-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LkDEXljsAFjNxAqT9aIGdH5OX5sczuB2bAlnIoCcYQpetFjae94H0Itv5+SZlXbW E+Nt1f871ATF3wLQIWGDkQ== 0000950168-98-001011.txt : 19980401 0000950168-98-001011.hdr.sgml : 19980401 ACCESSION NUMBER: 0000950168-98-001011 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HIGHWOODS PROPERTIES INC CENTRAL INDEX KEY: 0000921082 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 561871668 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-13100 FILM NUMBER: 98583671 BUSINESS ADDRESS: STREET 1: 3100 SMOKETREE CT STREET 2: STE 600 CITY: RALEIGH STATE: NC ZIP: 27604 BUSINESS PHONE: 9198724924 MAIL ADDRESS: STREET 1: 3100 SMOKETREE COURT STREET 2: STE 700 CITY: RALEIGH STATE: NC ZIP: 27604 10-K 1 HIGHWOODS PROPERTIES, INC.--FORM 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1997 OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission file number 1-13100 HIGHWOODS PROPERTIES, INC. (Exact name of registrant as specified in its charter)
Maryland 56-1871668 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.)
3100 Smoketree Court, Suite 600 Raleigh, N.C. 27604 (Address of principal executive offices) (Zip Code) 919-872-4924 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on Title of Each Class Which Registered - -------------------------------------------------------- ------------------------- Common stock, $.01 par value 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 whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K. [ ] The aggregate market value of the shares of common stock held by non-affiliates (based upon the closing sale price on the New York Stock Exchange) on March 20, 1998 was $1,708,104,762. As of March 20, 1998, there were 50,604,018 shares of common stock, $.01 par value, outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Proxy Statement in connection with its Annual Meeting of Shareholders to be held May 14, 1998 are incorporated by reference in Part III Items 10, 11, 12 and 13. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- HIGHWOODS PROPERTIES, INC. TABLE OF CONTENTS
Item No. Page No. - ---------- --------- PART I 1. Business .................................................................. 3 2. Properties ................................................................ 10 3. Legal Proceedings ......................................................... 24 4. Submission of Matters to a Vote of Security Holders ....................... 24 X. Executive Officers of the Registrant ...................................... 24 PART II 5. Market for Registrant's Common Stock and Related Stockholder Matters ...... 25 6. Selected Financial Data ................................................... 26 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ............................................................. 28 8. Financial Statements and Supplementary Data ............................... 39 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...................................................... 39 PART III 10. Directors and Executive Officers of the Registrant ........................ 39 11. Executive Compensation .................................................... 39 12. Security Ownership of Certain Beneficial Owners and Management ............ 39 13. Certain Relationships and Related Transactions ............................ 39 PART IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ........... 40
2 PART I ITEM 1. BUSINESS General Highwoods Properties, Inc. (the "Company") is a self-administered and self-managed real estate investment trust ("REIT") that began operations through a predecessor in 1978. Originally founded to oversee the development, leasing and management of the 201-acre Highwoods Office Center in Raleigh, North Carolina, the Company has since evolved into one of the largest owners and operators of suburban office and industrial properties in the southeastern United States. As of December 31, 1997, the Company owned a portfolio of 481 in-service office and industrial properties (the "Properties") and owned 718 acres (and had agreed to purchase an additional 512 acres) of undeveloped land suitable for future development (the "Development Land"). An additional 32 properties (the "Development Projects"), which will encompass approximately 3.3 million square feet, were under development as of December 31, 1997. The Properties consist of 342 suburban office properties and 139 industrial properties (including 73 service centers) located in 19 markets in North Carolina, Florida, Tennessee, Georgia, Virginia, South Carolina, Maryland and Alabama. The Company conducts substantially all of its activities through, and substantially all of its properties are held directly or indirectly by, Highwoods/Forsyth Limited Partnership (the "Operating Partnership"). The Operating Partnership is controlled by the Company as its sole general partner and, as of March 20, 1998, the Company owned approximately 83% of the common partnership interests (the "Common Units") in the Operating Partnership. The remaining Common Units are owned by limited partners (including certain officers and directors of the Company). Each Common Unit may be redeemed by the holder thereof for the cash value of one share of common stock, $.01 par value, of the Company (the "Common Stock") or, at the Company's option, one share (subject to certain adjustments) of Common Stock. With each such exchange, the number of Common Units owned by the Company and, therefore, the Company's percentage interest in the Operating Partnership, will increase. In addition to owning the Properties, the Development Projects and the Development Land, the Company provides leasing, property management, real estate development, construction and miscellaneous tenant services for the Properties as well as for third parties. The Company conducts its third-party fee-based services through Highwoods Tennessee Properties, Inc., a wholly owned subsidiary of the Company, and Highwoods Services, Inc., a subsidiary of the Operating Partnership. The Company was formed in North Carolina in 1994. The Company's executive offices are located at 3100 Smoketree Court, Suite 600, Raleigh, North Carolina 27604, and its telephone number is (919) 872-4924. The Company also maintains regional offices in Winston-Salem and Charlotte, North Carolina; Richmond, Virginia; Baltimore, Maryland; Nashville and Memphis, Tennessee; Atlanta, Georgia; Tampa, Boca Raton, Tallahassee and Jacksonville, Florida; and South Florida. Business Objectives and Strategy of the Company The Company seeks to maximize the total return to its stockholders (i) through contractual increases in rental rates from existing leases, (ii) by renewing or re-leasing space with expiring leases at higher effective rental rates, (iii) by increasing occupancy levels in properties, (iv) by acquiring new properties, (v) by developing new properties, including properties on the Development Land, and (vi) by providing a complete line of real estate services to the Company's tenants and to third parties. The Company believes that its in-house development, acquisition, construction management, leasing and management services allow it to respond to the many demands of its existing and potential tenant base, and enable it to provide its tenants cost-effective services such as build-to-suit construction and space modification, including tenant improvements and expansions. In addition, the breadth of the Company's capabilities and resources provides it with market information not generally available and gives the Company increased access to development, acquisition and management opportunities. The Company believes that the operating efficiencies achieved through its fully integrated organization also provide a competitive advantage in setting its lease rates and pricing its other services. 3 The Company's strategy has been to focus its real estate activities in markets where it believes its extensive local knowledge gives it a competitive advantage over other real estate developers and operators. As the Company has expanded into new markets, it has continued to maintain this localized approach by combining with local real estate operators with many years of development and management experience in their respective markets. Also, in making its acquisitions, the Company has sought to employ those property-level managers who are experienced with the real estate operations and the local market relating to the acquired properties, resulting in approximately three-quarters of the portfolio currently being managed on a day-to-day basis by personnel that has had previous experience managing, leasing and/or developing those properties for which they are responsible. The Company seeks to acquire suburban office and industrial properties at prices below replacement cost that offer attractive returns, including acquisitions of underperforming, high-quality assets in situations offering opportunities for the Company to improve such assets' operating performance. In evaluating potential acquisition opportunities, the Company will continue to rely on the extensive experience of its management and its research capabilities in considering a number of factors, including: (i) the location of the property, (ii) the construction quality and condition of the property, (iii) the occupancy and demand of properties of a similar type in the market and (iv) the ability of the property to generate returns at or above levels of expected growth. (See " -- Recent Developments" for a discussion of the Company's acquisition and development activities during 1997.) The Company also believes that the 1,230 acres of Development Land controlled as of December 31, 1997 should provide it with a competitive advantage in its future development activities. The Company may from time to time acquire properties from property owners through the exchange of Common Units in the Operating Partnership for the property owner's equity in the acquired property. As discussed above, each Common Unit received by these property owners is redeemable for cash from the Operating Partnership or, at the Company's option, one share of Common Stock. In connection with the transactions, the Company may also assume outstanding indebtedness associated with the acquired properties. The Company believes that this acquisition method may permit it to acquire properties at attractive prices from property owners wishing to enter into tax-deferred transactions. As of December 31, 1997, the Company had acquired 235 properties using the foregoing method since its inception, comprising 16.4 million rentable square feet. The Company is also committed to maintaining a capital structure that will allow it to grow through development and acquisition opportunities. As part of this commitment, the Company intends to operate with a ratio of debt to total market capitalization below 40%. At March 20, 1998, the ratio of debt to total market capitalization (based on a Common Stock price of $34.13 per share) was approximately 32%. The Company believes that this debt level improves its ability to borrow funds at attractive rates. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." 4 Recent Developments Merger and Acquisition Activity. The following table summarizes the mergers and acquisitions completed during the year ended December 31, 1997 (dollars in thousands):
Acquisition Closing Number of Rentable Initial Property Location Date Properties Square Feet Cost - ------------------------------------- ------------------- ------------ ------------ ------------- ------------- Century Center Atlanta 02/01/97 21 1,437,000 $ 128,100 Anderson Properties Atlanta 02/01/97 28 1,914,000 61,800 Patewood I & II Greenville 03/01/97 2 117,000 11,900 3600 Glenwood Avenue Research Triangle 03/01/97 1 78,000 11,000 400 North Business Park Atlanta 05/01/97 3 86,000 7,200 Kennestone Corporate Center Atlanta 05/01/97 5 82,000 5,400 Oxford Lakes Business Center Atlanta 05/01/97 2 102,000 8,000 Bluegrass Place 1 Atlanta 08/29/97 1 69,000 2,500 Bluegrass Place 2 Atlanta 08/29/97 1 72,000 3,000 Centrum Building Memphis 09/03/97 1 71,000 6,600 Pinebrook Charlotte 09/23/97 1 61,000 5,600 1765 The Exchange Atlanta 10/01/97 1 90,000 7,200 NationsBank Plaza Greenville 10/01/97 1 196,000 10,200 Associated Capital Properties, Inc. Florida 10/01/97 84 6,410,000 617,000 Riparius Development Corporation Baltimore 12/23/97 5 364,000 42,000 Shelton Portfolio Piedmont Triad 11/17/97 8 499,000 48,000 Smith Portfolio Tampa 10/17/97 3 217,000 17,900 Triad Crow Portfolio Atlanta 12/04/97 2 267,000 39,300 Riverside Plaza Norfolk 10/31/97 1 87,000 7,700 Zurn Building Tampa 11/01/97 1 74,000 5,400 Avion Building South Florida 11/17/97 1 67,000 5,200 Gulf Atlantic South Florida 12/12/97 1 135,000 11,300 100 Winner's Circle Nashville 12/15/97 1 72,000 8,700 Doral Financial Plaza South Florida 12/22/97 1 222,000 17,300 -- ---------- 176 12,789,000 $1,088,300 === ========== ==========
A significant portion of the Company's growth during 1997 resulted from its expansion in existing markets, including the ACP Transaction, the Century Center Transaction and the Anderson Transaction (each as defined herein). The Company also entered a new market, Baltimore, Maryland, as a result of the Riparius Transaction (as defined herein). Century Center Transaction. On January 9, 1997, the Company acquired the 17-building Century Center Office Park, four affiliated industrial properties and 20 acres of land for development located in suburban Atlanta, Georgia (the "Century Center Transaction"). The properties total 1.6 million rentable square feet and, as of December 31, 1997, were 99% leased. The cost of the Century Center Transaction was $55.6 million in Common Units (valued at $29.25 per Common Unit, the market value of a share of Common Stock as of the signing of a letter of intent for the Century Center Transaction), the assumption of $19.4 million of secured debt and a cash payment of $53.1 million. All Common Units issued in the transaction are subject to restrictions on transfer and redemption. Such restrictions are scheduled to expire over a three-year period in equal annual installments commencing one year from the date of issuance. Century Center Office Park is located on approximately 77 acres, of which approximately 61 acres are controlled under long-term fixed rental ground leases that expire in 2058. The rent under the leases is approximately $180,000 per year with scheduled 10% increases in 1999 and 2009. The leases do not contain a right to purchase the subject land. 5 Anderson Transaction. On February 12, 1997, the Company acquired a portfolio of industrial, office and undeveloped properties in Atlanta from Anderson Properties, Inc. and affiliates (the "Anderson Transaction"). The Anderson Transaction involved 22 industrial properties and six office properties totaling 1.6 million rentable square feet, three industrial development projects totaling 402,000 square feet and 137 acres of land for development. The in-service properties were 94% leased as of December 31, 1997. The cost of the Anderson Transaction consisted of the issuance of $22.9 million of Common Units (valued at $29.25 per Common Unit, the market value of a share of Common Stock as of the signing of a letter of intent relating to the Anderson Transaction), the assumption of $7.8 million of mortgage debt and a cash payment of $37.7 million. The cash amount does not include $11.1 million paid to complete the three development projects. Approximately $5.5 million of the Common Units are Class B Common Units, which differ from other Common Units in that they are not eligible for cash distributions from the Operating Partnership. The Class B Common Units convert to regular Common Units in 25% annual installments commencing one year from the date of issuance. Prior to such conversion, such Common Units are not redeemable for cash or Common Stock. All other Common Units issued in the transaction are also subject to restrictions on transfer or redemption. Such lock-up restrictions expire over a three-year period in equal annual installments commencing one year from the date of issuance. ACP Transaction. In October of 1997, the Company completed an acquisition (the "ACP Transaction") of Associated Capital Properties, Inc. ("ACP") involving a portfolio of 84 office properties encompassing 6.4 million rentable square feet (the "ACP Properties") and approximately 50 acres of land for development with a build-out capacity of 1.9 million square feet in six markets in Florida. At December 31, 1997, the ACP Properties were approximately 92% leased to approximately 1,100 tenants including IBM, the State of Florida, Prudential, Price Waterhouse, AT&T, GTE, Prosource, Lockheed Martin, NationsBank and Accustaff. Seventy-nine of the ACP Properties are located in suburban submarkets, with the remaining properties located in the central business districts of Orlando, Jacksonville and West Palm Beach. The cost of the ACP Transaction was valued at $617 million and consisted of the issuance of 2,955,238 Common Units (valued at $32.50 per Common Unit), the assumption of approximately $481 million of mortgage debt ($391 million of which was paid off by the Company on the date of closing), the issuance of 117,617 shares of Common Stock (valued at $32.50 per share), a capital expense reserve of $11 million and a cash payment of approximately $24 million. All Common Units and Common Stock issued in the transaction are subject to restrictions on transfer or redemption that will expire over a three-year period. All lockup restrictions on the transfer of such Common Units or Common Stock issued to ACP and its affiliates expire in the event of a change of control of the Company or a material adverse change in the financial condition of the Company. Such restrictions also expire if James R. Heistand, the former president of ACP, is not appointed or elected as a director of the Company by October 7, 1998. Also in connection with the ACP Transaction, the Company issued to certain affiliates of ACP warrants to purchase 1,479,290 shares of the Common Stock at $32.50 per share, exercisable after October 1, 2002. Riparius Transaction. In closings on December 23, 1997 and January 8, 1998, the Company completed an acquisition of Riparius Development Corporation in Baltimore, Maryland involving a portfolio of five office properties encompassing 369,000 square feet, two office development projects encompassing 235,000 square feet, 11 acres of development land and 101 additional acres of development land to be acquired over the next three years (the "Riparius Transaction"). As of December 31, 1997, the in-service properties acquired in the Riparius Transaction were 99% leased. The cost of the Riparius Transaction consisted of a cash payment of $43.6 million. In addition, the Company has assumed the two office development projects with an anticipated cost of $26.2 million expected to be paid in 1998, and will pay out $23.9 million over the next three years for the 101 additional acres of development land. 6 Garcia Transaction. For a discussion of the Company's recent acquisition of substantially all of a property portfolio in Tampa, Florida (the "Garcia Transaction"), see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Recent Developments." Pending Acquisitions For a discussion of the Company's proposed business combinations with J.C. Nichols Company, a publicly traded Kansas City real estate operator, and The Easton-Babcock Companies, a real estate owner and operator in Miami, Florida, see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Recent Developments." Development Activity The following table summarizes the 14 development projects placed in service during the year ended December 31, 1997 (dollars in thousands): Completed
Date Placed Number of Rentable Initial Property Location in Service Properties Square Feet Cost (1) - ---------------------------------------- ------------------- ------------- ------------ ------------- --------- Shockoe Alleghany Warehouse ............ Richmond 02/01/97 1 119,000 $19,300 NorthPark .............................. Research Triangle 03/15/97 1 42,000 3,700 Centerpoint V .......................... Columbia 04/11/97 1 20,000 1,700 Sycamore ............................... Research Triangle 04/15/97 1 72,000 6,300 Chastain Place I ....................... Atlanta 05/01/97 1 108,000 3,900 AirPark East-Simplex (Bldg. 6) ......... Piedmont Triad 05/02/97 1 13,000 800 Two Airpark East (Bldg. D) ............. Piedmont Triad 06/01/97 1 54,000 4,200 Airport Center I ....................... Richmond 08/01/97 1 142,000 6,300 Westshore III .......................... Richmond 08/26/97 1 57,000 5,300 Highwoods Plaza II ..................... Nashville 09/02/97 1 102,000 10,400 The Richfood Building .................. Richmond 09/05/97 1 76,000 7,300 R.F. Micro Devices ..................... Piedmond Triad 10/18/97 1 50,000 8,400 Highwoods Office Center At Southwind ............................ Memphis 12/01/97 1 69,000 7,000 Grove Park ............................. Richmond 12/31/97 1 61,000 5,900 -------- - ------- ------- Total ................................ 14 985,000 $90,500 == ======= =======
- ---------- (1) Initial Cost includes estimated amounts required to complete the project including tenant improvement costs. 7 The Company had 25 suburban office properties and seven industrial properties under development totaling 3.3 million square feet of office and industrial space at December 31, 1997. The following table summarizes these development projects as of December 31, 1997 (dollars in thousands): In process
Rentable Estimated Cost at Pre-Leasing Estimated Name Location Square Feet Costs 12/31/97 Percentage* Completion - --------------------------------- ------------------- ------------- ----------- ---------- ------------- ----------- (dollars in thousands) Office Properties: Ridgefield III Asheville 57,000 $ 5,485 $ 1,638 --% 2Q98 2400 Century Center Atlanta 135,000 16,195 6,527 -- 2Q98 10 Glenlakes Atlanta 254,000 35,135 3,360 -- 4Q98 Automatic Data Processing Baltimore 110,000 12,400 3,367 100 3Q98 Riparius Center at Owings Mills Baltimore 125,000 13,800 2,393 -- 2Q99 BB&T** Greenville 71,000 5,851 81 100 2Q98 Patewood VI Greenville 107,000 11,360 5,202 19 2Q98 Colonnade Memphis 89,000 9,400 5,592 73 2Q98 Southwind C Memphis 74,000 7,657 1,245 34 4Q98 Harpeth V Nashville 65,000 6,900 3,108 47 1Q98 Lakeview Ridge II Nashville 61,000 6,000 2,879 70 1Q98 Southpointe Nashville 104,000 10,878 4,254 26 2Q98 Concourse Center One Piedmont Triad 86,000 8,415 -- -- 1Q99 RMIC Piedmont Triad 90,000 7,650 3,971 100 2Q98 Clintrials Research Triangle 178,000 21,490 12,034 100 2Q98 Situs II Research Triangle 59,000 5,857 1,218 -- 2Q98 Highwoods Centre Research Triangle 76,000 8,327 960 36 3Q98 Overlook Research Triangle 97,000 10,307 1,083 -- 4Q98 Red Oak Research Triangle 65,000 6,394 568 -- 3Q98 Rexwoods V Research Triangle 61,000 7,444 5,894 70 1Q98 Markel-American Richmond 106,000 10,650 5,226 52 2Q98 Highwoods V Richmond 67,000 6,620 1,096 100 2Q98 Interstate Corporate Center** Tampa 309,000 8,600 40 23 4Q98 Intermedia (Sabal) Phase I Tampa 121,000 12,500 1,331 100 4Q98 Intermedia (Sabal) Phase II Tampa 121,000 13,000 662 100 1Q00 ------- -------- ------- --- Office Total or Weighted Average 2,688,000 $268,315 $73,729 43% ========= ======== ======= === Industrial Properties: Chastain Place II & III Atlanta 122,000 $ 4,686 $ 1,359 --% 3Q98 Newpoint Atlanta 119,000 4,660 3,224 20 1Q98 Tradeport 1 Atlanta 87,000 3,070 1,608 -- 1Q98 Tradeport 2 Atlanta 87,000 3,070 1,608 -- 1Q98 Air Park South Warehouse I Piedmont Triad 100,000 2,929 545 90 1Q98 Airport Center II Richmond 70,000 3,197 2,732 54 1Q98 --------- -------- ------- --- Industrial Total or Weighted Average 585,000 $ 21,612 $11,076 26% ========= ======== ======= === Total or Weighted Average of all Development Projects 3,273,000 $289,927 $84,805 40% ========= ======== ======= === Summary By Estimated Completion Date: First Quarter 1998 650,000 $ 37,270 $21,598 41% Second Quarter 1998 1,063,000 111,436 46,839 54 Third Quarter 1998 373,000 31,807 6,254 37 Fourth Quarter 1998 855,000 74,199 7,059 25 First Quarter 1999 86,000 8,415 -- -- Second Quarter 1999 125,000 13,800 2,393 -- First Quarter 2000 121,000 13,000 662 100 --------- -------- ------- --- 3,273,000 $289,927 $84,805 40% ========= ======== ======= ===
- ---------- * Includes letters of intent ** Redevelopment projects 8 Competition The Properties compete for tenants with similar properties located in the Company's markets primarily on the basis of location, rent charged, services provided and the design and condition of the facilities. The Company also competes with other REITs, financial institutions, pension funds, partnerships, individual investors and others when attempting to acquire properties. Employees As of December 31, 1997, the Company employed 476 persons, as compared to 270 at December 31, 1996. The increase is primarily a result of the Company's expansion within its existing markets and into Baltimore, Maryland. 9 ITEM 2. PROPERTIES General The following table sets forth certain information about the Properties at December 31, 1997:
Percent of Rentable Total Annualized Percent of Office Industrial Total Square Rentable Rental Total Annualized Properties Properties (1) Properties Feet Square Feet Revenue (2) Rental Revenue ------------ ---------------- ------------ ------------ ------------- --------------- ----------------- Research Triangle, NC..... 69 4 73 4,686,120 15.2% $ 65,314,092 17.9% Atlanta, GA .............. 39 31 70 4,824,831 15.5 44,200,033 12.2 Tampa, FL ................ 42 -- 42 2,904,587 9.5 41,772,977 11.4 Piedmont Triad, NC ....... 34 79 113 4,738,992 15.3 36,779,925 10.0 South Florida ............ 27 -- 27 2,384,044 7.8 36,511,089 10.0 Nashville, TN ............ 15 3 18 1,821,485 5.9 27,183,735 7.4 Orlando, FL .............. 30 -- 30 1,990,148 6.5 23,756,539 6.5 Jacksonville, FL ......... 16 -- 16 1,465,139 4.8 17,367,432 4.7 Charlotte, NC ............ 15 16 31 1,428,590 4.7 15,158,758 4.1 Richmond, VA ............. 20 2 22 1,278,726 4.2 14,348,878 3.9 Greenville, SC ........... 8 2 10 1,001,641 3.3 11,051,150 3.0 Memphis, TN .............. 9 -- 9 606,549 2.0 10,033,045 2.7 Baltimore, MD ............ 5 -- 5 364,434 1.2 7,837,121 2.1 Columbia, SC ............. 7 -- 7 423,738 1.4 5,553,603 1.5 Tallahassee, FL .......... 1 -- 1 244,676 0.8 3,372,355 0.9 Norfolk, VA .............. 2 1 3 265,857 0.9 2,843,389 0.8 Birmingham, AL ........... 1 -- 1 115,289 0.4 1,795,236 0.5 Asheville, NC ............ 1 1 2 124,177 0.4 1,180,068 0.3 Ft. Myers, FL ............ 1 -- 1 51,831 0.2 509,720 0.1 -- -- --- --------- ----- ------------ ----- Total ................ 342 139 481 30,720,854 100.0% $366,569,145 100.0% === === === ========== ===== ============ =====
Office Properties Industrial Properties (1) Total or Weighted Average ------------------- --------------------------- -------------------------- Total Annualized Rental Revenue (2) $331,936,875 $34,632,270 $ 366,569,145 Total rentable square feet ........... 23,841,565 6,879,289 30,720,854 Percent leased ....................... 94%(3) 93%(4) 94% Weighted average age (years) ......... 12.2(5) 11.4 12.0
- ---------- (1) Includes 73 service center properties. (2) Annualized Rental Revenue is December 1997 rental revenue (base rent plus operating expense pass throughs) multiplied by 12. (3) Includes 47 single-tenant properties comprising 3.4 million rentable square feet and 378,000 rentable square feet leased but not occupied. (4) Includes 24 single-tenant properties comprising 1.6 million rentable square feet and 27,000 rentable square feet leased but not occupied. (5) Excludes the Comeau Building, which is a historical building constructed in 1926 and renovated in 1996. 10 The following table sets forth certain information about the portfolio of in-service and development properties as of December 31, 1997 and 1996:
December 31, 1997 December 31, 1996 ------------------------------------------- ------------------------------------------ Number Percent Number Percent of Rentable Leased/ of Rentable Leased/ Properties Square Feet Pre-leased Properties Square Feet Pre-leased ------------ ------------- ------------ ------------ ------------- ----------- In-Service Office ............. 342 23,842,000 94% 181 12,350,600 93% Industrial ......... 139 6,879,000 93 111 5,104,600 90 --- ---------- -- --- ---------- -- Total ............. 481 30,721,000 94% 292 17,455,200 92% === ========== == === ========== == Under Development Office ............. 25 2,688,000 43% 12 825,000 52% Industrial ......... 7 585,000 26 2 190,000 24 --- ---------- -- --- ---------- -- Total ............. 32 3,273,000 40% 14 1,015,000 46% === ========== == === ========== == Total Office ............. 367 26,530,000 193 13,175,600 Industrial ......... 146 7,464,000 113 5,294,600 --- ---------- --- ---------- Total ............. 513 33,994,000 306 18,470,200 === ========== === ==========
Tenants As of December 31, 1997, the Properties were leased to approximately 3,100 tenants, which engage in a wide variety of businesses. The following table sets forth information concerning the 20 largest tenants of the Properties as of December 31, 1997:
Percent of Total Number Annualized Annualized Tenant of Leases Rental Revenue (1) Rental Revenue - ------------------------------------------------------- ----------- -------------------- ----------------- 1. IBM ............................................... 13 $13,546,185 3.7% 2. Federal Government ................................ 45 12,059,353 3.3 3. AT&T .............................................. 16 6,985,351 1.9 4. Bell South ........................................ 45 6,340,084 1.7 5. State of Florida .................................. 22 5,215,070 1.4 6. GTE ............................................... 6 2,995,422 0.8 7. NationsBank ....................................... 21 2,953,191 0.8 8. First Citizens Bank & Trust ....................... 8 2,887,811 0.8 9. Bluecross & Blue Shield of South Carolina ......... 10 2,554,517 0.7 10. MCI ............................................... 10 2,458,637 0.7 11. Prudential ........................................ 13 2,412,640 0.7 12. Jacobs-Sirrene Engineers, Inc. .................... 1 2,235,550 0.6 13. Price Waterhouse .................................. 3 2,047,953 0.6 14. US Airways ........................................ 4 2,033,940 0.6 15. Alex Brown & Sons ................................. 1 1,943,070 0.5 16. H.L.P. Health Plan of Florida ..................... 2 1,913,005 0.5 17. The Martin Agency, Inc. ........................... 1 1,863,504 0.5 18. Northern Telecom Inc. ............................. 2 1,849,118 0.5 19. BB&T .............................................. 4 1,845,501 0.5 20. Clintrials ........................................ 4 1,812,206 0.5 -- ----------- ---- Total ............................................ 231 $77,952,108 21.3% === =========== ====
- ---------- (1) Annualized Rental Revenue is December 1997 rental revenue (base rent plus operating expense pass throughs) multiplied by 12. 11 The following tables set forth certain information about the Company's leasing activities for the years ended December 31, 1997 and 1996.
1997 1996 ------------------------------- ------------------------------- Office Industrial Office Industrial -------------- -------------- -------------- -------------- Net Effective Rents Related to Re-Leased Space: Number of lease transactions (signed leases) ................................... 520 241 306 240 Rentable square footage leased .............. 2,531,393 1,958,539 1,158,563 2,302,151 Average per rentable square foot over the lease term: Base rent ................................. $ 16.04 $ 5.37 $ 15.00 $ 4.68 Tenant improvements ....................... ( 1.06) (0.22) ( 0.93) (0.15) Leasing commissions ....................... ( 0.39) (0.13) ( 0.31) (0.10) Rent concessions .......................... ( 0.01) (0.01) -- -- ----------- ---------- ---------- ---------- Effective rent ............................ $ 14.58 $ 5.01 $ 13.76 $ 4.43 Expense stop .............................. ( 3.53) (0.23) ( 3.36) (0.39) ----------- ---------- ---------- ---------- Equivalent effective net rent ............. $ 11.05 $ 4.78 $ 10.40 $ 4.04 =========== ========== ========== ========== Average term in years ....................... 4 3 4 2 =========== ========== ========== ========== Rental Rate Trends: Average final rate with expense pass throughs .................................. $ 13.78 $ 5.08 $ 13.64 $ 4.41 Average first year cash rental rate ......... $ 14.76 $ 5.37 $ 14.46 $ 4.68 ----------- ---------- ---------- ---------- Percentage increase ......................... 7.11% 5.71% 6.01% 6.12% =========== ========== ========== ========== Capital Expenditures Related to Re-leased Space: Tenant Improvements: Total dollars committed under signed leases ................................... $11,443,099 $1,421,203 $4,496,523 $ 685,880 Rentable square feet ...................... 2,531,393 1,958,539 1,158,563 2,302,151 ----------- ---------- ---------- ---------- Per rentable square foot .................. $ 4.52 $ 0.73 $ 3.88 $ 0.30 =========== ========== ========== ========== Leasing Commissions: Total dollars committed under signed leases ................................... $ 4,247,280 $ 890,280 $1,495,498 $ 470,090 Rentable square feet ...................... 2,531,393 1,958,539 1,158,563 2,302,151 ----------- ---------- ---------- ---------- Per rentable square foot .................. $ 1.68 $ 0.45 $ 1.29 $ 0.20 =========== ========== ========== ========== Total: Total dollars committed under signed leases ................................... $15,690,379 $2,311,483 $5,992,021 $1,155,970 Rentable square feet ...................... 2,531,393 1,958,539 1,158,563 2,302,151 ----------- ---------- ---------- ---------- Per rentable square foot .................. $ 6.20 $ 1.18 $ 5.17 $ 0.50 =========== ========== ========== ==========
12 The following tables set forth scheduled lease expirations for executed leases as of December 31, 1997, assuming no tenant exercises renewal options. Office Properties:
Average Percentage of Annual Leased Rents Total Percentage of Annual Rents Rental Rate Represented Year of Rentable Leased Square Footage Under Per Square by Lease Number of Square Feet Represented by Expiring Foot for Expiring Expiration Leases Expiring Expiring Leases Leases (1) Expirations (1) Leases - ------------ ----------- ------------- ----------------------- -------------- ----------------- -------------- 1998 886 3,785,469 17.2% $ 57,338,996 $ 15.15 17.2% 1999 627 3,144,551 14.3 47,330,017 15.05 14.3 2000 684 3,532,083 16.0 54,111,857 15.32 16.3 2001 413 3,077,007 13.9 47,164,815 15.33 14.2 2002 410 3,131,735 14.2 47,142,775 15.05 14.2 2003 86 1,227,155 5.6 18,193,113 14.83 5.5 2004 55 980,824 4.4 16,840,214 17.17 5.1 2005 39 817,786 3.7 10,501,525 12.84 3.2 2006 27 847,453 3.8 11,936,405 14.09 3.6 2007 18 535,012 2.4 7,273,331 13.59 2.2 Thereafter 25 983,034 4.5 14,103,828 14.35 4.2 --- --------- ----- ------------ -------- ----- Total or average 3,270 22,062,109 100.0% $331,936,876 $ 15.05 100.0% ===== ========== ===== ============ ======== =====
Industrial Properties:
Average Percentage of Annual Leased Rents Total Percentage of Annual Rents Rental Rate Represented Year of Rentable Leased Square Footage Under Per Square by Lease Number of Square Feet Represented by Expiring Foot for Expiring Expiration Leases Expiring Expiring Leases Leases (1) Expirations (1) Leases - ------------- ----------- ------------- ----------------------- -------------- ----------------- -------------- 1998 221 1,686,906 26.2% $ 9,247,354 $ 5.48 26.7% 1999 139 1,215,439 19.0 6,500,284 5.35 18.8 2000 123 1,223,412 19.1 7,304,628 5.97 21.1 2001 58 597,379 9.3 3,523,569 5.90 10.2 2002 54 1,159,283 18.1 5,056,924 4.36 14.6 2003 9 99,905 1.6 760,152 7.61 2.2 2004 5 104,369 1.6 602,516 5.77 1.7 2005 4 33,832 0.5 289,380 8.55 0.8 2006 2 196,600 3.1 882,636 4.49 2.5 2007 -- -- -- -- -- -- Thereafter 1 95,545 1.5 464,826 4.86 1.4 --- --------- ----- ----------- ------- ----- Total or average 616 6,412,670 100.0% $34,632,269 $ 5.40 100.0% === ========= ===== =========== ======= =====
- ---------- (1) Includes operating expense pass throughs and excludes the effect of future contractual rent increases. 13 Table of Properties The following table and the notes thereto set forth information regarding the Properties at December 31, 1997:
Percent Occupied at Tenants Leasing 25% or More Building Year Rentable December 31, of Rentable Square Feet at Property Type (1) Built Square Feet 1997(13) December 31, 1997 - ------------------------- ---------- ------- ------------- -------------- ------------------------------------------- Research Triangle, NC - ------------------------- Highwoods Office Center Amica O 1983 20,708 100% Amica Mutual Insurance Co. Interface Technologies Arrowood O 1979 58,743 100 First Citizens Bank & Trust Aspen O 1980 36,796 87 Coopers & Lybrand Birchwood O 1983 12,748 100 Southlight, Inc., Donohoe Construction Co. Cedar East O 1981 40,552 100 Amerimark Building Products Cedar West O 1981 39,609 100 N/A Cottonwood O 1983 40,150 100 First Citizens Bank & Trust Cypress O 1980 39,003 90 GSA-Army Recruiters Dogwood O 1983 40,613 100 First Citizens Bank & Trust Global Software O 1996 92,985 100 Global Software Inc. Hawthorn O 1987 63,797 100 Carolina Telephone & Telegraph Highwoods Tower O 1991 185,446 98 Maupin, Taylor & Ellis Holly O 1984 20,186 100 Capital Associated Industries Ironwood O 1978 35,695 97 First Citizens Bank & Trust Kaiser O 1988 56,975 100 Kaiser Foundation Health Laurel O 1982 39,382 100 Ms. Terry Woods, First Citizens Bank & Trust Leatherwood O 1979 36,581 92 GAB Robins North America, Inc. Smoketree Tower O 1984 150,341 98 N/A Rexwoods Office Center 2500 Blue Ridge O 1982 61,594 97 Rex Hospital, Inc. Blue Ridge II O 1988 20,673 100 McGladrey & Pullen Rexwoods Center O 1990 41,686 100 N/A Rexwoods II O 1993 20,845 100 Raleigh Neurology Clinic, Miller Building Corporation Rexwoods III O 1992 42,488 100 ARCADIS Geraghty & Miller, Inc. Rexwoods IV O 1995 42,331 100 N/A Triangle Business Center Building 2A O 1984 102,400 100 Harris Semiconductor Corporation, Building 2B S 1984 32,000 100 Qualex Inc. Building 3 O 1988 135,382 100 N/A Building 7 O 1986 124,432 91 Broadband Technologies, Inc. Progress Center Cape Fear O 1979 41,527 100 Intercardia, Inc. Catawba O 1980 40,578 100 GSA -- EPA Pamlico O 1980 104,773 100 Northern Telecom, Inc. North Park 4800 North Park O 1985 168,016 100 IBM-PC Division 4900 North Park O 1984 32,339 100 N/A 5000 North Park O 1980 74,653 93 N/A Creekstone Park Creekstone Crossing O 1990 59,299 100 N/A Riverbirch O 1987 60,192 100 Quintiles, Inc. Sycamore O 1997 72,124 95 Northern Telecom Inc. Willow Oak O 1995 89,392 100 AT&T Research Commons EPA Administration O 1966 46,718 100 GSA-EPA EPA Annex O 1966 145,875 100 GSA-EPA 4501 Building O 1985 56,566 100 Lockheed Martin 4401 Building O 1987 117,436 100 Ericsson, GSA-NIH 4301 Building O 1989 90,894 100 Glaxo Wellcome, Inc. 4201 Building O 1991 83,481 100 GSA-EPA Roxboro Road Portfolio Fairfield I O 1987 52,050 92 Reliance Insurance Company Fairfield II O 1989 59,954 100 Qualex, Inc. Qualex O 1985 67,000 100 Qualex, Inc. 4101 Roxboro O 1984 56,000 100 Duke -- Cardiology 4020 Roxboro O 1989 40,000 100 Duke -- Pediatrics Duke -- Cardiology
14
Percent Occupied at Tenants Leasing 25% or More Building Year Rentable December 31, of Rentable Square Feet at Property Type (1) Built Square Feet 1997(13) December 31, 1997 - ------------------------------- ---------- ------- ------------- -------------- ----------------------------------------- Six Forks Center Six Forks Center I O 1982 33,867 98% Centura Bank, NY Life Ins. Co. Six Forks Center II O 1983 55,678 93 N/A Six Forks Center III O 1987 60,814 100 EDS ONCC Phase I S 1981 101,129 75 N/A "W" Building O 1983 91,335 79 Closure Medical Corporation 3645 Trust Drive O 1984 50,652 74 Customer Access Resources, Inc. 5220 Green's Dairy Road O 1984 29,720 100 N/A 5200 Green's Dairy Road O 1984 18,317 32 N/A 5301 Departure Drive S 1984 84,899 100 ABB Power T&D Co., Inc., Cardiovascular Diagnostics, Inc. Other Research Triangle Properties 4000 Aerial Center O 1992 25,330 0 N/A Colony Corporate Center O 1985 52,183 79 Rust Environmental & Infrastructure, Fujitsu Concourse O 1986 131,834 100 ClinTrials Cotton Building O 1972 40,035 100 Cotton Inc., Associated Insurances Inc. Expressway One Warehouse I 1990 59,600 54 Number One Supply Corporation 3600 Glenwood Avenue (2) O 1986 78,008 100 Poyner & Spruill Healthsource O 1996 180,000 100 Healthsource N.C. Holiday Inn O 1984 30,000 100 Holiday Hospitality Corporation Lake Plaza East O 1984 71,339 93 N/A MSA O 1996 55,219 100 Management Systems Associates Phoenix O 1990 26,449 91 Computer Intelligence, Inc. North Park Building One O 1997 42,255 38 Medpartners Acquisition Situs I O 1996 59,255 95 BellSouth South Square I O 1988 56,401 100 Blue Cross and Blue Shield of SC South Square II O 1989 58,793 100 Blue Cross and Blue Shield of NC, ------- --- Duke University Total or Weighted Average 4,686,120 95% ========= === Atlanta, GA - ------------------------------- Oakbrook Oakbrook I S 1981 106,662 100 N/A Oakbrook II O 1983 141,938 100 Assetcare, Inc. Oakbrook III S 1984 164,297 100 N/A Oakbrook IV O 1985 89,102 100 N/A Oakbrook V O 1985 204,338 100 N/A 6348 Northeast Expressway I 1978 49,023 100 Quick Ship Holding, Inc. 6438 Northeast Expressway I 1981 43,024 100 Leather Creations, Inc., Roos, Inc. Chattahoochee Avenue I 1970 62,095 82 N/A Corporate Lakes Dist Center I 1988 235,595 99 Motorola Energy Products Cosmopolitan North O 1980 120,967 90 Wells Fargo Armored Services Corporation Gwinnett Distribution I 1991 316,668 98 N/A Center Lavista Business Park I 1973 216,200 94 N/A Norcross I,II I 1970 64,010 100 Sun Mi Chun Oakbrook Summitt I 1981 234,232 100 N/A Southside Distribution I 1988 191,200 73 Coca-Cola Center Steel Drive I 1975 57,188 93 Ballistic Studios Century Center 1700 Century Circle O 1972 69,368 95 N/A 1800 Century Boulevard O 1975 279,491 100 Bell South 1875 Century Boulevard (3) O 1976 96,069 100 GSA 1900 Century Boulevard (3) O 1971 80,026 96 N/A 2200 Century Parkway (3) O 1971 143,088 100 N/A 2600 Century Parkway (3) O 1973 96,287 100 MBNA Marketing Systems, Inc., GSA 2635 Century Parkway (3) O 1980 210,066 99 GSA 2800 Century Parkway (3) O 1983 220,873 100 AT&T Other Atlanta Properties 1035 Fred Drive I 1973 100,187 100 The Tenstar Corporation 1077 Fred Drive I 1973 105,600 100 Advanced Distribution Systems, International Paper 5125 Fulton Industrial Blvd. I 1973 149,386 100 Martin Brower Co. Fulton Corporate Center I 1973 101,000 87 N/A
15
Percent Occupied at Tenants Leasing 25% or More Building Year Rentable December 31, of Rentable Square Feet at Property Type (1) Built Square Feet 1997(13) December 31, 1997 - ------------------------------- ---------- ------- ------------- -------------- ------------------------------------- 400 North Business Park O 1985 85,756 100% N/A Kennestone Corporate O 1985 81,993 100 N/A Center Oxford Lakes Business O 1985 102,446 100 Vanstar Corporation Center Chastain Place 1 I 1997 108,000 50 Nailco Southeast, Inc. Bluegrass Place 1 I 1995 69,000 100 Ebscaft, Inc. Bluegrass Place 2 I 1996 72,000 100 Hansgrohe, Inc. 1765 The Exchange O 1983 90,215 90 GA Waste Systems Inc. Two Point Royal O 1997 123,032 89 Hartford Fire Insurance Co., Textron Financial Corporation 50 Glenlake O 1997 144,409 93 Hartford Fire Insurance Co ------- --- Total or Weighted Average 4,824,831 96% ========= === Tampa, FL - ------------------------------- Sabal Park Atrium O 1989 131,952 100 GTE Data Services, Inc., Intermedia Communications Sabal Business Center VI O 1988 99,136 100 Pharmacy Management Services, Inc. Progressive Insurance O 1988 83,648 100 Progressive American Insurance Co. Sabal Business Center VII O 1990 71,248 100 Beverly Enterprises, Inc. Sabal Business Center V O 1988 60,578 100 Lebhar-Friedman Inc. Registry II O 1987 58,781 97 N/A Registry I O 1985 58,319 95 N/A Sabal Business Center IV (4) O 1984 49,368 100 Phillips Educational Group of Central Florida, Inc., TGC Home Health Care, Inc. Sabal Tech Center O 1989 48,220 100 Merck-Medco Managed Care Sabal Park Plaza O 1987 46,758 100 State of Florida Department of Revenue, ERM South, Inc. Sabal Lake Building O 1986 44,533 100 Warner Publisher Services, Inc. Sabal Business Center I O 1982 39,866 85 N/A Sabal Business Center II O 1984 32,736 64 Owen Ayres and Associates, Inc. Registry Square O 1988 26,568 91 Proctor & Redfern, Inc. Expo Building O 1981 25,600 100 Exposystems, Inc., Expodisplays Sabal Business Center III O 1984 21,300 100 Progressive Insurance Benjamin Center Benjamin Center #7 O 1991 30,962 100 Basetec Office Systems, Inc., Beers Construction Benjamin Center #9 O 1989 38,405 79 First Image Management Co. Tampa Bay Park Horizon (5) O 1980 92,073 91 IBM Lakeside (5) O 1978 91,545 100 American Portable Telecom Lakepointe I O 1986 229,524 98 IBM, Price Waterhouse Parkside (5) O 1979 102,046 100 IBM Pavillion (5) O 1982 144,166 100 IBM Spectrum O 1984 146,994 100 IBM Other Tampa Properties Tower Place O 1988 181,179 96 N/A Day Care Center O 1986 8,000 100 Brookwood Academy Child Care 5400 Gray Street O 1973 5,408 100 The Wackenhut Corporation Crossroads Office Center O 1981 74,729 63 N/A Cypress West O 1985 64,977 82 Paradigm Communications, Inc. Feathersound II O 1986 79,972 98 N/A Fireman's Fund Building O 1982 49,578 98 Fireman's Fund Insurance Co., Pitney Bowes, Inc. Lakeside Technology Center O 1984 146,663 94 NationsBank Grand Plaza O 1985 239,353 90 N/A Mariner Square O 1973 72,319 99 GSA Telecom Technology Center O 1991 133,820 100 GTE Zurn Building O 1983 74,263 100 N/A ------- --- ------------------------------------- Total or Weighted Average 2,904,587 96% ========= ===
16
Percent Occupied at Tenants Leasing 25% or More Building Year Rentable December 31, of Rentable Square Feet at Property Type (1) Built Square Feet 1997(13) December 31, 1997 - ------------------------- ---------- ------- ------------- -------------- ---------------------------------- Piedmont Triad, NC - ------------------------- Airpark East Highland Industries S 1990 12,500 100% Highland Industries, Inc. Service Center 1 S 1985 18,575 53 N/A Service Center 2 S 1985 19,125 0 N/A Service Center 3 S 1985 16,498 100 ECPI of Tidewater, VA Service Center 4 S 1985 16,500 0 N/A Copier Consultants S 1990 20,000 100 Copier Consultants Service Court S 1990 12,600 81 N/A Building 01 O 1990 24,423 79 Health & Hygiene Building 02 O 1986 23,827 100 GSA-United States Postal Service Building 03 O 1986 23,182 96 Time Warner, Lockheed Martin Building 06 O 1997 12,500 62 Simplex Time Recorder Co. Building A O 1986 56,272 100 N/A Building B O 1988 54,088 100 GSA-United States Postal Service Building C O 1990 134,893 91 Daicore Life and Health Ins. Building D O 1997 54,007 90 Volvo Sears Cenfact O 1989 49,504 100 Sears Hewlett Packard O 1996 15,000 100 Hewlett Packard Co. Inacom O 1996 12,620 100 Inacom Business Centers Inc. Warehouse 1 I 1985 64,000 100 Guilford Business Forms, Inc., Safelite Glass Corporation Warehouse 2 I 1985 64,000 75 Volvo GM Heavy Truck Corporation, State Street Bank Realty Warehouse 3 I 1986 57,600 93 US Air, Inc., Garlock, Inc. Warehouse 4 I 1988 54,000 100 First Data Resources, Inc., Microdyne Systems, Inc. Airpark North DC-1 I 1986 112,000 100 VSA, Inc. DC-2 I 1987 111,905 100 Sears Electric South DC-3 I 1988 75,000 100 Continuous Forms & Checks, Inc., Liberty of NC DC-4 I 1988 60,000 0 N/A Airpark West Airpark I O 1984 60,000 100 Volvo GM Heavy Truck Corp. Airpark II O 1985 45,680 67 Volvo GM Heavy Truck Corp. Airpark IV O 1985 22,612 100 Max Radio of Greensboro Airpark V O 1985 21,923 46 N/A Airpark VI O 1985 22,097 94 Brookstone College, Anacomp West Point Business Park BMF Warehouse I 1986 240,000 100 Sara Lee Knit Products, Inc. WP-11 I 1988 89,600 100 N.C. Record Control Centers, Walt Klein & Associates WP-12 I 1988 89,600 100 Norel Plastics, Sara Lee WP-13 I 1988 89,600 100 Sara Lee Knit Products, Inc. WP-3 & 4 S 1988 18,059 100 Pediatric Services of America, Rayco Safety, Inc. WP-5 S 1995 26,282 100 Cardinal Health, Inc. Fairchild Building I 1990 89,000 100 Fairchild Industrial Products LUWA Bahnson Building O 1990 27,000 100 Luwa Bahnson, Inc. University Commercial Center W-1 I 1983 44,400 100 Lantal Corp. W-2 I 1983 46,500 100 Paper Supply Company SR-1 S 1983 23,112 100 N/A SR-2 01/02 S 1983 17,282 100 Decision Point Marketing SR-3 S 1984 23,925 80 Decision Point Marketing Building 03 O 1985 37,077 61 N/A Building 04 O 1986 34,470 94 Telespectrum Worldwide, Inc. Knollwood Office Center 370 Knollwood O 1994 90,315 100 Krispy Kreme, Prudential Carolinas Realty 380 Knollwood O 1990 164,179 100 N/A Stoneleigh Business Park 7327 W. Friendly Ave. S 1987 11,180 90 Sprint, Salem Imaging 7339 W. Friendly Ave. S 1989 11,784 100 Medical Endoscopy Service, R.F. Micro Devices 7341 W. Friendly Ave. S 1988 21,048 91 R.F. Micro Devices
17
Percent Occupied at Tenants Leasing 25% or More Building Year Rentable December 31, of Rentable Square Feet at Property Type (1) Built Square Feet 1997(13) December 31, 1997 - ------------------------------ ---------- ------- ------------- -------------- ---------------------------------------- 7343 W. Friendly Ave. S 1988 13,463 100% Executone Information Systems 7345 W. Friendly Ave. S 1988 12,300 100 Rule Manufacturing 7347 W. Friendly Ave. S 1988 17,978 93 Carter & Associates, Surf Air 7349 W. Friendly Ave. S 1988 9,840 100 Ardratech, Inc., Anderson & Associates 7351 W. Friendly Ave. S 1988 19,723 100 ACT MEDIA, Inc., Corporate Express, Heritage Capital 7353 W. Friendly Ave. S 1988 22,826 100 Office Equipment Wholesalers, United Dominion Industries 7355 W. Friendly Ave. S 1988 13,296 100 R.F. Micro Devices Spring Garden Plaza 4000 Spring Garden St. S 1983 21,773 91 Lighting Creations, Inc. 4002 Spring Garden St. S 1983 6,684 100 Reynolds & Reynolds 4004 Spring Garden St. S 1983 23,724 92 N/A Pomona Center -- Phase I 7 Dundas Circle S 1986 14,184 91 N/A 8 Dundas Circle S 1986 16,488 100 N/A 9 Dundas Circle S 1986 9,972 43 Netcom Cabling, Inc. Pomona Center -- Phase II 302 Pomona Dr. S 1987 16,488 100 N/A 304 Pomona Dr. S 1987 4,344 100 Fortune Personnel Consultants, OEC Fluid Handling, Inc. 306 Pomona Dr. S 1987 9,840 75 Aqua Science 308 Pomona Dr. S 1987 14,184 100 N/A 5 Dundas Circle S 1987 14,184 91 Engineering Consulting SV Westgate on Wendover -- Phase I 305 South Westgate Dr. S 1985 4,608 100 Alarmguard Security, Inc., The Computer Store, Inc. 307 South Westgate Dr. S 1985 12,672 100 Incutech, Inc. 309 South Westgate Dr. S 1985 12,960 44 GEODAX Technology, Inc., Earth Tech, Inc. 311 South Westgate Dr. S 1985 14,400 110 N/A 315 South Westgate Dr. S 1985 10,368 78 N/A 317 South Westgate Dr. S 1985 15,552 93 N/A 319 South Westgate Dr. S 1985 10,368 78 N/A Westgate on Wendover -- Phase II 206 South Westgate Dr. S 1986 17,376 100 Home Care of the Central Carolinas 207 South Westgate Dr. S 1986 26,448 100 Health Equipment Services 300 South Westgate Dr. S 1986 12,960 87 Health Equipment Services 4600 Dundas Circle S 1985 11,922 0 N/A 4602 Dundas Circle S 1985 13,017 61 Four Seasons Apparel Co. Radar Road 500 Radar Rd. I 1981 78,000 100 N/A 502 Radar Rd. I 1986 15,000 100 East Texas Distributing, Inc. 504 Radar Rd. I 1986 15,000 100 Techno Craft, Inc., Dayva Industries 506 Radar Rd. I 1986 15,000 100 D&N International, Inc. American Coatings of VA, Wentworth Textiles Holden/85 Business Park 2616 Phoenix Dr. I 1985 31,894 100 Pliana, Inc. 2606 Phoenix Dr. -- 100 S 1989 15,000 100 Piedmont Plastics, Inc., Rexam Flexible Packaging Corporation 2606 Phoenix Dr. -- 200 S 1989 15,000 100 REHAU, Inc., Reynolds Renovations 2606 Phoenix Dr. -- 300 S 1989 7,380 100 N/A 2606 Phoenix Dr. -- 400 S 1989 12,300 90 Spectrum Financial Systems 2606 Phoenix Dr. -- 500 S 1989 15,180 100 The Record Exchange, Inc. 2606 Phoenix Dr. -- 600 S 1989 18,540 70 Faith & Victory Church Industrial Village 7906 Industrial Village Rd. I 1985 15,000 100 Texas Aluminum Industries 7908 Industrial Village Rd. I 1985 15,000 100 Air Express, Pharmagraphics Holdings 7910 Industrial Village Rd. I 1985 15,000 100 Wadkin North America, Inc. Consolidated Center Consolidated Center I O 1983 40,000 100 Bali Consolidated Center II O 1983 60,000 92 Bali, Aon Risk Services Consolidated Center III O 1989 50,775 96 Lowes, Shelco, Inc. Consolidated Center IV O 1989 29,312 100 Medcost, Inc.
18
Percent Occupied at Tenants Leasing 25% or More Building Year Rentable December 31, of Rentable Square Feet at Property Type (1) Built Square Feet 1997(13) December 31, 1997 - ------------------------------- ---------- ------- ------------- -------------- --------------------------------------- Other Piedmont Triad Properties 101 S. Stratford O 1986 78,194 100% First Union, Triad Guaranty Ins. Corporation 6348 Burnt Poplar I 1990 125,000 100 Sears 6350 Burnt Poplar I 1992 57,600 100 Industries for the Blind Champion Madison Park II O 1993 105,723 100 Champion Deep River I O 1989 78,094 78 N/A Forsyth I O 1985 52,922 94 Management Directions Regency One I 1996 127,600 100 New Breed Leasing Corporation Regency Two I 1996 96,000 100 Duorr Medical Corporation R.F. Micro Devices O 1997 49,505 100 R.F. Micro Devices Stratford O 1991 135,533 88 BB&T Chesapeake I 1993 250,000 100 Chesapeake Display & Packaging USAIR Buildings O 1970-1987 134,555 100 US AIR 3288 Robinhood O 1989 19,599 100 N/A ------- --- Total or Weighted Average 4,738,992 93% ========= === South Florida - ------------------------------- 1800 Eller Drive (6) O 1983 103,440 87 Renaissance Cruises 2828 Coral Way Building O 1985 64,000 96 Spanish Radio Network Atrium At Coral Gables O 1984 164,528 100 Prosource Atrium West O 1983 92,014 93 GSA Avion Building O 1985 66,908 91 N/A Centrum Plaza O 1988 40,938 98 N/A Comeau Building O 1926 87,302 66 N/A Corporate Square O 1981 87,823 95 N/A Dadeland Office Complex O 1972 240,148 86 N/A Design Center Plaza O 1982 57,500 94 Carnival Air Lines, Inc. Doral Financial Plaza O 1987 222,000 72 Sun Bank Emerald Hills Plaza I O 1979 63,401 94 N/A Emerald Hills Plaza II O 1979 74,218 76 Sheridan Health Corp Gulf Atlantic (7) O 1986 134,776 97 N/A Highwoods Plaza O 1980 80,260 100 N/A Highwoods Square O 1989 148,945 99 N/A One Boca Place O 1987 277,630 94 N/A Palm Beach Gardens Office O 1984 67,657 95 N/A Park Pine Island Commons O 1985 60,810 74 N/A Venture Corporate Center I O 1982 82,224 96 Conroy, Simberg & Lewis Venture Corporate Center II O 1982 83,737 97 H.I.P. Health Plan Of Florida, Michael Swerdlow Companies Venture Corporate Center III O 1982 83,785 100 H.I.P. Health Plan of Florida ------- --- 2,384,044 90% ========= === Nashville, TN - ------------------------------- Maryland Farms Eastpark 1 O 1978 29,797 100 Brentwood Music, Volunteer Credit Corporation Eastpark 2 O 1978 85,516 100 PMT Services, Inc. Eastpark 3 O 1978 77,480 100 N/A Harpeth II O 1984 78,220 100 N/A Harpeth III O 1987 78,989 100 Alcoa Fujikura Ltd. Harpeth IV O 1989 77,694 100 USF&G, L.M. Berry Co. Highwoods Plaza I O 1996 102,593 100 TCS Management Group, Inc. Highwoods Plaza II O 1997 102,052 100 TCS Management Group, Inc., Windy Hill Pet Food Co. EMI/Sparrow O 1982 59,656 100 EMI Christian Music Group 5310 Maryland Way O 1994 76,615 100 Bell South Grassmere Grassmere I S 1984 87,902 100 Contel Cellular of Nashville, Inc. Grassmere II S 1985 145,092 90 N/A Grassmere III S 1990 103,000 100 Harris Graphics Corporation
19
Percent Occupied at Tenants Leasing 25% or More Building Year Rentable December 31, of Rentable Square Feet at Property Type (1) Built Square Feet 1997(13) December 31, 1997 - ------------------------------- ---------- ------------ ------------- -------------- ----------------------------------------- Other Nashville Properties Century City Plaza I O 1987 56,161 96% N/A Lakeview O 1986 99,722 100 The Kroger Co. 3401 Westend O 1982 255,137 99 N/A BNA O 1985 234,198 98 N/A 100 Winner's Circle O 1987 71,661 100 American Color Graphics, McDonald's --------- --- Total or Weighted Average 1,821,485 98% ========= === Orlando, FL - ------------------------------- Metrowest I O 1988 102,019 100 Hilton Grand Vacation Co. Southwest Corporate Center O 1984 98,777 100 Walt Disney World Co. Campus Crusade O 1990 165,000 100 Campus Crusade For Christ ACP-W O 1966-1992 315,515 85 AT&T Corporate Square (8) O 1971 46,915 96 L.J. Norarse, Valencia Community College Executive Point Towers O 1978 123,038 87 AT&T Lakeview Office Park O 1975 212,443 91 N/A 2699 Lee Road (9) O 1974 86,464 97 N/A One Winter Park O 1982 62,564 97 N/A The Palladium O 1988 72,278 100 Westinghouse Electric 201 Pine Street O 1980 241,601 95 N/A Premiere Point North O 1983 47,871 96 Muscato Corporation Premiere Point South O 1983 47,581 95 N/A Shoppes Of Interlachen O 1987 49,705 89 N/A Signature Plaza O 1986 272,931 83 N/A Skyline Plaza O 1985 45,446 98 Hubbard Construction Co. --------- --- Total or Weighted Average 1,990,148 92% ========= === Jacksonville, FL - ------------------------------- Towermarc Plaza O 1991 50,624 100 Aetna Casualty Belfort Park I O 1988 63,925 92 Acr Systems, Inc. Belfort Park II O 1988 56,633 90 Media One Belfort Park III O 1988 84,294 89 Xomed, Inc. Cigna Building O 1972 39,078 74 Insurance Co. of North America Harry James Building O 1982 31,056 100 Aon Independent Square O 1975 639,358 89 N/A Three Oaks Plaza O 1972 257,028 95 N/A Reflections O 1985 114,992 96 N/A Southpoint Office Building O 1980 56,836 92 N/A 100 West Bay Street Building O 1964 71,315 74 Life Of The South Insurance --------- --- Total or Weighted Average 1,465,139 90% ========= === Charlotte, NC - ------------------------------- Steele Creek Park Building A I 1989 42,500 100 Comer MFG Building B I 1985 15,031 100 Pumps Parts & Services Building E I 1985 38,697 100 Bradman-Lake, Inc., Atlas Die, Inc. Building G-1 I 1989 22,500 44 Safewaste Corporation Building H I 1987 53,614 64 Sugravo Rallis Engraving, Inc. Building K I 1985 19,400 100 Queen City Plastics, Inc. Highwoods/Forsyth Business Park 4101 Stuart Andrew Blvd. S 1984 11,573 100 N/A 4105 Stuart Andrew Blvd. S 1984 4,340 100 Re-Directions, Inc., Daltile, G & E Engineering 4109 Stuart Andrew Blvd. S 1984 14,783 100 N/A 4201 Stuart Andrew Blvd. S 1982 19,004 100 Medstaff Contract Nursing 4205 Stuart Andrew Blvd. S 1982 23,042 100 Sunbelt Video, Inc. 4209 Stuart Andrew Blvd. S 1982 15,578 100 N/A 4215 Stuart Andrew Blvd. S 1982 23,372 98 Rodan, Inc. 4301 Stuart Andrew Blvd. S 1982 38,662 99 Circle K 4321 Stuart Andrew Blvd. S 1982 12,018 83 Dilan Parkway Plaza Building 1 O 1982 57,584 99 BASF Corporation Building 2 O 1983 87,314 70 N/A Building 3 O 1984 81,821 93 N/A Building 6 (10) O 1996 40,708 100 Hewlett-Packard Building 7 (11) O 1985 60,722 100 Barclays American Mortgage Building 8 (11) O 1986 40,615 100 Barclays American Mortgage Building 9 (11) I 1984 110,000 100 BB&T
20
Percent Occupied at Tenants Leasing 25% or More Building Year Rentable December 31, of Rentable Square Feet at Property Type (1) Built Square Feet 1997(13) December 31, 1997 - ---------------------------- ---------- ------- ------------- -------------- ---------------------------------------------- Oakhill Business Park Twin Oaks O 1985 97,115 88% Springs Industries, Inc. Water Oak O 1985 95,636 97 N/A Scarlet Oak O 1982 76,584 87 Krueger Ringier, Inc. English Oak O 1984 54,865 100 The Employers Association of the Carolinas Willow Oak O 1982 36,560 0 N/A Laurel Oak O 1984 34,536 100 Paramount Parks Inc., Woolpert Consultants, AG Live Oak O 1989 82,431 97 CHF Industries Other Charlotte Properties First Citizens O 1989 57,171 64 N/A Pinebrook O 1986 60,814 95 Keycorp Corporate Real Estate -------- --- Total or Weighted Average 1,428,590 89% ========= === Richmond, VA - ---------------------------- Innsbrook Office Center Liberty Mutual O 1990 57,915 100 Capital One, Liberty Mutual Markel American O 1988 38,867 91 Mark IV Realty Corporation Proctor-Silex O 1986 58,366 100 Proctor-Silex, Inc. Vantage Place I O 1987 13,584 100 Rountrey and Associates, Spencer Printing Co. Vantage Place II O 1987 14,822 100 Government Entities Vantage Place III O 1988 14,389 100 Broughton Systems, Inc. Vantage Place IV O 1988 13,441 35 Cemetary Mgmt. Vantage Point O 1990 64,898 86 EDS, Nationwide Insurance Innsbrook Tech I S 1991 18,350 89 Air Specialists of VA DEQ Technology Center O 1991 53,554 93 FirstHealth, Dept. of Environmental Quality DEQ Office O 1991 70,423 100 Circuit City Aetna O 1989 99,209 97 N/A Highwoods One O 1996 124,375 100 Amtec Technologies, Dynex Capital Technology Park Virginia Center O 1985 119,672 90 N/A Other Richmond Properties Westshore I O 1995 18,775 100 Snyder Hunt Corporation Westshore II O 1995 27,714 100 Hewlett-Packard Westshore III O 1997 56,500 56 K-Line America,Inc. Shockoe Alleghany O 1996 118,518 100 The Martin Agency, Inc. Warehouse Airport Center 1 I 1997 141,613 100 Federal Express, Stone Container Corporation The Richfood Building O 1997 75,618 80 N/A Grove Park O 1997 61,258 10 N/A East Cary Street O 1987 16,865 66 Butler, Macon Et. Al. -------- --- Total or Weighted Average 1,278,726 89% ========= === Greenville, SC - ---------------------------- Brookfield Corporate Center Brookfield-Jacobs-Sirrine O 1990 228,345 100 Jacobs-Sirrine Engineers, Inc. Brookfield Plaza O 1987 117,982 94 CSC Continuum, Inc. Brookfield-YMCA S 1990 15,500 46 Kids & Company at Pelham Falls, Inc. Patewood Plaza Office Park Patewood Business Center S 1983 103,302 92 N/A Patewood V O 1990 100,187 100 Bell Atlantic Mobile Systems, Inc., PYA/Monarch, Inc. Patewood IV O 1989 61,649 100 MCI Patewood III O 1989 61,539 94 MCI Patewood I O 1985 57,136 100 Metropolitan Life Ins. Co Patewood II O 1987 60,168 79 Coats & Clark, Inc. Other Greenville Properties NationsBank Plaza (12) O 1973 195,833 79 N/A -------- --- Total or Weighted Average 1,001,641 91% ========= === Memphis, TN - ---------------------------- Southwind Office Center "A" O 1991 62,179 100 Promus Hotels, Inc. Office Center "B" O 1990 61,860 64 N/A Highwoods Office Center O 1997 69,023 66 Check Solutions
21
Percent Occupied at Tenants Leasing 25% or More Building Year Rentable December 31, of Rentable Square Feet at Property Type (1) Built Square Feet 1997(13) December 31, 1997 - ------------------------------- ---------- ------- ------------- -------------- ---------------------------------- Other Memphis Properties Atrium I O 1984 42,124 100% Baptist Memorial Health Care Atrium II O 1984 42,099 100 Mueller Streamline Co. International Place Phase II O 1988 208,014 94 International Paper Company Kirby Centre O 1984 32,007 100 Financial Federal Savings Bank, Union Central Life Insurance Co. Medical Properties, Inc. O 1988 18,079 100 Health Tech Affiliates, Inc. Centrum Building O 1979 71,164 96 NationsBank -------- --- Total or Weighted Average 606,549 90% ========== === Baltimore - ------------------------------- 9690 Deereco Road O 1989 132,835 99 N/A 375 West Padonia Road (The O 1986 100,800 99 N/A Atrium) Business Center at Owings O 1989 43,753 99 N/A Mills 7 Business Center at Owings O 1989 39,195 99 N/A Mills 8 Business Center at Owings O 1988 47,851 99 N/A -------- --- Mills 9 364,434 99% ========== === Columbia, SC - ------------------------------- Fontaine Business Center Fontaine I O 1985 98,100 99 Blue Cross and Blue Shield of S.C. Fontaine II O 1987 72,468 100 Blue Cross and Blue Shield of S.C. Fontaine III O 1988 57,888 100 Companion Health Care Corporation Fontaine V O 1990 21,107 100 Roche Biomedical Laboratories, Inc. Other Columbia Properties Center Point I O 1988 72,565 93 Sedgewick James of South Carolina, Inc., Alltel Mobile Communication Center Point II O 1996 81,466 46 Bell South Center Point V O 1997 20,144 63 DS Atlantic Corporation, -------- --- Hewlett Packard Total or Weighted Average 423,738 86% ========== === Tallahassee - ------------------------------- Blair Stone Building O 1994 244,676 100% State of Florida ======== === Norfolk, VA - ------------------------------- Battlefield I S 1987 97,633 100 Kasei Memory Products, Inc. Greenbrier Business Center O 1984 81,194 100 Canon Computer Systems, Inc., Roche Biomedical Laboratories, Inc. Riverside Plaza O 1988 87,030 93 First Hospital Corporation -------- --- Total or Weighted Average 265,857 98% ========== === Birmingham, AL - ------------------------------- Grandview I O 1989 115,289 100% N/A ======== === Asheville, NC - ------------------------------- Ridgefield 300 O 1989 63,500 100 N/A Ridgefield 200 S 1987 60,677 100 Medical Business Resource -------- --- Total or Weighted Average 124,177 100% ========== === Ft Myers - ------------------------------- Sunrise Office Center O 1974 51,831 67% N/A ======== === ================================== Total or Weighted Average of All Properties 30,720,854 94% ========== ===
22 - ---------- (1) I = Industrial, S = Service Center and O = Office. (2) The property is subject to a land lease expiring August 31, 2023. Rental payments on this lease are to be adjusted in 1998 and 2013 based on the consumer price index. The Company has a right of first refusal to purchase the leased land during the lease term. (3) The six properties are subject to land leases expiring December 31, 2058. (4) The property is subject to a ground lease expiring May 31, 2002. (5) The four properties are subject to land leases expiring December 31, 2058. Rental payments on these leases are adjusted yearly based on a stated percentage of each property's cash flow over a base amount. (6) The property is subject to a ground lease expiring January 31, 2031. Rental payments on this lease are to be adjusted every five years based on the consumer price index. (7) The property is subject to a ground lease expiring February 14, 2033. (8) The property is subject to a ground lease expiring November 30, 2036. Rental payments on this lease are to be adjusted every five years based on the consumer price index. (9) The property is subject to a ground lease expiring May 25, 2020. (10) The property is subject to a land lease expiring December 31, 2071. (11) The three properties are subject to a ground lease expiring December 31, 2082. The Company has the option to purchase the land during the lease term at the greater of $35,000 per acre or 85% of appraised value. (12) The property is subject to two land leases expiring September 30, 2069 and a land lease expiring August 31, 2069. (13) Includes 405,000 rentable square feet leased but not occupied. Development Land As of December 31, 1997, the Company owned 718 acres and had committed to purchase over the next six years an additional 512 acres of land for development. The Company estimates that it can develop approximately 16 million square feet of office and industrial space on the Development Land. All of the Development Land is zoned and available for office or industrial development, substantially all of which has utility infrastructure already in place. The Company believes that the cost of developing the Development Land could be financed with the funds available from the Company's existing credit facilities, additional borrowings and offerings of equity and debt securities. The Company believes that its commercially zoned and unencumbered land in existing business parks gives the Company an advantage in its future development activities over other commercial real estate development companies in many of its markets. Any future development, however, is dependent on the demand for industrial or office space in the area, the availability of favorable financing and other factors, and no assurance can be given that any construction will take place on the Development Land. In addition, if construction is undertaken on the Development Land, the Company will be subject to the risks associated with construction activities, including the risk that occupancy rates and rents at a newly completed property may not be sufficient to make the property profitable, construction costs may exceed original estimates and construction and lease-up may not be completed on schedule, resulting in increased debt service expense and construction expense. 23 ITEM 3. LEGAL PROCEEDINGS The Company is a party to a variety of legal proceedings arising in the ordinary course of its business. The Company believes that it is adequately covered by insurance and indemnification agreements. Accordingly, none of such proceedings are expected to have a material adverse effect on the financial position or results of operations of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth certain information with respect to the executive officers of the Company:
Name Age Position and Background - ---------------------- ----- ---------------------------------------------------------------------------- Ronald P. Gibson 53 Director, President and Chief Executive Officer. Mr. Gibson is a founder of the Company and has served as President or managing partner of its predecessor since its formation in 1978. John L. Turner 51 Director, Vice Chairman of the Board of Directors and Chief Investment Officer. Mr. Turner co-founded the predecessor of Forsyth Properties in 1975. Edward J. Fritsch 39 Executive Vice President, Chief Operating Officer and Secretary. Mr. Fritsch joined the Company in 1982. John W. Eakin 43 Director and Senior Vice President. Mr. Eakin is responsible for operations in Tennessee, Florida and Alabama. Mr. Eakin was a founder and president of Eakin & Smith, Inc. prior to its merger with the Company. James R. Heistand 45 Senior Vice President. Mr. Heistand is responsible for operations in Florida and is an advisory member of the Company's investment committee. Mr. Heistand is expected to join the Company's Board of Directors and become a voting member of the investment committee this year. Mr. Heistand was the founder and president of ACP prior to its merger with the Company. Gene H. Anderson 52 Director and Senior Vice President. Mr. Anderson manages the operations of the Company's Georgia properties. Mr. Anderson was the founder and president of Anderson Properties, Inc. prior to its merger with the Company. Carman J. Liuzzo 37 Vice President, Chief Financial Officer and Treasurer. Prior to joining the Company in 1994, Mr. Liuzzo was vice president and chief accounting officer for Boddie-Noell Enterprises, Inc. and Boddie-Noell Restaurant Properties, Inc. Mr. Liuzzo is a certified public accountant. Mack D. Pridgen, III 48 Vice President and General Counsel. Prior to joining the Company, Mr. Pridgen was a partner with Smith Helms Mulliss & Moore, L.L.P.
As the Company has expanded into new markets, it has sought to enter into business combinations with local real estate operators with many years of management and development experience in their respective markets. Messrs. Turner, Eakin, Anderson and Heistand each joined the Company as executive officers as a result of such business combinations. Mr. Turner entered into a three-year employment contract with the Company in 1995, Mr. Eakin entered into a three-year employment contract with the Company in 1996 and Messrs. Anderson and Heistand each entered into a three-year employment contract with the Company in 1997. 24 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Market Information and Dividends The Common Stock has been traded on the New York Stock Exchange ("NYSE") under the symbol "HIW" since the Company's initial public offering. The following table sets forth the quarterly high and low sales prices per share reported on the NYSE for the periods indicated and the distributions paid per share for each such period.
1997 1996 Period or Quarter Ended: High Low Distribution High Low Distribution - ---------------------- ----------- ----------- -------------- ----------- ----------- -------------- March 31 ............. $ 35.50 $ 33.00 $ 0.48 $ 30.50 $ 27.75 $ 0.45 June 30 .............. 33.50 30.00 0.51 30.25 26.88 0.48 September 30 ......... 35.81 31.06 0.51 30.38 27.00 0.48 December 31 .......... 37.38 35.81 0.51 33.75 28.50 0.48 1995 Period or Quarter Ended: High Low Distribution - ---------------------- ----------- ----------- ------------- March 31 ............. $ 22.00 $ 19.88 $ 0.425 June 30 .............. 25.50 21.25 0.45 September 30 ......... 26.88 23.88 0.45 December 31 .......... 28.38 25.50 0.45
- ---------- On March 20, 1998, the last reported sale price of the Common Stock on the NYSE was $34.13 per share. On March 20, 1998, the Company had 1,012 stockholders of record. The Company intends to continue to pay regular quarterly distributions to holders of shares of Common Stock and holders of Common Units. Although the Company intends to maintain its current distribution rate, future distributions by the Company 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 distribution requirements under the REIT provisions of the Internal Revenue Code of 1986 and such other factors as the Board of Directors deems relevant. During the year ended 1997, the Company's distributions totaled $76,620,000 of which $22,986,000 represented return of capital for financial statement purposes. The minimum per share distribution required to maintain REIT status was approximately $1.56 per share in 1997, $1.44 per share in 1996 and $1.55 per share in 1995. The Company has instituted a Dividend Reinvestment and Stock Purchase Plan under which holders of Common Stock may elect to automatically reinvest their distributions in additional shares of Common Stock and may make optional cash payments for additional shares of Common Stock. The Company may issue additional shares of Common Stock or repurchase Common Stock in the open market for purposes of financing its obligations under the Dividend Reinvestment and Stock Purchase Plan. In August 1997, the Company instituted an Employee Stock Purchase Plan ("ESPP") for all active employees. At the end of each three-month offering period, each participant's account balance is applied to acquire shares of Common Stock at 90% of the market value of the Common Stock, calculated as the lower of the average closing price on the NYSE on the five consecutive days preceding the first day of the quarter or the five days preceding the last day of the quarter. A participant may not invest more than $7,500 per quarter. As of December 31, 1997, 5,839 shares of Common Stock have been purchased under the ESPP for the year then ended. Sales of Unregistered Securities On April 1, 1997, the Company issued 13,515 shares of Common Stock in connection with the merger of Eakin & Smith, Inc. into the Company on April 1, 1996. The shares were issued to three principals of Eakin & Smith, Inc., including John W. Eakin, who is an officer and director of the Company. The shares were issued pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended (the Securities Act) under Rule 506. Each of the three principals of Eakin & 25 Smith, Inc. are accredited investors under Rule 501 of the Securities Act. The Company exercised reasonable care to assure that the principals were not purchasing the shares with a view to their distribution. On October 1, 1997, the Company issued 117,617 shares of Common Stock and warrants to purchase 1,479,290 shares of Common Stock in connection with the ACP Transaction. The shares and warrants were issued to principals of ACP and/or its affiliates. The shares and warrants were issued pursuant to an exemption from the registration requirements under Rule 506. Each of the principals of ACP and/or its affiliates are accredited investors under Rule 501 of the Securities Act. The Company exercised reasonable care to assure that the principals were not purchasing the shares with a view to their distribution. On December 23, 1997, the Company issued warrants to purchase 120,000 shares of Common Stock in connection with the Riparius Transaction. The warrants were issued to principals of Riparius Development Corporation. The warrants were issued in a private offering exempt from the registration requirements pursuant to Section 4(2) of the Securities Act. Each of the principals of Riparius Development Corporation are accredited investors under Rule 501 of the Securities Act. The Company exercised reasonable care to assure that the principals were not purchasing shares with a view to their distribution. During 1997, the Company issued an aggregate of 44,958 shares of Common Stock to holders of Common Units upon the redemption of such Common Units in private offerings exempt from the registration requirements pursuant to Section 4(2) of the Securities Act. Each of the holders of Common Units are accredited investors under Rule 501 of the Securities Act. The Company has registered the resale of such shares under the Securities Act. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial and operating information for the Company as of December 31, 1997, 1996, 1995 and 1994, for the years ended December 31, 1997, 1996 and 1995, and for the period from June 14, 1994 (commencement of operations) to December 31, 1994. The following table also sets forth selected financial and operating information on a historical basis for the Highwoods Group (the predecessor to the Company) as of and for the year ended December 31, 1993, and for the period from January 1, 1994, to June 13, 1994. The pro forma operating data for the year ended December 31, 1994 assumes completion of the initial public offering and the Formation Transaction (defined below) as of January 1, 1994. Due to the impact of the initial formation of the Company and the initial public offering in 1994, the second and third offerings in 1995 and the transactions more fully described in "Management's Discussion and Analysis -- Overview and Background," the historical results of operations for the year ended December 31, 1995 and the period from June 14, 1994 to December 31, 1994 may not be comparable to the current period results of operations. 26 The Company and the Highwoods Group
Company June 14, 1994 Year Ended Year Ended Year Ended to December 31, December 31, December 31, December 31, 1997 1996 1995 1994 -------------- -------------- -------------- --------------- (Dollars in thousands, except per share amounts) Operating Data: Total revenue .................. $ 274,470 $ 137,926 $ 73,522 $ 19,442 Rental property operating expenses ...................... 76,743 35,313 17,049(1) 5,110(1) General and administrative ................ 10,216 5,666 2,737 810 Interest expense ............... 47,394 26,610 13,720 3,220 Depreciation and amortization .................. 47,533 22,095 11,082 2,607 ------------ ----------- ------------ ------------ Income (loss) before minority interest ............. 92,584 48,242 28,934 7,695 Minority interest .............. (15,106) (6,782) (4,937) (808) ------------ ----------- ------------ ------------ Income before extraordinary item .......................... 77,478 41,460 23,997 6,887 Extraordinary item-loss on early extinguishment of debt .......................... (5,799) (2,140) (875) (1,273) ------------ ----------- ------------ ------------ Net income (loss) .............. 71,679 39,320 23,122 5,614 Dividends on Preferred Shares ........................ (13,117) -- -- -- ------------ ----------- ------------ ------------ Net income available for common stockholders ........... $ 58,562 $ 39,320 $ 23,122 $ 5,614 ============ =========== ============ ============ Net income per common share -- basic ................ $ 1.51 $ 1.51 $ 1.49 $ .63 ============ =========== ============ ============ Net income per common share -- diluted .............. $ 1.50 $ 1.50 $ 1.48 $ .63 ============ =========== ============ ============ Balance Sheet Data (at end of period): Real estate, net of accumulated depreciation....... $ 2,614,654 $ 1,377,874 $ 593,066 $ 207,976 Total assets ................... 2,722,306 1,443,440 621,134 224,777 Total mortgages and notes payable ....................... 978,558 555,876 182,736 66,864 Other Data: Number of in-service properties .................... 481 292 191 44 Total rentable square feet ..... 30,720,854 17,455,174 9,215,171 2,746,219 The Company and the Highwoods Group Highwoods Company Group Highwoods Pro Forma January 1, Group Year Ended 1994 to Year ended December 31, June 13, December 31, 1994 1994 1993 -------------- -------------- ------------- Operating Data: Total revenue .................. $ 34,282 $ 6,648 $ 13,450 Rental property operating expenses ...................... 9,677(1) 2,596(2) 6,248(2) General and administrative ................ 1,134 280 589 Interest expense ............... 5,604 2,473 5,185 Depreciation and amortization .................. 4,638 835 1,583 ----------- ----------- ----------- Income (loss) before minority interest ............. 13,229 464 (155) Minority interest .............. (1,388) -- -- ----------- ----------- ----------- Income before extraordinary item .......................... 11,841 464 (155) Extraordinary item-loss on early extinguishment of debt .......................... -- -- -- ----------- ----------- ----------- Net income (loss) .............. 11,841 464 (155) Dividends on Preferred Shares ........................ -- -- -- ----------- ----------- ----------- Net income available for common stockholders ........... $ 11,841 $ 464 $ (155) =========== =========== =========== Net income per common share -- basic ................ $ 1.32 =========== Net income per common share -- diluted .............. $ 1.32 =========== Balance Sheet Data (at end of period): Real estate, net of accumulated depreciation....... $ -- $ -- $ 51,590 Total assets ................... -- -- 58,679 Total mortgages and notes payable ....................... -- -- 64,347 Other Data: Number of in-service properties .................... -- 14 14 Total rentable square feet ..... -- 816,690 816,690
- ---------- (1) Rental property operating expenses include salaries, real estate taxes, insurance, repairs and maintenance, property management, security and utilities. (2) Rental property operating expenses include salaries, real estate taxes, insurance, repairs and maintenance, property management, security, utilities, leasing, development, and construction expenses. 27 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview and Background The Highwoods Group (the predecessor to the Company) was comprised of 13 office properties and one warehouse facility (the "Highwoods-Owned Properties"), 94 acres of development land and the management, development and leasing business of Highwoods Properties Company ("HPC"). On June 14, 1994, following completion of the Company's initial public offering, the Company, through a business combination involving entities under varying common ownership, succeeded to the Highwoods-Owned Properties, HPC's real estate business and 27 additional office properties owned by unaffiliated parties (such combination being referred to as the "Formation Transaction"). Minority interest in the Company represents the common partnership interest owned by various individuals and entities and not the Company in the Operating Partnership, the entity that owns the Company's properties and through which the Company, as the sole general partner, conducts substantially all of its operations. The Company acquired three additional Properties in 1994 after the Formation Transaction. In February 1995, the Company expanded into other North Carolina markets and diversified its portfolio to include industrial and service center properties with its $170 million, 57-Property business combination with Forsyth Partners (the "Forsyth Transaction"). During the year ended December 31, 1995, the Company acquired 144 Properties encompassing 6,357,000 square feet, at an initial cost of $369.9 million. In September 1996, the Company acquired 5.7 million rentable square feet of office and service center space through its $566 million merger with Crocker Realty Trust, Inc. ("Crocker"). During the year ended December 31, 1996, the Company acquired 91 Properties encompassing 7,325,500 square feet at an initial cost of $704.0 million. During the year ended December 31, 1997, the Company acquired 176 properties encompassing 12,789,000 square feet at an initial cost of $1.1 billion. See "Business -- Recent Developments" for a description of the ACP Transaction, the Riparius Transaction, the Century Center Transaction and the Anderson Transaction and for a table summarizing all mergers and acquisitions completed during the year ended December 31, 1997. This information should be read in conjunction with the accompanying consolidated financial statements and the related notes thereto. Results of Operations Comparison of 1997 to 1996 Revenue from rental operations increased $136.1 million, or 104.1%, from $131.8 million in 1996 to $266.9 million in 1997. The increase is primarily a result of revenue from newly acquired and developed properties as well as acquisitions completed in 1996 which only contributed partially in 1996. Interest and other income increased 5.6% from $7.1 million in 1996 to $7.5 million in 1997. Lease termination fees and third-party income accounted for a majority of such income in 1997 while excess cash invested in 1996 from two offerings of Common Stock during the summer of 1996 raising total net proceeds of approximately $293 million (the "Summer 1996 Offering") accounted for a majority of such income in 1996. 28 Rental operating expenses increased $41.4 million, or 117.3%, from $35.3 million in 1996 to $76.7 million in 1997. The increase is due to the net addition of 13.3 million square feet to the in-service portfolio in 1997 as well as acquisitions completed in 1996 which only contributed partially in 1996. Rental expenses as a percentage of related rental revenues increased from 27.0% for the year ended December 31, 1996 to 28.7% for the year ended December 31, 1997. The increase is a result of an increase in the percentage of office properties in the portfolio, which have fewer "triple net" leases. Depreciation and amortization for the years ended December 31, 1997 and 1996 was $47.5 million and $22.1 million, respectively. The increase of $25.4 million, or 114.9%, is due to an average increase in depreciable assets of 103.5%. Interest expense increased 78.2%, or $20.8 million, from $26.6 million in 1996 to $47.4 million in 1997. The increase is attributable to the increase in outstanding debt related to the Company's acquisition and development activity. Interest expense for the years ended December 31, 1997 and 1996 included $2.3 million and $1.9 million, respectively, of non-cash deferred financing costs and amortization of the costs related to the Company's interest rate protection agreements. General and administrative expenses decreased from 4.3% of rental revenue in 1996 to 3.8% in 1997. The decrease is attributable to the realization of synergies from the Company's growth in 1997. Duplication of personnel costs in the third quarter of 1996 related to the acquisition of Crocker also contributed to the higher general and administrative expenses in the prior year. Net income before minority interest and extraordinary item equaled $92.6 million and $48.2 million, respectively, for the years ended December 31, 1997 and 1996. The extraordinary items consisted of prepayment penalties incurred and deferred loan cost expensed in connection with the extinguishment of secured debt assumed in various acquisitions completed in 1997 and 1996. The Company also recorded $13.1 million in preferred stock dividends for the year ended December 31, 1997. Comparison of 1996 to 1995 Revenue from rental operations increased $59.6 million, or 83.7%, from $71.2 million in 1995 to $130.8 million in 1996. The increase is primarily a result of revenue from newly acquired and developed properties. Interest and other income increased 208.7% from $2.3 million in 1995 to $7.1 million in 1996. This increase is a result of the excess cash and cash equivalents resulting from the Summer 1996 Offering and an increase in third-party management and leasing income. Rental operating expenses increased $18.3 million, or 107.6%, from $17.0 million in 1995 to $35.3 million in 1996. The increase is due to the addition of 8.2 million square feet to the in-service portfolio. Rental expenses as a percentage of related rental revenues increased from 23.9% for the year ended December 31, 1995 to 27.0% for the year ended December 31, 1996. The increase is a result of an increase in the percentage of office properties in the portfolio which have fewer "triple net" leases, and approximately $400,000 in additional expenses related to the severe winter weather in 1996 and the hurricane in September of the same year. Depreciation and amortization for the years ended December 31, 1996 and 1995 was $22.1 million and $11.1 million, respectively. The increase of $11.0 million, or 99.1%, is due to a 130.9% increase in depreciable assets. Interest expense increased $12.9 million, or 94.0%, from $13.7 million in 1995 to $26.6 million in 1996. The increase is attributable to the increase in outstanding debt related to the Company's acquisition and development activities. Interest expense for the years ended December 31, 1996 and 1995 included $1.9 million and $1.6 million, respectively, of non-cash deferred financing costs and amortization of the costs related to the Company's interest rate protection agreements. General and administrative expenses increased from 3.8% of rental revenue in 1995 to 4.3% in 1996. This increase is attributable to the addition of four regional offices in Nashville, Memphis, Tampa, and Boca Raton as a result of acquisitions. The duplication of certain personnel costs in the third quarter during the acquisition of Crocker also contributed to higher general and administrative expenses for the year ended December 31, 1996. Such duplicative costs were eliminated in the fourth quarter as the Company realized the planned synergies from the merger. 29 Net income before minority interest and extraordinary item equaled $48.2 million and $28.9 million for the years ended December 31, 1996 and 1995, respectively. The extraordinary items consisted of prepayment penalties incurred and deferred loan cost expensed in connection with the extinguishment of certain debt assumed in the Crocker merger in 1996 and the Forsyth Transaction in 1995. Liquidity and Capital Resources Statement of Cash Flows The Company generated $130.2 million in cash flows from operating activities and $393.2 million in cash flows from financing activities for the year ended December 31, 1997. These combined cash flows of $523.4 million were used to fund investing activities for the year ended December 31, 1997. Such investing activities consisted primarily of development and merger and acquisition activity for the year ended December 31, 1997. See "Business -- Recent Developments." 30 Capitalization Mortgage and notes payable at December 31, 1997 totaled $978.6 million and were comprised of $332.4 million of secured indebtedness with a weighted average interest rate of 8.2% and $646.2 million of unsecured indebtedness with a weighted average interest rate of 7.0%. All of the mortgage and notes payable outstanding at December 31, 1997 were either fixed rate obligations or variable rate obligations covered by interest rate protection agreements (see below). The weighted average life of the indebtedness was approximately 5.3 years at December 31, 1997. Based on the Company's total market capitalization of $3.4 billion at December 31, 1997 (at the December 31, 1997 stock price of $37.19 per share and assuming the redemption of each of the approximately 10.4 million Common Units held by limited partners in the Operating Partnership for a share of Common Stock), the Company's indebtedness represented approximately 29% of its total market capitalization. The Company and the Operating Partnership completed the following financing activities during the year ended December 31, 1997: o Series A Preferred Offering. On February 12, 1997, the Company sold 125,000 Series A Cumulative Redeemable Preferred Shares (the "Series A Preferred Shares") for net proceeds of approximately $121.7 million (the "Series A Preferred Offering"). Dividends on the Series A Preferred Shares are cumulative from the date of original issuance and are payable quarterly on or about the last day of February, May, August and November of each year, commencing May 31, 1997, at the rate of 8 5/8% of the $1,000 liquidation preference per annum (equivalent to $86.25 per annum per share). The Series A Preferred Shares are not redeemable prior to February 12, 2027. o X-POSSM Offering. On June 24, 1997, a trust formed by the Operating Partnership sold $100 million of Exercisable Put Option SecuritiesSM ("X-POSSM"), which represent fractional undivided beneficial interests in the trust. The assets of the trust consist of, among other things, $100 million of Exercisable Put Option Notes due June 15, 2011 issued by the Operating Partnership (the "Put Option Notes"). The X-POSSM bear an interest rate of 7.19%, representing an effective borrowing cost of 7.09%, net of a related put option and certain interest rate protection agreement costs. Under certain circumstances, the Put Option Notes could also become subject to early maturity on June 15, 2004. The issuance of the Put Option Notes and the related put option is referred to herein as the "X-POSSM Offering." o August 1997 Offering. On August 28, 1997, the Company entered into two transactions with affiliates of Union Bank of Switzerland (the "August 1997 Offering"). In one transaction, the Company sold 1,800,000 shares of Common Stock to UBS Limited for net proceeds of approximately $57 million. In the other transaction, the Company entered into a forward share purchase agreement (the "Forward Contract") with Union Bank of Switzerland, London Branch ("UBS/LB"). The Forward Contract generally provides that if the price of a share of Common Stock is above $32.14 (the "Forward Price") on August 28, 1998, UBS/LB will return the difference (in shares of Common Stock) to the Company. Similarly, if the price of a share of Common Stock on August 28, 1998 is less than the Forward Price, the Company will pay the difference to UBS/LB in cash or shares of Common Stock, at the Company's option. o Series B Preferred Offering. On September 25, 1997, the Company sold 6,900,000 Series B Cumulative Redeemable Preferred Shares (the "Series B Preferred Shares") for net proceeds of approximately $166.9 million (the "Series B Preferred Offering"). Dividends on the Series B Preferred Shares are cumulative from the date of original issuance and are payable quarterly on March 15, June 15, September 15 and December 15 of each year, commencing December 15, 1997, at the rate of 8% of the $25 liquidation preference per annum (equivalent to $2.00 per annum per share). The Series B Preferred Shares are not redeemable prior to September 25, 2002. 31 o October 1997 Offering. On October 1, 1997, the Company sold 7,500,000 shares of Common Stock in an underwritten public offering for net proceeds of approximately $249 million. The underwriters exercised a portion of their over-allotment option for 1,000,000 shares of Common Stock on October 6, 1997, raising additional net proceeds of $33.2 million (together with the sale on October 1, 1997, the "October 1997 Offering.") o $150 Million Credit Facility. On December 15, 1997, the Company obtained a $150 million unsecured revolving loan with a syndicate of lenders that matures on June 30, 1998. Borrowings under the revolving loan are based on the 30-day LIBOR rate plus 90 basis points. At December 31, 1997, the Company had $100 million available of borrowings under the $150 million loan. During the second or third quarter of 1998, the Company expects to replace the newly acquired revolving loan and its $280 million revolving loan with a revolving loan of up to $500 million. o Issuance of Common Units and Common Stock. In connection with 1997 acquisitions, the Operating Partnership issued 6,613,242 Common Units and the Company issued 117,617 shares of restricted Common Stock for an aggregate value of approximately $210.0 million (based on the agreed-upon valuation of a share of Common Stock at the time of the acquisition). Additional information regarding the X-POSSM Offering, the August 1997 Offering and the newly obtained revolving loan is set forth in the notes related to the accompanying consolidated financial statements. To protect the Company from increases in interest expense due to changes in the variable rate, the Company: (i) purchased an interest rate collar limiting its exposure to an increase in interest rates to 7.25% with respect to $80 million of its $430 million aggregate amount of unsecured revolving loans (the "Revolving Loans") excluding the effect of changes in the Company's credit risk, and (ii) entered into interest rate swaps that limit its exposure to an increase in interest rates to 6.95% in connection with the $22 million of variable rate mortgages. The interest rate on all such variable rate debt is adjusted at monthly intervals, subject to the Company's interest rate protection program. Net payments made to counterparties under the above interest rate protection agreements were $47,000 in 1997 and were recorded as an increase to interest expense. Payments received from the counterparties under the interest rate protection agreements were $167,000 and $385,000 for 1996 and 1995, respectively. The Company is exposed to certain losses in the event of non-performance by the counterparties under the cap and swap arrangements. The counterparties are major financial institutions and are expected to perform fully under the agreements. However, if they were to default on their obligations under the arrangements, the Company could be required to pay the full rates under the Revolving Loans and the variable rate mortgages, even if such rates were in excess of the rate in the cap and swap agreements. In addition, the Company may incur other variable rate indebtedness in the future. Increases in interest rates on its indebtedness could increase the Company's interest expense and could adversely affect the Company's cash flow and its ability to pay expected distributions to stockholders. In anticipation of a 1998 debt offering, on September 17, 1997, the Company entered into a swap agreement with a notional amount of $114 million. The swap agreement has a termination date of April 10, 1998, and carries a fixed rate of 6.3% which is a combination of the treasury rate plus the swap spread and the forward premium. Historically, rental revenue has been the principal source of funds to pay operating expenses, debt service and capital expenditures, excluding non-recurring capital expenditures. In addition, construction management, maintenance, leasing and management fees have provided sources of cash flow. Management believes that the Company will have access to the capital resources necessary to expand and develop its business. To the extent that the Company's cash flow from operating activities is insufficient to finance its acquisition costs and other capital expenditures, including development costs, the Company expects to finance such activities through the Revolving Loans and other debt and equity financing. The Company presently has no plans for major capital improvements to the existing properties, other than an $8 million renovation of the common areas of a 639,000-square foot property acquired in the ACP Transaction. A reserve has been established to cover the cost of the renovations. The Company 32 expects to meet its short-term liquidity requirements generally through its working capital and net cash provided by operating activities along with the previously discussed Revolving Loans. The Company expects to meet certain of its financing requirements through long-term secured and unsecured borrowings and the issuance of debt securities or additional equity securities of the Company. In addition, the Company anticipates utilizing the Revolving Loans primarily to fund construction and development activities. The Company does not intend to reserve funds to retire existing mortgage indebtedness or indebtedness under the Revolving Loans upon maturity. Instead, the Company will seek to refinance such debt at maturity or retire such debt through the issuance of additional equity or debt securities. The Company anticipates that its available cash and cash equivalents and cash flows from operating activities, together with cash available from borrowings and other sources, will be adequate to meet the capital and liquidity needs of the Company in both the short and long-term. However, if these sources of funds are insufficient or unavailable, the Company's ability to make the expected distributions discussed below may be adversely affected. In order to qualify as a REIT for Federal income tax purposes, the Company is required to make distributions to its stockholders of at least 95% of REIT taxable income. The Company expects to use its cash flow from operating activities for distributions to stockholders and for payment of recurring, non- incremental revenue-generating expenditures. The Company intends to invest amounts accumulated for distribution in short-term investments. The following factors will affect cash flows from operating activities and, accordingly, influence the decisions of the Board of Directors regarding distributions: (i) debt service requirements after taking into account the repayment and restructuring of certain indebtedness; (ii) scheduled increases in base rents of existing leases; (iii) changes in rents attributable to the renewal of existing leases or replacement leases; (iv) changes in occupancy rates at existing Properties and procurement of leases for newly acquired or developed properties; and (v) operating expenses and capital replacement needs. Recent Developments Recent Acquisitions Riparius Transaction. In closings on December 23, 1997 and January 8, 1998, the Company completed a business combination with Riparius Development Corporation in Baltimore, Maryland involving the acquisition of a portfolio of five office properties encompassing 369,000 square feet, two office development projects encompassing 235,000 square feet, 11 acres of development land and 101 additional acres of development land to be acquired over the next three years. As of December 31, 1997, the in-service properties acquired in the Riparius Transaction were 99% leased. The cost of the Riparius Transaction consisted of a cash payment of $43.6 million. In addition, the Company has assumed the two office development projects with an anticipated cost of $26.2 million expected to be paid in 1998, and will pay out $23.9 million over the next three years for the 101 additional acres of development land. Garcia Transaction. On February 4, 1998, the Company acquired substantially all of a portfolio consisting of 28 office properties encompassing 787,000 rentable square feet, seven service center properties encompassing 471,000 square feet and 66 acres of development land in Tampa, Florida (the "Garcia Transaction"). As of December 31, 1997, the properties acquired in the Garcia Transaction were 92% leased. The cost of the Garcia Transaction consists of a cash payment of approximately $87 million and the assumption of approximately $24 million in secured debt. The Company expects to close on the one remaining property by April 4, 1998. Pending Acquisitions J.C. Nichols Transaction. On December 22, 1997, the Company entered into a merger agreement (the "Merger Agreement") with J.C. Nichols Company, a publicly traded Kansas City real estate operating company ("J.C. Nichols"), pursuant to which the Company would acquire J.C. Nichols with the view that the Operating Partnership would combine its property operations with J.C. Nichols (the "J.C. Nichols 33 Transaction"). J.C. Nichols is subject to the information requirements of the Securities Exchange Act of 1934, as amended, and, in accordance therewith, files reports and other information with the Securities and Exchange Commission. J.C. Nichols owns or has an ownership interest in 27 office properties encompassing approximately 1.5 million rentable square feet, 13 industrial properties encompassing approximately 337,000 rentable square feet, 33 retail properties encompassing approximately 2.5 million rentable square feet and 16 multifamily communities with 1,816 apartment units in Kansas City, Missouri and Kansas. Additionally, J.C. Nichols has an ownership interest in 21 office properties encompassing approximately 1.3 million rentable square feet, one industrial property encompassing approximately 200,000 rentable square feet and one multifamily community with 418 apartment units in Des Moines, Iowa. As of December 31, 1997, the properties to be acquired in the J.C. Nichols Transaction were 95% leased. Consummation of the J.C. Nichols Transaction is subject, among other things, to the approval of 66 2/3% of the shareholders of J.C. Nichols. Under the terms of the Merger Agreement, the Company would acquire all of the outstanding common stock, $.01 par value, of J.C. Nichols ("J.C. Nichols Common Stock"). Under the Merger Agreement, J.C. Nichols shareholders may elect to receive either 1.84 shares of Common Stock or $65 in cash for each share of J.C. Nichols Common Stock. However, the cash payment to J.C. Nichols shareholders cannot exceed 40% of the total consideration and the Company may limit the amount of Common Stock issued to 75% of the total consideration. The exchange ratio is fixed and reflects the average closing price of the Common Stock over the 20 trading days preceding the effective date of the Merger Agreement. The cost of the J.C. Nichols Transaction under the Merger Agreement is approximately $570 million, including assumed debt of approximately $250 million, net of cash of approximately $65 million. The Merger Agreement provides for payment by J.C. Nichols to the Company of a termination fee and expenses of up to $17.2 million if J.C. Nichols enters into an acquisition proposal other than the Merger Agreement and certain other conditions are met. The failure of J.C. Nichols shareholders to approve the J.C. Nichols Transaction, however, will not trigger the payment of a termination fee, except for a fee of $2.5 million, if, among other things, J.C. Nichols enters into another acquisition proposal before December 22, 1998. No assurance can be given that all or part of the J.C. Nichols Transaction will be consummated or that, if consummated, it would follow the terms set forth in the Merger Agreement. As of the date hereof, certain third parties have expressed an interest to J.C. Nichols and/or certain of its shareholders in purchasing all or a portion of the outstanding J.C. Nichols Common Stock at a price in excess of $65 per share. No assurance can be given that a third party will not make an offer to J.C. Nichols or its shareholders to purchase all or a portion of the outstanding J.C. Nichols Common Stock at a price in excess of $65 per share or that the board of directors of J.C. Nichols would reject any such offer. The Company and/or J.C. Nichols may terminate the Merger Agreement if the J.C. Nichols Transaction is not consummated by June 30, 1998. The properties to be acquired in the J.C. Nichols Transaction include the Country Club Plaza in Kansas City, which covers 15 square blocks and includes 1.0 million square feet of retail space, 1.1 million square feet of office space and 462 apartment units. As of December 31, 1997, the Country Club Plaza was approximately 96% leased. The Country Club Plaza is presently undergoing an expansion and restoration expected to add 800,000 square feet of retail, office, hotel and residential space with an estimated cost of approximately $240 million. Assuming consummation of the J.C. Nichols Transaction, the Company intends to complete the development in the Country Club Plaza previously planned by J.C. Nichols. Assuming completion of the J.C. Nichols Transaction, the Company would succeed to the interests of J.C. Nichols in a strategic alliance with Kessinger/Hunter & Company, Inc. ("Kessinger/Hunter") pursuant to which Kessinger/Hunter manages and leases the office, industrial and retail properties presently owned by J.C. Nichols in the greater Kansas City metropolitan area. J.C. Nichols currently has a 30% ownership interest in the strategic alliance with Kessinger/Hunter and has two additional options to acquire up to a 65% ownership interest in the strategic alliance. Assuming completion of the J.C. 34 Nichols Transaction, the Company would also succeed to the interests of J.C. Nichols in a strategic alliance with R&R Investors, Ltd. ("R&R") pursuant to which R&R manages and leases the properties in which J.C. Nichols has an ownership interest in Des Moines. J.C. Nichols has an ownership interest of 50% or more in each of the properties in Des Moines with R&R or its principal. Easton-Babcock Transaction. The Company has entered into an agreement with The Easton-Babcock Companies, a real estate operating company in Miami, Florida ("Easton-Babcock"), pursuant to which the Company will combine its property operations with Easton-Babcock and acquire a portfolio of 11 industrial properties encompassing 1.8 million rentable square feet, three office properties encompassing 197,000 rentable square feet and 110 acres of land for development, of which 88 acres will be acquired over a three-year period (the "Easton-Babcock Transaction"). As of December 31, 1997, the industrial properties to be acquired in the Easton-Babcock Transaction were 88% leased and the office properties to be acquired in the Easton-Babcock Transaction were 50% leased. The cost of the Easton-Babcock Transaction is $143 million (inclusive of the 88 acres of development land to be acquired over a three-year period) and will consist of an undetermined combination of the issuance of Common Units, the assumption of mortgage debt and a cash payment. Also in connection with the Easton-Babcock Transaction, the Company will issue to certain affiliates of Easton-Babcock warrants to purchase 926,000 shares of Common Stock at $35.50 per share. Although the Easton-Babcock Transaction is expected to close by April 30, 1998, no assurance can be given that all or part of the transaction will be consummated. Financing Activities Set forth below is a summary description of the recent financing activities of the Company and the Operating Partnership: January 1998 Offering. On January 27, 1998, the Company sold 2,000,000 shares of Common Stock in an underwritten public offering (the "January 1998 Offering") for net proceeds of approximately $68.2 million. February 1998 Debt Offering. On February 2, 1998, the Operating Partnership sold $125 million of 6.835% MandatOry Par Put Remarketed Securities ("MOPPRS") due February 1, 2013 and $100 million of 7 1/8% notes due February 1, 2008 (the "February 1998 Debt Offering"). February 1998 Common Stock Offerings. On February 12, 1998, the Company sold an aggregate of 1,553,604 shares of Common Stock in two underwritten public offerings (the "February 1998 Common Stock Offerings") for net proceeds of approximately $51.2 million. March 1998 Offering. On March 30, 1998, the Company sold 428,572 shares of Common Stock in an underwritten public offering (the "March 1998 Offering") for net proceeds of approximately $14.2 million. Possible Environmental Liabilities Under various Federal, state and local laws, ordinances and regulations, such as the Comprehensive Environmental Response Compensation and Liability Act or "CERCLA," and common law, an owner or operator of real estate is liable for the costs of removal or remediation of certain hazardous or toxic substances on or in such property as well as certain other costs, including governmental fines and injuries to persons and property. Such laws often impose such liability without regard to whether the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. The presence of such substances, or the failure to remediate such substances properly, may adversely affect the owner's or operator's ability to sell or rent such property or to borrow using such property as collateral. Persons who arrange for the disposal or treatment of hazardous or toxic substances may also be liable for the costs of removal or remediation of such substances at a disposal or treatment facility, whether or not such facility is owned or operated by such person. Certain environmental laws impose liability for release of asbestos-containing materials ("ACM"), and third parties may seek recovery from 35 owners or operators of real property for personal injuries associated with ACM. A number of Properties contain ACM or material that is presumed to be ACM. In connection with the ownership and operation of its properties, the Company may be liable for such costs. In addition, it is not unusual for property owners to encounter on-site contamination caused by off-site sources, and the presence of hazardous or toxic substances at a site in the vicinity of a property could require the property owner to participate in remediation activities in certain cases or could have an adverse effect on the value of such property. In a few situations, contamination from adjacent properties has migrated onto property owned by the Company; however, based on current information, management of the Company does not believe that any significant remedial action is necessary at these affected sites. As of the date hereof, substantially all of the Properties have been subjected to a Phase I environmental assessment and/or assessment update. These assessments have not revealed, nor is management of the Company aware of, any environmental liability that it believes would have a material adverse effect on the Company's financial position, operations or liquidity taken as a whole. This projection, however, could prove to be incorrect depending on certain factors. For example, the Company's assessments may not reveal all environmental liabilities, or may underestimate the scope and severity of environmental conditions observed, with the result that there may be material environmental liabilities of which the Company is unaware, or material environmental liabilities may have arisen after the assessments were performed of which the Company is unaware. In addition, assumptions regarding groundwater flow and the existence and source of contamination are based on available sampling data, and there are no assurances that the data is reliable in all cases. Moreover, there can be no assurance that (i) future laws, ordinances or regulations will not impose any material environmental liability or (ii) the current environmental condition of the Properties will not be affected by tenants, by the condition of land or operations in the vicinity of the Properties, or by third parties unrelated to the Company. Some tenants use or generate hazardous substances in the ordinary course of their respective businesses. These tenants are required under their leases to comply with all applicable laws and are responsible to the Company for any damages resulting from the tenants' use of the property. The Company is not aware of any material environmental problems resulting from tenants' use or generation of hazardous substances. There are no assurances that all tenants will comply with the terms of their leases or remain solvent and that the Company may not at some point be responsible for contamination caused by such tenants. Compliance with the Americans with Disabilities Act Under the Americans with Disabilities Act (the "ADA"), all public accommodations and commercial facilities are required to meet certain Federal requirements related to access and use by disabled persons. These requirements became effective in 1992. Compliance with the ADA requirements could require removal of access barriers, and non-compliance could result in imposition of fines by the U.S. government or an award of damages to private litigants. Although the Company believes that the Properties are substantially in compliance with these requirements, the Company may incur additional costs to comply with the ADA. Although the Company believes that such costs will not have a material adverse effect on the Company, if required changes involve a greater expenditure than the Company currently anticipates, the Company's results of operations, liquidity and capital resources could be materially adversely affected. Impact of Year 2000 Issue The "Year 2000" issue is a general term used to describe the various problems that may result from the improper processing of dates and calculations involving years by many computers throughout the world as the Year 2000 is approached and reached. The Company has reviewed the impact of Year 2000 issues and does not expect any remedial actions taken with respect thereto to materially adversely affect its business, operations or financial condition. 36 FASB Statement No. 128 In 1997, the Financial Accounting Standards Board ("FASB") issued Statement No. 128, "Earnings Per Share," which is effective for financial statements for periods ending after December 15, 1997. FASB Statement No. 128 requires the restatement of prior period earnings per share and requires the disclosure of additional supplemental information detailing the calculation of earnings per share. FASB Statement No. 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. It is computed using the weighted average number of shares of Common Stock and the dilutive effect of options, warrants and convertible securities outstanding, 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. All earnings per share amounts for all periods presented have, where appropriate, been restated to conform to the FASB Statement No. 128 requirements. Funds From Operations and Cash Available for Distributions The Company considers Funds from Operations ("FFO") to be a useful financial performance measure of the operating performance of an equity REIT because, together with net income and cash flows, FFO provides investors with an additional basis to evaluate the ability of a REIT to incur and service debt and to fund acquisitions and other capital expenditures. FFO does not represent net income or cash flows from operating, investing or financing activities as defined by Generally Accepted Accounting Principles ("GAAP"). It should not be considered as an alternative to net income as an indicator of the Company's operating performance or to cash flows as a measure of liquidity. FFO does not measure whether cash flow is sufficient to fund all cash needs including principal amortization, capital improvements and distributions to stockholders. Further, FFO as disclosed by other REITs may not be comparable to the Company's calculation of FFO, as described below. FFO and cash available for distributions should not be considered as alternatives to net income as an indication of the Company's performance or to cash flows as a measure of liquidity. FFO means net income (computed in accordance with generally accepted accounting principles) excluding gains (or losses) from debt restructuring and sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. In March 1995, the National Association of Real Estate Investment Trusts ("NAREIT") issued a clarification of the definition of FFO. The clarification provides that amortization of deferred financing costs and depreciation of non-real estate assets are no longer to be added back to net income in arriving at FFO. Cash available for distribution is defined as funds from operations reduced by non-revenue enhancing capital expenditures for building improvements and tenant improvements and lease commissions related to second generation space. 37 FFO and cash available for distribution for the years ended December 31, 1997 and 1996 are summarized in the following table (in thousands):
Year Ended December 31, ------------------------- 1997 1996 ------------ ---------- FFO: Income before minority interest and extraordinary item ............... $ 92,584 $ 48,242 Add (deduct): Dividends to preferred shareholders ................................ (13,117) -- Depreciation and amortization ...................................... 47,533 22,095 Minority interest in Crocker depreciation and amortization ......... -- (117) Third-party service company cash flow .............................. -- 400 --------- -------- FFO before minority interest ...................................... 127,000 70,620 Cash Available for Distribution: Add (deduct): Rental income from straight-line rents ............................. (7,035) (2,603) Amortization of deferred financing costs ........................... 2,256 1,911 Non-incremental revenue generating capital expenditures: Building improvements paid ........................................ (4,401) (3,554) Second generation tenant improvements paid ........................ (9,889) (3,471) Second generation lease commissions paid .......................... (5,535) (1,426) --------- -------- Cash available for distribution ................................. $ 102,396 $ 61,477 ========= ======== Weighted average shares/units outstanding (1) -- basic ............... 46,422 30,219 ========= ======== Weighted average shares/units outstanding (1) -- diluted ............. 46,813 30,442 ========= ======== Dividend payout ratio: FFO ................................................................ 72.4% 79.6% ========= ======== Cash available from distribution ................................... 89.8% 91.4% ========= ========
- ---------- (1) Assumes redemption of Common Units for shares of Common Stock. Minority interest Common Unit holders and the stockholders of the Company share equally on a per Common Unit and per share basis; therefore, the per share information is unaffected by conversion. Inflation In the last five years, inflation has not had a significant impact on the Company because of the relatively low inflation rate in the Company's geographic areas of operation. Most of the leases require the tenants to pay their pro rata share of operating expenses, including common area maintenance, real estate taxes and insurance, thereby reducing the Company's exposure to increases in operating expenses resulting from inflation. In addition, many of the leases are for terms of less than seven years, which may enable the Company to replace existing leases with new leases at a higher base if rents on the existing leases are below the then-existing market rate. Disclosure Regarding Forward-looking Statements The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements to encourage companies to provide prospective information about their companies without fear of litigation so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in the statement. Accordingly, the Company hereby identifies the following important factors that could cause the Company's actual financial results to differ materially from those projected by the Company in forward-looking statements: 38 (i) unexpected increases in development of office or industrial properties in the Company's markets; (ii) deterioration in the financial condition of tenants; (iii) construction costs of properties exceeding original estimates; (iv) delays in the completion of development projects or acquisitions; (v) delays in leasing or releasing space; (vi) incorrect assessments of (or changes in) the environmental condition of the Company's properties; (vii) unexpected increases in interest rates; and (viii) loss of key executives. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See page F-1 of the financial report included herein. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The section under the heading "Election of Directors" of the Proxy Statement for the Annual Meeting of Stockholders to be held May 14, 1998 (the "Proxy Statement") is incorporated herein by reference for information on directors of the Company. See ITEM X in Part I hereof for information regarding executive officers of the Company. ITEM 11. EXECUTIVE COMPENSATION The section under the heading "Election of Directors" entitled "Compensation of Directors" of the Proxy Statement and the section titled "Executive Compensation" of the Proxy Statement are incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The section under the heading "Security Ownership of Certain Beneficial Owners and Management" of the Proxy Statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The section under the heading "Certain Relationships and Related Transactions" of the Proxy Statement is incorporated herein by reference. 39 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) List of Documents Filed as a Part of this Report 1. Consolidated Financial Statements and Report of Independent Auditors See Index on Page F-1 2. Financial Statement Schedules See Index on Page F-1 3. Exhibits
Ex. FN Description - ---------- --------- ---------------------------------------------------------------------- 2.1 (1) Master Agreement of Merger and Acquisition by and among the Company, the Operating Partnership, Eakin & Smith, Inc. and the partnerships and limited liability companies listed therein dated April 1, 1996 2.2 (2) Stock Purchase Agreement among AP CRTI Holdings, L.P., AEW Partners, L.P., Thomas J. Crocker, Barbara F. Crocker, Richard S. Ackerman and Robert E. Onisko and the Company and Cedar Acquisition Corporation, dated April 29, 1996 2.3 (2) Agreement and Plan of Merger by and among the Company, Crocker RealtyTrust, Inc. and Cedar Acquisition Corporation, dated as of April 29, 1996 2.4 (3) Contribution and Exchange Agreement by and among Century Center group, the Operating Partnership and the Company, dated December 31, 1996 2.5 (3) Master Agreement of Merger and Acquisition by and among the Company, the Operating Partnership, Anderson Properties, Inc., Gene Anderson, and the partnerships and limited liability companies listed therein, dated January 31, 1997 2.6 (4) Amended and Master Agreement of Merger and Acquisition dated January 9, 1995 by and among Highwoods Realty Limited Partnership, Forsyth Partners Holdings, Inc., Forsyth Partners Brokerage, Inc., John L. Turner, William T. Wilson III, John E. Reece II, H. Jack Leister and the partnerships and corporations listed therein 2.7 (5) Master Agreement of Merger and Acquisition by and among the Company, the Operating Partnership, Associated Capital Properties, Inc. and its shareholders dated August 27, 1997 2.8 Agreement and Plan of Merger by and among the Company, Jackson Acquisition Corp. and J.C. Nichols Company dated December 22, 1997. 3.1 (6) Amended and Restated Articles of Incorporation of the Company 3.2 (7) Amended and Restated Bylaws of the Company 4.1 (7) Specimen of certificate representing shares of Common Stock 4.2 (8) Indenture among AP Southeast Portfolio Partners, L.P., Bankers Trust Company of California, N.A. and Bankers Trust Company, dated as of March 1, 1994 4.3 (9) Indenture among the Operating Partnership, the Company, and First Union National Bank of North Carolina, dated as of December 1, 1996 4.4 (9) Form of Notes due 2003 4.5 (9) Form of Notes due 2006 4.6 (10) Specimen of certificate representing 8 5/8% Series A Cumulative Redeemable Preferred Shares
40
Ex. FN Description - --------------- ---------------- ------------------------------------------------------------------- 4.7 (11) Specimen of certificate representing 8% Series B Cumulative Redeemable Preferred Shares 4.8 Purchase Agreement between the Company, UBS Limited and Union Bank of Switzerland, London Branch, dated as of August 28, 1997 4.9 Forward Stock Purchase Agreement between the Company and Union Bank of Switzerland, London Branch, dated as of August 28, 1997 4.10 (12) Rights Agreement, dated as of October 6, 1997, between the Company and First Union National Bank 4.11 (13) Form of Notes due 2008 4.12 (13) Form of MandatOry Par Put Remarketed Securities due 2013 4.13 (13) Form of Remarketing Agreement among the Operating Partnership, the Company and Merrill Lynch, Pierce, Fenner & Smith 4.14 (14) Credit Agreement among the Operating Partnership, the Company, the Subsidiaries named therein and the Lenders named therein, dated as of September 27, 1996 4.15 Credit Agreement among the Operating Partnership, the Company, the Subsidiaries named therein and the Lenders named therein, dated as of December 15, 1997 4.16 Agreement to furnish certain instruments defining the rights of long-term debt holders 10.1 (7) Amended and Restated Agreement of Limited Partnership of the Operating Partnership 10.2 (10) Amendment to Amended and Restated Agreement of Limited Partnership of the Operating Partnership with respect to Series A Preferred Units 10.3 (15) Amendment to Amended and Restated Agreement of Limited Partnership of the Operating Partnership with respect to certain rights of limited partners upon a change in control 10.4 (11) Amendment to Amended and Restated Agreement of Limited Partnership of the Operating Partnership with respect to Series B Preferred Units 10.5 (16) Form of Registration Rights and Lockup Agreement among the Company and the Holders named therein, which agreement is signed by all Common Unit holders 10.6 (16) Articles of Incorporation of Highwoods Services, Inc. 10.7 (16) Bylaws of Highwoods Services, Inc. 10.8 (17)(18) Amended and Restated 1994 Stock Option Plan 10.9 (18) 1997 Performance Award Plan 10.10 (18) 1997 Unit Option Plan 10.11(a) (16)(18) Employment Agreement between the Company and the Operating Partnership and John L. Turner 10.11(b) (1)(18) Employment Agreement between the Company and the Operating Partnership and John W. Eakin 10.11(c) (3)(18) Employment Agreement between the Company and the Operating Partnership and Gene H. Anderson 10.11(d) (18) Employment Agreement between the Company and the Operating Partnership and James R. Heistand 10.12(a) (18)(19) Executive Supplemental Employment Agreement between the Company and Ronald P. Gibson 10.12(b) (18)(19) Executive Supplemental Employment Agreement between the Company and John L. Turner 10.12(c) (18)(19) Executive Supplemental Employment Agreement between the Company and Edward J. Fritsch
41
Ex. FN Description - ---------------- ---------------- ------------------------------------------------------------------ 10.12(d) (18)(19) Executive Supplemental Employment Agreement between the Company and Carman J. Liuzzo 10.12(e) (18)(19) Executive Supplemental Employment Agreement between the Company and Mack D. Pridgen, III 10.13 (4) Form of warrants to purchase Common Stock of the Company issued to John L. Turner, William T. Wilson III and John E. Reece II 10.14 (1) Form of warrants to purchase Common Stock of the Company issued to W. Brian Reames, John W. Eakin and Thomas S. Smith 10.15 Form of warrants to purchase Common Stock of the Company issued to James R. Heistand and certain other shareholders of Associated Capital Properties, Inc. 21 Schedule of subsidiaries of the Company 23 Consent of Ernst & Young 27 Financial Data Schedule
- ---------- (1) Filed as a part of the Company's Current Report on Form 8-K dated April 1, 1996 and incorporated herein by reference. (2) Filed as a part of the Company's Current Report on Form 8-K dated April 29, 1996 and incorporated herein by reference. (3) Filed as a part of the Company's Current Report on Form 8-K dated January 9, 1997 and incorporated herein by reference. (4) Filed as part of Registration Statement 33-88364 with the Securities and Exchange Commission and incorporated herein by reference. (5) Filed as a part of the Company's Current Report on Form 8-K dated August 27, 1997 and incorporated herein by reference. (6) Filed as part of the Company's Current Report on September 25, 1997 and amended by articles supplementary filed as part of the Company's Current Report on Form 8-K dated October 4, 1997, each of which is incorporated herein by reference. (7) Filed as part of Registration Statement 33-76952 with the Securities and Exchange Commission and incorporated herein by reference. (8) Filed by Crocker Realty Trust, Inc. as part of Registration Statement No. 33-88482 filed with the Securities and Exchange Commission and incorporated herein by reference. (9) Filed as a part of the Operating Partnership's Current Report on Form 8-K dated December 2, 1996 and incorporated herein by reference. (10) Filed as a part of the Company's Current Report on Form 8-K dated February 12, 1997 and incorporated herein by reference. (11) Filed as a part of the Company's Current Report on Form 8-K dated September 25, 1997 and incorporated herein by reference. (12) Filed as a part of the Company's Current Report on Form 8-K dated October 4, 1997 and incorporated herein by reference. (13) Filed as a part of the Company's Current Report on Form 8-K dated February 2, 1998 and incorporated herein by reference. (14) Filed as part of the Company's Current Report on Form 8-K dated September 27, 1996 and incorporated herein by reference. (15) Filed as a part of the Operating Partnership's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 and incorporated herein by reference. 42 (16) Filed as a part of the Company's Annual Report on Form 10-K for the year ended December 31, 1995 and incorporated herein by reference. (17) Filed as a part of the Company's proxy statement on Schedule 14A relating to the 1997 Annual Meeting of Stockholders (18) Management contract or compensatory plan. (19) Terms of the agreement are disclosed in the Company's proxy statement on Schedule 14A relating to the 1998 Annual Meeting of Stockholders under the caption "Executive Compensation -- Employment Agreements," which section is incorporated as an exhibit to this Form 10-K. As of the date hereof, such agreement is subject to final documentation. The Company will provide copies of any exhibit, upon written request, at a cost of $.05 per page. (b) Reports on Form 8-K. On October 14, 1997, the Company filed a current report on Form 8-K, dated October 4, 1997, reporting under item 5 of the Form the authorization of a dividend of one preferred share purchase right for each outstanding share of common stock, pursuant to a Rights Agreement between the Company and First Union National Bank, as rights agent. On October 16, 1997, the Company filed a current report on Form 8-K, dated October 1, 1997, reporting under item 2 of the Form the closing of a business combination with Associated Capital Properties, Inc. and related property portfolio acquisition. The report included audited financial statements of Associated Capital Properties, Inc. for the year ended December 31, 1996 and of the 1997 Pending Acquisitions for the year ended December 31, 1996. On January 6, 1998, the Company filed a current report on Form 8-K, dated January 22, 1998, reporting under item 5 of the Form that it had entered into an agreement to merge with J.C. Nichols Company. 43 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Raleigh, State of North Carolina, on March 31, 1998. HIGHWOODS PROPERTIES, INC. By: /s/ RONALD P. GIBSON ------------------------------------- Ronald P. Gibson, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date - -------------------------------------- ---------------------------- --------------- /s/ O. TEMPLE SLOAN, JR. Chairman of the Board of March 31, 1998 - ------------------------------------- Directors O. Temple Sloan, Jr. /s/ RONALD P. GIBSON President, Chief Executive March 31, 1998 - ------------------------------------- Officer and Director Ronald P. Gibson /s/ JOHN L. TURNER Vice Chairman of the Board March 31, 1998 - ------------------------------------- and Chief Investment John L. Turner Officer /s/ GENE H. ANDERSON Senior Vice President and March 31, 1998 - ------------------------------------- Director Gene H. Anderson /s/ JOHN W. EAKIN Senior Vice President and March 31, 1998 - ------------------------------------- Director John W. Eakin /s/ THOMAS W. ADLER Director March 31, 1998 - ------------------------------------- Thomas W. Adler /s/ WILLIAM E. GRAHAM, JR. Director March 31, 1998 - ------------------------------------- William E. Graham, Jr. /s/ L. GLENN ORR, JR. Director March 31, 1998 - ------------------------------------- Glenn Orr, Jr. /s/ WILLARD W. SMITH JR. Director March 31, 1998 - ------------------------------------- Willard W. Smith Jr. /s/ STEPHEN TIMKO Director March 31, 1998 - ------------------------------------- Stephen Timko
44
Signature Title Date - -------------------------------------- ----------------------------- --------------- /s/ WILLIAM T. WILSON III Director March 31, 1998 - ------------------------------------- William T. Wilson III /s/ CARMAN J. LIUZZO Vice President and Chief March 31, 1998 - ------------------------------------- Financial Officer (Principal Carman J. Liuzzo Financial Officer and Principal Accounting Officer) and Treasurer
45 INDEX TO FINANCIAL STATEMENTS
Page ----- Highwoods Properties, Inc. Report of Independent Auditors ......................................................... F-2 Consolidated Balance Sheets as of December 31, 1997 and 1996 ........................... F-3 Consolidated Statements of Income for the Years Ended December 31, 1997, 1996 and 1995.. F-4 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1997, 1996 and 1995 ......................................................................... F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995 .................................................................................. F-6 Notes to Consolidated Financial Statements ............................................. F-8 Schedule III -- Real Estate and Accumulated Depreciation ............................... F-20
All other schedules are omitted because they are not applicable, or because the required information is included in the financial statements or notes thereto. F-1 REPORT OF INDEPENDENT AUDITORS THE BOARD OF DIRECTORS AND STOCKHOLDERS HIGHWOODS PROPERTIES, INC. We have audited the accompanying consolidated balance sheets of Highwoods Properties, Inc. as of December 31, 1997 and 1996, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Highwoods Properties, Inc. at December 31, 1997 and 1996, and the consolidated results of its operations and cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule when considered in relation to the basic financial statements taken as a whole presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP Raleigh, North Carolina February 20, 1998 F-2 HIGHWOODS PROPERTIES, INC. Consolidated Balance Sheets (Dollars in thousands, except per share amounts)
December 31, ------------------------------ 1997 1996 -------------- ------------- Assets Real estate assets, at cost: Land and improvements ................................................ $ 344,315 $ 222,422 Buildings and tenant improvements .................................... 2,194,641 1,152,990 Development in process ............................................... 95,387 28,858 Land held for development ............................................ 64,454 14,668 Furniture, fixtures and equipment .................................... 3,362 2,096 ---------- ---------- 2,702,159 1,421,034 Less -- accumulated depreciation ..................................... (87,505) (43,160) ---------- ---------- Net real estate assets ............................................... 2,614,654 1,377,874 Cash and cash equivalents .............................................. 10,146 11,070 Restricted cash ........................................................ 9,341 8,539 Accounts receivable net of allowance of $555 and $286 at December 31, 1997 and 1996, respectively .......................................... 17,701 9,039 Advances to related parties ............................................ 9,072 2,406 Accrued straight line rents receivable ................................. 13,033 6,185 Other assets: Deferred leasing costs ............................................... 21,688 9,601 Deferred financing costs ............................................. 22,294 21,789 Prepaid expenses and other ........................................... 17,607 3,901 ---------- ---------- 61,589 35,291 Less -- accumulated amortization ..................................... (13,230) (6,964) ---------- ---------- 48,359 28,327 ---------- ---------- $2,722,306 $1,443,440 ========== ========== Liabilities and stockholders' equity Mortgages and notes payable ............................................ $ 978,558 $ 555,876 Accounts payable, accrued expenses and other liabilities ............... 55,121 27,600 ---------- ---------- Total liabilities .................................................... 1,033,679 583,476 Minority interest ...................................................... 287,186 89,617 Stockholders' equity: Preferred stock, $.01 par value, authorized 10,000,000 shares; 8 5/8% Series A Cumulative Redeemable Preferred Shares (liquidation preference $1,000 per share), 125,000 shares issued and outstanding at December 31, 1997 ........... 125,000 -- 8% Series B Cumulative Redeemable Preferred Shares (liquidation preference $25 per share), 6,900,000 shares issued and outstanding at December 31, 1997 ......... 172,500 -- Common stock, $.01 par value, authorized 100,000,000 shares; issued and outstanding 46,838,600 at December 31, 1997 and 35,636,155 at December 31, 1996 ...................................... 468 356 Additional paid-in capital ............................................. 1,132,100 780,562 Distributions in excess of net earnings ................................ (28,627) (10,571) ---------- ---------- Total stockholders' equity ........................................... 1,401,441 770,347 ---------- ---------- $2,722,306 $1,443,440 ========== ==========
See accompanying notes to consolidated financial statements. F-3 HIGHWOODS PROPERTIES, INC. Consolidated Statements of Income (Dollars in thousands, except per share amounts) For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995 ----------- ----------- ---------- Revenue: Rental income ...................................................... $266,933 $130,848 $ 71,217 Interest and other income .......................................... 7,537 7,078 2,305 -------- -------- -------- Total revenue ........................................................ 274,470 137,926 73,522 Operating expenses: Rental property .................................................... 76,743 35,313 17,049 Depreciation and amortization ...................................... 47,533 22,095 11,082 Interest expense: Contractual ...................................................... 45,138 24,699 12,101 Amortization of deferred financing costs ......................... 2,256 1,911 1,619 -------- -------- -------- 47,394 26,610 13,720 General and administrative ......................................... 10,216 5,666 2,737 -------- -------- -------- Income before minority interest and extraordinary item ........... 92,584 48,242 28,934 Minority interest .................................................... (15,106) (6,782) (4,937) -------- -------- -------- Income before extraordinary item ................................. 77,478 41,460 23,997 Extraordinary item -- loss on early extinguishment of debt ............................................................ (5,799) (2,140) (875) -------- -------- -------- Net income ....................................................... 71,679 39,320 23,122 Dividends on Preferred stock ......................................... (13,117) -- -- -------- -------- -------- Net income available for common stockholders ....................... $58,562 $39,320 $ 23,122 ======== ======== ======== Net income per common share -- Basic: Income before extraordinary item ................................... $ 1.66 $ 1.59 $ 1.55 Extraordinary item -- loss on early extinguishment of debt ......... ( .15) ( .08) ( .06) -------- -------- -------- Net income ......................................................... $ 1.51 $ 1.51 $ 1.49 ======== ======== ======== Weighted average shares outstanding -- Basic ....................... 38,770 26,111 15,487 ======== ======== ======== Net income per common share -- Diluted: Income before extraordinary item ................................... $ 1.65 $ 1.58 $ 1.54 Extraordinary item loss on early extinguishment of debt ............ ( .15) ( .08) ( .06) -------- -------- -------- Net Income ......................................................... $ 1.50 $ 1.50 $ 1.48 ======== ======== ======== Weighted average shares outstanding -- Diluted ..................... 39,161 30,442 18,801 ======== ======== ========
See accompanying notes to consolidated financial statements. F-4 HIGHWOODS PROPERTIES, INC. Consolidated Statements of Stockholders' Equity (Dollars in thousands) For the Years Ended December 31, 1997 and 1996 and 1995
Retained Earnings Series A Series B Additional (Distributions Number of Common Preferred Preferred Paid-In- in Excess of Shares Stock Stock Stock Capital Net Earnings) Total ------------- -------- ----------- ----------- -------------- --------------- -------------- Balance at December 31, 1994 ...................... 8,986,190 $ 90 $ -- $ -- $ 135,531 $ 594 $ 136,215 Issuance of Common Stock ..................... 10,418,221 104 -- -- 219,717 -- 219,821 Common Stock Dividends ................. -- -- -- -- -- (25,348) (25,348) Net income ................. -- -- -- -- -- 23,122 23,122 ---------- ---- -------- -------- ---------- --------- ---------- Balance at December 31, 1995 ...................... 19,404,411 194 -- -- 355,248 (1,632) 353,810 Issuance of Common Stock ..................... 15,976,161 160 -- -- 419,892 -- 420,052 Common Stock Dividends ................. -- -- -- -- -- (48,259) (48,259) Net income ................. -- -- -- -- -- 39,320 39,320 Shares issued upon redemption of Common Units .............. 255,583 2 -- -- 5,422 -- 5,424 ---------- ---- -------- -------- ---------- --------- ---------- Balance at December 31, 1996 ...................... 35,636,155 356 -- -- 780,562 (10,571) 770,347 Issuance of Common Stock ..................... 10,702,215 107 -- -- 349,147 -- 349,254 Series A Preferred Stock offering .................. -- -- 125,000 -- (3,191) -- 121,809 Series B Preferred Stock offering .................. -- -- -- 172,500 (6,154) -- 166,346 Common Stock Dividends ................. (76,618) (76,618) Preferred Stock Dividends ................. -- -- -- -- -- (13,117) (13,117) Net Income ................. -- -- -- -- -- 71,679 71,679 Shares issued upon redemption of Common Units .............. 500,230 5 -- -- 11,736 -- 11,741 ---------- ---- -------- -------- ---------- --------- ---------- Balance at December 31, 1997 ...................... 46,838,600 $468 $125,000 $172,500 $1,132,100 $ (28,627) $1,401,441 ========== ==== ======== ======== ========== ========= ==========
See accompanying notes to consolidated financial statements. F-5 HIGHWOODS PROPERTIES, INC. Consolidated Statements of Cash Flows (Dollars in thousands) For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995 ------------- ------------- ------------- Operating activities: Net income .......................................................... $ 71,679 $ 39,320 $ 23,122 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation ...................................................... 44,393 20,752 10,483 Amortization ...................................................... 5,396 3,254 2,218 Loss on early extinguishment of debt .............................. 5,799 2,140 875 Minority interest ................................................. 15,106 6,485 4,937 Changes in operating assets and liabilities: Accounts receivable .............................................. (8,662) (1,437) (1,561) Prepaid expenses and other assets ................................ (3,270) (776) (173) Accrued straight line rents receivable ........................... (6,848) (2,778) (1,519) Accounts payable, accrued expenses and other liabilities ......... 6,599 4,357 4,787 ---------- ---------- ---------- Net cash provided by operating activities ...................... 130,192 71,317 43,169 Investing activities: Proceeds from disposition of real estate assets ..................... 1,419 900 2,200 Additions to real estate assets ..................................... (465,066) (181,444) (130,411) Advances to subsidiaries ............................................ (6,666) (1,132) (654) Other assets and notes receivable ................................... (18,580) (3,626) (1,123) Cash from contributed net assets .................................... -- 20,711 549 Cash paid in exchange for net assets ................................ (35,390) (322,276) (6,593) ---------- ---------- ---------- Net cash used in investing activities ............................ (524,283) (486,867) (136,032) ---------- ---------- ---------- Financing activities: Distributions paid on Common Stock and Common Units ................. (88,397) (55,515) (29,845) Dividends paid on Preferred Stock ................................... (11,720) -- -- Net proceeds from sale of Preferred Stock ........................... 288,155 -- -- Net proceeds from the sale of Common Stock .......................... 345,325 406,595 219,821 Payment of prepayment penalties ..................................... (6,945) (1,184) (1,046) Borrowings on Revolving Loans ....................................... 563,500 307,500 50,800 Repayment of Revolving Loans ........................................ (264,000) (299,000) (87,000) Proceeds from mortgages and notes payable ........................... 100,000 213,500 90,250 Repayment of mortgages and notes payable ............................ (532,481) (141,216) (148,907) Payment of deferred financing costs ................................. (270) (10,898) (630) ---------- ---------- ---------- Net cash provided by financing activities ........................ 393,167 419,782 93,443 ---------- ---------- ---------- Net (decrease) increase in cash and cash equivalents ................ (924) 4,232 580 Cash and cash equivalents at beginning of the period ................ 11,070 6,838 6,258 ---------- ---------- ---------- Cash and cash equivalents at end of the period ...................... $ 10,146 $ 11,070 $ 6,838 ========== ========== ========== Supplemental disclosure of cash flow information: Cash paid for interest .............................................. $ 51,283 $ 26,039 $ 11,965 ========== ========== ==========
See accompanying notes to consolidated financial statements. F-6 HIGHWOODS PROPERTIES, INC. Consolidated Statements of Cash Flows -- Continued (Dollars in thousands) For the Years Ended December 31, 1997, 1996 and 1995 Supplemental disclosure of non-cash investing and financing activities: The following summarizes the net assets contributed by the Common Unit holders of the Highwoods/Forsyth Limited Partnership (the "Operating Partnership") or acquired subject to mortgage notes payable:
1997 1996 1995 ----------- ----------- ----------- Assets: Real estate assets, net .......................................... $782,136 $625,137 $260,883 Cash and cash equivalents ........................................ -- 20,711 549 Restricted cash .................................................. 2,727 11,476 -- Tenant leasing costs, net ........................................ 131 -- -- Deferred financing costs, net .................................... 227 3,871 842 Accounts receivable and other .................................... 913 1,635 6,290 -------- -------- -------- Total assets ................................................... 786,134 662,830 268,564 -------- -------- -------- Liabilities: Mortgages and notes payable ...................................... 555,663 244,129 210,728 Accounts payable, accrued expenses and other liabilities ......... 19,527 19,142 549 -------- -------- -------- Total liabilities .............................................. 575,190 263,271 211,277 -------- -------- -------- Net assets .................................................... $210,944 $399,559 $ 57,287 ======== ======== ========
See accompanying notes to consolidated financial statements. F-7 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997 1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Organization and Formation of the Company Highwoods Properties, Inc. (the "Company") is a self-administered and self-managed real estate investment trust ("REIT") which operates in the southeastern United States. The Company's assets include 342 suburban office properties, 139 industrial properties and 718 acres of undeveloped land suitable for future development. The Company was incorporated in Maryland in February 1994 and is the successor to the operations of the Highwoods Group. On June 14, 1994, the Company commenced operations upon completion of a public offering of 7,400,000 shares of $.01 par value Common Stock (plus 1,110,000 shares subsequently issued pursuant to the underwriters' over-allotment option, the "Initial Public Offering"). The Initial Public Offering price was $21 per share resulting in gross offering proceeds of $178,710,000. Proceeds to the Company, net of underwriters' discount, an advisory fee and total offering expenses, were $164,481,300. The following transactions (the "Formation Transactions") occurred in connection with the Initial Public Offering: o Through the merger of Highwoods Properties Company ("HPC") into the Company certain investors received 476,190 shares of restricted Common Stock in exchange for their holdings in HPC. o The Company consummated various purchase agreements to acquire certain interests in 41 properties, including 27 properties that were not owned by the Highwoods Group prior to the Initial Public Offering. For the 14 properties previously owned by the Highwoods Group, negative net assets of approximately $9,272,000 were contributed to the Operating Partnership at their historical cost. Approximately, $8,400,000 was distributed to the non-continuing partners of the Highwoods Group for their partnership interests in the 14 properties. For the 27 properties not owned by the Highwoods Group, the Company issued approximately $4,200,000 of common partnership interests in the Operating Partnership ("Common Units"), assumed $54,164,000 of debt and paid $82,129,000 in cash. These 27 properties were recorded at their purchase price using the purchase method of accounting. o The Company became the sole general partner of Highwoods/Forsyth Limited Partnership, formerly Highwoods Realty Limited Partnership (the "Operating Partnership"), by contributing its ownership interests in the 41 properties and its third-party fee business and all but $10,400,000 of the net proceeds of the Initial Public Offering in exchange for an approximate 88.3% interest in the Operating Partnership. o The Operating Partnership executed various option and purchase agreements whereby it paid approximately $81,352,000 in cash, issued 1,054,664 Common Units and assumed approximately $118,111,000 of indebtedness in exchange for fee simple interests in the 41 properties and the development land. o The Operating Partnership contributed the third-party management and development business and the third-party leasing business to Highwoods Services, Inc. (formerly Highwoods Realty Services, Inc. and Highwoods Leasing Company) in exchange for 100% of each company's non-voting common stock and 1% of each company's voting common stock. F-8 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued) 1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- Continued Generally one year after issuance (the "lock-up period"), the Operating Partnership is obligated to redeem each Common Unit at the request of the holder thereof for cash equal to the fair market value of one share of the Company's Common Stock at the time of such redemption, provided that the Company at its option may elect to acquire any such Common Unit presented for redemption for cash or one share of Common Stock. When a Common Unit holder redeems a Common Unit for a share of Common Stock or cash, the minority interest will be reduced and the Company's share in the Operating Partnership will be increased. The Common Units owned by the Company are not redeemable for cash. At December 31, 1997, the lock-up period had expired with respect to 3,805,392 of the 10,444,464 Common Units issued and outstanding. Basis of Presentation The consolidated financial statements include the accounts of the Company and the Operating Partnership. The Company's investment in Highwoods Services, Inc. (the "Service Company") is accounted for using the equity method of accounting. All significant intercompany balances and transactions have been eliminated in the consolidated financial statements. The Company is a real estate investment trust ("REIT") under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. Minority interest represents the limited partnership interest in the Operating Partnership owned by Common Unit holders other than the Company. Per share information is calculated using the weighted average number of shares outstanding. The extraordinary loss represents the write-off of loan origination fees and prepayment penalties paid on the early extinguishment of debt and is shown net of the minority interest's share in the loss. Real Estate Assets Real estate assets are stated at the lower of cost or fair value. All capitalizable costs related to the improvement or replacement of commercial real estate properties are capitalized. Depreciation is computed by the straight-line method over the estimated useful life of 40 years for buildings and improvements and 5 to 7 years for furniture and equipment. Tenant improvements are amortized over the life of the respective leases, using the straight-line method. In March 1995, the FASB issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of," which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Statement No. 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The Company adopted the Statement in the first quarter of 1996 and the adoption did not have any material effect. Cash Equivalents The Company considers highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. F-9 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued) Restricted Cash The Company is required by a mortgage note to maintain various depository accounts, a cash collateral account and a contingency reserve account. All rents with respect to the collateralized properties are made payable to, and deposited directly in, the depository accounts, which are then transferred to the cash collateral account. Subsequent to payment of debt service and other required escrows, the residual balance of the cash collateral account is funded to the Company for capital expenditures and operations. The contingency reserve account is required to maintain a balance of $7,000,000. At December 31, 1997, the account balances were $8,624,090 including $7,069,186 in the contingency reserve account. At December 31, 1996, the account balances were $7,691,857 including $7,000,000 in the contingency reserve account. The Company is required by certain mortgage notes to escrow real estate taxes with the mortgagor. At December 31, 1997 and 1996, $717,350 and $846,990, respectively, were escrowed for real estate taxes. Revenue Recognition Minimum rental income is recognized on a straight-line basis over the term of the lease. Unpaid rents are included in accounts receivable. Certain lease agreements contain provisions which provide reimbursement of real estate taxes, insurance, advertising and certain common area maintenance ("CAM") costs. These additional rents are recorded on the accrual basis. All rent and other receivables from tenants are due from commercial building tenants located in the properties. Deferred Lease Fees and Loan Costs Lease fees, concessions and loan costs are capitalized at cost and amortized over the life of the related lease or loan term, respectively. 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 distributions to stockholders, is permitted to reduce or avoid the payment of Federal income taxes at the corporate level. To maintain qualification as a REIT, the Company must distribute to stockholders at least 95% of REIT taxable income. No provision has been made for income taxes because the Company qualified as a REIT, distributed the necessary amount of taxable income and, therefore, incurred no income tax expense during the period. Concentration of Credit Risk Management of the Company performs ongoing credit evaluations of its tenants. The properties are leased to approximately 3,100 tenants, in 19 geographic locations, which engage in a wide variety of businesses. There is no dependence upon any single tenant. Interest Rate Risk Management The Company may enter into derivative financial instruments such as interest rate swaps and interest rate collars in order to mitigate its interest rate risk on a related financial instrument. The Company has designated these derivative financial instruments as hedges and applies deferral accounting. Gains and losses related to the termination of such derivative financial instruments are deferred and amortized to interest expense over the term of the debt instrument. Payments to or from counterparties are recorded as adjustments to interest expense. F-10 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued) 1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- Continued The Company also utilizes interest rate contracts to hedge interest rate risk on anticipated debt offerings. These anticipatory hedges are designated, and effective, as hedges of identified debt issuances which have a high probability of occurring. Gains and losses resulting from changes in the market value of these contracts are deferred and amortized into interest expense over the life of the related debt instrument. The Company is exposed to certain losses in the event of non-performance by the counterparties under the collar and swap arrangements. The counterparties are major financial institutions with credit ratings of Aa3 or better, and are expected to perform fully under the agreements. However, if they were to default on their obligations under the arrangements, the Company could be required to pay the full rate under its Revolving Loans and the variable rate mortgages, even if such rate were in excess of the rate in the collar and swap agreements. The Company would not realize a material loss as of December 31, 1997 in the event of non-performance by any one counterparty. Additionally, the Company limits the amount of credit exposure with any one institution. Stock Compensation The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. As described in Note 8, the Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related interpretations in accounting for its employee stock options. Use of Estimates The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Impact of Recently Issued Accounting Standards In 1997, the FASB issued Statements No. 130, "Reporting Comprehensive Income" ("SFAS 130") and No. 131, "Disclosures About Segments of an Enterprise and Related Information" ("SFAS 131"), which are both effective for fiscal years beginning after December 15, 1997. SFAS 130 addresses reporting amounts of other comprehensive income and SFAS 131 addresses reporting segment information. The Company does not believe that the adoption of these new standards will have a material impact on its financial statements. Reclassifications Certain amounts in the December 31, 1996 Financial Statements have been reclassified to conform to the December 31, 1997 presentation. These reclassifications had no material effect on net income or stockholders' equity as previously reported. F-11 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued) 2. MORTGAGES AND NOTES PAYABLE Mortgages and notes payable consisted of the following at December 31, 1997 and 1996 (in thousands):
1997 1996 ----------- ----------- Mortgage notes payable: 7.9% mortgage note due 2001 .................. $140,000 $140,000 8.1% mortgage note due 2002 .................. 11,649 -- 9.0% mortgage note due 2005 .................. 39,630 40,168 8.2% mortgage note due 2005 .................. 30,951 31,410 8.0% mortgage note due 2006 .................. 43,465 -- 7.6% to 13% mortgage notes due between 1999 and 2013 ............................... 66,681 73,719 Variable rate mortgage note due 2000 ......... -- 11,612 -------- -------- 332,376 296,909 -------- -------- Unsecured indebtedness: 6.8% notes due in 2003 ....................... 100,000 100,000 7.19% notes due in 2004 ...................... 100,000 -- 7.0% notes due in 2006 ....................... 110,000 110,000 7% and 9% notes due in 1997 .................. -- 11,595 Variable rate note due in 1999 ............... 21,682 22,372 Revolving Loan due in 1998 ................... 50,000 -- Revolving Loan due in 1999 ................... 264,500 15,000 -------- -------- 646,182 258,967 -------- -------- Total ................................................ $978,558 $555,876 ======== ========
Secured Indebtedness Mortgage notes payable were secured by real estate with an aggregate carrying value of $719.4 million at December 31, 1997. The 7.9% Mortgage Note is secured by 46 of the Properties (the "Mortgage Note Properties"), which are held by AP Southeast Portfolio Partners, L.P. (the "Financing Partnership"). The Company has a 99.99% economic interest in the Financing Partnership, which is managed, indirectly, by the Company. The 7.9% Mortgage Note is a conventional, monthly pay, first mortgage note in the principal amount of $140 million issued by the Financing Partnership. The 7.9% Mortgage Note is a limited recourse obligation of the Financing Partnership as to which, in the event of a default under the indenture or the mortgage, recourse may be had only against the Mortgage Note Properties and other assets that have been pledged as security. The 7.9% Mortgage Note was issued to Kidder Peabody Acceptance Corporation I pursuant to an indenture, dated March 1, 1994 (the "Mortgage Note Indenture"), among the Financing Partnership, Bankers Trust Company of California, N.A., and Bankers Trust Company. The Mortgage Note Indenture provides for a lockout period that prohibits optional redemption payments in respect of principal of the 7.9% Mortgage Note (other than a $7 million premium-free redemption payment) prior to November 1998. Thereafter, the Financing Partnership may make optional redemption payments in respect of principal of the 7.9% Mortgage Note on any distribution date, subject to the payment of a yield maintenance charge in connection with such payments made prior to August 1, 2000. Under the terms of the purchase agreement relating to the Mortgage Note Properties, the Financing Partnership may be obligated to pay NationsBank, N.A. a deferred contingent purchase price. This contingent payment, which will in no event exceed $4.4 million, is due on April 1, 1998 if the actual F-12 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued) 2. MORTGAGES AND NOTES PAYABLE -- Continued four-year cumulative cash flow of such properties exceeds the projected four-year cumulative cash flow. Based on the estimates of future operations, the Company does not believe that any deferred contingent purchase principal price will be payable. Unsecured Indebtedness On November 26, 1996, the Company, through the Operating Partnership, issued $100,000,000 of unsecured 6 3/4% notes due December 1, 2003 and $110,000,000 of unsecured 7% notes due December 1, 2006. Interest on the notes is payable semi-annually on June 1 and December 1 commencing on June 1, 1997. In accordance with the terms of the Indenture under which the unsecured notes are issued, the Company is required to (a) limit its total indebtedness, (b) limit its level of secured debt, (c) maintain a minimum debt service coverage ratio and (d) maintain a minimum level of unencumbered assets. At December 31, 1997, the Company was in compliance with these covenants. On June 24, 1997, a trust formed by the Operating Partnership sold $100 million of X-POSSM, which represent fractional undivided beneficial interests in the trust. The assets of the trust consist of, among other things, $100 million of Put Option Notes. The X-POSSM bear an interest rate of 7.19%, representing an effective borrowing cost of 7.09%, net of a related put option and certain interest rate protection agreement costs. Under certain circumstances, the Put Option Notes could also become subject to early maturity on June 15, 2004. The Put Option Notes are subject to the same covenants as the unsecured 6 3/4% and 7% notes described above. In September 1996, the Company obtained a $280,000,000 unsecured revolving loan which matures on October 31, 1999. Borrowings under such revolving loan will adjust based upon the Company's senior unsecured debt rating with a range of 30-day LIBOR plus 100 basis points to LIBOR plus 175 basis points. The Company had $15,500,000 in available borrowings under this loan at December 31, 1997. At December 31, 1997, the rate was set at 30-day LIBOR plus 100 basis points and the effective interest rate was 6.97%. In December 1997, the Company obtained a $150,000,000 unsecured revolving loan which matures on June 30, 1998. Borrowings under such revolving loan will be based on the 30-day LIBOR rate plus 90 basis points. At December 31, 1997 the effective interest rate was 6.84%. The Company had $100,000,000 in available borrowings under this loan at December 31, 1997. The terms of each of the revolving loans require the Company to pay a commitment fee equal to .15% to .25% of the unused portion of such revolving loan and include certain restrictive covenants which limit, among other things, dividend payments, and which require compliance with certain financial ratios and measurements. At December 31, 1997, the Company was in compliance with these covenants. Other Information The Company has entered into an interest swap agreement with a financial institutions to effectively fix the interest rate on the variable rate mortgages and variable rate notes at a rate of 6.95%. At December 31, 1997, the notional amounts of the interest rate swaps equaled the outstanding balance of the indebtedness. The swap expires in June 2000 and had a cost basis of $334,000 at December 31, 1997. To limit increases in interest expense on $80 million of its $430 million aggregate amount of unsecured revolving loans (the "Revolving Loans"), the Company has purchased an interest rate collar which F-13 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued) 2. MORTGAGES AND NOTES PAYABLE -- Continued limits its exposure to an increase in 30-day LIBOR to 6.25% through November 2001. The initial premium used to acquire the $80,000,000 interest rate collar is being amortized over the term of the collar. The cost basis of the collar was $2,457,000 at December 31, 1997. Net payments made to counterparties under the above interest rate protection agreement were $47,000 in 1997 and were recorded as an increase to interest expense. Payments received from counterparties were $167,000 in 1996, and $385,000 in 1995 and were recorded as a reduction of interest expense. In anticipation of a 1998 debt offering, on September 17, 1997, the Company entered into a swap agreement with a notional amount of $114 million. The swap agreement has a termination date of April 10, 1998, and carries a fixed rate of 6.3% which is a combination of the treasury rate plus the swap spread and the forward premium. The estimated fair value of the swap agreement at December 31, 1997 was ($4.8 million). The aggregate maturities of the mortgage and notes payable at December 31, 1997 are as follows (in thousands): 1998 ................. $ 54,737 1999 ................. 291,541 2000 ................. 21,529 2001 ................. 143,630 2002 ................. 14,504 Thereafter ........... 452,617 -------- $978,558 ========
Total interest capitalized was $7,238,000 in 1997, $2,935,000 in 1996, and $507,000 in 1995. 3. EMPLOYEE BENEFIT PLANS Management Compensation Program The Company has established an incentive compensation plan for employees of the Company. The plan provides for payment of a cash bonus to participating officers and employees if certain Company performance objectives are achieved. The amount of the bonus to participating officers and employees is based on a formula determined for each employee by the Compensation Committee, but may not exceed 100% of base salary. All bonuses may be subject to adjustment to reflect individual performance as measured by specific qualitative criteria to be approved by the Compensation Committee. Bonuses are accrued in the year earned and included in accrued expenses in the Consolidated Balance Sheets. In addition, as an incentive to retain top management, the Company has established a deferred compensation plan which provides for phantom stock awards. Under the deferred compensation plan, phantom stock or stock appreciation rights equal in value to 25% of the yearly cash bonus may be set aside in an incentive pool, with payment after five years. If an employee leaves the Company for any reason (other than death, disability or normal retirement) prior to the end of the five-year period, all awards under the deferred compensation plan will be forfeited. 401(k) Savings Plan The Company has a 401(k) savings plan covering substantially all employees who meet certain age and employment criteria. The Company matches the first 6% of compensation deferred at the rate of F-14 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued) 3. EMPLOYEE BENEFIT PLANS -- Continued 50% of employee contributions. During 1997, 1996 and 1995, the Company contributed $353,000, $160,000, and $51,000, respectively to the Plan. Administrative expenses of the plan are paid by the Company. Employee Stock Purchase Plan In August 1997, the Company instituted an Employee Stock Purchase Plan ("ESPP") for all active employees. At the end of each three-month offering period, each participant's account balance is applied to acquire shares of Common Stock at 90% of the market value of the Common Stock, calculated as the lower of the average closing price on the New York Stock Exchange on the five consecutive days preceding the first day of the quarter or the five days preceding the last day of the quarter. A participant may not invest more than $7,500 per quarter. As of December 31, 1997, 5,839 shares of Common Stock have been purchased under the ESPP for the year. 4. RENTAL INCOME The Company's real estate assets are leased to tenants under operating leases, substantially all of which expire over the next ten years. The minimum rental amounts under the leases are generally either subject to scheduled fixed increases or adjustments based on the Consumer Price Index. Generally, the leases also require that the tenants reimburse the 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, 1997, are as follows (in thousands): 1998 ...................... $ 327,950 1999 ...................... 274,130 2000 ...................... 214,538 2001 ...................... 150,889 2002 ...................... 95,660 Thereafter ................ 262,215 ---------- $1,325,382 ==========
5. RELATED PARTY TRANSACTIONS The Company makes advances to Highwoods Services, Inc. for working capital purposes. These advances bear interest at a rate of 7% per annum, are due on demand and totaled $7,022,000 at December 31, 1997 and $2,406,000 at December 31, 1996. The Company recorded interest income from these advances of $142,000, $91,000 and $43,000 for the years ended December 31, 1997, 1996 and 1995, respectively. On October 1, 1997, the Company transferred title to the Ivy Distribution Center in Winston-Salem, North Carolina to a limited liability company controlled by an executive officer of the Company for $2,050,000. The Company accepted a note receivable of $2,050,000 as consideration for this transaction which approximated the carrying value of the property. The note bears interest at 8% per annum and is payable in full on September 1, 1998. The Company recorded interest income of $41,000 for the year ended December 31, 1997. F-15 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued) 5. RELATED PARTY TRANSACTIONS -- Continued On March 18, 1997, the Company purchased 5.68 acres of development land in Raleigh, North Carolina for $1,298,959 from a partnership in which an executive officer and director and an additional director of the Company each has an 8.5% limited partnership interest. During the year ended December 31, 1995, the Company acquired two properties encompassing 99,334 square feet at an aggregate purchase price of $6,850,000 from partnerships in which certain officers and directors of the Company owned a majority interest. These transactions were accounted for using the purchase method of accounting and their operating results are included in the Statements of Income from their respective acquisition dates. 6. STOCKHOLDER'S EQUITY Common Stock Distributions Distributions paid on Common Stock were $1.98, $1.86 and $1.75 per share for the years ended December 31, 1997, 1996 and 1995 respectively. For federal income tax purposes, the following table summarizes the estimated taxability of distributions paid:
1997 1996 1995 ---------- ---------- ---------- Per Share: Ordinary income ........... $ 1.39 $ 1.50 $ 1.63 Capital gains ............. -- .01 -- Return of capital ......... .59 .35 .12 ------- ------- ------- Total .............................. $ 1.98 $ 1.86 $ 1.75 ======= ======= =======
The Company's tax return for the year ended December 31, 1997, has not been filed, and the taxability information for 1997 is based upon the best available data. The Company's tax returns have not been examined by the Internal Revenue Service, and therefore the taxability of distributions is subject to change. The tax basis of the Company's assets and liabilities are $2,307,497,000 and $1,035,558,000 respectively. On February 4, 1998, the Board of Directors declared a Common Stock distribution of $.51 per share payable on February 21, 1997, to stockholders of record on February 14, 1997. Preferred Stock On February 7, 1997, the Company issued 125,000 Series A Cumulative Redeemable Preferred Shares (the "Series A Preferred Shares"). The Series A Preferred Shares are non-voting and have a liquidation preference of $1,000 per share for an aggregate liquidation preference of $125.0 million plus accrued and unpaid dividends. The net proceeds (after underwriting commission and other offering costs) of the Series A Preferred Shares issued were $121.8 million. Holders of the Series A Preferred Shares are entitled to receive, when, as and if declared by Highwood's Board of Directors (the "Board"), out of funds legally available for payment of distributions, cumulative preferential cash distributions at a rate of 8 5/8% of the liquidation preference per annum (equivalent to $86.2 per share). On or after February 12, 2027, the Series A Preferred Shares may be redeemed for cash at the option of the Company. The redemption price (other than the portion thereof consisting of accrued and unpaid distributions) is payable solely out of the sale proceeds of other capital shares of Highwoods, which may include shares of other series of preferred shares. F-16 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued) 6. STOCKHOLDER'S EQUITY -- Continued The Company's 1997 distributions of $69.24 per Series A Preferred Share will be taxed as ordinary income. On September 22, 1997, the Company issued 6,900,000 Series B Cumulative Redeemable Preferred Shares (the "Series B Preferred Shares"). The Series B Preferred Shares are non-voting and have a liquidation preference of $25 per share for an aggregate liquidation preference of $172.5 million plus accrued and unpaid dividends. The net proceeds (after underwriting commission and other offering costs) of the Series B Preferred Shares issued were $166.3 million. Holders of the Series B Preferred Shares are entitled to receive, when, as and if declared by Highwood's Board of Directors (the "Board"), out of funds legally available for payment of distributions, cumulative preferential cash distributions at a rate of 8% of the liquidation preference per annum (equivalent to $2.00 per share). On or after September 25, 2002, the Series B Preferred Shares may be redeemed for cash at the option of the Company. The redemption price (other than the portion thereof consisting of accrued and unpaid distributions) is payable solely out of the sale proceeds of other capital shares of Highwoods, which may include shares of other series of preferred shares. The Company's 1997 distributions of $.44 per Series B Preferred Share will be taxed as ordinary income. Shareholder Rights Plan On October 4, 1997, the Board declared a dividend on one preferred share purchase right ("Right") for each outstanding Common Share to be distributed to all holders of record of the Common Shares on October 16, 1997. Each Right entitles the registered holder to purchase one-hundredth of a Participating Preferred Share for an exercise price of $140.00 per one-hundredth of a Participating Preferred Share, subject to adjustment as provided in the Rights Agreement. The Rights will generally be exercisable only if a person or group acquires 15% or more of the Common Shares or announces a tender offer for 15% or more of the Common Shares. The Rights will expire on October 6, 2007, unless the expiration date of the Rights is extended, and the Rights are subject to redemption at a price of $0.01 per Right under certain circumstances. 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 distributions in additional shares of Common Stock and may make optional cash payments for additional shares of Common Stock. The Company may issue additional shares of Common Stock or repurchase Common Stock in the open market for purposes of financing its obligations under the Dividend Reinvestment and Stock Purchase Plan. Forward Share Purchase Agreement On August 28, 1997, the Company entered into two transactions with affiliates of Union Bank of Switzerland the ("August 1997 Offering"). In one transaction, the Company sold 1,800,000 shares of Common Stock to UBS Limited for net proceeds of approximately $57 million. In the other transaction, the Company entered into a forward share purchase agreement (the "Forward Contract") with Union Bank of Switzerland, London Branch ("UBS/LB"). The Forward Contract generally provides that if the price of a share of Common Stock is above $32.14 (the "Forward Price") on August 28, 1998, UBS/LB will return the difference (in shares of Common Stock) to the Company. Similarly, if the price of a share of Common Stock on August 28, 1998 is less than the Forward Price, the Company will pay the difference of UBS/LB in cash or shares of Common Stock, at the Company's option. F-17 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued) 7. EARNINGS PER SHARE In 1997, the Financial Accounting Standards Board ("FASB") issued Statement No. 128, "Earnings Per Share," which is effective for financial statements for periods ending after December 15, 1997. FASB Statement No. 128 requires the restatement of prior period earnings per share and requires the disclosure of additional supplemental information detailing the calculation of earnings per share. FASB Statement No. 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. It is computed using the weighted average number of shares of Common Stock and the dilutive effect of options, warrants and convertible securities outstanding, 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. All earnings per share amounts for all periods presented have, where appropriate, been restated to conform to the FASB Statement 128 requirements. The following table sets forth the computation of basic and diluted earnings per share:
1997 1996 1995 ------------------ -------------- -------------- Numerator: Net income ............................................... $ 92,584,000 $48,242,000 $28,934,000 Non-convertible preferred stock dividends (2) ............ (13,117,000) -- -- Minority interest ........................................ (15,106,000) (6,782,000) (4,937,000) General partner's portion of extraordinary item .......... (5,799,000) (2,140,000) (875,000) ------------ ----------- ----------- Numerator for basic earnings per share -- income available to common stockholders ........................ 58,562,000 39,320,000 23,122,000 Effect of dilutive securities: Minority interest ....................................... --(1) 6,782,000 4,937,000 Minority interest portion of extraordinary item ......... --(1) (292,000) (193,000) -------------- ----------- ----------- --(1) 6,490,000 4,744,000 Numerator for diluted earnings per share -- income available to common stockholders -- after assumed conversions. ..................................... 58,562,000 45,810,000 27,866,000 Denominator: Denominator for basic earnings per share -- weighted-average shares .................................. 38,770,000 26,111,000 15,487,000 Effect of dilutive securites: Employee stock options (2) .............................. 317,846 189,620 90,041 Warrants (2) ............................................ 73,310 32,258 13,794 Common Units converted .................................. --(1) 4,108,765 3,210,000 -------------- ----------- ----------- Dilutive potential common shares ......................... 391,156 4,330,643 3,313,835 Denominator for diluted earnings per share -- adjusted weighted average shares and assumed conversions .............................................. 39,161,156 30,441,643 18,800,835 Basic earnings per share ................................... $ 1.51 $ 1.51 $ 1.49 ============== =========== =========== Diluted earnings per share ................................. $ 1.50 $ 1.50 $ 1.48 ============== =========== ===========
- ---------- F-18 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued) (1) 7,651,935 in Common Units and the related $13,960,000 in minority interest, net $1,146,000 of the minority interest's portion of the extraordinary item, were excluded from the dilutive earnings per share calculation due to the anti-dilutive effect. (2) For additional disclosures regarding outstanding preferred stock, the employee stock options, and the warrants, see Notes 3, 6 and 8. On January 27, 1998, the Company sold 2,000,000 shares of Common Stock in an underwritten public offering for net proceeds of approximately $68.2 million. On February 12, 1998, the Company sold an aggregate of 1,553,604 shares of Common Stock in two underwritten public offerings for net proceeds of approximately $51.2 million. On March 30, 1998, the Company sold 428,572 shares of Common Stock in an underwritten public offering for net proceeds of approximately $14.2 million. (See Note 12.) 8. STOCK OPTIONS AND WARRANTS As of December 31, 1997, 2,364,027 shares of the Company's authorized Common Stock were reserved for issuance upon the exercise of options under the Amended and Restated 1994 Stock Option Plan. Options generally vest over a four or five-year period beginning with the date of grant. In 1997, the Company adopted a Unit Option Plan whereby no limit was placed on the number of authorized Common Units reserved for future issuances. Common Unit options are similar to non-qualified stock options except that the holder is entitled to purchase Common Units in the Operating Partnership. Each Common Unit received upon the exercise of a Common Unit option may be redeemed by the holder thereof for the cash value of one share of Common Stock. The Company intends to allow holders of the Common Unit options to convert them to non-qualified stock options upon approval by the stockholders of the Company. In 1995, the Financial Accounting Standards Board issued a Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," ("SFAS 123"). SFAS 123 recommends the use of a fair value based method of accounting for an employee stock option whereby compensation cost is measured at the grant date on the fair value of the award and is recognized over the service period (generally the vesting period of the award). However, SFAS 123 specifically allows an entity to continue to measure compensation cost under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") so long as pro forma disclosures of net income and earnings per share are made as if SFAS 123 had been adopted. The Company has elected to follow APB 25 and related interpretations in accounting for its employee stock options because the Company believes that the models available to estimate the fair value of employee stock options do not provide a reliable single measure of the fair value of employee stock options. Moreover, such models required the input of highly subjective assumptions, which can materially affect the fair value estimates. APB 25 requires the recognition of compensation expense at the date of grant equal to the difference between the option price and the value of the underlying stock. Because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, the Company records no compensation expense for the award of employee stock options. Under SFAS 123, a public entity must estimate the fair value of a stock option by using an option-pricing model that takes into account as of the grant date the exercise price and expected life of the options, the current price of the underlying stock and its expected volatility, expected dividends on the stock, and the risk-free interest rate for the expected term of the option. SFAS provides examples of possible pricing models and includes the Black-Scholes pricing model, which the Company used to develop its pro forma disclosures. However, as previously noted, the Company does not believe that such models provide a reliable single measure of the fair value of employee stock options. Furthermore, the Black-Scholes model was developed for use in estimating the fair value of traded options that have F-19 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued) 8. STOCK OPTIONS AND WARRANTS -- Continued no vesting restrictions and are fully transferable, rather than for use in estimating the fair value of employee stock options subject to vesting and transferability restrictions. Because SFAS 123 is applicable only to options granted subsequent to December 31, 1994, only options granted subsequent to that date were valued using this Black-Scholes model. The fair value of the options granted in 1997 was estimated at the date of grant using the following weighted-average assumptions: risk-free interest rates ranging between 5.75% and 6.72%, dividend yield of 6.5% and a weighted average expected life of the options of five years. The fair values of the 1996 and 1995 options were estimated at the date of grant using the following weighted average assumptions: risk-free interest rate of 6.47%; expected volatility of .182; dividend yield of 7.07% and a weighted-average expected life of the options of five years. Had the compensation cost for the Company's stock option plans been determined based on the fair value at the date of grant for awards in 1997, 1996 and 1995 consistent with the provisions of SFAS 123, the Company's net income and net income per share would have decreased to the pro forma amounts indicated below:
Year ended December 31 ------------------------------------------ 1997 1996 1995 ------------ ------------ ------------ Net income -- as reported ............................. $ 58,562 $ 39,320 $ 23,122 Net income -- pro forma ............................... $ 57,841 $ 38,861 $ 22,999 Net income per share -- basic (as reported) ........... $ 1.51 $ 1.51 $ 1.49 Net income per share -- diluted (as reported) ......... $ 1.50 $ 1.50 $ 1.48 Net income per share -- basic (pro forma) ............. $ 1.49 $ 1.49 $ 1.49 Net income per share -- diluted (pro forma) ........... $ 1.48 $ 1.49 $ 1.48
The following table summarizes information about employees' and Board of Directors' stock options outstanding at December 31, 1997, 1996 and 1995:
Options Outstanding -------------------------------- Weighted Average Number Exercise of Shares Price ------------------ ----------- Balances at December 31, 1994 ......... 326,000 $ 21.00 Options granted ....................... 400,000 22.09 Options canceled ...................... (28,680) 23.22 Options exercised ..................... (8,000) 21.00 ------- -------- Balances at December 31, 1995 ......... 689,320 21.54 Options granted ....................... 586,925 28.27 Options canceled ...................... -- -- Options exercised ..................... (10,545) 20.75 ------- -------- Balances at December 31, 1996 ......... 1,265,700 24.67 Options granted ....................... 2,250,765(1) 32.90 Options canceled ...................... (76,040) 22.20 Options exercised ..................... (117,428) 21.84 ----------- -------- Balances at December 31, 1997 ......... 3,322,997(1) $ 30.40 =========== ========
- ---------- F-20 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued) (1) Includes 1,134,310 Common Unit Options granted pursuant to the Operating Partnership's 1997 Unit Option Plan.
Options Exercisable ------------------------- Weighted Average Number of Exercise Shares Price ----------- ----------- December 31, 1995 ......... 48,000 $ 21.00 December 31, 1996 ......... 225,350 $ 21.74 December 31, 1997 ......... 686,870 $ 30.94
Exercise prices for options outstanding as of December 31, 1997 ranged from $20.75 to $35.50. The weighted average remaining contractual life of those options is 9.0 years. Using the Black-Scholes options valuation model, the weighted average fair value of options granted during 1997, 1996 and 1995 was $3.23, $3.10 and $1.90, respectively. Warrants In connection with various acquisitions in 1997, 1996 and 1995, the Company issued warrants to certain officers and directors.
Number of Exercise Date of Issuance Warrants Price - --------------------------- ----------- ----------- February 1995 ......... 100,000 $ 21.00 April 1996 ............ 150,000 $ 28.00 October 1997 .......... 1,479,290 $ 32.50 December 1997 ......... 120,000 $ 34.13 --------- Total ............... 1,849,290 =========
The warrants granted in February 1995, April 1996 and December 1997 expire 10 years from the date of issuance and are exercisable as of December 31, 1996. The warrants granted in October 1997 do not have an expiration date. 9. COMMITMENTS AND CONTINGENCIES Lease Certain properties in the portfolio are subject to land leases expiring through 2082. Rental payments on these leases are either adjusted annually based on the consumer price index or based on a predetermined schedule. For three properties, the Company has the option to purchase the leased land during the lease term at the greater of 85% of appraised value or $35,000 per acre. F-21 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued) 9. COMMITMENTS AND CONTINGENCIES -- Continued The obligation for future minimum lease payments is as follows (in thousands): 1998 ............... $ 1,130 1999 ............... 1,155 2000 ............... 1,166 2001 ............... 1,182 2002 ............... 1,169 Thereafter ......... 60,151 ------- $65,953 =======
Litigation The Company is a party to a variety of legal proceedings arising in the ordinary course of its business. These matters are generally covered by insurance or indemnities. All of these matters, taken together, are not expected to have a material adverse effect on the accompanying consolidated financial statements notwithstanding possible insurance recovery. Contracts The Company has entered into construction contracts totaling $150.4 million at December 31, 1997. The amounts remaining on these contracts as of December 31, 1997, totaled $69.0 million. The Company has entered into a contract under which it is committed to acquire 36 acres of land over a three-year period for an aggregate purchase price of approximately $6,000,000. The seller has the option to elect to receive the purchase price in either cash or Common Units valued at $26.67 per Common Unit. The Company has also entered into a contract under which it is committed to acquire 18 acres of land on or before August 1, 1998, for an aggregate purchase price of approximately $2,032,000. Capital Expenditures The Company presently has no plans for major capital improvements to the existing properties, other than an $8 million renovation of the common areas of a 639,000 square foot property acquired in the ACP transaction. A reserve has been established to cover the cost of the renovations. Environmental Matters Substantially all of the Company's properties have been subjected to Phase I environmental assessments and/or updates. 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. Employment Agreements As the Company has expanded into new markets, it has sought to enter into business combinations with local real estate operators with many years of management and development experience in their respective markets. Accordingly, in connection with joining the Company as executive officers as a result of such business combinations, former executive officers have entered into employment agreements with the Company. F-22 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued) 10. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following disclosures of estimated fair values were determined by management using available market information and appropriate valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair values. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the 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 Company's financial instruments at December 31, 1997, were as follows (in thousands):
Carrying Fair Amount Value ---------- ------------ Cash and cash equivalents ........................ $ 19,487 $ 19,487 Accounts and notes receivable .................... $ 17,701 $ 17,701 Mortgages and notes payable ...................... $978,558 $995,180 Interest rate collar and swap agreements ......... $ 2,791 $ (259)
The fair values for the Company's fixed rate mortgages and notes payable were estimated using discounted cash flow analysis, based on the Company's estimated incremental borrowing rate at December 31, 1997, for similar types of borrowing arrangements. The carrying amounts of the Company's variable rate borrowings approximate fair value. The fair values of the Company's interest rate swap and interest rate collar agreements represent the estimated amount the Company would receive or pay to terminate or replace the financial instruments at current market rates. Disclosures about the fair value of financial instruments are based on relevant information available to the Company at December 31, 1997. Although management is not aware of any factors that would have a material effect on the fair value mounts reported herein, such amounts have not been revalued since that date and current estimates of fair value may significantly differ from the amounts presented herein. 11. SUPPLEMENTAL PRO FORMA INFORMATION (UNAUDITED) The following unaudited pro forma information has been prepared assuming the following transactions all occurred as of January 1, 1996: (1) the 1996 acquisition of 91 properties at an initial cost of $704 million, (2) the 1997 acquisition of 176 properties at an initial cost of $1.1 billion, (3) the Summer 1996 and December 1996 Common Stock offerings, (4) the November 1996 issuance of $210 million of unsecured notes, (5) the 1997 Series A and Series B Preferred Stock Offerings, (6) the June 1997 X-POS Offering and (7) the August and October 1997 Offerings. Pro forma interest expense was calculated based on the indebtedness outstanding after debt repayment and using the effective interest rate on such indebtedness. In connection with various transactions, the Company issued Common Units and shares of Common Stock totaling approximately 6.7 million and 1.3 million in 1997 and 1996, respectively, which were recorded at their fair market value upon the closing date of the transactions. F-23 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued) 11. SUPPLEMENTAL PRO FORMA INFORMATION (UNAUDITED) -- Continued
Pro Forma Year Ended Pro Forma Year Ended December 31, 1997 December 31, 1996 ---------------------- --------------------- (in thousands, except per share amounts) Revenues ................................ $ 352,279 $ 313,166 Net Income before Extraordinary Item ..................... $ 69,977 $ 44,138 Net Income .............................. $ 64,178 $ 41,998 Net Income per Share -- basic ........... $ 1.38 $ .90 Net Income per Share -- diluted ......... $ 1.37 $ .90
The pro forma information is not necessarily indicative of what the Company's results of operations would have been if the transactions had occurred at the beginning of each period presented. Additionally, the pro forma information does not purport to be indicative of the Company's results of operations for future periods. 12. SUBSEQUENT EVENTS Recent Acquisitions In closings on December 23, 1997 and January 8, 1998, the Company completed a business combination with Riparius Development Corporation in Baltimore, Maryland involving the acquisition of a portfolio of five office properties encompassing 369,000 square feet, two office development projects encompassing 235,000 square feet, 11 acres of development land and 10-1 additional acres of development land to be acquired over the next three years (the "Riparius Transaction"). As of December 31, 1997, the in-service properties acquired in the Riparius Transaction were 99% leased. The cost of the Riparius Transaction consisted of a cash payment of $43.6 million. In addition, the Company has assumed the two office development projects with an anticipated cost of $26.2 million expected to be paid in 1998, and will pay out $23.9 million over the next three years for the 101 additional acres of development land. On February 4, 1998, the Company acquired substantially all of a portfolio consisting of 28 office properties encompassing 787,000 rentable square feet, seven service center properties encompassing 471,000 square feet and 66 acres of development land in Tampa, Florida (the "Garcia Transaction"). The cost of the Garcia Transaction consists of a cash payment of approximately $87 million and the assumption of approximately $24 million in secured debt. The Company expects to close on the one remaining property by April 4, 1998. Pending Acquisitions On December 22, 1997, the Company entered into a merger agreement (the "Merger Agreement") with J.C. Nichols Company, a publicly traded Kansas City real estate operating company ("J.C. Nichols"), pursuant to which the Company would acquire J.C. Nichols with the view that the Operating Partnership would combine its property operations with J.C. Nichols (the "J.C. Nichols Transaction"). J.C. Nichols owns or has an ownership interest in 27 office properties encompassing approximately 1.5 million rentable square feet, 13 industrial properties encompassing approximately 337,000 square feet, 33 retail properties encompassing approximately 2.5 million rentable square feet and 16 multifamily communities with 1,816 apartment units in Kansas City, Missouri and Kansas. Additionally, J.C. Nichols has an ownership interest in 21 office properties encompassing approximately 1.3 million F-24 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued) 12. SUBSEQUENT EVENTS -- Continued rentable square feet, one industrial property encompassing approximately 200,000 rentable square feet and one multifamily community with 418 apartment units in Des Moines, Iowa. Consummation of the J.C. Nichols Transaction is subject, among other things, to the approval of 66 2/3% of the shareholders of J.C. Nichols. Under the terms of the Merger Agreement, the Company would acquire all of the outstanding common stock, $.01 par value, of J.C. Nichols ("J.C. Nichols Common Stock"). Under the Merger Agreement, J.C. Nichols shareholders may elect to receive either 1.84 shares of Common Stock or $65 in cash for each share of J.C. Nichols Common Stock. However, the cash payment to J.C. Nichols shareholders cannot exceed 40% of the total consideration and the Company may limit the amount of Common Stock issued to 75% of the total consideration. The exchange ratio is fixed and reflects the average closing price of the Common Stock over the 20 trading days preceding the effective date of the Merger Agreement. The cost of the J.C. Nichols Transaction under the Merger Agreement is approximately $570 million, including assumed debt of approximately $250 million, net of cash of approximately $65 million. If J.C. Nichols enters into a business combination with a third party or otherwise terminates the J.C. Nichols Transaction, such third party or J.C. Nichols may be required to pay the Company a break-up fee of up to $14.7 million plus expenses of $2.5 million. Under certain other circumstances, if the J.C. Nichols Transaction is terminated, the terminating party may be required to pay expenses of $2.5 million to the non-terminating party. No assurance can be given that all or part of the J.C. Nichols Transaction will be consummated or that, if consummated, it will follow the terms set forth in the Merger Agreement. As of the date hereof, certain third parties have expressed an interest to J.C. Nichols and/or certain of its shareholders in purchasing all or a portion of the outstanding J.C. Nichols Common Stock at a price in excess of $65 per share. No assurance can be given that a third party will not make an offer to J.C. Nichols or its shareholders to purchase all or a portion of the outstanding J.C. Nichols Common Stock at a price in excess of $65 per share or that the board of directors of J.C. Nichols would reject any such offer. The Company and/or J.C. Nichols may terminate the Merger Agreement if the J.C. Nichols Transaction is not consummated by June 30, 1998. The Company has entered into an agreement with The Easton-Babcock Companies, a real estate operating company in Miami, Florida ("Easton-Babcock"), pursuant to which the Company will combine its property operations with Easton-Babcock and acquire a portfolio of 11 industrial properties encompassing 1.8 million rentable square feet, three office properties encompassing 197,000 rentable square feet and 110 acres of land for development, of which 88 acres will be acquired over a three-year period (the "Easton-Babcock Transaction"). As of December 31, 1997, the industrial properties to be acquired in the Easton-Babcock Transaction were 88% leased and the office properties to be acquired in the Easton-Babcock Transaction were 50% leased. The cost of the Easton-Babcock Transaction is $143 million and will consist of an undertermined combination of the issuance of Common Units, the assumption of mortgage debt and a cash payment. Also in connection with the Easton-Babcock Transaction, the Company will issue to certain affiliates of Easton-Babcock warrants to purchase 926,000 shares of Common Stock at $35.50 per share. No assurance can be given that all or part of the Easton-Babcock transaction will be consummated. Financing Activities On January 27, 1998, the Company sold 2,000,000 shares of Common Stock in an underwritten public offering for net proceeds of approximately $68.2 million. F-25 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued) 12. SUBSEQUENT EVENTS -- Continued On February 2, 1998, the Operating Partnership sold $125 million of 6.835% MandatOry Par Put Remarketed Securities ("MOPPRS") due February 1, 2013 and $100 million of 7 1/8% notes due February 1, 2008. On February 12, 1998, the Company sold an aggregate of 1,553,604 shares of Common Stock in two underwritten public offerings for net proceeds of approximately $51.2 million. On March 30, 1998, the Company sold 428,572 shares of Common Stock in an underwritten public offering for net proceeds of approximately $14.2 million. 13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED): Selected quarterly financial data for the years ended December 31, 1997 and 1996 is as follows (in thousands except per share amounts):
For the year ended December 31, 1996* ------------------------------------------------------------------------------------- First Quarter Second Quarter Third Quarter Fourth Quarter Total --------------- ---------------- --------------- ---------------- ----------- Revenues ................... $ 23,757 $ 27,680 $ 36,329 $ 50,160 $137,926 -------- -------- -------- -------- -------- Income before minority interest and extraordinary item ..................... 9,002 10,134 14,223 14,883 48,242 Minority interest .......... (1,571) (1,753) (1,881) (1,577) (6,782) Extraordinary item ......... -- -- (2,140) -- (2,140) -------- -------- -------- -------- -------- Net (loss) income .......... $ 7,431 $ 8,381 $ 10,202 $ 13,306 $39,320 ======== ======== ======== ======== ======== Per Share: Income before extraordinary item -- Basic ........... $ 0.38 $ 0.42 $ 0.39 $ 0.41 $ 1.59 ======== ======== ======== ======== ======== Income before extraordinary item -- Diluted ......... $ 0.38 $ 0.42 $ 0.39 $ 0.40 $ 1.58 ======== ======== ======== ======== ========
F-26 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued) 14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED): -- Continued
For the year ended December 31, 1997* -------------------------------------------------------------------------------------- First Quarter Second Quarter Third Quarter Fourth Quarter Total --------------- ---------------- --------------- ---------------- ------------ Revenues ...................... 58,321 61,238 63,655 91,256 274,470 ------ ------ ------ ------ ------- Income before minority interest and extraordinary item ........................ 19,554 20,595 21,554 30,881 92,584 Minority interest ............. (3,129) (3,295) (3,448) (5,234) (15,106) Extraordinary item ............ (3,337) -0- (1,328) (1,134) (5,799) ------ ------ ------ ------ ------- Net (loss) income ............. 13,088 17,300 16,778 24,513 71,679 ====== ====== ====== ====== ======= Preferred dividends ........... (1,407) (2,695) (2,870) (6,145) (13,117) ------ ------ ------ ------ ------- Net income available for common stockholders ......... 11,681 14,605 13,908 18,368 58,562 ------ ------ ------ ------ ------- Per Share: Income before extraordinary item -- Basic .............. $ .43 $ .41 $ .42 $ .42 $ 1.66 ====== ====== ====== ====== ======= Income before extraordinary item -- Diluted ............ $ .43 $ .40 $ .42 $ .41 $ 1.65 ====== ====== ====== ====== =======
- ---------- * The total of the four quarterly amounts for net income per share do not equal the total for the year due to the use of a weighted average to compute the average number of shares outstanding. F-27 HIGHWOODS PROPERTIES, INC. SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1997 (In thousands)
Cost Capitalized Subsequent Gross Amount at Initial Cost to Acquisition Which Carried at Close of Period Building & Building & Building & Description Encumbrance Land Improvements Land Improvements Land Improvements Total (16) - ------------------------- ------------- ------- -------------- ------ -------------- ------- -------------- ------------ Ridgefield 200 1,685 636 3,607 -- 176 636 3,783 4,419 Ridgefield 300 1,837 910 5,157 -- 21 910 5,178 6,088 1765 The Exchange -- 767 6,325 -- 66 767 6,391 7,158 Two Point Royal -- 1,793 14,951 -- -- 1,793 14,951 16,744 400 North Business Park -- 979 6,174 -- 21 979 6,195 7,174 50 Glenlake -- 2,500 20,000 -- 60 2,500 20,060 22,560 6348 N.E. Expressway 1,437 277 1,646 -- 7 277 1,653 1,930 6438 N.E. Expressway 1,629 181 2,225 -- 27 181 2,252 2,433 Bluegrass Place 1 -- 491 2,036 -- -- 491 2,036 2,527 Bluegrass Place 2 -- 412 2,555 -- -- 412 2,555 2,967 1700 Century Circle -- 1,115 3,148 -- 240 1,115 3,388 4,503 1800 Century Boulevard -- 1,441 28,939 -- 98 1,441 29,037 30,478 1875 Century Boulevard -- -- 8,790 -- 27 -- 8,817 8,817 1900 Century Boulevard -- -- 4,721 -- 138 -- 4,859 4,859 2200 Century Parkway -- -- 14,318 -- 231 -- 14,549 14,549 2600 Century Parkway -- -- 10,357 -- 11 -- 10,368 10,368 2635 Century Parkway -- -- 21,230 -- 80 -- 21,310 21,310 2800 Century Parkway -- -- 20,149 -- 6 -- 20,155 20,155 Chattahoochee Avenue -- 248 1,840 -- 175 248 2,015 2,263 Chastain Place I -- 472 3,011 -- 416 472 3,427 3,899 Corporate Lakes -- 1,275 7,242 -- 274 1,275 7,516 8,791 Distribution Center Cosmopolitan North -- 2,855 4,155 -- 105 2,855 4,260 7,115 1035 Fred Drive -- 270 1,246 -- 1 270 1,247 1,517 1077 Fred Drive -- 384 1,195 -- 15 384 1,210 1,594 5125 Fulton Industrial -- 578 3,147 -- 31 578 3,178 3,756 Blvd Fulton Corporate Center -- 542 2,048 -- 26 542 2,074 2,616 Gwinnett Distribution -- 1,128 5,943 -- 226 1,128 6,169 7,297 Center Kennestone Corporate -- 518 4,874 -- -- 518 4,874 5,392 Center Lavista Business Park -- 821 5,244 -- 211 821 5,455 6,276 Norcross, I, II -- 326 1,989 -- -- 326 1,989 2,315 Oakbrook I 2,013 873 4,948 -- 53 873 5,001 5,874 Oakbrook II 3,463 1,579 8,950 -- 563 1,579 9,513 11,092 Oakbrook III 3,931 1,480 8,388 -- 115 1,480 8,503 9,983 Oakbrook IV 2,381 953 5,400 -- 25 953 5,425 6,378 Oakbrook V 5,664 2,206 12,501 -- 149 2,206 12,650 14,856 Oakbrook Summitt 4,600 950 6,596 -- 29 950 6,625 7,575 Oxford Lake Business -- 855 7,085 -- 6 855 7,091 7,946 Center Southside Distribution -- 810 4,527 -- 23 810 4,550 5,360 Center Steel Drive -- 171 1,219 -- -- 171 1,219 1,390 9690 Deereco Road -- 1,188 16,460 -- -- 1,188 16,460 17,648 Atrium Building -- 1,390 9,964 -- -- 1,390 9,964 11,354 Business Center at -- 827 1,597 -- -- 827 1,597 2,424 Owings Mills-7 Business Center at -- 786 2,263 -- -- 786 2,263 3,049 Owings Mills-8 Business Center at -- 960 6,187 -- -- 960 6,187 7,147 Owings Mills-9 Grandview I 5,154 1,895 10,739 -- 56 1,895 10,795 12,690 Highwoods Square -- 2,586 14,657 -- 315 2,586 14,972 17,558 Highwoods Plaza -- 1,772 10,042 -- 128 1,772 10,170 11,942 One Boca Place -- 5,736 32,505 -- 336 5,736 32,841 38,577 4101 Stuart -- 70 510 -- 234 70 744 814 Andrew Blvd. Life on Which Accumulated Date of Depreciation Description Depreciation Construction is Computed - ------------------------- -------------- -------------- ------------- Ridgefield 200 129 1987 5-40 yrs. Ridgefield 300 176 1989 5-40 yrs. 1765 The Exchange 38 1983 5-40 yrs. Two Point Royal 16 1997 5-40 yrs. 400 North Business Park 114 1985 5-40 yrs. 50 Glenlake 22 1997 5-40 yrs. 6348 N.E. Expressway 37 1978 5-40 yrs. 6438 N.E. Expressway 50 1981 5-40 yrs. Bluegrass Place 1 19 1995 5-40 yrs. Bluegrass Place 2 24 1996 5-40 yrs. 1700 Century Circle 87 1972 5-40 yrs. 1800 Century Boulevard 702 1975 5-40 yrs. 1875 Century Boulevard 213 1976 5-40 yrs. 1900 Century Boulevard 131 1971 5-40 yrs. 2200 Century Parkway 365 1971 5-40 yrs. 2600 Century Parkway 251 1973 5-40 yrs. 2635 Century Parkway 518 1980 5-40 yrs. 2800 Century Parkway 488 1983 5-40 yrs. Chattahoochee Avenue 67 1970 5-40 yrs. Chastain Place I 91 1997 5-40 yrs. Corporate Lakes 195 1988 5-40 yrs. Distribution Center Cosmopolitan North 104 1980 5-40 yrs. 1035 Fred Drive 30 1973 5-40 yrs. 1077 Fred Drive 29 1973 5-40 yrs. 5125 Fulton Industrial 77 1973 5-40 yrs. Blvd Fulton Corporate Center 51 1973 5-40 yrs. Gwinnett Distribution 143 1991 5-40 yrs. Center Kennestone Corporate 87 1985 5-40 yrs. Center Lavista Business Park 126 1973 5-40 yrs. Norcross, I, II 44 1970 5-40 yrs. Oakbrook I 179 1981 5-40 yrs. Oakbrook II 395 1983 5-40 yrs. Oakbrook III 313 1984 5-40 yrs. Oakbrook IV 183 1985 5-40 yrs. Oakbrook V 436 1985 5-40 yrs. Oakbrook Summitt 151 1981 5-40 yrs. Oxford Lake Business 128 1985 5-40 yrs. Center Southside Distribution 101 1988 5-40 yrs. Center Steel Drive 27 1975 5-40 yrs. 9690 Deereco Road 17 1989 5-40 yrs. Atrium Building 10 1986 5-40 yrs. Business Center at 2 1989 5-40 yrs. Owings Mills-7 Business Center at 2 1989 5-40 yrs. Owings Mills-8 Business Center at 7 1988 5-40 yrs. Owings Mills-9 Grandview I 364 1989 5-40 yrs. Highwoods Square 501 1989 5-40 yrs. Highwoods Plaza 344 1980 5-40 yrs. One Boca Place 1,101 1987 5-40 yrs. 4101 Stuart 67 1984 5-40 yrs. Andrew Blvd.
F-28
Cost Capitalized Subsequent Gross Amount at Initial Cost to Acquisition Which Carried at Close of Period Building & Building & Building & Description Encumbrance Land Improvements Land Improvements Land Improvements Total (16) - -------------------- ------------- -------- -------------- ------ -------------- -------- -------------- ------------ 4105 Stuart -- 26 189 -- 13 26 202 228 Andrew Blvd. 4109 Stuart -- 87 636 -- 9 87 645 732 Andrew Blvd. 4201 Stuart -- 110 809 -- 28 110 837 947 Andrew Blvd. 4205 Stuart -- 134 979 -- 16 134 995 1,129 Andrew Blvd. 4209 Stuart -- 91 665 -- 18 91 683 774 Andrew Blvd. 4215 Stuart -- 133 978 -- 26 133 1,004 1,137 Andrew Blvd. 4301 Stuart -- 232 1,702 -- 33 232 1,735 1,967 Andrew Blvd. 4321 Stuart -- 73 534 -- 5 73 539 612 Andrew Blvd. First Citizens -- 647 5,528 -- 153 647 5,681 6,328 English Oak 1,968 750 4,248 -- 34 750 4,282 5,032 Laurel Oak 1,448 471 2,671 -- 248 471 2,919 3,390 Live Oak 1,403 5,611 -- 563 1,403 6,174 7,577 Scarlet Oak 2,177 1,073 6,078 -- 40 1,073 6,118 7,191 Twin Oaks 3,406 1,243 7,044 -- 65 1,243 7,109 8,352 Willow Oak 1,234 442 2,505 -- 206 442 2,711 3,153 Water Oak 5,097 1,623 9,196 -- 482 1,623 9,678 11,301 Pinebrook -- 846 4,739 -- 41 846 4,780 5,626 Parkway Plaza -- 1,110 4,741 -- 155 1,110 4,896 6,006 Building 1 Parkway Plaza -- 1,694 6,777 -- 1,009 1,694 7,786 9,480 Building 2 Parkway Plaza -- 1,570 6,282 -- 376 1,570 6,658 8,228 Building 3 Parkway Plaza -- -- 2,438 -- 510 -- 2,948 2,948 Building 6 Parkway Plaza -- -- 4,648 -- 73 -- 4,721 4,721 Building 7 Parkway Plaza -- -- 4,698 -- 30 -- 4,728 4,728 Building 8 Parkway Plaza -- -- 6,008 -- 13 -- 6,021 6,021 Building 9 Steele Creek Park (4) 499 1,998 -- 146 499 2,144 2,643 Building A Steele Creek Park (4) 110 441 -- 8 110 449 559 Building B Steele Creek Park (4) 188 751 -- 292 188 1,043 1,231 Building E Steele Creek Park (4) 196 783 -- 25 196 808 1,004 Building G-1 Steele Creek Park (4) 169 677 -- 153 169 830 999 Building H Steele Creek Park (4) 148 592 -- 5 148 597 745 Building K Center Point I 3,549 1,313 7,441 -- 30 1,313 7,471 8,784 Center Point II -- 1,183 6,702 1 1,328 1,184 8,030 9,214 Center Point V -- 265 1,279 -- 107 265 1,386 1,651 Fontaine I 3,520 1,219 6,907 -- 191 1,219 7,098 8,317 Fontaine II 1,807 941 5,335 -- 686 941 6,021 6,962 Fontaine III -- 853 4,833 -- 78 853 4,911 5,764 Fontaine V 1,192 395 2,237 -- -- 395 2,237 2,632 6348 Burnt Poplar -- 721 2,883 -- 7 721 2,890 3,611 6350 Burnt Poplar -- 339 1,365 -- 5 339 1,370 1,709 Deep River I 2,305 1,033 5,855 -- 162 1,033 6,017 7,050 Copier Consultants (3) 252 1,008 -- 12 252 1,020 1,272 East - Building 01 (3) 377 1,510 -- 46 377 1,556 1,933 East - Building 02 (3) 461 1,842 -- 22 461 1,864 2,325 East - Building 03 (3) 321 1,283 -- 61 321 1,344 1,665 East - Building 06 -- 103 526 -- 159 103 685 788 Hewlett Packard -- 149 727 -- 193 149 920 1,069 Inacom -- 106 478 -- 293 106 771 877 Life on Which Accumulated Date of Depreciation Description Depreciation Construction is Computed - -------------------- -------------- -------------- ------------- 4105 Stuart 15 1984 5-40 yrs. Andrew Blvd. 4109 Stuart 42 1984 5-40 yrs. Andrew Blvd. 4201 Stuart 59 1982 5-40 yrs. Andrew Blvd. 4205 Stuart 65 1982 5-40 yrs. Andrew Blvd. 4209 Stuart 47 1982 5-40 yrs. Andrew Blvd. 4215 Stuart 70 1982 5-40 yrs. Andrew Blvd. 4301 Stuart 115 1982 5-40 yrs. Andrew Blvd. 4321 Stuart 34 1982 5-40 yrs. Andrew Blvd. First Citizens 523 1989 5-40 yrs. English Oak 147 1984 5-40 yrs. Laurel Oak 128 1984 5-40 yrs. Live Oak 217 1989 5-40 yrs. Scarlet Oak 216 1982 5-40 yrs. Twin Oaks 236 1985 5-40 yrs. Willow Oak 95 1982 5-40 yrs. Water Oak 370 1985 5-40 yrs. Pinebrook 43 1986 5-40 yrs. Parkway Plaza 264 1982 5-40 yrs. Building 1 Parkway Plaza 471 1983 5-40 yrs. Building 2 Parkway Plaza 404 1984 5-40 yrs. Building 3 Parkway Plaza 108 1996 5-40 yrs. Building 6 Parkway Plaza 241 1985 5-40 yrs. Building 7 Parkway Plaza 240 1986 5-40 yrs. Building 8 Parkway Plaza 308 1984 5-40 yrs. Building 9 Steele Creek Park 187 1989 5-40 yrs. Building A Steele Creek Park 33 1985 5-40 yrs. Building B Steele Creek Park 93 1985 5-40 yrs. Building E Steele Creek Park 67 1989 5-40 yrs. Building G-1 Steele Creek Park 108 1987 5-40 yrs. Building H Steele Creek Park 43 1985 5-40 yrs. Building K Center Point I 246 1988 5-40 yrs. Center Point II 257 1996 5-40 yrs. Center Point V 31 1997 5-40 yrs. Fontaine I 229 1985 5-40 yrs. Fontaine II 320 1987 5-40 yrs. Fontaine III 172 1988 5-40 yrs. Fontaine V 74 1990 5-40 yrs. 6348 Burnt Poplar 208 1990 5-40 yrs. 6350 Burnt Poplar 99 1992 5-40 yrs. Deep River I 226 1989 5-40 yrs. Copier Consultants 73 1990 5-40 yrs. East - Building 01 131 1990 5-40 yrs. East - Building 02 134 1986 5-40 yrs. East - Building 03 103 1986 5-40 yrs. East - Building 06 28 1997 5-40 yrs. Hewlett Packard 88 1996 5-40 yrs. Inacom 61 1996 5-40 yrs.
F-29
Cost Capitalized Subsequent Initial Cost to Acquisition Building & Building & Description Encumbrance Land Improvements Land Improvements - ------------------------ ------------- -------- -------------- ---------- -------------- East - Building A (3) 541 2,913 -- 279 East - Building B (3) 779 3,200 -- 255 East - Building C (3) 2,384 9,535 -- 298 East - Building D -- 271 3,213 -- 654 Service Center 1 (3) 275 1,099 -- 81 Service Center 2 (3) 222 889 -- 20 Service Center 3 (3) 304 1,214 -- 62 Service Center 4 (3) 224 898 -- 12 Service Court (3) 194 774 -- 36 Warehouse 1 (3) 384 1,535 -- 39 Warehouse 2 (3) 372 1,488 -- 28 Warehouse 3 (3) 370 1,480 -- 26 Warehouse 4 (3) 657 2,628 -- 28 Highland Industries (3) 175 699 -- 7 206 South Westgate Dr. -- 91 664 -- 64 207 South Westgate Dr. -- 138 1,012 -- 8 300 South Westgate Dr. -- 68 496 -- 3 305 South Westgate Dr. -- 30 220 -- 17 307 South Westgate Dr. -- 66 485 -- 6 309 South Westgate Dr. -- 68 496 -- 13 311 South Westgate Dr. -- 75 551 -- 26 315 South Westgate Dr. -- 54 396 -- 7 317 South Westgate Dr. -- 81 597 -- 7 319 South Westgate Dr. -- 54 396 -- 3 4600 Dundas Circle -- 62 456 -- 26 4602 Dundas Circle -- 68 498 -- 18 7906 Industrial -- 62 455 -- 5 Village Rd. 7908 Industrial -- 62 455 -- 11 Village Rd. 7910 Industrial -- 62 455 -- 14 Village Rd. Airpark North - DC1 (3) 723 2,891 -- 57 Airpark North - DC2 (3) 1,094 4,375 -- 83 Airpark North - DC3 (3) 378 1,511 -- 240 Airpark North - DC4 (3) 377 1,508 -- 75 2606 Phoenix Dr. - 100 -- 63 466 -- -- 2606 Phoenix Dr. - 200 -- 63 466 -- 3 2606 Phoenix Dr. - 300 -- 31 229 -- 37 2606 Phoenix Dr. - 400 -- 52 382 -- 8 2606 Phoenix Dr. - 500 -- 64 471 -- 9 2606 Phoenix Dr. - 600 -- 78 575 -- 10 2616 Phoenix Dr. -- 135 990 -- 44 5 Dundas Circle -- 72 531 -- 10 7 Dundas Circle -- 75 552 -- 11 8 Dundas Circle -- 84 617 -- 18 9 Dundas Circle -- 51 373 -- 3 302 Pomona Dr. -- 84 617 -- 42 304 Pomona Dr. -- 22 163 -- -- 306 Pomona Dr. -- 50 368 -- 8 308 Pomona Dr. -- 72 531 -- 2 500 Radar Rd. -- 202 1,484 -- 82 502 Radar Rd. -- 39 285 -- 43 504 Radar Rd. -- 39 285 -- 3 506 Radar Rd. -- 39 285 -- 5 Regency One -- 515 2,352 -- 571 Regency Two -- 435 1,864 -- 503 Sears Cenfact -- 861 3,446 -- 21 4000 Spring Garden St. -- 127 933 -- 34 4002 Spring Garden St. -- 39 290 -- 2 4004 Spring Garden St. -- 139 1,019 -- 57 R.F. Micro Devices -- 512 7,674 -- -- West Airpark I (4) 954 3,817 -- 365 West Airpark II (4) 887 3,536 (3) 138 West Airpark IV (4) 226 903 -- 120 West Airpark V (4) 242 966 -- 29 Gross Amount at Which Carried at Close of Period Life on Which Building & Accumulated Date of Depreciation Description Land Improvements Total (16) Depreciation Construction is Computed - ------------------------ -------- -------------- ------------ -------------- -------------- ------------- East - Building A 541 3,192 3,733 272 1986 5-40 yrs. East - Building B 779 3,455 4,234 290 1988 5-40 yrs. East - Building C 2,384 9,833 12,217 729 1990 5-40 yrs. East - Building D 271 3,867 4,138 107 1997 5-40 yrs. Service Center 1 275 1,180 1,455 96 1985 5-40 yrs. Service Center 2 222 909 1,131 64 1985 5-40 yrs. Service Center 3 304 1,276 1,580 107 1985 5-40 yrs. Service Center 4 224 910 1,134 65 1985 5-40 yrs. Service Court 194 810 1,004 63 1990 5-40 yrs. Warehouse 1 384 1,574 1,958 121 1985 5-40 yrs. Warehouse 2 372 1,516 1,888 113 1985 5-40 yrs. Warehouse 3 370 1,506 1,876 109 1986 5-40 yrs. Warehouse 4 657 2,656 3,313 191 1988 5-40 yrs. Highland Industries 175 706 881 51 1990 5-40 yrs. 206 South Westgate Dr. 91 728 819 41 1986 5-40 yrs. 207 South Westgate Dr. 138 1,020 1,158 63 1986 5-40 yrs. 300 South Westgate Dr. 68 499 567 31 1986 5-40 yrs. 305 South Westgate Dr. 30 237 267 14 1985 5-40 yrs. 307 South Westgate Dr. 66 491 557 32 1985 5-40 yrs. 309 South Westgate Dr. 68 509 577 31 1985 5-40 yrs. 311 South Westgate Dr. 75 577 652 41 1985 5-40 yrs. 315 South Westgate Dr. 54 403 457 25 1985 5-40 yrs. 317 South Westgate Dr. 81 604 685 39 1985 5-40 yrs. 319 South Westgate Dr. 54 399 453 25 1985 5-40 yrs. 4600 Dundas Circle 62 482 544 30 1985 5-40 yrs. 4602 Dundas Circle 68 516 584 34 1985 5-40 yrs. 7906 Industrial 62 460 522 28 1985 5-40 yrs. Village Rd. 7908 Industrial 62 466 528 30 1985 5-40 yrs. Village Rd. 7910 Industrial 62 469 531 31 1985 5-40 yrs. Village Rd. Airpark North - DC1 723 2,948 3,671 212 1986 5-40 yrs. Airpark North - DC2 1,094 4,458 5,552 324 1987 5-40 yrs. Airpark North - DC3 378 1,751 2,129 147 1988 5-40 yrs. Airpark North - DC4 377 1,583 1,960 114 1988 5-40 yrs. 2606 Phoenix Dr. - 100 63 466 529 29 1989 5-40 yrs. 2606 Phoenix Dr. - 200 63 469 532 30 1989 5-40 yrs. 2606 Phoenix Dr. - 300 31 266 297 16 1989 5-40 yrs. 2606 Phoenix Dr. - 400 52 390 442 27 1989 5-40 yrs. 2606 Phoenix Dr. - 500 64 480 544 33 1989 5-40 yrs. 2606 Phoenix Dr. - 600 78 585 663 37 1989 5-40 yrs. 2616 Phoenix Dr. 135 1,034 1,169 63 1985 5-40 yrs. 5 Dundas Circle 72 541 613 38 1987 5-40 yrs. 7 Dundas Circle 75 563 638 36 1986 5-40 yrs. 8 Dundas Circle 84 635 719 43 1986 5-40 yrs. 9 Dundas Circle 51 376 427 25 1986 5-40 yrs. 302 Pomona Dr. 84 659 743 40 1987 5-40 yrs. 304 Pomona Dr. 22 163 185 10 1987 5-40 yrs. 306 Pomona Dr. 50 376 426 27 1987 5-40 yrs. 308 Pomona Dr. 72 533 605 33 1987 5-40 yrs. 500 Radar Rd. 202 1,566 1,768 102 1981 5-40 yrs. 502 Radar Rd. 39 328 367 22 1986 5-40 yrs. 504 Radar Rd. 39 288 327 18 1986 5-40 yrs. 506 Radar Rd. 39 290 329 18 1986 5-40 yrs. Regency One 515 2,923 3,438 173 1996 5-40 yrs. Regency Two 435 2,367 2,802 149 1996 5-40 yrs. Sears Cenfact 861 3,467 4,328 249 1989 5-40 yrs. 4000 Spring Garden St. 127 967 1,094 66 1983 5-40 yrs. 4002 Spring Garden St. 39 292 331 19 1983 5-40 yrs. 4004 Spring Garden St. 139 1,076 1,215 72 1983 5-40 yrs. R.F. Micro Devices 512 7,674 8,186 40 1997 5-40 yrs. West Airpark I 954 4,182 5,136 433 1984 5-40 yrs. West Airpark II 884 3,674 4,558 290 1985 5-40 yrs. West Airpark IV 226 1,023 1,249 95 1985 5-40 yrs. West Airpark V 242 995 1,237 76 1985 5-40 yrs.
F-30
Cost Capitalized Subsequent Gross Amount at Initial Cost to Acquisition Which Carried at Close of Period Building & Building & Building & Description Encumbrance Land Improvements Land Improvements Land Improvements Total (16) - --------------------------- ------------- -------- -------------- ------ -------------- -------- -------------- ------------ West Airpark VI (4) 326 1,308 -- 89 326 1,397 1,723 7327 W. Friendly Ave. -- 60 441 -- 6 60 447 507 7339 W. Friendly Ave. -- 63 465 -- 14 63 479 542 7341 W. Friendly Ave. -- 113 831 -- 64 113 895 1,008 7343 W. Friendly Ave. -- 72 531 -- 7 72 538 610 7345 W. Friendly Ave. -- 66 485 -- 11 66 496 562 7347 W. Friendly Ave. -- 97 709 -- 57 97 766 863 7349 W. Friendly Ave. -- 53 388 -- 13 53 401 454 7351 W. Friendly Ave. -- 106 778 -- 28 106 806 912 7353 W. Friendly Ave. -- 123 901 -- 12 123 913 1,036 7355 W. Friendly Ave. -- 72 525 -- 7 72 532 604 Nations Bank Plaza -- 642 9,349 -- 69 642 9,418 10,060 Brookfield Plaza 4,768 1,489 8,437 -- 294 1,489 8,731 10,220 Brookfield-Jacobs-Sirrine 12,049 3,022 17,125 -- -- 3,022 17,125 20,147 Brookfield-YMCA 429 33 189 -- 8 33 197 230 Patewood I -- 942 5,066 -- -- 942 5,066 6,008 Patewood II -- 942 5,066 -- -- 942 5,066 6,008 Patewood III 5,417 835 4,733 -- 141 835 4,874 5,709 Patewood IV (13) 1,210 6,856 -- -- 1,210 6,856 8,066 Patewood V 4,779 1,677 9,503 -- -- 1,677 9,503 11,180 Patewood Business 2,576 1,312 7,436 -- 25 1,312 7,461 8,773 Center Belfort Park I -- 1,322 4,285 -- -- 1,322 4,285 5,607 Belfort Park II -- 831 5,066 -- -- 831 5,066 5,897 Belfort Parkway III -- 647 4,063 -- 387 647 4,450 5,097 The Cigna Building -- 381 1,592 -- -- 381 1,592 1,973 Harry James Building -- 272 1,360 -- 34 272 1,394 1,666 Independent Square -- 3,985 47,495 -- 67 3,985 47,562 51,547 Three Oaks Plaza -- 1,630 14,036 -- 107 1,630 14,143 15,773 The Reflections 6,750 958 9,877 -- 8 958 9,885 10,843 Southpoint Office -- 594 3,987 -- (1) 594 3,986 4,580 Building Towermarc Plaza -- 1,143 6,476 -- 8 1,143 6,484 7,627 100 West Bay Street -- 184 4,750 -- 54 184 4,804 4,988 Building Atrium I & II -- 1,530 6,121 40 125 1,570 6,246 7,816 Centrum Building -- 1,013 5,523 -- 27 1,013 5,550 6,563 Medical Properties, Inc. -- 398 2,256 -- 1 398 2,257 2,655 Highwoods Office -- 1,005 3,816 -- 714 1,005 4,530 5,535 Center at Southwind International Place -- 4,847 27,469 -- 1,004 4,847 28,473 33,320 Phase II Kirby Centre -- 525 2,973 -- 13 525 2,986 3,511 Southwind Office -- 996 5,643 -- 4 996 5,647 6,643 Center A Southwind Office -- 1,356 7,684 -- 22 1,356 7,706 9,062 Center B Battlefield I 2,717 774 4,387 -- -- 774 4,387 5,161 Greenbrier Business 2,768 936 5,305 -- 47 936 5,352 6,288 Center Riverside Plaza -- 1,495 5,998 483 -- 1,978 5,998 7,976 3401 Westend -- 6,103 23,343 -- 788 6,103 24,131 30,234 5310 Maryland Way -- 1,923 7,360 -- 12 1,923 7,372 9,295 BNA 11,649 -- 22,588 -- 299 -- 22,887 22,887 Century City Plaza I -- 903 3,612 -- 153 903 3,765 4,668 Eastpark 1, 2, 3 4,099 3,137 11,842 -- 497 3,137 12,339 15,476 Grassmere I 2,856 1,251 7,091 -- 373 1,251 7,464 8,715 Grassmere II 4,401 2,260 12,804 -- 130 2,260 12,934 15,194 Grassmere III 5,053 1,340 7,592 -- 5 1,340 7,597 8,937 Highwoods Plaza I -- 1,772 6,380 -- 2,596 1,772 8,976 10,748 Highwoods Plaza II -- 1,448 6,948 -- 417 1,448 7,365 8,813 Harpeth II -- 1,419 5,677 1 141 1,420 5,818 7,238 Harpeth on the -- 1,658 6,633 2 121 1,660 6,754 8,414 Green III Harpeth on the -- 1,709 6,835 5 355 1,714 7,190 8,904 Green IV Lakeview -- 2,179 7,545 -- 124 2,179 7,669 9,848 Life on Which Accumulated Date of Depreciation Description Depreciation Construction is Computed - --------------------------- -------------- -------------- ------------- West Airpark VI 137 1985 5-40 yrs. 7327 W. Friendly Ave. 27 1987 5-40 yrs. 7339 W. Friendly Ave. 31 1989 5-40 yrs. 7341 W. Friendly Ave. 55 1988 5-40 yrs. 7343 W. Friendly Ave. 33 1988 5-40 yrs. 7345 W. Friendly Ave. 33 1988 5-40 yrs. 7347 W. Friendly Ave. 57 1988 5-40 yrs. 7349 W. Friendly Ave. 27 1988 5-40 yrs. 7351 W. Friendly Ave. 53 1988 5-40 yrs. 7353 W. Friendly Ave. 56 1988 5-40 yrs. 7355 W. Friendly Ave. 33 1988 5-40 yrs. Nations Bank Plaza 52 1973 5-40 yrs. Brookfield Plaza 298 1987 5-40 yrs. Brookfield-Jacobs-Sirrine 565 1990 5-40 yrs. Brookfield-YMCA 8 1990 5-40 yrs. Patewood I 112 1985 5-40 yrs. Patewood II 112 1987 5-40 yrs. Patewood III 195 1989 5-40 yrs. Patewood IV 226 1989 5-40 yrs. Patewood V 313 1990 5-40 yrs. Patewood Business 249 1983 5-40 yrs. Center Belfort Park I 23 1988 5-40 yrs. Belfort Park II 27 1988 5-40 yrs. Belfort Parkway III 21 1988 5-40 yrs. The Cigna Building 8 1972 5-40 yrs. Harry James Building 7 1982 5-40 yrs. Independent Square 287 1975 5-40 yrs. Three Oaks Plaza 74 1972 5-40 yrs. The Reflections 52 1985 5-40 yrs. Southpoint Office 21 1980 5-40 yrs. Building Towermarc Plaza 214 1991 5-40 yrs. 100 West Bay Street 25 1964 5-40 yrs. Building Atrium I & II 162 1984 5-40 yrs. Centrum Building 41 1979 5-40 yrs. Medical Properties, Inc. 74 1988 5-40 yrs. Highwoods Office 4 1997 5-40 yrs. Center at Southwind International Place 931 1988 5-40 yrs. Phase II Kirby Centre 100 1984 5-40 yrs. Southwind Office 188 1991 5-40 yrs. Center A Southwind Office 255 1990 5-40 yrs. Center B Battlefield I 145 1987 5-40 yrs. Greenbrier Business 176 1984 5-40 yrs. Center Riverside Plaza 32 1988 5-40 yrs. 3401 Westend 1,068 1982 5-40 yrs. 5310 Maryland Way 314 1994 5-40 yrs. BNA 985 1985 5-40 yrs. Century City Plaza I 161 1987 5-40 yrs. Eastpark 1, 2, 3 611 1978 5-40 yrs. Grassmere I 260 1984 5-40 yrs. Grassmere II 446 1985 5-40 yrs. Grassmere III 251 1990 5-40 yrs. Highwoods Plaza I 406 1996 5-40 yrs. Highwoods Plaza II 40 1997 5-40 yrs. Harpeth II 195 1984 5-40 yrs. Harpeth on the 195 1987 5-40 yrs. Green III Harpeth on the 197 1989 5-40 yrs. Green IV Lakeview 323 1986 5-40 yrs.
F-31
Cost Capitalized Subsequent Gross Amount at Initial Cost to Acquisition Which Carried at Close of Period Building & Building & Building & Description Encumbrance Land Improvements Land Improvements Land Improvements Total (16) - ------------------------- ------------- -------- -------------- ------ --------------- -------- -------------- ------------ EMI/Sparrow -- 1,262 5,047 -- 39 1,262 5,086 6,348 100 Winner's Circle -- 1,495 7,148 -- -- 1,495 7,148 8,643 Campus Crusade -- 1,505 9,875 -- -- 1,505 9,875 11,380 ACP-W -- 4,700 18,865 -- -- 4,700 18,865 23,565 Corporate Square -- 900 1,717 -- 6 900 1,723 2,623 Executive Point Towers -- 2,200 7,230 -- 30 2,200 7,260 9,460 Lakeview Office Park -- 5,400 13,998 -- 60 5,400 14,058 19,458 201 Lee Road -- 1,500 6,003 -- (2) 1,500 6,001 7,501 Metrowest I 3,530 1,344 7,618 -- 96 1,344 7,714 9,058 One Winter Park 2,354 1,000 3,652 -- 5 1,000 3,657 4,657 The Palladium -- 1,400 5,555 -- -- 1,400 5,555 6,955 2699 Pine Street -- 4,400 30,118 -- (1) 4,400 30,117 34,517 Premiere Point North -- 800 3,061 -- -- 800 3,061 3,861 Premiere Point South -- 600 3,429 -- 20 600 3,449 4,049 Shoppes of Interlachen 2,105 1,100 2,716 -- 4 1,100 2,720 3,820 Signature Plaza -- 4,300 30,611 -- 129 4,300 30,740 35,040 Skyline Center -- 700 2,773 -- 4 700 2,777 3,477 Southwest Corporate 3,717 991 5,613 -- -- 991 5,613 6,604 Center Blue Ridge II -- 434 -- 29 1,433 463 1,433 1,896 2500 Blue Ridge -- 722 4,552 -- 871 722 5,423 6,145 Qualex -- 879 3,522 -- 1 879 3,523 4,402 Fairfield II -- 910 3,647 -- 367 910 4,014 4,924 3600 Glenwood Avenue -- -- -- -- 10,994 -- 10,994 10,994 ONCC - 3645 Trust Drive 1,778 520 2,949 -- 50 520 2,999 3,519 4020 Roxboro -- 675 2,708 -- 49 675 2,757 3,432 4101 Roxboro -- 1,059 4,243 -- 186 1,059 4,429 5,488 Fairfield I -- 805 3,227 -- 105 805 3,332 4,137 4201 Building -- 1,204 7,715 -- 2,388 1,204 10,103 11,307 4301 Building -- 900 7,425 -- 607 900 8,032 8,932 4401 Building -- 1,249 8,929 -- 4,806 1,249 13,735 14,984 4501 Building -- 785 4,448 -- 675 785 5,123 5,908 4800 North Park -- 2,678 17,673 -- 233 2,678 17,906 20,584 4900 North Park 1,486 770 1,989 -- 230 770 2,219 2,989 5000 North Park -- 1,010 4,697 -- 879 1,010 5,576 6,586 5200 Green's Dairy Road 593 169 959 -- 17 169 976 1,145 5220 Green's Dairy Road 1,072 382 2,165 -- 60 382 2,225 2,607 5301 Departure Drive 2,466 882 5,000 -- 6 882 5,006 5,888 4000 Aerial Center -- 541 2,163 -- 5 541 2,168 2,709 Amica -- 289 1,544 -- 52 289 1,596 1,885 Arrowwood -- 955 3,406 -- 202 955 3,608 4,563 Aspen -- 560 2,104 -- 244 560 2,348 2,908 Birchwood -- 201 911 -- (4) 201 907 1,108 Cedar East -- 563 2,498 -- 238 563 2,736 3,299 Cedar West -- 563 2,487 -- 380 563 2,867 3,430 Colony Corporate Center -- 613 3,296 -- 442 613 3,738 4,351 Concourse -- 986 12,069 -- 465 986 12,534 13,520 Cape Fear -- 131 -- -- 2,586 131 2,586 2,717 Creekstone Crossing -- 728 3,891 -- 50 728 3,941 4,669 Cotton Building -- 460 1,844 -- 113 460 1,957 2,417 Catawba -- 125 -- -- 1,897 125 1,897 2,022 Cottonwood -- 609 3,253 -- 8 609 3,261 3,870 Cypress -- 567 1,747 -- 104 567 1,851 2,418 Dogwood -- 766 2,790 -- (4) 766 2,786 3,552 EPA Annex/ -- 2,601 10,920 -- 91 2,601 11,011 13,612 Administration Expressway One -- 242 -- 4 1,854 246 1,854 2,100 Warehouse Global Software -- 465 5,358 -- 2,127 465 7,485 7,950 Hawthorn -- 904 3,782 -- 73 904 3,855 4,759 Holiday Inn -- 867 2,748 -- 123 867 2,871 3,738 Holly -- 300 1,170 -- 18 300 1,188 1,488 Healthsource -- 1,294 10,593 10 1,609 1,304 12,202 13,506 Highwoods Tower -- 203 16,948 -- 478 203 17,426 17,629 Ironwood -- 319 1,276 -- 215 319 1,491 1,810 Kaiser -- 133 3,625 -- 28 133 3,653 3,786 Life on Which Accumulated Date of Depreciation Description Depreciation Construction is Computed - ------------------------- -------------- -------------- ------------- EMI/Sparrow 163 1982 5-40 yrs. 100 Winner's Circle 8 1987 5-40 yrs. Campus Crusade 52 1990 5-40 yrs. ACP-W 99 1966-1992 5-40 yrs. Corporate Square 9 1971 5-40 yrs. Executive Point Towers 38 1978 5-40 yrs. Lakeview Office Park 74 1975 5-40 yrs. 201 Lee Road 31 1974 5-40 yrs. Metrowest I 260 1988 5-40 yrs. One Winter Park 19 1982 5-40 yrs. The Palladium 29 1988 5-40 yrs. 2699 Pine Street 158 1980 5-40 yrs. Premiere Point North 16 1983 5-40 yrs. Premiere Point South 18 1983 5-40 yrs. Shoppes of Interlachen 14 1987 5-40 yrs. Signature Plaza 164 1986 5-40 yrs. Skyline Center 15 1985 5-40 yrs. Southwest Corporate 185 1984 5-40 yrs. Center Blue Ridge II 405 1988 5-40 yrs. 2500 Blue Ridge 441 1982 5-40 yrs. Qualex 216 1985 5-40 yrs. Fairfield II 250 1989 5-40 yrs. 3600 Glenwood Avenue 218 1986 5-40 yrs. ONCC - 3645 Trust Drive 97 1984 5-40 yrs. 4020 Roxboro 168 1989 5-40 yrs. 4101 Roxboro 269 1984 5-40 yrs. Fairfield I 206 1987 5-40 yrs. 4201 Building 1,499 1991 5-40 yrs. 4301 Building 554 1989 5-40 yrs. 4401 Building 2,132 1987 5-40 yrs. 4501 Building 591 1985 5-40 yrs. 4800 North Park 1,618 1985 5-40 yrs. 4900 North Park 210 1984 5-40 yrs. 5000 North Park 640 1980 5-40 yrs. 5200 Green's Dairy Road 36 1984 5-40 yrs. 5220 Green's Dairy Road 72 1984 5-40 yrs. 5301 Departure Drive 165 1984 5-40 yrs. 4000 Aerial Center 56 1992 5-40 yrs. Amica 191 1983 5-40 yrs. Arrowwood 389 1979 5-40 yrs. Aspen 234 1980 5-40 yrs. Birchwood 100 1983 5-40 yrs. Cedar East 287 1981 5-40 yrs. Cedar West 319 1981 5-40 yrs. Colony Corporate Center 329 1985 5-40 yrs. Concourse 1,178 1986 5-40 yrs. Cape Fear 1,262 1980 5-40 yrs. Creekstone Crossing 263 1990 5-40 yrs. Cotton Building 99 1972 5-40 yrs. Catawba 1,020 1980 5-40 yrs. Cottonwood 296 1983 5-40 yrs. Cypress 208 1980 5-40 yrs. Dogwood 248 1983 5-40 yrs. EPA Annex/ 796 1966 5-40 yrs. Administration Expressway One 343 1990 5-40 yrs. Warehouse Global Software 557 1996 5-40 yrs. Hawthorn 1,701 1987 5-40 yrs. Holiday Inn 259 1984 5-40 yrs. Holly 121 1984 5-40 yrs. Healthsource 493 1996 5-40 yrs. Highwoods Tower 2,986 1991 5-40 yrs. Ironwood 185 1978 5-40 yrs. Kaiser 1,175 1988 5-40 yrs.
F-32
Cost Capitalized Subsequent Gross Amount at Initial Cost to Acquisition Which Carried at Close of Period Building & Building & Building & Description Encumbrance Land Improvements Land Improvements Land Improvements Total (16) - --------------------------- ------------- -------- -------------- ------ -------------- -------- -------------- ------------ Laurel -- 884 2,537 -- 13 884 2,550 3,434 Lake Plaza East -- 856 4,893 -- 644 856 5,537 6,393 Leatherwood -- 213 851 -- 243 213 1,094 1,307 MSA -- 717 3,418 -- 1,297 717 4,715 5,432 North Park Building One -- 405 -- -- 3,273 405 3,273 3,678 Phase I 1,988 768 4,353 -- 43 768 4,396 5,164 W Building 3,789 1,163 6,592 -- 279 1,163 6,871 8,034 Pamlico -- 269 -- 20 10,868 289 10,868 11,157 Phoenix -- 394 2,019 -- 50 394 2,069 2,463 Rexwoods Center (4) 775 -- 103 3,686 878 3,686 4,564 Rexwoods II -- 355 -- 7 1,823 362 1,823 2,185 Rexwoods III -- 886 -- 34 2,858 920 2,858 3,778 Rexwoods IV -- 586 -- -- 3,616 586 3,616 4,202 Riverbirch -- 448 -- 21 4,231 469 4,231 4,700 Situs I -- 693 2,917 -- 1,473 693 4,390 5,083 Six Forks Center I -- 666 2,688 -- 262 666 2,950 3,616 Six Forks Center II -- 1,086 4,370 -- 336 1,086 4,706 5,792 Six Forks Center III -- 862 4,444 -- 93 862 4,537 5,399 Smoketree Tower -- 2,353 11,922 -- 1,959 2,353 13,881 16,234 South Square I (4) 606 3,785 -- 415 606 4,200 4,806 South Square II -- 525 4,742 -- 159 525 4,901 5,426 Sycamore -- 255 -- -- 6,057 255 6,057 6,312 Triangle Business Center (4) 377 4,004 -- 660 377 4,664 5,041 Building 2A Triangle Business Center (4) 118 1,225 -- 192 118 1,417 1,535 Building 2B Triangle Business Center (4) 409 5,349 -- 571 409 5,920 6,329 Building 3 Triangle Business Center (4) 414 6,301 -- 243 414 6,544 6,958 Building 7 Willow Oak -- 458 4,685 -- 1,769 458 6,454 6,912 Highwoods Airport -- 708 4,374 -- 1,140 708 5,514 6,222 Center East Cary Street Building -- 171 685 -- 48 171 733 904 DEQ Office -- 1,324 5,305 -- 154 1,324 5,459 6,783 DEQ Tech Center -- 541 2,166 -- 100 541 2,266 2,807 Grove Park I -- 349 2,685 -- 86 349 2,771 3,120 Highwoods One -- 1,846 8,613 -- 1,935 1,846 10,548 12,394 Highwoods Two -- 785 5,170 -- 756 785 5,926 6,711 Liberty Mutual Building 3,431 1,205 4,819 -- 111 1,205 4,930 6,135 Markel American (5) 585 2,347 -- 114 585 2,461 3,046 Aetna -- 2,163 8,659 -- 140 2,163 8,799 10,962 Proctor-Silex (5) 1,086 4,344 -- 56 1,086 4,400 5,486 One Shockoe Plaza -- -- -- -- 19,232 -- 19,232 19,232 Westshore I -- 358 1,431 -- 23 358 1,454 1,812 Westshore II -- 545 2,181 -- 30 545 2,211 2,756 West Shore III -- 961 3,601 -- 592 961 4,193 5,154 Innsbrook Tech I -- 264 1,058 -- 7 264 1,065 1,329 Virginia Center -- 1,438 5,858 -- 257 1,438 6,115 7,553 Vantage Place II -- 203 811 -- 79 203 890 1,093 Vantage Place IV -- 233 931 -- 30 233 961 1,194 Vantage Place I -- 235 940 -- 31 235 971 1,206 Vantage Place III -- 218 873 -- 183 218 1,056 1,274 Vantage Point -- 1,089 4,354 -- 170 1,089 4,524 5,613 2828 Coral Way Building -- 1,100 4,303 -- 6 1,100 4,309 5,409 Atrium at Coral Gables -- 3,000 16,528 -- 29 3,000 16,557 19,557 Atrium West 4,242 1,300 5,598 -- -- 1,300 5,598 6,898 Avion Building -- 800 4,357 -- -- 800 4,357 5,157 Centrum Plaza 2,861 1,000 3,574 -- -- 1,000 3,574 4,574 Comeau Building -- 460 3,719 -- -- 460 3,719 4,179 Corporate Square -- 1,750 3,402 -- 22 1,750 3,424 5,174 Dadeland Office 6,579 3,700 18,571 -- 51 3,700 18,622 22,322 Complex Desigh Center Plaza -- 1,000 4,040 -- 3 1,000 4,043 5,043 Doral Financial Plaza -- 3,423 13,692 -- -- 3,423 13,692 17,115 1800 Eller Drive -- -- 9,724 -- 71 -- 9,795 9,795 Emerald Hills Plaza I -- 1,450 5,861 -- 13 1,450 5,874 7,324 Life on Which Accumulated Date of Depreciation Description Depreciation Construction is Computed - --------------------------- -------------- -------------- ------------- Laurel 227 1982 5-40 yrs. Lake Plaza East 560 1984 5-40 yrs. Leatherwood 127 1979 5-40 yrs. MSA 220 1996 5-40 yrs. North Park Building One 63 1997 5-40 yrs. Phase I 146 1981 5-40 yrs. W Building 220 1983 5-40 yrs. Pamlico 2,057 1980 5-40 yrs. Phoenix 191 1990 5-40 yrs. Rexwoods Center 836 1990 5-40 yrs. Rexwoods II 191 1993 5-40 yrs. Rexwoods III 473 1992 5-40 yrs. Rexwoods IV 417 1994 5-40 yrs. Riverbirch 1,050 1987 5-40 yrs. Situs I 274 1996 5-40 yrs. Six Forks Center I 162 1982 5-40 yrs. Six Forks Center II 269 1983 5-40 yrs. Six Forks Center III 386 1987 5-40 yrs. Smoketree Tower 1,373 1984 5-40 yrs. South Square I 407 1988 5-40 yrs. South Square II 448 1989 5-40 yrs. Sycamore 82 1997 5-40 yrs. Triangle Business Center 609 1984 5-40 yrs. Building 2A Triangle Business Center 144 1984 5-40 yrs. Building 2B Triangle Business Center 785 1988 5-40 yrs. Building 3 Triangle Business Center 593 1988 5-40 yrs. Building 7 Willow Oak 803 1995 5-40 yrs. Highwoods Airport 83 1997 5-40 yrs. Center East Cary Street Building 20 1987 5-40 yrs. DEQ Office 296 1991 5-40 yrs. DEQ Tech Center 123 1991 5-40 yrs. Grove Park I 16 1997 5-40 yrs. Highwoods One 511 1996 5-40 yrs. Highwoods Two 48 1997 5-40 yrs. Liberty Mutual Building 129 1990 5-40 yrs. Markel American 188 1988 5-40 yrs. Aetna 343 1989 5-40 yrs. Proctor-Silex 270 1986 5-40 yrs. One Shockoe Plaza 508 1996 5-40 yrs. Westshore I 61 1995 5-40 yrs. Westshore II 86 1995 5-40 yrs. West Shore III 35 1997 5-40 yrs. Innsbrook Tech I 65 1991 5-40 yrs. Virginia Center 509 1985 5-40 yrs. Vantage Place II 69 1987 5-40 yrs. Vantage Place IV 60 1988 5-40 yrs. Vantage Place I 62 1987 5-40 yrs. Vantage Place III 65 1988 5-40 yrs. Vantage Point 294 1990 5-40 yrs. 2828 Coral Way Building 23 1985 5-40 yrs. Atrium at Coral Gables 87 1984 5-40 yrs. Atrium West 29 1983 5-40 yrs. Avion Building 14 1985 5-40 yrs. Centrum Plaza 19 1988 5-40 yrs. Comeau Building 20 1926 5-40 yrs. Corporate Square 18 1981 5-40 yrs. Dadeland Office 98 1972 5-40 yrs. Complex Desigh Center Plaza 21 1982 5-40 yrs. Doral Financial Plaza 14 1987 5-40 yrs. 1800 Eller Drive 51 1983 5-40 yrs. Emerald Hills Plaza I 31 1979 5-40 yrs.
F-33
Cost Capitalized Subsequent Gross Amount at Initial Cost to Acquisition Which Carried at Close of Period Building & Building & Building & Description Encumbrance Land Improvements Land Improvements Land Improvements Total (16) - --------------------------- --------------- -------- -------------- ------ -------------- -------- -------------- ------------ Emerald Hills Plaza II -- 1,450 7,095 -- -- 1,450 7,095 8,545 Gulf Atlantic Center -- -- 11,237 -- -- -- 11,237 11,237 Palm Beach Gardens -- 1,000 4,554 -- 12 1,000 4,566 5,566 Office Park Pine Island Commons 3,089 1,750 4,216 -- 6 1,750 4,222 5,972 Venture Corporate -- 1,867 7,532 -- 44 1,867 7,576 9,443 Center I Venture Corporate -- 1,867 8,906 -- 1 1,867 8,907 10,774 Center II Venture Corporate -- 1,867 8,838 -- -- 1,867 8,838 10,705 Center III 5400 Gray Street -- 350 295 -- -- 350 295 645 Atrium -- 1,639 9,286 -- 61 1,639 9,347 10,986 Benjamin Center #7 -- 296 1,678 -- 41 296 1,719 2,015 Benjamin Center #9 -- 300 1,699 -- 1 300 1,700 2,000 Crossroads Office Center -- 561 3,375 -- 27 561 3,402 3,963 Cypress West 2,139 615 5,043 -- 215 615 5,258 5,873 Day Care Center -- 61 347 -- 24 61 371 432 Expo Building -- 171 969 -- 21 171 990 1,161 Feathersound II 2,319 800 7,362 -- 168 800 7,530 8,330 Fireman's Fund Building -- 500 4,148 -- 33 500 4,181 4,681 Grand Plaza (Office) -- 1,100 7,752 -- 29 1,100 7,781 8,881 Grand Plaza (Retail) -- 840 10,754 -- -- 840 10,754 11,594 Horizon (2) -- 6,174 -- -- -- 6,174 6,174 Lakeside (2) -- 7,272 -- 5 -- 7,277 7,277 Lakepoint (2) 2,100 31,390 -- 34 2,100 31,424 33,524 Lakeside Technology -- 1,325 8,164 -- 32 1,325 8,196 9,521 Center Mariner Square 2,508 650 2,855 -- -- 650 2,855 3,505 Parkside (2) -- 9,285 -- 27 -- 9,312 9,312 Pavillion (2) -- 16,183 -- -- -- 16,183 16,183 Progressive Insurance -- 1,366 7,742 -- 1,370 1,366 9,112 10,478 Registry I -- 744 4,216 -- 97 744 4,313 5,057 Registry II -- 908 5,147 -- 166 908 5,313 6,221 Registry Square -- 344 1,951 -- -- 344 1,951 2,295 Sabal Business Center I -- 375 2,127 -- -- 375 2,127 2,502 Sabal Business Center II 1,235 342 1,935 -- -- 342 1,935 2,277 Sabal Business Center III 852 290 1,642 -- 16 290 1,658 1,948 Sabal Business Center IV 2,107 819 4,638 -- -- 819 4,638 5,457 Sabal Business Center V 2,532 1,026 5,813 -- 3 1,026 5,816 6,842 Sabal Business Center VI 5,919 1,609 9,116 -- 38 1,609 9,154 10,763 Sabal Business 4,815 1,519 8,605 -- 32 1,519 8,637 10,156 Center VII Sabal Lake Building -- 572 3,241 -- 142 572 3,383 3,955 Sabal Park Plaza -- 611 3,460 -- 6 611 3,466 4,077 Sabal Tech Center -- 548 3,107 -- -- 548 3,107 3,655 Spectrum (2) 1,450 14,315 -- -- 1,450 14,315 15,765 Sunrise Office Center -- 422 3,513 -- -- 422 3,513 3,935 Telecom Technology -- 1,250 11,336 -- 172 1,250 11,508 12,758 Center Tower Place -- 3,194 18,098 -- 104 3,194 18,202 21,396 Zurn Building -- 795 4,537 -- 29 795 4,566 5,361 Blair Stone Building -- 1,550 33,262 -- -- 1,550 33,262 34,812 Stratford -- 2,777 11,459 -- 105 2,777 11,564 14,341 Chesapeake (4) 1,236 4,944 -- 8 1,236 4,952 6,188 Forsyth I 1,963 326 1,850 -- 450 326 2,300 2,626 370 Knollwood (3) 1,819 7,451 -- 459 1,819 7,910 9,729 380 Knollwood (3) 2,977 11,912 -- 687 2,977 12,599 15,576 3288 Robinhood -- 290 1,159 -- 85 290 1,244 1,534 101 S. Stratford-First -- 1,205 6,826 -- -- 1,205 6,826 8,031 Union Consolidated Center I -- 625 2,130 -- -- 625 2,130 2,755 Consolidated Center II -- 625 4,380 -- -- 625 4,380 5,005 Consolidated Center III -- 680 3,525 -- -- 680 3,525 4,205 Consolidated Center IV -- 376 1,629 -- -- 376 1,629 2,005 Champion-Madison -- 1,725 6,280 -- -- 1,725 6,280 8,005 Park II Life on Which Accumulated Date of Depreciation Description Depreciation Construction is Computed - --------------------------- -------------- -------------- ------------- Emerald Hills Plaza II 37 1979 5-40 yrs. Gulf Atlantic Center 12 1986 5-40 yrs. Palm Beach Gardens 24 1984 5-40 yrs. Office Park Pine Island Commons 22 1985 5-40 yrs. Venture Corporate 41 1982 5-40 yrs. Center I Venture Corporate 47 1982 5-40 yrs. Center II Venture Corporate 46 1982 5-40 yrs. Center III 5400 Gray Street 2 1973 5-40 yrs. Atrium 309 1989 5-40 yrs. Benjamin Center #7 70 1991 5-40 yrs. Benjamin Center #9 56 1989 5-40 yrs. Crossroads Office Center 18 1981 5-40 yrs. Cypress West 27 1985 5-40 yrs. Day Care Center 12 1986 5-40 yrs. Expo Building 32 1981 5-40 yrs. Feathersound II 39 1986 5-40 yrs. Fireman's Fund Building 22 1982 5-40 yrs. Grand Plaza (Office) 41 1985 5-40 yrs. Grand Plaza (Retail) 57 N/A 5-40 yrs. Horizon 32 1980 5-40 yrs. Lakeside 38 1978 5-40 yrs. Lakepoint 165 1986 5-40 yrs. Lakeside Technology 43 1984 5-40 yrs. Center Mariner Square 15 1973 5-40 yrs. Parkside 49 1979 5-40 yrs. Pavillion 85 1982 5-40 yrs. Progressive Insurance 255 1988 5-40 yrs. Registry I 149 1985 5-40 yrs. Registry II 184 1987 5-40 yrs. Registry Square 64 1988 5-40 yrs. Sabal Business Center I 70 1982 5-40 yrs. Sabal Business Center II 64 1984 5-40 yrs. Sabal Business Center III 55 1984 5-40 yrs. Sabal Business Center IV 153 1984 5-40 yrs. Sabal Business Center V 193 1988 5-40 yrs. Sabal Business Center VI 301 1988 5-40 yrs. Sabal Business 284 1990 5-40 yrs. Center VII Sabal Lake Building 114 1986 5-40 yrs. Sabal Park Plaza 114 1987 5-40 yrs. Sabal Tech Center 102 1989 5-40 yrs. Spectrum 75 1984 5-40 yrs. Sunrise Office Center 18 1974 5-40 yrs. Telecom Technology 60 1991 5-40 yrs. Center Tower Place 599 1988 5-40 yrs. Zurn Building 24 1983 5-40 yrs. Blair Stone Building 175 1994 5-40 yrs. Stratford 841 1991 5-40 yrs. Chesapeake 356 1993 5-40 yrs. Forsyth I 108 1985 5-40 yrs. 370 Knollwood 639 1994 5-40 yrs. 380 Knollwood 998 1990 5-40 yrs. 3288 Robinhood 110 1989 5-40 yrs. 101 S. Stratford-First 22 1986 5-40 yrs. Union Consolidated Center I 7 1983 5-40 yrs. Consolidated Center II 14 1983 5-40 yrs. Consolidated Center III 11 1989 5-40 yrs. Consolidated Center IV 5 1989 5-40 yrs. Champion-Madison 20 1993 5-40 yrs. Park II
F-34
Cost Capitalized Subsequent Initial Cost to Acquisition Building & Building & Description Encumbrance Land Improvements Land Improvements - --------------------------- ------------- -------- -------------- --------------------- -------------- USAIR Buildings -- 2,625 14,889 -- -- UCC Building 03 -- 429 1,771 -- 102 UCC Building 04 -- 514 2,058 -- 150 UCC SR-1 -- 276 1,155 -- 55 UCC SR-2 01/02 -- 215 859 -- 113 UCC SR-3 -- 167 668 -- 19 UCC W-1 -- 203 812 -- -- UCC W-2 -- 196 786 -- 8 BMF Warehouse (1) 795 3,181 -- -- LUWA Bahnson Building -- 346 1,384 -- 1 WP-3 & 4 (1) 120 480 -- 2 WP-11 (1) 393 1,570 -- 57 WP-12 (1) 382 1,531 -- 34 WP-13 (1) 297 1,192 -- 32 Fairchild Building -- 640 2,577 -- -- WP-5 -- 178 590 -- 265 One Point Royal -- -- 1 -- -- EKA Chemicals -- -- 1 -- -- Glenlakes -- -- -- 2,908 -- Northern Telecom -- -- (2) -- -- Newpoint Place III -- -- -- 628 -- Newpoint Place -- -- -- 1,550 -- Atlanta Tradeport -- -- -- 8,052 -- NationsFord Business -- 1,206 -- 5 -- Park Center Point VI -- -- -- 265 -- Airport Center Drive -- 1,600 -- (565) (10) -- Airpark East Expansion -- -- -- 1,280 -- Airpark East Land -- 1,932 -- (616) (8) -- Airpark North Land -- 804 -- -- -- 385 Building 1 -- 1,413 1,401 -- 81 385 Land -- -- -- 1,800 -- Patewood VI -- -- -- -- 22 Belfort Park Land Annex -- -- -- 2,600 -- Southwind Land Annex -- -- -- 679 -- Highwoods Plaza at -- -- -- -- 29 International Place International Place -- -- -- 1,566 -- Phase III Ayers Land -- -- -- 1,164 -- Cool Springs - -- -- -- 3,089 -- Building II Grassmere -- 1,779 -- -- -- Ridge Development -- 1,960 -- (1,531) (11) -- Grassmere/Thousdale -- 760 -- -- -- Land Westwood South -- -- -- 2,106 -- Maitland Building B -- -- -- 1,115 -- Maitland Building C -- -- -- 743 -- Pine Street - Building II -- -- -- 2,000 -- Pine Street Parking -- -- -- 4,000 -- Capital Center -- 851 -- (629) (9) -- Clintrials -- -- -- -- 209 Highwoods Health Club -- 142 564 -- (26) Highwoods Office -- 1,555 49 (839) (7) -- Center North Highwoods Office -- 2,518 -- -- -- Center South Martin Land -- -- -- 3,409 -- Creekstone Park -- 1,255 -- (1,106) (6) -- North Park - Wake Forest -- 962 -- 132 -- - Land Research Commons -- 1,349 -- -- -- Rexwoods V -- -- -- -- 3 Highwoods Distribution -- -- -- 3,270 -- Center East Shore One -- -- -- 114 -- Gross Amount at Which Carried at Close of Period Life on Which Building & Accumulated Date of Depreciation Description Land Improvements Total (16) Depreciation Construction is Computed - --------------------------- -------- -------------- ------------- -------------- -------------- ------------- USAIR Buildings 2,625 14,889 17,514 47 1970-1987 5-40 yrs. UCC Building 03 429 1,873 2,302 136 1985 5-40 yrs. UCC Building 04 514 2,208 2,722 170 1986 5-40 yrs. UCC SR-1 276 1,210 1,486 95 1983 5-40 yrs. UCC SR-2 01/02 215 972 1,187 89 1983 5-40 yrs. UCC SR-3 167 687 854 49 1984 5-40 yrs. UCC W-1 203 812 1,015 58 1983 5-40 yrs. UCC W-2 196 794 990 57 1983 5-40 yrs. BMF Warehouse 795 3,181 3,976 229 1986 5-40 yrs. LUWA Bahnson Building 346 1,385 1,731 100 1990 5-40 yrs. WP-3 & 4 120 482 602 35 1988 5-40 yrs. WP-11 393 1,627 2,020 121 1988 5-40 yrs. WP-12 382 1,565 1,947 112 1988 5-40 yrs. WP-13 297 1,224 1,521 87 1988 5-40 yrs. Fairchild Building 640 2,577 3,217 185 1990 5-40 yrs. WP-5 178 855 1,033 117 1995 5-40 yrs. One Point Royal -- 1 1 -- N/A N/A EKA Chemicals -- 1 1 -- N/A N/A Glenlakes 2,908 -- 2,908 -- N/A N/A Northern Telecom -- (2) (2) -- N/A N/A Newpoint Place III 628 -- 628 -- N/A N/A Newpoint Place 1,550 -- 1,550 -- N/A N/A Atlanta Tradeport 8,052 -- 8,052 -- N/A N/A NationsFord Business 1,211 -- 1,211 -- N/A N/A Park Center Point VI 265 -- 265 -- N/A N/A Airport Center Drive 1,035 -- 1,035 -- N/A N/A Airpark East Expansion 1,280 -- 1,280 -- N/A N/A Airpark East Land 1,316 -- 1,316 -- N/A N/A Airpark North Land 804 -- 804 -- N/A N/A 385 Building 1 1,413 1,482 2,895 13 N/A 5-40 yrs. 385 Land 1,800 -- 1,800 -- N/A N/A Patewood VI -- 22 22 -- N/A N/A Belfort Park Land Annex 2,600 -- 2,600 -- N/A N/A Southwind Land Annex 679 -- 679 -- N/A N/A Highwoods Plaza at -- 29 29 -- N/A N/A International Place International Place 1,566 -- 1,566 -- N/A N/A Phase III Ayers Land 1,164 -- 1,164 -- N/A N/A Cool Springs - 3,089 -- 3,089 -- N/A N/A Building II Grassmere 1,779 -- 1,779 -- N/A N/A Ridge Development 429 -- 429 -- N/A N/A Grassmere/Thousdale 760 -- 760 -- N/A N/A Land Westwood South 2,106 -- 2,106 -- N/A N/A Maitland Building B 1,115 -- 1,115 -- N/A N/A Maitland Building C 743 -- 743 -- N/A N/A Pine Street - Building II 2,000 -- 2,000 -- N/A N/A Pine Street Parking 4,000 -- 4,000 -- N/A N/A Capital Center 222 -- 222 -- N/A N/A Clintrials -- 209 209 -- N/A N/A Highwoods Health Club 142 538 680 14 N/A 5-40 yrs. Highwoods Office 716 49 765 13 N/A 5-40 yrs. Center North Highwoods Office 2,518 -- 2,518 -- N/A N/A Center South Martin Land 3,409 -- 3,409 -- N/A N/A Creekstone Park 149 -- 149 -- N/A N/A North Park - Wake Forest 1,094 -- 1,094 -- N/A N/A - Land Research Commons 1,349 -- 1,349 -- N/A N/A Rexwoods V -- 3 3 -- N/A N/A Highwoods Distribution 3,270 -- 3,270 -- N/A N/A Center East Shore One 114 -- 114 -- N/A N/A
F-35
Cost Capitalized Subsequent Initial Cost to Acquisition Building & Building & Description Encumbrance Land Improvements Land Improvements - --------------------------- ------------- ----------- -------------- ----------- -------------- East Shore Two -- -- -- 907 -- End of Cox Road Land -- 966 -- -- -- Sadler & Cox Land -- -- -- 296 -- Development -- 26 -- -- -- Opportunity Strip Virginia Mutual -- -- -- 900 -- Tampa Fairgrounds -- 1,412 5,647 -- 42 Fireman's fund Land -- -- -- 1,000 -- Tampa Bay Land -- -- -- 2,000 -- Sabal Pavilion - Phase II -- -- -- 661 -- Sabal Industrial -- -- -- 301 -- Park Land West Point -- 1,759 -- (518)(12) -- ------ ----- ----- ----- -- Business Park $365,276 $2,051,331 $43,493 $143,310 ======== ========== ======= ======== Gross Amount at Which Carried at Close of Period Life on Which Building & Accumulated Date of Depreciation Description Land Improvements Total (16) Depreciation Construction is Computed - --------------------------- ----------- -------------- ------------ -------------- -------------- ------------- East Shore Two 907 -- 907 -- N/A N/A End of Cox Road Land 966 -- 966 -- N/A N/A Sadler & Cox Land 296 -- 296 -- N/A N/A Development 26 -- 26 -- N/A N/A Opportunity Strip Virginia Mutual 900 -- 900 -- N/A N/A Tampa Fairgrounds 1,412 5,689 7,101 6 N/A N/A Fireman's fund Land 1,000 -- 1,000 -- N/A N/A Tampa Bay Land 2,000 -- 2,000 -- N/A N/A Sabal Pavilion - Phase II 661 -- 661 -- N/A N/A Sabal Industrial 301 -- 301 -- N/A N/A Park Land West Point 1,241 -- 1,241 -- N/A N/A ----- ----- ----- -- Business Park $408,769 $2,194,641 $2,603,410 $86,062 ======== ========== ========== =======
- -------- (1) These assets are pledged as collateral for a $5,668,000 first mortgage loan. (2) These assets are pledged as collateral for a $43,465,000 first mortgage loan. (3) These assets are pledged as collateral for an $39,630,000 first mortgage loan. (4) These assets are pledged as collateral for a $30,951,000 first mortgage loan. (5) These assets are pledged as collateral for a $4,850,000 first mortgage loan. (6) Reflects land transferred to the Willow Oak property, Highwoods Centre property, Sycamore property. (7) Reflects land transferred to the Global property, Red Oak property. (8) Reflects land transferred to Hewlett Packard property, Inacom property, East Building D property, East Building 6 property. (9) Reflects land transferred to Situs II property. (10) Reflects land transferred to Airport Center I property. (11) Reflects land transferred to Lakeview Ridge II property, Lakeview Ridge 3 property. (12) Reflects sale of land. (13) Patewood III and IV are considered one property for encumbrance purposes. (14) The aggregate cost for Federal Income Tax purposes was approximately $1,828,000,000. F-36 HIGHWOODS PROPERTIES, INC. NOTE TO SCHEDULE III (in thousands) As of December 31, 1997, 1996 and 1995 A summary of activity for real estate and accumulated depreciation is as follows:
December 31, --------------------------------------------- 1997 1996 1995 -------------- -------------- ----------- Real Estate: Balance at beginning of year ........................ $1,390,079 $ 598,536 $218,699 Additions: Acquisitions, development and improvements ......... 1,216,687 792,697 381,936 Cost of real estate sold ............................ (3,356) (1,154) (2,099) ---------- ---------- -------- Balance at close of year (a) .......................... $2,603,410 $1,390,079 $598,536 ========== ========== ======== Accumulated Depreciation: Balance at beginning of year ........................ $ 42,194 $ 21,452 $ 11,003 Depreciation expense ................................ 44,002 20,752 10,483 Real estate sold .................................... (134) (10) (34) ---------- ---------- -------- Balance at close of year (b) ........................ $ 86,062 $ 42,194 $ 21,452 ========== ========== ========
- ---------- (a) Reconciliation of total cost to balance sheet caption at December 31, 1997, 1996 and 1995 (in thousands):
1997 1996 1995 ------------- ------------- ----------- Total per schedule III ...................... $2,603,410 $1,390,079 $598,536 Construction in progress exclusive of land included in Schedule III .......... 95,387 28,859 15,508 Furniture, fixtures and equipment ........... 3,362 2,096 1,288 ---------- ---------- -------- Total real estate assets at cost ............ $2,702,159 $1,421,034 $615,332 ========== ========== ========
(b) Reconciliation of total accumulated depreciation to balance sheet caption at December 31, 1997, 1996 and 1995 (in thousands):
1997 1996 1995 ---------- ---------- ---------- Total per schedule III ............................................ $86,062 $42,195 $21,452 Accumulated depreciation -- furniture, fixtures and equipment...... 1,443 965 814 ------- ------- ------- Total accumulated depreciation .................................... $87,505 $43,160 $22,266 ======= ======= =======
F-37 EX-2 2 EXHIBIT 2.8 AGREEMENT AND PLAN OF MERGER BY AND AMONG HIGHWOODS PROPERTIES, INC., JACKSON ACQUISITION CORP., AND J.C. NICHOLS COMPANY Dated as of December 22, 1997 AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered into as of December 22, 1997, by and among HIGHWOODS PROPERTIES, INC. ("Highwoods"), a Maryland corporation; JACKSON ACQUISITION CORP. ("Sub"), a Maryland corporation; and J.C. Nichols Company ("JCN"), a Missouri corporation. PREAMBLE The respective Boards of Directors of JCN, Sub and Highwoods are of the opinion that the transactions described herein are in the best interests of the parties to this Agreement and their respective shareholders. This Agreement provides for the acquisition of JCN by Highwoods pursuant to the merger of JCN with and into Sub. At the effective time of such merger, the outstanding shares of the capital stock of JCN shall be converted into the right to receive shares of the common stock of Highwoods (except as provided herein). The transactions described in this Agreement are subject to the approvals of the shareholders of JCN and the satisfaction of certain other conditions described in this Agreement. It is the intention of the parties to this Agreement that the Merger for federal income tax purposes shall qualify as a "reorganization" within the meaning of Section 368(a)(1)(A) of the Internal Revenue Code. Certain terms used in this Agreement are defined in Section 11.1 of this Agreement. NOW, THEREFORE, in consideration of the above and the mutual warranties, representations, covenants, and agreements set forth herein, the parties agree as follows: ARTICLE 1 TRANSACTIONS AND TERMS OF MERGER 1.1 Merger. Subject to the terms and conditions of this Agreement, at the Effective Time, JCN shall be merged with and into Sub in accordance with the provisions of Section 351.440 of the GBCL and with the effect provided in Section 351.450 of the GBCL and in accordance with Section 3-105 of the MGCL and with the effect provided in Section 3-114 of the MGCL (the "Merger"). Sub shall be the Surviving Corporation resulting from the Merger and shall remain a wholly owned Subsidiary of Highwoods and shall continue to be governed by the Laws of the State of Maryland. The Merger shall be consummated pursuant to the terms of this Agreement, which has been approved and adopted by the respective Boards of Directors of JCN, Sub and Highwoods and by Highwoods, as the sole shareholder of Sub. 1.2 Time and Place of Closing. The closing of the transactions contemplated hereby (the "Closing") will take place at 9:00 A.M. on the date that the Effective Time occurs (or the immediately preceding day if the Effective Time is earlier than 9:00 A.M.), or at such other time as the Parties, acting through their authorized officers, may mutually agree. The Closing shall be held at such location as may be mutually agreed upon by the Parties. 1 1.3 Effective Time. The Merger and other transactions contemplated by this Agreement shall become effective on the later of the date and at the time the Articles of Merger reflecting the Merger shall become effective with the Secretary of State of the State of Missouri and the Articles of Merger reflecting the Merger become effective with the Department of Assessments and Taxation of the State of Maryland (the "Effective Time"). Subject to the terms and conditions hereof, unless otherwise mutually agreed upon in writing by the authorized officers of each Party, the Parties shall use their reasonable efforts to cause the Effective Time to occur on the second business day following the last to occur of (i) the effective date (including expiration of any applicable waiting period) of the last required Consent referred to in Section 9.1(b) hereof, and (ii) the date on which the shareholders of JCN approve this Agreement to the extent such approval is required by applicable Law; provided, however, in the event the Effective Time, as otherwise determined hereunder, would be any date within 15 business days prior to the last day of a calendar quarter, the Effective Time shall be the first business day of the next calendar quarter. ARTICLE 2 TERMS OF MERGER 2.1 Charter. The Articles of Incorporation of Sub in effect immediately prior to the Effective Time shall be the Articles of Incorporation of the Surviving Corporation until duly amended or repealed. 2.2 Bylaws. The Bylaws of Sub in effect immediately prior to the Effective Time shall be the Bylaws of the Surviving Corporation until duly amended or repealed. 2.3 Directors and Officers. The directors of Sub in office immediately prior to the Effective Time, together with such additional persons as may thereafter be elected, shall serve as the directors of the Surviving Corporation from and after the Effective Time in accordance with the Bylaws of the Surviving Corporation. The officers of Sub in office immediately prior to the Effective Time, together with such additional persons as may thereafter be elected, shall serve as the officers of the Surviving Corporation from and after the Effective Time in accordance with the Bylaws of the Surviving Corporation. ARTICLE 3 MANNER OF CONVERTING SHARES 3.1 Conversion of Shares. Subject to the provisions of this Article 3, at the Effective Time, by virtue of the Merger and without any action on the part of Highwoods, JCN, Sub or the shareholders of any of the foregoing, the shares of the constituent corporations shall be converted as follows: (a) Each share of capital stock of Highwoods issued and outstanding immediately prior to the Effective Time shall remain issued and outstanding from and after the Effective Time. 2 (b) Each share of Sub Common Stock issued and outstanding immediately prior to the Effective Time shall remain issued and outstanding from and after the Effective Time. (c) Subject to the rights granted in Section 3.2, each share of JCN Common Stock (including any associated JCN Rights, but excluding shares held by any JCN Entity or any Highwoods Entity, and excluding shares held by shareholders who perfect their statutory dissenters' rights as provided in Section 3.5) issued and outstanding immediately prior to the Effective Time shall cease to be outstanding and shall be converted into and exchanged for the right to receive 1.84 shares (the "Exchange Ratio") of Highwoods Common Stock (the "Per Share Stock Consideration"). Pursuant to the Highwoods Rights Agreement, each share of Highwoods Common Stock issued in connection with the Merger upon conversion of JCN Common Stock shall be accompanied by a Highwoods Right. 3.2 Cash Election. Holders of JCN Common Stock shall be provided with an opportunity to elect to receive cash consideration in lieu of receiving Highwoods Common Stock in the Merger, in accordance with the election procedures set forth below in this Section 3.2. Holders who are to receive cash in lieu of exchanging their shares of JCN Common Stock for Highwoods Common Stock as specified below shall receive $65 per share of JCN Common Stock in cash (the "Per Share Cash Consideration"). The amount determined by multiplying $65 by the number of Dissenting Shares shall be defined herein as the "Dissenting Share Amount." The aggregate Per Share Cash Consideration to be paid in the Merger, plus the Dissenting Share Amount, shall be limited to 40% of the aggregate consideration paid in exchange for shares of JCN Common Stock and shall be defined herein as the "Cash Amount." Furthermore, in the event the aggregate Per Share Stock Consideration to be paid for the JCN Common Stock is in excess of 75% of the aggregate consideration to be paid in exchange for shares of JCN Common Stock, Highwoods shall have the option to limit the aggregate Per Share Stock Consideration to as low as 75% of such consideration (such limiting amount as may be elected by Highwoods shall be referred to as the "Maximum Share Amount") and to make a corresponding increase in the aggregate Per Share Cash Consideration. For purposes of calculating the aggregate consideration to be paid in exchange for shares of JCN Common Stock for purposes of this Section 3.2, the aggregate Per Share Stock Consideration shall be determined by using the price of Highwoods Common Stock used to calculate the Exchange Ratio in Section 3.1 hereof. A form for use by JCN shareholders to elect cash and to state their intent to retain Highwoods Common Stock to be received pursuant to the Merger and other appropriate and customary transmittal material (which shall specify that delivery shall be effected only upon proper delivery of the certificates theretofore representing JCN Common Stock ("Old Certificates") to an exchange agent designated by Highwoods (the "Exchange Agent")) in such form as Highwoods and JCN shall mutually agree ("Election Form") shall be mailed concurrently with the mailing of the Proxy Statement required by Section 8.1 hereof, or on such other date as Highwoods and JCN shall mutually agree ("Mailing Date") to each holder of record of JCN Common Stock on the record date ("Record Date") for the JCN shareholders entitled to vote at the shareholders' meeting to approve the Merger as required by Section 8.1 (the "JCN Shareholders Meeting"). 3 Each Election Form shall permit a holder (or the beneficial owner through appropriate and customary documentation and instructions) of JCN Common Stock to elect to receive cash with respect to all or a portion of such holder's JCN Common Stock and to state an intent to retain Highwoods Common Stock to be received pursuant to the Merger. Any shares of JCN Common Stock with respect to which the holder (or the beneficial owner, as the case may be) elects to receive cash and does not dissent shall be referred to herein as the "Cash Election Shares." Any shares of JCN Common Stock with respect to which the holder (or the beneficial owner, as the case may be) does not elect to receive cash, states an intention to retain Highwoods Common Stock to be received pursuant to the Merger and does not dissent shall be referred to herein as "Stock Retained Shares." Any shares of JCN Common Stock with respect to which the holder (or the beneficial owner, as the case may be) does not elect to receive cash, does not state an intention to retain Highwoods Common Stock to be received pursuant to the Merger and does not dissent shall be referred to herein as "Stock Non-Retained Shares." Any shares of JCN Common Stock with respect to which the holder (or the beneficial owner, as the case may be) shall not have submitted to the Exchange Agent an effective, properly completed Election Form on or before 5:00 p.m. on the fifth business day prior to the date of the JCN Shareholders Meeting (or such other time and date as Highwoods and JCN may mutually agree) (the "Election Deadline") shall be referred to herein as "No Election Shares." Any of the elections set forth in the foregoing paragraph shall have been properly made only if the Exchange Agent shall have actually received a properly completed Election Form by the Election Deadline. Any Election Form may be revoked or changed by the person submitting a subsequent Election Form at or prior to the Election Deadline. In the event an Election Form is revoked prior to the Election Deadline, the shares of JCN Common Stock represented by such Election Form shall become No Election Shares. Subject to the terms of this Agreement and of the Election Form, the Exchange Agent shall have reasonable discretion to determine whether any election, revocation or change has been properly or timely made and to disregard immaterial defects in the Election Forms, and any good faith decisions of the Exchange Agent regarding such matters shall be binding and conclusive. The Exchange Agent shall promptly notify JCN of any defect in an Election Form other than an immaterial defect disregarded in good faith by the Exchange Agent. Subject to the foregoing sentence, neither Highwoods nor the Exchange Agent shall be under any obligation to notify any person of any defect in an Election Form. Within three business days after the Election Deadline, Highwoods shall cause the Exchange Agent to effect the allocation among the holders of JCN Common Stock in accordance with the Election Forms, subject to the following: (i) Cash Elections More Than the Cash Amount. If the amount of cash that would be issued upon the conversion of the Cash Election Shares is greater than the amount by which the Cash Amount exceeds the Dissenting Share Amount (the "Maximum Cash Election Amount"), then the Exchange Agent shall convert a sufficient number of Cash Election Shares (other than Dissenting Shares) into the right to receive 4 the Per Share Stock Consideration, which Cash Election Shares shall be selected pro rata from among all of the holders thereof, based upon the aggregate number of Cash Election Shares held by each of such holders, such that the amount of cash that will be issued in the Merger to satisfy the non-converted Cash Election Shares equals as closely as practicable the Maximum Cash Election Amount. (ii) Stock Elections More than Maximum Share Amount. If the value of Highwoods Common Stock that would be issued in the Merger upon conversion of all shares of JCN Common Stock other than Cash Election Shares and Dissenting Shares (whose value for purposes of this determination is presumed to be $65 per share) is greater than the Maximum Share Amount and Highwoods has elected to exercise its option to limit the aggregate Per Share Stock Consideration to an amount equal to the Maximum Share Amount, then the Exchange Agent shall: (1) convert a sufficient number of No Election Shares (other than Dissenting Shares) into the right to receive the Per Share Cash Consideration, which No Election Shares shall be selected pro rata from among all of the holders thereof, based upon the aggregate number of No Election Shares held by each such holder, such that the amount of Highwoods Common Stock to be issued in the Merger equals as close as practicable the Maximum Share Amount; and (2) to the extent that such conversion of No Election Shares does not reduce the value of Highwoods Common Stock that would be issued in the Merger to the Maximum Share Amount, convert a sufficient number of Stock Non-Retained Shares into the right to receive the Per Share Cash Consideration, which Stock Non-Retained Shares shall be selected pro rata from among all of the holders thereof, based upon the aggregate number of Stock Non-Retained Shares held by each such holder, such that the amount of Highwoods Common Stock to be issued in the Merger equals as close as practicable the Maximum Share Amount; and (3) to the extent that such conversions of the No Election Shares and Stock Non-Retained Shares does not reduce the value of Highwoods Common Stock that would be issued in the Merger to the Maximum Share Amount, convert a sufficient number of Stock Retained Shares into the right to receive the Per Share Cash Consideration, which Stock Retained Shares shall be selected pro rata from among all of the holders thereof, based upon the aggregate number of Stock Retained Shares held by each such holder, such that the amount of Highwoods Common Stock to be issued in the Merger equals as close as practicable the Maximum Share Amount. 5 Highwoods shall, at least two business days prior to the date of the JCN Shareholders Meeting, communicate to JCN the aggregate allocation of stock and cash, the amount of stock and cash going to each of JCN's shareholders, and the method in which such amounts were calculated. 3.3 Anti-Dilution Provisions. In the event Highwoods (i) changes the number of shares of Highwoods Common Stock issued and outstanding prior to the Effective Time as a result of a stock split, stock dividend, or similar recapitalization with respect to such stock; (ii) makes any distribution to its shareholders other than in the ordinary course (such as Highwoods regular quarterly dividend in an amount generally consistent with past practices, including typical annual increases); (iii) issues any Highwoods security or other right to receive any Highwoods security except upon receipt of reasonably equivalent value or pursuant to any Highwoods (or its Affiliates) stock option or other benefit plans, and the record date therefor (in the case of a stock dividend) or the effective date thereof (in the case of a stock split or similar recapitalization for which a record date is not established) shall be prior to the Effective Time, the Exchange Ratio shall be proportionately adjusted. 3.4 Shares Held by JCN or Highwoods. Each of the shares of JCN Common Stock held by any JCN Entity or by any Highwoods Entity shall be canceled and retired at the Effective Time and no consideration shall be issued in exchange therefor. 3.5 Dissenting Shareholders. Any holder of shares of JCN Common Stock who perfects his dissenters' rights in accordance with and as contemplated by Section 351.455 of the GBCL shall be entitled to receive the value of such shares in cash as determined pursuant to such provision of Law; provided, that no such payment shall be made to any dissenting shareholder unless and until such dissenting shareholder has complied with the applicable provisions of the GBCL and surrendered to the Surviving Corporation the certificate or certificates representing the shares for which payment is being made. In the event that after the Effective Time a dissenting shareholder of JCN fails to perfect, or effectively withdraws or loses, his right to appraisal and of payment for his shares, Highwoods shall issue and deliver the consideration to which such holder of shares of JCN Common Stock would have been entitled under this Article 3 (without interest) had such shares been No Election Shares upon surrender by such holder of the certificate or certificates representing shares of JCN Common Stock held by him. If and to the extent required by applicable Law, the Surviving Corporation will establish (or cause to be established) an escrow account with an amount sufficient to satisfy the maximum aggregate payment that may be required to be paid to dissenting shareholders. Upon satisfaction of all claims of dissenting shareholders, the remaining escrowed amount, reduced by payment of the fees and expenses of the escrow agent, will be returned to the Surviving Corporation. In the event that the Surviving Corporation is liquidated prior to the fulfillment of all obligations of the Surviving Corporation under this Section 3.5, such obligations shall be assumed by Highwoods. 3.6 Fractional Shares. Notwithstanding any other provision of this Agreement, each holder of shares of JCN Common Stock exchanged pursuant to the Merger who would otherwise 6 have been entitled to receive a fraction of a share of Highwoods Common Stock (after taking into account all certificates delivered by such holder) shall receive, in lieu thereof, cash (without interest) in an amount equal to such fractional part of a share of Highwoods Common Stock multiplied by the market value of one share of Highwoods Common Stock at the Effective Time. For purposes of this Section 3.6, the market value of one share of Highwoods Common Stock at the Effective Time shall be equal to the price of Highwoods Common Stock used to calculate the Exchange Ratio in Section 3.1 hereof. No such holder will be entitled to dividends, voting rights, or any other rights as a shareholder in respect of any fractional shares. 3.7 Conversion of Stock Options. (a) At the Effective Time, each option or other Equity Right to purchase shares of JCN Common Stock pursuant to stock options or stock appreciation rights ("JCN Options") granted by JCN under the JCN Stock Plans, which are outstanding at the Effective Time, whether or not exercisable, shall be converted into and become rights with respect to Highwoods Common Stock, and Highwoods shall assume each JCN Option, in accordance with the terms of the JCN Stock Plan and stock option agreement by which it is evidenced, except that from and after the Effective Time, (i) Highwoods and its Compensation Committee shall be substituted for JCN and the committee of JCN's Board of Directors (including, if applicable, the entire Board of Directors of JCN) administering such JCN Stock Plan, (ii) each JCN Option assumed by Highwoods may be exercised solely for shares of Highwoods Common Stock (or cash, if so provided under the terms of such JCN Option), (iii) the number of shares of Highwoods Common Stock subject to such JCN Option shall be equal to the number of shares of JCN Common Stock subject to such JCN Option immediately prior to the Effective Time multiplied by the Exchange Ratio, (iv) the per share exercise price under each such JCN Option shall be adjusted by dividing the per share exercise price under each such JCN Option by the Exchange Ratio and rounding up to the nearest cent, (v) each JCN Option that would have become fully exercisable under a JCN Stock Plan as a result of a "change in control" will continue to be fully exercisable into shares of Highwoods Common Stock upon consummation of the Merger, and (vi) employment by Highwoods of a JCN employee upon consummation of the Merger will not be deemed a termination of employment by JCN that would limit such employee's rights to exercise any JCN Option under the provisions hereof. Notwithstanding the provisions of clause (iii) of the preceding sentence, Highwoods shall not be obligated to issue any fraction of a share of Highwoods Common Stock upon exercise of JCN Options and any fraction of a share of Highwoods Common Stock that otherwise would be subject to a converted JCN Option shall represent the right to receive a cash payment upon exercise of such converted JCN Option equal to the product of such fraction and the difference between the market value of one share of Highwoods Common Stock at the time of exercise of such Option and the per share exercise price of such Option. For purposes of this Section 3.7, the market value of one share of Highwoods Common Stock at the time of exercise of a JCN Option shall be the closing price of such common stock on the NYSE-Composite Transactions List (as reported by The Wall Street Journal or, if not reported thereby, any other authoritative source selected by Highwoods) on the last trading day preceding the date of exercise. In addition, notwithstanding the provisions of clauses (iii) and (iv) of the first sentence of this Section 3.7, 7 each JCN Option which is an "incentive stock option" shall be adjusted as required by Section 424 of the Internal Revenue Code, and the regulations promulgated thereunder, so as not to constitute a modification, extension or renewal of the option, within the meaning of Section 424(h) of the Internal Revenue Code. Each of JCN and Highwoods agrees to take all necessary steps to effectuate the foregoing provisions of this Section 3.7, including using its reasonable efforts to obtain from each holder of a JCN Option any reasonable Consent or Contract that may be deemed reasonably necessary or advisable in order to effect the transactions contemplated by this Section 3.7. Anything in this Agreement to the contrary notwithstanding, Highwoods shall have the right, in its sole discretion, not to deliver the consideration provided in this Section 3.7 to a former holder of a JCN Option who has not delivered such Consent or Contract. (b) As soon as practicable after the Effective Time, Highwoods shall deliver to the participants in each JCN Stock Plan an appropriate notice setting forth such participant's rights pursuant thereto and the grants subject to such JCN Stock Plan shall continue in effect on the same terms and conditions (subject to the adjustments required by Section 3.7(a) after giving effect to the Merger), and Highwoods shall comply with the terms of each JCN Stock Plan to ensure, to the extent required by, and subject to the provisions of, such JCN Stock Plan, that JCN Options which qualified as incentive stock options prior to the Effective Time continue to qualify as incentive stock options after the Effective Time. At or prior to the Effective Time, Highwoods shall take all corporate action necessary to reserve for issuance sufficient shares of Highwoods Common Stock for delivery upon exercise of JCN Options assumed by it in accordance with this Section 3.7. As soon as practicable after the Effective Time, Highwoods shall file a registration statement on Form S3 or Form S8, as the case may be (or any successor or other appropriate forms), with respect to the shares of Highwoods Common Stock subject to such options and shall use its reasonable efforts to maintain the effectiveness of such registration statements (and maintain the current status of the prospectus or prospectuses contained therein) for so long as such options remain outstanding. With respect to those individuals who subsequent to the Merger will be subject to the reporting requirements under Section 16(a) of the 1934 Act, where applicable, Highwoods shall administer the JCN Stock Plan assumed pursuant to this Section 3.7 in a manner that complies with Rule 16b3 promulgated under the 1934 Act. (c) All contractual restrictions or limitations on transfer with respect to JCN Common Stock awarded under the JCN Stock Plan or any other plan, program, Contract or arrangement of any JCN Entity, to the extent that such restrictions or limitations shall not have already lapsed (whether as a result of the Merger or otherwise), and except as otherwise expressly provided in such plan, program, Contract or arrangement, shall remain in full force and effect with respect to shares of Highwoods Common Stock into which such restricted stock is converted pursuant to Section 3.1. 3.8 Extraordinary Dividend. In the event that the consolidated earnings and profits of JCN (as defined in Section 312 of the Internal Revenue Code) would otherwise exceed $20,000,000 as of the Effective Time, the directors of JCN shall take all necessary action to cause the distribution of an extraordinary dividend to the shareholders of JCN prior to the Effective Date 8 in such amount that as of the Effective Date such consolidated earnings and profits will be no more than $20,000,000. The amount of earnings and profits shall be determined by an earnings and profits study to be performed by either KPMG Peat Marwick or Ernst & Young, L.L.P. in consultation with the other, including an estimate for the period beginning as of the day following the date of the latest available JCN Financial Statements and ending on the probable Effective Time. In making the earnings and profits study, the interest accrued by the Company on the ESOT (as defined below) debt and the Bowser limited partnership debt shall be excluded from taxable income. The per share amount of the extraordinary dividend so distributed, if any, shall reduce the value of the JCN Common Stock in an equivalent amount, and the Per Share Stock Consideration, the Per Share Cash Consideration and the Exchange Ratio shall be proportionately adjusted, as appropriate. ARTICLE 4 EXCHANGE OF SHARES 4.1 Exchange Procedures. (a) At or prior to the Effective Time, Highwoods shall deposit, or shall cause to be deposited, with the Exchange Agent, for the benefit of the holders of Old Certificates for exchange in accordance with this Article IV certificates representing the shares of Highwoods Common Stock ("New Certificates") and an estimated amount of cash (such cash and New Certificates, together with any dividends or distributions with respect thereto (without any interest thereon), being hereinafter referred to as the "Exchange Fund") to be paid pursuant to this Article IV in exchange for outstanding shares of JCN Common Stock. (b) As promptly as practicable after the Effective Date, Highwoods shall send or cause to be sent to each former holder of record of shares of JCN Common Stock (other than Cash Election Shares, shares of JCN Common Stock held in treasury by JCN or Dissenting Shares) of JCN Common Stock immediately prior to the Effective Time transmittal materials for use in exchanging such stockholder's Old Certificates for the consideration set forth in this Article IV. Highwoods shall cause the New Certificates into which shares of a stockholder's JCN Common Stock are converted on the Effective Date and/or any check in respect of the Per Share Cash Consideration and any fractional share interests or dividends or distributions which such person shall be entitled to receive to be delivered to such stockholder upon delivery to the Exchange Agent of Old Certificates representing such shares of JCN Common Stock (or indemnity reasonably satisfactory to Highwoods and the Exchange Agent, if any of such certificates are lost, stolen or destroyed) owned by such stockholder. No interest will be paid on any such cash to be paid pursuant to this Article IV upon such delivery. (c) Notwithstanding the foregoing, neither the Exchange Agent nor any party hereto shall be liable to any former holder of JCN Common Stock for any amount properly delivered to a public official pursuant to applicable abandoned property, escheat or similar laws. 9 (d) No dividends or other distributions with respect to Highwoods Common Stock with a record date occurring after the Effective Time shall be paid to the holder of any unsurrendered Old Certificate representing shares of JCN Common Stock converted in the Merger into shares of such Highwoods Common Stock until the holder thereof shall surrender such Old Certificate in accordance with this Article IV. After the surrender of an Old Certificate in accordance with this Article IV, the record holder thereof shall be entitled to receive any such dividends or other distributions, without any interest thereon, which theretofore had become payable with respect to shares of Highwoods Common Stock represented by such Old Certificates. (e) To the extent permitted by Law, any portion of the Exchange Fund that remains unclaimed by the stockholders of JCN for twelve months after the Effective Time shall be paid to Highwoods. Any stockholders of JCN who have not theretofore complied with this Article IV shall thereafter look only to Highwoods for payment of the shares of Highwoods Common Stock, cash in lieu of any fractional shares and unpaid dividends and distributions on the Highwoods Common Stock deliverable in respect of each share of JCN Common Stock such stockholder holds as determined pursuant to this Agreement, in each case, without any interest thereon. 4.2 Rights of Former JCN Shareholders. At the Effective Time, the stock transfer books of JCN shall be closed as to holders of JCN Common Stock immediately prior to the Effective Time and no transfer of JCN Common Stock by any such holder shall thereafter be made or recognized. Until surrendered for exchange in accordance with the provisions of Section 4.1, each Certificate theretofore representing shares of JCN Common Stock (other than shares to be canceled pursuant to Sections 3.4 and 3.5) shall from and after the Effective Time represent for all purposes only the right to receive the consideration provided in Sections 3.1 through 3.6 in exchange therefor, subject, however, to the Surviving Corporation's obligation (or Highwoods' obligation following any liquidation of the Surviving Corporation) to pay any dividends or make any other distributions with a record date prior to the Effective Time which have been declared or made by JCN in respect of such shares of JCN Common Stock in accordance with the terms of this Agreement and which remain unpaid at the Effective Time. To the extent permitted by Law, former shareholders of record of JCN shall be entitled to vote after the Effective Time at any meeting of Highwoods shareholders the number of whole shares of Highwoods Common Stock into which their respective shares of JCN Common Stock are converted, regardless of whether such holders have exchanged their Old Certificates for New Certificates representing Highwoods Common Stock in accordance with the provisions of this Agreement. ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF JCN JCN hereby represents and warrants to Highwoods as follows: 5.1 Organization, Standing, and Power. JCN is a corporation duly organized, validly existing, and in good standing under the Laws of the State of Missouri, and has the corporate power and authority to carry on its business as now conducted and to own, lease and operate its 10 Assets. JCN is duly qualified or licensed to transact business as a foreign corporation in good standing in the States of the United States and foreign jurisdictions where the character of its Assets or the nature or conduct of its business requires it to be so qualified or licensed, except for such jurisdictions in which the failure to be so qualified or licensed is not reasonably likely to have a JCN Material Adverse Effect. The minute book and other organizational documents for JCN have been made available to Highwoods for its review and, except as disclosed in Section 5.1 of the JCN Disclosure Memorandum, are complete in all material respects as in effect as of the date of this Agreement and accurately reflect in all material respects all amendments thereto and all proceedings of the Board of Directors and shareholders thereof. 5.2 Authority of JCN; No Breach By Agreement. (a) JCN has the corporate power and authority necessary to execute, deliver, and perform its obligations under this Agreement and to consummate the transactions contemplated hereby. The execution, delivery, and performance of this Agreement and the consummation of the transactions contemplated herein, including the Merger, have been duly and validly authorized by all necessary corporate action in respect thereof on the part of JCN, subject to the approval of this Agreement by the holders of two-thirds of the outstanding shares of JCN Common Stock, which is the only vote of JCN shareholders required for approval of this Agreement and consummation of the Merger by JCN. Subject to such requisite shareholder approval, this Agreement represents a legal, valid, and binding obligation of JCN, enforceable against JCN in accordance with its terms (except in all cases as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, receivership, conservatorship, moratorium, or similar Laws affecting the enforcement of creditors' rights generally and except that the availability of the equitable remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding may be brought). (b) Neither the execution and delivery of this Agreement by JCN, nor the consummation by JCN of the transactions contemplated hereby, nor compliance by JCN with any of the provisions hereof, will (i) conflict with or result in a breach of any provision of JCN's Articles of Incorporation or Bylaws or the certificate or articles of incorporation or bylaws of any JCN Subsidiary or any resolution adopted by the board of directors or the shareholders of any JCN Entity, or (ii) except as disclosed in Section 5.2 of the JCN Disclosure Memorandum, constitute or result in a Default under, or require any Consent pursuant to, or result in the creation of any Lien on any Asset of any JCN Entity under, any Contract or Permit of any JCN Entity, where such Default or Lien, or any failure to obtain such Consent, is reasonably likely to have, individually or in the aggregate, a JCN Material Adverse Effect, or, (iii) subject to receipt of the requisite Consents referred to in Section 9.1(b) and 9.1(c), constitute or result in a Default under, or require any Consent pursuant to, any Law or Order applicable to any JCN Entity or any of their respective material Assets. (c) Other than in connection or compliance with the provisions of the Securities Laws, applicable state corporate and securities Laws, and rules of the NASD, and other than 11 Consents required from Regulatory Authorities, and other than notices to or filings with the Internal Revenue Service or the Pension Benefit Guaranty Corporation with respect to any employee benefit plans, or under the HSR Act, and other than Consents, filings, or notifications which, if not obtained or made, are not reasonably likely to have, individually or in the aggregate, a JCN Material Adverse Effect, no notice to, filing with, or Consent of, any public body or authority is necessary for the consummation by JCN of the Merger and the other transactions contemplated in this Agreement. 5.3 Capital Stock. (a) The authorized capital stock of JCN consists of (i) 10,000,000 shares of JCN Common Stock, of which 4,529,357 shares are issued and outstanding as of the date of this Agreement and not more than 4,857,387 shares will be issued and outstanding at the Effective Time. All of the issued and outstanding shares of capital stock of JCN are duly and validly issued and outstanding and are fully paid and nonassessable under the GBCL. None of the outstanding shares of capital stock of JCN has been issued in violation of any preemptive rights of the current or past shareholders of JCN. (b) Except as set forth in Section 5.3(a), or as set forth in the Call Right granted to KH/JCN LLC, or as disclosed in Section 5.3(b) of the JCN Disclosure Memorandum, there are no shares of capital stock or other equity securities of JCN outstanding and no outstanding Equity Rights relating to the capital stock of JCN. 5.4 JCN Subsidiaries. JCN has disclosed in Section 5.4 of the JCN Disclosure Memorandum all of the JCN Subsidiaries that are corporations (identifying its jurisdiction of incorporation, each jurisdiction in which it is qualified and/or licensed to transact business, and the number of shares owned and percentage ownership interest represented by such share ownership) and all of the JCN Subsidiaries that are general or limited partnerships, limited liability companies, or other non-corporate entities (identifying the Law under which such entity is organized, each jurisdiction in which it is qualified and/or licensed to transact business, and the amount and nature of the ownership interest therein). Except as disclosed in Section 5.4 of the JCN Disclosure Memorandum, JCN or one of its Subsidiaries owns all of the issued and outstanding shares of capital stock (or other equity interests) of each JCN Subsidiary. No capital stock (or other equity interest) of any JCN Subsidiary is or may become required to be issued (other than to another JCN Entity) by reason of any Equity Rights, and there are no Contracts by which any JCN Subsidiary is bound to issue (other than to another JCN Entity) additional shares of its capital stock (or other equity interests) or Equity Rights or by which any JCN Entity is or may be bound to transfer any shares of the capital stock (or other equity interests) of any JCN Subsidiary (other than to another JCN Entity). There are no Contracts relating to the rights of any JCN Entity to vote or to dispose of any shares of the capital stock (or other equity interests) of any JCN Subsidiary. All of the shares of capital stock (or other equity interests) of each JCN Subsidiary held by a JCN Entity are fully paid and nonassessable under the applicable corporation Law of the jurisdiction in which such Subsidiary is incorporated or organized and are owned by 12 the JCN Entity free and clear of any Lien. Except as disclosed in Section 5.4 of the JCN Disclosure Memorandum, each JCN Subsidiary is a corporation, and each JCN Subsidiary is duly organized, validly existing, and (as to corporations) in good standing under the Laws of the jurisdiction in which it is incorporated or organized, and has the corporate power and authority necessary for it to own, lease, and operate its Assets and to carry on its business as now conducted. Each JCN Subsidiary is duly qualified or licensed to transact business as a foreign corporation or organization, as the case may be, in good standing in the States of the United States where the character of its Assets or the nature or conduct of its business requires it to be so qualified or licensed, except for such jurisdictions in which the failure to be so qualified or licensed is not reasonably likely to have, individually or in the aggregate, a JCN Material Adverse Effect. The minute book and other organizational documents for each JCN Subsidiary have been made available to Highwoods for its review, and, except as disclosed in Section 5.4 of the JCN Disclosure Memorandum, are complete in all material respects as in effect as of the date of this Agreement and accurately reflect in all material respects all amendments thereto and all proceedings of the Board of Directors and shareholders thereof; provided, however, that for purposes of this sentence all representations relating to the period prior to January 1, 1996, are based solely on the Knowledge of JCN. 5.5 SEC Filings; Financial Statements. (a) JCN has timely filed and made available to Highwoods all SEC Documents required to be filed by JCN since November 30, 1996 (the "JCN SEC Reports"). The JCN SEC Reports (i) at the time filed, complied in all material respects with the applicable requirements of the Securities Laws and other applicable Laws and (ii) did not, at the time they were filed (or, if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing) contain any untrue statement of a material fact or omit to state a material fact required to be stated in such JCN SEC Reports or necessary in order to make the statements in such JCN SEC Reports, in light of the circumstances under which they were made, not misleading. No JCN Subsidiary is required to file any SEC Documents. (b) Each of the JCN Financial Statements (including, in each case, any related notes) contained in the JCN SEC Reports, including any JCN SEC Reports filed after the date of this Agreement until the Effective Time, complied as to form in all material respects with the applicable published rules and regulations of the SEC with respect thereto, was prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes to such financial statements or, in the case of unaudited interim statements, as permitted by Form 10-Q of the SEC), and fairly presented in all material respects the consolidated financial position of JCN and its Subsidiaries as at the respective dates and the consolidated results of operations and cash flows for the periods indicated, except that the unaudited interim financial statements were or are subject to normal and recurring year-end adjustments which were not or are not expected to be material in amount or effect. 13 5.6 Absence of Undisclosed Liabilities. Except as set forth in Section 5.6 of the JCN Disclosure Memorandum, no JCN Entity has any Liabilities that are reasonably likely to have a JCN Material Adverse Effect, except Liabilities which are accrued or reserved against in the consolidated balance sheets of JCN as of September 30, 1997 or December 31, 1996, included in the JCN Financial Statements delivered prior to the date of this Agreement or reflected in the notes thereto. 5.7 Absence of Certain Changes or Events. Since December 31, 1996, except as disclosed in the JCN Financial Statements delivered prior to the date of this Agreement or as disclosed in Section 5.7 of the JCN Disclosure Memorandum, there have been no events, changes, or occurrences which have had, or are reasonably likely to have a JCN Material Adverse Effect. 5.8 Tax Matters. (a) To the Knowledge of JCN, no Tax Return is or has been delinquent and, except as set forth in Section 5.8 of the JCN Disclosure Memorandum, all Tax Returns filed are complete and accurate in all material respects. All Taxes shown on filed Tax Returns have been paid. There is no audit examination, deficiency, or refund Litigation with respect to any Taxes, except as reserved against in the JCN Financial Statements delivered prior to the date of this Agreement or as disclosed in Section 5.8 of the JCN Disclosure Memorandum. The statute of limitations on JCN's federal income Tax Returns have run for all periods prior to December 31, 1987. All Taxes and other Liabilities due with respect to completed and settled examinations or concluded Litigation have been paid. There are no Liens with respect to Taxes upon any of the Assets of the JCN Entities, except for any such Liens which are not reasonably likely to have a JCN Material Adverse Effect. (b) Except as may result from the extension of JCN's federal income Tax Returns described in Section 5.8 of the JCN Disclosure Memorandum or from of an adjustment by the Internal Revenue Service of JCN's income, none of the JCN Entities has executed an extension or waiver of any statute of limitations on the assessment or collection of any Tax due to any State taxing authority that is currently in effect. (c) Except as set forth in Section 5.8 of the JCN Disclosure Memorandum, the provision for any Taxes due or to become due for any of the JCN Entities for the period or periods through and including the date of the respective JCN Financial Statements that has been made and is reflected on such JCN Financial Statements is sufficient to cover all such Taxes. (d) Except as set forth in Section 5.8 of the JCN Disclosure Memorandum, deferred taxes of the JCN Entities have been provided for in accordance with GAAP. (e) None of the JCN Entities is a party to any Tax allocation or sharing agreement, none of the JCN Entities has been a member of an affiliated group filing a consolidated federal income Tax Return (other than a group the common parent of which was JCN), and none of the 14 JCN Entities has any Liability for Taxes of any Person (other than JCN and its Subsidiaries) under Treasury Regulation Section 1.15026 (or any similar provision of state, local or foreign Law) as a transferee or successor or by Contract or otherwise. (f) Each of the JCN Entities is in compliance with, and its records contain all information and documents (including properly completed IRS Forms W9) necessary to comply with, all applicable information reporting and Tax withholding requirements under federal, state, and local Tax Laws, and such records identify with specificity all accounts subject to backup withholding under Section 3406 of the Internal Revenue Code, except for such instances of noncompliance and such omissions as are not reasonably likely to have, individually or in the aggregate, a JCN Material Adverse Effect. (g) Except as disclosed in Section 5.8 of the JCN Disclosure Memorandum, none of the JCN Entities has made any payments, is obligated to make any payments, or is a party to any Contract that could obligate it to make any payments that would be disallowed as a deduction under Section 280G or 162(m) of the Internal Revenue Code. (h) Except as disclosed in Section 5.8 of the JCN Disclosure Memorandum, there has not been an ownership change, as defined in Internal Revenue Code Section 382(g), of the JCN Entities that occurred during or after any taxable period in which the JCN Entities incurred a net operating loss that carries over to any taxable period ending after December 31, 1996. (i) No JCN Entity has or has had in any foreign country a permanent establishment, as defined in any applicable tax treaty or convention between the United States and such foreign country. 5.9 Assets. (a) Except as disclosed in Section 5.9 or 5.14 of the JCN Disclosure Memorandum, or as disclosed or reserved against in the JCN Financial Statement, the JCN Entities have good and marketable title, free and clear of all Liens to all of their respective Assets, except for any such Liens or other defects of title which are not reasonably likely to have a JCN Material Adverse Effect. All material personal property used in the business of the JCN Entities are in good condition, reasonable wear and tear excepted, and are usable in the ordinary course of business consistent with such entities past practices. (b) None of the JCN Entities has received notice from any insurance carrier that (i) any policy of insurance will be canceled or that coverage thereunder will be reduced or eliminated, or (ii) premium costs with respect to such policy of insurance will be substantially increased. Except as set forth in Section 5.9 of the JCN Disclosure Memorandum, there are presently no claims for amounts exceeding in any individual case $50,000 pending under such policies of insurance and no notices of claims in excess of such amounts have been given by any JCN Entity under such policies. (c) JCN will make available to Highwoods a true and correct copy of all Leases. (d) Except as set forth in Section 5.9 of the JCN Disclosure Memorandum and except for such matters which would not reasonably be expected to have a JCN Material Adverse Effect, as of the last day of the calendar month immediately preceding the date hereof, no tenant under any of the Leases has asserted any claim of which JCN or any Subsidiary has received written notice which would materially affect the collection of rent from such tenant and neither JCN nor any JCN Subsidiary has received written notice of any material default or breach on the part of JCN or any 15 Subsidiary under any of the Leases which has not been cured. (e) Section 5.9 of the JCN Disclosure Memorandum sets forth all space leases under which JCN or any JCN Subsidiary is a lessee (except where the underlying real property is owned by JCN). True and correct copies of such leases have been delivered or made available to Highwoods. 5.10 Environmental Matters. (a) Each JCN Entity, its Operating Properties and, to the Knowledge of JCN, its Participation Facilities are, and have been, in compliance with all Environmental Laws, except for violations which are not reasonably likely to have, individually or in the aggregate, a JCN Material Adverse Effect. (b) There is no Litigation pending or, to the Knowledge of JCN, threatened before any court, governmental agency, or authority or other forum in which any JCN Entity or any of its Operating Properties or Participation Facilities (or JCN in respect of such Operating Property or Participation Facility) has been or, with respect to threatened Litigation, may be named as a defendant (i) for alleged noncompliance (including by any predecessor) with any Environmental Law or (ii) relating to the release, discharge, spillage, or disposal into the environment of any Hazardous Material, whether or not occurring at, on, under, adjacent to, or affecting (or potentially affecting) a site owned, leased, or operated by any JCN Entity or any of its Operating Properties or Participation Facilities, except such as is not reasonably likely to have, individually or in the aggregate, a JCN Material Adverse Effect. (c) During the period of (i) any JCN Entity's ownership or operation of any of their respective current properties, (ii)any JCN Entity's participation in the management of any Participation Facility, or (iii) any JCN Entity's holding of a security interest in an Operating Property, there have been no releases, discharges, spillages, or disposals of Hazardous Material in, on, under, adjacent to, or affecting (or potentially affecting) such properties, except such as are not reasonably likely to have, individually or in the aggregate, a JCN Material Adverse Effect. To the Knowledge of JCN, prior to the period of (i) any JCN Entity's ownership or operation of any of their respective current properties, (ii) any JCN Entity's participation in the management of any Participation Facility, or (iii) any JCN Entity's holding of a security interest in an Operating Property, there were no releases, discharges, spillages, or disposals of Hazardous 16 Material in, on, under, or affecting any such property, Participation Facility or Operating Property, except such as are not reasonably likely to have, individually or in the aggregate, a JCN Material Adverse Effect. 5.11 Compliance with Laws. Each JCN Entity has in effect all Permits necessary for it to own, lease, or operate its material Assets and to carry on its business as now conducted, except for those Permits the absence of which are not reasonably likely to have, individually or in the aggregate, a JCN Material Adverse Effect, and there has occurred no Default under any such Permit, other than Defaults which are not reasonably likely to have a JCN Material Adverse Effect. Except as disclosed in Section 5.11 of the JCN Disclosure Memorandum, none of the JCN Entities: (a) is in Default under any of the provisions of its Certificate of Incorporation or Bylaws (or other governing instruments); (b) is in Default under any Laws, Orders, or Permits applicable to its business, except for Defaults which are not reasonably likely to have, individually or in the aggregate, a JCN Material Adverse Effect; or (c) since January 1, 1993, has received any notification or communication from any agency or department of federal, state, or local government or any Regulatory Authority or the staff thereof (i) asserting that any JCN Entity is not in compliance with any of the Laws or Orders which such governmental authority or Regulatory Authority enforces, where such noncompliance is reasonably likely to have a JCN Material Adverse Effect, (ii) threatening to revoke any Permits, the revocation of which is reasonably likely to have a JCN Material Adverse Effect, or (iii) requiring any JCN Entity to enter into or consent to the issuance of a cease and desist order, formal agreement, directive, commitment or memorandum of understanding, or to adopt any Board resolution or similar undertaking, which restricts materially the conduct of its business. Copies of all material reports, correspondence, notices and other documents relating to any inspection, audit, monitoring or other form of review or enforcement action by a Regulatory Authority have been made available to Highwoods. 5.12 Labor Relations. No JCN Entity is the subject of any Litigation asserting that it or any other JCN Entity has committed an unfair labor practice (within the meaning of the National Labor Relations Act or comparable state law) or seeking to compel it or any other JCN Entity to bargain with any labor organization as to wages or conditions of employment, nor, except as disclosed in Section 5.12 of the JCN Disclosure Memorandum, is any JCN Entity party to any collective bargaining agreement, nor is there any strike or other labor dispute involving any JCN Entity, pending or, to the Knowledge of JCN, threatened, or to the Knowledge of JCN, is there any activity involving any JCN Entity's employees seeking to certify a collective bargaining unit or engaging in any other organization activity. 17 5.13 Employee Benefit Plans. (a) JCN has disclosed in Section 5.13 of the JCN Disclosure Memorandum, and has delivered or made available to Highwoods prior to the execution of this Agreement copies in each case of, all pension, retirement, profit-sharing, deferred compensation, stock option, employee stock ownership, severance pay, vacation, bonus, or other incentive plan, all other written employee programs, arrangements, or agreements, all medical, vision, dental, or other health plans, all life insurance plans, and all other employee benefit plans or fringe benefit plans, including "employee benefit plans" as that term is defined in Section 3(3) of ERISA, currently adopted, maintained by, sponsored in whole or in part by, or contributed to by any JCN Entity or ERISA Affiliate thereof for the benefit of employees, retirees, dependents, spouses, directors, independent contractors, or other beneficiaries and under which employees, retirees, dependents, spouses, directors, independent contractors, or other beneficiaries are eligible to participate (collectively, the "JCN Benefit Plans"). Any of the JCN Benefit Plans which is an "employee pension benefit plan," as that term is defined in Section 3(2) of ERISA, is referred to herein as a "JCN ERISA Plan." Each JCN ERISA Plan which is also a "defined benefit plan" (as defined in Section 414(j) of the Internal Revenue Code) is referred to herein as a "JCN Pension Plan." Except as disclosed in Section 5.13 of the JCN Disclosure Memorandum, no JCN Pension Plan is or has been a multiemployer plan within the meaning of Section 3(37) of ERISA. (b) Except as disclosed in Section 5.13 of the JCN Disclosure Memorandum, all JCN Benefit Plans are in compliance with the applicable terms of ERISA, the Internal Revenue Code, and any other applicable Laws the breach or violation of which are reasonably likely to have a JCN Material Adverse Effect. Each JCN ERISA Plan which is intended to be qualified under Section 401(a) of the Internal Revenue Code has received a favorable determination letter from the Internal Revenue Service, and JCN is not aware of any circumstances likely to result in revocation of any such favorable determination letter. To the Knowledge of JCN, no JCN Entity has engaged in a transaction with respect to any JCN Benefit Plan that, assuming the taxable period of such transaction expired as of the date hereof, would subject any JCN Entity to a Tax imposed by either Section 4975 of the Internal Revenue Code or Section 502(i) of ERISA. (c) Except as disclosed in Section 5.13 of the JCN Disclosure Memorandum, no JCN Pension Plan has any "unfunded current liability," as that term is defined in Section 302(d)(8)(A) of ERISA, and the fair market value of the assets of any such plan exceeds the plan's "benefit liabilities," as that term is defined in Section 4001(a)(16) of ERISA, when determined under actuarial factors that would apply if the plan terminated in accordance with all applicable legal requirements. Since the date of the most recent actuarial valuation, there has been (i) no material change in the financial position of any JCN Pension Plan, (ii) no change in the actuarial assumptions with respect to any JCN Pension Plan, and (iii) no increase in benefits under any JCN Pension Plan as a result of plan amendments or changes in applicable Law which is reasonably likely to have a JCN Material Adverse Effect or materially adversely affect the funding status of any such plan. Neither any JCN Pension Plan nor any "single-employer plan," within the meaning of Section 4001(a)(15) of ERISA, currently or formerly maintained by any JCN Entity, 18 or the single-employer plan of any entity which is considered one employer with JCN under Section 4001 of ERISA or Section 414 of the Internal Revenue Code or Section 302 of ERISA (whether or not waived) (an "ERISA Affiliate") has an "accumulated funding deficiency" within the meaning of Section 412 of the Internal Revenue Code or Section 302 of ERISA, which is reasonably likely to have a JCN Material Adverse Effect. No JCN Entity has provided, or is required to provide, security to a JCN Pension Plan or to any single-employer plan of an ERISA Affiliate pursuant to Section 401(a)(29) of the Internal Revenue Code. (d) No Liability under Subtitle C or D of Title IV of ERISA has been or is expected to be incurred by any JCN Entity with respect to any ongoing, frozen, or terminated single-employer plan or the single-employer plan of any ERISA Affiliate, which Liability is reasonably likely to have a JCN Material Adverse Effect. No JCN Entity has incurred any withdrawal Liability with respect to a multiemployer plan under Subtitle B of Title IV of ERISA (regardless of whether based on contributions of an ERISA Affiliate), which Liability is reasonably likely to have a JCN Material Adverse Effect. No notice of a "reportable event," within the meaning of Section 4043 of ERISA for which the 30-day reporting requirement has not been waived, has been required to be filed for any JCN Pension Plan or by any ERISA Affiliate within the 12-month period ending on the date hereof. (e) Except as disclosed in Section 5.13 of the JCN Disclosure Memorandum, no JCN Entity has any Liability for retiree health and life benefits under any of the JCN Benefit Plans and there are no restrictions on the rights of such JCN Entity to amend or terminate any such retiree health or benefit Plan without incurring any Liability. (f) Except as disclosed in Section 5.13 of the JCN Disclosure Memorandum, neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (i) result in any payment (including severance, unemployment compensation, golden parachute, or otherwise) becoming due to any director or any employee of any JCN Entity from any JCN Entity under any JCN Benefit Plan or otherwise, (ii) increase any benefits otherwise payable under any JCN Benefit Plan, or (iii) result in any acceleration of the time of payment or vesting of any such benefit. (g) The actuarial present values of all accrued deferred compensation entitlements (including entitlements under any executive compensation, supplemental retirement, or employment agreement) of employees and former employees of any JCN Entity and their respective beneficiaries, other than entitlements accrued pursuant to funded retirement plans subject to the provisions of Section 412 of the Internal Revenue Code or Section 302 of ERISA, have been fully reflected on the JCN Financial Statements to the extent required by and in accordance with GAAP. 5.14 Material Contracts. Except as disclosed in Section 5.14 of the JCN Disclosure Memorandum or otherwise reflected in the JCN Financial Statements, none of the JCN Entities, nor any of their respective Assets, businesses, or operations, is a party to, or is bound or affected 19 by, or receives benefits under, (i) any employment, severance, termination, consulting, or retirement Contract providing for aggregate payments to any Person in any calendar year in excess of $50,000, (ii) any Contract relating to the borrowing of money by any JCN Entity or the guarantee by any JCN Entity of any such obligation (other than Contracts evidencing trade payables and Contracts relating to borrowings or guarantees made in the ordinary course of business), (iii) any Contract which materially prohibits or restricts any JCN Entity from engaging in any business activities in any geographic area, line of business or otherwise in competition with any other Person, other than restrictions in Leases intended to protect certain tenant interests, all of which restrictions are normal and customary in the business of JCN, (iv) any Material Contract between or among JCN Entities, (v) any Material Contract involving Intellectual Property (other than Contracts entered into in the ordinary course with customers and "shrink-wrap" software licenses), (vi) any Contract relating to the provision of data processing, network communication, or other technical services to or by any JCN Entity, (vii) any Contract relating to the purchase or sale of any goods or services (other than Contracts entered into in the ordinary course of business and involving payments under any individual Contract not in excess of $50,000), (viii) any Material Contract for property management or property operations, and (ix) any other Contract or amendment thereto that would be required to be filed as an exhibit to a Form 10-K filed by JCN with the SEC as of the date of this Agreement (together with all Contracts referred to in Sections 5.9 and 5.13(a), the "JCN Contracts"). With respect to each JCN Contract and except as disclosed in Section 5.14 of the JCN Disclosure Memorandum: (i) the Contract is in full force and effect; (ii) no JCN Entity is in Default thereunder, other than Defaults which are not reasonably likely to have a JCN Material Adverse Effect; (iii) no JCN Entity has repudiated or waived any material provision of any such Contract; and (iv) no other party to any such Contract, to the Knowledge of JCN, is, in Default in any respect, other than Defaults which are not reasonably likely to have a JCN Material Adverse Effect, or has repudiated or waived any material provision thereunder. 5.15 Legal Proceedings. Except as disclosed in Section 5.15 of the JCN Disclosure Memorandum, there is no Litigation instituted or pending, or, to the Knowledge of JCN, threatened (or unasserted but considered probable of assertion and which if asserted would have at least a reasonable probability of an unfavorable outcome) against any JCN Entity, or against any director, employee or employee benefit plan of any JCN Entity, or against any Asset, interest, or right of any of them, that is reasonably likely to have a JCN Material Adverse Effect, nor are there any Orders of any Regulatory Authorities, other governmental authorities, or arbitrators outstanding against any JCN Entity, that are reasonably likely to have a JCN Material Adverse Effect. Section 5.15 of the JCN Disclosure Memorandum contains a summary of all Litigation as of the date of this Agreement to which any JCN Entity is a party and which names a JCN Entity as a defendant or cross-defendant or for which any JCN Entity has any potential uninsured Liability in excess of $50,000. 5.16 Reports. Since January 1, 1993, or the date of organization if later, each JCN Entity has timely filed all reports and statements, together with any amendments required to be made with respect thereto, that it was required to file with Regulatory Authorities, except for those 20 which the failure to file are not reasonably likely to have a JCN Material Adverse Effect). To the Knowledge of JCN, as of their respective dates, each of such reports and documents, including the financial statements, exhibits, and schedules thereto, complied in all material respects with all applicable Laws. As of its respective date, each such report and document did not, in all material respects, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading, except for those untrue statements or omissions not reasonably expected to have a JCN Material Adverse Effect. 5.17 Statements True and Correct. No certificate or instrument furnished by any JCN Entity or any officer, director or employee thereof to Highwoods pursuant to this Agreement or pursuant to any other document, agreement, or instrument referred to herein contains or will contain any untrue statement of material fact or will omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. None of the information supplied or to be supplied by any JCN Entity or any officer, director or employee thereof for inclusion in the Registration Statement to be filed by Highwoods with the SEC will, when the Registration Statement becomes effective, be false or misleading with respect to any material fact, or omit to state any material fact necessary to make the statements therein not misleading. None of the information supplied or to be supplied by any JCN Entity or any officer, director or employee thereof for inclusion in the Proxy Statement to be mailed to JCN's shareholders in connection with the JCN Shareholders Meeting, and any other documents to be filed by a JCN Entity or any officer, director or employee thereof with the SEC or any other Regulatory Authority in connection with the transactions contemplated hereby, will, at the respective time such documents are filed, and with respect to the Proxy Statement, when first mailed to the shareholders of JCN, be false or misleading with respect to any material fact, or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or, in the case of the Proxy Statement or any amendment thereof or supplement thereto, at the time of the JCN Shareholders Meeting, be false or misleading with respect to any material fact, or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of any proxy for the JCN Shareholders Meeting. All documents that any JCN Entity is responsible for filing with any Regulatory Authority in connection with the transactions contemplated hereby will comply as to form in all material respects with the provisions of applicable Law. 5.18 Tax and Regulatory Matters. No JCN Entity or any officer or director thereof has taken or agreed to take any action or has any Knowledge of any fact or circumstance that is reasonably likely to (i) prevent the Merger from qualifying as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code, or (ii) materially impede or delay receipt of any Consents of Regulatory Authorities referred to in Section 9.1(b). 5.19 State Takeover Laws. Each JCN Entity has taken all necessary action to exempt the transactions contemplated by this Agreement from, or, if necessary, to challenge the validity or applicability of, any applicable "moratorium," "fair price," "business combination," "control share," or other anti-takeover Laws (collectively, "Takeover Laws"), including Section 351.459 of the GBCL. 5.20 Charter Provisions. Each JCN Entity has taken all action so that the entering into of this Agreement and the consummation of the Merger and the other transactions contemplated by this Agreement do not and will not result in the grant of any rights to any Person under the Certificate of Incorporation, Bylaws or other governing instruments of any JCN Entity or restrict or impair the ability of Highwoods or any of its Subsidiaries to vote, or otherwise to exercise the rights of a shareholder with respect to, shares of any JCN Entity that may be directly or indirectly acquired or controlled by them. 5.21 Rights Agreement. JCN has taken all necessary action (including, if required, redeeming all of the outstanding JCN Rights or amending or terminating the JCN Rights Agreement) so that 21 the entering into of this Agreement, the acquisition of shares pursuant to the consummation of the Merger and the other transactions contemplated hereby do not and will not result in any Person becoming able to exercise any JCN Rights under the JCN Rights Agreement or enabling or requiring the JCN Rights to be separated from the shares of JCN Common Stock to which they are attached or to be triggered or to become exercisable. 5.22 Opinion of Financial Advisor. JCN has received the opinion of Morgan Stanley, Dean Witter, Discover & Co., dated the date of this Agreement, to the effect that the consideration to be received in the Merger by the holders of JCN Common Stock is fair, from a financial point of view, to such holders, a signed copy of which has been delivered to Highwoods. 5.23 Board Recommendation. The Board of Directors of JCN, at a meeting duly called and held, has validly adopted resolutions (which resolutions have not been withdrawn or revoked) stating that the Board of Directors of JCN has (i) determined that this Agreement and the transactions contemplated hereby, including the Merger and the transactions contemplated thereby, taken together, are fair to and in the best interests of the shareholders and (ii) resolved to recommend that the holders of the shares of JCN Common Stock approve this Agreement. ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF HIGHWOODS Highwoods hereby represents and warrants to JCN as follows: 6.1 Organization, Standing, and Power. Highwoods is a corporation duly organized, validly existing, and in good standing under the Laws of the State of Maryland, and has the corporate power and authority to carry on its business as now conducted and to own, lease and operate its material Assets. Highwoods is duly qualified or licensed to transact business as a foreign corporation in good standing in the States of the United States and foreign jurisdictions where the character of its Assets or the nature or conduct of its business requires it to be so 22 qualified or licensed, except for such jurisdictions in which the failure to be so qualified or licensed is not reasonably likely to have, individually or in the aggregate, a Highwoods Material Adverse Effect. 6.2 Authority; No Breach By Agreement. (a) Highwoods has the corporate power and authority necessary to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated herein, including the Merger, have been duly and validly authorized by all necessary corporate action in respect thereof on the part of Highwoods. This Agreement represents a legal, valid, and binding obligation of Highwoods, enforceable against Highwoods in accordance with its terms (except in all cases as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, receivership, conservatorship, moratorium, or similar Laws affecting the enforcement of creditors' rights generally and except that the availability of the equitable remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding may be brought). (b) Neither the execution and delivery of this Agreement by Highwoods, nor the consummation by Highwoods of the transactions contemplated hereby, nor compliance by Highwoods with any of the provisions hereof, will (i) conflict with or result in a breach of any provision of Highwoods' Amended and Restated Articles of Incorporation or Bylaws, or (ii) constitute or result in a Default under, or require any Consent pursuant to, or result in the creation of any Lien on any Asset of any Highwoods Entity under, any Contract or Permit of any Highwoods Entity, where such Default or Lien, or any failure to obtain such Consent, is reasonably likely to have a Highwoods Material Adverse Effect, or, (iii) subject to receipt of the requisite Consents referred to in Section 9.1(b), constitute or result in a Default under, or require any Consent pursuant to, any Law or Order applicable to any Highwoods Entity or any of their respective material Assets (including any Highwoods Entity or any JCN Entity becoming subject to or liable for the payment of any Tax or any of the Assets owned by any Highwoods Entity or any JCN Entity being reassessed or revalued by any taxing authority). (c) Other than in connection or compliance with the provisions of the Securities Laws, applicable state corporate and securities Laws, and rules of the NYSE, and other than Consents required from Regulatory Authorities, and other than notices to or filings with the Internal Revenue Service or the Pension Benefit Guaranty Corporation with respect to any employee benefit plans, or under the HSR Act, and other than Consents, filings, or notifications which, if not obtained or made, are not reasonably likely to have a Highwoods Material Adverse Effect, no notice to, filing with, or Consent of, any public body or authority is necessary for the consummation by Highwoods of the Merger and the other transactions contemplated in this Agreement. 6.3 Capital Stock. (a) The authorized capital stock of Highwoods consists of (i) 100,000,000 shares of Highwoods Common Stock, of which 37,948,435 shares are issued and outstanding as of the date of this Agreement, and (ii) 10,000,000 shares of Highwoods Preferred Stock, of which 7,025,000 shares are issued and outstanding. All of the issued and outstanding shares of Highwoods Capital Stock are, and all of the shares of Highwoods Common Stock to be issued in exchange for shares of JCN Common Stock upon consummation of the Merger, when issued in accordance with the terms of this Agreement, will be, duly and validly issued and outstanding and fully paid and nonassessable under the MGCL. None of the outstanding shares of Highwoods Capital Stock has been, and none of the shares of Highwoods Common Stock to be issued in exchange for shares of JCN Common Stock upon consummation of the Merger will be, issued in violation of any preemptive rights of the current or past shareholders of Highwoods. (b) Except as set forth in Section 6.3(a), or as provided pursuant to the Highwoods Stock Plans or the Highwoods Rights Agreement, or as disclosed in Section 6.3 of the Highwoods 23 Disclosure Memorandum, there are no shares of capital stock or other equity securities of Highwoods outstanding and no outstanding Equity Rights relating to the capital stock of Highwoods. 6.4 Highwoods Subsidiaries. Highwoods has disclosed in Section 6.4 of the Highwoods Disclosure Memorandum all of the Highwoods Subsidiaries as of the date of this Agreement that are corporations (identifying its jurisdiction of incorporation and percentage ownership interest represented by such share ownership) and all of the Highwoods Subsidiaries that are general or limited partnerships or other non-corporate entities (identifying the Law under which such entity is organized and the amount and nature of the ownership interest therein). Except as disclosed in Section 6.4 of the Highwoods Disclosure Memorandum, Highwoods and/or one of its Subsidiaries owns all of the issued and outstanding shares of capital stock (or other equity interests) of each Highwoods Subsidiary. No capital stock (or other equity interest) of any Highwoods Subsidiary are or may become required to be issued (other than to another Highwoods Entity) by reason of any Equity Rights, and there are no Contracts (except for property acquisition contracts utilizing the issuance of partnership interests in Highwoods/Forsyth Limited Partnership and for which the partnership is receiving reasonable equivalent value or as otherwise disclosed in Section 6.13 of the Highwoods Disclosure Memorandum) by which any Highwoods Subsidiary is bound to issue (other than to another Highwoods Entity) additional shares of its capital stock (or other equity interests) or Equity Rights or by which any Highwoods Entity is or may be bound to transfer any shares of the capital stock (or other equity interests) of any Highwoods Subsidiary (other than to another Highwoods Entity). There are no Contracts relating to the rights of any Highwoods Entity to vote or to dispose of any shares of the capital stock (or other equity interests) of any Highwoods Subsidiary. All of the shares of capital stock (or other equity interests) of each Highwoods Subsidiary held by a Highwoods Entity are fully paid and nonassessable under the applicable corporation Law of the jurisdiction in which such Subsidiary is incorporated or organized and are owned by the Highwoods Entity free and clear of any Lien. Except as disclosed in Section 6.4 of the Highwoods Disclosure Memorandum), each Highwoods Subsidiary is a 24 corporation, and each Highwoods Subsidiary is duly organized, validly existing, and (as to corporations) in good standing under the Laws of the jurisdiction in which it is incorporated or organized, and has the corporate power and authority necessary for it to own, lease and operate its Assets and to carry on its business as now conducted. Each Highwoods Subsidiary is duly qualified or licensed to transact business as a foreign corporation or organization, as the case may be, is in good standing in the States of the United States and foreign jurisdictions where the character of its Assets or the nature or conduct of its business requires it to be so qualified or licensed, except for such jurisdictions in which the failure to be so qualified or licensed is not reasonably likely to have a Highwoods Material Adverse Effect. 6.5 SEC Filings; Financial Statements. (a) Highwoods and Highwoods/Forsyth Limited Partnership has timely filed and made available to JCN all SEC Documents required to be filed by Highwoods or Highwoods/Forsyth Limited Partnership since June 14, 1994 (the "Highwoods SEC Reports"). The Highwoods SEC Reports (i) at the time filed, complied in all material respects with the applicable requirements of the Securities Laws and other applicable Laws and (ii) did not, at the time they were filed (or, if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing) contain any untrue statement of a material fact or omit to state a material fact required to be stated in such Highwoods SEC Reports or necessary in order to make the statements in such Highwoods SEC Reports, in light of the circumstances under which they were made, not misleading. Except for Highwoods/Forsyth Limited Partnership, no Highwoods Subsidiary is required to file any SEC Documents. (b) Each of the Highwoods Financial Statements (including, in each case, any related notes) contained in the Highwoods SEC Reports, including any Highwoods SEC Reports filed after the date of this Agreement until the Effective Time, complied as to form in all material respects with the applicable published rules and regulations of the SEC with respect thereto, was prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes to such financial statements or, in the case of unaudited interim statements, as permitted by Form 10-Q of the SEC), and fairly presented in all material respects the consolidated financial position of Highwoods and its Subsidiaries as at the respective dates and the consolidated results of operations and cash flows for the periods indicated, except that the unaudited interim financial statements were or are subject to normal and recurring year-end adjustments which were not or are not expected to be material in amount or effect. 6.6 Absence of Undisclosed Liabilities. No Highwoods Entity has any Liabilities that are reasonably likely to have a Highwoods Material Adverse Effect, except Liabilities which are accrued or reserved against in the consolidated balance sheets of Highwoods as of September 30, 1997 or December 31, 1996, included in the Highwoods Financial Statements delivered prior to the date of this Agreement or reflected in the notes thereto. 25 6.7 Absence of Certain Changes or Events. Since December 31, 1996, except as disclosed in the Highwoods Financial Statements delivered prior to the date of this Agreement or as disclosed in Section 6.7 of the Highwoods Disclosure Memorandum, there have been no events, changes or occurrences which have had, or are reasonably likely to have a Highwoods Material Adverse Effect. 6.8 Tax Matters. (a) All Tax Returns required to be filed by or on behalf of any of the Highwoods Entities have been timely filed or requests for extensions have been timely filed, granted, and have not expired for periods ended on or before September 30, 1997, and on or before the date of the most recent fiscal year end immediately preceding the Effective Time, and all Tax Returns filed are complete and accurate in all material. All Taxes shown on filed Tax Returns have been paid. As of the date of this Agreement, there is no audit examination, deficiency, or refund Litigation with respect to any Taxes that is reasonably likely to result in a determination that would have a Highwoods Material Adverse Effect, except as reserved against in the Highwoods Financial Statements or as disclosed in Section 6.8 of the Highwoods Disclosure Memorandum. (b) Highwoods, based on its current and intended method of operation, meets the requirements for qualification as a REIT under Sections 856-860 of the Internal Revenue Code. 6.9 Assets. Except as disclosed in Section 6.9 of the Highwoods Disclosure Memorandum or as disclosed or reserved against in the Highwoods Financial Statements, the Highwoods Entities have good and marketable title, free and clear of all Liens, to all of their respective Assets, except for any such Liens or other defects of title which are not reasonably likely to have a Highwoods Material Adverse Effect. All Material personal properties used in the businesses of the Highwoods Entities are in good condition, reasonable wear and tear excepted, and are usable in the ordinary course of business consistent with Highwoods' past practices. 6.10 Environmental Matters. (a) Each Highwoods Entity, its Operating Properties, and, to the Knowledge of Highwoods, its Participating Facilities are, and have been, in compliance with all Environmental Laws, except for violations which are not reasonably likely to have a Highwoods Material Adverse Effect. (b) There is no Litigation pending or, to the Knowledge of Highwoods, threatened before any court, governmental agency, or authority or other forum in which any Highwoods Entity or any of its Operating Properties or Participation Facilities (or Highwoods in respect of such Operating Property or Participation Facility) has been or, with respect to threatened Litigation, may be named as a defendant (i) for alleged noncompliance (including by any predecessor) with any Environmental Law or (ii) relating to the release, discharge, spillage, or disposal into the environment of any Hazardous Material, whether or not occurring at, on, under, 26 adjacent to, or affecting (or potentially affecting) a site owned, leased, or operated by any Highwoods Entity or any of its Operating Properties or Participation Facilities, except such as is not reasonably likely to have a Highwoods Material Adverse Effect. (c) During the period of (i) any Highwoods Entity's ownership or operation of any of their respective current properties, (ii) any Highwoods Entity's participation in the management of any Participation Facility, or (iii) any Highwoods Entity's holding of a security interest in an Operating Property, there have been no releases, discharges, spillages, or disposals of Hazardous Material in, on, under, adjacent to, or affecting (or potentially affecting) such properties, except such as are not reasonably likely to have a Highwoods Material Adverse Effect. To the Knowledge of Highwoods, prior to the period of (i) any Highwoods Entity's ownership or operation of any of their respective current properties, (ii) any Highwoods Entity's participation in the management of any Participation Facility, or (iii) any Highwoods Entity's holding of a security interest in an Operating Property, there were no releases, discharges, spillages, or disposals of Hazardous Material in, on, under, or affecting any such property, Participation Facility or Operating Property, except such as are not reasonably likely to have a Highwoods Material Adverse Effect. 6.11 Compliance with Laws. Each Highwoods Entity has in effect all Permits necessary for it to own, lease or operate its material Assets and to carry on its business as now conducted, except for those Permits the absence of which are not reasonably likely to have a Highwoods Material Adverse Effect, and there has occurred no Default under any such Permit, other than Defaults which are not reasonably likely to have a Highwoods Material Adverse Effect. Except as disclosed in Section 6.11 of the Highwoods Disclosure Memorandum, none of the Highwoods Entities: (a) is in Default under its Amended and Restated Articles of Incorporation or Bylaws (or other governing instruments); or (b) is in Default under any Laws, Orders or Permits applicable to its business or employees conducting its business, except for Defaults which are not reasonably likely to have, individually or in the aggregate, a Highwoods Material Adverse Effect; or (c) since January 1, 1993, has received any notification or communication from any agency or department of federal, state, or local government or any Regulatory Authority or the staff thereof (i) asserting that any Highwoods Entity is not in compliance with any of the Laws or Orders which such governmental authority or Regulatory Authority enforces, where such noncompliance is reasonably likely to have a Highwoods Material Adverse Effect, (ii) threatening to revoke any Permits, the revocation of which is reasonably likely to have a Highwoods Material Adverse Effect, or (iii) requiring any Highwoods Entity to enter into or consent to the issuance of a cease and desist order, formal agreement, directive, commitment or memorandum of understanding, or to adopt any board resolution or similar undertaking, which restricts materially the conduct of its business. 27 6.12 Labor Relations. No Highwoods Entity is the subject of any Litigation asserting that it or any other Highwoods Entity has committed an unfair labor practice (within the meaning of the National Labor Relations Act or comparable state law) or seeking to compel it or any other Highwoods Entity to bargain with any labor organization as to wages or conditions of employment, nor is any Highwoods Entity party to any collective bargaining agreement, nor is there any strike or other labor dispute involving any Highwoods Entity, pending or threatened, or to the Knowledge of Highwoods, is there any activity involving any Highwoods Entity's employees seeking to certify a collective bargaining unit or engaging in any other organization activity. 6.13 Employee Benefit Plans. (a) Highwoods has disclosed in Section 6.13 of the Highwoods Disclosure Memorandum, and has delivered or made available to JCN prior to the execution of this Agreement copies in each case of, all pension, retirement, profit-sharing, deferred compensation, stock option, employee stock ownership, severance pay, vacation, bonus, or other incentive plan, all other written employee programs, arrangements, or agreements, all medical, vision, dental, or other health plans, all life insurance plans, and all other employee benefit plans or fringe benefit plans, including "employee benefit plans" as that term is defined in Section 3(3) of ERISA, currently adopted, maintained by, sponsored in whole or in part by, or contributed to by any Highwoods Entity or ERISA Affiliate thereof for the benefit of employees, retirees, dependents, spouses, directors, independent contractors, or other beneficiaries and under which employees, retirees, dependents, spouses, directors, independent contractors, or other beneficiaries are eligible to participate (collectively, the "Highwoods Benefit Plans"). Any of the Highwoods Benefit Plans which is an "employee pension benefit plan," as that term is defined in Section 3(2) of ERISA, is referred to herein as a "Highwoods ERISA Plan." Each Highwoods ERISA Plan which is also a "defined benefit plan" (as defined in Section 414(j) of the Internal Revenue Code) is referred to herein as a "Highwoods Pension Plan." No Highwoods Pension Plan is or has been a multiemployer plan within the meaning of Section 3(37) of ERISA. (b) All Highwoods Benefit Plans are in compliance with the applicable terms of ERISA, the Internal Revenue Code, and any other applicable Laws the breach or violation of which are reasonably likely to have a Highwoods Material Adverse Effect. Each Highwoods ERISA Plan which is intended to be qualified under Section 401(a) of the Internal Revenue Code has received a favorable determination letter from the Internal Revenue Service, and Highwoods is not aware of any circumstances likely to result in revocation of any such favorable determination letter. To the Knowledge of Highwoods, no Highwoods Entity has engaged in a transaction with respect to any Highwoods Benefit Plan that, assuming the taxable period of such transaction expired as of the date hereof, would subject any Highwoods Entity to a Tax imposed by either Section 4975 of the Internal Revenue Code or Section 502(i) of ERISA. (c) No Highwoods Pension Plan has any "unfunded current liability," as that term is defined in Section 302(d)(8)(A) of ERISA, and the fair market value of the assets of any such 28 plan exceeds the plan's "benefit liabilities," as that term is defined in Section 4001(a)(16) of ERISA, when determined under actuarial factors that would apply if the plan terminated in accordance with all applicable legal requirements. Since the date of the most recent actuarial valuation, there has been (i) no material change in the financial position of any Highwoods Pension Plan, (ii) no change in the actuarial assumptions with respect to any Highwoods Pension Plan, and (iii) no increase in benefits under any Highwoods Pension Plan as a result of plan amendments or changes in applicable Law which is reasonably likely to have a Highwoods Material Adverse Effect or materially adversely affect the funding status of any such plan. Neither any Highwoods Pension Plan nor any "single-employer plan," within the meaning of Section 4001(a)(15) of ERISA, currently or formerly maintained by any Highwoods Entity, or the single-employer plan of any entity which is considered an ERISA Affiliate of Highwoods has an "accumulated funding deficiency" within the meaning of Section 412 of the Internal Revenue Code or Section 302 of ERISA, which is reasonably likely to have a Highwoods Material Adverse Effect. No Highwoods Entity has provided, or is required to provide, security to a Highwoods Pension Plan or to any single-employer plan of an ERISA Affiliate pursuant to Section 401(a)(29) of the Internal Revenue Code. (d) No Liability under Subtitle C or D of Title IV of ERISA has been or is expected to be incurred by any Highwoods Entity with respect to any ongoing, frozen, or terminated single-employer plan or the single-employer plan of any ERISA Affiliate, which Liability is reasonably likely to have a Highwoods Material Adverse Effect. No Highwoods Entity has incurred any withdrawal Liability with respect to a multiemployer plan under Subtitle B of Title IV of ERISA (regardless of whether based on contributions of an ERISA Affiliate), which Liability is reasonably likely to have a Highwoods Material Adverse Effect. No notice of a "reportable event," within the meaning of Section 4043 of ERISA for which the 30-day reporting requirement has not been waived, has been required to be filed for any Highwoods Pension Plan or by any ERISA Affiliate within the 12-month period ending on the date hereof. (e) Except as disclosed in Section 6.13 of the Highwoods Disclosure Memorandum, no Highwoods Entity has any Liability for retiree health and life benefits under any of the Highwoods Benefit Plans and there are no restrictions on the rights of such Highwoods Entity to amend or terminate any such retiree health or benefit Plan without incurring any Liability. (f) The actuarial present values of all accrued deferred compensation entitlements (including entitlements under any executive compensation, supplemental retirement, or employment agreement) of employees and former employees of any Highwoods Entity and their respective beneficiaries, other than entitlements accrued pursuant to funded retirement plans subject to the provisions of Section 412 of the Internal Revenue Code or Section 302 of ERISA, have been fully reflected on the Highwoods Financial Statements to the extent required by and in accordance with GAAP. 6.14 Legal Proceedings. There is no Litigation instituted or pending, or, to the Knowledge of Highwoods, threatened (or unasserted but considered probable of assertion and which if 29 asserted would have at least a reasonable probability of an unfavorable outcome) against any Highwoods Entity, or against any director, employee or employee benefit plan of any Highwoods Entity, or against any Asset, interest, or right of any of them, that is reasonably likely to have a Highwoods Material Adverse Effect, nor are there any Orders of any Regulatory Authorities, other governmental authorities, or arbitrators outstanding against any Highwoods Entity, that are reasonably likely to have a Highwoods Material Adverse Effect. 6.15 Reports. Since January 1, 1993, or the date of organization if later, each Highwoods Entity has timely filed all reports and statements, together with any amendments required to be made with respect thereto, that it was required to file with Regulatory Authorities except for those which the failure to file are not reasonably likely to have a Highwoods Material Adverse Effect). To the Knowledge of Highwoods, as of their respective dates, each of such reports and documents, including the financial statements, exhibits, and schedules thereto, complied in all material respects with all applicable Laws. As of its respective date, each such report and document did not, in all material respects, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading, except for those untrue statements or omissions not reasonably expected to have a Highwoods Material Adverse Effect. 6.16 Statements True and Correct. No statement, certificate, instrument or other writing furnished or to be furnished by any Highwoods Entity or any Affiliate thereof to JCN pursuant to this Agreement or any other document, agreement or instrument referred to herein contains or will contain any untrue statement of material fact or will omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. None of the information supplied or to be supplied by any Highwoods Entity or any Affiliate thereof for inclusion in the Registration Statement to be filed by Highwoods with the SEC, will, when the Registration Statement becomes effective, be false or misleading with respect to any material fact, or omit to state any material fact necessary to make the statements therein not misleading. None of the information supplied or to be supplied by any Highwoods Entity or any Affiliate thereof for inclusion in the Proxy Statement to be mailed to JCN's shareholders in connection with the JCN Shareholders Meeting, and any other documents to be filed by any Highwoods Entity or any Affiliate thereof with the SEC or any other Regulatory Authority in connection with the transactions contemplated hereby, will, at the respective time such documents are filed, and with respect to the Proxy Statement, when first mailed to the shareholders of JCN, be false or misleading with respect to any material fact, or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or, in the case of the Proxy Statement or any amendment thereof or supplement thereto, at the time of the JCN Shareholders Meeting, be false or misleading with respect to any material fact, or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of any proxy for the JCN Shareholders Meeting. All documents that any Highwoods Entity or any Affiliate thereof is responsible for filing with any Regulatory Authority in connection with the transactions 30 contemplated hereby will comply as to form in all material respects with the provisions of applicable Law. 6.17 Authority of Sub. Sub is a corporation duly organized, validly existing and in good standing under the Laws of the State of Maryland as a wholly owned Subsidiary of Highwoods. The authorized capital stock of Sub consists of 1,000 shares of Sub Common Stock, all of which is validly issued and outstanding, fully paid and nonassessable and is owned by Highwoods free and clear of any Lien. Sub has the corporate power and authority necessary to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated herein, including the Merger, have been duly and validly authorized by all necessary corporate action in respect thereof on the part of Sub. This Agreement represents a legal, valid, and binding obligation of Sub, enforceable against Sub in accordance with its terms (except in all cases as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar Laws affecting the enforcement of creditors' rights generally and except that the availability of the equitable remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding may be brought). 6.18 Tax and Regulatory Matters. No Highwoods Entity or any Affiliate thereof has taken or agreed to take any action or has any Knowledge of any fact or circumstance that is reasonably likely to (i) prevent the Merger from qualifying as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code, or (ii) materially impede or delay receipt of any Consents of Regulatory Authorities referred to in Section 9.1(b) or result in the imposition of a condition or restriction of the type referred to in the last sentence of Section 9.1(b). 6.19 Rights Agreement. Execution of this Agreement and consummation of the Merger and the other transactions contemplated by this Agreement will not result in the grant of any rights to any Person under the Highwoods Rights Agreement (other than as contemplated by Section 3.1) or enable or require the Highwoods Rights to be exercised, distributed or triggered. ARTICLE 7 CONDUCT OF BUSINESS PENDING CONSUMMATION 7.1 Affirmative Covenants of JCN. From the date of this Agreement until the earlier of the Effective Time or the termination of this Agreement, unless the prior written consent of Highwoods shall have been obtained, and except as otherwise expressly contemplated herein or as set forth in the capital budget for JCN as detailed in Section 7.1 of the JCN Disclosure Memorandum, JCN shall and shall cause each of its Subsidiaries to (a) operate its business only in the usual, regular, and ordinary course, (b) preserve intact its business organization and Assets and maintain its rights and franchises, (c) take no action which would (i) adversely affect the ability of any Party to obtain any Consents required for the transactions contemplated hereby without imposition of a condition or restriction of the type referred to in the last sentences of 31 Section 9.1(b) or 9.1(c), or (ii) adversely affect the ability of any Party to perform its covenants and agreements under this Agreement, and (d) aggressively take such actions as may reasonably be necessary to prevent any violation of Law by any Person suggesting a competing Acquisition Proposal without first obtaining the endorsement of the JCN Board of Directors for such Acquisition Proposal. 7.2 Negative Covenants of JCN. From the date of this Agreement until the earlier of the Effective Time or the termination of this Agreement, unless the prior written consent of Highwoods shall have been obtained, and except as otherwise expressly contemplated herein, JCN covenants and agrees that it will not do or agree or commit to do, or permit any of its Subsidiaries to do or agree or commit to do, any of the following: (a) amend the Certificate of Incorporation, Bylaws or other governing instruments of any JCN Entity; or (b) other than as provided in Section 7.2(b) of the JCN Disclosure Memorandum, incur any additional debt obligation or other obligation for borrowed money (other than indebtedness of a JCN Entity to another JCN Entity) in excess of an aggregate of $250,000 (for the JCN Entities on a consolidated basis) except in the ordinary course of the business of JCN Subsidiaries consistent with past practices, or impose, or suffer the imposition, on any Asset of any JCN Entity of any Lien or permit any such Lien to exist (other than in connection with Liens in effect as of the date hereof that are disclosed in the JCN Disclosure Memorandum); or (c) repurchase, redeem, or otherwise acquire or exchange (other than in settlement of obligations then owed by the ESOT (as defined below) to JCN as reasonably approved by Highwoods and other than exchanges in the ordinary course under employee benefit plans), directly or indirectly, any shares, or any securities convertible into any shares, of the capital stock of any JCN Entity, or declare or pay any dividend or make any other distribution in respect of JCN's capital stock; or (d) except for this Agreement, or pursuant to the exercise of stock options outstanding as of the date hereof and pursuant to the terms thereof in existence on the date hereof or as disclosed in Section 7.2(d) of the JCN Disclosure Memorandum, issue, sell, pledge, encumber, authorize the issuance of, enter into any Contract to issue, sell, pledge, encumber, or authorize the issuance of, or otherwise permit to become outstanding, any additional shares of JCN Common Stock or any other capital stock of any JCN Entity, or any stock appreciation rights, or any option, warrant, or other Equity Right; or (e) except as provided in Section 7.2(e) of the JCN Disclosure Memorandum, adjust, split, combine or reclassify any capital stock of any JCN Entity or issue or authorize the issuance of any other securities in respect of or in substitution for shares of JCN Common Stock, or sell, lease, mortgage or otherwise dispose of or otherwise encumber (x) any shares of capital stock of any JCN Subsidiary (unless any such shares of stock are sold or otherwise transferred to another 32 JCN Entity) or (y) any Asset having a book value or gross lease value (with respect to any new Lease of a JCN Property) in excess of $50,000 other than in the ordinary course of business for reasonable and adequate consideration; or (f) except for purchases of U.S. Treasury securities or U.S. Government agency securities, which in either case have maturities of three years or less, purchase any securities or make any material investment, either by purchase of stock of securities, contributions to capital, Asset transfers, or purchase of any Assets, in any Person other than a wholly owned JCN Subsidiary, or otherwise acquire direct or indirect control over any Person, other than in connection with (i) foreclosures in the ordinary course of business, or (ii) the creation of new wholly owned Subsidiaries organized to conduct or continue activities otherwise permitted by this Agreement; or (g) grant any increase in compensation or benefits to the employees or officers of any JCN Entity, except in accordance with past practice disclosed in Section 7.2(g) of the JCN Disclosure Memorandum and as reasonably approved by Highwoods or as required by Law; pay any severance or termination pay or any bonus other than pursuant to written policies or written Contracts in effect on the date of this Agreement and disclosed in Section 7.2(g) of the JCN Disclosure Memorandum; enter into or amend any severance agreements with officers of any JCN Entity; grant any material increase in fees or other increases in compensation or other benefits to directors of any JCN Entity except in accordance with past practice disclosed in Section 7.2(g) of the JCN Disclosure Memorandum; or (h) enter into or amend any employment Contract between any JCN Entity and any Person (unless such amendment is required by Law) that the JCN Entity does not have the unconditional right to terminate without Liability (other than Liability for services already rendered), at any time on or after the Effective Time; or (i) except as provided in Section 7.2(i) of the JCN Disclosure Memorandum, adopt any new employee benefit plan of any JCN Entity or terminate or withdraw from, or make any material change in or to, any existing employee benefit plans of any JCN Entity other than any such change that is required by Law or that, in the opinion of counsel, is necessary or advisable to maintain the tax qualified status of any such plan, or make any distributions from such employee benefit plans, except as required by Law, the terms of such plans or consistent with past practice; or (j) make any significant change in any Tax or accounting methods or systems of internal accounting controls, except as may be appropriate to conform to changes in Tax Laws or regulatory accounting requirements or GAAP; or (k) commence any Litigation other than in accordance with past practice, settle any Litigation involving any Liability of any JCN Entity for material money damages or restrictions 33 upon the operations of any JCN Entity without first providing notice thereof to Highwoods and obtaining Highwoods consent, which consent shall not be unreasonably withheld; or (l) make any payments or accommodations to the Employee Stock Ownership Trust of the J.C. Nichols Company ("ESOT") or any other shareholder relating directly or indirectly to any of the costs, expenses or other charges (including break-up fees owed to any third-party) of the ESOT or any other shareholder related to or arising out of directly or indirectly any of the transactions contemplated by this Agreement without first obtaining Highwoods consent; or (m) without first providing notice thereof to Highwoods and obtaining Highwoods consent, which consent shall not be unreasonably withheld and, except in the ordinary course of business, enter into, modify, amend or terminate any material Contract (including any loan Contract with an unpaid balance exceeding $50,000) or waive, release, compromise or assign any material rights or claims. 7.3 Covenants of Highwoods. From the date of this Agreement until the earlier of the Effective Time or the termination of this Agreement, unless the prior written consent of JCN shall have been obtained, and except as otherwise expressly contemplated herein, Highwoods covenants and agrees that it shall (a) continue to conduct its business and the business of its Subsidiaries in a manner designed in its reasonable judgment, to continue it to meet the requirements for qualification as a real estate investment trust under Sections 856-860 of the Internal Revenue Code and to enhance the long-term value of the Highwoods Common Stock and the business prospects of the Highwoods Entities and to the extent consistent therewith use all reasonable efforts to preserve intact the Highwoods Entities' core businesses and goodwill with their respective employees and the communities they serve, (b) take no action which would (i) materially adversely affect the ability of any Party to obtain any Consents required for the transactions contemplated hereby without imposition of a condition or restriction of the type referred to in the last sentences of Section 9.1(b) or 9.1(c), or (ii) materially adversely affect the ability of any Party to perform its covenants and agreements under this Agreement; provided, that the foregoing shall not prevent any Highwoods Entity from acquiring any Assets or other businesses or from discontinuing or disposing of any of its Assets or business if such action is, in the judgment of Highwoods, desirable in the conduct of the business of Highwoods and its Subsidiaries. Highwoods further covenants and agrees that it will not, without the prior written consent of JCN, which consent shall not be unreasonably withheld, amend the Amended and Restated Articles of Incorporation or Bylaws of Highwoods, in each case, in any manner adverse to the holders of JCN Common Stock as compared to rights of holders of Highwoods Common Stock generally as of the date of this Agreement. Highwoods shall take all action necessary under the MGCL prior to the Effective Time for Sub to enter into and consummate the transactions contemplated hereunder, including the Merger. 7.4 Adverse Changes in Condition. 34 (a) Each Party agrees to give written notice promptly to the other Party upon becoming aware of the occurrence or impending occurrence of any event or circumstance relating to it or any of its Subsidiaries which (i) is reasonably likely to have, individually or in the aggregate, a JCN Material Adverse Effect or a Highwoods Material Adverse Effect, as applicable, or (ii) would cause or constitute a material breach of any of its representations, warranties, or covenants contained herein, and to use its reasonable efforts to prevent or promptly to remedy the same. (b) Unless JCN, based upon the advice of tax counsel, is reasonably satisfied that JCN shareholders receiving only Highwoods Common Stock in the Merger will incur no income tax liability as a result of the Merger, the parties shall develop a mutually acceptable plan that carries out as nearly as possible the economic results provided herein without resulting in income tax liability for JCN shareholders receiving only Highwoods Common Stock. 7.5 Reports. Each Party and its Subsidiaries shall file all reports required to be filed by it with Regulatory Authorities between the date of this Agreement and the Effective Time and shall deliver to the other Party copies of all such reports promptly after the same are filed. If financial statements are contained in any such reports filed with the SEC, such financial statements will fairly present the consolidated financial position of the entity filing such statements as of the dates indicated and the consolidated results of operations, changes in shareholders' equity, and cash flows for the periods then ended in accordance with GAAP (subject in the case of interim financial statements to normal recurring year-end adjustments that are not material). As of their respective dates, such reports filed with the SEC will comply in all material respects with the Securities Laws and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Any financial statements contained in any other reports to another Regulatory Authority shall be prepared in accordance with Laws applicable to such reports. ARTICLE 8 ADDITIONAL AGREEMENTS 8.1 Registration Statement; Proxy Statement; Shareholder Approval. As soon as reasonably practicable after execution of this Agreement, Highwoods shall prepare and file the Registration Statement with the SEC, and shall use its reasonable efforts to cause the Registration Statement to become effective under the 1933 Act and take any action required to be taken under the applicable state Blue Sky or securities Laws in connection with the issuance of the shares of Highwoods Common Stock upon consummation of the Merger. JCN shall cooperate in the preparation and filing of the Registration Statement and shall furnish all information concerning it and the holders of its capital stock as Highwoods may reasonably request in connection with such action. JCN shall call the JCN Shareholders Meeting, to be held as soon as reasonably practicable after the Registration Statement is declared effective by the SEC, for the purpose of voting upon approval of this Agreement and such other related matters as it deems appropriate. 35 In connection with the JCN Shareholders Meeting, (i) JCN shall prepare and file with the SEC a Proxy Statement and mail such Proxy Statement to its shareholders, (ii) the Parties shall furnish to each other all information concerning them that they may reasonably request in connection with such Proxy Statement, (iii) the Board of Directors of JCN shall recommend to its shareholders the approval of the matters submitted for approval (subject to the Board of Directors of JCN, after having consulted with outside counsel, reasonably determining in good faith that the making of such recommendation, or the failure to withdraw or modify its recommendation, would be inconsistent with the fiduciary duties of the members of such Board of Directors to JCN's shareholders under applicable law), and (iv) the Board of Directors and officers of JCN shall use their reasonable efforts to obtain such shareholders' approval (subject to the Board of Directors of JCN, after having consulted with outside counsel, reasonably determining in good faith the taking of such actions would be inconsistent with the fiduciary duties of the members of such Board of Directors to JCN's shareholders under applicable law). Highwoods and JCN shall make all necessary filings with respect to the Merger under the Securities Laws. 8.2 Exchange Listing. Highwoods shall cause to be listed, prior to the Effective Time, on the NYSE, subject to official notice of issuance, the shares of Highwoods Common Stock to be issued to the holders of JCN Common Stock pursuant to the Merger, and Highwoods shall give all notices and make all filings with the NYSE required in connection with the transactions contemplated herein. 8.3 Applications; Antitrust Notification. Highwoods shall promptly prepare and file, and JCN shall cooperate in the preparation and, where appropriate, filing of, applications with all Regulatory Authorities having jurisdiction over the transactions contemplated by this Agreement seeking the requisite Consents necessary to consummate the transactions contemplated by this Agreement. To the extent required by the HSR Act, each of the Parties will promptly file with the United States Federal Trade Commission and the United States Department of Justice the notification and report form required for the transactions contemplated hereby and any supplemental or additional information which may reasonably be requested in connection therewith pursuant to the HSR Act and will comply in all material respects with the requirements of the HSR Act. The Parties shall deliver to each other copies of all filings, correspondence and orders to and from all Regulatory Authorities in connection with the transactions contemplated hereby. The Parties agree that the consummation of the Merger does not require any filings or approvals under the HSR Act. 8.4 Filings with State Offices. Upon the terms and subject to the conditions of this Agreement, Sub shall execute and file the Articles of Merger with the Secretary of State of the State of Missouri and the Articles of Merger with the Department of Assessment and Taxation of the State of Maryland in connection with the Closing. 8.5 Agreement as to Efforts to Consummate. Subject to the terms and conditions of this Agreement, each Party agrees to use, and to cause its Subsidiaries to use, its reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, 36 proper, or advisable under applicable Laws to consummate and make effective, as soon as reasonably practicable after the date of this Agreement, the transactions contemplated by this Agreement, including using its reasonable efforts to lift or rescind any Order adversely affecting its ability to consummate the transactions contemplated herein and to cause to be satisfied the conditions referred to in Article 9; provided, that nothing herein shall preclude either Party from exercising its rights under this Agreement. Each Party shall use, and shall cause each of its Subsidiaries to use, its reasonable efforts to obtain all Consents necessary or desirable for the consummation of the transactions contemplated by this Agreement. 8.6 Investigation and Confidentiality. (a) Prior to the Effective Time, each Party shall keep the other Party advised of all material developments relevant to its business and to consummation of the Merger and shall permit the other Party to make or cause to be made such investigation of the business and properties of it and its Subsidiaries and of their respective financial and legal conditions as the other Party reasonably requests, provided that such investigation shall be reasonably related to the transactions contemplated hereby and shall not interfere unnecessarily with normal operations. No investigation by a Party shall affect the representations and warranties of the other Party. (b) In addition to the Parties' respective obligations under the Confidentiality Agreement, which is hereby reaffirmed and adopted, and incorporated by reference herein, each Party shall, and shall cause its advisers and agents to, maintain the confidentiality of all confidential information furnished to it by the other Party concerning its and its Subsidiaries' businesses, operations, and financial positions and shall not use such information for any purpose except in furtherance of the transactions contemplated by this Agreement. If this Agreement is terminated prior to the Effective Time, each Party shall promptly return or certify the destruction of all documents and copies thereof, and all work papers containing confidential information received from the other Party. (c) Each Party agrees to give the other Party notice as soon as practicable after any determination by it of any fact or occurrence relating to the other Party which it has discovered through the course of its investigation and which represents, or is reasonably likely to represent, either a material breach of any representation, warranty, covenant or agreement of the other Party or which has had or is reasonably likely to have a JCN Material Adverse Effect or a Highwoods Material Adverse Effect, as applicable. Each party hereby represents and warrants that it knows of no such fact or occurrence as of the date of this Agreement. 8.7 Press Releases. Prior to the Effective Time, JCN and Highwoods shall consult with each other as to the form and substance of any press release or other public disclosure materially related to this Agreement or any other transaction contemplated hereby; provided, that nothing in this Section 8.7 shall be deemed to prohibit any Party from making any disclosure which its counsel deems necessary or advisable in order to satisfy such Party's disclosure obligations imposed by Law. 37 8.8 Certain Actions. (a) Except with respect to this Agreement and the transactions contemplated hereby, no JCN Entity nor any officer or director thereof nor any Representatives thereof retained by any JCN Entity shall directly or indirectly solicit any Acquisition Proposal by any Person. Except to the extent the Board of Directors of JCN, after having consulted with and considered the advice of outside counsel, reasonably determines in good faith that the failure to take such actions would constitute a breach of fiduciary duties of the members of such Board of Directors to JCN's shareholders under applicable law, no JCN Entity or any officer or director or Representative thereof shall furnish any non-public information that it is not legally obligated to furnish, negotiate with respect to, or enter into any Contract with respect to, any Acquisition Proposal. JCN may communicate information about such an Acquisition Proposal to its shareholders if and to the extent that it is required to do so in order to comply with its legal obligations as advised by outside counsel. JCN shall promptly advise Highwoods following the receipt of any Acquisition Proposal or any inquiry concerning a possible Acquisition Proposal and the details thereof, and advise Highwoods of any developments with respect to such Acquisition Proposal or inquiry promptly upon the occurrence thereof. JCN shall (i) immediately cease and cause to be terminated any existing activities, discussions or negotiations with any Persons conducted heretofore with respect to any of the foregoing, and (ii) use its reasonable efforts to cause all of its Affiliates and Representatives not to engage in any of the foregoing. JCN also agrees to take reasonable efforts to prevent any employee of any JCN Entity from committing any of the foregoing acts. (b) During the period from the date of this Agreement through the Effective Time (or earlier termination hereof), none of the JCN Entities shall terminate, amend, modify or waive any provision of any confidentiality or standstill agreement to which it is a party. During such period, the JCN Entities shall enforce, to the fullest extent permitted under applicable law, the provisions of any such agreement, including, but not limited to, by obtaining injunctions to prevent any breaches of any such agreements and to enforce specifically the terms and provisions thereof in any court having jurisdiction. 8.9 Tax Treatment. Each of the Parties undertakes and agrees to use its reasonable efforts to cause the Merger, and to take no action which would cause the Merger not, to qualify for or as a "reorganization" within the meaning of Section 368(a) of the Internal Revenue Code for federal income tax purposes, including obtaining letters or other written instruments evidencing investment intent from the requisite number of JCN Shareholders. 8.10 State Takeover Laws. Each JCN Entity shall take all necessary steps to exempt the transactions contemplated by this Agreement from, or if necessary to challenge the validity or applicability of, any applicable Takeover Law, including Section 351.459 of the GBCL. 8.11 Charter Provisions. Each JCN Entity shall take all necessary action to ensure that the entering into of this Agreement and the consummation of the Merger and the other transactions contemplated hereby do not and will not result in the grant of any rights to any Person under the Certificate of Incorporation, Bylaws or other governing instruments of any JCN Entity or restrict 38 or impair the ability of Highwoods or any of its Subsidiaries to vote, or otherwise to exercise the rights of a shareholder with respect to, shares of any JCN Entity that may be directly or indirectly acquired or controlled by them. 8.12 Agreement of Affiliates. JCN has disclosed in Section 8.12 of the JCN Disclosure Memorandum all Persons it reasonably believes are an "affiliate" of JCN for purposes of Rule 145 under the 1933 Act. JCN shall use its reasonable efforts to cause each such Person to deliver to Highwoods not later than 30 days prior to the Effective Time, a written agreement providing that such Person will not sell, pledge, transfer, or otherwise dispose of the shares of Highwoods Common Stock to be received by such Person upon consummation of the Merger except in compliance with applicable provisions of the 1933 Act and the rules and regulations thereunder. Highwoods shall not be required to maintain the effectiveness of the Registration Statement under the 1933 Act for the purposes of resale of Highwoods Common Stock by such affiliates who do not enter into such written agreements. 8.13 Employee Benefits and Contracts. Following the Effective Time, Highwoods shall provide generally to officers and employees of the JCN Entities employee benefits under employee benefit and welfare plans (other than stock option or other plans involving the potential issuance of Highwoods Common Stock), on terms and conditions which when taken as a whole are substantially similar to those currently provided by the Highwoods Entities to their similarly situated officers and employees. For purposes of participation, vesting and (except in the case of Highwoods retirement plans) benefit accrual under Highwoods' employee benefit plans, the service of the employees of the JCN Entities prior to the Effective Time shall be treated as service with a Highwoods Entity participating in such employee benefit plans. Highwoods also shall cause the Surviving Corporation and its Subsidiaries to honor in accordance with their terms all employment, severance, consulting and other compensation Contracts disclosed in Section 8.13 of the JCN Disclosure Memorandum to Highwoods between any JCN Entity and any current or former director, officer, or employee thereof, and all provisions for vested benefits or other vested amounts earned or accrued through the Effective Time under the JCN Benefit Plans. 8.14 Indemnification. (a) For a period of six years after the Effective Time, Highwoods shall, and shall cause the Surviving Corporation to, indemnify, defend and hold harmless the present and former directors, officers, employees and agents of the JCN Entities (each, an "Indemnified Party") against all Liabilities arising out of actions or omissions arising out of the Indemnified Party's service or services as directors, officers, employees or agents of any JCN Entity or, at any JCN Entity's request, of another corporation, partnership, joint venture, trust or other enterprise occurring at or prior to the Effective Time (including the transactions contemplated by this Agreement) to the fullest extent permitted under Missouri Law and by the Certificate of Incorporation and Bylaws and any other organizational instruments of the applicable JCN Entity as in effect on the date hereof, including provisions relating to advances of expenses incurred in the defense of any Litigation and whether or not any Highwoods Entity is insured against any such 39 matter. Without limiting the foregoing, in any case in which approval by the Surviving Corporation is required to effectuate any indemnification, the Surviving Corporation shall direct, at the election of the Indemnified Party, that the determination of any such approval shall be made by independent counsel mutually agreed upon between Highwoods and the Indemnified Party. (b) Highwoods shall, or shall cause the Surviving Corporation to, use its reasonable efforts (and JCN shall cooperate prior to the Effective Time in these efforts) to maintain in effect for a period of three years after the Effective Time JCN's existing directors' and officers' liability insurance policy (provided that Highwoods may substitute therefor (i) policies of at least the same coverage and amounts containing terms and conditions which are substantially no less advantageous or (ii) with the consent of JCN given prior to the Effective Time, any other policy) with respect to claims arising from facts or events which occurred prior to the Effective Time and covering persons who are currently covered by such insurance; provided, that neither Highwoods nor the Surviving Corporation shall be obligated to make aggregate premium payments for such three-year period in respect of such policy (or coverage replacing such policy) which exceed, for the portion related to JCN's directors and officers, 200% of the annual premium payments on JCN's current policy in effect as of the date of this Agreement (the "Maximum Amount"). If the amount of the premiums necessary to maintain or procure such insurance coverage exceeds the Maximum Amount, Highwoods shall use its reasonable efforts to maintain the most advantageous policies of directors' and officers' liability insurance obtainable for a premium equal to the Maximum Amount. (c) Any Indemnified Party wishing to claim indemnification under paragraph (a) of this Section 8.14, upon learning of any such Liability or Litigation, shall promptly notify Highwoods thereof. In the event of any such Litigation (whether arising before or after the Effective Time), (i) Highwoods or the Surviving Corporation shall have the right (but only subsequent to the Effective Time) to assume the defense thereof and neither Highwoods nor the Surviving Corporation shall be liable to such Indemnified Parties for any legal expenses of other counsel or any other expenses subsequently incurred by such Indemnified Parties in connection with the defense thereof, except that if Highwoods or the Surviving Corporation elects not to assume such defense or counsel for the Indemnified Parties advises that there are substantive issues which raise conflicts of interest between Highwoods or the Surviving Corporation and the Indemnified Parties, the Indemnified Parties may retain counsel satisfactory to them, and Highwoods or the Surviving Corporation shall pay all reasonable fees and expenses of such counsel for the Indemnified Parties promptly as statements therefor are received; provided, that Highwoods and the Surviving Corporation shall be obligated pursuant to this paragraph (c) to pay for only one firm of counsel for all Indemnified Parties in any jurisdiction, (ii) the Indemnified Parties will cooperate in the defense of any such Litigation, and (iii) neither Highwoods nor the Surviving Corporation shall be liable for any settlement effected without its prior written consent, which consent shall not be unreasonably withheld; and provided further that neither Highwoods nor the Surviving Corporation shall have any obligation hereunder to any Indemnified Party when and if a court of competent jurisdiction shall determine, and such determination shall have become 40 final, that the indemnification of such Indemnified Party in the manner contemplated hereby is prohibited by applicable Law. (d) If Highwoods or the Surviving Corporation or any successors or assigns shall consolidate with or merge into any other Person and shall not be the continuing or surviving Person of such consolidation or merger or shall transfer all or substantially all of its assets to any Person, then and in each case, proper provision shall be made so that the successors and assigns of Highwoods or the Surviving Corporation shall assume the obligations set forth in this Section 8.14. (e) The provisions of this Section 8.14 are intended to be for the benefit of and shall be enforceable by, each Indemnified Party and their respective heirs and representatives. 8.15 Tenant Estoppels. JCN shall endeavor to use reasonable commercial efforts to obtain prior to the Effective Date, tenant estoppel certificates for the 100 largest Leases (based on gross rental payments) with respect to the JCN Properties in form reasonably acceptable to Highwoods. 8.16 Maintenance of Organizational Structure. Highwoods acknowledges that its present operating structure enables a level of operational flexibility that facilitates the growth of Highwoods and its business. Highwoods shall not alter its current operating structure in any material respect, except to the extent the Board of Directors of Highwoods determines in good faith that such alteration is in the best interests of the shareholders of Highwoods. 8.17 Maintenance of Plaza Redevelopment Plan. Highwoods acknowledges the economic and social significance of the Country Club Plaza district (the "Plaza") to Kansas City, Missouri and surrounding communities, and further acknowledges the importance of the development and redevelopment of the Plaza by the JCN Entities. From and after the Effective Time, Highwoods shall continue to pursue each portion of the Plaza redevelopment plan unless the economics of any single portion of the redevelopment plan, or changes in circumstances beyond the reasonable control of Highwoods, causes the Board of Directors of Highwoods to determine in good faith, after consideration of available alternatives, that such redevelopment plan or portion thereof is contrary to the best interests of the shareholders of Highwoods. 8.18 Maintenance of Charitable Contributions. From and after the Effective Time, Highwoods shall make annual charitable contributions and provide community support in the geographic areas in which the business of JCN is currently operated, at levels substantially comparable to or greater than the levels of charitable contributions and community support provided by JCN Entities within such areas during calendar year 1996 and the period from January 1, 1997 through the date of this Agreement. 8.19 Maintenance of Merchant Support. From and after the Effective Time, Highwoods shall provide annual financial assistance and marketing support to merchants' associations relating to properties currently owned or operated by any JCN Entity, at levels substantially comparable 41 to or greater than the levels of such support provided by JCN Entities during calendar year 1996 and the period from January 1, 1997 through the date of this Agreement. 8.20 Member of Board of Directors. Highwoods shall appoint to its Board of Directors an individual (who would qualify as an independent director under Highwoods' Articles of Incorporation and bylaws) designated by JCN's Board of Directors, which designee shall be reasonably acceptable to the Highwoods Board of Directors to serve until the next annual shareholders meeting, at which time the Highwoods Board of Directors will nominate and recommend such designee for a three-year term on Highwoods Board of Directors. ARTICLE 9 CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE 9.1 Conditions to Obligations of Each Party. The respective obligations of each Party to perform this Agreement and consummate the Merger and the other transactions contemplated hereby are subject to the satisfaction of the following conditions, unless waived by both Parties pursuant to Section 11.6: (a) Shareholder Approval. The shareholders of JCN shall have approved this Agreement, and the consummation of the transactions contemplated hereby, including the Merger, as and to the extent required by Law, by the provisions of any governing instruments, or by the rules of the NASD, if applicable. (b) Regulatory Approvals. All Consents of, filings and registrations with, and notifications to, all Regulatory Authorities required for consummation of the Merger shall have been obtained or made and shall be in full force and effect and all waiting periods required by Law shall have expired. (c) Third Party Consents and Approvals. Each Party shall have obtained any and all Consents required for consummation of the Merger (other than those referred to in Section 9.1(b)), which as to JCN, the parties agree shall include only those Consents set forth in Section 9.1 of the JCN Disclosure Memorandum. In the event such third party does not make such payment within ten days of demand therefor by Highwoods, the payment shall be an obligation of JCN and shall be paid by JCN within two business days of notice to JCN by Highwoods. In addition to the Consents set forth in Section 9.1 to the JCN Disclosure Memorandum, to the extent required by the applicable contract, mortgage, document or other instrument, JCN shall use commercially reasonable efforts to obtain the consent of (i) any lender to JCN and (ii) any other party reasonably identified by Highwoods. No Consent so obtained which is necessary to consummate the transactions contemplated hereby shall be conditioned or restricted in a manner which in the reasonable judgment of the Board of Directors of Highwoods would so materially adversely impact the economic or business benefits of the transactions contemplated by this Agreement that, had such condition or requirement been known, such Party would not, in its reasonable judgment, have entered into this Agreement. 42 (d) Legal Proceedings. No court or governmental or regulatory authority of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any Law or Order (whether temporary, preliminary or permanent) or taken any other action which prohibits, restricts or makes illegal consummation of the transactions contemplated by this Agreement. (e) Registration Statement. The Registration Statement shall be effective under the 1933 Act, no stop orders suspending the effectiveness of the Registration Statement shall have been issued, no action, suit, proceeding or investigation by the SEC to suspend the effectiveness thereof shall have been initiated and be continuing, and all necessary approvals under state securities Laws or the 1933 Act or the 1934 Act relating to the issuance or trading of the shares of Highwoods Common Stock issuable pursuant to the Merger shall have been received. (f) Exchange Listing. The shares of Highwoods Common Stock issuable pursuant to the Merger shall have been approved for listing on the NYSE, subject to official notice of issuance. 9.2 Conditions to Obligations of Highwoods. The obligations of Highwoods to perform this Agreement and consummate the Merger and the other transactions contemplated hereby are subject to the satisfaction of the following conditions, unless waived by Highwoods pursuant to Section 11.6(a): (a) Representations and Warranties. For purposes of this Section 9.2(a), the accuracy of the representations and warranties of JCN set forth in this Agreement shall be assessed as of the date of this Agreement and as of the Effective Time with the same effect as though all such representations and warranties had been made on and as of the Effective Time (provided that representations and warranties which are confined to a specified date shall speak only as of such date). The representations and warranties set forth in Section 5.3 shall be true and correct (except for inaccuracies which are de minimus in amount). The representations and warranties set forth in Sections 5.18, 5.19, and 5.20 shall be true and correct in all material respects. No representation or warranty of JCN set forth in this Agreement shall be deemed untrue or incorrect, and no JCN Entity shall be deemed to have breached a representation or warranty, as a consequence of the existence of any fact, circumstance or event unless such fact, circumstance or event, individually or taken together with other facts, circumstances or events inconsistent with any other representation or warranty has had, or is expected to have, a JCN Material Adverse Effect; provided that, for purposes of this sentence only, those representations and warranties which are qualified by references to "material" or "Material Adverse Effect" or to the "Knowledge" of any Person shall be deemed not to include such qualifications. (b) Performance of Agreements and Covenants. Each and all of the agreements and covenants of JCN to be performed and complied with pursuant to this Agreement and the other agreements contemplated hereby prior to the Effective Time shall have been duly performed and complied with in all material respects, as of the Effective Time. 43 (c) Certificates. JCN shall have delivered to Highwoods (i) a certificate, dated as of the Effective Time and signed on its behalf by its chief executive officer and its chief financial officer, to the effect that the conditions set forth in Section 9.1 as relates to JCN and in Section 9.2(a) and 9.2(b) have been satisfied, and (ii) certified copies of resolutions duly adopted by JCN's Board of Directors and shareholders evidencing the taking of all corporate action necessary to authorize the execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated hereby, all in such reasonable detail as Highwoods and its counsel shall request. (d) Opinion of Counsel. Highwoods shall have received an opinion of Blackwell Sanders Matheny Weary & Lombardi L.L.P., counsel to JCN, dated as of the Closing, in form reasonably satisfactory to Highwoods, as to the matters set forth in Exhibit 1. (e) Accountant's Letters. Highwoods shall have received from KPMG Peat Marwick LLP letters dated not more than five days prior to (i) the date of the Proxy Statement and (ii) the Effective Time, with respect to certain financial information regarding JCN, in form and substance reasonably satisfactory to Highwoods, which letters shall be based upon customary specified procedures undertaken by such firm in accordance with Statement of Auditing Standard Nos. 72 and 75. (f) Rights Agreement. Neither this Agreement and any agreements related hereto nor consummation of the Merger shall have caused or shall cause any of the JCN Rights to become non-redeemable or exercisable for capital stock of Highwoods or JCN. (g) Shareholders' Equity. JCN's shareholders' equity as of the Closing shall not be less than JCN's shareholders' equity as of March 31, 1997, excluding for purposes of the calculation of such shareholders' equity the effects of (i) all costs, fees and charges, including fees and charges of JCN's accountants, counsel and financial advisors, whether or not accrued or paid, that are related to the transactions contemplated by this Agreement and (ii) any reductions in JCN's shareholders' equity resulting from any actions or changes in policies of JCN taken at the request of Highwoods. 9.3 Conditions to Obligations of JCN. The obligations of JCN to perform this Agreement and consummate the Merger and the other transactions contemplated hereby are subject to the satisfaction of the following conditions, unless waived by JCN pursuant to Section 11.6(b): (a) Representations and Warranties. For purposes of this Section 9.3(a), the accuracy of the representations and warranties of Highwoods set forth in this Agreement shall be assessed as of the date of this Agreement and as of the Effective Time with the same effect as though all such representations and warranties had been made on and as of the Effective Time (provided that representations and warranties which are confined to a specified date shall speak only as of such date). The representations and warranties of Highwoods set forth in Section 6.15 44 shall be true and correct in all material respects. No representation or warranty of Highwoods set forth in this Agreement shall be deemed untrue or incorrect, and no Highwoods Entity shall be deemed to have breached a representation or warranty, as a consequence of the existence of any fact, circumstance or event unless such fact, circumstance or event, individually or taken together with all other facts, circumstances or events inconsistent with any other representation or warranty has had, or is expected to have, a Highwoods Material Adverse Effect; provided that, for purposes of this sentence only, those representations and warranties which are qualified by references to "material" or "Material Adverse Effect" or to the "Knowledge" of any Person shall be deemed not to include such qualifications. (b) Performance of Agreements and Covenants. Each and all of the agreements and covenants of Highwoods to be performed and complied with pursuant to this Agreement and the other agreements contemplated hereby prior to the Effective Time shall have been duly performed and complied with in all material respects. (c) Certificates. Highwoods shall have delivered to JCN (i) a certificate, dated as of the Effective Time and signed on its behalf by its chief executive officer and its chief financial officer, to the effect that the conditions set forth in Section 9.1 as relates to Highwoods and in Section 9.3(a) and 9.3(b) have been satisfied, and (ii) certified copies of resolutions duly adopted by Highwoods' Board of Directors and Sub's Board of Directors and sole shareholder evidencing the taking of all corporate action necessary to authorize the execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated hereby, all in such reasonable detail as JCN and its counsel shall request. (d) Opinion of Counsel. JCN shall have received an opinion of (i) Alston & Bird LLP, counsel to Highwoods, dated as of the Effective Time, in form reasonably acceptable to JCN, as to the matters set forth in Exhibit 2 and (ii) a tax opinion of Blackwell Sanders Matheny Weary & Lombardi, L.L.P., to the effect that the Merger will constitute a reorganization within the meaning of Section 368(a) of the Internal Revenue Code and that JCN shareholders receiving only Highwoods Common Stock will incur no income tax liability. (e) Fairness Opinion. JCN shall not have received notice from Morgan Stanley, Dean Witter, Discover & Co. prior to the date of the Proxy Statement, indicating withdrawal of its prior opinion that the consideration to be received by JCN shareholders in connection with the Merger is fair, from a financial point of view, to such shareholders and shall have received an update to such opinion immediately prior to the shareholder meeting at which approval of this Agreement will be considered. (f) Exchange Agent Certification. The Exchange Agent shall have delivered to JCN a certificate, dated as of the Effective Time, to the effect that the Exchange Agent has received from Highwoods appropriate instructions and authorization for the Exchange Agent to issue a sufficient number of shares of Highwoods Common Stock in exchange for outstanding shares of JCN Common Stock and that Highwoods has deposited with the Exchange Agent 45 sufficient funds to pay a reasonable estimate of the cash payments necessary to make all fractional share payments as required by Section 3.6. ARTICLE 10 TERMINATION 10.1 Termination. Notwithstanding any other provision of this Agreement, and notwithstanding the approval of this Agreement by the shareholders of JCN, this Agreement may be terminated and the Merger abandoned at any time prior to the Effective Time: (a) By mutual consent of Highwoods and JCN; or (b) By either Party (provided that the terminating Party is not then in material breach of any representation, warranty, covenant, or other agreement contained in this Agreement) in the event of a material breach by the other Party of any representation or warranty contained in this Agreement which cannot be or has not been cured within 30 days after the giving of written notice to the breaching Party of such breach and which breach is reasonably likely, in the opinion of the non-breaching Party, to have, individually or in the aggregate, a JCN Material Adverse Effect or a Highwoods Material Adverse Effect, as applicable, on the breaching Party; or (c) By either Party (provided that the terminating Party is not then in material breach of any representation, warranty, covenant, or other agreement contained in this Agreement) in the event of a material breach by the other Party of any covenant or agreement contained in this Agreement which cannot be or has not been cured within 30 days after the giving of written notice to the breaching Party of such breach; or (d) By either Party (provided that the terminating Party is not then in material breach of any representation, warranty, covenant, or other agreement contained in this Agreement) in the event (i) any Consent of any Regulatory Authority required for consummation of the Merger and the other transactions contemplated hereby shall have been denied by final nonappealable action of such authority or if any action taken by such authority is not appealed within the time limit for appeal, or (ii) the shareholders of JCN fail to vote their approval of the matters relating to this Agreement and the transactions contemplated hereby at the JCN Shareholders Meeting where such matters were presented to such shareholders for approval and voted upon; or (e) By either Party in the event that the Merger shall not have been consummated by June 30, 1998, if the failure to consummate the transactions contemplated hereby on or before such date is not caused by any breach of this Agreement by the Party electing to terminate pursuant to this Section 10.1(e); or (f) By Highwoods or JCN, in the event that the Board of Directors of JCN shall have failed to recommend to its shareholders the approval of the Merger and the transactions contemplated by this Agreement (to the exclusion of any other Acquisition Proposal), or shall have resolved not to recommend to its shareholders the approval of the Merger, or shall have affirmed, recommended or authorized entering into any other Acquisition Proposal or other transaction involving a merger, share exchange, consolidation or transfer of substantially all of the Assets of JCN, or shall fail to call and hold a JCN Shareholders Meeting for purposes of voting on the approval of the Merger and the transaction contemplated hereby. 10.2 Effect of Termination. In the event of the termination and abandonment of this Agreement pursuant to Section 10.1, this Agreement shall become void and have no effect, except that (i) the provisions of this Section 10.2 and Article 11 and Section 8.6(b) shall survive any such termination and abandonment, and (ii) a termination pursuant to Sections 10.1(b) or 10.1(c) shall not relieve the breaching Party from Liability for an uncured willful breach of a representation, warranty, covenant, or agreement giving rise to such termination. 10.3 Non-Survival of Representations and Covenants. The respective representations, warranties, obligations, covenants, and agreements of the Parties shall not survive the Effective Time except this Section 10.3 and Articles 1, 2, 3, 4 and 11 and Sections 8.13 and 8.14. ARTICLE 11 MISCELLANEOUS 11.1 Definitions. (a) Except as otherwise provided herein, the capitalized terms set forth below shall have the following meanings: "1933 Act" shall mean the Securities Act of 1933, as amended. "1934 Act" shall mean the Securities Exchange Act of 1934, as amended. "Acquisition Proposal" with respect to a Party shall mean any tender offer or exchange offer or any proposal for a merger, acquisition of all of the stock or assets of, or other business combination involving the acquisition of such Party or any of its Subsidiaries or the 46 acquisition of a substantial equity interest in, or a substantial portion of the assets of, such Party or any of its Subsidiaries. "Affiliate" of a Person shall mean: (i) any other Person directly, or indirectly through one or more intermediaries, controlling, controlled by or under common control with such Person; (ii) any officer, director, partner, employer, or direct or indirect beneficial owner of any 10% or greater equity or voting interest of such Person. "Agreement" shall mean this Agreement and Plan of Merger, including the Exhibits delivered pursuant hereto and incorporated herein by reference. "Articles of Merger" shall mean, collectively, the Articles of Merger to be executed by JCN and Sub and filed with the Secretary of State of the State of Missouri relating to the Merger as contemplated by Section 1.1, and the Articles of Merger to be executed by JCN and Sub and filed with the Department of Assessments and Taxation of the State of Maryland relating to the Merger as contemplated by Section 1.1. "Assets" of a Person shall mean all of the assets, properties, businesses and rights of such Person of every kind, nature, character and description, whether real, personal or mixed, tangible or intangible, accrued or contingent, or otherwise relating to or utilized in such Person's business, directly or indirectly, in whole or in part, whether or not carried on the books and records of such Person, and whether or not owned in the name of such Person or any Affiliate of such Person and wherever located. "Cash Amount" shall have the meaning set forth in Section 3.2. "Closing Date" shall mean the date on which the Closing occurs. "Confidentiality Agreement" shall mean that certain Confidentiality Agreement, dated November 24, 1997, between JCN and Highwoods. "Consent" shall mean any consent, approval, authorization, clearance, exemption, waiver, or similar affirmation required from any Person pursuant to any Contract, Law, Order, or Permit. "Contract" shall mean any written or oral agreement, arrangement, authorization, commitment, contract, indenture, instrument, lease, obligation, plan, practice, restriction, understanding, or undertaking of any kind or character, or other document to which any Person is a party or that is binding on any Person or its capital stock, Assets or business. 47 "Default" shall mean (i) any breach or violation of, default under, contravention of, or conflict with, any Contract, Law, Order, or Permit, (ii) any occurrence of any event that with the passage of time or the giving of notice or both would constitute a breach or violation of, default under, contravention of, or conflict with, any Contract, Law, Order, or Permit, or (iii) any occurrence of any event that with or without the passage of time or the giving of notice would give rise to a right of any Person to exercise any remedy or obtain any relief under, terminate or revoke, suspend, cancel, or modify or change the current terms of, or renegotiate, or to accelerate the maturity or performance of, or to increase or impose any Liability under, any Contract, Law, Order, or Permit. "Dissenting Shares" shall mean those shares of JCN Common Stock as to which the holders thereof elect to exercise their dissenter's rights in accordance with and as contemplated by Section 351.455 of the GBCL and as provided for in Section 3.5 hereof. "Environmental Laws" shall mean all Laws relating to pollution or protection of human health and the environment (including ambient air, surface water, ground water, land surface, or subsurface strata) and which are administered, interpreted, or enforced by the United States Environmental Protection Agency or state and local agencies with jurisdiction over, and including published court decisions interpreting the foregoing pollution or protection of the environment, including the Comprehensive Environmental Response Compensation and Liability Act, as amended, 42 U.S.C. 9601 et seq. ("CERCLA"), the Resource Conservation and Recovery Act, as amended, 42 U.S.C. 6901 et seq. ("RCRA"), and other Laws relating to emissions, discharges, releases, or threatened releases of any Hazardous Material, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of any Hazardous Material. "Equity Rights" shall mean all arrangements, calls, commitments, Contracts, options, rights to subscribe to, scrip, understandings, warrants, or other binding obligations of any character whatsoever relating to, or securities or rights convertible into or exchangeable for, shares of the capital stock of a Person or by which a Person is or may be bound to issue additional shares of its capital stock or other Equity Rights. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. "Exhibits" 1 through 2, inclusive, shall mean the Exhibits so marked, copies of which are attached to this Agreement. Such Exhibits are hereby incorporated by reference herein and made a part hereof, and may be referred to in this Agreement and any other related instrument or document without being attached hereto. "GAAP" shall mean generally accepted accounting principles, consistently applied during the periods involved. "GBCL" shall mean the General and Business Corporation Law of Missouri. 48 "Hazardous Material" shall mean (i) any hazardous substance, hazardous material, hazardous waste, regulated substance, or toxic substance (as those terms are defined by any applicable Environmental Laws) and (ii) any chemicals, pollutants, contaminants, petroleum, petroleum products, or oil (and specifically shall include asbestos requiring abatement, removal, or encapsulation pursuant to any Environmental Law and any polychlorinated biphenyls). "Highwoods Capital Stock" shall mean, collectively, the Highwoods Common Stock, the Highwoods Preferred Stock and any other class or series of capital stock of Highwoods. "Highwoods Common Stock" shall mean the $.01 par value common stock of Highwoods. "Highwoods Disclosure Memorandum" shall mean the written information entitled "Highwoods Properties, Inc. Disclosure Memorandum" delivered prior to the date of this Agreement to JCN describing in reasonable detail the matters contained therein and, with respect to each disclosure made therein, specifically referencing each Section of this Agreement under which such disclosure is being made. Information disclosed with respect to one Section shall not be deemed to be disclosed for purposes of any other Section not specifically referenced with respect thereto. "Highwoods Entities" shall mean, collectively, Highwoods and all Highwoods Subsidiaries. "Highwoods Financial Statements" shall mean (i) the consolidated balance sheets (including related notes and schedules, if any) of Highwoods as of September 30, 1997, and as of December 31, 1996 and 1995, and the related statements of operations, changes in shareholders' equity, and cash flows (including related notes and schedules, if any) for the nine months ended September 30, 1997, and for each of the three fiscal years ended December 31, 1996, 1995 and 1994, as filed by Highwoods in SEC Documents, and (ii) the consolidated balance sheets of Highwoods (including related notes and schedules, if any) and related statements of operations, changes in shareholders' equity, and cash flows (including related notes and schedules, if any) included in SEC Documents filed with respect to periods ended subsequent to September 30, 1997. "Highwoods Material Adverse Effect" shall mean an event, change or occurrence which, individually or together with any other event, change or occurrence, has a material adverse impact on (i) the financial position, business, or results of operations of Highwoods and its Subsidiaries, taken as a whole, or (ii) the ability of Highwoods to perform its obligations under this Agreement or to consummate the Merger or the other transactions contemplated by this Agreement. "Highwoods Preferred Stock" shall mean, collectively, the 8 5/8% Series A Cumulative Redeemable Preferred Shares of which 125,000 shares are outstanding and the 8% Series 49 B Cumulative Redeemable Preferred Shares of which 6,900,000 shares are outstanding, of Highwoods. "Highwoods Rights Agreement" shall mean that certain Shareholders Rights Agreement, dated October 4, 1997, between Highwoods and First Union National Bank, as Rights Agent. "Highwoods Rights" shall mean the preferred stock purchase rights issued pursuant to the Highwoods Rights Agreement. "Highwoods Stock Plans" shall mean the existing stock option and other stock-based compensation plans of Highwoods designated as follows: the Amended and Restated 1994 Stock Option Plan; the Dividend Reinvestment Plan and the 1997 Employee Stock Purchase Plan. "Highwoods Subsidiaries" shall mean the Subsidiaries of Highwoods, which shall include Highwoods/Forsyth Limited Partnership and the other Highwoods Subsidiaries described in Section 6.4 and any corporation or other organization acquired as a Subsidiary of Highwoods in the future and held as a Subsidiary by Highwoods at the Effective Time. "HSR Act" shall mean Section 7A of the Clayton Act, as added by Title II of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder. "Intellectual Property" shall mean copyrights, patents, trademarks, service marks, service names, trade names, applications therefor, technology rights and licenses, computer software (including any source or object codes therefor or documentation relating thereto), trade secrets, franchises, know-how, inventions, and other intellectual property rights. "Internal Revenue Code" shall mean the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder. "JCN Common Stock" shall mean the $.01 par value common stock of JCN. "JCN Disclosure Memorandum" shall mean the written information entitled "J.C. Nichols Company Disclosure Memorandum" delivered prior to the date of this Agreement to Highwoods describing in reasonable detail the matters contained therein and, with respect to each disclosure made therein, specifically referencing each Section of this Agreement under which such disclosure is being made. Information disclosed with respect to one Section shall not be deemed to be disclosed for purposes of any other Section not specifically referenced with respect thereto. 50 "JCN Entities" shall mean, collectively, JCN and all JCN Subsidiaries. "JCN Financial Statements" shall mean (i) the consolidated balance sheets (including related notes and schedules, if any) of JCN as of September 30, 1997, and as of December 31, 1996 and 1995, and the related statements of income, changes in shareholders' equity, and cash flows (including related notes and schedules, if any) for the nine months ended September 30, 1997, and for each of the three fiscal years ended December 31, 1996, 1995, and 1994, as filed by JCN in SEC Documents, and (ii) the consolidated balance sheets of JCN (including related notes and schedules, if any) and related statements of operations, changes in shareholders' equity, and cash flows (including related notes and schedules, if any) included in SEC Documents filed with respect to periods ended subsequent to September 30, 1997. "JCN Material Adverse Effect" shall mean an event, change or occurrence which, individually or together with any other event, change or occurrence, has a material adverse impact on (i) the financial position, business, or results of operations of JCN and its Subsidiaries, taken as a whole, or (ii) the ability of JCN to perform its obligations under this Agreement or to consummate the Merger or the other transactions contemplated by this Agreement. "JCN Rights" shall mean the common stock purchase rights issued pursuant to the JCN Rights Agreement. "JCN Rights Agreement" shall mean that certain Shareholders Rights Agreement, dated July 28, 1997, between JCN and American Stock Transfer & Trust Company, as Rights Agent. "JCN Stock Plans" shall mean the existing stock option and other stock-based compensation plans of JCN designated as follows: the Amended and Restated 1996 Stock Option Plans. "JCN Subsidiaries" shall mean the Subsidiaries of JCN, which shall include the JCN Subsidiaries described in Section 5.4 and any corporation or other organization acquired as a Subsidiary of JCN in the future and held as a Subsidiary by JCN at the Effective Time; provided, however, that neither KH/JCN L.L.C., a Missouri limited liability company, nor the ESOT shall be deemed a JCN Subsidiary. "Knowledge" as used with respect to a Person (including references to such Person being aware of a particular matter) shall mean those facts that are known or should reasonably have been known after due inquiry by the chairman, president, chief financial officer, chief accounting officer, chief operating officer, general counsel, any assistant or deputy general counsel, or any senior, executive or other vice president of such Person and the Knowledge of any such persons obtained or which would have been obtained from a reasonable investigation. 51 "Law" shall mean any code, law, ordinance, regulation, reporting or licensing requirement, rule, or statute applicable to a Person or its Assets, Liabilities, or business, including those promulgated, interpreted or enforced by any Regulatory Authority. "Lease" shall mean any lease of more than 10,000 rentable square feet in effect as of the date hereof and as to which JCN is the lessor. "Liability" shall mean any direct or indirect, primary or secondary, liability, indebtedness, obligation, penalty, cost or expense (including costs of investigation, collection and defense), claim, deficiency, guaranty or endorsement of or by any Person (other than endorsements of notes, bills, checks, and drafts presented for collection or deposit in the ordinary course of business) of any type, whether accrued, absolute or contingent, liquidated or unliquidated, matured or unmatured, or otherwise. "Lien" shall mean any conditional sale agreement, default of title, easement, encroachment, encumbrance, hypothecation, infringement, lien, mortgage, pledge, reservation, restriction, security interest, title retention or other security arrangement, or any adverse right or interest, charge, or claim of any nature whatsoever of, on, or with respect to any property or property interest, other than (i) liens for current property Taxes not yet due and payable, and (iii) liens which do not materially impair the use of or title to the Assets subject to such lien. "Litigation" shall mean any action, arbitration, cause of action, claim, complaint, criminal prosecution, governmental or other examination or investigation, hearing, administrative or other proceeding to which a Party is a party or of which a Party's, business or Assets (including Contracts related to it) are the subject, or relating in any way to the transactions contemplated by this Agreement. "Material" for purposes of this Agreement shall be determined in light of the facts and circumstances of the matter in question; provided that any specific monetary amount stated in this Agreement shall determine materiality in that instance. "MGCL" shall mean the Maryland General Corporation Law. "NASD" shall mean the National Association of Securities Dealers, Inc. "NYSE" shall mean the New York Stock Exchange, Inc. "Operating Property" shall mean any property owned, leased, or operated by the Party in question or by any of its Subsidiaries and, where required by the context, includes the owner or operator of such property, but only with respect to such property. 52 "Order" shall mean any administrative decision or award, decree, injunction, judgment, order, quasi-judicial decision or award, ruling, or writ of any federal, state, local or foreign or other court, arbitrator, mediator, tribunal, administrative agency, or Regulatory Authority. "Participation Facility" shall mean any facility or property in which the Party in question or any of its Subsidiaries participates in the management and, where required by the context, said term means the owner or operator of such facility or property, but only with respect to such facility or property. "Party" shall mean either JCN or Highwoods, and "Parties" shall mean both JCN and Highwoods. "Permit" shall mean any federal, state, local, and foreign governmental approval, authorization, certificate, easement, filing, franchise, license, notice, permit, or right to which any Person is a party or that is or may be binding upon or inure to the benefit of any Person or its securities, Assets, or business. "Per Share Cash Consideration" shall have the meaning set forth in Section 3.2. "Per Share Stock Consideration" shall have the meaning set forth in Section 3.1. "Person" shall mean a natural person or any legal, commercial or governmental entity, such as, but not limited to, a corporation, general partnership, joint venture, limited partnership, limited liability company, trust, business association, group acting in concert, or any person acting in a representative capacity. "Proxy Statement" shall mean the proxy statement used by JCN to solicit the approval of its shareholders of the transactions contemplated by this Agreement, which shall include the prospectus of Highwoods relating to the issuance of the Highwoods Common Stock to holders of JCN Common Stock. "Registration Statement" shall mean the Registration Statement on Form S4, or other appropriate form, including any pre-effective or post-effective amendments or supplements thereto, filed with the SEC by Highwoods under the 1933 Act with respect to the shares of Highwoods Common Stock to be issued to the shareholders of JCN in connection with the transactions contemplated by this Agreement. 53 "Regulatory Authorities" shall mean, collectively, the SEC, the NYSE, the NASD, the Federal Trade Commission, the United States Department of Justice, and all other federal, state, county, local or other governmental or regulatory agencies, authorities (including self-regulatory authorities), instrumentalities, commissions, boards or bodies having jurisdiction over the Parties and their respective Subsidiaries. "Representative" shall mean any investment banker, financial advisor, attorney, accountant, consultant, or other representative engaged by a Person. "SEC Documents" shall mean all forms, proxy statements, registration statements, reports, schedules, and other documents filed, or required to be filed, by a Party or any of its Subsidiaries with any Regulatory Authority pursuant to the Securities Laws. "Securities Laws" shall mean the 1933 Act, the 1934 Act, the Investment Company Act of 1940, as amended, the Investment Advisors Act of 1940, as amended, the Trust Indenture Act of 1939, as amended, and the rules and regulations of any Regulatory Authority promulgated thereunder. "Sub Common Stock" shall mean the $.01 par value common stock of Sub. "Subsidiaries" shall mean all those corporations, associations, or other business entities of which the entity in question either (i) owns or controls 50% or more of the outstanding equity securities either directly or through an unbroken chain of entities as to each of which 50% or more of the outstanding equity securities is owned directly or indirectly by its parent (provided, there shall not be included any such entity the equity securities of which are owned or controlled in a fiduciary capacity), (ii) in the case of partnerships, serves as a general partner, (iii) in the case of a limited liability company, serves as a managing member, or (iv) otherwise has the ability to elect a majority of the directors, trustees or managing members thereof. "Surviving Corporation" shall mean Sub as the surviving corporation resulting from the Merger. "Tax Return" shall mean any report, return, information return, or other information required to be supplied to a taxing authority in connection with Taxes, including any return of an affiliated or combined or unitary group that includes a Party or its Subsidiaries. "Tax" or "Taxes" shall mean any federal, state, county, local, or foreign taxes, charges, fees, levies, imposts, duties, or other assessments, including income, gross receipts, excise, employment, sales, use, transfer, license, payroll, franchise, severance, stamp, occupation, windfall profits, environmental, federal highway use, commercial rent, customs duties, capital stock, paid-up capital, profits, withholding, Social Security, single business and 54 unemployment, disability, real property, personal property, registration, ad valorem, value added, alternative or add-on minimum, estimated, or other tax or governmental fee of any kind whatsoever, imposed or required to be withheld by the United States or any state, county, local or foreign government or subdivision or agency thereof, including any interest, penalties, and additions imposed thereon or with respect thereto. (b) The terms set forth below shall have the meanings ascribed thereto in the referenced sections: Business Combination Section 11.2 Cash Election Shares Section 3.2 Closing Section 1.2 Dissenting Share Amount Section 4.2 Effective Time Section 1.3 Election Deadline Section 3.2 Election Form Section 3.2 ERISA Affiliate Section 5.13(c) ESOT Section 7.2(l) Exchange Agent Section 3.2 Exchange Fund Section 4.1(a) Exchange Ratio Section 3.1(c) Highwoods Benefit Plans Section 6.13(a) Highwoods ERISA Plan Section 6.13(a) Highwoods Option Amount Section 3.2(ii) Highwoods Pension Plan Section 6.13(a) Highwoods SEC Reports Section 6.5(a) JCN Benefit Plans Section 5.13(a) JCN Contracts Section 5.14 JCN ERISA Plan Section 5.13(a) JCN Options Section 3.7(a) JCN Pension Plan Section 5.13(a) JCN Retained Shares Section 3.2 JCN Non-Retained Shares Section 3.2 JCN Properties Section 5.9(a) JCN Permitted Encumbrances Section 5.9(a) JCN SEC Reports Section 5.5(a) JCN Shareholders Meeting Section 3.2 Leases Section 5.9(b) Mailing Date Section 3.2 Maximum Amount Section 8.14 Maximum Cash Election Amount Section 3.2(i) Maximum Share Amount Section 3.2 55 Merger Section 1.1 New Certificates Section 4.1(a) No Election Shares Section 3.2 Old Certificates Section 3.2 Record Date Section 3.2 Takeover Laws Section 5.19 (c) Any singular term in this Agreement shall be deemed to include the plural, and any plural term the singular. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed followed by the words "without limitation." 11.2 Expenses. (a) Except as otherwise provided in this Section 11.2, each of the Parties shall bear and pay all direct costs and expenses incurred by it or on its behalf in connection with the transactions contemplated hereunder, including filing, registration and application fees, printing fees, and fees and expenses of its own financial or other consultants, investment bankers, accountants, and counsel. (b) Notwithstanding the foregoing, (i) if this Agreement is terminated by Highwoods pursuant to any of Sections 10.1(b), 10.1(c) or 10.1(f); or (ii) if the Merger is not consummated as a result of the failure of JCN to satisfy any of the conditions set forth in Section 9.2, then JCN shall promptly pay Highwoods the sum of $2,500,000, which amount represents the costs and expenses of Highwoods (including reasonable costs of counsel, investment bankers, actuaries and accountants). (c) Notwithstanding the foregoing, (i) if this Agreement is terminated by JCN pursuant to either of Sections 10.1(b) or 10.1(c); or (ii) if the Merger is not consummated as a result of the failure of Highwoods to satisfy any of the conditions set forth in Section 9.3, then Highwoods shall promptly pay JCN $2,500,000, which amount represents the costs and expenses of JCN (including reasonable costs of counsel, investment bankers, actuaries and accountants). 56 (d) In addition to the foregoing, if within twelve (12) months following: (i) any termination of this Agreement by Highwoods pursuant to Sections 10.1(b), 10.1(c), or 10.1(f); or (ii) failure to consummate the Merger by reason of any failure of JCN to satisfy the conditions enumerated in Section 9.2; or any third-party shall acquire, merge with, combine with, purchase more than 40% of the Assets of, or engage in any other business combination with, or purchase any equity securities involving the acquisition of 50% or more of the voting stock of JCN or a transaction which results in a Person owning 50% or more of the voting stock of JCN, or enter into any binding agreement to do any of the foregoing (collectively, a "Business Combination"), such third-party that is a party to the Business Combination shall pay to Highwoods, prior to the earlier of consummation of the Business Combination or execution of any letter of intent or definitive agreement with JCN or any JCN Entity relating to such Business Combination, an amount in cash equal to the sum of (x) $ 14,700,000, plus (y) the amount described in subsection (b) of this Section 11.2 (if not previously paid to Highwoods); provided, however, that in the event: (i) there has been no Business Combination consummated or a letter of intent or definitive agreement relating to a Business Combination entered into at or prior to the time of the JCN Shareholders Meeting, (ii) this Agreement is terminated or terminable by Highwoods under Section 10.1(f), and (iii) within 12 months of such meeting or such termination, a Business Combination is consummated, then such third party shall pay to Highwoods, at the time of consummation of the Business Combination, an amount in cash equal to the sum of (xx) $7,350,000; plus (yy) the amount described in subsection (b) of this Section 11.2 (if not previously paid to Highwoods); which payments represent additional compensation for Highwoods' loss as the result of the transactions contemplated by this Agreement not being consummated. In the event such third-party shall refuse to pay such amounts within ten days of demand therefor by Highwoods, the amounts shall be an obligation of JCN and shall be paid by JCN within two business days of notice to JCN by Highwoods. Notwithstanding anything herein to the contrary, if: (i) Highwoods would not have had the right to terminate this Agreement under Section 10.1(f) above, and (ii) JCN has not intentionally taken any action reasonably likely to afford Highwoods the right to terminate this Agreement pursuant to 10.1(b) or 10.1(c) or JCN has not intentionally failed to 57 satisfy any of the conditions set forth in Section 9.2, then no payments shall be due to Highwoods pursuant to this Section 11.2(d). (e) Notwithstanding the foregoing, if (i) this Agreement is not terminable by Highwoods pursuant to Section 10.1(f); and (ii) this Agreement is terminated by either Party pursuant to Section 10.1(d)(ii);and (iii) at the time of the JCN Shareholders Meeting there is public knowledge of an identifiable third party's financially superior proposal to purchase all of the then outstanding JCN Common Stock; and (iv) the proposal by such third party referred to in clause (iii) above is accepted and closes within 12 months of the date of this Agreement, then the third party making such proposal shall pay to Highwoods, upon consummation of the transaction, the sum of $2,500,000, which amount represents the costs and expenses of Highwoods (including reasonable costs of counsel, investment bankers, actuaries and accountants). In the event such third party does not make such payment within ten days of demand therefor by Highwoods, the payment shall be an obligation of JCN and shall be paid by JCN within two business days of notice to JCN by Highwoods. 11.3 Brokers and Finders. Except for Morgan Stanley, Dean Witter, Discover & Co. as to JCN and except for J.P. Morgan Securities Inc. as to Highwoods, each of the Parties represents and warrants that neither it nor any of its officers, directors or employees has employed any broker or finder or incurred any Liability for any financial advisory fees, investment bankers' fees, brokerage fees, commissions, or finders' fees in connection with this Agreement or the transactions contemplated hereby. In the event of a claim by any broker or finder based upon his or its representing or being retained by or allegedly representing or being retained by JCN or by Highwoods, each of JCN and Highwoods, as the case may be, agrees to indemnify and hold the other Party harmless of and from any Liability in respect of any such claim. 11.4 Entire Agreement. Except as otherwise expressly provided herein, this Agreement (including the documents and instruments referred to herein) constitutes the entire agreement between the Parties with respect to the transactions contemplated hereunder and supersedes all prior arrangements or understandings with respect thereto, written or oral (except, as to Section 8.6(b), for the Confidentiality Agreement). Nothing in this Agreement expressed or implied, is intended to confer upon any Person, other than the Parties or their respective successors, any rights, remedies, obligations, or liabilities under or by reason of this Agreement, other than as provided in Sections 8.13 and 8.14. 58 11.5 Amendments. To the extent permitted by Law, this Agreement may be amended by a subsequent writing signed by each of the Parties upon the approval of each of the Parties, whether before or after shareholder approval of this Agreement has been obtained; provided, that after any such approval by the holders of JCN Common Stock, there shall be made no amendment that reduces or modifies in any material respect the consideration to be received by holders of JCN Common Stock. 11.6 Waivers. (a) Prior to or at the Effective Time, Highwoods, acting through its Board of Directors, chief executive officer or other authorized officer, shall have the right to waive any Default in the performance of any term of this Agreement by JCN, to waive or extend the time for the compliance or fulfillment by JCN of any and all of its obligations under this Agreement, and to waive any or all of the conditions precedent to the obligations of Highwoods under this Agreement, except any condition which, if not satisfied, would result in the violation of any Law. No such waiver shall be effective unless in writing signed by a duly authorized officer of Highwoods. (b) Prior to or at the Effective Time, JCN, acting through its Board of Directors, chief executive officer or other authorized officer, shall have the right to waive any Default in the performance of any term of this Agreement by Highwoods, to waive or extend the time for the compliance or fulfillment by Highwoods of any and all of its obligations under this Agreement, and to waive any or all of the conditions precedent to the obligations of JCN under this Agreement, except any condition which, if not satisfied, would result in the violation of any Law. No such waiver shall be effective unless in writing signed by a duly authorized officer of JCN. (c) The failure of any Party at any time or times to require performance of any provision hereof shall in no manner affect the right of such Party at a later time to enforce the same or any other provision of this Agreement. No waiver of any condition or of the breach of any term contained in this Agreement in one or more instances shall be deemed to be or construed as a further or continuing waiver of such condition or breach or a waiver of any other condition or of the breach of any other term of this Agreement. 11.7 Assignment. Except as expressly contemplated hereby, neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any Party hereto (whether by operation of Law or otherwise) without the prior written consent of the other Party. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the Parties and their respective successors and assigns. 11.8 Notices. All notices or other communications which are required or permitted hereunder shall be in writing and sufficient if delivered by hand, by facsimile transmission, by registered or certified mail, postage pre-paid, or by courier or overnight carrier, to the persons 59 at the addresses set forth below (or at such other address as may be provided hereunder), and shall be deemed to have been delivered as of the date so delivered: JCN: J.C. Nichols Company 310 Ward Parkway Kansas City, Missouri 64112 Telecopy Number: (816) 561-3456 Attention: Barrett Brady Copy to Counsel: Blackwell Sanders Matheny Weary & Lombardi L.L.P. Two Pershing Square, Suite 1100 Kansas City, Missouri 64108 Telecopy Number: (816) 983-8080 Attention: Steve Carman and to: Weil, Gotshal & Manges L.L.P. 767 Fifth Avenue New York, New York 10153 Telecopy Number: (212) 310-8007 Attention: Steve Jacobs Highwoods: Highwoods Properties, Inc. 3100 Smoketree Court, Suite 600 Raleigh, North Carolina 27604 Telecopy Number: (919) 876-6929 Attention: Mack D. Pridgen, III, Vice President and General Counsel Copy to Counsel: Alston & Bird LLP 3605 Glenwood Avenue, Suite 310 Raleigh, North Carolina 27612 Telecopy Number: (919) 881-3175 Attention: Brad S. Markoff 60 11.9 Governing Law. This Agreement shall be governed by and construed in accordance with the Laws of the State of Missouri, without regard to any applicable conflicts of Laws. 11.10 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 11.11 Captions; Articles and Sections. The captions contained in this Agreement are for reference purposes only and are not part of this Agreement. Unless otherwise indicated, all references to particular Articles or Sections shall mean and refer to the referenced Articles and Sections of this Agreement. 11.12 Interpretations. Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against any party, whether under any rule of construction or otherwise. No party to this Agreement shall be considered the draftsman. The parties acknowledge and agree that this Agreement has been reviewed, negotiated, and accepted by all parties and their attorneys and shall be construed and interpreted according to the ordinary meaning of the words used so as fairly to accomplish the purposes and intentions of all parties hereto. 11.13 Enforcement of Agreement. The Parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement was not performed in accordance with its specific terms or was otherwise breached. It is accordingly agreed that the Parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. 11.14 Severability. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable. 61 IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be executed on its behalf by its duly authorized officers as of the day and year first above written. HIGHWOODS PROPERTIES, INC. By: /s/ Ronald P. Gibson ______________________________ President JACKSON ACQUISITION CORP. By: /s/ Ronald P. Gibson ______________________________ President J.C. NICHOLS COMPANY By: /s/ Barrett Brady ______________________________ President 62 TABLE OF CONTENTS
Page ARTICLE 1 TRANSACTIONS AND TERMS OF MERGER......................................................................1 1.1 Merger..........................................................................................1 1.2 Time and Place of Closing.......................................................................1 1.3 Effective Time..................................................................................2 ARTICLE 2 TERMS OF MERGER.......................................................................................2 2.1 Charter.........................................................................................2 2.2 Bylaws..........................................................................................2 2.3 Directors and Officers..........................................................................2 ARTICLE 3 MANNER OF CONVERTING SHARES...........................................................................2 3.1 Conversion of Shares............................................................................2 3.2 Cash Election...................................................................................3 3.3 Anti-Dilution Provisions........................................................................6 3.4 Shares Held by JCN or Highwoods.................................................................6 3.5 Dissenting Shareholders.........................................................................6 3.6 Fractional Shares...............................................................................7 3.7 Conversion of Stock Options.....................................................................7 3.8 Extraordinary Dividend..........................................................................8 ARTICLE 4 EXCHANGE OF SHARES......................................................................................9 4.1 Exchange Procedures.............................................................................9 4.2 Rights of Former JCN Shareholders..............................................................10 ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF JCN..................................................................10 5.1 Organization, Standing, and Power..............................................................11 5.2 Authority of JCN; No Breach By Agreement.......................................................11 5.3 Capital Stock..................................................................................12 5.4 JCN Subsidiaries...............................................................................12 5.5 SEC Filings; Financial Statements..............................................................13 5.6 Absence of Undisclosed Liabilities.............................................................14 5.7 Absence of Certain Changes or Events...........................................................14 5.8 Tax Matters....................................................................................14 5.9 Assets.........................................................................................15 5.10 Environmental Matters..........................................................................16 5.11 Compliance with Laws...........................................................................17 5.12 Labor Relations................................................................................17 5.13 Employee Benefit Plans.........................................................................18 5.14 Material Contracts.............................................................................19 5.15 Legal Proceedings..............................................................................20 5.16 Reports........................................................................................20 i 5.17 Statements True and Correct....................................................................21 5.18 Tax and Regulatory Matters.....................................................................21 5.19 State Takeover Laws............................................................................22 5.20 Charter Provisions.............................................................................22 5.21 Rights Agreement...............................................................................22 5.22 Opinion of Financial Advisor...................................................................22 5.23 Board Recommendation...........................................................................22 ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF HIGHWOODS..........................................................22 6.1 Organization, Standing, and Power..............................................................22 6.2 Authority; No Breach By Agreement..............................................................23 6.3 Capital Stock..................................................................................24 6.4 Highwoods Subsidiaries.........................................................................24 6.5 SEC Filings; Financial Statements..............................................................25 6.6 Absence of Undisclosed Liabilities.............................................................25 6.7 Absence of Certain Changes or Events...........................................................26 6.8 Tax Matters....................................................................................26 6.9 Assets.........................................................................................26 6.10 Environmental Matters..........................................................................26 6.11 Compliance with Laws...........................................................................27 6.12 Labor Relations................................................................................28 6.13 Employee Benefit Plans.........................................................................28 6.14 Legal Proceedings..............................................................................29 6.15 Reports........................................................................................30 6.16 Statements True and Correct....................................................................30 6.17 Authority of Sub...............................................................................31 6.18 Tax and Regulatory Matters.....................................................................31 6.19 Rights Agreement...............................................................................31 ARTICLE 7 CONDUCT OF BUSINESS PENDING CONSUMMATION.............................................................31 7.1 Affirmative Covenants of JCN...................................................................31 7.2 Negative Covenants of JCN......................................................................32 7.3 Covenants of Highwoods.........................................................................34 7.4 Adverse Changes in Condition...................................................................34 7.5 Reports........................................................................................35 ARTICLE 8 ADDITIONAL AGREEMENTS................................................................................35 8.1 Registration Statement; Proxy Statement; Shareholder Approval..................................35 8.2 Exchange Listing...............................................................................36 8.3 Applications; Antitrust Notification...........................................................36 8.4 Filings with State Offices.....................................................................36 8.5 Agreement as to Efforts to Consummate..........................................................36 8.6 Investigation and Confidentiality..............................................................37 ii 8.7 Press Releases.................................................................................37 8.8 Certain Actions................................................................................38 8.9 Tax Treatment..................................................................................38 8.10 State Takeover Laws............................................................................38 8.11 Charter Provisions.............................................................................38 8.12 Agreement of Affiliates........................................................................39 8.13 Employee Benefits and Contracts................................................................39 8.14 Indemnification................................................................................39 8.15 Tenant Estoppels...............................................................................41 8.16 Maintenance of Organizational Structure........................................................41 8.17 Maintenance of Plaza Redevelopment Plan........................................................41 8.18 Maintenance of Charitable Contributions........................................................41 8.19 Maintenance of Merchant Support................................................................41 8.20 Member of Board of Directors...................................................................42 ARTICLE 9 CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE....................................................42 9.1 Conditions to Obligations of Each Party........................................................42 9.2 Conditions to Obligations of Highwoods.........................................................43 9.3 Conditions to Obligations of JCN...............................................................44 ARTICLE 10 TERMINATION.........................................................................................46 10.1 Termination....................................................................................46 10.2 Effect of Termination..........................................................................47 10.3 Non-Survival of Representations and Covenants..................................................47 ARTICLE 11 MISCELLANEOUS.......................................................................................47 11.1 Definitions....................................................................................47 11.2 Expenses.......................................................................................57 11.3 Brokers and Finders............................................................................59 11.4 Entire Agreement...............................................................................59 11.5 Amendments.....................................................................................60 11.6 Waivers........................................................................................60 11.7 Assignment.....................................................................................60 11.8 Notices........................................................................................60 11.9 Governing Law..................................................................................62 11.10 Counterparts...................................................................................62 11.11 Captions; Articles and Sections................................................................62 11.12 Interpretations................................................................................62 11.13 Enforcement of Agreement.......................................................................62 11.14 Severability...................................................................................62
iii LIST OF EXHIBITS Exhibit Number Description -------------- ----------- 1. Matters as to which Blackwell Sanders Matheny Weary & Lombardi will opine (ss. 9.2(d)). 2. Matters as to which Alston & Bird LLP will opine (ss.9.3(d)). Exhibit 1 MATTERS AS TO WHICH BLACKWELL SANDERS MATHENY WEARY & LOMBARDI LLP WILL OPINE 1. JCN is a corporation duly organized, validly existing and in good standing under the laws of the State of Missouri, with full corporate power and authority to carry on the business in which it is engaged and to own and use its Assets. 2. The authorized capital stock of JCN consists of shares of ________________________ JCN Common Stock, of which __________________ shares were issued and outstanding as of ____________________, 19__. Subsequent to September 1995, no shares of JCN Common Stock have been issued in violation of any statutory preemptive rights of shareholders, and all shares issued since such date were duly issued and are fully paid and nonassessable under the Missouri Business Corporation Act. To our knowledge, except as set forth above or as disclosed in Section 5.3 of the JCN Disclosure Memorandum, as of , 19___ there were no shares of capital stock or other equity securities of JCN outstanding and no outstanding Equity Rights relating to the capital stock of JCN. 3. The execution and delivery of the Agreement and compliance with its terms do not and will not violate or contravene any provision of the Articles of Incorporation or Bylaws of JCN or, to our knowledge but without any independent investigation, result in any conflict with, breach of, or default or acceleration under any Law or Order to which JCN is a party or by which JCN is bound, except as may be disclosed in the JCN Disclosure Memorandum. 4. The Agreement has been duly and validly executed and delivered by JCN and, assuming valid authorization, execution and delivery by Highwoods and Sub, constitutes a valid and binding agreement of JCN enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally, provided, however, that we express no opinion as to the availability of the equitable remedy of specific performance. Exhibit 2 MATTERS AS TO WHICH ALSTON & BIRD LLP WILL OPINE 1. Highwoods is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland with full corporate power and authority to carry on the business in which it is engaged, and to own and use its Assets. 2. Sub is a corporation duly organized and validly existing and in good standing under the laws of the State of Maryland with full corporate power and authority to carry on the business in which it is engaged, and to own and use its Assets. 3. The execution and delivery of the Agreement and compliance with its terms do not and will not violate or contravene any provision of the Amended and Restated Articles of Incorporation or Bylaws of Highwoods or, to our knowledge but without any independent investigation, any Law or Order to which Highwoods is a party or by which Highwoods is bound. The adoption of the Agreement and compliance with its terms do not and will not violate or contravene any provision of the Articles of Incorporation or Bylaws of Sub or, to our knowledge but without any independent investigation, any Law or Order to which Sub is a party or by which Sub is bound. 4. The Agreement has been duly and validly executed and delivered by Highwoods and Sub, and assuming valid authorization, execution and delivery by JCN, constitutes a valid and binding agreement of Highwoods and Sub enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, or similar laws affecting creditors' rights generally, provided, however, that we express no opinion as to the availability of the equitable remedy of specific performance. 5. The shares of Highwoods Common Stock to be issued to the shareholders of JCN as contemplated by the Agreement have been registered under the Securities Act of 1933, as amended, and when properly issued and delivered following consummation of the Merger will be fully paid and non-assessable under the General Corporation Law of Maryland. EX-4.8 3 PURCHASE AGREEMENT PURCHASE AGREEMENT THIS PURCHASE AGREEMENT is made as of the 28th day of August, 1997, by and among Highwoods Properties, Inc. (the "Company"), a corporation organized under the laws of the State of Maryland and UBS Limited, an English corporation ("UBS Limited") and Union Bank of Switzerland, London Branch, acting through its agent UBS Securities LLC ("UBS-LB") (UBS Limited and UBS-LB being hereinafter collectively called the "UBS Parties" and sometimes individually, a UBS Party"). IN CONSIDERATION of the mutual covenants contained in this Purchase Agreement, the Company and the UBS Parties agree as follows: SECTION 1. Authorization of Sale of the Shares. Subject to the terms and conditions of this Purchase Agreement, the Company has authorized the sale to UBS Limited of up to an aggregate of 1,800,000 shares of common stock (the "Common Shares"), $.01 par value per share (the "Purchase Shares"), of the Company. In addition, the Company may issue to UBS-LB additional Common Shares in settlement of certain of its obligations under the Forward Stock Purchase, dated August 28, 1997 (the "Forward Stock Purchase Agreement"), between the Company and UBS-LB (the "Additional Shares"). The Purchase Shares and the Additional Shares are hereinafter collectively called the "Shares". SECTION 2. Agreement to Sell and Purchase the Purchase Shares. Subject to the terms and conditions of this Purchase Agreement, on the Closing Date (as defined in Section 3 hereof), the Company will sell to UBS Limited the Purchase Shares, the number of which shall equal 1,800,000, for a per share purchase price equal to the Closing Price. The "Closing Price" shall equal the closing price reported on the New York Stock Exchange for a Common Share on the business day immediately preceding the Closing Date. SECTION 3. Delivery of the Shares at the Closing. 3.1. Closing. The completion of the purchase and sale of the Purchase Shares (the "Closing") shall occur as soon as practicable, on such date to be agreed upon by the Company and the UBS Parties (hereinafter, the "Closing Date"). 3.2. Conditions. At Closing, the Company shall deliver to the UBS Limited one or more stock certificates registered in the name of UBS Limited representing the number of Purchase Shares set forth in Section 2 above. The Company's obligation to complete the purchase and sale of the Purchase Shares and deliver such stock certificate(s) to UBS Limited at the Closing shall be subject to the following conditions, any one or more of which may be waived by the Company: (i) receipt by the Company of Federal Funds (or other mutually agreed upon form of payment) in the full amount of the purchase price for the Purchase Shares being purchased hereunder, (ii) the accuracy in all material respects, as of the Closing Date, of the representations and warranties made by the UBS Parties herein and the fulfillment of in all material respects those undertakings of the UBS Parties therein to be fulfilled prior to the Closing, (iii) the Forward Stock Purchase Agreement shall have been fully executed by the parties thereto and (iv) receipt by the Company of a cross-receipt with respect to the Purchase Shares executed by UBS Limited and a certificate by an officer or authorized representative of UBS Limited to the effect that the representations and warranties of UBS Limited set forth in Section 5 hereof are true and correct as of the date of this Agreement and as of the Closing Date. UBS Limited's obligation to accept delivery of such stock certificate(s) and to pay for the Purchase Shares evidenced thereby shall be subject to the following conditions: (i) the accuracy in all material respects, as of the Closing Date, of the representations and warranties made by the Company herein and the fulfillment in all material respects, as of the Closing Date, of those undertakings of the Company to be fulfilled prior to Closing; and (ii) the UBS Parties shall have received all opinions and certificates to be delivered pursuant to this Agreement. SECTION 4. Representations, Warranties and Covenants of the Company. The Company hereby represents and warrants to, and covenants with, the UBS Parties as follows: 4.1. Organization and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of Maryland and has all requisite corporate power and authority to conduct its business as currently conducted. 4.2. Authorized Capital Stock. The Company has authorized and outstanding capital stock as set forth in the Most Recent Financial Statements (as defined below); the issued and outstanding shares of the Company's Common Shares have been duly authorized and validly issued, are fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, were not issued in violation of or subject to any preemptive rights or other rights to subscribe for or purchase securities, and conform to the description thereof incorporated by reference in the Registration Statement. Other than as described in the Company's SEC Filings (as defined below), the Company does not have outstanding any options to purchase, or any preemptive rights or other rights to subscribe for or to purchase, any securities or obligations convertible into, or any contracts or commitments to issue or sell, shares of its capital stock or any such options, rights, convertible securities or obligations. The description of the Company's stock, stock bonus and other stock plans or arrangements and the options or other rights granted and exercised thereunder in the Company's SEC Fillings accurately and fairly presents the information required to be shown with respect to such plans, arrangements, options and rights. 4.3. Issuance, Sale and Delivery of the Shares. The Purchase Shares to be sold by the Company have been duly authorized and, when issued, delivered and paid for in the manner set forth in this Agreement, will be duly authorized, validly issued, fully paid and nonassessable, and will conform to the description thereof incorporated by reference in the Registration Statement. The Additional Shares, if and when issued pursuant to the Forward Stock Purchase Agreement, will be duly authorized, validly issued, fully paid and nonassessable, and will 2 conform to the description thereof incorporated by reference in the Registration Statement. None of the Shares when issued and delivered to the UBS Parties shall be subject to any lien, security interest, claim, charge or encumbrance of any nature. Other than the UBS Parties, no shareholder of the Company has any right, which has not been waived or has not expired by reason of lapse of time following notification of the Company's intent to file the Registration Statement (as defined below), to require the Company to register the sale of any shares owned by such shareholder under the Securities Act of 1933, as amended (the "Securities Act"), in the Registration Statement. No further approval or authority of the shareholders or the Board of Directors of the Company will be required for the issuance and/or sale of the Shares to be sold by the Company as contemplated herein or in the Forward Stock Purchase Agreement, except such as shall have been obtained on or before the Closing Date. The issuance and/or sale of the Shares to the UBS Parties by the Company pursuant to this Agreement or the Forward Stock Purchase Agreement (as the case may be), the compliance by the Company with the other provisions of this Agreement or the Forward Stock Purchase Agreement and the consummation of the other transactions contemplated hereby or thereby do not require the consent, approval, authorization, registration or qualification of or with any governmental authority, except such as shall have been obtained on or before the Closing Date other than the registration of the resale of the Shares by the UBS Parties with the Securities and Exchange Commission (the "SEC") and any required Blue Sky filings within the States. The Company meets and will continue to meet the requirements for use of Form S-3 under the Securities Act and the rules and regulations promulgated thereunder (the "Rules and Regulations"). The Company has filed and will file all documents which it is required to file under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and all such documents (the "Company's SEC Filings") comply in all material respects with the requirements of the Exchange Act and the rules and regulations thereunder, as applicable, and none of such documents, when so filed, contained or will contain any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, and any documents so filed and incorporated by reference subsequent to the effective date of the Registration Statement shall, when they are filed with the SEC, conform in all material respects with the requirements of the Securities Act and the Rules and Regulations and the Exchange Act and the rules and regulations thereunder, as applicable. No Registration Statement filed in respect of any of the Shares, when so filed, contained or will contain any untrue statement of a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 4.4. Due Execution, Delivery and Performance of the Agreement. The Company has full legal right, power and authority to enter into the Purchase Agreement and the Forward Stock Purchase Agreement and perform the transactions contemplated hereby and thereby. The Purchase Agreement and the Forward Stock Purchase Agreement have been duly authorized, executed and delivered by the Company. The making and performance of the Purchase Agreement and the Forward Stock Purchase Agreement by the Company and the consummation of the transactions herein and therein contemplated will not violate any provision of the articles of incorporation or bylaws, or other organizational documents, of the Company, and will not conflict with, result in the breach or violation of, or constitute, either by itself or upon notice or 3 the passage of time or both, a default under any material agreement, mortgage, deed of trust, lease, franchise, license, indenture, permit or other instrument to which the Company is a party or by which the Company or its properties may be bound or affected, any statute or any authorization, judgment, decree, order, rule or regulation of any court or any regulatory body, administrative agency or other governmental body applicable to the Company or any of its properties. No consent, approval, authorization or other order of any court, regulatory body, administrative agency or other governmental body is required for the execution and delivery of this Agreement, the Forward Stock Purchase Agreement or the consummation of the transactions contemplated hereby or thereby, except in connection with the filing of any Registration Statements pursuant to Section 7 below or for compliance with the Blue Sky laws applicable to the offering of the Shares. Upon the execution and delivery hereof, each of the Purchase Agreement and the Forward Stock Purchase Agreement will constitute the valid and binding obligation of the Company, enforceable in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' and contracting parties' rights generally and except as enforceability may be subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) and except as the indemnification agreements of the Company in Section 7.5 hereof may be legally unenforceable. 4.5. Accountants. The Company's independent certified public accountants, who have expressed their opinion with respect to the Most Recent Financial Statements (as defined below) are independent accountants as required by the Securities Act and the Rules and Regulations. The Company shall cause the independent certified public accountants to deliver, on the effective date of Registration Statement, and at the time of sale pursuant to the Registration Statement of Shares, a letter stating that such accountants are independent public accountants within the meaning of the Securities Act and otherwise in customary form and covering such financial and accounting matters as are customarily covered by letters of independent certified public accountants delivered in connection with underwritten public offerings of equity securities. 4.6. No Defaults. Except as to defaults, violations and breaches which individually or in the aggregate would not be material to the Company, the Company is not in violation or default of any provision of its articles of incorporation or bylaws, or other organizational documents, or is not in breach of or default with respect to any provision of any agreement, judgment, decree, order, mortgage, deed of trust, lease, franchise, license, indenture, permit or other instrument to which it is a party or by which it or any of its properties are bound; and there does not exist any state of fact which constitutes an event of default on the part of the Company as defined in such documents or which, with notice or lapse of time or both, would constitute such an event of default except such defaults which individually or in the aggregate would not be material to the Company. 4.7. Contracts. Neither the Company, nor to the best of the Company's knowledge, any other party is in breach of or default under any of such contracts to which the Company is a party except such breach or default which individually or in the aggregate would not be material to the Company. 4 4.8. No Actions. There are no legal or governmental actions, suits or proceedings pending or, to the best of the Company's knowledge, threatened to which the Company is or may be a part or of which property owned or leased by the Company is or may be the subject, or related to environmental or discrimination matters, which actions, suits or proceedings might, individually or in the aggregate, prevent or adversely affect the transactions contemplated by this Agreement or result in a material adverse change in the condition (financial or otherwise), of the properties, business, results of operations or prospects of the Company, and no labor disturbance by the employees of the Company exists or is imminent which might be expected to affect adversely such condition, properties, business, results of operations or prospects. The Company is neither a party nor subject to the provisions of any material injunction, judgment, decree or order of any court, regulatory body administrative agency or other governmental body. 4.9. Properties. The Company has good and marketable title to all the properties and assets reflected as owned by it in the financial statements included in the Most Recent Financial Statements, subject to no lien, mortgage, pledge, charge or encumbrance of any kind except (i) those, if any, reflected in such financial statements or the Company's SEC Filings, or (ii) those which are not material in amount and do not adversely affect the use made and promised to be made of such property by the Company. The Company holds its leased properties under valid and binding leases, with such exceptions as are not materially significant in relation to the business of the Company. The Company owns or leases all such properties as are necessary to its operations as now conducted. The Company qualified as a real estate investment trust under the Internal Revenue Code of 1986, as amended, with respect to its taxable years ended December 31, 1994, December 31, 1995 and December 31, 1996, and is organized in conformity with the requirements for qualification as a real estate investment trust, and its manner of operation has enabled it to meet the requirements for qualification as a real estate investment trust as of the date hereof, and its proposed manner of operation will enable it to meet the requirements for qualification as a real estate investment trust in the future. 4.10. No Material Change. Since the date of the Most Recent Financial Statements, and except as otherwise disclosed in the Company's SEC Filings as of the Closing Date or in writing to the UBS Parties (i) the Company has not incurred any material liabilities or obligations, indirect, or contingent, or entered into any material verbal or written agreement or other transaction which is not in the ordinary course of business (it being agreed that for purposes of this sentence the Company's ordinary course of business shall include the acquisition, directly indirectly, of real estate properties or businesses of a type that may be owned by a "real estate investment trust" (as defined under the Internal Revenue Code) or which could reasonably be expected to result in a material reduction in the future earnings of the Company; (ii) the Company has not sustained any material loss or interference with its businesses or properties from fire, flood, windstorm, accident or other calamity, whether or not covered by insurance; (iii) the Company is not in default in the payment of principal or interest on any outstanding debt obligations; (iv) there has not been any change in the capital stock of the Company (other than the sale of the Purchase Shares hereunder and the sale of Common Stock under the Company's 5 Dividend Reinvestment and Stock Purchase Plan), or indebtedness material to the Company (other than in the ordinary course of business); and (v) there has not been any material adverse change in the condition (financial or otherwise), business, properties, results of operations or prospects of the Company. 4.11. Intellectual Property. The Company believes it has sufficient trademarks, trade names, patent rights, copyrights, licenses, approvals and governmental authorizations to conduct its businesses as now conducted; and the Company has no knowledge of any material infringement by it of trademark, trade name rights, patent rights, copyrights, licenses, trade secrets or other similar rights of others, and no claim has been made against the Company regarding trademark, trade name, patent, copyright, license, trade secrecy or other infringement which could have a material adverse effect on the condition (financial or otherwise), business, results of operations or prospects of the Company. 4.12. Compliance. The Company has not been advised, and has no reason to believe, that it is not conducting business in compliance with all applicable laws, rules and regulations of the jurisdictions in which it is conducting business, including, without limitation, all applicable local, state and federal environmental laws and regulations; except where failure to be so in compliance would not materially adversely affect the condition (financial or otherwise), business, results of operations or prospects of the Company. 4.13. Taxes. The Company has filed all necessary federal, state and foreign income and franchise tax returns and has paid or accrued all taxes shown as due thereon, and the Company has no knowledge of any tax deficiency which has been or might be asserted or threatened against the Company which could materially adversely affect the business condition (financial or otherwise), results of operations or prospects of the Company. 4.14. Transfer Taxes. On the Closing Date, all stock transfer or other taxes (other than income taxes) which are required to be paid in connection with the sale and transfer of the Purchase Shares to be sold to UBS Limited hereunder will be, or will have been, fully paid or provided for by the Company and all laws imposing such taxes will be or will have been fully complied with. 4.15. Investment Company. The Company is not required to register as an "investment company" as such term is defined in the Investment Company Act of 1940, as amended. 4.16. Offering Materials. The Company has not distributed and will not distribute prior to the Closing Date any offering material in connection with the offering and sale of the Purchase Shares other than the documents provided to the UBS Parties pursuant to Section 4.18, except as set forth at Section 5.5. 4.17. Insurance. The Company maintains insurance (or insurance is maintained on its behalf) of the types and in the amounts generally deemed adequate under customary industry standards for its business, including, but not limited to, insurance covering all real and 6 personal property owned or leased by the Company against theft, damage, destruction, acts of vandalism and all other risks customarily insured against, all of which insurance is in full force and effect. 4.18. SEC Filings. The Company represents and warrants that the information contained in the following documents, which the Company has furnished to the UBS Parties, or will furnish prior to the Closing, is or will be true and correct in all material respects as of their respective filing dates: (a) Annual Report on Form 10-K for the year ended December 31, 1996, which Annual Report includes the Company's most recently available audited financial statements together with the report thereon of the independent certified public accountants (the "Most Recent Financial Statements"); (b) Quarterly Report on Form 10-Q for the quarters ended March 31, 1997 and June 30, 1997; (c) the Company's proxy statements on Form 14A relating to (i) the most recent Annual Meeting of the Company's Shareholders and (ii) any Special Meetings of the Company's Shareholders which occurred during the 12-month period prior to the date hereof or for which a meeting date has been fixed and a proxy statement distributed; and (d) all other documents, if any, filed by or with respect to the Company with the SEC since January 1, 1997 pursuant to Sections 13, 15(d) or 16(a) of the Exchange Act; and (e) a covenant compliance certification stating that the Company and its subsidiaries are not in default under the $280 million unsecured revolving line of credit from a syndicate of lenders, evidenced by that certain Credit Agreement by and among Highwoods/Forsyth Limited Partnership as borrower, the Company and certain subsidiaries as guarantors, the lenders named therein, NationsBank, N.A. as administrative agent and First Union National Bank as documentation agent. 4.19. Legal Opinion. Prior to the Closing, counsel to the Company will deliver its legal opinion to the UBS Parties in substantially the form of Exhibit A hereto. 4.20 ERISA. The Company and its affiliates are in compliance in all material respects with all applicable provisions of the Employee Retirement Income Security Act of 1974, as amended and the rules and regulations promulgated thereunder ("ERISA"). Neither a Reportable Event (as defined under ERISA) nor a Prohibited Transaction (as defined under ERISA) has occurred with respect to any Plan (as defined below) of the Company and/or its affiliates; no notice of intent to terminate a Plan has been filed nor has any Plan been terminated 7 within the past five years; no circumstance exists which constitutes grounds under Section 402 of ERISA entitling the Pension Benefit Guaranty Corporation ("PBGC") to institute proceedings to terminate, or appoint a trustee to administer, a Plan, nor has the PBGC instituted any such proceedings; the Company and its affiliates have not completely or partially withdrawn under Sections 4201 or 4202 of ERISA from any Multiemployer Plan (as defined therein); the Company and its affiliates have met the minimum funding requirements of Section 412 of the Internal Revenue Code of 1986, as amended (the "Code") and Section 302 of ERISA with respect to each Plan and there is no unfunded current liability (as defined below) with respect to any Plan; the Company and its affiliates have not incurred any liability to the PBGC under ERISA (other than for the payment of premiums under Section 4007 of ERISA); no part of the funds to be used by the Company in satisfaction of its obligations under this Purchase Agreement or the Forward Stock Purchase Agreement constitute "plan assets" of any "employee benefit plan" within the meaning of ERISA or of any "plan" within the meaning of Section 4975(e)(1) of the Code, as interpreted by the Internal Revenue Service and the U.S. Department of Labor in rules, regulations, releases and bulletins or as interpreted under applicable case law. As used below, "Plan" means an "employee benefit plan" or "plan" as described in Section 3(3) of ERISA; and "unfunded current liability" has the meaning provided in Section 302(d)(8)(A) of ERISA. 4.21. Certificate. A certificate of the Company executed by the Chairman of the Board or President and the chief financial or accounting officer of the Company, to be dated the Closing Date in form and substance satisfactory to the UBS Parties to the effect that the representations and warranties of the Company set forth in this Section 4 are true and correct as of the date of this Agreement and as of the Closing Date, and the Company has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied on or prior to such Closing Date. 4.23 Environmental Protection. To the Company's knowledge, except as disclosed in the Company's SEC Filings, none of the Company's or its affiliates' properties contain any Hazardous Materials that, under any Environmental Law, (i) would impose liability on the Company or any affiliate that is likely to have a material adverse effect on the condition (financial or other), business, results of operations, or prospects, of the Company or (ii) is likely to result in the imposition of a lien on any assets owned, directly or indirectly, by the Company. To the Company's knowledge, neither it nor any affiliate is subject to any existing, pending or threatened investigation or proceeding by any governmental agency or authority with respect or pursuant to any Environmental Law, except any which, if adversely determined, would not have a material adverse effect on the condition (financial or other), business, results of operations or prospects of the Company. As used herein, "Environmental Laws" mean all federal, state, local and foreign environmental, health and safety laws, codes and ordinances and all rules and regulations promulgated thereunder, including, without limitation laws relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment (including, without limitation, air, surface water, ground water, land surface or subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, chemicals, or industrial, solid, toxic or hazardous substances or wastes; and "Hazardous Material" includes, without limitation, (i) all substances which are designated 8 pursuant to Section 311(b)(2)(A) of the Federal Water Pollution Control Act ("FWPCA"), 33 U.S.C ss.1251 et seq.; (ii) any element, compound, mixture, solution, or substance which is designated pursuant to Section 102 of the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. ss.9601 et seq.; (iii) any hazardous waste having the characteristics which are identified under or listed pursuant to Section 3001 of the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. ss.6901 et seq.; (iv) any toxic pollutant listed under Section 307(a) of the FWPCA; (v) any hazardous air pollutant which is listed under Section 112 of the Clean Air Act, 42 U.S.C. ss.7401 et seq.; (vi) any imminently hazardous chemical substance or mixture with respect to which action has been taken pursuant to Section 7 of the Toxic Substances Control Act, 15 U.S.C. ss.2601 et seq.; and (vii) petroleum, petroleum products, petroleum by-products, petroleum decomposition by-products, and waste oil. SECTION 5. Representations, Warranties and Covenants of the UBS Parties. 5.1. Investment. UBS Limited and/or UBS-LB represents and warrants to, and covenants with, the Company that: (i) UBS Limited, taking into account the personnel and resources it can practically bring to bear on the purchase of the Purchase Shares contemplated hereby, is knowledgeable, sophisticated and experienced in making, and is qualified to make, decisions with respect to investments in shares presenting an investment decision like that involved in the purchase of the Purchase Shares, including investments in securities issued by the Company, and has requested, received, reviewed and considered all information it deems relevant in making an informed decision to purchase the Purchase Shares; (ii) UBS Limited is acquiring the number of Purchase Shares set forth in Section 2 above in the ordinary course of its business and for its own account for investment (as defined for purposes of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the regulations thereunder) only and with no present intention of distributing any of such Purchase Shares or any arrangement or understanding with any other persons regarding the distribution of such Shares (this representation and warranty not limiting the rights of either UBS Party to sell pursuant to any Registration Statement); (iii) neither UBS Party will, directly or indirectly, sell or otherwise dispose of (or solicit any offers to purchase or otherwise acquire) any of the Shares except in compliance with the Securities Act, the Rules and Regulations and any applicable state securities or blue sky laws or pursuant to an available exemption or exclusion therefrom; (iv) each UBS Party has completed or caused to be completed the Registration Statement Questionnaire and the Stock Certificate Questionnaire, both attached hereto as Appendix I, for use in preparation of the Registration Statement and the answers thereto are true and correct to the best knowledge of the UBS Parties as of the date hereof and will be true and correct as of the effective date of the Registration Statement; (v) the UBS Parties have, in connection with their decision to purchase the number of Purchase Shares set forth in Section 2 above, relied solely upon the documents identified in Section 4.18, the information referred to in Section 5.5 and the representations and warranties of the Company contained herein; (vi) each of the UBS Parties is an "accredited investor" within the meaning of Rule 501 of Regulation D promulgated under the Securities Act; (vii) the UBS Parties do not directly or indirectly have an interest of five percent or more of the Common Shares outstanding as shown in the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 and (viii) the Purchaser understands that the Shares will contain a legend to the following effect: 9 THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THESE SHARES UNDER THE SECURITIES ACT OF 1933 OR AN OPINION OF THE COMPANY'S COUNSEL THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT. 5.2. Resale. Each UBS Party acknowledges and agrees that the Shares are not transferable on the books of the Company unless the certificate submitted to the transfer agent evidencing the Shares is accompanied by a separate officer's certificate: (i) in the form of Appendix II hereto, (ii) executed by an officer of, or other authorized person designated by, the UBS Parties, and (iii) to the effect that (A) the Shares have been sold in accordance with the Registration Statement, the Securities Act and the Rules and Regulations and any applicable state securities or blue sky laws or pursuant to valid exemptions or exclusions therefrom and (B) the requirement under the Securities Act of delivering a current prospectus has been satisfied. Each UBS Party acknowledges that there may occasionally be times when the Company must suspend the right of the UBS Parties to effect sales of the Shares through use of the Prospectus forming a part of the Registration Statement until such time as an amendment to the Registration Statement has been filed by the Company and declared effective by the SEC, or until such time as the Company has filed an appropriate report with the SEC pursuant to the Exchange Act (each, a "Black-out Period"); provided that no Black-out Period shall exceed 60 consecutive days and such Black-out Periods shall not during any 12-month period exceed 120 days in the aggregate. Each UBS Party hereby covenants that it will not sell any Shares pursuant to said Prospectus during the period commencing at the time at which the Company gives the UBS Parties written notice of the suspension of the use of said Prospectus and ending at the time the Company gives the UBS Parties written notice that the UBS Parties may thereafter effect sales pursuant to said Prospectus. Each UBS Party further covenants to notify the Company promptly of the sale of all of its Shares. 5.3. Due Execution, Delivery and Performance of this Agreement. The UBS Parties further represent and warrant to, and covenant with, the Company that (i) each UBS Party has full right, power, authority and capacity to enter into this Agreement and to consummate the transactions contemplated hereby and has taken all necessary action to authorize the execution, delivery and performance of this Agreement, and (ii) upon the execution and delivery of this Agreement, this Agreement shall constitute a valid and binding obligation of the UBS Parties enforceable in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' and contracting parties' rights generally and except as enforceability may be subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) and except as the indemnification agreements of the UBS Parties in Section 7.3 hereof may be legally unenforceable. 10 5.4 Residence of UBS Limited. UBS Limited is organized under the laws of England and has its principal place of business in London. 5.5 Pending Acquisition. UBS Limited represents and warrants to the Company that: (i) UBS Limited has been informed by the Company of a non-public material pending acquisition (the "Transaction"), which is the subject of a letter of intent between the Company and certain sellers dated as of August 14, 1997, and that UBS Limited has had the opportunity to discuss fully the Transaction with the Company's officers; (ii) UBS Limited has been informed by the Company that (x) such discussions and any written material regarding the Transaction contain forward-looking statements and (y) actual results could differ materially from those contained in the forward-looking statements as a result of factors such as increased development of office space in the Company's markets or changes in the financial condition of the Company's tenants or other factors detailed in the Company's Annual Report on Form 10-K for the year ending December 31, 1996, (iii) no UBS Party will disclose any information regarding the Transaction and (iv) no UBS Party will trade in securities of the Company (other than the purchase of the Shares contemplated hereby) until two business days after the Company has made a public announcement regarding the Transaction. SECTION 6. Survival of Representations, Warranties and Agreements. Notwithstanding any investigation made by any party to this Purchase Agreement, all covenants, agreements, representations and warranties made by the Company, and the UBS Parties herein and in the certificates for the Shares delivered pursuant hereto shall survive the execution of this Purchase Agreement, the Forward Stock Purchase Agreement, the delivery to UBS Limited of the Purchase Shares being purchased and the payment therefor. SECTION 7. Registration of the Shares; Compliance with the Securities Act. 7.1. Registration Procedures and Expenses. The Company shall: (a) as soon as practicable after the Closing, prepare and file with the SEC a Registration Statement (as defined below) covering the resale by the UBS Parties, from time to time, of up to a number of Shares equal to 130% of the number of Purchase Shares through the facilities of the New York Stock Exchange, the automated quotation system of The Nasdaq Stock Market or the facilities of any other national securities exchange on which the Company's common stock is then traded or in privately negotiated transactions (the "Initial Registration Statement"). If the total number of Shares exceeds the number of Shares covered by the Initial Registration Statement, then the Company shall prepare and file with the SEC such additional Registration Statement or Statements as shall be necessary to cover the resale by UBS-LB of such excess Shares in the same manner as contemplated by the Initial Registration Statement for the Shares covered thereby (each, an "Additional Registration Statement"); provided that prior to issuing any such excess Shares to UBS-LB, the Company shall cause such Registration Statement to have become effective. For purposes of 11 this Purchase Agreement, "Registration Statement" means a registration statement under the Securities Act on Form S-3 covering the resale by one or both UBS Parties of up to a specified number of Shares, filed and maintained effective by the Company pursuant to the provisions of this Section 7, including the Prospectus (as defined below) contained therein, any amendments and supplements to such registration statement, including all post-effective amendments thereto, and all exhibits and all material incorporated by reference into such registration statement; (b) use all reasonable best efforts to cause the SEC to notify the Company of the SEC's willingness to declare the Initial Registration Statement effective within 60 days after the Registration Statement is filed by the Company; provided that the Company will use its best efforts to cause such Initial Registration Statement to become effective no later than 90 days after the Closing Date; (c) prepare and file with the SEC such amendments and supplements to the Registration Statement and the prospectus used in connection therewith (the "Prospectus") as may be necessary to keep the Registration Statement effective until the date on which the Shares may be resold by the UBS Parties without registration, by reason of Rule 144(k) under the Securities Act or any other rule of similar effect; (d) furnish to the UBS Parties with respect to the Shares registered under the Registration Statement (and to each underwriter, if any, of such Shares) such reasonable number of copies of Prospectuses, including any supplements and amendments thereto, an opinion from counsel to the Company covering the matters set forth on Exhibit B hereto and such other documents as the UBS Parties may reasonably request, in order to facilitate the public sale or other disposition of all or any of the Shares by the UBS Parties; (e) use its best efforts to prevent the happening of any event that would cause such Registration Statement to contain a material misstatement or omission or to be not effective and usable for resale of the Shares during the period that such Registration Statement is required to be effective and usable; provided that this paragraph (e) shall in no way limit the Company's right to suspend the right of the UBS Parties to effect sales under the Registration Statement during any Black-out Period as specified at Section 5.2 above. (f) file documents required of the Company for normal blue sky clearance in states specified in writing by the UBS Parties, provided, however, that the Company shall not be required to qualify to do business or consent to 12 service of process in any jurisdiction in which it is not now so qualified or has not so consented; and (g) bear all expenses in connection with the procedures in paragraphs (a) through (f) of this Section 7.1 and the registration of the Shares pursuant to the Registration Statement, including the fees and expenses of counsel or other advisers to the UBS Parties, other than underwriting discounts, brokerage fees and commissions incurred by the UBS Parties, if any. 7.2. Covenants in Connection With Registration. (a) The Company hereby covenants with the UBS Parties that (i) it shall not file any Registration Statement or Prospectus or any amendment or supplement thereto, unless a copy thereof shall have been first submitted to the UBS Parties and the UBS Parties did not object thereto in good faith (provided that if the UBS Parties do not object within two business days of receiving any such material, they shall be deemed to have no objection thereto); (ii) it shall immediately notify the UBS Parties of the issuance by the SEC of any stop order suspending the effectiveness of such Registration Statement or the initiation of any proceedings for such purpose; (iii) it shall make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of such Registration Statement at the earliest possible moment; (iv) it shall notify the UBS Parties of the receipt of any notification with respect to the suspension of the qualification of the Shares for sale under the securities or blue sky laws of any jurisdiction or the initiation of any proceeding for such purpose; and (v) it shall as soon as practicable notify the UBS Parties in writing of the existence of any fact which results in any Registration Statement, any amendment or post-effective amendment thereto, the Prospectus, any prospectus supplement, or any document incorporated therein by reference containing an untrue statement of a material fact or omitting to state a material fact required to be stated therein or necessary to make the statements therein not misleading and shall prepare a supplement or post-effective amendment to such Registration Statement or the Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Shares, the Prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading; provided that this clause (v) shall in no way limit the Company's right to suspend the right of the UBS Parties to effect sales under the Registration Statement during any Black-out Period as specified at Section 5.2 above. (b) The UBS Parties shall notify the Company at least two business days prior to the date on which it intends to commence effecting any resales of Shares under a Registration Statement and if the Company does not, within such two-day period, advise the UBS Parties of the existence of any facts of the type referred to in Section 7.2(a)(iv) above, then the Company shall be deemed to have certified and represented to the UBS Parties that no such facts then exist and the UBS Parties may rely on such certificate and representation in making such sales. The preceding sentence shall in no way limit the Company's obligations under Section 7.2(a) above. 13 7.3. Extension of Required Effectiveness. In the event that the Company shall give any notice required by Section 7.2(a)(v) hereof, the period during which the Company is required to keep such Registration Statement effective and useable shall be extended by the number of days during the period from and including the date of the giving of such notice to and including the date when the UBS Parties are advised in writing by the Company that the use of the Prospectus may be resumed. 7.4. Transfer of Shares After Registration. Each UBS Party agrees that it will not effect any disposition of the Shares or its right to purchase the Shares that would constitute a sale within the meaning of the Securities Act or pursuant to any applicable state securities or blue sky laws except as contemplated in each Registration Statement referred to in Section 7.1 or except pursuant to any exemption from the registration requirements of the Securities Act (including, without limitation, Rule 144 promulgated thereunder and any successor thereto) and that it will promptly notify the Company of any changes in the information set forth in any such Registration Statement regarding the UBS Parties or its Plan of Distribution. 7.5. Indemnification. For the purpose of this Section 7.5, the term "Registration Statement" shall include any final prospectus, exhibit, supplement or amendment included in or relating to any Registration Statement referred to in Section 7.1. (a) Indemnification by Company. The Company agrees to indemnify and hold harmless the UBS Parties and each person, if any, who controls either UBS Party within the meaning of the Securities Act, against any losses, claims, damages, liabilities or expenses, joint or several, to which the UBS Parties or such controlling person may become subject (including in settlement of any litigation, if such settlement is effected with the written consent of the Company), insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof as contemplated below) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement, including the Prospectus, financial statements and schedules, and all other documents filed as a part thereof, as amended at the time of effectiveness of such Registration Statement, including any information deemed to be a part thereof as of the time of effectiveness pursuant to paragraph (b) of Rule 430A, or pursuant to Rule 434, of the Rules and Regulations, or the Prospectus, in the form first filed with the SEC pursuant to Rule 424(b) of the Regulations, or filed as part of such Registration Statement at the time of effectiveness if no Rule 424(b) filing is required, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state in any of them a material fact required to be stated therein or necessary to make the statements in any of them not misleading, and will reimburse each UBS Party and each such controlling person for any legal and other expenses as such expenses are reasonably incurred by the UBS Parties or such controlling person in connection with investigating, defending, settling, compromising or paying any such loss, claim, damage, liability, expense or action. The Company will also indemnify selling brokers, dealers and similar securities industry professionals participating in the sale or resale of the Shares, their officers, directors and partners and each person who controls any such person within the meaning of the Securities Act, provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage, liability or expense arises out of or is based upon an untrue statement 14 or alleged untrue statement or omission or alleged omission made in such Registration Statement, such Prospectus or any amendment or supplement thereto in reliance upon and in conformity with written information furnished to the Company (i) by or on behalf of the UBS Parties expressly for use therein or (ii) any statement or omission in any Prospectus that is corrected in any subsequent Prospectus that was delivered to a UBS Party prior to the pertinent sale or sales by such UBS Party and not delivered by such UBS Party in connection with such sale or sales. (b) Indemnification by UBS Parties. The UBS Parties will indemnify and hold harmless the Company, each of its directors, each of its officers who signed any Registration Statement and each person, if any, who controls the Company within the meaning of the Securities Act, against any losses, claims, damages, liabilities or expenses, joint and several, to which the Company, each of its directors, each of its officers who signed any Registration Statement or any controlling person may become subject (including in settlement of any litigation, if such settlement is effected with the written consent of the UBS Parties) insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof as contemplated below) arise out of or are based upon any untrue or alleged untrue statement of any material fact contained in such Registration Statement, such Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in such Registration Statement, such Prospectus, or any amendment or supplement thereto, in reliance upon and in conformity with written information furnished to the Company by or on behalf of the UBS Parties expressly for use therein, and will reimburse the Company, each of its directors, each of its officers who signed such Registration Statement and each controlling person for any legal and other expense reasonably incurred by the Company, each of its directors, each of its officers who signed such Registration Statement or controlling person in connection with investigating, defending, settling, compromising or paying any such loss, claim, damage, liability, expense or action. (c) Proceedings. Promptly after receipt by an indemnified party under this Section 7.5 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party under this Section 7.5 notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party for contribution or otherwise than under the indemnity agreement contained in this Section 7.5 or to the extent it is not prejudiced as a proximate result of such failure. In case any such action is brought against any indemnified party and such indemnified party seeks or intends to seek indemnity from an indemnifying party, the indemnifying party will be entitled to participate in, and, to the extent that it may wish, jointly with all other indemnifying parties similarly notified, to assume the defense thereof with counsel reasonably satisfactory to such indemnified party; provided, however, if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be a conflict between the positions of the indemnifying party and the indemnified party in conducting the defense of any such action or that there may be legal defenses available to it 15 and/or other indemnified parties which are different from or additional to those available to the indemnifying party, the indemnified party or parties shall have the right to select separate counsel to assume such legal defenses and to otherwise participate in the defense of such action on behalf of such indemnified party or parties. Upon receipt of notice from the indemnifying party to such indemnified party of its election so to assume the defense of such action and approval by the indemnified party of counsel, the indemnifying party will not be liable to such indemnified party under this Section 7.5 for any reasonable legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof unless (i) the indemnified party shall have employed such counsel in connection with the assumption of legal defenses in accordance with the proviso to the preceding sentence (it being understood, however, that the indemnifying party shall be not liable for the expenses of more than one separate counsel, approved by such indemnifying party in the case of paragraph (a), representing the indemnified parties who are parties to such action) or (ii) the indemnifying party shall not have employed counsel reasonably satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of commencement of action, in each of which cases the fees and expenses of counsel shall be at the expense of the indemnifying party. (d) Contribution. If the indemnification provided for in this Section 7.5 is required by its terms but is for any reason held to be unavailable to or otherwise insufficient to hold harmless an indemnified party under paragraphs (a), (b) or (c) of this Section 7.5 in respect of any losses, claims, damages, liabilities or expenses referred to herein, then each applicable indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of any losses, claims, damages, liabilities or expenses referred to herein in such proportion as is appropriate to reflect the relative benefits received by the Company and the UBS Parties from the purchase and sale of the Shares and the relative fault of the Company and the UBS Parties in connection with the statements or omissions or inaccuracies in the representations and warranties in this Agreement which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The respective relative benefits received by the Company on the one hand and the UBS Parties on the other shall be deemed to be in the same proportion as the amount paid by the UBS Parties to the Company pursuant to this Agreement for the Shares purchased by the UBS Parties that were sold pursuant to any Registration Statement bears to the difference (the "Difference") between the amount the UBS Parties paid for the Shares that were sold pursuant to such Registration Statement and the amount received by the UBS Parties from such sale. The relative fault of the Company and the UBS Parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact or the inaccurate or the alleged inaccurate representation and/or warranty relates to information supplied by the Company or by the UBS Parties and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in paragraph (c) of this Section 7.5 any reasonable legal or other fees or expenses incurred by such party in connection with investigating or defending any action or claim. The provisions set forth in paragraph (c) of this Section 7.5 with respect to notice of commencement of any action shall apply if a claim for contribution is to be made under this paragraph (d); provided, however, that 16 no additional notice shall be required with respect to any action for which notice has been given under paragraph (c) for purposes of indemnification. The Company and the UBS Parties agree that it would not be just and equitable if contribution pursuant to this Section 7.5 were determined solely by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in this paragraph. Notwithstanding the provisions of this Section 7.5, the UBS Parties shall not be required to contribute any amount in excess of the amount by which the aggregate proceeds received by the UBS Parties from the transactions contemplated hereby exceeds the amount of any damages that the UBS Parties has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. 7.6. Termination of Conditions and Obligations. The conditions precedent imposed by Section 5 or this Section 7 upon the transferability of the Shares shall cease and terminate as to any particular number of the Purchase Shares upon the passage of twenty-four months from the purchase of such Shares by UBS Limited, as to any particular number of the Additional Shares upon the passage of twenty-four months from the issuance of such Shares to UBS-LB or as to any particular number of the Shares at such time as an opinion of counsel satisfactory to the Company shall have been rendered to the effect that such conditions are not necessary in order to comply with the Securities Act. At such time, the Company's obligation to maintain an effective Registration Statement with respect to such Shares shall cease. 7.7. Information Available. So long as any Registration Statement covering the resale of any Shares owned by either UBS Party is effective, the Company will furnish to the UBS Parties: (a) as soon as practicable after available, one copy of (i) its Annual Report to Shareholders, (ii) its Annual Report on Form 10-K, (iii) its Quarterly Reports to Shareholders, (iv) its quarterly reports on Form 10-Q, (v) a full copy of the particular Registration Statement covering the Shares (the foregoing, in each case, excluding exhibits) and (vi) upon request, any or all other public filings under the Exchange Act by the Company; and (b) upon the reasonable request of either UBS Party, a reasonable number of copies of the Prospectuses to supply to any other party requiring such Prospectuses; and the Company, upon the reasonable request of the UBS Parties, will meet with the UBS Parties or a representative thereof at the Company's headquarters to discuss all information relevant for disclosure in such Registration Statement covering the Shares, subject to appropriate confidentiality limitations. 7.8 Non-Exclusivity. The rights and remedies provided under Section 7.5 hereof shall not be in limitation or exclusion of any other rights or remedies available to a party, whether 17 by agreement, at law, in equity or otherwise, with respect to the inaccuracy of any representation or warranty by, or the breach of any covenant of, the other party made herein or in the Forward Stock Purchase Agreement. 7.9 Notice Requirement. The Company covenants and agrees that it will notify the UBS Parties at any time it becomes aware that as a result of a change in the Company's capital stock the UBS Parties beneficially hold more than 4.9% of the Company's Common Shares. 7.10 Transfer of Shares. The Company covenants and agrees to use its best efforts to cause the transfer agent to effect promptly any transfer of the Shares requested by the UBS Parties and to cause the transfer agent to remove promptly the restrictive legend from the Shares upon presentation to the transfer agent of all necessary documentation. SECTION 8. Registration Exemptions. For so long as the Company is subject to the reporting requirements of Section 13 or 15 of the Exchange Act, the Company covenants that it will file the reports required to be filed by it under the Securities Act and Section 13(a) and 15(d) of the Exchange Act and the rules and regulations adopted by the Commission thereunder. SECTION 9. Broker's Fee. Other than any fees payable under or in connection with the Forward Stock Purchase Agreement, each of the parties hereto hereby represents that, on the basis of any actions and agreements by it, there are no brokers or finders entitled to compensation in connection with the sale or issuance of the Shares to the UBS Parties. SECTION 10. Notices. All notices, requests, consents and other communications hereunder shall be in writing, shall be mailed by first-class registered or certified airmail, by telegram or telecopy or sent by nationally recognized overnight express courier postage prepaid, and shall be deemed given when so mailed or for telecopies, when transmitted and receipt confirmed, and shall be delivered as addressed as follows: (a) if to the Company, to: 3100 Smoketree Court Suite 600 Raleigh, North Carolina 27604 Attn: Mark D. Pridgen, III with a copy so mailed to: Smith Helms Mulliss & Moore, L.L.P. 2800 Two Hanover Square Raleigh, North Carolina 27601 Attn: Brad S. Markoff 18 or to such other person at such other place as the Company shall designate to the UBS Parties in writing; and (b) if to the UBS Parties, c/o UBS Securities, LLC, 299 Park Avenue, New York, New York 10171, or at such other address or addresses as may have been furnished to the Company in writing. SECTION 11. Changes. This Agreement may not be modified or amended except pursuant to an instrument in writing signed by the Company and the UBS Parties. SECTION 12. Headings. The headings of the various sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be part of this Agreement. SECTION 13. Severability. In case any provision contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. SECTION 14. Governing Law; Jurisdiction. 14.1 This Agreement shall be governed by and construed in accordance with the laws of the State of New York (without regard to the conflicts of law principles thereof) and of the federal law of the United States of America. 14.2 The Company (i) hereby irrevocably submits to the jurisdiction of, and agrees that any suit shall be brought in, the state and federal courts located in the City and County of New York for the purpose of any suit, action or other proceeding arising out of or based upon this Agreement or the transactions contemplated hereby and (ii) hereby waives to the extent not prohibited by applicable law, and agrees not to assert, by way of motion, as a defense or otherwise, in any such proceeding, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that any such proceeding brought in one of the above-named courts is brought in an inconvenient forum, that the venue of any such proceeding brought in one of the above-named courts is improper, or that this Agreement, or the transactions contemplated hereby may not be enforced in or by such court. SECTION 15. Transfer to Affiliate. Notwithstanding anything herein to the contrary, UBS Limited may transfer the Purchase Shares to any affiliate of UBS Limited, together with all of UBS Limited's rights hereunder; provided that (i) such affiliate shall assume and be subject to all of UBS Limited's obligations hereunder; (ii) such affiliate shall be an "accredited investor" within the meaning of Rule 501 of Regulation D promulgated under the Securities Act; and (iii) such transfer shall be consistent with the investment representations set forth at Section 5.1 hereto. In the event of such an assignment, such affiliate shall in all respects be substituted for UBS Limited as a party hereto. 19 SECTION 16. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument, and shall become effective when one or more counterparts have been signed by each party hereto and delivered to the other parties. SECTION 17. Waiver of Trial by Jury. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO JURY TRIAL IN CONNECTION WITH ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. 20 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the day and year first above written. Highwood Properties, Inc. By:________________________________ Name: Title: UBS Limited By:________________________________ Name: Title: By:________________________________ Name: Title: Union Bank of Switzerland London Branch By:________________________________ Name: Title: By:________________________________ Name: Title: 21 Appendix I (one of two) STOCK CERTIFICATE QUESTIONNAIRE Pursuant to Section 3 of the Agreement, please provide us with the following information: 1. The exact name that your Shares are to be registered in (this is the name that will appear on your stock certificate(s)). You may use a nominee name if appropriate: ____________________________ 2. All relationships between each UBS Party and the Registered Holder listed in response to Item 1 above: ____________________________ ____________________________ ____________________________ 3. The mailing address of the Registered Holder listed in response to item 1 above: ____________________________ ____________________________ ____________________________ ____________________________ 4. The Social Security Number or Tax Identification Number of the Registered Holder listed in response to item 1 above: ____________________________ Appendix I (two of two) REGISTRATION STATEMENT QUESTIONNAIRE In connection with the preparation of the Registration Statement, please provide us with the following information: 1. Pursuant to the "Selling Shareholders" section of the Registration Statement, please state your or your organization's name exactly as it should appear in the Registration Statement: 2. Please provide the number of shares that you or your organization will own immediately after Closing, including those Shares purchased by you or your organization pursuant to this Purchase Agreement and those shares purchased by you or your organization through other transactions: 3. Have you or your organization had any position, office or other material relationship within the past three years with the Company or its affiliates? _____ Yes _____ No If yes, please indicate the nature of any such relationships below: ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ APPENDIX II Attention: PURCHASER'S CERTIFICATE OF SUBSEQUENT SALE The undersigned, [an officer of, or other person duly authorized by] _______________________________________ hereby certifies that he/she [fill in official name of individual or institution] [said institution] is the Purchaser of the shares evidenced by the attached certificate, and as such, sold such shares on _______ in accordance with Registration Statement [date] number ___________________________________________________________________, [fill in the number of or otherwise identify Registration Statement] the Securities Act of 1933, as amended, and any applicable state securities or blue sky laws and the requirement of delivering a current prospectus by the Company has been complied with in connection with such sale. Print or Type: Name of Purchaser (Individual or Institution): ____________________________________ Name of Individual representing Purchaser (if an Institution) ____________________________________ Title of Individual representing Purchaser (if an Institution): ____________________________________ Signature by: Individual Purchaser or Individual repre- senting Purchaser: ____________________________________ EXHIBIT A [Form of Closing Opinion of Counsel to the Company] August __, 1997 Union Bank of Switzerland London Branch [Address] Ladies and Gentlemen: We have acted as counsel to Highwood Properties, Inc., a Maryland real estate investment trust (the "Company"), in connection with (i) the issuance and sale by the Company of [Number] shares of the Company's common stock, par value $.01 per share ("Common Shares"), pursuant to that certain Purchase Agreement, dated August __, 1997 (the "Purchase Agreement"), by and between the Company and Union Bank of Switzerland, London Branch, acting through its agent UBS Securities LLC, (the "Purchaser") and (ii) the forward stock purchase transaction evidenced by the letter agreement, dated August __, 1997 (the "Confirmation") between the Company and the Purchaser. This opinion is being rendered to you pursuant to Section 4.17 of the Purchase Agreement in connection with the Closing of the sale of the Shares. Capitalized terms not otherwise defined in this opinion have the meaning given them in the Purchase Agreement. In connection with the opinions expressed herein we have made such examination of matters of law and of fact as we considered appropriate or advisable for purposes hereof. As to matters of fact material to the opinions expressed herein, we have relied upon the representations and warranties as to factual matters contained in and made by the Company pursuant to the Purchase Agreement and upon certificates and statements of government officials and of officers of the Company. We have also examined originals or copies of such corporate documents or records of the Company as we have considered appropriate for the opinions expressed herein. We have assumed for the purposes of this opinion that the signatures on documents and instruments examined by us are authentic, that each document is what it purports to be, and that all documents submitted to us as copies conform with the originals, which facts we have not independently verified. Union Bank of Switzerland London Branch [Date] Page 2 In rendering this opinion we have also assumed that the Purchase Agreement and the Confirmation have each been duly and validly executed and delivered by the other parties to such agreements and constitute valid, binding and enforceable obligations of such other parties. In our capacity as counsel to the Company, we have examined, among other things, originals, or copies identified to our satisfaction as being true copies, of the following: [List] This opinion relates solely to the laws of the State of _________, and the federal securities law of the United States, and we express no opinion with respect to the effect or applicability of the laws in other areas or of other jurisdictions. Our opinion in paragraph 4 below is subject to the effect of bankruptcy, insolvency, moratorium, fraudulent conveyance and similar laws relating to or affecting creditors' rights generally and we express no opinion with respect to the application of equitable principles in any proceeding, whether at law or in equity. Based upon the foregoing and subject to the limitations, exceptions, qualifications and assumptions set forth herein, we are of the opinion that as of the date hereof: 1. The Company is a real estate investment trust duly organized, validly existing and in good standing under the laws of the State of Maryland, and the Company has the requisite corporate power and authority to own its properties and to conduct its business as presently conducted. 2. The Purchase Shares and the Additional Shares have been duly authorized and, when issued and delivered by the Company in accordance with and subject to the terms of the Purchase Agreement or the Confirmation (as the case may be), will be validly issued, nonassessable and fully paid, and are not subject to any preemptive or similar rights. 3. The Company has the power and authority to execute, deliver and perform the Purchase Agreement and the Confirmation, including issuing, selling and delivering the Purchase Shares and Additional Shares as contemplated thereby. 4. Each of the Purchase Agreement and the Confirmation have been duly authorized, executed and delivered by the Company and is a valid and binding obligation of the Company, enforceable in accordance with its terms. 5. The execution and delivery by the Company of, and the performance by the Company of its obligations under, the Purchase Agreement and the Confirmation will not contravene any provision of applicable law or the declaration of trust or bylaws of the Company, or, to the best of our knowledge, any judgment order or decree of any governmental body, agency or court having jurisdiction over the Company or any of its property, or, to the best of our 23 Union Bank of Switzerland London Branch [Date] Page 3 knowledge, constitute a breach or default under any agreement or other instrument binding upon the Company and filed as an exhibit to the Company's filings with the Securities and Exchange Commission. 6. No consent, approval, authorization or order of or qualification with any governmental body or agency is required for the performance by the Company of its obligations under the Purchase Agreement and the Confirmation, except such as may be required by the securities or blue sky laws of the various states (on which we express no opinion) in connection with the purchase and sale of the Shares and except such as may be required in connection with providing the registration statements contemplated by the Purchase Agreement or the Confirmation. 7. To the best of our knowledge, and except as disclosed in the Company's public filings with the Securities and Exchange Commission, there is no action, suit or proceeding pending or threatened in writing against the Company, at law or in equity, or before any court or governmental agency or instrumentality which, if resolved against the Company, may materially adversely affect the financial or business condition of the Company or would prevent the Company from entering into or performing its obligations under the Purchase Agreement or the Confirmation. 8. The authorized capital stock of the Company conforms as to legal matters in all material respects under the heading ["Capitalization"] in the Company's public filings with the Securities and Exchange Commission, and the form of certificate used to evidence the Shares complies in all material respects with all applicable statutory requirements. The outstanding shares of Common Stock of the Company have been duly and validly authorized and issued, and are, to our knowledge, fully paid and nonassessable. [While we have not verified, and are not passing upon and do not assume any responsibility for, the accuracy, completeness or fairness of the statements contained in the Registration Statement or Final Prospectus, we have participated in reviews and discussions in connection with the preparation of the Registration Statement and Final Prospectus, and advise you that, in the course of such reviews and discussions, nothing has come to our attention which would lead us to believe (i) that the Registration Statement at the time it became effective (except for the financial statements and the notes thereto and the other financial data included or incorporated by reference therein, as to which we express no belief) contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein not misleading or (ii) that the Final Prospectus on the date thereof or on the date of this opinion (except for the financial statements and the notes thereto and the other financial data included or incorporated by reference therein, as to which we express no belief) contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.] 24 Union Bank of Switzerland London Branch [Date] Page 4 Our opinions expressed above are specifically subject to the following limitations, exceptions, qualifications and assumptions: (A) We are not called upon to express, and do not express, any view, opinion or belief as to the financial statements, schedules, statistical data and other financial data contained in any filings with the Securities and Exchange Commission. (B) We express no opinion as to the Company's compliance or noncompliance with applicable federal or state antitrust statutes, laws, rules and regulations. (C) We express no opinion concerning the past, present or future fair market value of any securities. This opinion is rendered solely for your benefit in connection with the Purchase Agreement and the Confirmation and may not be delivered to, quoted or relied upon by any person other than you, or for any other purpose, without our prior written consent. Our opinion is expressly limited to the matters set forth above and we render no opinion, whether by implication or otherwise, as to any other matters relating to the Company. We assume no obligation to advise you of facts, circumstances, events or developments which hereinafter may be brought to our attention and which may alter, affect or modify the opinions expressed herein. Very truly yours, Smith Helms Mulliss & Moore, L.L.P. EXHIBIT B Opinion Matters for Additional Registration Statements [opinion paragraphs to be delivered in connection with resale registration statements] 1. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland, and the Company has the requisite corporate power and authority to own its properties and to conduct is business as presently conducted. 2. The Additional Shares have been duly authorized and are validly issued, nonassessable and fully paid, and are not subject to any preemptive or similar rights. 3. The Registration Statement has been declared effective under the Securities Act; to our knowledge, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or threatened; and the Registration Statement, the Final Prospectus, and each amendment thereof or supplement thereto (except for the financial statements, schedules and the notes thereto and the other financial data included or incorporated by reference therein, as to which we express no opinion) comply as to form in all material respects with the requirements of the Securities Act and the Exchange Act and the respective rules of the Commission thereunder. While we have not verified, and are not passing upon and do not assume any responsibility for, the accuracy, completeness or fairness of the statements contained in the Registration Statement or Final Prospectus, we have participated in reviews and discussions in connection with the preparation of the Registration Statement and Final Prospectus, and advise you that, in the curse of such reviews and discussions, nothing has come to our attention which would lead us to believe (i) that the Registration Statement at the time it became effective (except for the financial statements and the notes thereto and the other financial data included or incorporated by reference therein, as to which we express no belief) contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein not misleading or (ii)that the Final Prospectus on the date thereof or on the date of this opinion (except for the financial statements and the notes thereto and the other financial data included or incorporated by reference therein, as to which we express no belief) contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. EX-4.9 4 FORWARD STOCK PURCHASE Forward Stock Purchase 28-Aug-97, 03:51:24 PM To: Highwoods Properties, Inc. 3100 Smoketree Court Suite 600 Raleigh, NC 27604 Attn: Mr. Carmen Liuzzo From: Union Bank of Switzerland, London Branch c/o UBS Securities LLC, as agent 299 Park Avenue New York, NY 10171 Date: 25 August 1997 Ladies and Gentlemen: The purpose of this letter agreement (this "Confirmation") is to confirm the terms and conditions of the Transaction entered into between us on the Trade Date specified below (the "Transaction"). This Confirmation constitutes a "Confirmation" as referred to in the ISDA Master Agreement specified below. The definitions and provisions contained in the 1991 ISDA Definitions (as published by the International Swaps and Derivatives Association, Inc.) are incorporated into this Confirmation. In the event of any inconsistency between those definitions and provisions and this Confirmation, this Confirmation will govern. References herein to the "Transaction" shall be deemed to be references to a "Swap Transaction" for the purposes of the 1991 ISDA Definitions. This Confirmation evidences a complete binding agreement between you and us as to the terms of the Transaction to which this Confirmation relates. In addition, you and we agree to use all reasonable efforts promptly to negotiate, execute and deliver an agreement in the form of the ISDA Master Agreement (Multicurrency-Cross Border) (the "ISDA Form"), with such modifications as you and we will in good faith agree. Upon the execution by you and us of such an agreement, this Confirmation will supplement, form a part of, and be subject to that agreement. All provisions contained or incorporated by reference in that agreement upon its execution will govern this Confirmation except as expressly modified below. Until we execute and deliver that agreement, this Confirmation, together with all other documents referring to the ISDA Form (each a "Confirmation") confirming transactions (each a "Transaction") entered into between us (notwithstanding anything to the contrary in a Confirmation), shall supplement, form a part of, and be subject to an agreement in the form of the ISDA Form as if we had executed an agreement in such form m(but without any Schedule) on the Trade Date of the firm such Transaction between us. In the event of any inconsistency between the provisions of that agreement and this Confirmation, this Confirmation will prevail for the purpose of this Transaction. The Agreement and each Confirmation thereunder will be governed by and construed in accordance with the laws of the State of New York without reference to choice of law doctrine. Forward Stock Purchase I. The Transaction This Transaction is a commitment by Highwoods Properties, Inc. (the "Company") to purchase, and Union Bank of Switzerland, London Branch ("UBS") acting through UBS Securities LLC as its agent for each purchase or sale of Securities ("UBS LLC") to sell, common shares of beneficial interest, par value $0.01 per share, of the Company ("Common Shares") up to an aggregate of 1,800,000, in exchange for cash or Common Shares of the Company on the terms more particularly specified herein (the "Confirmation"). II. Settlement A. Notice and Settlement Amount 1. The Company may on any Exchange Trading Day up to and including the Maturity Date, upon the giving of five (5) Business Days telephonic notice to UBS, settle all or part of this Transaction. Such notice shall specify: (i) the number of Underlying Shares subject to such settlement (the "Settlement Shares"), (ii) the settlement method (Cash, Stock or Net Stock Settlement, as such methods are described below), and (iii) the date upon which such settlement shall begin ("Day S"), which must be an Exchange Trading Day; provided however, that if in UBS' reasonable judgment the settlement of the Settlement Shares would potentially violate or contravene any legal or regulatory prohibition or requirement applicable to UBS or cause UBS to contravene any established UBS corporate policy or compliance policy (other than any corporate policy limiting the amount of UBS's investment in another entity), then UBS shall at least three (3) Business Days prior to the proposed Day S, notify the Company telephonically (confirmed by writing) of any such impediment and its estimate of the period during which such impediment will preclude UBS' ability to settle all or part of this Transaction, in which case the Company may upon telephonic notice to UBS at least one (1) Exchange Trading Day prior to the proposed Day S withdraw its settlement notice. Such notice shall be effective only if the notice requirements specified above are fulfilled, provided, that if no settlement method is specified, then the settlement method shall be deemed to be Cash Settlement. In the case of any partial settlement ("Partial Settlement"), following such settlement the number of Underlying Shares to which this Transaction shall relate shall be adjusted by subtracting the number of Settlement Shares from the number of Underlying Shares to which the Transaction related (as the same may have been adjusted prior to such Partial Settlement) immediately prior to such partial settlement. The Settlement Shares shall not be subject to forward accretion and shall be treated separately from the remaining Underlying Shares, during any Unwind Period. 2. On Day S, the Settlement Price for the Settlement Shares and the Settlement Amount shall be determined for Day S. 3. The Settlement Amount shall be settled pursuant to the settlement method (B, C, or D of this Article II) selected by the Company in its sole discretion. 4. If settlement with respect to the Settlement Shares (this section does not apply for Interim Net Stock Settlement) shall occur on or before the 180th day following the Effective Date, then the Settlement Price for purposes of such settlement shall be increased by any positive amount, calculated by UBS as follows: -2- Forward Stock Purchase Spread x Forward Price x (180 - calendar days since Trade Date) -------------------------------------- 360 5. It shall be a condition precedent to any right of the Company to elect Stock Settlement (II. C. below) or Net Stock Settlement (II. D. below), that the Company must (i) notify UBS of such election at least 5 Business Days prior to Day S and (ii) prior to Day S, cause to be filed with the Securities and Exchange Commission (the "Commission") and cause to become effective under the Securities Act of 1933, as amended (the "Securities Act") a resale registration statement covering all Common Shares to be delivered by the Company to UBS LLC for the account of UBS in effecting such Stock Settlement or Net Stock Settlement, such registration statement to include one or more preliminary prospectuses, prospectuses, and any amendments and supplements thereto such that any preliminary prospectus or prospectus, as amended or supplemented, shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they are made The Company further agrees that it will cause any such Registration Statement to remain in effect until the earliest of the date on which (i) all Common Shares issued pursuant hereto and not required to be delivered to the Company hereunder have been sold by UBS LLC for the account of UBS and UBS agrees to notify the Company of such fact, within two (2) Business Days of its occurrence, (ii) UBS LLC for the account of UBS is able to sell the Common Shares subject thereto under Rule 144(k), or (iii) UBS has advised the Company that it no longer requires that such registration statement be effective. B. Cash Settlement The Company shall settle by delivering cash in an amount equal to the Settlement Amount in exchange for the Settlement Shares ("Cash Settlement") on the Exchange Trading Day immediately succeeding Day S. UBS LLC for the account of UBS shall deliver the Settlement Shares to the Company on the Exchange Trading Day immediately succeeding Day S upon receipt of such Cash Settlement. C. Stock Settlement If the Company elects to meet its payment obligations by delivering Common Shares in exchange for the Settlement Shares ("Stock Settlement"), the number of Common Shares to be delivered (the "Stock Settlement Shares") shall be equal to (a) the Settlement Amount divided by (b) the Stock Settlement Unwind Price. The mechanics for settlement are set forth in II. E.2. below and Article V. D. Net Stock Settlement If the Company determines that it will elect to meet its payment obligations under II.A. or its delivery obligations under III.A. on a net stock basis ("Net Stock Settlement"), the number of net stock settlement shares (the "Net Stock Settlement Shares") shall equal: i) the number of Settlement Shares, times ii) the Settlement Price minus the Stock Settlement Unwind Price, divided by iii) the Stock Settlement Unwind Price. If such calculation yields a negative number, this shall indicate the number of Common Shares to be delivered from UBS LLC for the account of UBS to the Company. The mechanics for settlement are set forth in II. E. below and Article V. -3- Forward Stock Purchase E. Stock and Net Stock Settlement Mechanics 1. Preliminary Stock Settlement. If the Company has chosen Stock Settlement, the Company shall deliver to UBS LLC for the account of UBS, by 11:00 a.m. on Day S, that number of Common Shares, registered, for resale under an effective registration statement (the "Preliminary Stock Settlement Shares"), equal to the product of (i)(a) the Settlement Amount divided by (b) the closing price of the Common Shares on the Exchange Trading Day immediately preceding Day S, times (ii) 110%. Upon receipt of the Preliminary Stock Settlement Shares, UBS will deposit the Settlement Shares in the Company's Margin Account. 2. Preliminary Net Stock Settlement. If the Company has chosen Net Stock Settlement and if the Settlement Price exceeds the closing price of the Common Shares on the Exchange Trading Day immediately preceding Day S, the Company shall deliver to UBS LLC for the account of UBS by 11:00 a.m. on Day S, that number of Common Shares (the "Preliminary Net Stock Settlement Shares) equal to (i)(a) the number of Settlement Shares times (b) the difference between the Settlement Price and the closing price of the Common Shares on the Exchange Trading Day immediately preceding Day S divided by (ii) the closing price of the Common Shares on the Exchange Trading Day immediately preceding Day S times (iii) 125%. If the closing price of the Common Shares on the Exchange Trading Day immediately preceding Day S exceeds the Settlement Price, the Company shall not be required to deliver any shares to UBS LLC for the account of UBS under this subsection II.E.2. 3. By 11:00 a.m. on every fifth (5th) Exchange Trading Day during the Unwind Period and on the Business Day following the final Exchange Trading Day of the Unwind Period: (a) For Stock Settlement: Stock Settlement Shares shall be calculated as if such Exchange Trading Day were Day S, except that (a) there shall be no adjustment to the Settlement Amount and (b) for purposes of calculating the Stock Settlement Unwind Price, the Unwind Period shall be deemed to have ended on the Exchange Trading Day on which the calculation is made. (i) if Stock Settlement Shares are greater than the sum of (a) Preliminary Stork Settlement Shares plus (b) any shares previously delivered pursuant to this settlement under this subparagraph (i), then the Company shall deliver that number of registered, freely tradable Common Shares equal to the difference between Stock Settlement Shares and Preliminary Stock Settlement Shares to UBS LLC for the account of UBS, and (ii) on the final day of the Unwind Period, if the sum of (a) Preliminary Stock Settlement Shares plus (b) any shares previously delivered pursuant to this settlement under this subparagraph (i) are greater than Stock Settlement Shares, then UBS LLC, for the account of UBS, shall deliver Common Shares equal to the difference between the sum of (a) and (b) above and Stock Settlement Shares to the Company's Margin Account, (b) For Net Stock Settlement: Net Stock Settlement Shares shall be calculated as if such Exchange Trading Day were Day S except that (a) there shall be no adjustment to the Settlement Amount and (b) for purposes of calculating the Stock Settlement Unwind Price, the Unwind Period shall be deemed to have ended on the Exchange Trading Day on which the calculation is made. (i) if Net Stock Settlement Shares are greater than the sum of (a) Preliminary Net Stock Settlement Shares plus (b) any shares previously delivered pursuant to this settlement under this subparagraph (i), then the Company shall deliver Common Shares (which Common Shares may be delivered -4- Forward Stock Purchase from its Margin Account) registered for resale under an effective registration statement equal in number to the difference between Net Stock Settlement Shares and the sum of (a) and (b) to UBS LLC for the account of UBS, or (ii) on the final day of the Unwind Period, if the sum of a) Preliminary Net Stock Settlement Shares plus b) any shares previously delivered pursuant to this settlement under this subparagraph (i) are greater than Net Stock Settlement Shares, UBS LLC for the account of UBS shall deliver Common Shares equal in number to the difference between sum of (a) and (b) above and Net Stock Settlement Shares to the Company's Margin Account. 4. The Company shall cause all shares delivered by it to UBS LLC for the account of UBS to be fully and effectively registered under the Securities Act. 5. On the Exchange Trading Day following the final Exchange Trading Day of the Unwind Period, UBS LLC for the account of UBS shall release claims to Common Shares held in the Company's Margin Account, including any Underlying Shares delivered pursuant to Stock Settlement (II. E. 1. above), and deliver all such Common Shares to the Company with the dollar value of all fractional shares settled in cash. 6. In the event of Stock or Net Stock Settlement (this section does not apply for Interim Net Stock Settlement), the Company shall pay an unwind accretion fee, in cash or stock, calculated in accordance with the following formula: Settlement Amount x (days in Unwind Period) x [1 month USD LIBOR + Spread] --------------------- -------------------------- 2 360 7. In the event of Stock or Net Stock Settlement (this section does not apply for Interim Net Stock Settlement), the Company shall pay a placement fee to UBS LLC for the account of UBS calculated as: Settlement Amount x 0.50% III. Interim Net Stock Settlement A. On each Reset Date, if the Forward Price exceeds the closing price of the Common Shares on such Reset Date, on the Business Day following the Fifth Exchange Trading Day thereafter the Company shall deliver Common Shares registered for resale by URS to UBS LLC (if the Company is restricted by law or regulation or self-regulatory requirements or related policies and procedures, whether or not such requirements, policies or procedures are imposed by law directly or have been voluntarily adopted by the Company to insure compliance with applicable laws or in its reasonable judgment is otherwise unable or unwilling to deliver registered Common Shares, see III.B. below) for the account of UBS equal to the Interim Settlement Shares. B. In the event that the Company fails to deliver registered shares pursuant to Paragraph III.A. due to an inability described in such paragraph, the Company shall deliver cash collateral in an amount equal to the market value of the Interim Settlement Shares specified in III.A. to a collateral account at UBS. Such collateral account will earn interest at USD LIBOR for a designated maturity of 1 month, adjusted for any interest breakage costs (whether positive or negative). All other aspects of Interim Net Stock Settlement shall be unaffected. At the Company's option, upon delivering an effective resale registration statement to UBS LLC for the account of UBS, the Company may deliver freely salable registered shares to UBS equal in salable market value, based on closing market prices during a commercially reasonable valuation period, to the value of the collateral held in the collateral account at UBS. On the day after the last day of such commercially reasonable valuation period, UBS shall release all claims to collateral held in the collateral account and deliver such amounts to the Company. -5- Forward Stock Purchase C. If the Company fails to deliver an effective resale registration statement within 90 days of the Trade Date, until an effective resale registration statement is provided and an Interim Net Stock Settlement can be effected, the Company shall deliver cash collateral in an amount calculated as specified in III.A. to a collateral account at UBS. Such collateral account will earn interest at USD LIBOR for a designated maturity of 1 month, adjusted for any interest breakage costs. Monitoring of the Transaction on a cash collateral basis (using standards set forth above) shall be effected bi-weekly (every 2 weeks) until an Interim Net Settlement can be effected or the transaction is settled on a Cash Settlement basis. At the Company's option, upon delivering an effective resale registration statement to UBS LLC for the account of UBS, the Company may deliver freely salable registered shares to UBS equal in salable market value, based on closing market prices during a commercially reasonable valuation period, to the value of the collateral held in the collateral account at UBS. On the day after the last day of .such commercially reasonable valuation period, UBS shall release all claims to collateral held in the collateral account and deliver such amounts to the Company. IV. Definitions For the purposes of this Confirmation, the following terms shall have the meanings set opposite: Ability to Settle in Stock: As of the date hereof, the Company has not, and after the date hereof, the Company will not, enter into any obligation that would contractually prohibit the Company from Stock Settlement of any shares under this Agreement. Adjustment to Forward Price: In the event of: (a) a subdivision, consolidation or reclassification of the Common Shares, or a free distribution or dividend of any Common Shares to all existing holders of Common Shares by way of bonus, capitalization or similar issue; (b) a distribution or dividend to all existing holders of Common Shares of (i) additional Common Shares or (ii) other share capital or securities granting right to payment of dividends and/or the proceeds of liquidation of the Company equally or proportionally with such payments to holders of Common Shares or (iii) and other type of securities, warrants or other assets, in any case for payment (cash or otherwise) at less than the prevailing market price; or (c) any other event that has a diluting or concentrative effect on the value of the Underlying Shares, an adjustment shall thereupon be effected to the Forward Price and/or the Underlying Shares at the time of such event with the intent that following such adjustment, the value of this Transaction is economically equivalent to the value immediately prior to the occurrence of the event causing the adjustment. Calculation Agent: UBS, whose calculations and determinations shall be made in a commercially reasonable manner and shall be binding absent manifest error. Compounding Period: Means each period commencing on and including: (i) in the case of the first Compounding Period, the Effective Date and ending on but excluding the first Reset Date, and (ii) for each period thereafter, a Reset Date and ending on (but excluding) the next following Reset Date. Daycount: Actual/360 -6- Forward Stock Purchase Dividend Amount: Means, on each Reset Date, or Early Termination Date, or Maturity Date, an amount in U.S. Dollars equal to: (i) the sum of all cash distributions paid on a single Common Share during the relevant Compounding Period; plus (ii) an amount representing interest that could have been earned on such distributions at a USD LIBOR having a Designated Maturity of 1 month for the period from the date that such distributions would have been received by a holder of such Common Shares until such Reset Date. Separately, and not included in Dividend Amount, all cash dividends, having gone ex-dividend but not paid prior to the end of the final Compounding Period for any settlement, on a number of shares equal to the Underlying Shares, or on a reduced number shares during an Unwind Period, will be paid to the Company by UBS LLC for the account of UBS on the Business Day after the relevant dividend payment date declared by the Company's Board of Directors. Effective Date: 25 August 1997 Exchange Trading Day: Each day on which the Relevant Exchange is open for trading. Forward Price: On any day, the Forward Price shall be determined for such day by: a) (i) compounding the Initial Price for each Compounding Period at the USD LIBOR rate plus Spread for a Designated Maturity of 3 months or the Designated Maturity which corresponds to the Compounding Period if less than 3 months (Actual/360 day count fraction) to such Reset Date and (ii) subtracting the Dividend Amount at that date, and b) provided however that if the Company delivers shares pursuant to III., the Forward Price for purposes of determining the Initial Price for the next Reset Date, shall be adjusted to a price equal to the closing price of the Common Shares on the Exchange Trading Day immediately prior to the current Reset Date, Early Termination Date or Maturity Date adjusted up for any positive result or down for any negative result of the following formula: (ii) the Interim Settlement Amount minus, (i) (a) Interim Settlement Shares times (b) the average closing price of the Common Shares on the five (5) Exchange Trading Days immediately following the receipt of shares by UBS pursuant to III. above. such result divided by, (iii) the number of Underlying Shares. Initial Price: Means, -7- Forward Stock Purchase a) for the Compounding Period ending on the first Reset Date, an amount in U.S. Dollars equal to [closing price], and b) for each subsequent Reset Date, the Forward Price as calculated on or adjusted as of the prior Reset Date. Interim Settlement Amount: On any day, the product of (a) the number of Underlying, Shares, and (b) the amount by which the Forward Price exceeds the closing price of the Common Shares on the Exchange Trading Day immediately prior to such day. Interim Settlement Shares: (i) 110% times (ii) Interim Settlement Amount divided by (iii) the closing price of the Common Shares on the Exchange Trading Day immediately prior to such Reset Date. Mandatory Unwind Mandatory Thresholds: Unwind Thresholds Unwind Share Limit ----------------- ------------------ 70.0% of current price up to 25% of shares 65.0% 50% 62.5% 75% 60.0% 100% Maturity Date: One (1) year after the Effective Date, subject to extension upon the written approval of UBS in its sole discretion. Relevant Exchange: Means, with respect to any Exchange Trading Day, the principal Stock Exchange on which the Common Shares are traded on that day. Reset Dates: 25 November 1997, 25 February 1998, 25 May 1998, 25 August 1998. Settlement Amount: The product of the Settlement Price and the Settlement Shares. Settlement Disruption Event: Means an event beyond the control of the parties as a result of which The Depository Trust Company ("DTC") or any successor depository cannot effect a transfer of the Settlement Shares or the Common Shares. If there is a Settlement Disruption Event on a Valuation Date, then the transfer of the Common Shares that would otherwise be due to be made by UBS LLC for the account of UBS or the transfer of the Common Shares that would otherwise be due to be made by the Company, as applicable, on that date shall take place on the first succeeding Exchange Trading Dy on which settlement can take place through DTC, provided that if such a Settlement Disruption Event persists for five consecutive Business Days, then the Party obliged to deliver such Settlement Shares shall use its best efforts to cause such Shares to be delivered promptly thereafter to the other Party in any commercially reasonable manner. Settlement Price: If Day S is a Reset Date, the Forward Price. If Day S is not a Reset Date, the Forward Price adjusted for LIBOR breakage adjustments (either positive or negative) for the Settlement Shares for the period from Day S to the next following Reset Date. Any breakage adjustments shall be calculated by the Calculation Agent in accordance with normal industry standards. Spread: 0.75% per annum. Stock Exchange: Means the New York Stock Exchange, the American Stock Exchange or -8- Forward Stock Purchase NASDAQ. Stock Settlement Unwind Price: The daily average closing price of the Common Shares for Exchange Trading Days during the Unwind Period. Trade Date: 25 August 1997 Unwind Period: In the event of Stock Settlement or Net Stock Settlement, the 35 Exchange Trading Day period (subject to change based on mutual agreement) beginning on Day S; provided that UBS may extend such period for such additional number of Exchange Trading Days required to complete its hedging activities in a commercially reasonable manner or upon the occurrence of a Market Disruption Event. Underlying Shares: 1,800,000 Common Shares of the Company (ticker "HIW") Valuation Date: In the case of determining any Cash Settlement value, Net Stock Settlement Shares or Stock Settlement Shares, Day S, the day preceding Day S and all Exchange Trading Days during the Unwind Period; in the case of determining any Preliminary Stock Settlement Shares or Preliminary Net Stock Settlement Shares, the Exchange Trading Day immediately preceding Day S. Valuation Time: 4:00 pm EST, or in the event the Relevant Market closes early, such closing time. V. Certain Covenants and Other Provisions -9- Forward Stock Purchase Mandatory Unwind Event: If at any time prior to the Maturity Date: (i) the average closing price on the Relevant Exchange of the Common Shares on an Exchange Trading Days, other than a day on which a Market Disruption Event has occurred, is equal to or less than any of the Mandatory Unwind Thresholds, then on the Mandatory Unwind Date the Parties agree to settle, all or a portion of the Transaction, up to the Unwind Share Limit for the corresponding Mandatory Unwind Threshold settling such amounts pursuant to Article II. above, Once a Mandatory Unwind Event has occurred, if the Common Shares trade below a lower Mandatory Unwind Threshold at any time, the Parties agree to settle, all or a portion of the Transaction, up to the corresponding Unwind Share Limit. Or, (ii) if any of the following events occur: (1) any Financial Covenant Default as more particularly described in Exhibit A attached hereto, (2) any Event of Default under the outstanding $280 million unsecured credit line, evidenced by that certain Credit Agreement by and among Highwoods/Forsyth Limited Partnership as borrower the Company and certain subsidiaries as guarantors, the lenders named therein, NationsBank, N.A. as administrative agent and First Union National Bank of North Carolina as documentation agent, dated September 27, 1996, (3) any Event of Default under any other unsecured lending agreement involving the Company, (4) Bankruptcy or Insolvency, and/or (5) any failure of the Company to post cash collateral pursuant to III. B. herein. then, UBS LLC for the account of UBS may, on giving 5 Business Days notice to the Company require all or part of the Transaction to be settled early on such date (such date and amount being "Day S" and "Settlement Shares" for the purposes of the "Settlement" provisions above). The Company may elect the method of settlement for such early settlement in accordance with the settlement provisions set forth herein. however, in the event (1) no resale Registration Statement has been provided and declared effective prior to Day S or (2) any resale Registration Statement so provided and declared effective becomes, on Day S or during an unwind period, the subject of a stop order suspending its effectiveness or is the subject of any proceeding for that purpose or any such proceeding is threatened by the Commission, then the Company at its sole option may choose to (A) cash collateralize 125% of its obligation to UBS in a manner similar to that described in Section III.3., (B) effect Cash Settlement as to all of the Settlement Shares in accordance with -10- Forward Stock Purchase Section II.B. hereof on the Exchange Trading Day immediately succeeding the occurrence of one of the events specified in (1) or (2) above or (C) effect settlement with Common Shares that are not subject to a resale Registration Statement to allow UBS to unwind the Transaction and liquidate any position it may hold in such unregistered Settlement Shares by means of negotiated private resales, to the extent and in the manner permitted by applicable federal and state securities laws. In recognition that such negotiated private resales, if any, are likely to be completed at prices reflective of a discount to the prevailing open market prices for any freely tradable Common Shares, the Company agrees to deliver such number of supplemental Common Shares as UBS may reasonably request to which UBS shall assign a dollar price in order to approximate an aggregate amount equal to the aggregate discount accepted by UBS in connection with the resale of the Settlement Shares or the Company shall pay an amount to UBS equal to the aggregate discount accepted by UBS in connection with the resale of the Settlement Shares. Upon receipt of full payment from the Company to UBS LLC for the account of UBS, UBS LLC for the account of UBS will promptly return all shares in the Company's Margin Account to the Company. Market Disruption Event: The occurrence or existing or existence on any Exchange Trading Day during the one-half hour period that ends at the Valuation Time of any suspension of or limitation imposed on trading on (i) any of the Relevant Exchanges or (ii) any of the Related Exchanges in options or futures contracts on the Common Shares of the Company if, in the reasonable determination of the Calculation Agent, such suspension or limitation is material. In the event that a Market Disruption Event occurs or is continuing on a Valuation Date, then any determination of the closing pricing of the Common Shares shall be postponed to the first succeeding Exchange Trading Day on which there is no Market Disruption Event, provided that if there is a Market Disruption Event on each of the five Exchange Trading Days immediately following the original Valuation Date that but for the Market Disruption Event would have been a day on which the closing price of the Common Shares would have been determined, such fifth Exchange Trading Day shall be deemed to be such Valuation Date notwithstanding the Market Disruption Event and the Calculation Agent shall, in consultation with the Company, determine the closing price for that Valuation Date based upon the last closing price prior to such Market Disruption Event, and if applicable, shall effect the settlement of the Underlying Shares by using such last closing price for the determination of the Settlement Amount under Paragraph II.A.3. above. The Calculation Agent shall within one (1 ) Business Day notify the other party of the existence or occurrence of a Market Disruption Event on any day that but for the occurrence or existence of a Market Disruption Event would have been a Valuation Date. Regulatory Compliance: Each party agrees that if the delivery of shares upon settlement is subject to any restriction imposed by a regulatory authority, it shall not be an event of default, and the parties will negotiate in good faith a procedure to effect settlement of such shares in a manner which complies with any relevant rules of such regulatory authority and which is satisfactory in form and substance to their respective counsel. -11- Forward Stock Purchase Securities Law Compliance: Each party agrees that it will comply, in connection with this Transaction and all related or contemporaneous sales and purchases of the Company's Common Shares, with the applicable provisions of the Securities Act, the Securities Exchange Act of 1934 (the "Exchange Act") and the rules and regulations thereunder. Settlement Stock Delivery: Pursuant to the Stock Settlement and Net Stock Settlement provisions under Section II. above, UBS LLC for the account of UBS shal1 deliver all Settlement Shares to the Company's Margin Account. Such Common Shares will be owned by the Company, and will serve as collateral until released by UBS LLC for the account of UBS in accordance with the settlement mechanics noted under II.E. above. The Company covenants and agrees with UBS that Common Shares delivered by the Company pursuant to settlement events in accordance herewith will be duly authorized, validly issued, fully paid and nonassessable. The issuance of such Common Shares will not require the consent, approval, authorization, registration, or qualification of any government authority, except such as shall have been obtained on or before the delivery date to UBS LLC for the account of UBS in connection with any registration statement filed with respect to any shares. Stock Settlement Transfer: All settlements shall occur through DTC or any other mutually acceptable depository. Solvency: Immediately following the execution of this agreement, the Company will be solvent and able to pay its debts as they mature, will have capital sufficient to carry on business and all businesses in which it engages, and will have assets which will have a present fair market valuation greater than the amount of all of its liabilities. Trading Authorization: The following individuals and /or any individual authorized in writing by the Treasurer of the Company are authorized by the Company to provide trading instructions to UBS LLC for the account of UBS with regard to this transaction. Ronald P. Gibson Carman J. Liuzzo Mack D. Pridgen III -12- Forward Stock Purchase VI. Delivery Instructions: Party A: Chase, NYC UBS Securities LLC ABA 021000021 A/C No. ###-##-#### Attn: GED Party B: Please confirm that the foregoing correctly sets forth the terms of our agreement by executing the copy of this Confirmation enclosed for that purpose and returning it to Ms. Gale Herzing, 29th Floor. Yours faithfully, Union Bank of Switzerland, London Branch By: ________________________ By: _______________________________ Name: Name: Title: Title: Date: Date: Highwoods Properties Inc. By: ____________________________ By: _____________________________ Name: Carman J. Liuzzo Name: Mack D. Pridgen III Title: Vice President and Chief Title: Vice President and Financial Officer General Counsel Date: August 28, 1997 Date: August 28, 1997 -13- Forward Stock Purchase Exhibit A Financial Covenants
Financial Covenants * Test Period Threshold - --------------------- ----------- --------- Adjusted NOI to Total Liabilities Rolling 4Q >= 16 5% Minimum Tangible Net Worth NA (1) Total Liabilities to Total Market Capitalization NA <= 45% Total Liabilities to Total Property Assets at Cost NA <= 50% EBITDA to Interest Expense (plus Capex) Rolling 4Q >= 2 20x Unencumbered Assets to Unsecured Debt Rolling 4Q >= 2.25x Secured Debt to Total Property Assets at Cost Rolling 4Q <= 30NO Unencumbered Adjusted NOI to Unsecured Interest Expense Rolling 4Q >= 2 25x Unencumbered Adjusted NOI to Unsecured Debt Rolling 4Q >= 18% Speculative Land to Improved Properties Rolling 4Q <= 3 .0%
Any above capitalized terms shall be defined pursuant to the Company's $280 million Credit Agreement by and among Highwoods/Forsyth Limited Partnership as borrower, the Company and certain subsidiaries as guarantors, the lenders named therein, NationsBank, N.A. as administrative agent and First Union National Bank of North Carolina as documentation agent, dated September 27, 1996. (1) Greater than or equal to the sum of (i) $700 million plus (ii) 85% of the Net Cash Proceeds of any Equity Issuance subsequent to the Closing Date of the Credit Agreement by and among Highwoods/Forsyth Limited Partnership as borrower the Company and certain subsidiaries as guarantors, the lenders named therein, NationsBank, N A as administrative agent and First Union National Bank of North Carolina as documentation agent, dated September 27, 1996. * ($ millions where appropriate) -14- EX-4.15 5 CREDIT AGREEMENT CREDIT AGREEMENT among HIGHWOODS/FORSYTH LIMITED PARTNERSHIP, as Borrower AND HIGHWOODS PROPERTIES, INC., and certain Subsidiaries of the Borrower and Highwoods Properties, Inc. as Guarantors AND NATIONSBANK, N.A., as Agent and a Lender AND THE OTHER LENDERS IDENTIFIED HEREIN (IF ANY) DATED AS OF December 15, 1997 TABLE OF CONTENTS Page ---- SECTION 1 DEFINITIONS AND ACCOUNTING TERMS....................................1 1.1 Definitions................................................................1 1.2 Computation of Time Periods and Other Definitional Provisions..............8 SECTION 2 CREDIT FACILITIES. .................................................9 2.1 Revolving Loans............................................................9 SECTION 3 GENERAL PROVISIONS APPLICABLE TO LOANS.............................11 3.1 Interest..................................................................11 3.2 Place and Manner of Payments..............................................11 3.3 Prepayments...............................................................12 3.4 Unused Fees...............................................................12 3.5 Payment in full at Maturity...............................................13 3.6 Computations of Interest and Fees.........................................13 3.7 Pro Rata Treatment........................................................14 3.8 Sharing of Payments.......................................................14 3.9 Capital Adequacy..........................................................15 3.10 Inability To Determine Eurodollar Rate...................................15 3.11 Illegality to Make Eurodollar Loans......................................16 3.12 Changes in Requirements of Law...........................................16 3.13 Taxes....................................................................17 3.14 Indemnity as to Eurodollar Loans.........................................18 SECTION 4 GUARANTY...........................................................19 4.1 Guaranty of Payment.......................................................18 4.2 Obligations Unconditional.................................................19 4.3 Modifications.............................................................19 4.4 Waiver of Rights..........................................................20 4.5 Reinstatement.............................................................20 4.6 Remedies..................................................................20 4.7 Limitation of Guaranty....................................................21 SECTION 5 CONDITIONS PRECEDENT...............................................21 5.1 Closing Conditions........................................................21 5.2 Conditions to All Loans...................................................23 SECTION 6 REPRESENTATIONS AND WARRANTIES.....................................25 SECTION 7 AFFIRMATIVE COVENANTS..............................................25 SECTION 8 NEGATIVE COVENANTS.................................................26 i SECTION 9 EVENTS OF DEFAULT..................................................26 9.2 Events of Default.........................................................27 9.3 Acceleration; Remedies....................................................27 9.4 Allocation of Payments After Event of Default.............................28 SECTION 10 AGENCY PROVISIONS.................................................29 10.1 Appointment..............................................................29 10.2 Delegation of Duties.....................................................29 10.3 Exculpatory Provisions...................................................29 10.4 Reliance on Communications...............................................30 10.5 Notice of Default........................................................30 10.6 Non-Reliance on Agent and Other Lenders..................................31 10.7 Indemnification..........................................................31 10.8 Agent in Its Individual Capacity.........................................32 10.9 Successor Agent..........................................................32 SECTION 11 MISCELLANEOUS......................................................33 11.1 Notices..................................................................32 11.2 Right of Set-Off.........................................................33 11.3 Benefit of Agreement.....................................................33 11.4 No Waiver; Remedies Cumulative...........................................35 11.5 Payment of Expenses; Indemnification.....................................35 11.6 Amendments, Waivers and Consents.........................................36 11.7 Counterparts.............................................................36 11.8 Headings.................................................................37 11.9 Defaulting Lender........................................................37 11.10 Survival of Indemnification and Representations and Warranties.........................................37 11.11 Governing Law..........................................................37 11.12 Arbitration............................................................37 11.13 Time...................................................................38 11.14 Severability...........................................................38 11.15 Entirety...............................................................38 ii SCHEDULES Schedule 1.1(a) Commitment Percentages Schedule 11.1 Notices EXHIBITS Exhibit 2.1(b) Form of Notice of Borrowing Exhibit 2.1(d) Form of Notice of Continuation/Conversion Exhibit 2.1(f) Form of Revolving Note Exhibit 7.1(c) Form of Officer's Certificate Exhibit 7.16 Form of Joinder Agreement Exhibit 11.3 Form of Assignment Agreement iii CREDIT AGREEMENT THIS CREDIT AGREEMENT, dated as of December 15, 1997 (this "Credit Agreement"), is entered into by and among HIGHWOODS/FORSYTH LIMITED PARTNERSHIP, a North Carolina limited partnership (the "Borrower"), HIGHWOODS PROPERTIES, INC., a Maryland corporation ("Highwoods Properties") (Highwoods Properties and certain Subsidiaries of the Borrower and Highwoods Properties, individually a "Guarantor" and collectively the "Guarantors"), the Lenders (as defined herein) and NATIONSBANK, N.A., (the "Bank"), as Agent for the Lenders. R E C I T A L S WHEREAS, the Borrower has requested that the Lenders provide a $150,000,000 credit facility for the purposes hereinafter set forth; and WHEREAS, the Lenders have agreed to make the requested credit facility available to the Borrower on the terms and conditions hereinafter set forth. NOW, THEREFORE, IN CONSIDERATION of the premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: SECTION 1 DEFINITIONS AND ACCOUNTING TERMS 1.1 Definitions. As used herein, the following terms shall have the meanings herein specified unless the context otherwise requires. Defined terms herein shall include in the singular number the plural and in the plural the singular: "Additional Credit Party" means each Person that becomes a Guarantor under the Related Facility. "Adjusted Base Rate" means the Base Rate plus the Applicable Percentage. "Adjusted Eurodollar Rate" means the Eurodollar Rate plus the Applicable Percentage. "Agent" means NationsBank, N.A. (or any successor thereto) or any successor administrative agent appointed pursuant to Section 10. "Affiliate" means a Person: (a) which directly or indirectly through one or more intermediaries controls or is controlled by, or is under common control of the Borrower or a Guarantor; or (b) which beneficially owns or holds five percent (5%) or more of any class of the voting stock of a Guarantor or more than five percent (5%) of the partnership interests of the Borrower; or (c) of which five percent (5%) or more of the voting stock (or in the case of a Person which is not a corporation, five percent (5%) or more of the equity interest) is beneficially owned or held by the Borrower or a Guarantor. "Applicable Percentage" means, at any time, and with respect to all Eurodollar Loans and Base Rate Loans then outstanding, the applicable percentage as follows: APPLICABLE APPLICABLE PERCENTAGE PERCENTAGE FOR EURODOLLAR BASE RATE LOANS LOANS ----- ----- 0.90% 0% "Authorized Officer" means the President, Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, Secretary or Chairman of the Board of Highwoods Properties. "Bankruptcy Code" means the Bankruptcy Code in Title 11 of the United States Code, as amended, modified, succeeded or replaced from time to time. "Base Rate" means, for any day, the rate per annum (rounded upwards, if necessary, to the nearest whole multiple of 1/100 of 1%) equal to the greater of (a) the Federal Funds Rate in effect on such day plus 1/2 of 1% or (b) the Prime Rate in effect on such day. If for any reason the Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable after due inquiry to ascertain the Federal Funds Rate for any reason, including the inability or failure of the Agent to obtain sufficient quotations in accordance with the terms hereof, the Base Rate shall be determined without regard to clause (a) of the first sentence of this definition until the circumstances giving rise to such inability no longer exist. Any change in the Base Rate due to a change in the Prime Rate or the Federal Funds Rate shall be effective on the effective date of such change in the Prime Rate or the Federal Funds Rate, respectively. "Base Rate Loan" means any Loan bearing interest at a rate determined by reference to the Base Rate. "Borrower" means Highwoods/Forsyth Limited Partnership, a North Carolina limited partnership, together with any permitted successors and assigns. "Business Day" means any day other than a Saturday or Sunday or a legal holiday in Charlotte, North Carolina, or a day on which banking institutions are authorized by law or 2 other governmental action to close; provided, however, if the applicable day relates to the determination of the Eurodollar Rate, such day must also be a day upon which banks are open for the transaction of business in London, England and dealings in U.S. dollar deposits are carried on in the London interbank market. "Closing Date" means the date hereof. "Commitments" means the commitment of each Lender with respect to the Revolving Committed Amount. "Credit Documents" means, collectively, this Agreement and the Note. "Credit Parties" means the Borrower and the Guarantors and "Credit Party" means any one of them. "Credit Party Obligations" means, without duplication all of the obligations of the Credit Parties to the Lenders and the Agent, whenever arising, under this Credit Agreement, the Notes, or any of the other Credit Documents to which the Borrower or any Guarantor is a party. "Default" means any event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default. "Defaulting Lender" means, at any time, any Lender that, (a) has failed to make a Loan required pursuant to the terms of this Credit Agreement, (b) has failed to pay to the Agent or any Lender an amount owed by such Lender pursuant to the terms of this Credit Agreement (but only for so long as such amount has not been repaid) or (c) has been deemed insolvent or has become subject to a bankruptcy or insolvency proceeding or to a receiver, trustee or similar official. "Dollars" and "$" means dollars in lawful currency of the United States of America. "Effective Date" means the date on which the conditions set forth in Section 5.1 shall have been fulfilled (or waived in the sole discretion of the Lenders) and on which the initial Loans shall have been made. "Eligible Assignee" means (a) any Lender or Affiliate or subsidiary of a Lender and (b) any other commercial bank, financial institution, institutional lender or "accredited investor" (as defined in Regulation D of the Securities and Exchange Commission) with total assets of at least $10 billion and with a rating on their long term unsecured debt of at least BBB with S&P or its equivalent and organized under the laws of the United States or a state thereof. "Environmental Claim" means any investigation, written notice, violation, written demand, written allegation, action, suit, injunction, judgment, order, consent decree, penalty, fine, lien, proceeding, or written claim whether administrative, judicial, or private 3 in nature arising (a) pursuant to, or in connection with, an actual or alleged violation of, any Environmental Law, (b) in connection with any Hazardous Material, (c) from any assessment, abatement, removal, remedial, corrective, or other response action in connection with an Environmental Law or other order of a Governmental Authority or (d) from any actual or alleged damage, injury, threat, or harm to health, safety, natural resources, or the environment. "Environmental Laws" means any current or future legal requirement of any Governmental Authority pertaining to (a) the protection of health, safety, and the indoor or outdoor environment, (b) the conservation, management, or use of natural resources and wildlife, (c) the protection or use of surface water and groundwater, (d) the management, manufacture, possession, presence, use, generation, transportation, treatment, storage, disposal, release, threatened release, abatement, removal, remediation or handling of, or exposure to, any hazardous or toxic substance or material or (e) pollution (including any release to land surface water and groundwater) and includes, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 USC 9601 et seq., Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976 and Hazardous and Solid Waste Amendment of 1984, 42 USC 6901 et seq., Federal Water Pollution Control Act, as amended by the Clean Water Act of 1977, 33 USC 1251 et seq., Clean Air Act of 1966, as amended, 42 USC 7401 et seq., Toxic Substances Control Act of 1976, 15 USC 2601 et seq., Hazardous Materials Transportation Act, 49 USC App. 1801 et seq., Occupational Safety and Health Act of 1970, as amended, 29 USC 651 et seq., Oil Pollution Act of 1990, 33 USC 2701 et seq., Emergency Planning and Community Right-to-Know Act of 1986, 42 USC 11001 et seq., National Environmental Policy Act of 1969, 42 USC 4321 et seq., Safe Drinking Water Act of 1974, as amended, 42 USC 300(f) et seq., any analogous implementing or successor law, and any amendment, rule, regulation, order, or directive issued thereunder. "Eurodollar Loan" means a Loan bearing interest based at a rate determined by reference to the Eurodollar Rate. "Eurodollar Rate" means, for the Interest Period for each Eurodollar Loan comprising part of the same borrowing (including conversions, extensions and renewals), a per annum interest rate determined pursuant to the following formula: Eurodollar Rate = London Interbank Offered Rate --------------------------------- 1 - Eurodollar Reserve Percentage "Eurodollar Reserve Percentage" means for any day, that percentage (expressed as a decimal) which is in effect from time to time under Regulation D of the Board of Governors of the Federal Reserve System (or any successor), as such regulation may be amended from time to time or any successor regulation, as the maximum reserve requirement (including, without limitation, any basic, supplemental, emergency, special, or marginal reserves) applicable with respect to Eurocurrency liabilities as that term is defined in Regulation D (or against any other category of liabilities that includes deposits by reference to which the interest rate of Eurodollar Loans is determined), whether or not a Lender has any 4 Eurocurrency liabilities subject to such reserve requirement at that time. Eurodollar Loans shall be deemed to constitute Eurocurrency liabilities and as such shall be deemed subject to reserve requirements without benefits of credits for proration, exceptions or offsets that may be available from time to time to a Lender. The Eurodollar Rate shall be adjusted automatically on and as of the effective date of any change in the Eurodollar Reserve Percentage. "Event of Default" means any of the events or circumstances described in Section 9. "Extension of Credit" means the making of any loans (including the extension of, or conversion into, a Eurodollar Loans). "Federal Funds Rate" means for any day the rate per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day and (b) if no such rate is so published on such next preceding Business Day, the Federal Funds Rate for such day shall be the average rate quoted to the Agent on such day on such transactions as determined by the Agent. "Fee Letter" means that certain letter agreement, dated as of Closing Date, between the Bank and the Borrower, as amended, modified, supplemented or replaced from time to time. "GAAP" means generally accepted accounting principles in the United States applied on a consistent basis. "Governmental Authority" means any Federal, state, local, provincial or foreign court or governmental agency, authority, instrumentality or regulatory body. "Guarantors" means Highwoods Properties, Inc., a Maryland corporation, each of the Subsidiaries of Highwoods Properties and the Borrower (other than the Non-Guarantor Subsidiaries) and each Additional Credit Party that has executed a Joinder Agreement. "Interest Payment Date" means (a) as to Base Rate Loans, on the fifteenth (15th) day of each month and on the Revolving Loan Maturity Date and (b) as to Eurodollar Loans, on the last day of each applicable Interest Period and on the Revolving Loan Maturity Date. "Interest Period" means, as to Eurodollar Loans, a period of one month's duration, commencing, in each case, on the date of the borrowing (including continuations and conversions thereof); provided, however, (a) if any Interest Period would end on a day which is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day (except that when the next succeeding Business Day falls in the next succeeding calendar month, then on the next preceding Business Day), (b) no Interest 5 Period shall extend beyond the Revolving Loan Maturity Date and (c) where an Interest Period begins on a day for which there is no numerically corresponding day in the calendar month in which the Interest Period is to end, such Interest Period shall end on the last Business Day of such calendar month. "Lender" means any of the Persons identified as a "Lender" on the signature pages hereto, and any Person which may become a Lender by way of assignment in accordance with the terms hereof, together with their successors and permitted assigns. "Lien" means any mortgage, pledge, hypothecation, assignment, deposit arrangement, security interest, encumbrance, lien (statutory or otherwise), preference, priority or charge of any kind, including, without limitation, any agreement to give any of the foregoing, any conditional sale or other title retention agreement, and any lease in the nature thereof. "Loan" or "Loans" mean revolving loans made hereunder. "London Interbank Offered Rate" means, with respect to any Eurodollar Loan for the Interest Period applicable thereto, the rate of interest per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in Dollars at approximately 11:00 A.M. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period; provided, however, if more than one rate is specified on Telerate Page 3750, the applicable rate shall be the arithmetic mean of all such rates. If, for any reason, such rate is not available, the term "London Interbank Offered Rate" shall mean, with respect to any Eurodollar Loan for the Interest Period applicable thereto, the rate of interest per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in Dollars at approximately 11:00 A.M. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period; provided, however, if more than one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates. "Material Adverse Effect" means a material adverse effect on (a) the operations, financial condition, business or prospects of the Borrower or a Guarantor, (b) the ability of the Borrower or a Guarantor to perform its respective obligations under this Credit Agreement or any of the other Credit Documents, or (c) the validity or enforceability of this Credit Agreement, any of the other Credit Documents, or the rights and remedies of the Lenders hereunder or thereunder taken as a whole. "Non-Excluded Taxes" has the meaning set forth in Section 3.13. "Non-Guarantor Subsidiaries" means AP Southeast Portfolio Partners, L.P., AP-GP Southeast Portfolio Partners, L.P., a Delaware limited partnership, Highwoods Realty GP Corp., a Delaware limited partnership and Forsyth-Carter Brokerage, L.L.C. 6 "Note" or "Notes" means the Revolving Loan Notes, individually or collectively, as appropriate. "Notice of Borrowing" means a request by the Borrower for a Revolving Loan, in the form of Exhibit 2.1(b). "Notice of Continuation/Conversion" means a request by the Borrower to continue an existing Eurodollar Loan to a new Interest Period or to convert a Eurodollar Loan to a Base Rate Loan or a Base Rate Loan to a Eurodollar Loan, in the form of Exhibit 2.1(d). "Person" means any individual, partnership, joint venture, firm, corporation, limited liability company, association, trust or other enterprise (whether or not incorporated), or any Governmental Authority. "Prime Rate" means the per annum rate of interest established from time to time by the Bank at its principal office in Charlotte, North Carolina (or such other principal office of the Bank as communicated in writing to the Borrower and the Lenders) as its Prime Rate. Any change in the interest rate resulting from a change in the Prime Rate shall become effective as of 12:01 a.m. of the Business Day on which each change in the Prime Rate is announced by the Bank. The Prime Rate is a reference rate used by the Bank in determining interest rates on certain loans and is not intended to be the lowest rate of interest charged on any extension of credit to any debtor. "Related Credit Agreement" means that certain Credit Agreement between the Credit Parties, NationsBank, N.A., as "Agent", First Union National Bank of North Carolina, as "Documentation Agent", and certain other financial institutions identified therein as "Lenders" dated as of September 27, 1996, as amended by (i) that certain First Amendment and Restatement of Credit Agreement dated as of May 27, 1997, and (ii) that certain letter agreement among such parties dated August 20, 1997 (the "Letter Agreement"), and as further amended, modified, extended or replaced from time to time. "Related Credit Facilities" means those credit facilities provided under the Related Credit Agreement. "Related Credit Facility Lenders" means those lenders party to the Related Credit Agreement. "Required Lenders" means all Lenders; provided, however, that if any Lender shall be a Defaulting Lender at such time then such Defaulting Lender shall be excluded from the determination of Required Lenders at such time. "Requirement of Law" means, as to any Person, the articles or certificate of incorporation and by-laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or final, non-appealable determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or to which any of its material property is subject. 7 "Revolving Committed Amount" means ONE HUNDRED FIFTY MILLION DOLLARS ($150,000,000). "Revolving Loan Commitment Percentage" means, for each Lender, the percentage identified as its Revolving Loan Commitment Percentage on Schedule 1.1(a), as such percentage may be modified in connection with any assignment made in accordance with the provisions of Section 11.3. "Revolving Loan Maturity Date" means June 30, 1998. "Revolving Loans" means the Revolving Loans made to the Borrower pursuant to Section 2. "Revolving Note" or "Revolving Notes" means the promissory notes of the Borrower in favor of each of the Lenders evidencing the Revolving Loans provided pursuant to Section 2, individually or collectively, as appropriate, as such promissory notes may be amended, modified, supplemented, extended, renewed or replaced from time to time and as evidenced in the form of Exhibit 2.1f. "S&P" means Standard & Poor's Ratings Group, a division of McGraw Hill, Inc., or any successor or assignee of the business of such division in the business of rating securities. "Subsidiary" means, as to any Person, (a) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time, any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person directly or indirectly through Subsidiaries, and (b) any partnership, association, joint venture or other entity in which such person directly or indirectly through Subsidiaries has more than a 50% equity interest at any time. "Unused Commitment" means, for any period, the amount by which (a) the then applicable aggregate Revolving Committed Amount exceeds (b) the daily average sum for such period of the outstanding aggregate principal amount of all Revolving Loans. "Unused Fee Percentage" means 0.15% per annum. 1.2 Computation of Time Periods and Other Definitional Provisions. For purposes of computation of periods of time hereunder, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding." References in this Agreement to "Articles", "Sections", "Schedules" or "Exhibits" shall be to Articles, Sections, Schedules or Exhibits of or to this Agreement unless otherwise specifically provided. 8 SECTION 2 CREDIT FACILITIES 2.1 Revolving Loans. (a) Revolving Loan Commitment. Subject to the terms and conditions set forth herein, each Lender severally agrees to make revolving loans (each a "Revolving Loan" and collectively the "Revolving Loans") to the Borrower, in Dollars, at any time and from time to time, during the period from and including the Effective Date to but not including the Revolving Loan Maturity Date (or such earlier date if the Revolving Committed Amount has been terminated as provided herein); provided, however, that (i) the sum of the aggregate amount of Revolving Loans outstanding shall not exceed the Revolving Committed Amount and (ii) with respect to each individual Lender, the Lender's pro rata share of outstanding Revolving Loans shall not exceed such Lender's Revolving Loan Commitment Percentage of the Revolving Committed Amount. Subject to the terms of this Credit Agreement (including Section 3.3), the Borrower may borrow, repay and reborrow Revolving Loans. (b) Method of Borrowing for Revolving Loans. By no later than 10:00 a.m. (i) one Business Day prior to the requested borrowing of Revolving Loans that will be Base Rate Loans or (ii) two Business Days prior to the date of the requested borrowing of Revolving Loans that will be Eurodollar Loans, the Borrower shall submit a written Notice of Borrowing in the form of Exhibit 2.1(b) to the Agent (which notice may be by telecopy with the original to follow) setting forth (A) the amount requested, (B) whether such Revolving Loans shall accrue interest at the Adjusted Base Rate or the Adjusted Eurodollar Rate, (C) how the proceeds from such Revolving Loans will be used and (D) certification that the Borrower has complied in all respects with Section 5; (c) Funding of Revolving Loans. Upon receipt of a Notice of Borrowing, the Agent shall promptly inform the Lenders as to the terms thereof. Each Lender shall make its Revolving Loan Commitment Percentage of the requested Revolving Loans available to the Agent by 2:00 p.m. on the date specified in the Notice of Borrowing by deposit, in Dollars, of immediately available funds at the offices of the Agent at its principal office in Charlotte, North Carolina or at such other address as the Agent may designate in writing. The amount of the requested Revolving Loans will then be made available to the Borrower by the Agent by crediting the account of the Borrower on the books of such office of the Agent, to the extent the amount of such Revolving Loans are made available to the Agent. No Lender shall be responsible for the failure or delay by any other Lender in its obligation to make Revolving Loans hereunder; provided, however, that the failure of any Lender to fulfill its obligations hereunder shall not relieve any other Lender of its obligations hereunder. Unless the Agent shall have been notified by any Lender prior to the date of any such Revolving Loan that such Lender does not intend to make available to the Agent its portion of the Revolving Loans to be made on such date, the Agent may assume that such Lender has made such amount available to the 9 Agent on the date of such Revolving Loans, and the Agent in reliance upon such assumption, may (in its sole discretion but without any obligation to do so) make available to the Borrower a corresponding amount. If such corresponding amount is not in fact made available to the Agent, the Agent shall be able to recover such corresponding amount from such Lender. If such Lender does not pay such corresponding amount forthwith upon the Agent's demand therefor, the Agent will promptly notify the Borrower, and the Borrower shall immediately pay such corresponding amount to the Agent. The Agent shall also be entitled to recover from the Lender or the Borrower, as the case may be, interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by the Agent to the Borrower to the date such corresponding amount is recovered by the Agent at a per annum rate equal to (i) from the Borrower at the applicable rate for such Revolving Loan pursuant to the Notice of Borrowing and (ii) from a Lender at the Federal Funds Rate. (d) Continuations and Conversions. Upon receipt of a Notice of Continuation/Conversion, the Agent shall promptly inform the Lenders as to the terms thereof. Subject to the terms of Section 5.2, the Borrower shall have the option, on any Business Day, to continue existing Eurodollar Loans for a subsequent Interest Period, to convert Base Rate Loans into Eurodollar Loans or to convert Eurodollar Loans into Base Rate Loans; provided, however, that (i) each such continuation or conversion must be requested by the Borrower pursuant to a written Notice of Continuation/Conversion, in the form of Exhibit 2.1(d), in compliance with the terms set forth below, (ii) except as provided in Section 3.11, Eurodollar Loans may only be continued or converted into Base Rate Loans on the last day of the Interest Period applicable thereto, (iii) Eurodollar Loans may not be continued nor may Base Rate Loans be converted into Eurodollar Loans during the existence and continuation of a Default or Event of Default and (iv) any request to continue a Eurodollar Loan that fails to comply with the terms hereof or any failure to request a continuation of a Eurodollar Loan at the end of an Interest Period shall constitute a conversion to a Base Rate Loan on the last day of the applicable Interest Period. Each continuation or conversion must be requested by the Borrower no later than 11:00 a.m. (A) one Business Day prior to a requested conversion of a Eurodollar Loan to a Base Rate Loan or (B) two Business Days prior to the date for a requested continuation of a Eurodollar Loan or conversion of a Base Rate Loan to a Eurodollar Loan, in each case pursuant to a written Notice of Continuation/Conversion submitted to the Agent. (e) Minimum Amounts. Each request for a borrowing, conversion or continuation shall be subject to the requirements that (i) each Eurodollar Loan shall be in a minimum amount of $5,000,000 and in integral multiples of $500,000 in excess thereof, (ii) each Base Rate Loan shall be in a minimum amount of the lesser of $1,000,000 (and integral multiples of $500,000 in excess thereof) or the remaining amount available under the Revolving Committed Amount and (iii) no more than five (5) Eurodollar Loans shall be outstanding hereunder at any one time. 10 (f) Notes. The Revolving Loans made by each Lender shall be evidenced by a duly executed promissory note of the Borrower to each applicable Lender in the face amount of its Revolving Loan Commitment Percentage of the Revolving Committed Amount in substantially the form of Exhibit 2.1(f). SECTION 3 GENERAL PROVISIONS APPLICABLE TO LOANS 3.1 Interest. (a) Interest Rate. All Base Rate Loans shall accrue interest at the Adjusted Base Rate and all Eurodollar Loans shall accrue interest at the Adjusted Eurodollar Rate. (b) Default Rate of Interest. Upon the occurrence, and during the continuance, of an Event of Default, the principal of and, to the extent permitted by law, interest on the Loans and any other amounts owing hereunder or under the other Credit Documents (including without limitation fees and expenses) shall bear interest, payable on demand, at a per annum rate equal to 4% plus the rate which would otherwise be applicable (or if no rate is applicable, then the rate for Revolving Loans that are Base Rate Loans plus four percent (4%) per annum). (c) Late Charges. In the event any payment of interest or principal is delinquent more than fifteen (15) days, the Borrower will pay to the Agent for the benefit of the Lenders a late charge of four percent (4%) of the amount of the overdue payment. This provision for late charges shall not be deemed to extend the time for payment or be a "grace period" or "cure period" that gives the Borrower a right to cure a Default or Event of Default. Imposition of such late charges is not contingent upon giving of any notice or the lapse of any cure period provided for in the Credit Agreement. (d) Interest Payments. Interest on Loans shall be due and payable in arrears on each Interest Payment Date. If an Interest Payment Date falls on a date which is not a Business Day, such Interest Payment Date shall be deemed to be the next succeeding Business Day, except that in the case of Eurodollar Loans where the next succeeding Business Day falls in the next succeeding calendar month, then on the next preceding Business Day. 3.2 Place and Manner of Payments. All payments of principal, interest, fees, expenses and other amounts to be made by a Credit Party under this Agreement shall be received not later than 12:00 noon on the date when due, in Dollars and in immediately available funds, by the Agent at its offices in Charlotte, North Carolina. Payments received after such time shall be deemed to have been received on the next Business Day. The Borrower shall, at the time it makes any payment under this Agreement, specify to the Agent, the Loans, fees or other amounts payable by the Borrower hereunder to which such payment is to be 11 applied (and in the event that it fails to specify, or if such application would be inconsistent with the terms hereof, the Agent shall, subject to Section 3.7, distribute such payment to the Lenders in such manner as the Agent may deem appropriate). The Agent will distribute such payments to the Lenders on the date received if any such payment is received prior to 12:00 p.m.; otherwise the Agent will distribute such payment to the Lenders on the next succeeding Business Day. Whenever any payment hereunder shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day (subject to accrual of interest and fees for the period of such extension), except that in the case of Eurodollar Loans, if the extension would cause the payment to be made in the next following calendar month, then such payment shall instead be made on the next preceding Business Day. If the Agent fails to timely forward payment to a Lender it shall pay such Lender interest at the Federal Funds Rate until such payment is made. 3.3 Prepayments. (a) Voluntary Prepayments. The Borrower shall have the right to prepay Loans in whole or in part from time to time without premium or penalty; provided, however, that (i) Eurodollar Loans may only be prepaid on two Business Days' prior written notice to the Agent and any prepayment of Eurodollar Loans will be subject to Section 3.14 and (ii) each such partial prepayment of Loans shall be in the minimum principal amount of $100,000 and integral multiples of $100,000 in excess thereof. (b) Mandatory Prepayments. If at any time the sum of the aggregate amount of Revolving Loans outstanding exceeds the Revolving Committed Amount, the Borrower shall immediately make a principal payment to the Agent in the manner and in an amount necessary to be in compliance with Section 2.1. (c) Application of Prepayments. All amounts required to be paid pursuant to Section 3.3(b) shall be applied first to Base Rate Loans. If the amount required to be paid under Section 3.3(b) exceeds the aggregate amount of Base Rate Loans outstanding, such excess shall be applied second to Eurodollar Loans. All prepayments hereunder shall be subject to Section 3.14. 3.4 Unused Fees. In consideration of the Revolving Committed Amount being made available by the Lenders hereunder, the Borrower agrees to pay to the Agent, for the pro rata benefit of each applicable Lender (based on each Lender's Revolving Loan Percentage of the Revolving Committed Amount), a fee equal to the Unused Fee Percentage on the Unused Commitment (the "Unused Fees"). The accrued Unused Fees shall commence to accrue on the Closing Date, shall be calculated as of the last day of December 1997 and March 1998 and the Revolving Loan Maturity Date and shall be due and payable in arrears on January 15 and April 15, 1998 (as well as on the Revolving Loan Maturity Date and on any date that the Revolving Committed Amount is reduced) for the immediately preceding calendar quarter (or portion thereof), beginning with the first of such dates to occur after the Closing Date. 12 3.5 Payment in full at Maturity. On the Revolving Loan Maturity Date, the entire outstanding principal balance of all Revolving Loans, together with accrued but unpaid interest and all other sums owing with respect thereto, shall be due and payable in full, unless accelerated sooner pursuant to Section 9. 3.6 Computations of Interest and Fees. (a) All computations of interest and fees hereunder shall be made on the basis of the actual number of days elapsed over a year of 360 days. Interest shall accrue from and include the date of borrowing (or continuation or conversion) but exclude the date of payment. (b) It is the intent of the Lenders and the Credit Parties to conform to and contract in strict compliance with applicable usury law from time to time in effect. All agreements between the Lenders and the Borrower are hereby limited by the provisions of this paragraph which shall override and control all such agreements, whether now existing or hereafter arising and whether written or oral. In no way, nor in any event or contingency (including but not limited to prepayment or acceleration of the maturity of any obligation), shall the interest taken, reserved, contracted for, charged, or received under this Credit Agreement, under the Notes or otherwise, exceed the maximum nonusurious amount permissible under applicable law. If, from any possible construction of any of the Credit Documents or any other document, interest would otherwise be payable in excess of the maximum nonusurious amount, any such construction shall be subject to the provisions of this paragraph and such documents shall be automatically reduced to the maximum nonusurious amount permitted under applicable law, without the necessity of execution of any amendment or new document. If any Lender shall ever receive anything of value which is characterized as interest on the Loans under applicable law and which would, apart from this provision, be in excess of the maximum lawful amount, an amount equal to the amount which would have been excessive interest shall, without penalty, be applied to the reduction of the principal amount owing on the Loans and not to the payment of interest, or refunded to the Borrower or the other payor thereof if and to the extent such amount which would have been excessive exceeds such unpaid principal amount of the Loans. The right to demand payment of the Loans or any other indebtedness evidenced by any of the Credit Documents does not include the right to receive any interest which has not otherwise accrued on the date of such demand, and the Lenders do not intend to charge or receive any unearned interest in the event of such demand. All interest paid or agreed to be paid to the Lenders with respect to the Loans shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full stated term (including any renewal or extension) of the Loans so that the amount of interest on account of such indebtedness does not exceed the maximum nonusurious amount permitted by applicable law. 13 3.7 Pro Rata Treatment. Except to the extent otherwise provided herein each Revolving Loan borrowing, each payment or prepayment of principal and/or interest of any Loan, each payment of fees (other than the Administrative Fees retained by the Agent for its own account), each reduction of the Revolving Committed Amount, and each conversion or continuation of any Loan, shall (except as otherwise provided in Section 3.11) be allocated pro rata among the relevant Lenders in accordance with the respective Revolving Loan Commitment Percentages of such Lenders (or, if the Commitments of such Lenders have expired or been terminated, in accordance with the respective principal amounts of the outstanding Loans of such Lenders); provided that, if any Lender shall have failed to pay its applicable pro rata share of any Revolving Loan, then any amount to which such Lender would otherwise be entitled pursuant to this subsection (a) shall instead be payable to the Agent until the share of such Loan not funded by such Lender has been repaid; provided further, that in the event any amount paid to any Lender pursuant to this subsection (a) is rescinded or must otherwise be returned by the Agent, each Lender shall, upon the request of the Agent, repay to the Agent the amount so paid to such Lender, with interest for the period commencing on the date such payment is returned by the Agent until the date the Agent receives such repayment at a rate per annum equal to, during the period to but excluding the date two Business Days after such request, the Federal Funds Rate, and thereafter, the Base Rate plus two percent (2%) per annum; and 3.8 Sharing of Payments. The Lenders agree among themselves that, except to the extent otherwise provided herein, in the event that any Lender shall obtain payment in respect of any Loan or any other obligation owing to such Lender under this Credit Agreement through the exercise of a right of setoff, banker's lien or counterclaim, or pursuant to a secured claim under Section 506 of the Bankruptcy Code or other security or interest arising from, or in lieu of, such secured claim, received by such Lender under any applicable bankruptcy, insolvency or other similar law or otherwise, or by any other means, in excess of its pro rata share of such payment as provided for in this Credit Agreement, such Lender shall promptly pay in cash or purchase from the other Lenders a participation in such Loans and other obligations in such amounts, and make such other adjustments from time to time, as shall be equitable to the end that all Lenders share such payment in accordance with their respective ratable shares as provided for in this Credit Agreement. The Lenders further agree among themselves that if payment to a Lender obtained by such Lender through the exercise of a right of setoff, banker's lien, counterclaim or other event as aforesaid shall be rescinded or must otherwise be restored, each Lender which shall have shared the benefit of such payment shall, by payment in cash or a repurchase of a participation theretofore sold, return its share of that benefit (together with its share of any accrued interest payable with respect thereto) to each Lender whose payment shall have been rescinded or otherwise restored. The Borrower agrees that any Lender so purchasing such a participation may, to the fullest extent permitted by law, exercise all rights of payment, including setoff, banker's lien or counterclaim, with respect to such participation as fully as if such Lender were a holder of such Loan or other obligation in the amount of such participation. Except as otherwise expressly provided in this Credit Agreement, if any Lender or an Agent shall fail to remit to the Agent or any other Lender an amount payable by such Lender or such Agent to such Agent or such other Lender pursuant to this Credit Agreement on the date when such amount is due, such payments shall be made together with interest thereon for each date from 14 the date such amount is due until the date such amount is paid to such Agent or such other Lender at a rate per annum equal to the Federal Funds Rate. If under any applicable bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a setoff to which this Section 3.8 applies, such Lender shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Lenders under this Section 3.8 to share in the benefits of any recovery on such secured claim. 3.9 Capital Adequacy. If, after the date hereof, any Lender has determined that the adoption or the becoming effective of, or any change in, or any change by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof in the interpretation or administration of, any applicable law, rule or regulation regarding capital adequacy, or compliance by such Lender, or its parent corporation, with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Lender's (or parent corporation's) capital or assets as a consequence of its commitments or obligations hereunder to a level below that which such Lender, or its parent corporation, could have achieved but for such adoption, effectiveness, change or compliance (taking into consideration such Lender's (or parent corporation's) policies with respect to capital adequacy), then, upon notice from such Lender to the Borrower, the Borrower shall be obligated to pay to such Lender such additional amount or amounts as will compensate such Lender on an after-tax basis (after taking into account applicable deductions and credits in respect of the amount indemnified) for such reduction. Each determination by any such Lender of amounts owing under this Section shall, absent manifest error, be conclusive and binding on the parties hereto. This covenant shall survive the termination of this Credit Agreement and the payment of the Loans and all other amounts payable hereunder. 3.10 Inability To Determine Eurodollar Rate. If prior to the first day of any Interest Period, the Agent shall have determined in good faith (which determination shall be conclusive and binding upon the Borrower) that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Interest Period, the Agent shall give telecopy or telephonic notice thereof to the Borrower and the Lenders as soon as practicable thereafter, and will also give prompt written notice to the Borrower when such conditions no longer exist. If such notice is given (a) any Eurodollar Loans requested to be made on the first day of such Interest Period shall be made as Base Rate Loans, (b) any Loans that were to have been converted on the first day of such Interest Period to or continued as Eurodollar Loans shall be converted to or continued as Base Rate Loans and (c) any outstanding Eurodollar Loans shall be converted, on the first day of such Interest Period, to Base Rate Loans. Until such notice has been withdrawn by the Agent, no further Eurodollar Loans shall be made or continued as such, nor shall the Borrower have the right to convert Base Rate Loans to Eurodollar Loans. 15 3.11 Illegality to Make Eurodollar Loans. Notwithstanding any other provision herein, if the adoption of or any change in any Requirement of Law or in the interpretation or application thereof occurring after the Closing Date shall make it unlawful for any Lender to make or maintain Eurodollar Loans as contemplated by this Credit Agreement, (a) such Lender shall promptly give written notice of such circumstances to the Borrower and the Agent (which notice shall be withdrawn whenever such circumstances no longer exist), (b) the commitment of such Lender hereunder to make Eurodollar Loans, continue Eurodollar Loans as such and convert a Base Rate Loan to Eurodollar Loans shall forthwith be canceled and, until such time as it shall no longer be unlawful for such Lender to make or maintain Eurodollar Loans, such Lender shall then have a commitment only to make a Base Rate Loan when a Eurodollar Loan is requested and (c) such Lender's Loans then outstanding as Eurodollar Loans, if any, shall be converted automatically to Base Rate Loans on the respective last days or the then current Interest Periods with respect to such Loans or within such earlier period as required by law. If any such conversion of a Eurodollar Loan occurs on a day which is not the last day of the then current Interest Period with respect thereto, the Borrower shall pay to such Lender such amounts, if any, as may be required pursuant to Section 3.14. 3.12 Changes in Requirements of Law. If the adoption of or any change in any Requirement of Law or in the interpretation or application thereof applicable to any Lender, or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority, in each case made subsequent to the Closing Date (or, if later, the date on which such Lender becomes a Lender): (a) shall subject such Lender to any tax of any kind whatsoever with respect to any Eurodollar Loans made by it or its obligation to make Eurodollar Loans, or change the basis of taxation of payments to such Lender in respect thereof (except for Non-Excluded Taxes covered by Section 3.13 (including Non-Excluded Taxes imposed solely by reason of any failure of such Lender to comply with its obligations under Section 3.13(b)) and changes in taxes measured by or imposed upon the overall net income, or franchise tax (imposed in lieu of such net income tax), of such Lender or its applicable lending office, branch, or any affiliate thereof); (b) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of such Lender which is not otherwise included in the determination of the Eurodollar Rate hereunder; or (c) shall impose on such Lender any other condition (excluding any tax of any kind whatsoever); and the result of any of the foregoing is to increase the cost to such Lender, by an amount which such Lender deems to be material, of making, converting into, continuing or maintaining Eurodollar 16 Loans or to reduce any amount receivable hereunder in respect thereof, then, in any such case, upon notice to the Borrower from such Lender, through the Agent, in accordance herewith, the Borrower shall be obligated to promptly pay such Lender, upon its demand, any additional amounts necessary to compensate such Lender on an after-tax basis (after taking into account applicable deductions and credits in respect of the amount indemnified) for such increased cost or reduced amount receivable, provided that, in any such case, the Borrower may elect to convert the Eurodollar Loans made by such Lender hereunder to Base Rate Loans by giving the Agent at least one Business Day's notice of such election, in which case the Borrower shall promptly pay to such Lender, upon demand, without duplication, such amounts, if any, as may be required pursuant to Section 3.14. If any Lender becomes entitled to claim any additional amounts pursuant to this Section 3.12, it shall provide prompt notice thereof to the Borrower, through the Agent, certifying (x) that one of the events described in this Section 3.12 has occurred and describing in reasonable detail the nature of such event, (y) as to the increased cost or reduced amount resulting from such event and (z) as to the additional amount demanded by such Lender and a reasonably detailed explanation of the calculation thereof. Such a certificate as to any additional amounts payable pursuant to this Section 3.12 submitted by such Lender, through the Agent, to the Borrower shall be conclusive and binding on the parties hereto in the absence of manifest error. This covenant shall survive the termination of this Credit Agreement and the payment of the Loans and all other amounts payable hereunder. 3.13 Taxes. Except as provided below in this Section 3.13, all payments made by the Borrower under this Credit Agreement and any Notes shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any court, or governmental body, agency or other official, excluding taxes measured by or imposed upon the overall net income of any Lender or its applicable lending office, or any branch or affiliate thereof, and all franchise taxes, branch taxes, taxes on doing business or taxes on the overall capital or net worth of any Lender or its applicable lending office, or any branch or affiliate thereof, in each case imposed in lieu of net income taxes: (i) by the jurisdiction under the laws of which such Lender, applicable lending office, branch or affiliate is organized or is located, or in which its principal executive office is located, or any nation within which such jurisdiction is located or any political subdivision thereof; or (ii) by reason of any connection between the jurisdiction imposing such tax and such Lender, applicable lending office, branch or affiliate other than a connection arising solely from such Lender having executed, delivered or performed its obligations, or received payment under or enforced, this Credit Agreement or any Notes. If any such non-excluded taxes, levies, imposts, duties, charges, fees, deductions or withholdings ("Non-Excluded Taxes") are required to be withheld from any amounts payable to an Agent or any Lender hereunder or under any Notes, (A) the amounts so payable to an Agent or such Lender shall be increased to the extent necessary to yield to an Agent or such Lender (after payment of all Non-Excluded Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Credit Agreement and any Notes, provided, however, that the Borrower shall be entitled to deduct and withhold any Non-Excluded Taxes and shall not be required to increase any such amounts payable to any Lender that is not organized under the laws of the United States of America or a state thereof if such Lender fails to comply with the requirements of paragraph (b) of this Section 3.13 whenever any Non-Excluded Taxes are payable by the 17 Borrower, and (B) as promptly as possible after requested the Borrower shall send to such Agent for its own account or for the account of such Lender, as the case may be, a certified copy of an original official receipt received by the Borrower showing payment thereof. If the Borrower fails to pay any Non-Excluded Taxes when due to the appropriate taxing authority or fails to remit to the Agent the required receipts or other required documentary evidence, the Borrower shall indemnify the Agent and any Lender for any incremental taxes, interest or penalties that may become payable by the Agent or any Lender as a result of any such failure. The agreements in this subsection shall survive the termination of this Credit Agreement and the payment of the Loans and all other amounts payable hereunder. 3.14 Indemnity as to Eurodollar Loans. The Borrower promises to indemnify each Lender and to hold each Lender harmless from any loss or expense which such Lender may sustain or incur as a consequence of (a) default by the Borrower in making a borrowing of, conversion into or continuation of Eurodollar Loans after the Borrower has given a notice requesting the same in accordance with the provisions of this Credit Agreement, (b) default by the Borrower in making any prepayment of a Eurodollar Loan after the Borrower has given a notice thereof in accordance with the provisions of this Credit Agreement and (c) the making of a prepayment of Eurodollar Loans on a day which is not the last day of an Interest Period with respect thereto. Such indemnification may include an amount equal to (i) the amount of interest which would have accrued on the amount so prepaid, or not so borrowed, converted or continued, for the period from the date of such prepayment or of such failure to borrow, convert or continue to the last day of the applicable Interest Period (or, in the case of a failure to borrow, convert or continue, the Interest Period that would have commenced on the date of such failure) in each case at the applicable rate of interest for such Eurodollar Loans provided for herein (excluding, however, the Applicable Percentage included therein, if any) minus (ii) the amount of interest (as reasonably determined by such Lender) which would have accrued to such Lender on such amount by placing such amount on deposit for a comparable period with leading banks in the interbank Eurodollar market. The agreements in this Section shall survive the termination of this Credit Agreement and the payment of the Loans and all other amounts payable hereunder. SECTION 4 GUARANTY 4.1 Guaranty of Payment. Subject to Section 4.7 below, each of the Guarantors hereby, jointly and severally, unconditionally guarantees to each Lender and the Agent the prompt payment of the Credit Party Obligations in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration or otherwise). The Guarantors additionally, jointly and severally, unconditionally guarantee to each Lender, and the Agent the timely performance of all other obligations under the Credit Documents. This Guaranty is a guaranty of payment and not of collection and is a continuing guaranty and shall apply to all Credit Party Obligations whenever arising. 18 4.2 Obligations Unconditional. The obligations of the Guarantors hereunder are absolute and unconditional, irrespective of the value, genuineness, validity, regularity or enforceability of any of the Credit Documents, or any other agreement or instrument referred to therein, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor. Each Guarantor agrees that this Guaranty may be enforced by the Lenders without the necessity at any time of resorting to or exhausting any other security or collateral and without the necessity at any time of having recourse to the Notes or any other of the Credit Documents or any collateral, if any, hereafter securing the Credit Party Obligations or otherwise and each Guarantor hereby waives the right (including, without limitation, any rights under Section 26-7 et seq. of North Carolina General Statutes) to require the Lenders to proceed against the Borrower or any other Person (including a co-guarantor) or to require the Lenders to pursue any other remedy or enforce any other right. Each Guarantor further agrees that it shall have no right of subrogation, indemnity, reimbursement or contribution against the Borrower or any other Guarantor of the Credit Party Obligations for amounts paid under this Guaranty until such time as the Lenders have been paid in full, all Commitments under the Credit Agreement have been terminated and no Person or Governmental Authority shall have any right to request any return or reimbursement of funds from the Lenders in connection with monies received under the Credit Documents. Each Guarantor further agrees that nothing contained herein shall prevent the Lenders from suing on the Notes or any of the other Credit Documents or foreclosing its security interest in or Lien on any collateral, if any, securing the Credit Party Obligations or from exercising any other rights available to it under this Credit Agreement, the Notes, any other of the Credit Documents, or any other instrument of security, if any, and the exercise of any of the aforesaid rights and the completion of any foreclosure proceedings shall not constitute a discharge of any of any Guarantor's obligations hereunder; it being the purpose and intent of each Guarantor that its obligations hereunder shall be absolute, independent and unconditional under any and all circumstances. Neither any Guarantor's obligations under this Guaranty nor any remedy for the enforcement thereof shall be impaired, modified, changed or released in any manner whatsoever by an impairment, modification, change, release or limitation of the liability of the Borrower or by reason of the bankruptcy or insolvency of the Borrower. Each Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Credit Party Obligations and notice of or proof of reliance of by any Agent or any Lender upon this Guarantee or acceptance of this Guarantee. The Credit Party Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon this Guarantee. All dealings between the Borrower and any of the Guarantors, on the one hand, and the Agent and the Lenders, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon this Guarantee. 4.3 Modifications. Each Guarantor agrees that (a) all or any part of the security now or hereafter held for the Credit Party Obligations, if any, may be exchanged, compromised or surrendered from time to time; (b) the Lenders shall not have any obligation to protect, perfect, secure or insure any such security interests, liens or encumbrances now or hereafter held, if any, for the Credit Party Obligations or the properties subject thereto; (c) the time or place of payment of the Credit Party Obligations may be 19 changed or extended, in whole or in part, to a time certain or otherwise, and may be renewed or accelerated, in whole or in part; (d) the Borrower and any other party liable for payment under the Credit Documents may be granted indulgences generally; (e) any of the provisions of the Notes or any of the other Credit Documents may be modified, amended or waived; (f) any party (including any co-guarantor) liable for the payment thereof may be granted indulgences or be released; and (g) any deposit balance for the credit of the Borrower or any other party liable for the payment of the Credit Party Obligations or liable upon any security therefor may be released, in whole or in part, at, before or after the stated, extended or accelerated maturity of the Credit Party Obligations, all without notice to or further assent by such Guarantor, which shall remain bound thereon, notwithstanding any such exchange, compromise, surrender, extension, renewal, acceleration, modification, indulgence or release. 4.4 Waiver of Rights. Each Guarantor expressly waives to the fullest extent permitted by applicable law: (a) notice of acceptance of this Guaranty by the Lenders and of all extensions of credit to the Borrower by the Lenders; (b) presentment and demand for payment or performance of any of the Credit Party Obligations; (c) protest and notice of dishonor or of default (except as specifically required in the Credit Agreement) with respect to the Credit Party Obligations or with respect to any security therefor; (d) notice of the Lenders obtaining, amending, substituting for, releasing, waiving or modifying any security interest, lien or encumbrance, if any, hereafter securing the Credit Party Obligations, or the Lenders' subordinating, compromising, discharging or releasing such security interests, liens or encumbrances, if any; (e) all other notices to which such Guarantor might otherwise be entitled; and (f) demand for payment under this Guaranty. 4.5 Reinstatement. The obligations of the Guarantors under this Section 4 shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of any Person in respect of the Credit Party Obligations is rescinded or must be otherwise restored by any holder of any of the Credit Party Obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise, and each Guarantor agrees that it will indemnify the Agent and each Lender on demand for all reasonable costs and expenses (including, without limitation, reasonable fees of counsel) incurred by the Agent or such Lender in connection with such rescission or restoration, including any such costs and expenses incurred in defending against any claim alleging that such payment constituted a preference, fraudulent transfer or similar payment under any bankruptcy, insolvency or similar law. 4.6 Remedies. The Guarantors agree that, as between the Guarantors, on the one hand, and the Agent and the Lenders, on the other hand, the Credit Party Obligations may be declared to be forthwith due and payable as provided in Section 9 (and shall be deemed to have become automatically due and payable in the circumstances provided in Section 9) notwithstanding any stay, injunction or other prohibition preventing such declaration (or preventing such Credit Party Obligations from becoming automatically due and payable) as against any other Person and that, in the event of such 20 declaration (or such Credit Party Obligations being deemed to have become automatically due and payable), such Credit Party Obligations (whether or not due and payable by any other Person) shall forthwith become due and payable by the Guarantors. 4.7 Limitation of Guaranty. Notwithstanding any provision to the contrary contained herein or in any of the other Credit Documents, to the extent the obligations of any Guarantor shall be adjudicated to be invalid or unenforceable for any reason (including, without limitation, because of any applicable state or federal law relating to fraudulent conveyances or transfers) then the obligations of such Guarantor hereunder shall be limited to the maximum amount that is permissible under applicable law (whether federal or state and including, without limitation, the Bankruptcy Code). SECTION 5 CONDITIONS PRECEDENT 5.1 Closing Conditions. The obligation of the Lenders to enter into this Credit Agreement and make the initial Extension of Credit is subject to satisfaction of the following conditions: (a) Executed Credit Documents. Receipt by the Agent of duly executed copies of: (i) this Credit Agreement; (ii) the Notes; and (iii) all other Credit Documents, each in form and substance reasonably acceptable to the Agent in its sole discretion. (b) Partnership Documents. Receipt by the Agent of the following: (i) Certificates of Authorization. Certificate of authorization of the general partner of the Borrower (and each other Credit Party that is a partnership) as of the Effective Date, approving and adopting the Credit Documents to be executed by the Borrower (or such other Credit Party) and authorizing the execution and delivery thereof. (ii) Partnership Agreement. Certified copies of the partnership agreement of the Borrower (and each other Credit Party that is a partnership), together with all amendments thereto. (iii) Certificates of Good Standing or Existence. Certificate of good standing or existence for the Borrower (and each other Credit Party that is a partnership) issued as of a recent date by its state of organization and each other state where the failure to qualify or be in good standing could have a Material Adverse Effect. (c) Corporate Documents. Receipt by the Agent of the following: 21 (i) Charter Documents. Copies of the articles or certificates of incorporation or other charter documents of Highwoods Properties (and each other Credit Party that is a corporation) certified to be true and complete as of a recent date by the appropriate Governmental Authority of the state or other jurisdiction of its incorporation and certified by a secretary or assistant secretary of Highwoods Properties (and each other Credit Party that is a corporation) to be true and correct as of the Effective Date. (ii) Bylaws. A copy of the bylaws of Highwoods Properties (and each other Credit Party that is a corporation) certified by a secretary or assistant secretary of Highwoods Properties to be true and correct as of the Effective Date. (iii) Resolutions. Copies of resolutions of the Board of Directors of Highwoods Properties (and each other Credit Party that is a corporation) approving and adopting the Credit Documents to which it is a party, the transactions contemplated therein and authorizing execution and delivery thereof, certified by a secretary or assistant secretary of Highwoods Properties (and each other Credit Party that is a corporation) to be true and correct and in force and effect as of the Effective Date. (iv) Good Standing. Copies of (A) certificates of good standing, existence or its equivalent with respect to Highwoods Properties (and each other Credit Party that is a corporation) certified as of a recent date by the appropriate Governmental Authorities of the state or other jurisdiction of incorporation and each other jurisdiction in which the failure to so qualify and be in good standing could have a Material Adverse Effect and (B) to the extent available, a certificate indicating payment of all corporate franchise taxes certified as of a recent date by the appropriate governmental taxing authorities. (v) Incumbency. An incumbency certificate of Highwoods Properties (and each other Credit Party that is a corporation) certified by a secretary or assistant secretary to be true and correct as of the Effective Date. (d) Financial Statements. Receipt by the Agent and the Lenders of the audited consolidated financial statements of the Credit Parties, dated as of December 31, 1996, and the unaudited consolidated financial statements of the Credit Parties dated as of September 30, 1997. (e) Opinion of Counsel. Receipt by the Agent of an opinion, or opinions (which shall cover, among other things, authority, legality, validity, binding effect, and enforceability), reasonably satisfactory to the Agent, addressed to the Agent on behalf of the Lenders and dated as of the Effective Date, from legal counsel to the Credit Parties. (f) Evidence of Insurance. Receipt by the Agent of copies of insurance policies or certificates of insurance of the Credit Parties evidencing liability and casualty insurance 22 meeting the requirements set forth in the Credit Documents, including, but not limited to, naming the Agent as secondary loss payee on behalf of the Lenders subject only to a first priority loss payee clause relating to the Related Credit Facilities. (g) Material Adverse Effect. There shall not have occurred a change since December 31, 1996 that has had or could reasonably be expected to have a Material Adverse Effect. (h) Litigation. There shall not exist any pending or threatened action, suit, investigation or proceeding against a Credit Party that would have or would reasonably be expected to have a Material Adverse Effect. (i) Officer's Certificates. The Agent shall have received a certificate or certificates executed by the general partner of the Borrower and the chief financial officer of the Highwoods Properties as of the Effective Date stating that (i) each of the Borrower and Highwoods Properties is in compliance with all existing material financial obligations, (ii) no action, suit, investigation or proceeding is pending or threatened in any court or before any arbitrator or governmental instrumentality that purports to effect any Credit Party or any transaction contemplated by the Credit Documents, if such action, suit, investigation or proceeding could have or could be reasonably expected to have a Material Adverse Effect, (iii) the financial statements and information delivered pursuant to Section 5.1(d) are true and accurate in all material respects and (iv) except for the matters noted in such certificates, immediately after giving effect to this Credit Agreement, the other Credit Documents and all the transactions contemplated therein to occur on such date, (A) each Credit Party is Solvent, (B) no Default or Event of Default exists, (C) all representations and warranties contained herein and in the other Credit Documents are true and correct in all material respects, and (D) the Credit Parties are in compliance with all requirements of the Related Credit Facilities. (j) Fees and Expenses. Payment by the Credit Parties of all fees and expenses owed by them to the Lenders and the Agent, including, without limitation, payment to the Agent of the fees set forth in the Fee Letter. (k) Other. Receipt by the Lenders of such other documents, instruments, agreements or information as reasonably and timely requested by any Lender, including, but not limited to, information regarding litigation, tax, accounting, labor, insurance, pension liabilities (actual or contingent), real estate leases, material contracts, debt agreements, property ownership and contingent liabilities of the Credit Parties. 5.2 Conditions to All Loans. In addition to the conditions precedent stated elsewhere herein, the Lenders shall not be obligated to make Loans (or continue or convert Loans) unless: (a) Notice. The Borrower shall have delivered a Notice of Borrowing, duly executed and completed, by the time specified in Section 2.1. 23 (b) Representations and Warranties. The representations and warranties made by the Credit Parties in any Credit Document are true and correct in all material respects at and as if made as of such date except to the extent they expressly relate to an earlier date; (c) No Default. No Default or Event of Default shall exist or be continuing either prior to or after giving effect thereto; (d) No Material Adverse Effect. There shall not have occurred any Material Adverse Effect; (e) Availability. Immediately after giving effect to the making of a Revolving Loan (and the application of the proceeds thereof), the sum of the Revolving Loans outstanding shall not exceed the Revolving Commitment Amount; and (f) Related Facility Conditions. All other conditions precedent to the obligation of the Related Facility Lenders to make a loan under the Related Credit Facility shall have been and remain satisfied; provided that the matters referred to in the certificate required by Section 5.1(i) hereto shall not excuse a Lender from its obligations hereunder. The delivery of each Notice of Borrowing and each Notice of Continuation/Conversion shall constitute a representation and warranty by the Borrower of the correctness of the matters specified in this Section 5.2. SECTION 6 REPRESENTATIONS AND WARRANTIES 6.1 Incorporation. The representations and warranties contained in the Related Credit Agreement (the "Incorporated Representations") as in effect as of the date thereof are incorporated herein by reference as such Incorporated Representations relate to the Closing Date, this Agreement and the credit facilities provided hereunder with the same effect as if stated at length. The Credit Parties affirm and represent and warrant to the Agent and the Lenders that the Incorporated Representations are true and correct in all material respects as of the date hereof, provided that (i) such Incorporated Representations as incorporated herein shall reflect that they are delivered to and run in favor of the Agent and the Lenders hereunder, and references therein to the "Credit Agreement" and "Credit Documents" shall be deemed for purposes hereof to include this Credit Agreement and the Credit Documents relating hereto, (ii) any amendments or modifications to such Incorporated Representations subsequent to the date hereof must be consented to in writing by the Lenders hereunder, and (iii) in the event that the Related Credit Agreement shall be refinanced or replaced by another credit agreement or shall otherwise expire or terminate, then the Incorporated Representations shall be as in effect immediately prior to such refinancing, replacement, expiration or termination. All capitalized terms used in such Incorporated Representations shall have the meaning ascribed thereto in the Related Credit 24 Agreement, but as such meaning would be determined relative to this Credit Agreement and the Credit Documents. 6.2 Material Adverse Effect. The financial statements delivered by the Credit Parties pursuant to Section 5.1(d) accurately reflect the financial condition of the Credit Parties as of the respective dates of such financial statements and there has been no material change in the financial condition of the Credit Parties since September 30, 1997 and no other change in the business or assets of the Credit Parties which has resulted or could result in a Material Adverse Effect. SECTION 7 AFFIRMATIVE COVENANTS 7.1 Incorporation. The affirmative covenants contained in the Related Credit Agreement other than those set forth in all of Section 7.10 (other than Section 7.10(c) which is incorporated hereby), and Section 7.12 thereof (the "Incorporated Affirmative Covenants") as in effect as of the date thereof are incorporated herein by reference as such Incorporated Affirmative Covenants relate to the Closing Date, this Agreement and the credit facilities provided hereunder with the same effect as if stated at length. The Credit Parties affirm and represent and warrant to the Agent and the Lenders that the Incorporated Affirmative Covenants shall be as binding on the Credit Parties as if fully set forth herein, provided that (i) such Incorporated Affirmative Covenants as incorporated herein shall reflect that they are delivered to and run in favor of the Agent and the Lenders hereunder, and references therein to the "Credit Agreement" and "Credit Documents" shall be deemed for purposes hereof to include this Credit Agreement and the Credit Documents relating hereto, (ii) any amendments or modifications to such Incorporated Affirmative Covenants subsequent to the date hereof must be consented to in writing by the Lenders hereunder, and (iii) in the event that the Related Credit Agreement shall be refinanced or replaced by another credit agreement or shall otherwise expire or terminate, then the Incorporated Representations shall be as in effect immediately prior to such refinancing, replacement, expiration or termination. Notwithstanding the above, the prior waivers and consents affecting such Incorporated Affirmative Covenants granted pursuant to that Letter Agreement constituting a portion of the Related Credit Agreement shall also apply to such Incorporated Affirmative Covenants under this Credit Agreement. All capitalized terms used in such Incorporated Affirmative Covenants shall have the meaning ascribed thereto in the Related Credit Agreement, but as such meaning would be determined relative to this Credit Agreement and the Credit Documents. 25 SECTION 8 NEGATIVE COVENANTS 8.1 Incorporation. The negative covenants contained in the Related Credit Agreement (the "Incorporated Negative Covenants") as in effect as of the date thereof are incorporated herein by reference as such Incorporated Negative Covenants relate to the Closing Date, this Agreement and the credit facilities provided hereunder with the same effect as if stated at length. The Credit Parties affirm and represent and warrant to the Agent and the Lenders that the Incorporated Negative Covenants shall be as binding on the Credit Parties as if fully set forth herein, provided that (i) such Incorporated Negative Covenants as incorporated herein shall reflect that they are delivered to and run in favor of the Agent and the Lenders hereunder, and references therein to the "Credit Agreement" and "Credit Documents" shall be deemed for purposes hereof to include this Credit Agreement and the Credit Documents relating hereto, (ii) any amendments or modifications to such Incorporated Negative Covenants subsequent to the date hereof must be consented to in writing by the Lenders hereunder, and (iii) in the event that the Related Credit Agreement shall be refinanced or replaced by another credit agreement or shall otherwise expire or terminate, then the Incorporated Negative Covenants shall be as in effect immediately prior to such refinancing, replacement, expiration or termination. Notwithstanding the above, the prior waivers and consents affecting such Incorporated Negative Covenants granted pursuant to that Letter Agreement constituting a portion of the Related Credit Agreement shall also apply to such Incorporated Negative Covenants under this Credit Agreement. All capitalized terms used in such Incorporated Negative Covenants shall have the meaning ascribed thereto in the Related Credit Agreement, but as such meaning would be determined relative to this Credit Agreement and the Credit Documents. SECTION 9 EVENTS OF DEFAULT 9.1 Incorporation. The events of default contained in the Related Credit Agreement (the "Incorporated Events of Default") as in effect as of the date thereof are incorporated herein by reference as such Incorporated Events of Default relate to the Closing Date, this Agreement and the credit facilities provided hereunder with the same effect as if stated at length. The Credit Parties acknowledge and agree that the Incorporated Events of Default as incorporated herein shall reflect that they are for the benefit of the Agent and the Lenders hereunder, and references therein to the "Credit Agreement" and "Credit Documents" shall be deemed for purposes hereof to include this Credit Agreement and the Credit Documents relating hereto, (ii) any amendments or modifications to such Incorporated Events of Default subsequent to the date hereof must be consented to in writing by the Lenders hereunder, and (iii) in the event that the Related Credit Agreement shall be refinanced or replaced by another credit agreement or shall otherwise expire or terminate, then the Incorporated Events of Default shall be as in effect immediately prior to such refinancing, replacement, expiration or termination. All capitalized terms used in such Incorporated Events of Default shall have the meaning ascribed thereto in the Related Credit 26 Agreement, but as such meaning would be determined relative to this Credit Agreement and the Credit Documents. 9.2 Additional Events of Default. Except as set forth in the proviso of Section 5.2, an Event of Default shall exist upon the occurrence of any of the following specified events (each an "Event of Default"): (a) Payment. Any Credit Party shall default in the payment within five (5) days of when due of (i) any principal of any of the Loans or (ii) any interest on the Loans or (iii) any fees or other amounts owing hereunder, under any of the other Credit Documents or in connection herewith. (b) Breach of Representations or Covenants. (i) Any representation, warranty or statement made or deemed to be made by any Credit Party herein, in any of the other Credit Documents, or in any statement or certificate delivered or required to be delivered pursuant hereto or thereto shall prove untrue in any material respect on the date as of which it was made or deemed to have been made or (ii) any Credit Party shall default in the due performance or observance of any covenant or the terms and conditions set forth in the Credit Documents, and such default shall continue unremedied for the time period, if any, provided for in the Incorporated Events of Default. (c) Related Credit Agreement. An Event of Default (as defined therein) shall occur under the Related Credit Agreement. 9.3 Acceleration; Remedies. Upon the occurrence of an Event of Default, and at any time thereafter (including with respect to an Event of Default under section 9.2(c) any time after such Event of Default (as defined therein) may be waived under the Related Credit Agreement) unless and until such Event of Default has been waived in writing by the Required Lenders hereunder (or the Lenders as may be required hereunder), the Agent shall, upon the request and direction of the Required Lenders, (or if in the reasonable judgment of the Agent there is not sufficient time to obtain the consent of the Required Lenders then on its own) by written notice to the Borrower, take any of the following actions without prejudice to the rights of the Agent or any Lender to enforce its claims against the Credit Parties, except as otherwise specifically provided for herein: (a) Termination of Commitments. Declare the Commitments terminated whereupon the Commitments shall be immediately terminated. (b) Acceleration of Loans. Declare the unpaid principal of and any accrued interest in respect of all Loans and any and all other indebtedness or obligations of any and every kind owing by a Credit Party to any of the Lenders hereunder to be due whereupon the same shall be immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Credit Parties. 27 (c) Enforcement of Rights. Enforce any and all rights and interests created and existing under the Credit Documents, including, without limitation, all rights and remedies against the Guarantors and all rights of set-off. Notwithstanding the foregoing, if an Event of Default specified in Section 9.1 shall occur as a result of the incorporation of Section 9.1(f) of the Related Credit Agreement, then the Commitments shall automatically terminate and all Loans, all accrued interest in respect thereof, all accrued and unpaid fees and other indebtedness or obligations owing to the Lenders hereunder shall immediately become due and payable without the giving of any notice or other action by the Agent or the Lenders, which notice or other action is expressly waived by the Credit Parties. Notwithstanding the fact that enforcement powers reside primarily with the Agent, each Lender has, to the extent permitted by law, a separate right of payment and shall be considered a separate "creditor" holding a separate "claim" within the meaning of Section 101(5) of the Bankruptcy Code or any other insolvency statute. 9.4 Allocation of Payments After Event of Default. Notwithstanding any other provisions of this Credit Agreement, after the occurrence and during the continuance of an Event of Default, all amounts collected or received by the Agent or any Lender on account of amounts outstanding under any of the Credit Documents shall be paid over or delivered as follows: FIRST, to the payment of all reasonable out-of-pocket costs and expenses (including without limitation reasonable attorneys' fees) of the Agent in connection with enforcing the rights of the Lenders under the Credit Documents; SECOND, to payment of any fees owed to the Agent; THIRD, to the payment of all reasonable out-of-pocket costs and expenses, (including, without limitation, reasonable attorneys' fees) of each of the Lenders in connection with enforcing its rights under the Credit Documents; FOURTH, to the payment of all accrued fees and interest payable to the Lenders hereunder; FIFTH, to the payment of the outstanding principal amount of the Loans; SIXTH, to all other obligations which shall have become due and payable under the Credit Documents and not repaid pursuant to clauses "FIRST" through "FIFTH" above; and SEVENTH, to the payment of the surplus, if any, to whoever may be lawfully entitled to receive such surplus. In carrying out the foregoing, (a) amounts received shall be applied in the numerical order provided until exhausted prior to application to the next succeeding category; and (b) each of the Lenders 28 shall receive an amount equal to its pro rata share (based on the proportion that the then outstanding Loans, held by such Lender bears to the aggregate then outstanding Loans) of amounts available to be applied pursuant to clauses "THIRD", "FOURTH," "FIFTH," and "SIXTH" above. SECTION 10 AGENCY PROVISIONS 10.1 Appointment. Each Lender hereby designates and appoints NationsBank, N.A. as Agent of such Lender to act as specified herein and the other Credit Documents, and each such Lender hereby authorizes the Agent, as the agent for such Lender, to take such action on its behalf under the provisions of this Credit Agreement and the other Credit Documents and to exercise such powers and perform such duties as are expressly delegated by the terms hereof and of the other Credit Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere herein and in the other Credit Documents, the Agent shall not have any duties or responsibilities, except those expressly set forth herein and therein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Credit Agreement or any of the other Credit Documents, or shall otherwise exist against the Agent. The provisions of this Section are solely for the benefit of the Agent and the Lenders and none of the Credit Parties shall have any rights as a third party beneficiary of the provisions hereof. In performing its functions and duties under this Credit Agreement and the other Credit Documents, the Agent shall act solely as an agent of the Lenders and does not assume and shall not be deemed to have assumed any obligation or relationship of agency or trust with or for any Credit Party. 10.2 Delegation of Duties. The Agent may execute any of its duties hereunder or under the other Credit Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. 10.3 Exculpatory Provisions. Neither the Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates shall be (a) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection herewith or in connection with any of the other Credit Documents (except for its or such Person's own gross negligence or willful misconduct) or (b) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by any of the Credit Parties contained herein or in any of the other Credit Documents or in any certificate, report, document, financial statement or other written or oral statement referred to or provided for in, or received by an Agent under or in connection herewith or in connection with the other Credit Documents, or enforceability or sufficiency therefor of any of the other Credit Documents, or for 29 any failure of the Borrower to perform its obligations hereunder or thereunder. The Agent shall not be responsible to any Lender for the effectiveness, genuineness, validity, enforceability, collectibility or sufficiency of this Credit Agreement, or any of the other Credit Documents or for any representations, warranties, recitals or statements made herein or therein or made by the Borrower or any Credit Party in any written or oral statement or in any financial or other statements, instruments, reports, certificates or any other documents in connection herewith or therewith furnished or made by the Agent to the Lenders or by or on behalf of the Credit Parties to the Agent or any Lender or be required to ascertain or inquire as to the performance or observance of any of the terms, conditions, provisions, covenants or agreements contained herein or therein or as to the use of the proceeds of the Loans or of the existence or possible existence of any Default or Event of Default or to inspect the properties, books or records of the Credit Parties. The Agent is a not trustee for the Lenders and owes no fiduciary duty to the Lenders. The Agent shall administer the facility evidenced by the Credit Documents similar to other credits in which the Agent holds 100% of the credit exposure. 10.4 Reliance on Communications. The Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to any of the Credit Parties, independent accountants and other experts selected by the Agent with reasonable care). The Agent may deem and treat the Lenders as the owner of its interests hereunder for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Agent in accordance with Section 11.3(b). The Agent shall be fully justified in failing or refusing to take any action under this Credit Agreement or under any of the other Credit Documents unless it shall first receive such advice or concurrence of the Required Lenders as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder or under any of the other Credit Documents in accordance with a request of the Required Lenders (or to the extent specifically provided in Section 11.6, all the Lenders) and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders (including their successors and assigns). 10.5 Notice of Default. An Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder (other than Section 9.1(a)) unless such Agent has received notice from a Lender or a Credit Party referring to the Credit Document, describing such Default or Event of Default and stating that such notice is a "notice of default." In the event that the Agent receives such a notice, the Agent shall give prompt notice thereof to the Lenders. The Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders. 30 10.6 Non-Reliance on Agent and Other Lenders. Each Lender expressly acknowledges that neither the Agent, NationsBanc Montgomery Securities, Inc. ("NMSI") nor any of their officers, directors, employees, agents, attorneys-in-fact or affiliates has made any representations or warranties to it and that no act by the Agent, NMSI or any affiliate thereof hereinafter taken, including any review of the affairs of any Credit Party, shall be deemed to constitute any representation or warranty by the Agent or NMSI to any Lender. Each Lender represents to the Agent and NMSI that it has, independently and without reliance upon the Agent or NMSI or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, assets, operations, property, financial and other conditions, prospects and creditworthiness of the Credit Parties and made its own decision to make its Loans hereunder and enter into this Credit Agreement. Each Lender also represents that it will, independently and without reliance upon the Agent, NMSI or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Credit Agreement, and to make such investigation as it deems necessary to inform itself as to the business, assets, operations, property, financial and other conditions, prospects and creditworthiness of the Credit Parties. The Agent shall promptly provide to the Lenders (a) copies of all notices of Defaults or Events of Default or other notices received in accordance with Section 11.1, (b) copies of all financial statements, certificates and other information sent to it by the Borrower pursuant to Article 7, (c) any written information it receives regarding the unsecured debt rating of Highwoods Properties and (d) such other documents or notices received by the Agent pursuant to this Agreement and requested in writing by a Lender. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Agent hereunder, the Agent and NMSI shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, assets, property, financial or other conditions, prospects or creditworthiness of the Credit Parties which may come into the possession of the Agent, NMSI or any of their officers, directors, employees, agents, attorneys-in-fact or affiliates. 10.7 Indemnification. The Lenders agree to indemnify the Agent in its capacity as such but not in its capacity as a Lender (to the extent not reimbursed by the Borrower and without limiting the obligation of the Borrower to do so), ratably according to their respective Commitments (or if the Commitments have expired or been terminated, in accordance with the respective principal amounts of outstanding Loans of the Lenders), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including without limitation at any time following payment in full of the Credit Party Obligations) be imposed on, incurred by or asserted against an Agent in its capacity as such in any way relating to or arising out of this Credit Agreement or the other Credit Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by an Agent under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements (i) resulting from the gross negligence or willful misconduct of the Agent, (ii) arising 31 solely from an internal or regulatory matter relating only to the Agent (i.e. a legal lending limit violation by the Agent) or (iii) resulting from and related solely to a dispute between the Agent and one or more Lenders in which it is reasonably determined that the Agent did not prevail. If any indemnity furnished to the Agent for any purpose shall, in the reasonable judgment of the Agent, be insufficient or become impaired, the Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished. The agreements in this Section shall survive the payment of the Credit Party Obligations and all other amounts payable hereunder and under the other Credit Documents. 10.8 Agent in Its Individual Capacity. The Agent and its affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Borrower or any other Credit Party as though the Agent were not the Agent hereunder. With respect to the Loans made and all obligations owing to it, the Agent shall have the same rights and powers under this Credit Agreement as any Lender and may exercise the same as though they were not the Agent, and the terms "Lender" and "Lenders" shall include the Agent in its individual capacity. 10.9 Successor Agent. The Agent may, at any time, resign upon 20 days written notice to the Lenders. Upon any such resignation, the Required Lenders shall have the right to appoint a successor Agent; provided that if no successor Agent shall have been appointed by the Required Lenders, and shall have accepted such appointment, within 45 days after the notice of resignation, then the retiring Agent shall select a successor Agent. In either case, whether selected by the Required Lenders or the retiring Agent, the successor Agent must be either an existing Lender hereunder or a commercial bank organized under the laws of the United States of America or of any State thereof and have total assets of at least $25 billion and a long term unsecured debt rating of at least BBB+ with S&P or its equivalent. Upon the acceptance of any appointment as the Agent hereunder by a successor, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations as the Agent, as appropriate, under this Credit Agreement and the other Credit Documents and the provisions of this Section 10.9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Agent under this Credit Agreement. SECTION 11 MISCELLANEOUS 11.1 Notices. Except as otherwise expressly provided herein, all notices and other communications shall have been duly given and shall be effective (a) when delivered by hand, (b) when transmitted via telecopy (or other facsimile device) to the number set out below, (c) the Business Day following the day on which the same has been delivered prepaid to a reputable national overnight air courier service, or (d) the third Business Day following the day on which the same is sent by certified or 32 registered mail, postage prepaid, in each case to the respective parties at the address or telecopy numbers set forth on Schedule 11.1, or at such other address as such party may specify by written notice to the other parties hereto. 11.2 Right of Set-Off. In addition to any rights now or hereafter granted under applicable law or otherwise, and not by way of limitation of any such rights, upon the occurrence of an Event of Default and the commencement of remedies described in Section 9.3, each Lender is authorized at any time and from time to time, without presentment, demand, protest or other notice of any kind (all of which rights being hereby expressly waived), to set-off and to appropriate and apply any and all deposits (general or special) and any other indebtedness at any time held or owing by such Lender (including, without limitation, branches, agencies or Affiliates of such Lender wherever located) to or for the credit or the account of any Credit Party against obligations and liabilities of such Credit Party to the Lenders hereunder, under the Notes, the other Credit Documents or otherwise, irrespective of whether the Agent or the Lenders shall have made any demand hereunder and although such obligations, liabilities or claims, or any of them, may be contingent or unmatured, and any such set-off shall be deemed to have been made immediately upon the occurrence of an Event of Default even though such charge is made or entered on the books of such Lender subsequent thereto. The Credit Parties hereby agree that any Person purchasing a participation in the Loans and Commitments hereunder pursuant to Section 11.3(c) or 3.8 may exercise all rights of set-off with respect to its participation interest as fully as if such Person were a Lender hereunder. 11.3 Benefit of Agreement. (a) Generally. This Credit Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto; provided that none of the Credit Parties may assign and transfer any of its interests without the prior written consent of the Lenders; and provided further that the rights of each Lender to transfer, assign or grant participation in its rights and/or obligations hereunder shall be limited as set forth below in subsections (b) and (c) of this Section 11.3. Notwithstanding the above (including anything set forth in subsections (b) and (c) of this Section 11.3), nothing herein shall restrict, prevent or prohibit any Lender from (A) pledging its Loans hereunder to a Federal Reserve Bank in support of borrowings made by such Lender from such Federal Reserve Bank, or (B) granting assignments or participation in such Lender's Loans and/or Commitments hereunder to its parent company and/or to any Affiliate of such Lender or to any existing Lender or Affiliate thereof. No action permitted by this Section 11.3(a) shall require a fee to be paid to the Agent. (b) Assignments. In addition to the assignments permitted in Section 11.3(a), each Lender may, with the prior written consent of the Agent which shall not be unreasonably withheld, assign all or a portion of its rights and obligations hereunder pursuant to an assignment agreement substantially in the form of Exhibit 11.3 to one or more Eligible Assignees; provided that (i) any such assignment shall be in a minimum aggregate amount of $10,000,000 of the Commitments and in integral multiples of $1,000,000 above such amount (or the remaining amount of Commitments held by such 33 Lender) and (ii) each such assignment shall be of a constant, not varying, percentage of all of the assigning Lender's rights and obligations under the Commitment being assigned. Any assignment hereunder shall be effective upon satisfaction of the conditions set forth above and delivery to the Agent of a duly executed assignment agreement together with a transfer fee of $3,500 payable to the Agent for its own account. Upon the effectiveness of any such assignment, the assignee shall become a "Lender" for all purposes of this Credit Agreement and the other Credit Documents and, to the extent of such assignment, the assigning Lender shall be relieved of its obligations hereunder to the extent of the Loans and Commitment components being assigned. Along such lines the Borrower agrees that upon notice of any such assignment and surrender of the appropriate Note or Notes, it will promptly provide to the assigning Lender and to the assignee separate promissory notes in the amount of their respective interests substantially in the form of the original Note or Notes (but with notation thereon that it is given in substitution for and replacement of the original Note or Notes or any replacement notes thereof). By executing and delivering an assignment agreement in accordance with this Section 11.3(b), the assigning Lender thereunder and the assignee thereunder shall be deemed to confirm to and agree with each other and the other parties hereto as follows: (i) such assigning Lender warrants that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim and the assignee warrants that it is an Eligible Assignee; (ii) except as set forth in clause (i) above, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Credit Agreement, any of the other Credit Documents or any other instrument or document furnished pursuant hereto or thereto, or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Credit Agreement, any of the other Credit Documents or any other instrument or document furnished pursuant hereto or thereto or the financial condition of any Credit Party or the performance or observance by any Credit Party of any of its obligations under this Credit Agreement, any of the other Credit Documents or any other instrument or document furnished pursuant hereto or thereto; (iii) such assignee represents and warrants that it is legally authorized to enter into such assignment agreement; (iv) such assignee confirms that it has received a copy of this Credit Agreement, the other Credit Documents and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such assignment agreement; (v) such assignee will independently and without reliance upon the Agent, such assigning Lender or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Credit Agreement and the other Credit Documents; (vi) such assignee appoints and authorizes the Agent to take such action on its behalf and to exercise such powers under this Credit Agreement or any other Credit Document as are delegated to the Agent by the terms hereof or thereof, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all the obligations which by the terms of this Credit Agreement and the other Credit Documents are required to be performed by it as a Lender. 34 (c) Participations. Each Lender may sell, transfer, grant or assign participations in all or any part of such Lender's interests and obligations hereunder; provided that (i) such selling Lender shall remain a "Lender" for all purposes under this Credit Agreement (such selling Lender's obligations under the Credit Documents remaining unchanged) and the participant shall not constitute a Lender hereunder, (ii) no such participant shall have, or be granted, rights to approve any amendment or waiver relating to this Credit Agreement or the other Credit Documents except to the extent any such amendment or waiver would (A) reduce the principal of or rate of interest on or fees in respect of any Loans in which the participant is participating or increase any Commitments with respect thereto, (B) postpone the date fixed for any payment of principal (including the extension of the final maturity of any Loan or the date of any mandatory prepayment), interest or fees in which the participant is participating, or (C) release all or substantially all of the collateral or guaranties (except as expressly provided in the Credit Documents) supporting any of the Loans or Commitments in which the participant is participating, (iii) sub-participations by the participant (except to an Affiliate, parent company or Affiliate of a parent company of the participant) shall be prohibited and (iv) any such participations shall be in a minimum aggregate amount of $10,000,000 of the Commitments and in integral multiples of $1,000,000 in excess thereof. In the case of any such participation, the participant shall not have any rights under this Credit Agreement or the other Credit Documents (the participant's rights against the selling Lender in respect of such participation to be those set forth in the participation agreement with such Lender creating such participation) and all amounts payable by the Borrower hereunder shall be determined as if such Lender had not sold such participation; provided, however, that such participant shall be entitled to receive additional amounts under Sections 3.9, 3.12, 3.13 and 3.14 to the same extent that the Lender from which such participant acquired its participation would be entitled to the benefit of such cost protection provisions. 11.4 No Waiver; Remedies Cumulative. No failure or delay on the part of an Agent or any Lender in exercising any right, power or privilege hereunder or under any other Credit Document and no course of dealing between the Borrower or any Credit Party and the Agent or any Lender shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or under any other Credit Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. The rights and remedies provided herein are cumulative and not exclusive of any rights or remedies which the Agent or any Lender would otherwise have. No notice to or demand on any Credit Party in any case shall entitle any Credit Party to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Agent or the Lenders to any other or further action in any circumstances without notice or demand. 11.5 Payment of Expenses; Indemnification. The Credit Parties agree to: (a) pay all reasonable out-of-pocket costs and expenses of (i) the Agent and the Lenders in connection with (A) the negotiation, preparation, execution and delivery and administration of this Credit Agreement and the other Credit Documents and the documents and instruments referred to therein (including, without limitation, the reasonable fees 35 and expenses of Moore & Van Allen, PLLC, special counsel to the Agent); provided that reimbursement to any Lender (other than the Agent) for fees and expenses shall be limited to $7,500 per Lender and (B) any amendment, waiver or consent relating hereto and thereto including, but not limited to, any such amendments, waivers or consents resulting from or related to any work-out, renegotiation or restructure relating to the performance by the Credit Parties under this Credit Agreement and (ii) the Agent and the Lenders in connection with (A) enforcement of the Credit Documents and the documents and instruments referred to therein, including, without limitation, in connection with any such enforcement, the reasonable fees (at standard hourly rates) and disbursements of counsel for the Agent and each of the Lenders, and (B) any bankruptcy or insolvency proceeding of a Credit Party; provided that the Credit Parties shall not be responsible for the legal fees of the Agent and the Lenders in connection with any proceeding in which a Credit Party is the prevailing party as determined by a court of competent jurisdiction, and (b) indemnify the Agent, and each Lender, its officers, directors, employees, representatives and agents from and hold each of them harmless against any and all losses, liabilities, claims, damages or expenses incurred by any of them as a result of, or arising out of, or in any way related to, or by reason of, any investigation, litigation or other proceeding (whether or not any Agent or Lender is a party thereto) related to (i) the entering into and/or performance of any Credit Document or the use of proceeds of any Loans (including other extensions of credit) hereunder or the consummation of any other transactions contemplated in any Credit Document, including, without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation, litigation or other proceeding (but excluding any such losses, liabilities, claims, damages or expenses to the extent incurred by reason of gross negligence or willful misconduct on the part of the Person to be indemnified), (ii) any Environmental Claim and (iii) any claims for Non-Excluded Taxes. 11.6 Amendments, Waivers and Consents. Neither this Credit Agreement nor any other Credit Document nor any of the terms hereof or thereof may be amended, changed, waived, discharged or terminated unless such amendment, change, waiver, discharge or termination is in writing and signed by the Agent, the Required Lenders and the Credit Parties. Notwithstanding the fact that the consent of all the Lenders is required in certain circumstances as set forth above, (x) each Lender is entitled to vote as such Lender sees fit on any reorganization plan that affects the Loans, and each Lender acknowledges that the provisions of Section 1126(c) of the Bankruptcy Code supersedes the unanimous consent provisions set forth herein and (y) the Required Lenders may consent to allow a Credit Party to use cash collateral in the context of a bankruptcy or insolvency proceeding. 11.7 Counterparts. This Credit Agreement may be executed in any number of counterparts, each of which where so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. It shall not be necessary in making proof of this Credit Agreement to produce or account for more than one such counterpart. 36 11.8 Headings. The headings of the sections and subsections hereof are provided for convenience only and shall not in any way affect the meaning or construction of any provision of this Credit Agreement. 11.9 Defaulting Lender. Each Lender understands and agrees that if such Lender is a Defaulting Lender then notwithstanding the provisions of Section 11.6 it shall not be entitled to vote on any matter requiring the consent of the Required Lenders or to object to any matter requiring the consent of all the Lenders; provided, however, that all other benefits and obligations under the Credit Documents shall apply to such Defaulting Lender. 11.10 Survival of Indemnification and Representations and Warranties. All indemnities set forth herein and all representations and warranties made herein shall survive the execution and delivery of this Credit Agreement, the making of the Loans and other obligations and the termination of the commitments hereunder. 11.11 Governing Law. THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA. 11.12 Arbitration. Any controversy or claim between or among the parties hereto including, but not limited to, those arising out of or relating to this Agreement or any related agreements or instruments, including any claim based on or arising from an alleged tort, shall be determined by binding arbitration in accordance with the Federal Arbitration Act (or if not applicable, the applicable state law), the Rules of Practice and Procedure for the Arbitration of Commercial Disputes of Judicial Arbitration and Mediation Services, Inc. (J.A.M.S.), and the "Special Rules" set forth below. In the event of any inconsistency, the Special Rules shall control. Judgment upon any arbitration award may be entered in any court having jurisdiction. Any party to this Agreement may bring an action, including a summary or expedited proceeding, to compel arbitration of any controversy or claim to which this Agreement applies in any court having jurisdiction over such action. (a) Special Rules. The arbitration shall be conducted in the city of the Borrower's domicile at time of this Agreement's execution and administered by J.A.M.S. who will appoint an arbitrator; if J.A.M.S. is unable or legally precluded from administering the arbitration, then the American Arbitration Association will serve. All arbitration hearings will be commenced within ninety (90) days of the demand for arbitration; further, the arbitrator shall only, upon a showing of cause, be permitted to extend the commencement of such hearing for up to an additional sixty (60) days. 37 (b) Reservations of Rights. Nothing in this Agreement shall be deemed to (i) limit the applicability of any otherwise applicable statutes of limitation or repose and any waivers contained in this Agreement; or (ii) be a waiver by the Lenders of the protection afforded to it by 12 U.S.C. Section 91 or any substantially equivalent state law; or (iii) limit the right of the Lenders (A) to exercise self help remedies such as (but not limited to) setoff, or (B) to foreclose against any real or personal property collateral, or (C) to obtain from a court provisional or ancillary remedies such as (but not limited to) injunctive relief or the appointment of a receiver. The Lenders may exercise such self help rights, foreclose upon such property, or obtain such provisional or ancillary remedies before, during or after the pendency of any arbitration proceeding brought pursuant to this Agreement. At the Lenders' option, foreclosure under the Credit Documents may be accomplished by the exercise of a power of sale or a judicial sale under the Credit Documents or by judicial foreclosure. Neither the exercise of self help remedies nor the institution or maintenance of an action for foreclosure or provisional or ancillary remedies shall constitute a waiver of the right of any party, including the claimant in any such action, to arbitrate the merits of the controversy or claim occasioning resort to such remedies. 11.13 Time. All references to time herein shall be references to Eastern Standard Time or Eastern Daylight time, as the case may be, unless specified otherwise. 11.14 Severability. If any provision of any of the Credit Documents is determined to be illegal, invalid or unenforceable, such provision shall be fully severable and the remaining provisions shall remain in full force and effect and shall be construed without giving effect to the illegal, invalid or unenforceable provisions. 11.15 Entirety. This Credit Agreement together with the other Credit Documents represent the entire agreement of the parties hereto and thereto, and supersede all prior agreements and understandings, oral or written, if any, including any commitment letters or correspondence relating to the Credit Documents or the transactions contemplated herein and therein. [remainder of page intentionally left blank] 38 Each of the parties hereto has caused a counterpart of this Credit Agreement to be duly executed and delivered as of the date first above written, the Credit Parties doing so under seal. BORROWER: HIGHWOODS/FORSYTH LIMITED PARTNERSHIP, a North Carolina limited partnership ATTEST: By: Highwoods Properties, Inc., By:___________________ a Maryland corporation, its sole general partner Title:_______________ By: __________________________________________ [CORPORATE SEAL] Name: ________________________________________ Title: _______________________________________ GUARANTORS: HIGHWOODS PROPERTIES, INC., a Maryland corporation ATTEST: By: __________________________________________ By:__________________ Name: ________________________________________ Title:________________ Title: _______________________________________ [CORPORATE SEAL] HIGHWOODS SERVICES, INC., a North Carolina corporation ATTEST: By: __________________________________________ By:__________________ Name: ________________________________________ Title:________________ Title: _______________________________________ [CORPORATE SEAL] SOUTHEAST REALTY OPTIONS CORP., a Delaware corporation ATTEST: By: __________________________________________ By:__________________ Name: ________________________________________ Title:________________ Title: _______________________________________ [CORPORATE SEAL] HIGHWOODS/FLORIDA GP CORP., a Delaware corporation ATTEST: By: __________________________________________ By:__________________ Name: ________________________________________ Title:________________ Title: _______________________________________ [CORPORATE SEAL] HIGHWOODS/FLORIDA HOLDINGS GP, L.P., a Delaware corporation By: Highwoods/Florida GP Corp., a Delaware corporation, its sole general partner AATTEST: By: __________________________________________ By:__________________ Name: ________________________________________ Title:________________ Title: _______________________________________ [CORPORATE SEAL] HIGHWOODS/FLORIDA HOLDINGS L.P., a Delaware corporation By: Highwoods/Florida Holdings GP, L.P., a Delaware limited partnership, its sole general partner By: Highwoods/Florida GP Corp., a Delaware corporation, its sole general partner ATTEST: By: __________________________________________ By:__________________ Name: ________________________________________ Title:________________ Title: _______________________________________ [CORPORATE SEAL] HIGHWOODS/TENNESSEE PROPERTIES, a Tennessee corporation ATTEST: By: __________________________________________ By:__________________ Name: ________________________________________ Title:________________ Title: _______________________________________ [CORPORATE SEAL] HIGHWOODS/TENNESSEE HOLDINGS GP, L.P., a Tennessee limited partnership By: Highwoods/Tennessee Properties, Inc., a Tennessee corporation, its sole general partner ATTEST: By: __________________________________________ By:__________________ Name: ________________________________________ Title:________________ Title: _______________________________________ [CORPORATE SEAL] HIGHWOODS/TENNESSEE HOLDINGS L.P., a Tennessee limited partnership By: Highwoods/Tennessee Holdings GP, L.P., a Tennessee limited partnership, its sole general partner By: Highwoods/Tennessee Properties, Inc., a Delaware corporation, its sole general partner ATTEST: By: __________________________________________ By:__________________ Name: ________________________________________ Title:________________ Title: _______________________________________ [CORPORATE SEAL] LENDERS: NATIONSBANK, N.A., individually in its capacity as a Lender and in its capacity as Agent By: __________________________________________ Name: ________________________________________ Title: _______________________________________ Schedule 1.1(a) COMMITMENT PERCENTAGE Revolving Revolving Commitment Lender Committed Amount Percentage - ------ ---------------- ---------- NationsBank, N.A., $ 150,000,000 100% Schedule 11.1 Notices Lender Address for All Notices - ------ ----------------------- NationsBank, N.A. NationsBank, N.A. One Hannover Square, Suite 301 Raleigh, NC 27611-7287 Attn: Patty Gardenhire Ph: (919) 829-6683 Fax: (919) 829-6713 with a copy to: Mark S. Cagley Senior Vice President NationsBank Real Estate Banking Group 100 N. Tryon Street 11th Floor NC1-007-11-07 Charlotte, NC 28255 Phone: (704) 386-7449 Fax: (704) 388-0617 Exhibit 2.1(b) FORM OF NOTICE OF BORROWING TO: NATIONSBANK, N.A., as Agent NATIONSBANK CORPORATE CENTER CHARLOTTE, NORTH CAROLINA 28255 RE: Credit Agreement dated as of December ___, 1997 among Highwoods/Forsyth Limited Partnership (the "Borrower") Highwoods Properties, Inc., the Subsidiaries of the Borrower and Highwoods Properties, Inc., NationsBank, N.A., as Agent, and the Lenders party thereto (as the same may be amended, modified, extended or restated from time to time, the "Credit Agreement") DATE: _____________, 199__ ________________________________________________________________ 1. This Notice of Borrowing is made pursuant to the terms of the Credit Agreement. All capitalized terms used herein unless otherwise defined shall have the meanings set forth in the Credit Agreement. 2. Please be advised that the Borrower is requesting Revolving Loans in the amount of $__________ to be funded on ____________, 199__ at the interest rate option set forth in paragraph 3 below. Subsequent to the funding of the requested Revolving Loans, the aggregate amount of outstanding Revolving Loans will be $_________, which is less than or equal to the Revolving Committed Amount. 3. The interest rate option applicable to the requested Revolving Loans shall be: a. ________ the Adjusted Base Rate b. ________ the Adjusted Eurodollar Rate for an Interest Period of one (1) month 4. The proceeds from the Revolving Loans shall be used for ________________________________________ which is in compliance with Section 7 of the Credit Agreement. 5. The representations and warranties made by the Credit Parties in the Credit Documents are true and correct in all material respects at and as if made on the date hereof except to the extent they expressly relate to an earlier date. 6. As of the date hereof, no Default or Event of Default has occurred and is continuing or would be caused by this Notice of Borrowing. 7. No Material Adverse Effect has occurred since the Closing Date. 8. The Borrower is in compliance with all requirements of the Related Credit Agreement. In furtherance of this certification, Borrower represents that the ratio of (a) Total Liabilities (as defined in the Related Credit Agreement) to (b) Market Capitalization (as defined in the Related Credit Agreement) is less than or equal to 0.45 to 1.0. HIGHWOODS/FORSYTH LIMITED PARTNERSHIP By: Highwoods Properties, Inc., its sole general partner By:____________________________ Name:__________________________ Title:_________________________ Exhibit 2.1(d) FORM OF NOTICE OF CONTINUATION/CONVERSION TO: NATIONSBANK, N.A., as Agent NATIONSBANK CORPORATE CENTER CHARLOTTE, NORTH CAROLINA 28255 RE: Credit Agreement dated as of December ____, 1997 among Highwoods/Forsyth Limited Partnership (the "Borrower") Highwoods Properties, Inc., the Subsidiaries of the Borrower and Highwoods Properties, Inc., NationsBank, N.A., as Agent, and the Lenders party thereto (as the same may be amended, modified, extended or restated from time to time, the "Credit Agreement") DATE: _____________, 199__ ____________________________________________________________ 1. This Notice of Continuation/Conversion is made pursuant to the terms of the Credit Agreement. All capitalized terms used herein unless otherwise defined shall have the meanings set forth in the Credit Agreement. 2. Please be advised that the Borrower is requesting that a portion of the current outstanding Revolving Loans in the amount of $__________ currently accruing interest at _________ be extended or converted as of _____________ at the interest rate option set forth in paragraph 3 below. 3. The interest rate option applicable to the extension or conversion of all or part of the existing Revolving Loans shall be: a. ________ the Adjusted Base Rate b. ________ the Adjusted Eurodollar Rate for an Interest Period of one (1) month 4. The representations and warranties made by the Credit Parties in the Credit Documents are true and correct in all material respects at and as if made on the date hereof except to the extent they expressly relate to an earlier date. 5. As of the date hereof, no Default or Event of Default has occurred and is continuing or would be caused by this Notice of Continuation/Conversion. 6. No Material Adverse Effect has occurred since the Closing Date. 7. The Borrower is in compliance with all requirements of the Related Credit Agreement. In furtherance of this certification, Borrower represents that the ratio of (a) Total Liabilities (as defined in the Related Credit Agreement) to (b) Market Capitalization (as defined in the Related Credit Agreement) is less than or equal to .45 to 1.0. HIGHWOODS/FORSYTH LIMITED PARTNERSHIP By: Highwoods Properties, Inc., its sole general partner By:____________________________ Name:__________________________ Title:_________________________ Exhibit 2.1(f) FORM OF REVOLVING NOTE $____________ _______ ____, 1997 FOR VALUE RECEIVED, Highwoods/Forsyth Limited Partnership, a North Carolina limited partnership, (the "Borrower"), hereby promises to pay to the order of ___________________ (the "Lender"), at the office of NationsBank, N.A. (the "Agent") as set forth in that certain Credit Agreement dated as of December 15, 1997 between the Borrower, Highwoods Properties, Inc., the Subsidiaries of the Borrower and Highwoods Properties, Inc., the Lenders named therein (including the Lender), and NationsBank, N.A., as Agent (as modified and supplemented and in effect from time to time, the "Credit Agreement"), the principal sum of $______________ (or such lesser amount as shall equal the aggregate unpaid principal amount of the Revolving Loans made by the Lender to the Borrower under the Credit Agreement), in lawful money of the United States of America and in immediately available funds, on the dates and in the principal amounts provided in the Credit Agreement, and to pay interest on the unpaid principal amount of each such Revolving Loan, at such office, in like money and funds, for the period commencing on the date of such Revolving Loan until such Revolving Loan shall be paid in full, at the rates per annum and on the dates provided in the Credit Agreement. This Note is one of the Revolving Notes referred to in the Credit Agreement and evidences Revolving Loans made by the Lender thereunder. Capitalized terms used in this Revolving Note and not otherwise defined shall have the respective meanings assigned to them in the Credit Agreement and the terms and conditions of the Credit Agreement are expressly incorporated herein and made a part hereof. The Credit Agreement provides for the acceleration of the maturity of the Revolving Loans evidenced by this Revolving Note upon the occurrence of certain events (and for payment of collection costs in connection therewith) and for prepayments of Revolving Loans upon the terms and conditions specified therein. In the event this Revolving Note is not paid when due at any stated or accelerated maturity, the Borrower agrees to pay, in addition to the principal and interest, all costs of collection, including reasonable attorney fees. The date, amount, type, interest rate and duration of Interest Period (if applicable) of each Revolving Loan made by the Lender to the Borrower, and each payment made on account of the principal thereof, shall be recorded by the Lender on its books; provided that the failure of the Lender to make any such recordation or endorsement shall not affect the obligations of the Borrower to make a payment when due of any amount owing hereunder or under this Revolving Note in respect of the Revolving Loans to be evidenced by this Revolving Note, and each such recordation or endorsement shall be prima facie evidence of such information. THIS REVOLVING NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NORTH CAROLINA. IN WITNESS WHEREOF, the Borrower has caused this Revolving Note to be executed as of the date first above written. HIGHWOODS/FORSYTH LIMITED PARTNERSHIP By: Highwoods Properties, Inc., its sole general partner By:____________________________ Name:__________________________ Title:_________________________ Exhibit 7.1(c) FORM OF OFFICER'S CERTIFICATE For the fiscal quarter ended _________________, 19___. I, ______________________, chief financial officer of Highwoods Properties, Inc., the sole general partner of Highwoods/Forsyth Limited Partnership (the "Borrower") hereby certify on behalf of the Borrower that, with respect to that certain Credit Agreement dated as of December 15, 1997 (as it may be amended, modified, extended or restated from time to time, the "Credit Agreement"; all of the capitalized terms herein shall have the meanings set forth in the Credit Agreement) among the Borrower, the other Credit Parties party thereto, the Lenders party thereto and NationsBank, N.A., as Agent: a. Attached hereto as Schedule 1 are calculations demonstrating compliance by the Credit Parties with the financial covenants contained in Section 7.2 of the Related Credit Agreement as of the end of the fiscal period referred to above. b. No Default or Event of Default has occurred under the Credit Agreement(1). c. The quarterly financial statements which accompany this certificate fairly present in all material respects the financial condition of the Credit Parties, on a consolidated basis, and have been prepared in accordance with GAAP, subject to changes resulting from normal year-end audit adjustments. This ______ day of ___________, 19__. HIGHWOODS PROPERTIES, INC., sole general partner of Highwoods/Forsyth Limited Partnership By:_________________________________ Name:_______________________________ Title: Chief Financial Officer - ----------------- (1) If a Default or Event of Default shall have occurred an explanation of such Default or Event of Default shall be provided on a separate page together with an explanation of the action taken or proposed to be taken by the Credit Parties with respect thereto. Exhibit 7.16 FORM OF JOINDER AGREEMENT THIS JOINDER AGREEMENT (this "Agreement"), dated as of _____________, 199_, is entered into between _____________________, a ___________________ (the "New Subsidiary") and NATIONSBANK, N.A., in its capacity as Agent (the "Agent") under that certain Credit Agreement, dated as of December 15, 1997, among Highwoods/Forsyth Limited Partnership (the "Borrower"), Highwoods Properties, Inc., the Subsidiaries of the Borrower and Highwoods Properties, Inc., the Lenders party thereto and the Agent (as the same may be amended, modified, extended or restated from time to time, the "Credit Agreement"). All capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Credit Agreement. The New Subsidiary and the Agent, for the benefit of the Lenders, hereby agree as follows: 1. The New Subsidiary hereby acknowledges, agrees and confirms that, by its execution of this Agreement, the New Subsidiary will be deemed to be a Credit Party under the Credit Agreement and a "Guarantor" for all purposes of the Credit Agreement and shall have all of the obligations of a Guarantor thereunder as if it had executed the Credit Agreement. The New Subsidiary hereby ratifies, as of the date hereof, and agrees to be bound by, all of the terms, provisions and conditions contained in the Credit Agreement, including without limitation (a) all of the representations and warranties of the Credit Parties set forth in Section 6 of the Credit Agreement, (b) all of the affirmative and negative covenants set forth in Sections 7 and 8 of the Credit Agreement and (c) all of the guaranty obligations set forth in Section 4 of the Credit Agreement. Without limiting the generality of the foregoing terms of this paragraph 1, the New Subsidiary, subject to the limitations set forth in Section 4.7 of the Credit Agreement, hereby guarantees, jointly and severally with the other Guarantors, to the Agent and the Lenders, as provided in Section 4 of the Credit Agreement, the prompt payment and performance of the Credit Party Obligations in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration or otherwise) strictly in accordance with the terms thereof and agrees that if any of the Credit Party Obligations are not paid or performed in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration or otherwise), the New Subsidiary will, jointly and severally together with the other Guarantors, promptly pay and perform the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Credit Party Obligations, the same will be promptly paid in full when due (whether at extended maturity, as a mandatory prepayment, by acceleration or otherwise) in accordance with the terms of such extension or renewal. 2. The address of the New Subsidiary for purposes of Section 11.1 of the Credit Agreement is as follows: ____________________________ ____________________________ ____________________________ ____________________________ 3. The New Subsidiary hereby waives acceptance by the Agent and the Lenders of the guaranty by the New Subsidiary under the Credit Agreement upon the execution of this Agreement by the New Subsidiary. 4. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. 5. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA. IN WITNESS WHEREOF, the New Subsidiary has caused this Agreement to be duly executed by its authorized officer, and the Agent, for the benefit of the Lenders, has caused the same to be accepted by its authorized officer, as of the day and year first above written. [NEW SUBSIDIARY] By:___________________________ Name:_________________________ Title:________________________ Acknowledged and accepted: NATIONSBANK, N.A., as Agent By:___________________________ Name:_________________________ Title:________________________ Exhibit 11.3 FORM OF ASSIGNMENT AGREEMENT Reference is made to that certain Credit Agreement dated as of December 15, 1997 (as the same may be amended, modified, extended or restated from time to time, the "Credit Agreement") among Highwoods/Forsyth Limited Partnership (the "Borrower"), Highwoods Properties, Inc., the Subsidiaries of the Borrower and Highwoods Properties, Inc. the Lenders identified therein and NationsBank, N.A., as Agent. All capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Agreement. 1. The Assignor (as defined below) hereby sells and assigns, without recourse, to the Assignee (as defined below), and the Assignee hereby purchases and assumes, without recourse, from the Assignor, effective as of effective date of the assignment as designated below (the "Effective Date"), the interests set forth below (the "Assigned Interest") in the Assignor's rights and obligations under the Credit Agreement, including, without limitation, (a) the interests set forth below in the Revolving Loan Commitment Percentage of the Assignor on the Effective Date and (b) the Loans owing to the Assignor in connection with the Assigned Interest which are outstanding on the Effective Date. The purchase of the Assigned Interest shall be at par and periodic payments made with respect to the Assigned Interest which (i) accrued prior to the Effective Date shall be remitted to the Assignor and (ii) accrue from and after the Effective Date shall be remitted to the Assignee. From and after the Effective Date, the Assignee, if it is not already a Lender under the Credit Agreement, shall become a "Lender" for all purposes of the Credit Agreement and the other Credit Documents and, to the extent of such assignment, the assigning Lender shall be relieved of its obligations under the Credit Agreement. 2. The Assignor represents and warrants to the Assignee that it is the holder of the Assigned Interest and the Loans related thereto and it has not previously transferred or encumbered such Assigned Interest or Loans. 3. The Assignee represents and warrants to the Assignor that it is an Eligible Assignee. 4. This Assignment shall be effective only upon (a) to the extent required, the consent of the Agent under Section 11.3(b) of the Credit Agreement and (b) delivery to the Agent of this Assignment Agreement together with the transfer fees, if applicable, set forth in Section 11.3(b) of the Credit Agreement. 5. The Assignor and the Assignee confirm to and agree with each other and the other parties to the Credit Agreement as to the terms set forth in paragraph 2 of Section 11.3(b) of the Credit Agreement. 6. This Assignment shall be governed by and construed in accordance with the laws of the State of North Carolina. 7. Terms of Assignment (a) Date of Assignment _________________ (b) Legal Name of Assignor _________________ (c) Legal Name of Assignee _________________ (d) Effective Date of Assignment _________________ (e) Revolving Loan Commitment Percentage assigned _________________ (f) Total Revolving Loans outstanding as of Effective Date $_________________ (g) Principal Amount of Revolving Loans assigned on Effective Date (the amount set forth in (f) multiplied by the percentage set forth in (e)) $_________________ (h) Revolving Committed Amount $_________________ (i) Principal Amount of Revolving Committed Amount Assigned on the Effective Date (the amount set forth in (h) multiplied by the percentage set forth in (e)) $_________________ The terms set forth above are hereby agreed to: _______________________, as Assignor By:____________________________________ Name:__________________________________ Title:_________________________________ ____________________, as Assignee By:____________________________________ Name:__________________________________ Title:_________________________________ CONSENTED TO (if applicable): NATIONSBANK, N.A., as Agent By:____________________________________ Name:__________________________________ Title:_________________________________ EX-4 6 EXHIBIT 4.16 Exhibit 4.16 Agreement to Furnish Certain Instruments Defining the Rights of Long-Term Debt Holders. The Company hereby agrees to furnish, upon request, any and all instruments defining the rights of long-term debt holders not contained as an exhibit to this Form 10-K. EX-10 7 EXHIBIT 10.9 HIGHWOODS PROPERTIES, INC. 1997 PERFORMANCE AWARD PLAN SECTION 1. GENERAL PURPOSE OF THE PLAN: DEFINITIONS The name of the plan is the Highwoods Properties, Inc. 1997 Performance Award Plan (the APlan"). The purpose of the Plan is to encourage and enable the officers and employees of Highwoods Properties, Inc. (the ACompany") and its Subsidiaries upon whose judgement, initiative and efforts the Company largely depends for the successful conduct of its business to acquire and/or increase their proprietary interests in the Company. It is anticipated that such persons having a direct stake in the Company=s welfare, including the ability to receive rights similar to dividends as provided under the terms hereof, will assure a closer identification of their interests with those of the Company and its shareholders, thereby stimulating their efforts on the Company=s behalf and strengthening their desire to remain with the Company. The following terms shall be defined as set forth below: "ACT" means the Securities Exchange Act of 1934, as amended. "AGREEMENT" shall mean the written agreement evidencing an Award hereunder between the Company and the recipient of such Award. "APPLICABLE STOCK OPTION" is defined at Section 5(b)(i). "AWARD" or "AWARDS" means a grant of a DER Award. "ABOARD" means the Board of Directors of the Company. "CAUSE" means and shall be limited to a vote of the Board resolving that the participant should be dismissed as a result of (i) any material breach by the participant of any agreement to which the participant and the Company are parties, (ii) any act (other than retirement) or omission to act by the participant which may have a material and adverse effect on the business of the Company or any Subsidiary or on the participant=s ability to perform services for the Company or any Subsidiary, including, without limitation, the commission of any crime (other than ordinary traffic violations), or (iii) any material misconduct or neglect of duties by the participant in connection with the business or affairs of the Company or any Subsidiary. "CHANGE OF CONTROL" is defined in Section 10. "CODE" means the Internal Revenue Code of 1986, as amended, and any successor Code, and related rules, regulations and interpretations. "COMMITTEE" means the Board or any Committee of the Board referred to in Section 2. "DIVIDEND EQUIVALENT RIGHTS AWARD" OR ADER AWARD" or APERFORMANCE AWARD" shall mean a right, contingent upon the attainment of specified Performance Measures within a specified Performance Period, to receive a reduction in the exercise price of the Applicable Stock Option. "DISABILITY" means disability as set forth in Section 22(e)(3) of the Code. "EFFECTIVE DATE" means April 29, 1997, the date on which the Plan was approved by the Board. "FAIR MARKET VALUE" on any given date means the last reported sale price at which the Shares are traded on such date or, if no Shares are traded on such date, on the next most recent date on which the Shares were traded, as reflected on the New York Stock Exchange or, if applicable, any other national stock exchange on which the Shares are traded. "NON-EMPLOYEE DIRECTOR" means a director who qualified as such under Rule 16b-3(b)(3) promulgated under the Act or any successor definition under the Act. "OPTION" or ASTOCK OPTION" means any option to purchase Shares granted pursuant to the Amended and Restated 1994 Stock Option Plan of the Company (the AStock Option Plan"). "PERFORMANCE MEASURES" shall mean the criteria and objectives, established by the Committee, which shall be satisfied or met during the applicable Performance Period as a condition to the holder=s receipt of the DER Award. Such criteria and objectives may include, without limitation, one or more of the following: the attainment by a Share of a specified Fair Market Value for a specified period of time, earnings per share, Shareholder Return (including dividends), return on equity, earnings of the Company, revenues, market share, funds from operations, cash flow or cost reduction goals, or any combination of the foregoing. The Committee may, in its sole discretion, amend or adjust the Performance Measures or other terms and conditions of an outstanding award in recognition of unusual or nonrecurring events affecting the Company or its financial statements or changes in law or accounting principles. If the Committee consists solely of Aoutside directors" (within the meaning of Section 162(m) of the Code and the regulations promulgated thereunder) and the Committee desires that compensation payable pursuant to any award subject to Performance Measures shall be Aqualified performance-based compensation" within the meaning of Section 162(m) of the Code, the Performance Measures (i) shall be established by the Committee no later than the end of the first quarter of the Performance Period, as applicable (or such other time permitted pursuant to Treasury Regulations promulgated under Section 162(m) of the Code or otherwise permitted by the Internal Revenue Service) and (ii) shall satisfy all other applicable requirements imposed under Treasury Regulations promulgated under Section 162(m) of the Code, including the requirement that such Performance Measures be stated in terms of an objective formula or standard. "PERFORMANCE PERIOD" shall mean any period designated by the Committee for which the Performance Measures shall be calculated. "SHARE" or "SHARES" means one or more, respectively, of the Company=s shares of common stock, par value $.01 per share, subject to adjustments pursuant to Section 3. "SHAREHOLDER RETURN" shall mean the per annum compounded rate of increase in the Fair Market Value of an investment in a Share on the first day of the Performance Period (assuming purchase of the Share at its Fair Market Value on such day) through the last day of the Performance Period, plus all dividends or distributions paid with respect to such Share during the Performance Period, and assuming reinvestment in Shares of all such dividends and distributions, adjusted to give effect to Section 3 of this Plan. "SUBSIDIARY" means Highwoods/Forsyth Limited Partnership and any corporation or other entity (other than the Company) in any unbroken chain of corporations or other entities, beginning with the Company, if each of the corporations or entities (other than the last corporation or entity in the unbroken chain) owns stock or other interests possessing 50% or more of the economic interest or the total combined voting power of all classes of stock or other interests in one of the other corporations or entities in the chain. SECTION 2. ADMINISTRATION OF PLAN: COMMITTEE AUTHORITY TO SELECT PARTICIPANTS AND DETERMINE AWARDS (a) COMMITTEE. The Plan shall be administered by the executive compensation committee of the Board, or any other committee of not less than two Non-Employee Directors performing similar functions, as appointed by the Board from time to time. Only Non-Employee Directors may vote with respect to transactions involving an Award. (b) POWERS OF COMMITTEE. The Committee shall have the power and authority to grant Awards consistent with the terms of the Plan, including the power and authority: (i) to select participants to whom Awards may be granted from time to time; (ii) to determine the time or times of a grant of an Award; (iii) to determine the number of Shares to be covered by an Award; (iv) to determine and modify the terms and conditions, including restrictions, not inconsistent with the terms of the Plan, of any Award, which terms and conditions may differ among individual Awards and participants, and to approve the form of written instruments evidencing the Awards; (v) to accelerate the exercisability or vesting of all or any portion of any Award; (vi) to extend the period in which an Award may be settled; (vii) to determine whether, to what extent, and under what circumstances amounts payable with respect to an Award shall be deferred, whether automatically or at the election of the participant, and whether and to what extent the Company shall pay or credit amounts constituting dividends or deemed dividends on such deferrals; and 3 (viii) to adopt, alter and repeal such rules, guidelines and practices for administration of the Plan and for its own acts and proceedings as it shall deem advisable; to interpret the terms and provisions of the Plan and any Awards (including related written instruments); to make all determinations it deems advisable for the administration of the Plan; to decide all disputes arising in connection with the Plan; and to otherwise supervise the administration of the Plan. All decisions and interpretations of the Committee shall be binding on all persons, including the Company and Plan participants SECTION 3. MERGERS; SUBSTITUTIONS STOCK DIVIDENDS, MERGERS, ETC. In the event of any stock split, stock dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation, spin-off or other similar change in capitalization or similar dividend, the terms of each outstanding DER Award shall be appropriately adjusted by the Committee. The decision of the Committee regarding any such adjustment shall be final, binding and conclusive. SECTION 4. ELIGIBILITY Participants in the Plan will be such full or part-time officers and other employees of the Company and its Subsidiaries who are responsible for or contribute to the management, growth, or profitability of the Company and its Subsidiaries and who are selected from time to time by the Committee, in its sole discretion. SECTION 5. DIVIDEND EQUIVALENT RIGHTS (a) DIVIDEND EQUIVALENT RIGHTS. The Committee may, in its discretion, grant DER Awards to such eligible persons as may be selected by the Committee. (b) TERMS OF DER AWARDS. DER Awards shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall in its discretion deem advisable. (i) GRANT OF DER AWARDS. A DER Award may be granted only in tandem with a Stock Option (the AApplicable Stock Option") which is being or was granted under the Stock Option Plan, such Stock Option to be so designated by the Committee. The Performance Period and Performance Measure of a DER Award also shall be as designated by the Committee. (ii) VESTING AND FORFEITURE. The Agreement relating to a DER Award shall provide, in the manner determined by the Committee in its discretion and subject to the provisions of this Plan, for the vesting of such award if specified Performance Measure(s) are satisfied 4 or met during the specified Performance Period, and for the forfeiture of such award if specified Performance Measure(s) are not satisfied or met during the specified Performance Period. (iii) SETTLEMENT OF VESTED PERFORMANCE AWARDS. Vested DER Awards shall be settled as a reduction in the exercise price of the Applicable Stock Option upon the expiration of the Performance Period at any time prior to the expiration of the Applicable Stock Option. The amount of the settlement shall be a portion, as determined in the applicable Agreement, of the sum (without interest or compounding) of all dividends and distributions per Share (subject to adjustment as provided in Section 3) during the Performance Period and thereafter through any subsequent exercise of Applicable Stock Options, multiplied by the number of such Shares purchased upon such exercise. Except to the extent otherwise provided in the Agreement relating to a Performance Award, in the event of a Change of Control the Performance Period shall expire and the Performance Measure shall be computed through such date and the applicable DER Award shall forthwith be settled in cash on the date of such Change of Control or, if later, upon exercise of the Applicable Stock Options. (c) TERMINATION OF EMPLOYMENT OR SERVICE. (a) DISABILITY, DEATH AND INVOLUNTARY TERMINATION WITHOUT CAUSE. Except to the extent otherwise set forth in the Agreement relating to a DER Award, if the employment of the holder of a DER Award is terminated by reason of Disability, death or involuntary termination by the Company without Cause, the Performance Period with respect to such DER Award shall terminate and the Performance Measure shall be computed through such date and the applicable DER Award shall be settled as described in Section 5(b)(iii) as soon as practicable within 10 days thereafter, or if later, upon exercise of the Applicable Stock Option. (b) OTHER TERMINATION. Except to the extent otherwise set forth in the Agreement relating to a DER Award, if the holder=s employment with the Company terminates for any reason other than Disability, death, or involuntary termination by the Company without Cause, then the Performance Period for such DER Award shall be deemed to end on the date of such termination, no Performance Measure shall be recognized or deemed attained, satisfied or met, and the holder=s DER Award shall be forfeited to and canceled by the Company. SECTION 6. TAX WITHHOLDING (a) PAYMENT BY PARTICIPANT. Each participant shall, no later than the date as of which the value of an Award or amounts received thereunder first becomes includable in the gross income of the participant for federal income tax purposes, pay to the Company, or make arrangements satisfactory to the Committee regarding payment of any federal, state, or local taxes of any kind required by law to be withheld with respect to such income. The Company and its Subsidiaries shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind 5 otherwise due to the participant and to require payment by the participant of any taxes required to be withheld, prior to the delivery of any Shares upon the exercise of an Applicable Stock Option. (b) PAYMENT IN SHARES. A participant may elect to have such tax withholding obligation satisfied, in whole or in part, by (i) authorizing the Company to withhold from the Shares to be issued pursuant to an exercise of an Applicable Stock Option a number of Shares with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the withholding amount due, or (ii) transferring to the Company Shares owned by the participant with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the withholding amount due. SECTION 7. TRANSFER, LEAVE OF ABSENCE, ETC. For purposes of the Plan, the following events shall not be deemed a termination of employment: (a) a transfer to the employment of the Company from a Subsidiary or from the Company to a Subsidiary, or from one Subsidiary to another; or (b) an approved leave of absence for military service or sickness, or for any other purposes approved by the Company, if the employee's right to re-employment is guaranteed either by a statute or by contract or under the policy pursuant to which the leave of absence was granted or if the Committee otherwise so provides in writing. SECTION 8. AMENDMENTS AND TERMINATION The Board may, at any time, amend or discontinue the Plan and the Committee may, at any time, amend or cancel any outstanding Award for the purpose of satisfying changes in law without the Holder=s consent. No amendment, however, may impair the rights of a holder of an outstanding Award without the consent of such holder. SECTION 9. STATUS OF PLAN With respect to the portion of any Award which has not been exercised and any payments of consideration not received by a participant, a participant shall have no rights greater than those of a general creditor of the Company unless the Committee shall otherwise expressly determine in connection with any Award or Awards. In its sole discretion, the Committee may authorize the creation of trusts or other arrangements to meet the Company's obligations to deliver Shares or make payments with respect to Awards hereunder, provided that the existence of such trusts or other arrangements is consistent with the provisions of the foregoing sentence. SECTION 10. CHANGE OF CONTROL PROVISIONS Upon the occurrence of a Change of Control as defined in this Section 10: 6 (a) The Performance Period for DER Awards will expire and the Performance Measures will be computed through the date of such change of control and the applicable Award will be settled in cash on the date of such change in control or, if later, upon exercise of the Applicable Stock Options. (b) "CHANGE OF CONTROL" shall mean the occurrence of any one of the following events: (i) any "PERSON," as such term is used in Section 13(d) and 14(d) of the Act (other than the Company, any of its Subsidiaries, any trustee, fiduciary or other person or entity holding securities under any employee benefit plan of the Company or any of its Subsidiaries), together with all "affiliates" and "associates" (as such terms are defined in Rule 12b-2 under the Act) of such person, shall become the "beneficial owner" (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 40% or more of either (A) the combined voting power of the Company's then outstanding securities having the right to vote in an election of the Company's Board of Directors ("Voting Securities") or (B) the then outstanding Shares of the Company (in either such case other than as a result of acquisition of securities directly from the Company); or (ii) persons who, as of May 1, 1994, constitute the Company's Board of Directors (the "Incumbent Directors") cease for any reason, including, without limitation, as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Board, provided that any person becoming a director of the Company subsequent to May 1, 1994 whose election or nomination for election was approved by a vote of at least a majority of the Incumbent Directors shall, for purposes of this Plan, be considered an Incumbent Director; or (iii) the stockholders of the Company shall approve (A) any consolidation or merger of the Company or any Subsidiary where the stockholders of the Company, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, shares representing in the aggregate 50% of the voting shares of the corporation issuing cash or securities in the consolidation or merger (or of its ultimate parent corporation, if any), (B) any sale, lease, exchange or other transfer (in one transaction or a series of transactions contemplated or arranged by an party as a single plan) of all or substantially all of the assets of the Company or (C) any plan or proposal for the liquidation or dissolution of the Company. Notwithstanding the foregoing, a "Change of Control" shall not be deemed to have occurred for purposes of the foregoing clause (i) solely as the result of an acquisition of securities by the Company which, by reducing the number of Shares or other voting securities outstanding, increases (x) the proportionate number of Shares beneficially owned by any person to 40% or more of the Shares then outstanding or (y) the proportionate voting power represented by the voting securities beneficially owned by any person to 40% or more of the combined voting power of all then outstanding voting securities; PROVIDED, HOWEVER, that if any person referred to in clause (x) or (y) 7 of this sentence shall thereafter become the beneficial owner of any additional Shares or other voting securities (other than pursuant to a stock split, stock dividend, or similar transaction), then a "Change of Control" shall be deemed to have occurred for purposes of the foregoing clause (i). SECTION 11. EFFECTIVE DATE OF PLAN This Plan became effective on April 29, 1997 upon approval by the Board. SECTION 12. GOVERNING LAW This Plan shall be governed by North Carolina law except to the extent such law is preempted by federal law. EX-10 8 EXHIBIT 10.10 HIGHWOODS/FORSYTH LIMITED PARTNERSHIP 1997 UNIT OPTION PLAN SECTION 1. GENERAL PURPOSE OF THE PLAN: DEFINITIONS The name of the plan is the Highwoods/Forsyth Limited Partnership 1997 Unit Option Plan (the "Plan"). The purpose of the Plan is to supplement the Amended and Restated 1994 Stock Option Plan of Highwoods Properties, Inc. (the "Company") and thereby encourage and enable the officers, employees, independent contractors and directors of Highwoods Properties, Inc. (the "Company") and its Subsidiaries, including Highwoods/Forsyth Limited Partnership (the "Partnership") upon whose judgment, initiative and efforts the Company largely depends for the successful conduct of its business to acquire a proprietary interest in the Partnership. Providing such persons with a direct stake in the Company's welfare through awards of Units, as defined below, in the Partnership will assure a closer identification of their interests with those of the Company, thereby stimulating their efforts on the Company's behalf and strengthening their desire to remain with the Company. The following terms shall be defined as set forth below: "ACT" means the Securities Exchange Act of 1934, as amended. "AWARD" or "AWARDS", except where referring to a particular grant under the Plan, shall include Unit Option, Unit Appreciation Right, Phantom Unit and Restricted Unit Awards. "BOARD" means the Board of Directors of the Company. "CAUSE" means and shall be limited to a vote of the Board resolving that the participant should be dismissed as a result of (i) any material breach by the participant of any agreement to which the participant and the Company are parties, (ii) any act (other than retirement) or omission to act by the participant which may have a material and adverse effect on the business of the Company or any Subsidiary or on the participant's ability to perform services for the Company or any Subsidiary, including, without limitation, the commission of any crime (other than ordinary traffic violations), or (iii) any material misconduct or neglect of duties by the participant in connection with the business or affairs of the Company or any Subsidiary. "CHANGE OF CONTROL" is defined in Section 13. "CODE" means the Internal Revenue Code of 1986, as amended, and any successor Code, and related rules, regulations and interpretations. "COMMITTEE" means the Board or any Committee of the Board referred to in Section 2. "DISABILITY" means disability as set forth in Section 22(e)(3) of the Code. "EFFECTIVE DATE" means the date on which the Plan is approved by the Board of Directors of the Company in its capacity as general partner of the Partnership. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and the related rules, regulations and interpretations. "FAIR MARKET VALUE" on any given date means the last reported sale price at which the Shares are traded on such date or, if no Shares are traded on such date, the most recent date on which the Shares were traded, as reflected on the New York Stock Exchange or, if applicable, any other national stock exchange on which the Shares are traded. "GENERAL PARTNER" means the Company in its capacity as the general partner of the Partnership. "INDEPENDENT DIRECTOR" means a member of the Board who is not also an employee of the Company or any Subsidiary. A director emeritus shall not be considered as an active Board member for purposes of this definition. "NON-EMPLOYEE DIRECTOR" means a director who qualifies as such under Rule 16b-3(b)(3) promulgated under the Act or any successor definition under the Act. "OPTION" OR "UNIT OPTION" means any option to purchase Units granted pursuant to Section 5. "PHANTOM UNIT" means Awards granted pursuant to Section 8. "RESTRICTED UNIT AWARD" means Awards granted pursuant to Section 7. "RESTRICTED UNITS" means Units subject to restrictions as provided in Section 7 and the subject of a Restricted Stock Award. "SHARE" means one or more, respectively, of the Company's shares of common stock, par value $.01 per share, subject to adjustments pursuant to Section 3. "SUBSIDIARY" means the Partnership, Highwoods Services, Inc. and any corporation or other entity (other than the Company) in any unbroken chain of corporations or other entities, beginning with the Company, if each of the corporations or entities (other than the last corporation or entity in the unbroken chain) owns stock or other interests possessing 50% or more of the economic interest or the total combined voting power of all classes of stock or other interests in one of the other corporations or entities in the chain. "UNIT" means one of the Class A common ownership interests in the Partnership as defined in and subject to the provisions of the First Amended and Restated Agreement of Limited Partnership of the Partnership (the "Partnership Agreement"), except that Units to be awarded hereby or to be received upon the exercise of Unit Options shall not be redeemable for Shares as allowed by Section 8.6 of the Partnership Agreement unless and until such action is permitted by applicable state and federal securities laws and the rules and regulations of the applicable securities exchange. 2 "UNIT APPRECIATION RIGHTS" ("UAR") means Awards granted pursuant to Section 6. SECTION 2. ADMINISTRATION OF PLAN: COMMITTEE AUTHORITY TO SELECT PARTICIPANTS AND DETERMINE AWARDS (a) COMMITTEE. Except as set forth in Section 2(c), the Plan shall be administered by the executive compensation committee of the Board of the General Partner, or any other committee of not less than two Non-Employee Directors performing similar functions, as appointed by the Board from time to time. Only Non-Employee Directors may vote with respect to transactions involving an Award or other acquisition of Units from the Partnership. (b) POWERS OF COMMITTEE. The Committee shall have the power and authority to grant Awards consistent with the terms of the Plan, including the power and authority: (i) to select participants to whom Awards may be granted from time to time; (ii) to determine the time or times of grant, and the extent of Awards, or any combination of Awards, granted to any one or more participants; (iii) to determine the number of Units to be covered by any Award; (iv) to determine and modify the terms and conditions, including restrictions, not inconsistent with the terms of the Plan, of any Award, which terms and conditions may differ among individual Awards and participants, and to approve the form of written instruments evidencing the Awards provided, however that in no event shall the Committee take any action in furtherance hereof which shall reduce or delay the realization of the economic benefit accruing to any grantee of any Award upon the occurrence of an event described in this Section 3(b); (v) to accelerate the exercisability or vesting of all or any portion of any Award; (vi) subject to the provisions of Section 5(a)(iii), to extend the period in which Unit Options may be exercised; (vii) to determine whether, to what extent, and under what circumstances Units and other amounts payable with respect to an Award shall be deferred either automatically or at the election of the participant and whether and to what extent the Company shall pay or credit amounts constituting interest (at rates determined by the Committee) or dividends or deemed dividends on such deferrals; and (viii) to adopt, alter and repeal such rules, guidelines and practices for administration of the Plan and for its own acts and proceedings as it shall deem 3 advisable; to interpret the terms and provisions of the Plan and any Awards (including related written instruments); to make all determinations it deems advisable for the administration of the Plan; to decide all disputes arising in connection with the Plan; and to otherwise supervise the administration of the Plan. All decisions and interpretations of the Committee shall be binding on all persons, including the Company, the Partnership and Plan participants. SECTION 3. UNITS AVAILABLE UNDER THE PLAN; MERGERS; SUBSTITUTIONS (a) UNITS ISSUABLE. The maximum number of Units reserved and available for issuance under the Plan shall be 1,500,000 Units. For purposes of this limitation, the Units underlying any Awards which are forfeited, canceled, reacquired by the Partnership, satisfied without the issuance of Units or otherwise terminated (other than by exercise) shall be added back to the Units available for issuance under the Plan so long as the participants to whom such Awards had been previously granted received no benefits of ownership of the underlying Units to which the Award related. Subject to such overall limitation, Units may be issued up to such maximum number pursuant to any type or types of Award. (b) STOCK DIVIDENDS, MERGERS, ETC. In the event of a stock dividend, stock split or similar change in capitalization affecting the Shares, the Committee shall make appropriate adjustments in (i) the number and kind of Units on which Awards may thereafter be granted, (ii) the number and kind of Units remaining subject to outstanding Awards, and (iii) the option or purchase price in respect of such Units. Except as otherwise provided in any applicable severance or employment agreement with any grantee hereunder, in the event of any merger, consolidation, dissolution or liquidation of the Company, the Committee in its sole discretion shall, as to any outstanding Awards, make such substitution or adjustment in the aggregate number of Units reserved for issuance under the Plan and the number and purchase price (if any) of Units subject to such Awards as it may determine and as may be permitted by the terms of such transaction, or amend or terminate such Awards upon such terms and conditions as it shall provide (which, in the case of the termination of or modification relating to the vested portion of any Award, shall require payment or other consideration which the Committee deems equitable in the circumstances), provided, however that in no event shall the Committee take any action in furtherance hereof which shall reduce or delay the realization of the economic benefit accruing to any grantee of any Award upon the occurrence of an event described in this Section 3(b). (c) SUBSTITUTE AWARDS. The Committee may grant Awards under the Plan in substitution for stock and stock-based awards held by employees of another corporation who concurrently become employees of the Company or a Subsidiary as the result of a merger or consolidation of the employing corporation with the Company or a Subsidiary or the acquisition by the Company or a Subsidiary of property or stock of the employing corporation. The Committee may direct that the substitute awards be granted on such terms and conditions as the Committee considers appropriate in the circumstances. SECTION 4. ELIGIBILITY 4 Participants in the Plan will be such directors, full or part-time officers and other employees and independent contractors of the Company and its Subsidiaries who are responsible for or contribute to the management, growth, or profitability of the Company and its Subsidiaries and who are selected from time to time by the Committee, in its sole discretion. SECTION 5. UNIT OPTIONS Any Unit Option granted under the Plan shall be in such form as the Committee may from time to time approve. (a) Unit Options Granted to Employees. The Committee in its discretion may grant Unit Options to employees of the Company or any Subsidiary or independent contractors engaged by the Company or its Subsidiaries. Unit Options granted pursuant to this Section 5(a) shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem desirable: (i) Exercise Price. The exercise price per Unit for the Units covered by a Unit Option granted pursuant to this Section 5(a) shall be determined by the Committee at the time of grant but shall not be less than 25% of the Fair Market Value on the date of grant. (ii) Option Term. The term of each Unit Option shall be fixed by the Committee. (iii) Exercisability; Rights of a Unitholder. Unit Options shall become vested and exercisable at such time or times, whether or not in installments, as shall be determined by the Committee at the grant date. The Committee may at any time accelerate the exercisability of all or any portion of any Unit Option. An optionee shall have the rights of a unitholder only as to Units acquired upon the exercise of a Unit Option and not as to unexercised Unit Options. (iv) Method of Exercise. Unit Options may be exercised in whole or in part, by giving written notice of exercise to the Company as General Partner in the Partnership, specifying the number of Shares to be purchased. Payment of the purchase price may be made by one or more of the following methods or by such other method as the Committee may allow: (A) In cash, by certified or bank check or other instrument acceptable to the Committee; (B) In the form of Shares or Units that are not then subject to restrictions under any Company plan and that have been held by the optionee for at least six months, if permitted by the Committee in its discretion. Such surrendered Shares or Units shall be valued at Fair Market Value on the exercise date; or 5 (v) Admission to the Partnership. The delivery of an amendment to the Partnership Agreement admitting the optionee as a partner pursuant to the exercise of a Unit Option will be contingent upon receipt from the optionee of the full purchase price for such Units and the fulfillment of any other requirements contained in the Unit Option grant or applicable provisions or laws and an agreement to be bound by the terms and conditions of the Partnership Agreement. (vi) Non-transferability of Options. No Unit Option shall be transferable by the optionee otherwise than by will or by the laws of descent and distribution and all Unit Options shall be exercisable, during the optionee's lifetime, only by the optionee. (vii) Termination by Reason of Death. If any optionee's employment by the Company and its Subsidiaries terminates by reason of death, the Unit Option may thereafter be exercised, to the extent exercisable at the date of death, by the legal representative or legatee of the optionee, for a period of six months (or such longer periods as the Committee shall specify at any time) from the date of death, or until the expiration of the stated term of the Option, if earlier. (viii) Termination by Reason of Disability. (A) Any Unit Option held by an optionee whose employment by the Company and its Subsidiaries has terminated by reason of Disability may thereafter be exercised, to the extent it was exercisable at the time of such termination, for a period of six months (or such longer period as the Committee shall specify at any time) from the date of such termination of employment, or until the expiration of the stated term of the Option, if earlier. (B) The Committee shall have sole authority and discretion to determine whether a participant's employment has been terminated by reason of Disability. (C) Except as otherwise provided by the Committee at the time of grant, the death of an optionee during a period provided in this Section 5(a)(viii) for the exercise of a Unit Option, shall extend such period of six months from the date of death, subject to termination on the expiration of the stated term of the Option, if earlier. (ix) Termination for Cause. If any optionee's employment by the Company and its Subsidiaries has been terminated for Cause except as otherwise provided in any applicable severance or employment agreement with any grantee hereunder, any Unit Option held by such optionee shall immediately terminate and be of no further force and effect; provided, however, that the Committee may, in its sole discretion, provide that such Unit Option can be exercised for a period of up to 30 days from the date of termination of employment or until the expiration of the stated term of the Option, if earlier. (x) Other Termination. Unless otherwise determined by the Committee or except as 6 otherwise provided in any applicable severance or employment agreement with any grantee hereunder, if an optionee's employment by the Company and its Subsidiaries terminates for any reason other than death, Disability, or for Cause, any Unit Option held by such optionee may thereafter be exercised, to the extent it was exercisable on the date of termination of employment for three months (or such longer period as the Committee shall specify at any time) from the date of termination of employment or until the expiration of the stated term of the Option, if earlier. (xi) Units Issued in Settlement. Units issued upon exercise of a Unit Option shall be free of all restrictions under the Plan, except as otherwise provided in this Plan. (b) Unit Options Granted to Independent Directors. (i) Discretionary Grant of Options. The Committee in its discretion may grant Unit Options to Independent directors and provide for an exercise price per Unit for the Units covered by a Unit Option granted as it establishes in its sole discretion. (ii) Exercise; Termination; Non-transferability. (A) Options granted under Section 5(b)(i) may be exercised at any time and upon such conditions as established by the Committee. (B) The rights of an Independent Director in an Option granted under Section 5(b)(i) shall be as provided or allowed by the Committee. (C) No Unit Option granted under this Section 5(b) shall be transferable by the optionee otherwise than by Will or by the laws of descent and distribution, and such Options shall be exercisable, during the optionee's lifetime only by the optionee. Any Option granted to an Independent Director pursuant to Section 5(b)(i) and outstanding on the date of his death may be exercised by the legal representative or legatee of the optionee for a period of six months from the date of death or until the expiration of the stated term of the Option, if earlier. (D) Options granted under this Section 5(b) may be exercised only by written notice to the General Partner specifying the number of Units to be purchased. Payment of the full purchase price of the Units to be purchased may be made by one or more of the methods specified in Section 5(a)(iv). An optionee shall have the rights of a unitholder only as to Units acquired upon the exercise of an Option and not as to unexercised Options. SECTION 6. UNIT APPRECIATION RIGHTS The Committee may from time to time grant UARs unrelated to Options or related to Options or portions of Options granted to participants under the Plan. Each UAR shall be evidenced by a written instrument and shall be subject to such terms and conditions as the Committee may 7 determine. Subject to such terms and conditions established by the Committee, the participant may exercise a UAR or portion thereof, and thereupon shall be entitled to receive payment of an amount equal to the aggregate appreciation in value of the Units as to which the UAR is awarded, as measured by the difference between the purchase price of such Units and their Fair Market Value at the date of exercise. Such payments may be made in cash, in Units valued at Fair Market Value as of the date of exercise, or in any combination thereof, as the Committee in its discretion shall determine. SECTION 7. RESTRICTED UNIT AWARDS (a) Nature of Restricted Unit Award. The Committee may grant Restricted Unit Awards to any participant under the Plan. A Restricted Unit Award is an Award entitling the recipient to acquire, at no cost or for a purchase price determined by the Committee, Units subject to such restrictions and conditions as the Committee may determine at the time of grant. Conditions may be based on continuing employment and/or achievement of pre-established performance goals and objectives. (b) Acceptance of Award. A participant who is granted a Restricted Unit Award shall have no rights with respect to such Award unless the participant shall have accepted the Award within 60 days (or such shorter date as the Committee may specify) following the award date by making payment to the Company, if required, by certified or bank check or other instrument or form of payment acceptable to the Committee in an amount equal to the specified purchase price, if any, of the Units covered by the Award and by executing and delivering to the Company a written instrument that sets forth the terms and conditions of the Restricted Units in such form as the Committee shall determine. (c) Rights as a Unitholder. Upon complying with Section 7(b) above, a participant shall have all the rights of a unitholder with respect to the Restricted Units including voting and distribution rights, subject to non-transferability restrictions and Company repurchase or forfeiture rights described in this Section 7 and subject to such conditions contained in the written instrument evidencing the Restricted Unit Award. (d) Restrictions. Restricted Units may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of except as specifically provided herein. In the event of termination of employment by the Company and its Subsidiaries, or in the case of Independent Directors, an Independent Director ceases to be a director, for any reason (including death, retirement, Disability, or for Cause), the Company shall have the right, at the discretion of the Committee, to repurchase at their original purchase price as established at Section 7(a) above Restricted Units with respect to which conditions have not lapsed, or except as otherwise provided in any applicable severance or employment agreement with any grantee hereunder to require forfeiture of such Units to the Company if acquired at no cost, from the participant or the participant's legal representative. The Company must exercise such right of repurchase or forfeiture not later than the 90th day following such termination of employment (unless otherwise specified in the written instrument evidencing the Restricted Unit Award). 8 (e) Vesting of Restricted Units. Except as otherwise provided in any applicable severance or employment agreement with any grantee hereunder, the Committee at the time of grant shall specify the date or dates and/or the attainment of pre-established performance goals, objectives and other conditions on which the non-transferability of the Restricted Units and the Company's right of repurchase or forfeiture shall lapse. Subsequent to such date or dates and/or the attainment of such pre-established performance goals, objectives and other conditions, the Units on which all restrictions have lapsed shall no longer be Restricted Units and shall be deemed "vested." (F) Waiver, Deferral and Reinvestment of Distributions. The written instrument evidencing the Restricted Unit Award may require or permit the immediate payment, waiver, deferral or investment of distributions paid on the Restricted Units. SECTION 8. PHANTOM UNITS. The Committee may from time to time grant Phantom Unit Awards to any participant under the Plan. Each Phantom Unit Award shall be evidenced by a written instrument and shall be subject to such terms and conditions as the Committee may determine. Subject to such terms and conditions as may be established by the Committee, the participant may exercise a Phantom Unit Award or portion thereof, and thereupon shall be entitled to receive payment of an amount equal to the Fair Market Value at the date of exercise of the Units as to which the Phantom Unit is awarded. Such payments may be made in cash, in Units valued at Fair Market Value as of the date of exercise, or in any combination thereof, as the Committee in its discretion shall determine. SECTION 9. TAX WITHHOLDING (a) Payment by Participant. Each participant shall, no later than the date as of which the value of an Award of any Units or other amounts received thereunder first becomes includable in the gross income of the participant for federal income tax purposes, pay to the Company, or make arrangements satisfactory to the Committee regarding payment of any federal, state, or local taxes of any kind required by law to be withheld with respect to such income. The Company and its Subsidiaries shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the participant. (b) Payment in Units. A participant may elect to have such tax withholding obligation satisfied, in whole or in part, by (i) authorizing the Company to withhold from the Units to be issued pursuant to any Award a number of Units with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the withholding amount due, or (ii) transferring to the Company Units owned by the participant with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the withholding amount due. With respect to any participant who is subject to Section 17 of the Act, the following additional restrictions shall apply: (A) the election to satisfy tax withholding obligations relating to an Award in the manner permitted by this Section 9(b) shall be made either (1) during the period beginning on the third business day following 9 the date of release of quarterly or annual summary statements of revenues of the Company and ending on the twelfth business day following such date, or (2) at least six months prior to the date as of which the receipt of such Award first becomes a taxable event for federal income tax purposes; (B) such election shall be irrevocable; (C) such election shall be subject to the consent or disapproval of the Committee, and (D) the Units withheld to satisfy tax withholding must pertain to an Award which has been outstanding for at least six months. SECTION 10. TRANSFER, LEAVE OF ABSENCE, ETC. For purposes of the Plan, the following events shall not be deemed a termination of employment: (a) a transfer to the employment of the Company from a Subsidiary or from the Company to a Subsidiary, or from one Subsidiary to another; or (b) an approved leave of absence for military service or sickness, or for any other purposes approved by the Company, if the employee's right to re-employment is guaranteed either by a statute or by contract or under the policy pursuant to which the leave of absence was granted or if the Committee otherwise so provides in writing. SECTION 11. AMENDMENTS AND TERMINATION The Board may, at any time, amend or discontinue the Plan and the Committee may, at any time, amend or cancel any outstanding Award (or provide substitute Awards at the same or reduced exercise or purchase price or with no exercise or purchase price, but such price, if any, must satisfy the requirements which would apply to the substitute or amended Award as if it were then initially granted under this Plan) for the purpose of satisfying changes in law without the holder's consent, provided, however that in no event shall the Board or the Committee take any action which shall reduce or delay the realization of the economic benefit accruing to any grantee of any Award. SECTION 12. STATUS OF PLAN With respect to the portion of any Award which has not been exercised and any payments in cash, Units or other consideration not received by a participant, a participant shall have no rights greater than those of a general creditor of the Company unless the Committee shall otherwise expressly determine in connection with any Award or Awards. In its sole discretion, the Committee may authorize the creation of trusts or other arrangements to meet the Company's obligations to deliver Units or make payments with respect to Awards hereunder, provided that the existence of such trusts or other arrangements is consistent with the provisions of the foregoing sentence. SECTION 13. CHANGE OF CONTROL PROVISIONS 10 Upon the occurrence of a Change of Control as defined in this Section 13: (a) Each outstanding Unit Option shall automatically become fully exercisable notwithstanding any provision to the contrary herein. (b) Restrictions and conditions on Restricted Unit Awards shall automatically be deemed waived, and the recipients of such Awards shall become entitled to receipt of the Units subject to such Awards unless the Committee shall otherwise expressly provide at the time of grant. (c) "CHANGE OF CONTROL" shall mean the occurrence of any one of the following events: (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (a) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (b) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however that the following acquisitions shall not constitute a Chance of Control: (I) any acquisition directly from the Company (excluding an acquisition by virtue of the exercise of a conversion privilege), (II) any acquisition by the Company, (III) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (IV) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, following such reorganization, merger or consolidation, the conditions described in clauses (I), (II) and (III) of subsection (i) of this Section 1(c) are satisfied; or (ii) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) Approval by the shareholders of the Company of a reorganization, merger or consolidation, in each case, unless, following such reorganization, merger or consolidation, (a) more than 60% of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote 11 generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation in substantially the same proportions, as their ownership, immediately prior to such reorganization, merger or consolidation, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (b) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company or such corporation resulting from such reorganization, merger or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (c) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or (iv) Approval by the shareholders of the Company of (a) a complete liquidation or dissolution of the Company or (b) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation, with respect to which following such sale or other disposition, (I) more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (II) no Person (excluding the Company and any employee benefit plan (or related trust) of the Company or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (III) at least a majority of the members of the board of directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Company. Notwithstanding the foregoing, a "Change of Control" shall not be deemed to have occurred for purposes of the foregoing clause (i) solely as the result of an acquisition of securities by the 12 Company which, by reducing the number of Shares or other Voting Securities outstanding, increases (x) the proportionate number of Shares beneficially owned by any person to 40% or more of the Shares then outstanding or (y) the proportionate voting power represented by the Voting Securities beneficially owned by any person to 40% or more of the combined voting power of all then outstanding Voting Securities; PROVIDED, HOWEVER, that if any person referred to in clause (x) or (y) of this sentence shall thereafter become the beneficial owner of any additional Shares or other Voting Securities (other than pursuant to a stock split, stock dividend, or similar transaction), then a "Change of Control" shall be deemed to have occurred for purposes of the foregoing clause (i). SECTION 14. GENERAL PROVISIONS (a) NO DISTRIBUTION: COMPLIANCE WITH LEGAL REQUIREMENTS. The Committee may require each person acquiring Units pursuant to an Award to represent to and agree with the Company in writing that such person is acquiring the Units without a view to distribution thereof. No Units shall be issued pursuant to an Award until all applicable securities laws and other legal and stock exchange requirements have been satisfied. The Committee may require the placing of such stop-orders and restrictive legends on certificates for Units and Awards as it deems appropriate. (b) OTHER COMPENSATION ARRANGEMENTS: NO EMPLOYMENT RIGHTS. Nothing contained in this Plan shall prevent the Partnership from adopting other or additional compensation arrangements, including trusts, subject to limited partnership approval if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases. The adoption of the Plan and the grant of Awards do not confer upon any employee any right to continued employment with the Company or any Subsidiary. SECTION 16. GOVERNING LAW This Plan shall be governed by North Carolina law except to the extent such law is preempted by federal law. Highwoods/Forsyth Limited Partnership By: Highwoods Properties, Inc. By: Title: 13 EX-10 9 EXHIBIT 10.11(D) EMPLOYMENT AGREEMENT AGREEMENT, made and entered into as of the 7th day of October, 1997, by and among Highwoods Properties, Inc., a Maryland corporation, and Highwoods/Forsyth Limited Partnership, of which Highwoods Properties, Inc. is the general partner, (the "Company") and James R. Heistand, a resident of Windermiar, Florida (the "Employee"). W I T N E S S E T H : WHEREAS, the Company desires to obtain the services of Employee, for its own benefit and for the benefit of any existing and future Affiliated Company (defined as any corporation or other business entity that directly or indirectly controls, is controlled by, or is under common control with the Company), and Employee desires to secure employment from the Company upon the following terms and conditions; NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties agree that the following provisions shall constitute their agreement of employment: 1. Employment. The Company hereby employs the Employee, and the Employee hereby accepts employment with the Company, for the term set forth in Section 2 below, in the position and with the duties and responsibilities set forth in Section 3 below, and upon the other terms and conditions hereinafter stated. 2. Period of Employment. The term of this Agreement (the "Period of Employment") shall commence on the date hereof and shall continue through the earlier of the third anniversary of such date or the date of termination as otherwise provided hereinafter. Subject to the provisions of Section 7, the Company shall pay the Employee compensation as provided in Section 4 through the end of the Period of Employment, and thereafter the Company's obligations hereunder shall end. In the event that this Agreement expires and a new written agreement is not entered into by the parties, the provisions of Sections 9 and 10 of this Agreement will apply with respect to any continued employment of the Employee by the Company or by any successor to the business of the Company. 3. Position; Duties; Extent of Services. (a) Duties; Position. The Employee shall serve initially as Vice President -Florida division of the Company, and he shall have responsibilities, duties and authorities and shall perform such services of an executive character as shall be designated from time to time by the Board of Directors of the Company (the "Board"), so long as such responsibilities, duties, authorities and services are consistent with his position described above and are to be performed in Orlando, Florida. The Company shall retain full direction and control of the means and methods by which Employee performs the above services. (b) Other Activities. Except upon the prior written consent of the Board, Employee, during the Period of Employment, will not (i) accept any other employment, or (ii) engage, directly or indirectly, in any other business activity (whether or not pursued for pecuniary advantage), in each case that is or may be competitive with, or that might place him in a competing position to that of the Company or any Affiliated Company with respect to the development, acquisition, operation, management or leasing of any industrial, office, research and development, or warehouse and distribution properties. 4. Compensation. In consideration of the services to be rendered by the Employee to the Company and in consideration of the Employee's other covenants hereunder, the Employee will receive a base salary at the rate of $190,000 per year, payable at such intervals as may be established 2 by the Company from time to time for salary payments to its executive employees. The Employee shall receive such salary increases and/or bonuses as the Board may from time to time approve in its discretion. In no event, however, will the Employee's gross annual salary be less than $190,000. The Employee shall also be entitled to participate in such incentive compensation plans as the Company may from time to time maintain for its executive employees generally with a bonus percentage of up to 100% of base salary. 5. Employee Benefits. The Employee will be entitled to participate, in accordance with the provisions thereof, in the employee benefit plans (including car allowance benefits) made available by the Company to its senior executive employees generally and which plans as currently available are summarized on Schedule A hereto. In the event of the death or total disability of the Employee, the Employee or his estate or beneficiaries shall also be entitled to benefits in accordance with Section 7 hereof. 6. Business Expense Reimbursements. During the period of his employment under this Agreement, the Employee will be entitled to reimbursement for all reasonable, out-of-pocket expenses incurred by him in performing services hereunder, including, but not limited to, an automobile allowance of $500 per month and a cellular phone allowance up to $150 per month, provided that such expenses are incurred in accordance with the applicable policies of the Company for its executive employees generally. The Employee shall be entitled to such reimbursement upon presentation by the Employee, from time to time, of an itemized account of such expenses and appropriate documentation therefor. 7. Termination of Employment. 3 (a) Death. In the event of the death of the Employee during his employment under this Agreement, the following payments shall be made to the Employee's designated beneficiary, or, in the absence of such designation, to the estate or other legal representative of the Employee: (i) his base salary for the month in which his death occurs, (ii) such bonuses (if any), determined on an annualized pro-rata basis, as has been earned by the Employee and not paid to him at the time of his death, and (iii) reimbursement of expenses pursuant to Section 6 hereof. Any rights and benefits the Employee or his estate or any other person may have under employee benefit plans, incentive compensation plans, and programs of the Company generally in the event of the Employee's death shall be determined in accordance with the terms of such plans and programs. Except as provided in this Section 7, neither the Employee's estate nor any other person shall have any rights or claims arising out of wages or employee benefits against the Company in the event of the death of the Employee during his employment hereunder. (b) Long-Term Disability. In the event of the Employee's disability (as hereinafter defined) during his employment under this Agreement, the Period of Employment may be terminated by the Company. For the first six months following termination of employment due to disability, the Employee shall be paid his base salary at the rate in effect at the time of the commencement of disability. Thereafter, the Employee shall be entitled to benefits in accordance with and subject to the terms and provisions of the Company's long-term disability plan for executive employees, as in effect at the time of the commencement of disability. For purposes of this Agreement, "disability" shall have the same meaning as given that term under the Company's long-term disability plan for 4 executive employees, as in effect from time to time. Anything herein to the contrary notwithstanding, if, during the six-month period following a termination of employment under this Section 7(b) in which salary continuation payments are payable by the Company, the Employee becomes reemployed or otherwise engaged (whether as an employee, partner, consultant, or otherwise), any salary or other remuneration or benefits earned by him from such employment or engagement shall offset any payments due him under this Section 7(b). In the event of the Employee's disability, any rights and benefits the Employee may have under employee benefit plans, incentive compensation plans, and programs of the Company generally shall be determined in accordance with the terms of such plans and programs. Upon termination of the Employee's employment by reason of disability under this Section 7, the Employee shall be entitled, in addition to the other payments provided for in this Section 7, to payment of such bonuses (if any), determined on an annualized pro-rata basis, as may have been earned by the Employee and not paid to him at the time of such termination. Except as provided in Sections 5, 6 and 7, neither the Employee nor his estate, or any other person, shall have any rights or claims arising out of wages or employee benefits against the Company in the event of the termination of the Employee's employment by reason of disability. (c) Termination for Cause. Nothing herein shall prevent the Company from terminating the Period of Employment for Cause (as hereinafter defined). Upon termination for Cause, the Employee shall receive his base salary only through the date of termination, and neither the Employee nor any other person shall, except as provided in Section 6, be entitled to any further payments from the Company arising under this Agreement or as a 5 result of Employee's employment relationship with the Company (except as otherwise provided herein) for salary or unpaid bonuses. Any rights and benefits the Employee may have under employee benefit plans and programs of the Company generally following a termination of the Employee's employment for Cause shall be determined in accordance with the terms of such plans and programs. For purposes of this Agreement, termination for Cause shall mean (i) termination due to (y) willful or gross neglect of duties for which employed which is not cured within five (5) days of Employee's receipt of notice of such neglect, or (z) willful misconduct in the performance of duties for which employed, in either such instance so as to cause material harm to the Company, all such facts to be determined in good faith by the Board, (ii) termination due to the Employee's committing fraud, misappropriation or embezzlement in the performance of his duties as an employee of the Company, or (iii) termination due to the Employee's committing any felony for which he is convicted and which, as determined in good faith by the Board, constitutes a crime involving moral turpitude. (d) Termination by the Company Other than for Cause. Notwithstanding any other term or provision of this Agreement, the Company may terminate the Period of Employment at any time and for whatever reason it deems appropriate, or for no reason. In the event such termination by the Company occurs and is not due to disability as provided in Section 7(b) above or for Cause as provided in Section 7(c) above, the Employee shall be entitled to payment of his base salary, at the rate in effect at the time of such termination, until the later of the third anniversary of the date hereof, or the expiration of twelve months from the date of such termination; provided, however, that such salary continuation payments 6 shall cease in the event of the Employee's death prior to completion of such payments. The Employee shall also be entitled to such bonuses (if any), determined on an annualized pro-rata basis, as have been earned by the Employee and not paid to him at the time of such termination. Any rights and benefits the Employee may have under employee benefit plans and programs of the Company generally following a termination of the Employee's employment under the circumstances described in this Section 7(d) shall be determined in accordance with the terms of such plans and programs. Except as provided in Sections 5, 6 and 7(d), neither the Employee nor any other person shall have any rights or claims arising out of wages or employee benefits against the Company by reason of the termination of the Employee's employment under the circumstances described in this Section 7(d). In the event of a termination under this Section 7(d), any "lock-up provision" affecting any Class A Units or shares of the Company's common stock (the "Shares") held by Employee in the Company which is longer than one year from the date of issuance of such Class A Units or Shares to Employee shall be limited to one year from the date of issuance of such Class A Units or Shares to Employee. (e) By Employee For Good Reason. Employee may terminate, without liability, the Period of Employment for Good Reason (as defined below) upon ten (10) days' advance written notice to the Company. If Employee terminates his employment pursuant to this Section 7(e), the Employee shall be entitled to payment of his base salary, at the rate in effect at the time of such termination, until the later of the third anniversary of the date hereof, or the expiration of twelve months from the date of such termination; provided, however, that such salary continuation payments shall cease in the event of the Employee's death prior to 7 completion of such payments. The Employee shall also be entitled to such bonus (if any), determined on an annualized pro-rata basis, as has been earned by the Employee and not paid to him at the time of such termination. Any rights and benefits the Employee may have under employee benefit plans and programs of the Company generally following a termination of the Employee's employment under the circumstances described in this Section 7(e) shall be determined in accordance with the terms of such plans and programs. Except as provided in Section 5, 6 and 7(e), neither the Employee nor any other person shall have any rights of claims arising out of wages or employee benefits against the Company by reason of the termination of the Employee's employment under the circumstances described in this Section 7(e). In the event of a termination under this Section 7(e), any "lock-up provision" affecting any Class A Units held by Employee which is longer than one year from the date of issuance of such Class A Units to Employee shall be limited to one year from the date of issuance of such Class A Units to Employee. Good Reason shall exist if: (i) there is an assignment to Employee of any duties materially inconsistent with or which constitute a material reduction in Employee's position, duties, responsibilities, or status with the Company, or a material reduction in Employee's reporting responsibilities, title or offices or a change in geographic location inconsistent with that established in Section 3(a); (ii) the Company acts in any way that would have a disproportionately material adverse effect on Employee's participation in or disproportionately and materially reduce Employee's benefit under any benefit plan of the Company in which Employee is participating or deprive Employee of any material fringe benefit enjoyed by Employee when compared to other executives of the Company except those plans which are based on and the benefits of which 8 are related to the Employee's personal performance of his duties hereunder; or (iii) any material breach of this Agreement by the Company. (f) Voluntary Termination by the Employee. At any time, Employee may terminate, without liability, the Period of Employment for any reason, by giving thirty (30) days advance written notice to the Company. If Employee terminates his employment pursuant to this Section 7(f), the Company shall have the option, in its complete discretion, to terminate Employee immediately without the running of the notice period. The Company shall pay Employee the compensation to which he is entitled pursuant to Section 4 through the end of the notice period, or through the day upon which early termination is elected pursuant to the foregoing sentence, and thereafter, all obligations of the Company hereunder shall terminate. 8. Covenants Not to Compete. (a) Except as provided in Section 8(c), the Employee promises and agrees that, until the expiration of one year following the termination or expiration of the Period of Employment or while receiving any severance payments under Section 7(d) or (e), he will not for himself or any third party, directly or indirectly (i) engage in the development, operation, management or leasing of any industrial, office or distribution properties in any town, city, county, municipality or metropolitan area in Florida in which the Company is engaged in business at the time of such termination without the written consent of either the Chief Executive Officer or the Board, or (ii) interfere with, disrupt or attempt to disrupt the relationship, contractual or otherwise, between the Company and any third party, including but not limited to its employees, contractors, tenants and lessees. 9 (b) It is the desire and intent of the parties that the provisions of this Section 8 shall be enforced to the fullest extent permitted under the laws and public policies of each jurisdiction in which enforcement is sought. Accordingly, if any particular portion of this Section 8 shall be adjudicated to be invalid or unenforceable, such adjudication shall apply only with respect to the operation of that portion in the particular jurisdiction in which such adjudication is made, and all other portions shall continue in full force and effect. (c) It is expressly agreed that the provisions and covenants in Section 8(a)(i) shall not apply and shall be of no force or effect in the event the Company terminates the Employee's employment under this Agreement and such termination is not due to disability or for Cause, or in the event the Employee terminates this Agreement for Good Reason under Section 7(e) above. (d) Notwithstanding anything to the contrary herein, if at any time after one year from the date hereof, James R. Heistand is not a member of the Board and such event is due neither to his voluntary resignation from the Board nor his voluntary decision not to stand for election or reelection, Employee may elect at any time thereafter to have the remaining term of his Period of Employment reduced to six months from the date of such election and likewise have the term of the covenant provided by Section 8(a)(i) above reduced to six months. However, for a period of one year following the termination of his Period of Employment under this Section 8(d), Employee shall not pursue, engage in, participate in or take advantage either of any existing or proposed corporate opportunity of the Company or any Affiliated Company at the date of termination of employment or any project or proposed project which was considered or under consideration for acquisition, management, 10 development, or joint venture by the Company during the twelve month period immediately preceding the date of the Employee's termination of employment without the prior written approval of Highwoods. 9. Confidential Information: Rights to Materials. (a) Confidential Information. The Employee promises and agrees that he will not, either while in the Company's employ or at any time thereafter and without the Company's prior written consent, disclose to any person not employed by the Company, or not engaged to render services to the Company, or use, for himself or any other person, firm, corporation or entity, any confidential information of the Company obtained by him while in the employ of the Company, including, without limitation, any of the Company's methods, processes, techniques, practices, research data, marketing and sales information, personnel data, customer lists, financial data, plans, know-how, trade secrets, and proprietary information of the Company; provided, however, that this provision shall not preclude the Employee from use or disclosure of information known generally to the public (other than information known generally to the public as a result of a violation of this Section 9(a) by the Employee), from use or disclosure of information acquired by the Employee outside of his affiliation with the Company, from disclosure required by law or court order, or from disclosure or use appropriate and in the ordinary course of carrying out his duties as an employee of the Company. (b) Rights to Materials. The Employee further promises and agrees that, upon termination of his employment for whatever reason and at whatever time, he will not take with him, without the prior written consent of an officer authorized to act in the matter by 11 the Board, any records, files, memoranda, reports, customer lists, drawings, plans, sketches, documents, specifications, and the like (or any copies thereof) relating to the business of the Company or any of its current or future Affiliated Companies. 10. Injunctive Relief. The Employee acknowledges and agrees that the Company would suffer irreparable injury in the event of a breach by him of any of the provisions of Section 8 or Section 9 of this Agreement and that the Company shall be entitled to an injunction restraining him from any breach or threatened breach thereof. The Employee further agrees that, in the event of his breach of any provision of Section 8 or 9 hereof, the Company shall be entitled to cease any payments otherwise due and payable to the Employee hereunder. Nothing herein shall be construed, however, as prohibiting the Company from pursuing any other remedies at law or in equity which it may have for any such breach or threatened breach of any provision of Section 8 or 9 hereof, including the recovery of damages from the Employee. 11. Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the Employee and his personal representatives, estate and heirs and the Company and its successors and assigns, including without limitation any corporation or other entity to which the Company may transfer all or substantially all of its assets and business (by operation of law or otherwise) and to which the Company may assign this Agreement. The Employee may not assign this Agreement or any part hereof without the prior written consent of the Company, which consent may be withheld by the Company for any reason it deems appropriate. 12. Entire Agreement. This Agreement contains the entire agreement of the parties with respect to the employment of the Employee by the Company and supersedes and replaces all other 12 understandings and agreements, whether oral or in writing, if any there be, previously entered into be the parties with respect to such employment. 13. Amendment; Waiver. No provisions of this Agreement may be amended, modified or waived unless such amendment, modification or waiver is agreed to in writing and signed by the Employee and by a duly authorized officer of the Company. No waiver by either party of any breach by the other party of any provision of this Agreement shall be deemed a waiver of any other breach. 14. Notices. Any notice to be given hereunder shall be in writing and delivered personally, or sent by certified mail or registered mail, postage prepaid, return receipt requested, addressed to the party concerned, if to the Company, at its principal office, and if to the Employee, at his home address. 15. Severability. If any one or more of the provisions contained in this Agreement shall be invalid, illegal, or unenforceable in any respect under any applicable law, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 16. Withholding. Anything herein to the contrary notwithstanding, all payments made by the Company hereunder shall be subject to the withholding of such amounts relating to taxes as the Company may reasonably determined it should withhold pursuant to any applicable law or regulation. 17. Governing Law. This Agreement shall be governed by and construed in accordance with the laws and judicial decisions of the State of North Carolina. 13 IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first above written. HIGHWOODS PROPERTIES, INC. By: ____________________________________ Title: ____________________________________ HIGHWOODS/FORSYTH LIMITED PARTNERSHIP By: HIGHWOODS PROPERTIES, INC., ITS GENERAL PARTNER By: ____________________________________ Title: ____________________________________ EMPLOYEE ____________________________________(SEAL) James R. Heistand 14 EX-10 10 EXHIBIT 10.15 THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE ASSIGNED WITHOUT COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION PROVISIONS OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM. THE SECURITIES REPRESENTED BY THIS WARRANT ARE SUBJECT TO A REGISTRATION RIGHTS AND LOCK-UP AGREEMENT DATED AS OF OCTOBER 1, 1997 (AS THE SAME MAY BE AMENDED, MODIFIED OR SUPPLEMENTED, THE "REGISTRATION RIGHTS AGREEMENT"), A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY AND MAY BE OBTAINED UPON WRITTEN REQUEST AND WITHOUT CHARGE. Warrant No. Date of Issuance: October __, 1997 Right to Purchase ________ Shares of Common Stock, $.01 par value per share, of Highwoods Properties, Inc. HIGHWOODS PROPERTIES, INC. Common Stock Purchase Warrant ----------------------------- Highwoods Properties, Inc., a corporation incorporated under the laws of the State of Maryland (the "Company"), hereby certifies that, for value received, __________ or assigns, is entitled, subject to the terms set forth below, to purchase from the Company at any time or from time to time on or after October 1, 2002, 10,000 fully paid and nonassessable shares of Common Stock, $.01 par value per share, of the Company, at a purchase price per share of $32.50 per share (such purchase price per share as adjusted from time to time as herein provided is referred to herein as the "Purchase Price"). The number and character of such shares of Common Stock and the Purchase Price are subject to adjustment as provided herein. This Warrant is one of the Common Stock Purchase Warrants (the "Warrants") evidencing the right to purchase shares of Common Stock of the Company issued pursuant to that certain Master Agreement of Merger and Acquisition (as the same may be amended, modified or supplemented, the "Merger Agreement"), dated as of August 27, 1997, by and among the Company, Highwoods/Forsyth Limited Partnership, Associated Capital Properties, Inc. ("ACP") and the shareholders of ACP, and subject to the Registration Rights Agreement, copies of which agreements are on file at the principal office of the Company, and the holder of this Warrant shall be entitled to all of the benefits of the Registration Rights Agreement, as provided therein. As used herein the following terms, unless the context otherwise requires, have the following respective meanings: (a) The term "Company" shall include any corporation which shall succeed to or assume the obligations of the Company under this Warrant. (b) The term "Common Stock" includes the Company's Common Stock, $.01 par value per share, as authorized on the date of the Merger Agreement and any other securities into which or for which any of such Common Stock may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise. (c) The term "Fair Market Value" means, in any case in which the Common Stock is publicly traded, the daily closing price per share of Common Stock on the date of exercise of a Warrant. The closing price for any day shall be the last sale price or, in case no sale takes place on such day, the average of the closing bid and asked prices in either case as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Common Stock is listed or admitted to trading; or, if not listed or admitted to trading on any national securities exchange, the last quoted price (or, if not so quoted, the average of the last quoted high bid and low asked prices) in the over-the-counter market, as reported by the National Association of Securities Dealers Automated Quotations System or such other system then in use; or, if on any such date no bids are quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in such security reasonably selected by the Board of Directors of the Company with utmost good faith to the holder of this Warrant. If on any such date, no market maker is making a market in the Common Stock, the Fair Market Value of such security on such date shall be determined reasonably and with utmost good faith to the holder of this Warrant by the Board of Directors of the Company. If the Common Stock is not publicly held or not so listed or traded, "Fair Market Value" shall mean the fair value per share determined reasonably and with utmost good faith to the holder of this Warrant by the Board of Directors of the Company. 1. Exercise of Warrant. 1.1. Full Exercise. This Warrant may be exercised in full by the holder hereof by surrender of this Warrant, with the form of subscription at the end hereof duly executed by such holder, to the Company at its principal office, accompanied by payment, in cash or by certified or official bank check payable to the order of the Company, in the amount obtained by multiplying the number of shares of Common Stock for which this Warrant is then exercisable by the Purchase Price then in effect. 1.2. Partial Exercise. This Warrant may be exercised in part by surrender of this Warrant in the manner and at the place provided in Subsection 1.1 except that the amount payable by the holder on such partial exercise shall be the amount obtained by multiplying (a) the number of shares of Common Stock designated by the holder in the subscription at the end hereof by (b) the Purchase Price then in effect. On any such partial exercise the Company at its expense will immediately issue and deliver to or upon the order of the holder hereof a new Warrant or Warrants 2 of like tenor, in the name of the holder hereof or as such holder may request, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock for which such Warrant or Warrants may still be exercised. 1.3. Net Issue Election. The holder hereof may elect to receive, without the payment by such holder of any additional consideration, shares equal to the value of this Warrant or any portion hereof by the surrender of this Warrant or such portion to the Company, with the form of subscription at the end hereof duly executed by such holder, at the office of the Company. Thereupon, the Company shall issue to such holder such number of fully paid and nonassessable shares of Common Stock as is computed using the following formula: X = Y (A-B) ------- A where X = the number of shares to be issued to such holder pursuant to this Subsection 1.3. Y = the number of shares covered by this Warrant in respect of which the net issue election is made pursuant to this Subsection 1.3. A = the Fair Market Value of one share of Common Stock as of the date on which the net exercise election is made pursuant to this Subsection 1.3. B = the Purchase Price in effect under this Warrant at the time the net issue election is made pursuant to this Subsection 1.3. 1.4. Company Acknowledgment. The Company will, at the time of the exercise of the Warrant, upon the request of the holder hereof, acknowledge in writing its continuing obligation to afford to such holder any rights to which such holder shall continue to be entitled after such exercise in accordance with the provisions of this Warrant and the Registration Rights Agreement. If the holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such holder any such rights. 1.5. Trustee for Warrant Holders. In the event that a bank or trust company shall have been appointed as trustee for the holders of the Warrants pursuant to Subsection 4.2, such bank or trust company shall have all the powers and duties of a warrant agent appointed pursuant to Section 12 and shall accept, in its own name for the account of the Company or such successor person as may be entitled thereto, all amounts otherwise payable to the Company or such successor, as the case may be, on exercise of this Warrant pursuant to this Section 1. 2. Delivery of Stock Certificates, etc., on Exercise. As soon as practicable after the exercise of this Warrant in full or in part, and in any event within ten (10) days thereafter, the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the holder hereof, or as such holder may direct, a certificate 3 or certificates for the number of fully paid and nonassessable shares of Common Stock to which such holder shall be entitled on such exercise, plus, in lieu of any fractional share to which such holder would otherwise be entitled, cash equal to such fraction multiplied by the then current Fair Market Value of one full share, together with any other stock or other securities and property (including cash, where applicable) to which such holder is entitled upon such exercise, pursuant to Section 1 or otherwise. 3. Adjustments. (a) If the outstanding shares of Common Stock shall be subdivided into a greater number of shares or a dividend in Common Stock shall be declared or distributed in respect of the Common Stock or the outstanding shares of Common Stock shall be combined or reclassified into a smaller number of shares, the Purchase Price in effect immediately after the record date for such dividend or distribution or the effective date of such subdivision, combination or reclassification shall be adjusted so that it shall equal the price determined by multiplying the Purchase Price in effect immediately prior thereto by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding immediately before such dividend, distribution, subdivision, combination or reclassification, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such dividend, distribution, subdivision, combination or reclassification. Such adjustment shall be made successively whenever any event specified above shall occur. (b) If the Company shall fix a record date for the issuance of rights, options, warrants or convertible or exchangeable securities to all holders of Common Stock entitling them to subscribe for or purchase shares of Common Stock at a price per share of Common Stock less than the Fair Market Value per share of Common Stock on such record date, the Purchase Price shall be adjusted immediately thereafter so that it shall equal the price determined by multiplying the Purchase Price in effect immediately prior thereto by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding on such record date (plus the number of shares of Common Stock which the aggregate offering price of the total number of shares of Common Stock so offered would purchase at the Fair Market Value per share of Common Stock on such record date), and of which the denominator shall be the number of shares of Common Stock outstanding on such record date plus the number of additional shares of Common Stock offered for subscription or purchase. Such adjustment shall be made successively whenever such a record date is fixed. Notwithstanding the foregoing, if the securities referred to in this Subsection 3(b) entitle the holder on some future date or upon the happening of some future event to subscribe for or purchase shares of Common Stock at a price per share less than the Fair Market Value per share on such record date, then the Purchase Price adjustment referred to above shall be made on such future date or upon the happening of such future event. If this Warrant is exercised after such record date but prior to such future time or the happening of such future event, the holder of this Warrant shall receive upon the exercise hereof (in addition to the number of shares of Common Stock set forth above, as adjusted, if necessary, in accordance with the provisions hereof) such rights, options, warrants or convertible or exchangeable securities that such holder would have been entitled to receive if, immediately prior 4 to such record date, such holder had held the number of shares of Common Stock which were then purchasable upon the exercise of this Warrant. To the extent that any rights, options, warrants or convertible or exchangeable securities referred to in this Subsection 3(b) are not so issued or expire unexercised, the Purchase Price then in effect shall be readjusted to the Purchase Price that would then be in effect if such unissued or unexercised rights, options, warrants or convertible or exchangeable securities had not been issuable. (c) In case the Company shall fix a record date for the making of a distribution to all holders of shares of Common Stock (i) of shares of any class other than Common Stock or (ii) of evidences of its indebtedness or (iii) of assets (excluding cash dividends or distributions (other than extraordinary cash dividends or distributions), and dividends or distributions referred to in Subsection 3(a) hereof) or (iv) of rights, options, warrants or convertible or exchangeable securities (excluding those rights, options, warrants or convertible or exchangeable securities referred to in Subsection 3(b) hereof), then in each such case the Purchase Price in effect immediately thereafter shall be determined by multiplying the Purchase Price in effect immediately prior thereto by a fraction, of which the numerator shall be the total number of shares of Common Stock outstanding on such record date multiplied by the Fair Market Value per share of Common Stock on such record date, less the aggregate fair market value as determined in good faith by the Board of Directors of the Company of said shares or evidences of indebtedness or assets or rights, options, warrants or convertible or exchangeable securities so distributed, and of which the denominator shall be the total number of shares of Common Stock outstanding on such record date multiplied by the Fair Market Value per share of Common Stock on such record date. Such adjustment shall be made successively whenever such a record date is fixed. In the event that such distribution is not so made, the Purchase Price then in effect shall be readjusted to the Purchase Price which would then be in effect if such record date had not been fixed. (d) In case the Company shall sell and issue Common Stock or rights, options, warrants or convertible or exchangeable securities containing the right to subscribe for or purchase shares of Common Stock, for a consideration consisting, in whole or in part, of property (other than cash) or services or its equivalent, then in determining the "price per share of Common Stock" referred to in Subsection 3(b) above, the Board of Directors of the Company shall determine, in good faith and on a reasonable basis, the fair value of said property. (e) When any adjustment is required to be made in the Purchase Price as a result of the operation of Subsections 3(a), 3(b) or 3(c) hereof, the number of shares of Common Stock purchasable upon the exercise of this Warrant shall be changed to the number determined by dividing (i) an amount equal to the number of shares issuable upon the exercise of this Warrant immediately prior to such adjustment, multiplied by the Purchase Price in effect immediately prior to such adjustment, by (ii) the Purchase Price in effect immediately after such adjustment. (f) If there shall occur any capital reorganization or reclassification of or other change in the Common Stock (other than a change in par value or a subdivision or combination as provided for in Subsection 3(a) above), or any consolidation or merger of the Company with or into 5 another entity (other than a merger or consolidation in which the Company is the surviving corporation and which does not result in any reclassification of the outstanding shares of Common Stock or the conversion of such outstanding shares of Common Stock into shares of other stock or other securities or property), or a transfer of all or substantially all of the assets of the Company then, as part of any such reorganization, reclassification, consolidation, merger or transfer, as the case may be, lawful provision shall be made so that the holder of this Warrant shall receive upon the exercise hereof the kind and amount of shares of stock or other securities or property which such holder would have been entitled to receive if, immediately prior to any such reorganization, reclassification, consolidation, merger or transfer as the case may be, such holder had held the number of shares of Common Stock which were then purchasable upon the exercise of this Warrant, provided that, in all cases, appropriate adjustment (as reasonably determined in good faith by the Board of Directors of the Company) shall be made in the application of the provisions set forth herein with respect to the rights and interests thereafter of the holder of this Warrant, such that the provisions set forth in this Section 3 (including provisions with respect to adjustment of the Purchase Price) shall thereafter be applicable, as nearly as is reasonably practicable, in relation to any shares of stock or other securities or property thereafter deliverable upon the exercise of this Warrant, and in the case of any consolidation or merger, the successor or acquiring entity (if other than the Company) shall expressly assume the due and punctual observance and performance of each and every provision of this Warrant. 4. No Dilution or Impairment. The Company will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of the Warrants, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holders of the Warrants against dilution or other impairment. Without limiting the generality of the foregoing, the Company (a) will not increase the par value of any shares of stock receivable on the exercise of the Warrants above the amount payable therefor on such exercise, (b) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of stock on the exercise of all Warrants from time to time outstanding, and (c) will not transfer all or substantially all of its properties and assets to any other person (corporate or otherwise), or consolidate with or merge into any other person or permit any such person to consolidate with or merge into the Company (if the Company is not the surviving person), unless such other person shall expressly assume in writing and will be bound by all the terms of the Warrants. 5. Accountants' Certificate as to Adjustments. In each case of any adjustment or readjustment in the shares of Common Stock issuable on the exercise of the Warrants, the Company at its expense will promptly cause independent certified public accountants of recognized standing selected by the Company to compute such adjustment or readjustment in accordance with the terms of the Warrants and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (a) the consideration received or receivable by the Company for any additional shares of Common Stock 6 issued or sold or deemed to have been issued or sold, (b) the number of shares of Common Stock outstanding or deemed to be outstanding, and (c) the Purchase Price and the number of shares of Common Stock to be received upon exercise of this Warrant, in effect immediately prior to such issue or sale and as adjusted and readjusted as provided in this Warrant. The Company will forthwith mail a copy of each such certificate to each holder of a Warrant, and will, on the written request at any time of any holder of a Warrant, furnish to such holder a like certificate setting forth the Purchase Price at the time in effect and showing how it was calculated. 6. Notices of Record Date, etc. In the event of (a) any taking by the Company of a record of the holders of any class or securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution (excluding cash dividends or distributions (other than extraordinary cash dividends or distributions)), or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, or (b) any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any transfer of all or substantially all the assets of the Company to or consolidation or merger of the Company with or into any other person, or (c) any voluntary or involuntary dissolution, liquidation or winding-up of the Company, then and in each such event the Company will mail or cause to be mailed to each holder of a Warrant a notice specifying (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock shall be entitled to exchange their shares of Common Stock for securities or other property deliverable on such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up, and (iii) the amount and character of any stock or other securities, or rights or options with respect thereto, proposed to be issued or granted, the date of such proposed issue or grant and the persons or class of persons to whom such proposed issue or grant is to be offered or made. Such notice shall be mailed at least ten (10) days prior to the date specified in such notice on which any such action is to be taken. Failure to mail such notice or any defect therein shall not affect the validity of any such action. 7. Reservation of Stock, etc., Issuable on Exercise of Warrants. The Company will at all times reserve and keep available, solely for issuance and delivery on the exercise of the Warrants, all shares of Common Stock from time to time issuable on the exercise of the Warrants. 7 8. Exchange of Warrants. On surrender for exchange of any Warrant, properly endorsed, to the Company, the Company at its expense will issue and deliver to or on the order of the holder thereof a new Warrant or Warrants of like tenor, in the name of such holder or as such holder (on payment by such holder of any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face or faces of the Warrant or Warrants so surrendered. 9. Replacement of Warrants. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of any Warrant and, in the case of any such loss, theft or destruction of any Warrant, on delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of such Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor. 10. Warrant Agent. The Company may, by written notice to each holder of a Warrant, appoint an agent for the purpose of issuing Common Stock on the exercise of the Warrants pursuant to Section 1, exchanging Warrants pursuant to Section 8, and replacing Warrants pursuant to Section 9, or any of the foregoing, and thereafter any such issuance, exchange or replacement, as the case may be, shall be made at such office by such agent. 11. Negotiability, etc. This Warrant is issued upon the following terms, to all of which each holder or owner hereof by the taking hereof consents and agrees: (a) title to this Warrant may be transferred by: (i) endorsement (by the holder hereof executing the form of assignment at the end hereof) and (ii) delivery in the same manner as in the case of a negotiable instrument transferable by endorsement and delivery; (b) any person in possession of this Warrant properly endorsed is authorized to represent himself as absolute owner hereof and is empowered to transfer absolute title hereto by endorsement and delivery hereof to a bona fide purchaser hereof for value; each prior taker or owner waives and renounces all of his equities or rights in this Warrant in favor of each such bona fide purchaser, and each such bona fide purchaser shall acquire absolute title hereto and to all rights represented hereby; and (c) until this Warrant is transferred on the books of the Company, the Company may treat the registered holder hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. 12. Notices, etc. All notices and other communications from the Company to the holder of this Warrant shall be mailed by first class registered or certified mail, postage prepaid, or by Federal Express or other recognized overnight courier, to such address as may have been furnished to the Company in writing by such holder or, until any such holder furnishes to the Company an 8 address, then to, and at the address of, the last holder of this Warrant who has so furnished an address to the Company. 13. Miscellaneous. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. This Warrant shall be construed and enforced in accordance with and governed by the laws of the State of North Carolina. The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. This Warrant is being executed as an instrument under seal. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. Dated: October __, 1997 HIGHWOODS PROPERTIES, INC. By: _______________________________________ Name: Mack D. Pridgen, III Title: Vice President and General Counsel 9 FORM OF SUBSCRIPTION (To be signed only on exercise of Warrant) TO HIGHWOODS PROPERTIES, INC.: The undersigned, the holder of the within Warrant, hereby elects to exercise all or a portion of this Warrant for, and to purchase thereunder, .......... shares of Common Stock of Highwoods Properties, Inc. and herewith either (a) makes payment of $......... therefor, or (b) elects to exercise this Warrant in the amount indicated on a net basis, and in any event, requests that the certificates for such shares be issued in the name of, and delivered to ................, whose address is ................................. Dated: ........................ (Signature must conform to name of holder as specified on the face of the Warrant) ............................................ (Address) 10 ------------------------ FORM OF ASSIGNMENT (To be signed only on transfer of Warrant) For value received, the undersigned hereby sells, assigns, and transfers unto .............. the right represented by the within Warrant to purchase ................. shares of Common Stock of Highwoods Properties, Inc. to which the within Warrant relates, and appoints ........................, Attorney to transfer such right on the books of Highwoods Properties, Inc. with full power of substitution in the premises. Dated: ........................ (Signature must conform to name of holder as specified on the face of the Warrant) ............................................ (Address) Signed in the presence of: .................................... 11 EX-21 11 EXHIBIT 21 Exhibit 21 SCHEDULE OF SUBSIDIARIES OF HIGHWOODS PROPERTIES, INC. 1. Highwoods/Forsyth Limited Partnership, a North Carolina limited partnership 2. AP Southeast Portfolio Partners, L.P., a Delaware limited partnership 3. Highwoods/Florida Holdings, L.P., a Delaware limited partnership 4. Highwoods/Tennessee Holdings, L.P., a Tennessee limited partnership
EX-23 12 EXHIBIT 23 Exhibit 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-3 Nos. 33-93572, 33-97712, 333-08985, 333-13519, 333-24165, 333-31183, 333-39247 and 333-43475 and Form S-8 Nos. 333-12117, 333-29759 and 333-29763) and related Prospectuses of Highwoods Properties, Inc. and in the Registration Statement (Form S-3 No. 333-31183-01) and related Prospectus of Highwoods/Forsyth Limited Partnership of our report dated February 20, 1998 with respect to the consolidated financial statements and schedule of Highwoods Properties, Inc. included in the Annual Report (Form 10-K) for the year ended December 31, 1997. /s/ ERNST & YOUNG LLP Raleigh, North Carolina March 27, 1998 EX-27 13 FDS -- HIGHWOODS
5 3-MOS 12-MOS DEC-31-1997 DEC-31-1997 OCT-01-1997 JAN-01-1997 DEC-31-1997 DEC-31-1997 19,487,000 19,487,000 0 0 27,328,000 27,328,000 555,000 555,000 0 0 63,867,000 63,867,000 2,702,159,000 2,702,159,000 87,505,000 87,505,000 2,722,306,000 2,722,306,000 55,121,000 55,121,000 978,558,000 978,558,000 0 0 297,500,000 297,500,000 468,000 468,000 1,390,659,000 1,390,657,000 2,722,306,000 2,722,306,000 89,687,000 266,933,000 91,256,000 274,470,000 27,748,000 76,743,000 44,230,000 124,276,000 3,522,000 10,216,000 0 0 12,623,000 47,394,000 25,647,000 77,478,000 0 0 25,647,000 77,478,000 0 0 1,134,000 5,799,000 0 0 18,368,000 58,562,000 0.39 1.51 0.38 1.50
EX-27 14 EXHIBIT 27
5 3-MOS 12-MOS DEC-31-1996 DEC-31-1996 OCT-01-1996 JAN-01-1996 DEC-31-1996 DEC-31-1996 19,609,000 19,609,000 0 0 17,630,000 17,630,000 0 0 0 0 34,955,000 34,955,000 1,421,034,000 1,421,034,000 43,160,000 43,160,000 1,443,440,000 1,443,440,000 27,600,000 27,600,000 555,876,000 555,876,000 0 0 0 0 356,000 356,000 859,608,000 859,608,000 1,443,440,000 1,443,440,000 47,482,000 130,848,000 50,160,000 137,926,000 13,103,000 35,313,000 21,841,000 57,408,000 1,900,000 5,666,000 0 0 11,536,000 26,610,000 14,883,000 48,242,000 0 0 13,306,000 41,460,000 0 0 0 2,140,000 0 0 13,306,000 39,320,000 .41 1.51 .40 1.50
-----END PRIVACY-ENHANCED MESSAGE-----