs or until the earlier termination of this Agreement.
5. ADDITIONAL AGREEMENTS OF THE PARTIES .
(a) Title to the Property . At the Closing, Highwoods shall deliver to GT Gateway a limited warranty deed in form and content satisfactory to GT Gateways counsel with transfer tax, if any, paid at Highwoods expense, conveying to GT Gateway a good, indefeasible, fee simple title to the Land, its appurtenances and Improvements, said title to be insurable both as to fee and marketability at regular rates by Chicago Title Insurance Company (the Title Company), subject only to those matters enumerated in Section 5(b)(i)-(vi) below (Permitted Exceptions). Prior to the end of the Review Period, GT Gateway shall procure from HPI Title Agency, LLC, at GT Gateways cost, a current title commitment for title insurance issued by the Title Company showing the condition of title to the Land, its appurtenances and Improvements (the Title Report). If, prior to the end of the Review Period, GT Gateway disapproves of any matter of title contained in the Title Report, GT Gateway may then elect to provide written notice of GT Gateways disapproval of the same to Highwoods (those disapproved title matters as so identified by GT Gateway are hereinafter called the Disapproved Exceptions). Highwoods agrees to commit its commercially reasonable efforts to remove any Disapproved Exception, provided the cost thereof does not exceed Twenty-Five Thousand and No/100 Dollars ($25,000). However, in the event that as provided in Sections 4(a) and (d) above, GT Gateway proceeds to and consummate the Closing subject to a Disapproved Exception, such Disapproved Exception shall then be deemed to be a Permitted Exception. Any expenses incurred in obtaining such title insurance commitment (including, without limitation, those incurred by an attorney in conducting the necessary title search) shall be borne by GT Gateway. The title
9
insurance premium for the title insurance policy issued by the Title Company pursuant to the title commitment (the Title Policy) shall be borne by GT Gateway. The Title Policy shall provide full coverage against mechanics or materialmens liens, shall commit full survey coverage (if GT Gateway procures a Survey of the Land) and such other coverages and endorsements as shall be reasonably required by GT Gateway. If GT Gateway requests any endorsements to the Title Policy, GT Gateway will be responsible for the cost attributable thereto.
GT Gateway may, at or prior to Closing, notify Highwoods in writing (the Gap Notice) of any objections to title raised by GT Gateways Counsel or the Title Company between the issuance of the Title Report and the Closing, which did not exist as of the date of the issuance of the Title Report (New Encumbrances). If GT Gateway sends a Gap Notice to Highwoods, but the New Encumbrance is the result of some act that is beyond the control of Highwoods, then GT Gateway and Highwoods shall have the same rights and obligations with respect to such notice as apply to a Disapproved Exception under Sections 5(a) and 5(b) hereof. However, in the event the New Encumbrance results from any action or omission of Highwoods (with the exception of New Encumbrances which can be cured by a monetary payment which GT Gateway has, and shall have, the absolute right of making such payment and reducing by a like amount the Purchase Price), GT Gateway shall be entitled to terminate this Agreement, receive a refund of the Binder Deposit, and reimbursement from Highwoods of the costs, fees and expenses incurred by GT Gateway related to this Agreement and the Property.
(b) Permitted Exceptions . The Land, its appurtenances and the Improvements shall be conveyed by Highwoods to GT Gateway free and clear of all liens, encumbrances, claims, rights-of-way, easements, leases, restrictions and restrictive covenants, except the following Permitted Exceptions:
(i) Public utility easements and rights-of-way in customary form, so long as no Improvements are located thereon and they do not interfere with the use of the Property for office, warehouse and related commercial purposes permitted by the Lease or materially affect the value of the Property;
(ii) Zoning and building laws or ordinances, provided they do not prohibit the use of the Property for office, warehouse and related commercial purposes permitted by the Lease and so long as the Property is in compliance with same;
(iii) Ad valorem real estate taxes for any year in which they are not yet due and payable as of the date of Closing; and
(iv) Those matters which GT Gateway has elected to accept;
(v) Items shown on the Survey and not objected to by GT Gateway or waived by GT Gateway in accordance with Section 4(a) hereof.
(vi) Those Permitted Exceptions listed on Exhibit D , so long as they to not interfere with the use of the Property for office, warehouse and related commercial purposes permitted by the Lease or materially affect the value of the Property.
10
If, in the opinion of GT Gateways counsel, GT Gateway is not able to procure an owners title insurance commitment from the Title Company prior to Closing, complying with the requirements of this Section 5, GT Gateway shall have the option of taking title as is and consummating the Closing, or terminating this Agreement. Notwithstanding any other provision contained herein to the contrary, if the title defect(s) which may include, without limitation, a Disapproved Exception, is a mortgage, lien, judgment, assessment, unpaid taxes or tax which can be cured by a monetary payment (and with respect to which affirmative title insurance coverage is not available at the Title Companys standard rates) GT Gateway has, and shall have, the absolute right of making such payment and reducing the Purchase Price by a like amount.
(c) Representations and Warranties of Highwoods . Highwoods hereby makes the following representations and warranties to GT Gateway:
(i) There are no options to purchase the Property which are effective, nor has Highwoods previously entered into any contract of sale of the Property with a party other than GT Gateway which is presently effective. After the date hereof and until Closing, or until this Agreement is otherwise terminated, Highwoods will not enter into any agreement or contract or negotiate with any party other than GT Gateway with respect to the sale of the Property, nor, will Highwoods pledge or assign any right, title, interest in or to the Property or any part thereof to any person or entity.
(ii) All bills and claims for labor performed and services and materials furnished to or for the benefit of the Property have been or will be paid in full by Closing, and there are no mechanics liens or materialmens liens on or affecting the Property. If any mechanics or materialmens lien is filed on or affecting the Property for work, labor or materials, Highwoods shall indemnify and save GT Gateway harmless from, or bond over, such lien and cause the Title Company to eliminate any exception therefor from the Title Policy issued to GT Gateway.
(iii) As of the date of the Agreement, except as otherwise set forth on Exhibit C , there are no leases, subleases, licenses or other rental agreements or occupancy agreements (written or verbal) which grant any possessory interest in and to any space situated on or in any of the Property or that otherwise give rights with regard to use of any portions of any of the Property and except as set forth on Exhibit C-1 , there are no commissions due with respect to any such lease, sublease, etc., nor, except as set forth on Exhibit C-1 , will any commissions be due in connection with the renewal of any such lease, sublease, etc.
(iv) Except as set forth on Exhibit C-1 , neither Highwoods, nor to the knowledge of Highwoods, any other party, has entered into any construction, design, engineering, service, maintenance, supply, brokerage/leasing agreements, employment agreements, management contracts or leases of personal property
11
(collectively, Service/Equipment Contracts) affecting the construction, use, ownership, maintenance or/or operation of the Property that will continue subsequent to the Closing. Prior to or on the Closing Date, Highwoods shall terminate, at Highwoods sole cost and expense, all Service/Equipment Contracts which GT Gateway does not elect to assume in writing; or, if not terminable by the Closing Date, shall remain responsible for and will timely perform all of the obligations thereunder. To Highwoods knowledge, Highwoods is not in material default under any of the Service/Equipment Contracts and, to Highwoods knowledge, no other parties to any of the Service/Equipment Contracts are in default, nor do any conditions exist that, with the passage of time, or giving of notice, or both, shall constitute a default thereunder. The copies of the Service/Equipment Contracts provided to GT Gateway pursuant to this Agreement are true, accurate and complete as of the date hereof, are in full force and effect and none of them have been modified, amended or extended except as otherwise set forth on Exhibit C-1 .
(v) To the knowledge of Highwoods, which knowledge is based solely on the Phase I Environmental Site Assessment of the Land dated , conducted by (The Environmental Report), the Property has not been used for the generation, treatment, storage or disposal of any hazardous substances in violation of any federal, state or local environmental law, rule or violation during the period in which Highwoods has owned the property. For the purposes of this Section 5(c)(v), hazardous substances shall include (i) hazardous substances as defined in the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, 42 U.S.C. § 9601 et seq ., as amended, or by any regulations promulgated thereunder; (ii) any hazardous waste, underground storage tanks, petroleum, regulated substance, or used oil as defined by the Resource Conservation and Recovery Act of 1976 (42 U.S.C. § 6901 et. seq .), as amended or by any regulations promulgated thereunder; (iii) any oil or other hazardous substances as defined by the Oil and Hazardous Substances Control Act of 1986 as amended, and any regulations adopted pursuant to said Act, or any similar environmental protection law of the state in which the Property is located or its political subdivisions. To the knowledge of Highwoods, which knowledge is based solely on the Environmental Report, no asbestos or asbestos-containing materials have been installed, used, incorporated into or disposed of on the Property. To the knowledge of Highwoods, which knowledge is based solely on the Environmental Report, no polychlorinated biphenyls (PCBs) are located on or in the Property, whether such PCBs are in the form of electrical transformers, florescent light fixtures with ballast, cooling oils or any other device or form. To the knowledge of Highwoods, which knowledge is based solely on the Environmental Report, except as set forth in the Environmental Report, no underground storage tanks are located on the Property or were located on the Property and subsequently removed or filled. To the knowledge of Highwoods, but without having made any independent investigation, no investigation, administrative order, consent order and agreement, litigation, or settlement with respect to hazardous substances is proposed, threatened, anticipated or in existence with respect to the Property.
12
(vi) Neither the entering into of this Agreement nor the consummation of the transaction contemplated hereby will constitute or result in a violation or breach by Highwoods of any judgment, order, writ, injunction or decree issued against or imposed upon it, or will result in a violation of any applicable law, order, rule or regulation of any governmental authority. There are no actions, suits, proceedings, arbitrations or investigations pending or, to Highwoods knowledge, threatened (i) against, relating to or affecting Highwoods which might interfere in a material respect with the transaction contemplated by this Agreement, become an encumbrance on the title to the Property or any portion thereof or otherwise affect the Property or Highwoods ability to consummate the transaction contemplated hereby or (ii) against, relating to or affecting the Property.
(vii) Highwoods has not received notice:
(A) From any federal, state, county or municipal authority alleging any fire, health, safety, building, pollution, environmental, zoning or other violation of law in respect of the Property or any part thereof, including, without limitation, the occupancy or operation thereof, which has not been entirely corrected;
(B) Concerning the possible or anticipated condemnation of any part of the Property, or the widening, change of grade or limitation on use of streets abutting the same or concerning any special taxes or assessments levied or to be levied against the Property or any part thereof;
(C) Concerning any change in the zoning or other land use classification of the Property or any part thereof;
(D) Of any pending insurance claim related to the Property;
(E) From any governmental authority that any licenses, permits, certificates, easements and rights of way, including proof of dedication, required from all authorities having jurisdiction over the Property or from private parties for the existing use, occupancy and operation of the Property and to insure vehicular and pedestrian ingress to and egress from the Property are in violation of any governmental laws or regulations, which has not been corrected or will not be corrected by Closing.
(viii) No attachment, execution, assignment for the benefit of creditors or voluntary proceedings in bankruptcy has been commenced by Highwoods or are contemplated by Highwoods and, to the best of Highwoods knowledge, no such action has been contemplated or threatened, nor has any involuntary proceedings in bankruptcy been commenced against Highwoods.
13
(ix) Highwoods has full power and authority to enter into this Agreement and to assume and perform all of its obligations hereunder; the execution and delivery of this Agreement and the consummation of the transactions contemplated hereunder on the part of Highwoods do not and will not violate the partnership agreement or certificate of limited partnership of Highwoods and do not and will not conflict with or result in the breach of any condition or provision of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon the Property by reason of the terms of any contract, mortgage, lien, lease, agreement, indenture, instrument or judgment to which Highwoods is a party or which is or purports to be binding upon Highwoods or which affects Highwoods; and no action by any federal, state or municipal or other governmental department, commission, board, bureau or instrumentality is necessary to make this Agreement a valid instrument binding upon Highwoods in accordance with its terms;
(x) Highwoods is a limited partnership duly organized, validly existing and in good standing under the laws of the State of North Carolina. Highwoods has full power and authority to carry on its business as now conducted and to own, lease and operate its properties and assets now owned or leased and operated by it;
(xi) Highwoods is not a foreign person within the meaning of Section 1445(f) of the Internal Revenue Code, and Highwoods agrees to execute any and all documents necessary or required by the Internal Revenue Service or GT Gateway in connection with such declaration(s).
(xii) Subject to Highwoods general partners board of directors approval of this transaction, this Agreement does and will, and the documents required to be executed by Highwoods pursuant to this Agreement will, constitute the valid and binding obligations of Highwoods enforceable in accordance with their respective terms subject to bankruptcy, receivership and similar laws affecting the rights of creditors generally.
(xiii) Notwithstanding anything else herein to the contrary, Highwoods represents to GT Gateway that the Building is leased to the tenant and for the lease term set forth on the rent roll attached hereto as Exhibit C and that the Property is subject to those service and maintenance contracts set forth on Exhibit C-1 attached to this Agreement. With respect to such Lease, Highwoods represents as follows:
(A) Highwoods has not collected any prepaid rent in advance in excess of rent for the month during which the Closing is to occur.
14
(B) No rents or leases have been assigned by Highwoods.
(C) The Lease is in full force and effect, has been validly executed by the landlord and tenant, and has not been amended or modified as to any items except as set forth in the Rent Roll;
(D) The summary of the Lease set forth in Exhibit C is accurate in all material respects and, there are no subleases thereof;
(E) The Lease will be free and clear of all liens and encumbrances on the date of the Closing contemplated hereby
(F) Highwoods has taken no action, by act or omission, which constitutes the waiver of a default by the tenant under the Lease, except as herein specifically provided;
(G) Highwoods has fulfilled all of the landlords duties and obligations under the Lease including the completion of all upfittings, construction, decoration and alteration work which Highwoods is obligated to perform under the Lease.
(H) Highwoods or a previous landlord under the Lease has fulfilled all of the landlords duties and obligations under the Lease with respect to any leasing commissions or other compensation due arising out of any leasing, agency, brokerage or management agreements relating to the Lease which may be due and owing as of the Closing Date.
(I) Highwoods and the tenant under the Lease is not in default under any of the terms and provisions of said Lease, and Highwoods has received no notice, of any alleged default in connection with said Lease;
(J) There are no other rent concessions or set-offs against rent, nor has the tenant under the Lease asserted any defense, set-off, or counterclaim in connection with said Lease
(xiv) With respect to Services/Equipment Contracts:
(A) There are no contracts or agreements for services rendered in connection with the operation of the Property which GT Gateway shall be required to take the Property subject to, except as agreed to by GT Gateway and expressly assumed under the terms of the Assignment of Contracts.
(B) Highwoods shall not, without Distributees consent, negotiate or enter into any new service or other contract affecting the Property which cannot be terminated without cost to GT Gateway on or before the Closing.
15
All representations and warranties of Highwoods contained in this Agreement are true, accurate and correct in all material respects as of the date hereof and, if Highwoods believes such representations and warranties continue to be true at Closing, Highwoods shall deliver to GT Gateway at Closing a certificate certifying that they are still true, accurate and correct in all material respects as of the Closing Date. Notwithstanding the foregoing, GT Gateway shall have no claim against Highwoods for any representation or warranty which, although true upon the execution hereof, is untrue or inaccurate at Closing as a result of facts, circumstances or occurrences beyond the control of or not within the knowledge of Highwoods. For purposes of this Agreement and any document delivered at Closing, whenever the phrases to the best of Highwoods knowledge, to the current, actual knowledge of Highwoods or the knowledge of Highwoods or words of similar import are used, they shall be deemed to refer to the current, actual, conscious knowledge without inquiry of Mark W. Shumaker, Vice President and Rebecca Dixson, Property Manager. The representations and warranties of Highwoods shall survive the Closing for one (1) year.
Subject to GT Gateways rights of inspection and investigation during the Review Period, GT Gateway acknowledges for GT Gateway and GT Gateways successors, and assignees, that GT Gateway has been given a reasonable opportunity to inspect and investigate the Property, all improvements thereon and all aspects relating thereto, including all documents and contracts related to the Property, either independently or through agents and experts of GT Gateways choosing. EXCEPT AS LIMITED BELOW OR AS OTHERWISE SET FORTH IN THIS AGREEMENT, HIGHWOODS AND GT GATEWAY AGREES THAT THE PROPERTY SHALL BE SOLD AND THAT GT GATEWAY SHALL ACCEPT POSSESSION OF THE PROPERTY ON THE CLOSING DATE AS IS, WHERE IS, WITH ALL FAULTS WITH NO RIGHT OF SET-OFF OR REDUCTION OF THE PURCHASE PRICE, AND EXCEPT AS EXPRESSLY SET FORTH HEREIN THAT THE CONVEYANCE OF THE PROPERTY TO GT GATEWAY SHALL BE WITHOUT REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, WARRANTY OF INCOME WHICH MAY BE EARNED IN THE FUTURE, FUTURE OPERATING EXPENSES, USES, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE (BUT SPECIFICALLY EXCLUDING THE LIMITED WARRANTY OF TITLE TO BE GIVEN IN THE DEED FROM HIGHWOODS TO GT GATEWAY), AND HIGHWOODS DOES HEREBY DISCLAIM AND RENOUNCE ANY SUCH REPRESENTATION OR WARRANTY. EXCEPT FOR HIGHWOODS REPRESENTATIONS WHICH ARE EXPRESSLY SET FORTH HEREIN, GT GATEWAY SPECIFICALLY ACKNOWLEDGES THAT GT GATEWAY IS NOT RELYING ON ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND WHATSOEVER, EXPRESS OR IMPLIED, FROM HIGHWOODS OR BROKERS AS TO THE FOLLOWING MATTERS: (1) THE CONDITION OR SAFETY OF THE PROPERTY OR ANY SEWER, HEATING AND ELECTRICAL SYSTEMS, ROOFING, AIR CONDITIONING, IF ANY, FOUNDATIONS, SOILS AND GEOLOGY INCLUDING SUITABILITY OF THE PROPERTY OR ITS IMPROVEMENTS FOR A PARTICULAR PURPOSE; (2) WHETHER THE APPLIANCES, IF ANY, PLUMBING OR UTILITIES ARE IN WORKING ORDER; (3) THE HABITABILITY OR SUITABILITY FOR OCCUPANCY OF ANY STRUCTURE AND THE QUALITY OF ITS CONSTRUCTION; (4) THE FITNESS OF ANY PERSONAL PROPERTY; OR (5) WHETHER THE BUILDING IS STRUCTURALLY SOUND, IN GOOD CONDITION, OR IN
16
COMPLIANCE WITH THE APPLICABLE CITY, COUNTY, STATE OR FEDERAL STATUTES, CODES OR ORDINANCES. EXCEPT FOR HIGHWOODS REPRESENTATIONS EXPRESSLY SET FORTH HEREIN GT GATEWAY IS RELYING SOLELY UPON ITS OWN INSPECTION OF THE PROPERTY WITH REGARD TO THE ABOVE-REFERENCED MATTERS, AND NOT UPON ANY REPRESENTATIONS MADE BY HIGHWOODS OR HIGHWOODS AGENTS RELATED TO THE ABOVE-REFERENCED MATTERS.
(d) Representations and Warranties of GT Gateway . GT Gateway hereby represents and warrants to Highwoods as of the date hereof and as of Closing as follows:
(i) The execution and delivery of this Agreement and the documents required hereunder to be executed by them will on the date of Closing have been, duly executed and delivered by GT Gateway. To the current, actual knowledge of GT Gateway, none of the foregoing requires any action by or in respect of, or filing with, any governmental body, agency or official or contravenes or constitutes a default under any provision of applicable law or regulation, or any agreement, judgment, injunction, order, decree or other instrument binding upon GT Gateway. This Agreement does and will, and the documents required to be executed by them will, constitute the valid and binding obligations of GT Gateway enforceable in accordance with their respective terms, subject to bankruptcy and similar laws affecting the remedies or resources of creditors generally.
(ii) The execution and delivery of this Agreement and the performance by GT Gateway of its obligation hereunder do not and will not conflict with or result in the breach of any condition or provision of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon any of the property or assets of GT Gateway (including the Property) by reason of the terms of any contract, mortgage, lien, lease, agreement, indenture, instrument or judgment to which GT Gateway is a party or which is or purports to be binding upon GT Gateway or which affects GT Gateway.
(iii) No attachment, execution, assignment for the benefit of creditors or voluntary proceedings in bankruptcy has been commenced by GT Gateway and, to the best of GT Gateways knowledge, no such action has been contemplated or threatened, nor has any involuntary proceedings in bankruptcy been commenced against GT Gateway.
(iv) GT Gateway acknowledges that all information with respect to the Property furnished to GT Gateway or discovered by GT Gateway during its investigation thereof pursuant to Section 4 of this Agreement (collectively, the Confidential Information), is and has been so furnished, and GT Gateways investigation of the Property has been permitted by Highwoods, on the condition that GT Gateway maintains the confidentiality thereof. Accordingly, GT Gateway shall, and shall cause their employees, and, their agents, contractors and
17
representatives to, hold in strict confidence, and not disclose to any other person or entity without the prior written consent of Highwoods until the Closing shall have been consummated, any of the Confidential Information in respect of the Property. If the Closing does not occur and this Agreement is terminated, GT Gateway shall promptly return, or cause to be returned, to Highwoods all copies of such Confidential Information without retaining, or permitting retention of, any copy thereof. Notwithstanding anything to the contrary hereinabove set forth, GT Gateway may disclose such Confidential Information (i) to its employees, its title insurer, its current or prospective investors or lenders, and members of professional firms serving it in connection with this transaction, including, without limitation, their attorneys, architects, environmental consultants and engineers, bankers, and their clients; (ii) as any governmental agency or authority may require in order to comply with applicable laws or regulations; and (iii) if required by an order of any court of competent jurisdiction; and this provision shall survive Closing, provided, however, after the Closing, this provision shall not apply to information available through the public records as a result of such Closing.
(v) GT Gateway has full power and authority to enter into this Agreement and to assume and perform all of its obligations hereunder; and no further action or approval is required in order to constitute this Agreement as a binding and enforceable obligation of GT Gateway; the execution and delivery of this Agreement and the consummation of the transactions contemplated hereunder on the part of GT Gateway do not and will not require any action by any federal, state or municipal or other governmental department, commission, board, bureau or instrumentality is necessary to make this Agreement a valid instrument binding upon GT Gateway in accordance with its terms.
(vi) To the current, actual knowledge of GT Gateway, there is no existing or threatened legal action or governmental proceedings of any kind involving GT Gateway, any of its assets or the operation of any of the foregoing, which if determined adversely to GT Gateway or its assets, would have a material adverse effect on the financial condition, business or prospects of GT Gateway or its assets or which would interfere with GT Gateways ability to execute or deliver, or perform its obligations under this Agreement or any of the documents required to be executed by it.
(vii) GT Gateway has no current, actual knowledge of any existing violation of any federal, state, county or municipal law, ordinance, order, code, regulation or requirements affecting the Distributees or any of them assets that would have a material adverse effect on the financial condition, business or prospects of GT Gateway or any of its assets.
(viii) GT Gateway has no current, actual knowledge of any information or fact which has, or would have, a material adverse affect on the financial condition, business or prospects of GT Gateway or its assets in a manner which would prevent GT Gateway from consummating the transaction contemplated by this Agreement.
18
(ix) GT Gateway is, and at all times prior to the Closing date will be, solvent. As used herein, solvent means that GT Gateway (i) does not have debts greater than the fair market value of its assets; (ii) is paying and anticipates that it will continue to pay its debts as they mature and become due; and (iii) has sufficient capital to operate its business as it is operated on the date of this Agreement.
(x) GT Gateway carries, or is covered by, and will maintain, insurance in such amounts and covering such risks as is adequate for the conduct of its business and the value of its properties and assets and as is customary for companies engaged in similar businesses in similar markets, including, without limitation, all risks casualty insurance, flood insurance (when necessary), general commercial liability insurance and business interruption insurance.
(xi) GT Gateway acknowledges that, prior to the execution of this Agreement, GT Gateway has had the opportunity to ask questions of and receive answers or obtain additional information from a representative of Highwoods concerning the financial and other affairs of Highwoods and its general partner and, to the extent GT Gateway believes necessary in light of GT Gateways knowledge of the affairs of Highwoods and its general partner, GT Gateway has asked such questions and received satisfactory answers. GT Gateway further acknowledges that it possesses all material facts necessary to make a determination to dispose of the Partnership Units as more fully set forth herein.
For purposes of this Agreement and any document delivered at Closing, whenever the phrases to the best of GT Gateways knowledge, to the current, actual knowledge of GT Gateway or the knowledge of Gateway or words of similar import are used, they shall be deemed to refer to the current, actual, conscious knowledge without inquiry of GT Gateway.
(e) Maintenance of the Property . Between the date of this Agreement and the Closing, Highwoods shall continue to maintain the Property in the same condition and repair as currently being maintained, ordinary wear and tear and damage by casualty excepted, and shall not cause or permit any waste upon the Property and shall not, except as set forth above with respect to ordinary wear and tear and casualty damage without the prior written consent of GT Gateway, permit any material physical change to the Property prior to Closing. Highwoods shall not take any action which would adversely affect the value of or title to the Property and will not amendment, modify or terminate the Lease without GT Gateways written consent.
(f) Risk of Loss; Damage or Destruction; Condemnation . If, prior to Closing, the Property or any part thereof shall be condemned, or destroyed or materially damaged by fire or other casualty (that is, damage or destruction to the Building which GT Gateway reasonably believes would cost in excess of Two Hundred Thousand and No/100 Dollars ($200,000) to
19
repair or would entitle the tenant under the Lease to terminate the Lease, or, in the case of a condemnation, which substantially prevents access to the Property or any part thereof), GT Gateway shall have the option which shall be exercised not later than the later of (i) five (5) days prior to Closing or (ii) ten (10) business days following the date GT Gateway receives written notice of the condemnation or damage (with Closing being extended, if necessary, to accommodate such time periods) either to (a) to terminate this Agreement, or (b) to consummate the transaction contemplated by this Agreement notwithstanding such condemnation, destruction or material damage. If GT Gateway elects to consummate the transaction contemplated by this Agreement notwithstanding a casualty or condemnation, GT Gateway shall be entitled to receive all of the condemnation proceeds or settle the loss under all policies of insurance applicable to the destruction or damage and receive all of the proceeds of insurance applicable thereto, and Highwoods shall, at Closing and thereafter, execute and deliver to GT Gateway all required proofs of loss, assignments of claims and other similar items, and GT Gateway shall receive a credit at Closing for the amount of any deductible under Highwoods insurance policies. If GT Gateway or Highwoods elects to terminate this Agreement as a result of a casualty or condemnation, the Earnest Money plus any interest earned thereon shall be returned to GT Gateway by the Escrow Agent, in which event this Agreement shall, without further action of the parties, become null and void and neither party shall have any rights or obligations under this Agreement, except for GT Gateways Continuing Indemnification Obligations. If there is any other damage or destruction to the Building (that is, damage or destruction to the Building which GT Gateway reasonably believes would cost Two Hundred Thousand and No/100 Dollars ($200,000) or less to repair), or if there is a condemnation which does not substantially prevent access to the Land or any part thereof, or if the damage or destruction of the Building or condemnation would not entitle the tenant under the Lease to terminate the Lease, GT Gateway shall not have the right to terminate this Agreement and (i) in the event of a casualty, Highwoods shall either completely repair such damage to the Building prior to Closing in a manner satisfactory to GT Gateway or, at Highwoods option, either assign all insurance claims pertaining to such damage or destruction to GT Gateway at Closing, with GT Gateway to receive a credit for the amount of any deductible under Highwoods insurance policies, or allow GT Gateway a credit against the Purchase Price in an amount equal to GT Gateways reasonably estimated cost of repair and (ii) in the event of a condemnation, Highwoods shall assign to GT Gateway all of Highwoods rights to any condemnation proceeds to be paid by the applicable governmental authority.
(g) No Transfer of Personal Property . Highwoods agrees not to transfer or remove any personal property from the Property after the Agreement Date except for repair or replacement thereof. Any items of Personal Property replaced after the Agreement Date shall be promptly installed prior to Closing and shall be of substantially similar quality to the item of personal property being replaced.
(h) Compliance With Legal Requirements . All notices of violations of laws, ordinances, or regulations (Violations of Law), which are issued or sent to Highwoods prior to the Closing related to the Property by any governmental department, agency or bureau having jurisdiction over the conditions relating to such Violations of Law may (but is not required to) be remedied or complied with by Highwoods prior to Closing; provided, however, if any notices of Violations of Law are issued or sent to Highwoods by any governmental department, agency or
20
bureau having jurisdiction over the conditions related to such Violations of Law after the end of the Review Period that Highwoods is unable or unwilling to remedy or cure, or comply with such notices by the Closing then GT Gateway shall have the option to (a) terminate this Agreement, whereupon all obligations of all parties hereto shall cease, the Binder Deposit shall be returned to GT Gateway and this Agreement shall be void and without recourse to the parties hereto, except for provisions which are expressly stated to survive such termination including GT Gateways Continuing Indemnification Obligations; or (b) proceed with Closing notwithstanding such Violations of Law and obtain an adjustment to the Purchase Price as reasonably determined by GT Gateway and Highwoods. If Highwoods receives any notices of Violations of Law prior to the end of the Review Period which Highwoods is unable or unwilling to remedy or cure, GT Gateways only remedy shall be to terminate this Agreement and receive a refund of the Binder Deposit or proceed with Closing not withstanding such Violations of Law and obtain an adjustment to the Purchase Price as reasonably determined by GT Gateway and Highwoods.
(i) Delivery of Notices . Highwoods shall promptly deliver to GT Gateway prior to Closing, copies of all notices, correspondence and reports generated or received by Highwoods in connection with the Lease.
6. CONDITIONS PRECEDENT TO CLOSING .
(a) GT Gateways Conditions . The obligation of GT Gateway to complete the transaction contemplated by this Agreement is subject to the satisfaction on or before the Closing of the following conditions, any of which may be waived in whole or in part by GT Gateway, but only in writing at or prior to Closing:
(i) All representations and warranties of Highwoods in this Agreement shall be true and correct in all material respects as of the Closing Date, with the same force and effect as if such representations and warranties were made anew as of the Closing Date. Any changes to such representations disclosed by Highwoods in writing prior to Closing shall be subject to the provisions of Section 6(a)(ii) below. Highwoods shall have performed and complied in all material respects with all covenants and agreements required by this Agreement to be performed or complied with by Highwoods prior to the Closing Date.
(ii) In the event that GT Gateway becomes aware at any time prior to Closing that a representation or warranty made by Highwoods herein, while true as of the date made, no longer remains true in all material respects, due to a change of circumstances beyond the reasonable control of Highwoods subsequent to the date of this Agreement, GT Gateway shall promptly give written notice of such fact to Highwoods. In the event Highwoods is unable or unwilling to remedy such change of circumstances by the Closing, then GT Gateway shall have the option to (a) terminate this Agreement, whereupon all obligations of all parties hereto shall cease (except for GT Gateways Continuing Indemnification Obligations) and the Binder Deposit shall be returned to GT Gateway; or (b) proceed with Closing notwithstanding such change of circumstances; provided, however, that if Highwoods intentionally caused such representation or warranty
21
to become untrue, GT Gateway shall have the right to proceed with Closing and decrease the amount of the Purchase Price by the amount necessary to remedy such breach or terminate this Agreement and Highwoods shall reimburse GT Gateway for GT Gateways out-of-pocket expenses incurred in negotiating this Agreement and conducting its review of the Property and preparation for Closing (including, without limitation, reasonable attorneys fees, title examination, environmental assessment and survey and loan fees forfeited to GT Gateways lender as the result of the closing failing to occur because Highwoods intentionally caused a representation or warranty made by it herein to be untrue at closing).
(iii) All of Highwoods obligations hereunder shall have been performed with regard to the Property.
(iv) Highwoods must have good and marketable fee simple title to the Property, free and clear of all liens, encumbrances, covenants and conditions, save and except the Permitted Exceptions, and the Building or other improvements on the Property shall not encroach upon any land adjoining the Property, except for encroachments of asphalt paving over utility easements.
(v) Highwoods shall not have caused any New Encumbrances to be placed on the Property between the date of this Agreement and the Closing Date except with the approval of GT Gateway which approval shall not be unreasonably withheld or delayed and Highwoods shall have the obligation to remove all such New Encumbrances (not approved as aforesaid by GT Gateway) on the Closing Date.
(vi) The Property will be free and clear of any and all taxes or assessments and any penalties associated therewith, except ad valorem taxes for the year of Closing, which will be prorated on a calendar year basis at the Closing.
(vii) The Property shall be in substantially the same condition on the date of Closing as of the date hereof subject, however, to normal wear and tear only, provided, in the event the Property is not in the condition described above prior to Closing as the result of a casualty to the Building, the provisions of Section 5(f) of this Agreement shall apply.
(viii) No order, writ, injunction or decree shall have been entered and be in effect by any court of competent jurisdiction or any governmental authority, and no statute, rule, regulation or other requirement shall have been promulgated or enacted and be in effect, that restrains, enjoins or invalidates the transactions contemplated hereby.
(ix) No suit or other proceeding shall be pending or threatened by any third party not affiliated with or acting at the request of Highwoods before any
22
court or authority seeking to restrain or prohibit or declare illegal, or seeking substantial damages against Highwoods in connection with the transactions contemplated by this Agreement.
(x) Highwoods shall make all reasonable efforts to obtain and provide to GT Gateway five (5) days prior to Closing a tenant estoppel certificate in the form attached hereto as Exhibit E (the Tenant Estoppel Certificate) from the tenant of the Building. To the extent Highwoods has not delivered the Tenant Estoppel Certificate at Closing, and if General Electric Capital Assurance Company, or its affiliate (G E Capital) makes a loan to GT Gateway and will accept an estoppel certificate from Highwoods, Highwoods may (but has no obligation to) execute an estoppel certificate (certifying the same matters set forth in the Tenant Estoppel Certificate submitted to the tenant of the Building). Highwoods may agree to indemnify GT Gateway (and G E Capital) from loss or damage incurred by GT Gateway and/or G E Capital resulting from the inaccuracy of any matter contained in the estoppel certificate executed by Highwoods. In the event Highwoods provides an estoppel certificate pursuant to the terms of this Section, Highwoods may, after Closing, substitute a Tenant Estoppel Certificate therefor, and thereafter, Highwoods shall be relieved from any liability to GT Gateway (and G E Capital) with respect to any Highwoods estoppel certificate substituted by the Tenant Estoppel Certificate. Provided Highwoods makes a reasonable effort to obtain the Estoppel Certificate, and if the G E Capital will not accept a Highwoods estoppel certificate, Highwoods failure to so provide the Estoppel Certificate to GT Gateway and G E Capital shall not be deemed a default by Highwoods under this Agreement and GT Gateway may (a) elect to delay Closing for a reasonable period of time to enable Highwoods to obtain and deliver the Estoppel Certificate or (b) terminate this Agreement and receive a refund of the Binder Deposit, or (c) close this transaction without the Estoppel Certificate.
(xi) On or before the date of Closing, Highwoods shall have provided to GT Gateway and G E Capital a subordination, non-disturbance and attornment agreement (SNDA) in a form acceptable to G E Capital executed by the tenant of the Building. Provided Highwoods makes a reasonable effort to obtain the Estoppel Certificate, and if G E Capital will not accept the SNDA provided by the tenant of the building, Highwoods failure to so provide an SNDA acceptable to G E Capital shall not be deemed a default by Highwoods under this Agreement. In the event Highwoods fails to deliver the SNDA to GT Gateway and/or its lender as required above, GT Gateway may (a) elect to delay Closing for a reasonable period of time to enable Highwoods to obtain and deliver the SNDA or (b) terminate this Agreement and receive a refund of the Binder Deposit, or (c) close this transaction without the SNDA.
(xii) GT Gateway must have closed a loan with General Electric Capital Assurance Company, or an affiliate thereof pursuant to a loan application with G E Asset Management Incorporated to be applied for by GT Gateway during the
23
Review Period, providing GT Gateway with loan proceeds of not less than $1,612,500.00 (the Loan). GT Gateway agrees to apply for the Loan during the Review Period and make a commercially reasonable effort to close the Loan pursuant to such application.
(xiii) On the date of Closing, the tenant of the Building shall not be a party to any voluntary or involuntary bankruptcy proceeding filed pursuant to the United States Bankruptcy Code, or any state receivership or state insolvency proceeding.
(xiv) The Lease shall not have been modified or terminated without the written consent of GT Gateway.
If any of the foregoing conditions in this Section 6 for the benefit of GT Gateway shall fail to be satisfied within the time period set forth for each condition, GT Gateway may, at its election: (i) terminate its obligations to accept a distribution of the Property; (ii) waive such condition and complete the transaction contemplated hereby without any reduction in the Purchase Price, except as provided in Section 6(a)(ii); or (iii) require Highwoods to perform its obligations hereunder, if any, with regard to the Property or the Building and Highwoods failure to perform such obligations, if any, shall be a default hereunder.
(b) Highwoods Conditions. The obligations of Highwoods under this Agreement are subject to the satisfaction of each of the following conditions on or before the Closing Date, any of which may be waived by Highwoods, and GT Gateway agrees to cause the conditions described in clauses (ii) and (iii) below to be so satisfied:
(i) This transaction must have been approved by Highwoods general partners board of directors at its February meeting (anticipated to be February , 2005). Highwoods shall submit this Agreement to its general partners board of directors at its February meeting.
(ii) All the terms, covenants, and conditions of this Agreement to be complied with and performed by GT Gateway on or before the Closing Date shall have been duly complied with and performed in all respects; and
(iii) The representations and warranties of GT Gateway contained in this Agreement shall be true and correct in all respects at and as of the Closing Date with the same force and effect as though such representations and warranties had been made as of the Closing Date, except for any changes which have been disclosed to Highwoods in writing and expressly approved or waived by Highwoods in writing.
(iv) Simultaneously with the closing of the transaction contemplated by this Agreement, John L. Turner, Sr., Robert Goldman, and Henry P. Royster, Jr.
24
(the Distributees) must have purchased a twenty-five percent (25%) interest in the Land, the Improvements and the Lease pursuant to an agreement between Highwoods and the Distributees of even date herewith.
7. CLOSING .
(a) Date . The Closing of the transaction contemplated hereby shall occur on or before March 1, 2005, at the offices of GT Gateways attorney in Winston-Salem, North Carolina, or such other place as may be mutually agreed upon by Highwoods and GT Gateway, or, at GT Gateways option, closed in escrow at the office of the Title Company, provided, GT Gateway shall give Highwoods at least five (5) business days notice of the date of any Closing to take place under this Agreement. Notwithstanding the above, GT Gateway may delay closing until March 31, 2005 in the sole discretion of GT Gateway by paying to the Escrow Agent an additional binder deposit the sum of Fifteen Thousand and No/100 Dollars ($15,000.00) (which shall be considered and treated as the Binder Deposit pursuant to Section 3(a) hereof) in which event this transaction will close on such date pursuant to the provisions of this paragraph.
(b) Highwoods Closing Documents . At the Closing, Highwoods shall deliver to GT Gateway or its designated agent the following, each of which shall be properly executed and acknowledged, if applicable:
(i) A limited warranty deed in a form reasonably acceptable to GT Gateway conveying to GT Gateway good and marketable fee simple title to a seventy-five percent (75%) interest in the Land, free and clear of all liens, encumbrances, easements and restrictions, except the Permitted Exceptions, which may encumber the Property at the time of the conveyance thereof;
(ii) An assignment of a seventy-five percent (75%) interest in the Lease in the form set forth on Exhibit F ;
(iii) A bill of sale transferring GT Gateway a one hundred percent (100%) interest in all Personal Property subject to this Agreement, which bill of sale will be in a form reasonably acceptable to GT Gateway;
(iv) An assignment of all tenant security deposits held by Highwoods under the terms of the Lease;
(v) A standard owners affidavit and lien waiver form used by the Title Company to cause an extended coverage ALTA owners title insurance policy to be issued to GT Gateway without standard exceptions to mechanics and/or materialman liens;
(vi) A certificate of Highwoods as to the warranties and representations referred to in Section 5(c) hereof being true and correct as of the Closing Date;
25
(vii) An affidavit as to foreign persons referred to in Section 5(c)(xxiii) hereof;
(viii) the Tenant Estoppel Certificate (or Highwoods Estoppel Certificate if applicable) and the SNDA;
(ix) A blanket assignment and transfer of any and all miscellaneous interests and to the extent assignable all warranties and guarantees from contractors, subcontractors, suppliers, manufacturers or distributors relating to the Property, if any, (excluding Service Contracts) and all of Highwoods right, title, interest and benefits in, to and under all contracts, licenses, permits and similar documents or authorizations pertaining to the ownership and operation of the Property, if any, including the trade name of the Property;
(x) A letter, approved by G-T Gateway and Highwoods to the tenant of the Building advising the tenant of the transfer of the Property to G-T Gateway and that all future payments under the Lease are to be paid to G-T Gateway;
(xi) An assignment of any Service Contracts to be assumed by G-T Gateway at Closing, if any;
(xii) All permits, warranties, plans and specifications, and documents, instruments, files and records related to the Property and in the possession and control of Highwoods;
(xiii) The original executed Lease;
(xiv) The keys to any door or lock on the Building and the original tenant files in possession of Highwoods; and
(xv) Such other matters as either GT Gateway or Highwoods shall reasonably require or shall be anticipated by the terms hereof.
(c) GT Gateways Closing Documents . At Closing, GT Gateway shall pay the Purchase Price in accordance with the terms of Section 3, and will execute such other documents and papers which may be necessary for the consummation of the transaction described in this Agreement, as may be reasonably requested by Highwoods or Highwoods counsel, including the execution of an assignment of lease in the form set forth on Exhibit F , and an assignment of any service contracts to be assumed by GT Gateway at Closing, if any.
Simultaneously with, or promptly following, the Closing hereunder the parties hereto shall execute such other and additional documents and assurances and perform such other acts as shall be reasonably required in order to carry out the intent and purposes of this Agreement.
26
(d) Closing Costs . Highwoods shall furnish the deed to a seventy-five percent (75%) interest in the Land in accordance with the terms hereof and shall pay any documentary stamps, excise or transfer tax, if any, with respect thereto and its attorneys fees and shall pay all costs required to clear title to the Property, provided Highwoods shall not be required to expend more than Twenty-Five Thousand and No/100 Dollars ($25,000) in connection with such efforts. GT Gateway shall be responsible for paying the cost of the title insurance premium charged by the Title Company in connection with the issuance of the Title Policy, recording the deed, its attorneys fees, all engineering reports procured by GT Gateway in connection with its due diligence and any cost associated with GT Gateways financing of the Property, if any, and Survey costs.
(e) Closing Adjustments . Unless otherwise specified in this Agreement, seventy-five percent (75%) of all income, expenses and costs related to the Property shall be prorated as of 11:59 p.m. Eastern Standard Time on the date immediately preceding the Closing Date as follows, with any credits or debits to Highwoods as the result of such adjustments being added to or subtracted from the Purchase Price, which shall be adjusted at Closing as contemplated by Section 3 hereof:
(i) Taxes. To the extent not paid by the tenant under the Lease, ad valorem property taxes, personal property taxes and special assessments, if any, due or to be levied against the Property (the Taxes) for the year of Closing shall be prorated with Highwoods being responsible for all such Taxes from January 1st of the year of Closing through the last day prior to the day of Closing. GT Gateway shall be responsible for paying seventy-five percent (75%) of the balance of the remaining Taxes due or to be levied against the Property for the year of Closing. Highwoods shall be responsible for paying any unpaid Taxes for any year prior to Closing. In the event the Taxes are not determinable at the time of Closing, the Taxes shall be prorated on the basis of the best available information (the Estimated Taxes ). If the Taxes are not paid at Closing, Highwoods shall deliver to GT Gateway the bills for the Taxes promptly upon receipt thereof and GT Gateway shall thereupon be responsible for the payment of seventy-five percent (75%) of the Taxes within the time fixed for payment thereof and before the same shall become delinquent. Notwithstanding the foregoing, in the event actual Taxes for the year of Closing exceed the Estimated Taxes for the year of Closing (the Tax Excess ) or Estimated Taxes for the year of Closing exceed the actual Taxes for year of Closing (the Tax Refund ), Highwoods and GT Gateway shall prorate and pay such Tax Excess or such Tax Refund as follows:
(A) Highwoods shall be responsible for a portion of the Tax Excess or shall receive credit for the Tax Refund prorated from January 1st of the year of Closing through the last day before the Closing Date based upon a 365-day calendar year. The amount of the Tax Excess or the Tax Refund shall be determined when the property tax bills are received by GT Gateway, and GT Gateway shall notify Highwoods within thirty (30) days thereof of the calculation of the amount due to GT Gateway
27
from Highwoods in the case of a Tax Excess or the amount due to Highwoods from GT Gateway in the case of a Tax Refund. Highwoods shall have thirty (30) days from Highwoods receipt of such notification to pay its portion of the Tax Excess to GT Gateway and GT Gateway shall have thirty (30) days from GT Gateways receipt of the property tax bills to pay Highwoods its portion of the Tax Refund.
(ii) Utilities . To the extent not paid by tenant under the Lease, seventy-five percent (75%) of all utility charges and reimbursement for utility charges for the Property (including, without limitation, telephone, water, storm and sanitary sewer, electricity, gas, garbage and waste removal), to the extent not payable by the tenant under the Lease, shall be prorated. Transfer fees required with respect to any such utility shall be paid by GT Gateway prior to Closing.
(iii) Rents . Seventy-five percent (75%) of all paid rents, including revenues and charges of any kind, together with any other sums paid by the tenant (other than security deposit), under the Lease, shall be prorated as of the Closing Date. In the event that, at the time of Closing, there are any past due or delinquent rents owing by the tenant of the Property, GT Gateway shall have the exclusive right to collect such past due or delinquent rents and shall remit to Highwoods in cash to the extent, and only to the extent, that the rents received by GT Gateway from the tenant owing past due or delinquent rents exceed the sum of the aggregate rents and other sums payable by such tenant for periods from and after the Closing Date to the date of receipt, and then only if Highwoods has notified GT Gateway at Closing that the tenant under the Lease is delinquent in its rent as of the Closing Date. GT Gateway will make a commercially reasonable good faith effort to collect after Closing any rents which are delinquent and owing to Highwoods at Closing, but GT Gateway shall have no obligation to file suit to collect such amounts, provided if GT Gateway fails to file suit to collect such amounts after being requested to do so by Highwoods, Highwoods shall have the right to collect all rents owed to Highwoods at the time of Closing, which shall include Highwoods filing of suit, if necessary, to collect such amounts. In the event that, after Closing, Highwoods receives any payments of rent or other sums due from the tenant under the Lease that relate to periods from and after Closing, Highwoods shall promptly forward to GT Gateway such payments. It is agreed by GT Gateway that the sums to be paid by the tenant referred to in this Section 7(e)(iii) shall include all property operation costs pass throughs for the years 2004 and 2005 not paid on a monthly basis, but rather at the end of a calendar year after being invoiced therefor. These sums shall be provided and paid to Highwoods and GT Gateway, as applicable, when paid by the tenant under the Lease. GT Gateway shall use reasonable efforts to invoice the tenant for pass throughs as promptly as is practicable after Closing (but in no event shall GT Gateway be required to do so until allowed under the Lease), provided Highwoods must furnish to GT Gateway all applicable information regarding the amount of pass through operating expenses to be paid by the tenant under the Lease for the calendar year 2004.
28
During the period after Closing, GT Gateway shall deliver to Highwoods any and all rents accrued but uncollected as of the Closing Date to the extent subsequently collected by GT Gateway, and to the extent GT Gateway receive such rents, shall apply rents received after Closing to the extent the same are delinquent first to payment of current Rent then due, and thereafter to delinquent rents (other than true up payments received from the tenant attributable to a year-end reconciliation of actual and budgeted pass-through payments which shall be allocated between Highwoods and GT Gateway pro rata in accordance with their respective period of ownership as set forth in this Section 7(e)(iv) below) but only after rent due and owing to GT Gateway have been paid in full, including any delinquent rent. If any security deposits are in the form of a letter of credit, Highwoods shall assign its interest in the letter of credit to GT Gateway (to the extent assignable) and deliver the original letter of credit to GT Gateway at Closing.
(iv) Calculations . For purposes of calculating prorations, GT Gateway shall be deemed to be the owner of the Property, and, therefore, entitled to seventy-five percent (75%) of the income therefrom and responsible for seventy-five percent (75%) of the expenses thereof for the entire day upon which the Closing occurs. All such prorations shall be made on the basis of the actual number of days of the month which shall have elapsed as of the day of the Closing and based upon the actual number of days in the month and a three hundred sixty-five (365) day year. The amount of such prorations shall be initially performed at Closing but shall be subject to adjustment in cash after the Closing as and when complete and accurate information becomes available, if such information is not available at the Closing. Highwoods and GT Gateway agrees to cooperate and use its best efforts to make such adjustments no later than sixty (60) days after the Closing. Except as set forth in this Section 7(e)(iii) and (iv) all items of income and expense which accrue for the period prior to the Closing will be for the account of Highwoods and seventy-five percent (75%) of all items of income and expense which accrue for the period on and after the Closing will be for the account of GT Gateway. The provisions of Section 7(e)(iii) and (iv) shall survive the Closing.
(v) Prepaids. Seventy-five percent (75%) of any expense or cost of prepaid items, including, without limitation, fees for licenses which are transferred to GT Gateway at the Closing and annual permit and inspection fees shall be apportioned between Highwoods and GT Gateway at the Closing.
(vi) Service Agreement Payments. Seventy-five percent (75%) of all amounts payable under any of the Service Contracts assumed by GT Gateway shall be prorated. GT Gateway does not assume any obligation under any Service Contracts for acts or omissions that occur prior to Closing. GT Gateway does not assume any obligation under any Service Contracts not expressly assumed by GT Gateway.
29
(vii) Settlement After Closing. The parties acknowledge that not all invoices for expenses incurred with respect to the Property prior to the Closing will be received by the Closing and that a mechanism needs to be in place so that such invoices can be paid as received. All of the Closing adjustments will be done on an interim basis at the Closing and will be subject to final adjustment in accordance with this Section 7(e). After Closing, upon receipt by GT Gateway of an invoice for the Propertys operating expenses that are attributable in whole or in part to a period prior to the Closing and that were not apportioned at Closing, GT Gateway shall submit to Highwoods a copy of such invoice with such additional supporting information as Highwoods shall reasonably request. Within ten (10) days of receipt of such copy, Highwoods shall pay to GT Gateway an amount equal to seventy-five percent (75%) of the portion of such invoice attributable to the period ending on the date immediately preceding the Closing. Likewise, upon receipt by GT Gateway of such an invoice after Closing for the Propertys operating expenses which were paid in advance by Highwoods and are attributable in whole or in part to a period on or after Closing that were not apportioned at Closing, GT Gateway shall submit to Highwoods a copy of such invoice together with an amount equal seventy-five percent (75%) of to the portion of such invoice attributable to the period on or after Closing, within ten (10) days after receipt of such invoice.
(viii) Leasing Commissions. Seventy-five percent (75%) of all obligations to pay leasing commissions due from and after the Closing Date of this Agreement as the result of the execution of a new lease of the Building after the date hereof, the result of the renewal of the Lease, the extension of the term of the Lease, the expansion of the premises demised by the Lease for space within the Building, or the exercise of an option to lease additional space in the Building set forth in the Lease (collectively Future Commissions) which obligations are incurred pursuant to the brokerage agreements set forth on Exhibit C-1 shall be assumed and paid by GT Gateway. Highwoods shall be responsible for all leasing commissions due prior to the Closing Date. In addition Highwoods shall indemnify, defend and hold GT Gateway harmless from and against any liability for commissions due pursuant to any agreement not set forth on Exhibit C-1.
(ix) Tenant Improvements. Seventy-five percent (75%) of all obligations to pay the cost of any tenant improvement work owed or to be owed in connection with new leases of the Building executed after the date hereof or the result of the renewal of the Lease, the extension of the term of the Lease, the expansion of the premises demised by the Lease to space within the Building or the exercise of a n option to lease additional space in the Building set forth in the Lease occurring after the date hereof, which costs shall include, but not be limited to, all sums expended by Highwoods for such tenant improvement work (including all overhead costs incurred by Highwoods or its affiliates in connection with the performance of the work related to such tenant improvements not to exceed five percent (5%) of the cost of such tenant improvements) and a profit not
30
to exceed ten percent (10%) of the cost of such tenant improvements shall be assumed and paid by GT Gateway on the Closing Date by reimbursing Highwoods for the costs of such tenant improvements previously paid by Highwoods in connection with new leases, renewals, extensions, relocations, expansions, or the exercise of an option to lease additional space in the Building occurring after the date hereof or if the cost of such tenant improvements are not yet due and payable by paying the same when they otherwise become due without an adjustment to the Purchase Price. Notwithstanding the foregoing, to the extent any portion of the term of a Lease, and renewals, extensions, expansions and relocations for which any tenant improvement work is completed prior to the Closing Date, the amount of the Purchase Price to be reduced as a result of this transaction will be reduced by a pro rata share of such tenant improvement work based upon the percentage of such term (exclusive of any renewal options) which occurs prior the Closing Date. If any tenant improvement work is in process on the Closing Date, Highwoods shall be responsible for completing the construction thereof, provided, GT Gateway shall be responsible for the costs thereof as set forth above.
(x) Equitable Adjustments . In the event that any of the prorations or adjustments described in this Section 7(e) are based upon estimated or erroneous information, then the parties shall make between themselves any equitable adjustment required by reason of any difference between such estimated or erroneous amounts and the actual amounts of such sums.
8. DEFAULT AND REMEDIES .
(a) In the event Highwoods defaults or fails to perform any of the conditions or obligations of Highwoods under this Agreement, then GT Gateway shall have a right to terminate this Agreement and receive a refund of the Binder Deposit and pursue an action for reimbursement of expenses, fees and costs incurred by G-T Gateway relating to this Agreement or their due diligence on the Property, provided such fees and costs shall not exceed Fifty Thousand and No/100 Dollars ($50,000), plus the amount of any fees forfeited by G-T Gateway to its lender as the result of the failure of such Closing because of Highwoods default, and will be substantiated by legitimate invoices therefor, or, in the alternative, compel Highwoods performance of its obligations hereunder by bringing an action for specific performance or, if specific performance is not available to GT Gateway, as a result of the acts or omissions of Highwoods, GT Gateway may pursue any other legal remedy available to GT Gateway under the laws of the State of North Carolina, including an action for reimbursement of expenses, fees and costs incurred by GT Gateway relating to this Agreement or the Property.
(b) In the event GT Gateway defaults or fails to perform any of the covenants or conditions of GT Gateway under this Agreement, Highwoods may terminate this agreement and the Escrow Agent shall pay the Binder Deposit to Highwoods, and such payment shall constitute Highwoods liquidated damages as a result of GT Gateways default or failure to perform, as Highwoods actual damages shall be difficult, if not impossible, to ascertain, and after such payment GT Gateway shall have no further obligations hereunder, except for GT Gateways Continuing Indemnification Obligations.
31
9. OTHER PROVISIONS .
(a) Counterparts . This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which, taken together, shall constitute one and the same instrument.
(b) Entire Agreement . This Agreement and the Exhibits attached hereto constitute and contain the entire agreement between the parties, and supersede all prior and contemporaneous understandings and agreements, whether oral or in writing, between the parties respecting the subject matter hereof. There are no representations, agreements, arrangements or understandings, oral or in writing, between or among the parties to this Agreement relating to the subject matter of this Agreement which are not fully expressed in this Agreement.
(c) Construction . The provisions of this Agreement shall be construed as to their fair meaning, and not for or against any party based upon any attribution to such party as the source of the language in question. Headings used in this Agreement are for convenience of reference only and shall not be used in construing this Agreement.
(d) Applicable Law . This Agreement shall be governed by the laws of the State of North Carolina.
(e) Severability . If any term, covenant, condition or provision of this Agreement, or the application thereof to any person or circumstance, shall to any extent be held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, covenants, conditions or provisions of this Agreement, or the application thereof to any person or circumstance, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby.
(f) Waiver of Covenants, Conditions and Remedies . The waiver by one party of the performance of any covenant, condition or promise under this Agreement shall not invalidate this Agreement nor shall it be considered a waiver by it of any other covenant, condition or promise under this Agreement. The waiver by either or both parties of the time for performing any act under this Agreement shall not constitute a waiver of the time for performing any other act or an identical act required to be performed at a later time.
(g) Exhibits . All exhibits to which reference is made in this Agreement are deemed incorporated into this Agreement and made a part hereof, whether or not actually attached.
(h) Amendment . This Agreement may be amended at any time by the written agreement of GT Gateway and Highwoods. All amendments, changes, revisions and discharges of this Agreement, in whole or in part, and from time to time, shall be binding upon the parties despite any lack of legal consideration, so long as the same shall be in writing and executed by the parties hereto.
32
(i) Relationship of Parties . The parties agree that their relationship is that of buyer and seller, and that nothing contained herein shall constitute either party the agent or legal representative of the other for any purpose whatsoever, nor shall this Agreement be deemed to create any form of business organization between the parties hereto, nor is either party granted any right or authority to assume or create any obligation or responsibility on behalf of the other party, nor shall either party be in any way liable for any debt of the other.
(j) Assignment . Except as set forth below, GT Gateway may not assign their rights, obligations and liabilities hereunder to a third party without Highwoods prior written consent, which shall not be unreasonably withheld. Notwithstanding the above, GT Gateway may assign this Agreement at Closing (but only if the transaction contemplated hereby closes) without the requirement of Highwoods consent to a corporation, limited liability company, or partnership in which GT Gateway owns more than 50% of the equity interest thereof. This Agreement shall be binding upon and shall inure to the benefit of the successors and assigns of the parties to this Agreement.
(k) Further Acts . Each party agrees to perform any further acts and to execute, acknowledge and deliver any documents which may be reasonable necessary to carry out the provisions of this Agreement. The provisions of this Section 9(k) of this Agreement shall survive Closing and shall not be merged upon the delivery and acceptance of the Deed for the Land.
(l) No Recording; Actions to Clear Title . Neither Highwoods nor GT Gateway may record this Agreement or a memorandum of this Agreement without the consent of the other party which shall not be unreasonably withheld or delayed. If GT Gateway fails to complete this transaction, or otherwise terminates or permits this Agreement to expire for any reason, then GT Gateway shall, at no cost to Highwoods, promptly execute, acknowledge and deliver to Highwoods, all within three (3) days after written request from Highwoods, a quitclaim deed, in recordable form, in favor of Highwoods and any other documents requested by Highwoods to remove the cloud on title to the Property that may exist as the result of the existence of this Agreement.
(m) Broker Commissions . Each party warrants to the other that no person, firm or individual is entitled to or has a claim for a commission or fee arising out of this transaction. Highwoods shall and does hereby indemnify and hold harmless GT Gateway from and against any claim for any consulting fee, finders fee, commission, or like compensation, including reasonable attorneys fees in defense thereof, payable in connection with any transaction contemplated hereby and asserted by any party arising out of any act or agreement by Highwoods. GT Gateway does hereby indemnify and hold harmless Highwoods from and against any claim for any consulting fee, finders fee, commission or the like, including reasonable attorneys fees in the defense thereof, payable in connection with any claim by any person or firm asserted by any party arising out of any act or agreement by GT Gateway.
33
(n) Notices . All notices and demands which either party is required or desires to give to the other shall be given in writing by personal delivery, overnight courier service, certified mail, return receipt requested, or by telecopy followed by next day delivery of a hard copy to the address set forth below for the respective parties. All notices and demands so given shall be effective upon the delivery or sending of the same to the party to whom notice or a demand is given, if personally delivered or sent by telecopy, on the next business day if sent by overnight courier and within three (3) business days or upon receipt, whichever is earlier, if sent by certified mail, return receipt requested.
(o) Press Releases . Highwoods and GT Gateway agree that they will not make any public statement, including without limitation, any press release, with respect to this Agreement and the transactions contemplated hereby without first allowing the other party an opportunity to review such statement and render an approval thereof, which approval shall not be unreasonably withheld or delayed by either party. It is the intention of this subparagraph that Highwoods and GT Gateway must agree as to the timing and content of any information contained in any public statement or press release regarding the transaction contemplated hereby. The parties agree to exercise reasonableness when asked to consent to the content of any such press release or other public statement regarding this transaction.
34
(p) Definition of Agreement Date . As used in this Agreement, Agreement Date shall be deemed to refer to the date a fully executed original of this Agreement is delivered to each party hereto, and the Agreement Date shall be inserted as the date of this Agreement in the introductory paragraph of this Agreement.
(q) Survival of the Agreement . The promises, terms, conditions, representations, warranties and provisions set forth in this Agreement shall survive the Closing of the transaction and the delivery and recording of the deed and any other instruments for the conveyance of the Property for a period of one (1) year following the Closing, except as otherwise provided in this Agreement and if the deed or any other recorded instruments are or may be construed to be inconsistent with any such provision of this Agreement, then the applicable provision of this Agreement shall control and shall not be deemed to have been merged into such deed or other recorded instruments, unless otherwise expressly provided in any such instruments.
IN WITNESS WHEREOF, the parties hereto have caused the signature pages to this Agreement to be duly executed by their hands and under seal affixed hereto as of the day and year first above written.
[SIGNATURE PAGES ATTACHED]
35
SIGNATURE PAGE TO AGREEMENT
BY AND BETWEEN
HIGHWOODS REALTY LIMITED PARTNERSHIP, as Highwoods,
G-T GATEWAY, LLC, as GT Gateway,
AND
ALLMAN SPRY LEGGETT & CRUMPLER, P.A.,
as Escrow Agent
Dated as of February 11, 2005
GT GATEWAY: | G-T GATEWAY, LLC. | |||
a North Carolina limited liability company | ||||
By: |
/s/ John L. Turner, Sr. |
|||
Name: | John L. Turner, Sr. | |||
Title: | Manager |
SIGNATURE PAGE TO AGREEMENT
BY AND BETWEEN
HIGHWOODS REALTY LIMITED PARTNERSHIP, as Highwoods,
G-T GATEWAY, LLC, as GT Gateway,
AND
ALLMAN SPRY LEGGETT & CRUMPLER, P.A.,
as Escrow Agent
Dated as of February 11, 2005
HIGHWOODS: | HIGHWOODS REALTY LIMITED PARTNERSHIP, | |||
a North Carolina limited partnership | ||||
By: | Highwoods Properties, Inc., a Maryland | |||
Corporation, its Sole General Partner | ||||
By: |
/s/ Mack D. Pridgen III |
|||
Name: | Mack D. Pridgen III | |||
Title: | Vice President |
The undersigned, Escrow Agent herein, executes this Agreement for the purpose of agreeing to the provisions set forth in this Agreement relating to Escrow Agent and the Binder Deposit.
ESCROW AGENT | Allman Spry Leggett & Crumpler, P.A. | |||
By: |
/s/ Thomas T. Crumpler |
|||
Name: | Thomas T. Crumpler |
Exhibit 10.14
AGREEMENT
By and Among
WINSTON-SALEM INDUSTRIAL, LLC
A Delaware Limited Liability Company
and
HIGHWOODS REALTY LIMITED PARTNERSHIP,
A North Carolina Limited Partnership
and
G-T GATEWAY, LLC,
A North Carolina Limited Liability Company
and
Allman Spry Leggett & Crumpler, P.A.
as Escrow Agent
TABLE OF CONTENTS
Page
|
||
SALE AND PURCHASE OF MEMBERSHIP INTEREST |
3 | |
PURCHASE PRICE |
3 | |
Binder Deposit and Escrow Agents Duties and Rights |
3 | |
ACTIONS PENDING CLOSING |
6 | |
Survey and Plans |
6 | |
Initial Delivery of Documentation |
7 | |
Access to the Property |
7 | |
Matters of Title |
7 | |
Environmental Assessments |
7 | |
Investigation Rights |
8 | |
Termination Rights: Review Period |
9 | |
Highwoods Removal of Property From Market |
9 | |
ADDITIONAL AGREEMENTS OF THE PARTIES |
9 | |
Title to the Property |
9 | |
Permitted Exceptions |
10 | |
Representations and Warranties of Highwoods |
11 | |
Representations and Warranties of G-T Gateway |
19 | |
Maintenance of the Property |
21 | |
Risk of Loss; Damage or Destruction; Condemnation |
21 | |
No Transfer of Personal Property |
22 | |
Compliance With Legal Requirements |
22 | |
Delivery of Notices |
23 | |
Indemnifications |
23 | |
CONDITIONS PRECEDENT TO CLOSING |
24 | |
G-T Gateways Conditions |
24 | |
Highwoods Conditions. |
27 | |
CLOSING |
28 | |
Date |
28 | |
Highwoods Closing Documents |
28 | |
G-T Gateways Closing Documents |
29 | |
Closing Costs |
29 | |
Closing Adjustments |
29 | |
Taxes |
30 | |
Utilities |
30 | |
Rents |
30 | |
Calculations |
32 | |
Prepaids |
32 | |
Service Agreement Payments |
32 | |
Settlement After Closing |
32 | |
Leasing Commissions |
33 | |
Tenant Improvements |
33 | |
Equitable Adjustments |
34 | |
DEFAULT AND REMEDIES |
34 | |
OTHER PROVISIONS |
34 |
i
Counterparts |
34 | |
Entire Agreement |
34 | |
Construction |
34 | |
Applicable Law |
35 | |
Severability |
35 | |
Waiver of Covenants, Conditions and Remedies |
35 | |
Exhibits |
35 | |
Amendment |
35 | |
Relationship of Parties |
35 | |
Assignment |
35 | |
Further Acts |
36 | |
No Recording; Actions to Clear Title |
36 | |
Broker Commissions |
36 | |
Notices |
36 | |
Press Releases |
37 | |
Definition of Agreement Date |
37 | |
Survival of the Agreement |
38 | |
Exhibit A - Property Description |
||
Exhibit B - Personal Property |
||
Exhibit B-1 - Excluded Personal Property |
||
Exhibit C - Leases |
||
Exhibit C-1 - Service Maintenance Contracts |
||
Exhibit D Permitted Exceptions |
||
Exhibit E Tenant Estoppel Certificate |
||
Exhibit F Assignment of Membership Interest |
||
Exhibit G - Form of Assignment of Leases |
ii
STATE OF NORTH CAROLINA
AGREEMENT
COUNTY OF FORSYTH
THIS AGREEMENT (this Agreement) is made and entered into as of the 28 th day of January, 2005, by and among WINSTON-SALEM INDUSTRIAL, LLC, a Delaware limited liability company (WSI), HIGHWOODS REALTY LIMITED PARTNERSHIP, a North Carolina Limited Partnership (Highwoods), G-T GATEWAY, LLC , a North Carolina Limited Liability Company (G-T Gateway) and Allman Spry Leggett & Crumpler, P.A. (Escrow Agent).
WITNESSETH :
WHEREAS, WSI is, or will be at the closing contemplated hereby, the sole member of Winston-Salem Industrial II, LLC, a North Carolina limited liability company (hereinafter WSI, II) and WSI desires to sell to G-T Gateway, and G-T Gateway desires to purchase from WSI, one hundred percent (100%) of the membership interest owned by WSI in WSI, II (the Membership Interest).
WHEREAS, as of the date hereof, WSI is the sole owner of the following property, which shall be conveyed to WSI, II prior to the closing contemplated hereby:
(a) a fee simple interest in that tract containing approximately59.181 acres of land and being described on Exhibit A (attached hereto and incorporated herein by reference), together with all right-of-ways and easements appurtenant thereto (said tract being commonly known as 531 Northridge Park Drive, Rural Hall, North Carolina and being hereinafter referred to as the Land).
(b) all right, title and interest in and to all rights, privileges, and easements appurtenant to the Land, including all water rights, rights-of-way, roadways, parking areas, roadbeds, alleyways and reversions or other appurtenances used in connection with the beneficial use of the Land.
(c) all improvements, buildings, structures, related amenities and fixtures located on the Land and owned by WSI including, without limitation, that warehouse building containing approximately 598,058 square feet and that office building containing approximately 91,808 square feet (collectively referred to as the Building), any and all other buildings, structures and amenities currently located on the Land, all fixtures, apparatus, equipment, vaults, machinery and built-in appliances used in connection with the operation and occupancy of the Land such as heating and air conditioning systems, electrical systems, plumbing systems, sprinkler and other fire protection and life safety systems, refrigeration, ventilation, or other facilities or services on the Land (all of which are together hereinafter called the Improvements).
1
(d) Except as hereinafter set forth, all personal property to be described on Exhibit B located on or in or used exclusively in connection with the Land and Improvements and owned by WSI and used or usable in the operation of the Property (as defined below) including, without limitation, fittings, appliances, shades, furniture, furnishings, and other furnishings or items of personal property used or usable in connection with the Buildings HVAC systems, but excluding all personal property located on the Land or in the Building owned by the tenant thereof or contractors who provide service to the Building or is not otherwise owned by WSI (hereinafter called the Personal Property).
(e) That lease of the Building set forth on Exhibit C (the Lease), prepaid rent, security deposits, contract rights, escrow deposits, utility agreements, guaranties, warranties, zoning rights or other rights related to the ownership of or use and operation of the Property (as defined below), and interest in certain service contracts related to the Property. A list of the service, maintenance and/or management contracts affecting or relating to the Property (the Service Contracts), and all guaranties and warranties relating to the Property which are assignable together with a description of all pertinent terms and provisions of such Service Contracts, guaranties and warranties shall be set forth in Exhibit C-1 and attached hereto prior to Closing. All Service Contracts that are not assumed by G-T Gateway shall be terminated at or before Closing.
All of the items of property described in (a), (b), (c), (d) and (e) above are hereinafter collectively called the Property.
It is hereby acknowledged by G-T Gateway that WSI does not intend that G-T Gateway receive the benefit of any cash, claims relating to any real property tax refunds or rebates for periods occurring prior to Closing (as hereinafter defined), existing insurance claims and any existing claims against the tenant or former tenants of the Property related to claims or causes of actions which arise prior to the date of Closing, which cash and claims shall be assigned to Highwoods by WSI and/or WSI, II prior to Closing. It is furthermore, acknowledged by G-T Gateway that WSI does not intend that G-T Gateway receive any benefit in or right to use the trade style name Highwoods Properties and derivations thereof and any other trademarks used in connection therewith which rights shall be assigned to Highwoods by WSI prior to Closing.
WHEREAS, WSI and G-T Gateway desire to enter into this Agreement to incorporate all prior negotiations and dealings of the parties with respect to the transaction contemplated hereby.
WHEREAS, Highwoods is the sole owner of WSI and will benefit from this Agreement and is entering into this Agreement for the sole purpose of making those representations and warranties as set forth in Section 4(c) of this Agreement and agreeing to be bound by the indemnification provisions set forth in Section 4(j) of this Agreement, which provisions are a material inducement to G-T Gateways execution of this Agreement.
2
NOW, THEREFORE, in consideration of the mutual covenants and conditions contained herein, the payment of earnest money, and other good and valuable consideration, receipt of which is hereby acknowledged by WSI, G-T Gateway and Highwoods, the parties hereto agree as follows:
1. SALE AND PURCHASE OF MEMBERSHIP INTEREST.
Subject to the terms and conditions of this Agreement, WSI agrees to sell, assign and deliver the Membership Interest to G-T Gateway and G-T Gateway agrees to purchase the Membership Interest from WSI.
2. PURCHASE PRICE.
Subject to the terms and conditions of this Agreement, the total purchase price to be paid by Buyer to Seller for the Membership Interest shall be the sum of Eighteen Million Six Hundred Fifty-Six Thousand Three Hundred Twenty-Five and No/100 Dollars ($18,656,325.00) (the Purchase Price). The Purchase Price, as adjusted by all prorations as provided for herein, shall be paid to Seller by Buyer at the Closing, by wire transfer of immediately available federal funds, of which the Binder Deposit shall constitute a part, subject to prorations and adjustments at Closing.
(a) Binder Deposit and Escrow Agents Duties and Rights . Within five (5) business days after the full execution of this Agreement, G-T Gateway shall pay and deliver to the Escrow Agent in United States currency the sum of Sixty Thousand and No/100 Dollars ($60,000.00) as a binder deposit (such amount, together with all interest earned thereon, being referred to herein as the Binder Deposit). Escrow Agent shall hold the Binder Deposit in trust for the mutual benefit of the parties, subject to the following terms and conditions:
(i) Escrow Agent shall deposit the Binder Deposit in an interest bearing account in an institution as directed by G-T Gateway, and reasonably acceptable to WSI, in Winston-Salem, North Carolina. The Binder Deposit, plus all accrued interest thereon, shall be returned to G-T Gateway at the Closing of this transaction. Otherwise, the Binder Deposit shall be delivered by Escrow Agent to WSI or refunded by Escrow Agent to G-T Gateway in accordance with the terms of this Agreement.
(ii) In the event the transaction contemplated by this Agreement is not closed solely because of any default on the part of WSI, or if any of the conditions precedent set forth in Section 5 fail to be satisfied at Closing, or if G-T Gateway terminates its obligations as allowed herein pursuant to any other provision of this Agreement, then the Escrow Agent shall pay to G-T Gateway the Binder Deposit, including interest which has accrued thereon (except, if G-T Gateway terminates this Agreement pursuant to Section 3(g) below, One Hundred Dollars ($100.00) of the Binder Deposit shall be paid to WSI pursuant to Section 3(g) below). To allow the interest bearing account to be opened, G-T Gateways and WSIs tax identification numbers are set forth below their signatures at the end of this Agreement. Escrow Agent is executing this Agreement to acknowledge Escrow
3
Agents responsibilities hereunder, which may be modified only by a written amendment signed by all of the parties. No such amendment shall be binding on the Escrow Agent unless it has been signed by the Escrow Agent. Escrow Agent shall accept the Binder Deposit with the understanding of the parties that Escrow Agent is not a party to the Agreement except to the extent of its specific responsibilities hereunder; and does not assume or have any liability for the performance or non-performances of WSI or G-T Gateway hereunder to either of them.
(iii) In the event the transaction contemplated by this Agreement is not closed solely because of any default on the part of G-T Gateway, then the Escrow Agent shall pay to WSI the Binder Deposit including interest which has accrued thereon, and, except for G-T Gateways Continuing Indemnification Obligations (as defined in Section 3(f) below), such payment shall be G-T Gateways only liability to WSI as the result of such breach and shall be considered liquidated damages, as WSIs actual damages as a result of G-T Gateways breach of its obligations hereunder shall be difficult, if not impossible, to ascertain.
(iv) Within two (2) days after execution of this Agreement, G-T Gateway, Highwoods and WSI shall deposit a copy of this Agreement executed by them with Escrow Agent, and, upon receipt of the Binder Deposit from G-T Gateway, Escrow Agent shall immediately execute this agreement where provided below. This Agreement, together with such further instructions, if any, as the parties shall provide to Escrow Agent by written agreement, shall constitute the escrow instructions. If any requirements relating to the duties or obligations of Escrow Agent hereunder are not acceptable to Escrow Agent, or if Escrow Agent requires additional instructions, the parties hereto agree to make such deletions, substitutions and additions hereto as counsel for WSI, G-T Gateway and Highwoods shall mutually approve, which additional instructions shall not substantially alter the terms of this Agreement unless otherwise expressly agreed to by WSI, G-T Gateway and Highwoods.
(v) Escrow Agent shall hold the Binder Deposit in accordance with the terms and provisions of this Agreement, subject to the following:
(A) Escrow Agents duties hereunder shall be limited to investing, administering and disbursing the Binder Deposit, and Escrow Agent shall have no additional duties or responsibilities hereunder (in its role as Escrow Agent) in connection with the Closing. Escrow Agent undertakes to perform only such duties as are expressly set forth in this Agreement and no implied duties or obligations shall be read into this Agreement against Escrow Agent.
(B) Escrow Agent may act in reliance upon any writing or instrument or signature which it, in good faith, believes of any statement or assertion contained in such writing or instrument, and may assume that
4
any person purporting to give any writing, notice, advice or instrument in connection with the provisions of this Agreement has been duly authorized to do so. Escrow Agent shall not be liable in any manner for the sufficiency or correctness as to form, manner and execution, or validity of any instrument deposited in escrow, nor as to the identity, authority, or right of any person executing the same, and Escrow Agents duties under this Agreement shall be limited to those provided in this Agreement.
(C) Unless Escrow Agent discharges any of its duties under this Agreement in a negligent manner or is guilty of willful misconduct with regard to its duties under this Agreement, WSI and G-T Gateway shall indemnify Escrow Agent and hold it harmless from any and all claims, liabilities, losses, actions, suits or proceedings at law or in equity which it may incur or with which it may be threatened by reason of its acting as Escrow Agent under this Agreement; and in such connection WSI and G-T Gateway shall indemnify Escrow Agent against any and all expenses including reasonable attorneys fees and the cost of defending any action, suit or proceeding or resisting any claim in such capacity.
(D) If the parties (including Escrow Agent) shall be in disagreement about the interpretation of this Agreement, or about their respective rights and obligations, or the propriety of any action contemplated by Escrow Agent, Escrow Agent may, but shall not be required to, file an action in interpleader to resolve the disagreement. Escrow Agent shall be indemnified for all costs and reasonable attorneys fees in its capacity as Escrow Agent in connection with any such interpleader action and shall be fully protected in suspending all or part of its activities under this Agreement until a final judgment in the interpleader action is received.
(E) Escrow Agent may consult with counsel of its own choice and have full and complete authorization and protection in accordance with the opinion of such counsel. Escrow Agent shall otherwise not be liable for any mistakes of fact or errors of judgment, or for any acts or omissions of any kind, unless caused by its negligence or willful misconduct.
(F) The Escrow Agent may in its sole discretion resign by giving thirty (30) days written notice thereof to G-T Gateway and WSI. G-T Gateway and WSI shall furnish to the Escrow Agent written instructions for the release of the escrow funds and escrow documents in such event. If the Escrow Agent shall not have received such written instructions, the Escrow Agent may petition any court of competent jurisdiction for the appointment of a successor Escrow Agent, and upon such appointment deliver the escrow funds and escrow documents to such successor.
5
(G) If costs and expenses (including attorneys fees) are incurred by Escrow Agent because of litigation of any dispute between WSI and G-T Gateway arising out of the holding of the Binder Deposit, the non-prevailing party ( i.e. , either WSI or G-T Gateway) shall reimburse Escrow Agent for such reasonable costs and expenses incurred. WSI and G-T Gateway hereby agree and acknowledge that Escrow Agent assumes no liability in connection with the holding or investment of the Binder Deposit pursuant hereto, except for the negligence or willful misconduct of Escrow Agent and its employees and agents. Escrow Agent shall not be responsible for the validity, correctness or genuineness of any document or notice referred to herein; and, in the event of any dispute under this Agreement relating to the disposition of the Binder Deposit, Escrow Agent may seek advice from its own counsel and shall be fully protected in any action taken in good faith in accordance with the opinion of Escrow Agents counsel.
(H) Escrow Agents address for purpose of mailing or delivering documents and notices hereunder is as follows:
Allman Spry Leggett & Crumpler, P.A.
380 Knollwood Street, Suite 700
Winston-Salem, NC 27103-4152
Attention: Thomas T. Crumpler, Esquire
Telephone: (336) 722-2300
Telecopier: (336) 721-0414
Provisions with respect to notices set forth herein shall apply with respect to notices given by or to Escrow Agent hereunder.
3. ACTIONS PENDING CLOSING .
(a) Survey and Plans . G-T Gateway may cause to be secured and delivered to G-T Gateway prior to the end of the Review Period (as defined in Section 3(g) below) a current physical and boundary survey (the Survey) of the Land and Improvements prepared by a North Carolina registered land surveyor or licensed engineer which shall be certified to G-T Gateway which shall contain such documentation and certifications as the Title Company (as defined in Section 4[a]) may require. G-T Gateway agrees to pay for the cost of the Survey. In the event the Survey reveals anything which materially or adversely affects the Property in the sole reasonable discretion of G-T Gateway, G-T Gateway shall give notice to WSI of those matters objected to by G-T Gateway in the Survey prior to the last day of the Review Period. WSI shall then have the right, but not the obligation, for a period of ten (10) business days to cure any defects or objectionable matters specified by G-T Gateway. In the event that WSI fails or is unwilling to cure such defects to the reasonable satisfaction of G-T Gateways counsel at WSIs sole cost and expense, G-T Gateway may proceed to a Closing subject to the defect, or by written notice to WSI, terminate this Agreement and receive a refund of the Binder Deposit, or otherwise allow this Agreement to expire.
6
(b) Initial Delivery of Documentation . At the time of the execution of this Agreement or within five (5) business days thereafter, Highwoods or WSI shall provide to G-T Gateway the following: (i) a list of all the Personal Property which shall be attached hereto as Exhibit B , (ii) true, correct and complete copies of all service, maintenance, utility and other contracts related to the Property, including any warranties or guaranties, a list of which shall be attached hereto as Exhibit C-1 , (iii) all title information related to the Land in Highwoods or WSIs possession or available to Highwoods or WSI including but not limited to, title insurance policies, attorneys opinions on title and existing surveys, (iv) all environmental, engineering or similar reports and drawing/specifications relating to the Land, Building or Improvements in Highwoods or WSIs possession, (v) a true, correct and complete copy of the Lease and any amendments or guaranties of such Lease, (vi) all income and expense records related to the Property for the year 2003 and 2004; and (vii) a current rent roll of the Building. To the knowledge of WSI, the information to be delivered to G-T Gateway pursuant to this subsection is true and correct in every material respect.
(c) Access to the Property . Subject to Section 3(f) of this Agreement, WSI shall give G-T Gateway and its agents, engineers and other representatives, reasonable access to the Property.
(d) Matters of Title . If any objection to the Title Report (as defined in Section 4[a] hereof) or the Survey (or existing survey(s), if applicable) is identified by G-T Gateway, WSI shall use its commercially reasonable efforts to resolve such objection to G-T Gateways satisfaction provided the cost of such resolution does not exceed Twenty-Fifty Thousand and No/100 Dollars ($25,000). In the event that WSI cannot or refuses to cure an objection to the Title Report or the Survey (or existing survey[s]) which remains unacceptable to G-T Gateway, then and in that event, G-T Gateway may terminate this Agreement without any further claim or obligation of any kind to WSI, except for G-T Gateways Continuing Indemnification Obligation (as defined in Section 3(f) below) or in the alternative, consummate the Closing in accordance with the terms of Section 5(a) below.
(e) Environmental Assessments . Prior to Closing, G-T Gateway at its sole expense, and upon reasonable notice to WSI, may cause to be undertaken and completed a current Phase I Environmental Site Assessment of the Land (the Environmental Assessment). The Environmental Assessment shall be performed by environmental inspection and engineering firms selected by G-T Gateway. G-T Gateway shall determine from the Environmental Assessment and from such other information available to G-T Gateway, in its sole discretion, whether or not the Property is likely to be contaminated by hazardous or toxic waste, substances or materials (including but not limited to, asbestos, PCBs or petroleum products) as defined under any applicable federal, state or local laws, statutes, orders, rules, regulations, permits or approvals. In the event that contamination or any other adverse environmental condition is found to likely exist at the Property, or in the event that such Environmental Assessment recommends additional testing and WSI refuses to consent to such testing (which consent may be withheld by WSI in its sole discretion), G-T Gateway reserves the right to terminate this
7
Agreement and receive a refund of the Binder Deposit. If WSI withholds its consent for G-T Gateway to do additional environmental testing of the Land, and G-T Gateway terminates this Agreement as the result thereof, WSI will pay to G-T Gateway its due diligence costs reasonably incurred during the Review Period, and any fees forfeited by G-T Gateway to its lender as the result of G-T Gateways termination of this Agreement as the result of WSI refusal to allow G-T Gateway to conduct further environmental tests of the Land. WSI has no obligation to G-T Gateway to remediate any environmental contamination on the Land discovered by G-T Gateway or G-T Gateways engineers. As stated above, G-T Gateway will not conduct a Phase II Environmental Assessment of the Property without WSIs written consent, which consent may be withheld in WSIs sole discretion
(f) Investigation Rights . From the Agreement Date until such time as this Agreement is either settled or terminated, G-T Gateway, G-T Gateways authorized agents, employees, consultants, architects, engineers and contractors, as well as others authorized by G-T Gateway, shall have access to the Property and shall be entitled to enter upon the Property and make such surveying, architectural, engineering, topographical, geological, soil, subsurface, environmental, water drainage, traffic, and other studies related to the availability of water, sewer, natural gas, and other utility services in sufficient quantities to meet G-T Gateways requirements and such other investigations, inspections, evaluations, studies, tests and measurements (collectively, the Investigations) as G-T Gateway deems necessary or advisable. Provided, however, G-T Gateways rights hereunder to conduct Investigations shall be subject to the following requirements and limitations: (i) any entry upon the Property by G-T Gateway, G-T Gateway s authorized agents and employees, as well as others authorized by G-T Gateway shall require at least twenty-four (24) hours advance notice to WSI of the date and time of the entry and the specific Investigations to be conducted in connection with the entry, (ii) the Investigations shall not result in any adverse change to the physical characteristics of the Property (and G-T Gateway shall be obligated to completely repair and restore any damage to the Property resulting from the Investigations), and (iii) the Investigations will not substantially or adversely interfere with the rights of the tenant in the Building to use and enjoy its leased space therein according to its Lease thereof. G-T Gateway agrees to indemnify and hold WSI harmless from and against any and all claims, costs, expenses, and liabilities, including reasonable attorneys fees, arising out of claims for injury, including death, to persons or physical injury to property resulting from the Investigations (hereinafter the G-T Gateways Continuing Indemnification Obligations); provided, however, G-T Gateway shall not be obligated to indemnify WSI from and against any claims, costs, expenses, and liabilities caused by or arising out of the acts or omissions of WSI or WSIs employees, representatives or agents, or from the presence or release of Hazardous Substances (as defined in Section 4(c) herein) not introduced onto the Property by G-T Gateway or G-T Gateways authorized agents and employees or other entities conducting the Investigations. WSI shall be entitled to have one or more representatives present to observe the Investigations on the Property. G-T Gateway shall not be entitled to conduct any environmental Investigations on the Property beyond a Phase I environmental site assessment ( i.e. no sampling, drilling, etc.) without first obtaining WSIs prior written consent, which consent may be withheld by WSI, in WSIs sole discretion. Notwithstanding any term or provision herein to the contrary, the provisions in this Agreement [including in this Section 3(f)] relating to the Investigations shall apply to all Investigations conducted by G-T Gateway and G-T Gateways authorized agents, employees, consultants, architects, engineers and contractors both prior to the Agreement Date and from and after the Agreement Date.
8
G-T Gateway will remain responsible and liable to WSI for the Continuing Indemnification Obligations and the full amount of actual damages suffered by WSI resulting from G-T Gateways Investigations after the completion of the Closing hereunder, the termination of this Agreement by G-T Gateway or WSI or a default by G-T Gateway under this Agreement.
(g) Termination Rights: Review Period . G-T Gateway shall have the unqualified right, in G-T Gateways sole and absolute discretion, to terminate this Agreement by giving written notice of such election at any time from the Agreement Date until 5:00 p.m. Eastern Standard time on January 30, 2005 (30 th ) (such period of time until January 30, 2005 being referred to herein as the Review Period). In the event G-T Gateway properly and timely terminates this Agreement pursuant to this Section 3(g); Escrow Agent shall promptly refund all but One Hundred and No/100 Dollars ($100) of the Binder Deposit to G-T Gateway (such $100 payment to WSI being the consideration paid by G-T Gateway for the right to terminate this Agreement pursuant to this Section 3(g)), whereupon the parties hereto shall have no further rights, obligation or liabilities to each other hereunder, except for G-T Gateways Continuing Indemnification Obligations. Time is of the essence with respect to this right to terminate. The failure of G-T Gateway to provide such notice of termination prior to the expiration of the Review Period shall be deemed conclusively a waiver of G-T Gateways termination rights under this Section 3(g); and in such event, except in the case of a default by WSI hereunder (which shall be governed by the terms of Section 7 herein) or failure of any condition precedent to G-T Gateways obligation to close, and except in the event of the termination of this Agreement by either party pursuant to any specific termination right set forth herein which requires the return of the Binder Deposit to G-T Gateway, the Binder Deposit shall be deemed for all purposes under this Agreement to be nonrefundable to G-T Gateway and earned by WSI.
(h) WSIs Removal of Property From Market . Until the end of the Review Period, or earlier termination of this Agreement, WSI shall remove the Property and Membership Interest from the market and not have discussions with prospective purchasers thereof, and will not solicit or accept any offers, whether or not binding, regarding the Property or the Membership Interest during the Review Period and thereafter until the Closing of the transaction contemplated hereby occurs or until the earlier termination of this Agreement.
4. ADDITIONAL AGREEMENTS OF THE PARTIES .
(a) Title to the Property . At the Closing, title to the Land shall be insurable both as to fee and marketability at regular rates by Chicago Title Insurance Company (the Title Company), subject only to those matters enumerated in Section 4(b)(i)-(vi) below (Permitted Exceptions). Prior to the end of the Review Period, G-T Gateway shall procure from HPI Title Agency, LLC at G-T Gateways cost, a current title commitment for title insurance issued by the Title Company showing the condition of title to the Land, its appurtenances and Improvements (the Title Report). If, prior to the end of the Review Period, G-T Gateway disapproves of any matter of title contained in the Title Report, G-T Gateway may then elect to provide written
9
notice of G-T Gateways disapproval of the same to WSI (those disapproved title matters as so identified by G-T Gateway are hereinafter called the Disapproved Exceptions). WSI agrees to commit its commercially reasonable efforts to remove any Disapproved Exception, provided the cost thereof does not exceed Twenty-Five Thousand and No/100 Dollars ($25,000). However, in the event that as provided in Section 3(a) above, G-T Gateway proceeds to and consummates the Closing subject to a Disapproved Exception, such Disapproved Exception shall then be deemed to be a Permitted Exception. Any expenses incurred in obtaining such title insurance commitment (including, without limitation, those incurred by an attorney in conducting the necessary title search) shall be borne by G-T Gateway. The title insurance premium for the title insurance policy issued by the Title Company pursuant to the title commitment (the Title Policy) shall be borne by G-T Gateway. The Title Policy shall provide full coverage against mechanics or materialmens liens, shall commit full survey coverage (if G-T Gateway procures a Survey of the Land) and such other coverages and endorsements as shall be reasonably required by G-T Gateway. If G-T Gateway requests any endorsements to the Title Policy, G-T Gateway will be responsible for the cost attributable thereto.
G-T Gateway may, at or prior to Closing, notify WSI in writing (the Gap Notice) of any objections to title raised by G-T Gateways Counsel or the Title Company between the issuance of the Title Report and the Closing, which did not exist as of the date of the issuance of the Title Report (New Encumbrances). If G-T Gateway sends a Gap Notice to WSI, but the New Encumbrance is the result of some act that is beyond the control of WSI, then G-T Gateway and WSI shall have the same rights and obligations with respect to such notice as apply to a Disapproved Exception under Sections 4(a) and 4(b) hereof. However, in the event the New Encumbrance results from any action or omission of WSI (with the exception of New Encumbrances which can be cured by a monetary payment which G-T Gateway has, and shall have, the absolute right of making such payment and reducing the Purchase Price by a like amount), G-T Gateway shall be entitled to terminate this Agreement, receive a refund of the Binder Deposit, and reimbursement from WSI of the costs, fees and expenses incurred by G-T Gateway related to this Agreement and the Property.
(b) Permitted Exceptions . At the Closing, the Land, its appurtenances and the Improvements shall be owned by WSI, II free and clear of all liens, encumbrances, claims, rights-of-way, easements, leases, restrictions and restrictive covenants, except the following Permitted Exceptions:
(i) Public utility easements and rights-of-way in customary form, so long as no Improvements are located thereon and they do not interfere with the use of the Property for office, warehouse and related commercial purposes permitted by the Lease or materially affect the value of the Property;
(ii) Zoning and building laws or ordinances, provided they do not prohibit the use of the Property for office, warehouse and related commercial purposes permitted by the Lease and so long as the Property is in compliance with same;
10
(iii) Ad valorem real estate taxes for any year in which they are not yet due and payable as of the date of Closing; and
(iv) Those matters which G-T Gateway has elected to accept;
(v) Items shown on the Survey and not objected to by G-T Gateway or waived by G-T Gateway in accordance with Section 3(a) hereof.
(vi) Those Permitted Exceptions listed on Exhibit D , so long as they to not interfere with the use of the Property for office, warehouse and related commercial purposes permitted by the Lease or materially affect the value of the Property.
If, in the opinion of G-T Gateways counsel, G-T Gateway is not able to procure an owners title insurance commitment from the Title Company prior to Closing, complying with the requirements of this Section 4, G-T Gateway shall have the option of purchasing the Membership Interest with WSI, IIs title to the Land being in its as is condition, and consummating the Closing, or terminating this Agreement. Notwithstanding any other provision contained herein to the contrary, if the title defect(s) which may include, without limitation, a Disapproved Exception, is a mortgage, lien, judgment, assessment, unpaid taxes or tax which can be cured by a monetary payment (and with respect to which affirmative title insurance coverage is not available at the Title Companys standard rates) G-T Gateway has, and shall have, the absolute right of making such payment and reducing the Purchase Price by a like amount.
(c) Representations and Warranties of Highwoods and WSI . Highwoods and WSI hereby make the following representations and warranties to G-T Gateway:
(i) There are no options to purchase the Property or the Membership Interest which are effective, nor has WSI previously entered into any contract of sale of the Property or the Membership Interest with a party other than G-T Gateway which is presently effective. After the date hereof and until Closing, or until this Agreement is otherwise terminated, WSI will not (and will not allow WSI, II to) enter into any agreement or contract or negotiate with any party other than G-T Gateway with respect to the sale of the Property or the Membership Interest, nor, will WSI (nor will WSI allow WSI, II to) pledge or assign any right, title, interest in or to the Property or the Membership Interest or any part thereof to any person or entity.
(ii) All bills and claims for labor performed and services and materials furnished to or for the benefit of the Property have been or will be paid in full by Closing, and there are no mechanics liens or materialmens liens on or affecting the Property. If any mechanics or materialmens lien is filed on or affecting the Property for work, labor or materials, Highwoods and WSI shall indemnify and save G-T Gateway harmless from, or bond over, such lien and cause the Title Company to eliminate any exception therefor from the Title Policy.
11
(iii) As of the date of the Agreement, except as otherwise set forth on Exhibit C , there are no leases, subleases, licenses or other rental agreements or occupancy agreements (written or verbal) which grant any possessory interest in and to any space situated on or in any of the Property or that otherwise give rights with regard to use of any portions of any of the Property and except as set forth on Exhibit C-1 , there are no commissions due with respect to any such lease, sublease, etc., nor, except as set forth on Exhibit C-1 , will any commissions be due in connection with the renewal of any such lease, sublease, etc.
(iv) Except as set forth on Exhibit C-1 , neither WSI, nor to the knowledge of WSI, any other party, has entered into any construction, design, engineering, service, maintenance, supply, brokerage/leasing agreements, employment agreements, management contracts or leases of personal property (collectively, Service/Equipment Contracts) affecting the construction, use, ownership, maintenance or/or operation of the Property that will continue subsequent to the Closing. Prior to or on the date of Closing, WSI shall terminate, at WSIs sole cost and expense, all Service/Equipment Contracts which G-T Gateway does not elect to assume in writing; or, if not terminable by the date of Closing, shall remain responsible for and will timely perform all of the obligations thereunder. To Highwoods and WSIs knowledge, WSI is not in material default under any of the Service/Equipment Contracts and, to Highwoods and WSIs knowledge, no other parties to any of the Service/Equipment Contracts are in default, nor do any conditions exist that, with the passage of time, or giving of notice, or both, shall constitute a default thereunder. The copies of the Service/Equipment Contracts provided to G-T Gateway pursuant to this Agreement are true, accurate and complete as of the date hereof, are in full force and effect and none of them have been modified, amended or extended except as otherwise set forth on Exhibit C-1 .
(v) To the knowledge of Highwoods and WSI, which knowledge is based solely on that Phase I Environmental Site Assessment of the Land dated September 25, 2002, conducted by Trigon Engineering Consultants, Inc. (The Environmental Report), the Property has not been used for the generation, treatment, storage or disposal of any hazardous substances in violation of any federal, state or local environmental law, rule or violation during the period in which WSI has owned the property. For the purposes of this Section 4(c)(v), hazardous substances shall include (i) hazardous substances as defined in the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, 42 U.S.C. § 9601 et seq ., as amended, or by any regulations promulgated thereunder; (ii) any hazardous waste, underground storage tanks, petroleum, regulated substance, or used oil as defined by the Resource Conservation and Recovery Act of 1976 (42 U.S.C. § 6901 et. seq .), as amended or by any regulations promulgated thereunder; (iii) any oil or other hazardous substances as defined by the Oil and Hazardous Substances Control Act of 1986 as amended, and any regulations adopted pursuant to said Act, or any similar environmental protection law of the state in which the Property is located or its
12
political subdivisions. To the knowledge of Highwoods and WSI, which knowledge is based solely on the Environmental Report, no asbestos or asbestos-containing materials have been installed, used, incorporated into or disposed of on the Property. To the knowledge of Highwoods and WSI, which knowledge is based solely on the Environmental Report, no polychlorinated biphenyls (PCBs) are located on or in the Property, whether such PCBs are in the form of electrical transformers, florescent light fixtures with ballast, cooling oils or any other device or form. To the knowledge of Highwoods and WSI, which knowledge is based solely on the Environmental Report, except as set forth in the Environmental Report, no underground storage tanks are located on the Property or were located on the Property and subsequently removed or filled. To the knowledge of Highwoods and WSI, but without having made any independent investigation, no investigation, administrative order, consent order and agreement, litigation, or settlement with respect to hazardous substances is proposed, threatened, anticipated or in existence with respect to the Property.
(vi) Neither the entering into of this Agreement nor the consummation of the transaction contemplated hereby will constitute or result in a violation or breach by WSI of any judgment, order, writ, injunction or decree issued against or imposed upon it, or will result in a violation of any applicable law, order, rule or regulation of any governmental authority. There are no actions, suits, proceedings, arbitrations or investigations pending or, to Highwoods and WSIs knowledge, threatened (i) against, relating to or affecting WSI which might interfere in a material respect with the transaction contemplated by this Agreement, become an encumbrance on the title to the Property or the Membership Interest, or any portion thereof or otherwise affect the Property or the Membership Interest, or WSIs ability to consummate the transaction contemplated hereby or (ii) against, relating to or affecting the Property or the Membership Interest.
(vii) Neither Highwoods, WSI nor WSI, II has received notice:
(A) From any federal, state, county or municipal authority alleging any fire, health, safety, building, pollution, environmental, zoning or other violation of law in respect of the Property or any part thereof, including, without limitation, the occupancy or operation thereof, which has not been entirely corrected;
(B) Concerning the possible or anticipated condemnation of any part of the Property, or the widening, change of grade or limitation on use of streets abutting the same or concerning any special taxes or assessments levied or to be levied against the Property or any part thereof;
(C) Concerning any change in the zoning or other land use classification of the Property or any part thereof;
13
(D) Of any pending insurance claim related to the Property;
(E) From any governmental authority that any licenses, permits, certificates, easements and rights of way, including proof of dedication, required from all authorities having jurisdiction over the Property or from private parties for the existing use, occupancy and operation of the Property and to insure vehicular and pedestrian ingress to and egress from the Property are in violation of any governmental laws or regulations, which has not been corrected or will not be corrected by Closing.
(viii) No attachment, execution, assignment for the benefit of creditors or voluntary proceedings in bankruptcy has been commenced by WSI or WSI, II, or are contemplated by WSI or WSI, II, and, to the best of Highwoods or WSIs knowledge, no such action has been contemplated or threatened, nor has any involuntary proceedings in bankruptcy been commenced against WSI or WSI, II.
(ix) WSI has full power and authority to enter into this Agreement and to assume and perform all of its obligations hereunder; the execution and delivery of this Agreement and the consummation of the transactions contemplated hereunder on the part of WSI do not and will not violate the Articles of Organization or Operating Agreement of WSI and do not and will not conflict with or result in the breach of any condition or provision of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon the Property by reason of the terms of any contract, mortgage, lien, lease, agreement, indenture, instrument or judgment to which WSI is a party or which is or purports to be binding upon WSI or which affects WSI; and no action by any federal, state or municipal or other governmental department, commission, board, bureau or instrumentality is necessary to make this Agreement a valid instrument binding upon WSI in accordance with its terms;
(x) WSI is a limited liability company duly organized, validly existing and in good standing under the laws of the State of North Carolina. WSI has full power and authority to carry on its business as now conducted and to own, lease and operate its properties and assets now owned or leased and operated by it;
(xi) WSI is not a foreign person within the meaning of Section 1445(f) of the Internal Revenue Code, and WSI agrees to execute any and all documents necessary or required by the Internal Revenue Service or G-T Gateway in connection with such declaration(s).
(xii) Subject to Highwoods general partners board of directors approval of this transaction, this Agreement does and will, and the documents required to be executed by WSI pursuant to this Agreement will, constitute the valid and binding obligations of WSI enforceable in accordance with their respective terms subject to bankruptcy, receivership and similar laws affecting the rights of creditors generally.
14
(xiii) Notwithstanding anything else herein to the contrary, Highwoods and WSI represent to G-T Gateway that the Building is leased to the tenant and for the lease term set forth on the rent roll attached hereto as Exhibit C and that the Property is subject to those service and maintenance contracts set forth on Exhibit C-1 attached to this Agreement. With respect to such Lease, WSI represents as follows:
(A) Neither WSI nor WSI, II has collected any prepaid rent in advance in excess of rent for the month during which the Closing is to occur.
(B) No rents or leases related to the Property have been assigned by WSI or WSI, II.
(C) The Lease is in full force and effect, has been validly executed by the landlord and tenant, and has not been amended or modified as to any items except as set forth in the Rent Roll;
(D) The summary of the Lease set forth in Exhibit C is accurate in all material respects and, there are no subleases thereof;
(E) The Lease will be free and clear of all liens and encumbrances on the date of the Closing contemplated hereby;
(F) Neither WSI nor WSI, II has taken any action, by act or omission, which constitutes the waiver of a default by the tenant under the Lease, except as herein specifically provided;
(G) WSI and/or WSI, II have fulfilled all of the landlords duties and obligations under the Lease including the completion of all upfittings, construction, decoration and alteration work which WSI and/or WSI, II is obligated to perform under the Lease.
(H) WSI and/or WSI, II has fulfilled all of the landlords duties and obligations under the Lease with respect to any leasing commissions or other compensation due arising out of any leasing, agency, brokerage or management agreements relating to the Lease which may be due and owing as of the date of Closing.
(G) To Highwoods and WSIs knowledge, WSI, WSI, II and the tenant under the Lease are not in default under any of the terms and provisions of said Lease, and neither Highwoods, WSI nor WSI, II has received any notice of an alleged default in connection with the Lease;
15
(J) There are no other rent concessions or set-offs against rent, nor has the tenant under the Lease asserted any defense, set-off, or counterclaim in connection with said Leases.
(xiv) With respect to Services/Equipment Contracts:
(A) There are no contracts or agreements for services rendered in connection with the operation of the Property which G-T Gateway shall be required to take the Property subject to, except as agreed to by G-T Gateway and expressly assumed under the terms of the Assignment of Contracts.
(B) WSI and WSI, II shall not, without G-T Gateways consent, negotiate or enter into any new service or other contract affecting the Property which cannot be terminated without cost to G-T Gateway on or before the Closing.
(xv) With respect to WSI and/or WSI, II:
(A) WSI, II is, or at Closing will be, and WSI is, a duly formed and validly existing limited liability company in good standing under the laws of the State of North Carolina.
(B) WSI and WSI, II will not have engaged in any business activity other than the ownership of the Property from the time of its organization.
(C) There is no pending, and Highwoods and WSI have no knowledge of any threatened legal action or proceeding to which WSI or WSI, II is or might become a party.
(D) WSI, II has had and, as of the Date of Closing, WSI, II will have, fee title to the Land free and clear of all liens and encumbrances other than the Permitted Title Exceptions.
(E) WSI owns, or at Closing will own, all of the Membership Interest in WSI, II, free and clear of all liens and encumbrances whatsoever, and possesses all requisite authority to assign the same to G-T Gateway. There has been no prior assignment of such Membership Interest.
(F) WSI has taken, or will take, the tax reporting position for federal income tax purposes that WSI, II is a pass-through entity. Highwoods has not filed any election to treat WSI or WSI, II as a corporation for federal income tax purposes.
16
(G) WSI and WSI, II have not incurred any liabilities, except for (i) their obligations under the Lease, (ii) their obligations under their organizational documents, and (iii) obligations arising under any matter appearing of record against any Property. Neither WSI nor WSI, II own any assets, except relating to the ownership of their interest in the Property.
(H) No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any governmental authority is required on the part of the WSI, II in connection with the consummation of the transactions contemplated by this Agreement
(I) Neither WSI nor WSI, II is in violation or default (i) of any provisions of their articles of organization or operating agreement, if any, (ii) of any order, (iii) under any note, indenture or mortgage, or (iv) under any contract or, to the knowledge of Highwoods and WSI, of any provision of law applicable to WSIs or WSI, IIs business or assets. The execution, delivery and performance of and compliance with this Agreement, and the consummation of the transactions contemplated hereby and thereby will not result in any such violation or default or be in conflict with or constitute, with or without the passage of time and giving of notice, either a default under any such provision, note, indenture or mortgage, order or contract or an event which results in the creation of any lien upon any of the assets of WSI, II or the suspension, revocation, impairment, forfeiture, or nonrenewal of any material permit applicable to WSI, II, its business or operations or any of its assets.
(J) The articles of organization and operating agreement of WSI, II, if any, are in the forms provided to G-T Gateway. WSI, II has no minute book and has had no member meetings.
(K) WSI, II does not have, and at no time has had any income, expenses, bank accounts or operations whatsoever, nor does WSI or Highwoods contemplate or project that WSI, II will have any income, expenses, bank accounts or operations in the future.
(L) WSI, II has no employees.
(M) WSI, II has not had and will not have any obligation to file any tax returns.
(N) WSI, II is not a party to any contracts and has no commitments except as landlord under the Lease.
17
All representations and warranties of Highwoods and WSI contained in this Agreement are true, accurate and correct in all material respects as of the date hereof and, if Highwoods and WSI believesuch representations and warranties continue to be true at Closing, Highwoods and WSI shall deliver to G-T Gateway at Closing a certificate certifying that they are still true, accurate and correct in all material respects as of the date of Closing. Notwithstanding the foregoing, G-T Gateway shall have no claim against Highwoods or WSI for any representation or warranty which, although true upon the execution hereof, is untrue or inaccurate at Closing as a result of facts, circumstances or occurrences beyond the control of or not within the knowledge of Highwoods or WSI. For purposes of this Agreement and any document delivered at Closing, whenever the phrases to the best of Highwoods or WSIs knowledge, to the current, actual knowledge of Highwoods or WSI or the knowledge of Highwoods or WSI or words of similar import are used, they shall be deemed to refer to the current, actual, conscious knowledge without inquiry of Mark W. Shumaker, Vice President and Sue Matthews, Property Manager. The representations and warranties of Highwoods and WSI shall survive the Closing for one (1) year.
Subject to G-T Gateways rights of inspection and investigation during the Review Period, G-T Gateway acknowledges for G-T Gateway and G-T Gateways successors, and assignees, that G-T Gateway has been given a reasonable opportunity to inspect and investigate the Property, all improvements thereon and all aspects relating thereto, including all documents and contracts related to the Property, either independently or through agents and experts of G-T Gateways choosing. EXCEPT AS LIMITED BELOW OR AS OTHERWISE SET FORTH IN THIS AGREEMENT, G-T GATEWAY AGREES THAT G-T GATEWAY SHALL ACCEPT POSSESSION OF THE PROPERTY ON THE DATE OF CLOSING IN ITS AS IS, WHERE IS CONDITION, WITH ALL FAULTS WITH NO RIGHT OF SET-OFF OR REDUCTION IN THE PURCHASE PRICE, AND EXCEPT AS EXPRESSLY SET FORTH HEREIN THAT THE CONVEYANCE OF THE MEMBERSHIP INTEREST TO G-T GATEWAY SHALL BE WITHOUT REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, WARRANTY OF INCOME WHICH MAY BE EARNED FROM THE PROPERTY IN THE FUTURE, FUTURE OPERATING EXPENSES OF THE PROPERTY, THE PROPERTYS USES, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, AND HIGHWOODS AND WSI DO HEREBY DISCLAIM AND RENOUNCE ANY SUCH REPRESENTATION OR WARRANTY. EXCEPT FOR HIGHWOODS AND WSI REPRESENTATIONS WHICH ARE EXPRESSLY SET FORTH HEREIN, G-T GATEWAY SPECIFICALLY ACKNOWLEDGES THAT G-T GATEWAY IS NOT RELYING ON ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND WHATSOEVER, EXPRESS OR IMPLIED, FROM HIGHWOODS, WSI OR BROKERS AS TO THE FOLLOWING MATTERS: (1) THE CONDITION OR SAFETY OF THE PROPERTY OR ANY SEWER, HEATING AND ELECTRICAL SYSTEMS, ROOFING, AIR CONDITIONING, IF ANY, FOUNDATIONS, SOILS AND GEOLOGY INCLUDING SUITABILITY OF THE PROPERTY OR ITS IMPROVEMENTS FOR A PARTICULAR PURPOSE; (2) WHETHER THE APPLIANCES, IF ANY, PLUMBING OR UTILITIES ARE IN WORKING ORDER; (3) THE HABITABILITY OR SUITABILITY FOR OCCUPANCY OF ANY STRUCTURE AND THE QUALITY OF ITS CONSTRUCTION; (4) THE FITNESS OF ANY PERSONAL PROPERTY; OR (5) WHETHER THE BUILDING IS STRUCTURALLY SOUND, IN GOOD CONDITION, OR IN COMPLIANCE WITH THE
18
APPLICABLE CITY, COUNTY, STATE OR FEDERAL STATUTES, CODES OR ORDINANCES. EXCEPT FOR HIGHWOODS AND WSI REPRESENTATIONS EXPRESSLY SET FORTH HEREIN G-T GATEWAY IS RELYING SOLELY UPON ITS OWN INSPECTION OF THE PROPERTY WITH REGARD TO THE ABOVE-REFERENCED MATTERS, AND NOT UPON ANY REPRESENTATIONS MADE BY HIGHWOODS, WSI OR HIGHWOODS OR WSI AGENTS RELATED TO THE ABOVE-REFERENCED MATTERS.
(d) Representations and Warranties of G-T Gateway . G-T Gateway hereby represents and warrants to WSI as of the date hereof and as of Closing as follows:
(i) The execution and delivery of this Agreement and the documents required hereunder to be executed by it will on the date of Closing have been, duly executed and delivered by G-T Gateway. To the current, actual knowledge of G-T Gateway, none of the foregoing requires any action by or in respect of, or filing with, any governmental body, agency or official or contravenes or constitutes a default under any provision of applicable law or regulation, any organizational document of G-T Gateway or any agreement, judgment, injunction, order, decree or other instrument binding upon G-T Gateway. This Agreement does and will, and the documents required to be executed by it will, constitute the valid and binding obligations of G-T Gateway enforceable in accordance with their respective terms, subject to bankruptcy and similar laws affecting the remedies or resources of creditors generally.
(ii) The execution and delivery of this Agreement and the performance by G-T Gateway of its obligations hereunder do not and will not conflict with or result in the breach of any condition or provision of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon any of the property or assets of G-T Gateway (including the Property) by reason of the terms of any contract, mortgage, lien, lease, agreement, indenture, instrument or judgment to which G-T Gateway is a party or which is or purports to be binding upon G-T Gateway or which affects G-T Gateway.
(iii) No attachment, execution, assignment for the benefit of creditors or voluntary proceedings in bankruptcy has been commenced by G-T Gateway and, to the best of G-T Gateways knowledge, no such action has been contemplated or threatened, nor has any involuntary proceedings in bankruptcy been commenced against G-T Gateway.
(iv) G-T Gateway acknowledges that all information with respect to the Property furnished to G-T Gateway or discovered by G-T Gateway during its investigation thereof pursuant to Section 3 of this Agreement (collectively, the Confidential Information), is and has been so furnished, and G-T Gateways investigation of the Property has been permitted by WSI, on the condition that G-T Gateway maintains the confidentiality thereof. Accordingly, G-T Gateway shall, and shall cause its members, officers, and employees, and with regard to
19
any environmental matters, its agents, contractors and representatives to, hold in strict confidence, and not disclose to any other person or entity without the prior written consent of WSI until the Closing shall have been consummated, any of the Confidential Information in respect of the Property. If the Closing does not occur and this Agreement is terminated, G-T Gateway shall promptly return, or cause to be returned, to WSI all copies of such Confidential Information without retaining, or permitting retention of, any copy thereof. Notwithstanding anything to the contrary hereinabove set forth, G-T Gateway may disclose such Confidential Information (i) to its officers, employees, and partners, its title insurer, its current or prospective investors or lenders, and members of professional firms serving it in connection with this transaction, including, without limitation, its attorneys, architects, environmental consultants and engineers, bankers, and its clients; (ii) as any governmental agency or authority may require in order to comply with applicable laws or regulations; and (iii) if required by an order of any court of competent jurisdiction; and this provision shall survive Closing, provided, however, after the Closing, this provision shall not apply to information available through the public records as a result of such Closing.
(v) G-T Gateway has full power and authority to enter into this Agreement and to assume and perform all of its obligations hereunder; the execution and delivery of this Agreement and the performance by G-T Gateway of its obligations hereunder have been duly authorized by such limited liability company action as may be required and no further action or approval is required in order to constitute this Agreement as a binding and enforceable obligation of G-T Gateway; the execution and delivery of this Agreement and the consummation of the transactions contemplated hereunder on the part of G-T Gateway do not and will not violate the operating agreement or articles of organization of G-T Gateway; and no action by any federal, state or municipal or other governmental department, commission, board, bureau or instrumentality is necessary to make this Agreement a valid instrument binding upon G-T Gateway in accordance with its terms.
(vi) To the current, actual knowledge of G-T Gateway, there is no existing or threatened legal action or governmental proceedings of any kind involving G-T Gateway, any of its assets or the operation of any of the foregoing, which if determined adversely to G-T Gateway or its assets, would have a material adverse effect on the financial condition, business or prospects of G-T Gateway or its assets or which would interfere with G-T Gateways ability to execute or deliver, or perform its obligations under this Agreement or any of the documents required to be executed by it.
(vii) G-T Gateway has no current, actual knowledge of any existing violation of any federal, state, county or municipal law, ordinance, order, code, regulation or requirements affecting G-T Gateway or any of its assets that would have a material adverse effect on the financial condition, business or prospects of G-T Gateway or any of its assets.
20
(viii) G-T Gateway has no current, actual knowledge of any information or fact which has, or would have, a material adverse affect on the financial condition, business or prospects of G-T Gateway or its assets in a manner which would prevent G-T Gateway from consummating the transaction contemplated by this Agreement.
(ix) G-T Gateway is, and at all times prior to the date of Closing will be, solvent. As used herein, solvent means that G-T Gateway (i) does not have debts greater than the fair market value of its assets; (ii) is paying and anticipates that it will continue to pay its debts as they mature and become due; and (iii) has sufficient capital to operate its businesses as they are operated on the date of this Agreement.
(x) G-T Gateway carries, or is covered by, and will maintain, insurance in such amounts and covering such risks as is adequate for the conduct of its business and the value of its properties and assets and as is customary for companies engaged in similar businesses in similar markets, including, without limitation, all risks casualty insurance, flood insurance (when necessary), general commercial liability insurance and business interruption insurance. .
(xi) For purposes of this Agreement and any document delivered at Closing, whenever the phrases to the best of G-T Gateways knowledge, to the current, actual knowledge of G-T Gateway or the knowledge of G-T Gateway or words of similar import are used, they shall be deemed to refer to the current, actual, conscious knowledge without inquiry of John L. Turner, Sr., Manager of G-T Gateway, such individual being the representative of G-T Gateway whom G-T Gateway has determined as likely to have the knowledge required of such phrases.
(e) Maintenance of the Property . Between the date of this Agreement and the Closing, Highwoods shall cause WSI and/or WSI, II to continue to maintain the Property in the same condition and repair as currently being maintained, ordinary wear and tear and damage by casualty excepted, and WSI and/or WSI, II shall not cause or permit any waste upon the Property and shall not, except as set forth above with respect to ordinary wear and tear and casualty damage without the prior written consent of G-T Gateway, permit any material physical change to the Property prior to Closing. Neither WSI nor WSI, II, shall take any action which would adversely affect the value of or title to the Property or the Membership Interest, and they will not amend, modify or terminate the Lease without the written consent of G-T Gateway.
(f) Risk of Loss; Damage or Destruction; Condemnation . If, prior to Closing, the Property or any part thereof shall be condemned, or destroyed or materially damaged by fire or other casualty (that is, damage or destruction to the Building which G-T Gateway reasonably believes would cost in excess of Two Hundred Thousand and No/100 Dollars ($200,000) to repair or would entitle the tenant under the Lease to terminate the Lease, or, in the case of a condemnation, which substantially prevents access to the Property or any part thereof), G-T
21
Gateway shall have the option which shall be exercised not later than the later of (i) five (5) days prior to Closing or (ii) ten (10) business days following the date G-T Gateway receives written notice of the condemnation or damage (with Closing being extended, if necessary, to accommodate such time periods) either to (a) to terminate this Agreement, or (b) to consummate the transaction contemplated by this Agreement notwithstanding such condemnation, destruction or material damage. If G-T Gateway elects to consummate the transaction contemplated by this Agreement notwithstanding a casualty or condemnation, G-T Gateway shall be entitled to receive all of the condemnation proceeds or settle the loss under all policies of insurance applicable to the destruction or damage and receive all of the proceeds of insurance applicable thereto, and WSI shall, at Closing and thereafter, execute and deliver to G-T Gateway all required proofs of loss, assignments of claims and other similar items, and G-T Gateway shall receive a credit at Closing for the amount of any deductible under WSIs insurance policies. If G-T Gateway or WSI elect to terminate this Agreement as a result of a casualty or condemnation, the Earnest Money plus any interest earned thereon shall be returned to G-T Gateway by the Escrow Agent, in which event this Agreement shall, without further action of the parties, become null and void and neither party shall have any rights or obligations under this Agreement, except for G-T Gateways Continuing Indemnification Obligations. If there is any other damage or destruction to the Building (that is, damage or destruction to the Building which G-T Gateway reasonably believes would cost Two Hundred Thousand and No/100 Dollars ($200,000) or less to repair), or if there is a condemnation which does not substantially prevent access to the Land or any part thereof, or if the damage or destruction of the Building or condemnation would not entitle the tenant under the Lease to terminate the Lease, G-T Gateway shall not have the right to terminate this Agreement and (i) in the event of a casualty, Highwoods shall cause WSI or WSI, II to either completely repair such damage to the Building prior to Closing in a manner satisfactory to G-T Gateway or, at Highwoods option, either cause WSI or WSI, II (as appropriate) to assign all insurance claims pertaining to such damage or destruction to G-T Gateway at Closing, with G-T Gateway to receive a credit for the amount of any deductible under WSIs or WSI, IIs insurance policies, or allow G-T Gateway a credit against the Purchase Price in an amount equal to G-T Gateways reasonably estimated cost of repair and (ii) in the event of a condemnation, Highwoods shall cause WSI or WSI, II (as appropriate) to assign to G-T Gateway all of WSIs or WSI, IIs right to any condemnation proceeds to be paid by the applicable governmental authority.
(g) No Transfer of Personal Property . Highwoods agrees not to allow WSI or WSI, II to transfer or remove any Personal Property from the Property after the Agreement Date except for repair or replacement thereof. Any items of personal property replaced after the Agreement Date shall be promptly installed prior to Closing and shall be of substantially similar quality to the item of personal property being replaced.
(h) Compliance With Legal Requirements . All notices of violations of laws, ordinances, or regulations (Violations of Law), which are issued or sent to Highwoods, WSI, and/or WSI, II prior to the Closing related to the Property by any governmental department, agency or bureau having jurisdiction over the conditions relating to such Violations of Law may (but is not required to) be remedied or complied with by Highwoods, WSI, and/or WSI, II prior to Closing; provided, however, if any notices of Violations of Law are issued or sent to Highwoods, WSI, and/or WSI, II by any governmental department, agency or bureau having
22
jurisdiction over the conditions related to such Violations of Law after the end of the Review Period that Highwoods, WSI, and/or WSI, II is unable or unwilling to remedy or cure, or comply with such notices by the Closing then G-T Gateway shall have the option to (a) terminate this Agreement, whereupon all obligations of all parties hereto shall cease, the Binder Deposit shall be returned to G-T Gateway and this Agreement shall be void and without recourse to the parties hereto, except for provisions which are expressly stated to survive such termination including G-T Gateways Continuing Indemnification Obligations; or (b) proceed with Closing notwithstanding such Violations of Law and obtain an adjustment to the Purchase Price as reasonably determined by G-T Gateway and WSI. If Highwoods, WSI, and/or WSI, II receive any notices of Violations of Law prior to the end of the Review Period which Highwoods, WSI, and/or WSI, II is unable or unwilling to remedy or cure, G-T Gateways only remedy shall be to terminate this Agreement and receive a refund of the Binder Deposit or proceed with Closing not withstanding such Violations of Law and obtain an adjustment to the Purchase Price as reasonably determined by G-T Gateway and WSI.
(i) Delivery of Notices . Highwoods shall cause WSI and/or WSI, II to promptly deliver to G-T Gateway prior to Closing copies of all notices, correspondence and reports generated or received by Highwoods, WSI, and/or WSI, II in connection with the Lease.
(j) Indemnifications . Highwoods and WSI agree that as between Highwoods, WSI and G-T Gateway, Highwoods and WSI shall, for a period of one year after the closing of this transaction, be liable for all liabilities, loss, cost and/or damage (including attorney fees) which are asserted as claims by third parties and which relate to the Property, but only if such claims arise out of acts or omissions of Highwoods, WSI, or WSI, II, their agents or employees, which occurred prior to Closing. The claims by third parties for loss or damage for which Highwoods and WSI shall be responsible as set forth in this Section 4(j) are hereinafter referred to as Claims Against G-T Gateway. In this regard, Highwoods and WSI agree to indemnify and hold harmless G-T Gateway from and against all loss and damage (including costs and attorney fees) incurred by G-T Gateway as a result of Claims Against G-T Gateway.
G-T Gateway agrees that as between Highwoods, WSI and G-T Gateway, from and after the Closing, G-T Gateway shall be liable for all liabilities, loss, cost and/or damage (including attorney fees) which are asserted as claims by third parties which relate to the Property, but only if such claims arise out of acts or omissions of G-T Gateway, its agents or employees occurring after Closing. The claims by third parties for loss or damage for which G-T Gateway shall be responsible as set forth in this Section 4(j) are hereinafter referred to as Claims Against Highwoods and WSI. In this regard, G-T Gateway agrees to indemnify and hold harmless Highwoods and WSI from and against all loss and damage (including costs and attorney fees) incurred by the Highwoods or WSI, as the result of Claims Against Highwoods or WSI.
Any party entitled to indemnification under this Section 4(j) (the Indemnified Party) shall, within ten (10) days after the receipt of notice of the assertion or imposition of any claim (but in no event later than ten (10) days prior to the date any response or answer is due in any proceeding) in respect of which indemnity may be sought from the party against whom an indemnity obligation is asserted pursuant to this Section 4(j) (the Indemnifying Party), shall
23
notify the Indemnifying Party in writing of the receipt of existence of such claim. The failure of the Indemnified Party to notify the Indemnifying Party shall not relieve it from any liability in respect of such claim which it may have to the Indemnified Party as the result of this Section 4(j), except, however, the Indemnifying Party shall be relieved of liability to the extent that the failure to so notify (a) shall have caused prejudice to the defense of such claim, or (b) shall have increased the costs or liability of the Indemnifying Party by reason of the inability or failure of the Indemnifying Party (because of the lack of prompt notice from the Indemnified Party) to be involved in any investigations or negotiations regarding any such claim, nor shall it relieve the Indemnifying Party from any other liability which it may have to the Indemnified Party. In case any such claim shall be asserted or commenced against an Indemnified Party and it shall notify the Indemnifying Party thereof, the Indemnifying Party shall assume the defense thereof with legal counsel reasonably satisfactory to the Indemnified Party, and, after the defense thereof, the Indemnifying Party will not be liable to the Indemnified Party hereunder for any legal or other expenses subsequently incurred by the Indemnified Party in connection with the defense thereof other than reasonable costs of investigation. In the event that the Indemnifying Party does not assume the defense, or arrange settlement of any claim, the Indemnified Party may settle such claim without the written consent of the Indemnifying Party.
5. CONDITIONS PRECEDENT TO CLOSING .
(a) G-T Gateways Conditions . The obligation of G-T Gateway to complete the transaction contemplated by this Agreement is subject to the satisfaction on or before the Closing of the following conditions, any of which may be waived in whole or in part by G-T Gateway, but only in writing at or prior to Closing:
(i) All representations and warranties of Highwoods and WSI in this Agreement shall be true and correct in all material respects as of the Date of Closing, with the same force and effect as if such representations and warranties were made anew as of the Date of Closing. Any changes to such representations disclosed by Highwoods and WSI in writing prior to Closing shall be subject to the provisions of Section 5(a)(ii) below. Highwoods, WSI, and/or WSI, II, as the case may be, shall have performed and complied in all material respects with all covenants and agreements required by this Agreement to be performed or complied with by Highwoods and WSI prior to the Date of Closing.
(ii) In the event that G-T Gateway becomes aware at any time prior to Closing that a representation or warranty made by Highwoods and WSI herein, while true as of the date made, no longer remains true in all material respects, due to a change of circumstances beyond the reasonable control of Highwoods and WSI subsequent to the date of this Agreement, G-T Gateway shall promptly give written notice of such fact to Highwoods and WSI. In the event Highwoods and WSI is unable or unwilling to remedy such change of circumstances by the Closing, then G-T Gateway shall have the option to (a) terminate this Agreement, whereupon all obligations of all parties hereto shall cease (except for G-T Gateways Continuing Indemnification Obligations) and the Binder Deposit shall be returned to G-T Gateway; or (b) proceed with Closing notwithstanding such
24
change of circumstances; provided, however, that if Highwoods and WSI intentionally caused such representation or warranty to become untrue, G-T Gateway shall have the right to proceed with Closing and decrease the amount of the Purchase Price by the amount necessary to remedy such breach or terminate this Agreement and Highwoods and WSI shall reimburse G-T Gateway for G-T Gateways out-of-pocket expenses incurred in negotiating this Agreement and conducting its review of the Property and preparation for Closing (including, without limitation, reasonable attorneys fees, title examination, environmental assessment and survey and loan fees forfeited to G-T Gateways lender as the result of the closing failing to occur because Highwoods or WSI intentionally caused a representation or warranty made by it herein to be untrue at Closing).
(iii) All of WSIs, and/or WSI, IIs obligations hereunder shall have been performed with regard to the Property.
(iv) WSI, II must have good and marketable fee simple title to the Property, free and clear of all liens, encumbrances, covenants and conditions, save and except the Permitted Exceptions, and the Building or other improvements on the Property shall not encroach upon any land adjoining the Property, except for encroachments of asphalt paving over utility easements, and WSI must have good title to the Membership Interest free and clear of all liens, encumbrances, covenants and conditions.
(v) WSI and WSI, II shall not have caused any New Encumbrances to be placed on the Property between the date of this Agreement and the date of Closing, except with the approval of G-T Gateway which approval shall not be unreasonably withheld or delayed and WSI or WSI, II shall have the obligation to remove all such New Encumbrances (not approved as aforesaid by G-T Gateway) by the date of Closing.
(vi) The Property will be free and clear of any and all taxes or assessments and any penalties associated therewith, except ad valorem taxes for the year of Closing, which will be prorated on a calendar year basis.
(vii) The Property shall be in substantially the same condition on the date of Closing as of the date hereof subject, however, to normal wear and tear only, provided, in the event the Property is not in the condition described above prior to Closing as the result of a casualty to the Building, the provisions of Section 4(f) of this Agreement shall apply.
(viii) No order, writ, injunction or decree shall have been entered and be in effect by any court of competent jurisdiction or any governmental authority, and no statute, rule, regulation or other requirement shall have been promulgated or enacted and be in effect, that restrains, enjoins or invalidates the transactions contemplated hereby.
25
(ix) No suit or other proceeding shall be pending or threatened by any third party not affiliated with or acting at the request of WSI before any court or authority seeking to restrain or prohibit or declare illegal, or seeking substantial damages against WSI or WSI, II in connection with the transactions contemplated by this Agreement.
(x) WSI shall make all reasonable efforts to obtain and provide to G-T Gateway five (5) days prior to Closing a tenant estoppel certificate in the form attached hereto as Exhibit E (the Tenant Estoppel Certificate) from the tenant of the Building. To the extent WSI has not delivered the Tenant Estoppel Certificate at Closing, and if G-T Gateways lender, General Electric Capital Assurance Company, will accept an estoppel certificate from Highwoods (as defined in 6(a)(xii) below, Highwoods may (but has no obligation to) execute an estoppel certificate (certifying the same matters set forth in the Tenant Estoppel Certificate submitted to the tenant of the Building). Highwoods will agree to indemnify G-T Gateway (and G-T Gateways lender) from loss or damage incurred by G-T Gateway resulting from the inaccuracy of any matter contained in the estoppel certificate executed by Highwoods. In the event Highwoods provides an estoppel certificate pursuant to the terms of this Section, Highwoods may, after Closing, substitute a Tenant Estoppel Certificate therefor, and thereafter, Highwoods shall be relieved from any liability to G-T Gateway (and G-T Gateways lender) with respect to any Highwoods estoppel certificate substituted by the Tenant Estoppel Certificate. Provided WSI makes a reasonable effort to obtain the Estoppel Certificate, and if G-T Gateways lender will not accept a Highwoods estoppel certificate, WSI failure to so provide the Estoppel Certificate to G-T Gateway shall not be deemed a default by WSI under this Agreement and G-T Gateway may (a) elect to delay Closing for a reasonable period of time to enable WSI to obtain and deliver the Estoppel Certificate or (b) terminate this Agreement and receive a refund of the Binder Deposit, or (c) close this transaction without the Estoppel Certificate.
(xi) On or before the date of Closing, WSI shall have provided to G-T Gateway and G-T Gateways lender a subordination, non-disturbance and attornment agreement (SNDA) in a form acceptable to G-T Gateways lender (as defined in 6(a)(xii) below) executed by the Tenant of the Building. Provided WSI makes a reasonable effort to obtain the Estoppel Certificate, and if G-T Gateways lender will not accept a WSIs estoppel certificate, WSIs failure to so provide the Estoppel Certificate to G-T Gateway shall not be deemed a default by WSI under this Agreement. In the event WSI fails to deliver the SNDA to G-T Gateway and/or its lender as required above, G-T Gateway may (a) elect to delay Closing for a reasonable period of time to enable WSI to obtain and deliver the SNDA or (b) terminate this Agreement and receive a refund of the Binder Deposit, or (c) close this transaction without the SNDA.
(xii) General Electric Capital Assurance Company must have closed the loan with G-T Gateway pursuant to the loan application by G-T Gateway with GE Asset Management Incorporated, dated December 22, 2004, providing G-T Gateway with loan proceeds of not less than $18,750,000.
26
(xiii) On the date of Closing, The tenant of the Building shall not be a party to any voluntary or involuntary bankruptcy proceeding filed pursuant to the United States Bankruptcy Code, or any state receivership or state insolvency proceeding.
(xiv) The Lease shall not have been modified, amended or terminated without the written consent of G-T Gateway.
If any of the foregoing conditions in this Section 5 for the benefit of G-T Gateway shall fail to be satisfied within the time period set forth for each condition, G-T Gateway may, at its election: (i) terminate its obligations to purchase the Membership Interest; (ii) waive such condition and complete the transaction contemplated hereby without any reduction in the Purchase Price, except as provided in Section 5(a)(ii); or (iii) require WSI to perform its obligations hereunder, if any, with regard to the Property or the Building and WSIs failure to perform such obligations, if any, shall be a default hereunder.
(b) WSIs Conditions. The obligations of WSI under this Agreement are subject to the satisfaction of each of the following conditions on or before the Date of Closing, any of which may be waived by WSI, and G-T Gateway agrees to cause the conditions described in clauses (ii) and (iii) below to be so satisfied:
(i) This transaction must have been approved by Highwoods general partners board of directors at its January meeting (anticipated to be January 25, 2005). Highwoods shall submit this Agreement to its general partners board of directors at its January meeting.
(ii) All the terms, covenants, and conditions of this Agreement to be complied with and performed by G-T Gateway on or before the Date of Closing shall have been duly complied with and performed in all respects; and
The representations and warranties of G-T Gateway contained in this Agreement shall be true and correct in all respects at and as of the Date of Closing with the same force and effect as though such representations and warranties had been made as of the Date of Closing, except for any changes which have been disclosed to WSI in writing and expressly approved or waived by WSI in writing.
(iv) Simultaneously with the Closing of the transaction contemplated by this Agreement, John L. Turner, Sr. and Robert Goldman must have closed the transaction contemplated by that Agreement between Highwoods and John L. Turner, Sr. and Robert Goldman of even date herewith for the distribution to them of that property known as 3928 Westpoint Boulevard.
27
6. CLOSING .
(a) Date . The Closing of the transaction contemplated hereby shall occur on or before January 31, 2005, at the offices of G-T Gateways attorney in Winston-Salem, North Carolina, or such other place as may be mutually agreed upon by WSI and G-T Gateway, or, at G-T Gateways option, closed in escrow at the office of the Title Company, provided, G-T Gateway shall give WSI at least five (5) business days notice of the date of any Closing to take place under this Agreement. Notwithstanding the above, G-T Gateway may delay closing until February 28, 2005 in the sole discretion of G-T Gateway, by paying to the Escrow Agent as an additional binder deposit the sum of Sixty Thousand and No/100 ($60,000.00) (which shall be considered and treated as the Binder Deposit pursuant to Section 2(a) hereof) in which event this transaction will close on such date pursuant to the provisions of this paragraph.
(b) WSIs Closing Documents . At the Closing, WSI shall deliver to G-T Gateway or its designated agent the following, each of which shall be properly executed and acknowledged, if applicable:
(i) An assignment of the Membership Interest in the form attached hereto as Exhibit F ;
(ii) An assignment of the Lease in the form set forth on Exhibit G ;
(iii) An assignment of all tenant security deposits held by Highwoods, WSI, or WSI, II under the terms of the Lease;
(iv) A standard owners affidavit and lien waiver form used by the Title Company to cause an extended coverage ALTA owners title insurance policy to be issued to G-T Gateway without standard exceptions to mechanics and/or materialman liens;
(v) A certificate of Highwoods and WSI as to the warranties and representations referred to in Section 4(c) hereof being true and correct as of the Date of Closing;
(vi) An affidavit as to foreign persons referred to in Section 4(c)(xxiii) hereof;
(vii) A blanket assignment and transfer of any and all miscellaneous interests and to the extent assignable all warranties and guarantees from contractors, subcontractors, suppliers, manufacturers or distributors relating to the Property, if any, (excluding Service Contracts) and all of WSIs, or WSI, IIs right, title, interest and benefits in, to and under all contracts, licenses, permits and similar documents or authorizations pertaining to the ownership and operation of the Property, if any, including the trade name of the Property;
28
(viii) A letter, approved by G-T Gateway and WSI, from WSI to the tenant of the Building advising the tenant of the transfer of the Property to G-T Gateway and that all future payments under the Lease are to be paid to G-T Gateway;
(ix) An assignment of any Service Contracts to be assumed by G-T Gateway at Closing, if any;
(x) The Tenant Estoppel Certificate (or Highwoods Estoppel Certificate if applicable) and the SNDA;
(xi) All permits, warranties, plans and specifications, and documents, instruments, files and records related to the Property and in the possession or control of Highwoods, WSI, and WSI, II;
(xii) The original executed Lease;
(xiii) The keys to any door or lock on the Building, and the original tenant files in possession of Highwoods, WSI, or WSI, II; and
(xiv) Such other matters as either G-T Gateway or WSI shall reasonably require or shall be anticipated by the terms hereof.
(c) G-T Gateways Closing Documents . At Closing, G-T Gateway shall execute and deliver to WSI such documents and papers which may be necessary for the consummation of the transaction described in this Agreement, as may be reasonably requested by WSI or WSIs counsel, including the execution of an assignment of leases in the form set forth on Exhibit G , and an assignment of any Service Contracts to be assumed by G-T Gateway at Closing, if any.
Simultaneously with, or promptly following, the Closing hereunder the parties hereto shall execute such other and additional documents and assurances and perform such other acts as shall be reasonably required in order to carry out the intent and purposes of this Agreement.
(d) Closing Costs . WSI shall pay its attorneys fees and shall pay all costs required to clear title to the Property, provided WSI shall not be required to expend more than Twenty-Five Thousand and No/100 Dollars ($25,000) in connection with such efforts. G-T Gateway shall be responsible for paying the cost of the title insurance premium charged by the Title Company in connection with the issuance of the Title Policy, its attorneys fees, all engineering reports procured by G-T Gateway in connection with its due diligence and any cost associated with G-T Gateways financing of the Property, if any, and Survey costs.
(e) Closing Adjustments . Unless otherwise specified in this Agreement, all income, expenses and costs related to the Property shall be prorated as of 11:59 p.m. Eastern Standard Time on the date immediately preceding the Date of Closing as follows, with any credits or debits to WSI as the result of such adjustments being added to or subtracted from the Purchase Price.
29
(i) Taxes. To the extent not paid by Tenant under the Lease, ad valorem property taxes, personal property taxes and special assessments, if any, due or to be levied against the Property (the Taxes) for the year of Closing shall be prorated with WSI being responsible for all such Taxes from January 1st of the year of Closing through the last day prior to the day of Closing. G-T Gateway shall be responsible for paying the balance of the remaining Taxes due or to be levied against the Property for the year of Closing. WSI shall be responsible for paying any unpaid Taxes for any year prior to Closing. In the event the Taxes are not determinable at the time of Closing, the Taxes shall be prorated on the basis of the best available information (the Estimated Taxes ). If the Taxes are not paid at Closing, WSI shall cause WSI, II to deliver to G-T Gateway the bills for the Taxes promptly upon receipt thereof and G-T Gateway shall thereupon be responsible for the payment in full of the Taxes within the time fixed for payment thereof and before the same shall become delinquent. Notwithstanding the foregoing, in the event actual Taxes for the year of Closing exceed the Estimated Taxes for the year of Closing (the Tax Excess ) or Estimated Taxes for the year of Closing exceed the actual Taxes for year of Closing (the Tax Refund ), WSI and G-T Gateway shall prorate and pay such Tax Excess or such Tax Refund as follows:
(A) WSI shall be responsible for a portion of the Tax Excess or shall receive credit for the Tax Refund prorated from January 1st of the year of Closing through the last day before the Date of Closing based upon a 365-day calendar year. The amount of the Tax Excess or the Tax Refund shall be determined when the property tax bills are received by G-T Gateway, and G-T Gateway shall notify WSI within thirty (30) days thereof of the calculation of the amount due to G-T Gateway from WSI in the case of a Tax Excess or the amount due to WSI from G-T Gateway in the case of a Tax Refund. WSI shall have thirty (30) days from WSIs receipt of such notification to pay its portion of the Tax Excess to G-T Gateway and G-T Gateway shall have thirty (30) days from G-T Gateways receipt of the property tax bills to pay WSI its portion of the Tax Refund.
(ii) Utilities . To the extent not paid by Tenant under the Lease, all utility charges and reimbursement for utility charges for the Property (including, without limitation, telephone, water, storm and sanitary sewer, electricity, gas, garbage and waste removal), to the extent not payable by the tenant under the Lease, shall be prorated. Transfer fees required with respect to any such utility shall be paid by G-T Gateway prior to Closing.
(iii) Rents . All paid rents, including revenues and charges of any kind, together with any other sums paid by the tenant (other than security deposit),
30
under the Lease, shall be prorated as of the Date of Closing. In the event that, at the time of Closing, there are any past due or delinquent rents owing by the tenant of the Property, G-T Gateway shall have the exclusive right to collect such past due or delinquent rents and shall remit to WSI in cash to the extent, and only to the extent, that the rents received by G-T Gateway from the tenant owing past due or delinquent rents exceed the sum of the aggregate rents and other sums payable by such tenant for periods from and after the Date of Closing to the date of receipt, and then only if WSI has notified G-T Gateway at Closing that the tenant under the Lease is delinquent in its rent as of the Date of Closing. G-T Gateway will make a commercially reasonable good faith effort to collect after Closing any rents which are delinquent and owing to WSI at Closing, but G-T Gateway shall have no obligation to file suit to collect such amounts, provided if G-T Gateway fails to file suit to collect such amounts after being requested to do so by WSI, WSI shall have the right to collect all rents owed to WSI at the time of Closing, which shall include WSIs filing of suit, if necessary, to collect such amounts. In the event that, after Closing, WSI or WSI, II receives any payments of rent or other sums due from the tenant under the Lease that relate to periods from and after Closing, WSI shall promptly forward or cause WSI, II to forward to G-T Gateway such payments. It is agreed by G-T Gateway that the sums to be paid by the tenant referred to in this Section 6(e)(iii) shall include all property operation costs pass throughs for the year 2004 not paid on a monthly basis, but rather at the end of a calendar year after being invoiced therefor. These sums shall be provided and paid to WSI or WSI, II and G-T Gateway when paid by the tenant under the Lease. G-T Gateway shall use reasonable efforts to invoice the tenant for pass throughs as promptly as is practicable after Closing (but in no event shall G-T Gateway be required to do so until allowed under the Lease), provided WSI or WSI, II must furnish to G-T Gateway all applicable information regarding the amount of pass through operating expenses to be paid by the tenant under the Lease for the calendar year 2004.
During the period after Closing, G-T Gateway shall deliver to WSI for the benefit of WSI, II any and all rents accrued but uncollected as of the Date of Closing to the extent subsequently collected by G-T Gateway, and to the extent G-T Gateway receives such rents, shall apply rents received after Closing to the extent the same are delinquent first to payment of current Rent then due, and thereafter to delinquent rents (other than true up payments received from the tenant attributable to a year-end reconciliation of actual and budgeted pass-through payments which shall be allocated between WSI, II and G-T Gateway pro rata in accordance with their respective period of ownership as set forth in this Section 6(e)(iv) below) but only after rent due and owing to G-T Gateway has been paid in full, including any delinquent rent. If any security deposits are in the form of a letter of credit, WSI or WSI, II, as the case may be, shall assign its interest in the letter of credit to G-T Gateway (to the extent assignable) and deliver the original letter of credit to G-T Gateway at Closing.
31
(iv) Calculations . For purposes of calculating prorations, G-T Gateway shall be deemed to be the owner of the Property, and, therefore, entitled to the income therefrom and responsible for the expenses thereof for the entire day upon which the Closing occurs. All such prorations shall be made on the basis of the actual number of days of the month which shall have elapsed as of the day of the Closing and based upon the actual number of days in the month and a three hundred sixty-five (365) day year. The amount of such prorations shall be initially performed at Closing but shall be subject to adjustment in cash after the Closing as and when complete and accurate information becomes available, if such information is not available at the Closing. WSI and G-T Gateway agree to cooperate and use their best efforts to make such adjustments no later than sixty (60) days after the Closing. Except as set forth in this Section 6(e)(iii) and (iv) all items of income and expense which accrue for the period prior to the Closing will be for the account of WSI and all items of income and expense which accrue for the period on and after the Closing will be for the account of G-T Gateway. The provisions of Section 6(e)(iii) and (iv) shall survive the Closing.
(v) Prepaids . Any expense or cost of prepaid items, including, without limitation, fees for licenses and annual permit and inspection fees shall be apportioned between WSI and G-T Gateway at the Closing.
(vi) Service Agreement Payments. All amounts payable under any of the Service Contracts which survive Closing shall be prorated. G-T Gateway does not assume any obligation under any Service Contracts for acts or omissions that occur prior to Closing, and WSI agrees to indemnify and hold G-T Gateway harmless for any loss incurred by G-T Gateway resulting from acts or omissions that occur prior to Closing and leading to liability under the Service Contracts. G-T Gateway does not assume any obligation under any Service Contracts not expressly assumed by G-T Gateway.
(vii) Settlement After Closing. The parties acknowledge that not all invoices for expenses incurred with respect to the Property prior to the Closing will be received by the Closing and that a mechanism needs to be in place so that such invoices can be paid as received. All of the Closing adjustments will be done on an interim basis at the Closing and will be subject to final adjustment in accordance with this Section 6(e). After Closing, upon receipt by G-T Gateway of an invoice for the Propertys operating expenses that are attributable in whole or in part to a period prior to the Closing and that were not apportioned at Closing, G-T Gateway shall submit to WSI a copy of such invoice with such additional supporting information as WSI shall reasonably request. Within ten (10) days of receipt of such copy, WSI shall pay to G-T Gateway an amount equal to the portion of such invoice attributable to the period ending on the date immediately preceding the Closing. Likewise, upon receipt by G-T Gateway of such an invoice after Closing for the Propertys operating expenses which were paid in advance by WSI and are attributable in whole or in part to a period on or after Closing that were not apportioned at Closing, G-T Gateway shall submit to
32
WSI a copy of such invoice together with an amount equal to the portion of such invoice attributable to the period on or after Closing, within ten (10) days after receipt of such invoice.
(viii) Leasing Commissions . All obligations to pay leasing commissions due from and after the Date of Closing of this Agreement as the result of the execution of a new lease for the Building after the date hereof, the result of the renewal of the Lease, the extension of the term of the Lease, the expansion of the premises demised by the Lease for space within the Building, or the exercise of an option to lease additional space in the Building set forth in the Lease (collectively Future Commissions) which obligations are incurred pursuant to the brokerage agreements set forth on Exhibit C-1 shall be assumed and paid by G-T Gateway. WSI shall be responsible for all leasing commissions due prior to the Date of Closing. In addition WSI shall indemnify, defend and hold G-T Gateway harmless from and against any liability for commissions due pursuant to any agreement not set forth on Exhibit C-1.
(ix) Tenant Improvements . All obligations to pay the cost of any tenant improvement work owed or to be owed in connection with new leases of the Building executed after the date hereof or the result of the renewal of the Lease, the extension of the term of the Lease, the expansion of the premises demised by the Lease to space within the Building or the exercise of an option to lease additional space in the Building set forth in the Lease occurring after the date hereof, which costs shall include, but not be limited to, all sums expended by Highwoods, WSI, or WSI, II for such tenant improvement work (including all overhead costs incurred by them or any of their affiliates in connection with their performance of the work related to such tenant improvements not to exceed five percent (5%) of the cost of such tenant improvements), and a profit not to exceed ten percent (10%) of the cost of such tenant improvements, shall be assumed and paid by G-T Gateway on the Date of Closing by reimbursing Highwoods, WSI or WSI, II, as the case may be, for the costs of such tenant improvements previously paid by them in connection with new leases, renewals, extensions, relocations, expansions, or the exercise of an option to lease additional space in the Building occurring after the date hereof or if the cost of such tenant improvements are not yet due and payable by paying the same when they otherwise become due without an adjustment to the Purchase Price. Notwithstanding the foregoing, to the extent any portion of the term of the Lease, and renewals, extensions, expansions and relocations for which any tenant improvement work occurs prior to the date of Closing, the amount of the Purchase Price will be reduced by a pro rata share of such tenant improvement work based upon the percentage of such term (exclusive of any renewal options) which occurs prior to Closing. If any tenant improvement work is in process on the date of Closing, WSI or WSI, II shall be responsible for completing the construction thereof, provided, G-T Gateway shall be responsible for the costs thereof as set forth above.
33
(x) Equitable Adjustments . In the event that any of the prorations or adjustments described in this Section 6(e) are based upon estimated or erroneous information, then the parties shall make between themselves any equitable adjustment required by reason of any difference between such estimated or erroneous amounts and the actual amounts of such sums.
7. DEFAULT AND REMEDIES .
(a) In the event WSI defaults or fails to perform any of the conditions or obligations of WSI under this Agreement, then G-T Gateway shall have a right to terminate this Agreement and receive a refund of the Binder Deposit and pursue an action for reimbursement of expenses, fees and costs incurred by G-T Gateway relating to this Agreement or its due diligence on the Property, provided such fees and costs shall not exceed Fifty Thousand and No/100 Dollars ($50,000), plus the amount of any fees forfeited by G-T Gateway to its lender as the result of the failure of such Closing because of WSI default, and will be substantiated by legitimate invoices therefor, or, in the alternative, compel WSIs performance of its obligations hereunder by bringing an action for specific performance or, if specific performance is not available to G-T Gateway, as a result of the acts or omissions of WSI, G-T Gateway may pursue any other legal remedy available to G-T Gateway under the laws of the State of North Carolina, including an action for reimbursement of expenses, fees and costs incurred by G-T Gateway relating to this Agreement or the Property.
(b) In the event G-T Gateway defaults or fails to perform any of the covenants or conditions of G-T Gateway under this Agreement, WSI may terminate this agreement and the Escrow Agent shall pay the Binder Deposit to WSI, and such payment shall constitute WSIs liquidated damages as a result of G-T Gateways default or failure to perform, as WSIs actual damages shall be difficult, if not impossible, to ascertain, and after such payment G-T Gateway shall have no further obligations hereunder, except for G-T Gateways Continuing Indemnification Obligations.
8. OTHER PROVISIONS .
(a) Counterparts . This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which, taken together, shall constitute one and the same instrument.
(b) Entire Agreement . This Agreement and the Exhibits attached hereto constitute and contain the entire agreement between the parties, and supersede all prior and contemporaneous understandings and agreements, whether oral or in writing, between the parties respecting the subject matter hereof. There are no representations, agreements, arrangements or understandings, oral or in writing, between or among the parties to this Agreement relating to the subject matter of this Agreement which are not fully expressed in this Agreement.
(c) Construction . The provisions of this Agreement shall be construed as to their fair meaning, and not for or against any party based upon any attribution to such party as the source of the language in question. Headings used in this Agreement are for convenience of reference only and shall not be used in construing this Agreement.
34
(d) Applicable Law . This Agreement shall be governed by the laws of the State of North Carolina.
(e) Severability . If any term, covenant, condition or provision of this Agreement, or the application thereof to any person or circumstance, shall to any extent be held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, covenants, conditions or provisions of this Agreement, or the application thereof to any person or circumstance, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby.
(f) Waiver of Covenants, Conditions and Remedies . The waiver by one party of the performance of any covenant, condition or promise under this Agreement shall not invalidate this Agreement nor shall it be considered a waiver by it of any other covenant, condition or promise under this Agreement. The waiver by either or both parties of the time for performing any act under this Agreement shall not constitute a waiver of the time for performing any other act or an identical act required to be performed at a later time.
(g) Exhibits . All exhibits to which reference is made in this Agreement are deemed incorporated into this Agreement and made a part hereof, whether or not actually attached.
(h) Amendment . This Agreement may be amended at any time by the written agreement of G-T Gateway and WSI. All amendments, changes, revisions and discharges of this Agreement, in whole or in part, and from time to time, shall be binding upon the parties despite any lack of legal consideration, so long as the same shall be in writing and executed by the parties hereto.
(i) Relationship of Parties . The parties agree that their relationship is that of buyer and seller, and that nothing contained herein shall constitute either party the agent or legal representative of the other for any purpose whatsoever, nor shall this Agreement be deemed to create any form of business organization between the parties hereto, nor is either party granted any right or authority to assume or create any obligation or responsibility on behalf of the other party, nor shall either party be in any way liable for any debt of the other.
(j) Assignment . Except as set forth below, G-T Gateway may not assign its rights, obligations and liabilities hereunder to a third party without WSIs prior written consent, which shall not be unreasonably withheld. Notwithstanding the above, G-T Gateway may assign this Agreement at Closing (but only if the transaction contemplated hereby closes) without the requirement of WSIs consent to a corporation, limited liability company, or partnership in which G-T Gateway (or its principals) own more than 50% of the equity interest thereof. This Agreement shall be binding upon and shall inure to the benefit of the successors and assigns of the parties to this Agreement.
35
(k) Further Acts . Each party agrees to perform any further acts and to execute, acknowledge and deliver any documents which may be reasonable necessary to carry out the provisions of this Agreement. The provisions of this Section 8(k) of this Agreement shall survive Closing and shall not be merged upon the delivery and acceptance of the Deed for the Land.
(l) No Recording; Actions to Clear Title . Neither WSI nor G-T Gateway may record this Agreement or a memorandum of this Agreement without the consent of the other party which shall not be unreasonably withheld or delayed. If G-T Gateway fails to complete this transaction, or otherwise terminates or permits this Agreement to expire for any reason, then G-T Gateway shall, at no cost to WSI, promptly execute, acknowledge and deliver to WSI, all within three (3) days after written request from WSI, a quitclaim deed, in recordable form, in favor of WSI and any other documents requested by WSI to remove the cloud on title to the Property that may exist as the result of the existence of this Agreement.
(m) Broker Commissions . Each party warrants to the other that no person, firm or individual is entitled to or has a claim for a commission or fee arising out of this transaction except that WSI is obligated to pay a commission to Triad Commercial Properties, and CB Richard Ellis, both of which represent WSI in this transaction. G-T Gateway has no responsibility for the payment of this real estate commission to Triad Commercial Properties and CB Richard Ellis. WSI shall and does hereby indemnify and hold harmless G-T Gateway from and against any claim for any consulting fee, finders fee, commission, or like compensation, including reasonable attorneys fees in defense thereof, payable in connection with any transaction contemplated hereby and asserted by any party arising out of any act or agreement by WSI. G-T Gateway does hereby indemnify and hold harmless WSI from and against any claim for any consulting fee, finders fee, commission or the like, including reasonable attorneys fees in the defense thereof, payable in connection with any claim by any person or firm asserted by any party arising out of any act or agreement by G-T Gateway.
(n) Notices . All notices and demands which either party is required or desires to give to the other shall be given in writing by personal delivery, overnight courier service, certified mail, return receipt requested, or by telecopy followed by next day delivery of a hard copy to the address set forth below for the respective parties. All notices and demands so given shall be effective upon the delivery or sending of the same to the party to whom notice or a demand is given, if personally delivered or sent by telecopy, on the next business day if sent by overnight courier and within three (3) business days or upon receipt, whichever is earlier, if sent by certified mail, return receipt requested.
G-T GATEWAY: | G-T Gateway, LLC | |
1325 Ivy Avenue | ||
Winston-Salem, NC 27105 | ||
Attention: John L. Turner, Sr., President | ||
Telephone: 336-725-9970 | ||
Facsimile: 336-777-8904 |
36
(o) Press Releases . WSI and G-T Gateway agree that they will not make any public statement, including without limitation, any press release, with respect to this Agreement and the transactions contemplated hereby without first allowing the other party an opportunity to review such statement and render an approval thereof, which approval shall not be unreasonably withheld or delayed by either party. It is the intention of this subparagraph that WSI and G-T Gateway must agree as to the timing and content of any information contained in any public statement or press release regarding the transaction contemplated hereby. The parties agree to exercise reasonableness when asked to consent to the content of any such press release or other public statement regarding this transaction.
(p) Definition of Agreement Date . As used in this Agreement, Agreement Date shall be deemed to refer to the date a fully executed original of this Agreement is delivered to each party hereto, and the Agreement Date shall be inserted as the date of this Agreement in the introductory paragraph of this Agreement.
37
(q) Survival of the Agreement . The promises, terms, conditions, representations, warranties and provisions set forth in this Agreement shall survive the Closing of the transaction and the delivery and recording of the deed and any other instruments for the conveyance of the Property for a period of one (1) year following the Closing, except as otherwise provided in this Agreement and if the deed or any other recorded instruments are or may be construed to be inconsistent with any such provision of this Agreement, then the applicable provision of this Agreement shall control and shall not be deemed to have been merged into such deed or other recorded instruments, unless otherwise expressly provided in any such instruments.
IN WITNESS WHEREOF, the parties hereto have caused the signature page to this Agreement to be duly executed by their hands and under seal affixed hereto as of the day and year first above written.
[SIGNATURE PAGE ATTACHED]
38
SIGNATURE PAGE TO AGREEMENT
BY AND AMONG
WINSTON-SALEM INDUSTRIAL, LLC,
HIGHWOODS REALTY LIMITED PARTNERSHIP,
G-T GATEWAY, LLC, and
ALLMAN SPRY LEGGETT & CRUMPLER, P.A., as Escrow Agent
Dated as of January 28, 2005
WSI | WINSTON-SALEM INDUSTRIAL, LLC, | |||
a Delaware limited liability company | ||||
By: | Highwoods Realty Limited Partnership, a North | |||
Carolina Limited Partnership, its Sole Member | ||||
By: | Highwoods Properties, Inc., a Maryland | |||
Corporation, Its Sole General Partner | ||||
By: |
/s/ Mack D. Pridgen III |
|||
Name: | Mack D. Pridgen III | |||
Title: | Vice President | |||
HIGHWOODS | HIGHWOODS REALTY LIMITED PARTNERSHIP, | |||
a North Carolina Limited Partnership | ||||
By: | Highwoods Properties, Inc., a Maryland | |||
Corporation, Its Sole General Partner | ||||
By: |
/s/ Mack D. Pridgen III |
|||
Name: | Mack D. Pridgen III | |||
Title: | Vice President | |||
G-T GATEWAY | G-T GATEWAY, LLC, | |||
a North Carolina limited liability company | ||||
By: |
/s/ John L. Turner, Sr. |
|||
Name: | John L. Turner, Sr. | |||
Title: | Manager |
The undersigned, Escrow Agent herein, executes this Agreement for the purpose of agreeing to the provisions set forth in this Agreement relating to Escrow Agent and the Binder Deposit.
ESCROW AGENT | Allman Spry Leggett & Crumpler, P.A. | |||
By: |
/s/ Thomas T. Crumpler |
|||
Name: | Thomas T. Crumpler |
Exhibit 10.15
AGREEMENT
By and Between
HIGHWOODS REALTY LIMITED PARTNERSHIP,
A North Carolina Limited Partnership
and
JOHN L. TURNER, SR. and
ROBERT GOLDMAN,
and
Allman Spry Leggett & Crumpler, P.A.
as Escrow Agent
TABLE OF CONTENTS
Page
|
||
AGREEMENT TO MAKE PARTNERSHIP DISTRIBUTION |
1 | |
DESCRIPTION OF SUBJECT PROPERTY |
1 | |
REDUCTION OF THE DISTRIBUTEES CAPITAL INTEREST IN HIGHWOODS |
3 | |
Binder Deposit and Escrow Agents Duties and Rights |
3 | |
ACTIONS PENDING CLOSING |
6 | |
Survey and Plans |
6 | |
Initial Delivery of Documentation |
7 | |
Access to the Property |
7 | |
Matters of Title |
7 | |
Environmental Assessments |
7 | |
Investigation Rights |
8 | |
Termination Rights: Review Period |
9 | |
ADDITIONAL AGREEMENTS OF THE PARTIES |
10 | |
Title to the Property |
10 | |
Permitted Exceptions |
11 | |
Representations and Warranties of Seller |
11 | |
Representations and Warranties of Buyer |
18 | |
Maintenance of the Property |
20 | |
Risk of Loss; Damage or Destruction; Condemnation |
20 | |
No Transfer of Personal Property |
21 | |
Compliance With Legal Requirements |
21 | |
Delivery of Notices |
22 | |
CONDITIONS PRECEDENT TO CLOSING |
22 | |
Buyers Conditions |
22 | |
Sellers Conditions. |
25 | |
CLOSING |
26 | |
Date |
26 | |
Sellers Closing Documents |
26 | |
Buyers Closing Documents |
27 | |
Closing Costs |
28 | |
Closing Adjustments |
28 | |
Taxes |
28 | |
Utilities |
29 | |
Rents |
29 | |
Calculations |
30 | |
Prepaids |
30 | |
Service Agreement Payments |
30 | |
Settlement After Closing |
30 | |
Leasing Commissions |
31 | |
Tenant Improvements |
31 | |
Equitable Adjustments |
32 | |
DEFAULT AND REMEDIES |
32 | |
OTHER PROVISIONS |
33 | |
Counterparts |
33 |
i
Entire Agreement |
33 | |
Construction |
33 | |
Applicable Law |
33 | |
Severability |
33 | |
Waiver of Covenants, Conditions and Remedies |
33 | |
Exhibits |
33 | |
Amendment |
33 | |
Relationship of Parties |
34 | |
Assignment |
34 | |
Further Acts |
34 | |
No Recording; Actions to Clear Title |
34 | |
Broker Commissions |
34 | |
Notices |
35 | |
Press Releases |
36 | |
Definition of Agreement Date |
36 | |
Exhibit A - Property Description |
||
Exhibit B - Personal Property |
||
Exhibit B-1 - Excluded Personal Property |
||
Exhibit C - Leases |
||
Exhibit C-1 - Service Maintenance Contracts |
||
Exhibit D Permitted Exceptions |
||
Exhibit E Tenant Estoppel Certificate |
||
Exhibit F - Form of Assignment of Leases |
ii
STATE OF NORTH CAROLINA
AGREEMENT
COUNTY OF FORSYTH
THIS AGREEMENT (this Agreement) is made and entered into as of the 28 th day of January, 2005, by and between HIGHWOODS REALTY LIMITED PARTNERSHIP, a North Carolina Limited Partnership (Highwoods) and JOHN L. TURNER, SR. and ROBERT GOLDMAN, (the Distributees) and Allman Spry Leggett & Crumpler, P.A. (Escrow Agent).
WITNESSETH :
WHEREAS, the Distributees are limited partners in Highwoods and the Distributees and Highwoods have agreed that Highwoods will make a current in-kind distribution of property to the Distributees in reduction of the Distributees capital interest in Highwoods. It is intended that Highwoods distribution of property to the Distributees will be a non-taxable distribution of property pursuant to Section 731(a) of the Internal Code 1986 as amended.
WHEREAS, Highwoods and the Distributees desire to enter into this Agreement to incorporate all prior negotiations and dealings of the parties with respect to the transaction contemplated hereby.
NOW, THEREFORE, in consideration of the mutual covenants and conditions contained herein, the payment of earnest money, and other good and valuable consideration, receipt of which is hereby acknowledged by Highwoods, the parties hereto agree as follows:
1. AGREEMENT TO MAKE PARTNERSHIP DISTRIBUTION . Highwoods agrees to distribute, assign and convey to the Distributees, and the Distributees agree to accept such distribution and conveyance from Highwoods, of all that Property as defined and described in Section 2 hereof. The distribution by Highwoods to each Distributee as described above shall consist of a fifty percent (50%) undivided interest in the Land, as defined below , as tenant in common with the other Distributee and a fifty percent (50%) interest in all of the remaining Property not constituting real estate.
2. DESCRIPTION OF SUBJECT PROPERTY . The property owned by Highwoods which is the subject of this Agreement is as follows:
(a) that tract containing approximately 14.2247 acres of land and being described on Exhibit A (attached hereto and incorporated herein by reference), together with all right-of-ways and easements appurtenant thereto (said tract being commonly known as 3928 Westpoint Boulevard, Winston-Salem, North Carolina and being hereinafter referred to as the Land).
(b) All of Highwoods right, title and interest in and to all rights, privileges, and easements appurtenant to the Land, including all water rights, rights-of-way, roadways, parking areas, roadbeds, alleyways and reversions or other appurtenances used in connection with the beneficial use of the Land.
1
(c) All improvements, buildings, structures, related amenities and fixtures located on the Land and owned by Highwoods including, without limitation, that warehouse building containing approximately 240,879000 square feet (hereinafter referred to as the Building), any and all other buildings, structures and amenities currently located on the Land, all fixtures, apparatus, equipment, vaults, machinery and built-in appliances used in connection with the operation and occupancy of the Land such as heating and air conditioning systems, electrical systems, plumbing systems, sprinkler and other fire protection and life safety systems, refrigeration, ventilation, or other facilities or services on the Land (all of which are together hereinafter called the Improvements).
(d) Except as hereinafter set forth, all personal property to be described on Exhibit B pursuant to Section 4(b) hereof located on or in or used exclusively in connection with the Land and Improvements and owned by Highwoods and used or usable in the operation of the Property (as defined below) including, without limitation, fittings, appliances, shades, furniture, furnishings, and other furnishings or items of personal property used or usable in connection with the Buildings HVAC systems, but excluding all personal property located on the Land or in the Building owned by the tenant thereof or contractors who provide service to the Building or is not otherwise owned by Highwoods (hereinafter called the Personal Property). Notwithstanding the above, the Personal Property being purchased hereby shall not include those items of Personal Property described on Exhibit B-1 , attached hereto and incorporated herein by reference. After the date of this Agreement, Highwoods shall not remove any Personal Property from the Building, Land or Improvements without the prior written consent of The Distributees.
(e) All of Highwoods interest, if any, in the intangible property now or hereafter owned by Highwoods and used or usable in connection with the Property, Land, Improvements or Personal Property, that lease of the Building set forth on Exhibit C (the Lease), ground leases, subleases, prepaid rent, security deposits, contract rights, escrow deposits, utility agreements, guaranties, warranties, zoning rights or other rights related to the ownership of or use and operation of said Property, but excluding the rights to use the trade style name Highwoods Properties, and derivations thereof and any other trademarks used in connection therewith. A list of the service, maintenance and/or management contracts affecting or relating to the Property (the Service Contracts), some of which The Distributees may agree to assume prior to Closing, and all guaranties and warranties relating to the Property which are assignable together with a description of all pertinent terms and provisions of such Service Contracts, guaranties and warranties shall be set forth in Exhibit C-1 and attached hereto prior to Closing. All Service Contracts that are not assumed by The Distributees shall be terminated at or before Closing.
All of the items of property described in Subsections (a), (b), (c), (d) and (e) above are hereinafter collectively called the Property.
It is hereby acknowledged by the Distributees that Highwoods shall not convey to the Distributees claims relating to any real property tax refunds or rebates for periods occurring
2
prior to Closing, (as hereinafter defined), existing insurance claims and any existing claims against the Tenant or former tenants of the Property related to claims or causes of actions which arise prior to the Closing Date, which claims shall be reserved by Highwoods.
3. REDUCTION OF THE DISTRIBUTEES CAPITAL INTEREST IN HIGHWOODS.
Subject to the terms and conditions of this Agreement, the Distributees agree that their capital interest in Highwoods shall be reduced by Three Million One Hundred Twelve Thousand Five Hundred and No/100 Dollars ($3,112,500) each , that is Six Million Two Hundred Twenty-Five Thousand and No/100 Dollars ($6,225,000) in the aggregate, (subject to prorations and adjustments as described herein) as the result of the distribution of the Property by Highwoods to the Distributees. This reduction in each Distributees capital interest in Highwoods shall occur by the redemption from each Distributee of that number of partnership units owned by each Distributee in Highwoods (the Partnership Units) determined by dividing $3,112,500 by the average of the closing prices of the common stock of Highwoods Properties, Inc. (Highwoods general partner) as listed on the New York Stock Exchange on the ten (10) business days immediately preceding the date of the Closing of the transaction contemplated by this Agreement.
(a) Binder Deposit and Escrow Agents Duties and Rights . Within five (5) business days after the full execution of this Agreement, the Distributees shall pay and deliver to the Escrow Agent in United States currency the sum of Forty Thousand and No/100 Dollars ($40,000.00) as a binder deposit (such amount, together with all interest earned thereon, being referred to herein as the Binder Deposit). Escrow Agent shall hold the Binder Deposit in trust for the mutual benefit of the parties, subject to the following terms and conditions:
(i) Escrow Agent shall deposit the Binder Deposit in an interest bearing account in an institution as directed by the Distributees, and reasonably acceptable to Highwoods, in Winston-Salem, North Carolina. The Binder Deposit, plus all accrued interest thereon, shall be returned to the Distributees at the Closing of this transaction. Otherwise, the Binder Deposit shall be delivered by Escrow Agent to Highwoods or refunded by Escrow Agent to the Distributees in accordance with the terms of this Agreement.
(ii) In the event the transaction contemplated by this Agreement is not closed solely because of any default on the part of Highwoods, or if any of the conditions precedent set forth in Section 6 fail to be satisfied at Closing, or if the Distributees terminate their obligations as allowed herein pursuant to any other provision of this Agreement, then the Escrow Agent shall pay to the Distributees the Binder Deposit, including interest which has accrued thereon. To allow the interest bearing account to be opened, the Distributees and Highwoods tax identification numbers are set forth below their signatures at the end of this Agreement. Escrow Agent is executing this Agreement to acknowledge Escrow Agents responsibilities hereunder, which may be modified only by a written amendment signed by all of the parties. No such amendment shall be binding on
3
the Escrow Agent unless it has been signed by the Escrow Agent. Escrow Agent shall accept the Binder Deposit with the understanding of the parties that Escrow Agent is not a party to the Agreement except to the extent of its specific responsibilities hereunder; and does not assume or have any liability for the performance or non-performances of Highwoods or the Distributees hereunder to either of them.
(iii) In the event the transaction contemplated by this Agreement is not closed solely because of any default on the part of the Distributees, then the Escrow Agent shall pay to Highwoods the Binder Deposit including interest which has accrued thereon, and, except for the Distributees Continuing Indemnification Obligations (as defined in Section 4(f) below), such payment shall be the Distributees only liability to Highwoods as the result of such breach and shall be considered liquidated damages, as Highwoods actual damages as a result of the Distributees breach of its obligation hereunder shall be difficult, if not impossible, to ascertain.
(iv) Within two (2) days after execution of this Agreement, the Distributees and Highwoods shall deposit a copy of this Agreement executed by them with Escrow Agent, and, upon receipt of the Binder Deposit from the Distributees, Escrow Agent shall immediately execute this agreement where provided below. This Agreement, together with such further instructions, if any, as the parties shall provide to Escrow Agent by written agreement, shall constitute the escrow instructions. If any requirements relating to the duties or obligations of Escrow Agent hereunder are not acceptable to Escrow Agent, or if Escrow Agent requires additional instructions, the parties hereto agree to make such deletions, substitutions and additions hereto as counsel for the Distributees and Highwoods shall mutually approve, which additional instructions shall not substantially alter the terms of this Agreement unless otherwise expressly agreed to by Highwoods and the Distributees.
(v) Escrow Agent shall hold the Binder Deposit in accordance with the terms and provisions of this Agreement, subject to the following:
(A) Escrow Agents duties hereunder shall be limited to investing, administering and disbursing the Binder Deposit, and Escrow Agent shall have no additional duties or responsibilities hereunder (in its role as Escrow Agent) in connection with the Closing. Escrow Agent undertakes to perform only such duties as are expressly set forth in this Agreement and no implied duties or obligations shall be read into this Agreement against Escrow Agent.
(B) Escrow Agent may act in reliance upon any writing or instrument or signature which it, in good faith, believes of any statement or assertion contained in such writing or instrument, and may assume that any person purporting to give any writing, notice, advice or instrument in
4
connection with the provisions of this Agreement has been duly authorized to do so. Escrow Agent shall not be liable in any manner for the sufficiency or correctness as to form, manner and execution, or validity of any instrument deposited in escrow, nor as to the identity, authority, or right of any person executing the same, and Escrow Agents duties under this Agreement shall be limited to those provided in this Agreement.
(C) Unless Escrow Agent discharges any of its duties under this Agreement in a negligent manner or is guilty of willful misconduct with regard to its duties under this Agreement, Highwoods and the Distributees shall indemnify Escrow Agent and hold it harmless from any and all claims, liabilities, losses, actions, suits or proceedings at law or in equity which it may incur or with which it may be threatened by reason of its acting as Escrow Agent under this Agreement; and in such connection Highwoods and the Distributees shall indemnify Escrow Agent against any and all expenses including reasonable attorneys fees and the cost of defending any action, suit or proceeding or resisting any claim in such capacity.
(D) If the parties (including Escrow Agent) shall be in disagreement about the interpretation of this Agreement, or about their respective rights and obligations, or the propriety of any action contemplated by Escrow Agent, Escrow Agent may, but shall not be required to, file an action in interpleader to resolve the disagreement. Escrow Agent shall be indemnified for all costs and reasonable attorneys fees in its capacity as Escrow Agent in connection with any such interpleader action and shall be fully protected in suspending all or part of its activities under this Agreement until a final judgment in the interpleader action is received.
(E) Escrow Agent may consult with counsel of its own choice and have full and complete authorization and protection in accordance with the opinion of such counsel. Escrow Agent shall otherwise not be liable for any mistakes of fact or errors of judgment, or for any acts or omissions of any kind, unless caused by its negligence or willful misconduct.
(F) The Escrow Agent may in its sole discretion resign by giving thirty (30) days written notice thereof to the Distributees and Highwoods. The Distributees and Highwoods shall furnish to the Escrow Agent written instructions for the release of the escrow funds and escrow documents in such event. If the Escrow Agent shall not have received such written instructions, the Escrow Agent may petition any court of competent jurisdiction for the appointment of a successor Escrow Agent, and upon such appointment deliver the escrow funds and escrow documents to such successor.
5
(G) If costs and expenses (including attorneys fees) are incurred by Escrow Agent because of litigation of any dispute between Highwoods and the Distributees arising out of the holding of the Binder Deposit, the non-prevailing party ( i.e. , either Highwoods or the Distributees) shall reimburse Escrow Agent for such reasonable costs and expenses incurred. Highwoods and the Distributees hereby agree and acknowledge that Escrow Agent assumes no liability in connection with the holding or investment of the Binder Deposit pursuant hereto, except for the negligence or willful misconduct of Escrow Agent and its employees and agents. Escrow Agent shall not be responsible for the validity, correctness or genuineness of any document or notice referred to herein; and, in the event of any dispute under this Agreement relating to the disposition of the Binder Deposit, Escrow Agent may seek advice from its own counsel and shall be fully protected in any action taken in good faith in accordance with the opinion of Escrow Agents counsel.
(H) Escrow Agents address for purpose of mailing or delivering documents and notices hereunder is as follows:
Allman Spry Leggett & Crumpler, P.A. |
380 Knollwood Street, Suite 700 |
Winston-Salem, NC 27103-4152 |
Attention: Thomas T. Crumpler, Esquire |
Telephone: (336) 722-2300 |
Telecopier: (336) 721-0414 |
Provisions with respect to notices set forth herein shall apply with respect to notices given by or to Escrow Agent hereunder.
4. ACTIONS PENDING CLOSING .
(a) Survey and Plans . The Distributees may cause to be secured and delivered to the Distributees prior to the end of the Review Period (as defined in Section 4(g) below) a current physical and boundary survey (the Survey) of the Land and Improvements prepared by a North Carolina registered land surveyor or licensed engineer which shall be certified to the Distributees which shall contain such documentation and certifications as the Title Company (as defined in Section 5[a]) may require. The Distributees agree to pay for the cost of the Survey. The Survey shall be used for a description of the Land contained in the deed of conveyance of the Land from Highwoods to the Distributees and in all other documents related to this transaction which require a legal description [including, without limitation, such description as is required for the Title Policies described under Section 5(a)]. In the event the Survey reveals anything which materially or adversely affects the Property in the sole reasonable discretion of the Distributees, the Distributees shall give notice to Highwoods of those matters objected to by the Distributees in the Survey prior to the last day of the Review Period. Highwoods shall then have the right, but not the obligation, for a period of ten (10) business days to cure any defects or
6
objectionable matters specified by the Distributees. In the event that Highwoods fails or is unwilling to cure such defects to the reasonable satisfaction of the Distributees counsel at Highwoods sole cost and expense, the Distributees may proceed to a Closing subject to the defect, or by written notice to Highwoods, terminate this Agreement and receive a refund of the Binder Deposit, or otherwise allow this Agreement to expire.
(b) Initial Delivery of Documentation . At the time of the execution of this Agreement or within five (5) business days thereafter, Highwoods shall provide to the Distributees the following: (i) a list of all the personal property described in Section 2 above which shall be attached hereto as Exhibit B , (ii) true, correct and complete copies of all service, maintenance, utility and other contracts related to the Property, including any warranties or guaranties, a list of which shall be attached hereto as Exhibit C-1 , (iii) all title information related to the Land in Highwoods possession or available to Highwoods including but not limited to, title insurance policies, attorneys opinions on title and existing surveys, (iv) all environmental, engineering or similar reports and drawing/specifications relating to the Land, Building or Improvements in Highwoods possession, (v) a true, correct and complete copy of the Lease and any amendments or guaranties of such Lease, (vi) all income and expense records related to the Property for the year 2003 and 2004; and (vii) a current rent roll of the Building. To the knowledge of Highwoods, the information to be delivered to the Distributees pursuant to this subsection is true and correct in every material respect.
(c) Access to the Property . Subject to Section 4(f) of this Agreement, Highwoods shall give the Distributees and its agents, engineers and other representatives, reasonable access to the Property.
(d) Matters of Title . If any objection to the Title Report (as defined in Section 5[a] hereof) or the Survey (or existing survey(s), if applicable) is identified by the Distributees, Highwoods shall use its commercially reasonable efforts to resolve such objection to the Distributees satisfaction provided the cost of such resolution does not exceed Twenty-Fifty Thousand and No/100 Dollars ($25,000). In the event that Highwoods cannot or refuses to cure an objection to the Title Report or the Survey (or existing survey[s]) which remains unacceptable to the Distributees, then and in that event, the Distributees may terminate this Agreement without any further claim or obligation of any kind to Highwoods, except for the Distributees Continuing Indemnification Obligation (as defined in Section 4(f) below) or in the alternative, consummate the Closing in accordance with the terms of Section 5(a) below.
(e) Environmental Assessments . Prior to Closing, the Distributees at their sole expense, and upon reasonable notice to Highwoods, may cause to be undertaken and completed a current Phase I Environmental Site Assessment of the Land (the Environmental Assessment). The Environmental Assessment shall be performed by environmental inspection and engineering firms selected by the Distributees. The Distributees shall determine from the Environmental Assessment and from such other information available to the Distributees, in its sole discretion, whether or not the Property is likely to be contaminated by hazardous or toxic waste, substances or materials (including but not limited to, asbestos, PCBs or petroleum products) as defined under any applicable federal, state or local laws, statutes, orders, rules, regulations, permits or approvals. In the event that contamination or any other adverse
7
environmental condition is found to likely exist at the Property, or in the event that such Environmental Assessment recommends additional testing and Highwoods refuses to consent to such testing (which consent may be withheld by Highwoods in its sole discretion), the Distributees reserves the right to terminate this Agreement and receive a refund of the Binder Deposit. If Highwoods withholds its consent for the Distributees to do additional environmental testing of the Land, and the Distributees terminate this Agreement as the result thereof, Highwoods will pay to the Distributees its due diligence costs reasonably incurred during the Review Period, and any fees forfeited by the Distributees to its lender as the result of the Distributees termination of this Agreement as the result of Highwoods refusal to allow the Distributees to conduct further environmental tests of the Land. Highwoods has no obligation to the Distributees to remediate any environmental contamination on the Land discovered by the Distributees or the Distributees engineers. As stated above, the Distributees will not conduct a Phase II Environmental Assessment of the Property without Highwoods written consent, which consent may be withheld in Highwoods sole discretion.
(f) Investigation Rights . From the Agreement Date until such time as this Agreement is either settled or terminated, the Distributees, the Distributees authorized agents, employees, consultants, architects, engineers and contractors, as well as others authorized by the Distributees, shall have access to the Property and shall be entitled to enter upon the Property and make such surveying, architectural, engineering, topographical, geological, soil, subsurface, environmental, water drainage, traffic, and other studies related to the availability of water, sewer, natural gas, and other utility services in sufficient quantities to meet the Distributees requirements and such other investigations, inspections, evaluations, studies, tests and measurements (collectively, the Investigations) as the Distributees deems necessary or advisable. Provided, however, the Distributees rights hereunder to conduct Investigations shall be subject to the following requirements and limitations: (i) any entry upon the Property by the Distributees, the Distributees authorized agents and employees, as well as others authorized by the Distributees shall require at least twenty-four (24) hours advance notice to Highwoods of the date and time of the entry and the specific Investigations to be conducted in connection with the entry, (ii) the Investigations shall not result in any adverse change to the physical characteristics of the Property (and the Distributees shall be obligated to completely repair and restore any damage to the Property resulting from the Investigations), and (iii) the Investigations will not substantially or adversely interfere with the rights of the tenant in the Building to use and enjoy its leased space therein according to its Lease thereof. The Distributees agree to indemnify and hold Highwoods harmless from and against any and all claims, costs, expenses, and liabilities, including reasonable attorneys fees, arising out of claims for injury, including death, to persons or physical injury to property resulting from the Investigations (hereinafter the The Distributees Continuing Indemnification Obligations); provided, however, the Distributees shall not be obligated to indemnify Highwoods from and against any claims, costs, expenses, and liabilities caused by or arising out of the acts or omissions of Highwoods or Highwoods employees, representatives or agents, or from the presence or release of Hazardous Substances (as defined in Section 5(c) herein) not introduced onto the Property by the Distributees or the Distributees authorized agents and employees or other entities conducting the Investigations. Highwoods shall be entitled to have one or more representatives present to observe the Investigations on the Property. The Distributees shall not be entitled to conduct any environmental Investigations on the Property beyond a Phase I environmental site assessment
8
( i.e. no sampling, drilling, etc.) without first obtaining Highwoods prior written consent, which consent may be withheld by Highwoods, in Highwoods sole discretion. Notwithstanding any term or provision herein to the contrary, the provisions in this Agreement [including in this Section 4(f)] relating to the Investigations shall apply to all Investigations conducted by the Distributess and the Distributees authorized agents, employees, consultants, architects, engineers and contractors both prior to the Agreement Date and from and after the Agreement Date.
The Distributees will remain responsible and liable to Highwoods for the Continuing Indemnification Obligations and the full amount of actual damages suffered by Highwoods resulting from the Distributees Investigation after the completion of the Closing hereunder, the termination of this Agreement by the Distributees or Highwoods or a default by the Distributees under this Agreement.
(g) Termination Rights: Review Period . The Distributees shall have the unqualified right, in the Distributees sole and absolute discretion, to terminate this Agreement by giving written notice of such election at any time from the Agreement Date until 5:00 p.m. Eastern Standard time on the January 30, 2005 (30 th ) (such period of time until January 30, 2005 being referred to herein as the Review Period). In the event the Distributees properly and timely terminates this Agreement pursuant to this Section 4(g); Escrow Agent shall promptly refund all but One Hundred and No/100 Dollars ($100) of the Binder Deposit to the Distributees (such $100 payment to Highwoods being the consideration paid by the Distributees for the right to terminate this Agreement pursuant to this Section 4(g)), whereupon the parties hereto shall have no further rights, obligation or liabilities to each other hereunder, except for the Distributees Continuing Indemnification Obligations. Time is of the essence with respect to this right to terminate. The failure of the Distributees to provide such notice of termination prior to the expiration of the Review Period shall be deemed conclusively a waiver of the Distributees termination rights under this Section 4(g); and in such event, except in the case of a default by Highwoods hereunder (which shall be governed by the terms of Section 8 herein) or failure of any condition precedent to the Distributees obligation to close, and except in the event of the termination of this Agreement by either party pursuant to any specific termination right set forth herein which requires the return of the Binder Deposit to the Distributees, the Binder Deposit shall be deemed for all purposes under this Agreement to be nonrefundable to the Distributees and earned by Highwoods.
(h) | Highwoods Removal of Property From Market . Until the end of the Review Period, or earlier termination of this Agreement, Highwoods shall remove the Property from the market and not have discussions with prospective purchasers thereof, and will not solicit or accept any offers, whether or not binding, regarding the Property during the Review Period and thereafter until the Closing of the transaction contemplated hereby occurs or until the earlier termination of this Agreement. |
9
5. ADDITIONAL AGREEMENTS OF THE PARTIES .
(a) Title to the Property . At the Closing, Highwoods shall deliver to the Distributees a limited warranty deed in form and content satisfactory to the Distributees counsel with transfer tax, if any, paid at Highwoods expense, conveying to the Distributees a good, indefeasible, fee simple title to the Land, its appurtenances and Improvements, said title to be insurable both as to fee and marketability at regular rates by Chicago Title Insurance Company (the Title Company), subject only to those matters enumerated in Section 5(b)(i)-(vi) below (Permitted Exceptions). Prior to the end of the Review Period, the Distributees shall procure from HPI Title Agency, LLC, at the Distributees cost, a current title commitment for title insurance issued by the Title Company showing the condition of title to the Land, its appurtenances and Improvements (the Title Report). If, prior to the end of the Review Period, the Distributees disapproves of any matter of title contained in the Title Report, the Distributees may then elect to provide written notice of the Distributees disapproval of the same to Highwoods (those disapproved title matters as so identified by the Distributees are hereinafter called the Disapproved Exceptions). Highwoods agrees to commit its commercially reasonable efforts to remove any Disapproved Exception, provided the cost thereof does not exceed Twenty-Five Thousand and No/100 Dollars ($25,000). However, in the event that as provided in Sections 4(a) and (d) above, the Distributees proceed to and consummate the Closing subject to a Disapproved Exception, such Disapproved Exception shall then be deemed to be a Permitted Exception. Any expenses incurred in obtaining such title insurance commitment (including, without limitation, those incurred by an attorney in conducting the necessary title search) shall be borne by the Distributees. The title insurance premium for the title insurance policy issued by the Title Company pursuant to the title commitment (the Title Policy) shall be borne by the Distributees. The Title Policy shall provide full coverage against mechanics or materialmens liens, shall commit full survey coverage (if the Distributees procure a Survey of the Land) and such other coverages and endorsements as shall be reasonably required by the Distributees. If the Distributees request any endorsements to the Title Policy, the Distributees will be responsible for the cost attributable thereto.
The Distributees may, at or prior to Closing, notify Highwoods in writing (the Gap Notice) of any objections to title raised by the Distributees Counsel or the Title Company between the issuance of the Title Report and the Closing, which did not exist as of the date of the issuance of the Title Report (New Encumbrances). If the Distributees sends a Gap Notice to Highwoods, but the New Encumbrance is the result of some act that is beyond the control of Highwoods, then the Distributees and Highwoods shall have the same rights and obligations with respect to such notice as apply to a Disapproved Exception under Sections 5(a) and 5(b) hereof. However, in the event the New Encumbrance results from any action or omission of Highwoods (with the exception of New Encumbrances which can be cured by a monetary payment which the Distributees have, and shall have, the absolute right of making such payment and reducing by a like amount the value of the Distributees capital interest in Highwoods, to be reduced as a result of this transaction), the Distributees shall be entitled to terminate this Agreement, receive a refund of the Binder Deposit, and reimbursement from Highwoods of the costs, fees and expenses incurred by the Distributees related to this Agreement and the Property.
10
(b) Permitted Exceptions . The Land, its appurtenances and the Improvements shall be conveyed by Highwoods to the Distributees free and clear of all liens, encumbrances, claims, rights-of-way, easements, leases, restrictions and restrictive covenants, except the following Permitted Exceptions:
(i) Public utility easements and rights-of-way in customary form, so long as no Improvements are located thereon and they do not interfere with the use of the Property for office, warehouse and related commercial purposes permitted by the Lease or materially affect the value of the Property;
(ii) Zoning and building laws or ordinances, provided they do not prohibit the use of the Property for office, warehouse and related commercial purposes permitted by the Lease and so long as the Property is in compliance with same;
(iii) Ad valorem real estate taxes for any year in which they are not yet due and payable as of the date of Closing; and
(iv) Those matters which the Distributees have elected to accept;
(v) Items shown on the Survey and not objected to by the Distributees or waived by the Distributees in accordance with Section 4(a) hereof.
(vi) Those Permitted Exceptions listed on Exhibit D , so long as they to not interfere with the use of the Property for office, warehouse and related commercial purposes permitted by the Lease or materially affect the value of the Property.
If, in the opinion of the Distributees counsel, the Distributees are not able to procure an owners title insurance commitment from the Title Company prior to Closing, complying with the requirements of this Section 5, the Distributees shall have the option of taking title as is and consummating the Closing, or terminating this Agreement. Notwithstanding any other provision contained herein to the contrary, if the title defect(s) which may include, without limitation, a Disapproved Exception, is a mortgage, lien, judgment, assessment, unpaid taxes or tax which can be cured by a monetary payment (and with respect to which affirmative title insurance coverage is not available at the Title Companys standard rates) the Distributees have, and shall have, the absolute right of making such payment and reducing by a like amount the value of the capital interest of the Distributees in Highwoods to be reduced as a result of this transaction.
(c) Representations and Warranties of Highwoods . Highwoods hereby makes the following representations and warranties to the Distributees:
(i) There are no options to purchase the Property which are effective, nor has Highwoods previously entered into any contract of sale of the Property with a party other than the Distributees which is presently effective. After the date hereof and until Closing, or until this Agreement is otherwise terminated, Highwoods will not enter into any agreement or contract or negotiate with any party other than the Distributees with respect to the sale of the Property, nor, will Highwoods pledge or assign any right, title, interest in or to the Property or any part thereof to any person or entity.
11
(ii) All bills and claims for labor performed and services and materials furnished to or for the benefit of the Property have been or will be paid in full by Closing, and there are no mechanics liens or materialmens liens on or affecting the Property. If any mechanics or materialmens lien is filed on or affecting the Property for work, labor or materials, Highwoods shall indemnify and save the Distributees harmless from, or bond over, such lien and cause the Title Company to eliminate any exception therefor from the Title Policy issued to the Distributees.
(iii) As of the date of the Agreement, except as otherwise set forth on Exhibit C , there are no leases, subleases, licenses or other rental agreements or occupancy agreements (written or verbal) which grant any possessory interest in and to any space situated on or in any of the Property or that otherwise give rights with regard to use of any portions of any of the Property and except as set forth on Exhibit C-1 , there are no commissions due with respect to any such lease, sublease, etc., nor, except as set forth on Exhibit C-1 , will any commissions be due in connection with the renewal of any such lease, sublease, etc.
(iv) Except as set forth on Exhibit C-1 , neither Highwoods, nor to the knowledge of Highwoods, any other party, has entered into any construction, design, engineering, service, maintenance, supply, brokerage/leasing agreements, employment agreements, management contracts or leases of personal property (collectively, Service/Equipment Contracts) affecting the construction, use, ownership, maintenance or/or operation of the Property that will continue subsequent to the Closing. Prior to or on the Closing Date, Highwoods shall terminate, at Highwoods sole cost and expense, all Service/Equipment Contracts which the Distributees do not elect to assume in writing; or, if not terminable by the Closing Date, shall remain responsible for and will timely perform all of the obligations thereunder. To Highwoods knowledge, Highwoods is not in material default under any of the Service/Equipment Contracts and, to Highwoods knowledge, no other parties to any of the Service/Equipment Contracts are in default, nor do any conditions exist that, with the passage of time, or giving of notice, or both, shall constitute a default thereunder. The copies of the Service/Equipment Contracts provided to the Distributees pursuant to this Agreement are true, accurate and complete as of the date hereof, are in full force and effect and none of them have been modified, amended or extended except as otherwise set forth on Exhibit C-1 .
(v) To the knowledge of Highwoods, which knowledge is based solely on the Phase I Environmental Site Assessment of the Land dated September 25, 2002, conducted by Trigon Engineering Consultants, Inc. (The Environmental Report), the Property has not been used for the generation, treatment, storage or disposal of any hazardous substances in violation of any federal, state or local
12
environmental law, rule or violation during the period in which Highwoods has owned the property. For the purposes of this Section 5(c)(v), hazardous substances shall include (i) hazardous substances as defined in the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, 42 U.S.C. § 9601 et seq ., as amended, or by any regulations promulgated thereunder; (ii) any hazardous waste, underground storage tanks, petroleum, regulated substance, or used oil as defined by the Resource Conservation and Recovery Act of 1976 (42 U.S.C. § 6901 et. seq .), as amended or by any regulations promulgated thereunder; (iii) any oil or other hazardous substances as defined by the Oil and Hazardous Substances Control Act of 1986 as amended, and any regulations adopted pursuant to said Act, or any similar environmental protection law of the state in which the Property is located or its political subdivisions. To the knowledge of Highwoods, which knowledge is based solely on the Environmental Report, no asbestos or asbestos-containing materials have been installed, used, incorporated into or disposed of on the Property. To the knowledge of Highwoods, which knowledge is based solely on the Environmental Report, no polychlorinated biphenyls (PCBs) are located on or in the Property, whether such PCBs are in the form of electrical transformers, florescent light fixtures with ballast, cooling oils or any other device or form. To the knowledge of Highwoods, which knowledge is based solely on the Environmental Report, except as set forth in the Environmental Report, no underground storage tanks are located on the Property or were located on the Property and subsequently removed or filled. To the knowledge of Highwoods, but without having made any independent investigation, no investigation, administrative order, consent order and agreement, litigation, or settlement with respect to hazardous substances is proposed, threatened, anticipated or in existence with respect to the Property.
(vi) Neither the entering into of this Agreement nor the consummation of the transaction contemplated hereby will constitute or result in a violation or breach by Highwoods of any judgment, order, writ, injunction or decree issued against or imposed upon it, or will result in a violation of any applicable law, order, rule or regulation of any governmental authority. There are no actions, suits, proceedings, arbitrations or investigations pending or, to Highwoods knowledge, threatened (i) against, relating to or affecting Highwoods which might interfere in a material respect with the transaction contemplated by this Agreement, become an encumbrance on the title to the Property or any portion thereof or otherwise affect the Property or Highwoods ability to consummate the transaction contemplated hereby or (ii) against, relating to or affecting the Property.
(vii) Highwoods has not received notice:
(A) From any federal, state, county or municipal authority alleging any fire, health, safety, building, pollution, environmental, zoning or other violation of law in respect of the Property or any part thereof, including, without limitation, the occupancy or operation thereof, which has not been entirely corrected;
13
(B) Concerning the possible or anticipated condemnation of any part of the Property, or the widening, change of grade or limitation on use of streets abutting the same or concerning any special taxes or assessments levied or to be levied against the Property or any part thereof;
(C) Concerning any change in the zoning or other land use classification of the Property or any part thereof;
(D) Of any pending insurance claim related to the Property;
(E) From any governmental authority that any licenses, permits, certificates, easements and rights of way, including proof of dedication, required from all authorities having jurisdiction over the Property or from private parties for the existing use, occupancy and operation of the Property and to insure vehicular and pedestrian ingress to and egress from the Property are in violation of any governmental laws or regulations, which has not been corrected or will not be corrected by Closing.
(viii) No attachment, execution, assignment for the benefit of creditors or voluntary proceedings in bankruptcy has been commenced by Highwoods or are contemplated by Highwoods and, to the best of Highwoods knowledge, no such action has been contemplated or threatened, nor has any involuntary proceedings in bankruptcy been commenced against Highwoods.
(ix) Highwoods has full power and authority to enter into this Agreement and to assume and perform all of its obligations hereunder; the execution and delivery of this Agreement and the consummation of the transactions contemplated hereunder on the part of Highwoods do not and will not violate the partnership agreement or certificate of limited partnership of Highwoods and do not and will not conflict with or result in the breach of any condition or provision of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon the Property by reason of the terms of any contract, mortgage, lien, lease, agreement, indenture, instrument or judgment to which Highwoods is a party or which is or purports to be binding upon Highwoods or which affects Highwoods; and no action by any federal, state or municipal or other governmental department, commission, board, bureau or instrumentality is necessary to make this Agreement a valid instrument binding upon Highwoods in accordance with its terms;
(x) Highwoods is a limited partnership duly organized, validly existing and in good standing under the laws of the State of North Carolina. Highwoods has full power and authority to carry on its business as now conducted and to own, lease and operate its properties and assets now owned or leased and operated by it;
14
(xi) Highwoods is not a foreign person within the meaning of Section 1445(f) of the Internal Revenue Code, and Highwoods agrees to execute any and all documents necessary or required by the Internal Revenue Service or the Distributees in connection with such declaration(s).
(xii) Subject to Highwoods general partners board of directors approval of this transaction, this Agreement does and will, and the documents required to be executed by Highwoods pursuant to this Agreement will, constitute the valid and binding obligations of Highwoods enforceable in accordance with their respective terms subject to bankruptcy, receivership and similar laws affecting the rights of creditors generally.
(xiii) Notwithstanding anything else herein to the contrary, Highwoods represents to the Distributees that the Building is leased to the tenant and for the lease term set forth on the rent roll attached hereto as Exhibit C and that the Property is subject to those service and maintenance contracts set forth on Exhibit C-1 attached to this Agreement. With respect to such Lease, Highwoods represents as follows:
(A) Highwoods has not collected any prepaid rent in advance in excess of rent for the month during which the Closing is to occur.
(B) No rents or leases have been assigned by Highwoods.
(C) The Lease is in full force and effect, has been validly executed by the landlord and tenant, and has not been amended or modified as to any items except as set forth in the Rent Roll;
(D) The summary of the Lease set forth in Exhibit C is accurate in all material respects and, there are no subleases thereof;
(E) The Lease will be free and clear of all liens and encumbrances on the date of the Closing contemplated hereby
15
(F) Highwoods has taken no action, by act or omission, which constitutes the waiver of a default by the tenant under the Lease, except as herein specifically provided;
(G) Highwoods has fulfilled all of the landlords duties and obligations under the Lease including the completion of all upfittings, construction, decoration and alteration work which Highwoods is obligated to perform under the Lease.
(H) Highwoods or a previous landlord under the Lease has fulfilled all of the landlords duties and obligations under the Lease with respect to any leasing commissions or other compensation due arising out of any leasing, agency, brokerage or management agreements relating to the Lease which may be due and owing as of the Closing Date.
(I) Highwoods and the tenant under the Lease is not in default under any of the terms and provisions of said Lease, and Highwoods has received no notice, of any alleged default in connection with said Lease;
(J) There are no other rent concessions or set-offs against rent, nor has the tenant under the Lease asserted any defense, set-off, or counterclaim in connection with said Leases
(xiv) With respect to Services/Equipment Contracts:
(A) There are no contracts or agreements for services rendered in connection with the operation of the Property which the Distributees shall be required to take the Property subject to, except as agreed to by the Distributees and expressly assumed under the terms of the Assignment of Contracts.
(B) Highwoods shall not, without Distributees consent, negotiate or enter into any new service or other contract affecting the Property which cannot be terminated without cost to the Distributees on or before the Closing.
All representations and warranties of Highwoods contained in this Agreement are true, accurate and correct in all material respects as of the date hereof and, if Highwoods believes such representations and warranties continue to be true at Closing, Highwoods shall deliver to the Distributees at Closing a certificate certifying that they are still true, accurate and correct in all material respects as of the Closing Date. Notwithstanding the foregoing, the Distributees shall have no claim against Highwoods for any representation or warranty which, although true upon the execution hereof, is untrue or inaccurate at Closing as a result of facts, circumstances or occurrences beyond the control of or not within the knowledge of Highwoods. For purposes of this Agreement and any document delivered at Closing, whenever the phrases to the best of Highwoods knowledge, to the current, actual knowledge of Highwoods or the knowledge
16
of Highwoods or words of similar import are used, they shall be deemed to refer to the current, actual, conscious knowledge without inquiry of Mark W. Shumaker, Vice President and Sue Matthews, Property Manager. The representations and warranties of Highwoods shall survive the Closing for one (1) year.
Subject to the Distributees rights of inspection and investigation during the Review Period, the Distributees acknowledge for the Distributees and the Distributees successors, and assignees, that the Distributees have been given a reasonable opportunity to inspect and investigate the Property, all improvements thereon and all aspects relating thereto, including all documents and contracts related to the Property, either independently or through agents and experts of the Distributees choosing. EXCEPT AS LIMITED BELOW OR AS OTHERWISE SET FORTH IN THIS AGREEMENT, HIGHWOODS AND THE DISTRIBUTEES AGREE THAT THE PROPERTY SHALL BE SOLD AND THAT THE DISTRIBUTEES SHALL ACCEPT POSSESSION OF THE PROPERTY ON THE CLOSING DATE AS IS, WHERE IS, WITH ALL FAULTS WITH NO RIGHT OF SET-OFF OR REDUCTION IN THE VALUE OF THE DISTRIBUTEES CAPITAL INTEREST IN HIGHWOODS TO BE REDUCED PURSUANT TO THIS AGREEMENT, AND EXCEPT AS EXPRESSLY SET FORTH HEREIN THAT THE CONVEYANCE OF THE PROPERTY TO THE DISTRIBUTEES SHALL BE WITHOUT REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, WARRANTY OF INCOME WHICH MAY BE EARNED IN THE FUTURE, FUTURE OPERATING EXPENSES, USES, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE (BUT SPECIFICALLY EXCLUDING THE LIMITED WARRANTY OF TITLE TO BE GIVEN IN THE DEED FROM HIGHWOODS TO THE DISTRIBUTEES), AND HIGHWOODS DOES HEREBY DISCLAIM AND RENOUNCE ANY SUCH REPRESENTATION OR WARRANTY. EXCEPT FOR HIGHWOODS REPRESENTATIONS WHICH ARE EXPRESSLY SET FORTH HEREIN, THE DISTRIBUTEES SPECIFICALLY ACKNOWLEDGES THAT THE DISTRIBUTEES ARE NOT RELYING ON ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND WHATSOEVER, EXPRESS OR IMPLIED, FROM HIGHWOODS OR BROKERS AS TO THE FOLLOWING MATTERS: (1) THE CONDITION OR SAFETY OF THE PROPERTY OR ANY SEWER, HEATING AND ELECTRICAL SYSTEMS, ROOFING, AIR CONDITIONING, IF ANY, FOUNDATIONS, SOILS AND GEOLOGY INCLUDING SUITABILITY OF THE PROPERTY OR ITS IMPROVEMENTS FOR A PARTICULAR PURPOSE; (2) WHETHER THE APPLIANCES, IF ANY, PLUMBING OR UTILITIES ARE IN WORKING ORDER; (3) THE HABITABILITY OR SUITABILITY FOR OCCUPANCY OF ANY STRUCTURE AND THE QUALITY OF ITS CONSTRUCTION; (4) THE FITNESS OF ANY PERSONAL PROPERTY; OR (5) WHETHER THE BUILDING IS STRUCTURALLY SOUND, IN GOOD CONDITION, OR IN COMPLIANCE WITH THE APPLICABLE CITY, COUNTY, STATE OR FEDERAL STATUTES, CODES OR ORDINANCES. EXCEPT FOR HIGHWOODS REPRESENTATIONS EXPRESSLY SET FORTH HEREIN THE DISTRIBUTEES ARE RELYING SOLELY UPON ITS OWN INSPECTION OF THE PROPERTY WITH REGARD TO THE ABOVE-REFERENCED MATTERS, AND NOT UPON ANY REPRESENTATIONS MADE BY HIGHWOODS OR HIGHWOODS AGENTS RELATED TO THE ABOVE-REFERENCED MATTERS.
17
(d) Representations and Warranties of the Distributees . Each Distributee, for and on behalf of themselves (but not for the other Distributee), hereby represents and warrants to Highwoods as of the date hereof and as of Closing as follows:
(i) The execution and delivery of this Agreement and the documents required hereunder to be executed by them will on the date of Closing have been, duly executed and delivered by the Distributees. To the current, actual knowledge of the Distributees, none of the foregoing requires any action by or in respect of, or filing with, any governmental body, agency or official or contravenes or constitutes a default under any provision of applicable law or regulation, or any agreement, judgment, injunction, order, decree or other instrument binding upon the Distributees. This Agreement does and will, and the documents required to be executed by them will, constitute the valid and binding obligations of the Distributees enforceable in accordance with their respective terms, subject to bankruptcy and similar laws affecting the remedies or resources of creditors generally.
(ii) The execution and delivery of this Agreement and the performance by the Distributees of their obligation hereunder do not and will not conflict with or result in the breach of any condition or provision of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon any of the property or assets of the Distributees (including the Property) by reason of the terms of any contract, mortgage, lien, lease, agreement, indenture, instrument or judgment to which the Distributees are a party or which is or purports to be binding upon the Distributees or which affect the Distributees.
(iii) No attachment, execution, assignment for the benefit of creditors or voluntary proceedings in bankruptcy has been commenced by the Distributees and, to the best of the Distributees knowledge, no such action has been contemplated or threatened, nor has any involuntary proceedings in bankruptcy been commenced against the Distributees.
(iv) The Distributees acknowledge that all information with respect to the Property furnished to the Distributees or discovered by the Distributees during their investigation thereof pursuant to Section 4 of this Agreement (collectively, the Confidential Information), is and has been so furnished, and the Distributees investigation of the Property has been permitted by Highwoods, on the condition that the Distributees maintain the confidentiality thereof. Accordingly, the Distributees shall, and shall cause their employees, and, their agents, contractors and representatives to, hold in strict confidence, and not disclose to any other person or entity without the prior written consent of Highwoods until the Closing shall have been consummated, any of the Confidential Information in respect of the Property. If the Closing does not occur and this Agreement is terminated, the Distributees shall promptly return, or cause to be returned, to Highwoods all copies of such Confidential Information without retaining, or permitting retention of, any copy thereof. Notwithstanding anything
18
to the contrary hereinabove set forth, the Distributees may disclose such Confidential Information (i) to their employees, their title insurer, their current or prospective investors or lenders, and members of professional firms serving them in connection with this transaction, including, without limitation, their attorneys, architects, environmental consultants and engineers, bankers, and their clients; (ii) as any governmental agency or authority may require in order to comply with applicable laws or regulations; and (iii) if required by an order of any court of competent jurisdiction; and this provision shall survive Closing, provided, however, after the Closing, this provision shall not apply to information available through the public records as a result of such Closing.
(v) The Distributees have full power and authority to enter into this Agreement and to assume and perform all of their obligations hereunder; and no further action or approval is required in order to constitute this Agreement as a binding and enforceable obligation of the Distributees; the execution and delivery of this Agreement and the consummation of the transactions contemplated hereunder on the part of the Distributees do not and will not require any action by any federal, state or municipal or other governmental department, commission, board, bureau or instrumentality is necessary to make this Agreement a valid instrument binding upon the Distributees in accordance with its terms.
(vi) To the current, actual knowledge of the Distributees, there is no existing or threatened legal action or governmental proceedings of any kind involving the Distributees, any of their assets or the operation of any of the foregoing, which if determined adversely to the Distributees or their assets, would have a material adverse effect on the financial condition, business or prospects of the Distributees or their assets or which would interfere with the Distributees ability to execute or deliver, or perform their obligations under this Agreement or any of the documents required to be executed by them.
(vii) The Distributees have no current, actual knowledge of any existing violation of any federal, state, county or municipal law, ordinance, order, code, regulation or requirements affecting the Distributees or any of them assets that would have a material adverse effect on the financial condition, business or prospects of the Distributees or any of them assets.
(viii) The Distributees have no current, actual knowledge of any information or fact which has, or would have, a material adverse affect on the financial condition, business or prospects of the Distributees or them assets in a manner which would prevent the Distributees from consummating the transaction contemplated by this Agreement.
(ix) The Distributees are, and at all times prior to the Closing date will be, solvent. As used herein, solvent means that the Distributees (i) do not have debts greater than the fair market value of their assets; (ii) are paying and anticipate that they will continue to pay their debts as they mature and become due; and (iii) have sufficient capital to operate their businesses as they are operated on the date of this Agreement.
19
(x) The Distributees carry, or are covered by, and will maintain, insurance in such amounts and covering such risks as is adequate for the conduct of their business and the value of their properties and assets and as is customary for companies engaged in similar businesses in similar markets, including, without limitation, all risks casualty insurance, flood insurance (when necessary), general commercial liability insurance and business interruption insurance.
(xi) The Distributees acknowledge that, prior to the execution of this Agreement, the Distributees have had the opportunity to ask questions of and receive answers or obtain additional information from a representative of Highwoods concerning the financial and other affairs of the Highwoods and its general partner and, to the extent the Distributees believe necessary in light of the Distributees personal knowledge of the affairs of Highwoods and its general partner, the Distributees have asked such questions and received satisfactory answers. The Distributees further acknowledge that they possess all material facts necessary to make a determination to dispose of the Partnership Units as more fully set forth herein.
For purposes of this Agreement and any document delivered at Closing, whenever the phrases to the best of the Distributees knowledge, to the current, actual knowledge of the Distributees or the knowledge of the Distributees or words of similar import are used, they shall be deemed to refer to the current, actual, conscious knowledge without inquiry of John L. Turner, Sr., and Robert Goldman.
(e) Maintenance of the Property . Between the date of this Agreement and the Closing, Highwoods shall continue to maintain the Property in the same condition and repair as currently being maintained, ordinary wear and tear and damage by casualty excepted, and shall not cause or permit any waste upon the Property and shall not, except as set forth above with respect to ordinary wear and tear and casualty damage without the prior written consent of the Distributees, permit any material physical change to the Property prior to Closing. Highwoods shall not take any action which would adversely affect the value of or title to the Property and will not amendment, modify or terminate the Lease without the Distributees written consent.
(f) Risk of Loss; Damage or Destruction; Condemnation . If, prior to Closing, the Property or any part thereof shall be condemned, or destroyed or materially damaged by fire or other casualty (that is, damage or destruction to the Building which the Distributees reasonably believe would cost in excess of Two Hundred Thousand and No/100 Dollars ($200,000) to repair or would entitle the tenant under the Lease to terminate the Lease, or, in the case of a condemnation, which substantially prevents access to the Property or any part thereof), the Distributees shall have the option which shall be exercised not later than the later of (i) five (5) days prior to Closing or (ii) ten (10) business days following the date the Distributees receive
20
written notice of the condemnation or damage (with Closing being extended, if necessary, to accommodate such time periods) either to (a) to terminate this Agreement, or (b) to consummate the transaction contemplated by this Agreement notwithstanding such condemnation, destruction or material damage. If the Distributees elect to consummate the transaction contemplated by this Agreement notwithstanding a casualty or condemnation, the Distributees shall be entitled to receive all of the condemnation proceeds or settle the loss under all policies of insurance applicable to the destruction or damage and receive all of the proceeds of insurance applicable thereto, and Highwoods shall, at Closing and thereafter, execute and deliver to the Distributees all required proofs of loss, assignments of claims and other similar items, and the Distributees shall receive a credit at Closing for the amount of any deductible under Highwoods insurance policies. If the Distributees or Highwoods elects to terminate this Agreement as a result of a casualty or condemnation, the Earnest Money plus any interest earned thereon shall be returned to the Distributees by the Escrow Agent, in which event this Agreement shall, without further action of the parties, become null and void and neither party shall have any rights or obligations under this Agreement, except for the Distributees Continuing Indemnification Obligations. If there is any other damage or destruction to the Building (that is, damage or destruction to the Building which the Distributees reasonably believe would cost Two Hundred Thousand and No/100 Dollars ($200,000) or less to repair), or if there is a condemnation which does not substantially prevent access to the Land or any part thereof, or if the damage or destruction of the Building or condemnation would not entitle the tenant under the Lease to terminate the Lease, the Distributees shall not have the right to terminate this Agreement and (i) in the event of a casualty, Highwoods shall either completely repair such damage to the Building prior to Closing in a manner satisfactory to the Distributees or, at Highwoods option, either assign all insurance claims pertaining to such damage or destruction to the Distributees at Closing, with the Distributees to receive a credit for the amount of any deductible under Highwoods insurance policies, or allow the Distributees a credit against the value of the Distributees capital interest in Highwoods to be reduced pursuant to this transaction in an amount equal to the Distributees reasonably estimated cost of repair and (ii) in the event of a condemnation, Highwoods shall assign to the Distributees all of Highwoods rights to any condemnation proceeds to be paid by the applicable governmental authority.
(g) No Transfer of Personal Property . Highwoods agrees not to transfer or remove any personal property from the Property after the Agreement Date except for repair or replacement thereof. Any items of Personal Property replaced after the Agreement Date shall be promptly installed prior to Closing and shall be of substantially similar quality to the item of personal property being replaced.
(h) Compliance With Legal Requirements . All notices of violations of laws, ordinances, or regulations (Violations of Law), which are issued or sent to Highwoods prior to the Closing related to the Property by any governmental department, agency or bureau having jurisdiction over the conditions relating to such Violations of Law may (but is not required to) be remedied or complied with by Highwoods prior to Closing; provided, however, if any notices of Violations of Law are issued or sent to Highwoods by any governmental department, agency or bureau having jurisdiction over the conditions related to such Violations of Law after the end of the Review Period that Highwoods is unable or unwilling to remedy or cure, or comply with such notices by the Closing then the Distributees shall have the option to (a) terminate this
21
Agreement, whereupon all obligations of all parties hereto shall cease, the Binder Deposit shall be returned to the Distributees and this Agreement shall be void and without recourse to the parties hereto, except for provisions which are expressly stated to survive such termination including the Distributees Continuing Indemnification Obligations; or (b) proceed with Closing notwithstanding such Violations of Law and obtain an adjustment to the value of the Distributees capital interest in Highwoods to be reduced pursuant to this transaction as reasonably determined by the Distributees and Highwoods. If Highwoods receives any notices of Violations of Law prior to the end of the Review Period which Highwoods is unable or unwilling to remedy or cure, the Distributees only remedy shall be to terminate this Agreement and receive a refund of the Binder Deposit or proceed with Closing not withstanding such Violations of Law and obtain an adjustment to the value of the Distributees capital interest in Highwoods to be reduced pursuant to this transaction as reasonably determined by the Distributees and Highwoods.
(i) Delivery of Notices . Highwoods shall promptly deliver to the Distributees prior to Closing, copies of all notices, correspondence and reports generated or received by Highwoods in connection with the Lease.
6. CONDITIONS PRECEDENT TO CLOSING .
(a) The Distributees Conditions . The obligation of the Distributees to complete the transaction contemplated by this Agreement is subject to the satisfaction on or before the Closing of the following conditions, any of which may be waived in whole or in part by the Distributees, but only in writing at or prior to Closing:
(i) All representations and warranties of Highwoods in this Agreement shall be true and correct in all material respects as of the Closing Date, with the same force and effect as if such representations and warranties were made anew as of the Closing Date. Any changes to such representations disclosed by Highwoods in writing prior to Closing shall be subject to the provisions of Section 6(a)(ii) below. Highwoods shall have performed and complied in all material respects with all covenants and agreements required by this Agreement to be performed or complied with by Highwoods prior to the Closing Date.
(ii) In the event that the Distributees becomes aware at any time prior to Closing that a representation or warranty made by Highwoods herein, while true as of the date made, no longer remains true in all material respects, due to a change of circumstances beyond the reasonable control of Highwoods subsequent to the date of this Agreement, the Distributees shall promptly give written notice of such fact to Highwoods. In the event Highwoods is unable or unwilling to remedy such change of circumstances by the Closing, then the Distributees shall have the option to (a) terminate this Agreement, whereupon all obligations of all parties hereto shall cease (except for the Distributees Continuing Indemnification Obligations) and the Binder Deposit shall be returned to the Distributees; or (b) proceed with Closing notwithstanding such change of circumstances; provided, however, that if Highwoods intentionally caused such representation or warranty
22
to become untrue, the Distributees shall have the right to proceed with Closing and decrease the amount by which the Distributees capital interest in Highwoods will be reduced by the amount necessary to remedy such breach or terminate this Agreement and Highwoods shall reimburse the Distributees for the Distributees out-of-pocket expenses incurred in negotiating this Agreement and conducting its review of the Property and preparation for Closing (including, without limitation, reasonable attorneys fees, title examination, environmental assessment and survey and loan fees forfeited to the Distributees lender as the result of the closing failing to occur because Highwoods intentionally caused a representation or warranty made by it herein to be untrue at closing).
(iii) All of Highwoods obligations hereunder shall have been performed with regard to the Property.
(iv) Highwoods must have good and marketable fee simple title to the Property, free and clear of all liens, encumbrances, covenants and conditions, save and except the Permitted Exceptions, and the Building or other improvements on the Property shall not encroach upon any land adjoining the Property, except for encroachments of asphalt paving over utility easements.
(v) Highwoods shall not have caused any New Encumbrances to be placed on the Property between the date of this Agreement and the Closing Date except with the approval of the Distributees which approval shall not be unreasonably withheld or delayed and Highwoods shall have the obligation to remove all such New Encumbrances (not approved as aforesaid by the Distributees) on the Closing Date.
(vi) The Property will be free and clear of any and all taxes or assessments and any penalties associated therewith, except ad valorem taxes for the year of Closing, which will be prorated on a calendar year basis at the Closing.
(vii) The Property shall be in substantially the same condition on the date of Closing as of the date hereof subject, however, to normal wear and tear only, provided, in the event the Property is not in the condition described above prior to Closing as the result of a casualty to the Building, the provisions of Section 5(f) of this Agreement shall apply.
(viii) No order, writ, injunction or decree shall have been entered and be in effect by any court of competent jurisdiction or any governmental authority, and no statute, rule, regulation or other requirement shall have been promulgated or enacted and be in effect, that restrains, enjoins or invalidates the transactions contemplated hereby.
(ix) No suit or other proceeding shall be pending or threatened by any third party not affiliated with or acting at the request of Highwoods before any
23
court or authority seeking to restrain or prohibit or declare illegal, or seeking substantial damages against Highwoods in connection with the transactions contemplated by this Agreement.
(x) Highwoods shall make all reasonable efforts to obtain and provide to the Distributees five (5) days prior to Closing a tenant estoppel certificate in the form attached hereto as Exhibit E (the Tenant Estoppel Certificate) from the tenant of the Building. To the extent Highwoods has not delivered the Tenant Estoppel Certificate at Closing, and if General Electric Capital Assurance Company (G E Capital) (a lender making a loan to G-T Gateway, LLC an affiliate of the Distributees [G-T Gateway] and taking a mortgage loan against the Property) will accept an estoppel certificate from Highwoods, Highwoods may (but is not obligated to) execute an estoppel certificate (certifying the same matters set forth in the Tenant Estoppel Certificate submitted to the tenant of the Building). Highwoods may agree to indemnify the Distributees (and G E Capital) from loss or damage incurred by the Distributees and/or G E Capital resulting from the inaccuracy of any matter contained in the estoppel certificate executed by Highwoods. In the event Highwoods provides an estoppel certificate pursuant to the terms of this Section, Highwoods may, after Closing, substitute a Tenant Estoppel Certificate therefor, and thereafter, Highwoods shall be relieved from any liability to the Distributees (and G E Capital) with respect to any Highwoods estoppel certificate substituted by the Tenant Estoppel Certificate. Provided Highwoods makes a reasonable effort to obtain the Estoppel Certificate, and if the G E Capital will not accept a Highwoods estoppel certificate, Highwoods failure to so provide the Estoppel Certificate to the Distributees and G E Capital shall not be deemed a default by Highwoods under this Agreement and the Distributees may (a) elect to delay Closing for a reasonable period of time to enable Highwoods to obtain and deliver the Estoppel Certificate or (b) terminate this Agreement and receive a refund of the Binder Deposit, or (c) close this transaction without the Estoppel Certificate.
(xi) On or before the date of Closing, Highwoods shall have provided to the Distributees and G E Capital a subordination, non-disturbance and attornment agreement (SNDA) in a form acceptable to G E Capital executed by the tenant of the Building. Provided Highwoods makes a reasonable effort to obtain the Estoppel Certificate, and if G E Capital will not accept the SNDA provided by the tenant of the building, Highwoods failure to so provide an SNDA acceptable to G E Capital shall not be deemed a default by Highwoods under this Agreement. In the event Highwoods fails to deliver the SNDA to the Distributees and/or its lender as required above, the Distributees may (a) elect to delay Closing for a reasonable period of time to enable Highwoods to obtain and deliver the SNDA or (b) terminate this Agreement and receive a refund of the Binder Deposit, or (c) close this transaction without the SNDA.
(xii) General Electric Capital Assurance Company must have closed the Loan with G-T Gateway, LLC pursuant to the Loan Application with G E Asset Management Incorporated dated December 22, 2004, providing G-T Gateway with loan proceeds of not less than $18,750,000.
24
(xiii) On the date of Closing, the tenant of the Building shall not be a party to any voluntary or involuntary bankruptcy proceeding filed pursuant to the United States Bankruptcy Code, or any state receivership or state insolvency proceeding.
(xiv) The Lease shall not have been modified or terminated without the written consent of the Distributees.
If any of the foregoing conditions in this Section 6 for the benefit of the Distributees shall fail to be satisfied within the time period set forth for each condition, the Distributees may, at their election: (i) terminate their obligations to accept a distribution of the Property; (ii) waive such condition and complete the transaction contemplated hereby without any reduction in the value of the Distributees capital interest in Highwoods to be reduced pursuant to this transaction except as provided in Section 6(a)(ii); or (iii) require Highwoods to perform its obligations hereunder, if any, with regard to the Property or the Building and Highwoods failure to perform such obligations, if any, shall be a default hereunder.
(b) Highwoods Conditions. The obligations of Highwoods under this Agreement are subject to the satisfaction of each of the following conditions on or before the Closing Date, any of which may be waived by Highwoods, and the Distributees agree to cause the conditions described in clauses (ii) and (iii) below to be so satisfied:
(i) This transaction must have been approved by Highwoods general partners board of directors at its January meeting (anticipated to be January 25, 2005). Highwoods shall submit this Agreement to its general partners board of directors at its January meeting.
(ii) All the terms, covenants, and conditions of this Agreement to be complied with and performed by the Distributees on or before the Closing Date shall have been duly complied with and performed in all respects; and
(iii) The representations and warranties of the Distributees contained in this Agreement shall be true and correct in all respects at and as of the Closing Date with the same force and effect as though such representations and warranties had been made as of the Closing Date, except for any changes which have been disclosed to Highwoods in writing and expressly approved or waived by Highwoods in writing.
(iv) Simultaneously with the closing of the transaction contemplated by this Agreement, G-T Gateway, LLC must have purchased all of the membership interest in Winston-Salem Industrial, II, LLC pursuant to an agreement between Highwoods and G-T Gateway, LLC of even date herewith.
25
7. CLOSING .
(a) Date . The Closing of the transaction contemplated hereby shall occur on or before January 31, 2005, at the offices of the Distributees attorney in Winston-Salem, North Carolina, or such other place as may be mutually agreed upon by Highwoods and the Distributees, or, at the Distributees option, closed in escrow at the office of the Title Company, provided, the Distributees shall give Highwoods at least five (5) business days notice of the date of any Closing to take place under this Agreement. Notwithstanding the above, the Distributees may delay closing until February 28, 2005 in the sole discretion of the Distributees by paying to the Escrow Agent an additional binder deposit the sum of Thirty Thousand and No/100 Dollars ($30,000.00) (which shall be considered and treated as the Binder Deposit pursuant to Section 3(a) hereof) in which event this transaction will close on such date pursuant to the provisions of this paragraph.
(b) Highwoods Closing Documents . At the Closing, Highwoods shall deliver to the Distributees or its designated agent the following, each of which shall be properly executed and acknowledged, if applicable:
(i) A limited warranty deed in a form reasonably acceptable to the Distributees conveying to each Distributee good and marketable fee simple title to a fifty percent (50%) undivided interest in the Property as a tenant-in-common with the other Distributee, free and clear of all liens, encumbrances, easements and restrictions, except the Permitted Exceptions, which may encumber the Property at the time of the conveyance thereof;
(ii) A bill of sale transferring to each Distributee a fifty percent (50%) interest in all the Personal Property subject to this Agreement which bill of sale will be in a form reasonably acceptable to the Distributees;
(iii) An assignment of the Lease in the form set forth on Exhibit F ;
(iv) An assignment of all tenant security deposits held by Highwoods under the terms of the Lease;
(v) A standard owners affidavit and lien waiver form used by the Title Company to cause an extended coverage ALTA owners title insurance policy to be issued to the Distributees without standard exceptions to mechanics and/or materialman liens;
(vi) A certificate of Highwoods as to the warranties and representations referred to in Section 5(c) hereof being true and correct as of the Closing Date;
26
(vii) An affidavit as to foreign persons referred to in Section 5(c)(xxiii) hereof;
(viii) A blanket assignment and transfer of any and all miscellaneous interests and to the extent assignable all warranties and guarantees from contractors, subcontractors, suppliers, manufacturers or distributors relating to the Property, if any, (excluding Service Contracts) and all of Highwoods right, title, interest and benefits in, to and under all contracts, licenses, permits and similar documents or authorizations pertaining to the ownership and operation of the Property, if any, including the trade name of the Property;
(ix) A letter, approved by the Distributees and Highwoods, from Highwoods to the tenant of the Building advising the tenant of the transfer of the Property to the Distributees and that all future payments under the Lease are to be paid to the Distributees;
(x) An assignment of any Service Contracts to be assumed by the Distributees at Closing, if any;
(xi) The Tenant Estoppel Certificate (or Highwoods Estoppel Certificate if applicable) and the SNDA;
(xii) All permits, warranties, plans and specifications, and documents, instruments, files and records related to the Property and in the possession and control of Highwoods;
(xiii) The original executed Lease;
(xiv) The keys to any door or lock on the Building and the original tenant files in possession of Highwoods; and
(xv) Such other matters as either the Distributees or Highwoods shall reasonably require or shall be anticipated by the terms hereof.
(c) The Distributees Closing Documents . At Closing, the Distributees shall execute and deliver to Highwoods an assignment of their interest in the Partnership Units, and will execute such other documents and papers which may be necessary to the consummation of the transaction described in this Agreement, as may be reasonably requested by Highwoods or Highwoods counsel, including the execution of an assignment of leases in the form set forth on Exhibit F , an assignment of any Service Contracts to be assumed by the Distributees at Closing, if any, and any document reasonably requested by Highwoods to effectuate the assignment of the Distributees Partnership Units as contemplated in Section 3 hereof.
Simultaneously with, or promptly following, the Closing hereunder the parties hereto shall execute such other and additional documents and assurances and perform such other acts as shall be reasonably required in order to carry out the intent and purposes of this Agreement.
27
(d) Closing Costs . Highwoods shall furnish the deed to the Property in accordance with the terms hereof and shall pay any documentary stamps, excise or transfer tax, if any, with respect thereto and its attorneys fees and shall pay all costs required to clear title to the Property, provided Highwoods shall not be required to expend more than Twenty-Five Thousand and No/100 Dollars ($25,000) in connection with such efforts. The Distributees shall be responsible for paying the cost of the title insurance premium charged by the Title Company in connection with the issuance of the Title Policy, recording the deed, its attorneys fees, all engineering reports procured by the Distributees in connection with its due diligence and any cost associated with the Distributees financing of the Property, if any, and Survey costs.
(e) Closing Adjustments . Unless otherwise specified in this Agreement, all income, expenses and costs related to the Property shall be prorated as of 11:59 p.m. Eastern Standard Time on the date immediately preceding the Closing Date as follows, with any credits or debits to Highwoods as the result of such adjustments being added to or subtracted from (equally between the Distributees) the value of the Distributees capital interest in Highwoods which shall be reduced at Closing as contemplated by Section 3 hereof.
(i) Taxes. To the extent not paid by Tenant under the Lease, ad valorem property taxes, personal property taxes and special assessments, if any, due or to be levied against the Property (the Taxes) for the year of Closing shall be prorated with Highwoods being responsible for all such Taxes from January 1st of the year of Closing through the last day prior to the day of Closing. The Distributees shall be responsible for paying the balance of the remaining Taxes due or to be levied against the Property for the year of Closing. Highwoods shall be responsible for paying any unpaid Taxes for any year prior to Closing. In the event the Taxes are not determinable at the time of Closing, the Taxes shall be prorated on the basis of the best available information (the Estimated Taxes ). If the Taxes are not paid at Closing, Highwoods shall deliver to the Distributees the bills for the Taxes promptly upon receipt thereof and the Distributees shall thereupon be responsible for the payment in full of the Taxes within the time fixed for payment thereof and before the same shall become delinquent. Notwithstanding the foregoing, in the event actual Taxes for the year of Closing exceed the Estimated Taxes for the year of Closing (the Tax Excess ) or Estimated Taxes for the year of Closing exceed the actual Taxes for year of Closing (the Tax Refund ), Highwoods and the Distributees shall prorate and pay such Tax Excess or such Tax Refund as follows:
(A) Highwoods shall be responsible for a portion of the Tax Excess or shall receive credit for the Tax Refund prorated from January 1st of the year of Closing through the last day before the Closing Date based upon a 365-day calendar year. The amount of the Tax Excess or the Tax Refund shall be determined when the property tax bills are received by the Distributees, and the Distributees shall notify Highwoods within thirty (30) days thereof of the calculation of the amount due to the Distributees from Highwoods in the case of a Tax Excess or the amount
28
due to Highwoods from the Distributees in the case of a Tax Refund. Highwoods shall have thirty (30) days from Highwoods receipt of such notification to pay its portion of the Tax Excess to the Distributees and the Distributees shall have thirty (30) days from the Distributees receipt of the property tax bills to pay Highwoods its portion of the Tax Refund.
(ii) Utilities . To the extent not paid by Tenant under the Lease, all utility charges and reimbursement for utility charges for the Property (including, without limitation, telephone, water, storm and sanitary sewer, electricity, gas, garbage and waste removal), to the extent not payable by the tenant under the Lease, shall be prorated. Transfer fees required with respect to any such utility shall be paid by the Distributees prior to Closing.
(iii) Rents . All paid rents, including revenues and charges of any kind, together with any other sums paid by the tenant (other than security deposit), under the Lease, shall be prorated as of the Closing Date. In the event that, at the time of Closing, there are any past due or delinquent rents owing by the tenant of the Property, the Distributees shall have the exclusive right to collect such past due or delinquent rents and shall remit to Highwoods in cash to the extent, and only to the extent, that the rents received by the Distributees from the tenant owing past due or delinquent rents exceed the sum of the aggregate rents and other sums payable by such tenant for periods from and after the Closing Date to the date of receipt, and then only if Highwoods has notified the Distributees at Closing that the tenant under the Lease is delinquent in its rent as of the Closing Date. The Distributees will make a commercially reasonable good faith effort to collect after Closing any rents which are delinquent and owing to Highwoods at Closing, but the Distributees shall have no obligation to file suit to collect such amounts, provided if the Distributees fail to file suit to collect such amounts after being requested to do so by Highwoods, Highwoods shall have the right to collect all rents owed to Highwoods at the time of Closing, which shall include Highwoods filing of suit, if necessary, to collect such amounts. In the event that, after Closing, Highwoods receives any payments of rent or other sums due from the tenant under the Lease that relate to periods from and after Closing, Highwoods shall promptly forward to the Distributees such payments. It is agreed by the Distributees that the sums to be paid by the tenant referred to in this Section 7(e)(iii) shall include all property operation costs pass throughs for the year 2004 not paid on a monthly basis, but rather at the end of a calendar year after being invoiced therefor. These sums shall be provided and paid to Highwoods and the Distributees when paid by the tenant under the Lease. The Distributees shall use reasonable efforts to invoice the tenant for pass throughs as promptly as is practicable after Closing (but in no event shall the Distributees be required to do so until allowed under the Lease), provided Highwoods must furnish to the Distributees all applicable information regarding the amount of pass through operating expenses to be paid by the tenant under the Lease for the calendar year 2004.
29
During the period after Closing, the Distributees shall deliver to Highwoods any and all rents accrued but uncollected as of the Closing Date to the extent subsequently collected by the Distributees, and to the extent the Distributees receive such rents, shall apply rents received after Closing to the extent the same are delinquent first to payment of current Rent then due, and thereafter to delinquent rents (other than true up payments received from the tenant attributable to a year-end reconciliation of actual and budgeted pass-through payments which shall be allocated between Highwoods and the Distributees pro rata in accordance with their respective period of ownership as set forth in this Section 7(e)(iv) below) but only after rent due and owing to the Distributees have been paid in full, including any delinquent rent. If any security deposits are in the form of a letter of credit, Highwoods shall assign its interest in the letter of credit to the Distributees (to the extent assignable) and deliver the original letter of credit to the Distributees at Closing.
(iv) Calculations . For purposes of calculating prorations, the Distributees shall be deemed to be the owner of the Property, and, therefore, entitled to the income therefrom and responsible for the expenses thereof for the entire day upon which the Closing occurs. All such prorations shall be made on the basis of the actual number of days of the month which shall have elapsed as of the day of the Closing and based upon the actual number of days in the month and a three hundred sixty-five (365) day year. The amount of such prorations shall be initially performed at Closing but shall be subject to adjustment in cash after the Closing as and when complete and accurate information becomes available, if such information is not available at the Closing. Highwoods and the Distributees agree to cooperate and use their best efforts to make such adjustments no later than sixty (60) days after the Closing. Except as set forth in this Section 7(e)(iii) and (iv) all items of income and expense which accrue for the period prior to the Closing will be for the account of Highwoods and all items of income and expense which accrue for the period on and after the Closing will be for the account of the Distributees. The provisions of Section 7(e)(iii) and (iv) shall survive the Closing.
(v) Prepaids. Any expense or cost of prepaid items, including, without limitation, fees for licenses which are transferred to the Distributees at the Closing and annual permit and inspection fees shall be apportioned between Highwoods and the Distributees at the Closing.
(vi) Service Agreement Payments. All amounts payable under any of the Service Contracts assumed by the Distributees shall be prorated. The Distributees does not assume any obligation under any Service Contracts for acts or omissions that occur prior to Closing. The Distributees do not assume any obligation under any Service Contracts not expressly assumed by the Distributees.
(vii) Settlement After Closing. The parties acknowledge that not all invoices for expenses incurred with respect to the Property prior to the Closing
30
will be received by the Closing and that a mechanism needs to be in place so that such invoices can be paid as received. All of the Closing adjustments will be done on an interim basis at the Closing and will be subject to final adjustment in accordance with this Section 7(e). After Closing, upon receipt by the Distributees of an invoice for the Propertys operating expenses that are attributable in whole or in part to a period prior to the Closing and that were not apportioned at Closing, the Distributees shall submit to Highwoods a copy of such invoice with such additional supporting information as Highwoods shall reasonably request. Within ten (10) days of receipt of such copy, Highwoods shall pay to the Distributees an amount equal to the portion of such invoice attributable to the period ending on the date immediately preceding the Closing. Likewise, upon receipt by the Distributees of such an invoice after Closing for the Propertys operating expenses which were paid in advance by Highwoods and are attributable in whole or in part to a period on or after Closing that were not apportioned at Closing, the Distributees shall submit to Highwoods a copy of such invoice together with an amount equal to the portion of such invoice attributable to the period on or after Closing, within ten (10) days after receipt of such invoice.
(viii) Leasing Commissions. All obligations to pay leasing commissions due from and after the Closing Date of this Agreement as the result of the execution of a new lease of the Building after the date hereof, the result of the renewal of the Lease, the extension of the term of the Lease, the expansion of the premises demised by the Lease for space within the Building, or the exercise of an option to lease additional space in the Building set forth in the Lease (collectively Future Commissions) which obligations are incurred pursuant to the brokerage agreements set forth on Exhibit C-1 shall be assumed and paid by the Distributees. Highwoods shall be responsible for all leasing commissions due prior to the Closing Date. In addition Highwoods shall indemnify, defend and hold the Distributees harmless from and against any liability for commissions due pursuant to any agreement not set forth on Exhibit C-1.
(ix) Tenant Improvements. All obligations to pay the cost of any tenant improvement work owed or to be owed in connection with new leases of the Building executed after the date hereof or the result of the renewal of the Lease, the extension of the term of the Lease, the expansion of the premises demised by the Lease to space within the Building or the exercise of an option to lease additional space in the Building set forth in the Lease occurring after the date hereof, which costs shall include, but not be limited to, all sums expended by Highwoods for such tenant improvement work (including all overhead costs incurred by Highwoods or its affiliates in connection with the performance of the work related to such tenant improvements not to exceed five percent (5%) of the cost of such tenant improvements) and a profit not to exceed ten percent (10%) of the cost of such tenant improvements shall be assumed and paid by the Distributees on the Closing Date by reimbursing Highwoods for the costs of such tenant improvements previously paid by Highwoods in connection with new
31
leases, renewals, extensions, relocations, expansions, or the exercise of an option to lease additional space in the Building occurring after the date hereof or if the cost of such tenant improvements are not yet due and payable by paying the same when they otherwise become due without an adjustment to the value of the capital interest of the Distributees in Highwoods to be reduced as a result of this transaction. Notwithstanding the foregoing, to the extent any portion of the term of a Lease, and renewals, extensions, expansions and relocations for which any tenant improvement work occurs prior to the Closing Date, the amount of the value of the capital interest of the Distributees in Highwoods to be reduced as a result of this transaction will be reduced by a pro rata share of such tenant improvement work based upon the percentage of such term (exclusive of any renewal options) which occurs prior the Closing Date. If any tenant improvement work is in process on the Closing Date, Highwoods shall be responsible for completing the construction thereof, provided, the Distributees shall be responsible for the costs thereof as set forth above.
(x) Equitable Adjustments . In the event that any of the prorations or adjustments described in this Section 7(e) are based upon estimated or erroneous information, then the parties shall make between themselves any equitable adjustment required by reason of any difference between such estimated or erroneous amounts and the actual amounts of such sums.
8. DEFAULT AND REMEDIES .
(a) In the event Highwoods defaults or fails to perform any of the conditions or obligations of Highwoods under this Agreement, then the Distributees shall have a right to terminate this Agreement and receive a refund of the Binder Deposit and pursue an action for reimbursement of expenses, fees and costs incurred by the Distributees and G-T Gateway relating to this Agreement or their due diligence on the Property, provided such fees and costs shall not exceed Fifty Thousand and No/100 Dollars ($50,000), plus the amount of any fees forfeited by G-T Gateway to its lender as the result of the failure of such Closing because of Highwoods default, and will be substantiated by legitimate invoices therefor, or, in the alternative, compel Highwoods performance of its obligations hereunder by bringing an action for specific performance or, if specific performance is not available to the Distributees, as a result of the acts or omissions of Highwoods, the Distributees may pursue any other legal remedy available to the Distributees under the laws of the State of North Carolina, including an action for reimbursement of expenses, fees and costs incurred by the Distributees relating to this Agreement or the Property.
(b) In the event the Distributees default or fail to perform any of the covenants or conditions of the Distributees under this Agreement, Highwoods may terminate this agreement and the Escrow Agent shall pay the Binder Deposit to Highwoods, and such payment shall constitute Highwoods liquidated damages as a result of the Distributees default or failure to perform, as Highwoods actual damages shall be difficult, if not impossible, to ascertain, and after such payment the Distributees shall have no further obligations hereunder, except for the Distributees Continuing Indemnification Obligations.
32
9. OTHER PROVISIONS .
(a) Counterparts . This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which, taken together, shall constitute one and the same instrument.
(b) Entire Agreement . This Agreement and the Exhibits attached hereto constitute and contain the entire agreement between the parties, and supersede all prior and contemporaneous understandings and agreements, whether oral or in writing, between the parties respecting the subject matter hereof. There are no representations, agreements, arrangements or understandings, oral or in writing, between or among the parties to this Agreement relating to the subject matter of this Agreement which are not fully expressed in this Agreement.
(c) Construction . The provisions of this Agreement shall be construed as to their fair meaning, and not for or against any party based upon any attribution to such party as the source of the language in question. Headings used in this Agreement are for convenience of reference only and shall not be used in construing this Agreement.
(d) Applicable Law . This Agreement shall be governed by the laws of the State of North Carolina.
(e) Severability . If any term, covenant, condition or provision of this Agreement, or the application thereof to any person or circumstance, shall to any extent be held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, covenants, conditions or provisions of this Agreement, or the application thereof to any person or circumstance, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby.
(f) Waiver of Covenants, Conditions and Remedies . The waiver by one party of the performance of any covenant, condition or promise under this Agreement shall not invalidate this Agreement nor shall it be considered a waiver by it of any other covenant, condition or promise under this Agreement. The waiver by either or both parties of the time for performing any act under this Agreement shall not constitute a waiver of the time for performing any other act or an identical act required to be performed at a later time.
(g) Exhibits . All exhibits to which reference is made in this Agreement are deemed incorporated into this Agreement and made a part hereof, whether or not actually attached.
(h) Amendment . This Agreement may be amended at any time by the written agreement of the Distributees and Highwoods. All amendments, changes, revisions and discharges of this Agreement, in whole or in part, and from time to time, shall be binding upon the parties despite any lack of legal consideration, so long as the same shall be in writing and executed by the parties hereto.
33
(i) Relationship of Parties . The parties agree that their relationship is that of buyer and seller, and that nothing contained herein shall constitute either party the agent or legal representative of the other for any purpose whatsoever, nor shall this Agreement be deemed to create any form of business organization between the parties hereto, nor is either party granted any right or authority to assume or create any obligation or responsibility on behalf of the other party, nor shall either party be in any way liable for any debt of the other.
(j) Assignment . Except as set forth below, the Distributees may not assign their rights, obligations and liabilities hereunder to a third party without Highwoods prior written consent, which shall not be unreasonably withheld. Notwithstanding the above, the Distributees may assign this Agreement at Closing (but only if the transaction contemplated hereby closes) without the requirement of Highwoods consent to a corporation, limited liability company, or partnership in which the Distributees own more than 50% of the equity interest thereof. This Agreement shall be binding upon and shall inure to the benefit of the successors and assigns of the parties to this Agreement.
(k) Further Acts . Each party agrees to perform any further acts and to execute, acknowledge and deliver any documents which may be reasonable necessary to carry out the provisions of this Agreement. The provisions of this Section 9(k) of this Agreement shall survive Closing and shall not be merged upon the delivery and acceptance of the Deed for the Land.
(l) No Recording; Actions to Clear Title . Neither Highwoods nor the Distributees may record this Agreement or a memorandum of this Agreement without the consent of the other party which shall not be unreasonably withheld or delayed. If the Distributees fail to complete this transaction, or otherwise terminates or permits this Agreement to expire for any reason, then the Distributees shall, at no cost to Highwoods, promptly execute, acknowledge and deliver to Highwoods, all within three (3) days after written request from Highwoods, a quitclaim deed, in recordable form, in favor of Highwoods and any other documents requested by Highwoods to remove the cloud on title to the Property that may exist as the result of the existence of this Agreement.
(m) Broker Commissions . Each party warrants to the other that no person, firm or individual is entitled to or has a claim for a commission or fee arising out of this transaction except that Highwoods is obligated to pay a commission to Triad Commercial Properties, and CB Richard Ellis, both of which represent Highwoods in this transaction. The Distributees have no responsibility for the payment of this real estate commission to Triad Commercial Properties and CB Richard Ellis. Highwoods shall and does hereby indemnify and hold harmless the Distributees from and against any claim for any consulting fee, finders fee, commission, or like compensation, including reasonable attorneys fees in defense thereof, payable in connection with any transaction contemplated hereby and asserted by any party arising out of any act or agreement by Highwoods. The Distributees do hereby indemnify and hold harmless Highwoods from and against any claim for any consulting fee, finders fee, commission or the like, including reasonable attorneys fees in the defense thereof, payable in connection with any claim by any person or firm asserted by any party arising out of any act or agreement by the Distributees.
34
(n) Notices . All notices and demands which either party is required or desires to give to the other shall be given in writing by personal delivery, overnight courier service, certified mail, return receipt requested, or by telecopy followed by next day delivery of a hard copy to the address set forth below for the respective parties. All notices and demands so given shall be effective upon the delivery or sending of the same to the party to whom notice or a demand is given, if personally delivered or sent by telecopy, on the next business day if sent by overnight courier and within three (3) business days or upon receipt, whichever is earlier, if sent by certified mail, return receipt requested.
35
(o) Press Releases . Highwoods and the Distributees agree that they will not make any public statement, including without limitation, any press release, with respect to this Agreement and the transactions contemplated hereby without first allowing the other party an opportunity to review such statement and render an approval thereof, which approval shall not be unreasonably withheld or delayed by either party. It is the intention of this subparagraph that Highwoods and the Distributees must agree as to the timing and content of any information contained in any public statement or press release regarding the transaction contemplated hereby. The parties agree to exercise reasonableness when asked to consent to the content of any such press release or other public statement regarding this transaction.
(p) Definition of Agreement Date . As used in this Agreement, Agreement Date shall be deemed to refer to the date a fully executed original of this Agreement is delivered to each party hereto, and the Agreement Date shall be inserted as the date of this Agreement in the introductory paragraph of this Agreement.
(q) Survival of the Agreement . The promises, terms, conditions, representations, warranties and provisions set forth in this Agreement shall survive the Closing of the transaction and the delivery and recording of the deed and any other instruments for the conveyance of the Property for a period of one (1) year following the Closing, except as otherwise provided in this Agreement and if the deed or any other recorded instruments are or may be construed to be inconsistent with any such provision of this Agreement, then the applicable provision of this Agreement shall control and shall not be deemed to have been merged into such deed or other recorded instruments, unless otherwise expressly provided in any such instruments.
IN WITNESS WHEREOF, the parties hereto have caused the signature pages to this Agreement to be duly executed by their hands and under seal affixed hereto as of the day and year first above written.
[SIGNATURE PAGES ATTACHED]
36
SIGNATURE PAGE TO AGREEMENT
BY AND BETWEEN
HIGHWOODS REALTY LIMITED PARTNERSHIP,
JOHN L. TURNER, SR. and ROBERT GOLDMAN,
AND
ALLMAN SPRY LEGGETT & CRUMPLER, P.A.,
as Escrow Agent
Dated as of January 28, 2005
/s/ John L. Turner, Sr. |
John L. Turner, Sr. |
37
SIGNATURE PAGE TO AGREEMENT
BY AND BETWEEN
HIGHWOODS REALTY LIMITED PARTNERSHIP,
JOHN L. TURNER, SR. and ROBERT GOLDMAN,
AND
ALLMAN SPRY LEGGETT & CRUMPLER, P.A.,
as Escrow Agent
Dated as of January 28, 2005
/s/ Robert Goldman |
Robert Goldman. |
38
SIGNATURE PAGE TO AGREEMENT
BY AND BETWEEN
HIGHWOODS REALTY LIMITED PARTNERSHIP,
JOHN L. TURNER, SR. and ROBERT GOLDMAN,
AND
ALLMAN SPRY LEGGETT & CRUMPLER, P.A.,
as Escrow Agent
Dated as of January 28, 2005
HIGHWOODS REALTY LIMITED PARTNERSHIP, | ||
a North Carolina limited partnership | ||
By: | Highwoods Properties, Inc., a Maryland | |
corporation, its Sole General Partner | ||
By: |
/s/ Mack D. Pridgen III |
|
Name: | Mack D. Pridgen, III | |
Title: | Vice President |
39
SIGNATURE PAGE TO AGREEMENT
BY AND BETWEEN
HIGHWOODS REALTY LIMITED PARTNERSHIP,
JOHN L. TURNER, SR. and ROBERT GOLDMAN,
AND
ALLMAN SPRY LEGGETT & CRUMPLER, P.A.,
as Escrow Agent
Dated as of January 28, 2005
The undersigned, Escrow Agent herein, executes this Agreement for the purpose of agreeing to the provisions set forth in this Agreement relating to Escrow Agent and the Binder Deposit.
ESCROW AGENT | Allman Spry Leggett & Crumpler, P.A. | |||
By: |
/s/ Thomas T. Crumpler |
|||
Name: | Thomas T. Crumpler |
40
Exhibit 10.16
AGREEMENT
By and Between
HIGHWOODS REALTY LIMITED PARTNERSHIP,
A North Carolina Limited Partnership
and
JOHN L. TURNER, SR.,
ROBERT GOLDMAN, and
HENRY P. ROYSTER, JR.
and
Allman Spry Leggett & Crumpler, P.A.
as Escrow Agent
AGREEMENT TO MAKE PARTNERSHIP DISTRIBUTION |
1 | |
DESCRIPTION OF SUBJECT PROPERTY |
1 | |
REDUCTION OF THE DISTRIBUTEES CAPITAL INTEREST IN HIGHWOODS |
3 | |
Binder Deposit and Escrow Agents Duties and Rights |
3 | |
ACTIONS PENDING CLOSING |
6 | |
Survey and Plans |
6 | |
Initial Delivery of Documentation |
7 | |
Access to the Property |
7 | |
Matters of Title |
7 | |
Environmental Assessments |
8 | |
Investigation Rights |
8 | |
Termination Rights; Review Period |
9 | |
Highwoods Removal of Property From Market |
10 | |
ADDITIONAL AGREEMENTS OF THE PARTIES |
10 | |
Title to the Property |
10 | |
Permitted Exceptions |
11 | |
Representations and Warranties of Highwoods |
12 | |
Representations and Warranties of Distributees |
18 | |
Maintenance of the Property |
20 | |
Risk of Loss; Damage or Destruction; Condemnation |
21 | |
No Transfer of Personal Property |
21 | |
Compliance With Legal Requirements |
22 | |
Delivery of Notices |
22 | |
CONDITIONS PRECEDENT TO CLOSING |
22 | |
The Distributees Conditions |
22 | |
Highwoods Conditions. |
25 | |
CLOSING |
26 | |
Date |
26 | |
Highwoods Closing Documents |
26 | |
The Distributees Closing Documents |
27 | |
Closing Costs |
27 | |
Closing Adjustments |
28 | |
Taxes |
28 | |
Utilities |
28 | |
Rents |
29 | |
Calculations |
30 | |
Prepaids |
30 | |
Service Agreement Payments |
30 | |
Settlement After Closing |
30 | |
Leasing Commissions |
31 | |
Tenant Improvements |
31 | |
Equitable Adjustments |
32 | |
DEFAULT AND REMEDIES |
32 | |
OTHER PROVISIONS |
33 | |
Counterparts |
33 | |
Entire Agreement |
33 |
i
Construction |
33 | |
Applicable Law |
33 | |
Severability |
33 | |
Waiver of Covenants, Conditions and Remedies |
33 | |
Exhibits |
33 | |
Amendment |
33 | |
Relationship of Parties |
34 | |
Assignment |
34 | |
Further Acts |
34 | |
No Recording; Actions to Clear Title |
34 | |
Broker Commissions |
34 | |
Notices |
34 | |
Press Releases |
36 | |
Definition of Agreement Date |
36 | |
Survival of the Agreement |
36 | |
Exhibit A - Property Description |
||
Exhibit B - Personal Property |
||
Exhibit B-1 - Excluded Personal Property |
||
Exhibit C - Leases |
||
Exhibit C-1 - Service Maintenance Contracts |
||
Exhibit D Permitted Exceptions |
||
Exhibit E Tenant Estoppel Certificate |
||
Exhibit F - Form of Assignment of Leases |
ii
STATE OF NORTH CAROLINA
AGREEMENT
COUNTY OF FORSYTH
THIS AGREEMENT (this Agreement) is made and entered into as of the 11 th day of February, 2005, by and between HIGHWOODS REALTY LIMITED PARTNERSHIP, a North Carolina Limited Partnership (Highwoods) and JOHN L. TURNER, SR., ROBERT GOLDMAN, and HENRY P. ROYSTER, JR. (the Distributees) and Allman Spry Leggett & Crumpler, P.A. (Escrow Agent).
W I T N E S S E T H :
WHEREAS, the Distributees are limited partners in Highwoods and the Distributees and Highwoods have agreed that Highwoods will make a current in-kind distribution of property to the Distributees in reduction of the Distributees capital interest in Highwoods. It is intended that Highwoods distribution of property to the Distributees will be a non-taxable distribution of property pursuant to Section 731(a) of the Internal Code 1986 as amended.
WHEREAS, Highwoods and the Distributees desire to enter into this Agreement to incorporate all prior negotiations and dealings of the parties with respect to the transaction contemplated hereby.
NOW, THEREFORE, in consideration of the mutual covenants and conditions contained herein, the payment of earnest money, and other good and valuable consideration, receipt of which is hereby acknowledged by Highwoods, the parties hereto agree as follows:
1. AGREEMENT TO MAKE PARTNERSHIP DISTRIBUTION . Highwoods agrees to distribute, assign and convey to the Distributees, and the Distributees agree to accept such distribution and conveyance from Highwoods, of a twenty-five percent (25%) interest in the Land, the Improvements and the Lease as defined and described in Section 2 hereof. The distribution by Highwoods to each Distributee as described above shall consist of the following percentage interests in the Land, the Improvements, and the Lease (the Relative Percentage Interests): as tenants in common with the other Distributees:
(i) |
Henry P. Royster, Jr. | - | 9.3950 | % | |||
(ii) |
John L. Turner, Sr. | - | 7.8025 | % | |||
(iii) |
Robert Goldman | - | 7.8025 | % |
2. DESCRIPTION OF SUBJECT PROPERTY . The property owned by Highwoods which is the subject of this Agreement is as follows:
(a) that tract containing approximately 5.459 acres of land and being described on Exhibit A (attached hereto and incorporated herein by reference), together with all right-of-ways and easements appurtenant thereto (said tract being commonly known as 2599 Empire Drive, Winston-Salem, North Carolina and being hereinafter referred to as the Land).
1
(b) All of Highwoods right, title and interest in and to all rights, privileges, and easements appurtenant to the Land, including all water rights, rights-of-way, roadways, parking areas, roadbeds, alleyways and reversions or other appurtenances used in connection with the beneficial use of the Land.
(c) All improvements, buildings, structures, related amenities and fixtures located on the Land and owned by Highwoods including, without limitation, that warehouse building containing approximately 89,600 square feet (hereinafter referred to as the Building), any and all other buildings, structures and amenities currently located on the Land, all fixtures, apparatus, equipment, vaults, machinery and built-in appliances used in connection with the operation and occupancy of the Land such as heating and air conditioning systems, electrical systems, plumbing systems, sprinkler and other fire protection and life safety systems, refrigeration, ventilation, or other facilities or services on the Land (all of which are together hereinafter called the Improvements).
(d) Except as hereinafter set forth, all personal property to be described on Exhibit B pursuant to Section 4(b) hereof located on or in or used exclusively in connection with the Land and Improvements and owned by Highwoods and used or usable in the operation of the Property (as defined below) including, without limitation, fittings, appliances, shades, furniture, furnishings, and other furnishings or items of personal property used or usable in connection with the Buildings HVAC systems, but excluding all personal property located on the Land or in the Building owned by the tenant thereof or contractors who provide service to the Building or is not otherwise owned by Highwoods (hereinafter called the Personal Property). Notwithstanding the above, the Personal Property being purchased hereby shall not include those items of Personal Property described on Exhibit B-1 , attached hereto and incorporated herein by reference. After the date of this Agreement, Highwoods shall not remove any Personal Property from the Building, Land or Improvements without the prior written consent of the Distributees.
(e) All of Highwoods interest, if any, in the intangible property now or hereafter owned by Highwoods and used or usable in connection with the Property, Land, Improvements or Personal Property, that lease of the Building set forth on Exhibit C (the Lease), ground leases, subleases, prepaid rent, security deposits, contract rights, escrow deposits, utility agreements, guaranties, warranties, zoning rights or other rights related to the ownership of or use and operation of said Property, but excluding the rights to use the trade style name Highwoods Properties, and derivations thereof and any other trademarks used in connection therewith. A list of the service, maintenance and/or management contracts affecting or relating to the Property (the Service Contracts), some of which the Distributees may agree to assume prior to Closing, and all guaranties and warranties relating to the Property which are assignable together with a description of all pertinent terms and provisions of such Service Contracts, guaranties and warranties shall be set forth in Exhibit C-1 and attached hereto prior to Closing. All Service Contracts that are not assumed by the Distributees shall be terminated at or before Closing.
All of the items of property described in Subsections (a), (b), (c), (d) and (e) above are hereinafter collectively called the Property.
2
It is hereby acknowledged by the Distributees that Highwoods shall not convey to the Distributees claims relating to any real property tax refunds or rebates for periods occurring prior to Closing, (as hereinafter defined), existing insurance claims and any existing claims against the tenant or former tenants of the Property related to claims or causes of actions which arise prior to the Closing Date, which claims shall be reserved by Highwoods.
3. | REDUCTION OF THE DISTRIBUTEES CAPITAL INTEREST IN HIGHWOODS. |
Subject to the terms and conditions of this Agreement, the Distributees agree that their capital interest in Highwoods shall be reduced by Five Hundred Thirty-Seven Thousand Five Hundred and no/100 Dollars ($537,500.00) in the aggregate, (subject to prorations and adjustments as described herein) as the result of the distribution of the Property by Highwoods to the Distributees, with each such Distributees capital interest being reduced by the following amounts, which may be modified as a result of the Closing Adjustments described in Section 7(e) hereof (the Redemption Amount):
Henry P. Royster, Jr. |
- | $ | 201,969.62 | ||
John L. Turner, Sr. |
- | $ | 167,765.19 | ||
Robert Goldman |
- | $ | 167,765.19 |
This reduction in each Distributees capital interest in Highwoods shall occur by the redemption from each Distributee of that number of partnership units owned by each Distributee in Highwoods (the Partnership Units) determined by dividing each Distributees Redemption Amount by the average of the closing prices of the common stock of Highwoods Properties, Inc. (Highwoods general partner) as listed on the New York Stock Exchange on the ten (10) business days immediately preceding the date of the Closing of the transaction contemplated by this Agreement.
(a) Binder Deposit and Escrow Agents Duties and Rights . Within five (5) business days after the full execution of this Agreement, the Distributees shall pay and deliver to the Escrow Agent in United States currency the sum of Twenty Thousand and No/100 Dollars ($20,000.00) as a binder deposit (such amount, together with all interest earned thereon, being referred to herein as the Binder Deposit). Escrow Agent shall hold the Binder Deposit in trust for the mutual benefit of the parties, subject to the following terms and conditions:
(i) Escrow Agent shall deposit the Binder Deposit in an interest bearing account in an institution as directed by the Distributees, and reasonably acceptable to Highwoods, in Winston-Salem, North Carolina. The Binder Deposit, plus all accrued interest thereon, shall be returned to the Distributees at the Closing of this transaction. Otherwise, the Binder Deposit shall be delivered by Escrow Agent to Highwoods or refunded by Escrow Agent to the Distributees in accordance with the terms of this Agreement.
3
(ii) In the event the transaction contemplated by this Agreement is not closed solely because of any default on the part of Highwoods, or if any of the conditions precedent set forth in Section 6 fail to be satisfied at Closing, or if the Distributees terminate their obligations as allowed herein pursuant to any other provision of this Agreement, then the Escrow Agent shall pay to the Distributees the Binder Deposit, including interest which has accrued thereon. To allow the interest bearing account to be opened, the Distributees and Highwoods tax identification numbers are set forth below their signatures at the end of this Agreement. Escrow Agent is executing this Agreement to acknowledge Escrow Agents responsibilities hereunder, which may be modified only by a written amendment signed by all of the parties. No such amendment shall be binding on the Escrow Agent unless it has been signed by the Escrow Agent. Escrow Agent shall accept the Binder Deposit with the understanding of the parties that Escrow Agent is not a party to the Agreement except to the extent of its specific responsibilities hereunder; and does not assume or have any liability for the performance or non-performances of Highwoods or the Distributees hereunder to either of them.
(iii) In the event the transaction contemplated by this Agreement is not closed solely because of any default on the part of the Distributees, then the Escrow Agent shall pay to Highwoods the Binder Deposit including interest which has accrued thereon, and, except for the Distributees Continuing Indemnification Obligations (as defined in Section 4(f) below), such payment shall be the Distributees only liability to Highwoods as the result of such breach and shall be considered liquidated damages, as Highwoods actual damages as a result of the Distributees breach of its obligation hereunder shall be difficult, if not impossible, to ascertain.
(iv) Within two (2) days after execution of this Agreement, the Distributees and Highwoods shall deposit a copy of this Agreement executed by them with Escrow Agent, and, upon receipt of the Binder Deposit from the Distributees, Escrow Agent shall immediately execute this agreement where provided below. This Agreement, together with such further instructions, if any, as the parties shall provide to Escrow Agent by written agreement, shall constitute the escrow instructions. If any requirements relating to the duties or obligations of Escrow Agent hereunder are not acceptable to Escrow Agent, or if Escrow Agent requires additional instructions, the parties hereto agree to make such deletions, substitutions and additions hereto as counsel for the Distributees and Highwoods shall mutually approve, which additional instructions shall not substantially alter the terms of this Agreement unless otherwise expressly agreed to by Highwoods and the Distributees.
4
(v) Escrow Agent shall hold the Binder Deposit in accordance with the terms and provisions of this Agreement, subject to the following:
(A) Escrow Agents duties hereunder shall be limited to investing, administering and disbursing the Binder Deposit, and Escrow Agent shall have no additional duties or responsibilities hereunder (in its role as Escrow Agent) in connection with the Closing. Escrow Agent undertakes to perform only such duties as are expressly set forth in this Agreement and no implied duties or obligations shall be read into this Agreement against Escrow Agent.
(B) Escrow Agent may act in reliance upon any writing or instrument or signature which it, in good faith, believes of any statement or assertion contained in such writing or instrument, and may assume that any person purporting to give any writing, notice, advice or instrument in connection with the provisions of this Agreement has been duly authorized to do so. Escrow Agent shall not be liable in any manner for the sufficiency or correctness as to form, manner and execution, or validity of any instrument deposited in escrow, nor as to the identity, authority, or right of any person executing the same, and Escrow Agents duties under this Agreement shall be limited to those provided in this Agreement.
(C) Unless Escrow Agent discharges any of its duties under this Agreement in a negligent manner or is guilty of willful misconduct with regard to its duties under this Agreement, Highwoods and the Distributees shall indemnify Escrow Agent and hold it harmless from any and all claims, liabilities, losses, actions, suits or proceedings at law or in equity which it may incur or with which it may be threatened by reason of its acting as Escrow Agent under this Agreement; and in such connection Highwoods and the Distributees shall indemnify Escrow Agent against any and all expenses including reasonable attorneys fees and the cost of defending any action, suit or proceeding or resisting any claim in such capacity.
(D) If the parties (including Escrow Agent) shall be in disagreement about the interpretation of this Agreement, or about their respective rights and obligations, or the propriety of any action contemplated by Escrow Agent, Escrow Agent may, but shall not be required to, file an action in interpleader to resolve the disagreement. Escrow Agent shall be indemnified for all costs and reasonable attorneys fees in its capacity as Escrow Agent in connection with any such interpleader action and shall be fully protected in suspending all or part of its activities under this Agreement until a final judgment in the interpleader action is received.
(E) Escrow Agent may consult with counsel of its own choice and have full and complete authorization and protection in accordance with the opinion of such counsel. Escrow Agent shall otherwise not be liable for any mistakes of fact or errors of judgment, or for any acts or omissions of any kind, unless caused by its negligence or willful misconduct.
5
(F) The Escrow Agent may in its sole discretion resign by giving thirty (30) days written notice thereof to the Distributees and Highwoods. The Distributees and Highwoods shall furnish to the Escrow Agent written instructions for the release of the escrow funds and escrow documents in such event. If the Escrow Agent shall not have received such written instructions, the Escrow Agent may petition any court of competent jurisdiction for the appointment of a successor Escrow Agent, and upon such appointment deliver the escrow funds and escrow documents to such successor.
(G) If costs and expenses (including attorneys fees) are incurred by Escrow Agent because of litigation of any dispute between Highwoods and the Distributees arising out of the holding of the Binder Deposit, the non-prevailing party ( i.e. , either Highwoods or the Distributees) shall reimburse Escrow Agent for such reasonable costs and expenses incurred. Highwoods and the Distributees hereby agree and acknowledge that Escrow Agent assumes no liability in connection with the holding or investment of the Binder Deposit pursuant hereto, except for the negligence or willful misconduct of Escrow Agent and its employees and agents. Escrow Agent shall not be responsible for the validity, correctness or genuineness of any document or notice referred to herein; and, in the event of any dispute under this Agreement relating to the disposition of the Binder Deposit, Escrow Agent may seek advice from its own counsel and shall be fully protected in any action taken in good faith in accordance with the opinion of Escrow Agents counsel.
(H) Escrow Agents address for purpose of mailing or delivering documents and notices hereunder is as follows:
Allman Spry Leggett & Crumpler, P.A.
380 Knollwood Street, Suite 700
Winston-Salem, NC 27103-4152
Attention: Thomas T. Crumpler, Esquire
Telephone: (336) 722-2300
Telecopier: (336) 721-0414
Provisions with respect to notices set forth herein shall apply with respect to notices given by or to Escrow Agent hereunder.
4. | ACTIONS PENDING CLOSING . |
(a) Survey and Plans . The Distributees may cause to be secured and delivered to the Distributees prior to the end of the Review Period (as defined in Section 4(g) below) a
6
current physical and boundary survey (the Survey) of the Land and Improvements prepared by a North Carolina registered land surveyor or licensed engineer which shall be certified to the Distributees which shall contain such documentation and certifications as the Title Company (as defined in Section 5[a]) may require. The Distributees agree to pay for the cost of the Survey. The Survey shall be used for a description of the Land contained in the deed of conveyance of the Land from Highwoods to the Distributees and in all other documents related to this transaction which require a legal description [including, without limitation, such description as is required for the Title Policies described under Section 5(a)]. In the event the Survey reveals anything which materially or adversely affects the Property in the sole reasonable discretion of the Distributees, the Distributees shall give notice to Highwoods of those matters objected to by the Distributees in the Survey prior to the last day of the Review Period. Highwoods shall then have the right, but not the obligation, for a period of ten (10) business days to cure any defects or objectionable matters specified by the Distributees. In the event that Highwoods fails or is unwilling to cure such defects to the reasonable satisfaction of the Distributees counsel at Highwoods sole cost and expense, the Distributees may proceed to a Closing subject to the defect, or by written notice to Highwoods, terminate this Agreement and receive a refund of the Binder Deposit, or otherwise allow this Agreement to expire.
(b) Initial Delivery of Documentation . At the time of the execution of this Agreement or within five (5) business days thereafter, Highwoods shall provide to the Distributees the following: (i) a list of all the personal property described in Section 2 above which shall be attached hereto as Exhibit B , (ii) true, correct and complete copies of all service, maintenance, utility and other contracts related to the Property, including any warranties or guaranties, a list of which shall be attached hereto as Exhibit C-1 , (iii) all title information related to the Land in Highwoods possession or available to Highwoods including but not limited to, title insurance policies, attorneys opinions on title and existing surveys, (iv) all environmental, engineering or similar reports and drawing/specifications relating to the Land, Building or Improvements in Highwoods possession, (v) a true, correct and complete copy of the Lease and any amendments or guaranties of such Lease, (vi) all income and expense records related to the Property for the year 2003 and 2004; and (vii) a current rent roll of the Building. To the knowledge of Highwoods, the information to be delivered to the Distributees pursuant to this subsection is true and correct in every material respect.
(c) Access to the Property . Subject to Section 4(f) of this Agreement, Highwoods shall give the Distributees and its agents, engineers and other representatives, reasonable access to the Property.
(d) Matters of Title . If any objection to the Title Report (as defined in Section 5[a] hereof) or the Survey (or existing survey(s), if applicable) is identified by the Distributees, Highwoods shall use its commercially reasonable efforts to resolve such objection to the Distributees satisfaction provided the cost of such resolution does not exceed Twenty-Fifty Thousand and No/100 Dollars ($25,000). In the event that Highwoods cannot or refuses to cure an objection to the Title Report or the Survey (or existing survey[s]) which remains unacceptable to the Distributees, then and in that event, the Distributees may terminate this Agreement without any further claim or obligation of any kind to Highwoods, except for the Distributees Continuing Indemnification Obligation (as defined in Section 4(f) below) or in the alternative, consummate the Closing in accordance with the terms of Section 5(a) below.
7
(e) Environmental Assessments . Prior to Closing, the Distributees at their sole expense, and upon reasonable notice to Highwoods, may cause to be undertaken and completed a current Phase I Environmental Site Assessment of the Land (the Environmental Assessment). The Environmental Assessment shall be performed by environmental inspection and engineering firms selected by the Distributees. The Distributees shall determine from the Environmental Assessment and from such other information available to the Distributees, in its sole discretion, whether or not the Property is likely to be contaminated by hazardous or toxic waste, substances or materials (including but not limited to, asbestos, PCBs or petroleum products) as defined under any applicable federal, state or local laws, statutes, orders, rules, regulations, permits or approvals. In the event that contamination or any other adverse environmental condition is found to likely exist at the Property, or in the event that such Environmental Assessment recommends additional testing and Highwoods refuses to consent to such testing (which consent may be withheld by Highwoods in its sole discretion), the Distributees reserves the right to terminate this Agreement and receive a refund of the Binder Deposit. If Highwoods withholds its consent for the Distributees to do additional environmental testing of the Land, and the Distributees terminate this Agreement as the result thereof, Highwoods will pay to the Distributees its due diligence costs reasonably incurred during the Review Period, and any fees forfeited by the Distributees to its lender as the result of the Distributees termination of this Agreement as the result of Highwoods refusal to allow the Distributees to conduct further environmental tests of the Land. Highwoods has no obligation to the Distributees to remediate any environmental contamination on the Land discovered by the Distributees or the Distributees engineers. As stated above, the Distributees will not conduct a Phase II Environmental Assessment of the Property without Highwoods written consent, which consent may be withheld in Highwoods sole discretion.
(f) Investigation Rights . From the Agreement Date until such time as this Agreement is either settled or terminated, the Distributees, the Distributees authorized agents, employees, consultants, architects, engineers and contractors, as well as others authorized by the Distributees, shall have access to the Property and shall be entitled to enter upon the Property and make such surveying, architectural, engineering, topographical, geological, soil, subsurface, environmental, water drainage, traffic, and other studies related to the availability of water, sewer, natural gas, and other utility services in sufficient quantities to meet the Distributees requirements and such other investigations, inspections, evaluations, studies, tests and measurements (collectively, the Investigations) as the Distributees deem necessary or advisable. Provided, however, the Distributees rights hereunder to conduct Investigations shall be subject to the following requirements and limitations: (i) any entry upon the Property by the Distributees, the Distributees authorized agents and employees, as well as others authorized by the Distributees shall require at least twenty-four (24) hours advance notice to Highwoods of the date and time of the entry and the specific Investigations to be conducted in connection with the entry, (ii) the Investigations shall not result in any adverse change to the physical characteristics of the Property (and the Distributees shall be obligated to completely repair and restore any damage to the Property resulting from the Investigations), and (iii) the Investigations will not substantially or adversely interfere with the rights of the tenant in the Building to use and enjoy
8
its leased space therein according to its Lease thereof. The Distributees agree to indemnify and hold Highwoods harmless from and against any and all claims, costs, expenses, and liabilities, including reasonable attorneys fees, arising out of claims for injury, including death, to persons or physical injury to property resulting from the Investigations (hereinafter the The Distributees Continuing Indemnification Obligations); provided, however, the Distributees shall not be obligated to indemnify Highwoods from and against any claims, costs, expenses, and liabilities caused by or arising out of the acts or omissions of Highwoods or Highwoods employees, representatives or agents, or from the presence or release of Hazardous Substances (as defined in Section 5(c) herein) not introduced onto the Property by the Distributees or the Distributees authorized agents and employees or other entities conducting the Investigations. Highwoods shall be entitled to have one or more representatives present to observe the Investigations on the Property. The Distributees shall not be entitled to conduct any environmental Investigations on the Property beyond a Phase I environmental site assessment ( i.e. no sampling, drilling, etc.) without first obtaining Highwoods prior written consent, which consent may be withheld by Highwoods, in Highwoods sole discretion. Notwithstanding any term or provision herein to the contrary, the provisions in this Agreement [including in this Section 4(f)] relating to the Investigations shall apply to all Investigations conducted by the Distributess and the Distributees authorized agents, employees, consultants, architects, engineers and contractors both prior to the Agreement Date and from and after the Agreement Date.
The Distributees will remain responsible and liable to Highwoods for the Continuing Indemnification Obligations and the full amount of actual damages suffered by Highwoods resulting from the Distributees Investigation after the completion of the Closing hereunder, the termination of this Agreement by the Distributees or Highwoods or a default by the Distributees under this Agreement.
(g) Termination Rights; Review Period . The Distributees shall have the unqualified right, in the Distributees sole and absolute discretion, to terminate this Agreement by giving written notice of such election at any time from the Agreement Date until 5:00 p.m. Eastern Standard time on the February 28, 2005 (30 th ) (such period of time until February 28, 2005 being referred to herein as the Review Period). In the event the Distributees properly and timely terminates this Agreement pursuant to this Section 4(g); Escrow Agent shall promptly refund all but One Hundred and No/100 Dollars ($100) of the Binder Deposit to the Distributees (such $100 payment to Highwoods being the consideration paid by the Distributees for the right to terminate this Agreement pursuant to this Section 4(g)), whereupon the parties hereto shall have no further rights, obligation or liabilities to each other hereunder, except for the Distributees Continuing Indemnification Obligations. Time is of the essence with respect to this right to terminate. The failure of the Distributees to provide such notice of termination prior to the expiration of the Review Period shall be deemed conclusively a waiver of the Distributees termination rights under this Section 4(g); and in such event, except in the case of a default by Highwoods hereunder (which shall be governed by the terms of Section 8 herein) or failure of any condition precedent to the Distributees obligation to close, and except in the event of the termination of this Agreement by either party pursuant to any specific termination right set forth herein which requires the return of the Binder Deposit to the Distributees, the Binder Deposit shall be deemed for all purposes under this Agreement to be nonrefundable to the Distributees and earned by Highwoods.
9
(h) Highwoods Removal of Property From Market . Until the end of the Review Period, or earlier termination of this Agreement, Highwoods shall remove the Property from the market and not have discussions with prospective purchasers thereof, and will not solicit or accept any offers, whether or not binding, regarding the Property during the Review Period and thereafter until the Closing of the transaction contemplated hereby occurs or until the earlier termination of this Agreement.
5. | ADDITIONAL AGREEMENTS OF THE PARTIES . |
(a) Title to the Property . At the Closing, Highwoods shall deliver to the Distributees a limited warranty deed in form and content satisfactory to the Distributees counsel with transfer tax, if any, paid at Highwoods expense, conveying to the Distributees a good, indefeasible, fee simple title to the Land, its appurtenances and Improvements, said title to be insurable both as to fee and marketability at regular rates by Chicago Title Insurance Company (the Title Company), subject only to those matters enumerated in Section 5(b)(i)-(vi) below (Permitted Exceptions). Prior to the end of the Review Period, the Distributees shall procure from HPI Title Agency, LLC, at the Distributees cost, a current title commitment for title insurance issued by the Title Company showing the condition of title to the Land, its appurtenances and Improvements (the Title Report). If, prior to the end of the Review Period, the Distributees disapproves of any matter of title contained in the Title Report, the Distributees may then elect to provide written notice of the Distributees disapproval of the same to Highwoods (those disapproved title matters as so identified by the Distributees are hereinafter called the Disapproved Exceptions). Highwoods agrees to commit its commercially reasonable efforts to remove any Disapproved Exception, provided the cost thereof does not exceed Twenty-Five Thousand and No/100 Dollars ($25,000). However, in the event that as provided in Sections 4(a) and (d) above, the Distributees proceed to and consummate the Closing subject to a Disapproved Exception, such Disapproved Exception shall then be deemed to be a Permitted Exception. Any expenses incurred in obtaining such title insurance commitment (including, without limitation, those incurred by an attorney in conducting the necessary title search) shall be borne by the Distributees. The title insurance premium for the title insurance policy issued by the Title Company pursuant to the title commitment (the Title Policy) shall be borne by the Distributees. The Title Policy shall provide full coverage against mechanics or materialmens liens, shall commit full survey coverage (if the Distributees procure a Survey of the Land) and such other coverages and endorsements as shall be reasonably required by the Distributees. If the Distributees request any endorsements to the Title Policy, the Distributees will be responsible for the cost attributable thereto.
The Distributees may, at or prior to Closing, notify Highwoods in writing (the Gap Notice) of any objections to title raised by the Distributees Counsel or the Title Company between the issuance of the Title Report and the Closing, which did not exist as of the date of the issuance of the Title Report (New Encumbrances). If the Distributees send a Gap Notice to Highwoods, but the New Encumbrance is the result of some act that is beyond the control of Highwoods, then the Distributees and Highwoods shall have the same rights and obligations with
10
respect to such notice as apply to a Disapproved Exception under Sections 5(a) and 5(b) hereof. However, in the event the New Encumbrance results from any action or omission of Highwoods (with the exception of New Encumbrances which can be cured by a monetary payment which the Distributees have, and shall have, the absolute right of making such payment and reducing by a like amount the value of the Distributees capital interest in Highwoods, to be reduced as a result of this transaction), the Distributees shall be entitled to terminate this Agreement, receive a refund of the Binder Deposit, and reimbursement from Highwoods of the costs, fees and expenses incurred by the Distributees related to this Agreement and the Property.
(b) Permitted Exceptions . The Land, its appurtenances and the Improvements shall be conveyed by Highwoods to the Distributees free and clear of all liens, encumbrances, claims, rights-of-way, easements, leases, restrictions and restrictive covenants, except the following Permitted Exceptions:
(i) Public utility easements and rights-of-way in customary form, so long as no Improvements are located thereon and they do not interfere with the use of the Property for office, warehouse and related commercial purposes permitted by the Lease or materially affect the value of the Property;
(ii) Zoning and building laws or ordinances, provided they do not prohibit the use of the Property for office, warehouse and related commercial purposes permitted by the Lease and so long as the Property is in compliance with same;
(iii) Ad valorem real estate taxes for any year in which they are not yet due and payable as of the date of Closing; and
(iv) Those matters which the Distributees have elected to accept;
(v) Items shown on the Survey and not objected to by the Distributees or waived by the Distributees in accordance with Section 4(a) hereof.
(vi) Those Permitted Exceptions listed on Exhibit D , so long as they to not interfere with the use of the Property for office, warehouse and related commercial purposes permitted by the Lease or materially affect the value of the Property.
If, in the opinion of the Distributees counsel, the Distributees are not able to procure an owners title insurance commitment from the Title Company prior to Closing, complying with the requirements of this Section 5, the Distributees shall have the option of taking title as is and consummating the Closing, or terminating this Agreement. Notwithstanding any other provision contained herein to the contrary, if the title defect(s) which may include, without limitation, a Disapproved Exception, is a mortgage, lien, judgment, assessment, unpaid taxes or tax which can be cured by a monetary payment (and with respect to which affirmative title insurance coverage is not available at the Title Companys standard rates) the Distributees have, and shall have, the absolute right of making such payment and reducing by a like amount the value of the capital interest of the Distributees in Highwoods to be reduced as a result of this transaction.
11
(c) Representations and Warranties of Highwoods . Highwoods hereby makes the following representations and warranties to the Distributees:
(i) There are no options to purchase the Property which are effective, nor has Highwoods previously entered into any contract of sale of the Property with a party other than the Distributees which is presently effective. After the date hereof and until Closing, or until this Agreement is otherwise terminated, Highwoods will not enter into any agreement or contract or negotiate with any party other than the Distributees with respect to the sale of the Property, nor, will Highwoods pledge or assign any right, title, interest in or to the Property or any part thereof to any person or entity.
(ii) All bills and claims for labor performed and services and materials furnished to or for the benefit of the Property have been or will be paid in full by Closing, and there are no mechanics liens or materialmens liens on or affecting the Property. If any mechanics or materialmens lien is filed on or affecting the Property for work, labor or materials, Highwoods shall indemnify and save the Distributees harmless from, or bond over, such lien and cause the Title Company to eliminate any exception therefor from the Title Policy issued to the Distributees.
(iii) As of the date of the Agreement, except as otherwise set forth on Exhibit C , there are no leases, subleases, licenses or other rental agreements or occupancy agreements (written or verbal) which grant any possessory interest in and to any space situated on or in any of the Property or that otherwise give rights with regard to use of any portions of any of the Property and except as set forth on Exhibit C-1 , there are no commissions due with respect to any such lease, sublease, etc., nor, except as set forth on Exhibit C-1 , will any commissions be due in connection with the renewal of any such lease, sublease, etc.
(iv) Except as set forth on Exhibit C-1 , neither Highwoods, nor to the knowledge of Highwoods, any other party, has entered into any construction, design, engineering, service, maintenance, supply, brokerage/leasing agreements, employment agreements, management contracts or leases of personal property (collectively, Service/Equipment Contracts) affecting the construction, use, ownership, maintenance or/or operation of the Property that will continue subsequent to the Closing. Prior to or on the Closing Date, Highwoods shall terminate, at Highwoods sole cost and expense, all Service/Equipment Contracts which the Distributees do not elect to assume in writing; or, if not terminable by the Closing Date, shall remain responsible for and will timely perform all of the obligations thereunder. To Highwoods knowledge, Highwoods is not in material default under any of the Service/Equipment Contracts and, to Highwoods knowledge, no other parties to any of the Service/Equipment Contracts are in
12
default, nor do any conditions exist that, with the passage of time, or giving of notice, or both, shall constitute a default thereunder. The copies of the Service/Equipment Contracts provided to the Distributees pursuant to this Agreement are true, accurate and complete as of the date hereof, are in full force and effect and none of them have been modified, amended or extended except as otherwise set forth on Exhibit C-1 .
(v) To the knowledge of Highwoods, which knowledge is based solely on the Phase I Environmental Site Assessment of the Land dated , conducted by (The Environmental Report), the Property has not been used for the generation, treatment, storage or disposal of any hazardous substances in violation of any federal, state or local environmental law, rule or violation during the period in which Highwoods has owned the property. For the purposes of this Section 5(c)(v), hazardous substances shall include (i) hazardous substances as defined in the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, 42 U.S.C. § 9601 et seq ., as amended, or by any regulations promulgated thereunder; (ii) any hazardous waste, underground storage tanks, petroleum, regulated substance, or used oil as defined by the Resource Conservation and Recovery Act of 1976 (42 U.S.C. § 6901 et. seq .), as amended or by any regulations promulgated thereunder; (iii) any oil or other hazardous substances as defined by the Oil and Hazardous Substances Control Act of 1986 as amended, and any regulations adopted pursuant to said Act, or any similar environmental protection law of the state in which the Property is located or its political subdivisions. To the knowledge of Highwoods, which knowledge is based solely on the Environmental Report, no asbestos or asbestos-containing materials have been installed, used, incorporated into or disposed of on the Property. To the knowledge of Highwoods, which knowledge is based solely on the Environmental Report, no polychlorinated biphenyls (PCBs) are located on or in the Property, whether such PCBs are in the form of electrical transformers, florescent light fixtures with ballast, cooling oils or any other device or form. To the knowledge of Highwoods, which knowledge is based solely on the Environmental Report, except as set forth in the Environmental Report, no underground storage tanks are located on the Property or were located on the Property and subsequently removed or filled. To the knowledge of Highwoods, but without having made any independent investigation, no investigation, administrative order, consent order and agreement, litigation, or settlement with respect to hazardous substances is proposed, threatened, anticipated or in existence with respect to the Property.
(vi) Neither the entering into of this Agreement nor the consummation of the transaction contemplated hereby will constitute or result in a violation or breach by Highwoods of any judgment, order, writ, injunction or decree issued against or imposed upon it, or will result in a violation of any applicable law, order, rule or regulation of any governmental authority. There are no actions, suits, proceedings, arbitrations or investigations pending or, to Highwoods
13
knowledge, threatened (i) against, relating to or affecting Highwoods which might interfere in a material respect with the transaction contemplated by this Agreement, become an encumbrance on the title to the Property or any portion thereof or otherwise affect the Property or Highwoods ability to consummate the transaction contemplated hereby or (ii) against, relating to or affecting the Property.
(vii) Highwoods has not received notice:
(A) From any federal, state, county or municipal authority alleging any fire, health, safety, building, pollution, environmental, zoning or other violation of law in respect of the Property or any part thereof, including, without limitation, the occupancy or operation thereof, which has not been entirely corrected;
(B) Concerning the possible or anticipated condemnation of any part of the Property, or the widening, change of grade or limitation on use of streets abutting the same or concerning any special taxes or assessments levied or to be levied against the Property or any part thereof;
(C) Concerning any change in the zoning or other land use classification of the Property or any part thereof;
(D) Of any pending insurance claim related to the Property;
(E) From any governmental authority that any licenses, permits, certificates, easements and rights of way, including proof of dedication, required from all authorities having jurisdiction over the Property or from private parties for the existing use, occupancy and operation of the Property and to insure vehicular and pedestrian ingress to and egress from the Property are in violation of any governmental laws or regulations, which has not been corrected or will not be corrected by Closing.
(viii) No attachment, execution, assignment for the benefit of creditors or voluntary proceedings in bankruptcy has been commenced by Highwoods or are contemplated by Highwoods and, to the best of Highwoods knowledge, no such action has been contemplated or threatened, nor has any involuntary proceedings in bankruptcy been commenced against Highwoods.
(ix) Highwoods has full power and authority to enter into this Agreement and to assume and perform all of its obligations hereunder; the execution and delivery of this Agreement and the consummation of the transactions contemplated hereunder on the part of Highwoods do not and will not violate the partnership agreement or certificate of limited partnership of Highwoods and do not and will not conflict with or result in the breach of any
14
condition or provision of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon the Property by reason of the terms of any contract, mortgage, lien, lease, agreement, indenture, instrument or judgment to which Highwoods is a party or which is or purports to be binding upon Highwoods or which affects Highwoods; and no action by any federal, state or municipal or other governmental department, commission, board, bureau or instrumentality is necessary to make this Agreement a valid instrument binding upon Highwoods in accordance with its terms;
(x) Highwoods is a limited partnership duly organized, validly existing and in good standing under the laws of the State of North Carolina. Highwoods has full power and authority to carry on its business as now conducted and to own, lease and operate its properties and assets now owned or leased and operated by it;
(xi) Highwoods is not a foreign person within the meaning of Section 1445(f) of the Internal Revenue Code, and Highwoods agrees to execute any and all documents necessary or required by the Internal Revenue Service or the Distributees in connection with such declaration(s).
(xii) Subject to Highwoods general partners board of directors approval of this transaction, this Agreement does and will, and the documents required to be executed by Highwoods pursuant to this Agreement will, constitute the valid and binding obligations of Highwoods enforceable in accordance with their respective terms subject to bankruptcy, receivership and similar laws affecting the rights of creditors generally.
(xiii) Notwithstanding anything else herein to the contrary, Highwoods represents to the Distributees that the Building is leased to the tenant and for the lease term set forth on the rent roll attached hereto as Exhibit C and that the Property is subject to those service and maintenance contracts set forth on Exhibit C-1 attached to this Agreement. With respect to such Lease, Highwoods represents as follows:
(A) Highwoods has not collected any prepaid rent in advance in excess of rent for the month during which the Closing is to occur.
(B) No rents or leases have been assigned by Highwoods.
15
(C) The Lease is in full force and effect, has been validly executed by the landlord and tenant, and has not been amended or modified as to any items except as set forth in the Rent Roll;
(D) The summary of the Lease set forth in Exhibit C is accurate in all material respects and, there are no subleases thereof;
(E) The Lease will be free and clear of all liens and encumbrances on the date of the Closing contemplated hereby
(F) Highwoods has taken no action, by act or omission, which constitutes the waiver of a default by the tenant under the Lease, except as herein specifically provided;
(G) Highwoods has fulfilled all of the landlords duties and obligations under the Lease including the completion of all upfittings, construction, decoration and alteration work which Highwoods is obligated to perform under the Lease.
(H) Highwoods or a previous landlord under the Lease has fulfilled all of the landlords duties and obligations under the Lease with respect to any leasing commissions or other compensation due arising out of any leasing, agency, brokerage or management agreements relating to the Lease which may be due and owing as of the Closing Date.
(I) Highwoods and the tenant under the Lease is not in default under any of the terms and provisions of said Lease, and Highwoods has received no notice, of any alleged default in connection with said Lease;
(J) There are no other rent concessions or set-offs against rent, nor has the tenant under the Lease asserted any defense, set-off, or counterclaim in connection with said Lease
(xiv) With respect to Services/Equipment Contracts:
(A) There are no contracts or agreements for services rendered in connection with the operation of the Property which the Distributees shall be required to take the Property subject to, except as agreed to by the Distributees and expressly assumed under the terms of the Assignment of Contracts.
(B) Highwoods shall not, without Distributees consent, negotiate or enter into any new service or other contract affecting the Property which cannot be terminated without cost to the Distributees on or before the Closing.
16
All representations and warranties of Highwoods contained in this Agreement are true, accurate and correct in all material respects as of the date hereof and, if Highwoods believes such representations and warranties continue to be true at Closing, Highwoods shall deliver to the Distributees at Closing a certificate certifying that they are still true, accurate and correct in all material respects as of the Closing Date. Notwithstanding the foregoing, the Distributees shall have no claim against Highwoods for any representation or warranty which, although true upon the execution hereof, is untrue or inaccurate at Closing as a result of facts, circumstances or occurrences beyond the control of or not within the knowledge of Highwoods. For purposes of this Agreement and any document delivered at Closing, whenever the phrases to the best of Highwoods knowledge, to the current, actual knowledge of Highwoods or the knowledge of Highwoods or words of similar import are used, they shall be deemed to refer to the current, actual, conscious knowledge without inquiry of Mark W. Shumaker, Vice President and Rebecca Dixson, Property Manager. The representations and warranties of Highwoods shall survive the Closing for one (1) year.
Subject to the Distributees rights of inspection and investigation during the Review Period, the Distributees acknowledge for the Distributees and the Distributees successors, and assignees, that the Distributees have been given a reasonable opportunity to inspect and investigate the Property, all improvements thereon and all aspects relating thereto, including all documents and contracts related to the Property, either independently or through agents and experts of the Distributees choosing. EXCEPT AS LIMITED BELOW OR AS OTHERWISE SET FORTH IN THIS AGREEMENT, HIGHWOODS AND THE DISTRIBUTEES AGREE THAT THE PROPERTY SHALL BE SOLD AND THAT THE DISTRIBUTEES SHALL ACCEPT POSSESSION OF THE PROPERTY ON THE CLOSING DATE AS IS, WHERE IS, WITH ALL FAULTS WITH NO RIGHT OF SET-OFF OR REDUCTION IN THE VALUE OF THE DISTRIBUTEES CAPITAL INTEREST IN HIGHWOODS TO BE REDUCED PURSUANT TO THIS AGREEMENT, AND EXCEPT AS EXPRESSLY SET FORTH HEREIN THAT THE CONVEYANCE OF THE PROPERTY TO THE DISTRIBUTEES SHALL BE WITHOUT REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, WARRANTY OF INCOME WHICH MAY BE EARNED IN THE FUTURE, FUTURE OPERATING EXPENSES, USES, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE (BUT SPECIFICALLY EXCLUDING THE LIMITED WARRANTY OF TITLE TO BE GIVEN IN THE DEED FROM HIGHWOODS TO THE DISTRIBUTEES), AND HIGHWOODS DOES HEREBY DISCLAIM AND RENOUNCE ANY SUCH REPRESENTATION OR WARRANTY. EXCEPT FOR HIGHWOODS REPRESENTATIONS WHICH ARE EXPRESSLY SET FORTH HEREIN, THE DISTRIBUTEES SPECIFICALLY ACKNOWLEDGES THAT THE DISTRIBUTEES ARE NOT RELYING ON ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND WHATSOEVER, EXPRESS OR IMPLIED, FROM HIGHWOODS OR BROKERS AS TO THE FOLLOWING MATTERS: (1) THE CONDITION OR SAFETY OF THE PROPERTY OR ANY SEWER, HEATING AND ELECTRICAL SYSTEMS, ROOFING, AIR CONDITIONING, IF ANY, FOUNDATIONS, SOILS AND GEOLOGY INCLUDING SUITABILITY OF THE PROPERTY OR ITS IMPROVEMENTS FOR A PARTICULAR PURPOSE; (2) WHETHER THE APPLIANCES, IF ANY, PLUMBING OR UTILITIES ARE IN WORKING ORDER; (3) THE HABITABILITY OR SUITABILITY FOR OCCUPANCY OF ANY STRUCTURE AND THE QUALITY OF
17
ITS CONSTRUCTION; (4) THE FITNESS OF ANY PERSONAL PROPERTY; OR (5) WHETHER THE BUILDING IS STRUCTURALLY SOUND, IN GOOD CONDITION, OR IN COMPLIANCE WITH THE APPLICABLE CITY, COUNTY, STATE OR FEDERAL STATUTES, CODES OR ORDINANCES. EXCEPT FOR HIGHWOODS REPRESENTATIONS EXPRESSLY SET FORTH HEREIN THE DISTRIBUTEES ARE RELYING SOLELY UPON ITS OWN INSPECTION OF THE PROPERTY WITH REGARD TO THE ABOVE-REFERENCED MATTERS, AND NOT UPON ANY REPRESENTATIONS MADE BY HIGHWOODS OR HIGHWOODS AGENTS RELATED TO THE ABOVE-REFERENCED MATTERS.
(d) Representations and Warranties of the Distributees . Each Distributee, for and on behalf of themselves (but not for the other Distributees), hereby represents and warrants to Highwoods as of the date hereof and as of Closing as follows:
(i) The execution and delivery of this Agreement and the documents required hereunder to be executed by them will on the date of Closing have been, duly executed and delivered by the Distributees. To the current, actual knowledge of the Distributees, none of the foregoing requires any action by or in respect of, or filing with, any governmental body, agency or official or contravenes or constitutes a default under any provision of applicable law or regulation, or any agreement, judgment, injunction, order, decree or other instrument binding upon the Distributees. This Agreement does and will, and the documents required to be executed by them will, constitute the valid and binding obligations of the Distributees enforceable in accordance with their respective terms, subject to bankruptcy and similar laws affecting the remedies or resources of creditors generally.
(ii) The execution and delivery of this Agreement and the performance by the Distributees of their obligation hereunder do not and will not conflict with or result in the breach of any condition or provision of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon any of the property or assets of the Distributees (including the Property) by reason of the terms of any contract, mortgage, lien, lease, agreement, indenture, instrument or judgment to which the Distributees are a party or which is or purports to be binding upon the Distributees or which affect the Distributees.
(iii) No attachment, execution, assignment for the benefit of creditors or voluntary proceedings in bankruptcy has been commenced by the Distributees and, to the best of the Distributees knowledge, no such action has been contemplated or threatened, nor has any involuntary proceedings in bankruptcy been commenced against the Distributees.
(iv) The Distributees acknowledge that all information with respect to the Property furnished to the Distributees or discovered by the Distributees during their investigation thereof pursuant to Section 4 of this Agreement (collectively, the Confidential Information), is and has been so furnished, and the
18
Distributees investigation of the Property has been permitted by Highwoods, on the condition that the Distributees maintain the confidentiality thereof. Accordingly, the Distributees shall, and shall cause their employees, and, their agents, contractors and representatives to, hold in strict confidence, and not disclose to any other person or entity without the prior written consent of Highwoods until the Closing shall have been consummated, any of the Confidential Information in respect of the Property. If the Closing does not occur and this Agreement is terminated, the Distributees shall promptly return, or cause to be returned, to Highwoods all copies of such Confidential Information without retaining, or permitting retention of, any copy thereof. Notwithstanding anything to the contrary hereinabove set forth, the Distributees may disclose such Confidential Information (i) to their employees, their title insurer, their current or prospective investors or lenders, and members of professional firms serving them in connection with this transaction, including, without limitation, their attorneys, architects, environmental consultants and engineers, bankers, and their clients; (ii) as any governmental agency or authority may require in order to comply with applicable laws or regulations; and (iii) if required by an order of any court of competent jurisdiction; and this provision shall survive Closing, provided, however, after the Closing, this provision shall not apply to information available through the public records as a result of such Closing.
(v) The Distributees have full power and authority to enter into this Agreement and to assume and perform all of their obligations hereunder; and no further action or approval is required in order to constitute this Agreement as a binding and enforceable obligation of the Distributees; the execution and delivery of this Agreement and the consummation of the transactions contemplated hereunder on the part of the Distributees do not and will not require any action by any federal, state or municipal or other governmental department, commission, board, bureau or instrumentality is necessary to make this Agreement a valid instrument binding upon the Distributees in accordance with its terms.
(vi) To the current, actual knowledge of the Distributees, there is no existing or threatened legal action or governmental proceedings of any kind involving the Distributees, any of their assets or the operation of any of the foregoing, which if determined adversely to the Distributees or their assets, would have a material adverse effect on the financial condition, business or prospects of the Distributees or their assets or which would interfere with the Distributees ability to execute or deliver, or perform their obligations under this Agreement or any of the documents required to be executed by them.
(vii) The Distributees have no current, actual knowledge of any existing violation of any federal, state, county or municipal law, ordinance, order, code, regulation or requirements affecting the Distributees or any of their assets that would have a material adverse effect on the financial condition, business or prospects of the Distributees or any of their assets.
19
(viii) The Distributees have no current, actual knowledge of any information or fact which has, or would have, a material adverse affect on the financial condition, business or prospects of the Distributees or their assets in a manner which would prevent the Distributees from consummating the transaction contemplated by this Agreement.
(ix) The Distributees are, and at all times prior to the Closing date will be, solvent. As used herein, solvent means that the Distributees (i) do not have debts greater than the fair market value of their assets; (ii) are paying and anticipate that they will continue to pay their debts as they mature and become due; and (iii) have sufficient capital to operate their businesses as they are operated on the date of this Agreement.
(x) The Distributees carry, or are covered by, and will maintain, insurance in such amounts and covering such risks as is adequate for the conduct of their business and the value of their properties and assets and as is customary for companies engaged in similar businesses in similar markets, including, without limitation, all risks casualty insurance, flood insurance (when necessary), general commercial liability insurance and business interruption insurance.
(xi) The Distributees acknowledge that, prior to the execution of this Agreement, the Distributees have had the opportunity to ask questions of and receive answers or obtain additional information from a representative of Highwoods concerning the financial and other affairs of Highwoods and its general partner and, to the extent the Distributees believe necessary in light of the Distributees personal knowledge of the affairs of Highwoods and its general partner, the Distributees have asked such questions and received satisfactory answers. The Distributees further acknowledge that they possess all material facts necessary to make a determination to dispose of the Partnership Units as more fully set forth herein.
For purposes of this Agreement and any document delivered at Closing, whenever the phrases to the best of the Distributees knowledge, to the current, actual knowledge of the Distributees or the knowledge of the Distributees or words of similar import are used, they shall be deemed to refer to the current, actual, conscious knowledge without inquiry of John L. Turner, Sr., Robert Goldman, and Henry P. Royster, Jr.
(e) Maintenance of the Property . Between the date of this Agreement and the Closing, Highwoods shall continue to maintain the Property in the same condition and repair as currently being maintained, ordinary wear and tear and damage by casualty excepted, and shall not cause or permit any waste upon the Property and shall not, except as set forth above with respect to ordinary wear and tear and casualty damage without the prior written consent of the Distributees, permit any material physical change to the Property prior to Closing. Highwoods shall not take any action which would adversely affect the value of or title to the Property and will not amendment, modify or terminate the Lease without the Distributees written consent.
20
(f) Risk of Loss; Damage or Destruction; Condemnation . If, prior to Closing, the Property or any part thereof shall be condemned, or destroyed or materially damaged by fire or other casualty (that is, damage or destruction to the Building which the Distributees reasonably believe would cost in excess of Two Hundred Thousand and No/100 Dollars ($200,000) to repair or would entitle the tenant under the Lease to terminate the Lease, or, in the case of a condemnation, which substantially prevents access to the Property or any part thereof), the Distributees shall have the option which shall be exercised not later than the later of (i) five (5) days prior to Closing or (ii) ten (10) business days following the date the Distributees receive written notice of the condemnation or damage (with Closing being extended, if necessary, to accommodate such time periods) either to (a) to terminate this Agreement, or (b) to consummate the transaction contemplated by this Agreement notwithstanding such condemnation, destruction or material damage. If the Distributees elect to consummate the transaction contemplated by this Agreement notwithstanding a casualty or condemnation, the Distributees shall be entitled to receive all of the condemnation proceeds or settle the loss under all policies of insurance applicable to the destruction or damage and receive all of the proceeds of insurance applicable thereto, and Highwoods shall, at Closing and thereafter, execute and deliver to the Distributees all required proofs of loss, assignments of claims and other similar items, and the Distributees shall receive a credit at Closing for the amount of any deductible under Highwoods insurance policies. If the Distributees or Highwoods elects to terminate this Agreement as a result of a casualty or condemnation, the Earnest Money plus any interest earned thereon shall be returned to the Distributees by the Escrow Agent, in which event this Agreement shall, without further action of the parties, become null and void and neither party shall have any rights or obligations under this Agreement, except for the Distributees Continuing Indemnification Obligations. If there is any other damage or destruction to the Building (that is, damage or destruction to the Building which the Distributees reasonably believe would cost Two Hundred Thousand and No/100 Dollars ($200,000) or less to repair), or if there is a condemnation which does not substantially prevent access to the Land or any part thereof, or if the damage or destruction of the Building or condemnation would not entitle the tenant under the Lease to terminate the Lease, the Distributees shall not have the right to terminate this Agreement and (i) in the event of a casualty, Highwoods shall either completely repair such damage to the Building prior to Closing in a manner satisfactory to the Distributees or, at Highwoods option, either assign all insurance claims pertaining to such damage or destruction to the Distributees at Closing, with the Distributees to receive a credit for the amount of any deductible under Highwoods insurance policies, or allow the Distributees a credit against the value of the Distributees capital interest in Highwoods to be reduced pursuant to this transaction in an amount equal to the Distributees reasonably estimated cost of repair and (ii) in the event of a condemnation, Highwoods shall assign to the Distributees all of Highwoods rights to any condemnation proceeds to be paid by the applicable governmental authority.
(g) No Transfer of Personal Property . Highwoods agrees not to transfer or remove any personal property from the Property after the Agreement Date except for repair or replacement thereof. Any items of Personal Property replaced after the Agreement Date shall be promptly installed prior to Closing and shall be of substantially similar quality to the item of personal property being replaced.
21
(h) Compliance With Legal Requirements . All notices of violations of laws, ordinances, or regulations (Violations of Law), which are issued or sent to Highwoods prior to the Closing related to the Property by any governmental department, agency or bureau having jurisdiction over the conditions relating to such Violations of Law may (but is not required to) be remedied or complied with by Highwoods prior to Closing; provided, however, if any notices of Violations of Law are issued or sent to Highwoods by any governmental department, agency or bureau having jurisdiction over the conditions related to such Violations of Law after the end of the Review Period that Highwoods is unable or unwilling to remedy or cure, or comply with such notices by the Closing then the Distributees shall have the option to (a) terminate this Agreement, whereupon all obligations of all parties hereto shall cease, the Binder Deposit shall be returned to the Distributees and this Agreement shall be void and without recourse to the parties hereto, except for provisions which are expressly stated to survive such termination including the Distributees Continuing Indemnification Obligations; or (b) proceed with Closing notwithstanding such Violations of Law and obtain an adjustment to the value of the Distributees capital interest in Highwoods to be reduced pursuant to this transaction as reasonably determined by the Distributees and Highwoods. If Highwoods receives any notices of Violations of Law prior to the end of the Review Period which Highwoods is unable or unwilling to remedy or cure, the Distributees only remedy shall be to terminate this Agreement and receive a refund of the Binder Deposit or proceed with Closing not withstanding such Violations of Law and obtain an adjustment to the value of the Distributees capital interest in Highwoods to be reduced pursuant to this transaction as reasonably determined by the Distributees and Highwoods.
(i) Delivery of Notices . Highwoods shall promptly deliver to the Distributees prior to Closing, copies of all notices, correspondence and reports generated or received by Highwoods in connection with the Lease.
6. | CONDITIONS PRECEDENT TO CLOSING . |
(a) The Distributees Conditions . The obligation of the Distributees to complete the transaction contemplated by this Agreement is subject to the satisfaction on or before the Closing of the following conditions, any of which may be waived in whole or in part by the Distributees, but only in writing at or prior to Closing:
(i) All representations and warranties of Highwoods in this Agreement shall be true and correct in all material respects as of the Closing Date, with the same force and effect as if such representations and warranties were made anew as of the Closing Date. Any changes to such representations disclosed by Highwoods in writing prior to Closing shall be subject to the provisions of Section 6(a)(ii) below. Highwoods shall have performed and complied in all material respects with all covenants and agreements required by this Agreement to be performed or complied with by Highwoods prior to the Closing Date.
22
(ii) In the event that the Distributees becomes aware at any time prior to Closing that a representation or warranty made by Highwoods herein, while true as of the date made, no longer remains true in all material respects, due to a change of circumstances beyond the reasonable control of Highwoods subsequent to the date of this Agreement, the Distributees shall promptly give written notice of such fact to Highwoods. In the event Highwoods is unable or unwilling to remedy such change of circumstances by the Closing, then the Distributees shall have the option to (a) terminate this Agreement, whereupon all obligations of all parties hereto shall cease (except for the Distributees Continuing Indemnification Obligations) and the Binder Deposit shall be returned to the Distributees; or (b) proceed with Closing notwithstanding such change of circumstances; provided, however, that if Highwoods intentionally caused such representation or warranty to become untrue, the Distributees shall have the right to proceed with Closing and decrease the amount by which the Distributees capital interest in Highwoods will be reduced by the amount necessary to remedy such breach or terminate this Agreement and Highwoods shall reimburse the Distributees for the Distributees out-of-pocket expenses incurred in negotiating this Agreement and conducting its review of the Property and preparation for Closing (including, without limitation, reasonable attorneys fees, title examination, environmental assessment and survey and loan fees forfeited to the Distributees lender as the result of the closing failing to occur because Highwoods intentionally caused a representation or warranty made by it herein to be untrue at closing).
(iii) All of Highwoods obligations hereunder shall have been performed with regard to the Property.
(iv) Highwoods must have good and marketable fee simple title to the Property, free and clear of all liens, encumbrances, covenants and conditions, save and except the Permitted Exceptions, and the Building or other improvements on the Property shall not encroach upon any land adjoining the Property, except for encroachments of asphalt paving over utility easements.
(v) Highwoods shall not have caused any New Encumbrances to be placed on the Property between the date of this Agreement and the Closing Date except with the approval of the Distributees which approval shall not be unreasonably withheld or delayed and Highwoods shall have the obligation to remove all such New Encumbrances (not approved as aforesaid by the Distributees) on the Closing Date.
(vi) The Property will be free and clear of any and all taxes or assessments and any penalties associated therewith, except ad valorem taxes for the year of Closing, which will be prorated on a calendar year basis at the Closing.
(vii) The Property shall be in substantially the same condition on the date of Closing as of the date hereof subject, however, to normal wear and tear
23
only, provided, in the event the Property is not in the condition described above prior to Closing as the result of a casualty to the Building, the provisions of Section 5(f) of this Agreement shall apply.
(viii) No order, writ, injunction or decree shall have been entered and be in effect by any court of competent jurisdiction or any governmental authority, and no statute, rule, regulation or other requirement shall have been promulgated or enacted and be in effect, that restrains, enjoins or invalidates the transactions contemplated hereby.
(ix) No suit or other proceeding shall be pending or threatened by any third party not affiliated with or acting at the request of Highwoods before any court or authority seeking to restrain or prohibit or declare illegal, or seeking substantial damages against Highwoods in connection with the transactions contemplated by this Agreement.
(x) Highwoods shall make all reasonable efforts to obtain and provide to the Distributees five (5) days prior to Closing a tenant estoppel certificate in the form attached hereto as Exhibit E (the Tenant Estoppel Certificate) from the tenant of the Building. To the extent Highwoods has not delivered the Tenant Estoppel Certificate at Closing, and if General Electric Capital Assurance Company, or its affiliate (G E Capital) makes a loan to G-T Gateway, LLC an affiliate of the Distributees [G-T Gateway] and will accept an estoppel certificate from Highwoods, Highwoods may (but has no obligation to) execute an estoppel certificate (certifying the same matters set forth in the Tenant Estoppel Certificate submitted to the tenant of the Building). Highwoods may agree to indemnify the Distributees (and G E Capital) from loss or damage incurred by the Distributees and/or G E Capital resulting from the inaccuracy of any matter contained in the estoppel certificate executed by Highwoods. In the event Highwoods provides an estoppel certificate pursuant to the terms of this Section, Highwoods may, after Closing, substitute a Tenant Estoppel Certificate therefor, and thereafter, Highwoods shall be relieved from any liability to the Distributees (and G E Capital) with respect to any Highwoods estoppel certificate substituted by the Tenant Estoppel Certificate. Provided Highwoods makes a reasonable effort to obtain the Estoppel Certificate, and if the G E Capital will not accept a Highwoods estoppel certificate, Highwoods failure to so provide the Estoppel Certificate to the Distributees and G E Capital shall not be deemed a default by Highwoods under this Agreement and the Distributees may (a) elect to delay Closing for a reasonable period of time to enable Highwoods to obtain and deliver the Estoppel Certificate or (b) terminate this Agreement and receive a refund of the Binder Deposit, or (c) close this transaction without the Estoppel Certificate.
(xi) On or before the date of Closing, Highwoods shall have provided to the Distributees and G E Capital a subordination, non-disturbance and attornment agreement (SNDA) in a form acceptable to G E Capital executed by the tenant of the Building. Provided Highwoods makes a reasonable effort to obtain the
24
Estoppel Certificate, and if G E Capital will not accept the SNDA provided by the tenant of the building, Highwoods failure to so provide an SNDA acceptable to G E Capital shall not be deemed a default by Highwoods under this Agreement. In the event Highwoods fails to deliver the SNDA to the Distributees and/or its lender as required above, the Distributees may (a) elect to delay Closing for a reasonable period of time to enable Highwoods to obtain and deliver the SNDA or (b) terminate this Agreement and receive a refund of the Binder Deposit, or (c) close this transaction without the SNDA.
(xii) G-T Gateway must have closed a loan with General Electric Capital Assurance Company, or an affiliate thereof pursuant to a loan application with G E Asset Management Incorporated to be applied for by G-T Gateway during the Review Period providing G-T Gateway with loan proceeds of not less than $1,612,500.00 (the Loan). G-T Gateway agrees to apply for the Loan during the Review Period and make a commercially reasonable effort to close the Loan pursuant to such application.
(xiii) On the date of Closing, the tenant of the Building shall not be a party to any voluntary or involuntary bankruptcy proceeding filed pursuant to the United States Bankruptcy Code, or any state receivership or state insolvency proceeding.
(xiv) The Lease shall not have been modified or terminated without the written consent of the Distributees.
If any of the foregoing conditions in this Section 6 for the benefit of the Distributees shall fail to be satisfied within the time period set forth for each condition, the Distributees may, at their election: (i) terminate their obligations to accept a distribution of the Property; (ii) waive such condition and complete the transaction contemplated hereby without any reduction in the value of the Distributees capital interest in Highwoods to be reduced pursuant to this transaction except as provided in Section 6(a)(ii); or (iii) require Highwoods to perform its obligations hereunder, if any, with regard to the Property or the Building and Highwoods failure to perform such obligations, if any, shall be a default hereunder.
(b) Highwoods Conditions. The obligations of Highwoods under this Agreement are subject to the satisfaction of each of the following conditions on or before the Closing Date, any of which may be waived by Highwoods, and the Distributees agree to cause the conditions described in clauses (ii) and (iii) below to be so satisfied:
(i) This transaction must have been approved by Highwoods general partners board of directors at its February meeting (anticipated to be February , 2005). Highwoods shall submit this Agreement to its general partners board of directors at its February meeting.
25
(ii) All the terms, covenants, and conditions of this Agreement to be complied with and performed by the Distributees on or before the Closing Date shall have been duly complied with and performed in all respects; and
(iii) The representations and warranties of the Distributees contained in this Agreement shall be true and correct in all respects at and as of the Closing Date with the same force and effect as though such representations and warranties had been made as of the Closing Date, except for any changes which have been disclosed to Highwoods in writing and expressly approved or waived by Highwoods in writing.
(iv) Simultaneously with the closing of the transaction contemplated by this Agreement, G-T Gateway, LLC must have purchased a seventy-five percent (75%) interest in the Land pursuant to an agreement between Highwoods and G-T Gateway, LLC of even date herewith.
7. | CLOSING . |
(a) Date . The Closing of the transaction contemplated hereby shall occur on or before March 1, 2005, at the offices of the Distributees attorney in Winston-Salem, North Carolina, or such other place as may be mutually agreed upon by Highwoods and the Distributees, or, at the Distributees option, closed in escrow at the office of the Title Company, provided, the Distributees shall give Highwoods at least five (5) business days notice of the date of any Closing to take place under this Agreement. Notwithstanding the above, the Distributees may delay closing until March 31, 2005 in the sole discretion of the Distributees by paying to the Escrow Agent an additional binder deposit the sum of Fifteen Thousand and No/100 Dollars ($15,000.00) (which shall be considered and treated as the Binder Deposit pursuant to Section 3(a) hereof) in which event this transaction will close on such date pursuant to the provisions of this paragraph.
(b) Highwoods Closing Documents . At the Closing, Highwoods shall deliver to the Distributees or its designated agent the following, each of which shall be properly executed and acknowledged, if applicable:
(i) A limited warranty deed in a form reasonably acceptable to the Distributees conveying to each Distributee good and marketable fee simple title to his Relative Percentage Interest in the Land, as a tenant-in-common with the other Distributees, free and clear of all liens, encumbrances, easements and restrictions, except the Permitted Exceptions, which may encumber the Property at the time of the conveyance thereof;
(ii) An assignment of a twenty-five percent (25%) interest in the Lease in the form set forth on Exhibit F ;
(iii) A standard owners affidavit and lien waiver form used by the Title Company to cause an extended coverage ALTA owners title insurance policy to be issued to the Distributees without standard exceptions to mechanics and/or materialman liens;
26
(iv) A certificate of Highwoods as to the warranties and representations referred to in Section 5(c) hereof being true and correct as of the Closing Date;
(v) An affidavit as to foreign persons referred to in Section 5(c)(xxiii) hereof; (vi) The Tenant Estoppel Certificate (or Highwoods Estoppel Certificate if applicable) and the SNDA;
(vii) All permits, warranties, plans and specifications, and documents, instruments, files and records related to the Property and in the possession and control of Highwoods;
(viii) The original executed Lease;
(ix) The keys to any door or lock on the Building and the original tenant files in possession of Highwoods; and
(x) Such other matters as either the Distributees or Highwoods shall reasonably require or shall be anticipated by the terms hereof.
(c) The Distributees Closing Documents . At Closing, the Distributees shall execute and deliver to Highwoods an assignment of their interest in the Partnership Units, and will execute such other documents and papers which may be necessary for the consummation of the transaction described in this Agreement, as may be reasonably requested by Highwoods or Highwoods counsel, including the execution of an assignment of lease in the form set forth on Exhibit F , and any document reasonably requested by Highwoods to effectuate the assignment of the Distributees Partnership Units as contemplated in Section 3 hereof.
Simultaneously with, or promptly following, the Closing hereunder the parties hereto shall execute such other and additional documents and assurances and perform such other acts as shall be reasonably required in order to carry out the intent and purposes of this Agreement.
(d) Closing Costs . Highwoods shall furnish the deed to a twenty-five percent (25%) interest in the Land in accordance with the terms hereof and shall pay any documentary stamps, excise or transfer tax, if any, with respect thereto and its attorneys fees and shall pay all costs required to clear title to the Property, provided Highwoods shall not be required to expend more than Twenty-Five Thousand and No/100 Dollars ($25,000) in connection with such efforts. The Distributees shall be responsible for paying the cost of the title insurance premium charged by the Title Company in connection with the issuance of the Title Policy, recording the deed, its attorneys fees, all engineering reports procured by the Distributees in connection with its due diligence and any cost associated with the Distributees financing of the Property, if any, and Survey costs.
27
(e) Closing Adjustments . Unless otherwise specified in this Agreement, twenty-five percent (25%) of all income, expenses and costs related to the Property shall be prorated as of 11:59 p.m. Eastern Standard Time on the date immediately preceding the Closing Date as follows, with any credits or debits to Highwoods as the result of such adjustments being added to or subtracted from (in proportation to their Relative Percentage Interests) the value of the Distributees capital interest in Highwoods which shall be reduced at Closing as contemplated by Section 3 hereof.
(i) Taxes. To the extent not paid by the tenant under the Lease, ad valorem property taxes, personal property taxes and special assessments, if any, due or to be levied against the Property (the Taxes) for the year of Closing shall be prorated with Highwoods being responsible for all such Taxes from January 1st of the year of Closing through the last day prior to the day of Closing. The Distributees shall be responsible for paying twenty-five percent (25%) of the balance of the remaining Taxes due or to be levied against the Property for the year of Closing. Highwoods shall be responsible for paying any unpaid Taxes for any year prior to Closing. In the event the Taxes are not determinable at the time of Closing, the Taxes shall be prorated on the basis of the best available information (the Estimated Taxes ). If the Taxes are not paid at Closing, Highwoods shall deliver to the Distributees the bills for the Taxes promptly upon receipt thereof and the Distributees shall thereupon be responsible for the payment of twenty-five percent (25%) of the Taxes within the time fixed for payment thereof and before the same shall become delinquent. Notwithstanding the foregoing, in the event actual Taxes for the year of Closing exceed the Estimated Taxes for the year of Closing (the Tax Excess ) or Estimated Taxes for the year of Closing exceed the actual Taxes for year of Closing (the Tax Refund ), Highwoods and the Distributees shall prorate and pay such Tax Excess or such Tax Refund as follows:
(A) Highwoods shall be responsible for a portion of the Tax Excess or shall receive credit for the Tax Refund prorated from January 1st of the year of Closing through the last day before the Closing Date based upon a 365-day calendar year. The amount of the Tax Excess or the Tax Refund shall be determined when the property tax bills are received by the Distributees, and the Distributees shall notify Highwoods within thirty (30) days thereof of the calculation of the amount due to the Distributees from Highwoods in the case of a Tax Excess or the amount due to Highwoods from the Distributees in the case of a Tax Refund. Highwoods shall have thirty (30) days from Highwoods receipt of such notification to pay its portion of the Tax Excess to the Distributees and the Distributees shall have thirty (30) days from the Distributees receipt of the property tax bills to pay Highwoods its portion of the Tax Refund.
(ii) Utilities . To the extent not paid by tenant under the Lease, twenty-five percent (25%) of all utility charges and reimbursement for utility charges for the Property (including, without limitation, telephone, water, storm and sanitary
28
sewer, electricity, gas, garbage and waste removal), to the extent not payable by the tenant under the Lease, shall be prorated. Transfer fees required with respect to any such utility shall be paid by the Distributees prior to Closing.
(iii) Rents . Twenty-five percent (25%) of all paid rents, including revenues and charges of any kind, together with any other sums paid by the tenant (other than security deposit), under the Lease, shall be prorated as of the Closing Date. In the event that, at the time of Closing, there are any past due or delinquent rents owing by the tenant of the Property, the Distributees shall have the exclusive right to collect such past due or delinquent rents and shall remit to Highwoods in cash to the extent, and only to the extent, that the rents received by the Distributees from the tenant owing past due or delinquent rents exceed the sum of the aggregate rents and other sums payable by such tenant for periods from and after the Closing Date to the date of receipt, and then only if Highwoods has notified the Distributees at Closing that the tenant under the Lease is delinquent in its rent as of the Closing Date. The Distributees will make a commercially reasonable good faith effort to collect after Closing any rents which are delinquent and owing to Highwoods at Closing, but the Distributees shall have no obligation to file suit to collect such amounts, provided if the Distributees fail to file suit to collect such amounts after being requested to do so by Highwoods, Highwoods shall have the right to collect all rents owed to Highwoods at the time of Closing, which shall include Highwoods filing of suit, if necessary, to collect such amounts. In the event that, after Closing, Highwoods receives any payments of rent or other sums due from the tenant under the Lease that relate to periods from and after Closing, Highwoods shall promptly forward to the Distributees such payments. It is agreed by the Distributees that the sums to be paid by the tenant referred to in this Section 7(e)(iii) shall include all property operation costs pass throughs for the years 2004 and 2005 not paid on a monthly basis, but rather at the end of a calendar year after being invoiced therefor. These sums shall be provided and paid to Highwoods and the Distributees, as applicable, when paid by the tenant under the Lease. The Distributees shall use reasonable efforts to invoice the tenant for pass throughs as promptly as is practicable after Closing (but in no event shall the Distributees be required to do so until allowed under the Lease), provided Highwoods must furnish to the Distributees all applicable information regarding the amount of pass through operating expenses to be paid by the tenant under the Lease for the calendar year 2004.
During the period after Closing, the Distributees shall deliver to Highwoods any and all rents accrued but uncollected as of the Closing Date to the extent subsequently collected by the Distributees, and to the extent the Distributees receive such rents, shall apply rents received after Closing to the extent the same are delinquent first to payment of current Rent then due, and thereafter to delinquent rents (other than true up payments received from the tenant attributable to a year-end reconciliation of actual and budgeted pass-through payments which shall be allocated between Highwoods and the Distributees pro rata in accordance with their respective period of ownership as
29
set forth in this Section 7(e)(iv) below) but only after rent due and owing to the Distributees have been paid in full, including any delinquent rent. If any security deposits are in the form of a letter of credit, Highwoods shall assign its interest in the letter of credit to the Distributees (to the extent assignable) and deliver the original letter of credit to the Distributees at Closing.
(iv) Calculations . For purposes of calculating prorations, the Distributees shall be deemed to be the owner of the Property, and, therefore, entitled to twenty-five percent (25%) of the income therefrom and responsible for twenty-five percent (25%) of the expenses thereof for the entire day upon which the Closing occurs. All such prorations shall be made on the basis of the actual number of days of the month which shall have elapsed as of the day of the Closing and based upon the actual number of days in the month and a three hundred sixty-five (365) day year. The amount of such prorations shall be initially performed at Closing but shall be subject to adjustment in cash after the Closing as and when complete and accurate information becomes available, if such information is not available at the Closing. Highwoods and the Distributees agree to cooperate and use their best efforts to make such adjustments no later than sixty (60) days after the Closing. Except as set forth in this Section 7(e)(iii) and (iv) all items of income and expense which accrue for the period prior to the Closing will be for the account of Highwoods and twenty-five percent (25%) of all items of income and expense which accrue for the period on and after the Closing will be for the account of the Distributees. The provisions of Section 7(e)(iii) and (iv) shall survive the Closing.
(v) Prepaids. Twenty-five percent (25%) of any expense or cost of prepaid items, including, without limitation, fees for licenses which are transferred to the Distributees at the Closing and annual permit and inspection fees shall be apportioned between Highwoods and the Distributees at the Closing.
(vi) Service Agreement Payments. Twenty-five percent (25%) of all amounts payable under any of the Service Contracts assumed by the Distributees shall be prorated. The Distributees do not assume any obligation under any Service Contracts for acts or omissions that occur prior to Closing. The Distributees do not assume any obligation under any Service Contracts not expressly assumed by the Distributees.
(vii) Settlement After Closing. The parties acknowledge that not all invoices for expenses incurred with respect to the Property prior to the Closing will be received by the Closing and that a mechanism needs to be in place so that such invoices can be paid as received. All of the Closing adjustments will be done on an interim basis at the Closing and will be subject to final adjustment in accordance with this Section 7(e). After Closing, upon receipt by the Distributees of an invoice for the Propertys operating expenses that are attributable in whole or in part to a period prior to the Closing and that were not apportioned at Closing, the Distributees shall submit to Highwoods a copy of such invoice with
30
such additional supporting information as Highwoods shall reasonably request. Within ten (10) days of receipt of such copy, Highwoods shall pay to the Distributees an amount equal to twenty-five percent (25%) of the portion of such invoice attributable to the period ending on the date immediately preceding the Closing. Likewise, upon receipt by the Distributees of such an invoice after Closing for the Propertys operating expenses which were paid in advance by Highwoods and are attributable in whole or in part to a period on or after Closing that were not apportioned at Closing, the Distributees shall submit to Highwoods a copy of such invoice together with an amount equal twenty-five percent (25%) of to the portion of such invoice attributable to the period on or after Closing, within ten (10) days after receipt of such invoice.
(viii) Leasing Commissions. Twenty-five percent (25%) of all obligations to pay leasing commissions due from and after the Closing Date of this Agreement as the result of the execution of a new lease of the Building after the date hereof, the result of the renewal of the Lease, the extension of the term of the Lease, the expansion of the premises demised by the Lease for space within the Building, or the exercise of an option to lease additional space in the Building set forth in the Lease (collectively Future Commissions) which obligations are incurred pursuant to the brokerage agreements set forth on Exhibit C-1 shall be assumed and paid by the Distributees. Highwoods shall be responsible for all leasing commissions due prior to the Closing Date. In addition Highwoods shall indemnify, defend and hold the Distributees harmless from and against any liability for commissions due pursuant to any agreement not set forth on Exhibit C-1.
(ix) Tenant Improvements. Twenty-five percent (25%) of all obligations to pay the cost of any tenant improvement work owed or to be owed in connection with new leases of the Building executed after the date hereof or the result of the renewal of the Lease, the extension of the term of the Lease, the expansion of the premises demised by the Lease to space within the Building or the exercise of an option to lease additional space in the Building set forth in the Lease occurring after the date hereof, which costs shall include, but not be limited to, all sums expended by Highwoods for such tenant improvement work (including all overhead costs incurred by Highwoods or its affiliates in connection with the performance of the work related to such tenant improvements not to exceed five percent (5%) of the cost of such tenant improvements) and a profit not to exceed ten percent (10%) of the cost of such tenant improvements shall be assumed and paid by the Distributees on the Closing Date by reimbursing Highwoods for the costs of such tenant improvements previously paid by Highwoods in connection with new leases, renewals, extensions, relocations, expansions, or the exercise of an option to lease additional space in the Building occurring after the date hereof or if the cost of such tenant improvements are not yet due and payable by paying the same when they otherwise become due without an adjustment to the value of the capital interest of the Distributees in Highwoods to be reduced as a result of this transaction. Notwithstanding the foregoing, to the
31
extent any portion of the term of a Lease, and renewals, extensions, expansions and relocations for which any tenant improvement work is completed prior to the Closing Date, the amount of the value of the capital interest of the Distributees in Highwoods to be reduced as a result of this transaction will be reduced by a pro rata share of such tenant improvement work based upon the percentage of such term (exclusive of any renewal options) which occurs prior the Closing Date. If any tenant improvement work is in process on the Closing Date, Highwoods shall be responsible for completing the construction thereof, provided, the Distributees shall be responsible for the costs thereof as set forth above.
(x) Equitable Adjustments . In the event that any of the prorations or adjustments described in this Section 7(e) are based upon estimated or erroneous information, then the parties shall make between themselves any equitable adjustment required by reason of any difference between such estimated or erroneous amounts and the actual amounts of such sums.
8. | DEFAULT AND REMEDIES . |
(a) In the event Highwoods defaults or fails to perform any of the conditions or obligations of Highwoods under this Agreement, then the Distributees shall have a right to terminate this Agreement and receive a refund of the Binder Deposit and pursue an action for reimbursement of expenses, fees and costs incurred by the Distributees and G-T Gateway relating to this Agreement or their due diligence on the Property, provided such fees and costs shall not exceed Fifty Thousand and No/100 Dollars ($50,000), plus the amount of any fees forfeited by G-T Gateway to its lender as the result of the failure of such Closing because of Highwoods default, and will be substantiated by legitimate invoices therefor, or, in the alternative, compel Highwoods performance of its obligations hereunder by bringing an action for specific performance or, if specific performance is not available to the Distributees, as a result of the acts or omissions of Highwoods, the Distributees may pursue any other legal remedy available to the Distributees under the laws of the State of North Carolina, including an action for reimbursement of expenses, fees and costs incurred by the Distributees relating to this Agreement or the Property.
(b) In the event the Distributees default or fail to perform any of the covenants or conditions of the Distributees under this Agreement, Highwoods may terminate this agreement and the Escrow Agent shall pay the Binder Deposit to Highwoods, and such payment shall constitute Highwoods liquidated damages as a result of the Distributees default or failure to perform, as Highwoods actual damages shall be difficult, if not impossible, to ascertain, and after such payment the Distributees shall have no further obligations hereunder, except for the Distributees Continuing Indemnification Obligations.
32
9. | OTHER PROVISIONS . |
(a) Counterparts . This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which, taken together, shall constitute one and the same instrument.
(b) Entire Agreement . This Agreement and the Exhibits attached hereto constitute and contain the entire agreement between the parties, and supersede all prior and contemporaneous understandings and agreements, whether oral or in writing, between the parties respecting the subject matter hereof. There are no representations, agreements, arrangements or understandings, oral or in writing, between or among the parties to this Agreement relating to the subject matter of this Agreement which are not fully expressed in this Agreement.
(c) Construction . The provisions of this Agreement shall be construed as to their fair meaning, and not for or against any party based upon any attribution to such party as the source of the language in question. Headings used in this Agreement are for convenience of reference only and shall not be used in construing this Agreement.
(d) Applicable Law . This Agreement shall be governed by the laws of the State of North Carolina.
(e) Severability . If any term, covenant, condition or provision of this Agreement, or the application thereof to any person or circumstance, shall to any extent be held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, covenants, conditions or provisions of this Agreement, or the application thereof to any person or circumstance, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby.
(f) Waiver of Covenants, Conditions and Remedies . The waiver by one party of the performance of any covenant, condition or promise under this Agreement shall not invalidate this Agreement nor shall it be considered a waiver by it of any other covenant, condition or promise under this Agreement. The waiver by either or both parties of the time for performing any act under this Agreement shall not constitute a waiver of the time for performing any other act or an identical act required to be performed at a later time.
(g) Exhibits . All exhibits to which reference is made in this Agreement are deemed incorporated into this Agreement and made a part hereof, whether or not actually attached.
(h) Amendment . This Agreement may be amended at any time by the written agreement of the Distributees and Highwoods. All amendments, changes, revisions and discharges of this Agreement, in whole or in part, and from time to time, shall be binding upon the parties despite any lack of legal consideration, so long as the same shall be in writing and executed by the parties hereto.
33
(i) Relationship of Parties . The parties agree that their relationship is that of buyer and seller, and that nothing contained herein shall constitute either party the agent or legal representative of the other for any purpose whatsoever, nor shall this Agreement be deemed to create any form of business organization between the parties hereto, nor is either party granted any right or authority to assume or create any obligation or responsibility on behalf of the other party, nor shall either party be in any way liable for any debt of the other.
(j) Assignment . Except as set forth below, the Distributees may not assign their rights, obligations and liabilities hereunder to a third party without Highwoods prior written consent, which shall not be unreasonably withheld. Notwithstanding the above, the Distributees may assign this Agreement at Closing (but only if the transaction contemplated hereby closes) without the requirement of Highwoods consent to a corporation, limited liability company, or partnership in which the Distributees own more than 50% of the equity interest thereof. This Agreement shall be binding upon and shall inure to the benefit of the successors and assigns of the parties to this Agreement.
(k) Further Acts . Each party agrees to perform any further acts and to execute, acknowledge and deliver any documents which may be reasonable necessary to carry out the provisions of this Agreement. The provisions of this Section 9(k) of this Agreement shall survive Closing and shall not be merged upon the delivery and acceptance of the Deed for the Land.
(l) No Recording; Actions to Clear Title . Neither Highwoods nor the Distributees may record this Agreement or a memorandum of this Agreement without the consent of the other party which shall not be unreasonably withheld or delayed. If the Distributees fail to complete this transaction, or otherwise terminates or permits this Agreement to expire for any reason, then the Distributees shall, at no cost to Highwoods, promptly execute, acknowledge and deliver to Highwoods, all within three (3) days after written request from Highwoods, a quitclaim deed, in recordable form, in favor of Highwoods and any other documents requested by Highwoods to remove the cloud on title to the Property that may exist as the result of the existence of this Agreement.
(m) Broker Commissions . Each party warrants to the other that no person, firm or individual is entitled to or has a claim for a commission or fee arising out of this transaction. Highwoods shall and does hereby indemnify and hold harmless the Distributees from and against any claim for any consulting fee, finders fee, commission, or like compensation, including reasonable attorneys fees in defense thereof, payable in connection with any transaction contemplated hereby and asserted by any party arising out of any act or agreement by Highwoods. The Distributees do hereby indemnify and hold harmless Highwoods from and against any claim for any consulting fee, finders fee, commission or the like, including reasonable attorneys fees in the defense thereof, payable in connection with any claim by any person or firm asserted by any party arising out of any act or agreement by the Distributees.
(n) Notices . All notices and demands which either party is required or desires to give to the other shall be given in writing by personal delivery, overnight courier service, certified mail, return receipt requested, or by telecopy followed by next day delivery of a hard
34
copy to the address set forth below for the respective parties. All notices and demands so given shall be effective upon the delivery or sending of the same to the party to whom notice or a demand is given, if personally delivered or sent by telecopy, on the next business day if sent by overnight courier and within three (3) business days or upon receipt, whichever is earlier, if sent by certified mail, return receipt requested.
35
With copy to: | Samuel T. Oliver, Esquire | |
Manning Fulton & Skinner | ||
BB&T Plaza | ||
3605 Glenwood Avenue | ||
Raleigh, NC 27612 | ||
Telephone: 919/787-8880 | ||
Facsimile: 919/781-0811 |
(o) Press Releases . Highwoods and the Distributees agree that they will not make any public statement, including without limitation, any press release, with respect to this Agreement and the transactions contemplated hereby without first allowing the other party an opportunity to review such statement and render an approval thereof, which approval shall not be unreasonably withheld or delayed by either party. It is the intention of this subparagraph that Highwoods and the Distributees must agree as to the timing and content of any information contained in any public statement or press release regarding the transaction contemplated hereby. The parties agree to exercise reasonableness when asked to consent to the content of any such press release or other public statement regarding this transaction.
(p) Definition of Agreement Date . As used in this Agreement, Agreement Date shall be deemed to refer to the date a fully executed original of this Agreement is delivered to each party hereto, and the Agreement Date shall be inserted as the date of this Agreement in the introductory paragraph of this Agreement.
(q) Survival of the Agreement . The promises, terms, conditions, representations, warranties and provisions set forth in this Agreement shall survive the Closing of the transaction and the delivery and recording of the deed and any other instruments for the conveyance of the Property for a period of one (1) year following the Closing, except as otherwise provided in this Agreement and if the deed or any other recorded instruments are or may be construed to be inconsistent with any such provision of this Agreement, then the applicable provision of this Agreement shall control and shall not be deemed to have been merged into such deed or other recorded instruments, unless otherwise expressly provided in any such instruments.
IN WITNESS WHEREOF, the parties hereto have caused the signature page to this Agreement to be duly executed by their hands and under seal affixed hereto as of the day and year first above written.
[SIGNATURE PAGE ATTACHED]
36
SIGNATURE PAGE TO AGREEMENT
BY AND BETWEEN
JOHN L. TURNER, SR., ROBERT GOLDMAN, AND
HENRY P. ROYSTER, JR., as the DISTRIBUTEES
AND
HIGHWOODS REALTY LIMITED PARTNERSHIP, as Highwoods
AND
ALLMAN SPRY LEGGETT & CRUMPLER, P.A.,
as Escrow Agent
Dated as of February 11, 2005
Distributee: |
/s/ John L. Turner, Sr. |
|
John L. Turner, Sr. |
37
SIGNATURE PAGE TO AGREEMENT
BY AND BETWEEN
JOHN L. TURNER, SR., ROBERT GOLDMAN, AND
HENRY P. ROYSTER, JR., as the DISTRIBUTEES
AND
HIGHWOODS REALTY LIMITED PARTNERSHIP, as Highwoods
AND
ALLMAN SPRY LEGGETT & CRUMPLER, P.A.,
as Escrow Agent
Dated as of February 11, 2005
Distributee: |
/s/ Robert Goldman |
|
Robert Goldman |
38
SIGNATURE PAGE TO AGREEMENT
BY AND BETWEEN
JOHN L. TURNER, SR., ROBERT GOLDMAN, AND
HENRY P. ROYSTER, JR., as the DISTRIBUTEES
AND
HIGHWOODS REALTY LIMITED PARTNERSHIP, as Highwoods
AND
ALLMAN SPRY LEGGETT & CRUMPLER, P.A.,
as Escrow Agent
Dated as of February 11, 2005
Distributee: |
/s/ Henry P. Royster, Jr. |
|
Henry P. Royster, Jr. |
39
SIGNATURE PAGE TO AGREEMENT
BY AND BETWEEN
JOHN L. TURNER, SR., ROBERT GOLDMAN, AND
HENRY P. ROYSTER, JR., as the DISTRIBUTEES
AND
HIGHWOODS REALTY LIMITED PARTNERSHIP, as Highwoods
AND
ALLMAN SPRY LEGGETT & CRUMPLER, P.A.,
as Escrow Agent
Dated as of February 11, 2005
HIGHWOODS: |
HIGHWOODS REALTY LIMITED PARTNERSHIP, a North Carolina limited partnership |
|||
By: | Highwoods Properties, Inc., a Maryland | |||
Corporation, its Sole General Partner | ||||
By: |
/s/ Mack D. Pridgen III |
|||
Name: | Mack D. Pridgen III | |||
Title: | Vice President |
The undersigned, Escrow Agent herein, executes this Agreement for the purpose of agreeing to the provisions set forth in this Agreement relating to Escrow Agent and the Binder Deposit.
ESCROW AGENT | Allman Spry Leggett & Crumpler, P.A. | |||
By: |
/s/ Thomas T. Crumpler |
|||
Name: | Thomas T. Crumpler |
40
Exhibit 21
Subsidiaries of Highwoods Properties, Inc.
Highwoods Realty Limited Partnership, a North Carolina limited partnership
AP Southeast Portfolio Partners, L.P., a Delaware limited partnership
Highwoods/Florida Holdings, L.P., a Delaware limited partnership
Highwoods/Tennessee Holdings, L.P., a Tennessee limited partnership
Highwoods Services, Inc., a North Carolina corporation
Highwoods Finance LLC, a Delaware limited liability company
* | We have omitted the names of other direct and indirect subsidiaries of Highwoods Properties, Inc. because such other subsidiaries, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary. |
Exhibit 23
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 333-38878, 333-12117, 333-29759 and 333-55901) pertaining to the Employee Stock Option and Stock Purchase Plans of Highwoods Properties, Inc. of our reports dated December 16, 2005, with respect to the consolidated financial statements and schedules of Highwoods Properties, Inc., Highwoods Properties, Inc. managements assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of Highwoods Properties, Inc., included in the Annual Report (Form 10-K) for the year ended December 31, 2004.
/s/ ERNST & YOUNG LLP
Raleigh, North Carolina
December 16, 2005
Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT
I, Edward J. Fritsch, certify that:
1. | I have reviewed this Annual Report on Form 10-K of Highwoods Properties Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; |
4. | The Registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the Registrant and have: |
(a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | evaluated the effectiveness of the Registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | disclosed in this report any change in the Registrants internal control over financial reporting that occurred during the Registrants most recent fiscal quarter (the Registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrants internal control over financial reporting; and |
5. | The Registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrants auditors and the Audit Committee of the Registrants Board of Directors (or persons performing the equivalent functions): |
(a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrants ability to record, process, summarize and report financial information; and |
(b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrants internal control over financial reporting. |
Date: December 22, 2005
/ S / E DWARD J. F RITSCH |
Edward J. Fritsch |
President and Chief Executive Officer |
Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT
I, Terry L. Stevens, certify that:
1. | I have reviewed this Annual Report on Form 10-K of Highwoods Properties Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; |
4. | The Registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the Registrant and have: |
(a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | evaluated the effectiveness of the Registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | disclosed in this report any change in the Registrants internal control over financial reporting that occurred during the Registrants most recent fiscal quarter (the Registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrants internal control over financial reporting; and |
5. | The Registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrants auditors and the Audit Committee of the Registrants Board of Directors (or persons performing the equivalent functions): |
(a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrants ability to record, process, summarize and report financial information; and |
(b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrants internal control over financial reporting. |
Date: December 22, 2005
/s/ T ERRY L. S TEVENS |
Terry L. Stevens |
Vice President and Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT
In connection with the Annual Report of Highwoods Properties, Inc. (the Company) on Form 10-K for the period ended December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Edward J. Fritsch, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ E DWARD J. F RITSCH |
Edward J. Fritsch |
President and Chief Executive Officer |
December 22, 2005 |
Exhibit 32.2
CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT
In connection with the Annual Report of Highwoods Properties, Inc. (the Company) on Form 10-K for the period ended December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Terry L. Stevens, Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ T ERRY L. S TEVENS |
Terry L. Stevens |
Vice President and Chief Financial Officer |
December 22, 2005 |