-----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, EChazJqmDpceOV+AmIsk5isTe8w+JcufU2g8DCaZZTl0zSpKtYl6ab48o10Avr/t NMBeOvDVZ+NC2gXghy7q5w== 0000902664-01-500231.txt : 20010702 0000902664-01-500231.hdr.sgml : 20010702 ACCESSION NUMBER: 0000902664-01-500231 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20010629 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: PARKWAY PROPERTIES INC CENTRAL INDEX KEY: 0000729237 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 742123597 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: SEC FILE NUMBER: 005-06238 FILM NUMBER: 1672363 BUSINESS ADDRESS: STREET 1: ONE JACKSON PL STREET 2: 188 E CAPITOL ST STE 1000 CITY: JACKSON STATE: MS ZIP: 39225-4647 BUSINESS PHONE: 6019484091 MAIL ADDRESS: STREET 1: ONE JACKSON PL P O BOX 24647 STREET 2: 188 E CAPITOL ST STE 1000 CITY: JACKSON STATE: MS ZIP: 39225 FORMER COMPANY: FORMER CONFORMED NAME: PARKWAY CO DATE OF NAME CHANGE: 19951018 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: FIVE ARROWS REALTY SECURITIES L L C CENTRAL INDEX KEY: 0001021505 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 1251 AVENUE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10020 BUSINESS PHONE: 2124033500 MAIL ADDRESS: STREET 1: 1251 AVENUE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10020 SC 13D 1 srz9060780v2.txt PARKWAY PROPERTIES, INC. SC 13D SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- SCHEDULE 13D INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO RULE 13d-2(a) (Amendment No. _) PARKWAY PROPERTIES, INC. (Name of Issuer) Common Shares of Beneficial Interest (Title of Class of Securities) 70159Q104 (CUSIP Number) Mr. Matthew W. Kaplan Rothschild Realty Inc. 1251 Avenue of the Americas New York, New York 10020 (212) 403-3500 (Name, address and telephone number of person authorized to receive notices and communications) June 21, 2001 (Date of event which requires filing of this statement) ---------------------- If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13D-1(g), check the following box [ ]. NOTE: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d-7 for other parties to whom copies are to be sent. (Continued on following pages) (Page 1 of 7 Pages) - --------------- *The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter the disclosures provided in a prior cover page. The information required in the remainder of this cover page shall not be deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). CUSIP No. 70159Q104 Page 2 of 7 pages - -------------------------------------------------------------------------------- (1) NAME OF REPORTING PERSON: Five Arrows Realty Securities III L.L.C. S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON: - -------------------------------------------------------------------------------- (2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP ** (a) [X] (b) [ ] - -------------------------------------------------------------------------------- (3) SEC USE ONLY - -------------------------------------------------------------------------------- (4) SOURCE OF FUNDS**: WC - -------------------------------------------------------------------------------- (5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ] - -------------------------------------------------------------------------------- (6) CITIZENSHIP OR PLACE OF ORGANIZATION: Delaware - -------------------------------------------------------------------------------- NUMBER OF (7) SOLE VOTING POWER: -0- SHARES ------------------------------------------------------------------- BENEFICIALLY (8) SHARED VOTING POWER: 2,217,857 (fn1) OWNED BY ------------------------------------------------------------------- EACH (9) SOLE DISPOSITIVE POWER: -0- REPORTING ------------------------------------------------------------------- PERSON WITH (10) SHARED DISPOSITIVE POWER: 2,217,857 (fn1) - -------------------------------------------------------------------------------- (11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON: 2,217,857 (fn1) - -------------------------------------------------------------------------------- (12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES ** [ ] - -------------------------------------------------------------------------------- (13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): 19.2% - -------------------------------------------------------------------------------- (14) TYPE OF REPORTING PERSON **: OO - -------------------------------------------------------------------------------- ** SEE INSTRUCTION BEFORE FILLING OUT! fn1 Consisting of (i) 1,603,499 shares of Series B Cumulative Convertible Preferred Shares ("Preferred Shares") held by Five Arrow Realty Securities III L.L.C. ("Five Arrows") and up to 539,358 additional Preferred Shares which Five Arrows may be obligated to purchase on or before July 6, 2001, each of which is convertible, at any time or from time to time at the option of the reporting person, into one common share of beneficial interest, subject to adjustment, and (ii) 75,000 common shares of beneficial interest (the "Warrant Shares") purchasable at any time or from time to time under a seven-year warrant (the "Warrant"). CUSIP No. 70159Q104 13D Page 3 of 7 pages - -------------------------------------------------------------------------------- (1) NAME OF REPORTING PERSON: Rothschild Realty Investors III L.L.C. I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY): - -------------------------------------------------------------------------------- (2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP ** (a) [X] (b) [ ] - -------------------------------------------------------------------------------- (3) SEC USE ONLY - -------------------------------------------------------------------------------- (4) SOURCE OF FUNDS: WC - -------------------------------------------------------------------------------- (5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ] - -------------------------------------------------------------------------------- (6) CITIZENSHIP OR PLACE OF ORGANIZATION: Delaware - -------------------------------------------------------------------------------- NUMBER OF (7) SOLE VOTING POWER: -0- SHARES ------------------------------------------------------------------- BENEFICIALLY (8) SHARED VOTING POWER: 2,217,857 (fn1) OWNED BY ------------------------------------------------------------------- EACH (9) SOLE DISPOSITIVE POWER: -0- REPORTING ------------------------------------------------------------------- PERSON WITH (10) SHARED DISPOSITIVE POWER: 2,217,857 (fn1) - -------------------------------------------------------------------------------- (11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON: 2,217,857 (fn1) - -------------------------------------------------------------------------------- (12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES ** [ ] - -------------------------------------------------------------------------------- (13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): 19.2% (fn 1) - -------------------------------------------------------------------------------- (14) TYPE OF REPORTING PERSON 00 - -------------------------------------------------------------------------------- CUSIP No. 70159Q104 13D Page 4 of 7 pages Item 1. Security and Issuer This statement on Schedule 13D ("Schedule 13D") is being filed with respect to the common shares of beneficial interest, par value $.001 per share (the "Common Shares"), of Parkway Properties, Inc. a Maryland corporation (the "Company"), whose principal executive offices are located at One Jackson Place, Suite 100, 188 East Capital Street, Jackson, Mississippi 39201-2195. Item 2. Identity and Background (a) This Schedule 13D is being filed on behalf of (i) Five Arrows Realty Securities III L.L.C., a Delaware limited liability company ("Five Arrows") and (ii) Rothschild Realty Investors III L.L.C., a Delaware limited liability company and sole Managing Member of Five Arrows ("Rothschild"). The reporting entities are making a joint filing pursuant to Rule 13d-1(k) because, by reason of the relationship as described herein, they may be deemed to be a "group" within the meaning of Section 13(d)(3) with respect to acquiring, holding and disposing of Common Shares. (b) The business address of each of Five Arrows and Rothschild is 1251 Avenue of the Americas, New York, New York 10020. (c) Five Arrows is a private investment limited liability company. The principal occupation of Rothschild is acting as managing member of Five Arrows. The current Managers of Rothschild are John D. McGurk, Matthew W. Kaplan, James E. Quigley, 3rd, and D. Pike Aloian. (d) Neither Five Arrows nor Rothschild has, during the last five years, been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). (e) Neither Five Arrows nor Rothschild has, during the last five years, been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or a finding of any violation with respect to such laws. (f) Five Arrows and Rothschild are both Delaware limited liability companies. Item 3. Source and Amount of Funds or Other Consideration The source of funds for the purchases reported by Five Arrows herein was, and will be, Five Arrows' capital. The total amount of funds used by Five Arrows to purchase the shares reported herein will be up to $77,624,995 allocated as follows: (i) $56,122,465 to purchase the Preferred Shares currently held by Five Arrows, (ii) $18,877,530 which Five Arrows may use to purchase up to an additional 539,358 Preferred Shares and (iii) up to $2,625,000 to purchase the 75,000 Warrant Shares. CUSIP No. 70159Q104 13D Page 5 of 7 pages Item 4. Purpose of Transaction The purpose of the Acquisition of the Preferred Shares and the Warrant Shares by Five Arrows reported herein is for investment. Five Arrows intends to review its holdings with respect to the Company on a continuing basis. Depending on Five Arrows' evaluation of the Company's business and prospects, and upon future developments (including, but not limited to, market prices of the Common Shares and availability and alternative uses of funds; as well as conditions in the securities markets and general economic and industry conditions), Five Arrows may acquire additional securities of the Company or sell all or a portion of its Preferred Shares or other securities of the Company, now owned or hereafter acquired. Pursuant to the Articles Supplementary attached as Exhibit B and incorporated by reference in its entirety in this Item 4, Five Arrows has the right to designate one member of the Board of Directors of the Company (the "Initial Designated Director") and another member under certain circumstances. Matthew W. Kaplan has been designated as the Initial Designated Director and has been appointed to the Board of Directors of the Company by the existing Board of Director of the Company. Other than as set forth above, Five Arrows has no present plans or proposals which relate to, or would result in, any of the matters enumerated in paragraphs (b) through (j), inclusive, of Item 4 of Schedule 13D. Five Arrows may, at any time and from time to time, review or reconsider its position with respect to the Company, and formulate plans or proposals with respect to any such matters. Item 5. Interest in Securities of the Issuer (a) As of the close of business on June 21, 2001, Five Arrows may be deemed to beneficially own 2,217,857 Common Shares (consisting of (i) 1,603,499 Preferred Shares held by Five Arrows and up to 539,358 additional Preferred Shares that Five Arrows may be obligated to purchase on or before July 6, 2001, each of which is convertible, at any time or from time to time at the option of the reporting person, into one Common share, subject to adjustment, and (ii) 75,000 Common Shares purchasable at any time or from time to time under the Warrant). Such shares in the aggregate would represent 19.2% of the outstanding Common Shares of the Company (based on 9,312,002 Common Shares of the Company outstanding as of March 26, 2001, as reported in the Amendment No. 2 to Form S-3 of the Company dated May 9, 2001, plus the 2,217,857 Common Shares of the Company reported herein). (b) Five Arrows has the sole power to vote and dispose of the Preferred Shares and the Common Shares owned, or which may be owned, by it as reported herein, which power may be exercised by Rothschild. (c) Five Arrows purchased 1,603,499 Preferred Shares on June 21, 2001, pursuant to the Investment Agreement, dated October 6, 2000, between the Company and Five Arrows, attached hereto as Exhibit C and incorporated by CUSIP No. 70159Q104 13D Page 6 of 7 pages reference in its entirety herein. In consideration for the 1,603,499 Preferred Shares, Five Arrows paid $34.30 per share for a total of $56,122,465. (d) Rothschild, as managing member of Five Arrows, has the power to direct the receipt of dividends from or the proceeds from the sale of the Preferred Shares and the Common Shares owned, or which may be owned, by it as reported herein. Item 6. Contracts, Arrangements, Understandings or Relationships With Respect to Securities of the Issuer Other than as described in the agreements included as exhibits attached hereto and incorporated by reference into this Item 6 in their entirety, there are no contracts, understandings or relationships (legal or otherwise) among the persons named in Item 2 hereof and between such persons or any person with respect to any securities of the Company, including but not limited to transfer or voting of any of the Preferred Shares or the Common Shares, finder's fees, joint ventures, loan or option arrangements, puts or calls, guarantees of profits, division of profits or loss, or the giving or withholding of proxies. Item 7. Material To Be Filed as Exhibits Exhibit Number Description A Joint Acquisition Statement, as required by Rule 13d-1(k) of the Securities Exchange Act of 1934. B Articles Supplementary Classifying and Designated 2,142,857 Preferred Shares as Series B Cumulative Convertible Preferred Shares. C Investment Agreement, dated as of October 6, 2000, between the Company and Five Arrows. D Common Shares Purchase Warrant, dated October 6, 2000, to purchase 75,000 Common Shares. CUSIP No. 70159Q104 13D Page 7 of 7 pages Signature After reasonable inquiry and to the best of their knowledge and belief, the undersigned certify that the information set forth in this statement is true, complete and correct. Dated: June 29, 2001 FIVE ARROWS REALTY SECURITIES III L.L.C. By: /s/ Matthew W. Kaplan Matthew W. Kaplan Manager ROTHSCHILD REALTY INVESTORS III L.L.C. By: /s/ Matthew W. Kaplan Matthew W. Kaplan Manager EXHIBIT A JOINT ACQUISITION STATEMENT PURSUANT TO RULE 13D-1(k) The undersigned acknowledge and agree that the foregoing statement on Schedule 13D is filed on behalf of each of the undersigned and that all amendments to this statement on Schedule 13D shall be filed on behalf of each of the undersigned without the necessity of filing additional joint acquisition statements. The undersigned acknowledges that each shall be responsible for the timely filing of such amendments, and for the completeness and accuracy of the information concerning him or it contained therein, but shall not be responsible for the completeness and accuracy of the information concerning the other, except to the extent that he or it knows or has reason to believe that such information is inaccurate. Dated: June 29, 2001 FIVE ARROWS REALTY SECURITIES III L.L.C. By: /s/ Matthew W. Kaplan Matthew W. Kaplan Manager ROTHSCHILD REALTY INVESTORS III L.L.C. By: /s/ Matthew W. Kaplan Matthew W. Kaplan Manager EX-99 2 srz769884v7.txt EXHIBIT B--ARTICLES SUPPLEMENTARY EXHIBIT B ARTICLES SUPPLEMENTARY ---------------------- RECLASSIFYING 2,142,857 SHARES OF COMMON STOCK INTO SERIES B CONVERTIBLE CUMULATIVE PREFERRED STOCK PARKWAY PROPERTIES, INC. Parkway Properties, Inc., a Maryland corporation (the "Corporation"), having its principal office in Baltimore City, Maryland DOES HEREBY CERTIFY TO THE STATE DEPARTMENT OF ASSESSMENT AND TAXATION OF MARYLAND THAT: FIRST: Pursuant to authority granted to and vested in the Board of Directors of the Corporation (the "Board") by Article V, Section 3 the Charter of the Corporation (the "Charter"), and pursuant to the provisions of Section 2-208 of the Maryland General Corporation Law (the "M.G.C.L."), the Board, by unanimous written consent dated October 4, 2000, regarding the possible sale and issuance by the Corporation of convertible preferred stock, adopted resolutions duly classifying 2,142,857 shares of Common Stock, par value $.001 per share (the "Common Stock") of the Corporation into a new series of preferred stock to be designated as "Series B Convertible Cumulative Preferred Stock, par value $.001 per share", of the Corporation (the "Series B Preferred Stock") and has provided for the issuance of such shares; SECOND: The classification provides that the number of shares classified as Series B Preferred Stock shall be 2,142,857 shares. Such classification decreases the number of shares classified as Common Stock from 67,240,000 shares immediately prior to the reclassification to 65,097,143 shares immediately after such classification. THIRD: The terms of the Series B Preferred Stock set forth in Article Fourth hereof shall become Article V, Section 7 of the Charter. FOURTH: Subject to the provisions of Article V, Section 2, of the Charter with respect to Excess Stock, the following is a description of the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications and terms and conditions of redemption of the Series B Preferred Stock of the Corporation: Section 1. Series B Preferred Stock - Designation, Amount and Rank. ------------------------------------------------------- This series of preferred stock is designated as Series B Convertible Cumulative Preferred Stock, par value $.001 per share. The number of shares constituting the Series B Preferred Stock shall be 2,142,857. The Series B Preferred Stock, both as to payment of dividends and to distribution of assets upon redemption of Articles Supplementary such shares or liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, shall rank senior to the Common Stock and pari passu with (i) the Corporation's 8.75% Series A Cumulative Redeemable Preferred Stock ("Series A Preferred Stock"), (ii) any class or series of preferred stock with an aggregate liquidation preference of up to $35,000,000 that the Corporation is permitted to issue pursuant to Section 4(n) hereof, and (iii) any other class or series of preferred stock approved by the holders of the Series B Preferred Stock as provided for in these Articles Supplementary (collectively, the "Parity Stock"). Section 2. Series B Preferred Stock -- Dividend Rights. ------------------------------------------- (a) General. Subject to Section 9, and in addition to any other ------- dividends provided for herein, the Corporation shall pay in cash, when, as and if declared by the Board, out of funds legally available therefor as provided by the M.G.C.L. ("Legally Available Funds"), dividends at the quarterly rate equal to the Applicable Dividend Rate (as defined below) per issued and outstanding share of Series B Preferred Stock, per quarter. Such dividends shall be cumulative and payable (if declared) quarterly on each January 15, April 15, July 15 and October 15, with respect to the prior quarter, commencing October 15, 2000 (except that if such date is not a Business Day (as defined below), then such dividend will be payable on the next succeeding Business Day) to the holders of record at the close of business on the date specified by the Board at the time such dividend is declared no more than thirty (30) days prior to the date fixed for payment thereof. Dividends shall begin to accrue and be cumulative from the date of issuance of such share of Series B Preferred Stock to and including the first to occur of (i) the date on which the Liquidation Value (as defined herein) of such share of Series B Preferred Stock or Put Payment (plus all accrued and unpaid dividends thereon whether or not declared) is paid to the holder thereof in connection with the liquidation of the Corporation or the redemption of such share of Series B Preferred Stock by the Corporation, (ii) the date on which such shares of Series B Preferred Stock are converted into shares of Common Stock hereunder (on which date all accrued and unpaid dividends thereon whether or not accrued shall be paid), or (iii) the date on which such share is otherwise acquired and paid for by the Corporation. (b) Cumulative Dividends. Each of such dividends shall be fully --------------------- cumulative, to the extent not previously paid. Dividends not paid in full on the dates set forth above (whether or not declared) shall accrue at the Applicable Dividend Rate stated as a percentage equivalent to the Applicable Dividend Rate divided by $34.30, compounded quarterly until such dividends are paid. Any dividend payment with respect to the Series B Preferred Stock shall first be credited against any prior accrued and unpaid dividends. No dividends shall be set apart for or paid upon the Common Stock or any other shares of stock ranking junior to the Series B Preferred Stock unless all such cumulative dividends on the Series B Preferred Stock have been paid in full or declared and set aside for payment. Dividend payments shall be made pari passu with the dividend payments on the Parity Stock. (c) Applicable Dividend Rate. With respect to any share of Series B -------------------------- Preferred Stock then issued and outstanding the "Applicable Dividend Rate" per fiscal quarter shall be the greater of (i) the quarterly dividend payable for the applicable quarter per share of Common Stock into which the Series B Preferred Stock are convertible or (ii) $.73. Dividends payable on the Series B Preferred Stock shall be pro rated for the actual number of days in any partial quarter, calculated on the basis of a calendar quarter. - 2 - Articles Supplementary (d) Pro Rata Distribution. All dividends paid with respect to the ---------------------- Series B Preferred Stock pursuant to this Section 2 shall be paid pro rata in respect of each share of Series B Preferred Stock entitled thereto. In the event that the Legally Available Funds available for the payment of dividends shall be insufficient for the payment of the entire amount of dividends payable with respect to the Series B Preferred Stock on any date on which the Board has declared the payment of a dividend or otherwise, the amount of any available surplus shall be allocated for the payment of dividends with respect to the Series B Preferred Stock and any other shares of capital stock that are ranked pari passu as to dividends pro rata based upon the amount of accrued and unpaid dividends of such shares of capital stock. (e) Business Day. For purposes hereof, the term "Business Day" shall ------------ mean any Monday, Tuesday, Wednesday, Thursday or Friday which is not a day on which banking institutions in New York City are authorized or obligated by law or executive order to close. Section 3. Series B Preferred Stock -- Certain Restrictions. (a) --------------------------------------------------- Unless the dividends (including accrued and unpaid dividends in arrears whether or not declared) described above in Section 2, which but for the insufficiency of Legally Available Funds should have been paid, have been paid in full or declared and set apart for payment, the Corporation shall be prohibited from paying dividends on, making any other distributions on, or redeeming or purchasing or otherwise acquiring for consideration any capital stock of the Corporation (without regard to its rank, either as to dividends or upon liquidation, dissolution or winding up), other than (i) any series of preferred stock of the Corporation which ranks pari passu with the Series B Preferred Stock, all of which payments shall be made pari passu with the Series B Preferred Stock or (ii) shares of preferred stock of the Corporation that rank senior to the Series B Preferred Stock, in each case under clause (i) or (ii) if the issuance of such preferred stock (other than Series A Preferred Stock or preferred stock ranking pari passu with the Series B Preferred Stock up to an aggregate liquidation preference of $35,000,000 that the Corporation is permitted to issue pursuant to Section 4(n) hereof) has been approved by the holders of a majority of the Series B Preferred Stock. (b) The Corporation shall not permit any subsidiary or subpartnership of the Corporation to purchase or otherwise acquire for consideration or make any payment with respect to any shares of capital stock of the Corporation if the Corporation is prohibited from purchasing or otherwise acquiring for consideration or making any payment with respect to such shares at such time and in such manner pursuant to Section 3(a). Section 4. Series B Preferred Stock -- Voting Rights. ----------------------------------------- (a) General. Except as limited or provided by law the holders of the ------- Series B Preferred Stock shall be entitled (i) to vote or consent on all matters submitted to the holders of Common Stock together with the holders of the Common Stock as a single class and (ii) to vote or consent on all matters affecting the Series B Preferred Stock as a separate class. (b) Calculation of Votes When Voting With Common Stock. For the -------------------------------------------------------- purposes of calculating the votes cast for a particular matter when voting or consenting pursuant to Section 4(a), each share of Series B Preferred Stock will entitle the holder thereof to one vote for each share of Common Stock into which such share of Series B Preferred Stock is convertible as provided in Section - 3 - Articles Supplementary 7(c) herein as of the record date for such vote or consent or, if no record date is specified, as of the date of such vote or consent. (c) Section 4(c) Director. (i) In addition to the other voting rights ---------------------- described herein, the number of directors constituting the Board shall be automatically increased by one (1) member to be elected by the holders of the Series B Preferred Stock so long as Five Arrows Realty Securities III L.L.C. and its Affiliates and/or one or more of their respective members or partners, beneficially own in the aggregate (A) at least fifty percent (50%) of the outstanding Series B Preferred Stock or (B) an amount of voting securities of the Corporation which, if converted into shares of Common Stock, would exceed 10% of the outstanding Common Stock on a fully diluted basis (determined on the basis of then convertible, exercisable or exchangeable securities, warrants or options issued by the Corporation (such amount as set forth in clauses (A) and (B) above, the "Minimum Threshold"). (ii) The position on the Board established pursuant to Section 4(c)(i) shall remain available until the Minimum Threshold fails to be satisfied. (iii) Any director elected pursuant to Section 4(c)(i) shall have the right to be a full voting member of any and all committees of the Board. (iv) Any director elected pursuant to Section 4(c)(i) shall be deemed to have resigned upon the position created hereby no longer being available. (v) The term "Affiliate" means Rothschild Realty Inc. and each member of Five Arrows Realty Securities III L.L.C. The term "Regular Quarterly Dividend" means any cash dividend or dividends paid in any calendar quarter that do not in the aggregate exceed the Corporations reported Funds From Operations (as defined by the National Association of Real Estate Investment Trusts, including amendments to the definition after the date hereof) for the quarter relating to such dividend. (d) Section 4(d) Directors. (i) In addition to the other voting rights ---------------------- described herein and the increase in the number of directors constituting the Board as described in Section 4(c) above, the number of directors constituting the Board shall be automatically increased by one (1) member upon the first of the following to occur: (I) the Corporation's failure to pay, or its determination that it is not likely to pay, Regular Quarterly Dividends on its Common Stock aggregating at least $2.20 per share (adjusted to reverse the effect of any event set forth in Section 7 herein that would require an adjustment to the Conversion Price) for any four consecutive quarters (a "Dividend Reduction Event"); (II) the Corporation's failure to pay in full (after payment of all previously accrued and unpaid dividends) the quarterly dividend payable hereunder (whether or not declared) at any time in respect of the Series B Preferred Stock (a "Dividend Payment Default"); (III) the Corporation's failure to maintain an Income to Debt Ratio (as defined below) of at least 1.50 to 1.0 for three consecutive quarterly periods (a "Financial Ratio Event"), or (IV) the Corporation being in default (which in the case of a non-monetary default shall mean that such default remains unremedied after thirty days) under the terms of any credit facility or loan documentation to which it or the Operating Partnership or any of their respective subsidiaries is a party (a "Credit Default Event"). - 4 - Articles Supplementary (ii) The position on the Board created pursuant to Section 4(d)(i) shall terminate when (A) there are no shares of Series B Preferred Stock of the Corporation outstanding or (B) each of the following has occurred and continues to occur: (I) the Dividend Reduction Cure (as defined below), (II) the Dividend Payment Cure (as defined below), (III) the Financial Ratio Cure (as defined below) and (IV) Credit Default Cure (as defined below). (iii) "Income to Debt Ratio" as used herein, shall mean the ratio of the Corporation's consolidated earnings before interest, taxes, depreciation and amortization, net of reserves for capital improvements of $1.00 per square foot per annum, to the interest and principal payable (without giving effect to any waivers) in respect of the Corporation's consolidated indebtedness during the same period. (e) Section 4(e) Directors. In addition, if at any time after the ------------------------ Minimum Threshold ceases to be satisfied a Dividend Payment Default occurs for three consecutive fiscal quarters, the number of directors constituting the Board shall be automatically increased by a maximum of two (2) members. The positions on the Board created pursuant to this Section 4(e) shall continue to be available until the earlier to occur of such time as (A) there are no shares of Series B Preferred Stock of the Corporation outstanding and (B) the Dividend Payment Cure (as defined herein). Any director elected pursuant to this section shall be deemed to have resigned upon the position created hereby not being available. (f) Election of Preferred Directors. The holders of the Series B ---------------------------------- Preferred Stock shall have the special right, voting separately as a single class, to elect as soon as practical, a director to fill each vacancy created pursuant to Section 4(c), 4(d) or 4(e) and to elect their respective successors at each succeeding annual meeting of the Corporation thereafter at which such successor is to be elected. The director so elected from time to time in respect of clause (i) of Section 4(c) shall be referred to herein as the "Section 4(c) Director." The director so elected from time to time in respect of clause (i) of Section 4(d) shall be referred to herein as the "Section 4(d) Director." The directors elected from time to time in respect of Section 4(e) shall be referred to herein as the "Section 4(e) Directors." As used herein, the term "Preferred Director" shall refer to each of the Section 4(c) Director, the Section 4(d) Director or a Section 4(e) Director, as appropriate, and the term "Preferred Directors" shall refer to all such directors. At no time shall there be more than two Preferred Directors on the Board. (g) Classification of Board. Each vacancy created upon the Board from ------------------------ time to time pursuant to Section 4(c), (d) or (e) as the case may be, shall be apportioned among the classes of directors, if any, so that the number of directors in each of the classes of directors is as nearly equal in number as possible. The Preferred Directors shall be classified accordingly. (h) Cures. ----- (i) Upon the occurrence of a Dividend Reduction Event, the same shall be deemed to continue to exist until such time as the earlier to occur of (x) none of the Series B Preferred Stock shall remain outstanding or (y) the regular quarterly dividends to be paid on the Common Stock for the four quarters in respect of which the Dividend Reduction Event was estimated to occur have been restored in the good faith estimate of the Corporation to at least $2.20 per share of Common Stock (adjusted to reverse the effect of any event set forth in - 5 - Articles Supplementary Section 7 that would require an adjustment to the Conversion Price) (a "Distribution Reduction Cure"). (ii) Upon the occurrence of the Dividend Payment Event, the same shall be deemed to continue and exist until such time as the earlier to occur of (x) none of the Series B Preferred Stock shall remain outstanding or (y) all distributions, including accrued and unpaid distributions on the Series B Preferred Stock, whether or not declared, have been paid or made available for payment (a "Dividend Payment Cure"). (iii) Upon the occurrence of a Financial Ratio Event, the same shall be deemed to continue and exist until such time as the earlier to occur of (x) none of the Series B Preferred Stock shall remain outstanding or (y) an Income to Debt Ratio of at least 1.50 to 1.0 has been maintained by the Corporation for three consecutive quarterly periods or the Financial Ratio Event has been waived at a meeting by a vote of the holders of a majority of the Series B Preferred Stock (a "Financial Ratio Cure"). (iv) Upon the occurrence of a Credit Default Event, the same shall be deemed to continue and exist until such time as the earlier to occur of (x) none of the Series B Preferred Stock shall remain outstanding or (y) such credit default has been remedied or the Credit Default Event has been waived at a meeting by a vote of the holders of a majority of the Series B Preferred Stock (a "Credit Default Cure"). (i) Board Committees. Such Preferred Director as is first elected shall ---------------- have the right to be designated as a member of every committee of the Board. Any Preferred Director elected under Section 4(d) shall be designated as a member of each committee of the Board on which the Section 4(c) Director is not a member or, if the other Preferred Director was appointed pursuant to Section 4(d) above, each committee of the Board on which the first Preferred Director is not a member. (j) Voting Procedures. At each meeting of the stockholders of the ------------------ Corporation at which the holders of the Series B Preferred Stock shall have the right to vote as a single class, as provided in this Section 4, the presence in person or by proxy of the holders of record of a majority of the total number of shares of Series B Preferred Stock then outstanding shall be necessary and sufficient to constitute a quorum of such class for such election by such stockholders as a class. At any such meeting or adjournment thereof the absence of a quorum of holders of Series B Preferred Stock shall not prevent the election of directors other than the Preferred Directors, and the absence of a quorum of the holders of any other class or series of stock for the election of such other directors shall not prevent the election of any Preferred Directors by the holders of the Series B Preferred Stock. (k) Vacancy. In case any vacancy shall occur among the directors ------- elected by the holders of the Series B Preferred Stock such vacancy shall be filled by the vote of holders of the Series B Preferred Stock, voting as a single class, at a special meeting of such stockholders called for that purpose. (l) Written Consent. Notwithstanding the foregoing, any action required --------------- or permitted to be taken by holders of Series B Preferred Stock at any meeting of stockholders may be taken without a meeting, without prior notice and without - 6 - Articles Supplementary a vote, if a unanimous consent, in writing, setting forth the action so taken, shall be signed by each of the holders of Series B Preferred Stock and shall be executed and delivered to the Secretary of the Corporation for placement among the minutes of proceedings of the stockholders of the Corporation. (m) Approval by the Corporation. The Corporation acting through a ---------------------------- majority of its Directors shall have the right to approve the nomination of any Section 4(c) Director, Section 4(d) Director or Section 4(e) Director, such approval not to be unreasonably withheld; provided that such approval shall not be required for the following individuals: John McGurk, D. Pike Aloian, Matthew Kaplan and James E. Quigley III, or other senior officers of Rothschild Realty Inc. who are also appointed as managers of Five Arrows Realty Securities III L.L.C. (n) Restrictions. So long as the Series B Preferred Stock is ------------ outstanding, without the consent of the holders of at least the majority of the Series B Preferred Stock at the time outstanding, given in person or by proxy, at a meeting called for that purpose at which the holders of the Series B Preferred Stock shall vote separately as a class, or by the unanimous consent in writing of all of the holders of the Series B Preferred Stock (in addition to any other vote or consent of stockholders required by law or by the Charter), the Corporation may not (i) effect or validate the amendment, alteration or repeal of any provision of these Articles Supplementary, (ii) effect or validate the amendment, alteration or repeal of any provision of the Charter of the Corporation which would adversely effect the rights of the holders of the Series B Preferred Stock as such, (iii) effect or validate the amendment, alteration or repeal of any provision of the Charter of the Corporation which would increase in any respect the restrictions or limitations on ownership applicable to the Series B Preferred Stock pursuant thereto, (iv) effect or validate the amendment, alteration or repeal of any provision of the Charter of the Corporation or By-Laws of the Corporation so as to limit the right to indemnification provided to any present or future member or members of the Board elected by the holders of the Series B Preferred Stock, (v) other than the Series B Preferred Stock authorized herein, issue Series B Preferred Stock (or a series of preferred stock that would vote as a class with the Series B Preferred Stock with respect to the election of any Preferred Director) or shares of stock ranking senior or pari passu to the Series B Preferred Stock (as to dividends or upon liquidation, dissolution or winding up), provided that the Corporation may sell preferred stock ranking pari passu with the Series B Preferred Stock up to an aggregate liquidation preference of $35,000,000, or (vi) effect or validate the amendment, alteration or repeal of any provision of the Charter of the Corporation or By-Laws of the Corporation so as to increase the number of members of the Board beyond nine (9) members (not including any Preferred Directors). (o) Reports. The Corporation shall mail to each holder of record of ------- Series B Preferred Stock, at such holder's address in the records of the Corporation, within 45 days after the end of the first three fiscal quarters of each fiscal year and within 90 days after the end of each fiscal year, its financial reports for such fiscal period in such form and containing such independent accountants report as set forth under the rules of the Securities and Exchange Commission (together with the report of the Corporation's independent accountants with respect to such fiscal period) irrespective of whether the Corporation is then required to file reports under such rules. - 7 - Articles Supplementary Section 5. Series B Preferred Stock -- Redemption Rights. --------------------------------------------- (a) General. The Corporation may, at its option, to the extent it shall ------- have legally available funds therefor, redeem all or, solely in the event of, and using the net proceeds from, the issuance of securities ranking junior to the Series B Preferred Stock in terms of dividends, distributions and liquidation preferences, any portion (on a pro rata basis) of the outstanding Series B Preferred Stock, at any time on or after the date which is the fifth anniversary of the original date of issuance of Series B Preferred Stock; provided, however, that the initial redemption of the Series B Preferred Stock - -------- ------- shall not be for less than 50% of the outstanding Series B Preferred Stock. (b) Notice. The option of the Corporation to redeem the Series B ------ Preferred Stock pursuant to this Section 5 shall be exercised by mailing of a written notice of election (a "Redemption Notice") by the Corporation to the holders of the Series B Preferred Stock at such holder's address appearing on the records of the Corporation at least 60 days prior to the date specified therein for the redemption of the Series B Preferred Stock. Any such notice under this Section 5(b) shall state, at a minimum, the amount of Series B Preferred Stock to be redeemed, the date on which such redemption shall occur and the last date on which such holder can exercise the conversion rights provided for in Section 7 herein (the "Final Conversion Date"). (c) Conversion. During the period beginning on the date on which the ---------- Corporation mailed to each holder of the Series B Preferred Stock a written notice of election pursuant to subsection (b) above and ending on the sixtieth day following the date of such mailing, each holder of the Series B Preferred Stock may exercise its rights pursuant to Section 7 herein. (d) Redemption Price. Upon the sixtieth day following the mailing to ----------------- the holder of the Series B Preferred Stock of a written notice of election pursuant to subsection (b) above, the Corporation shall be required, unless such holder of Series B Preferred Stock has exercised its rights pursuant to subsection (c) above, to purchase from such holder of Series B Preferred Stock (upon surrender by such holder at the Corporation's principal office of the certificate representing such Share), such Series B Preferred Stock specified in the Redemption Notice, at a price equal to the product of (i) $35.00 per share plus accrued and unpaid dividends (whether or not declared and accrued through the date of payment for redemption or the date payment is made available for payment to the holder thereof) plus a premium equal to the following percentage of $35.00: - 8 - Articles Supplementary Redemption Occurs On or After But Prior to % Premium - ----------- ------------ --------- October 6, 2005 October 5, 2006 5.0 October 6, 2006 October 5, 2007 4.0 October 6, 2007 October 5, 2008 3.0 October 6, 2008 October 5, 2009 2.0 October 6, 2009 October 5, 2010 1.0 October 6, 2010 0.0 and (ii) the number of shares of Series B Preferred Stock to be redeemed as provided in the Redemption Notice (the "Redemption Price"). (e) Dividends. No share of Series B Preferred Stock as may be redeemed --------- shall be entitled to any dividends accruing thereon after the date on which the payments provided by and in accordance with Section 5(d) are paid or made available for payment to the holder thereof. On such date all rights of the holder of such share of Series B Preferred Stock shall cease, and such share of Series B Preferred Stock shall not be deemed to be outstanding. Section 6. Series B Preferred Stock -- Liquidation Rights. ---------------------------------------------- (a) Liquidation Payment. In the event of any liquidation, dissolution -------------------- or winding up of the Corporation, whether voluntary or involuntary, then out of the assets of the Corporation before any distribution or payment to the holders of shares of capital stock of the Corporation ranking junior to the Series B Preferred Stock (as to dividends or upon liquidation, dissolution or winding up), the holders of the Series B Preferred Stock shall be entitled to be paid $35.00 per share (the "Liquidation Value") plus accrued and unpaid dividends whether or not declared, if any, (or a pro rata portion thereof with respect to fractional shares), to the date of final distribution or the distribution is made available; provided, however, that if such liquidation, dissolution or -------- ------- winding up of the Corporation occurs in connection with or subsequent to a Change of Control (as defined in Section 8(e)), then the holders of the Series B Preferred Stock shall be entitled to be paid the Put Payment (as defined herein). Except as provided in this Section 6, the holders of the Series B Preferred Stock shall be entitled to no other or further distribution in connection with such liquidation, dissolution or winding up. (b) Pro Rata Distribution. If, upon any liquidation, dissolution or ---------------------- winding up of the Corporation, the assets of the Corporation available for distribution to the holders of Series B Preferred Stock and the Parity Stock shall be insufficient to permit payment in full to such holders the sums which such holders are entitled to receive in such case, then all of the assets available for distribution to the holders of the Series B Preferred Stock and the Parity Stock shall be distributed among and paid to the holders of the Series B Preferred Stock and the Parity Stock, ratably in proportion to the respective amounts that would be payable to such holders if such assets were sufficient to permit payment in full. Section 7. Series B Preferred Stock--Conversion. ------------------------------------ (a) Conversion Rights. Subject to and upon compliance with the ------------------ provisions of this Section 7, a holder of Series B Preferred Stock shall have - 9 - Articles Supplementary the right, at such holder's option at any time after December 31, 2002 or as otherwise provided in these Articles Supplementary, to convert all or a portion of such shares into the number of fully paid and non-assessable shares of Common Stock obtained by multiplying the number of shares of Series B Preferred Stock being converted by the Conversion Ratio (as defined below and as in effect at the time and on the date provided for in this Section 7(a)) by surrendering such Series B Preferred Stock to be converted. Such surrender shall be made in the manner provided in Section 7, paragraph (b); provided, however, that the right -------- ------- to convert any Series B Preferred Stock called for redemption pursuant to Section 5 shall terminate at the close of business on the Final Conversion Date, unless the Corporation shall default in making payment of any cash payable upon such redemption under Section 5 hereof. The "Conversion Ratio" with respect to any Series B Preferred Stock will initially be equal to 1.0 shares of Common Stock to per share of Series B Preferred Stock, subject to adjustment as described below. (b) Manner of Conversion. -------------------- (i) In order to exercise the conversion right, the holder of each share of Series B Preferred Stock to be converted shall surrender to the Corporation the certificate representing such share, duly endorsed or assigned to the Corporation or in blank, accompanied by written notice to the Corporation that the holder thereof elects to convert such Series B Preferred Stock. Unless the shares of Common Stock issuable on conversion are to be issued in the same name as the name in which such Series B Preferred Stock are registered, each share of Series B Preferred Stock surrendered for conversion shall be accompanied by instruments of transfer, in form satisfactory to the Corporation, duly executed by the holder or such holder's duly authorized attorney and an amount sufficient to pay any transfer or similar tax (or evidence reasonably satisfactory to the Corporation demonstrating that such taxes have been paid). (ii) As promptly as practicable after the surrender of certificates of Series B Preferred Stock as aforesaid, the Corporation shall issue and shall deliver at such office to such holder, or on such holder's written order, a certificate or certificates for the number of full shares of Common Stock issuable upon the conversion of such Series B Preferred Stock in accordance with the provisions of this Section 7, and any fractional interest in respect of a share of Common Stock arising upon such conversion shall be settled as provided in paragraph (c) of this Section 7. (iii) Each conversion shall be deemed to have been effected immediately prior to the close of business on the date on which certificates for the Series B Preferred Stock have been surrendered and such notice received by the Corporation as aforesaid, and the person or persons in whose name or names any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the shares represented thereby at such time on such date and such conversion shall be at the Conversion Ratio in effect at such time on such date unless the stock transfer books of the Corporation shall be closed on that date, in which event such conversion shall have been deemed to have been effected and such person or persons shall be deemed to have become the holder or holders of record at the close of business on the next succeeding day on which such stock transfer books are open, but such conversion shall be at the Conversion Ratio in effect on the date on which such shares shall have been surrendered and such notice received by the Corporation. - 10 - Articles Supplementary (c) Fractional Shares. No fractional shares or scrip representing ------------------ fractions of shares of Common Stock shall be issued upon conversion of the Series B Preferred Stock. Instead of any fractional interest in a share of Common Stock that would otherwise be deliverable upon the conversion of Series B Preferred Stock, the Corporation shall pay to the holder of such share an amount in cash based upon the Current Market Price of Common Stock on the Trading Day immediately preceding the date of conversion. If more than one share of Series B Preferred Stock shall be surrendered for conversion at one time by the share holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of Series B Preferred Stock so surrendered. (d) Adjustment of Conversion Ratio. The Conversion Ratio shall be -------------------------------- adjusted from time to time as follows: (i) Payment of Dividends; Subdivisions, Combinations, ---------------------------------------------------------------- Reclassifications. If the Corporation shall, while any Series B Preferred Stock - ----------------- are outstanding, (A) pay a dividend or make a distribution with respect to its capital stock in shares of its Common Stock, (B) subdivide its outstanding Common Stock into a greater number of shares, (C) combine its outstanding Common Stock into a smaller number of shares or (D) issue any shares of capital stock by reclassification of its Common Stock, the Conversion Ratio in effect at the opening of business on the day next following the date fixed for the determination of stockholders entitled to receive such dividend or distribution or at the opening of business on the day following the day on which such subdivision, combination or reclassification becomes effective, as the case may be, shall be adjusted so that the holder of any Series B Preferred Stock thereafter surrendered for conversion shall be entitled to receive the number of shares of Common Stock that such holder would have owned or have been entitled to receive after the happening of any of the events described above had such Series B Preferred Stock been converted immediately prior to the record date in the case of a dividend or distribution or the effective date in the case of a subdivision, combination or reclassification. An adjustment made pursuant to this subparagraph (i) shall become effective immediately after the opening of business on the day next following the record date (except as provided in paragraph (h) below) in the case of a dividend or distribution and shall become effective immediately after the opening of business on the day next following the effective date in the case of a subdivision, combination or reclassification. (ii) Rights, Options and Warrants. If the Corporation shall, while any ---------------------------- shares of Series B Preferred Stock are outstanding, issue rights, options or warrants to all holders of Common Stock entitling them (for a period expiring within 45 days after the record date mentioned below) to subscribe for or purchase Common Stock at a price per share less than the Current Market Price per share of Common Stock on the record date for the determination of stockholders entitled to receive such rights or warrants, then the Conversion Ratio in effect at the opening of business on the day next following such record date shall be adjusted to equal the ratio determined by dividing (I) the Conversion Ratio in effect immediately prior to the opening of business on the day next following the date fixed for such determination by (II) a fraction, the numerator of which shall be the sum of (A) the number of shares of Common Stock outstanding on the close of business on the date fixed for such determination - 11 - Articles Supplementary and (B) the number of shares that the aggregate proceeds to the Corporation from the exercise of such rights or warrants for Common Stock would purchase at such Current Market Price, and the denominator of which shall be the sum of (A) the number of Shares of Common Stock outstanding on the close of business on the date fixed for such determination and (B) the number of additional shares of Common Stock offered for subscription or purchase pursuant to such rights or warrants. Such adjustment shall become effective immediately after the opening of business on the day next following such record date (except as provided in paragraph (h) below). In determining whether any rights or warrants entitle the holders of Common Stock to subscribe for or purchase shares of Common Stock at less than such Current Market Price, there shall be taken into account any consideration received by the Corporation upon issuance and upon exercise of such rights or warrants, the value of such consideration, if other than cash, to be determined by the Board of Directors. (iii) Issuance of Securities. If the Corporation shall distribute to ---------------------- all holders of its Common Stock any shares of capital stock of the Corporation (other than Common Stock) or evidence of its indebtedness or assets (excluding Regular Quarterly Dividends) or rights or warrants to subscribe for or purchase any of its securities (excluding those rights and warrants issued to all holders of Common Stock entitling them for a period expiring within 45 days after the record date referred to in subparagraph (ii) above to subscribe for or purchase Common Stock, which rights and warrants are referred to in and treated under subparagraph (ii) above) (any of the foregoing being hereinafter in this subparagraph (iii) called the "Securities"), then in each such case each holder of Series B Preferred Stock shall receive concurrently with the receipt by holders of the Common Stock the kind and amount of such Securities that it would have owned or been entitled to receive had such Series B Preferred Stock been converted immediately prior to such distribution or related record date, as the case may be. (iv) Distribution of Cash. In case the Corporation shall pay or make a -------------------- dividend or other distribution on its Common Stock exclusively in cash (excluding Regular Quarterly Dividends), each holder of Series B Preferred Stock shall receive concurrently with the receipt by holders of the Common Stock the kind and amount of any such distribution that it would have owned or been entitled to receive had such Series B Preferred Stock been converted immediately prior to such distribution or related record date, as the case may be. (v) Minimum Adjustment. No adjustment in the Conversion Ratio shall be ------------------ required unless such adjustment would require a cumulative increase or decrease of at least 1%; provided, however, that any adjustments that by reason of this -------- ------- subparagraph (v) are not required to be made shall be carried forward and taken into account in any subsequent adjustment until made. Notwithstanding any other provisions of this Section 7, the Corporation shall not be required to make any adjustment of the Conversion Ratio for (x) the issuance of any shares of Common Stock pursuant to any plan providing for the reinvestment of dividends or interest payable on securities of the Corporation and the investment of additional optional amounts in shares of Common Stock pursuant to any plan providing for the reinvestment of dividends or interest payable on securities of the Corporation, (y) the issuance of contingent rights issued pursuant to a stockholders' rights plan adopted by the Corporation pursuant to which the acquisition by any third party of a specified percentage of Common Stock triggers the exercisability of such rights to purchase Common Stock, for so long as no event has occurred triggering such rights to exercise, and (z) the issuance of Common Stock or options to purchase Common Stock pursuant to an employee benefit plan. All calculations under this Section 7 shall be made to the nearest cent (with $.005 being rounded upward) or to the nearest one-tenth of a share (with .05 of a share being rounded upward), as the case may be. - 12 - Articles Supplementary Anything in this paragraph (d) to the contrary notwithstanding, the Corporation shall be entitled, to the extent permitted by law, to make such reductions in the Conversion Ratio, in addition to those required by this paragraph (d), as it in its discretion shall determine to be advisable in order that any stock dividends, subdivision of shares, reclassification or combination of shares, distribution of rights or warrants to purchase stock or securities, or a distribution of other assets (other than cash dividends) hereafter made by the Corporation to its stockholders shall not be taxable, or if that is not possible, to diminish any income taxes that are otherwise payable because of such event. (e) Adjustment of Conversion Ratio Upon Certain Transactions. If the ---------------------------------------------------------- Corporation shall be a party to any transaction (including, without limitation, a merger, consolidation, statutory share exchange, self tender offer for all or substantially all shares of Common Stock, sale of all or substantially all of the Corporation's assets or recapitalization of the Common Stock and excluding any transaction as to which subparagraph (d)(i) of this Section 7 applies) (each of the foregoing being referred to herein as a "Transaction"), in each case as a result of which shares of Common Stock shall be converted into the right to receive stock, securities or other property (including cash or any combination thereof), each share of Series B Preferred Stock that is not converted into the right to receive stock, securities or other property in connection with such Transaction shall thereafter be convertible into the kind and amount of shares of stock, securities and other property (including cash or any combination thereof) receivable upon the consummation of such Transaction by a holder of that number of shares of Common Stock into which one share of Series B Preferred Stock was convertible immediately prior to such Transaction, assuming such holder of Common Stock (i) is not a person with which the Corporation consolidated or into which the Corporation merged or which merged into the Corporation or to which such sale or transfer was made, as the case may be (a "Constituent Person"), or an affiliate of a Constituent Person or (ii) failed to exercise his or her rights of election, if any, as to the kind or amount of stock, securities and other property (including cash) receivable upon such Transaction (provided that if the kind or amount of stock, securities and other property (including cash) receivable upon such Transaction is not the same for each share of Common Stock of the Corporation held immediately prior to such Transaction by other than a Constituent Person or an affiliate thereof and in respect of which such rights of election shall not have been exercised ("Non-electing Share"), then for the purpose of this paragraph (e) the kind and amount of stock, securities and other property (including cash) receivable upon such Transaction by each Non-electing Share shall be deemed to be the kind and amount so receivable per share by a plurality of the Non-electing Shares). The Corporation shall not be a party to any Transaction unless the terms of such Transaction are consistent with the provisions of this paragraph (e), and it shall not consent or agree to the occurrence of any Transaction until the Corporation has entered into an agreement with the successor or purchasing entity, as the case may be, for the benefit of the holders of the Series B Preferred Stock that will contain provisions enabling the holders of the Series B Preferred Stock that remain outstanding after such Transaction to convert into the consideration received by holders of Common Stock at the Conversion Ratio in effect immediately prior to such Transaction. The provisions of this paragraph (e) shall similarly apply to successive Transactions. (f) Notice of Certain Events. If: ------------------------ (i) the Corporation shall declare a dividend (or any other distribution) on the Common Stock (other than the Regular Quarterly Dividend); or - 13 - Articles Supplementary (ii) the Corporation shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of any class or any other rights or warrants; or (iii) there shall be any reclassification of the Common Stock (other than any event to which subparagraph (d)(i) of this Section 7 applies) or any consolidation or merger to which the Corporation is a party and for which approval of any stockholders of the Corporation is required, or a statutory share exchange, or self tender offer by the Corporation for all or substantially all of its outstanding shares of Common Stock or the sale or transfer of all or substantially all of the assets of the Corporation as an entity; or (iv) a Change of Control, as defined below, shall occur; or (v) there shall occur the involuntary or voluntary liquidation, dissolution or winding up of the Corporation, then the Corporation shall cause to be mailed to the holders of Series B Preferred Stock, at the address as shown on the stock records of the Corporation, as promptly as possible, but at least 15 Business Days prior to the applicable date hereinafter specified, a notice stating (A) the date on which a record is to be taken for the purpose of such dividend, distribution or rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution or rights or warrants are to be determined or (B) the date on which such reclassification, consolidation, merger, statutory share exchange, sale, transfer, liquidation, dissolution or winding up or Change of Control is expected to become effective, and the date as of which it is expected that holders of Common Stock shall be entitled to exchange their shares of Common Stock for securities or other property, if any, deliverable upon such reclassification, consolidation, merger, statutory share exchange, sale, transfer, liquidation, dissolution or winding up. Failure to give or receive such notice or any defect therein shall not affect the legality or validity of the proceedings described in this Section 7. (g) Notice of Adjustment of Conversion Ratio. Whenever the Conversion ----------------------------------------- Ratio is adjusted as herein provided, the Corporation shall prepare a notice of such adjustment of the Conversion Ratio setting forth the adjusted Conversion Ratio and the effective date of such adjustment and shall mail such notice of such adjustment of the Conversion Ratio to the holders of the Series B Preferred Stock at such holders' last address as shown on the stock records of the Corporation. (h) Timing of Adjustment. In any case in which paragraph (d) of this --------------------- Section 7 provides that an adjustment shall become effective on the day next following the record date for an event, the Corporation may defer until the occurrence of such event (A) issuing to the holder of Series B Preferred Stock converted after such record date and before the occurrence of such event the additional shares of Common Stock issuable upon such conversion by reason of the adjustment required by such event over and above the Common Stock issuable upon such conversion before (giving effect to such adjustment and (B) paying to Such holder any amount of cash in lieu of any fraction pursuant to paragraph (c) of this Section 7. (i) No Duplication of Adjustments. There shall be no adjustment of the ----------------------------- Conversion Ratio in case of the issuance of any stock of the Corporation in a - 14 - Articles Supplementary reorganization, acquisition or other similar transaction except as specifically set forth in this Section 7. If any action or transaction would require adjustment of the Conversion Ratio pursuant to more than one paragraph of this Section 7, only one adjustment shall be made and such adjustment shall be the amount of adjustment that has the highest absolute value. (j) Other Adjustments to Conversion Ratio. If the Corporation shall --------------------------------------- take any action affecting the Common Stock, other than action described in this Section 7, that would materially adversely affect the conversion rights of the holders of the Series B Preferred Stock or the value of such conversion rights, the Conversion Ratio for the Series B Preferred Stock may be adjusted, to the extent permitted by law, in such manner, if any, and at such time, as the Board of Directors, in its sole discretion, may determine to be equitable in the circumstances. (k) Reservation, Validity, Listing and Securities Law Compliance With ------------------------------------------------------------------- Respect to Shares of Common Stock. - --------------------------------- (i) The Corporation covenants that it will at all times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued shares of Common Stock for the purpose of effecting conversion of the Series B Preferred Stock, the full number of shares of Common Stock deliverable upon the conversion of all outstanding Series B Preferred Stock not therefore converted. (ii) The Corporation covenants that any shares of Common Stock issued upon the conversion of the Series B Preferred Stock shall be validly issued, fully paid and non-assessable. (iii) The Corporation shall endeavor to list the shares of Common Stock required to be delivered upon conversion of the Series B Preferred Stock, prior to such delivery, upon each national securities exchange, if any, upon which the outstanding Common Stock is listed at the time of such delivery. (iv) Prior to the delivery of any securities that the Corporation shall be obligated to deliver upon conversion of the Series B Preferred Stock, the Corporation shall endeavor to comply with all federal and state laws and regulations thereunder requiring the registration of such securities with, or any approval of or consent to the delivery thereof, by any governmental authority. (l) Transfer Taxes. The Corporation will pay any and all documentary -------------- stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Common Stock or other securities or property on conversion of the Series B Preferred Stock pursuant hereto; provided, however, that the -------- ------- Corporation shall not be required to pay any tax that may be payable in respect of any transfer involved in the issue or delivery of shares of Common Stock or other securities or property in a name other than that of the holder of the Series B Preferred Stock to be converted, and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has paid to the Corporation the amount of any such tax or established, to the reasonable satisfaction of the Corporation, that such tax has been paid. - 15 - Articles Supplementary (m) Certain Defined Terms. The following definitions shall apply to ---------------------- terms used in this Section 7: (i) Current Market Price. For the purpose of any computation -------------------- under this Section 7, the Current Market Price per share of Common Stock on any date in question shall be deemed to be the average of the daily closing prices for the five consecutive Trading Days preceding such date in question; provided, -------- however, that if another event occurs that would require an ------- adjustment pursuant to subsection (f) through (j), inclusive, the Board may make such adjustments to the closing prices during such five Trading Day period as it deems appropriate to effectuate the intent of the adjustments in this Section 7, in which case any such determination by the Board shall be set forth in a resolution of the Board and shall be conclusive. (ii) "Trading Day" shall mean a day on which the Common Stock is traded on the New York Stock Exchange, or other national exchange or quotation system used to determine the Closing Price. Section 8. Series B Preferred Stock -- Change of Control and -------------------------------------------------------- Put Option. - ---------- (a) Subject to the last sentence of this Section 8(a), if a Change of Control or Put Event occurs, in either case as a result of the voluntary (and not legally compelled) act, omission or participation of the Corporation, which act, omission or participation the Corporation had the discretion under existing laws and regulations to refrain from, then each holder of Series B Preferred Stock will have the right to require that the Corporation, to the extent it shall have legally available funds therefor, redeem such holder's Series B Preferred Stock at a redemption price payable in cash in an amount equal to 102% of the Liquidation Value thereof, plus accrued and unpaid distributions whether or not declared, if any (the "Put Payment"), to the date of purchase or the date payment is made available (the "Put Date") pursuant to the offer described in paragraph (b) below (the "Put Offer"). If a Change of Control or Put Event occurs that is not the result of such voluntary act, omission or participation of the Corporation, the Corporation may elect to make the foregoing Put Payment but may, in its discretion, elect not to make the foregoing Put Payment by not commencing the Put Offer on the Put Date, in which event the Conversion Ratio shall be revised to the greater of (i) 125% of the then current Conversion Ratio so that each share of Series B Preferred Stock will be convertible into 125% of the number of Common Shares into which it would otherwise have been convertible and (ii) a fraction the denominator of which is 80.00% of the Current Market Price and the numerator of which is $35.00. Notwithstanding the foregoing, if the Securities and Exchange Commission or its staff, by written communication to the Corporation, indicates that the provisions of the first sentence of this Section 8(a) would preclude the Corporation from treating the Series B Preferred Stock as equity on its financial statements, then the Corporation shall have the right, in lieu of application of the first sentence of this Section 8(a), to apply the Conversion Ratio revision alternative set forth in the second sentence of this Section 8(a). (b) Within 15 days following the Corporation becoming aware that an event has occurred that has resulted in any Change of Control or Put Event, the Corporation shall mail a notice to each holder of Series B Preferred Stock, at such holder's address appearing in the records of the Corporation, stating (i) - 16 - Articles Supplementary that a Change of Control or Put Event, as applicable, has occurred and that such holder has the right to require the Corporation to redeem such holder's Series B Preferred Stock in cash, (ii) the date of redemption (which shall be a Business Day, no earlier than 30 days and no later than 60 days from the date such notice is mailed, or such later date as may be necessary to comply with the requirements of applicable law including the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in no event shall such date be earlier than 20 business days after the notice was mailed pursuant to the second sentence of Section 5(b) herein), (iii) the redemption price for the redemption, and (iv) the instructions determined by the Corporation, consistent with this subsection, that a holder must follow in order to have its Series B Preferred Stock redeemed. (c) On the Put Date, the Corporation will, to the extent lawful, accept for payment the Series B Preferred Stock or portions thereof tendered pursuant to the Put Offer and pay an amount equal to the Put Payment in respect of all Series B Preferred Stock or portions thereof so tendered. The Corporation shall promptly mail to each holder of shares of Series B Preferred Stock to be redeemed the Put Payment for such Series B Preferred Stock. (d) Notwithstanding anything else herein, to the extent they are applicable to any Change of Control, the Corporation will comply with Section 14 of the Exchange Act and the provisions of Regulation 14D and 14E and any other tender offer rules under the Exchange Act and any other federal and state securities laws, rules and regulations and all time periods and requirements shall be adjusted accordingly. (e) "Change of Control" means each occurrence of any of the following: (i) a change in control of the Corporation of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act, whether or not the Company is then subject to such reporting requirements; (ii) the acquisition, directly or indirectly, by any individual or entity or group (as such term is used in Section 13(d)(3) and Section 14(d) of the Exchange Act) of beneficial ownership (as defined in Rule 13d-3 promulgated under the Exchange Act, except that such individual or entity shall be deemed to have beneficial ownership of all shares that any such individual or entity has the right to acquire, whether such right is exercisable immediately or only after passage of time) of 30% or more of the aggregate outstanding voting capital stock of the Corporation; (iii) other than with respect to the election, resignation or replacement of the Preferred Directors, during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of the Corporation (together with any new directors whose election by such Board of Directors or whose nomination for election by the stockholders of the Corporation was approved by a vote of 66 2/3% of the directors of the Corporation (excluding Preferred Directors) then still in office who were either directors at the beginning of such period, or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Corporation then in office; (iv) the holders of capital stock of the Corporation vote to approve (A) the consolidation or merger of the Corporation into another entity (the "Merger Entity) or the conveyance, disposition, transfer or lease of all or substantially all of its respective assets (including, but not limited to, real property investments) to any individual or entity (the "Acquiring Entity", and, together with the Merger Entity, the "Successor Entity"), or (B) any consolidation or merger of another entity into the Corporation, which in either event (A) or (B) is pursuant to a transaction in which the outstanding voting capital stock of the Corporation is reclassified or changed into or exchanged for cash, securities or other property (unless the holders of the voting capital - 17 - Articles Supplementary stock of the Corporation immediately prior to such transaction hold immediately after such transaction more than a majority of the outstanding voting capital stock of the Successor Entity), or (v) the holders of capital stock of the Corporation vote to approve a plan of complete liquidation of the Corporation. (f) "Put Event" means each occurrence of any of (i) the Corporation fails to qualify as a real estate investment trust as described in Section 856 of the Internal Revenue Code of 1986, as amended, other than as a result of any action, or unreasonable failure to act, by any holder of Series B Preferred Stock; (ii) the Corporation becomes a "Pension-held REIT" as defined in Section 856(h)(3)(D) of the Internal Revenue Code of 1986, as amended, other than as a result of any action, or unreasonable failure to act, by the holders of Series B Preferred Stock; or (iii) the Corporation ceases to be engaged primarily in the business of owning and managing office properties directly or through subsidiaries, as carried on as of the date hereof and described in the Corporation's Annual Report on Form 10-K, as amended, as filed with the Securities and Exchange Commission for the year ended December 31, 1999. Section 9. Series B Preferred Stock -- Restrictions on Ownership -------------------------------------------------------- Transfer to Preserve Tax Benefit. -------------------------------- (a) The Series B Preferred Stock shall be governed by the restrictions on ownership and transfer set forth in Section 2(b) of Article V of the Charter. (b) So long as shares of Series B Preferred Stock are outstanding, without the consent of the holders of at least a majority of the Series B Preferred Stock at the time outstanding, given in person or by proxy, at a meeting called for that purpose at which the holders of the Series B Preferred Stock shall vote separately as a class, or by unanimous written consent in writing of all holders of the Series B Preferred Stock, the Corporation will not effect or validate any amendment, alteration or repeal of any Section of the Charter, so as to increase in any respect the restrictions or limitations on ownership applicable to the Series B Preferred Stock pursuant thereto. Section 10. Series B Preferred Stock -- Conversion and Exchange -------------------------------------------------------- for Excess Stock. The Series B Preferred Stock exchanged for Excess Stock - ---------------- pursuant to Section 2(c) of the Charter shall be governed by Article V of the Charter. Section 11. Miscellaneous. ------------- (a) Exchange or Market Transactions. Nothing in Section 9, Section 10 -------------------------------- or this Section 11 shall preclude the settlement of any transaction entered into through the facilities of the New York Stock Exchange or any other national securities exchange or automated inter-dealer quotation system. However, as set forth in Section 9, Section 10 or this Section 11, certain transactions may be settled by providing shares of Excess Stock. (b) Severability. If any provision of Section 9, Section 10 or this ------------ Section 11 or any application of any such provision is determined to be invalid by any federal or state court having jurisdiction over the issues, the validity - 18 - Articles Supplementary of the remaining provisions shall not be affected and other applications of such provisions shall be affected only to the extent necessary to comply with the determination of such court. (c) Mailings. So long as Series B Preferred Stock is held by less than -------- ten record holders, all mailings shall be made by overnight United States mail or by another overnight courier service; provided, that for so long as Five -------- Arrows Realty Securities III L.L.C. is a record holder of Preferred Stock, it shall receive all mailings by overnight United States mail or by overnight courier service regardless of the total number of record holders. (d) Reacquired Shares. All shares of Series B Preferred Stock that have ----------------- been issued and reacquired in any manner by the Corporation (including, without limitation, shares of Series B Preferred Stock which have been surrendered for conversion) shall be returned to the status of authorized but unissued shares of Series B Preferred Stock and shall not be re-issued as Series B Preferred Stock or transferred by the Corporation without the written consent of Five Arrows Realty Securities III L.L.C. (regardless of whether Five Arrows Realty Securities III L.L.C. owns any shares of Series B Preferred Stock); provided, however, that the Corporation may, at any time, reclassify such shares of Series B Preferred Stock as Common Stock without the consent of Five Arrows Realty Securities III L.L.C. - 19 - Articles Supplementary IN WITNESS WHEREOF, PARKWAY PROPERTIES, INC. has caused these Articles Supplementary to be signed by its President, Steven G. Rogers, and witnessed by its Chief Financial Officer and Secretary, Sarah P. Clark, this 10th day of October, 2000. PARKWAY PROPERTIES, INC. By: __________________________________ Name: Steven G. Rogers Title: President and Chief Executive Officer WITNESS: By: __________________________________ Name: Sarah P. Clark Title: Chief Financial Officer and Secretary THE UNDERSIGNED, President and Chief Executive Officer of Parkway Properties, Inc. who executed on behalf of said corporation the foregoing Articles Supplementary, of which this certificate is made a part, hereby acknowledges, in the name and on behalf of said corporation, the foregoing Articles Supplementary to be the corporate act of said corporation and further certify that, to the best of his knowledge, information and belief, the matters and facts set forth therein with respect to the approval thereof or otherwise required to be verified under oath are true in all material respects, under the penalties of perjury. By: ______________________ Name: Steven G. Rogers Title: President and Chief Executive Officer - 20 - Articles Supplementary EX-99 3 srz769881v8.txt EXHIBIT C--INVESTMENT AGREEMENT EXHIBIT C EXECUTION COPY INVESTMENT AGREEMENT between PARKWAY PROPERTIES, INC. and FIVE ARROWS REALTY SECURITIES III L.L.C. ---------------------- DATED as of October 6, 2000 ---------------------- TABLE OF CONTENTS ARTICLE 1 DEFINED TERMS Section 1.1 Defined Terms................................................1 Section 1.2 Terms Defined Herein.........................................6 ARTICLE 2 SALE AND PURCHASE OF PREFERRED SHARES Section 2.1 Sale of Preferred Shares.....................................6 Section 2.2 Payment for the Investor Preferred Shares....................7 Section 2.3 Transfer Taxes...............................................7 ARTICLE 3 CLOSINGS Section 3.1 Closings.....................................................7 Section 3.2 Closing Dates................................................7 Section 3.3 Cancellation of Subsequent Closings..........................7 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY Section 4.1 Due Incorporation and Status of the Company..................8 Section 4.2 Authority....................................................8 Section 4.3 Valid Agreement of the Company...............................8 Section 4.4 No Default...................................................8 Section 4.5 No Required Consents.........................................9 Section 4.6 Reservation of Shares........................................9 Section 4.7 Validity of Preferred Shares.................................9 Section 4.8 Disclosure...................................................9 Section 4.8.1 No Misstatement or Omission.................................9 Section 4.8.2 Financial Statements.......................................10 Section 4.8.3 Subsequent Events..........................................10 Section 4.9 Capitalization..............................................10 Section 4.10 Litigation..................................................10 Section 4.11 ERISA.......................................................10 Section 4.12 Environmental Matters.......................................11 Section 4.13 Investment Company..........................................12 Section 4.14 Taxes.......................................................12 Section 4.15 Insurance...................................................12 Section 4.16 Affiliated Transactions.....................................12 Section 4.17 Liabilities.................................................13 Section 4.18 Agreement and Waiver........................................13 Section 4.19 No Event of Default.........................................13 Section 4.20 No Brokers..................................................13 Section 4.21 Integration.................................................13 Section 4.22 Full Disclosure.............................................13 ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE INVESTOR Section 5.1 Organization................................................14 Section 5.2 Accredited Investor.........................................14 Section 5.3 Valid Agreements of the Investor............................14 Section 5.4 No Default..................................................14 Section 5.5 No Brokers..................................................14 Section 5.6 Investment Company..........................................15 ARTICLE 6 COVENANTS AND UNDERTAKINGS Section 6.1 Closings....................................................15 Section 6.2 Expenses of Rothschild Realty, Inc..........................15 Section 6.3 Fees and Expenses of Counsel to the Investor................15 Section 6.4 Use of Proceeds.............................................15 Section 6.5. Stockholder Approval........................................16 Section 6.6. Most favored Nation.........................................16 ARTICLE 7 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE INVESTOR TO CLOSE Section 7.1 Representations and Covenants...............................16 Section 7.2 Good Standing Certificates..................................17 Section 7.3 Governmental Permits and Approvals..........................17 Section 7.4 Legislation.................................................17 Section 7.5 Legal Proceedings...........................................17 Section 7.6 Third Party Consents........................................17 Section 7.7 Stock Certificates..........................................18 Section 7.8 Approval of Counsel to the Investor.........................18 Section 7.9 Articles Supplementary......................................18 Section 7.10 Operating Agreement.........................................18 Section 7.11 Opinions of Counsel.........................................18 Section 7.12 No Stop Order...............................................18 Section 7.13 Listing of Common Stock.....................................18 Section 7.14 Agreement and Waiver........................................18 Section 7.15 Dividends on Preferred Shares...............................18 Section 7.16 Director and Officer Insurance..............................18 Section 7.17 Subsequent Events...........................................19 Section 7.18 Use of Proceeds.............................................19 Section 7.19 Amendment of Partnership Agreement..........................19 Section 7.20 Warrant.....................................................19 ARTICLE 8 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO CLOSE Section 8.1 Representations and Covenants...............................19 Section 8.2 Governmental Permits and Approvals..........................19 Section 8.3 Legal Proceedings...........................................19 Section 8.4 Third Party Consents........................................20 Section 8.5 Purchase Price..............................................20 Section 8.6 Approval of Counsel to the Company..........................20 Section 8.7 No Stop Order...............................................20 ARTICLE 9 ASSIGNMENT Section 9.1 Assignability by Investor...................................20 Section 9.2 Assignability by the Company................................20 Section 9.3 Binding Agreement...........................................20 ARTICLE 10 MISCELLANEOUS Section 10.1 Applicable Law..............................................20 Section 10.2 Notices.....................................................21 Section 10.3 Entire Agreement; Amendments................................21 Section 10.4 Remedies for Breaches of This Agreement.....................21 Section 10.5 Confidentiality.............................................23 Section 10.6 Standstill..................................................23 Section 10.7 Lock-Up.....................................................24 Section 10.8 Termination.................................................24 Section 10.9 Remedies for Violations of Sections 10.5, 10.6 and 10.7.....24 Section 10.10 Counterparts................................................25 INVESTMENT AGREEMENT INVESTMENT AGREEMENT dated as of October 6, 2000 between Parkway Properties, Inc., a corporation organized under the laws of the State of Maryland (the "Company") and Five Arrows Realty Securities III L.L.C., a limited liability company organized under the laws of the State of Delaware (the "Investor"). WHEREAS, the Company wishes to issue the Preferred Shares (as defined herein) to the Investor, and the Investor wishes to make the investment and purchase of the Preferred Shares from the Company (the "Investment"); and WHEREAS, the Company has, concurrently with the execution and delivery of this Agreement, issued and delivered to the Investor the Warrant, registered in the Investor's or its nominee's name. NOW THEREFORE, in consideration of the promises and the mutual covenants herein contained and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows: ARTICLE 1 DEFINED TERMS. ------------- Section 1.1 Defined Terms. The following terms shall, unless the -------------- context otherwise requires, have the meanings set forth in this Section 1.1. "Adverse Consequences" means all actions, suits, proceedings, hearings, investigations, charges, complaints, claims, demands, injunctions, judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid in settlement, liabilities, obligations, taxes, liens, losses, expenses, and fees, including court costs and reasonable attorneys' fees and disbursements. "Affiliate" means, with respect to any Person, (a) any member of the Immediate Family of such Person or a trust established for the benefit of such member, (b) any beneficiary of a trust described in (a), (c) any Entity which, directly or indirectly though one or more intermediaries, is deemed to be the beneficial owner of 10% or more of the voting equity of the Person for the purposes of Section 13(d) of the Exchange Act, (d) any officer of the Person or any member of the Board of Directors of the Person, or (e) any Entity which, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such Person, including such Person or Persons referred to in the preceding clauses (a) or (d); provided, -------- however, that none of the Investor, Rothschild or their respective Affiliates - ------- nor any of their respective officers, directors, partners, members or Affiliates nor any Preferred Director (as such term is defined in the Articles Supplementary) shall be considered an Affiliate of the Company or its Subsidiaries for purposes of this Agreement. "Agreement" means this Investment Agreement, as originally executed and as hereafter from time to time supplemented, amended and restated. Investment Agreement "Agreement and Waiver" means the Agreement and Waiver, dated as of the date of the initial Closing, between the Company and the Investor in the form of Exhibit A attached hereto. "Articles Supplementary" means the Articles Supplementary classifying 2,142,857 shares of authorized preferred stock of the Company as Series B Cumulative Convertible Preferred Stock of the Company in the form of Exhibit B attached hereto. "Benefit Plan" means a defined benefit plan as defined in Section 3(35) of ERISA that is subject to Title IV of ERISA (other than a Multiemployer Plan) and in respect of which the Company or any ERISA Affiliate is or within the immediately preceding six (6) years was an "employer" as defined in Section 3(5) of ERISA. "Business Day" means any Monday, Tuesday, Wednesday, Thursday or Friday which is not a day in which banking institutions in New York City are authorized or obligated by law or executive order to close. "Charter" means the Articles of Incorporation of the Company, including, without limitation, the Articles Supplementary, as currently in effect and as amended, corrected or supplemented in the future in a manner that is not inconsistent with the terms of the Operative Instruments. "Code" means the Internal Revenue Code of 1986, as amended from time to time or any successor statute thereto. "Common Stock" means the shares of the common stock, par value $.001 per share, of the Company. "Confidential Information" means the identity of the Company in the context of the Investment, the existence and contents of discussions regarding the Investment, the terms of the Investment and information concerning the assets, operations, business, records, projections and prospects of the Company; provided, however, that the term "Confidential Information" does not include information that (i) is or becomes available to the public other than as a result of disclosure by any of the Investor or Rothschild or any of their respective representatives, (ii) was available to the Investor or Rothschild or was within the Investor's or Rothschild's knowledge prior to its disclosure by the Company to the Investor or Rothschild, or (iii) becomes available to the Investor or Rothschild from a source other than the Company, provided that such source is not known by the Investor or Rothschild to be bound by a confidentiality agreement with the Company or its representative. "Entity" means any general partnership, limited partnership, corporation, joint venture, trust, business trust, real estate investment trust, limited liability company, unincorporated organization, cooperative or association. 2 Investment Agreement "Environmental Claim" means any complaint, summons, citation, notice, directive, order, claim, litigation, investigation, judicial or administrative proceeding, judgment, letter or other communication from any governmental agency, department, bureau, office or other authority, or any third party alleging violations of Environmental Laws or Releases of Hazardous Materials. "Environmental Laws" means the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. 9601 et seq., as amended; the Resource Conservation and Recovery Act ("RCRA), 42 U.S.C. 6901 et seq., as amended; the Clean Air Act ("CAA"), 42 U.S.C. 7401 et seq., as amended; the Clean Water Act ("CWA"), 33 U.S.C. 1251 et seq., as amended; the Occupational Safety and Health Act ("OSHA"), 29 U.S.C. 655 et seq. and any other federal, state, local or municipal laws, statutes, regulations, rules or ordinances imposing liability or establishing standards of conduct for protection of the environment. "Environmental Liabilities" means any monetary obligations, losses, liabilities (including strict liability), damages, punitive damages, treble damages, costs and expenses (including all reasonable out-of-pocket fees, disbursements and expenses of counsel, reasonable out-of-pocket expert and consulting fees and reasonable out-of-pocket costs for environmental site assessments, remedial investigation and feasibility studies), fines, penalties, sanctions and interest incurred as a result of any Environmental Claim filed by any governmental authority or any third party against the Company or its Subsidiaries or any predecessors in interest which relate to any violations of Environmental Laws, Response Actions, Releases or threatened Releases of Hazardous Materials from or onto (i) any assets, properties or businesses presently or formerly owned by the Company, its Subsidiaries or a predecessor in interest, or (ii) any facility which received Hazardous Materials generated by the Company, its Subsidiaries or a predecessor in interest. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute of similar import, and regulations thereunder, in each case as in effect from time to time. References to sections of ERISA shall be construed also to refer to any successor sections. "ERISA Affiliate" means any (i) corporation which is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Code) as the Company, (ii) partnership or other trade or business (whether or not incorporated) under common control (within the meaning of Section 414(c) of the Code) with the Company, or (iii) member of the same affiliated service group (within the meaning of Section 414(m) of the Code) as the Company, any corporation described in clause (i) above or any partnership or trade or business described in clause (ii) above. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "GAAP" means United States generally accepted accounting principles, as in effect from time to time. 3 Investment Agreement "Hazardous Materials" include (a) any element, compound, or chemical that is defined, listed or otherwise classified as a contaminant, pollutant, toxic pollutant, toxic or hazardous substances, extremely hazardous substance or chemical, hazardous waste, medical waste, biohazardous or infectious waste, special waste, or solid waste under Environmental Laws; (b) petroleum, petroleum-based or petroleum-derived products; (c) electrical equipment containing polychlorinated biphenyls at a level greater than 50 ppm; (d) any substance exhibiting a hazardous waste characteristic (as identified in Regulations adopted pursuant to Environmental Laws, i.e. corrosivity, ignitibility, toxicity or reactivity) as well as any radioactive or explosive materials; and (e) asbestos-containing materials. "Immediate Family" means, with respect to any Person, such Person's spouse, parents, parents-in-law, descendants, nephews, nieces, brothers, sisters, brothers-in-law, sisters-in-law, stepchildren, sons-in-law and daughters-in-law. "Lien" means and includes any lien, security interest, pledge, charge, option, right of first refusal, claim, mortgage, lease, easement or any other encumbrance whatsoever. "Material Adverse Effect," when used with reference to events, acts, failures or omissions to act, or conduct of a specified Person, means that such events, acts, failures or omissions to act, or conduct would have a material adverse effect on (i) the condition (financial or otherwise), earnings, affairs or prospects of such Person and its consolidated subsidiaries, considered as one enterprise, or (ii) the ability of such Person to perform its obligations under the Operative Instruments. "Multiemployer Plan" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA and subject to Title IV of ERISA which is, or within the immediately preceding six (6) years was, contributed to by the Company or any ERISA Affiliate. "Operating Agreement" means the Operating Agreement, dated as of the initial Closing Date, between the Company and the Investor, in the form of Exhibit C attached hereto. "Operative Instruments" means this Agreement, the Warrant, the Articles Supplementary, the Agreement and Waiver and the Operating Agreement. "PBGC" means the Pension Benefit Guaranty Corporation. "Permit" means a permit, license, consent, order or approval by any federal, state or local governmental agency. "Person" means any individual or Entity. "Plan" means an employee benefit plan defined in Section 3(3) of ERISA in respect of which the Company or any ERISA Affiliate is, or within the immediately preceding six (6) years was, an "employer" as defined in Section 3(5) of ERISA. "Preferred Shares" means the shares of the Company designated in the Articles Supplementary as Series B Cumulative Convertible Preferred Stock. 4 Investment Agreement "Registration Statement" means the registration statement of the Company on Form S-3 (Registration No. 333-48161) filed on March 17, 1998 with the SEC pursuant to the Securities Act. "REIT" means a real estate investment trust described in Code Section 856. "Release" means any spilling, leaking, pumping, emitting, emptying, discharging, injecting, escaping, leaching, migrating, dumping, or disposing of Hazardous Materials (including the abandonment or discarding of barrels, containers or other closed receptacles containing Hazardous Materials) into the environment. "Response Action" means all actions taken to (i) clean up, remove, remediate, contain, treat, monitor, assess, evaluate or in any other way address Hazardous Materials in the environment as required by Environmental Laws; (ii) prevent or minimize a Release or threatened Release of Hazardous Materials so they do not migrate or endanger or threaten to endanger to cause substantial danger to public health or welfare or the environment as required by 42 U.S.C. 9601; (iii) perform pre-remedial studies and investigations and post-remedial operation and maintenance activities as required by 42 U.S.C. 9601; or (iv) any other actions authorized by 42 U.S.C. 9601. "Reportable Event" means any of the events described in Section 4043(c) of ERISA (other than events for which the notice requirements have been waived). "Representatives" means, with respect to any Person, the directors, officers, employees, Affiliates, representatives (including, but not limited to, financial advisors, attorneys and accountants), agents or potential sources of financing of such person. "Rothschild" means Rothschild Realty Inc. "SDAT" means the State Department of Assessment and Taxation of Maryland. "SEC" means the Securities and Exchange Commission or any successor regulatory authority. "Securities Act" means the Securities Act of 1933, as amended. "Subsidiary" of any Person or Entity means an Entity in which such Person or Entity has the ability, whether by the direct or indirect ownership of shares or other equity interests, by contract or otherwise, to elect a majority of the directors of a corporation or the trustees of a real estate investment trust, to select the managing partner of a partnership, or otherwise to select, or have the power to remove and then select, a majority of those persons exercising governing authority over such Entity. A limited partnership shall be deemed to be a Subsidiary of a Person or Entity if such Person or Entity or a Subsidiary of such Person or Entity serves as a general partner thereof. A trust shall be deemed to be a Subsidiary of a Person or Entity if such Person or Entity or a Subsidiary of such Person or Entity serves as any trustee thereof or any Person having the right to select any such trustee. 5 Investment Agreement "Termination Event" means (i) a Reportable Event with respect to any Benefit Plan (with respect to which the 30 day notice requirement has not been waived); (ii) the withdrawal of the Company or any ERISA Affiliate from a Benefit Plan during a plan year in which the Company or any ERISA Affiliate was a "substantial employer" as defined in Section 4001(a)(2) of ERISA; (iii) providing a written notice of intent to terminate a Benefit Plan to affected parties of a distress termination described in Section 4041(c) of ERISA; or (iv) the institution by the PBGC of proceedings to terminate a Benefit Plan. "Warrant" means the warrant, in the form of Exhibit D attached hereto. Section 1.2 Terms Defined Herein. In addition to the terms defined in --------------------- Section 1.1 above, the following terms shall, unless the context otherwise requires, have the meanings set forth in this Agreement in the section set forth next to such term Defined Term Section - ------------ ------- Accredited Investor..........................................5.2 Balance Sheet................................................4.17 Breach.......................................................4.19 Closing......................................................2.1 Excess Stock.................................................4.9 Indemnified Party............................................10.4.3 Indemnifying Party...........................................10.4.3 Investment...................................................Recital Investor.....................................................Introduction Investor Preferred Shares....................................2.1 Liabilities..................................................4.17 Ownership Limit Waiver.......................................6.5(b) 2000 10-Qs...................................................4.8 1999 10-K....................................................4.2 2000 Proxy Statement.........................................4.8 Preferred Stock..............................................4.9 Purchase Price...............................................2.1 Third Party Claim............................................10.4.3 ARTICLE 2 SALE AND PURCHASE OF PREFERRED SHARES. ------------------------------------- Section 2.1 Sale of Preferred Shares. At the closings provided for in ------------------------- Article 3 hereof (each a "Closing"): (i) the Company shall issue and sell an aggregate of 2,142,857 Preferred Shares (the "Investor Preferred Shares") to the Investor, and shall deliver to the Investor a stock certificate or certificates representing all of the Preferred Shares, registered in the Investor's or its nominee's name; and (ii) the Investor shall purchase, acquire and accept such Preferred Shares as the Company issues and sells to it for $35.00 per share, less the Discount, as defined below (the "Purchase Price"); provided, however, -------- ------- that the number of Investor Preferred Shares shall be reduced to 1,873,463 in the event the Company's stockholders do not approve the Ownership Limit Waiver 6 Investment Agreement (as defined in Section 6.5). The term "Discount" shall mean a discount per share of 2.0% of $35.00, or a discount per share of $.70. Section 2.2 Payment for the Investor Preferred Shares. At the Closings ------------------------------------------ and in accordance with the provisions set forth in Article 3, the Purchase Price shall be paid by the Investor to the Company in United States dollars by wire transfer of funds immediately available to such account(s) as the Company shall designate in a written notice delivered to the Investor not less than five (5) Business Days prior to the applicable Closing Date. Section 2.3 Transfer Taxes. The Company shall pay all stock transfer --------------- taxes, recording fees and other sales, transfer, use, purchase or similar taxes resulting from the Investment. ARTICLE 3 CLOSINGS. -------- Section 3.1 Closings. The Company shall be entitled to designate up to -------- four Closings, each of which shall provide for the issuance and sale of at least 142,858 Investor Preferred Shares. Each Closing of the sale and purchase of the Investor Preferred Shares shall take place at the offices of Schulte Roth & Zabel LLP, 900 Third Avenue, New York, New York 10022 at 10:00 a.m. New York City time. Section 3.2 Closing Dates. Each Closing shall occur on such Business -------------- Day as the Company notifies the Investor, on not less than ten (10) Business Days notice to the Investor, or at such other time as the Company and the Investor mutually agree in writing (each, a "Closing Date"); provided, however, that if all of the Investor Preferred Shares have not theretofore been sold, the remaining Investor Preferred Shares shall be issued and sold on the earlier of the fourth Closing or July 6, 2001. Section 3.3 Cancellation of Subsequent Closings. In the event that a ------------------------------------ Change of Control or a Put Event (each as defined in the Articles Supplementary) occurs prior to the sale by the Company to the Investor of any of the 2,142,857 Preferred Shares to be sold pursuant to this Agreement, and the Investor notifies the Company that it elects to cancel the remaining Closings, such remaining Closings shall be canceled and the Company shall immediately pay to the Investor by wire transfer in immediately available funds an amount equal to the product of (x) $.70 multiplied by (y) the difference between (A) 2,142,857 (or the maximum amount of Preferred Shares that the Investor may purchase in the event that the stockholders of the Company do not approve the Ownership Limit Waiver at the Company's next annual meeting as provided in Section 6.5) and (B) the number of Preferred Shares which the Company has sold to the Investor pursuant to this Agreement (the "Termination Payment"). 7 Investment Agreement ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. --------------------------------------------- The Company hereby represents and warrants to the Investor as follows: Section 4.1 Due Incorporation and Status of the Company. ------------------------------------------- Section 4.1.1 Due Incorporation. The Company and each of ------------------- its Subsidiaries has been duly organized and is validly existing and in good standing under the laws of the state of their respective organization and are qualified or licensed, and in good standing, as a foreign Entity authorized to do business in each other jurisdiction in which its ownership of properties or its conduct of business requires such qualification or licensing, except where the failure to be so qualified or licensed, or in good standing, as a foreign Entity would not have a Material Adverse Effect on the Company. Section 4.1.2 REIT Status. As of the date hereof, the Company ----------- qualifies as a REIT under the Code and has taken no action or omitted to take any action, the effect of which reasonably could be expected to disqualify the Company as a REIT under the Code. Section 4.2 Authority. The Company has the power and authority to own, --------- lease and operate its properties, directly or indirectly, and to conduct its business as presently conducted and as contemplated by the Annual Report on Form 10-K as filed by the Company under the Exchange Act for the year ended December 31, 1999 (the "1999 10-K"). The Board of Directors has authorized the prompt taking of all actions necessary for the approval of this Agreement and the transactions contemplated hereby, including, without limitation, the taking of the actions contemplated by Section 6.5, and has determined to recommend such approval to the stockholders of the Company and that this Agreement and such transactions are in the best interests of the Company and such stockholders. Section 4.3 Valid Agreement of the Company. The execution and delivery ------------------------------ of, and the performance by the Company of its obligations under, this Agreement, the Warrant, the Operating Agreement and the Agreement and Waiver have each been duly authorized by all necessary action by the Company other than the approval of stockholders of the Company provided for in Section 6.5. This Agreement has been and the Warrant, Operating Agreement and Agreement and Waiver, upon the Closing, will be executed and delivered by the Company. This Agreement represents and the Warrant, Operating Agreement and Agreement and Waiver, upon the Closing will represent, the valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general principles of equity (whether enforcement is sought by proceedings in equity or at law) and except for such actions requiring stockholder approval as provided in Section 6.5. Section 4.4 No Default. The execution and delivery of the Operative ---------- Instruments by the Company and the performance by the Company of its obligations do not (or if not yet executed, upon the execution and delivery thereof will not) (a) violate the Charter or By-Laws of the Company; (b) violate or constitute a breach of or default under any mortgage, indenture, loan agreement, 8 Investment Agreement promissory note or other agreement to which the Company or any of its Subsidiaries is a party, or by which any of them is bound, or to which any property of the Company or any of its Subsidiaries is subject; or (c) conflict with or violate any law or any regulation, rule, order or decree of any governmental body, court or administrative agency having jurisdiction over the Company or any of its Subsidiaries or the properties of any of them; except, in the case of clauses (b) and (c) above, for such breaches, defaults, conflicts or violations which would not, individually or in the aggregate, have a Material Adverse Effect on the Company or on the ability of the Company to consummate the transactions contemplated hereby. Section 4.5 No Required Consents. The execution and delivery of the --------------------- Operative Instruments by the Company and the performance by the Company of its obligations to be performed at or prior to the related Closing do not require any filing or registration with, or the receipt of any consent by, any governmental or regulatory authority by the Company or its Subsidiaries other than (a) any which have already been obtained or waived, (b) such consents as may be required under the Securities Act, the regulations promulgated thereunder or applicable state securities laws, and (c) the approval by the holders of outstanding shares of Common Stock as required by the rules of the New York Stock Exchange, Inc., which approval the Company shall use its best efforts to obtain as set forth in Section 6.5. Section 4.6 Reservation of Shares. The Company has duly reserved ---------------------- solely for purposes of issuance (i) upon conversion of the Preferred Shares the Common Shares into which the Preferred Shares may be converted from time to time, and (ii) upon exercise of the Warrant the Common Shares underlying the Warrant. Section 4.7 Validity of Preferred Shares. The Company has duly ------------------------------- authorized the issuance and delivery of 2,142,857 shares of Preferred Stock pursuant to this Agreement and, upon delivery thereof and receipt by the Company of the Purchase Price therefor, such shares of Preferred Stock will be duly authorized, validly issued, fully paid and nonassessable. The Preferred Shares have the dividend, conversion, voting and other terms set forth in the Articles Supplementary and, to the extent not inconsistent therewith, as set forth in the Charter and By-Laws of the Company and the Maryland General Corporation Law. Section 4.8 Disclosure. The Company has heretofore delivered to the ---------- Investor the Proxy Statement relating to its 2000 Annual Meeting of Shareholders (the "2000 Proxy Statement"), the 1999 10-K, and the Quarterly Reports on Form 10-Q as filed by the Company under the Exchange Act for the quarters ended March 31, 2000 and June 30, 2000 (the "2000 10-Qs"). Section 4.8.1 No Misstatement or Omission. At the time of ----------------------------- filing, the Registration Statement, the 2000 Proxy Statement, the 1999 10-K and the 2000 10-Qs complied in all material respects with the requirements of the Exchange Act and the rules and regulations promulgated by the SEC thereunder. The Registration Statement (including, without limitation, the documents incorporated by reference therein), the 2000 Proxy Statement, the 1999 10-K and the 2000 10-Qs do not, as of their respective dates, contain an 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 made not misleading, in the case of each of the foregoing other than the Registration Statement, in light of the circumstances under which they were made. 9 Investment Agreement Section 4.8.2 Financial Statements. The financial statements, -------------------- including the notes thereto, and supporting schedules included in the 1999 10-K and the 2000 10-Qs have been prepared in conformity with GAAP applied on a consistent basis (except as otherwise noted therein) and present fairly the financial position of the Company and its Subsidiaries as of the dates indicated and the results of their operations for the periods shown. Section 4.8.3 Subsequent Events. Since the respective dates as ----------------- of which information is given in the 1999 10-K and the 2000 10-Qs, except as otherwise stated therein, in any Current Report on Form 8-K filed by the Company or in the press releases listed on Schedule 4.8.3 hereto and other than changes in general economic conditions or industry conditions, there has not been any change in the condition (financial or otherwise) or in the earnings, business affairs or business prospects of the Company and its Subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business which would have a Material Adverse Effect on the Company. Section 4.9 Capitalization. The authorized capital stock of the Company -------------- consists of: (i) 67,240,000 shares of Common Stock; (ii) 2,760,000 shares of 8.75% Series A Cumulative Redeemable Preferred Stock, par value $.001 per share (the "Preferred Stock"); and (iii) 30,000,000 shares of excess stock, par value $.001 per share (the "Excess Stock"). Schedule 4.9 sets forth the issued and outstanding capital stock of the Company as of October 4, 2000. Except as set forth on Schedule 4.9 hereto, there are no other shares of capital stock of the Company outstanding and no other outstanding options, warrants, convertible or exchangeable securities, subscriptions, rights (including preemptive rights), stock appreciation rights, calls or commitments of any character whatsoever to which the Company is a party or may be bound requiring the issuance or sale of shares of any capital stock of the Company, and there are no contracts or other agreements by which the Company is or may become bound to issue additional shares of its capital stock or any options, warrants, convertible or exchangeable securities, subscriptions, rights (including preemptive rights), stock appreciation rights, calls or commitments of any character whatsoever relating to such shares. Section 4.10 Litigation. Except as set forth in the 1999 10-K or the ---------- 2000 10-Qs or 8-Ks, the Company has not received any notice of any outstanding judgments, rulings, orders, writs, injunctions, awards or decrees of any court or any foreign, federal, state, county or local government or any other governmental, regulatory or administrative agency or authority or arbitral tribunal against or involving the Company or any of its Subsidiaries which is currently in effect. Neither the Company nor any of its Subsidiaries is a party to, or to the knowledge of the Company, threatened with, any litigation or judicial, governmental, regulatory, administrative or arbitration proceeding which, if decided adversely to their respective interests could have an adverse effect upon the transactions contemplated hereby or that could reasonably be expected to have a Material Adverse Effect on the Company. Section 4.11 ERISA. (a) Each Plan is in substantial compliance with the ----- applicable provisions of ERISA, the Code and the Plan's terms, (b) no Termination Event has occurred nor is reasonably expected to occur with respect to any Benefit Plan, (c) the most recent annual report (Form 5500 Series) with respect to each Plan, including Schedule B (Actuarial Information) thereto, copies of which have been filed with the Internal Revenue Service, is complete and correct in all material respects and fairly presents the funding status of 10 Investment Agreement such Benefit Plan, and since the date of such report there has been no material adverse change in such funding status, (d) no Benefit Plan had an accumulated (whether or not waived) funding deficiency or permitted decreases which would create a deficiency in its funding standard account within the meaning of Section 412 of the Code at any time during the previous 60 months, and (e) no Lien imposed under the Code or ERISA exists or is likely to arise on account of any Benefit Plan within the meaning of Section 412 of the Code. Neither the Company nor any of its ERISA Affiliates has incurred any withdrawal liability under ERISA with respect to any Multiemployer Plan, and the Company is not aware of any facts indicating that the Company or any of its ERISA Affiliates may in the future incur any such withdrawal liability. Except as required by Section 4980B of the Code, the Company does not maintain a welfare plan (as defined in Section 3(1) of ERISA) which provides benefits or coverage after a participant's termination of employment. Neither the Company nor any of its ERISA Affiliates have incurred any liability under the Worker Adjustment and Retraining Notification Act. All Plans in existence on the Closing Date are set forth on Schedule 4.11 hereto. Section 4.12 Environmental Matters. Except as set forth in Schedule ---------------------- 4.12 hereto, to the best knowledge of the Company and its Subsidiaries: (a) The operations and properties of the Company and its Subsidiaries are in full compliance with Environmental Laws except to the extent that any failure to comply is not reasonably expected to have a material adverse effect on the condition or operation of the individual property subject to the Environmental Laws; (b) There has been no Release (i) at any assets, properties or businesses currently owned or operated by the Company, any of its Subsidiaries or any predecessor in interest; (ii) from adjoining properties or businesses; or (iii) from or onto any facilities which received Hazardous Materials generated by the Company, any of its Subsidiaries or any predecessor in interest that would result in any Environmental Liabilities except to the extent that any such Release is not reasonably expected to have a material adverse effect on the individual property subject to the Environmental Liabilities; (c) No Environmental Claims have been asserted against the Company, any of its Subsidiaries or any predecessor in interest nor does the Company or any of its Subsidiaries have knowledge or notice of any threatened or pending Environmental Claims; (d) No Environmental Claims have been asserted against any facilities that may have received Hazardous Materials generated by the Company, any of its Subsidiaries or any predecessor in interest; (e) The Company has conducted Phase I Environmental Site Assessments on all of the material assets, properties and businesses owned or operated by the Company and its Subsidiaries and has delivered to the Investor true and complete copies of all material environmental reports, studies, investigations or material correspondence with any governmental agency in their possession regarding any Environmental Liabilities at the assets, properties or businesses of the Company or any of its Subsidiaries; and 11 Investment Agreement (f) To the extent that any of the assets, properties or businesses owned or operated by the Company or any of its Subsidiaries are located in "wetlands" regulated under Environmental Laws, the Company and its Subsidiaries are in material compliance with Environmental Laws regulating those "wetlands." Section 4.13 Investment Company. The Company is not, and upon the ------------------- issuance and sale of the Preferred Shares as herein contemplated will not be, an "investment company" or an Entity "controlled" by an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended. Section 4.14 Taxes. The Company has filed all federal, state, local or ----- foreign tax returns that are required to be filed or has duly requested extensions thereof and has paid all taxes required to be paid by it and any related assessments, fines or penalties, except for any such tax, assessment, fine or penalty that is being contested in good faith and by appropriate proceedings or where the failure to make any such filing or payment would not be reasonably expected to have a Material Adverse Effect on the Company; and adequate charges, accruals and reserves have been provided for in the financial statements of the Company in respect of all material federal, state, local and foreign taxes for all periods as to which the tax liability of the Company has not been finally determined or remains open to examination by applicable taxing authorities. The Company is not currently under review by any federal, state or local taxing authority. Section 4.15 Insurance. The Company carries or is entitled to the --------- benefits of insurance in such amounts and covering such risks as is reasonably sufficient under the circumstances and is consistent with comparable businesses and all such insurance is in full force and effect. Section 4.16 Affiliated Transactions. Except as set forth on Schedule ------------------------ 4.16 or as disclosed in the 1999 10-K, the 2000 10-Qs or 8-Ks or the 2000 Proxy Statement describe all transactions with, or payments to, any Affiliate in excess of $60,000 in the aggregate (other than reimbursement of expenses and compensation payable to employees or officers or directors' fees payable to the Company's directors). Except as set forth on Schedule 4.16, neither the Company, nor any officer or director of the Company, nor any of its Subsidiaries, or any Affiliate of any of the foregoing, or any member of the Immediate Family of any of the foregoing: (i) owns, directly or indirectly, any interest in (excepting not more than five (5) percent stock holdings held solely for investment purposes in securities of any Person which are listed on any national securities exchange or regularly traded in the over-the-counter market) or is an owner, sole proprietor, shareholder, partner, director, officer, employee, consultant or agent of any person which is a competitor, lessor, lessee, customer or supplier of the Company or any of its Subsidiaries; (ii) owns, directly or indirectly, in whole or in part, any property, patent, trademark, service mark, trade name, copyright, franchise, invention, permit, license or secret or confidential information which the Company or any of its Subsidiaries is using or the use of which is necessary for the business of the Company or any of its Subsidiaries; or (iii) has any cause of action or other suit, action or claim whatsoever against, or owes any amount to, the Company or any of its Subsidiaries, in each case (i) through (iii) except for those in the ordinary course of business. 12 Investment Agreement Section 4.17 Liabilities. Except as set forth on Schedule 4.17 or as ----------- reflected in the consolidated balance sheet of the Company at June 30, 2000 as included in the 2000 10-Qs (the "Balance Sheet"), the Company and its Subsidiaries do not have any material direct or indirect indebtedness, liability, claim, loss, damage, deficiency, obligation or responsibility, fixed or unfixed, choate or inchoate, liquidated or unliquidated, secured or unsecured, subordinated or unsubordinated, matured or unmatured, accrued, absolute, contingent or otherwise, including, without limitation, liabilities on account of taxes, other governmental, regulatory or administrative charges or lawsuits brought, whether or not of a kind required by GAAP to be set forth on a financial statement (collectively, "Liabilities"), that were not fully and adequately reflected or reserved against on the Balance Sheet of the Company or incurred in the ordinary course of business since June 30, 2000 (less Liabilities that have been discharged in the ordinary course of business since the date of the Balance Sheet of the Company). Section 4.18 Agreement and Waiver. The Board of Directors of the ---------------------- Company has approved the provisions of the Agreement and Waiver. Section 4.19 No Event of Default. No event has occurred and is ---------------------- continuing and no condition exists which constitutes a breach, an event of default, or otherwise gives any other party the rights to accelerate or require payment of any obligation, or with the passage of time would constitute such an event (a "Breach"), under any agreement or instrument to which the Company or any of its Subsidiaries is a party that could reasonably be expected to have a Material Adverse Effect on the Company. Neither the Company nor any of its Subsidiaries has received any notice that an event has occurred and is continuing or that a condition exists which constitutes a Breach under any agreement or instrument to which the Company or any of its Subsidiaries is a party that could reasonably be expected to have a Material Adverse Effect on the Company. Section 4.20 No Brokers. In connection with the Investment, the Company ---------- has not retained or become obligated to any broker or finder other than Rothschild, UBS Warburg LLC and Mercury Partners LLC. Section 4.21 Integration. The Preferred Shares and the Common Stock ----------- issuable upon conversion of the Preferred Shares are being issued and sold to the Investor pursuant to the Registration Statement. The Registration Statement is currently effective and the Company will use its best efforts to maintain such effectiveness as long as any Preferred Shares are outstanding and, if necessary, to have declared effective one or more registration statements under the Securities Act so as to give effect to the Company's obligations hereunder. The Registration Statement has not been the subject of an issued stop order or other proceeding relating to the effectiveness of the Registration Statement and, to the Company's best knowledge, the Commission has given no notice that it is contemplating such action. No registration, filing or qualification is required under any state "blue sky" or other securities laws to sell the Preferred Shares hereunder or to issue shares of Common Stock upon conversion of the Preferred Shares. Section 4.22 Full Disclosure. All documents and other papers delivered --------------- to the Investor by or on behalf of the Company in connection with this Agreement and the transactions contemplated hereby are true, complete, accurate and authentic and, when taken together with the Company's representations and warranties set forth in this Agreement, do not contain any untrue statement of a 13 Investment Agreement material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading. ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE INVESTOR. ---------------------------------------------- In order to induce the Company to enter into this Agreement and to consummate the transactions contemplated hereby, the Investor hereby represents and warrants to, and covenants with, the Company as follows: Section 5.1 Organization. The Investor has been duly organized and is ------------ validly existing and in good standing under the laws of the State of Delaware, and has all requisite power and authority under such laws to carry on its business as now conducted. Section 5.2 Accredited Investor. The Investor is an "Accredited -------------------- Investor," as such term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act. Section 5.3 Valid Agreements of the Investor. The Investor has all ----------------------------------- right, power and authority to enter into this Agreement and the Operating Agreement and to consummate the transactions contemplated hereby and thereby. All action on the part of the Investor, its officers, managers and members necessary for the authorization, execution and delivery of the Operative Agreements and the performance of all obligations of the Investor hereunder have been taken or will be taken prior to the Closing. Each of the Operative Instruments to which the Investor is a party has each been duly authorized, executed and delivered by the Investor, and constitutes a legal, valid and binding obligation of the Investor, enforceable against the Investor in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general principles of equity (whether enforcement is sought by proceedings in equity or at law). Section 5.4 No Default. The execution and delivery of this Agreement ---------- and the Operating Agreement by the Investor and the performance by the Investor of its obligations thereunder do not (or if not yet executed, upon the execution and delivery thereof will not) (a) violate the organizational documents of the Investor; (b) violate or constitute a breach of or default under any mortgage, indenture, loan agreement, promissory note or other agreement to which the Investor is a party, or by which the Investor is bound, or to which any property of the Investor is subject; or (c) conflict with or violate any law or any regulation, rule, order or decree of any governmental body, court or administrative agency having jurisdiction over the Investor or its properties except with respect to clauses (b) and (c) where such conflict, breach, default or violation would not reasonably be expected to have a Material Adverse Effect on the Investor. Section 5.5 No Brokers. In connection with the Investment, the Investor ---------- has not retained or become obligated to any broker or finder. 14 Investment Agreement Section 5.6 Investment Company. The Investor is not, and upon the ------------------- purchase of the Preferred Shares as herein contemplated, will not be, an "investment company" or an Entity "controlled" by an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended. ARTICLE 6 COVENANTS AND UNDERTAKINGS. -------------------------- Section 6.1 Closings. The Company shall use its best efforts to comply -------- with all conditions precedent to the Closings, including, without limiting the foregoing, the Company shall cause the Articles Supplementary to have been adopted, filed with the SDAT and become effective. Section 6.2 Expenses of Rothschild Realty, Inc. Except as set forth in ------------------------------------ Section 6.3, the Company agrees to reimburse Rothschild at each Closing for its reasonable out-of-pocket expenses documented to the reasonable satisfaction of the Company. All such amounts paid pursuant to this Section 6.2 shall be paid by wire transfer of funds immediately available in New York City to such account(s) as Rothschild shall designate in a written notice delivered to the Company not less than two Business Days prior to the initial Closing Date; provided, however, that the Investor, on behalf of the Company, may directly pay out of the Purchase Price payable hereunder such fees and expenses to Rothschild; provided, further, that the aggregate of all such out-of-pocket expenses including, without limitation, the fees and expenses of counsel to the Investor provided for in Section 6.3 hereof, shall not exceed (i) $125,000 payable on the execution and delivery of this Agreement for its services rendered in connection with the preparation and negotiation of this Agreement and the related agreements and the first Closing, and (ii) $15,000 payable on each subsequent Closing for its services rendered in connection with each of the subsequent Closings. Section 6.3 Fees and Expenses of Counsel to the Investor. Subject to ---------------------------------------------- the limitation set forth in Section 6.2, the Company agrees to pay to counsel to the Investor, at each Closing reasonable fees and expenses in connection with services rendered and expenses incurred in connection with the issuance and sale of Preferred Shares to the Investor. All such amounts paid pursuant to this Section 6.3 shall be paid by wire transfer of funds immediately available in New York City to such account(s) as counsel to the Investor shall designate in a written notice delivered to the Company not less than two Business Days prior to each date on which such amount is payable; provided, however, that the Investor, on behalf of the Company, may directly pay out of the Purchase Price hereunder such fees and expenses to counsel to the Investor. Section 6.4 Use of Proceeds. The Company shall apply all of the ---------------- proceeds from the sale of the Preferred Shares to the Investor at each Closing to purchase concurrently an identical number of Series B Preferred Mirror Limited Partnership Units of Parkway Properties, L.P. (the "Operating Partnership"), as set forth in Exhibit A to the Amended and Restated Agreement of Limited Partnership of the Operating Partnership in the Form of Exhibit E attached hereto, from the Operating Partnership. 15 Investment Agreement Section 6.5. Stockholder Approval. The Company covenants to submit a --------------------- proposal to its stockholders at the next annual meeting of the Company's stockholders, which shall be held no later than June 15, 2001, for the purpose of securing authorization for the ownership by the Investor and its successors and assigns of in excess of 19.9% of the outstanding Common Stock ("the "Ownership Limit Waiver"). The proxy statement for the Company's regular annual meeting shall solicit each such stockholder's affirmative vote at such stockholder meeting in favor of the Ownership Limit Waiver. Such proxy statement shall reflect that the Board of Directors of the Company has approved the Ownership Limit Waiver, subject to approval by the Company's stockholders, and that the Board of Directors recommends to such stockholders that they approve such proposal. The Company shall use its best efforts to solicit the approval of the Ownership Limit Waiver. The Investor shall have the opportunity to review and comment on each version of such proxy statement submitted to or filed with the SEC. In the event that the stockholders of the Company do not approve the Ownership Limit Waiver, the Company shall immediately pay to the Investor by wire transfer in immediately available funds an amount equal to the product of (x) $.70 multiplied by (y) the difference between (A) 2,142,857 and (B) the maximum number of Preferred Shares which the Company may sell to the Investor pursuant to this Agreement in the absence of the Ownership Limit Waiver (the "Waiver Termination Payment"). Section 6.6. Most Favored Nation. The Company shall not enter into any ------------------- agreement with any existing stockholder of the Company in respect of the issuance by the Company of any shares of Common Stock or securities convertible into or exchangeable for Common Stock without the prior written consent of the Investor, and then only if the Investor has been offered the opportunity to receive rights and benefits equivalent to those proposed for such stockholder in such agreement, except shares of Common Stock issued under the Company's (i) Dividend Reinvestment and Stock Purchase Plan and (ii) 1994 Stock Option and Long Term Incentive Plan for officers and employees of the Company and its subsidiaries (including Parkway Properties LP), under the terms of such plans as are in effect on the date hereof. The Company shall furnish to the Investor a copy of any such agreement. The Company shall not enter into any agreement with any Person in respect of the granting by the Company of preemptive rights to such Person with respect to any securities of the Company without the prior written consent of the Investor, and then only if the Investor has been granted preemptive rights equivalent to those proposed for such Person in such agreement. ARTICLE 7 CONDITIONS PRECEDENT TO THE OBLIGATION -------------------------------------- OF THE INVESTOR TO CLOSE. ------------------------ The obligation of the Investor to complete each Closing is subject, at its option, to the fulfillment on or prior to the related Closing Date (unless otherwise provided) of the following conditions, any one (1) or more of which may be waived by it in its sole discretion: Section 7.1 Representations and Covenants. The representations and ------------------------------ warranties of the Company contained in this Agreement shall be true, complete and accurate in all material respects on and as of the related Closing Date with the same force and effect as though made on and as of the related Closing Date, except for changes contemplated or permitted by this Agreement and except to the extent that any representation or warranty is made as of a specified date, in 16 Investment Agreement which case, such representation and warranty shall be true and correct in all material respects as of such date. The Company shall have performed and complied in all material respects with all covenants and agreements required by this Agreement to be performed or complied with by the Company on or prior to the related Closing Date. The Company shall have delivered to the Investor a certificate, dated the related Closing Date and signed by the President and Chief Financial Officer of the Company, to the foregoing effect and stating that all conditions to the Investor's obligations hereunder have been satisfied. Section 7.2 Good Standing Certificates. The Company shall have ---------------------------- delivered to the Investor: (i) copies of its Charter, including all amendments thereto, certified by the SDAT; (ii) a certificate from the SDAT to the effect that the Company is in good standing and subsisting in such jurisdiction and listing all charter documents of the Company on file in such state; (iii) a certificate from the Secretary of State or other appropriate official in each State in which the Company is qualified to do business to the effect that the Company is in good standing in such State; and (iv) a certificate as to the Tax status of the Company from the appropriate official in Maryland and each State in which the Company is qualified to do business, in each case, dated as of a date within reasonable proximity to the related Closing Date. Section 7.3 Governmental Permits and Approvals. Any and all Permits ------------------------------------ necessary for the consummation of the transactions contemplated hereby shall have been obtained and a copy thereof shall have been delivered to the Investor; except for (a) notice requirements which may be fulfilled subsequent to the Closing Date and (b) consents, permits, approvals, authorizations, filings and declarations the failure to obtain or to undertake which will not adversely affect the ability of the Company to perform its obligations under the Operative Agreements or any agreement executed in accordance therewith or would not have a Material Adverse Effect on the Company or its Subsidiaries. Section 7.4 Legislation. No legislation shall have been proposed, and ----------- approved by a legislative committee, or enacted, and no statute, law, ordinance, code, rule or regulation shall have been adopted, revised or interpreted, by any foreign, federal, state, county or local government or any other governmental, regulatory or administrative agency or authority, which would require, upon or as a condition to the acquisition of the Preferred Shares or the Warrant by the Investor, the divestiture or cessation of the conduct of any business presently conducted by the Company, on the one hand, or by the Investor, on the other hand, or which, in the good faith judgment of the Investor, may, individually or in the aggregate, have a Material Adverse Effect on it or on the Company in the event that the transactions contemplated hereby are consummated. Section 7.5 Legal Proceedings. No suit, action, claim, proceeding or ----------------- investigation shall have been instituted or threatened by or before any court or any foreign, federal, state, county or local government or any other governmental, regulatory or administrative agency or authority seeking to restrain, prohibit or invalidate the issuance or sale of the Preferred Shares or the Warrant to the Investor hereunder or the consummation of the transactions contemplated hereby or to seek damages in connection with such transactions. Section 7.6 Third Party Consents. All consents, waivers, licenses, --------------------- variances, exemptions, franchises, permits, approvals and authorizations from parties to any contracts and other agreements (including any amendments and 17 Investment Agreement modifications thereto) with the Company which may be required in connection with the performance by the Company of its obligations under this Agreement or to assure such contracts and other agreements continue in full force and effect after the consummation of the transactions contemplated hereby (without any Breach by the Company or any of its Subsidiaries) shall have been obtained. Section 7.7 Stock Certificates. The Company shall have tendered to the ------------------ Investor the stock certificate or certificates representing the Preferred Shares to be purchased on such Closing Date in accordance with Section 3.1 hereof, registered in the Investor's name. Section 7.8 Approval of Counsel to the Investor. The Company shall ------------------------------------- furnish to counsel for the Investor such certificates and documents as may reasonably be requested by counsel to the Investor to enable such counsel to pass on or evaluate the satisfaction of the conditions set forth in this Article 7. All actions and proceedings hereunder and all documents and other papers required to be delivered by the Company hereunder or in connection with the consummation of the transactions contemplated hereby, and all other related matters, shall have been reasonably approved by counsel to the Investor, as to their form and substance. Section 7.9 Articles Supplementary. The Articles Supplementary shall be ---------------------- effective. Section 7.10 Operating Agreement. The Company shall have executed and -------------------- delivered to the Investor the Operating Agreement. Section 7.11 Opinions of Counsel. The Investor shall have received ------------------- favorable opinions, dated as of the related Closing Date, from Jaeckle Fleischmann & Mugel, LLP and Piper Marbury Rudnick & Wolfe LLP to the effect of the matters as the Investor may reasonably request. Section 7.12 No Stop Order. On the related Closing Date, no stop order ------------- suspending the effectiveness of the Company's Registration Statement shall have been issued under the Securities Act or proceedings therefor initiated or threatened by the SEC. Section 7.13 Listing of Common Stock. The Common Stock issuable upon ------------------------ conversion of the Preferred Shares and exercise of the Warrant shall have been approved for listing on the New York Stock Exchange. Section 7.14 Agreement and Waiver. The Company shall have executed and -------------------- delivered to the Investor the Agreement and Waiver. Section 7.15 Dividends on Preferred Shares. All accrued and unpaid ------------------------------- dividends on any outstanding Preferred Shares, whether or not declared with respect to any dividend payment date, as provided in the Articles Supplementary, that has passed without payment of such dividends, shall have been paid to, or made available for payment to, the holders of such outstanding Preferred Shares. Section 7.16 Director and Officer Insurance. The Company shall have in ------------------------------ place director and officer insurance as provided under Section 2.5 of the Operating Agreement. 18 Investment Agreement Section 7.17 Subsequent Events. Since the respective dates as of which ----------------- information is given in the 1999 10-K, there has not been any change in the condition (financial or otherwise) or in the earnings, business affairs or business prospects of the Company and its Subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, which has had, or could reasonably be expected to have, a Material Adverse Effect on the Company. Section 7.18 Use of Proceeds. The Company shall provide evidence ---------------- reasonably acceptable to the Investor that the issuance by the Operating Partnership described in Section 6.4 will occur promptly upon Closing. Section 7.19 Amendment of Partnership Agreement. Exhibit A to the ------------------------------------- Amended and Restated Agreement of Limited Partnership of the Operating Partnership shall be amended and restated as set forth in Exhibit E attached hereto. Section 7.20 Warrant. The executed Warrant shall have been delivered by ------- the Company to the Investor. ARTICLE 8 CONDITIONS PRECEDENT TO THE OBLIGATION OF ----------------------------------------- THE COMPANY TO CLOSE. -------------------- The obligation of the Company to complete each Closing is subject, at its option, to the fulfillment on or prior to the related Closing Date of the following conditions, any one (1) or more of which may be waived it in its sole discretion: Section 8.1 Representations and Covenants. The representations and ------------------------------ warranties of the Investor contained in this Agreement shall be true, complete and accurate in all material respects on and as of the related Closing Date with the same force and effect as though made on and as of the related Closing Date, except for changes contemplated or permitted by this Agreement and except to the extent that any representation or warranty is made as of a specified date, in which case, such representation and warranty shall be true, complete and accurate in all material respects as of such date. The Investor shall have performed and complied in all material respects with all covenants and agreements required by this Agreement to be performed or complied with by it on or prior to the related Closing Date. The Investor shall have delivered to the Company a certificate, dated the related Closing Date and signed by an officer of the Investor to the foregoing effect and stating that all conditions to the Company's obligations hereunder have been satisfied. Section 8.2 Governmental Permits and Approvals. Any and all Permits ------------------------------------ necessary for the consummation of the transactions contemplated hereby shall have been obtained. Section 8.3 Legal Proceedings. No suit, action, claim, proceeding or ----------------- investigation shall have been instituted or threatened before any court or any foreign, federal, state, county or local government or any other governmental, regulatory or administrative agency or authority seeking to restrain, prohibit or invalidate the sale of the Preferred Shares to the Investor hereunder or the 19 Investment Agreement consummation of the transactions contemplated hereby or to seek damages in connection with such transactions. Section 8.4 Third Party Consents. All consents, waivers, licenses, --------------------- variances, exemptions, franchises, permits, approvals and authorizations from parties to any contracts and other agreements (including any amendments and modifications thereto) with the Investor which may be required in connection with the performance by the Investor of its obligations under this Agreement shall have been obtained. Section 8.5 Purchase Price. The Investor shall have tendered payment --------------- for the Preferred Shares in the amount and in the manner specified in Section 3.1 hereof. Section 8.6 Approval of Counsel to the Company. The Investor shall ----------------------------------- furnish to counsel for the Company such certificates and documents as may reasonably be requested by counsel to the Company to enable such counsel to pass on or evaluate the satisfaction of the conditions set forth in this Article 8. All actions and proceedings hereunder and all documents or other papers required to be delivered by the Investor hereunder or in connection with the consummation of the transactions contemplated hereby, and all other related matters, shall be subject to the reasonable approval of Jaeckle Fleischmann & Mugel, LLP, counsel to the Company, as to their form and substance. Section 8.7 No Stop Order. On the Closing Date, no stop order --------------- suspending the effectiveness of the Company's Registration Statement shall have been issued under the Securities Act or proceedings therefor initiated or threatened by the SEC. ARTICLE 9 ASSIGNMENT. ---------- Section 9.1 Assignability by Investor. Subject to the terms of the --------------------------- Agreement and Waiver, the Investor may, without the consent or approval of the Company, assign its rights and obligations under this Agreement to a Person to whom the Investor assigns its interest in the Preferred Shares or the Warrant, pro rata based upon the percentage of Preferred Shares or the Warrant transferred, provided that such assignee agrees in writing to be bound by the terms of this Agreement. Section 9.2 Assignability by the Company. Without the prior written ----------------------------- consent of the Investor, in the sole and absolute discretion of the Investor, the Company may not assign or delegate its rights or obligations hereunder. Section 9.3 Binding Agreement. Subject to the provisions of Sections ------------------ 9.1 and 9.2, this Agreement shall be binding upon the heirs, successors and assigns of the parties. ARTICLE 10 MISCELLANEOUS. ------------- Section 10.1 Applicable Law. This Agreement shall be governed by and --------------- construed in accordance with the laws of the State of New York as applied to be performed wholly within such State. 20 Investment Agreement Section 10.2 Notices. All notices hereunder shall be in writing and ------- shall be given: (a) if to the Company, at One Jackson Place Suite 1000, 188 East Capitol Street, Jackson, Mississippi 39201-2195, Attention: President, or such other address or addresses of which the Investor shall have been given notice, with copies to Jaeckle Fleischmann & Mugel, LLP, Twelve Fountain Plaza, Buffalo, New York 14202, Attention: Joseph P. Kubarek, Esq., or such other address of which the Investor shall have been given notice; and (b) if to the Investor, at Rothschild Realty, Inc., 1251 Avenue of the Americas, New York, New York 10020, Attn: Matthew Kaplan, or such other address of which the Company shall have been given notice, with copies to Schulte Roth & Zabel LLP, 900 Third Avenue, New York, New York 10022, Attention: Andre Weiss, Esq., or such other address of which the Company shall have been given notice. Any notice shall be deemed to have been given if personally delivered or sent by United States mail or by commercial courier or delivery service or by telegram or telex and shall be deemed received, unless earlier received, (i) if sent by certified or registered mail, return receipt requested, three business days after deposit in the mail, postage prepaid, (ii) if sent by United States Express Mail or by commercial courier or delivery service, one Business Day after delivery to a United States Post Office or delivery service, postage prepaid, (iii) if sent by telegram, telex or facsimile transmission, when receipt is acknowledged by answerback, and (iv) if delivered by hand, on the date of receipt. Section 10.3 Entire Agreement; Amendments. This Agreement and other agreements referred to herein set forth the entire understanding of the parties hereto, and this Agreement shall not be amended except by an instrument in writing executed by the Company and the Investor. Section 10.4 Remedies for Breaches of This Agreement. --------------------------------------- Section 10.4.1 Survival of Certain Provisions. All of ------------------------------------ the representations and warranties of the Company contained in Article 4 above and all of the covenants and undertakings of the Company contained in Article 6 above, shall survive the Closings hereunder and continue in full force and effect provided that such representations and warranties shall survive only until the second anniversary of the final Closing (subject to any applicable statutes of limitations), and that the representations and warranties contained in Sections 4.11 and 4.14 shall survive the Closings hereunder and continue in full force and effect until the expiration of the applicable statutes of limitation (giving effect to any extensions thereof), and provided, further, the representations and warranties contained in Section 4.12 shall survive the Closings hereunder and continue in full force and effect until the sixth anniversary of the last Closing (subject to any applicable statutes of limitation). Section 10.4.2 Indemnification Provisions. In the event that -------------------------- either the Company or the Investor breaches any of its representations, warranties, and covenants contained herein, provided that the non-breaching party makes a written claim for indemnification against the breaching party pursuant to Section 10.2, then the breaching party agrees to indemnify the non-breaching party from and against the entirety of any Adverse Consequences the non-breaching party may suffer through and after the date of the claim for indemnification (including any Adverse Consequences the non-breaching party, its members or shareholders may suffer after the end of any applicable survival period) resulting from, arising out of, relating to, in the nature of, or caused by such breach. In addition to the indemnification rights provided for herein, 21 Investment Agreement the non-breaching party shall also have the right to all such remedies to which it is entitled as a matter of law or equity. No failure or delay by the non-breaching party in exercising any right, power or privilege shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise of any right, power or privilege. Section 10.4.3 Matters Involving Third Parties. ------------------------------- (i) If any third party shall notify any party entitled to be indemnified hereunder (the "Indemnified Party") with respect to any matter (a "Third Party Claim") which may give rise to a claim for indemnification against the Company or the Investor (the "Indemnifying Party") under this Section 10.4, then the Indemnified Party shall promptly notify each Indemnifying Party thereof in writing; provided, however, that no delay on the part of the Indemnified Party in notifying any Indemnifying Party shall relieve the Indemnifying Party from any obligation hereunder unless (and then solely to the extent) the Indemnifying Party thereby is prejudiced. (ii) Any Indemnifying Party will have the right to assume the defense of the Third Party Claim with counsel of his or its choice reasonably satisfactory to the Indemnified Party at any time within 15 days after the Indemnified Party has given notice of the Third Party Claim; provided, however, that the Indemnifying Party must conduct the defense of the Third Party Claim actively and diligently thereafter in order to preserve its rights in this regard; and provided further that the Indemnified Party may retain separate co-counsel at its sole cost and expense and participate in the defense of the Third Party Claim. (iii) So long as the Indemnifying Party has assumed and is conducting the defense of the Third Party Claim in accordance with Section 10.4.3(ii) above, the Indemnifying Party will not consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of the Indemnified Party (not to be withheld unreasonably) unless the judgment or proposed settlement involves only the payment of money damages by one or more of the Indemnifying Parties and does not impose an injunction or other equitable relief upon the Indemnified Party. (iv) So long as the Indemnifying Party has assumed and is conducting the defense of the Third Party Claim in accordance with Section 10.4.3(ii) above, the Indemnified Party will not consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of the Indemnifying Party (not to be withheld unreasonably). (v) In the event none of the Indemnifying Parties assumes and conducts the defense of the Third Party Claim in accordance with Section 10.4.3(ii) above, (A) the Indemnified Party may defend against, and consent to the entry of any judgment or enter into any settlement with respect to, the Third Party Claim in any manner he or it reasonably may deem appropriate (and the Indemnified Party need not consult with, or obtain any consent from, any Indemnifying Party in connection therewith) and (B) the Indemnifying Parties will remain responsible for any Adverse Consequences the Indemnified Party may 22 Investment Agreement suffer resulting from, arising out of, relating to, in the nature of, or caused by the Third Party Claim to the fullest extent provided in this Section 10.4. Section 10.5 Confidentiality. The Investor agrees not to use any --------------- Confidential Information for any purpose other than evaluating the Investment and the Investor will not divulge, furnish or make available to any other person or entity other than the Investor's legal counsel, accountants and designated advisors, and a limited number of the Investor's officers and employees and the officers and employees of any member of the Investor, solely to the extent necessary in connection with the evaluation and consummation of the Investment; such persons and entities shall be informed by the Investor of the confidential nature of the Confidential Information and shall be directed to treat such Confidential Information confidentially. Except as required by law, without the prior written consent of the other party or until such time as a mutually agreeable public announcement is made, no party hereto will disclose to any Person other than its Affiliates, attorneys, accountants and other advisors either the fact that discussion or negotiations are taking place concerning the Investment or any of the terms, conditions or other facts with respect to the Investment, including status or that the Confidential Information has been made available to the Investor and its Representatives. In the event that the Investor is requested or required (by oral questions, interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process) to disclose any of the Confidential Information, the Investor will provide the Company with prompt notice of such request or requirements, and the Investor shall cooperate with the Company in seeking to legally avoid such disclosure. If, in the absence of a protective order, the Investor is legally compelled, in the opinion of its counsel, to disclose any of the information, the Company shall either seek and obtain appropriate protective orders against such disclosure or shall hereby be deemed to waive the Investor's compliance with the provisions of this Agreement to the extent necessary to satisfy such request or requirement. Section 10.6 Standstill. Subject to the provisions of the sentence next ---------- following, the Investor agrees that until the one year anniversary of the date of this Agreement, none of the Investor, Rothschild, any of their officers, members, partners, stockholders or subsidiaries and its Affiliates shall (a) acquire, offer to acquire, or agree to acquire, directly or indirectly, by purchase or otherwise, or sell short, any securities, direct or indirect rights or options to acquire any securities, direct or indirect rights or options to acquire any securities, or securities or instruments convertible into voting securities, of the Company; provided, however, that the foregoing shall not -------- ------- prohibit the acquisition of securities of the Company in an amount that does not exceed the Ownership Limit, as defined in the Charter, (b) make, or in any way participate, directly or indirectly, in any "solicitation" of "proxies" to vote (as such terms are used in the proxy rules of the SEC) securities of the Company, or seek to advise or influence any person or entity with respect to any voting of any securities of the Company, (c) form, join or in any way participate in a "group" within the meaning of Section 13(d)(3) of the Exchange Act, with respect to any voting securities of the Company, (d) make any public announcement with respect to or make or submit a proposal or offer (with or without conditions) for the securities or assets of the Company or any extraordinary transaction involving the Company or any of its Subsidiaries, (e) submit or effect any filing or application, or seek to obtain any permit, consent or agreement, approval or other action, required by or from any 23 Investment Agreement regulatory agency with respect to an acquisition of the Company or any of its securities or assets, (f) otherwise act alone or in concert with others to seek to control the management, board of directors or policies of the Company; or (g) propose any of the foregoing unless and until such proposal is specifically invited by the Company. Based on the representations of Rothschild to the Company that Affiliates of Rothschild (which representation Rothschild hereby reaffirms) not under control of Rothschild have no access to any of the internal information or files of Rothschild and receive no information, recommendations or advice from Rothschild, the Company agrees that the prohibitions of the preceding sentence shall not apply to any Affiliates of Rothschild that are not under the control of Rothschild and are engaged in the regular business of trading in publicly-traded securities, so long as such affiliates have not received, or been given access to, any of the Confidential Information and have not received any instructions, recommendations or advice pertaining to an investment in or control of the Company from any party having access to any of the Confidential Information. Section 10.7 Lock-Up. The Investor agrees that until the one year ------- anniversary of the date of this Agreement, it shall not sell transfer, convey, assign, pledge or hypothecate any of the Preferred Shares or any shares of Common Stock obtained upon conversion of any Preferred Shares or exercise of the Warrant, provided, that such restrictions shall not be applicable to transfers of such shares by Investor to any of its Affiliates. Section 10.8 Termination. This Agreement may be terminated at any time ----------- prior to the date which all of the Preferred Shares have been sold hereunder: (a) by the mutual written consent of the Investor and the Company; (b) by the Investor if the entire amount of Preferred Shares to be sold by the Company to the Investor hereto have not been sold on or prior to the date which is two-hundred and seventy days from the date hereof; providing that the Investor is not in material breach of any of its representations, warranties, covenants or agreements contained in this Agreement. In the event of termination by the Company or the Investor pursuant to this Section 10.8, written notice thereof shall forthwith be delivered to the other party; (c) by the Investor, if there is a material breach of any material representation or warranty set forth in Article 4 hereof or any covenant or agreement to be complied with or performed by the Investor pursuant to the terms of this Agreement, provided that the Investor may not terminate this Agreement prior to the Closing unless the Company has not cured such failure after 10 days notice thereof; or (d) by the Company, if there is a material breach of any material representation or warranty set forth in Article 5 hereof or any covenant or agreement to be complied with or performed by the Investor pursuant to the terms of this Agreement, provided that the Company may not terminate this Agreement prior to the Closing unless the Investor has cured such failure after 10 days notice thereof. Section 10.9 Remedies for Violation of Sections 10.5, 10.6 and 10.7. -------------------------------------------------------- The provisions of Sections 10.5, 10.6 and 10.7 shall survive the Closings. The parties agree that, without limiting any other remedies available to the 24 Investment Agreement Company, that the Company shall be entitled to injunctive or other equitable relief in the event of a failure to comply with the provisions of Sections 10.5, 10.6 and 10.7, No failure or delay by the Company in exercising any right, power or privilege shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise of any right, power or privilege. Section 10.10 Counterparts. This Agreement may be executed in more than ------------ one counterpart, each of which may be executed by fewer than all the parties, with the same effect as if the parties executed one counterpart as of the day and year first above written. IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals as of the day and year first above written. PARKWAY PROPERTIES, INC. By: ______________________________________ Name: Steven G. Rogers Title: President and Chief Executive Officer By: ______________________________________ Name: Sarah P. Clark Title: Chief Financial Officer and Secretary FIVE ARROWS REALTY SECURITIES III L.L.C. By: ______________________________________ Name: D. Pike Aloian Title: Manager The undersigned hereby acknowledges the terms hereof and hereby agrees to be bound by the following sections hereof: Sections 10.5, 10.6, 10.7 and 10.9. ROTHSCHILD REALTY INC. By: ______________________________________ Name: D. Pike Aloian Title: Managing Director 25 Investment Agreement EX-99 4 srz769929v7.txt EXHIBIT D--COMMON STOCK PURCHASE WARRANT EXHIBIT D EXECUTION COPY THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAW OF ANY STATE, AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN THIS COMMON STOCK PURCHASE WARRANT. COMMON STOCK PURCHASE WARRANT No. W-1 October 6, 2000 Void after October 6, 2007 Warrant to Purchase 75,000 Common Shares PARKWAY PROPERTIES, INC., a Maryland corporation (the "Company"), for value received, hereby certifies that FIVE ARROWS REALTY SECURITIES III L.L.C., or its registered assigns (the "Holder"), is entitled to purchase from the Company 75,000 duly authorized, validly issued, fully paid and nonassessable shares of common stock, par value $.001 per share, of the Company (the "Common Shares"), at a purchase price, subject to Section 3.2 herein, of $35.00 per share, at any time or from time to time prior to 5:00 P.M., New York City time, on October 6, 2007 (the "Expiration Date"), all subject to the terms, conditions and adjustments set forth below in this Warrant. This Warrant is originally issued pursuant to the terms of a certain Investment Agreement, dated as of the date hereof, between the Company and Five Arrows Realty Securities III L.L.C. (the "Purchase Agreement"). Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Purchase Agreement. 1. DEFINITIONS. As used herein, unless the context otherwise requires, ----------- the following terms shall have the meanings indicated: "Additional Common Shares" shall mean all Common Shares issued or sold ------------------------- (or, pursuant to Section 3.3, deemed to be issued) by the Company after the date hereof, whether or not subsequently reacquired or retired by the Company provided that the following shares shall not constitute Additional Common Shares: (a) (i) shares issued upon the exercise of this Warrant or upon the conversion of the Company's Series B Convertible Cumulative Preferred Shares and (ii) such number of additional shares as may become issuable upon the exercise of this Warrant or upon conversion of the Series B Convertible Cumulative Preferred Shares by reason of adjustments required pursuant to the anti-dilution provisions applicable to this Warrant or the Series B Convertible Cumulative Preferred Shares as in effect on the date hereof, and (b) (i) shares issued in the acquisition by the Company or a subsidiary of one hundred percent (100%) of a public company by way of merger, consolidation or exchange offer, (ii) shares issued pursuant to a tender or exchange offer for one hundred percent (100%) of a public company, (iii) shares issued upon the exercise, conversion or redemption of options, warrants or units existing or outstanding on October 4, 2000 or the issuance of shares pursuant to contractual commitments in effect as of October 4, 2000, (iv) shares or operating partnership units issued in the acquisition of property or equity interests in property (e.g., partnership interests of a property-owning partnership) by the Company or a subsidiary of the Company; (v) shares issued under the Company's Dividend Reinvestment and Stock Purchase Plan; and (vi) shares issued under equity award plans (including stock option plans) for officers and employees of the Company and its subsidiaries (including Parkway Properties LP) if such plans have been approved by the Company's stockholders. "Business Day" shall mean any day other than a Saturday or a Sunday or ------------- a day on which commercial banking institutions in the City of New York are authorized by law to be closed. Any reference to "days" (unless Business Days are specified) shall mean calendar days. "Commission" shall mean the Securities and Exchange Commission or any ---------- successor agency having jurisdiction to enforce the Securities Act. "Common Shares" shall have the meaning assigned to it in the -------------- introduction to this Warrant, such term to include any shares of capital stock into which such Common Shares shall have been changed or any shares of capital stock resulting from any reclassification of such Common Shares. "Company" shall have the meaning assigned to it in the introduction to ------- this Warrant, such term to include any corporation or other entity which shall succeed to or assume the obligations of the Company hereunder in compliance with Section 4. "Convertible Securities" shall mean any evidences of indebtedness, ----------------------- shares of capital stock (other than Common Shares) or other securities directly or indirectly convertible into, redeemable for or exchangeable for Additional Common Shares. "Current Market Price" shall mean, on any date specified herein, the --------------------- average of the daily closing prices for the five consecutive Trading Days preceding such date specified herein. "Exchange Act" shall mean the Securities Exchange Act of 1934, as ------------- amended from time to time, and the rules and regulations thereunder, or any successor statute. "Expiration Date" shall have the meaning assigned to it in the ---------------- introduction to this Warrant. 2 "Fair Value" shall mean, on any date specified herein (i) in the case ---------- of cash, the dollar amount thereof, (ii) in the case of a security, the Current Market Price, and (iii) in all other cases, the fair value thereof (as of a date which is within 20 days of the date as of which the determination is to be made) determined in good faith jointly by the Company and the Holder; provided, -------- however, that if such parties are unable to reach agreement within a reasonable - ------- period of time, the Fair Value shall be determined in good faith, by an independent investment banking firm selected jointly by the Company and the Holder or, if that selection cannot be made within ten days, by an independent investment banking firm selected by the American Arbitration Association in accordance with its rules, and provided further, that the Company and the Holder -------- ------- shall each pay one-half of all of the fees and expenses of any third parties incurred in connection with determining the Fair Value. "Holder" shall have the meaning assigned to it in the introduction to ------ this Warrant. "Operating Agreement" shall mean the Operating Agreement dated as of -------------------- October 6, 2000, between the Company and Five Arrows Realty Securities III L.L.C. "Options" shall mean any rights, options or warrants to subscribe for, ------- purchase or otherwise acquire either Additional Common Shares or Convertible Securities. "Other Securities" shall mean any shares of capital stock (other than ----------------- Common Shares) and other securities of the Company or any other Person (corporate or otherwise) which the holders of the Warrants at any time shall be entitled to receive, or shall have received, upon the exercise of the Warrants, in lieu of or in addition to Common Shares, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Shares or Other Securities pursuant to Section 4 or otherwise. "Person" shall mean any individual, firm, partnership, corporation, ------ trust, joint venture, association, joint stock company, limited liability company, unincorporated organization or any other entity or organization, including a government or agency or political subdivision thereof, and shall include any successor (by merger or otherwise) of such entity. "Purchase Agreement" shall have the meaning assigned to it in the ------------------- introduction to this Warrant. "Purchase Price" shall mean initially $35.00 per share, subject to --------------- adjustment and readjustment from time to time as provided in Section 3.2, and, as so adjusted or readjusted, shall remain in effect until a further adjustment or readjustment thereof is required by Section 3. "Restricted Securities" shall mean (i) any Warrants bearing the ---------------------- applicable legend set forth in Section 9.1, (ii) any Common Shares (or Other Securities) issued or issuable upon the exercise of Warrants which are (or, upon issuance, will be) evidenced by a certificate or certificates bearing the applicable legend set forth in such Section, and (iii) any Common Shares (or Other Securities) issued subsequent to the exercise of any of the Warrants as a distribution with respect to, or resulting from a subdivision of the outstanding Common Shares (or other Securities) into a greater number of shares by reclassification, share splits or otherwise, or in exchange for or in replacement of the Common Shares (or Other Securities) issued upon such 3 exercise, which are evidenced by a certificate or certificates bearing the applicable legend set forth in such Section. "Rights" shall have the meaning assigned to it in Section 3.9. ------ "Securities Act" shall mean the Securities Act of 1933, as amended from -------------- time to time, and the rules and regulations thereunder, or any successor statute. "Series B Convertible Cumulative Preferred Shares" shall mean shares of ------------------------------------------------ the Company's Series B Convertible Cumulative Preferred Stock, $.001 par value per share, sold by the Company pursuant to the Purchase Agreement. "Trading Day" shall mean a day on which the Common Shares are traded on ----------- the New York Stock Exchange, or other national exchange or quotation system used to determine the Current Market Price. "Warrant" shall mean this Warrant. ------- 2. EXERCISE OF WARRANT. ------------------- 2.1. Manner of Exercise; Payment of the Purchase Price. (a) This ------------------------------------------------------ Warrant may be exercised by the Holder, in whole or in part, at any time or from time to time prior to the Expiration Date, by surrendering to the Company at its principal office this Warrant, with the form of Election to Purchase Shares attached hereto as Exhibit A (or a reasonable facsimile thereof) completed and duly executed by the Holder and accompanied by payment of the Purchase Price for the number of Common Shares specified in such form. (b) Payment of the Purchase Price may be made as follows (or by any combination of the following): (i) in United States currency by cash or delivery of a certified check or bank draft payable to the order of the Company or by wire transfer to the Company, (ii) by cancellation of such number of the Common Shares otherwise issuable to the Holder upon such exercise as shall be specified in such Election to Purchase Shares, such that the excess of the aggregate Current Market Price of such specified number of shares on the date of exercise over the portion of the Purchase Price attributable to such shares shall equal the Purchase Price attributable to the Common Shares to be issued upon such exercise, in which case such amount shall be deemed to have been paid to the Company and the number of shares issuable upon such exercise shall be reduced by such specified number, or (iii) by surrender to the Company for cancellation certificates representing Common Shares of the Company owned by the Holder (properly endorsed for transfer in blank) having an aggregate Current Market Price on the date of Warrant exercise equal to the Purchase Price. 2.2. When Exercise Effective. Each exercise of this Warrant shall be ------------------------ deemed to have been effected immediately prior to the close of business on the Business Day on which this Warrant shall have been surrendered to, and the Purchase Price shall have been received by, the Company as provided in Section 2.1, and at such time the Person or Persons in whose name or names any certificate or certificates for Common Shares (or Other Securities) shall be issuable upon such exercise as provided in Section 2.3 shall be deemed to have become the holder or holders of record thereof for all purposes. 4 2.3. Delivery of Share Certificates, etc.; Charges, Taxes and Expenses. ----------------------------------------------------------------- (a) As soon as practicable after each exercise of this Warrant, in whole or in part, and in any event within three Trading Days thereafter, the Company shall cause to be issued in the name of and delivered to the Holder hereof or, subject to Section 9, as the Holder may direct, (i) a certificate or certificates for the number of Common Shares (or Other Securities) to which the Holder shall be entitled upon such exercise plus, in lieu of issuance of any fractional share to which the Holder would otherwise be entitled, if any, a check for the amount of cash equal to the same fraction multiplied by the Current Market Price per share on the date of Warrant exercise, and (ii) in case such exercise is for less than all of the Common Shares purchasable under this Warrant, a new Warrant or Warrants of like tenor, for the balance of the Common Shares purchasable hereunder. (b) An issuance of certificates for Common Shares upon the exercise of this Warrant shall be made without charge to the Holder hereof for any issue or transfer tax or other incidental expense, in respect of the issuance of such certificates, all of which such taxes and expenses shall be paid by the Company; provided, however, that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issue or delivery of Common Shares or other securities or property in a name other than that of the Holder hereof, and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has paid to the Company the amount of any such tax or established, to the reasonable satisfaction of the Company, that such tax has been paid. 3. ADJUSTMENT OF COMMON SHARES ISSUABLE UPON EXERCISE. -------------------------------------------------- 3.1. Adjustment of Number of Shares. ------------------------------ Upon each adjustment of the Purchase Price as a result of the calculations made in this Section 3, this Warrant shall thereafter evidence the right to receive, at the adjusted Purchase Price, that number of Common Shares (calculated to the nearest one-tenth) obtained by dividing (i) the product of the aggregate number of shares covered by this Warrant immediately prior to such adjustment and the Purchase Price in effect immediately prior to such adjustment of the Purchase Price by (ii) the Purchase Price in effect immediately after such adjustment of the Purchase Price. 3.2. Adjustment of Purchase Price. ---------------------------- 3.2.1. Below Purchase Price. In case the Company shall issue or sell --------------------- Additional Common Shares (including Additional Common Shares deemed to be issued pursuant to Section 3.3 but excluding Additional Common Shares purchasable upon the exercise of Rights referred to in Section 3.9) without consideration or for a consideration per share (without taking into account customary underwriters' or placement agents' discounts) less than the Purchase Price in effect immediately prior to such issue or sale, then the Purchase Price shall be 5 reduced, concurrently with such issue or sale, to the amount of consideration for such issuance or sale (or, if for no consideration, to zero). 3.2.2. Extraordinary Distributions. If the Company shall distribute to --------------------------- all holders of its Common Shares any shares of capital stock of the Company (other than Common Shares or the Rights referred to in Section 3.9 hereof), evidence of its indebtedness or assets (excluding regularly scheduled cash dividends payable out of legally available funds) or Options or Convertible Securities to subscribe for or purchase any of its securities (excluding those Options and Convertible Securities issued to all holders of Common Shares entitling them for a period expiring within 45 days after the record date referred to in Section 3.3 below to subscribe for or purchase Common Shares, which Options and Convertible Securities are referred to in and treated under Section 3.3 below), then, in each such case, subject to Section 3.7, the Purchase Price in effect immediately prior to the close of business on the record date fixed for the determination of holders of any class of securities entitled to receive such distribution shall be reduced, effective as of the close of business on such record date, to a price determined by multiplying such Purchase Price by a fraction (x) the numerator of which shall be the Current Market Price in effect on such record date or, if the Common Shares trade on an ex-distribution basis, on the date prior to the commencement of ex-distribution trading, less the Fair Value of such distribution applicable to one Common Share, and (y) the denominator of which shall be such Current Market Price. 3.3. Treatment of Options and Convertible Securities. If the Company ------------------------------------------------ shall issue Options or Convertible Securities to all holders of Common Shares entitling them (for a period expiring within 45 days after the record date mentioned below) to subscribe for or purchase Common Shares at a price per share less than the Current Market Price per share of Common Shares on the record date for the determination of stockholders entitled to receive such Options or Convertible Securities, then the Purchase Price in effect at the opening of business on the day next following such record date shall be adjusted to equal the ratio determined by dividing (I) the Purchase Price in effect immediately prior to the opening of business on the day next following the date fixed for such determination by (II) a fraction, the numerator of which shall be the sum of (A) the number of Common Shares outstanding on the close of business on the date fixed for such determination and (B) the number of Common Shares that the aggregate proceeds to the Company from the exercise of such Options or Convertible Securities would purchase at such Current Market Price, and the denominator of which shall be the sum of (A) the number of Common Shares outstanding on the close of business on the date fixed for such determination and (B) the number of Additional Common Shares offered for subscription or purchase pursuant to such Options or Convertible Securities. Such adjustment shall become effective immediately after the opening of business on the day next following such record date. In determining whether any Options or Convertible Securities entitle the holders thereof to subscribe for or purchase Common Shares at less than such Current Market Price, there shall be taken into account any consideration received by the Company upon issuance and upon exercise of such Options or Convertible Securities, with the value of such consideration, if other than cash, to be determined by the Board of Directors. 6 3.4. Treatment of Share Distributions, Share Splits, etc. If the --------------------------------------------------------- Company shall (A) pay a dividend or make a distribution with respect to its capital stock in Common Shares, (B) subdivide its outstanding Common Shares into a greater number of shares, (C) combine its outstanding Common Shares into a smaller number of shares or (D) issue any shares of capital stock by reclassification of its Common Shares, the Purchase Price in effect at the opening of business on the day next following the date fixed for the determination of stockholders entitled to receive such dividend or distribution or at the opening of business on the day following the day on which such subdivision, combination or reclassification becomes effective, as the case may be, shall be adjusted so that the holder of this Warrant shall be entitled to receive the number of Common Shares that such holder would have owned or have been entitled to receive after the happening of any of the events described above had any unexercised portion of the Warrant been exercised in full immediately prior to the record date in the case of a dividend or distribution or the effective date in the case of a subdivision, combination or reclassification. An adjustment made pursuant to this Section 3.4 shall become effective immediately after the opening of business on the day next following the record date in the case of a dividend or distribution and shall become effective immediately after the opening of business on the day next following the effective date in the case of a subdivision, combination or reclassification. 3.5. Computation of Consideration. For the purposes of this Section 3, ---------------------------- (a) the consideration for the issue or sale of any Additional Common Shares shall, irrespective of the accounting treatment of such consideration, (i) insofar as it consists of cash, be computed at the amount of cash payable to the Company, without deducting any expenses paid or incurred by the Company or any commissions or compensations paid or concessions or discounts allowed to underwriters, dealers or others performing similar services in connection with such issue or sale, (ii) insofar as it consists of property (including securities) other than cash, be computed at the Fair Value thereof at the time of such issue or sale, and (iii) in case Additional Common Shares are issued or sold together with other shares of capital stock or securities or other assets of the Company for a consideration which covers both, be the portion of such consideration so received, computed as provided in clauses (i) and (ii) above, allocable to such Additional Common Shares, such allocation to be determined in the same manner that the Fair Value of property not consisting of cash or securities is to be determined as provided in the definition of "Fair Value" herein; (b) Additional Common Shares deemed to have been issued pursuant to Section 3.3, relating to Options and Convertible Securities, shall be deemed to have been issued for a consideration per share determined by dividing (i) the total amount, if any, received and receivable by the Company as consideration for the issue, sale, grant or assumption of the Options or Convertible Securities in question, plus the minimum aggregate amount of additional consideration (as set forth in the 7 instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration to protect against dilution) payable to the Company upon the exercise in full of such Options or the conversion or exchange of such Convertible Securities or, in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, in each case computing such consideration as provided in the foregoing subdivision (a), by (ii) the maximum number of Common Shares (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number to protect against dilution) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities; and (c) Additional Common Shares deemed to have been issued pursuant to Section 3.4, relating to distributions, share splits, etc., shall be deemed to have been issued for no consideration. 3.6. Adjustments for Combinations, etc. In case the outstanding Common ----------------------------------- Shares shall be combined or consolidated, by reclassification or otherwise, into a lesser number of Common Shares, the Purchase Price in effect immediately prior to such combination or consolidation shall, concurrently with the effectiveness of such combination or consolidation, be proportionately increased and the number of Common Shares issuable upon exercise of this Warrant shall be proportionately decreased. 3.7. De Minimis Adjustments. No adjustment in the Conversion Ratio ----------------------- shall be required unless such adjustment would require a cumulative increase or decrease of at least 1% thereof; provided, however, that any adjustments that by -------- ------- reason of this Section 3.7 are not required to be made shall be carried forward and taken into account in any subsequent adjustment until made. All calculations under this Section 3 shall be made to the nearest cent (with $.005 being rounded upward) or to the nearest one-tenth of a share (with .05 of a share being rounded upward), as the case may be. 3.8. Abandoned Distribution. If the Company shall take a record of the ---------------------- holders of its Common Shares for the purpose of entitling them to receive a distribution (which results in an adjustment to the Purchase Price under the terms of this Warrant) and shall, thereafter, and before such distribution is paid or delivered to stockholders entitled thereto, abandon its plan to pay or deliver such distribution, then any adjustment made to the Purchase Price and number of Common Shares purchasable upon exercise of this Warrant by reason of the taking of such record shall be reversed, and any subsequent adjustments, based thereon, shall be recomputed. 3.9. Stockholder Rights Plan. With respect to the Company's Rights ------------------------ Agreement dated September 7, 1995, as amended (the "Rights"), the Company shall, in lieu of making any adjustment pursuant to Section 3.2.1 or Section 3.2.2 8 hereof, make proper provision so that each Holder who exercises a Warrant after the record date for such distribution and prior to the expiration or redemption of the Rights shall be entitled to receive upon such exercise, in addition to the Common Shares issuable upon such exercise, a number of Rights to be determined as follows: (i) if such exercise occurs on or prior to the date for the distribution to the holders of Rights of separate certificates evidencing such Rights (the "Distribution Date"), the same number of Rights to which a holder of a number of Common Shares equal to the number of Common Shares issuable upon such exercise at the time of such exercise would be entitled in accordance with the terms and provisions of and applicable to the Rights; and (ii) if such exercise occurs after the Distribution Date, the same number of Rights to which a holder of the number of shares into which the Warrant so exercised was exercisable immediately prior to the Distribution Date would have been entitled on the Distribution Date in accordance with the terms and provisions of and applicable to the Rights. 4. CONSOLIDATION, MERGER, ETC. --------------------------- 4.1. Adjustments upon Certain Transactions. If the Company shall be a -------------------------------------- party to any transaction (including, without limitation, a merger, consolidation, statutory share exchange, self tender offer for all or substantially all Common Shares, sale of all or substantially all of the Company's assets or recapitalization of the Common Shares (each of the foregoing being referred to herein as a "Transaction"), in each case as a result of which Common Shares shall be converted into the right to receive shares, stock, securities or other property (including cash or any combination thereof) (other than a capital reorganization or reclassification resulting in the issue of Additional Common Shares for which adjustment in the Purchase Price is provided in Section 3.2.1 or 3.2.2), then, and in the case of each such Transaction, proper provision shall be made so that, upon the basis and the terms and in the manner provided in this Warrant, the Holder of this Warrant, upon the exercise hereof at any time after the consummation of such Transaction, shall be entitled to receive (at the aggregate Purchase Price in effect at the time of such consummation for all Common Shares or Other Securities issuable upon such exercise immediately prior to such consummation), in lieu of the Common Shares or Other Securities issuable upon such exercise prior to such consummation, the kind and amount of shares, stock, securities and other property (including cash or any combination thereof) to which such Holder would actually have been entitled as a stockholder upon the consummation of such Transaction if such Holder had exercised this Warrant immediately prior thereto, assuming such Holder (i) is not a person with which the Company consolidated or into which the Company merged or which merged into the Company or to which such sale or transfer was made, as the case may be (a "Constituent Person"), or an affiliate of a Constituent Person and (ii) failed to exercise his or her appraisal rights or rights of election, if any, as to the kind or amount of shares, stock, securities and other property (including cash) receivable in such Transaction (provided that if the kind or amount of stock, securities and other property (including cash) receivable upon such Transaction is not the same for each Common Share of the Company held immediately prior to such Transaction by other than a Constituent Person or an affiliate thereof and in respect of which such rights of election shall not have been exercised ("Non-electing Share"), then for the purpose of this Section 4.1 the kind and amount of stock, securities and other property (including cash) receivable upon such Transaction by each Non-electing Share shall be deemed to be the kind and amount so receivable per share by a plurality of the Non-electing Shares). The Company shall not be a party to any Transaction unless the terms of such Transaction are consistent 9 with the provisions of this Section 4.1, and it shall not consent or agree to the occurrence of any Transaction until the Company has entered into an agreement with the successor or purchasing entity, as the case may be, for the benefit of the Holder of this Warrant that will contain provisions enabling such Holder to receive the securities, cash or other property to which such Holder would actually have been entitled as a stockholder upon such consummation if such Holder had exercised this Warrant immediately prior thereto, subject to adjustments (subsequent to such consummation) as nearly equivalent as possible to the adjustments provided for in Sections 3 and 4. The provisions of this Section 4.1 shall similarly apply to successive Transactions. 4.2. Assumption of Obligations. Notwithstanding anything contained in ------------------------- this Warrant or in the Purchase Agreement to the contrary, the Company shall not effect any Transaction unless, prior to the consummation thereof, each Person (other than the Company) which may be required to deliver any stock, securities, cash or property upon the exercise of this Warrant as provided herein shall assume, by written instrument delivered to, and reasonably satisfactory to, the Holder of this Warrant, (a) the obligations of the Company under this Warrant (and if the Company shall survive the consummation of such transaction, such assumption shall be in addition to, and shall not release the Company from, any continuing obligations of the Company under this Warrant), (b) the obligations of the Company under the Operating Agreement and (c) the obligation to deliver to the Holder such shares of stock, securities, cash or property as, in accordance with the foregoing provisions of this Section 4, the Holder may be entitled to receive. Nothing in this Section 4 shall be deemed to authorize the Company to enter into any transaction not otherwise permitted by the Purchase Agreement. 5. NO DILUTION OR IMPAIRMENT. The Company shall not, by amendment of -------------------------- its articles of incorporation or through any consolidation, merger, reorganization, transfer of assets, 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 this Warrant, 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 Holder of this Warrant against dilution or other impairment. Without limiting the generality of the foregoing, the Company (a) shall not permit the par value of any shares of capital stock receivable upon the exercise of this Warrant to exceed the amount payable therefor upon such exercise, (b) shall at all times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued Common Shares solely for the purpose of effecting the exercise of this Warrant, the full number of Common Shares deliverable upon the full exercise of this Warrant, (c) shall 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 capital stock, free from all taxes, liens, security interests, encumbrances, preemptive rights and charges on the exercise of this Warrant from time to time outstanding and, (d) shall not take any action which results in any adjustment of the Purchase Price if the total number of Common Shares (or Other Securities) issuable after the action upon the full exercise of this Warrant would exceed the total number of Common Shares (or Other Securities) then authorized by the Company's articles of incorporation and available for the purpose of issue upon such exercise. 6. NOTICE OF ADJUSTMENTS. In each case of any adjustment or ------------------------ readjustment in the Common Shares (or Other Securities) issuable upon the 10 exercise of this Warrant, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms of this Warrant and prepare a notice of such adjustment or readjustment setting forth such adjustment or readjustment and the effective date of such adjustment or readjustment and shall mail such notice of such adjustment or readjustment to each holder of a Warrant at such holder's address as it appears in the Warrant Register (as defined below). 7. NOTICES OF COMPANY ACTION. If: ------------------------- (a) the Company shall declare a distribution on the Common Shares (other than the Regular Quarterly Dividend); or (b) the Company shall authorize the granting to all holders of Common Shares of rights or warrants to subscribe for or purchase any shares of any class of capital stock; or (c) there shall be any reclassification of the Common Shares or any consolidation or merger to which the Company is a party and for which approval of any stockholders of the Company is required, or a statutory share exchange, or self tender offer by the Company for all or substantially all of its outstanding Common Shares or the sale or transfer of all or substantially all of the assets of the Company as an entity; or (d) there shall occur the involuntary or voluntary liquidation, dissolution or winding up of the Company; then the Company shall cause to be mailed to the holder of this Warrant, at the address as it appears in the Warrant Register, as promptly as possible, but at least 15 Business Days prior to the applicable date hereinafter specified, a notice stating (A) the date on which a record is to be taken for the purpose of such distribution or rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Shares of record to be entitled to such distribution or rights or warrants are to be determined or (B) the date on which such reclassification, consolidation, merger, statutory share exchange, sale, transfer, liquidation, dissolution or winding up is expected to become effective, and the date as of which it is expected that holders of Common Shares shall be entitled to exchange their Common Shares for securities or other property, if any, deliverable upon such reclassification, consolidation, merger, statutory share exchange, sale, transfer, liquidation, dissolution or winding up. Failure to give or receive such notice or any defect therein shall not affect the legality or validity of the proceedings described in this Section 7. 8. REGISTRATION OF COMMON SHARES. If any Common Shares required to be ----------------------------- reserved for purposes of exercise of this Warrant require registration with or approval of any governmental authority under any federal or state law (other than the Securities Act) before such shares may be issued upon exercise, the Company shall, at its expense and as expeditiously as possible, use its reasonable best efforts to cause such shares to be duly registered or approved, as the case may be. At any such time as Common Shares are listed on any national securities exchange, the Company shall endeavor to list the Common Shares required to be delivered upon exercise of this Warrant, prior to such delivery, 11 upon each such national securities exchange and maintain the listing of such shares after their issuance; and the Company shall also endeavor to list on any such national securities exchange and maintain such listing of, any Other Securities that at any time are issuable upon exercise of this Warrant, if and at the time that any securities of the same class shall be listed on any such national securities exchange(s) by the Company. The covenants contained in this Section 8 shall terminate upon the Expiration Date. 9. RESTRICTIONS ON TRANSFER. ------------------------ 9.1. Restrictive Legends. ------------------- Except as otherwise permitted by this Section 9, the Warrant and each certificate for Common Shares (or Other Securities) issued upon the exercise of the Warrant, and each certificate issued upon the transfer of any such Common Shares (or Other Securities), shall be stamped or otherwise imprinted with a legend in substantially the following form: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAW OF ANY STATE, AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN THE COMMON STOCK PURCHASE WARRANT ISSUED BY PARKWAY PROPERTIES, INC. (THE "COMPANY") TO FIVE ARROWS REALTY SECURITIES III L.L.C. A COMPLETE AND CORRECT COPY OF THE FORM OF SUCH WARRANT IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE COMPANY OR AT THE OFFICE OR AGENCY MAINTAINED BY THE COMPANY AS PROVIDED IN SUCH WARRANT AND WILL BE FURNISHED TO THE HOLDER OF SUCH SECURITIES UPON WRITTEN REQUEST AND WITHOUT CHARGE." 9.2. Transfer to Comply With the Securities Act. Restricted Securities ------------------------------------------ may not be sold, assigned, pledged, hypothecated, encumbered or in any manner transferred or disposed of, in whole or in part, except in compliance with (i) the provisions of the Securities Act and state securities or Blue Sky laws, (ii) the terms and conditions of the Purchase Agreement and (iii) the terms and conditions hereof. 9.3. Termination of Restrictions. The restrictions imposed by this ---------------------------- Section 9 on the transferability of Restricted Securities shall cease and terminate as to any particular Restricted Securities (a) when a registration statement with respect to the sale of such securities shall have been declared effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (b) when such securities are sold pursuant to Rule 144 (or any similar provision then in force) under the 12 Securities Act, or (c) when, in the opinion of both counsel for the Holder and counsel for the Company, such restrictions are no longer required or necessary in order to protect the Company against a violation of the Securities Act upon any sale or other disposition of such securities without registration thereunder. Whenever such restrictions shall cease and terminate as to any Restricted Securities, the Holder shall be entitled to receive from the Company, without expense, new securities of like tenor not bearing the applicable legends required by Section 9.1. 10. RESERVATION OF SHARES, ETC. The transfer agent for the Common ----------------------------- Shares, which may be the Company ("Transfer Agent"), and every subsequent Transfer Agent for any shares of the Company's equity securities issuable upon the exercise of any of the purchase rights represented by this Warrant, are hereby irrevocably authorized and directed at all times until the Expiration Date to reserve such number of authorized and unissued shares as shall be requisite for such purpose. The Company shall keep copies of this Warrant on file with the Transfer Agent for the Common Shares and with every subsequent Transfer Agent for any of the Company's equity securities issuable upon the exercise of the rights of purchase represented by this Warrant. The Company shall supply such Transfer Agent with duly executed share certificates for such purpose. All Warrant Certificates surrendered upon the exercise of the rights thereby evidenced shall be canceled, and such canceled Warrants shall constitute sufficient evidence of the number of shares of capital stock which have been issued upon the exercise of such Warrants. Subsequent to the Expiration Date, no shares of capital stock need be reserved in respect of any unexercised Warrant. 11. REGISTRATION AND TRANSFER OF WARRANTS, ETC. ------------------------------------------- 12.1. Warrant Register; Ownership of Warrants. Each Warrant issued by ---------------------------------------- the Company shall be numbered and shall be registered in a warrant register (the "Warrant Register") as it is issued and transferred, which Warrant Register shall be maintained by the Company at its principal office or, at the Company's election and expense, by a Warrant Agent or the Company's transfer agent. The Company shall be entitled to treat the registered Holder of any Warrant on the Warrant Register as the owner in fact thereof for all purposes and shall not be bound to recognize any equitable or other claim to or interest in such Warrant on the part of any other Person, and shall not be affected by any notice to the contrary, except that, if and when any Warrant is properly assigned in blank, the Company may (but shall not be obligated to) treat the bearer thereof as the owner of such Warrant for all purposes. Subject to Section 9, a Warrant, if properly assigned, may be exercised by a new holder without a new Warrant first having been issued. 11.2. Transfer of Warrants. Subject to compliance with Section 9, if -------------------- applicable, this Warrant and all rights hereunder are transferable in whole or in part, without charge to the Holder hereof, upon surrender of this Warrant with a properly executed Form of Assignment attached hereto as Exhibit B at the principal office of the Company. Upon any partial transfer, the Company shall at its expense issue and deliver to the Holder a new Warrant of like tenor, in the name of the Holder, which shall be exercisable for such number of Common Shares with respect to which rights under this Warrant were not so transferred. The Holder shall be responsible for payment of any transfer tax payable in connection with any transfer, in whole or in part of this Warrant. 13 11.3. Replacement of Warrant. On receipt by the Company of evidence ------------------------ reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender of such Warrant to the Company at its principal office and cancellation thereof, the Company at its expense shall execute and deliver, in lieu thereof, a new Warrant of like tenor. 11.4. Adjustments To Purchase Price and Number of Shares. -------------------------------------------------------------- Notwithstanding any adjustment in the Purchase Price or in the number or kind of Common Shares purchasable upon exercise of this Warrant, any Warrant theretofore or thereafter issued may continue to express the same number and kind of Common Shares as are stated in this Warrant, as initially issued. 11.5. Fractional Shares. Notwithstanding any adjustment pursuant to ----------------- Section 3 in the number of Common Shares covered by this Warrant or any other provision of this Warrant, the Company shall not be required to issue fractions of shares upon exercise of this Warrant or to distribute certificates which evidence fractional shares. In lieu of fractional shares, the Company shall make payment to the Holder, at the time of exercise of this Warrant as herein provided, in an amount in cash equal to such fraction multiplied by the Current Market Price of a Common Share on the date of Warrant exercise. 12. REMEDIES; SPECIFIC PERFORMANCE. The Company stipulates that there ------------------------------- would be no adequate remedy at law to the Holder of this Warrant in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant and accordingly, the Company agrees that, in addition to any other remedy to which the Holder may be entitled at law or in equity, the Holder shall be entitled to seek to compel specific performance of the obligations of the Company under this Warrant, without the posting of any bond, in accordance with the terms and conditions of this Warrant in any court of the United States or any State thereof having jurisdiction, and if any action should be brought in equity to enforce any of the provisions of this Warrant, the Company shall not raise the defense that there is an adequate remedy at law. Except as otherwise provided by law, a delay or omission by the Holder hereto in exercising any right or remedy accruing upon any such breach shall not impair the right or remedy or constitute a waiver of or acquiescence in any such breach. No remedy shall be exclusive of any other remedy. All available remedies shall be cumulative. 13. NO RIGHTS OR LIABILITIES AS STOCKHOLDER. Nothing contained in this --------------------------------------- Warrant shall be construed as conferring upon the Holder hereof any rights as a stockholder of the Company or as imposing any obligation on the Holder to purchase any securities or as imposing any liabilities on the Holder as a stockholder of the Company, whether such obligation or liabilities are asserted by the Company or by creditors of the Company. 14. NOTICES. All notices and other communications (and deliveries) ------- provided for or permitted hereunder shall be made in writing by hand delivery, telecopier, any courier guaranteeing overnight delivery or first class registered or certified mail, return receipt requested, postage prepaid, addressed (a) if to the Company, to the attention of its President at its 14 principal office located at One Jackson Place Suite 1000, 188 East Capitol Street, Jackson, Mississippi 39201-2195, or such other address as may hereafter be designated in writing by the Company to the Holder in accordance with the provisions of this Section, or (b) if to the Holder, at its address as it appears in the Warrant Register. All such notices and communications (and deliveries) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; when receipt is acknowledged, if telecopied; on the next Business Day, if timely delivered to a courier guaranteeing overnight delivery; and five days after being deposited in the mail, if sent first class or certified mail, return receipt requested, postage prepaid; provided, that the exercise of any Warrant shall be effective in the manner provided in Section 2. 15. AMENDMENTS. This Warrant and any term hereof may not be amended, ---------- modified, supplemented or terminated, and waivers or consents to departures from the provisions hereof may not be given, except by written instrument duly executed by the party against which enforcement of such amendment, modification, supplement, termination or consent to departure is sought. 16. DESCRIPTIVE HEADINGS, ETC. The headings in this Warrant are for ---------------------------- convenience of reference only and shall not limit or otherwise affect the meaning of terms contained herein. Unless the context of this Warrant otherwise requires: (1) words of any gender shall be deemed to include each other gender; (2) words using the singular or plural number shall also include the plural or singular number, respectively; (3) the words "hereof", "herein" and "hereunder" and words of similar import when used in this Warrant shall refer to this Warrant as a whole and not to any particular provision of this Warrant, and Section and paragraph references are to the Sections and paragraphs of this Warrant unless otherwise specified; (4) the word "including" and words of similar import when used in this Warrant shall mean "including, without limitation," unless otherwise specified; (5) "or" is not exclusive; and (6) provisions apply to successive events and transactions. 17. GOVERNING LAW. This Warrant shall be governed by, and construed in ------------- accordance with, the laws of the State of New York (without giving effect to the conflict of laws principles thereof). 18. JUDICIAL PROCEEDINGS; WAIVER OF JURY. Any legal action, suit or -------------------------------------- proceeding brought against the Company with respect to this Warrant may be brought in any federal court of the Southern District of New York or any state court located in New York County, State of New York, and by execution and delivery of this Warrant, the Company hereby irrevocably and unconditionally waives any claim (by way of motion, as a defense or otherwise) of improper venue, that it is not subject personally to the jurisdiction of such court, that such courts are an inconvenient forum or that this Warrant or the subject matter may not be enforced in or by such court. The Company hereby irrevocably and unconditionally consents to the service of process of any of the aforementioned courts in any such action, suit or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, at its address set forth or provided for in Section 14, such service to become effective 10 days after such mailing. Nothing herein contained shall be deemed to affect the right of any party to serve process in any manner permitted by law or commence legal proceedings or otherwise proceed against any other party in any other 15 jurisdiction to enforce judgments obtained in any action, suit or proceeding brought pursuant to this Section. The Company irrevocably submits to the exclusive jurisdiction of the aforementioned courts in such action, suit or proceeding. THE COMPANY HEREBY IRREVOCABLY WAIVES TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING, WHETHER AT LAW OR EQUITY, BROUGHT BY IT OR THE HOLDER IN CONNECTION WITH THIS WARRANT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 19. OPERATING AGREEMENT. The Common Shares (and Other Securities) -------------------- issuable upon exercise of this Warrant (or upon conversion of any Common Shares issued upon such exercise) shall constitute Registrable Securities (as such term is defined in the Operating Agreement). Each holder of this Warrant shall be entitled to all of the benefits afforded to a holder of any such Registrable Securities under the Operating Agreement and such holder, by its acceptance of this Warrant, agrees to be bound by and to comply with the terms and conditions of the Operating Agreement applicable to such holder as a holder of such Registrable Securities. PARKWAY PROPERTIES, INC. By: ____________________________________ Title: President and Chief Executive Officer 16 EXHIBIT A to Common Shares Purchase Warrant ------------------------------ [FORM OF] ELECTION TO PURCHASE SHARES The undersigned hereby irrevocably elects to exercise the Warrant to purchase ____ shares of Common Stock, par value $.001 per share ("Common Shares"), of PARKWAY PROPERTIES, INC. and hereby [makes payment of $________ therefor] [or] [makes payment therefor by reduction pursuant to Section 2.1(b)(ii) of the Warrant of the number of Common Shares otherwise issuable to the Holder upon Warrant exercise by ___ shares] [or] [makes payment therefor by delivery of the following Common Shares Certificates of the Company (properly endorsed for transfer in blank) for cancellation by the Company pursuant to Section 2.1(b)(iii) of the Warrant, certificates of which are attached hereto for cancellation [list certificates by number and amount]]. The undersigned hereby requests that certificates for such shares be issued and delivered as follows: ISSUE TO:_______________________________________________________________________ (NAME) ________________________________________________________________________________ (ADDRESS, INCLUDING ZIP CODE) ________________________________________________________________________________ (SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER) DELIVER TO:_____________________________________________________________________ (NAME) ________________________________________________________________________________ (ADDRESS, INCLUDING ZIP CODE) If the number of Common Shares purchased (and/or reduced) hereby is less than the number of Common Shares covered by the Warrant, the undersigned requests that a new Warrant representing the number of Common Shares not so purchased (or reduced) be issued and delivered as follows: ISSUE TO:_______________________________________________________________________ FIVE ARROWS REALTY SECURITIES III L.L.C. ________________________________________________________________________________ (ADDRESS, INCLUDING ZIP CODE) DELIVER TO:_____________________________________________________________________ FIVE ARROWS REALTY SECURITIES III L.L.C. ________________________________________________________________________________ (ADDRESS, INCLUDING ZIP CODE) Dated: _____________, ______ FIVE ARROWS REALTY SECURITIES III L.L.C. By_________________________________ Name: Title: 17 EXHIBIT B to Common Shares Purchase Warrant ------------------------------ [FORM OF] ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers unto the Assignee named below all of the rights of the undersigned to purchase shares of Common Stock, par value $.001 per share ("Common Shares") of PARKWAY PROPERTIES, INC. represented by the Warrant, with respect to the number of Common Shares set forth below: Name of Assignee Address No. of Shares - ---------------- ------- ------------- and does hereby irrevocably constitute and appoint ________ Attorney to make such transfer on the books of PARKWAY PROPERTIES, INC. maintained for that purpose, with full power of substitution in the premises. Dated: _______________, ______ FIVE ARROWS REALTY SECURITIES III L.L.C. By_________________________________ Name: Title: -----END PRIVACY-ENHANCED MESSAGE-----