Exhibit 10.1

EXECUTION FORM

SECURITIES PURCHASE AGREEMENT

This SECURITIES PURCHASE AGREEMENT is entered into as of May 3, 2012, by and
among Parkway Properties, Inc., a Maryland corporation (the “Company”), and the
several Investors listed on Annex 1 (collectively, the “Investors”).

WHEREAS, on the terms and conditions set forth in this Agreement, the Company
desires to sell, and the Investors desire to purchase, shares of the Company’s
Series E Convertible Cumulative Redeemable Preferred Stock, par value $0.001 per
share (the “Series E Preferred Stock”), and shares of the Company’s Common Stock
par value $0.001 per share (the “Common Stock”);

WHEREAS, in connection with such purchase and sale, the Company and the
Investors desire to make certain representations and warranties and enter into
certain agreements; and

WHEREAS, in connection with such purchase and sale, the Company and the
Investors will execute and deliver at the Closing (as such term is defined
below), among other things, a Stockholders Agreement in the form attached as
Exhibit A (the “Stockholders Agreement”), and the Company and TPG VI Management,
LLC will execute and deliver at the Closing a Management Services Agreement in
the form attached as Exhibit B (the “Management Services Agreement”, and
together with this Agreement, the Stockholders Agreement and any other
agreement, certificate or other document to be entered into or delivered
pursuant to the terms hereof or in connection herewith, the “Transaction
Documents”).

NOW THEREFORE, in consideration of the foregoing and the representations,
warranties and agreements set forth in this Agreement and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged and agreed, and intending to be legally bound by this Agreement,
the Company and the Investors agree as follows:

1. Definitions. As used in this Agreement, the following terms shall have the
respective meanings set forth in this Section 1:

“Affiliate” of any Person shall mean any other Person directly or indirectly
controlling or controlled by or under common control with such Person. For
purposes of this definition, “control” when used with respect to any Person has
the meaning specified in Rule 12b-2 under the Exchange Act (including SEC and
judicial interpretations thereof); and the terms “controlling” and “controlled”
shall have meanings correlative to the foregoing.

“Agreement” shall means this Securities Purchase Agreement, as it may be
amended, restated, or otherwise modified from time to time, together with all
exhibits, schedules, and other attachments thereto.

“Antitrust Authority” shall mean any Governmental Authority charged with
enforcing, applying, administering or investigating any Antitrust Laws,
including the U.S. Federal Trade Commission, the U.S. Department of Justice, any
attorney general of any state of the United States, the European Commission or
any other competition authority of any jurisdiction.

 

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“Antitrust Laws” shall mean the HSR Act and any Law designed or intended to
prohibit, restrict or regulate actions having the purpose or effect of
monopolization or restraint of trade or lessening of competition, through merger
of acquisition or otherwise.

“Articles of Incorporation” shall have the meaning set forth in Section 4.1.

“Board” means the Board of Directors of the Company.

“Business Day” means a day that is a Monday, Tuesday, Wednesday, Thursday or
Friday and is not a day on which banking institutions in New York, New York
generally are authorized or obligated by Law, regulation or executive order to
close.

“Bylaws” shall have the meaning set forth in Section 4.1.

“Capital Lease Obligations” shall mean the obligations of the Company and its
Subsidiaries on a consolidated basis to pay rent or other amounts under a lease
of (or other agreement conveying the right to use) real and/or personal Property
which obligations are required to be classified and accounted for as a capital
lease on a consolidated balance sheet of the Company and its Subsidiaries under
Generally Accepted Accounting Principles (including Statement of Financial
Accounting Standards No. 13 of the Financial Accounting Standards Board, as
amended) and, for purposes of this Agreement, the amount of such obligations
shall be the capitalized amount of such obligations, determined in accordance
with Generally Accepted Accounting Principles (including such Statement No. 13).

“Closing” shall have the meaning set forth in Section 3.

“Closing Date” shall have the meaning set forth in Section 3.

“Code” shall mean the Internal Revenue Code of 1986, as amended, together with
all regulations, rulings and interpretations thereof or thereunder by the
Internal Revenue Service.

“Common Stock” shall have the meaning set forth in the recitals of this
Agreement.

“Company” shall have the meaning set forth in the preamble of this Agreement.

“Company Intellectual Property” shall mean all Intellectual Property that is
used in connection with, and is material to the business of the Company and its
Subsidiaries and all Intellectual Property owned by the Company and its
Subsidiaries.

“Conversion Rights” shall have the meaning set forth in Section 4.4.

“Credit Agreement” means that certain Amended and Restated Credit Agreement
dated March 30, 2012, by and among the Company, Wells Fargo Bank, N.A., as
administration agent, and the various lenders party thereto.

 

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“Environmental Law” shall mean any federal, state or local Law relating to the
(i) preservation, protection, conversation, pollution, contamination of, or
releases or threatened releases of Hazardous Substances into the air, surface
water, ground water or land or the clean up, abatement, removal, remediation or
monitoring of such pollution, contamination or Hazardous Substances;
(ii) generation, recycling, reclamation, handling, treatment, storage, disposal
or transportation of Hazardous Substances or solid waste and (iii) the safety or
health of employees or other Persons related to exposure to Hazardous
Substances, including the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended, 42 U.S.C. Sections 9601- 9675, the
Hazardous Materials Transportation Act, as amended, 49 U.S.C. Sections 5101-
5127, the Resource Conservation and Recovery Act, as amended, 42 U.S.C. Sections
6901- 6992k, the Emergency Planning and Community Right- to- Know Act of 1986,
42 U.S.C. Sections 11001- 11050, the Toxic Substances Control Act, 15 U.S.C.
Sections 2601- 2692, the Federal Insecticide, Fungicide and Rodenticide Act, 7
U.S.C. Sections 136- 136y, the Clean Air Act, 42 U.S.C. Sections 7401- 7642, the
Clean Water Act (Federal Water Pollution Control Act), 33 U.S.C. Sections 1251-
1387, the Safe Drinking Water Act, 42 U.S.C. Sections 300f- 300j- 26, and the
Occupational Safety and Health Act, 29 U.S.C. Sections 651- 678, and any
analogous state Laws, as any of the above have been amended from time to time
and the regulations promulgated pursuant to each of the foregoing.

“Environmental Permit” shall mean any permit, license, approval or other
authorization under any Environmental Law.

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, and all
rules, regulations, rulings and interpretations adopted by the Internal Revenue
Service or the Department of Labor thereunder.

“Exchange Act” shall mean the U.S. Securities Exchange Act of 1934, and the
rules and regulations promulgated by the SEC thereunder.

“Generally Accepted Accounting Principles” shall mean United States generally
accepted accounting principles, as in effect from time to time, applied on a
consistent basis.

“Governmental Authority” shall mean any foreign governmental authority, the
United States of America, any state of the United States and any political
subdivision of any of the foregoing, and any agency, instrumentality,
department, commission, board, bureau, central bank, authority, court or other
tribunal, in each case whether executive, legislative, judicial, regulatory or
administrative.

“Hazardous Substance” shall mean any hazardous or toxic waste, substance or
product or material defined or regulated by any applicable Environmental Law,
including petroleum and any radioactive materials and waste.

“Hedging Agreements” shall mean any transaction (including an agreement with
respect to such transaction) now or hereafter existing that is a rate swap,
basis swap, forward rate transaction, commodity swap, commodity option, equity
or equity index swap, equity or equity index option, bond option, interest rate
option, foreign exchange transaction, cap transaction, floor transaction, collar
transaction, forward transaction, currency swap transaction, cross-currency rate
swap transaction, currency option or any other similar transaction (including
any option with respect to any of these transactions) or any combination of the
foregoing, whether linked to one or more interest rates, foreign currencies,
commodity prices, equity prices or other financial measures.

 

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“HSR Act” shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended and currently in effect.

“Incidental Liens” shall mean (i) Liens for taxes, assessments, levies or other
governmental charges (but not Liens for clean up expenses arising pursuant to
Environmental Law) not yet due (subject to applicable grace periods) or that are
being contested in good faith and by appropriate proceedings if, in each case,
adequate reserves with respect to such Liens are maintained on the books of the
Company in accordance with Generally Accepted Accounting Principles;
(ii) carriers’, warehousemen’s, mechanics’, landlords’, vendors’, materialmen’s,
repairmen’s, sureties’ or other like Liens arising in the ordinary course of
business (or deposits to obtain the release of any such Lien) and securing
amounts not yet due or that are being contested in good faith and by appropriate
proceedings if, in the case of such contested Liens, adequate reserves with
respect to such Liens are maintained on the books of the Company in accordance
with Generally Accepted Accounting Principles; (iii) pledges or deposits in
connection with workers’ compensation, unemployment insurance and other social
security legislation; (iv) easements, rights-of-way, covenants, reservations,
exceptions, encroachments, zoning and similar restrictions and other similar
encumbrances or title defects, in each case incurred in the ordinary course of
business that, in the aggregate, are not substantial in amount, and that do not
in any case singly or in the aggregate materially detract from the value or
usefulness of the Property subject to such Liens or materially interfere with
the ordinary conduct of the business of the Company and its Subsidiaries, taken
as a whole; (v) bankers’ liens arising by operation of Law; (vi) Liens arising
pursuant to any order of attachment, distraint or similar legal process arising
in connection with any court proceeding the payment of which is covered in full
(subject to customary deductibles) by insurance; (vii) inchoate Liens arising
under ERISA to secure contingent liabilities of the Company; and (viii) rights
of lessees and sublessees in assets leased by the Company or any Subsidiary not
prohibited elsewhere in this Agreement.

“Indebtedness” shall mean, as to any Person, without duplication: (i) all
indebtedness (including principal, interest, fees and charges) of such Person
for borrowed money or for the deferred purchase price of Property or services;
(ii) any other indebtedness that is evidenced by a promissory note, bond,
debenture or similar instrument; (iii) any obligation under or in respect of
outstanding letters of credit, acceptances and similar obligations created for
the account of such Person; (iv) all Capital Lease Obligations of such Person;
(v) all indebtedness, liabilities, and obligations secured by any Lien on any
Property owned by such Person even though such Person has not assumed or has not
otherwise become liable for the payment of any such indebtedness, liabilities or
obligations secured by such Lien; (vi) any obligation under or in respect of
Hedging Agreements; and (vii) any guarantees of the foregoing liabilities and
synthetic liabilities of such Person.

“Information” shall have the meaning set forth in Section 8.11.

 

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“Intellectual Property” shall mean any and all of the following arising under
the Laws of the United States, any other jurisdiction or any treaty regime:
(i) all inventions (whether patentable or unpatentable and whether or not
reduced to practice), all improvements thereon, and all patents, patent
applications and patent disclosures and all reissuances, continuations,
continuations-in-part, divisionals, revisions, extensions and reexaminations
thereof, (ii) all trademarks, service marks, trade dress, logos, trade names and
corporate names and all translations, adaptations, derivations and combinations
thereof and including all goodwill associated therewith, and all applications,
registrations and renewals in connection therewith, (iii) all copyrightable
works, mask works or moral rights, all copyrights and all applications,
registrations and renewals in connection therewith, (iv) all trade secrets and
confidential business information (including, without limitation, ideas,
research and development, know-how, formulas, compositions, manufacturing and
production processes and techniques, technical data, designs, drawings,
specifications, customer and supplier lists, pricing and cost information and
business and marketing plans and proposals), (v) all computer software
(including, without limitation, data and related documentation and except for
any commercial “shrink-wrapped” software) and source codes, (vi) all other
proprietary rights, (vii) all copies and tangible embodiments of the foregoing
(in whatever form or medium) and (viii) all licenses or agreements in connection
with the foregoing.

“Investors” shall have the meaning set forth in the preamble of this Agreement.

“Knowledge of the Company” means the actual knowledge of one or more of James
Heistand, David O’Reilly, Henry Pratt and Jayson Lipsey.

“Laws” shall have the meaning set forth in Section 4.20.

“Lien” shall mean any mortgage, pledge, charge, encumbrance, security interest,
collateral assignment or other lien or restriction of any kind, whether based on
common law, constitutional provision, statute or contract, and shall include
reservations, exceptions, encroachments, easements, rights of way, covenants,
conditions, restrictions, leases and other title exceptions.

“Management Services Agreement” shall have the meaning set forth in the recitals
of this Agreement.

“Material Adverse Effect” means any change, development, occurrence or event
(each, a “Company Effect”) that is or would reasonably be expected to be
materially adverse to the business, continuing results of operations or
financial condition of the Company and its Subsidiaries, taken as a whole;
provided that any such Company Effect resulting or arising from or relating to
any of the following matters shall not be considered when determining whether a
Material Adverse Effect has occurred or would reasonably be expected to occur:
(i) any change, development, occurrence or event affecting the businesses or
industries in which the Company and its Subsidiaries operate; (ii) any
conditions in or changes affecting the United States general economy or the
general economy in any geographic area in which the Company or its Subsidiaries
operate or developments in the financial and securities markets and credit
markets in the United States or elsewhere in the world; (iii) national or
international political conditions and changes in political conditions,
including acts of war (whether or not declared), armed hostilities and
terrorism, or developments; (iv) any conditions resulting from natural
disasters; (v) changes in any Laws or Generally Accepted Accounting Principles;
(vi) changes in the market price or trading volume of Common Stock or any other
equity, equity-related or debt

 

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securities of the Company or its Affiliates (it being understood that the
underlying circumstances, events or reasons giving rise to any such change (to
the extent provided for in this definition) can be taken into account in
determining whether a Material Adverse Effect has occurred or would reasonably
be expected to occur); (vii) any failure to meet any internal or public
projections, forecasts, estimates or guidance for any period (it being
understood that the underlying circumstances, events or reasons giving rise to
any such failure (to the extent provided for in this definition) can be taken
into account in determining whether a Material Adverse Effect has occurred or
would reasonably be expected to occur); (viii) actions or omissions of the
Company expressly required by the terms of this Agreement; and (ix) the public
disclosure of this Agreement or the transactions contemplated hereby; provided,
however, that Company Effects set forth in clauses (i), (ii), (iii), (iv) and
(v) above may be taken into account in determining whether there has been or is
a Material Adverse Effect if and only to the extent such Company Effects have a
materially disproportionate impact on the Company and its Subsidiaries, taken as
a whole, relative to the other participants in the industries in which the
Company or its Subsidiaries operate.

“Person” shall mean any individual, association, partnership, limited liability
company, joint venture, corporation, trust, estate, unincorporated organization,
Governmental Authority or any other form of entity.

“Plan” shall mean any employee pension benefit plan (as defined in
Section 3(2)(A) of ERISA) subject to Title IV of ERISA or Section 412 of the
Code and maintained for employees of the Company or of any member of a
“controlled group”, as such term is defined in Section 4001(a)(14) of ERISA or
Section 414 of the Code, of which the Company or any of its Subsidiaries is a
part or otherwise has any liability, and any other material employee benefit
plan (as defined in Section 3(3) of ERISA), whether or not subject to ERISA, or
any material compensation plan, policy, agreement or arrangement, including
without limitation, any employment, change in control, bonus, equity-based
compensation, retention or other similar agreement, that the Company or any of
its Subsidiaries, maintains, sponsors, is a party to, or with respect to which
the Company or its Subsidiaries otherwise has any liability; provided, however,
that a “Plan” shall in no event include any “multiemployer plan”, as defined in
Section 4001(a)(4) of ERISA.

“Preferred Stock” shall mean, collectively, the Series D Preferred Stock and the
Series E Preferred Stock.

“Property” shall mean any interest in any kind of property or asset, whether
real, personal or mixed, tangible or intangible.

“Proxy Statement” shall have the meaning set forth in Section 8.4.

“Purchase Price” shall have the meaning set forth in Section 2.

“Q1 2012 Earnings Release and Supplemental” shall have the meaning set forth in
Section 4.

“Q1 2012 Financial Statements” shall have the meaning set forth in Section 4.

 

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“Real Property” shall mean any real Property owned, leased, sub-leased,
licensed, or otherwise occupied or used by the Company or any of its
Subsidiaries.

“REIT” shall have the meaning set forth in Section 4.16.

“SEC” shall mean the U.S. Securities and Exchange Commission or any other U.S.
federal agency then administering the Securities Act or Exchange Act.

“SEC Reports” shall have the meaning set forth in Section 4.

“Securities” shall have the meaning set forth in Section 5.5.

“Securities Act” shall mean the U.S. Securities Act of 1933, and the rules and
regulations of the SEC thereunder.

“Series D Articles Supplementary” shall mean, collectively, (i) the Series D
Articles Supplementary filed with the Department of Assessments and Taxation of
the State of Maryland on May 29, 2003, (ii) the Series D Articles Supplementary
filed with the Department of Assessments and Taxation of the State of Maryland
on August 5, 2010, and (iii) the Series D Articles Supplementary filed with the
Department of Assessments and Taxation of the State of Maryland on May 16, 2011.

“Series D Preferred Stock” shall mean the Series D Cumulative Redeemable
Preferred Stock of the Company, par value $.001 per share.

“Series E Articles Supplementary” shall have the meaning set forth in
Section 6.1.

“Series E Preferred Stock” shall have the meaning set forth in the recitals of
this Agreement.

“Stockholder Approval” shall have the meaning set forth in Section 8.4.

“Stockholder Approval Matters” shall have the meaning set forth in Section 8.4.

“Stockholder Conversion Rights Approval” shall have the meaning set forth in
Section 4.2(a).

“Stockholders Agreement” shall have the meaning set forth in the recitals of
this Agreement.

“Stockholders Meeting” shall have the meaning set forth in Section 8.4.

“Subsidiary” of any Person shall mean any corporation, partnership, joint
venture, limited liability company, trust or other form of legal entity of which
(or in which) more than 50% of (i) the issued and outstanding capital stock
having ordinary voting power to elect a majority of the board of directors of
such corporation (irrespective of whether at the time capital stock of any other
class or classes of such corporation shall or might have voting power upon the
occurrence of any contingency), (ii) the interest in the capital or profits of
such partnership, joint venture or limited liability company or (iii) the
beneficial interest in such trust or estate is at the time directly or
indirectly owned or controlled by such Person, by such Person and one or more of
its other Subsidiaries or by one or more of such Person’s other Subsidiaries.

 

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“Tax” or “Taxes” shall mean any taxes of any kind, including but not limited to
any and all federal, state, local and foreign income, gross receipts, license,
payroll, employment, excise, severance, stamp, occupation, premium, windfall
profits, environmental, escheat, customs duties, capital stock, franchise,
branch, profits, license, withholding, payroll, social security, unemployment,
disability, ad valorem, real property, personal property, abandoned property,
sales, use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other similar taxes (together with any and all interest, penalties
and additions to tax imposed with respect thereto) imposed by any governmental
or Tax authority.

“Tax Returns” mean any and all returns, declarations, claims for refund, or
information returns or statements, reports and forms relating to Taxes filed
with any Tax authority (including any schedule or attachment thereto), including
any amendment thereof.

“Trading Market” means the following markets or exchanges on which the Common
Stock is listed or quoted for trading on the date in question: the Nasdaq Global
Market, the Nasdaq Global Select Market or the New York Stock Exchange.

“Transaction Documents” shall have the meaning set forth in the recitals of this
Agreement.

2. Purchase and Sale of the Series E Preferred Stock and the Common Stock. On
the terms and conditions set forth in this Agreement, at the Closing, the
Investors will purchase from the Company, and the Company will issue, sell and
deliver to the Investors as set forth on Annex 1 (i) 13,477,778 shares of Series
E Preferred Stock at $11.25 per share, for an aggregate purchase price of
$151,625,002.50; and (ii) 4,300,000 shares of Common Stock, at $11.25 per share,
for an aggregate purchase price of $48,375,000, for a total aggregate purchase
price of $200,000,002.50 (the “Purchase Price”), such amount to be paid in full,
in cash, to the Company at the Closing.

3. Closing. The consummation of the purchase and sale of the Series E Preferred
Stock and the Common Stock and the other transactions contemplated by this
Agreement (the “Closing”) shall, subject to the limitations set forth in
Section 9.10, take place at the offices of Ropes & Gray LLP at 10:00 a.m. New
York City time on the first date following May 31, 2012 on which each of the
conditions set forth in Sections 6 or 7 have previously been fulfilled or waived
(other than those conditions that can be fulfilled only at the Closing), or at
such other time and place as the Company and the Investors shall mutually agree
(such date on which the Closing actually occurs, the “Closing Date”). At the
Closing, the Company shall deliver to each Investor set forth on Annex 1
certificates representing the number of shares of Series E Preferred Stock and
Common Stock being purchased by such Investor against payment of the Purchase
Price by wire transfer of immediately available funds to an account designated
by the Company in advance of the Closing Date.

 

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4. Representations and Warranties of the Company. The Company represents and
warrants to the Investors that, except (i) as otherwise disclosed or
incorporated by reference in the Company’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2011 or its other reports and forms filed with or
furnished to the SEC under Sections 12, 13, 14 or 15(d) of the Exchange Act
after December 31, 2011 (other than any forward looking disclosures set forth in
any risk factor section or forward looking statement disclaimer and any other
disclosure that is similarly nonspecific and predictive or forward looking in
nature) and on or before the date of this Agreement (all such reports covered by
this clause (i) collectively, the “SEC Reports”), (ii) as otherwise disclosed in
the Company’s unaudited interim financial statements prepared in respect of the
fiscal quarter ended March 31, 2012 (the “Q1 2012 Financial Statements”) or in
the Company’s first quarter 2012 supplemental information, all of which have
been included in the draft earnings release and supplemental materials attached
to this Agreement as Exhibit C (the “Q1 2012 Earnings Release and
Supplemental”), and (iii) as set forth in the schedules referenced below that
have been provided to the Investors on the date of this Agreement and which
specifically identify the relevant section of this Agreement against which the
disclosure on such schedule is made (provided, that any disclosure set forth in
any specific schedule shall qualify any other section of this Article 4 to the
extent it is reasonably apparent on its face that the disclosure set forth in
such schedule is relevant to any such other section of this Article 4):

4.1 Organization, Good Standing and Qualification. Each of the Company and its
Subsidiaries is duly organized, validly existing and in good standing under the
Laws of the state of its formation; has all requisite power and authority to own
its properties and conduct its business as presently conducted; and is duly
qualified to do business and in good standing in each state in the United States
of America where its business requires such qualification, except where failure
to be so duly qualified and in good standing would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect. True and
accurate copies of the Company’s Articles of Incorporation, as amended and as in
effect as of the date hereof (the “Articles of Incorporation”) and the Bylaws of
the Company, as amended and as in effect as of the date hereof (the “Bylaws”),
have been made available to the Investors.

4.2 Authorization; Enforceable Agreement.

(a) All corporate action on the part of the Company, its officers, directors,
and stockholders necessary for the authorization, execution, and delivery of
each of the Transaction Documents, the performance of all obligations of the
Company under each of the Transaction Documents, and the authorization, issuance
(or reservation for issuance), sale, and delivery of (i) the Series E Preferred
Stock being sold hereunder, (ii) the Common Stock being sold hereunder, and
(iii) the Common Stock issuable upon conversion of the Series E Preferred Stock
in accordance with the terms of the Series E Articles Supplementary has been
taken, and each of the Transaction Documents, when executed and delivered,
assuming due authorization, execution and delivery by the Investors, constitutes
and will constitute valid and legally binding obligations of the Company,
enforceable in accordance with their respective terms, subject to (A) the filing
of the Series E Articles Supplementary with the Department of Assessments and
Taxation of the State of Maryland pursuant to Section 6.1, (B) obtaining the
affirmative vote of holders of a majority of the Common Stock present or
represented and entitled to vote at a meeting of stockholders of the Company
(other than Common Stock held by the

 

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Investors) to approve the Conversion Rights (such affirmative vote, the
“Stockholder Conversion Rights Approval”), and (C) as to enforcement, to
applicable bankruptcy, insolvency, moratorium, reorganization, fraudulent
conveyance or similar Laws affecting the enforcement of creditors’ rights
generally and to general equitable principles (whether considered in a
proceeding in equity or at law).

(b) On or prior to the date of this Agreement, the Board has duly adopted
resolutions (i) authorizing and approving each of the Transaction Documents and
the transactions contemplated thereby (subject to the Stockholder Conversion
Rights Approval necessary to approve the Conversion Rights), (ii) adopting the
Series E Articles Supplementary, (iii) exempting the Investors from the
Ownership Limit (as defined in the Articles of Incorporation) pursuant to, and
in accordance with the requirements of, Section 2(f)(i) of the Articles of
Incorporation, subject to receipt of a representation letter(s) from the
Investors in the form attached hereto as Exhibit E and (iv) excluding the
Investors and their Affiliates from the restrictions on transactions with
interested stockholders under the Maryland Business Combination Act.

4.3 Application of Takeover Protections. Subject to the restrictions set forth
in of Article V of the Company’s Articles of Incorporation (except to the extent
that the Investors have received a waiver in connection herewith granting the
Investors an exemption from the ownership limitations set forth therein), the
Company and its board of directors have taken all necessary action, if any, in
order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under its Articles of Incorporation,
the Bylaws and the Laws of its state of incorporation that is or could become
applicable to the Investors as a result of the consummation of the transactions
contemplated by the Transaction Documents, including, without limitation, as a
result of the Company’s issuance of the Series E Preferred Stock and the Common
Stock to the Investors, the conversion of the Series E Preferred Stock, and the
exercise of the Investors’ rights under the Series E Articles Supplementary and
the Stockholders Agreement.

4.4 Governmental Consents. No consent, approval, order, or authorization of or
registration, qualification, declaration, or filing with, any federal, state, or
local Governmental Authority on the part of the Company is required in
connection with the offer, sale, or issuance of the Series E Preferred Stock,
the Common Stock, or the Common Stock issuable upon conversion of the Series E
Preferred Stock or the consummation of any other transaction contemplated by
this Agreement, except for the following: (a) the filing of the Series E
Articles Supplementary with the Department of Assessments and Taxation of the
State of Maryland pursuant to Section 6.1; (b) the compliance with other
applicable state securities Laws, which compliance will have occurred within the
appropriate time periods; (c) the receipt of the approval for listing on the New
York Stock Exchange of the Common Stock to be issued in connection herewith and
the provision of the official notice of issuance to the New York Stock Exchange
with respect thereto; (d) the filing with the SEC of such reports under the
Exchange Act as may be required in connection with this Agreement and the
transactions contemplated by this Agreement; and (e) only in the case of the
issuance of the Common Stock issuable upon conversion of the Series E Preferred
Stock, (i) the expiration or termination of any applicable waiting periods
(together with any extensions thereof) under the HSR Act, and (ii) the approval
by the holders of Common Stock of the conversion rights of the holders of Series
E Preferred Stock set forth in Section 6 of the Series E Articles Supplementary
(such rights, the “Conversion Rights”), pursuant to, and in accordance with the
New York Stock Exchange Rules.

 

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4.5 Capitalization. The authorized capital stock of the Company consists of
64,578,704 shares of Common Stock, of which 21,954,105 were issued and
outstanding as of April 30, 2012 and 5,421,296 shares of Series D Preferred
Stock authorized, issued and outstanding as of April 30, 2012 and shall
additionally include, immediately following the filing of the Articles
Supplementary, 16,000,000 authorized shares of Series E Preferred Stock, none of
which shall be issued or outstanding (but which number shall, upon the filing of
such Articles Supplementary, reduce, on a share-for-share basis, the number of
authorized shares of Common Stock referenced in this Section 4.5). All issued
and outstanding shares have been duly authorized and validly issued and are
fully paid and nonassessable. Prior to Closing, the Company will reserve that
number of shares of Common Stock sufficient for issuance upon conversion of the
Series E Preferred Stock being issued and sold pursuant to this Agreement. Other
than as provided in the Transaction Documents, there are no other outstanding
rights, options, warrants, preemptive rights, rights of first offer, or similar
rights for the purchase or acquisition from the Company of any securities of the
Company, nor are there any commitments to issue or execute any such rights,
options, warrants, preemptive rights or rights of first offer. Except as
otherwise provided in either the Series D Articles Supplementary or the Series E
Articles Supplementary, there are no outstanding rights or obligations of the
Company to repurchase or redeem any of its equity securities. The respective
rights, preferences, privileges, and restrictions of the Series E Preferred
Stock and the Common Stock are as stated in the Articles of Incorporation
(including the Series E Articles Supplementary). The Company does not have
outstanding shareholder purchase rights or “poison pill” or any similar
arrangement in effect giving any Person the right to purchase any equity
interest in the Company upon the occurrence of certain events.

4.6 Subsidiaries. As of the date of this Agreement, the Company has no
Subsidiaries other than as listed in the SEC Reports.

4.7 Valid Issuance of Preferred and Common Stock. The Series E Preferred Stock
being purchased by the Investors hereunder, when issued, sold, and delivered in
accordance with the terms of this Agreement for the consideration expressed in
this Agreement, will be duly and validly issued, fully paid, and nonassessable,
and will be free of any Liens or restrictions on transfer other than
restrictions under the Transaction Documents, the Articles of Incorporation and
the Series E Articles Supplementary and under applicable state and federal
securities Laws. The Common Stock issuable upon conversion of the Series E
Preferred Stock purchased under this Agreement has been duly and validly
reserved for issuance and, upon issuance in accordance with the terms of the
Series E Articles Supplementary, will be duly and validly issued, fully paid,
and nonassessable and will be free of any Liens or restrictions on transfer
other than restrictions on transfer under the Transaction Documents, the
Articles of Incorporation and under applicable state and federal securities
Laws. The sale of the Series E Preferred Stock and Common Stock hereunder is
not, and the subsequent conversion of the Series E Preferred Stock into Common
Stock will not be, subject to any preemptive rights, rights of first offer or
any anti-dilution provisions contained in the Company’s Articles of
Incorporation, bylaws or any other agreement (other than any ownership
limitations contained in the Company’s Articles of Incorporation for which the
Investors have not received a waiver hereunder).

 

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4.8 Financial Statements.

(a) The financial statements of the Company and its Subsidiaries on a
consolidated basis for each of the periods (i) included or incorporated by
reference in the SEC Reports and (ii) included in the Q1 2012 Financial
Statements, fairly present in all material respects, in accordance with
Generally Accepted Accounting Principles, as in effect on the date of the
applicable SEC Report or, in the case of the Q1 2012 Financial Statements, as in
effect on March 31, 2012, the financial condition and the results of operations
of the Company and its Subsidiaries as of the dates and for the periods
indicated in such SEC Reports or in the Q1 2012 Financial Statements, as
applicable (except, in the case of unaudited statements, for the effect of
normal year-end audit adjustments).

(b) The Company and its Subsidiaries do not have any liabilities or obligations
(accrued, absolute, contingent or otherwise) that would be required under
Generally Accepted Accounting Principles, as in effect on the date of this
Agreement, to be reflected on a consolidated balance sheet of the Company, other
than liabilities or obligations (i) reflected on, reserved against, or disclosed
in the notes to, the Company’s unaudited consolidated balance sheet included in
the Q1 2012 Financial Statements for the fiscal quarter ended March 31, 2012,
(ii) that were incurred in the ordinary course of business since March 31, 2012
or (iii) that would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.

4.9 Reports.

(a) The Company has timely filed all documents required to be filed with the SEC
pursuant to Sections 13(a) or 15(d) of the Exchange Act.

(b) The SEC Reports, when they became effective or were filed with the SEC, as
the case may be, complied as to form in all material respects with the
requirements of the Securities Act or the Exchange Act, as applicable, and the
rules and regulations of the SEC thereunder, in each case as in effect at such
time, and none of such documents contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make such statements, in the light of the circumstances in which
they were made, not misleading.

(c) Each director of the Company that is designated as “Independent” in the SEC
Reports satisfies the requirements for independence under the Sarbanes-Oxley Act
and the rules of the New York Stock Exchange, and a majority of the Company’s
directors are so “Independent.”

(d) There is no transaction, arrangement or other relationship between the
Company and/or any of its Subsidiaries and an unconsolidated or other
off-balance sheet entity that is required to be disclosed by the Company in its
SEC Reports and is not so disclosed or that has or otherwise would reasonably be
expected to have a Material Adverse Effect.

 

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(e) The Company (i) has implemented and maintains disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Exchange Act) that are
reasonably designed to ensure that material information relating to the Company,
including its consolidated Subsidiaries, is made known to the individuals
responsible for the preparation of the Company’s filings with the SEC and
(ii) has disclosed, based on its most recent evaluation prior to the date of
this Agreement, to the Company’s outside auditors and the Board’s Audit
Committee (A) any significant deficiencies and material weaknesses in the design
or operation of internal controls over financial reporting (as defined in Rule
13a-15(f) under the Exchange Act) that are reasonably likely to adversely affect
the Company’s ability to record, process, summarize and report financial
information and (B) any fraud, whether or not material, that involves management
or other employees who have a significant role in the Company’s internal
controls over financial reporting. As of the date of this Agreement, to the
Knowledge of the Company, there is no reason that its outside auditors and its
chief executive officer and chief financial officer will not be able to give the
certifications and attestations required pursuant to the rules and regulations
adopted pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, without
qualification, when next due.

4.10 Absence of Changes. Since December 31, 2011, except as set forth in the Q1
2012 Financial Statements, the Q1 2012 Earnings Release and Supplemental or as
contemplated by the Transaction Documents, or in connection with the Series E
Articles Supplementary, there has not been:

(a) except for any dividends declared on February 23, 2012 with respect to the
Company’s Common Stock and Series D Preferred Stock and paid on March 28, 2012
with respect to the Company’s Common Stock and on April 16, 2012 with respect to
the Series D Preferred Stock, any declaration, setting aside or payment of any
dividend or other distribution with respect to any shares of capital stock of
the Company or any repurchase, redemption or other acquisition by the Company of
any outstanding shares of its capital stock of the Company;

(b) any amendment of any term of any outstanding security of the Company;

(c) any material tax election made or changed, any audit settled or any amended
tax returns filed;

(d) any damage, destruction or loss (whether or not covered by insurance)
materially and adversely affecting the Company’s and its Subsidiaries’
properties or assets when taken as a whole;

(e) any sale, assignment or transfer, or any agreement to sell, assign or
transfer, any material asset, liability, property, obligation or right of the
Company or any Subsidiary to any Person, including, without limitation, the
Purchaser and its Affiliates, in each case, other than in the ordinary course of
business and consistent with past practice;

 

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(f) any obligation or liability incurred, or any loans or advances made, by the
Company or any Subsidiary to any of its Affiliates, other than expenses
allowable in the ordinary course of business of the Company;

(g) except as set forth on Schedule 4.10(g), any purchase or acquisition of, or
agreement, plan or arrangement to purchase or acquire, any material property,
rights or assets other than in the ordinary course of business of the Company;

(h) any waiver of any rights or claims of the Company or any Subsidiary, except
for such waivers which would not reasonably be expected to have a Material
Adverse Effect;

(i) any material change or amendment to a contract filed as an exhibit to a SEC
Report that is material to the Company and its Subsidiaries taken as a whole;

(j) any written agreement or binding commitment by the Company or any Subsidiary
to do any of the foregoing; or

(k) any other change, development, occurrence or event that has had or would
reasonably be expected to have a Material Adverse Effect.

4.11 Title. Except as would not be expected to have a Material Adverse Effect,
(a) each of the Company and its Subsidiaries has good and marketable title to
its Property reflected as owned by it in the financial statements included in
the Q1 2012 Financial Statements and that it otherwise purports to own, and such
Property is not subject to any Lien except (i) Incidental Liens and (ii) Liens
granted pursuant to the Credit Agreement, and (b) each of the Company and its
Subsidiaries holds its leased Properties under valid and binding leases, with
such exceptions as would not reasonably be expected to have a Material Adverse
Effect.

4.12 Indebtedness. Except as set forth on Schedule 4.12, neither the Company nor
any of its Subsidiaries is, immediately prior to this Agreement, or will be, at
the time of the Closing after giving effect to the Closing, in default in the
payment of any material Indebtedness or in default under any material agreement
relating to its material Indebtedness.

4.13 Litigation. There is no action, suit, proceeding or investigation pending
or, to the Knowledge of the Company, overtly threatened against, nor any
outstanding judgment, order or decree against, the Company or any of its
Subsidiaries before or by any Governmental Authority or arbitral body which in
the aggregate have, or if adversely determined, would reasonably be expected to
have, a Material Adverse Effect. Neither the Company nor any of its Subsidiaries
is in default with respect to any judgment, order or decree of any Governmental
Authority which default would reasonably be expected to have a Material Adverse
Effect.

 

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4.14 Taxes. The Company and each of its Subsidiaries has properly and timely
filed (taking into account any extension of time within which to file) all
material federal, foreign, state, local, and other Tax Returns that are required
to be filed by it, which Tax Returns were true and correct in all material
respects. All material Taxes due and owing by any of the Company or its
Subsidiaries have been timely paid. All material Taxes required to be withheld
and paid over by the Company and its Subsidiaries have been withheld and paid
over to the appropriate Tax authority. There are no outstanding waivers or
extensions of time with respect to the period for assessing or auditing any
material Tax or material Tax Return of the Company or any Subsidiary, except to
the extent any such waiver is a result of an extension to file a Tax Return.
There are no audits or proceedings relating to any material Tax or material Tax
Return of the Company or any Subsidiary raised in writing by any Tax Authority
and, to the Knowledge of the Company, no such audit is pending. Neither the
Company nor any of its Subsidiaries has entered into any transaction defined
under Section 1.6011-4(b)(2), -4(b)(3) or -4(b)(4) of the Treasury Regulations.

4.15 REIT Status. Commencing with its taxable year ended December 31, 1997, the
Company has been organized and operated in conformity with the requirements for
qualification as a real estate investment trust (a “REIT”) under the Code, and
its organization and method of operation has enabled it to meet the requirements
for qualification and taxation as a REIT under the Code through the date hereof.

4.16 Permits and Licenses. The Company and its Subsidiaries possess all
certificates, authorizations and permits issued by each Governmental Authority
necessary to conduct their respective businesses as set forth in the SEC
Reports, except where the failure to possess such permits would not have or
reasonably be expected to result in a Material Adverse Effect, and neither the
Company nor any Subsidiary has received any written notice of proceedings
relating to the revocation or modification of any such permit.

4.17 Compliance with Laws. Neither the Company nor any of its Subsidiaries is in
material violation of any applicable federal, state, local, foreign or other
law, statute, regulation, rule, ordinance, code, convention, directive, order,
judgment or other legal requirement (collectively, “Laws”) of any Governmental
Authority, except where such violation would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. To the
Knowledge of the Company, neither the Company nor any of its Subsidiaries is
being investigated with respect to, or has been overtly threatened to be charged
with or given notice of any violation of, any applicable Law, except for such of
the foregoing as would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.

4.18 Environmental Compliance. Neither the Company nor any of its Subsidiaries
is in violation of, or has received notice of any violation with respect to, any
Environmental Law applicable to the Company or any of its Subsidiaries or the
business of the Company or any of its Subsidiaries, in each case except for any
such violations or notices as would not reasonably be expected to have a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries has
received any notice of, nor, to the Knowledge of the Company, has there been any
occurrence or circumstance that, with notice or passage of time, or both, would
reasonably be expected to give rise to, a claim against the Company or any of
its Subsidiaries under or pursuant to any Environmental Law with respect to any
properties currently or previously owned, leased or operated by the Company or
any of its Subsidiaries, or the assets of the Company or any of its
Subsidiaries, or arising out of the conduct of the business of the Company or
any of its Subsidiaries that in each case would reasonably be expected to have a
Material Adverse Effect.

 

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The Company and its Subsidiaries have received all Environmental Permits
required to conduct their respective businesses, and each of the Company and its
Subsidiaries is in compliance with all terms and conditions of any such
Environmental Permit applicable to it, except for where the failure to obtain an
Environmental Permit or failure to comply with an Environmental Permit would not
reasonably be expected to have a Material Adverse Effect.

4.19 Compliance with Other Instruments. The Company is not in violation or
default of any provision of the Articles of Incorporation or the Bylaws. The
execution, delivery, and performance of and compliance with each of the
Transaction Documents and the issuance and sale of the Series E Preferred Stock
and Common Stock hereunder and the conversion of the Series E Preferred Stock
will not (i) result in any default or violation of the Articles of Incorporation
or the Bylaws, (ii) result in any default or violation of any agreement or under
any mortgage, deed of trust, security agreement or lease to which it is a party
or in any default or violation of any material judgment, order or decree of any
Governmental Authority or (iii) be in conflict with or constitute, with or
without the passage of time or giving of notice, a default under any such
provision, require any consent or waiver under any such provision, affect the
rights or obligations of any Person under any such provision, or result in the
creation of any mortgage, pledge, lien, encumbrance, or charge upon any of the
properties or assets of the Company pursuant to any such provision, or the
suspension, revocation, impairment or forfeiture of any permit, license,
authorization, or approval applicable to the Company, its business or
operations, or any of its assets or properties pursuant to any such provision,
except in the case of clauses (ii) and (iii) as would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect.

4.20 Contracts. True and complete copies of all agreements to which the Company
and its Subsidiaries are a party and which are required to have been filed by
the Company pursuant to the Securities Act or the Exchange Act have been filed
by the Company with the SEC pursuant to the requirements of the Securities Act
or the Exchange Act, as applicable, and since the filing of the most recent SEC
Report filed prior to the date hereof, there has been no material change or
amendment to any such contract filed as an exhibit to a SEC Report. Except for
such agreements that have expired or terminated in accordance with their terms,
each such agreement is in full force and effect and is binding on the Company
and/or its Subsidiaries, as applicable, and, to the Knowledge of the Company, is
binding upon such other parties, in each case in accordance with its terms, and
neither the Company, any of its Subsidiaries nor, to the Knowledge of the
Company, any other party thereto, is in breach of or default under any such
agreement, which breach of default would reasonably be expected to have a
Material Adverse Effect.

4.21 Benefit Plans.

(a) Neither the Company, its Affiliates, nor any other entity which, together
with the Company or its Affiliates, would be treated as a single employer under
Section 4001 of ERISA or Section 414 of the Code, has at any time maintained,
sponsored or contributed to, or has, had or may have any liability with respect
to, any employee benefit plan that is subject to Title IV of ERISA or
Section 412 of the Code, including any “multiemployer plan” (as defined in
Section 4001(a)(3) of ERISA), as to which there remains any material unsatisfied
liability on the part of the Company, its Affiliates or any other such entity.
Each Plan complies in all respects with its terms and all applicable

 

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Laws (including, without limitation ERISA and the Code), and the Company and
each of its Affiliates have filed all reports, returns, notices, and other
documentation required by ERISA or the Code to be filed with any Governmental
Authority with respect to each Plan, in each case, except as would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. With respect to any Plan, (i) no actions, Liens, lawsuits,
claims or complaints (other than routine claims for benefits) are pending or
threatened, and (ii) no facts or circumstances exist that are reasonably likely
to give rise to any such actions, Liens, lawsuits, claims or complaints, except
in the case of (i) and (ii), as would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. No event has occurred
with respect to a Plan which would reasonably be expected to result in a
material liability of the Company or any of its Subsidiaries to any Governmental
Authority, including the Pension Benefit Guaranty Corporation, other than for
applicable premiums. No event has occurred and no condition exists that would
reasonably be expected to constitute grounds for a Plan to be terminated under
circumstances which would cause any Lien, including, without limitation, the
lien provided under Section 4068 of ERISA, to attach to any Property of the
Company or any of its Subsidiaries. To the Knowledge of the Company, no event
has occurred and no condition exists that might reasonably be expected to cause
any Lien, including, without limitation, the lien provided under Section 303 of
ERISA or Section 430 of the Code to attach to any Property of the Company or any
of its Subsidiaries. Neither the Company nor any of its Subsidiaries has any
obligation to provide post-employment health or other welfare benefits, except
as required by section 601 et seq.of ERISA.

(b) Except as set forth on Schedule 4.21(b), none of the execution of, or the
completion of any of the transactions contemplated by any of the Transaction
Documents (whether alone or in connection with any other event(s)), would
reasonably be expected to result in (i) severance pay or an increase in
severance pay upon termination after Closing or after conversion of the Series E
Preferred Stock, (ii) any payment, compensation or benefit becoming due, or
increase in the amount of any payment, compensation or benefit due, to any
current or former employee of the Company or its Affiliates, (iii) acceleration
of the time of payment or vesting or result in funding of compensation or
benefits, (iv) any new material obligation under any Plan, (v) any limitation or
restriction on the right of Company to merge, amend, or terminate any Plan, or
(vi) any payments which would not be deductible under Section 280G of the Code.

(c) Each Plan that constitutes a “nonqualified deferred compensation plan” (as
defined in Section 409A(d)(1) of the Code and applicable regulations) with
respect to any service provider to the Company or any of its Subsidiaries
(a) complies and has been operated in compliance with the requirements of
Section 409A of the Code and regulations promulgated thereunder or (b) is exempt
from compliance under the “grandfather” provisions of IRS Notice 2005-1 and
applicable regulations and has not been “materially modified” (within the
meaning of IRS Notice 2005-1 and Treasury Regulations §1.409A-6(a)(4))
subsequent to October 3, 2004, except as would not reasonably be expected to
result in a Material Adverse Effect.

 

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4.22 Intellectual Property.

(a) With respect to each item of Company Intellectual Property, (i) the Company
or one or more of its Subsidiaries possesses all rights, titles and interests in
and to each such item that purports to be owned by the Company or one of its
Subsidiaries, free and clear of any Lien, license or other material restriction
(other than licenses granted to third parties in the ordinary course of business
and other than Liens, licenses or other restrictions contained in any agreement
disclosed by the Company in any SEC Report or other publicly-available filing),
and, to the Company’s Knowledge, possesses all rights necessary, in the case of
each such item that purports to be licensed to the Company or one of its
Subsidiaries, to use such item in the manner in which it is entitled to use such
item under the applicable license agreement; (ii) no action, suit, proceeding,
hearing, investigation, charge, complaint, claim or demand is pending against
the Company or any of its Subsidiaries, or, to the Knowledge of the Company, has
been or is being threatened in writing against the Company or any of its
Subsidiaries which challenges the legality, validity, enforceability, use or, if
applicable, ownership of the item; (iii) to the Knowledge of the Company, the
Company or one of its Subsidiaries has sufficient right, title and interest to
use or own the item, as applicable, without infringement upon any Intellectual
Property right or other right of any third party; and (iv) there is no pending
or, to the Knowledge of the Company, threatened claim or litigation against the
Company or any of its Subsidiaries contesting the right to use any third party’s
Intellectual Property rights, asserting the misuse of any thereof, or asserting
the infringement or other violation thereof.

(b) Except as would not reasonably be expected to have a Material Adverse
Effect, the Company and its Subsidiaries maintain policies and procedures
regarding data security, privacy and data use that are commercially reasonable
and, in any event, materially comply with the Company’s obligations to its
customers and/or tenants and applicable Laws, rules and regulations. Except as
would not reasonably be expected to have a Material Adverse Effect, there have
not been, and the transaction contemplated under this Agreement will not result
in, any security breaches of any security policy, data use restriction or
privacy breach under any such policies or any applicable Laws, rules or
regulations.

4.23 Registration Rights. Except as provided in the Stockholders Agreement, the
Company has not granted or agreed to grant, and is not under any obligation to
provide, any rights to register under the Securities Act any of its presently
outstanding securities or any of its securities that may be issued subsequently.

4.24 Investment Company Act. Neither the Company nor any of its Subsidiaries is
an investment company within the meaning of the Investment Company Act of 1940,
or, directly or indirectly, controlled by or acting on behalf of any Person
which is an investment company, within the meaning of said Act.

4.25 Brokers’ Fees and Expenses. No broker, investment banker, or financial
advisor or other Person, other than Barclays Capital, Inc., the fees and
expenses of which will be paid by the Company, is entitled to any broker’s,
finder’s, financial advisor’s or other similar fee or commission in connection
with transactions contemplated by this Agreement.

 

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4.26 Illegal Payments. Neither the Company nor any of its Subsidiaries has, nor,
to the Knowledge of the Company, has any director, officer, agent or employee of
the Company or any of its Subsidiaries, paid, caused to be paid, or agreed to
pay, directly or indirectly, in connection with the business of the Company:
(a) to any government or agency thereof, any agent or any supplier or customer,
any bribe, kickback or other similar illegal payment; (b) any illegal
contribution to any political party or candidate (other than from personal funds
of directors, officers or employees not reimbursed by their respective employers
or as otherwise permitted by applicable Law); or (c) intentionally established
or maintained any unrecorded fund or asset or made any false entries on any
books or records for any purpose.

4.27 Listing and Maintenance Requirements. The Common Stock is registered
pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has
taken no action designed to, or which to the Knowledge of the Company is
reasonably likely to, have the effect of, terminating the registration of the
Common Stock under the Exchange Act nor has the Company received any
notification that the SEC is contemplating terminating such registration. The
Company has not, in the twelve (12) months preceding the date hereof, received
notice from any trading market on which the Common Stock is or has been listed
or quoted to the effect that the Company is not in compliance with the listing
or maintenance requirements of such trading market.

4.28 General Solicitation. Neither the Company, nor any Affiliate of the
Company, nor any other Person authorized by the Company to act on its behalf,
has engaged in a general solicitation or general advertising (within the meaning
of Regulation D of the Securities Act) of investors with respect to offer or
sales of the Securities. The Company has offered the Securities for sale only to
the Investors

4.29 Offering; Exemption. Assuming the accuracy of the Investors’
representations and warranties set forth in Section 5 of this Agreement, no
registration under the Securities Act or any applicable state securities law is
required for the offer and sale of the Securities by the Company to the
Investors as contemplated hereby or for the conversion of the Preferred Stock.

4.30 No Integrated Offering. Neither the Company, nor any Affiliate of the
Company, nor, to the Knowledge of the Company, any person acting on its behalf
or their behalf has, directly or indirectly, made any offers or sales of any
security or solicited any offers to buy any security, under circumstances that
would cause the offering or issuance of the Securities to be integrated with
prior offerings by the Company for purposes of the Securities Act that would
cause Regulation D or any other applicable exemption from registration under the
Securities Act to be unavailable, or would cause any applicable state securities
Law exemptions or any applicable stockholder approval provisions exemptions,
including, without limitation, under the rules and regulations of any national
securities exchange or automated quotation system on which any of the securities
of the Company are listed or designated to be unavailable, nor will the Company
take any action or steps that would cause the offering or issuance of the
Securities to be integrated with other offerings.

5. Representations and Warranties of the Investors. Each Investor represents and
warrants to the Company that:

5.1 Organization. Each Investor has been duly organized and validly exists in
the jurisdiction and as the form of business entity set forth on Annex 1.

 

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5.2 Authorization; Enforceability. Each Investor has full right, power,
authority and capacity to enter into each of the Transaction Documents and to
consummate the transactions contemplated by each such Transaction Document. The
execution, delivery and performance of each of the Transaction Documents have
been duly authorized by all necessary action on the part of each Investor, and
each of the Transaction Documents has been duly executed and delivered by each
Investor and, assuming due authorization, execution and delivery of each of the
Transaction Documents by the Company, will constitute valid and binding
obligation of each Investor, enforceable against it in accordance with its
terms, subject to, with respect to enforcement, applicable bankruptcy,
insolvency, moratorium, reorganization, fraudulent conveyance or similar Laws
affecting the enforcement of creditors’ rights generally and to general
equitable principles (whether considered in a proceeding in equity or at law).

5.3 Consents. No consent, approval, order, or authorization of, or registration,
qualification, declaration, or filing with, any federal, state, or local
Governmental Authority on the part of any Investor is required in connection
with the purchase of the Series E Preferred Stock and the Common Stock
hereunder, the conversion of the Series E Preferred Stock or the consummation of
any other transaction contemplated by this Agreement, except for the following:
(i) the compliance with applicable state securities Laws, which compliance will
have occurred within the appropriate time periods; (ii) the filing with the SEC
of such reports under the Exchange Act as may be required in connection with
this Agreement and the transactions contemplated by this Agreement; and
(iii) with respect to the conversion of the Series E Preferred Stock, the
expiration or termination of any applicable waiting periods (together with any
extensions thereof) under the HSR Act.

5.4 No Default or Violation. The execution, delivery, and performance of and
compliance with each of the Transaction Documents, the issuance and sale of the
Series E Preferred Stock and the Common Stock hereunder, and the conversion of
the Series E Preferred Stock will not (i) result in any default or violation of
the certificate of incorporation, bylaws, limited partnership agreement, limited
liability company operating agreement or other applicable organizational
documents of any Investor, (ii) result in any default or violation of any
agreement relating to its material Indebtedness or under any mortgage, deed of
trust, security agreement or lease to which it is a party or in any default or
violation of any material judgment, order or decree of any Governmental
Authority, or (iii) be in conflict with or constitute, with or without the
passage of time or giving of notice, a default under any such provision, require
any consent or waiver under any such provision, or result in the creation of any
mortgage, pledge, lien, encumbrance, or charge upon any of the properties or
assets of the Investor pursuant to any such provision, or the suspension,
revocation, impairment or forfeiture of any material permit, license,
authorization, or approval applicable to the Investor, its business or
operations, or any of its assets or properties pursuant to any such provision,
except in the case of clauses (ii) and (iii) as would not, individually or in
the aggregate, reasonably be expected to prevent or materially delay or
materially impair the ability of any Investor to consummate the transactions
contemplated by this Agreement.

 

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5.5 Private Placement.

(a) The Investor is (i) an “accredited investor” within the meaning of Rule 501
of Regulation D promulgated under the Securities Act; (ii) aware that the sale
of the Series E Preferred Stock, the Common Stock and the Common Stock issuable
upon conversion of the Series E Preferred Stock being issued and sold pursuant
to this Agreement (collectively, the “Securities”) is being made in reliance on
a private placement exemption from registration under the Securities Act; and
(iii) acquiring the Securities for its own account.

(b) The Investor understands and agrees that the Securities are being offered in
a transaction not involving any public offering within the meaning of the
Securities Act, that such Securities have not been and, except as contemplated
by the registration rights provided for in the Stockholders Agreement, will not
be registered under the Securities Act and that such Securities may be offered,
resold, pledged or otherwise transferred only (i) in a transaction not involving
a public offering, (ii) pursuant to an exemption from registration under the
Securities Act provided by Rule 144 thereunder (if available), (iii) pursuant to
an effective registration statement under the Securities Act or (iv) to the
Company or one of its Subsidiaries, in each of cases (i) through (iv) in
accordance with any applicable state and federal securities Laws, and that it
will notify any subsequent purchaser of Securities from it of the resale
restrictions referred to above, as applicable.

(c) The Investor understands that, unless sold pursuant to a registration
statement that has been declared effective under the Securities Act or in
compliance with Rule 144 thereunder, the Company may require that the Securities
will bear a legend or other restriction substantially to the following effect
(it being agreed that if the Securities are not certificated, other appropriate
restrictions shall be implemented to give effect to the following):

“THIS SECURITY WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, (THE “SECURITIES
ACT”), AND THIS SECURITY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. THE
HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) THIS
SECURITY MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (I) IN A
TRANSACTION NOT INVOLVING A PUBLIC OFFERING, (II) PURSUANT TO ANY OTHER
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, INCLUDING
RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (III) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (IV) TO THE COMPANY OR ANY OF
ITS SUBSIDIARIES, IN EACH OF CASES (I) THROUGH (IV) IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER
WILL NOTIFY ANY SUBSEQUENT PURCHASER OF THIS SECURITY FROM IT OF THE RESALE
RESTRICTIONS REFERRED TO IN (A) ABOVE.”

 

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(d) The Investor: (i) has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of its
prospective investment in the Securities and (ii) has the ability to bear the
economic risks of its prospective investment and can afford the complete loss of
such investment. The foregoing, however, does not limit or modify the
representations and warranties of the Company in Section 4 of this Agreement or
the right of the Investor to rely on such representations and warranties,
provided that the Investors acknowledge and agree that, other than the
representations and warranties in Section 4 of this Agreement, there are no
other representations and warranties of the Company either express or implied
(the foregoing, however, does not limit the right of the Investor to bring, or
in any way restrict or otherwise limit, any action or proceeding based upon
fraud).

(e) The Investor acknowledges that (i) it has conducted its own investigation of
the Company and the terms of the Securities, (ii) it has had access to the
Company’s public filings with the SEC and to such financial and other
information as it deems necessary to make its decision to purchase the
Securities, (iii) has been offered the opportunity to conduct such review and
analysis of the business, assets, condition, operations and prospects of the
Company and its Subsidiaries and to ask questions of the Company and received
answers thereto, each as it deemed necessary in connection with the decision to
purchase the Securities, and (iv) any projections, estimates or forecasts of
future results or events provided by or on behalf of Company are subject to
uncertainty and to the assumptions used in their preparation. The Investor
further acknowledges that it has had such opportunity to consult with its own
counsel, financial and tax advisors and other professional advisers as it
believes is sufficient for purposes of the purchase of the Securities. The
foregoing, however, does not limit or modify the representations and warranties
of the Company in Section 4 of this Agreement or the right of the Investor to
rely on such representations and warranties, provided that the Investors
acknowledge and agree that, other than the representations and warranties in
Section 4 of this Agreement, there are no other representations and warranties
of the Company either express or implied (the foregoing, however, does not limit
the right of the Investor to bring, or in any way restrict or otherwise limit,
any action or proceeding based upon fraud).

(f) The Investor understands that the Company will rely upon the truth and
accuracy of the foregoing representations, acknowledgements and agreements.

5.6 Financial Capability. The Investor currently has the funds necessary to
purchase the Series E Preferred Stock and Common Stock at Closing on the terms
and conditions contemplated by this Agreement.

 

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6. Conditions to the Investors’ Obligations at Closing. The obligation of the
Investors to purchase the Series E Preferred Stock and Common Stock at the
Closing is subject to the fulfillment or waiver (to the extent permitted by
applicable Law) at or before the Closing of each of the following conditions:

6.1 Articles Supplementary. Prior to the Closing, (i) the Company shall adopt
and file with the Department of Assessments and Taxation of the State of
Maryland an Articles Supplementary of the Series E Preferred Stock in the form
attached as Exhibit D (the “Series E Articles Supplementary”), and (ii) the
Investors shall have received confirmation from the Department of Assessments
and Taxation of the State of Maryland reasonably satisfactory to them that such
filing has occurred.

6.2 Qualification Under State Securities Laws. All registrations,
qualifications, permits and approvals, if any, required to be obtained prior to
the Closing under applicable state securities Laws shall have been obtained for
the lawful execution, delivery and performance of each of the Transaction
Documents including, without limitation, the offer and sale of the Securities.

6.3 New York Stock Exchange Requirements. The Company shall have complied with
all New York Stock Exchange listing requirements applicable to the transactions
contemplated by each of the Transaction Documents, except that the Company shall
not be required to obtain the Stockholder Approval prior to Closing.

6.4 Representations and Warranties. Each of the representations and warranties
of the Company in this Agreement shall be true and correct as of the Closing as
if made on such date except for such representations and warranties made as of a
specific date, which shall be true and correct only as of such date, in each
case except where the failure of such representations and warranties to be true
and correct (without giving effect to any limitation as to “materiality” or
“Material Adverse Effect” set forth therein (other than the references to
“materiality” and “Material Adverse Effect” set forth in Section 4.10(h))) has
not had, and would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect; provided, however, that the
representations and warranties set forth in Sections 4.1, 4.2, 4.3 and 4.5 shall
be, as of the Closing, true and correct in all respects with the same effect as
though such representations and warranties had been made as of the Closing (and
giving effect to any limitation as to “materiality” or “Material Adverse Effect”
set forth therein).

6.5 Performance. The Company shall have performed in all material respects all
of its obligations required to be complied with or performed by it at or prior
to the Closing.

6.6 Consents and Waivers. The Company shall have obtained each of the consents
or waivers set forth on Schedule 1.

6.7 Management Services Agreement. The Company shall have executed and delivered
the Management Services Agreement and shall have paid all amounts required to be
paid by the Company and its Subsidiaries as of the Closing in the manner
contemplated thereby. The Company shall have additionally obtained any and all
consents required such that it not be prohibited from paying, from and after the
Closing, any amount that is required to be paid by the Company and its
Subsidiaries pursuant to such Management Services Agreement.

6.8 Stockholders Agreement. The Company shall have executed and delivered the
Stockholders Agreement.

 

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6.9 Board of Directors. The Board of Directors of the Company shall consist of
nine (9) persons, including AviBanyasz, Kelvin Davis and two (2) other Persons
to be named by the Investors, each of whom shall meet each of the requirements
set forth in Section 2.1(f) of the Stockholders Agreement. Each committee of the
Board of Directors of the Company shall consist of four (4) directors, including
two (2) designated by the Investors. The Board shall have previously agreed, in
writing, that each of AviBanyasz and Kelvin Davis meet each of the requirements
set forth in Section 2.1(f) of the Stockholders Agreement.

6.10 REIT Ownership Limitations Waiver. The Board shall have taken all requisite
action to grant the Investors an exemption from the ownership limitations
contained in the Company’s Articles of Incorporation.

7. Conditions to the Company’s Obligations at Closing. The obligations of the
Company to issue, sell and deliver to the Investors the Series E Preferred Stock
and Common Stock and consummate the other transactions contemplated by the
Transaction Documents are subject to the fulfillment or waiver at or before the
Closing of each of the following conditions:

7.1 Representations and Warranties. Each of the representations and warranties
of the Investors contained in each of the Transaction Documents shall be true
and correct as of the Closing as if made on such date except for such
representations and warranties made as of a specific date, which shall be true
and correct only as of such date, in each case except where the failure of such
representations and warranties to be true and correct (without giving effect to
any limitation as to “materiality” or “material adverse effect” set forth
therein) would not reasonably be expected to, individually or in the aggregate,
prevent or materially delay or materially impair the ability of any Investor to
consummate the transactions contemplated by this Agreement; provided, however,
that the representations and warranties set forth in Sections 5.1 and 5.2 shall
be, as of the Closing, true and correct in all respects with the same effect as
though such representations and warranties had been made as of the Closing.

7.2 Performance. The Investor shall have performed and complied in all material
respects with all agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with it at or prior to
the Closing.

7.3 Stockholders Agreement. The Investors shall have executed and delivered the
Stockholder Agreement.

7.4 Management Services Agreement. TPG VI Management, LLC shall have executed
and delivered the Management Services Agreement.

7.5 Consents and Waivers. The Company shall have obtained each of the consents
or waivers set forth on Schedule 1.

7.6 New York Stock Exchange Requirements. The Company shall have received all
necessary approvals of the New York Stock Exchange, if applicable, to consummate
the Closing.

7.7 REIT Ownership Limitations Waiver. The Investors shall have delivered to the
Company REIT representation letters substantially in the form set forth on
Exhibit E hereto.

 

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8. Covenants. The Company and the Investors hereby covenant and agree, for the
benefit of the other parties to this Agreement and their respective assigns, as
follows:

8.1 Commercially Reasonable Efforts; Notices and Consents. Subject to the terms
and conditions of this Agreement, from the date of this Agreement to the
Closing, (a) the Investors shall use their commercially reasonable efforts to
take, or cause to be taken, all appropriate action, and do, or cause to be done,
all things necessary, proper or advisable under applicable Law or otherwise to
cause the conditions specified in Article 6 to be satisfied as soon as
reasonably practicable and (b) the Company shall use its commercially reasonable
efforts to take, or cause to be taken, all appropriate action, and do, or cause
to be done, all things necessary, proper or advisable under applicable Law or
otherwise to cause the conditions specified in Article 7 to be satisfied as soon
as reasonably practicable.

8.2 Operation of the Business. Except (a) with the prior written consent of the
Investors (which consent shall not be unreasonably withheld or delayed), (b) as
contemplated by the Transaction Documents, (c) as required by Applicable Law,
(d) as set forth on Schedule 8.2, or (e) as required by the terms and conditions
of contracts and other arrangements described in the SEC Reports, after the date
of this Agreement until the earlier of the Closing or termination of this
Agreement in accordance with the terms hereof, the Company shall, and shall
cause each of its Subsidiaries to, conduct their respective business in all
material respects in the ordinary course consistent with the past practice of
the Company and its Subsidiaries; provided, however, that in no event shall the
Company engage in any sale, issuance, or authorization of the issuance or sale
of any capital stock or other security of the Company or any of its Subsidiaries
to the extent that any such sale, issuance, or authorization of issuance or
sale, if it was to occur immediately following the Closing, would require the
approval of the Investment Committee pursuant to the terms of the Stockholders
Agreement.

8.3 HSR. Unless the Company and the Investors shall have determined prior to the
time of any applicable filing that an exemption is available under applicable
Law that would make any such filing unnecessary, each of the Company and the
Investors shall use their reasonable best efforts to make, as promptly as
reasonably practicable following the Closing and, in any event, prior to the
first (1st) Stockholders Meeting convened pursuant to Section 8.4, or shall
cause each of their respective ultimate parent entities (as that term is defined
in the HSR Act) to make, all pre-transaction notification filings required under
the HSR Act, if any, and required under any other applicable Antitrust Laws, if
any. The Company, on the one hand, and the Investors, on the other hand, shall
(a) cooperate fully with each other and shall furnish to the other such
necessary information and reasonable assistance as the other may reasonably
request in connection with its preparation of any required filings under the HSR
Act or any applicable Antitrust Laws and (b) keep the other party reasonably
informed of any communication received by such party from, or given by such
party to any Antitrust Authority and of any communication received or given in
connection with any proceeding by a private party, in each case regarding the
transactions contemplated hereby and in a manner that protects attorney-client
or attorney work product privilege. Further, without limiting the obligations
stated in this Section 8.1, the Company and the Investors shall each use their
reasonable best efforts to respond to any request for information regarding the
transactions contemplated hereby or filings under the HSR Act or any applicable
Antitrust Laws from any Antitrust Authority. Notwithstanding anything to the
contrary contained in this Agreement, neither the Company nor any of its
Subsidiaries shall be obligated to agree to divest, hold separate or otherwise
restrict its operations in connection with obtaining any applicable approvals
under the HSR Act or any other applicable Antitrust Laws.

 

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8.4 Stockholder Approvals; Proxy Statement. The Company agrees to use its
reasonable best efforts to call and hold a meeting of the stockholders of the
Company for the purpose of obtaining (i) the Stockholder Conversion Rights
Approval and (ii) the affirmative vote of holders of a majority of the Common
Stock present or represented and entitled to vote at a meeting of stockholders
of the Company (other than Common Stock held by the Investors) to approve the
other matters contemplated by clause (z)(B) of the fourth (4th) sentence and
clause (y) of the last sentence of Section 2.1(b) and Section 3.1(a)(ii) of the
Stockholders Agreement to be approved by the stockholders (such a meeting, a
“Stockholders Meeting,” and the matters described in clauses (i) and (ii), the
“Stockholder Approval Matters” and such approvals, the “Stockholder Approval”)
within one hundred eighty (180) days following the Closing Date. As promptly as
reasonably practicable following the Closing Date, the Company will prepare and
file with the SEC a proxy statement to be sent to the Company’s stockholders in
connection with the Stockholder Meeting (the “Proxy Statement”). Subject to the
directors’ fiduciary duties, the Proxy Statement shall include the Board’s
recommendation that the stockholders vote in favor of the Stockholder Approval
Matters. In the event the Company’s stockholders do not vote to approve the
Stockholder Approval Matters at the first Stockholders Meeting called for such
purpose, the Investors will have the right to require the Company to use its
reasonable best efforts to call a meeting of the stockholders of the Company on
two (2) additional occasions in the first year following the Closing and on an
annual basis thereafter for the purpose of obtaining the Stockholder Approval of
the Stockholder Approval Matters. Following such a request by the Investors, the
Company shall use its reasonable best efforts to call a meeting of the
stockholders of the Company within ninety (90) days of such request. Subject to
its fiduciary duties, the Company shall include in the proxy statement for such
meeting the Board’s recommendation that the stockholders vote in favor of the
Stockholder Approval Matters. The Investors agree to furnish to the Company in
writing all information concerning the Investors and their Affiliates as the
Company may reasonably request in connection with any Stockholder Meeting. The
Company shall respond reasonably promptly to any comments received from the SEC
with respect to the Proxy Statement, and the Company shall cause the Proxy
Statement to be mailed to the Company’s stockholders at the earliest reasonably
practicable date. The Company shall provide to the Investors, as promptly as
reasonably practicable after receipt thereof, any written comments from the SEC
or any written request from the SEC or its staff for amendments or supplements
to the Proxy Statement and shall provide the Investors with copies of all
correspondence between the Company, on the one hand, and the SEC and its staff,
on the other hand, relating to the Proxy Statement. Notwithstanding anything to
the contrary stated above, prior to filing or mailing the Proxy Statement (or,
in each case, any amendment or supplement thereto) or responding to any comments
of the SEC or its staff with respect thereto, the Company shall provide the
Investors with a reasonable opportunity to review and comment on such document
or response. Any communications by the Company to the Investors pursuant to this
Section 8.1 may made by email to an account designated by the Investors upon
request by the Company.

8.5 New York Stock Exchange Listing of Shares. The Company shall promptly apply
to cause the shares of Common Stock purchased hereunder (as well as those to be
issued upon conversion of the Series E Preferred Stock) to be approved for
listing on the New York Stock Exchange, subject to official notice of issuance.

 

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8.6 Reservation of Common Stock; Issuance of Shares of Common Stock. For as long
as any Series E Preferred Stock remain outstanding, the Company shall at all
times reserve and keep available, free from preemptive rights, out of its
authorized but unissued Common Stock or shares of Common Stock held in treasury
by the Company, for the purpose of effecting the conversion of the Series E
Preferred Stock, the full number of shares of Common Stock then issuable upon
the conversion of all Series E Preferred Stock (after giving effect to all
anti-dilution adjustments) then outstanding. All shares of Common Stock
delivered upon conversion or repurchase of the Series E Preferred Stock shall be
newly issued shares or shares held in treasury by the Company, shall have been
duly authorized and validly issued and shall be fully paid and nonassessable,
and shall be free from preemptive rights and free of any lien or adverse claim,
subject to any restrictions under applicable state and federal securities Laws.

8.7 Transfer Taxes. The Company shall pay any and all documentary, stamp or
similar issue or transfer tax due on (x) the issue of the Series E Preferred
Stock at Closing and (y) the issue of shares of Common Stock upon conversion of
the Series E Preferred Stock. However, in the case of conversion of Series E
Preferred Stock, the Company shall not be required to pay any tax or duty that
may be payable in respect of any transfer involved in the issue and delivery of
shares of Common Stock in a name other than that of the holder of the Series E
Preferred Stock to be converted, and no such issue or delivery shall be made
unless and until the Person requesting such issue has paid to the Company the
amount of any such tax or duty, or has established to the satisfaction of the
Company that such tax or duty has been paid.

8.8 Public Disclosure. On the date of this Agreement, or within 24 hours
thereafter the Company shall issue a press release in a form mutually agreed to
by the Company and the Investors. No other written release, announcement or
filing concerning the purchase of the Series E Preferred Stock, Common Stock or
the transactions contemplated by any of the Transaction Documents shall be
issued, filed or furnished, as the case may be, by any party without the prior
written consent of the other party (which consent shall not be unreasonably
withheld, conditioned or delayed), except as such release, announcement or
filing as may be required by Law or the rules or regulations of any securities
exchange, in which case the party required to make the release or announcement
shall, to the extent reasonably practicable, allow the other party reasonable
time to comment on such release or announcement in advance of such issuance. The
provisions of this Section shall not restrict the ability of (a) a party to
summarize or describe the transactions contemplated by this Agreement or the
other Transaction Documents in any prospectus or similar offering document so
long as the other party is provided a reasonable opportunity to review such
disclosure in advance, or (b) representatives of the Company to orally summarize
or describe the transactions contemplated by this Agreement on any telephone
conference or in-person meeting with any investor in or analyst following the
Company.

8.9 Tax Related Covenants. The Company will use its best efforts to meet the
requirements for qualification and taxation as a REIT under the Code for its
taxable year ending December 31, 2012 and the Company will use its best efforts
to continue to qualify for taxation as a REIT under the Code, subject to any
future determination by the Company’s board of directors that it is no longer in
the Company’s best interests to qualify as a REIT. Absent a

 

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change in Law or Internal Revenue Service practice or a contrary determination
(as defined in Section 1313(a) of the Code) the Investors and the Company agree
not to treat the Series E Preferred Stock as “preferred stock” within the
meaning of Section 305 of the Code and Treasury Regulation Section 1.305-5 for
United States federal income tax reporting and withholding tax purposes and
shall not take any tax position inconsistent with such treatment.

8.10 Further Assurances. Each of the Investors and the Company will cooperate
and consult with each other and use commercially reasonable efforts to prepare
and file all necessary documentation, to effect all necessary applications,
notices, petitions, filings and other documents, and to obtain all necessary
permits, consents, orders, approvals and authorizations of, or any exemption by,
all third Persons required to consummate the transactions contemplated by this
Agreement and the other Transaction Documents.

8.11 Confidentiality. Each party to this Agreement will hold, and will cause its
respective Affiliates and their directors, officers, employees, agents,
consultants and advisors to hold, in strict confidence, unless disclosure to a
regulatory authority is necessary or appropriate in connection with any
necessary regulatory approval or unless disclosure is required by judicial or
administrative process or, in the written opinion of its counsel, by other
requirement of Law or the applicable requirements of any regulatory agency or
relevant stock exchange, all non-public records, books, contracts, instruments,
computer data and other data and information (collectively, “Information”)
concerning the other party furnished to it by such other party or its
representatives (except to the extent that such information can be shown to have
been (a) previously known by such party on a non-confidential basis, (b) in the
public domain through no fault of such party or (c) later lawfully acquired from
other sources on a non-confidential basis by the party to which it was
furnished), and neither party shall release or disclose such Information to any
other person, except its auditors, attorneys, financial advisors, other
consultants and advisors. Upon the Closing, the foregoing provisions shall
supersede the terms of each of the Confidentiality Agreement dated as of
November 18, 2011, by and between the Company and TPG Capital, L.P., as amended,
and the Mutual Confidentiality Agreement dated as of November 18, 2011, by and
between the Company and TPG Capital, L.P., as amended, each of which shall, as
of the Closing, be terminated and no longer of any force or effect.

9. Miscellaneous.

9.1 Governing Law. This Agreement shall be governed in all respects by the Laws
of the State of New York without regard to any choice of Laws or conflict of
Laws provisions that would require the application of the Laws of any other
jurisdiction.

9.2 Jurisdiction; Enforcement. The parties agree that irreparable damage would
occur if any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that each of the parties shall be entitled (in addition to
any other remedy that may be available to it, including monetary damages) to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement exclusively in any state
or federal courts located in the City of New York and any appellate court
therefrom within the State of New York. In addition, each of the parties
irrevocably agrees that any legal action or proceeding with respect to this
Agreement and the rights and obligations arising hereunder, or for recognition
and

 

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enforcement of any judgment in respect of this Agreement and the rights and
obligations arising hereunder brought by the other party or its successors or
assigns, shall be brought and determined exclusively in any state or federal
courts located in the City of New York and any appellate court therefrom within
the State of New York. The parties further agree that no party to this Agreement
shall be required to obtain, furnish or post any bond or similar instrument in
connection with or as a condition to obtaining any remedy referred to in this
Section and each party waives any objection to the imposition of such relief or
any right it may have to require the obtaining, furnishing or posting of any
such bond or similar instrument. Each of the parties hereby irrevocably submits
with regard to any such action or proceeding for itself and in respect of its
property, generally and unconditionally, to the personal jurisdiction of the
aforesaid courts and agrees that it will not bring any action relating to this
Agreement or any of the transactions contemplated by this Agreement in any court
other than the aforesaid courts. Each of the parties hereby irrevocably waives,
and agrees not to assert, by way of motion, as a defense, counterclaim or
otherwise, in any action or proceeding with respect to this Agreement, (a) any
claim that it is not personally subject to the jurisdiction of the above named
courts for any reason other than the failure to serve in accordance with this
Section, (b) any claim that it or its property is exempt or immune from
jurisdiction of any such court or from any legal process commenced in such
courts (whether through service of notice, attachment prior to judgment,
attachment in aid of execution of judgment, execution of judgment or otherwise)
and (c) to the fullest extent permitted by the applicable Law, any claim that
(i) the suit, action or proceeding in such court is brought in an inconvenient
forum, (ii) the venue of such suit, action or proceeding is improper or
(iii) this Agreement, or the subject matter hereof may not be enforced in or by
such courts. Each party hereby consents to service being made through the notice
procedures set forth in Section 9.8 and agrees that service of any process,
summons, notice or document by registered mail (return receipt requested and
first-class postage prepaid) to the respective addresses set forth in
Section 9.8 shall be effective service of process for any suit or proceeding in
connection with this Agreement or the transactions contemplated by this
Agreement. EACH OF THE PARTIES KNOWINGLY, INTENTIONALLY AND VOLUNTARILY WITH AND
UPON THE ADVICE OF COMPETENT COUNSEL IRREVOCABLY WAIVES ANY AND ALL RIGHT TO
TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

9.3 Survival. Each of the representations and warranties in this Agreement shall
survive the Closing until the later of (a) the first (1st) anniversary of the
Closing Date and (b) the date that is thirty (30) days after the filing of the
Company’s Annual Report on Form 10-K with respect to the fiscal year ending on
December 31, 2012, and any claim by a party under this Agreement with respect to
a breach of such representations and warranties shall be brought no later than
the later of the dates specified in clauses (a) and (b) above.

9.4 Successors and Assigns. Except as otherwise provided in this Agreement, the
provisions of this Agreement shall inure to the benefit of and be binding upon,
the successors, assigns, heirs, executors, and administrators of the parties;
provided, however, the rights of the Investors under this Agreement shall not be
assignable to any Person without the consent of the Company.

 

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9.5 No Third-Party Beneficiaries. Notwithstanding anything contained in this
Agreement to the contrary, nothing in this Agreement, expressed or implied, is
intended to confer on any Person other than the parties any rights, remedies,
obligations or liabilities under or by reason of this Agreement, and no Person
that is not a party to this Agreement (including any partner, member,
stockholder, director, officer, employee or other beneficial owner of any party,
in its own capacity as such or in bringing a derivative action on behalf of a
party) shall have any standing as third-party beneficiary with respect to this
Agreement or the transactions contemplated by this Agreement.

9.6 No Personal Liability of Directors, Officers, Owners, Etc. No director,
officer, employee, incorporator, stockholder, managing member, member, general
partner, limited partner, principal or other agent of any of the Investors or
the Company shall have any liability for any obligations of the Investors or the
Company, as applicable, under this Agreement or for any claim based on, in
respect of or by reason of the respective obligations of the Investors or the
Company, as applicable, under this Agreement. Each party hereby waives and
releases all such liability. This waiver and release is a material inducement to
each party’s entry into this Agreement.

9.7 Entire Agreement. This Agreement and the other documents delivered pursuant
to this Agreement, including the Stockholders Agreement and the Management
Services Agreement, constitute the full and entire understanding and agreement
among the parties with regard to the subjects hereof and thereof.

9.8 Notices. Except as otherwise provided in this Agreement, all notices,
requests, claims, demands, waivers and other communications required or
permitted under this Agreement shall be in writing and shall be mailed by
reliable overnight delivery service or delivered by hand, facsimile or messenger
as follows:

 

if to the Company:

   Parkway Properties, Inc.
390 North Orange Avenue
Bank of America Center, Suite 2400
Orlando, Florida 32801
Attention: James R. Heistand
Facsimile: (407) 650-0597

with a copy to:

   Hogan Lovells US LLP
555 13th Street NW
Washington, DC 20004
Attention: David W. Bonser
Facsimile: (202) 637-5910

if to the Investors:

  

c/o TPG Global, LLC

301 Commerce St, Suite 3300

Fort Worth, Texas 76102
Attention: General Counsel
Facsimile: (817) 871-4001

 

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with a copy to:   

Ropes & Gray LLP
Prudential Tower

800 Boylston Street
Boston, MA 02199

Attention: Alfred O. Rose
Facsimile: (617) 325-0096

   Ropes & Gray LLP
1211 Avenue of the Americas
New York, NY 10036
Attention: Carl Marcellino
Facsimile: (646) 728-1523

or in any such case to such other address, facsimile number or telephone as
either party may, from time to time, designate in a written notice given in a
like manner. Notices shall be deemed given when actually delivered by overnight
delivery service, hand or messenger, or when successfully transmitted by
facsimile if promptly confirmed or a confirming copy is delivered by overnight
delivery service, hand or messenger.

9.9 Delays or Omissions. No delay or omission to exercise any right, power, or
remedy accruing to any party under this Agreement shall impair any such right,
power, or remedy of such party, nor shall it be construed to be a waiver of or
acquiescence to any breach or default, or in any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default. All remedies, either under this
Agreement or by Law or otherwise afforded to any holder, shall be cumulative and
not alternative.

9.10 Termination. In the event that the Closing has not occurred by
August 1, 2012, this Agreement may be terminated by either of the parties
hereto, in which event it shall immediately become null and void and shall be of
no further force or effect, and all rights and liabilities of the parties
hereunder shall terminate without any liability of any party to any other party,
except for liabilities arising in respect of breaches under this Agreement by
any party prior to such termination and that the obligations set forth in
Sections 1, 8.8 and 8.11 of this Agreement and Article 9 of this Agreement shall
survive such termination.

9.11 Amendments and Waivers. Any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), only if such
amendment or waiver is in writing and signed, in the case of an amendment, by
the Company and the Investors or, in the case of a waiver, by the party against
whom the waiver is to be effective. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each holder of any
securities purchased under this Agreement at the time outstanding (including
securities into which such securities are convertible), each future holder of
all such securities, and the Company.

9.12 Counterparts. This Agreement may be executed in any number of counterparts
and signatures may be delivered by facsimile or in electronic format, each of
which may be executed by less than all the parties, each of which shall be
enforceable against the parties actually executing such counterparts and all of
which together shall constitute one instrument. If any signature is delivered by
facsimile transmission, such signature shall create a valid and binding
obligation of the party executing (or on whose behalf the signature is executed)
with the same force and effect as if such facsimile signature were an original
thereof.

 

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9.13 Severability. If any provision of this Agreement becomes or is declared by
a court of competent jurisdiction to be illegal, unenforceable, or void,
portions of such provision, or such provision in its entirety, to the extent
necessary, shall be severed from this Agreement and the balance of this
Agreement shall be enforceable in accordance with its terms. Upon such a
declaration by a court of competent jurisdiction, the parties shall use their
respective commercially reasonable efforts to negotiate in good faith to modify
this Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner in order that the transactions contemplated by
this Agreement to be consummated as originally contemplated to the fullest
extent possible.

9.14 Titles and Subtitles; Interpretation. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement. When a reference is made in this
Agreement to an Article, Section, Schedule or Exhibit, such reference shall be
to an Article, Section, Schedule or Exhibit of this Agreement unless otherwise
indicated. Whenever the words “include,” “includes” or “including” are used in
this Agreement, they shall be deemed to be followed by the words “without
limitation.” The terms “hereof”, “herein”, “hereby” and derivative or similar
words refer to this Agreement as a whole and not to any particular provision of
this Agreement. Except when used together with the word “either” or otherwise
for the purpose of identifying mutually exclusive alternatives, the term “or”
has the inclusive meaning represented by the phrase “and/or.” The terms “shall”
and “will” mean “must,” and shall and will have equal force and effect and
express an obligation. The definitions contained in this Agreement are
applicable to the singular as well as the plural forms of such terms and to the
masculine as well as to the feminine and neuter genders of such term. Any
agreement, instrument or statute defined or referred to in this Agreement means
such agreement, instrument or statute as from time to time amended, modified or
supplemented, including (in the case of agreements or instruments) by waiver or
consent and (in the case of statutes) by succession of comparable successor
statutes. The term “party” or “parties” shall mean a party to or the parties to
this Agreement unless the context requires otherwise. Each of the parties has
participated in the drafting and negotiation of this Agreement. If an ambiguity
or question of intent or interpretation arises, this Agreement shall be
construed as if it is drafted by each of the parties, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of
authorship of any of the provisions of this Agreement. All references in this
Agreement to “dollars” or “$” shall mean United States dollars. Any period of
time hereunder ending on a day that is not a Business Day shall be extended to
the next Business Day. The word “day”, unless otherwise indicated, shall be
deemed to refer to a calendar day.

[The remainder of this page has been intentionally left blank.]

 

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.

 

COMPANY: PARKWAY PROPERTIES, INC. By:   /s/ James Heistand Name:   James
Heistand Title:   Chief Executive Officer

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.

 

INVESTORS: TPG VI PANTERA HOLDINGS, L.P. By: TPG Genpar VI Delfir AIV, L.P., its
general partner By: TPG Genpar VI Delfir AIV Advisors, LLC, its general partner
By:   /s/ Ronald Cami Name:   Ronald Cami Title:   Vice President

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Annex 1

Investors

 

Investor

   Jurisdiction of
Organization or
Formation      # Shares of Series E
Preferred Stock      # Shares of Common
Stock  

TPG VI Pantera Holdings, L.P.

     Delaware         13,477,778         4,300,000   

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Exhibit A

Stockholders Agreement

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STOCKHOLDERS AGREEMENT

This STOCKHOLDERS AGREEMENT is entered into as of [•], 2012, by and among TPG VI
Pantera Holdings, L.P., a Delaware limited partnership (“TPG”), and Parkway
Properties, Inc., a Maryland corporation (the “Company”).

WHEREAS, TPG and the Company have entered into that certain Securities Purchase
Agreement, dated as of May 3, 2012 (as it may be amended, restated, or otherwise
modified from time to time, and together with all exhibits, schedules, and other
attachments thereto, the “Purchase Agreement”), pursuant to, and subject to the
terms and conditions of which, the Company is selling, and TPG is purchasing, on
the date hereof, four million three hundred thousand (4,300,000) shares of
Common Stock of the Company and thirteen million, four hundred seventy seven
thousand, seven hundred seventy eight (13,477,778) shares of Preferred Stock of
the Company;

WHEREAS, upon the consummation of the transactions contemplated by the Purchase
Agreement, TPG will Beneficially Own (as such term is defined herein) four
million three hundred thousand (4,300,000) shares of Common Stock of the Company
and thirteen million, four hundred seventy seven thousand, seven hundred seventy
eight (13,477,778) shares of Preferred Stock of the Company; and

WHEREAS, TPG and the Company desire to enter into this Agreement in order to
generally set forth their respective rights and responsibilities, and to
establish various arrangements and restrictions with respect to, among other
things, (a) actions that may or may not be undertaken in respect of the shares
of Common Stock and Preferred Stock Beneficially Owned by TPG, (b) the
governance of the Company, (c) certain registration rights with respect to the
Registrable Securities (as defined herein) and (d) other related matters with
respect to the Company.

NOW, THEREFORE, in consideration of the premises set forth above and of the
mutual representations, covenants, and obligations hereinafter set forth, and
for other good and valuable consideration, the receipt, sufficiency, and
adequacy of which is hereby acknowledged, the parties hereto, intending to be
legally bound, hereby agree as follows:

ARTICLE I

DEFINITIONS

Section 1.1 Certain Defined Terms

As used herein, the following terms shall have the following meanings:

“Affiliate” means, with respect to any Person, any other Person that directly,
or indirectly through one or more intermediaries, controls, is controlled by, or
is under common control with, such specified Person, including, with respect to
TPG, any Affiliated Fund of TPG; provided, however, that in no event shall
(a) any of the portfolio companies in which TPG’s Affiliates have an investment,
or (b) the Company, any of its Subsidiaries, or any of the Company’s other
controlled Affiliates be deemed to be Affiliates of TPG for purposes of this
Agreement; and provided, further, that no investment bank that may employ or
have as a partner a member of the Company Board shall be deemed to be an
“Affiliate” of TPG for purposes of this Agreement.

 

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“Affiliated Fund” shall mean, in the case of TPG, each corporation, trust,
limited liability company, general or limited partnership, or other Person with
whom TPG is under common control or to which TPG or an Affiliate of TPG is the
investment adviser.

“Agreement” means this Stockholders Agreement, as it may be amended, restated,
or otherwise modified from time to time, together with all exhibits, schedules,
and other attachments hereto.

“as-converted basis” means, with respect to the Company’s outstanding Common
Stock, on a basis in which all shares of Common Stock issuable upon conversion
of the Preferred Stock and conversion, exchange or exercise of any other
Security convertible into or exchangeable or exercisable for Common Stock,
whether or not the Preferred Stock or other convertible, exchangeable or
exercisable Security is then convertible, exchangeable or exercisable by the
holder, are assumed to be then outstanding.

“Beneficial Ownership” means, with respect to any Security, the ownership of
such Security by any “Beneficial Owner,” as such term is defined in Rule 13d-3
and Rule 13d-5 under the Exchange Act, except that, in calculating the
beneficial ownership of any particular “person” (as that term is used in
Section 13(d)(3) of the Exchange Act), such “person” will be deemed to have
beneficial ownership of all securities that such “person” has the right to
acquire by conversion or exercise of other securities, whether such right is
currently exercisable or is exercisable only after the passage of time. The
terms “Beneficially Own, “Beneficially Owned” and “Beneficial Owner” shall have
correlative meaning.

“Business Day” means any day that is not a Saturday, a Sunday, or any other day
on which banks are required or authorized by Law to be closed in the City of New
York, in the State of New York.

“Capital Stock” means, with respect to any Person at any time, any and all
shares, interests, participations, or other equivalents (however designated, and
whether voting or non-voting) of capital stock, partnership interests (whether
general or limited), limited liability company membership interests, or
equivalent ownership interests in, or issued by, such Person.

“Change of Control” means (i) a sale of all or substantially all of the direct
or indirect assets of the Company (including by way of any reorganization,
merger, consolidation or other similar transaction), (ii) a direct or indirect
acquisition of Beneficial Ownership of Voting Securities of the Company by
another Person or “group” (within the meaning of Rules 13d-3 and 13d-5 under the
Exchange Act), by means of any transaction or series of transactions (including
any reorganization, merger, consolidation, joint venture, share transfer or
other similar transaction), pursuant to which the stockholders of the Company
immediately preceding such transaction or transactions collectively own,
following the consummation of such transaction or transactions, less than fifty
percent (50%) of the Voting Securities of the Company or the surviving entity,
as the case may be, or (iii) the obtaining by any Person or “group” (within the
meaning of Rules 13d-3 and 13d-5 under the Exchange Act) of the power (whether
or not exercised) of the power to elect a majority of the members of the Company
Board (or similar governing body) of the Corporation.

 

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“Committee” has the meaning set forth in Section 2.1(b).

“Common Stock” means the Common Stock of the Company, par value $0.001 per
share.

“Company” has the meaning set forth in the Recitals hereto.

“Company Board” means the board of directors of the Company.

“Contracting Party” has the meaning set forth in Section 6.10.

“control” (including the terms “controlled by” and “under common control with”),
with respect to the relationship between or among two (2) or more Persons, means
the possession, directly or indirectly, of the power to direct, or cause the
direction of, the affairs or management of a Person, whether through the
ownership of voting securities, as trustee or executor, by contract, or by any
other means.

“Controlling Person” has the meaning set forth in Section 4.8(a).

“Convertible Securities” means any evidence of indebtedness, shares of Capital
Stock (other than Common Stock) or other Securities (including Options) that are
directly or indirectly convertible into, or otherwise exchangeable or
exercisable for, Shares.

“Damages” has the meaning set forth in Section 4.8(a).

“DCR” has the meaning set forth in Section 2.3.

“Debt” means, with respect to the Company and its subsidiaries, all liabilities,
including all obligations in respect of principal, accrued interest, penalties,
fees and premiums, for (a) indebtedness for borrowed money (including principal
and accrued interest), (b) indebtedness evidenced by notes, debentures, bonds or
other similar instruments (including principal and accrued interest),
(c) “earn-out” obligations and other obligations for the deferred purchase price
of property, goods or services (other than trade payables or accruals incurred
in the ordinary course of business), (d) indebtedness for payments arising in
respect of drawn letters of credit or bankers’ acceptances or secured by a
purchase money mortgage or other lien to secure all or part of the purchase
price of the property subject to such mortgage or lien, (e) liabilities and
obligations under capital leases (determined in accordance with GAAP), and
(f) indebtedness of third Persons which is directly or indirectly guaranteed by
the Company or any of its subsidiaries.

“Demand Registration” has the meaning set forth in Section 4.1(a).

“Director” means, with respect to any Person, any member of the board of
directors of such Person (other than any advisory, honorary or other non-voting
member of such board).

 

3

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“Equity Issuance” means any issuance, sale or placement of any Common Stock or
other Capital Stock of the Company or any of its subsidiaries, and any issuance,
sale or placement of any other Securities of the Company or any of its
subsidiaries that are convertible or exchangeable into Common Stock or other
Capital Stock of the Company or any of its subsidiaries; provided, however, that
no Permitted Issuance shall constitute or be deemed to constitute an “Equity
Issuance” for purposes of this Agreement.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, together
with all rules and regulations promulgated thereunder.

“FINRA” means the Financial Industry Regulatory Authority, Inc.

“Full Cooperation” means, in connection with any Underwritten Offering, where,
in addition to the cooperation otherwise required by this Agreement, members of
senior management of the Company (including the chief executive officer and
chief financial officer) fully cooperate with the underwriter(s) in connection
with all reasonable and customary recommendations and requests of such
underwriter(s), and make themselves available upon reasonable notice to
participate in due diligence meetings or calls, “road-show” and other reasonable
and customary marketing activities in such locations (domestic and foreign) as
recommended by the underwriter(s).

“GAAP” means United States generally accepted accounting principles in effect as
of the date hereof.

“Holder” means TPG and any Permitted Transferee that becomes a Holder pursuant
to Section 4.12.

“Indemnified Party” has the meaning set forth in Section 4.8(c).

“Indemnifying Party” has the meaning set forth in Section 4.8(c).

“Law” means any statue, law, regulation, ordinance, rule, injunction, order,
decree, directive, or any similar form of decision of, or determination by, any
governmental or self-regulatory authority.

“Mailing Date” has the meaning set forth in Section 2.1(a).

“Non-Recourse Party” has the meaning set forth in Section 6.10.

“NYSE” means the New York Stock Exchange and any successor thereto.

“Options” means any options, warrants, or other rights to subscribe for,
purchase, or otherwise acquire shares of Capital Stock of the Company (or any
successor thereto).

“Permitted Issuance” means (a) any issuance of Capital Stock upon the exercise
of Options outstanding as of the date of this Agreement and in accordance with
their terms as in effect on the date of this Agreement, (b) any issuance, sale
or authorization pursuant to the Company’s existing compensation arrangements
for its directors, officers, employees,

 

4

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consultants and agents, (c) any issuance, sale or authorization pursuant to any
future compensation arrangements for the Company’s directors, officers,
employees, consultants and agents that are approved by the Company’s
Compensation Committee, (d) any issuance, sale or placement of Capital Stock as
consideration in any acquisition transaction, including any Change of Control,
that has been approved by the Company Board, (e) any issuance of Preferred Stock
as a paid-in-kind dividend on the outstanding shares of Preferred Stock pursuant
to the terms of the articles supplementary establishing the Preferred Stock and
(f) any issuance of Common Stock upon a conversion of Series E Preferred Stock
pursuant to terms of the articles supplementary establishing the Preferred
Stock.

“Permitted Transferee” has the meaning set forth in Section 4.12.

“Person” means an individual, corporation, partnership, limited liability
company, association, trust, or other entity or organization, including any
governmental authority.

“Piggyback Registration” has the meaning set forth in Section 4.2(a).

“Preferred Stock” means the Series E Convertible Cumulative Redeemable Preferred
Stock of the Company, par value $.001 per share.

“Pro Rata Portion” means, with respect to TPG and its Affiliates at a given time
and with respect to a given Equity Issuance, a number of shares of Common Stock,
other Capital Stock or other Securities to be issued, sold or placed in the
Equity Issuance equal to the product of (a) the number of shares of Common
Stock, other Capital Stock or other Securities proposed to be issued, sold or
placed in the Equity Issuance, multiplied by (b) a fraction, the numerator of
which is the aggregate number of shares of Common Stock Beneficially Owned by
TPG and its Affiliates on an as-converted basis immediately prior to the Equity
Issuance, and the denominator of which is the aggregate number of shares of
outstanding Common Stock on an as-converted basis immediately prior to the
Equity Issuance.

“Purchase Agreement” has the meaning set forth in the Recitals hereto.

“Registrable Securities” means (a) at any time, the shares of Common Stock held
beneficially or of record by any of the Holders, including shares of Common
Stock (i) issued or issuable upon conversion of the Preferred Stock or
(ii) acquired by way of a dividend, stock split, recapitalization, plan of
reorganization, merger, sale of assets or otherwise and (b) from and after the
second (2nd) anniversary of the date hereof, the shares of Preferred Stock,
including shares of Preferred Stock acquired by way of a dividend, stock split,
recapitalization, plan of reorganization, merger, sale of assets or otherwise.
Registrable Securities shall continue to be Registrable Securities until
(x) they are sold pursuant to an effective Registration Statement under the
Securities Act or (y) they may be sold by their Holder without registration
under the Securities Act pursuant to Rule 144 (or any similar provision then in
force) without limitation thereunder on volume or manner of sale or other
restrictions under Rule 144.

“Registration Statement” means any registration statement filed by the Company
under the Securities Act that covers any of the Registrable Securities,
including a prospectus, amendment and supplements thereto, and all exhibits and
material incorporated by reference therein.

 

5

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“Rule 144” means Rule 144 promulgated under the Securities Act or any successor
federal statute, rules, or regulations thereto, and in the case of any
referenced section of any such statute, rule, or regulation, any successor
section thereto, collectively as from time to time amended and in effect.

“SEC” means the Securities and Exchange Commission.

“Securities” means Capital Stock, limited partnership interests, limited
liability company interests, beneficial interests, warrants, options, restricted
stock units, notes, bonds, debentures, and other securities, equity interests,
ownership interests and similar obligations of every kind and nature of any
Person.

“Securities Act” means the Securities Act of 1933 or any successor federal
statute, and the rules and regulations of the Securities and Exchange Commission
thereunder, and in the case of any referenced section of any such statute, rule
or regulation, any successor section thereto, collectively and as from time to
time amended and in effect.

“Shares” means (a) all shares of the Capital Stock of the Company originally
issued to, or issued with respect to shares originally issued to, or held by, a
stockholder of the Company, whenever issued, including all shares of the Company
issued upon the exercise, conversion, or exchange of any Convertible Securities
and (b) all Convertible Securities originally granted or issued to, or held by,
any stockholder (treating such Convertible Securities as a number of shares
equal to the number of shares of the Company for which such Convertible
Securities may be converted or exercised, for all purposes of this Agreement,
except as otherwise set forth herein).

“Suspension Notice” has the meaning set forth in Section 4.6(a).

“Stockholder Approval” means the affirmative vote of holders of a majority of
the Common Stock present or represented and entitled to vote at a meeting of
stockholders of the Company (other than Common Stock held by TPG and its
Affiliates) of certain matters related to the transactions contemplated this
Agreement and the Purchase Agreement, including without limitation the matters
set forth in Section 2.1(b) and Section 3.1(a) hereof that are conditioned on
such approval.

“Stockholders Meeting” has the meaning set forth in Section 3.1.

“TPG Nominated Directors” has the meaning set forth in Section 2.1(a).

“Underwriters’ Maximum Number” means, for any Demand Registration or Piggyback
Registration, that number of securities to which such registration should, in
the opinion of the managing underwriter(s) of such registration, in light of
marketing factors, be limited.

“Underwritten Offering” has the meaning set forth in Section 4.12.

“Voting Securities” means at any time shares of any class of Capital Stock or
other Securities of the Company that are then entitled to vote generally in the
election of Directors and not solely upon the occurrence and during the
continuation of certain specified events, and any Convertible Securities that
may be converted into, exercised for, or otherwise exchanged for such shares of
Capital Stock.

 

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Section 1.2 Other Definitional Provisions. When used in this Agreement, the
words “hereof,” “herein,” and “hereunder,” and words of similar import shall
refer to this Agreement as a whole and not to any particular provision of this
Agreement, and Article and Section references are to this Agreement unless
otherwise specified. The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms. Whenever the
words “include,” “includes,” or “including” are used in this Agreement, they
shall be deemed to be followed by the words “without limitation.”

ARTICLE II

GOVERNANCE

Section 2.1 TPG’s Representation on Company Board.

(a) Upon the Closing (as defined in the Purchase Agreement), if the number of
members constituting the Company Board is other than nine (9), the Company Board
shall promptly be reconstituted such that the number of members constituting the
Company Board shall be nine (9), subject to increase or decrease by the Company
Board from time-to-time, in accordance with the certificate of incorporation and
bylaws of the Company and this Agreement. Upon the Closing (as defined in the
Purchase Agreement), the Company shall promptly cause four (4) persons
designated by TPG to be appointed to the Company Board in the manner provided in
the Company’s governing documents for filling vacancies on the Company Board.
Following the Closing, subject to Section 2.1(f), for any meeting (or consent in
lieu of a meeting) of the Company’s stockholders for the election of members of
the Company Board, (i) so long as TPG, together with its Affiliates,
Beneficially Owns as of the date of mailing of the Company’s definitive proxy
statement in connection with such meeting (the “Mailing Date”) at least forty
percent (40%) of the outstanding Common Stock on an as-converted basis, the
Company shall include four (4) persons designated by TPG as members of the slate
of Company Board nominees proposed by the Company Board for election by the
Company’s stockholders and, subject to the Company Board’s fiduciary duties,
shall recommend that the Company’s stockholders vote in favor of the election of
all four (4) such nominees, (ii) so long as TPG, together with its Affiliates,
Beneficially Owns as of the Mailing Date at least thirty percent (30%), but less
than forty percent (40%), of the outstanding Common Stock on an as-converted
basis, the Company shall include three (3) persons designated by TPG as members
of the slate of Company Board nominees proposed by the Company Board for
election by the Company’s stockholders and, subject to the Company Board’s
fiduciary duties, shall recommend that the Company’s stockholders vote in favor
of the election of all three (3) such nominees, (iii) so long as TPG, together
with its Affiliates, Beneficially Owns as of the Mailing Date at least fifteen
percent (15%), but less than thirty percent (30%), of the outstanding Common
Stock on an as-converted basis, the Company shall include two (2) persons
designated by TPG as members of the slate of Company Board nominees proposed by
the Company Board for election by the Company’s stockholders and, subject to the
Company Board’s fiduciary duties, shall recommend that the Company’s
stockholders vote in favor of the election of both such nominees, (iv) so long
as TPG, together with its Affiliates, Beneficially Owns as of the Mailing Date
at least five percent (5%), but less than fifteen percent (15%), of the
outstanding Common Stock on an as-converted

 

7

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basis, the Company shall include one (1) person designated by TPG as a member of
the slate of Company Board nominees proposed by the Company Board for election
by the Company’s stockholders and, subject to the Company Board’s fiduciary
duties, shall recommend that the Company’s stockholders vote in favor of the
election of such nominee, and (v) if TPG, together with its Affiliates,
Beneficially Owns as of the Mailing Date less than five percent (5%) of the
outstanding Common Stock on an as-converted basis, the Company shall not be
required to include any persons designated by TPG as members of the slate of
Company Board nominees. The members of the Company Board nominated or elected
pursuant to this Section 2.1(a) are referred to herein at the “TPG Nominated
Directors.” The Company Board shall not withdraw any nomination or, subject to
the Company Board’s fiduciary duties, recommendation required under this
Section 2.1(a), unless TPG delivers to the Company Board a written request for
such withdrawal. Further, (i) for any meeting (or consent in lieu of a meeting)
of the Company’s stockholders for the election of members of the Company Board,
the Company Board shall not nominate, in the aggregate, a number of nominees
greater than the number of members of the Company Board, (ii) subject to the
Company Board’s fiduciary duties, the Company Board shall not recommend the
election of any other person to a position on the Company Board for which a TPG
Nominated Director has been nominated, and (iii) the Company shall use
commercially reasonable efforts to cause each TPG Nominated Director to be
elected to the Company Board. If elected to the Company Board, each TPG
Nominated Director will hold his or her office as a member of the Company Board
for such term as is provided in the articles of incorporation and bylaws of the
Company, or until his or her death, resignation or removal from the Company
Board or until his or her successor has been duly elected and qualified in
accordance with the provisions of this Agreement, the articles of incorporation
and bylaws of the Company, and applicable Law.

(b) Upon the Closing (as defined in the Purchase Agreement), the Company shall
promptly cause each committee of the Company Board (each, a “Committee”) to be
comprised of not more than four (4) members. Upon the Closing (as defined in the
Purchase Agreement), the Company shall promptly cause two (2) TPG Nominated
Directors designated by TPG to be appointed to each Committee. Following such
appointment(s), (i) so long as TPG, together with its Affiliates, Beneficially
Owns at least twenty two and a half percent (22.5%) of the outstanding Common
Stock on an as-converted basis, the Company Board shall include two (2) TPG
Nominated Directors designated by TPG on each Committee; (ii) so long as TPG,
together with its Affiliates, Beneficially Owns at least five percent (5%), but
less than twenty two and a half percent (22.5%), of the outstanding Common Stock
on an as-converted basis, the Company Board shall include one (1) TPG Nominated
Director designated by TPG on each Committee; and (iii) if TPG, together with
its Affiliates, Beneficially Owns less than five percent (5%) of the outstanding
Common Stock on an as-converted basis, the Company Board shall not be required
to include any persons designated by TPG on any Committee. For so long as TPG
has the right to designate at least one (1) TPG Nominated Director to serve on
the Committees, (x) the Company Board shall maintain a committee called the
Investment Committee, the rights and responsibilities of which shall include
those described on Exhibit A hereto (the “Investment Committee”), and a
committee called the Compensation Committee, the rights and responsibilities of
which shall include those described on Exhibit B hereto (the “Compensation
Committee”), (y) each Committee may only take action with the affirmative vote
of at least a majority of its members and (z) (A) the Company Board will not
authorize, and the Company Board will not cause to be taken, any action
described on Exhibit A or in clause (ii) of Exhibit B

 

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hereto, as the case may be, absent the affirmative approval of the Investment
Committee or the Compensation Committee, as the case may be, and (B) subject to
and only following the receipt of Stockholder Approval, the Company Board will
not authorize, and the Company Board will not cause to be taken, any action
described in clause (i) of Exhibit B hereto absent the affirmative approval of
the Compensation Committee. Furthermore, for so long as TPG has the right to
designate at least one (1) TPG Nominated Director to serve on the Committees, if
to the extent that any TPG Nominated Director is not permitted to serve on the
Compensation Committee for any reason, including pursuant to Section 2.1(f) or
Section 2.1(g) below, the Company Board shall create a new Committee in
accordance with this Section 2.1(b), that includes the requisite number of TPG
Nominated Directors, and that has the rights and responsibilities described on
Exhibit B hereto. Any such Committee may only take action with the affirmative
vote of at least a majority of its members and (x) the Company Board will not
authorize, and the Company will not cause to be taken, any action described in
clause (ii) of Exhibit B hereto absent the affirmative approval of such action
by such Committee, and (y) subject to and only following receipt of Stockholder
Approval, the Company Board will not authorize, and the Company Board will not
cause to be taken, any action described in clause (i) of Exhibit B hereto absent
the affirmative approval of the Compensation Committee.

(c) If TPG’s, together with its Affiliates’, Beneficial Ownership of outstanding
Common Stock on an as-converted basis falls below any percentage threshold set
forth in Section 2.1(a) or Section 2.1(b) above, TPG shall promptly cause one or
more, as applicable, of the TPG Nominated Directors to resign from the Company
Board and any Committees on which such TPG Nominated Directors serve, as
applicable, such that the remaining number of TPG Nominated Directors on the
Company Board or such Committees, as applicable, does not exceed the number that
TPG is then entitled to designate for nomination or appointment pursuant to the
terms and conditions of Section 2.1(a) and Section 2.1(b) above, and the number
of directors that TPG shall be entitled to designate for nomination shall
forever be reduced to such number of TPG Nominated Directors serving on the
Company Board immediately after such resignation(s) (even if TPG or its
Affiliates shall subsequently acquire additional shares of Common Stock or
Series E Preferred Stock). In addition, TPG shall cause any TPG Nominated
Director to resign from the Company Board and any Committees on which such TPG
Nominated Director serves if such TPG Nominated Director, as determined by the
Company Board in good faith after consultation with outside legal counsel,
(i) is prohibited or disqualified from serving as a director of the Company or a
member of any such Committees under any rule or regulation of the SEC, the NYSE
or by applicable Law, (ii) has engaged in acts or omissions constituting a
breach of the TPG Nominated Director’s duty of loyalty to the Company and its
stockholders, (iii) has engaged in acts or omissions that involve intentional
misconduct or an intentional violation of Law or (iv) has engaged in any
transaction involving the Company from which the TPG Nominated Director derived
an improper personal benefit that was not disclosed to the Company Board prior
to the authorization of such transaction; provided, however, that, subject to
the limitations set forth in Section 2.1(a) and Section 2.1(b), TPG shall have
the right to replace such resigning TPG Nominated Director with a new TPG
Nominated Director, such newly named TPG Nominated Director to be appointed
promptly to the Company Board in place of the resigning TPG Nominated Director
in the manner set forth in the Company’s governing documents for filling
vacancies on the Company Board. Nothing in this paragraph (c) or elsewhere in
this Agreement (except Section 2.1(e)) shall confer any third-party beneficiary
or other rights upon any person designated hereunder as a TPG Nominated
Director, whether during or after such person’s service on the Company Board.

 

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(d) For so long as TPG has the right to designate at least one (1) TPG Nominated
Director for nomination to the Company Board pursuant to Section 2.1(a) above,
the Company Board shall (i) fill vacancies created by reason of death, removal
or resignation of any TPG Nominated Director promptly upon request by TPG and
only as directed by TPG, subject to the terms and conditions set forth in
Section 2.1(a) above and Sections 2.1(f) and 2.1(g) below, and (ii) fill
vacancies created by reason of death, removal or resignation of any director who
is not a TPG Nominated Director (a “Non-TPG Director”) promptly upon request by
the Non-TPG Directors and only as directed by the Non-TPG Directors; provided,
however, that any such director designated by the Non-TPG Directors shall, as a
condition precedent to his or her nomination, meet each of the requirements set
forth in clauses (i) – (iv) of Section 2.1(f) below (it being understood that,
for the purposes hereof, the word “TPG” appearing in clause (i) thereof shall be
replaced with the words “the Non-TPG Directors”), other than, in the case of any
non-independent or management director, the requirements of clause
(iii) thereof. Further, for so long as TPG has the right to designate at least
one (1) TPG Nominated Director for appointment to any Committee pursuant to
Section 2.1(b) above, the Company Board shall appoint and remove the TPG
Nominated Directors as members of any such Committee promptly upon request by
TPG and only as directed by TPG, and shall fill vacancies created by reason of
death, removal or resignation of any TPG Nominated Director promptly upon
request by TPG and only as directed by TPG, subject to the terms and conditions
set forth in Section 2.1(b) and 2.1(c) above and Sections 2.1(f) and 2.1(g)
below. So long as TPG has promptly named a replacement, following any death,
removal or resignation of any TPG Nominated Director, and prior to any the
appointment of such replacement in accordance with this Agreement, the Company
Board agrees not to authorize or take, and agrees to cause each Committee not to
authorize or take, any action that would otherwise require the consent of a TPG
Nominated Director until such time as such newly named TPG Nominated Director
has been so appointed to the Board or such Committee.

(e) Each TPG Nominated Director that is elected to the Company Board shall be
indemnified by the Company and its subsidiaries, if applicable, in connection
with his or her service as a member of the Company Board or any Committee to the
fullest extent permitted by law and will be exculpated from liability for
damages to the fullest extent permitted by law. Without limiting the foregoing
in this Section 3.1(e), each TPG Nominated Director who is elected to the
Company Board shall be entitled to receive from the Company and its
subsidiaries, if applicable, the same insurance coverage in connection with his
or her service as a member of the Company Board and any Committee as is provided
for each of the other members of the Company Board or Committee, as applicable.

(f) TPG shall only designate a person to be a TPG Nominated Director (i) who TPG
believes in good faith has the requisite skill and experience to serve as a
director of a publicly-traded company, (ii) who is not prohibited from or
disqualified from serving as a director of the Company pursuant to any rule or
regulation of the SEC, the NYSE or applicable Law, (iii) who meets the
independence standards set forth in Section 303A.02(b) of the NYSE Listed
Company Manual and (iv) with respect to which no event required to be disclosed
pursuant to Item 401(f) of Regulation S-K of the 1934 Act has occurred.
Notwithstanding

 

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anything to the contrary in this Section 2.1, the parties hereto agree that
members of the Company Board shall retain the right to object to the nomination,
election or appointment of any TPG Nominated Director for service on the Company
Board or any Committee if the members of the Company Board determine in good
faith, after consultation with outside legal counsel, that such TPG Nominated
Director fails to meet the criteria set forth above or, with respect to any TPG
Nominated Director to be appointed to the Company’s Audit Committee, Governance
Committee or Compensation Committee, any other rule or regulation of the SEC,
the NYSE or applicable Law that applies to members of a company’s audit
committee, governance committee or compensation committee (including for
purposes of Section 16 of the Exchange Act and Section 162(m) of the Internal
Revenue Code of 1986, as amended (the “Code”)). In the event that the members of
the Company Board object to the nomination, election or appointment of any TPG
Nominated Director to the Company Board or any Committee pursuant to the terms
of this Section 2.1(f), the Company Board shall nominate or appoint, as
applicable, another individual designated by TPG as the TPG Nominated Director
nominated for election to the Company Board or appointed to the Committee, as
applicable, that meets the criteria set forth in this Section 2.1(f) and
Section 2.1(g).

(g) Notwithstanding anything to the contrary in this Section 2.1, nothing shall
prevent the Company Board from acting in accordance with their respective
fiduciary duties or applicable Law or stock exchange requirements. The Company
Board shall have no obligation to nominate, elect or appoint any TPG Nominated
Director if such nomination, election or appointment would violate applicable
Law or NYSE requirements or result in a breach by the Company Board of its
fiduciary duties to its stockholders; provided, however, that the foregoing
shall not affect the right of TPG to designate an alternative individual as the
TPG Nominated Director nominated for election to the Company Board or appointed
to the Committee, as applicable, subject to the other terms, conditions and
provisions in this Article II.

(h) For purposes of calculating the Beneficial Ownership of the Company’s
outstanding Common Stock owned by TPG and its Affiliates on an as-converted
basis pursuant to this Article II, to the extent shares of the Company’s Capital
Stock are issued or become issuable under any outstanding equity award, the
vesting of which remains contingent on the satisfaction of any performance goals
under such award that have yet to be achieved (and whether or not such goals are
deemed to be satisfied as a result of the transactions contemplated by the
Purchase Agreement), such shares shall be deemed to be not outstanding and shall
be excluded from the denominator in such calculation.

(i) The rights of TPG set forth in this Section 2.1 shall be in addition to, and
not in limitation of, such voting rights that TPG may otherwise have as a holder
of capital stock of the Company, subject to Section 5.1 below.

Section 2.2 Consent Rights.

(a) For so long as TPG, together with its Affiliates, Beneficially Owns at least
twenty two and a half percent (22.5%) of the outstanding Common Stock on an
as-converted basis, prior written consent of TPG will be required for:

(i) Any modification or amendment of the Company’s or any of its subsidiaries’
articles of incorporation, bylaws, operating agreement or similar organizational
documents (whether by merger, consolidation or otherwise), including the
reclassification of any shares of capital stock), as applicable, in any manner
adverse to TPG;

 

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(ii) Any (A) voluntary liquidation, dissolution or winding-up of the business
and affairs of the Company or any of its subsidiaries, (B) any filing of any
bankruptcy petition or assignment for the benefit of creditors generally,
(C) any commencement of any voluntary proceeding that seeks reorganization or
other relief under any bankruptcy or similar Law, (D) any seeking of the
appointment of a trustee, receiver, custodian or other similar official with
respect to the Company or any of its subsidiaries or any substantial part of the
Company’s or any of its subsidiaries’ property, (E) any consent to any
involuntary bankruptcy or similar proceeding, and (F) any authorization,
approval, adoption or giving effect to any resolution or agreement or plan of
voluntary liquidation, dissolution or winding-up of the Company or any of its
subsidiaries;

(iii) Any decision by the Company Board to cause the Company not to elect to
qualify as a real estate investment trust under the Code;

(iv) Any increase or decrease of the size of the Company Board or any Committee;

(v) Any change in the rights and responsibilities of either the Investment
Committee or the Compensation Committee (or any additional Committee created in
accordance with the last sentence of Section 2.1(b)) as set forth in Exhibit A
or Exhibit B, as applicable (other than as expressly contemplated hereby); and

(b) Notwithstanding the foregoing, the consent rights set forth in paragraph
(a) above shall not apply, and TPG’s prior written consent shall not be required
for any actions taken or to be taken, in connection with a Change of Control of
the Company so long as the holders of the Preferred Stock are entitled, in
connection with the consummation of such Change of Control, to exercise their
rights under Section 4(b) of the articles supplementary establishing the
Preferred Stock. The rights of TPG and its Affiliates set forth in this
Section 3.2 shall be in addition to, and not in limitation of, such voting
rights that TPG and its Affiliates may otherwise have as holders of capital
stock of the Company, subject to Section 5.1.

Section 2.3 Domestically Controlled Status. The Company shall, at least once in
each calendar year, and, upon the prior request of TPG, one additional time
within such calendar year, determine whether the Company is a “domestically
controlled qualified investment entity” within the meaning of Section 897(h)(4)
of the Code (a “DCR”); provided, however, that such examination shall be limited
to information filed publicly with the SEC with respect to the ownership of
stock of the Company (i.e., Schedules 13) and any information related to the
ownership of the Company provided by TPG, and that the Company shall not be
required to take any action (or to not take any action) so as to be treated as a
DCR at any given time; provided, further, that TPG shall not request that the
Company conduct an examination within 180 days prior to the Company’s completion
of its most recent prior examination.

 

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ARTICLE III

PRE-EMPTIVE RIGHTS

Section 3.1 Pre-Emptive Rights.

(a) For so long as TPG, together with its Affiliates, Beneficially Owns at least
ten percent (10%) of the outstanding Common Stock on an as-converted basis, TPG
or one or more TPG Affiliates designated by TPG shall have the option and right
(but not the obligation) to participate (or nominate any of TPG’s Affiliates to
participate) in any Equity Issuance by purchasing in the aggregate up to TPG’s
and its Affiliates’ Pro Rata Portion of such Equity Issuance at the same price
and the same terms and conditions as offered to other investors in the Equity
Issuance; provided, that:

(i) if the Company’s stockholders (excluding TPG) have not approved the
conversion of the Preferred Stock, TPG shall (at its option (and in lieu of the
rights to which TPG would have otherwise been entitled had the conversion of the
Preferred Stock been approved)) have the right to purchase a number of shares of
Preferred Stock having, in the aggregate, a Liquidation Preference (as such term
is defined in the articles supplementary establishing such Preferred Stock)
equal to the aggregate value of the Pro Rata Portion of such Equity Issuance
that TPG would have (had the conversion of the Preferred Stock been approved)
otherwise been entitled to purchase, and

(ii) if the Company’s stockholders (excluding TPG) have not approved the
pre-emptive rights granted pursuant to this Section 3.1 at least once in the
preceding five (5) years and the rules of the NYSE, at the time of such proposed
Equity Issuance, requires such an approval, TPG’s option and right to
participate (or nominate any of TPG’s Affiliates to participate) in any Equity
Issuance consisting of Common Stock or Securities convertible into or
exercisable for Common Stock shall be limited to an amount that shall not exceed
one percent (1%) of the number of shares of Common Stock or one percent (1%) of
the voting power of the Common Stock outstanding before the Equity Issuance (or
such other amount as the NYSE may then require); provided, that the foregoing
limitation shall not limit the rights of TPG set forth in Section 3.1(a)(i) to
acquire up to their Pro Rata Portion of such Equity Issuance in the form of
Series E Preferred Stock.

The Company agrees to use its reasonable best efforts to take any and all
action, or to cause such action to be taken, as is necessary or appropriate to
allow TPG or its Affiliate(s), as applicable, to fully participate in any Equity
Issuance in accordance with the provisions of this Agreement. The Company
further agrees to use reasonable best efforts to call and hold a meeting of the
stockholders of the Company for the purpose of obtaining the Stockholder
Approval with respect to the pre-emptive rights granted pursuant to this
Section 3.1 (such a meeting, a “Stockholders Meeting”) as provided in
Section 8.2 of the Purchase Agreement and at least once during each five
(5) year period thereafter. Subject to the Company Board’s fiduciary duties, the
proxy statement in connection with any such Stockholders Meeting shall include
the Company Board’s recommendation that the stockholders vote in favor of such
pre-emptive rights. TPG hereby agrees to furnish to the Company in writing all
information concerning TPG and its Affiliates as the Company may reasonably
request in connection with any such Stockholders Meeting.

 

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(b) In the event the Company proposes to undertake an Equity Issuance, the
Company shall promptly give TPG prior written notice of its intention,
describing the type of equity interests, the price at which such securities are
proposed to be issued (or, in the case of an underwritten or privately placed
offering in which the price is not known at the time the notice is given, the
method of determining the price and an estimate thereof), the timing of such
proposed Equity Issuance and the general terms and conditions upon which the
Company proposes to effect the Equity Issuance. TPG and its Affiliates shall
have fifteen (15) Business Days (or, if the Company expects that the proposed
Equity Issuance will be effected in less than fifteen (15) Business Days, such
shorter period, that shall be as long as practicable, as may be required in
order for TPG and its Affiliates to participate in such proposed Equity
Issuance) from the date TPG receives notice of the proposed Equity Issuance to
elect to purchase their Pro Rata Portion of such Equity Issuance for the
consideration and upon the terms specified in the notice provided by the Company
pursuant to this Section 3.1(b) by giving written notice to the Company and
stating therein the quantity of equity interests to be purchased. Any such
notice shall be irrevocable. Any purchase of Equity Interests by TPG and its
Affiliates pursuant to this Section 3.1 shall occur contemporaneously with, and
be subject to the same terms and conditions as, the closing of the sale of the
Equity Interests by the Company to the other parties.

(c) The purchase by TPG and its Affiliates of Equity Interests pursuant to this
Section 3.1 shall be subject to the limitations on stock ownership set forth in
the Company’s organizational documents; provided, that Company shall provide any
necessary waiver of such limitations upon receipt of an updated representation
letter similar to the representation letter provided by TPG and its Affiliates
in connection with the Closing (as defined in the Purchase Agreement).

(d) In the event that neither TPG nor any of its Affiliates exercises the right
forth in this Section 3.1 within the applicable period as set forth above, the
Company shall be permitted to sell the equity interests in respect of which such
pre-emptive rights were not exercised. In the event that the Company has not
sold the equity interests within ninety (90) days of its notice to TPG as
contemplated by Section 3.1(b), for purposes of this Section 3.1 such proposed
Equity Offering shall be deemed to have been terminated, and the Company shall
provide TPG with a new notice prior to undertaking a subsequent Equity Issuance.

(e) The Company shall have the right, in its sole discretion, at all times prior
to consummation of any proposed Equity Issuance giving rise to the rights
granted by this Section 3.1, to abandon, withdraw or otherwise terminate such
proposed Equity Issuance, without any liability to TPG or its Affiliates.

ARTICLE IV

REGISTRATION RIGHTS

Section 4.1 Demand Registration.

(a) Subject to the provisions hereof, at any time on or after the one (1) year
anniversary of the Closing Date (as defined in the Purchase Agreement), the
Holders of a majority of Registrable Securities shall have the right to require
the Company to file a Registration Statement registering for sale all or part of
their respective Registrable Securities

 

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under the Securities Act (a “Demand Registration”) by delivering a written
request therefor to the Company (i) specifying the number of Registrable
Securities to be included in such registration by such Holder or Holders,
(ii) specifying whether the intended method of disposition thereof is pursuant
to an Underwritten Offering (as defined below), and (iii) containing all
information about such Holder required to be included in such Registration
Statement in accordance with applicable law. As soon as practicable after the
receipt of such demand, the Company shall (x) promptly notify all Holders from
whom the request for registration has not been received and (y) use reasonable
best efforts to effect such registration (including, without limitation,
appropriate qualification under applicable blue sky or other state securities
laws and appropriate compliance with applicable regulations issued under the
Securities Act and any other governmental requirements or regulations) of the
Registrable Securities that the Company has been so requested to register;
provided, however, that (i) the Holders shall not make a request for a Demand
Registration under this Section 4.1(a) for Registrable Securities having an
anticipated aggregate offering price of less than $5,000,000, (ii) the Holders
will not be entitled to require the Company to effect more than three (3) Demand
Registrations in the aggregate under this Agreement, and (iii) the Company will
not be obligated to effect more than one (1) Demand Registration in any six
(6) month period.

(b) The offering of the Registrable Securities pursuant to such Demand
Registration may be in the form of an underwritten public offering (an
“Underwritten Offering”). In such case, (i) the Company may designate the
managing underwriter(s) of the Underwritten Offering, provided that such Holders
may designate a co-managing underwriter to participate in the Underwritten
Offering, subject to the approval of the Company, which approval shall not be
unreasonably withheld or delayed and (ii) the Company shall (together with the
Holders proposing to distribute their securities through such underwriting)
enter into an underwriting agreement in customary form for underwriting
agreements for firm commitment offerings of equity securities with the managing
underwriter(s) proposing to distribute their securities through such
Underwritten Offering, which underwriting agreement shall have indemnification
provisions in substantially the form as set forth in Section 4.8 of this
Agreement; provided, that (i) the representations and warranties by, and the
other agreements on the part of, the Company to and for the benefit of the
underwriter(s) shall also be made to and for the benefit of the Holders
proposing to distribute their securities through the Underwritten Offering,
(ii) no Holder shall be required to make any representations and warranties to,
or agreements with, any underwriter in a registration other than customary
representations, warranties and agreements and (iii) the liability of each
Holder in respect of any indemnification, contribution or other obligation of
such Holder arising under such underwriting agreement (a) shall be limited to
losses arising out of or based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such Registration Statement,
any such preliminary prospectus, final prospectus, summary prospectus, amendment
or supplement, incorporated document or other such disclosure document or other
document or report, in reliance upon and in conformity with written information
furnished to the Company by or on behalf of such Holder expressly for inclusion
therein and (b) shall not in any event, absent fraud or intentional
misrepresentation, exceed an amount equal to the net proceeds to such Holder
(after deduction of all underwriters’ discounts and commissions) from the
disposition of the Registrable Securities disposed of by such Holder pursuant to
such Underwritten Offering. No Holder may participate in any such Underwritten
Offering unless such Holder agrees to sell its Registrable Securities on the
basis provided in such underwriting agreement and completes and executes all
questionnaires, powers

 

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of attorney, indemnities and other documents reasonably required under the terms
of such underwriting agreement. The Company shall not be obligated to effect or
participate (a) more than two (2) Underwritten Offerings in any twelve
(12) month period, and (b) in any Underwritten Offering during any lock-up
period required by the underwriter(s) in any prior underwritten offering
conducted by the Company on its own behalf or on behalf of the Holders.

(c) If, in connection with an Underwritten Offering, the managing underwriter(s)
advise the Company that in its or their reasonable opinion the number of
securities proposed to be included in such registration exceeds the
Underwriters’ Maximum Number, then (i) the Company shall so advise all Holders
of Registrable Securities to be included in such Underwritten Offering and
(ii) the Company will be obligated and required to include in such Underwritten
Offering only that number of Registrable Securities requested by the Holders
thereof to be included in such registration that does not exceed such
Underwriters’ Maximum Number, such Registrable Securities to be allocated pro
rata among the Holders thereof on the basis of the number of Registrable
Securities requested to be included therein by each such Holder. No shares of
Common Stock held by any Person other than Registrable Securities held by the
Holders shall be included in a Demand Registration without the prior written
consent of the holders of a majority in interest of the Registrable Securities.

(d) A registration will not be deemed to have been effected as a Demand
Registration unless the Registration Statement relating thereto has been
declared effective by the SEC, at least 75% of the Registrable Securities
requested to be included in the registration by the Holders are included in such
registration, and the Company has complied in all material respects with its
obligations under this Agreement with respect thereto; provided, however, that
if, after it has become effective, (i) such Registration Statement or the
related offer, sale or distribution of Registrable Securities thereunder is or
becomes the subject of any stop order, injunction or other order or requirement
of the SEC or any other governmental or administrative agency, or if any court
prevents or otherwise limits the sale of the Registrable Securities pursuant to
the registration, and in each case less than all of the Registrable Securities
covered by the effective Registration Statement are actually sold by the selling
Holder or Holders pursuant to the Registration Statement, or (ii) if, in the
case of an Underwritten Offering, the Company fails to provide Full Cooperation,
then such registration will be deemed not to have been effected for purposes of
clause (ii) of the proviso to Section 4.1(a). If (i) a registration requested
pursuant to this Section 4.1 is deemed not to have been effected as a Demand
Registration or (ii) the registration requested pursuant to this Section 4.1
does not remain continuously effective until forty-five (45) days after the
commencement of the distribution by the Holders of the Registrable Securities
covered by such registration, then the Company shall continue to be obligated to
effect a Demand Registration pursuant to this Section 4.1 of the Registrable
Securities included in such registration. In circumstances not including the
events described in the immediately two preceding sentences of this
Section 4.1(d), each Holder of Registrable Securities shall be permitted
voluntarily to withdraw all or any part of its Registrable Securities from a
Demand Registration at any time prior to the commencement of marketing of such
Demand Registration, provided that such registration nonetheless shall count as
a Demand Registration for purposes of clause (ii) of the proviso to
Section 4.1(a).

 

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Section 4.2 Piggyback Registration.

(a) At any time after the one (1) year anniversary of the Closing Date (as
defined in the Purchase Agreement), if (and on each occasion that) the Company
proposes to register any of its securities under the Securities Act (other than
pursuant to Section 4.1) for the account of any of its security holders and such
registration permits the inclusion of the Registrable Securities (each such
registration not withdrawn or abandoned prior to the effective date thereof
being herein referred to as a “Piggyback Registration”), the Company shall give
written notice to all Holders of such proposal promptly, but in no event later
than ten (10) Business Days prior to the anticipated filing date.

(b) Subject to the provisions contained in paragraphs (a) and (c) of this
Section 4.2 and in the last sentence of this paragraph (b), the Company will be
obligated and required to include in each Piggyback Registration such
Registrable Securities as requested in a written notice from any Holder
delivered to the Company no later than five (5) Business Days following delivery
of the notice from the Company specified in Section 4.2(a). The Holders of
Registrable Securities shall be permitted to withdraw all or any part of their
shares from any Piggyback Registration at any time on or before the fifth
business day prior to the planned effective date of such Piggyback Registration,
except as otherwise provided in any written agreement with the Company’s
underwriter(s) establishing the terms and conditions under which such Holders
would be obligated to sell such securities in such Piggyback Registration. The
Company may terminate or withdraw any Piggyback Registration prior to the
effectiveness of such registration, whether or not the Holders have elected to
include Registrable Securities in such registration.

(c) If a Piggyback Registration is an Underwritten Offering on behalf of a
holder of Company securities other than Holders, and the managing underwriter(s)
advise the Company that in its or their reasonable opinion the number of
securities proposed to be included in such registration exceeds the
Underwriters’ Maximum Number, then the Company shall include in such
registration (i) first, the number of securities requested to be included
therein by the holder(s) originally requesting such registration, (ii) second,
the number of securities requested to be included therein by all Holders who
have requested registration of Registrable Securities in accordance with
Section 4.2(a), pro rata on the basis of the aggregate number of Registrable
Securities requested to be included by each such Holder and (iii) third, any
other securities that have been requested to be so included by any other person.

(d) In any Piggyback Registration that is an Underwritten Offering, the Company
shall have the right to select the managing underwriter(s) for such
registration.

(e) The Company shall not grant to any Person the right to request the Company
to register any shares of Company securities in a Piggyback Registration unless
such rights are consistent with the provisions of this Section 4.2.

Section 4.3 Registration Expenses. In connection with registrations pursuant to
Section 4.1 or Section 4.2 hereof, the Company shall pay all of the costs and
expenses incurred in connection with the registrations thereunder (the
“Registration Expenses”), including all (a) registration and filing fees and
expenses, including, without limitation, those related to filings

 

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with the SEC, (b) fees and expenses of compliance with state securities or blue
sky laws (including reasonable fees and disbursements of counsel in connection
with blue sky qualifications of the Registrable Securities), (c) reasonable
processing, duplicating and printing expenses, including expenses of printing
prospectuses reasonably requested by any Holder, (d) of the Company’s internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties, the expense of any
liability insurance and the expense of any annual audit or quarterly review),
(e) fees and expenses incurred in connection with listing the Registrable
Securities for trading on a national securities exchange, (f) fees and expenses
in connection with the preparation of the registration statement and related
documents covering the Registrable Securities, (g) fees and expenses, if any,
incurred with respect to any filing with FINRA, (h) any documented out-of-pocket
expenses of the underwriter(s) incurred with the approval of the Company,
(i) the cost of providing any CUSIP or other identification numbers for the
Registrable Securities, (j) fees and expenses and disbursements of counsel for
the Company and fees and expenses for independent certified public accountants
retained by the Company (including, without limitation, the expenses of any
comfort letters or costs associated with the delivery by independent certified
public accountants of a comfort letter or comfort letters requested), (k) fees
and expenses of any special experts retained by the Company in connection with
such registration, and (l) reasonable and documented fees and expenses of one
firm of counsel for the Holders to be selected by the Holders of a majority of
the Registrable Securities to be included in such registration (“Holders’
Counsel”); provided, however, that the Company shall reimburse the Holders for
the reasonable and documented fees and disbursements one, but not more than one,
additional counsel retained by any Holder for the purpose of rendering any
opinion required by the Company or the managing underwriter(s) to be rendered on
behalf of such Holder in connection with any Demand Registration. Other than as
provided in the foregoing sentence, the Company shall have no obligation to pay
any out-of-pocket expenses of the Holders relating to the registrations effected
pursuant to this Agreement. Notwithstanding the foregoing, Holders shall be
responsible, on a pro rata basis based on the number of Registrable Securities
included in the applicable registered offering by each such Holder, for any
underwriting discounts and commissions attributable to the sale of Registrable
Securities pursuant to a Registration Statement. The obligation of the Company
to bear the expenses described in this Section 4.3 and to pay or reimburse the
Holders for the expenses described in this Section 4.3 shall apply irrespective
of whether any sales of Registrable Securities ultimately take place.

Section 4.4 Registration Procedures. In the case of each registration effected
by the Company pursuant to this Agreement, the Company shall keep each Holder
advised in writing as to the initiation of each registration and as to the
completion thereof. In connection with any such registration:

(a) The Company will, as soon as reasonably practicable (and in any event,
within 90 days) after its receipt of the request for registration under
Section 4.1(a), prepare and file with the Commission a Registration Statement on
Form S-1, Form S-3 or another appropriate Securities Act form reasonably
acceptable to the Holders, and use reasonable best efforts to cause such
Registration Statement to become and remain effective until the completion of
the distribution contemplated thereby.

 

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(b) The Company will (i) promptly prepare and file with the Commission such
amendments to each Registration Statement as may be necessary to keep such
Registration Statement effective for as long as such registration is required to
remain effective pursuant to the terms hereof, (ii) cause the prospectus to be
supplemented by any required prospectus supplement, and, as so supplemented, to
be filed pursuant to Rule 424 under the Securities Act, and (iii) comply with
the provisions of the Securities Act applicable to it with respect to the
disposition of all Registrable Securities covered by such Registration Statement
during the applicable period in accordance with the intended methods of
disposition by the Holders set forth in such Registration Statement or
supplement to the prospectus.

(c) The Company will, at least ten (10) days prior to filing a Registration
Statement or at least five (5) days prior to filing a prospectus or any
amendment or supplement to such Registration Statement or prospectus, furnish to
(i) each Holder of Registrable Securities covered by such Registration
Statement, (ii) Holders’ Counsel and (iii) each underwriter of the Registrable
Securities covered by such Registration Statement, copies of such Registration
Statement and each amendment or supplement as proposed to be filed, together
with any exhibits thereto, which documents will be subject to reasonable review
and comment by each of the foregoing Persons within five (5) days after
delivery, and thereafter, furnish to such Holders, Holders’ Counsel and the
underwriter(s), if any, such number of copies of such Registration Statement,
each amendment and supplement thereto (in each case including all exhibits
thereto and documents incorporated by reference therein), the prospectus
included in such Registration Statement (including each preliminary prospectus)
and such other documents or information as such Holder, Holders’ Counsel or the
underwriter(s) may reasonably request in order to facilitate the disposition of
the Registrable Securities in accordance with the plan of distribution set forth
in the prospectus included in the Registration Statement; provided, however,
that notwithstanding the foregoing, if the Company intends to file any
prospectus, prospectus supplement or prospectus sticker that does not make any
material changes in the documents already filed, then Holders’ Counsel will be
afforded such opportunity to review such documents prior to filing consistent
with the time constraints involved in filing such document, but in any event no
less than one (1) day.

(d) The Company will promptly notify each Holder of any stop order issued or
threatened by the SEC and, if entered, use reasonable best efforts to prevent
the entry of such stop order or to remove it as soon as reasonably possible.

(e) On or prior to the date on which the Registration Statement is declared
effective, the Company shall use reasonable best efforts to register or qualify
such Registrable Securities under such other securities or blue sky laws of such
jurisdictions as any Holder reasonably requests and do any and all other lawful
acts and things which may be reasonably necessary or advisable to enable the
Holders to consummate the disposition in such jurisdictions of such Registrable
Securities, and use commercially reasonable efforts to keep each such
registration or qualification (or exemption therefrom) effective during the
period which the Registration Statement is required to be kept effective;
provided that the Company will not be required to (i) qualify generally to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this paragraph (e), (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in any such
jurisdiction.

 

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(f) The Company will notify each Holder, Holders’ Counsel and the underwriter(s)
promptly and (if requested by any such Person) confirm such notice in writing,
(i) when a prospectus or any prospectus supplement or post-effective amendment
has been filed and, with respect to a Registration Statement or any
post-effective amendment, when the same has become effective, (ii) of any
request by the SEC or any other federal or state governmental authority for
amendments or supplements to a Registration Statement or prospectus or for
additional information to be included in any Registration Statement or
prospectus or otherwise, (iii) of the issuance by any state securities
commission or other regulatory authority of any order suspending the
qualification or exemption from qualification of any of the Registrable
Securities under state securities or blue sky laws or the initiation of any
proceedings for that purpose, and (iv) of the happening of any event that
requires the making of any changes in a Registration Statement or related
prospectus or any document incorporated or deemed to be incorporated by
reference therein so that they will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements in the Registration Statement and prospectus
not misleading in light of the circumstances in which they were made; and, as
promptly as practicable thereafter, prepare and file with the SEC and furnish a
supplement or amendment to such prospectus so that, as thereafter deliverable to
the purchasers of such Registrable Securities, such prospectus will not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. Each Holder hereby agrees to keep any
disclosures under subsection (iv) above confidential until such time as a
supplement or amendment is filed.

(g) The Company will furnish customary closing certificates and other
deliverables to the underwriter(s) and the Holders and enter into customary
agreements satisfactory to the Company (including, if applicable, an
underwriting agreement in customary form) and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of the
Registrable Securities.

(h) The Company will make available for inspection by any underwriter
participating in any disposition pursuant to a Registration Statement, and any
attorney, accountant or other agent retained by any such seller or underwriter
(in each case after reasonable prior notice and at reasonable times during
normal business hours and without unnecessary interruption of the Company’s
business or operations), all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company’s officers,
directors, employees and independent accountants to supply all information
reasonably requested by any such seller, underwriter, attorney, accountant or
agent in connection with the Registration Statement.

(i) The Company, during the period when the prospectus is required to be
delivered under the Securities Act, promptly will file all documents required to
be filed with the SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act.

(j) The Company shall use reasonable best efforts to cause all Registrable
Securities registered pursuant to the terms hereof to be listed on each national
securities exchange on which the Common Stock of the Company is then listed.

 

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(k) The Company shall use commercially reasonable efforts to cooperate and
assist in obtaining of all necessary approvals from FINRA, if any.

(l) The Company shall provide a transfer agent and registrar for the Registrable
Securities not later than the effective date of such Registration Statement.

(m) If requested, the Company shall furnish to each Holder a copy of all
documents filed with and all correspondence from or to the SEC in connection
with the offering of Registrable Securities.

(n) The Company otherwise shall use its reasonable best efforts to comply with
all applicable rules and regulations of the SEC.

(o) The Company shall furnish to any requesting underwriter in an Underwritten
Offering, addressed to such underwriter, (i) an opinion of the Company’s counsel
(which may be the Company’s General Counsel), dated the date of closing of the
sale of any Registrable Securities thereunder, as well as a consent to be named
in the Registration Statement or any prospectus thereto, and (ii) comfort
letters and consent to be named in the Registration Statement or any prospectus
relating thereto signed by the Company’s independent public accountants who have
examined and reported on the Company’s financial statements included in the
Registration Statement, in each case covering substantially the same matters
with respect to the Registration Statement (and the prospectus included therein)
and (in the case of the accountants’ comfort letters) with respect to events
subsequent to the date of the financial statements, as are customarily covered
in opinions of issuer’s counsel and in accountants’ comfort letters delivered to
the underwriters in underwritten public offerings of securities, to the extent
that the Company is required to deliver or cause the delivery of such opinion or
comfort letters to the underwriters in an Underwritten Offering.

(p) In connection with each Demand Registration, the Company shall cause there
to occur Full Cooperation.

For purposes of Section 4.4(a) and Section 4.4(b), the period of distribution of
Registrable Securities in a firm commitment underwritten public offering shall
be deemed to extend until each underwriter has completed the distribution of all
securities purchased by it, and the period of distribution of Registrable
Securities in any other registration shall be deemed to extend until the earlier
of the sale of all Registrable Securities covered thereby and one hundred twenty
(120) days after the effective date thereof.

Section 4.5 Holders’ Obligations. The Company may require each Holder to
promptly furnish in writing to the Company such information regarding the
distribution of the Registrable Securities as the Company may from time to time
reasonably request and such other information as may be legally required in
connection with such registration, including all such information as may be
requested by the SEC. Each Holder agrees that, notwithstanding the provisions of
Section 4.6 hereof, upon receipt of any notice from the Company of the happening
of any event of the kind described in Section 4.4(f) hereof, such Holder will
forthwith discontinue disposition of Registrable Securities pursuant to the
Registration Statement covering such Registrable Securities until such Holder’s
receipt of the copies of the supplemented or amended prospectus

 

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contemplated by Section 4.4(f) hereof, and, if so directed by the Company, such
Holder will deliver to the Company all copies, other than permanent file copies
then in such Holder’s possession and retained solely in accordance with record
retention policies then-applicable to such Holder, of the most recent prospectus
covering such Registrable Securities at the time of receipt of such notice. In
the event the Company shall give such notice, the Company shall extend the
period during which such Registration Statement shall be maintained effective by
the number of days during the period from and including the date of the giving
of notice pursuant to Section 4.4(f) hereof to the date when the Company shall
make available to the Holders a prospectus supplemented or amended to conform
with the requirements of Section 4.4(f) hereof.

Section 4.6 Blackout Provisions.

(a) Notwithstanding anything in this Agreement to the contrary, by delivery of
written notice to the participating Holders (a “Suspension Notice”) stating
which one or more of the following limitations shall apply to the addressee of
such Suspension Notice, the Company may (i) postpone effecting a registration
under this Agreement, or (ii) require such addressee to refrain from disposing
of Registrable Securities under the registration, in either case for a period of
no more than forty-five (45) consecutive days from the delivery of such
Suspension Notice (which period may not be extended or renewed). The Company may
postpone effecting a registration or apply the limitations on dispositions
specified in clause (ii) of this Section 4.6(a) if (x) the Company Board, in
good faith, determines that such registration or disposition would materially
impede, delay or interfere with any material transaction then pending or
proposed to be undertaken by the Company or any of its subsidiaries, or (y) the
Company in good faith determines that the Company is in possession of material
non-public information the disclosure of which during the period specified in
such notice the Company Board, in good faith, reasonably believes would not be
in the best interests of the Company; provided that the Company may not take any
actions pursuant to this Section 4.6(a) for a period of time in excess of ninety
(90) days in the aggregate in any twelve (12)-month period.

(b) If the Company shall take any action pursuant to clause (ii) of
Section 4.6(a) with respect to any participating Holder in a period during which
the Company shall be required to cause a Registration Statement to remain
effective under the Securities Act and the prospectus to remain current, such
period shall be extended for such Person by one (1) day beyond the end of such
period for each day that, pursuant to Section 4.6(a), the Company shall require
such Person to refrain from disposing of Registrable Securities owned by such
Person.

Section 4.7 Exchange Act Registration. The Company will use its reasonable best
efforts to timely file with the SEC such information as the SEC may require
under Section 13(a) or Section 15(d) of the Exchange Act, and the Company shall
use its reasonable best efforts to take all action as may be required as a
condition to the availability of Rule 144 or Rule 144A under the Securities Act
with respect to its Common Stock. The Company shall furnish to any holder of
Registrable Securities forthwith upon request such reports and documents as a
holder may reasonably request in availing itself of any rule or regulation of
the SEC allowing a holder to sell any such Registrable Securities without
registration to the extent that such reports or documents are not publicly
available on the SEC’s Electronic Data Gathering, Analysis and Retrieval system
or any successor system thereto. Certificates evidencing Registrable Securities
shall not contain any legend at such time as a Holder has provided reasonable
evidence to the

 

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Company (including any customary broker’s or selling stockholder’s letters but
expressly excluding an opinion of counsel other than with respect to clauses
(d) or (e) below), that (a) there has been a sale of such Registrable Securities
pursuant to an effective registration statement, (b) there has been a sale of
such Registrable Securities pursuant to Rule 144 (assuming the transferor is not
an affiliate of the Company), (c) such Registrable Securities are then eligible
for sale under Rule 144(b)(i), (d) in connection with a sale, assignment or
other transfer (other than under Rule 144), upon request of the Company, such
Holder provides the Company with an opinion of counsel to such Holder, in a
reasonably acceptable form, to the effect that such sale, assignment or transfer
of the Registrable Securities may be made without registration under the
applicable requirements of the Securities Act or (e) such legend is not required
under applicable requirements of the Securities Act (including controlling
judicial interpretations and pronouncements issued by the SEC). Following such
time as restrictive legends are not required to be placed on certificates
representing Registrable Securities pursuant to the preceding sentence, the
Company will, no later than three (3) Business Days following the delivery by a
Holder to the Company or the Company’s transfer agent of a certificate
representing Registrable Securities containing a restrictive legend and the
foregoing evidence (and opinion if applicable), deliver or cause to be delivered
to such Holder a certificate representing such Registrable Securities that is
free from all restrictive and other legends or credit the balance account of
such Holder’s or such Holder’s nominee with DTC (if DTC is then offered by the
Company and its transfer agent) with a number of shares of Common Stock equal to
the number of shares of Common Stock represented by the certificate so delivered
by such Holder.

Section 4.8 Indemnification.

(a) Indemnification by the Company. The Company agrees, notwithstanding the
termination of this Agreement, to indemnify and hold harmless, to the fullest
extent permitted by law, each Holder and each of its managers, members, managing
members, general and limited partners, officers, directors, employees and
agents, and each Person, if any, who controls such Holder within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act, together
with the managers, members, managing members, general and limited partners,
officers, directors, employees and agents of such controlling Person (each, a
“Controlling Person”), from and against any and all losses, claims, damages,
settlement amounts (only if the Company consented in writing to the settlement,
which consent shall not be unreasonably withheld), liabilities, reasonable
attorneys’ fees, costs and expenses of investigating and defending any such
claim (collectively, “Damages”) and any action in respect thereof to which such
Holder, its managers, members, managing members, general and limited partners,
officers, directors, employees and agents, and any such Controlling Persons may
become subject to under the Securities Act or otherwise, but only insofar as
such Damages (or proceedings in respect thereof) arise out of, or are based
upon, any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement or prospectus of the Company (or any
amendment or supplement thereto) or any preliminary prospectus of the Company,
or arise out of, or are based upon, any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances in which they
were made, except insofar as the same are based upon information furnished in
writing to the Company by such Holder or any of its managers, members, managing
members, general partners, officers, directors, employees, agents and
Controlling Persons expressly for use therein, and, consistent with and subject
to the foregoing, shall reimburse such

 

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Holder, its managers, members, managing members, general and limited partners,
officers, directors, employees and agents, and each such Controlling Person for
any legal and other expenses reasonably incurred by such Holder, its managers,
members, managing members, general and limited partners, officers, directors,
employees and agents, or any such Controlling Person in investigating or
defending or preparing to defend against any such Damages or proceedings. In
addition to the indemnity contained herein, the Company will reimburse each
Holder for its reasonable out-of-pocket legal and other expenses (including the
reasonable out-of-pocket cost of any investigation, preparation and travel in
connection therewith) as incurred in connection therewith, as promptly as
practicable after such expenses are incurred and invoiced.

(b) Indemnification by the Holder. The Holders agree, severally and not jointly,
to indemnify and hold harmless the Company, its officers, directors, employees
and agents and each Person, if any, who controls the Company within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act, together
with the managers, members, managing members, general and limited partners,
officers, directors, employees and agents of such controlling Person, to the
same extent as the foregoing indemnity from the Company to the Holders, but only
with respect to information related to the Holders, or their plan of
distribution, furnished in writing by the Holders or any of their managers,
members, managing members, general partners, officers, directors, employees,
agents and Controlling Persons to the Company expressly for use in any
Registration Statement or prospectus, or any amendment or supplement thereto, or
any preliminary prospectus. No Holder shall be required to indemnify any Person
pursuant to this Section 4.8(b) for any amount in excess of the net proceeds
received by such Holder from the sale of the Registrable Securities sold for the
account of such Holder.

(c) Conduct of Indemnification Proceedings. Promptly after receipt by any Person
(an “Indemnified Party”) of notice of any claim or the commencement of any
action in respect of which indemnity may be sought pursuant to Section 4.8(a) or
Section 4.8(b), the Indemnified Party shall, if a claim in respect thereof is to
be made against the Person against whom such indemnity may be sought (an
“Indemnifying Party”), notify the Indemnifying Party in writing of the claim or
the commencement of such action; provided, that the failure to notify the
Indemnifying Party shall not relieve it from any liability that it may have to
an Indemnified Party except to the extent of any actual prejudice resulting
therefrom. If any such claim or action shall be brought against an Indemnified
Party, and it shall notify the Indemnifying Party thereof, the Indemnifying
Party shall be entitled to participate therein, and, to the extent that it
wishes, jointly with any other similarly notified Indemnifying Party, to assume
the defense thereof with counsel reasonably satisfactory to the Indemnified
Party. After notice from the Indemnifying Party to the Indemnified Party of its
election to assume the defense of such claim or action, the Indemnifying Party
shall not be liable to the Indemnified Party for any legal or other expenses
subsequently incurred by the Indemnified Party in connection with the defense
thereof; provided, that the Indemnified Party shall have the right to employ
separate counsel to represent the Indemnified Party and its Controlling Persons
who may be subject to liability arising out of any claim in respect of which
indemnity may be sought by the Indemnified Party against the Indemnifying Party,
but the fees and expenses of such counsel shall be for the account of such
Indemnified Party unless (i) the Indemnifying Party and the Indemnified Party
shall have mutually agreed to the retention of, and reimbursement of fees for,
such counsel or (ii) in the reasonable opinion of counsel to such Indemnified
Party representation of both parties by the same counsel would be inappropriate
due to actual or potential conflicts of interest between

 

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them, it being understood, however, that the Indemnifying Party shall not, in
connection with any one such claim or action or separate but substantially
similar or related claims or actions in the same jurisdiction arising out of the
same general allegations or circumstances, be liable for the fees and expenses
of more than one separate firm of attorneys (together with appropriate local
counsel) at any time for all Indemnified Parties. No Indemnifying Party shall,
without the prior written consent of the Indemnified Party, effect any
settlement of any claim or pending or threatened proceeding in respect of which
the Indemnified Party is or would reasonably have been a party and indemnity
would reasonably have been sought hereunder by such Indemnified Party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability arising out of such claim or proceeding. Whether or not the
defense of any claim or action is assumed by the Indemnifying Party, such
Indemnifying Party will not be subject to any liability for any settlement made
without its written consent.

Section 4.9 No Inconsistent Agreements. The Company shall not hereafter enter
into any agreement with respect to any of its securities (including any
registration or similar agreement) which is inconsistent with or violates the
material rights granted to the Holders in this Agreement.

Section 4.10 Lock-Up Agreements. Each of the Holders and the Company agrees
that, in connection with an Underwritten Offering in respect of which
Registrable Securities are being sold, or in connection with any other public
offering of Common Stock by the Company, if requested by the underwriter(s), it
will enter into customary “lock-up” agreements pursuant to which it will agree
not to, directly or indirectly, sell, offer to sell, grant any option for the
sale of, or otherwise dispose of, any Common Stock or any securities convertible
or exchangeable into Common Stock (subject to customary exceptions), other than
any issuance of upon conversion of the Preferred Stock, for a period not to
exceed ninety (90) days from the effective date of the Registration Statement
pertaining to such Registrable Securities or from such other date as may be
requested by the underwriter(s). The Company further agrees that, in connection
with an Underwritten Offering in respect of which Registrable Securities are
being sold, if requested by the managing underwriter(s), it will exercise its
best efforts to obtain agreements (in the underwriters’ customary form) from its
directors and executive officers not to, directly or indirectly, sell, offer to
sell, grant any option for the sale of, or otherwise dispose of, any Common
Stock or any securities convertible or exchangeable into Common Stock (subject
to customary exceptions), for a period not to exceed ninety (90) days from the
effective date of the Registration Statement pertaining to such Registrable
Securities or from such other date as may be requested by the underwriter(s).

Section 4.11 Termination of Registration Rights. The rights granted under this
Article IV shall terminate on the earlier of the date that (a) the Holders no
longer Beneficially Own any Registrable Securities or (b) all Registrable
Securities are eligible for sale without any volume or other limitations or
restrictions; provided, however, that the indemnification provisions set forth
in Section 4.8 shall survive such termination.

Section 4.12 Assignment; Binding Effect. The rights and obligations provided in
this Article IV may be assigned in whole or in part by any Holder to a
controlled affiliate of such Holder or to any member, general or limited partner
or stockholder of any such Holder (each, a “Permitted Transferee”) without the
consent of the Company or any other Holder. Such

 

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assignment shall be effective upon receipt by the Company of (a) written notice
from the Holder certifying that the transferee is a Permitted Transferee,
stating the name and address of the Permitted Transferee and identifying the
amount of Registrable Securities with respect to which the rights under this
Agreement are being transferred, and (b) a written agreement from the Permitted
Transferee to be bound by all of the terms of this Article IV as a “Holder.”
Upon receipt of the documents referenced in clauses (a) and (b) of this
Section 4.12, the Permitted Transferee shall thereafter be deemed to be a
“Holder” for all purposes of this Article IV. Except as set forth in this
Section 4.12, the rights and obligations provided in this Article IV may not be
assigned by any party hereto without the prior written consent of each of the
other parties hereto.

ARTICLE V

COVENANTS

Section 5.1 Standstill.

(a) TPG hereby agrees that until the earliest of (i) such time as TPG and its
Affiliates no longer collectively own at least five percent (5%) of the
outstanding Common Stock on an as-converted basis, (ii) the fifth (5th)
anniversary hereof or (iii) a Change of Control of the Company, without the
prior written approval of the Company, neither TPG nor any of its Affiliates
will, directly or indirectly:

(i) acquire, offer or propose to acquire or agree to acquire, Beneficial
Ownership of any Voting Securities, other than Voting Securities acquired (A) as
a result of the exercise of any rights or obligations set forth in this
Agreement, (B) upon conversion of the Preferred Stock, (C) pursuant to a stock
split, stock dividend, recapitalization, reclassification or similar
transaction, (D) directly from the Company, or (E) to restore their aggregate
percentage interest in the Company’s outstanding Common Stock (assuming
conversion of the Series E Preferred Stock, without taking into account any
provisions restricting the convertibility thereof) if such percentage interest
has been reduced for any reason, including as a result of a sale of Capital
Stock by TPG and its Affiliates, provided that any such reduction has not
resulted in TPG and its Affiliates collectively owning less than five
percent (5%) of the outstanding Common Stock on an as-converted basis;

(ii) enter into or agree, offer, propose or seek (whether publicly or otherwise)
to enter into, or otherwise be involved in or part of, any acquisition
transaction, merger or other business combination relating to all or part of the
Company or any of its subsidiaries or any acquisition transaction for all or
part of the assets of the Company or any of its subsidiaries or any of their
respective businesses;

(iii) other than a “solicitation” of a “proxy” (as such terms are defined under
Regulation 14A under the Exchange Act, disregarding clause (iv) of Rule
14a-1(1)(2) and including any otherwise exempt solicitation pursuant to Rule
14a-2(b)) seeking approval of the election to the Company Board solely with
respect to any of the TPG Nominated Directors permitted by the terms hereof to
serve on such Company Board, make, or in any way participate in, any such
“solicitation” of “proxies” to vote, or seek to advise or influence any person
or entity with respect to the voting of, any Common Stock of the Company or any
of its subsidiaries;

 

26

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(iv) call or seek to call a meeting of the Common Stockholders of the Company or
any of the Company’s subsidiaries or initiate any stockholder proposal for
action by the Common Stockholders of the Company, form, join or in any way
participate in a “group” (within the meaning of Section 13(d)(3) of the Exchange
Act and the rules and regulations thereunder) with respect to any Voting
Securities;

(v) deposit any Securities of the Company into a voting trust, or subject any
Securities of the Company to any agreement or arrangement with respect to the
voting of such securities, or other agreement or arrangement having similar
effect;

(vi) seek representation on the Company Board or a change in the composition of
the Company Board or number of directors elected by the holders of Common Stock
or a change in the number of such directors who represent TPG, other than as
expressly permitted pursuant to this Agreement; and

(vii) bring any action or otherwise act to contest the validity of this
Section 5.1;

provided, that nothing in clauses (ii), (iii), (iv) or (vi) of this
Section 5.1(a) shall apply to the TPG Nominated Director(s) solely in his or her
capacity as a director of the Company or to actions taken by TPG or any of its
Affiliates to prepare the TPG Nominated Directors to act in such capacity.

(b) The limitations provided in Section 5.1(a) shall, upon the occurrence of any
of the following events, immediately be suspended until the expiration of the
time period set forth below in this Section 5.1(b), but only so long as TPG or
any of its Affiliates did not directly or indirectly assist, facilitate,
encourage or participate in any such events:

(i) on the commencement (as defined in Rule 14d-2 of the Exchange Act) by any
Person of a tender or exchange offer seeking to acquire Beneficial Ownership of
fifty percent (50%) or more of the outstanding shares of Voting Securities of
the Company;

(ii) on the decision by the Company Board or a duly constituted committee of the
Company Board (a) to solicit one or more proposals for a transaction that, if
consummated, would result in a Change of Control or (b) to pursue discussions or
negotiations or make diligence materials available, with respect to an
unsolicited proposal for a transaction that, if consummated, would result in a
Change of Control.

(iii) on the decision by the Company Board to recommend that stockholders
approve any action proposed by a Person pursuant to the filing of a preliminary
proxy statement by any Person with respect to the commencement of a proxy or
consent solicitation subject to Section 14 of the Exchange Act to elect or
remove any directors of the Company;

(iv) on the adoption by the Board of Directors of a plan of liquidation or
dissolution;

 

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(v) on the occurrence of any material breach by the Company of any of its
material obligations under this Agreement, which breach has not been remedied
within ten (10) days after notice to the Company thereof; or

(vi) upon the failure by the Company to pay the Holders of the Preferred Stock
any dividends due thereon for four (4) successive fiscal quarters;

Upon (u) any withdrawal or lapsing of any such tender or exchange offer referred
to in Section 5.1(b)(i) in which such Person does not acquire more than fifty
percent (50%) of the outstanding Voting Securities of the Company, (v) the
withdrawal of all pending proposals referred in Section 5.1(b)(ii) without a
Change of Control having occurred and without, or the termination of, an
agreement to effect a Change of Control, or the decision of the Company Board or
a duly constituted committee of the Company Board to reject all such proposals,
(w) the abandonment by the Company Board or a duly constituted committee of the
Company Board of a process to solicit a proposal of the type referred to in
Section 5.1(b)(ii) without a Change of Control having occurred and without an
agreement to effect a Change of Control, (y) the withdrawal or termination or
failure of the solicitation referred to in Section 5.1(b)(iii), or (y) the
termination of the plan of liquidation referenced in Section 5.1(b)(iv), or
(z) the remedy of any breach described in Section 5.1(b)(v) or the payment to
the Holders in full in cash (by wire transfer of immediately available funds)
all dividends then due and owing in respect of the Preferred Stock held by such
Holders as contemplated in Section 5.1(b)(vi), as the case may be, the
limitations provided in Section 5.1(a) (except to the extent then suspended as a
result of any other event specified in this Section 5.1(b)) shall again be
applicable for so long as and only to the extent provided in this Agreement.

Section 5.2 No Conflicting Agreements. For so long as this Agreement remains in
effect, neither the Company nor TPG shall enter into any stockholder agreement
or arrangement of any kind with any Person with respect to any Shares or other
Securities, or otherwise act or agree to act in concert with any Person with
respect to any Shares or other Securities, to the extent such agreement,
arrangement, or concerted act would controvert, or otherwise be inconsistent in
any material respect with, the provisions of this Agreement.

Section 5.3 Further Assurances. Each of TPG and the Company agrees to execute
and deliver all such further documents and do all acts and things that from time
to time may reasonably be required to effectively carry out or better evidence
or perfect the full intent and meaning of this Agreement.

ARTICLE VI

MISCELLANEOUS

Section 6.1 Amendment and Waiver. This Agreement may not be amended, except by
an agreement in writing, executed by each of TPG and the Company, and compliance
with any term of this Agreement may not be waived, except by an agreement in
writing executed on behalf of the party against whom the waiver is intended to
be effective. The failure of any party to enforce any of the provisions of this
Agreement shall in no way be construed as a waiver of any such provision and
shall not affect the right of such party thereafter to enforce each and every
provision of this Agreement in accordance with its terms.

 

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Section 6.2 Severability. If any provision of this Agreement shall be declared
by any court of competent jurisdiction to be illegal, void, or otherwise
unenforceable, all other provisions of this Agreement, to the extent permitted
by Law, shall not be affected and shall remain in full force and effect. Upon
any such determination, the parties shall negotiate in good faith in an effort
to agree upon a suitable and equitable substitute provision to effect the
original intent of the parties.

Section 6.3 Entire Agreement. Except as otherwise expressly set forth herein,
this Agreement and the Purchase Agreement, together with the agreements and
other documents and instruments referred to herein, embody the complete
agreement and understanding among the parties hereto with respect to the subject
matter hereof, and supersede and preempt any prior understandings, agreements,
or representations by or among the parties, written or oral, that may have
related to the subject matter hereof in any way.

Section 6.4 Successors and Assigns. Except as expressly set forth herein,
neither this Agreement nor any of the rights or obligations of any party under
this Agreement (including any rights under Article II and Article III hereof)
may be assigned, in whole or in part (except by operation of Law), by either
party without the prior written consent of the other party, and any such
transfer or attempted transfer without such consent shall be null and void. This
Agreement shall be binding upon and shall inure to the benefit of, and be
enforceable by, the parties hereto and their respective successors and permitted
assigns.

Section 6.5 Counterparts. This Agreement may be executed in separate
counterparts, each of which shall be an original and all of which, when taken
together, shall constitute one and the same agreement.

Section 6.6 Remedies.

(a) Each party hereto acknowledges that monetary damages would not be an
adequate remedy in the event that each and every one of the covenants or
agreements in this Agreement are not performed in accordance with their terms,
and it is therefore agreed that, in addition to, and without limiting any other
remedy or right it may have, the non-breaching party will have the right to an
injunction, temporary restraining order, or other equitable relief in any court
of competent jurisdiction enjoining any such breach and enforcing specifically
each and every one of the terms and provisions hereof. Each party hereto agrees
not to oppose the granting of such relief in the event a court determines that
such a breach has occurred, and to waive any requirement for the securing or
posting of any bond in connection with such remedy.

(b) All rights, powers, and remedies provided under this Agreement or otherwise
available in respect hereof at Law or in equity shall be cumulative and not
alternative, and the exercise or beginning of the exercise of any thereof by any
party shall not preclude the simultaneous or later exercise of any other such
right, power, or remedy by such party.

Section 6.7 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (upon
telephonic confirmation of receipt), on the first (1st) Business Day following
the date of dispatch if delivered by a recognized next day courier service, or
on the third (3rd) Business Day following

 

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the date of mailing if delivered by registered or certified mail, return receipt
requested, postage prepaid. All notices hereunder shall be delivered as set
forth below, or pursuant to such other instructions as may be designated in
writing by the party to receive such notice.

If to the Company:

Parkway Properties, Inc.

Bank of American Center, Suite 2400

390 North Orange Avenue

Orlando, Florida 32801

Attention: James R. Heistand

Fax: (407) 650-0597

with a copy (which shall not constitute notice) to:

Hogan Lovells US LLP

555 13th Street NW

Washington, DC 20004

Attention: David W. Bonser

Fax: (202) 637-5910

If to TPG:

c/o TPG Global, LLC

301 Commerce St, Suite 3300

Fort Worth, Texas 76102

Attn: General Counsel

Facsimile: (817) 871-4001

with a copy (which shall not constitute notice) to:

Ropes & Gray LLP

Prudential Tower

800 Boylston Street

Boston, MA 02199

Attention: Alfred O. Rose

Fax: (617) 325-0096

and

Ropes & Gray LLP

1211 Avenue of the Americas

New York, NY 10036

Attention: Carl Marcellino

Fax: (646) 728-1523

 

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Section 6.8 Governing Law; Venue and Jurisdiction; Waiver of Jury Trial.

(a) This Agreement shall be governed by and construed in accordance with the
Laws of the State of New York, without regard to, or otherwise giving effect to,
any body of Law or other rule that would cause or otherwise require the
application of the Laws of any other jurisdiction.

(b) Any action or proceeding against either the Company or TPG relating in any
way to this Agreement may be brought exclusively in the courts of the State of
New York or (to the extent subject matter jurisdiction exists therefore) the
United States District Court for the Southern District of New York, and each of
the Company and TPG irrevocably submits to the jurisdiction of both such courts
in respect of any such action or proceeding. Any actions or proceedings to
enforce a judgment issued by one of the foregoing courts may be enforced in any
jurisdiction.

(c) TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW THAT CANNOT BE WAIVED, EACH
OF THE COMPANY AND TPG HEREBY WAIVES AND COVENANTS THAT IT WILL NOT ASSERT
(WHETHER AS PLAINTIFF, DEFENDANT, OR OTHERWISE) ANY RIGHT TO TRIAL BY JURY IN
ANY FORUM IN RESPECT OF ANY ISSUE OR ACTION, CLAIM, CAUSE OF ACTION, OR SUIT
(WHETHER IN CONTRACT, TORT, OR OTHERWISE), INQUIRY, PROCEEDING, OR INVESTIGATION
ARISING OUT OF, OR BASED UPON, THIS AGREEMENT OR THE SUBJECT MATTER HEREOF, OR
IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE TRANSACTIONS
CONTEMPLATED HEREBY, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING.
EACH OF THE COMPANY AND TPG ACKNOWLEDGES THAT IT HAS BEEN INFORMED BY THE OTHER
PARTY THAT THIS SECTION 6.8(C) CONSTITUTES A MATERIAL INDUCEMENT UPON WHICH IT
IS RELYING, AND WILL RELY IN ENTERING INTO THIS AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED HEREBY. THE COMPANY OR TPG MAY FILE AN ORIGINAL COUNTERPART OR A
COPY OF THIS SECTION 6.8(C) WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF
EACH SUCH PARTY TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.

Section 6.9 Third Party Benefits. Except the provisions in Section 6.10, none of
the provisions of this Agreement are for the benefit of, or shall be enforceable
by, any third-party beneficiary.

Section 6.10 No Recourse Against Others. All claims, causes of action (whether
in contract or in tort, in law or in equity, or granted by statute),
obligations, or liabilities that may be based upon, be in respect of, arise
under, out of or by reason of, be connected with, or relate in any manner to
this Agreement, or the negotiation, execution, performance or breach of this
Agreement (including any representation or warranty made in, in connection with,
or as an inducement to, this Agreement), may be made only against (and are those
solely of) the entities that are expressly identified as parties in the preamble
to this Agreement (the “Contracting Parties”). No Person who is not a
Contracting Party, including any and all former, current or future directors,
officers, employees, incorporators, members, general or limited partners,
controlling persons, managers, management companies, equityholders, affiliates,
agents,

 

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attorneys, or representatives of, and any and all former, current or future
financial advisors or lenders to, any Contracting Party, and any and all former,
current or future directors, officers, employees, incorporators, members,
general or limited partners, controlling persons, managers, management
companies, equityholders, affiliates, agents, attorneys, or representatives of,
and any and all former, current or future financial advisors or lenders to, any
of the foregoing, and any and all former, current or future heirs, executors,
administrators, trustees, successors or assigns of any of the foregoing (the
“Non-Recourse Parties”), shall have any liability (whether in contract or in
tort, in law or in equity, or granted by statute) for any claims, causes of
action, obligations or liabilities arising under, out of, in connection with, or
related in any manner to this Agreement, or the negotiation, execution,
performance, or breach of this Agreement; and, to the maximum extent permitted
by Law, each Contracting Party hereby waives and releases all such claims and
causes of action against any such Non-Recourse Parties. Without limiting the
foregoing, to the maximum extent permitted by Law, (a) each Contracting Party
hereby waives and releases any and all rights, claims, demands, or causes of
action that may otherwise be available at law or in equity, or granted by
statute, to avoid or disregard the entity form of a Contracting Party or
otherwise impose liability of a Contracting Party on any Non-Recourse Party,
whether granted by statute or based on theories of equity, agency, control,
instrumentality, alter ego, domination, sham, single business enterprise,
piercing the corporate, limited liability company or limited partnership veil,
unfairness, undercapitalization, or otherwise, in each case in connection with,
or related in any manner to this Agreement, or the negotiation, execution,
performance, or breach of this Agreement; and (b) each Contracting Party
disclaims any reliance upon any Non-Recourse Parties with respect to the
performance of this Agreement or any representation or warranty made in, in
connection with, or as an inducement to this Agreement.

Section 6.11 Interpretation. The table of contents and headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.

Section 6.12 Expenses. Except to the extent otherwise expressly provided herein,
the Company shall reimburse TPG and its Affiliates, upon presentation of
appropriate documentation, for all reasonable out-of-pocket expenses incurred by
TPG and its Affiliates after the date hereof in connection with enforcement of
this Agreement.

Section 6.13 Termination. Except to the extent otherwise expressly provided
herein, this Agreement, and all of the rights and obligations set forth herein,
shall terminate and be of no further force or effect in the event that (a) TPG
and its Affiliates cease to Beneficially Own any shares of Common Stock on an
as-converted basis, and (b) the registration rights and obligations set forth in
Article IV (other than those set forth in Section 4.8) have terminated pursuant
to Section 4.11.

[The remainder of this page has been intentionally left blank.]

 

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IN WITNESS WHEREOF, the parties hereto have executed this Stockholders Agreement
as of the date first written above.

 

COMPANY:

 

PARKWAY PROPERTIES, INC.

By:     Name:   Title:  

 

TPG:

 

TPG VI PANTERA HOLDINGS, L.P.

By:     Name:   Title:  

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Exhibit A

Investment Committee Rights and Responsibilities

The Investment Committee rights and responsibilities shall include committee
approval for each of the following:

(i) Any sale, issuance, or authorization of the issuance or sale of (A) any
capital stock or other security of the Company or any of its subsidiaries,
(B) any option or right to acquire any capital stock (or cash based on the value
of capital stock) or other security of the Company or any of its subsidiaries,
or (C) any instrument convertible into or exchangeable for any capital stock (or
cash based on the value of capital stock) or other security of the Company or
any of its subsidiaries (it being acknowledged and agreed that (I) the Company
shall be permitted, without the prior written consent of the TPG Nominated
Directors of the Investment Committee, to issue shares in a Permitted Issuance
and that (II) nothing herein shall be deemed to limit the Company’s ability to
pay dividends on any outstanding shares of the Preferred Stock without the prior
written consent of the TPG Nominated Directors of the Investment Committee); and

(ii) Any incurrence, assumption, guaranty or other similar assumption of
liability by the Company or any of its subsidiaries in respect of any Debt with
a principal amount attributed to the Company’s share of greater than
$20,000,000; and

(iii) Such other transactions as set forth on Annex I hereto.

Notwithstanding the foregoing, the consent rights set forth in paragraphs (i),
(ii) and (iii) above shall not apply, and committee approval shall not be
required for any actions taken or to be taken, in connection with a Change of
Control of the Company so long as the holders of the Preferred Stock are
entitled, in connection with the consummation of such Change of Control, to
exercise their rights under Section 4(b) of the articles supplementary
establishing the Preferred Stock.

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Exhibit B

Compensation Committee Rights and Responsibilities

In addition to its current mandate (as previously provided to TPG), the
Compensation Committee Charter rights and responsibilities shall include
committee approval for each of the following:

(i) The hiring or termination of any of the Company’s Chief Executive Officer,
Chief Financial Officer, Chief Operating Officer and Chief Investment Officer,
or any material change in any of the duties of any such executive officer; and

(ii) Any issuance, sale or authorization pursuant to any future compensation
arrangements for the Company’s directors, officers, employees, consultants and
agents.

Notwithstanding the foregoing, the consent rights set forth in paragraph
(i) above shall not apply, and committee approval shall not be required for any
actions taken or to be taken, in connection with a Change of Control of the
Company so long as the holders of the Preferred Stock are entitled, in
connection with the consummation of such Change of Control, to exercise their
rights under Section 4(b) of the articles supplementary establishing the
Preferred Stock.

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Exhibit B

Management Services Agreement

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EXECUTION VERSION

MANAGEMENT SERVICES AGREEMENT

This MANAGEMENT SERVICES AGREEMENT (this “Agreement”) is entered into as of
[—], 2012 by and between Parkway Properties, Inc. (the “Company”) and TPG VI
Management, LLC (the “Manager”).

WHEREAS, on May [—], 2012, the Company entered into that certain Securities
Purchase Agreement, by and between the Company and the “Investors” signatory
thereto (as amended, restated or otherwise modified and as in effect from time
to time, and together with all exhibits, schedules and other attachments
thereto, the “Purchase Agreement” and each of the transactions contemplated
thereby and by each of the documents required to be entered into pursuant to the
terms of such Purchase Agreement, collectively, the “Transaction”), pursuant to
which Purchase Agreement, the Company is issuing on the date hereof certain
shares of Common Stock and Preferred Stock to the Investors (as each such term
is defined in the Purchase Agreement);

WHEREAS, on [—], 2012, the Company entered into that certain Stockholders
Agreement, by and between the Company and TPG VI Pantera Holdings, L.P. (“TPG”)
(as amended, restated or otherwise modified and as in effect from time to time,
the “Stockholders Agreement”);

WHEREAS, to enable the Company to engage in the Transaction and related
transactions, the Manager provided financial and structural advice and analysis
as well as assistance with due diligence investigations and negotiations (the
“Financial Advisory Services”); and

WHEREAS, the Company wishes to retain the Manager to provide certain management,
advisory and consulting services to the Company, and the Manager is willing to
provide such services on the terms set forth below.

NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the Company and the Manager, intending to be legally bound,
hereby agree as follows:

1. Services. The Manager hereby agrees that, during the term of this Agreement
set forth in Section 4 below (the “Term”), it will provide to the Company, to
the extent mutually agreed by the Company and the Manager, by and through itself
and/or the Manager’s successors, assigns, affiliates, officers, employees and/or
representatives and third parties (collectively hereinafter referred to as the
“Manager Designees”), as the Manager in its sole discretion may designate from
time to time, and as reasonably acceptable to the Company, management, advisory
and consulting services in relation to the affairs of the Company. Such
management, advisory and consulting services may include, without limitation:

(a) advice in connection with the negotiation and consummation of agreements,
contracts, documents and instruments necessary to provide the Company with
financing on terms and conditions satisfactory to the Company;

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(b) advice in connection with acquisition, disposition and change of control
transactions involving the Company or any of its direct or indirect subsidiaries
or any of its respective successors;

(c) financial, managerial and operational advice in connection with the
Company’s day-to-day operations, including, without limitation, advice with
respect to the development and implementation of strategies for improving the
operating, marketing and financial performance of the Company or its
subsidiaries; and

(d) such other services (which may include financial and strategic planning and
analysis, consulting services, human resources and executive recruitment
services and other services) as the Manager and the Company may from time to
time agree in writing.

The Manager or its Manager Designees will devote such time and efforts to the
performance of the services contemplated hereby as the Manager deems reasonably
necessary or appropriate; provided, however, that no minimum number of hours is
required to be devoted by the Manager or any Manager Designee on a weekly,
monthly, annual or other basis. The Company acknowledges that each of the
Manager’s or Manager Designee’s services are not exclusive to the Company or its
respective subsidiaries and that the Manager and any Manager Designee may render
similar services to other persons and entities. The Manager and the Company
understand that the Company or its subsidiaries may at times engage one or more
investment bankers or financial advisers to provide services in addition to, but
not in lieu of, services provided by the Manager and the Manager Designees under
this Agreement. In providing services to the Company or its subsidiaries, the
Manager and Manager Designees will act as independent contractors, and it is
expressly understood and agreed that this Agreement is not intended to create,
and does not create, any partnership, agency, joint venture or similar
relationship and that no party hereto has the right or ability to contract for
or on behalf of any other party or to effect any transaction for the account of
any other party hereto.

2. Payment of Fees.

(a) On the date hereof, the Company will pay to the Manager (or its Manager
Designee(s)) an aggregate transaction fee (the “Transaction Fee”) equal to
$6,000,000 in consideration of the Manager providing the Financial Advisory
Services. In addition to the Transaction Fee, on the date hereof, the Companies
will pay to the Manager (or its Manager Designee(s)), an amount equal to all
actual third party out-of pocket expenses incurred by or on behalf of the
Manager and its affiliates, including, without limitation, (i) the fees,
expenses and disbursements of lawyers, accountants, consultants, financial
advisors and other advisors that may have been retained by the Manager or its
affiliates and (ii) any fees (including, without limitation, any financing fees)
related to the Transaction incurred by the Manager or its affiliates, up to a
maximum of one million dollars ($1,000,000) (all such fees and expenses, in the
aggregate but subject to the maximum amount set forth above, the “Covered
Costs”).

(b) During the Term, as compensation for the services provided by the Manager
and the Manager Designees under this Agreement, the Company will pay to the
Manager (or its Manager Designee(s)) an aggregate annual retainer fee (the
“Monitoring Fee”) as follows: (i) six hundred thousand dollars ($600,000) for
the period ending on date that is the first

 

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anniversary of the date hereof (the “Initial Period”); and (ii) one million
dollars ($1,000,000) per annum for each year thereafter so long as TPG has the
right to nominate four (4) directors to the Board of Directors of the Company
pursuant to the Stockholders Agreement; provided, that the Monitoring Fee shall
be reduced to (a) seven hundred fifty thousand dollars ($750,000) (or four
hundred fifty thousand dollars ($450,000) during the Initial Period) from and
after the date on which the number of directors which TPG has the right to
nominate to the Board of Directors of the Company pursuant to the Stockholders
Agreement is reduced to three (3), (b) five hundred thousand dollars ($500,000)
(or three hundred thousand dollars ($300,000) during the Initial Period) from
and after the date on which the number of directors which TPG has the right to
nominate to the Board of Directors of the Company pursuant to the Stockholders
Agreement is reduced to two (2), (c) two hundred fifty thousand dollars
($250,000) (or one hundred fifty thousand dollars ($150,000) during the Initial
Period) from and after the date on which the number of directors which TPG has
the right to nominate to the Board of Directors of the Company pursuant to the
Stockholders Agreement is reduced to one (1), and (e) zero dollars ($0) from and
after the date on which the number of directors which TPG has the right to
nominate to the Board of Directors of the Company pursuant to the Stockholders
Agreement has been reduced to zero (0). The Monitoring Fee shall be payable
(i) one-half in cash, and (ii) one-half by issuance by the Company of (x) a
number of shares of Series E Cumulative Redeemable Preferred Stock, par value
$.001 per share (the “Series E Preferred Stock”), of the Company that, in the
aggregate, have a Liquidation Preference (as defined in the Articles
Supplementary to the Company’s existing Articles of Incorporation setting forth
the terms of the Series E Preferred Stock) equal to one-half of such Monitoring
Fee, or (y) if the Series E Preferred Stock is no longer outstanding, a number
of shares of Common Stock, par value $.001 per share (the “Common Stock”), of
the Company that, in the aggregate, have an Average Trading Price (as defined in
the Articles Supplementary to the Company’s existing Articles of Incorporation
setting forth the terms of the Series E Preferred Stock, and determined as of
the date immediately preceding such issuance date) equal to one-half of such
Monitoring Fee; provided, however, that the Company shall pay such portion of
the Monitoring Fee in cash instead of issuing such additional shares of Series E
Preferred Stock or Common Stock if either (a), immediately after giving effect
to such proposed issuance and assuming (immediately following such proposed
issuance) the conversion of all such shares of Series E Preferred Stock then
held by TPG and its affiliates, TPG and its affiliates would hold in excess of
forty nine percent (49.0%) of the Common Stock issued and outstanding or (b) as
a result of such issuance, any “Person” (as such term is defined in the Articles
of Incorporation of the Company dated as of May 6, 1996, as amended and
supplemented through the date hereof (the “Charter”)), other than a member of
the “Stockholder Group” (as such term is defined in that certain Waiver Request,
delivered to the Company as of the date hereof pursuant to Section 7.7 of the
Purchase Agreement), would “Beneficially Own” or “Constructively Own” Equity
Stock in excess of the “Ownership Limit” (as each such term is defined in the
Charter)), and, for the sake of clarity, any issuance in violation of clause
(b) of this proviso shall be void ab initio. The Monitoring Fee will be paid
(and for all avoidance of doubt, the requisite number of shares of Series E
Preferred Stock or Common Stock shall be issued) in four (4) equal quarterly
payments in advance, on the date during such quarter on which the Corporation is
to pay its quarterly Common Stock dividend, and if no such dividend is paid
during such period, the last day of such quarter (or if any such date is not a
day where banks in New York, New York are able to be open for business, on the
next day where such banks are able to be open for business). The Monitoring Fee
payable to the Manager (or its Manager Designee(s)), shall be made in lieu of
any director fees payable to the designated nominees to the Company’s Board of
Directors pursuant to the Stockholders Agreement.

 

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(c) Each payment made pursuant to this Section 2 will be paid by wire transfer
of immediately available funds to the account(s) specified by the Manager from
time to time.

3. Deferral. Any fee (or portion thereof) that would have been payable to the
Manager (or its Manager Designees) pursuant to Section 2 above absent such
payment constituting, resulting in or giving rise to a breach or violation of
the terms or provisions of, or resulting in a default under, any guarantee,
financing or security agreement or indenture entered into by the Company or any
of its subsidiaries and in effect on such date in respect of indebtedness for
borrowed money or debt security (the “Financing Documents”) applicable to the
Company (the “Deferred Fees”) will accrue upon the immediately succeeding period
in which such amounts could, consistent with the Financing Documents, be paid,
and will be paid in such succeeding period (in addition to such other amounts
that would otherwise be payable at such time) in the manner set forth in
Section 2, it being understood that the parties shall use their reasonable best
efforts to cause any deferrals hereunder to comply with the requirements of
Section 409A of the Internal Revenue Code of 1986, as amended, to the extent
applicable.

4. Term. This Agreement will continue in full force and effect until TPG no
longer has the right to designate nominees to the Company’s Board of Directors
pursuant to the Stockholders Agreement, at which time this Agreement shall
automatically terminate. For the avoidance of doubt, termination of this
Agreement will not relieve a party hereto from liability for any breach of this
Agreement on or prior to such termination. In the event of a termination of this
Agreement, the Company will pay the Manager (or its Manager Designees) all
unpaid Transaction Fees (pursuant to Section 2(a) above), Covered Costs
(pursuant to Section 2(a) above), Monitoring Fees (pursuant to Section 2(b)
above), Deferred Fees (pursuant to Section 3 above) and Reimbursable Expenses
(pursuant to Section 5(a) below) due with respect to periods prior to the date
of termination. All of Section 4 through Section 14 will survive termination of
this Agreement with respect to matters arising before or after such termination
(whether in respect of or relating to services rendered during or after the
Term). Each payment made pursuant to this Section 4 will be paid by wire
transfer of immediately available funds to such account(s) as the Manager may
specify to the Company in writing prior to such payment.

5. Expenses; Indemnification.

(a) Expenses. The Company will pay to the Manager (or its Manager Designee(s))
on demand all Reimbursable Expenses (as defined below) that may be incurred
following the date of this Agreement. As used herein, “Reimbursable Expenses”
means (i) all third party out-of-pocket expenses (including, without limitation,
travel-related expenses but excluding professional fees) incurred by (i) TPG
Nominated Directors (as defined in the Stockholders Agreement) in connection
with their service on the Board of Directors of the Company, and (ii) by the
Manager, its affiliates or the Manager Designees with respect to the services
provided pursuant to Section 1 hereof, but with respect to this clause (ii),
only to the extent such expenses have been specifically approved by the Company.
Notwithstanding anything herein to the contrary, the foregoing shall not
restrict or otherwise limit the right of the Manager, any Manager Designee or
any other Indemnittee to receive any payment with respect to an Indemnified
Liabilities pursuant to Section 5(b) below.

 

4

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(b) Indemnity and Liability. The Company will indemnify, exonerate and hold the
Manager, the Manager Designees and each of their respective partners,
shareholders, members, affiliates, associated investment funds, directors,
officers, fiduciaries, managers, controlling persons, employees and agents and
each of the partners, shareholders, members, affiliates, associated investment
funds, directors, officers, fiduciaries, managers, controlling persons,
employees and agents of each of the foregoing (collectively, the “Indemnitees”),
each of whom is an intended third-party beneficiary of this Agreement, free and
harmless from and against any and all actions, causes of action, suits, claims,
liabilities, losses, damages and costs and out-of-pocket expenses in connection
therewith (including, without limitation, attorneys’ fees and expenses) incurred
by the Indemnitees or any of them before or after the date of this Agreement
(collectively, the “Indemnified Liabilities”) arising out of any action, cause
of action, suit, arbitration, investigation or claim (whether between the
relevant Indemnitee and the Company or involving a third party claim against the
relevant Indemnitee), or in any way arising out of or directly or indirectly
relating to (i) this Agreement, the Transaction, any of the Transaction
Documents or any related documents or instruments, any transaction to which the
Company is a party or any other circumstances with respect to the Company or
(ii) operations of, or services provided by the Manager or the Manager Designees
to, the Company or any of its affiliates from time to time; provided that the
foregoing indemnification rights will not be available to the extent that any
such Indemnified Liabilities arose on account of such Indemnitee’s gross
negligence or willful misconduct; and provided, further, that if and to the
extent that the foregoing undertaking may be unavailable or unenforceable for
any reason, the Company hereby agrees to make the maximum contribution to the
payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law. For purposes of this Section 5(b), none of the
circumstances described in the limitations contained in the two provisos in the
immediately preceding sentence will be deemed to apply absent a final
non-appealable judgment of a court of competent jurisdiction to such effect, in
which case to the extent any such limitation is so determined to apply to any
Indemnitee as to any previously advanced indemnity payments made by the Company,
then such payments will be promptly repaid by such Indemnitee to the Company
without interest. The rights of any Indemnitee to indemnification hereunder will
be in addition to any other rights any such person or entity may have under any
other agreement or instrument referenced above or any other agreement or
instrument to which such Indemnitee is or becomes a party or is or otherwise
becomes a beneficiary or under law or regulation; provided that (i) the Company
hereby agrees that it is the indemnitor of first resort under this Agreement and
under any other applicable indemnification agreement (i.e., their obligations to
Indemnitees under this Agreement or any other agreement or undertaking to
provide advancement and/or indemnification to such Indemnitees are primary and
any obligation of the Manager (or any affiliate thereof other than the Company)
to provide advancement or indemnification for the Indemnified Liabilities
incurred by Indemnitees are secondary) and (ii) if the Manager (or any affiliate
thereof) pays or causes to be paid, for any reason, any amounts otherwise
indemnifiable hereunder or under any other indemnification agreement (whether
pursuant to contract, by-laws or charter) with any Indemnitee, then (x) the
Manager (or such affiliate, as the case may be) will be fully subrogated to all
rights of such Indemnitee with respect to such payment and (y) the Company will
fully indemnify, reimburse and hold harmless the Manager (or such other
affiliate) for all such payments actually made by the Manager (or such other
affiliate) and irrevocably waive, relinquish and release the Manager for
contribution, subrogation or any other recovery of any kind in respect of any
advancement of expenses or indemnification hereunder.

 

5

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6. Disclaimer and Limitation of Liability; Opportunities.

(a) Disclaimer; Standard of Care. Neither the Manager nor any of its Manager
Designees makes any representations or warranties, express or implied, in
respect of the services to be provided by the Manager or the Manager Designees
hereunder. In no event will the Manager, its Manager Designees or related
Indemnitees be liable to the Company or any of its affiliates for any act,
alleged act, omission or alleged omission that does not constitute gross
negligence or willful misconduct of the Manager or its Manager Designees as
determined by a final, non-appealable determination of a court of competent
jurisdiction.

(b) Freedom to Pursue Opportunities. In recognition that the Manager, the
Manager Designees (including, without limitation, each of the TPG Nominated
Directors (as such term is defined in the Stockholders Agreement)) and the
Indemnitees currently have, and will in the future have or will consider
acquiring, investments in numerous companies with respect to which the Manager,
the Manager Designees or the Indemnitees may serve as an advisor, a director or
in some other capacity, and in recognition that the Manager, each Manager
Designee and the Indemnitees have myriad duties to various investors and
partners, and in anticipation that the Company, on the one hand, and the Manager
and each Manager Designee (or one or more of the Indemnitees), on the other
hand, may engage in the same or similar activities or lines of business and have
an interest in the same areas of corporate opportunities, and in recognition of
the benefits to be derived by the Company hereunder and in recognition of the
difficulties which may confront any advisor who desires and endeavors fully to
satisfy such advisor’s duties in determining the full scope of such duties in
any particular situation, the provisions of this Section 6(b) are set forth to
regulate, define and guide the conduct of certain affairs of the Company as they
may involve the Manager, the Manager Designees or the Indemnitees. Except as the
Manager or a Manager Designee may otherwise agree in writing after the date
hereof:

(i) The Manager or such Manager Designee and their respective Indemnitees will
have the right: (A) to directly or indirectly engage in any business (including,
without limitation, any business activities or lines of business that are the
same as or similar to those pursued by, or competitive with, the Company and its
subsidiaries), (B) to directly or indirectly do business with any client or
customer of the Company and its subsidiaries, (C) to take any other action that
the Manager or such Manager Designee believes in good faith is necessary to or
appropriate to fulfill its obligations as described in the first sentence of
this Section 6(b) to third parties and (D) not to communicate or present
potential transactions, matters or business opportunities to the Company or any
of its subsidiaries, and to pursue, directly or indirectly, any such opportunity
for itself, and to direct any such opportunity to another person or entity.

 

6

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(ii) The Manager, such Manager Designee and their respective Indemnitees will
have no duty (contractual or otherwise) to communicate or present any corporate
opportunities to the Company or any of their affiliates or to refrain from any
actions specified in Section 6(b)(i), and the Company, on its own behalf and on
behalf of its affiliates, hereby renounces and waives any right to require the
Manager, such Manager Designee or any of their respective Indemnitees to act in
a manner inconsistent with the provisions of this Section 6(b).

(iii) Except as provided in Section 6(a), none of the Manager, the Manager
Designees nor any of their respective Indemnitees will be liable to the Company
or any of their affiliates for breach of any duty (contractual or otherwise) by
reason of any activities or omissions of the types referred to in this
Section 6(b) or of any such person’s or entity’s participation therein.

(c) Limitation of Liability. In no event will the Manager, its Manager Designees
or any of its related Indemnitees be liable to the Company or any of its
affiliates for any indirect, special, incidental or consequential damages,
including, without limitation, lost profits or savings, whether or not such
damages are foreseeable, or for any third party claims (whether based in
contract, tort or otherwise), relating to, in connection with or directly or
indirectly arising out of this Agreement, before or after termination of this
Agreement, including, without limitation, the services to be provided by the
Manager or the Manager Designees hereunder, or for any act or omission that does
not constitute gross negligence or willful misconduct of the Manager or its
Manager Designees or in excess of the fees received by the Manager or Manager
Designee hereunder.

(d) Excluded TPG Services. Notwithstanding anything else in this Agreement to
the contrary, the services provided by the Manager or its Manager Designees
hereunder do not include any service provided by the TPG Operations Group (the
“Ops Group”) or the TPG Leveraged Procurement Group (the “Leveraged Procurement
Group”). In the event that the Company engages the Ops Group or the Leveraged
Procurement Group to provide services to the Company or any of its subsidiaries
or affiliates, the fees paid by the Company in exchange for such services will
be agreed to at the time of such engagement and will be in addition to the fees
owed to the Manager hereunder.

7. Assignment, etc. Except as provided below, and without limiting the Manager’s
rights to have payments owed to it under this Agreement to be paid to its
Manager Designees or other affiliates, none of the parties hereto will have the
right to assign this Agreement without the prior written consent of each of the
other parties. Notwithstanding the foregoing, (a) the Manager may assign all or
part of its rights and obligations hereunder to any of its respective affiliates
that provides services similar to those called for by this Agreement and (b) the
provisions hereof for the benefit of Indemnitees will inure to the benefit of
such Indemnitees and their successors and assigns as third-party beneficiaries
hereof.

8. Amendments and Waivers. No amendment or waiver of any term, provision or
condition of this Agreement will be effective unless in writing and executed by
the Company and the Manager; provided, that the Manager may waive any portion of
any fee to which it is entitled

 

7

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pursuant to this Agreement. No waiver on any one occasion will extend to or
effect or be construed as a waiver of any right or remedy on any future
occasion. No course of dealing of any person or entity nor any delay or omission
in exercising any right or remedy will constitute an amendment of this Agreement
or a waiver of any right or remedy of any party hereto.

9. Governing Law; Jurisdiction. THIS AGREEMENT AND ALL MATTERS ARISING UNDER OR
RELATED TO THIS AGREEMENT WILL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE
DOMESTIC SUBSTANTIVE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICTS OF LAW PRINCIPLES THEREOF. ANY ACTION OR PROCEEDING AGAINST ANY OF THE
PARTIES HERETO RELATING IN ANY WAY TO THIS AGREEMENT MUST BE BROUGHT AND
ENFORCED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR (TO THE EXTENT
SUBJECT MATTER JURISDICTION EXISTS THEREFOR) THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK SITTING IN MANHATTAN, AND THE PARTIES
IRREVOCABLY SUBMIT TO THE JURISDICTION OF BOTH SUCH COURTS IN RESPECT OF ANY
SUCH ACTION OR PROCEEDING.

10. Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY WAIVES TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY WITH RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER
OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED
HEREBY.

11. Entire Agreement. This Agreement contains the entire understanding of the
parties with respect to the subject matter hereof and supersedes any prior
communication or agreement with respect thereto.

12. Notice. All notices, demands, and communications required or permitted under
this Agreement will be in writing and will be effective if served upon another
party and such other party’s copied persons as specified below to the address
set forth for it below (or to such other address as such party will have
specified by notice to each other party delivered in accordance with this
Section 12) if (i) delivered personally, (ii) sent and received by facsimile or
(iii) sent by certified or registered mail or by Federal Express, UPS or any
other comparably reputable overnight courier service, postage prepaid, to the
appropriate address as follows:

If to the Company, to:

Parkway Properties, Inc.

Bank of America Center, Suite 2400

Orlando, Florida 32801

Attention: James R. Heistand

Facsimile: [—]

with a copy (which will not constitute notice) to:

Hogan Lovells US LLP

555 13th Street NW

Washington, DC 20004

Attention: David W. Bonser

Fax: (202) 637-5910

 

8

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If to the Manager, to:

TPG Capital, L.P.

301 Commerce Street

Suite 3300

Fort Worth, TX 76102

Attention: General Counsel

Facsimile: (817) 871-4010

with a copy (which will not constitute notice) to:

Ropes & Gray LLP

Prudential Tower

800 Boylston Street

Boston, MA 02199

Attention: Alfred O. Rose

Fax: (617) 325-0096

and

Ropes & Gray LLP

1211 Avenue of the Americas

New York, NY 10036

Attention: Carl Marcellino

Facsimile: (646) 728-1523

Unless otherwise specified herein, such notices or other communications will be
deemed effective, (a) on the date received, if personally delivered or sent by
facsimile during normal business hours, (b) on the business day after being
received if sent by facsimile other than during normal business hours, (c) one
business day after being sent by Federal Express, DHL or UPS or other comparably
reputable delivery service and (d) five business days after being sent by
registered or certified mail. Each of the parties hereto will be entitled to
specify a different address by giving notice as aforesaid to each of the other
parties hereto.

13. Severability. If in any proceedings a court will refuse to enforce any
provision of this Agreement, then such unenforceable provision will be deemed
eliminated from this Agreement for the purpose of such proceedings to the extent
necessary to permit the remaining provisions to be enforced. To the full extent
that provisions of any applicable law may be waived, they are hereby waived to
the end that this Agreement be deemed to be a valid and binding agreement
enforceable in accordance with its terms, and in the event that any provision
hereof will be found to be invalid or unenforceable, such provision will be
construed by limiting it so as to be valid and enforceable to the maximum extent
consistent with and possible under applicable law.

 

9

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14. Counterparts. This Agreement may be executed in any number of counterparts
and by each of the parties hereto in separate counterparts, each of which when
so executed will be deemed to be an original and all of which together will
constitute one and the same agreement.

[remainder of page intentionally left blank – signature page follows]

 

10

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IN WITNESS WHEREOF, each of the parties hereto has duly executed this Agreement
as of the date first above written.

 

PARKWAY PROPERTIES, INC. By:     Name:   Title:   TPG VI MANAGEMENT, LLC By:    
Name:   Ronald Cami Title:   Vice President

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Exhibit C

Q1 2012 Earnings Release and Supplemental

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LOGO [g347524img1.jpg]

PARKWAY REPORTS FIRST QUARTER 2012 RESULTS

ORLANDO, FLORIDA – May 3, 2012 – Parkway Properties, Inc. (NYSE:PKY) today
announced results for its first quarter ended March 31, 2012.

Highlights for First Quarter 2012 and Recent Events

 

  •  

Reported FFO of $0.43 per share and recurring FFO of $0.44 per share

 

  •  

Reported FAD of $0.16 per share

 

  •  

Increased occupancy to 85.9%, with portfolio 87.6% leased

 

  •  

Completed sales of 16 properties for gross proceeds of $323.6 million

 

  •  

Completed investment in Fund II

 

  •  

Entered into agreement for $200 million investment by TPG, a leading global
investment firm

 

  •  

Agreed to purchase 972,000 square foot office property in Charlotte’s central
business district for $250 million

James R. Heistand, President and Chief Executive Officer of Parkway commented,
“We are making progress on our strategic initiatives through our asset
disposition efforts and resulting repositioning of the portfolio. We understand
this will take time, but we will continue to seek to deploy capital into higher
growth markets as we position the Company to add value and build cash flow. Our
teams in each of our submarkets are committed to improving leasing results and
enhancing our operations at the local level. Lastly, we believe we are aligned
with shareholders in our efforts to maximize the value of our assets, while
finding effective solutions to facilitate building critical mass in higher
growth Sunbelt submarkets in the coming years.”

Consolidated Financial Results for First Quarter Ended March 31, 2012

Funds from operations (“FFO”) available to common shareholders totaled $10.1
million, or $0.43 per diluted share as compared to $12.6 million, or $0.59 per
diluted share, for the prior year period. Recurring FFO totaled $10.3 million,
or $0.44 per diluted share, as compared to $12.8 million, or $0.59 per diluted
share, for the prior year period.

 

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The reconciliation of FFO per diluted share to recurring FFO per diluted share
is as follows:

 

Description

   Q1
2012     Q1
2011  

Funds From Operations

   $ 0.43     $ 0.59  

Unusual and Non-Recurring Items (1):

    

Change in Fair Value of Contingent Consideration

     0.01       —     

Non-Recurring Lease Termination Fee Income

     (0.03 )      (0.07 ) 

Loss on Extinguishment of Debt

     0.01       —     

Acquisition Costs

     0.01       0.08  

Realignment Expenses – Personnel

     0.01       —     

Other

     —          (0.01 )    

 

 

   

 

 

 

Recurring Funds From Operations

   $ 0.44     $ 0.59     

 

 

   

 

 

 

Diluted Weighted Average Common Shares and Units Outstanding (in 000s)

     23,378       21,554     

 

 

   

 

 

 

 

(1) These items include 100% of amounts from wholly-owned assets plus the
Company’s allocable share of amounts recognized from the assets held in
consolidated joint ventures and unconsolidated joint ventures for properties
included in continuing operations and discontinued operations.

Funds available for distribution (“FAD”) totaled $3.7 million, or $0.16 per
diluted share, as compared to $5.8 million, or $0.27 per diluted share, for the
prior year period.

Net income attributable to common shareholders was $2.0 million, or $0.09 per
diluted share, as compared to net loss attributable to common shareholders of
$6.8 million or $0.32 per diluted share, for the prior year period.

Operations and Leasing

The Company’s average rent per square foot was $22.55 during the first quarter
2012, as compared to $22.94 during the first quarter 2011. On a same-store
basis, the Company’s average rent per square foot was $20.20 during the first
quarter 2012 as compared to $20.34 during the first quarter 2011.

The Company’s average occupancy for the first quarter 2012 was 84.3% as compared
to 84.7% for the first quarter 2011. On a same-store basis, the Company’s
average occupancy for the first quarter 2012 was 85.3% as compared to 85.6% for
the first quarter 2011.

The Company’s office portfolio occupancy was 85.9% at quarter end, as compared
to 83.9% at January 1, 2012 and 83.8% at April 1, 2011. Not included in the
April 1, 2012 occupancy rate is the impact of the sale of Overlook II in Atlanta
on April 30, 2012, as well as 21 signed leases totaling 148,000 square feet
expected to take occupancy between now and the fourth quarter of 2012, of which
the majority will commence during the second and third quarters of 2012.
Including the sale of Overlook II and these signed leases, the Company’s
portfolio was 87.6% leased at April 1, 2012.

Parkway’s customer retention rate was 46.8% for the quarter ended March 31,
2012, as compared to 47.1% for the quarter ended December 31, 2011, and 48.1%
for the quarter ended March 31, 2011.

 

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During the first quarter of 2012, 84 renewal, expansion and new leases were
signed totaling 368,000 rentable square feet. Included in this total were 46
renewal leases totaling 140,000 rentable square feet at an average rent per
square foot of $22.41, representing a 7.9% rate decrease from the expiring rate,
and at an average cost of $1.99 per square foot per year of the lease term.

During the first quarter of 2012, 11 expansion leases were signed totaling
25,000 rentable square feet at an average rent per square foot of $24.27 and at
an average cost of $5.35 per square foot per year of the lease term.

During the first quarter of 2012, 27 new leases were signed totaling 203,000
rentable square feet at an average rent per square foot of $22.43 and at an
average cost of $5.49 per square foot per year of the term.

For the first quarter of 2012, Parkway’s share of recurring same-store net
operating income (“NOI”) was $13.0 million on a GAAP basis and decreased
$499,000 or 3.7% as compared to the same period of the prior year and was $11.6
million on a recurring cash basis and decreased $2.2 million or 15.9%. The
decrease in same-store recurring cash NOI is primarily attributable to the start
of a five-month free rent period on January 1, 2012, associated with the renewal
of a 205,000 square foot customer at One Commerce Green in Houston; a decline in
rental income associated with the previous early renewal and contraction of Blue
Cross Blue Shield of Georgia, a 199,000 square foot customer at Capital City
Plaza in Atlanta; and the loss in February 2011 of AutoTrader.com, a 198,000
square foot customer at Peachtree Dunwoody Pavilion in Atlanta.

Asset Recycling

During the first quarter, the Company completed a significant portion of its
previously announced dispositions as part of its strategic objective of becoming
a leading owner of high quality office assets in higher growth markets in the
Sunbelt. As previously announced, the Company entered into an agreement to sell
its interest in 13 office properties totaling 2.7 million square feet owned by
Parkway Properties Office Fund, L.P. (“Fund I”) to its existing partner in the
fund for a gross sales price of $344.3 million. As of December 31, 2011, Parkway
had completed the sale of 9 of these 13 assets.

During the first quarter and through April 30, 2012, the Company completed the
sale of two additional Fund I assets totaling 450,000 square feet, for net
proceeds to Parkway of $2.7 million. The sale of the two remaining assets in the
Fund I portfolio is currently expected to close by the end of the second quarter
of 2012, subject to obtaining necessary lender consents and customary closing
conditions.

Additionally, during the first quarter, the Company completed the sale of 12 of
the 15 properties included in its previously announced strategic sale of a
portfolio of non-core assets, generating net proceeds to Parkway of
approximately $89.0 million. The 12 assets that were sold during the quarter
include five assets in Richmond, four assets in Memphis, and three assets in
Jackson.

The two remaining non-core assets pending sale are The Pinnacle at Jackson Place
and Parking at Jackson Place, and the sale is expected to close during the
second quarter of 2012, subject to the buyer’s successful assumption of the
existing mortgage loan and customary closing conditions. The Company does not
anticipate receiving any material net proceeds from these sales still under
contract. The Pinnacle at Jackson Place currently serves as collateral for a
$29.5 million mortgage loan. The contract to sell a third non-core asset, 111
Capitol Building in Jackson, has expired without a sale.

The Company completed the sale of two additional assets in the first quarter, as
previously announced, including the sale of 111 East Wacker, a 1.0 million
square foot office property located in Chicago and Falls Pointe, a 107,000
square foot office property located in Atlanta and owned by Parkway Properties
Office Fund II, L.P. (“Fund II”). Parkway received approximately $4.0 million in
net proceeds from both sales, which were used to reduce amounts outstanding
under the Company’s credit facility and fund its proportionate share of equity
interests in additional purchases by Fund II.

 

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As previously announced, the Company purchased two additional properties for
Fund II during the quarter, with Parkway’s ownership share in each at 30%. The
Pointe, a 252,000 square foot Class A office building in the Westshore submarket
of Tampa, was purchased for a gross purchase price of $46.9 million. Parkway’s
equity contribution of $7.0 million was funded through the Company’s credit
facility.

Hayden Ferry Lakeside II (“Hayden Ferry II”), a 300,000 square foot Class A+
office building located in the Tempe submarket of Phoenix, and directly adjacent
to Hayden Ferry Lakeside I purchased by Fund II in the second quarter of 2011,
was purchased for a gross purchase price of $86.0 million. Parkway’s equity
contribution of $10.8 million was funded through the Company’s credit facility.
These investments completed the total investment of Fund II.

Subsequent Events to Quarter End

The Company announced today that TPG, a leading global private investment firm,
has agreed to make a $200 million equity investment in Parkway. The Company
intends to use the proceeds raised from this investment primarily to fund future
acquisitions. This investment by TPG has been approved by Parkway’s Board of
Directors, and the offering proceeds are expected to be received by the end of
the second quarter, subject to satisfaction of certain customary closing
conditions.

In addition, the Company announced that it has entered into a purchase and sale
agreement to acquire Hearst Tower, a 972,000 square foot office tower located in
the central business district of Charlotte, North Carolina. The purchase price
of $250 million, or $257 per square foot, represents a significant discount to
estimated replacement cost, and the building is currently 94% leased with no
material lease expirations until 2017. The purchase of Hearst Tower will
initially be funded using proceeds from the anticipated investment by TPG and
borrowings from the Company’s revolving credit facility. Hearst Tower is
expected to generate cash net operating income of approximately $17.5 million
during the first year of Parkway’s ownership period.

Please see the Company’s separate press release dated May 3, 2012, for further
detailed information regarding these subsequent events.

Capital Structure

At March 31, 2012, the Company had an outstanding balance of $48.0 million under
its credit facility and held $31.5 million in cash and cash equivalents, of
which $12.5 million of cash and cash equivalents was Parkway’s share.

At March 31, 2012, the Company’s net debt to EBITDA multiple was 5.0x, after
adjusting EBITDA for the pro forma annual impact of new investments and
dispositions completed for the period, as compared to 5.4x at December 31, 2011,
and 6.5x at March 31, 2011. At March 31, 2012, the Company’s net debt plus
preferred to EBITDA multiple was 6.8x, after adjusting EBITDA for the pro forma
annual impact of new investments and dispositions completed for the period, as
compared to 6.7x at December 31, 2011, and 7.5x at March 31, 2011.

In January 2012, the Company placed a $23.5 million non-recourse mortgage loan,
of which $7.1 million is Parkway’s share, secured by The Pointe in Tampa in
connection with the purchase of this asset by Fund II. This new mortgage loan
matures in February 2019, has a fixed interest rate of 4.0%, and is interest
only for the first 42 months of the term.

In February 2012, the Company placed a $50.0 million non-recourse mortgage loan,
of which $15.0 million is Parkway’s share, secured by Hayden Ferry II in
connection with the purchase of this asset by Fund II. This new mortgage loan
matures in July 2018 and bears interest at LIBOR plus the applicable spread
which ranges from 250 to 350 basis points over the term of the loan. Fund II
entered into an

 

4

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interest rate swap that fixes the LIBOR rate associated with this loan at 1.5%
through January 25, 2018, which equates to a total interest rate ranging from
approximately 4.0% to 5.0%. The mortgage loan is cross-collateralized,
cross-defaulted and coterminous with the mortgage loan secured by Hayden Ferry
I.

In March 2012, the Company repaid a $16.3 million non-recourse mortgage loan
secured by Bank of America Plaza, a 337,000 square foot office property in
Nashville. The mortgage loan had a fixed interest rate of 7.1% and was scheduled
to mature in May 2012. The Company repaid the mortgage loan using amounts
available under the Company’s credit facility.

In March 2012, the Company entered into an Amended and Restated Credit Agreement
with a consortium of eight banks for its $190 million senior unsecured revolving
credit facility. Additionally, the Company amended its $10 million working
capital revolving credit facility under substantially the same terms and
conditions, with the combined size of the facilities remaining at $200 million
(collectively, the “New Facilities”).

The New Facilities provide for modifications to the existing facilities by,
among other things, extending the maturity date from January 31, 2014 to
March 29, 2016, with an additional one-year extension option with the payment of
a fee, increasing the size of the accordion feature from $50 million to as much
as $160 million, lowering applicable interest rate spreads and unused fees, and
modifying certain other terms and financial covenants. The interest rate on the
New Facilities is based on LIBOR plus 160 to 235 basis points, depending upon
overall Company leverage. Additionally, the Company pays fees on the unused
portion of the New Facilities ranging between 25 and 35 basis points based upon
usage of the aggregate commitment.

Common Dividend

The Company’s previously announced first quarter cash dividend of $0.075 per
share, which represents an annualized dividend of $0.30 per share, was paid on
March 28, 2012 and represented a payout of approximately 17.0% of recurring FFO
for the quarter. The dividend was the 102nd consecutive quarterly distribution
to Parkway’s shareholders of Common Stock. After evaluating the earnings impact
resulting from the Company’s recent acquisition and disposition activity, the
Company’s first quarter financial results, and the pending purchase of Hearst
Tower, the Board of Directors currently anticipates effecting a 33% increase in
the common stock dividend, which would result in an annual dividend amount of
$0.40 per share, assuming the completion of the pending TPG and Hearst Tower
transactions and subject to formal approval by the Board at that time.

2012 Outlook

After considering the Company’s financial results during the first quarter, the
completed and pending investment and capital activity to-date, as well as the
proposed stock issuance to TPG and the proposed purchase of Hearst Tower,
Parkway is reconfirming its 2012 reported FFO outlook at a range of $1.15 to
$1.30 per share and adjusting its earnings (loss) per diluted share (“EPS”) to
($0.20) to ($0.05). The reconciliation of projected EPS to projected FFO per
diluted share is as follows:

 

Outlook for 2012

   Range  

Fully diluted EPS

     ($0.20-$0.05)   

Parkway’s share of depreciation and amortization

     $1.42-$1.42   

Parkway’s share of gain on sale of real estate

     ($0.07-$0.07)      

 

 

 

Reported FFO per diluted share

     $1.15-$1.30      

 

 

 

This outlook range does not include any speculative new acquisitions or any
dispositions other than what we previously announced. This outlook range assumes
that Parkway receives the investment from TPG and that it closes on the purchase
of Hearst Tower by the end of the second quarter of 2012, and no permanent
financing is assumed to be placed on Hearst Tower during 2012. This also assumes
that shareholder approval for the conversion of the Series E Convertible
Preferred Shares to common stock occurs by the end of the third quarter.

 

5

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Webcast and Conference Call

The Company will conduct its first quarter conference call on Thursday, May 3,
2012, at 5:00 p.m. Eastern Time. The Company’s earnings release, supplemental
information package, and investor presentation will be posted to the Company’s
website prior to the conference call.

To participate in Parkway’s first quarter earnings conference call, please dial
877-407-3982, or 1-201-493-6780 for international participants, at least five
minutes prior to the scheduled start time. A live audio webcast will also be
available on the “Corporate” section of the Company’s website (www.pky.com). A
taped replay of the call can be accessed 24 hours a day through May 11, 2012, by
dialing 877-870-5176, or 1-858-384-5517 for international callers, and using the
passcode 391677. An audio replay will also be archived and indexed on the
“Corporate” section of the Company’s website.

Additional information on Parkway Properties, Inc., including an archive of
corporate press releases and conference calls, is available on the Company’s
website. The Company’s first quarter 2012 Supplemental Operating and Financial
Data, which includes a reconciliation of Non-GAAP financial measures, is
available on the Company’s website.

About Parkway Properties

Parkway Properties, Inc., a member of the S&P Small Cap 600 Index, is a
self-administered real estate investment trust specializing in the ownership of
quality office properties in higher growth submarkets in the Sunbelt region of
the United States. Parkway owns or has an interest in 43 office properties
located in 10 states with an aggregate of approximately 10.0 million square feet
of leasable space at May 3, 2012. Fee-based real estate services are offered
through wholly-owned subsidiaries of the Company, which in total manage and/or
lease approximately 12.5 million square feet for third-party owners at May 3,
2012.

Annual Meeting

Parkway Properties, Inc. will host its 2012 Annual Meeting of Shareholders on
May 17, 2012, at 2:00 p.m. Eastern Time. The meeting will be held at the
Buckhead Club located on 26th floor of 3344 Peachtree in Atlanta, Georgia.

Forward Looking Statement

Certain statements in this release that are not in the present or past tense or
discuss the Company’s expectations (including the use of the words anticipate,
believe, forecast, intends, expects, project, or similar expressions) are
forward-looking statements within the meaning of the federal securities laws and
as such are based upon the Company’s current belief as to the outcome and timing
of future events. Examples of forward-looking statements include projected net
operating income, cap rates, internal rates of return, future dividend payment
rates, forecasts of FFO accretion, projected capital improvements, expected
sources of financing, expectations as to the timing of closing of acquisitions,
dispositions, or other transactions, including the proposed purchase of the
Hearst Tower and the TPG equity investment, and descriptions relating to these
expectations. There can be no assurance that future developments affecting the
Company will be those anticipated by the Company. These forward-looking
statements involve risks and uncertainties (some of which are beyond the control
of the Company) and are subject to change based upon various factors, including
but not limited to the following risks and uncertainties: changes in the real
estate industry and in performance of the financial markets; the demand for and
market acceptance of the Company’s properties for rental purposes; the amount
and growth of the

 

6

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Company’s expenses; tenant financial difficulties and general economic
conditions, including interest rates, as well as economic conditions in those
areas where the Company owns properties; risks associated with joint venture
partners; the risks associated with the ownership and development of real
property; the failure of the TPG transaction to close; the failure to acquire or
sell properties (including Hearst Tower) as and when anticipated; termination of
property management contracts; the bankruptcy or insolvency of companies for
which Parkway provides property management services or the sale of these
properties; the outcome of claims and litigation involving or affecting the
Company; the ability to satisfy conditions necessary to close pending
transactions; and other risks and uncertainties detailed from time to time in
the Company’s SEC filings. Should one or more of these risks or uncertainties
occur, or should underlying assumptions prove incorrect, the Company’s business,
financial condition, liquidity, cash flows and results could differ materially
from those expressed in the forward-looking statements. Any forward looking
statements speaks only as of the date on which it is made. New risks and
uncertainties arise over time, and it is not possible for us to predict the
occurrence of those matters or the manner in which they may affect us. The
Company does not undertake to update forward-looking statements except as may be
required by law.

Neither the common stock nor the Series E Convertible Preferred Stock to be
issued in the investment transaction described herein, nor the common units into
which the Series E Convertible Preferred Stock may become convertible, have been
registered under the Securities Act of 1933, as amended, and they may not be
offered or sold in the United States absent a registration statement or
exemption from registration.

Company’s Use of Non-GAAP Financial Measures

FFO, FAD, NOI and EBITDA, including related per share amounts, are used by
management, investors and industry analysts as supplemental measures of
operating performance of equity REITs and should be evaluated along with GAAP
net income and income per diluted share (the most directly comparable GAAP
measures), as well as cash flow from operating activities, investing activities
and financing activities, in evaluating the operating performance of the
Company. Management believes that FFO, FAD, NOI and EBITDA are helpful to
investors as supplemental performance measures because these measures exclude
the effect of depreciation, amortization and gains or losses from sales of real
estate, all of which are based on historical costs which implicitly assumes that
the value of real estate diminishes predictably over time. Since real estate
values instead have historically risen or fallen with market conditions, these
non-GAAP measures can facilitate comparisons of operating performance between
periods and among other equity REITs. Non-GAAP measures have limitations in that
they do not reflect all of the amounts associated with the Company’s results of
operations determined in accordance with GAAP. FFO, FAD, NOI and EBITDA do not
represent cash generated from operating activities in accordance with GAAP and
are not necessarily indicative of cash available to fund cash needs as disclosed
in the Company’s Consolidated Statements of Cash Flows. FFO, FAD, NOI and EBITDA
should not be considered as an alternative to net income as an indicator of the
Company’s operating performance or as an alternative to cash flows as a measure
of liquidity. The Company’s calculation of these non-GAAP measures may not be
comparable to similarly titled measures reported by other companies.

FFO – Parkway computes FFO in accordance with standards established by the
National Association of Real Estate Investment Trusts (“NAREIT”), which may not
be comparable to FFO reported by other REITs that do not define the term in
accordance with the current NAREIT definition. FFO is defined as net income,
computed in accordance with GAAP, reduced by preferred dividends, excluding
gains or losses on depreciable real estate, plus real estate related
depreciation and amortization. Adjustments for Parkway’s share of partnerships
and joint ventures are included in the computation of FFO on the same basis. On
October 31, 2011, NAREIT issued updated guidance on reporting FFO such that
impairment losses on depreciable real estate should be excluded from the
computation of FFO for current and prior periods presented.

 

7

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Recurring FFO – In addition to FFO, Parkway also discloses recurring FFO, which
considers Parkway’s share of adjustments for non-recurring lease termination
fees, gains and losses on extinguishment of debt, gains and losses, acquisition
costs, fair value adjustments or other unusual items. Although this is a
non-GAAP measure that differs from NAREIT’s definition of FFO, the Company
believes it provides a meaningful presentation of operating performance.

FAD – There is not a generally accepted definition established for FAD.
Therefore, the Company’s measure of FAD may not be comparable to FAD reported by
other REITs. Parkway defines FAD as FFO, excluding the amortization of
share-based compensation, amortization of above and below market leases,
straight line rent adjustments, gains and losses, acquisition costs, fair value
adjustments, gain or loss on extinguishment of debt, amortization of loan costs,
non-cash charges and reduced by recurring non-revenue enhancing capital
expenditures for building improvements, tenant improvements and leasing costs.
Adjustments for Parkway’s share of partnerships and joint ventures are included
in the computation of FAD on the same basis.

EBITDA – Parkway defines EBITDA, a non-GAAP financial measure, as net income
before interest expense, amortization of financing costs, amortization of
share-based compensation, income taxes, depreciation, amortization, acquisition
costs, gains and losses on early extinguishment of debt, other gains and losses
and fair value adjustments. Adjustments for Parkway’s share of partnerships and
joint ventures are included in the computation of EBITDA on the same basis.
EBITDA, as calculated by us, is not comparable to EBITDA reported by other REITs
that do not define EBITDA exactly as we do. EBITDA does not represent cash
generated from operating activities in accordance with GAAP, and should not be
considered an alternative to operating income or net income as an indicator of
performance or as an alternative to cash flows from operating activities as an
indicator of liquidity.

NOI, Recurring NOI, Same-Store NOI and Recurring Same-Store NOI – NOI includes
income from real estate operations less property operating expenses (before
interest expense and depreciation and amortization). In addition to NOI, Parkway
discloses recurring NOI, which considers adjustments for non-recurring lease
termination fees or other unusual items. The Company’s disclosure of same-store
NOI and recurring same-store NOI includes those properties that were owned
during the entire current and prior year reporting periods and excludes
properties classified as discontinued operations.

Additional Information About the Proposed Transaction and Where to Find It

This communication is being made in respect of the proposed equity investment
involving Parkway and certain affiliates of TPG, a global private investment
firm. In connection with the proposed transaction, Parkway will file with the
Securities and Exchange Commission a proxy statement and will mail or otherwise
disseminate the proxy statement and a form of proxy to its stockholders when it
becomes available. STOCKHOLDERS AND INVESTORS ARE ENCOURAGED TO READ THE PROXY
STATEMENT (AND OTHER RELEVANT MATERIALS) REGARDING THE PROPOSED TRANSACTION
CAREFULLY AND IN ITS ENTIRETY WHEN IT BECOMES AVAILABLE, AND BEFORE MAKING ANY
VOTING DECISION, AS IT WILL CONTAIN IMPORTANT INFORMATION ABOUT THE TRANSACTION.
Stockholders and investors will be able to obtain a free copy of the proxy
statement (when available), as well as other filings made by Parkway regarding
Parkway Properties, Inc. and the proposed transaction, without charge, at the
Securities and Exchange Commission’s website (http://www.sec.gov). These
materials also can be obtained, when available, without charge, by directing a
request to Parkway Properties, Inc., 390 North Orange Avenue, Suite 2400,
Orlando, Florida 32801, Attention: Investor Relations.

 

8

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Certain Information Regarding Participants

Parkway and its directors and executive officers may be deemed, under SEC rules,
to be participants in the solicitation of proxies from Parkway’s stockholders
regarding the conversion of any shares of preferred stock of Parkway issued to
TPG in connection with TPG’s proposed equity investment in Parkway into shares
of Parkway’s common stock. Security holders may obtain information regarding the
names, affiliations and interests of such individuals in Parkway’s Annual Report
on Form 10-K for the year ended December 31, 2011, which was filed with the SEC
on March 12, 2012, and its definitive proxy statement for the 2012 annual
meeting of stockholders, which was filed with the SEC on April 5, 2012.
Additional information regarding the interests of such individuals in the
proposed acquisition of Parkway will be included in the proxy statement relating
to such acquisition when it is filed with the SEC. These documents may be
obtained free of charge from the SEC’s website at www.sec.gov and the Company’s
website at www.pky.com.

Contact:

Parkway Properties, Inc.

Thomas E. Blalock

Vice President of Investor Relations

Bank of America Center

390 N. Orange Ave., Suite 2400

Orlando, FL 32801

(407) 650-0593

www.pky.com

 

9

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PARKWAY PROPERTIES, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

 

     March 31
2012     December 31
2011        (Unaudited)        

Assets

    

Real estate related investments:

    

Office and parking properties

   $ 1,204,885      $ 1,084,060   

Accumulated depreciation

     (172,480 )      (162,123 )    

 

 

   

 

 

       1,032,405        921,937   

Land available for sale

     250        250   

Mortgage loans

     1,500        1,500      

 

 

   

 

 

       1,034,155        923,687   

Receivables and other assets

     96,339        109,427   

Intangible assets, net

     105,205        95,628   

Assets held for sale

     98,844        382,789   

Management contracts, net

     48,735        49,597   

Cash and cash equivalents

     31,489        75,183      

 

 

   

 

 

     $ 1,414,767      $ 1,636,311      

 

 

   

 

 

 

Liabilities

    

Notes payable to banks

   $ 48,000      $ 132,322   

Mortgage notes payable

     553,674        498,012   

Accounts payable and other liabilities

     70,976        90,341   

Liabilities related to assets held for sale

     100,376        285,599      

 

 

   

 

 

       773,026        1,006,274      

 

 

   

 

 

 

Equity

    

Parkway Properties, Inc. stockholders’ equity:

    

8.00% Series D Preferred stock, $.001 par value, 5,421,296 shares authorized,
issued and outstanding in 2012 and 2011

     128,942        128,942   

Common stock, $.001 par value, 64,578,704 shares authorized in 2012 and 2011,
21,954,105 and 21,995,536 shares issued and outstanding in 2012 and 2011,
respectively

     22        22   

Common stock held in trust, at cost, 6,243 and 8,368 shares in 2012 and 2011,
respectively

     (148 )      (220 ) 

Additional paid-in capital

     517,343        517,309   

Accumulated other comprehensive loss

     (3,258 )      (3,340 ) 

Accumulated deficit

     (270,740 )      (271,104 )    

 

 

   

 

 

 

Total Parkway Properties, Inc. stockholders’ equity

     372,161        371,609   

Noncontrolling interests

     269,580        258,428      

 

 

   

 

 

 

Total equity

     641,741        630,037      

 

 

   

 

 

     $ 1,414,767      $ 1,636,311      

 

 

   

 

 

 

 

10

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PARKWAY PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

 

     Three Months Ended
March 31        2012     2011        (Unaudited)  

Revenues

    

Income from office and parking properties

   $ 45,855      $ 27,760   

Management company income

     5,432        338      

 

 

   

 

 

 

Total revenues

     51,287        28,098      

 

 

   

 

 

 

Expenses and other

    

Property operating expense

     18,334        10,943   

Depreciation and amortization

     17,990        9,084   

Change in fair value of contingent consideration

     216        —     

Management company expenses

     4,534        803   

General and administrative

     3,599        3,756   

Acquisition costs

     826        2,349      

 

 

   

 

 

 

Total expenses and other

     45,499        26,935      

 

 

   

 

 

 

Operating income

     5,788        1,163   

Other income and expenses

    

Interest and other income

     97        324   

Equity in earnings of unconsolidated joint ventures

     —          41   

Interest expense

     (9,244 )      (6,408 )    

 

 

   

 

 

 

Loss before income taxes

     (3,359 )      (4,880 ) 

Income tax expense

     (161 )      —        

 

 

   

 

 

 

Loss from continuing operations

     (3,520 )      (4,880 ) 

Discontinued operations:

    

Income (loss) from discontinued operations

     3,272        (2,910 ) 

Gain on sale of real estate from discontinued operations

     5,575        —        

 

 

   

 

 

 

Total discontinued operations

     8,847        (2,910 )    

 

 

   

 

 

 

Net income (loss)

     5,327        (7,790 ) 

Net income attributable to noncontrolling interest - unit holders

     (89 )      —     

Net (income) loss attributable to noncontrolling interests - real estate
partnerships

     (533 )      3,195      

 

 

   

 

 

 

Net income (loss) for Parkway Properties, Inc.

     4,705        (4,595 ) 

Dividends on preferred stock

     (2,711 )      (2,187 )    

 

 

   

 

 

 

Net income (loss) attributable to common stockholders

   $ 1,994      $ (6,782 )    

 

 

   

 

 

 

Net income (loss) per common share attributable to Parkway Properties, Inc.:

    

Basic:

    

Loss from continuing operations attributable to Parkway Properties, Inc.

   $ (0.16 )    $ (0.27 ) 

Discontinued operations

     0.25        (0.05 )    

 

 

   

 

 

 

Basic net income (loss) attributable to Parkway Properties, Inc.

   $ 0.09      $ (0.32 )    

 

 

   

 

 

 

Diluted:

    

Loss from continuing operations attributable to Parkway Properties, Inc.

   $ (0.16 )    $ (0.27 ) 

Discontinued operations

     0.25        (0.05 )    

 

 

   

 

 

 

Diluted net income (loss) attributable to Parkway Properties, Inc.

   $ 0.09      $ (0.32 )    

 

 

   

 

 

 

Weighted average shares outstanding:

    

Basic

     21,568        21,476      

 

 

   

 

 

 

Diluted

     21,568        21,476      

 

 

   

 

 

 

Amounts attributable to Parkway Properties, Inc. common stockholders:

    

Loss from continuing operations attributable to Parkway Properties, Inc.

   $ (3,499 )    $ (5,647 ) 

Discontinued operations

     5,493        (1,135 )    

 

 

   

 

 

 

Net income (loss) attributable to common stockholders

   $ 1,994      $ (6,782 )    

 

 

   

 

 

 

 

11

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PARKWAY PROPERTIES, INC.

RECONCILIATION OF FUNDS FROM OPERATIONS AND

FUNDS AVAILABLE FOR DISTRIBUTION TO NET INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011

(In thousands, except per share data)

 

     Three Months Ended
March 31        2012     2011        (Unaudited)  

Net Income (Loss) for Parkway Properties, Inc.

   $ 4,705      $ (4,595 ) 

Adjustments to Net Income (Loss) for Parkway Properties, Inc. (at Parkway’s
Share):

    

Preferred Dividends

     (2,711 )      (2,187 ) 

Depreciation and Amortization

     10,385        19,425   

Noncontrolling Interest - Unit Holders

     89        —     

Gain on Sale of Real Estate

     (2,333 )      —        

 

 

   

 

 

 

FFO Available to Common Stockholders

   $ 10,135      $ 12,643   

Adjustments to Derive Recurring FFO (at Parkway’s Share):

    

Change in Fair Value of Contingent Consideration

     216        —     

Non-Recurring Lease Termination Fee Income

     (596 )      (1,521 ) 

Loss on Early Extinguishment of Debt

     288        —     

Non-Cash Adjustment for Interest Rate Swap

     (138 )      —     

Acquisition Costs

     248        1,667   

Expenses Related to Litigation

     —          (31 ) 

Realignment Expenses - Personnel

     180        —        

 

 

   

 

 

 

Recurring FFO

   $ 10,333      $ 12,758      

 

 

   

 

 

 

Funds Available for Distribution

    

FFO Available to Common Stockholders

   $ 10,135      $ 12,643   

Add (Deduct) (at Parkway’s Share):

    

Straight-line Rents

     (2,616 )      (1,748 ) 

Amortization of Above/Below Market Leases

     296        (279 ) 

Amortization of Share-Based Compensation

     157        407   

Acquisition Costs

     248        1,667   

Amortization of Loan Costs

     442        402   

Non-Cash Adjustment for Interest Rate Swap

     (138 )      —     

Loss on Early Extinguishment of Debt

     288        —     

Change in Fair Value of Contingent Consideration

     216        —     

Recurring Capital Expenditures:

    

Building Improvements

     (457 )      (1,969 ) 

Tenant Improvements - New Leases

     (2,900 )      (1,132 ) 

Tenant Improvements - Renewal Leases

     (1,219 )      (1,459 ) 

Leasing Costs - New Leases

     (505 )      (646 ) 

Leasing Costs - Renewal Leases

     (235 )      (2,038 )    

 

 

   

 

 

 

Total Recurring Capital Expenditures

     (5,316 )      (7,244 )    

 

 

   

 

 

 

Funds Available for Distribution

   $ 3,712      $ 5,848      

 

 

   

 

 

 

Diluted Per Common Share/Unit Information (**)

    

FFO Per Share

   $ 0.43      $ 0.59   

Recurring FFO Per Share

   $ 0.44      $ 0.59   

FAD Per Share

   $ 0.16      $ 0.27   

Dividends Paid

   $ 0.075      $ 0.075   

Dividend Payout Ratio for FFO

     17.3 %      12.8 % 

Dividend Payout Ratio for Recurring FFO

     17.0 %      12.7 % 

Dividend Payout Ratio for FAD

     45.5 %      27.7 % 

Other Supplemental Information

    

Parkway’s Share of Recurring Capital Expenditures

   $ 5,316      $ 7,244   

Parkway’s Share of Upgrades on Acquisitions

     1,332        253   

Parkway’s Share of Major Renovations

     —          20      

 

 

   

 

 

 

Parkway’s Share of Total Real Estate Improvements and Leasing Costs

   $ 6,648      $ 7,517      

 

 

   

 

 

 

**Information for Diluted Computations:

    

Basic Common Shares/Units Outstanding

     22,222        21,478   

Dilutive Effect of Other Share Equivalents

     1,156        76      

 

 

   

 

 

 

Diluted Weighted Average Shares/Units Outstanding

     23,378        21,554      

 

 

   

 

 

 

Amounts Attributable to Discontinued Operations Related to Above Metrics (at
Parkway’s share):

    

Net Income (Loss) from Discontinued Operations

   $ 5,493      $ (1,135 ) 

Adjustments to Net Income (Loss) from Discontinued Operations:

    

Depreciation and Amortization

     279        11,631   

Gain on Sale of Real Estate

     (2,333 )      —        

 

 

   

 

 

 

FFO from Discontinued Operations

   $ 3,439      $ 10,496   

Adjustments to Derive Recurring FFO from Discontinued Operations:

    

Lease Termination Fees

     (88 )      (1,369 ) 

Loss on Extinguishment of Debt

     98        —     

Non-Cash Adjustment for Interest Rate Swap

     (138 )      —        

 

 

   

 

 

 

Recurring FFO from Discontinued Operations

   $ 3,311      $ 9,127      

 

 

   

 

 

 

FFO from Discontinued Operations

   $ 3,439      $ 10,496   

Adjustments to Derive FAD from Discontinued Operations:

    

Straight-Line Rents

     (364 )      (1,776 ) 

Amortization of Above/Below Market Leases

     (12 )      (262 ) 

Amortization of Loan Costs

     28        83   

Loss on Extinguishment of Debt

     98        —     

Non-Cash Adjustment for Interest Rate Swap

     (138 )      —     

Recurring Capital Expenditures

     (1,721 )      (4,754 )    

 

 

   

 

 

 

FAD from Discontinued Operations

   $ 1,330      $ 3,787      

 

 

   

 

 

 

 

12

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PARKWAY PROPERTIES, INC.

CALCULATION OF EBITDA AND COVERAGE RATIOS

FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011

(In thousands)

 

     Three Months Ended
March 31        2012     2011        (Unaudited)  

Net Income (Loss) for Parkway Properties, Inc.

   $ 4,705      $ (4,595 ) 

Adjustments to Net Income (Loss) for Parkway Properties, Inc. (at Parkway’s
Share):

    

Interest Expense

     6,206        10,647   

Amortization of Financing Costs

     442        402   

Non-Cash Adjustment for Interest Rate Swap

     (138 )      —     

Loss on Early Extinguishment of Debt

     288        —     

Acquisition Costs

     248        1,667   

Depreciation and Amortization

     10,385        19,425   

Amortization of Share-Based Compensation

     157        407   

Gain on Sale of Real Estate

     (2,333 )      —     

Change in Fair Value of Contingent Consideration

     216        —     

Tax Expense

     161        —        

 

 

   

 

 

 

EBITDA

   $ 20,337      $ 27,953      

 

 

   

 

 

 

Interest Coverage Ratio:

    

EBITDA

   $ 20,337      $ 27,953      

 

 

   

 

 

 

Interest Expense (at Parkway’s Share):

    

Interest Expense

   $ 6,206      $ 10,647      

 

 

   

 

 

 

Total Interest Expense

   $ 6,206      $ 10,647      

 

 

   

 

 

 

Interest Coverage Ratio

     3.28        2.63      

 

 

   

 

 

 

Fixed Charge Coverage Ratio:

    

EBITDA

   $ 20,337      $ 27,953      

 

 

   

 

 

 

Fixed Charges (at Parkway’s Share):

    

Interest Expense

   $ 6,206      $ 10,647   

Preferred Dividends

     2,711        2,187   

Principal Payments (Excluding Early Extinguishment of Debt)

     1,400        2,883      

 

 

   

 

 

 

Total Fixed Charges

   $ 10,317      $ 15,717      

 

 

   

 

 

 

Fixed Charge Coverage Ratio

     1.97        1.78      

 

 

   

 

 

 

Modified Fixed Charge Coverage Ratio:

    

EBITDA

   $ 20,337      $ 27,953      

 

 

   

 

 

 

Modified Fixed Charges (at Parkway’s Share):

    

Interest Expense

   $ 6,206      $ 10,647   

Preferred Dividends

     2,711        2,187      

 

 

   

 

 

 

Total Modified Fixed Charges

   $ 8,917      $ 12,834      

 

 

   

 

 

 

Modified Fixed Charge Coverage Ratio

     2.28        2.18      

 

 

   

 

 

 

The following table reconciles EBITDA to cash flows provided by (used in)
operating activities:

    

EBITDA

   $ 20,337      $ 27,953   

Amortization of Above (Below) Market Leases

     1,094        (300 ) 

Amortization of Mortgage Loan Discount

     —          (197 ) 

Interest Rate Swap Adjustment

     138        —     

Operating Distributions from Unconsolidated Joint Ventures

     —          465   

Interest Expense

     (10,172 )      (14,245 ) 

Loss on Early Extinguishment of Debt

     (291 )      —     

Acquisition Costs

     (248 )      (1,667 ) 

Tax Expense-Current

     (406 )      —     

Change in Deferred Leasing Costs

     (1,792 )      (3,579 ) 

Change in Receivables and Other Assets

     8,468        (1,362 ) 

Change in Accounts Payable and Other Liabilities

     (11,045 )      (18,135 ) 

Adjustments for Noncontrolling Interests

     9,520        6,079   

Adjustments for Unconsolidated Joint Ventures

     (37 )      (159 )    

 

 

   

 

 

 

Cash Flows Provided by (Used in) Operating Activities

   $ 15,566      $ (5,147 )    

 

 

   

 

 

 

 

13

--------------------------------------------------------------------------------

PARKWAY PROPERTIES, INC.

NET OPERATING INCOME FROM OFFICE AND PARKING PROPERTIES

THREE MONTHS ENDED MARCH 31, 2012 AND 2011

(In thousands, except number of properties data)

 

     Square Feet      Number of
Properties      Percentage
of Portfolio (1)     Net Operating Income      Average
Occupancy                2012      2011      2012     2011  

Same-store properties:

                  

Wholly-owned

     5,010         26         47.8 %    $ 13,161       $ 13,554         86.0 % 
    86.7 % 

Fund II

     450         2         3.7 %      1,007         667         77.8 %      73.7
%    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total same-store properties

     5,460         28         51.5 %    $ 14,168       $ 14,221         85.3 % 
    85.6 %    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Net operating income from all office and parking properties

     10,210         44         100.0 %    $ 27,521       $ 16,817           

 

 

    

 

 

    

 

 

   

 

 

    

 

 

      

 

(1) Percentage of portfolio based on 2012 net operating income.

The following table is a reconciliation of net income (loss) to SSNOI and
Recurring SSNOI:

 

     Three Months Ended
March 31        2012     2011  

Net income (loss) for Parkway Properties, Inc.

   $ 4,705      $ (4,595 ) 

Add (deduct):

    

Interest expense

     9,244        6,408   

Depreciation and amortization

     17,990        9,084   

Management company expenses

     4,534        803   

Income tax expense

     161        —     

General and administrative expenses

     3,599        3,756   

Acquisition costs

     826        2,349   

Equity in (earnings) loss of unconsolidated joint ventures

     —          (41 ) 

Change in fair value of contingent consideration

     216        —     

Net income attributable to noncontrolling interests - unit holders

     89        —     

Net income (loss) attributable to noncontrolling interests - real estate
partnerships

     533        (3,195 ) 

(Income) loss from discontinued operations

     (3,272 )      2,910   

Gain on sale of real estate from discontinued operations

     (5,575 )      —     

Management company income

     (5,432 )      (338 ) 

Interest and other income

     (97 )      (324 )    

 

 

   

 

 

 

Net operating income from consolidated office and parking properties

     27,521        16,817   

Less: net operating income from non same-store properties

     (13,353 )      (2,596 )    

 

 

   

 

 

 

Same-store net operating income (SSNOI)

     14,168        14,221   

Less: non-recurring lease termination fee income

     (446 )      (239 )    

 

 

   

 

 

 

Recurring SSNOI

   $ 13,722      $ 13,982      

 

 

   

 

 

 

Parkway’s share of SSNOI

   $ 13,463      $ 13,755      

 

 

   

 

 

 

Parkway’s share of recurring SSNOI

   $ 13,017      $ 13,516      

 

 

   

 

 

 

 

14

--------------------------------------------------------------------------------

LOGO [g347524img2.jpg]

--------------------------------------------------------------------------------

PARKWAY PROPERTIES, INC.

SUPPLEMENTAL FINANCIAL AND PORTFOLIO INFORMATION

March 31, 2012

Conference Call Information:

Date: Thursday, May 3, 2012

Time: 5:00 p.m. Eastern Time

Number: 1-877-407-3982, or

1-201-493-6780 for International Participants

*Taped Replay Available through May 11, 2012

at 1-877-870-5176, or 1-858-384-5517 for

International Callers, Passcode 391677

 

     Page  

Definitions and Forward Looking Statement

     3   

Company Profile

     4   

Financial Schedules

  

Summary Information

     5   

Consolidated Balance Sheets

     6   

Consolidated Statements of Operations

     7   

Statements of Operations at Parkway’s Share

     8   

Consolidated Statement of Changes in Equity

     9   

Consolidated Statements of Cash Flows

     10   

Funds from Operations and Funds Available for Distribution

     11   

EBITDA and Coverage Ratios

     12   

Balance Sheet Overview

     13   

Supplemental Balance Sheet Data

     14   

Schedule of Other Assets and Other Liabilities at Parkway’s Share

     15   

Summary of Outstanding Debt

     16   

Operational Results

     17   

Summary Leasing Metrics

     18   

Leasing and Capital Expenditure Data

     19   

Net Operating Income from Office and Parking Properties

     20   

Fee Income at Parkway’s Share

     22   

Financial Summary of Consolidated Joint Ventures

     23   

Discontinued Operations

     25   

Operating Property Acquisitions and Dispositions

     26   

Summary of Office Property Interests

     27   

Schedule of Lease Expirations

     28   

Leasing Status

     30   

25 Largest Customers

     31   

--------------------------------------------------------------------------------

PARKWAY PROPERTIES, INC.

DEFINITIONS AND FORWARD LOOKING STATEMENT

 

 

This section explains commonly used real estate investment trust (REIT) industry
terms and certain non-GAAP financial measures that are used in other sections of
this document.

Funds From Operations (FFO)

Parkway computes FFO in accordance with standards established by the National
Association of Real Estate Investment Trusts (“NAREIT”), which may not be
comparable to FFO reported by other REITs that do not define the term in
accordance with the current NAREIT definition. FFO is defined as net income,
computed in accordance with generally accepted accounting principles (“GAAP”),
reduced by preferred dividends, excluding gains or losses on depreciable real
estate, plus real estate related depreciation and amortization. Adjustments for
Parkway’s share of partnerships and joint ventures are included in the
computation of FFO on the same basis. On October 31, 2011, NAREIT issued updated
guidance on reporting FFO such that impairment losses on depreciable real estate
should be excluded from the computation of FFO for current and prior periods.

Recurring Funds From Operations (Recurring FFO)

Recurring FFO considers Parkway’s share of adjustments for non-recurring lease
termination fees, gains and losses on extinguishment of debt, gains and losses,
acquisition costs, fair value adjustments or other unusual items. Although this
is a non-GAAP measure that differs from NAREIT’s definition of FFO, the Company
believes it provides a meaningful presentation of operating performance.

Funds Available for Distribution (FAD)

There is not a generally accepted definition established for FAD. Therefore, the
Company’s measure of FAD may not be comparable to FAD reported by other REITs.
Parkway defines FAD as FFO, excluding the amortization of share based
compensation, amortization of above and below market leases, straight line rent
adjustments, gains and losses, acquisition costs, fair value adjustments, gain
or loss on extinguishment of debt, amortization of loan costs, non-cash charges
and reduced by recurring non-revenue enhancing capital expenditures for building
improvements, tenant improvements and leasing costs. Adjustments for Parkway’s
share of partnerships and joint ventures are included in the computation of FAD
on the same basis.

EBITDA

Parkway defines EBITDA, a non-GAAP financial measure, as net income before
interest expense, amortization of financing costs, amortization of share-based
compensation, income taxes, depreciation, amortization, acquisition costs, gains
and losses on early extinguishment of debt, other gains and losses and fair
value adjustments. Adjustments for Parkway’s share of partnerships and joint
ventures are included in the computation of EBITDA on the same basis. EBITDA, as
calculated by us, is not comparable to EBITDA reported by other REITs that do
not define EBITDA exactly as we do. EBITDA does not represent cash generated
from operating activities in accordance with generally accepted accounting
principles, and should not be considered an alternative to operating income or
net income as an indicator of performance or as an alternative to cash flows
from operating activities as an indicator of liquidity.

Annualized Rental Revenue

Annualized Rental Revenue represents the gross rental rate (including
escalations) multiplied by the number of square feet leased by the customer.
Annualized rent for customers in joint ventures is calculated based on our
ownership interest. However, square footage presented represents 100% of square
feet through direct ownership or through joint ventures. Annualized rental
amount expiring is defined as net rentable square feet expiring multiplied by
the weighted average expiring annual rental rate per net rentable square foot.

Weighted Average Expiring Gross Rental Rate

Weighted average current rental rate including escalations for operating
properties.

Estimated Average Market Rent

Estimated average market rent is based upon information obtained from (i) the
Company’s own experience in leasing space at the properties; (ii) leasing agents
in the relevant markets with respect to quoted rental rates and completed
leasing transactions for comparable properties in the relevant markets; and
(iii) publicly available data with respect thereto. Estimated average market
rent is weighted by the new rentable square feet expiring in each property.

Same-Store Properties

Parkway defines same-store properties as those properties that were owned for
the entire current and prior year reporting periods and excludes properties
classified as discontinued operations. Same-store net operating income (“SSNOI”)
includes income from real estate operations less property operating expenses
(before interest and depreciation and amortization) for same-store properties.
Recurring SSNOI includes adjustments for non-recurring lease termination fees or
other unusual items. SSNOI as computed by Parkway may not be comparable to SSNOI
reported by other REITs that do not define the measure exactly as we do. SSNOI
is a supplemental industry reporting measurement used to evaluate the
performance of the Company’s investments in real estate assets.

Forward Looking Statement

Certain statements in this package that are not in the present or past tense or
discuss the Company’s expectations (including the use of the words anticipate,
believe, forecast, intends, expects, project, or similar expressions) are
forward-looking statements within the meaning of the federal securities laws and
as such are based upon the Company’s current belief as to the outcome and timing
of future events. Examples of forward-looking statements include projected net
operating income, cap rates, internal rates of return, future dividend payment
rates, forecasts of FFO accretion, projected capital improvements, expected
sources of financing, expectations as to the timing of acquisitions,
dispositions or other transactions, and descriptions relating to these
expectations. There can be no assurance that future developments affecting the
Company will be those anticipated by the Company. These forward-looking
statements involve risks and uncertainties (some of which are beyond the control
of the Company) and are subject to change based upon various factors, including
but not limited to the following risks and uncertainties: changes in the real
estate industry and in performance of the financial markets; the demand for and
market acceptance of the Company’s properties for rental purposes; the amount
and growth of the Company’s expenses; tenant financial difficulties and general
economic conditions, including interest rates, as well as economic conditions in
those areas where the Company owns properties; risks associated with joint
venture partners; the risks associated with the ownership and development of
real property; the failure to acquire or sell properties as and when
anticipated; termination of property management contracts; the bankruptcy or
insolvency of companies for which Parkway provides property management services
or the sale of these properties; the outcome of claims and litigation involving
or affecting the Company; the ability to satisfy conditions necessary to closing
pending transactions; and other risks and uncertainties detailed from time to
time in the Company’s SEC filings. Should one or more of these risks or
uncertainties occur, or should underlying assumptions prove incorrect, the
Company’s business, financial condition, liquidity, cash flows and results could
differ materially from those expressed in the forward-looking statements. Any
forward looking statements speaks only as of the date on which it is made. New
risks and uncertainties arise over time, and it is not possible for us to
predict the occurrence of those matters or the manner in which they may affect
us. The Company does not undertake to update forward-looking statements except
as may be required by law.

 

Page 3 of 31

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PARKWAY PROPERTIES, INC.

COMPANY PROFILE

About Parkway Properties

Parkway Properties, Inc., a member of the S&P Small Cap 600 Index, is a
self-administered real estate investment trust specializing in the ownership of
quality office properties in higher growth submarkets in the Sunbelt region of
the United States. Parkway owns or has an interest in 43 office properties
located in 10 states with an aggregate of approximately 10.0 million square feet
of leasable space at May 3, 2012. Fee-based real estate services are offered
through wholly-owned subsidiaries of the Company, which in total manage and/or
lease approximately 12.5 million square feet for third-party owners at May 3,
2012.

 

Corporate Headquarters:    Stock Exchange Listing:

Bank of America Center

390 North Orange Avenue, Suite 2400

Orlando, FL 32801

Phone: 407.650.0593

Fax: 407.650.0597

www.pky.com

  

New York Stock Exchange

 

NYSE Trading Symbols:

Common Stock - PKY

Preferred Stock Series D - PKY.D

Portfolio Data (at 05/03/12)

 

     Number of
Properties      Square Feet
(in 000s)      % of Portfolio  

Fee-simple properties

     29         5,468         55.0 % 

Fund I properties

     2         321         3.2 % 

Fund II properties

     12         4,161         41.8 %    

 

 

    

 

 

    

 

 

 

Total

     43         9,950         100.0 %    

 

 

    

 

 

    

 

 

 

In addition, the Company manages and/or leases approximately 12.5 million square
feet on behalf of third parties.

Management Team

 

 

James R. Heistand   Richard G. Hickson IV President and Chief Executive Officer
  Executive VP and Chief Financial Officer James M. Ingram   M. Jayson Lipsey
Executive VP and Chief of Sales/Business Development   Executive VP and Chief
Operating Officer David R. O’Reilly   Mandy M. Pope Executive VP and Chief
Investment Officer   Executive VP and Chief Accounting Officer Henry F. Pratt
III   Warren L. Speed Executive VP and Head of Asset Management   Executive VP
of People Department

Contact Information

 

 

Thomas E. Blalock   Vice President of Investor Relations   tblalock@pky.com  

 

Page 4 of 31

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PARKWAY PROPERTIES, INC.

SUMMARY INFORMATION

(In thousands, except per share, per square foot and number of properties data)

 

     For the Three Months Ended or At        3/31/12     12/31/11     9/30/11  
  6/30/11     3/31/11  

Balance Sheet Data

          

Gross Cost of Real Estate Assets

   $ 1,204,885      $ 1,084,060      $ 1,685,906      $ 2,077,583      $
1,917,773   

Total Assets

     1,414,767        1,636,311        1,914,182        2,089,688       
1,824,815   

Total Liabilities

     773,026        1,006,274        1,233,310        1,252,112        1,122,473
  

Total Noncontrolling Interests

     269,580        258,428        250,126        347,427        221,447   

Total Stockholders’ Equity Attributable to Parkway Properties, Inc.

     372,161        371,609        430,746        490,149        480,895   

Operating Data

          

Parkway’s Share:

          

Operating Property Revenue (1)

   $ 28,890      $ 27,995      $ 27,772      $ 26,018      $ 24,750   

Net Operating Income from Operating Properties (1)

     17,157        16,147        15,119        14,995        14,714   

QTD Same-Store Assets Recurring NOI Growth (GAAP)

     -3.7 %      -3.0 %      -8.5 %      -4.8 %      -2.2 % 

YTD Same-Store Assets Recurring NOI Growth (GAAP)

     -3.7 %      -5.3 %      -5.8 %      -2.8 %      -2.2 % 

QTD Same-Store Assets Recurring NOI Growth (Cash)

     -15.9 %      -3.0 %      -11.4 %      -1.7 %      -4.6 % 

YTD Same-Store Assets Recurring NOI Growth (Cash)

     -15.9 %      -2.7 %      -3.5 %      -0.8 %      -4.6 % 

Straight-Line Rents

     2,616        813        1,189        1,275        1,748   

Amortization of (Above) Below Market Rents

     (296 )      193        82        313        279   

Non-Recurring Lease Termination Fee Income

     596        1,355        1,796        2,237        1,521   

EBITDA (2)

     20,337        22,861        26,968        28,405        27,953   

Adjusted EBITDA - Trailing 12 Months (2)

     72,569        107,295        112,035        117,081        113,049   

Interest Expense (2)

     6,206        9,394        9,525        9,997        10,647   

Property and Asset Management Fee Income (3)

     6,947        9,026        8,198        5,105        1,417   

Gross General & Administrative Expense

     3,739        7,602        4,404        3,913        3,946   

Recurring Gross General & Administrative Expense

     3,559        3,905        3,428        3,838        3,977   

Funds from Operations per Common Share - Diluted (4)

     0.43        0.72        0.78        0.08        0.59   

Recurring Funds from Operations per Common Share - Diluted (4)

     0.44        0.60        0.57        0.59        0.59   

Funds Available for Distribution per Common
Share - Diluted (4)

     0.16        (0.04 )      0.26        0.17        0.27   

Dividends Paid on Common Shares

     0.075        0.075        0.075        0.075        0.075   

Capitalization

          

Common Shares & OP Units Outstanding at End of Period

     23,758        21,997        22,120        22,122        21,964   

Market Value of Common Equity

   $ 248,984      $ 216,890      $ 243,541      $ 377,401      $ 373,388   

Total Debt - Parkway’s Share

     372,277        606,436        661,690        709,264        762,456   

Net Debt - Parkway’s Share

     359,755        580,588        647,525        695,376        736,509   

Preferred Equity (Liquidation Value)

     135,532        135,532        135,532        135,532        109,372   

Total Market Capitalization (including net debt) (5)

     744,271        933,010        1,026,598        1,208,309        1,219,269
  

Ratios

          

Interest Coverage Ratio (2)

     3.28        2.43        2.83        2.84        2.63   

Fixed Charge Coverage Ratio (2)

     1.97        1.62        1.92        1.89        1.78   

Modified Fixed Charge Coverage Ratio (2)

     2.28        1.89        2.20        2.28        2.18   

FFO Payout Ratio

     17.3 %      10.4 %      9.7 %      93.8 %      12.8 % 

Recurring FFO Payout Ratio

     17.0 %      12.4 %      13.2 %      12.8 %      12.7 % 

FAD Payout Ratio

     45.5 %      N/M        30.7 %      47.0 %      27.7 % 

Net Debt / Total Market Capitalization

     48.3 %      62.2 %      63.1 %      57.5 %      60.4 % 

Net Debt / EBITDA Multiple

     5.0        5.4        5.8        5.9        6.5   

Net Debt Plus Preferred / EBITDA Multiple

     6.8        6.7        7.0        7.1        7.5   

Portfolio Statistics (6)

          

Office Properties

     44        57        67        71        66   

Total Square Footage

     10,210        12,444        14,532        15,296        13,821   

Occupancy (7)

     85.9 %      83.9 %      84.4 %      84.6 %      83.8 % 

Average Occupancy - Year to Date

     84.3 %      84.5 %      84.5 %      84.5 %      84.7 % 

Average Rent per Square Foot

   $ 22.55      $ 23.00      $ 22.84      $ 22.95      $ 22.94   

Customer Retention - Quarter to Date

     46.8 %      47.1 %      45.4 %      65.7 %      48.1 % 

Customer Retention - Year to Date

     46.8 %      51.2 %      52.6 %      54.9 %      48.1 % 

Revenue per RSF per Year of Lease Terms - Total Leasing

   $ 22.55      $ 23.04      $ 20.93      $ 21.31      $ 18.83   

Leasing Cost per RSF per Year of Lease Term - Total Leasing

   $ 4.72      $ 4.37      $ 4.18      $ 3.96      $ 3.26   

Average Term of Leases Signed (in Years) - Total Leasing

     5.17        5.83        6.25        5.92        5.25   

Square Footage of Leases Signed - Total Leasing

     368        526        572        702        600   

 

(1) For additional detail regarding revenue and net operating income, see page
21.

(2) For additional detail regarding EBITDA, EBITDA-Trailing 12 months, and
coverage ratios, see pages 12 through 14.

(3) For additional detail regarding Parkway’s share of fee income, see page 22.

(4) For additional detail regarding FFO and FAD, see page 11.

(5) For additional detail regarding net debt and market capitalization, see page
14.

(6) Includes unconsolidated and consolidated joint ventures.

(7) Occupancy at first day following quarter end date.

 

Page 5 of 31

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PARKWAY PROPERTIES, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

 

     March 31
2012     December 31
2011        (Unaudited)        

Assets

    

Real estate related investments:

    

Office and parking properties

   $ 1,204,885      $ 1,084,060   

Accumulated depreciation

     (172,480 )      (162,123 )    

 

 

   

 

 

       1,032,405        921,937   

Land available for sale

     250        250   

Mortgage loans

     1,500        1,500      

 

 

   

 

 

       1,034,155        923,687   

Receivables and other assets

     96,339        109,427   

Intangible assets, net

     105,205        95,628   

Assets held for sale

     98,844        382,789   

Management contracts, net

     48,735        49,597   

Cash and cash equivalents

     31,489        75,183      

 

 

   

 

 

     $ 1,414,767      $ 1,636,311      

 

 

   

 

 

 

Liabilities

    

Notes payable to banks

   $ 48,000      $ 132,322   

Mortgage notes payable

     553,674        498,012   

Accounts payable and other liabilities

     70,976        90,341   

Liabilities related to assets held for sale

     100,376        285,599      

 

 

   

 

 

       773,026        1,006,274      

 

 

   

 

 

 

Equity

    

Parkway Properties, Inc. stockholders’ equity:

    

8.00% Series D Preferred stock, $.001 par value, 5,421,296 shares authorized,
issued and outstanding in 2012 and 2011

     128,942        128,942   

Common stock, $.001 par value, 64,578,704 shares authorized in 2012 and 2011,
21,954,105 and 21,995,536 shares issued and outstanding in 2012 and 2011,
respectively

     22        22   

Common stock held in trust, at cost, 6,243 and 8,368 shares in 2012 and 2011,
respectively

     (148 )      (220 ) 

Additional paid-in capital

     517,343        517,309   

Accumulated other comprehensive loss

     (3,258 )      (3,340 ) 

Accumulated deficit

     (270,740 )      (271,104 )    

 

 

   

 

 

 

Total Parkway Properties, Inc. stockholders’ equity

     372,161        371,609   

Noncontrolling interests

     269,580        258,428      

 

 

   

 

 

 

Total equity

     641,741        630,037      

 

 

   

 

 

     $ 1,414,767      $ 1,636,311      

 

 

   

 

 

 

 

Page 6 of 31

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PARKWAY PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

 

     Three Months Ended
March 31        2012     2011        (Unaudited)  

Revenues

    

Income from office and parking properties

   $ 45,855      $ 27,760   

Management company income

     5,432        338      

 

 

   

 

 

 

Total revenues

     51,287        28,098      

 

 

   

 

 

 

Expenses and other

    

Property operating expense

     18,334        10,943   

Depreciation and amortization

     17,990        9,084   

Change in fair value of contingent consideration

     216        —     

Management company expenses

     4,534        803   

General and administrative

     3,599        3,756   

Acquisition costs

     826        2,349      

 

 

   

 

 

 

Total expenses and other

     45,499        26,935      

 

 

   

 

 

 

Operating income

     5,788        1,163   

Other income and expenses

    

Interest and other income

     97        324   

Equity in earnings of unconsolidated joint ventures

     —          41   

Interest expense

     (9,244 )      (6,408 )    

 

 

   

 

 

 

Loss before income taxes

     (3,359 )      (4,880 ) 

Income tax expense

     (161 )      —        

 

 

   

 

 

 

Loss from continuing operations

     (3,520 )      (4,880 ) 

Discontinued operations:

    

Income (loss) from discontinued operations

     3,272        (2,910 ) 

Gain on sale of real estate from discontinued operations

     5,575        —        

 

 

   

 

 

 

Total discontinued operations

     8,847        (2,910 )    

 

 

   

 

 

 

Net income (loss)

     5,327        (7,790 ) 

Net income attributable to noncontrolling interest - unit holders

     (89 )      —     

Net (income) loss attributable to noncontrolling interests - real estate
partnerships

     (533 )      3,195      

 

 

   

 

 

 

Net income (loss) for Parkway Properties, Inc.

     4,705        (4,595 ) 

Dividends on preferred stock

     (2,711 )      (2,187 )    

 

 

   

 

 

 

Net income (loss) attributable to common stockholders

   $ 1,994      $ (6,782 )    

 

 

   

 

 

 

Net income (loss) per common share attributable to Parkway Properties, Inc.:

    

Basic:

    

Loss from continuing operations attributable to Parkway Properties, Inc.

   $ (0.16 )    $ (0.27 ) 

Discontinued operations

     0.25        (0.05 )    

 

 

   

 

 

 

Basic net income (loss) attributable to Parkway Properties, Inc.

   $ 0.09      $ (0.32 )    

 

 

   

 

 

 

Diluted:

    

Loss from continuing operations attributable to Parkway Properties, Inc.

   $ (0.16 )    $ (0.27 ) 

Discontinued operations

     0.25        (0.05 )    

 

 

   

 

 

 

Diluted net income (loss) attributable to Parkway Properties, Inc.

   $ 0.09      $ (0.32 )    

 

 

   

 

 

 

Weighted average shares outstanding:

    

Basic

     21,568        21,476      

 

 

   

 

 

 

Diluted

     21,568        21,476      

 

 

   

 

 

 

Amounts attributable to Parkway Properties, Inc. common stockholders:

    

Loss from continuing operations attributable to Parkway Properties, Inc.

   $ (3,499 )    $ (5,647 ) 

Discontinued operations

     5,493        (1,135 )    

 

 

   

 

 

 

Net income (loss) attributable to common stockholders

   $ 1,994      $ (6,782 )    

 

 

   

 

 

 

 

Page 7 of 31

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PARKWAY PROPERTIES, INC.

STATEMENTS OF OPERATIONS AT PARKWAY’S SHARE

(In thousands, except per share data)

 

     Three Months Ended
March 31        2012     2011        (Unaudited)  

Revenues

    

Income from office and parking properties

   $ 28,890      $ 24,750   

Management company income

     6,947        1,417      

 

 

   

 

 

 

Total revenues

     35,837        26,167      

 

 

   

 

 

 

Expenses

    

Property operating expense

     11,733        10,036   

Depreciation and amortization

     10,106        7,794   

Change in FV of contingent consideration

     216        —     

Management company expenses

     4,489        759   

General and administrative expense

     3,739        3,946   

Acquisition costs

     248        1,667      

 

 

   

 

 

 

Total expenses and other

     30,531        24,202      

 

 

   

 

 

 

Operating income

     5,306        1,965   

Other income and expenses

    

Interest and other income

     7        325   

Interest expense

     (5,940 )      (5,750 )    

 

 

   

 

 

 

Loss before income taxes

     (627 )      (3,460 ) 

Income tax expense

     (161 )      —        

 

 

   

 

 

 

Loss from continuing operations

     (788 )      (3,460 ) 

Discontinued operations:

    

Income (loss) from discontinued operations

     3,160        (1,135 ) 

Gain on sale of real estate from discontinued operations

     2,333        —        

 

 

   

 

 

 

Total discontinued operations

     5,493        (1,135 )    

 

 

   

 

 

 

Net income (loss) attributable to Parkway Properties, Inc.

     4,705        (4,595 ) 

Dividends on preferred stock

     (2,711 )      (2,187 )    

 

 

   

 

 

 

Net income (loss) available to common stockholders

   $ 1,994      $ (6,782 )    

 

 

   

 

 

 

Net income (loss) per common share attributable to Parkway Properties, Inc.:

    

Basic:

    

Loss from continuing operations attributable to Parkway Properties, Inc.

   $ (0.16 )    $ (0.27 ) 

Discontinued operations

     0.25        (0.05 )    

 

 

   

 

 

 

Basic net income (loss) attributable to Parkway Properties, Inc.

   $ 0.09      $ (0.32 )    

 

 

   

 

 

 

Diluted:

    

Loss from continuing operations attributable to Parkway Properties, Inc.

   $ (0.16 )    $ (0.27 ) 

Discontinued operations

     0.25        (0.05 )    

 

 

   

 

 

 

Diluted net income (loss) attributable to Parkway Properties, Inc.

   $ 0.09      $ (0.32 )    

 

 

   

 

 

 

Weighted average shares outstanding:

    

Basic

     21,568        21,476      

 

 

   

 

 

 

Diluted

     21,568        21,476      

 

 

   

 

 

 

 

Page 8 of 31

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PARKWAY PROPERTIES, INC.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(In thousands, except share and per share data)

(Unaudited)

 

     Parkway Properties, Inc. Stockholders                    Preferred
Stock      Common
Stock      Common
Stock Held
in Trust     Additional
Paid-In
Capital     Accumulated
Other
Comprehensive
Loss     Accumulated
Deficit     Noncontrolling
Interests     Total
Equity  

Balance at December 31, 2011

   $ 128,942       $ 22       $ (220 )    $ 517,309      $ (3,340 )    $
(271,104 )    $ 258,428      $ 630,037   

Net income

     —           —           —          —          —          4,705        622
       5,327   

Change in fair value of interest rate swaps

     —           —           —          —          82        —          192     
  274   

Common dividends declared - $0.075 per share

     —           —           —          —          —          (1,630 )      —  
       (1,630 ) 

Preferred dividends declared - $0.50 per share

     —           —           —          —          —          (2,711 )      —  
       (2,711 ) 

Share-based compensation

     —           —           —          157        —          —          —     
    157   

Issuance costs for shelf registration

     —           —           —          (10 )      —          —          —     
    (10 ) 

12,169 shares withheld to satisfy tax withholding obligation in connection with
the vesting of restricted stock

     —           —           —          (113 )      —          —          —     
    (113 ) 

Distribution of 2,125 shares of common stock from deferred compensation plan

     —           —           72        —          —          —          —       
  72   

Issuance of 1.8 million operating partnership units

     —           —           —          —          —          —          18,216
       18,216   

Contribution of capital by noncontrolling interest

     —           —           —          —          —          —          2,731
       2,731   

Distribution of capital to noncontrolling interest

     —           —           —          —          —          —          (566 ) 
    (566 ) 

Sale of noncontrolling interest in Parkway Properties Office Fund, L.P.

     —           —           —          —          —          —          (10,043
)      (10,043 )    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2012

   $ 128,942       $ 22       $ (148 )    $ 517,343      $ (3,258 )    $
(270,740 )    $ 269,580      $ 641,741      

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Page 9 of 31

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PARKWAY PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

     Three Months Ended
March 31        2012     2011        (Unaudited)  

Operating activities

    

Net income (loss)

   $ 5,327      $ (7,790 ) 

Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:

    

Depreciation and amortization

     17,990        9,084   

Depreciation and amortization - discontinued operations

     414        15,816   

Amortization of above market leases

     1,126        39   

Amortization of below market leases - discontinued operations

     (32 )      (339 ) 

Amortization of loan costs

     537        479   

Amortization of mortgage loan discount

     —          (197 ) 

Share-based compensation expense

     157        407   

Deferred income tax benefit

     (245 )      —     

Operating distributions from unconsolidated joint ventures

     —          465   

Gain on sale of real estate investments

     (5,575 )      —     

Equity in earnings of unconsolidated joint ventures

     —          (41 ) 

Equity in loss of unconsolidated joint ventures - discontinued operations

     20        6   

Change in fair value of contingent consideration

     216        —     

Increase in deferred leasing costs

     (1,792 )      (3,579 ) 

Changes in operating assets and liabilities:

    

Change in receivables and other assets

     8,468        (1,362 ) 

Change in accounts payable and other liabilities

     (11,045 )      (18,135 )    

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     15,566        (5,147 )    

 

 

   

 

 

 

Investing activities

    

Distributions from unconsolidated joint ventures

     120        135   

Investment in real estate

     (128,873 )      (89,401 ) 

Proceeds from sale of real estate

     110,754        —     

Improvements to real estate

     (7,911 )      (5,915 )    

 

 

   

 

 

 

Net cash used in investing activities

     (25,910 )      (95,181 )    

 

 

   

 

 

 

Financing activities

    

Principal payments on mortgage notes payable

     (18,033 )      (3,393 ) 

Proceeds from mortgage notes payable

     73,500        19,250   

Proceeds from bank borrowings

     30,126        89,386   

Payments on bank borrowings

     (114,448 )      (33,644 ) 

Debt financing costs

     (2,169 )      (3,294 ) 

Purchase of Company stock

     (113 )      (299 ) 

Dividends paid on common stock

     (1,657 )      (1,655 ) 

Dividends paid on preferred stock

     (2,711 )      (2,187 ) 

Contributions from noncontrolling interest partners

     2,731        96,285   

Distributions to noncontrolling interest partners

     (566 )      (5,631 ) 

Issuance costs for shelf registration

     (10 )      —        

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (33,350 )      154,818      

 

 

   

 

 

 

Change in cash and cash equivalents

     (43,694 )      54,490   

Cash and cash equivalents at beginning of period

     75,183        19,670      

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 31,489      $ 74,160      

 

 

   

 

 

 

 

Page 10 of 31

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PARKWAY PROPERTIES, INC.

RECONCILIATION OF FUNDS FROM OPERATIONS AND

FUNDS AVAILABLE FOR DISTRIBUTION TO NET INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011

(In thousands, except per share data)

 

     Three Months Ended
March 31        2012     2011        (Unaudited)  

Net Income (Loss) for Parkway Properties, Inc.

   $ 4,705      $ (4,595 ) 

Adjustments to Net Income (Loss) for Parkway Properties, Inc. (at Parkway’s
Share):

    

Preferred Dividends

     (2,711 )      (2,187 ) 

Depreciation and Amortization

     10,385        19,425   

Noncontrolling Interest - Unit Holders

     89        —     

Gain on Sale of Real Estate

     (2,333 )      —        

 

 

   

 

 

 

FFO Available to Common Stockholders

   $ 10,135      $ 12,643   

Adjustments to Derive Recurring FFO (at Parkway’s Share):

    

Change in Fair Value of Contingent Consideration

     216        —     

Non-Recurring Lease Termination Fee Income

     (596 )      (1,521 ) 

Loss on Early Extinguishment of Debt

     288        —     

Non-Cash Adjustment for Interest Rate Swap

     (138 )      —     

Acquisition Costs

     248        1,667   

Expenses Related to Litigation

     —          (31 ) 

Realignment Expenses - Personnel

     180        —        

 

 

   

 

 

 

Recurring FFO

   $ 10,333      $ 12,758      

 

 

   

 

 

 

Funds Available for Distribution

    

FFO Available to Common Stockholders

   $ 10,135      $ 12,643   

Add (Deduct) (at Parkway’s Share):

    

Straight-line Rents

     (2,616 )      (1,748 ) 

Amortization of Above/Below Market Leases

     296        (279 ) 

Amortization of Share-Based Compensation

     157        407   

Acquisition Costs

     248        1,667   

Amortization of Loan Costs

     442        402   

Non-Cash Adjustment for Interest Rate Swap

     (138 )      —     

Loss on Early Extinguishment of Debt

     288        —     

Change in Fair Value of Contingent Consideration

     216        —     

Recurring Capital Expenditures:

    

Building Improvements

     (457 )      (1,969 ) 

Tenant Improvements - New Leases

     (2,900 )      (1,132 ) 

Tenant Improvements - Renewal Leases

     (1,219 )      (1,459 ) 

Leasing Costs - New Leases

     (505 )      (646 ) 

Leasing Costs - Renewal Leases

     (235 )      (2,038 )    

 

 

   

 

 

 

Total Recurring Capital Expenditures

     (5,316 )      (7,244 )    

 

 

   

 

 

 

Funds Available for Distribution

   $ 3,712      $ 5,848      

 

 

   

 

 

 

Diluted Per Common Share/Unit Information (**)

    

FFO Per Share

   $ 0.43      $ 0.59   

Recurring FFO Per Share

   $ 0.44      $ 0.59   

FAD Per Share

   $ 0.16      $ 0.27   

Dividends Paid

   $ 0.075      $ 0.075   

Dividend Payout Ratio for FFO

     17.3 %      12.8 % 

Dividend Payout Ratio for Recurring FFO

     17.0 %      12.7 % 

Dividend Payout Ratio for FAD

     45.5 %      27.7 % 

Other Supplemental Information

    

Parkway’s Share of Recurring Capital Expenditures

   $ 5,316      $ 7,244   

Parkway’s Share of Upgrades on Acquisitions

     1,332        253   

Parkway’s Share of Major Renovations

     —          20      

 

 

   

 

 

 

Parkway’s Share of Total Real Estate Improvements and Leasing Costs

   $ 6,648      $ 7,517      

 

 

   

 

 

 

**Information for Diluted Computations:

    

Basic Common Shares/Units Outstanding

     22,222        21,478   

Dilutive Effect of Other Share Equivalents

     1,156        76      

 

 

   

 

 

 

Diluted Weighted Average Shares/Units Outstanding

     23,378        21,554      

 

 

   

 

 

 

Amounts Attributable to Discontinued Operations Related to Above Metrics (at
Parkway’s share):

    

Net Income (Loss) from Discontinued Operations

   $ 5,493      $ (1,135 ) 

Adjustments to Net Income (Loss) from Discontinued Operations:

    

Depreciation and Amortization

     279        11,631   

Gain on Sale of Real Estate

     (2,333 )      —        

 

 

   

 

 

 

FFO from Discontinued Operations

   $ 3,439      $ 10,496   

Adjustments to Derive Recurring FFO from Discontinued Operations:

    

Lease Termination Fees

     (88 )      (1,369 ) 

Loss on Extinguishment of Debt

     98        —     

Non-Cash Adjustment for Interest Rate Swap

     (138 )      —        

 

 

   

 

 

 

Recurring FFO from Discontinued Operations

   $ 3,311      $ 9,127      

 

 

   

 

 

 

FFO from Discontinued Operations

   $ 3,439      $ 10,496   

Adjustments to Derive FAD from Discontinued Operations:

    

Straight-Line Rents

     (364 )      (1,776 ) 

Amortization of Above/Below Market Leases

     (12 )      (262 ) 

Amortization of Loan Costs

     28        83   

Loss on Extinguishment of Debt

     98        —     

Non-Cash Adjustment for Interest Rate Swap

     (138 )      —     

Recurring Capital Expenditures

     (1,721 )      (4,754 )    

 

 

   

 

 

 

FAD from Discontinued Operations

   $ 1,330      $ 3,787      

 

 

   

 

 

 

 

Page 11 of 31

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PARKWAY PROPERTIES, INC.

CALCULATION OF EBITDA AND COVERAGE RATIOS

FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011

(In thousands)

 

     Three Months Ended
March 31        2012     2011        (Unaudited)  

Net Income (Loss) for Parkway Properties, Inc.

   $ 4,705      $ (4,595 ) 

Adjustments to Net Income (Loss) for Parkway Properties, Inc. (at Parkway’s
Share):

    

Interest Expense

     6,206        10,647   

Amortization of Financing Costs

     442        402   

Non-Cash Adjustment for Interest Rate Swap

     (138 )      —     

Loss on Early Extinguishment of Debt

     288        —     

Acquisition Costs

     248        1,667   

Depreciation and Amortization

     10,385        19,425   

Amortization of Share-Based Compensation

     157        407   

Gain on Sale of Real Estate

     (2,333 )      —     

Change in Fair Value of Contingent Consideration

     216        —     

Tax Expense

     161        —        

 

 

   

 

 

 

EBITDA

   $ 20,337      $ 27,953      

 

 

   

 

 

 

Interest Coverage Ratio:

    

EBITDA

   $ 20,337      $ 27,953      

 

 

   

 

 

 

Interest Expense (at Parkway’s Share):

    

Interest Expense

   $ 6,206      $ 10,647      

 

 

   

 

 

 

Total Interest Expense

   $ 6,206      $ 10,647      

 

 

   

 

 

 

Interest Coverage Ratio

     3.28        2.63      

 

 

   

 

 

 

Fixed Charge Coverage Ratio:

    

EBITDA

   $ 20,337      $ 27,953      

 

 

   

 

 

 

Fixed Charges (at Parkway’s Share):

    

Interest Expense

   $ 6,206      $ 10,647   

Preferred Dividends

     2,711        2,187   

Principal Payments (Excluding Early Extinguishment of Debt)

     1,400        2,883      

 

 

   

 

 

 

Total Fixed Charges

   $ 10,317      $ 15,717      

 

 

   

 

 

 

Fixed Charge Coverage Ratio

     1.97        1.78      

 

 

   

 

 

 

Modified Fixed Charge Coverage Ratio:

    

EBITDA

   $ 20,337      $ 27,953      

 

 

   

 

 

 

Modified Fixed Charges (at Parkway’s Share):

    

Interest Expense

   $ 6,206      $ 10,647   

Preferred Dividends

     2,711        2,187      

 

 

   

 

 

 

Total Modified Fixed Charges

   $ 8,917      $ 12,834      

 

 

   

 

 

 

Modified Fixed Charge Coverage Ratio

     2.28        2.18      

 

 

   

 

 

 

The following table reconciles EBITDA to net cash flows provided by (used in)
operating activities:

    

EBITDA

   $ 20,337      $ 27,953   

Amortization of Above (Below) Market Leases

     1,094        (300 ) 

Amortization of Mortgage Loan Discount

     —          (197 ) 

Interest Rate Swap Adjustment

     138        —     

Operating Distributions from Unconsolidated Joint Ventures

     —          465   

Interest Expense

     (10,172 )      (14,245 ) 

Loss on Early Extinguishment of Debt

     (291 )      —     

Acquisition Costs

     (248 )      (1,667 ) 

Tax Expense-Current

     (406 )      —     

Change in Deferred Leasing Costs

     (1,792 )      (3,579 ) 

Change in Receivables and Other Assets

     8,468        (1,362 ) 

Change in Accounts Payable and Other Liabilities

     (11,045 )      (18,135 ) 

Adjustments for Noncontrolling Interests

     9,520        6,079   

Adjustments for Unconsolidated Joint Ventures

     (37 )      (159 )    

 

 

   

 

 

 

Net Cash Flows Provided by (Used in) Operating Activities

   $ 15,566      $ (5,147 )    

 

 

   

 

 

 

 

Page 12 of 31

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PARKWAY PROPERTIES, INC.

BALANCE SHEET OVERVIEW

 

LOGO [g347524img3_3.jpg]

 

Page 13 of 31

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PARKWAY PROPERTIES, INC.

SUPPLEMENTAL BALANCE SHEET DATA

(In thousands, except per share, percentage and multiple data)

 

     03/31/12     12/31/11     09/30/11     06/30/11     03/31/11  

Capitalization information

          

Mortgage notes payable

   $ 553,674      $ 498,012      $ 978,981      $ 959,539      $ 876,617   

Mortgage notes payable-held for sale

     90,710        254,401        —          —          —     

Notes payable to banks

     48,000        132,322        113,852        166,217        166,581   

Adjustments for unconsolidated joint ventures:

          

Mortgage notes payable

     —          2,440        2,449        2,457        2,466   

Adjustments for noncontrolling interest in real estate partnerships:

          

Mortgage notes payable

     (320,107 )      (280,739 )      (433,592 )      (418,949 )      (283,208 ) 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Parkway’s share of total debt

     372,277        606,436        661,690        709,264        762,456   

Less: Parkway’s share of cash

     (12,522 )      (25,848 )      (14,165 )      (13,888 )      (25,947 )    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Parkway’s share of net debt

     359,755        580,588        647,525        695,376        736,509   

Preferred stock (liquidation value)

     135,532        135,532        135,532        135,532        109,372      

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Parkway’s share of net debt plus preferred stock

   $ 495,287      $ 716,120      $ 783,057      $ 830,908      $ 845,881      

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Shares of common stock and operating units outstanding

     23,758        21,997        22,120        22,122        21,964   

Stock price per share at period end

   $ 10.48      $ 9.86      $ 11.01      $ 17.06      $ 17.00   

Market value of common equity

   $ 248,984      $ 216,890      $ 243,541      $ 377,401      $ 373,388   

Preferred stock (liquidation value)

     135,532        135,532        135,532        135,532        109,372      

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total market capitalization (including net debt)

   $ 744,271      $ 933,010      $ 1,026,598      $ 1,208,309      $ 1,219,269
     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net debt as a % of market capitalization

     48.3 %      62.2 %      63.1 %      57.5 %      60.4 %    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA - trailing 12 months

   $ 98,572      $ 106,188      $ 110,543      $ 110,178      $ 108,436   

Adjustment to annualize investment activities (1)

     (26,003 )      1,107        1,492        6,903        4,613      

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA - adjusted trailing 12 months

   $ 72,569      $ 107,295      $ 112,035      $ 117,081      $ 113,049      

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net debt to EBITDA multiple

     5.0        5.4        5.8        5.9        6.5      

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net debt plus preferred to EBITDA multiple

     6.8        6.7        7.0        7.1        7.5      

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Receivables and other assets

          

Rents and fees receivable

   $ 4,732      $ 5,001      $ 7,688      $ 7,323      $ 4,740   

Allowance for doubtful accounts

     (1,023 )      (1,812 )      (2,925 )      (4,090 )      (3,092 ) 

Straight line rent receivable

     23,357        19,183        31,313        35,107        37,856   

Other receivables

     2,119        14,905        4,479        5,805        5,459   

Unamortized lease costs

     44,278        41,518        56,925        65,824        56,682   

Unamortized loan costs

     6,945        5,160        7,136        7,544        6,703   

Escrow and other deposits

     8,987        16,975        22,130        29,649        28,168   

Prepaid items

     2,786        4,581        3,070        2,627        725   

Investment in preferred interest

     3,500        3,500        3,500        3,500        —     

Other assets

     658        416        483        2,607        2,626      

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total rents receivable and other assets

   $ 96,339      $ 109,427      $ 133,799      $ 155,896      $ 139,867      

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Intangible assets (net)

          

Lease in place value

   $ 73,662      $ 65,213      $ 89,595      $ 105,960      $ 84,147   

Accumulated amortization

     (23,511 )      (20,380 )      (34,101 )      (37,848 )      (40,805 ) 

Above market lease value

     32,118        29,225        41,965        47,121        33,809   

Accumulated amortization

     (6,106 )      (4,603 )      (6,897 )      (8,532 )      (15,538 ) 

Other Intangibles

     3,037        —          —          —          —     

Accumulated amortization

     (169 )      —          —          —          —     

Goodwill-management company

     26,174        26,173        26,174        11,400        —        

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total intangible assets

   $ 105,205      $ 95,628      $ 116,736      $ 118,101      $ 61,613      

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Management contracts (net)

          

Management contracts

   $ 51,750      $ 51,750      $ 52,000      $ 52,000      $ —     

Accumulated amortization

     (3,015 )      (2,153 )      (1,286 )      (419 )      —        

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total management contracts

   $ 48,735      $ 49,597      $ 50,714      $ 51,581      $ —        

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accounts payable and other liabilities

          

Office property payables:

          

Accrued expenses and accounts payable

   $ 10,771      $ 14,240      $ 18,908      $ 24,583      $ 20,051   

Accrued property taxes

     5,798        6,465        16,373        22,120        19,237   

Prepaid rents

     8,606        8,393        12,312        13,190        10,043   

Deferred revenue

     1,470        447        3,281        1,627        3,767   

Security deposits

     3,927        3,515        5,733        5,808        4,897   

Unamortized below market lease value

     7,317        5,043        6,693        9,247        7,308   

Capital lease obligations

     77        57        3,669        3,715        3,735   

Corporate payables

     1,472        1,136        824        847        854   

Contingent consideration

     —          18,000        19,000        31,000        —     

Deferred tax liability - non-current

     14,098        14,344        14,409        —          —     

Deferred compensation plan liability

     204        278        415        415        376   

Dividends payable

     2,711        2,711        2,711        2,443        2,187   

Accrued payroll

     999        1,985        2,244        1,636        999   

Valuation allowance on interest rate swaps

     10,860        11,134        13,102        5,438        1,914   

Interest payable

     2,666        2,593        3,735        4,287        3,907      

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total accounts payable and other liabilities

   $ 70,976      $ 90,341      $ 123,409      $ 126,356      $ 79,275      

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Adjustment to trailing 12 months EBITDA represents the implied annualized
impact of any acquisition or disposition activity for the period.

 

Page 14 of 31

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PARKWAY PROPERTIES, INC.

SCHEDULE OF OTHER ASSETS & LIABILITIES AT PARKWAY’S SHARE

(In thousands)

 

     3/31/2012     12/31/2011  

Receivables and other assets

    

Rents and fees receivable

   $ 3,970      $ 4,303   

Allowance for doubtful accounts

     (869 )      (1,398 ) 

Straight line rent receivable

     16,829        14,740   

Other receivables

     1,227        13,321   

Unamortized lease costs

     21,783        21,181   

Unamortized loan costs

     4,993        3,724   

Escrow and other deposits

     7,167        10,273   

Prepaid items

     840        2,121   

Investment in preferred interest

     3,500        3,500   

Other assets

     641        397      

 

 

   

 

 

 

Total rents receivable and other assets

   $ 60,081      $ 72,162      

 

 

   

 

 

 

Intangible assets (net)

    

Lease in place value

   $ 34,718      $ 32,176   

Accumulated amortization

     (15,907 )      (14,788 ) 

Above market lease value

     9,859        9,012   

Accumulated amortization

     (2,499 )      (2,063 ) 

Other intangibles

     911        —     

Accumulated amortization

     (51 )      —     

Goodwill-management company

     26,174        26,174      

 

 

   

 

 

 

Total intangible assets

   $ 53,205      $ 50,511      

 

 

   

 

 

 

Management contracts (net)

    

Management contracts

   $ 51,750      $ 51,750   

Accumulated amortization

     (3,015 )      (2,153 )    

 

 

   

 

 

 

Total management contracts

   $ 48,735      $ 49,597      

 

 

   

 

 

 

Accounts payable and other liabilities

    

Office property payables:

    

Accrued expenses and accounts payable

   $ 7,104      $ 7,883   

Accrued property taxes

     4,494        6,308   

Prepaid rents

     5,521        5,486   

Deferred revenue

     1,425        333   

Security deposits

     2,555        2,402   

Unamortized below market lease value

     2,283        1,616   

Capital lease obligations

     77        57   

Corporate payables

     347        997   

Contingent consideration

     —          18,000   

Deferred tax liability - non-current

     14,098        14,344   

Deferred compensation plan liability

     204        278   

Dividends payable

     2,711        2,711   

Accrued payroll

     999        1,985   

Valuation allowance on interest rate swaps

     3,258        3,340   

Interest payable

     1,608        1,717      

 

 

   

 

 

 

Total accounts payable and other liabilities

   $ 46,684      $ 67,457      

 

 

   

 

 

 

 

Page 15 of 31

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PARKWAY PROPERTIES, INC.

SUMMARY OF OUTSTANDING DEBT

(In thousands)

 

           Variable  Rate
03/31/12     Fixed
Rate           Monthly
Debt Service     PKY Share
03/31/12     Outstanding Book Balance  

Description

            Maturity         03/31/12     12/31/11  

Secured Debt

               

Mortgage notes payable:

               

Wholly-Owned

               

Bank of America Plaza

      —          7.1 %      05/10/12      $ —        $ —        $ —        $
16,373   

TIAA Facility (Hillsboro I-V, Peachtree Dunwoody, One Commerce Green, Comerica)

      —          6.2 %      01/01/16        565        75,201        75,201     
  75,724   

John Hancock Facility (5300 Memorial, Town & Country)

      —          7.6 %      06/01/16        130        18,006        18,006     
  18,055   

111 East Wacker, LLC (3)

      —          6.3 %      07/11/16        —          —          —         
147,872   

Capital City Plaza

      —          7.3 %      03/05/17        253        33,931        33,931     
  34,073   

Morgan Keegan Tower

      —          7.6 %      10/01/19        163        11,268        11,268     
  11,540   

Citrus Center

      —          6.3 %      06/01/20        153        22,337        22,337     
  22,438   

Stein Mart

      —          6.5 %      08/01/20        81        11,680        11,680     
  11,733   

Pinnacle at Jackson Place - Subordinate NMTC Loan (1) (3)

      —          3.0 %      12/27/47        15        6,000        6,000       
6,000   

Pinnacle at Jackson Place - Sr NMTC Loan (1) (3)

      —          5.8 %      12/27/47        114        23,501        23,501     
  23,501             

 

 

   

 

 

   

 

 

   

 

 

 

Total Wholly-Owned

            1,474        201,924        201,924        367,309             

 

 

   

 

 

   

 

 

   

 

 

 

Fund I

    % of Debt Owned                 

Renaissance Center (3)

    25.00 %      —          5.5 %      06/01/12        —          —          —  
       15,704   

100 Ashford Center/Peachtree Ridge (3)

    25.00 %      —          5.6 %      01/08/16        179        7,427       
29,709        29,824   

Overlook II (3)

    25.00 %      —          5.6 %      03/01/17        142        7,875       
31,500        31,500             

 

 

   

 

 

   

 

 

   

 

 

 

Total Fund I

            321        15,302        61,209        77,028             

 

 

   

 

 

   

 

 

   

 

 

 

Fund II

    % of Debt Owned                 

Cypress Center I-III (2)

    30.00 %      —          4.1 %      05/18/16        40        3,626       
12,088        12,088   

3344 Peachtree

    33.03 %      —          5.3 %      10/01/17        485        28,319       
85,738        86,064   

Bank of America Center (2)

    30.00 %      —          4.7 %      05/18/18        129        10,163       
33,875        33,875   

Hayden Ferry Lakeside I (2)

    30.00 %      —          4.5 %      07/25/18        80        6,600       
22,000        22,000   

Hayden Ferry Lakeside II (2)(4)

    30.00 %      —          5.0 %      07/25/18        346        15,000       
50,000        —     

The Pointe

    30.00 %      —          4.0 %      02/10/19        39        7,050       
23,500        —     

245 Riverside (2)

    30.00 %      —          5.2 %      03/31/19        97        2,775       
9,250        9,250   

Corporate Center Four at International Plaza (2)

    30.00 %      —          5.4 %      04/08/19        100        6,750       
22,500        22,500   

Two Ravinia (2)

    30.00 %      —          5.0 %      05/20/19        89        6,630       
22,100        22,100   

Two Liberty Place

    19.00 %      —          5.2 %      06/10/19        391        17,138       
90,200        90,200   

Carmel Crossing

    30.00 %      —          5.5 %      03/10/20        46        3,000       
10,000        10,000             

 

 

   

 

 

   

 

 

   

 

 

 

Total Fund II

            1,842        107,051        381,251        308,077             

 

 

   

 

 

   

 

 

   

 

 

 

Total Secured Debt

          $ 3,637      $ 324,277      $ 644,384      $ 752,414             

 

 

   

 

 

   

 

 

   

 

 

 

Unsecured Debt (wholly-owned)

               

$10 Million Unsecured Working Capital Credit Facility

      —          —          03/29/16        —          —          —         
5,322   

$190 Million Unsecured Revolving Credit Facility

      2.4 %      —          03/29/16        —          48,000        48,000     
  127,000             

 

 

   

 

 

   

 

 

   

 

 

 

Total Unsecured Debt

          $ —        $ 48,000      $ 48,000      $ 132,322             

 

 

   

 

 

   

 

 

   

 

 

 

Total Consolidated Debt

          $ 3,637      $ 372,277      $ 692,384      $ 884,736             

 

 

   

 

 

   

 

 

   

 

 

 

Unconsolidated Joint Ventures

    % of Debt Owned                   

 

 

               

Jackson Joint Venture

    20.00 %      —          5.8 %      07/01/15        —          —          —  
       12,198             

 

 

   

 

 

   

 

 

   

 

 

 

Total Unconsolidated Joint Ventures

          $ —        $ —        $ —        $ 12,198             

 

 

   

 

 

   

 

 

   

 

 

 

Total

          $ 3,637      $ 372,277      $ 692,384      $ 896,934             

 

 

   

 

 

   

 

 

   

 

 

 

Weighted Average Interest Rate at End of Period:

               

Fixed Rate

                5.5 %      5.8 % 

Variable Rate

                2.4 %      3.6 %               

 

 

   

 

 

 

Total

                5.3 %      5.5 %               

 

 

   

 

 

 

Weighted Average Remaining Term (Years)

                7.0        6.0                 

 

 

   

 

 

 

 

     Total Debt      PKY Share of Debt        Total
Debt
Maturities      Held
for Sale      Debt
Balloon
Payments      Debt
Principal
Amortization      Total
Debt
Maturities      Held for
Sale      Debt
Balloon
Payments      Debt
Principal
Amortization  

Schedule of Debt Maturities by Year:

                       

2012

   $ 6,753       $ 346       $ —         $ 6,407       $ 4,508       $ 86      
$ —         $ 4,422   

2013

     9,495         492         —           9,003         6,364         123      
  —           6,241   

2014

     10,680         521         —           10,159         6,965         130   
     —           6,835   

2015

     11,673         551         —           11,122         7,456         138   
     —           7,318   

2016

     179,919         27,799         142,798         9,322         146,676      
  6,950         134,777         4,949   

2017

     147,939         31,500         107,907         8,532         68,259        
7,875         56,096         4,288   

Thereafter

     325,925         29,501         285,867         10,557         132,049      
  29,501         95,605         6,943      

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

     $ 692,384       $ 90,710       $ 536,572       $ 65,102       $ 372,277   
   $ 44,803       $ 286,478       $ 40,996      

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) The New Markets Tax Credit loans contain an early repayment option whereby
the Lender can call the loans at the end of the seventh year (12/27/14).
Additionally, the Company entered into an interest rate swap agreement with the
Lender effectively fixing the interest rate on the Senior NMTC Loan at 4.05%
plus the applicable margin, beginning 01/01/09 through 12/01/14.

(2) Property has entered into an interest rate swap agreement with the Lender
associated with this mortgage. Please reference page 23 of the Supplemental
Package - Financial Summary of Consolidated Joint Ventures for details
associated with this agreement.

(3) For balance sheet purposes, the Company has reclassified this mortgage to
Liabilities Related to Assets Held for Sale at March 31, 2012 and December 31,
2011.

(4) The Hayden Ferry II mortgage provides for quarterly payments of $625,000
through February 2015 with payments based on a 25 year amortization thereafter
until maturity. Additionally, the mortgage bears interest at LIBOR plus the
applicable spread which ranges between 250 to 350 basis points. Fund II entered
into an interest rate swap that fixed the LIBOR rate associated with this loan
at 1.5% through January 25, 2018. This loan is cross-defaulted with Hayden Ferry
I.

 

Page 16 of 31

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PARKWAY PROPERTIES, INC.

OPERATIONAL RESULTS

 

     Three Months Ended
March 31        2012     2011  

Portfolio Information:

    

Average Occupancy

     84.3 %      84.7 % 

Average Rent Per Square Foot

   $ 22.55      $ 22.94   

Same-Store Average Occupancy

     85.3 %      85.6 % 

Same-Store Average Rent Per Square Foot

   $ 20.20      $ 20.34   

Customer Retention Rate

     46.8 %      48.1 % 

Total Square Feet Under Ownership (in 000s)

     10,210        13,821   

Total Square Feet Under Management (in 000s)

     22,317        14,963   

 

     For the Three Months Ended or At        (In thousands)        Total     
3/31/12      12/31/11      9/30/11      6/30/11  

Portfolio Leasing Statistics:

              

Square Footage of Leases Signed - New Leases

     1,020         203         161         317         339   

Square Footage of Leases Signed - Renewal Leases

     945         140         284         184         337   

Square Footage of Leases Signed - Expansion Leases

     203         25         81         71         26      

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Square Footage of Leases Signed - Total Leasing

     2,168         368         526         572         702      

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Page 17 of 31

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Parkway Properties, Inc.

Summary Leasing Metrics

For Assets Owned as of April 1, 2012

(In thousands, except number of leases and per square foot data)

 

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Page 18 of 31

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PARKWAY PROPERTIES, INC.

LEASING AND CAPITAL EXPENDITURE DATA

(In thousands, except per square foot data)

 

     03/31/12     12/31/11     09/30/11     06/30/11     03/31/11  

Leasing information

          

Occupancy

     85.9 %      83.9 %      84.4 %      84.6 %      83.8 % 

Average occupancy - year to date

     84.3 %      84.5 %      84.5 %      84.5 %      84.7 % 

Leasing cost per rsf per year of lease terms:

          

New leases

   $ 5.49      $ 4.64      $ 4.57      $ 4.88      $ 5.15   

Renewal leases

   $ 1.99      $ 3.70      $ 3.04      $ 1.88      $ 2.04   

Expansion leases

   $ 5.35      $ 5.69      $ 4.19      $ 3.55      $ 3.85   

Total leasing

   $ 4.72      $ 4.37      $ 4.18      $ 3.96      $ 3.26   

Average term of leases signed (in years):

          

New leases

     6.58        5.50        7.58        8.33        6.75   

Renewal leases

     3.00        5.50        4.75        3.75        4.58   

Expansion leases

     6.00        7.75        4.33        3.08        5.33   

Total leasing

     5.17        5.83        6.25        5.92        5.25   

Square footage of leases signed:

          

New leases

     203        161        317        339        161   

Renewal leases

     140        284        184        337        388   

Expansion leases

     25        81        71        26        51   

Total leasing

     368        526        572        702        600   

Revenue per rsf per year of lease terms:

          

New leases

   $ 22.43      $ 21.02      $ 20.09      $ 23.48      $ 18.55   

Renewal leases

   $ 22.41      $ 23.88      $ 20.97      $ 19.34      $ 18.49   

Expansion leases

   $ 24.27      $ 24.12      $ 24.52      $ 18.52      $ 22.34   

Total leasing

   $ 22.55      $ 23.04      $ 20.93      $ 21.31      $ 18.83   

Customer retention percentage - quarter to date

     46.8 %      47.1 %      45.4 %      65.7 %      48.1 % 

Customer retention percentage - year to date

     46.8 %      51.2 %      52.6 %      54.9 %      48.1 % 

Portfolio information (1)

          

Number of wholly-owned office properties

     29        40        41        44        45   

Square feet of wholly-owned office properties

     5,468        7,791        7,924        8,476        9,544   

Book cost of wholly-owned office properties

   $ 605,298      $ 847,658      $ 994,855      $ 1,082,396      $ 1,249,827   

Average cost per square foot

   $ 110.70      $ 108.80      $ 125.55      $ 127.70      $ 130.95   

Number of consolidated joint venture office properties

     15        15        24        24        18   

Square feet of consolidated joint venture office properties

     4,742        4,486        6,441        6,448        3,905   

Book cost of consolidated joint venture office properties

   $ 695,869      $ 606,472      $ 850,748      $ 984,155      $ 651,068   

Average cost per square foot

   $ 146.75      $ 135.19      $ 132.08      $ 152.63      $ 166.73   

Number of unconsolidated joint venture office properties

     —          2        2        3        3   

Square feet of unconsolidated joint venture office properties

     —          167        167        372        372   

Book cost of unconsolidated joint venture office properties

   $ —        $ 18,832      $ 18,675      $ 50,527      $ 50,439   

Average cost per square foot

   $ —        $ 112.77      $ 111.83      $ 135.83      $ 135.59   

(1)    Does not include the Toyota Center Garage.

          

Capital expenditure information

          

Non-revenue-enhancing capital expenditures (average life):

          

HVAC and mechanical improvements (10 years)

   $ —        $ 126      $ 201      $ 116      $ 568   

Restroom improvements (10 years)

     —          257        218        98        29   

Roof (15 years)

     —          —          5        —          —     

Americans with Disabilities Act improvements (10 years)

     —          —          3        138        6   

Common area improvements (10 years)

     97        439        233        358        790   

Electrical upgrades (10 years)

     7        (7 )      28        —          —     

Life safety (10 years)

     246        75        293        46        73   

Elevator improvements (10 years)

     5        192        302        149        —     

Parking garage and parking lot improvements (15 years)

     6        62        723        613        255   

Grounds (15 years)

     —          321        22        27        14   

Exterior shell (40 years)

     —          97        132        101        135   

Other (10 years)

     96        420        462        127        176      

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total non-revenue-enhancing capital expenditures

   $ 457      $ 1,982      $ 2,622      $ 1,773      $ 2,046      

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-revenue-enhancing capital expenditures per rsf

   $ 0.04      $ 0.16      $ 0.18      $ 0.12      $ 0.15      

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total consolidated capital expenditures

          

Non-revenue-enhancing capital expenditures

   $ 457      $ 1,982      $ 2,622      $ 1,773      $ 2,046   

Upgrades on acquisitions

     4,013        4,589        2,611        5,091        739   

Major renovations

     —          633        348        92        21   

Tenant improvements - new leases

     3,028        5,470        3,303        4,647        1,803   

Tenant improvements - lease renewals

     1,395        1,751        1,856        2,681        1,747   

Leasing commissions - new leases

     526        3,060        1,367        2,802        975   

Leasing commissions - lease renewals

     284        718        799        1,067        2,164      

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total consolidated capital expenditures - quarter to date

   $ 9,703      $ 18,203      $ 12,906      $ 18,153      $ 9,495      

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total consolidated capital expenditures - year to date

   $ 9,703      $ 58,757      $ 40,554      $ 27,648      $ 9,495      

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Page 19 of 31

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PARKWAY PROPERTIES, INC.

NET OPERATING INCOME FROM OFFICE AND PARKING PROPERTIES

THREE MONTHS ENDED MARCH 31, 2012 AND 2011

(In thousands, except number of properties data)

 

                         Net Operating Income      Average
Occupancy        Square Feet      Number of
Properties      Percentage
of Portfolio (1)     2012      2011      2012     2011  

Same-store properties:

                  

Wholly-owned

     5,010         26         47.8 %    $ 13,161       $ 13,554         86.0 % 
    86.7 % 

Fund II

     450         2         3.7 %      1,007         667         77.8 %      73.7
%    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total same-store properties

     5,460         28         51.5 %    $ 14,168       $ 14,221         85.3 % 
    85.6 %    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Net operating income from all office and parking properties

     10,210         44         100.0 %    $ 27,521       $ 16,817           

 

 

    

 

 

    

 

 

   

 

 

    

 

 

      

 

(1) Percentage of portfolio based on 2012 net operating income.

The following table is a reconciliation of net income (loss) to SSNOI and
Recurring SSNOI:

 

     Three Months Ended
March 31        2012     2011  

Net income (loss) for Parkway Properties, Inc.

   $ 4,705      $ (4,595 ) 

Add (deduct):

    

Interest expense

     9,244        6,408   

Depreciation and amortization

     17,990        9,084   

Management company expenses

     4,534        803   

Income tax expense

     161        —     

General and administrative expenses

     3,599        3,756   

Acquisition costs

     826        2,349   

Equity in earnings of unconsolidated joint ventures

     —          (41 ) 

Change in fair value of contingent consideration

     216        —     

Net income attributable to noncontrolling interests - unit holders

     89        —     

Net income (loss) attributable to noncontrolling interests - real estate
partnerships

     533        (3,195 ) 

(Income) loss from discontinued operations

     (3,272 )      2,910   

Gain on sale of real estate from discontinued operations

     (5,575 )      —     

Management company income

     (5,432 )      (338 ) 

Interest and other income

     (97 )      (324 )    

 

 

   

 

 

 

Net operating income from consolidated office and parking properties

     27,521        16,817   

Less: net operating income from non same-store properties

     (13,353 )      (2,596 )    

 

 

   

 

 

 

Same-store net operating income (SSNOI)

     14,168        14,221   

Less: non-recurring lease termination fee income

     (446 )      (239 )    

 

 

   

 

 

 

Recurring SSNOI

   $ 13,722      $ 13,982      

 

 

   

 

 

 

Parkway’s share of SSNOI

   $ 13,463      $ 13,755      

 

 

   

 

 

 

Parkway’s share of recurring SSNOI

   $ 13,017      $ 13,516      

 

 

   

 

 

 

 

Page 20 of 31

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PARKWAY PROPERTIES, INC.

NET OPERATING INCOME FROM OFFICE AND PARKING PROPERTIES (Continued)

THREE MONTHS ENDED MARCH 31, 2012 AND 2011

(In thousands)

 

     Total     Parkway’s Share        2012     2011     Dollar
Change     Percentage
Change     2012     2011     Dollar
Change     Percentage
Change  

Same-store assets GAAP NOI:

                

Revenues

                

Wholly-owned properties

   $ 22,467      $ 23,048      $ (581 )      -2.5 %    $ 22,467      $ 23,048   
  $ (581 )      -2.5 % 

Fund II

     1,529        1,398        131        9.4 %      459        420        39   
    9.3 %    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total same-store GAAP revenue

     23,996        24,446        (450 )      -1.8 %      22,926        23,468   
    (542 )      -2.3 %    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expenses

                

Wholly-owned properties

     9,306        9,494        (188 )      -2.0 %      9,306        9,494       
(188 )      -2.0 % 

Fund II

     522        731        (209 )      -28.6 %      157        219        (62 ) 
    -28.3 %    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total same-store GAAP expenses

     9,828        10,225        (397 )      -3.9 %      9,463        9,713     
  (250 )      -2.6 %    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NOI - GAAP

   $ 14,168      $ 14,221      $ (53 )      -0.4 %    $ 13,463      $ 13,755   
  $ (292 )      -2.1 %    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net margin - GAAP

     59.0 %      58.2 %      0.8 %        58.7 %      58.6 %      0.1 %      

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

Acquisitions

                

Revenues

   $ 21,859      $ 3,314      $ 18,545        $ 5,964      $ 1,094      $ 4,870
    

Expenses

     8,506        718        7,788          2,270        241        2,029     
  

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

NOI

   $ 13,353      $ 2,596      $ 10,757        $ 3,694      $ 853      $ 2,841   
    

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

Net margin

     61.1 %      78.3 %      -17.2 %        61.9 %      78.0 %      -16.1 %   
  

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

Office assets sold

                

Revenues

   $ —        $ 934      $ (934 )      $ —        $ 188      $ (188 )   

Expenses

     (6 )      404        (410 )        —          82        (82 )      

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

NOI

   $ 6      $ 530      $ (524 )      $ —        $ 106      $ (106 )      

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

Total portfolio

                

Revenues

                

Consolidated properties

   $ 45,855      $ 27,760      $ 18,095        $ 28,890      $ 24,562      $
4,328     

Unconsolidated joint ventures

     —          934        (934 )        —          188        (188 )      

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

Total revenues

   $ 45,855      $ 28,694      $ 17,161        $ 28,890      $ 24,750      $
4,140        

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

Expenses

                

Consolidated properties

   $ 18,334      $ 10,943      $ 7,391        $ 11,733      $ 9,954      $ 1,779
    

Unconsolidated joint ventures

     (6 )      404        (410 )        —          82        (82 )      

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

Total expenses

   $ 18,328      $ 11,347      $ 6,981        $ 11,733      $ 10,036      $
1,697        

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

NOI

   $ 27,527      $ 17,347      $ 10,180        $ 17,157      $ 14,714      $
2,443        

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

Net margin

     60.0 %      60.5 %          59.4 %      59.5 %        

 

 

   

 

 

       

 

 

   

 

 

     

Same-store assets recurring GAAP NOI:

                

Total same-store GAAP revenue

   $ 23,996      $ 24,446      $ (450 )      -1.8 %    $ 22,926      $ 23,468   
  $ (542 )      -2.3 % 

Non-recurring lease termination fee income

     (446 )      (239 )      (207 )      86.6 %      (446 )      (239 )     
(207 )      86.6 %    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Recurring same-store revenue

     23,550        24,207        (657 )      -2.7 %      22,480        23,229   
    (749 )      -3.2 % 

Total same-store expenses

     9,828        10,225        (397 )      -3.9 %      9,463        9,713     
  (250 )      -2.6 %    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Recurring NOI - GAAP

   $ 13,722      $ 13,982      $ (260 )      -1.9 %    $ 13,017      $ 13,516   
  $ (499 )      -3.7 %    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Recurring net margin - GAAP

     58.3 %      57.8 %      0.5 %        57.9 %      58.2 %      -0.3 %      

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

Same-store assets cash NOI:

                

Total same-store GAAP revenue

   $ 23,996      $ 24,446      $ (450 )      -1.8 %    $ 22,926      $ 23,468   
  $ (542 )      -2.3 % 

Amortization of above (below) market leases

     14        33        (19 )      -57.6 %      (9 )      (19 )      10       
-52.6 % 

Straight-line rents

     (1,489 )      42        (1,531 )      -3645.2 %      (1,444 )      260     
  (1,704 )      -655.4 %    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total same-store cash revenue

     22,521        24,521        (2,000 )      -8.2 %      21,473        23,709
       (2,236 )      -9.4 % 

Total same-store expenses

     9,828        10,225        (397 )      -3.9 %      9,463        9,713     
  (250 )      -2.6 %    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NOI - cash

   $ 12,693      $ 14,296      $ (1,603 )      -11.2 %    $ 12,010      $ 13,996
     $ (1,986 )      -14.2 %    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net margin - cash

     56.4 %      58.3 %      -1.9 %        55.9 %      59.0 %      -3.1 %      

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

Same-store assets recurring cash NOI:

                

Total same-store cash revenue

   $ 22,521      $ 24,521      $ (2,000 )      -8.2 %    $ 21,473      $ 23,709
     $ (2,236 )      -9.4 % 

Non-recurring lease termination fee income

     (446 )      (239 )      (207 )      86.6 %      (446 )      (239 )     
(207 )      86.6 %    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Recurring same-store cash revenue

     22,075        24,282        (2,207 )      -9.1 %      21,027        23,470
       (2,443 )      -10.4 % 

Total same-store expenses

     9,828        10,225        (397 )      -3.9 %      9,463        9,713     
  (250 )      -2.6 %    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Recurring NOI - cash

   $ 12,247      $ 14,057      $ (1,810 )      -12.9 %    $ 11,564      $ 13,757
     $ (2,193 )      -15.9 %    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Recurring net margin - cash

     55.5 %      57.9 %      -2.4 %        55.0 %      58.6 %      -3.6 %      

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

Page 21 of 31

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PARKWAY PROPERTIES, INC.

FEE INCOME AT PARKWAY’S SHARE

(In thousands)

Three Months Ended March 31, 2012

 

    Property
Management
Fees     Asset
Management
Fees     Construction
Management
Fees     Leasing
Fees     Other
Administrative
Fees     Other
Income
    Total
Fees  

Ownership Structure:

             

Parkway Properties Office Fund, LP (“Fund I”)

  $ 58      $ 61      $ 14      $ 19      $ —        $ —        $ 152   

Parkway Properties Office Fund II, LP (“Fund II”)

    477        779        58        49        —          —          1,363   

Unconsolidated Joint Ventures

    11        —          —          —          —          —          11   

Third Party Managed Properties

    1,786        —          132        869        2,545        89        5,421
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Fees

  $ 2,332      $ 840      $ 204      $ 937      $ 2,545      $ 89      $ 6,947
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated General and Administrative Expense

  $ 3,599               

Leasing Fees - Fund I

    19               

Leasing Fees - Fund II

    49               

Construction Management Fees - Fund I

    14               

Construction Management Fees - Fund II

    58                 

 

 

             

Parkway’s Share of General and Administrative Expense

  $ 3,739                 

 

 

             

Consolidated Management Company Income

  $ 5,432               

Fund I Fees

    152               

Fund II Fees

    1,363                 

 

 

             

Parkway’s Share of Management Company Income

  $ 6,947                 

 

 

             

 

Page 22 of 31

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PARKWAY PROPERTIES, INC.

FINANCIAL SUMMARY OF CONSOLIDATED JOINT VENTURES

(In thousands)

 

Joint Venture Entity and Property Name

   Location    Parkway’s
Ownership %     Square Feet      Percentage
Occupied  

Parkway Properties Office Fund, LP (“Fund I”) - Held for Sale

          

100 Ashford Center

   Atlanta, GA      25.0 %      160         68.2 % 

Peachtree Ridge

   Atlanta, GA      25.0 %      161         80.9 % 

Overlook II

   Atlanta, GA      25.0 %      260         77.9 %       

 

 

   

 

 

    

 

 

 

Total Fund I

        25.0 %      581         76.0 %       

 

 

   

 

 

    

 

 

 

Parkway Properties Office Fund II, LP (“Fund II”)

          

Hayden Ferry Lakeside I

   Phoenix, AZ      30.0 %      203         69.9 % 

Hayden Ferry Lakeside II

   Phoenix, AZ      30.0 %      300         92.0 % 

245 Riverside

   Jacksonville, FL      30.0 %      135         65.7 % 

Bank of America Center

   Orlando, FL      30.0 %      421         85.2 % 

Corporate Center Four at International Plaza

   Tampa, FL      30.0 %      250         82.8 % 

Cypress Center I-III

   Tampa, FL      30.0 %      286         92.5 % 

The Pointe

   Tampa, FL      30.0 %      252         82.0 % 

Lakewood II

   Atlanta, GA      30.0 %      124         71.3 % 

3344 Peachtree

   Atlanta, GA      33.0 %      485         98.5 % 

Two Ravinia

   Atlanta, GA      30.0 %      438         76.4 % 

Carmel Crossing

   Charlotte, NC      30.0 %      326         86.4 % 

Two Liberty Place

   Philadelphia, PA      19.0 %      941         99.1 %       

 

 

   

 

 

    

 

 

 

Total Fund II

        27.9 %      4,161         87.9 %       

 

 

   

 

 

    

 

 

 

Total Consolidated Joint Ventures

        27.6 %      4,742         86.5 %       

 

 

   

 

 

    

 

 

 

Parkway’s Share of Consolidated Joint Ventures’ Debt at March 31, 2012

 

Description

  Type of
Debt Service   Interest Rate     Maturity     Parkway’s
Share of Debt     Total
Debt     Parkway’s
Share of Debt     Noncontrolling
Interest
Share of Debt  

Mortgage Notes Payable:

             

Fund I (Held for Sale)

             

100 Ashford Center/Peachtree Ridge

  Amortizing     5.6 %      01/08/16        25.00 %    $ 29,709      $ 7,427   
  $ 22,282   

Overlook II

  Interest Only     5.6 %      03/01/17        25.00 %      31,500        7,875
       23,625       

 

 

       

 

 

   

 

 

   

 

 

 

Fund I Weighted Average Interest Rate at End of Period

      5.6 %        $ 61,209      $ 15,302      $ 45,907       

 

 

       

 

 

   

 

 

   

 

 

 

Fund II

             

Cypress Center I-III (1)

  Interest Only     4.1 %      05/18/16        30.00 %    $ 12,088      $ 3,626
     $ 8,462   

3344 Peachtree

  Amortizing     5.3 %      10/01/17        33.03 %      85,738        28,319   
    57,419   

Bank of America Center (1)

  Interest Only     4.7 %      05/18/18        30.00 %      33,875        10,163
       23,712   

Hayden Ferry Lakeside I (1)

  Interest Only     4.5 %      07/25/18        30.00 %      22,000        6,600
       15,400   

Hayden Ferry Lakeside II (1)

  Amortizing     5.0 %      07/25/18        30.00 %      50,000        15,000   
    35,000   

The Pointe

  Interest Only     4.0 %      02/10/19        30.00 %      23,500        7,050
       16,450   

245 Riverside (1)

  Interest Only     5.2 %      03/31/19        30.00 %      9,250        2,775
       6,475   

Corporate Center Four at International Plaza (1)

  Interest Only     5.4 %      04/08/19        30.00 %      22,500        6,750
       15,750   

Two Ravinia (1)

  Interest Only     5.0 %      05/20/19        30.00 %      22,100        6,630
       15,470   

Two Liberty Place

  Interest Only     5.2 %      06/10/19        19.00 %      90,200        17,138
       73,062   

Carmel Crossing

  Interest Only     5.5 %      03/10/20        30.00 %      10,000        3,000
       7,000       

 

 

       

 

 

   

 

 

   

 

 

 

Fund II Weighted Average Interest Rate at End of Period

      5.0 %        $ 381,251      $ 107,051      $ 274,200       

 

 

       

 

 

   

 

 

   

 

 

 

Weighted Average Interest Rate at End of Period

      5.1 %        $ 442,460      $ 122,353      $ 320,107       

 

 

       

 

 

   

 

 

   

 

 

 

 

(1) Fund II entered into the following interest rate swap agreements for these
properties:

 

     Notional Amount      Interest Rate     Maturity  

Cypress Center I-III

   $ 12,088         4.1 %      11/18/15   

Bank of America Center

     33,875         4.7 %      11/18/17   

Hayden Ferry Lakeside I

     22,000         4.5 %      01/25/18   

Hayden Ferry Lakeside II

     50,000         5.0 %      01/25/18   

245 Riverside

     9,250         5.2 %      09/30/18   

Corporate Center Four at International Plaza

     22,500         5.4 %      10/08/18   

Two Ravinia

     22,100         5.0 %      11/18/18   

Parkway’s Share of Mortgage Maturities by Year:

 

       (Held for Sale)
Fund I        Fund II      Total  

2012 (remaining nine months)

     $ 86         $ 894       $ 980   

2013

       123           1,244         1,367   

2014

       130           1,489         1,619   

2015

       138           1,598         1,736   

2016

       6,950           5,176         12,126   

2017

       7,875           27,210         35,085   

2018

       —             28,450         28,450   

Thereafter

       —             40,990         40,990        

 

 

      

 

 

    

 

 

       $ 15,302         $ 107,051       $ 122,353        

 

 

      

 

 

    

 

 

 

 

Page 23 of 31

--------------------------------------------------------------------------------

PARKWAY PROPERTIES, INC.

FINANCIAL SUMMARY OF CONSOLIDATED JOINT VENTURES (Continued)

(In thousands)

Results of Operations

Three Months Ended March 31, 2012

 

     Held for Sale
Fund I     Fund II
(1)     Combined
Total  

Consolidated Joint Ventures (100%):

      

Revenues

   $ 2,864      $ 23,419      $ 26,283   

Operating Expenses

     (1,380 )      (9,705 )      (11,085 )    

 

 

   

 

 

   

 

 

 

Net Operating Income

     1,484        13,714        15,198   

Interest Expense

     (1,035 )      (4,476 )      (5,511 ) 

Loan Cost Amortization

     (25 )      (108 )      (133 ) 

Depreciation and Amortization

     (210 )      (10,947 )      (11,157 ) 

General and Administrative

     (234 )      (1,977 )      (2,211 ) 

Gain on Sale of Real Estate (4)

     3,033        1,357        4,390   

Net Loss Attributable to Noncontrolling Interest (2)

     —          9        9      

 

 

   

 

 

   

 

 

 

Net Income (Loss)

   $ 3,013      $ (2,428 )    $ 585      

 

 

   

 

 

   

 

 

 

Pky’s Share of Consolidated JVs:

      

Net Operating Income

   $ 390      $ 3,999      $ 4,389   

Interest Expense

     (259 )      (1,248 )      (1,507 ) 

Loan Cost Amortization

     (6 )      (32 )      (38 ) 

General and Administrative

     (38 )      (267 )      (305 ) 

Asset Management Fees

     61        779        840   

Property Management Fees (3)

     91        584        675      

 

 

   

 

 

   

 

 

 

Funds from Operations

   $ 239      $ 3,815      $ 4,054      

 

 

   

 

 

   

 

 

 

Straight Line Rental Income

   $ (34 )    $ (826 )    $ (860 ) 

Amortization of Above Market Leases

     (7 )      327        320   

Recurring Capital Expenditures

     (125 )      —          (125 )    

 

 

   

 

 

   

 

 

 

FAD Adjustments

   $ (166 )    $ (499 )    $ (665 )    

 

 

   

 

 

   

 

 

 

Upgrades on Acquisition

   $ —        $ (1,159 )    $ (1,159 )    

 

 

   

 

 

   

 

 

 

EBITDA Adjustments:

      

Depreciation and Amortization

   $ 52      $ 3,063      $ 3,115   

Interest Expense

     259        1,248        1,507   

Loan Cost Amortization

     6        32        38      

 

 

   

 

 

   

 

 

 

Total EBITDA Adjustments

   $ 317      $ 4,343      $ 4,660      

 

 

   

 

 

   

 

 

 

Noncontrolling Interest’s Share of Consolidated JVs:

      

Net Income (Loss)

   $ 2,278      $ (1,745 )    $ 533   

Depreciation and Amortization

     158        7,884        8,042   

Gain on Sale of Real Estate (4)

     (2,293 )      (950 )      (3,243 )    

 

 

   

 

 

   

 

 

 

Funds from Operations

   $ 143      $ 5,189      $ 5,332      

 

 

   

 

 

   

 

 

 

FAD Adjustments

   $ (496 )    $ (1,284 )    $ (1,780 )    

 

 

   

 

 

   

 

 

 

EBITDA Adjustments:

      

Depreciation and Amortization

   $ 158      $ 7,884      $ 8,042   

Interest Expense

     776        3,228        4,004   

Loan Cost Amortization

     19        76        95      

 

 

   

 

 

   

 

 

 

Total EBITDA Adjustments

   $ 953      $ 11,188      $ 12,141      

 

 

   

 

 

   

 

 

 

 

(1) Represents Fund II investments plus additional investment made by Parkway in
3344 Peachtree.

(2) Represents the investment in Two Liberty Place by an institutional investor,
which has an 11% interest in the property.

(3) In addition to asset management fees, Parkway earns other fees from the
consolidated joint ventures related to property management, construction
management and leasing. All fees are eliminated in Parkway’s consolidated
financial statements.

(4) During the first quarter of 2012, Parkway sold its interest in Renaissance
Center in Fund I resulting in a gain of $3.0 million. Parkway’s share of the
gain was $740,000. Parkway also sold Falls Pointe in Fund II resulting in a gain
of $1.4 million and Parkway’s share of that gain was $407,000.

 

Page 24 of 31

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PARKWAY PROPERTIES, INC.

DISCONTINUED OPERATIONS

(In thousands)

 

     Consolidated     Parkway’s Share        Three Months Ended
March 31     Three Months Ended
March 31        2012     2011     2012     2011        (Unaudited)    
(Unaudited)  

Income statement:

        

Revenues

        

Income from office and parking properties

   $ 9,366      $ 39,545      $ 7,197      $ 29,223      

 

 

   

 

 

   

 

 

   

 

 

       9,366        39,545        7,197        29,223      

 

 

   

 

 

   

 

 

   

 

 

 

Expenses

        

Office and parking properties:

        

Operating expense

     3,853        18,180        2,862        13,408   

Management company expense

     152        74        38        19   

Interest expense

     1,791        8,352        996        5,300   

Non-cash expense on interest rate swap

     (138 )      —          (138 )      —     

Depreciation and amortization

     436        15,849        279        11,631      

 

 

   

 

 

   

 

 

   

 

 

       6,094        42,455        4,037        30,358      

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from discontinued operations

     3,272        (2,910 )      3,160        (1,135 ) 

Gain on sale of real estate from discontinued operations

     5,575        —          2,333        —        

 

 

   

 

 

   

 

 

   

 

 

 

Total discontinued operations per Statement of Operations

     8,847        (2,910 )    $ 5,493      $ (1,135 )        

 

 

   

 

 

 

Net (income) loss attributable to noncontrolling interest from discontinued
operations

     (3,354 )      1,775          

 

 

   

 

 

     

Total discontinued operations - Parkway’s Share

   $ 5,493      $ (1,135 )        

 

 

   

 

 

     

Net Income (Loss) from Discontinued Operations

       $ 5,493      $ (1,135 ) 

Adjustments to Net Income (Loss) from Discontinued Operations:

        

Depreciation and Amortization

         279        11,631   

Gain on Sale of Real Estate

         (2,333 )      —            

 

 

   

 

 

 

FFO from Discontinued Operations

       $ 3,439      $ 10,496   

Adjustments to Derive Recurring FFO from Discontinued Operations:

        

Lease Termination Fees

         (88 )      (1,369 ) 

Loss on Extinguisment of Debt

         98        —     

Non-Cash Adjustment for Interest Rate Swap

         (138 )      —            

 

 

   

 

 

 

Recurring FFO from Discontinued Operations

       $ 3,311      $ 9,127          

 

 

   

 

 

 

FFO from Discontinued Operations

       $ 3,439      $ 10,496   

Adjustments to Derive FAD from Discontinued Operations:

        

Straight-Line Rents

         (364 )      (1,776 ) 

Amortization of Above/Below Market Leases

         (12 )      (262 ) 

Amortization of Loan Costs

         28        83   

Loss on Extinguishment of Debt

         98        —     

Non-Cash Adjustment for Interest Rate Swap

         (138 )      —     

Recurring Capital Expenditures

         (1,721 )      (4,754 )        

 

 

   

 

 

 

FAD from Discontinued Operations

       $ 1,330      $ 3,787          

 

 

   

 

 

 

 

     March 31
2012        (Unaudited)  

Balance sheet:

  

Investment property

   $ 96,582   

Accumulated depreciation

     (8,904 )    

 

 

 

Office property held for sale

     87,678   

Rents receivable and other assets

     10,337   

Intangible assets, net

     829      

 

 

 

Other assets held for sale

     11,166      

 

 

 

Total assets held for sale

   $ 98,844      

 

 

 

Mortgage notes payable

   $ 90,710   

Accounts payable and other liabilities

     9,666      

 

 

 

Total liabilities held for sale

   $ 100,376      

 

 

 

All current and prior period income from the following office property
dispositions and properties held for sale is included in discontinued operations
for the three months ended March 31, 2012 and 2011:

 

Property

   Location    Square Feet      Date of Sale      Gross
Sales Price      Consolidated
Gain (Loss)
on Sale     PKY Share of
Gain (Loss)
on Sale  

2011

                

Dispositions:

                

233 North Michigan

   Chicago, IL      1,070         5/11/2011       $ 162,200        

Greenbrier Towers I & II

   Hampton Roads, VA      172         7/19/2011         16,700        

Glen Forest

   Richmond, VA      81         8/16/2011         9,300        

Tower at 1301 Gervais (1)

   Columbia, SC      298         9/8/2011         19,500        

Wells Fargo (2)

   Houston, TX      134         12/9/2011         —          

Fund I Assets (3)

   Various      1,956         12/31/2011         257,400              

 

 

       

 

 

      

Total 2011

        3,711          $ 465,100              

 

 

       

 

 

      

2012

                

Dispositions:

                

Falls Pointe

   Atlanta, GA      107         1/6/2012       $ 6,000       $ 1,357      $ 407
  

111 East Wacker

   Chicago, IL      1,013         1/9/2012         150,600         (47 )     
(47 ) 

Renaissance Center (3)

   Memphis, TN      190         3/1/2012         27,650         3,032        740
  

Non-Core Assets (4)

   Various      1,474         1Q 2012         110,000         1,233        1,233
        

 

 

       

 

 

    

 

 

   

 

 

 

Total 2012

        2,784          $ 294,250       $ 5,575      $ 2,333         

 

 

       

 

 

    

 

 

   

 

 

 

Properties Held for Sale and Expected to Close During Second Quarter 2012:

                

Fund I Assets (3)

   Various      581         2Q 2012       $ 59,200        

The Pinnacle at Jackson Place and Parking at Jackson Place (4)

   Jackson, MS      271         2Q 2012         29,500              

 

 

       

 

 

               852            88,700              

 

 

       

 

 

      

Remaining Propety Held for Sale:

                

111 Capitol Building (4)

   Jackson, MS      187            —                

 

 

       

 

 

      

Total Properties Held for Sale

        1,039          $ 88,700              

 

 

       

 

 

      

 

(1) During 2011, Parkway recognized a non-cash impairment loss of $2.7 million
related to the sale of Tower at 1301 Gervais.

(2) During the fourth quarter of 2011, Parkway conveyed a deed in lieu of loan
foreclosure on the Wells Fargo building. In association with the deed in lieu of
loan foreclosure, the Company recognized an $8.6 million non-cash gain
associated with the forgiveness of the mortgage loan secured by this property.
Additionally, during 2011, the Company recorded a total non-cash impairment loss
of $11.6 million.

(3) During the fourth quarter of 2011, the Company sold nine properties totaling
approximately 2.0 million square feet in five markets, representing a majority
of the Fund I assets. During the first quarter of 2012, the Company completed
the sale of Renaissance Center, a 190,000 square foot property in Memphis, TN.
In connection with the completed and pending sale of the Fund I assets, the
Company recorded a $4 million gain on the sale of real estate from discontinued
operations and an impairment loss of $29.3 million in 2011.

(4) During the first quarter of 2012, the Company sold 12 of 15 of the non-core
assets. The 12 assets sold include five assets in Richmond, four assets in
Memphis and three assets in Jackson. The three remaining assets that have not
yet closed are The Pinnacle at Jackson Place (“The Pinnacle”), Parking at
Jackson Place and 111 Capitol Building, all in Jackson. The Pinnacle and Parking
at Jackson Place are expected to close during the second quarter of 2012,
subject to buyer’s successful assumption of the existing mortgage loan and
customary closing conditions. The contract to sell 111 Capitol Building has
expired without sale.

 

Page 25 of 31

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PARKWAY PROPERTIES, INC.

OPERATING PROPERTY ACQUISITIONS AND DISPOSITIONS

2012

(In thousands, except per square feet data)

 

Acquisition - Property Name

   Location    Type of
Ownership      Parkway
Ownership     Square
Feet      Date
Purchased      Gross
Purchase
Price (1)      Purchase Price
per Square Foot  

2012 Acquisitions

                   

The Pointe

   Tampa, FL      Fund II         30.0 %      252         01/11/12       $
46,900       $ 186   

Hayden Ferry Lakeside II

   Phoenix, AZ      Fund II         30.0 %      300         02/13/12        
86,000         287              

 

 

       

 

 

    

 

 

 

Total 2012 Acquisitions

             552          $ 132,900       $ 241              

 

 

       

 

 

    

 

 

 

 

(1) Purchase price consists of the contract price only and does not include
closing costs or improvements made subsequent to purchase.

 

Disposition - Property Name

   Location    Square Feet      Date
Sold    Gross Sales
Price      Gross Sales Price
per Square Foot      Consolidated
Gain (Loss)     Parkway’s Share
Gain (Loss)  

1st Quarter 2012 Dispositions

                   

Falls Pointe

   Atlanta, GA      107       01/06/12    $ 6,000       $ 56       $ 1,357     
$ 407   

111 East Wacker

   Chicago, IL      1,013       01/09/12      150,600         149         (47 ) 
    (47 ) 

Renaissance

   Memphis, TN      189       03/01/12      27,650         146         3,032   
    740   

Non-Core Assets (2)

   Various      1,473       Various      110,000         75         1,233       
1,233         

 

 

       

 

 

    

 

 

    

 

 

   

 

 

 

Total 1st Quarter 2012 Dispositions

        2,782          $ 294,250       $ 106       $ 5,575      $ 2,333         

 

 

       

 

 

    

 

 

    

 

 

   

 

 

  Properties Held for Sale and Expected to Close During Second Quarter 2012:   
                

Overlook II (Fund I)

   Atlanta, GA      260       04/30/12    $ 29,350       $ 113        

Ashford Center/Peachtree Ridge (Fund I)

   Atlanta, GA      321       2Q 2012      29,850         93        

Non-Core Assets (2)

   Jackson, MS      271       2Q 2012      29,500         109              

 

 

       

 

 

    

 

 

    

 

 

   

 

 

          852            88,700       $ 104              

 

 

       

 

 

    

 

 

    

 

 

   

 

 

 

Remaining Property Held for Sale:

                   

111 Capitol Building (2)

   Jackson, MS      187            —                   

 

 

       

 

 

         

Total Assets Held for Sale

        1,039          $ 88,700                 

 

 

       

 

 

         

 

(2) During the first quarter of 2012, the Company sold 12 of 15 of the non-core
assets. The 12 assets sold include five assets in Richmond, four assets in
Memphis and three assets in Jackson. The three remaining assets that have not
yet closed are The Pinnacle at Jackson Place (“The Pinnacle”), Parking at
Jackson Place and 111 Capitol Building, all in Jackson. The Pinnacle and Parking
at Jackson Place are expected to close during the second quarter of 2012,
subject to buyer’s successful assumption of the existing mortgage loan and
customary closing conditions. The contract to sell 111 Capitol Building has
expired without sale.

 

Page 26 of 31

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PARKWAY PROPERTIES, INC.

SUMMARY OF OFFICE PROPERTY INTERESTS AT APRIL 1, 2012

(In thousands, except number of property data)

 

                  TOTAL        Square Feet      % of Square
Feet     CBD     # of
Properties      Urban Infill     # of
Properties      Suburban     # of
Properties  

Atlanta, GA

     2,597         25.4 %      —          —           1,264        3        
1,333        7   

Houston, TX

     1,685         16.5 %      —          —           —          —          
1,685        10   

Philadelphia, PA

     941         9.2 %      941        1         —          —           —       
  —     

Phoenix, AZ

     899         8.8 %      —          —           —          —           899   
    4   

Tampa, FL

     789         7.7 %      —          —           537        2         252     
  1   

Jackson, MS

     725         7.1 %      725        4         —          —           —       
  —     

Orlando, FL

     682         6.7 %      682        2         —          —           —       
  —     

Jacksonville, FL

     437         4.3 %      437        3         —          —           —       
  —     

Nashville, TN

     436         4.3 %      436        1         —          —           —       
  —     

Memphis, TN

     337         3.3 %      337        1         —          —           —       
  —     

Charlotte, NC

     326         3.2 %      —          —           —          —           326   
    1   

Ft. Lauderdale, FL

     216         2.1 %      —          —           —          —           216   
    2   

Columbia, SC

     108         1.1 %      —          —           —          —           108   
    1   

New Orleans, LA

     32         0.3 %      —          —           —          —           32     
  1      

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

       10,210         100.0 %      3,558        12         1,801        5      
  4,851        27      

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Based on Square Feet

          34.8 %         17.6 %         47.6 %           

 

 

      

 

 

      

 

 

   

 

                  WHOLLY-OWNED        Square Feet      % of Square
Feet     CBD      # of
Properties      Urban Infill      # of
Properties      Suburban      # of
Properties  

Houston, TX

     1,685         30.8 %      —           —           —           —          
1,685         10   

Atlanta, GA

     970         17.7 %      —           —           780         2         190
        2   

Jackson, MS

     725         13.3 %      725         4         —           —           —  
        —     

Nashville, TN

     436         8.0 %      436         1         —           —           —     
     —     

Phoenix, AZ

     396         7.2 %      —           —           —           —           396
        2   

Memphis, TN

     337         6.2 %      337         1         —           —           —     
     —     

Jacksonville, FL

     302         5.5 %      302         2         —           —           —     
     —     

Orlando, FL

     261         4.8 %      261         1         —           —           —     
     —     

Ft. Lauderdale, FL

     216         4.0 %      —           —           —           —           216
        2   

Columbia, SC

     108         2.0 %      —           —           —           —           108
        1   

New Orleans, LA

     32         0.5 %      —           —           —           —           32   
     1      

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

       5,468         100.0 %      2,061         9         780         2        
2,627         18      

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

                    CONSOLIDATED JVS        Square Feet      % of Square
Feet     CBD      # of
Properties      Urban Infill      # of
Properties      Suburban      # of
Properties  

Atlanta, GA

     1,627         34.3 %      —           —           484         1        
1,143         5   

Philadelphia, PA

     941         19.8 %      941         1         —           —           —  
        —     

Tampa, FL

     789         16.6 %      —           —           537         2         252
        1   

Phoenix, AZ

     503         10.6 %      —           —           —           —           503
        2   

Orlando, FL

     421         8.9 %      421         1         —           —           —     
     —     

Charlotte, NC

     326         6.9 %      —           —           —           —           326
        1   

Jacksonville, FL

     135         2.9 %      135         1         —           —           —     
     —        

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

       4,742         100.0 %      1,497         3         1,021         3      
  2,224         9      

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

Page 27 of 31

--------------------------------------------------------------------------------

Parkway Properties, Inc.

Schedule of Lease Expirations

For Assets Owned as of April 1, 2012

(In thousands, except number of leases and per square foot data)

Total Expirations by Year

 

Year

   Square Feet
of Leases
Expiring      Percentage
of Total
Square Feet     Consolidated
Annualized
Rental
Revenue      Pro Rata
Annualized
Rental
Revenue      Number of
Leases      Weighted
Average
Expiring
Gross Rental
Rate Per NRSF      Weighted
Average Estimated
Market Rent
Per NRSF  

2012

     675         6.6 %    $ 15,380       $ 11,567         141       $ 22.80   
   $ 19.88   

2013

     748         7.3 %      17,375         10,436         150         23.23   
     20.93   

2014

     1,218         11.9 %      25,959         19,021         168         21.31
        20.83   

2015

     991         9.7 %      20,671         15,642         139         20.86   
     20.43   

2016

     1,860         18.2 %      40,980         22,140         113         22.03
        21.99   

2017

     1,009         9.9 %      21,896         13,307         83         21.72   
     21.71   

2018 & Later

     2,271         22.3 %      58,982         32,538         106         25.96
        25.11         8,772         85.9 %    $ 201,243       $ 124,651        
900       $ 22.94       $ 22.26   

 

LOGO [g347524img6.jpg]

Total Expirations by Market

 

Market

   Square Feet
of Leases
Expiring      Percentage
Leased     Consolidated
Annualized
Rental
Revenue      Pro Rata
Annualized
Rental
Revenue      Number of
Leases      Weighted
Average
Expiring
Gross Rental
Rate Per NRSF      Weighted
Average Estimated
Market Rent
Per NRSF  

PHOENIX, AZ

     791         88.1 %    $ 20,240       $ 11,743         78       $ 25.58   
   $ 24.31   

FT. LAUDERDALE, FL

     154         71.2 %      3,389         3,389         40         22.04      
  21.01   

JACKSONVILLE, FL

     371         84.7 %      7,574         6,155         43         20.44      
  18.47   

ORLANDO, FL

     594         87.1 %      15,219         8,393         70         25.61      
  23.50   

TAMPA, FL

     679         86.1 %      17,018         5,105         60         25.07      
  24.34   

ATLANTA, GA

     2,059         79.3 %      50,498         27,307         222         24.52
        22.83   

JACKSON, MS

     546         75.3 %      9,706         9,706         54         17.78      
  16.80   

CHARLOTTE, NC

     282         86.4 %      5,081         1,524         40         18.03      
  17.00   

PHILADELPHIA, PA

     932         99.1 %      26,159         4,970         17         28.07      
  28.00   

COLUMBIA, SC

     62         57.2 %      1,044         1,044         16         16.87        
15.00   

MEMPHIS, TN

     315         93.4 %      5,990         5,990         18         19.00      
  18.00   

NASHVILLE, TN

     361         82.9 %      7,030         7,030         19         19.45      
  16.50   

HOUSTON, TX

     1,626         96.5 %      32,295         32,295         223         19.87
        22.03         8,772         85.9 %    $ 201,243       $ 124,651        
900       $ 22.94       $ 22.26   

 

Page 28 of 31

--------------------------------------------------------------------------------

Parkway Properties, Inc.

Schedule of Lease Expirations by Market

For Assets Owned as of April 1, 2012

(In thousands, except number of leases and per square foot data)

Expirations by Market - 2012

 

Market

   Square Feet
of Leases
Expiring      Percentage
of Leases
Expiring     Consolidated
Annualized
Rental
Revenue      Pro Rata
Annualized
Rental
Revenue      Number of
Leases      Weighted
Average
Expiring
Gross Rental
Rate Per NRSF      Weighted
Average Estimated
Market Rent
Per NRSF  

PHOENIX, AZ

     60         6.7 %    $ 1,522       $ 795         12       $ 25.36       $
24.86   

FT. LAUDERDALE, FL

     28         12.8 %      668         668         11         24.12        
20.79   

JACKSONVILLE, FL

     22         5.0 %      441         441         6         20.17         17.48
  

ORLANDO, FL

     28         4.1 %      712         470         9         25.76         23.50
  

TAMPA, FL

     46         5.9 %      1,118         335         8         24.13        
19.00   

ATLANTA, GA

     282         10.8 %      6,600         4,837         38         23.43      
  19.53   

JACKSON, MS

     40         5.5 %      832         832         12         20.70        
14.38   

CHARLOTTE, NC

     24         7.4 %      426         128         3         17.61         17.00
  

PHILADELPHIA, PA

     6         5.9 %      109         109         2         17.10         15.00
  

MEMPHIS, TN

     11         3.2 %      211         211         2         19.72         18.00
  

NASHVILLE, TN

     16         3.6 %      282         282         2         17.74         16.50
  

HOUSTON, TX

     112         6.6 %      2,459         2,459         36         21.97        
21.37         675         6.6 %    $ 15,380       $ 11,567         141       $
22.80       $ 19.88   

Expirations by Market - 2013

 

Market

   Square Feet
of Leases
Expiring      Percentage
of Leases
Expiring     Consolidated
Annualized
Rental
Revenue      Pro Rata
Annualized
Rental
Revenue      Number of
Leases      Weighted
Average
Expiring
Gross Rental
Rate Per NRSF      Weighted
Average Estimated
Market Rent
Per NRSF  

PHOENIX, AZ

     75         8.4 %    $ 1,989       $ 1,531         10       $ 26.49       $
21.46   

FT. LAUDERDALE, FL

     13         6.2 %      348         348         5         26.16         22.15
  

JACKSONVILLE, FL

     48         11.0 %      970         902         7         20.13        
17.60   

ORLANDO, FL

     116         17.0 %      3,316         1,147         12         28.55      
  23.50   

TAMPA, FL

     101         12.8 %      2,175         652         9         21.59        
21.48   

ATLANTA, GA

     164         6.3 %      4,056         1,672         35         24.69        
20.89   

JACKSON, MS

     33         4.5 %      630         630         6         19.34         18.15
  

CHARLOTTE, NC

     27         8.4 %      482         145         11         17.60        
17.00   

COLUMBIA, SC

     18         16.5 %      302         302         5         16.94        
15.00   

MEMPHIS, TN

     20         6.0 %      390         390         4         19.34         18.00
  

NASHVILLE, TN

     13         2.9 %      219         219         4         17.06         16.50
  

HOUSTON, TX

     120         7.1 %      2,498         2,498         42         20.89        
22.39         748         7.3 %    $ 17,375       $ 10,436         150       $
23.23       $ 20.93   

 

Page 29 of 31

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Parkway Properties, Inc.

Leasing Status

4/1/2012

 

     Wholly
Owned     Consolidated
JVs     Total  

Occupancy Percentage 4/1/12

     85.4 %      86.5 %      85.9 % 

Overlook II - Atlanta, GA

       -77.8 %      -77.8 %    

 

 

   

 

 

   

 

 

 

Adjusted Occupancy Percentage

     85.4 %      87.0 %      86.1 %    

 

 

   

 

 

   

 

 

 

Total Square Footage

     5,468,418        4,481,558        9,949,976   

Vacancy (A)

     796,636        584,254        1,380,890   

 

                            Commencement  

City

  

Building

   Square Feet     Quarter      Year  

Atlanta, GA

   Capital City Plaza      5,973          5,973        2         2012   

Atlanta, GA

   Meridian      6,838          6,838        2         2012   

Atlanta, GA

   Peachtree Dunwoody Pavilion      5,879          5,879        3         2012
  

Atlanta, GA

   Peachtree Dunwoody Pavilion      4,613          4,613        2         2012
  

Atlanta, GA

   Two Ravinia        5,001        5,001        2         2012   

Atlanta, GA

   Two Ravinia        5,051        5,051        2         2012   

Atlanta, GA

   Two Ravinia        1,930        1,930        2         2012   

Ft. Lauderdale, FL

   Hillsboro Center IV      9,421          9,421        3         2012   

Houston, TX

   Town & Country      972          972        2         2012   

Houston, TX

   Town & Country      1,264          1,264        2         2012   

Jackson, MS

   111 Capitol Building      755          755        2         2012   

Jacksonville, FL

   245 Riverside        19,511        19,511        4         2012   

Jacksonville, FL

   Riverplace South      2,827          2,827        2         2012   

Jacksonville, FL

   Stein Mart Building      1,785          1,785        2         2012   

Charlotte, NC

   Carmel Crossing-Davie        1,569        1,569        2         2012   

Phoenix, AZ

   Hayden Ferry Lakeside I        49,374        49,374        3         2012   

Phoenix, AZ

   Hayden Ferry Lakeside II        4,629        4,629        2         2012   

Tampa, FL

   Corporate Center Four at International Plaza        10,287        10,287     
  3         2012   

Tampa, FL

   The Pointe        3,087        3,087        4         2012   

Tampa, FL

   The Pointe        2,846        2,846        3         2012   

Tampa, FL

   The Pointe        4,249        4,249        2         2012         

 

 

   

 

 

   

 

 

          Sum of signed leases (B)      40,327        107,534        147,861   
          

 

 

   

 

 

   

 

 

          Adjusted Vacancy (A less B)      756,309        476,720       
1,233,029              

 

 

   

 

 

   

 

 

          Total Square Footage      5,468,418        4,481,558        9,949,976
             

 

 

   

 

 

   

 

 

          Leased Percentage      86.2 %      89.4 %      87.6 %            

 

 

   

 

 

   

 

 

      

 

     Wholly
Owned      Consolidated
JVs      Total  

Recap of signed leases by commencement:

        

2nd Quarter 2012

     25,027         22,429         47,456   

3rd Quarter 2012

     15,300         62,507         77,807   

4th Quarter 2012

     —           22,598         22,598      

 

 

    

 

 

    

 

 

 

Total signed leases

     40,327         107,534         147,861      

 

 

    

 

 

    

 

 

 

 

Page 30 of 31

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Parkway Properties, Inc.

Schedule of Largest Customers

As of April 1, 2012

Top 25 Customers (based on rental revenue)

The office properties are leased to 900 customers, which are in a wide variety
of industries including banking, insurance, professional services (including
legal, accounting, and consulting), energy, financial services and
telecommunications. The following table sets forth information concerning the 25
largest customers of the properties owned directly or through joint ventures as
of April 1, 2012 (in thousands, except square foot data).

 

   

Customer

  No. of
Props.     Square Footage Expiring     Leased
Square
Feet     Annualized
Rental
Revenue           2012     2013     2014     2015     2016     2017    
Thereafter      

(1)

  Blue Cross Blue Shield of Georgia, Inc.     1                    198,834     
  198,834      $ 5,679   

(2)

  Raymond James Financial, Inc.     2          9,723          3,916       
240,145        5,058          258,842        5,078      Nabors Industries/Nabors
Corporate Services     1            219,981                219,981        4,508
  

(3)

  General Services Administration (GSA)     10        38,016        37,296     
  3,043        2,760        21,348        13,427        93,573        209,463   
    3,203   

(4)

  Bank of America, NA     2          16,390          123,710            —       
  140,100        2,832      Southwestern Energy Company     2            117,737
               117,737        2,747   

(5)

  Honeywell     1                    115,774        115,774        2,727   

(6)

  Schlumberger Technology     1                  155,324          155,324       
2,467      Connecticut General Life Insurance Company (CIGNA)     1             
  452,986            452,986        2,321   

(7)

  Cox, Inc.     1        90,180            21,552            —          111,732
       2,318      Louisiana-Pacific Corporation     1              104,807     
        104,807        2,291      Stein Mart, Inc.     1                107,342
           107,342        2,216      Lifelock, Inc.     1            51,204     
          51,204        1,715   

(8)

  Forman, Perry, Watkins, Krutz & Tardy     1                125,962           
125,962        1,584   

(9)

  Helix Energy Solutions     1              94,060              94,060       
1,323      Jones, Walker, Waechter, Poitevent, Carrere & Denegre, LLP     1     
              57,597        57,597        1,298   

(10)

  Wells Fargo Insurance Services USA, Inc.     1                    47,055     
  47,055        1,290      URS Corporation     2            3,348         
49,294            52,642        1,261      Tilden Lobnitz Cooper, Inc. (a/k/a
TLC)     1                    51,558        51,558        1,226      Brunini
Grantham Grower Hewes     1                    52,883        52,883        1,216
  

(11)

  KPMG LLP     1                14,281        30,323          44,604       
1,160   

(12)

  Lennar Homes     1                    55,643        55,643        1,148   

(13)

  DeVry, Inc.     3        9,492                  61,575        71,067       
1,082      Allstate Insurance Company     2          33,200            3,164   
        36,364        959      Fidelity National Title Insurance Company     1
           23,535                23,535        894         

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

          137,688        96,609        418,848        350,805        1,014,522
       204,132        734,492        2,957,096      $ 54,543         

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

                Total Rentable Square Footage        10,210,439                 
       

 

 

                 
  Pro Rata Total Annualized Rental
Revenue   
     $ 124,651                         

 

 

   

 

(1) Blue Cross Blue Shield of Georgia (Capital City Plaza in Atlanta) has the
option to cancel 59,222 sf either January 2016 or January 2018 with nine
(9) months written notice. Additionally, the lease provides the option to cancel
an additional 29,610 sf in January 2018 with nine (9) months written notice.

(2) Raymond James Financial, Inc. (Morgan Keegan Tower in Memphis) lease
provides the option to cancel 3,197 sf with four (4) months written notice.

(3) General Services Administration (Meridian Building in Atlanta) lease
provides an option to cancel 16,778 sf effective February of 2015 with 90 days
written notice. The GSA (Bank of America Center-Orlando) lease provides an
option to cancel 12,341 sf effective October 2013 and 34,182 sf effective June
2018, both with 120 days written notice. The GSA (111 Capitol Building in
Jackson) lease provides an option to cancel 2,758 sf effective June of 2012. The
GSA (Carmel Crossing-Davie Building -Charlotte) lease provides an option to
cancel 21,384 sf effective September 2014 with 90 days written notice.

(4) Bank of America’s (Bank of America Plaza in Nashville) lease provides an
option to cancel 123,710 sf in October 2014 with 12 months notice. Additionally,
Bank of America (Bank of America Center in Orlando) has exercised its option to
cancel 9,463 sf in August 2012. Parkway will receive a $43,000 lease termination
fee prior to August 2012.

(5) Honeywell (Honeywell Building in Houston) lease provides a cancellation
option in December 2014 with 12 months notice.

(6) Schlumberger Technology (Schlumberger Building in Houston) lease provides a
cancellation option in June 2015 with 12 months notice and two (2) months rent.

(7) Cox Enterprises (Peachtree Dunwoody Pavillion in Atlanta) has exercised its
option to cancel 90,180 sf effective June 2012. The Company has received a
$532,000 fee associated with this lease termination which will be recorded into
income over the remaining term of the lease. Additionally, the customer will
continue to pay rent through the early termination date. Additionally, Cox
Enterprises (Peachtree Dunwoody Pavilion in Atlanta) has the option to cancel
21, 522 sf in December 2013 with 12 months written notice.

(8) Forman, Perry, Watkins, Krutz & Tardy (City Centre in Jackson) lease
provides certain other cancellation rights pending changes in partnership
structure.

(9) Helix Energy Solutions (400 North Belt in Houston) has the option to cancel
with nine (9) months written notice.

(10) Wells Fargo Insurance Services USA, Inc. (Hayden Ferry Lakeside II in
Phoenix) lease provides a cancellation option in June 2017 with 12 months
notice.

(11) KPMG, LLP (Morgan Keegan Tower in Memphis) lease provides a cancellation
option in January 2014 with 12 months notice.

(12) Lennar Homes (550 Greens Parkway in Houston) lease provides cancellation
options in October 2014, October 2015 and October 2016, each with 12 months
written notice.

(13) DeVry, Inc. (Mesa Corporate Center in Phoenix) lease provides a
cancellation option in October 2016 with 12 months written notice.

 

 

Page 31 of 31

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Exhibit D

Series E Articles Supplementary

--------------------------------------------------------------------------------

ARTICLES SUPPLEMENTARY

RECLASSIFYING 16,000,000 SHARES OF COMMON STOCK INTO

SERIES E CONVERTIBLE CUMULATIVE REDEEMABLE PREFERRED STOCK

PARKWAY PROPERTIES, INC.

PARKWAY PROPERTIES, INC., a Maryland corporation (the “Corporation”), hereby
certifies to the Maryland State Department of Assessments and Taxation 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, at a meeting
held on May 3, 2012, regarding the possible sale and issuance by the Corporation
of convertible preferred stock, adopted resolutions duly classifying 16,000,000
shares of Common Stock, par value $.001 per share (the “Common Stock”) of the
Corporation into a new series of 16,000,000 shares of preferred stock to be
designated as “Series E Convertible Cumulative Redeemable Preferred Stock, par
value $.001 per share”, of the Corporation (the “Series E Preferred Stock”) and
has provided for the issuance of such shares;

SECOND: The reclassification increases the number of shares classified as Series
E Preferred Stock from no shares immediately prior to the reclassification to
16,000,000 shares immediately after the reclassification. The reclassification
decreases the number of shares classified as Common Stock from 64,578,704 shares
immediately prior to the reclassification to 48,578,704 shares immediately after
the reclassification.

THIRD: Subject in all cases to the provisions of Article V of the Charter, the
following is a description of the preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends and other
distributions, qualifications and terms and conditions of redemption of the
Series E Preferred Stock of the Corporation:

Section 1. Designation, Amount and Rank. This series of preferred stock is
designated as Series E Convertible Cumulative Redeemable Preferred Stock, par
value $.001 per share. The number of shares constituting the Series E Preferred
Stock shall be 16,000,000. The Series E Preferred Stock, both as to payment of
dividends and to distribution of assets upon liquidation, dissolution or winding
up of the Corporation, whether voluntary or involuntary, shall rank (a) senior
to the Common Stock and each other class or series of capital stock of the
Corporation hereafter created that does not expressly rank pari passu with or
senior to the shares of Series E Preferred Stock as to payment of dividends and
to distribution of assets upon liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary (collectively, the “Junior Stock”)
(b) pari passu with (i) the Corporation’s 8.00% Series D Cumulative Redeemable
Preferred Stock, par value $.001 per share (“Series D Preferred Stock”) and
(ii) any class or series of preferred stock established in accordance with the
terms of the Charter, the terms of which specifically provide that such class or
series of capital stock ranks on a parity with the Series E Preferred Stock as
to payment of dividends and to distribution of assets upon liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary
(collectively with the Series D Preferred Stock, the “Parity Stock”), and
(c) junior to any class or

 

1

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series of preferred stock of the Corporation hereafter created in accordance
with the Charter and these Articles Supplementary (and any other agreements of
the Corporation) that expressly ranks senior to the shares of Series E Preferred
Stock as to payment of dividends and to distribution of assets upon liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary.

Section 2. Dividend Rights.

(a) Dividends on Common Stock. If the Corporation declares, pays or sets aside
for payment any dividend on any share of Common Stock, then at the time of such
dividend the Corporation shall simultaneously declare a dividend on each issued
and outstanding share of Series E Preferred Stock, with payment to be in the
same form as is being paid to the holders of Common Stock and in an amount equal
to the product of (i) the applicable dividend payable on each share of Common
Stock multiplied by (ii) the number of shares of Common Stock issuable upon
conversion of a share of Series E Preferred Stock (without taking into account
any limitations or restrictions on the convertibility of the shares of Series E
Preferred Stock), in each instance as calculated on the record date for
determination of holders entitled to receive such dividend. Such dividend will
be paid to the holders of record at the close of business on the date specified
by the Board at the time such dividend is declared, which shall be on or prior
to the payment date for the applicable dividend on a share of Common Stock.

(b) Mandatory Dividends on Series E Preferred. The Corporation shall pay
quarterly dividends in cash (except as provided below) 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”), on each issued and outstanding share of
Series E Preferred Stock in an amount, if positive, equal to (i) the Liquidation
Preference of such share of Series E Preferred Stock multiplied by the
Applicable Quarterly Dividend Rate (as defined below) minus (ii) the amount of
any dividend paid or being concurrently paid, as the case may be, on such share
of Series E Preferred Stock pursuant to Section 2(a) during the Series E
Quarterly Period (as defined below) to which such quarterly dividend relates
(and, to the extent not previously deducted from a prior quarterly dividend, the
amount of any dividend paid pursuant to Section 2(a) during the preceding Series
E Quarterly Period, excluding the first Series E Quarterly Period). Such
dividends shall, beginning on the Mandatory Dividend Commencement Date, be
cumulative and payable (if declared) quarterly on each Applicable Quarterly
Dividend Payment Date (except that if such date is not a Business Day (as
defined below), then such dividend will be payable on the preceding 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. The first such dividend shall
be for a period of less than a full quarter. Dividends on a share of Series E
Preferred Stock pursuant to this Section 2(b) shall begin to accrue and be
cumulative from the Mandatory Dividend Commencement Date to and including the
first to occur of (i) the date on which all amounts owed with respect to such
share of Series E Preferred Stock are paid by the Corporation to the holder
thereof in connection with the redemption of such share pursuant to Section 4
hereof or the liquidation of the Corporation pursuant to Section 5 hereof,
(ii) the date on which such share of Series E Preferred Stock is converted into
shares of Common Stock hereunder (on which date all accrued and unpaid dividends
thereon shall be paid), or (iii) the date on which such share is otherwise
acquired and paid for by the Corporation. Notwithstanding the foregoing, at the
Corporation’s option, the dividends payable pursuant to this Section 2(b) on
first three Applicable Quarterly Dividend

 

2

--------------------------------------------------------------------------------

Payment Dates following the Mandatory Dividend Commencement Date may be paid by
the issuance of additional shares of Series E Preferred Stock with an aggregate
Liquidation Preference equal to the amount of the dividend; provided, however,
that the Corporation shall pay such dividends in cash instead of issuing such
additional shares of Series E Preferred Stock if, immediately after giving
effect to such proposed issuance and assuming (immediately following such
proposed issuance) the conversion of all such shares of Series E Preferred Stock
then held by TPG and its affiliates, TPG and its affiliates would hold in excess
of forty nine percent (49.0%) of the Common Stock issued and outstanding.

(c) Cumulative Dividends. Dividends on the shares of Series E Preferred Stock
will accrue daily whether or not the Corporation has earnings, whether or not
there are Legally Available Funds and whether or not such dividends are declared
and will be computed on the basis of a 360-day year of twelve 30-day months,
and, for any period greater or less than a full year will be computed on the
basis of the actual number of days elapsed in the period divided by 365. No
interest, or sum of money in lieu of interest, shall be payable in respect of
any dividend payment or payments on Series E Preferred Stock that may be in
arrears. Any dividend payment with respect to the Series E Preferred Stock
pursuant to Section 2(a) or 2(b) above shall first be credited against any prior
accrued and unpaid dividends. If any shares of Series E Preferred Stock are
outstanding, no full dividends (other than in shares of Common Stock or other
capital stock ranking junior to Series E Preferred Stock as to dividends and
upon liquidation) shall be declared or paid or set apart for or payment on the
Common Stock or any other shares of stock ranking, as to distributions, on
parity with our junior to the Series E Preferred Stock for any period unless
full cumulative dividends have been or contemporaneously are declared and paid
or declared and a sum sufficient for the payment thereof set apart for such
payments on shares of the Series E Preferred Stock for all past distribution
periods and the then current distribution period.

(d) Pro Rata Distribution. All dividends paid with respect to the Series E
Preferred Stock pursuant to this Section 2 shall be paid pro rata in respect of
each share of Series E Preferred Stock entitled thereto. In the event that the
Legally Available Funds available for the payment of cash dividends shall be
insufficient for the payment of the entire amount of dividends payable with
respect to the Series E Preferred Stock on any date on which the Board has
declared the payment of a dividend, the payment date or otherwise, the amount of
any Legally Available Funds shall be allocated for the payment of dividends with
respect to the Series E Preferred Stock and any other shares of capital stock
ranking, as to distributions, on a parity with the Series E Preferred Stock for
any period pro rata based upon the amount of accrued and unpaid dividends on
such shares of capital stock.

(e) Certain Definitions. For purposes of these Articles Supplementary, the
following capitalized terms shall have the meanings set forth below:

(i) “Applicable Quarterly Dividend Payment Date” shall mean, with respect to any
Series E Quarterly Period, the date during such period on which the Corporation
is to pay its quarterly Common Stock dividend, and if no such dividend is paid
during such period, the last day of such Series E Quarterly Period.

 

3

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(ii) “Applicable Quarterly Dividend Rate” shall mean, with respect to any share
of Series E Preferred Stock then issued and outstanding, (A) eight percent (8%)
per annum for the first three (3) Series E Quarterly Periods beginning on the
Mandatory Dividend Commencement Date, (B) twelve percent (12%) per annum for
four (4) Series E Quarterly Periods following such first three (3) Series E
Quarterly Periods and (C) fifteen percent (15%) per annum for each Series E
Quarterly Period following such first seven (7) Series E Quarterly Periods.

(iii) “Business Day” shall mean any Monday, Tuesday, Wednesday, Thursday or
Friday that is not a day on which banking institutions in New York City are
authorized or obligated by law or executive order to close.

(iv) “Issue Date” shall mean the first date on which a share of Series E
Preferred Stock is issued.

(v) “Liquidation Preference” shall mean $11.25 per share of Series E Preferred
Stock, as such amount may be adjusted from time to time pursuant to, and in
accordance with, the terms hereof.

(vi) “Mandatory Dividend Commencement Date” shall mean one hundred eighty (180)
days after the Issue Date.

(vii) “Series E Quarterly Period” shall mean (A) the period commencing on the
Mandatory Dividend Commencement Date to and including the last day of the
calendar quarter in which the Mandatory Dividend Commencement Date falls, and
(B) each subsequent three (3) month period commencing on the day after the end
of the prior Series E Quarterly Period.

(viii) “TPG” means TPG VI Pantera Holdings, L.P.

Section 3. Voting Rights.

(a) General. Except as otherwise set forth in this Section 3, or except as
otherwise from time to time required by applicable law, the holders of shares of
Series E Preferred Stock will have no voting rights.

(b) Right to Vote in Certain Circumstances. So long as any shares of Series E
Preferred Stock remain outstanding, the Corporation will not without the
affirmative vote or consent of the holders of at least two-thirds of the shares
of the Series E Preferred Stock outstanding at the time, given in person or by
proxy, either in writing or at a meeting (voting separately as a class),
(i) authorize or create, or increase the authorized or issued amount of, any
class or series of capital stock ranking senior to the Series E Preferred Stock
with respect to payment of dividends or the distribution of assets upon
liquidation, dissolution or winding up or reclassify any authorized capital
stock of the Corporation into such shares, or create, authorize or issue any
obligation or security convertible into or evidencing the right to purchase any
such shares; or (ii) amend, alter or repeal the provisions of the Corporation’s
Charter or these Articles Supplementary, whether by merger, consolidation or
otherwise (an “Event”), so as to materially and adversely affect any right,
preference, privilege or voting power of the Series E Preferred Stock or the
holders thereof; provided, however, with respect to the occurrence of any Event
set

 

4

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forth in (ii) above, so long as the Series E Preferred Stock remains outstanding
with the rights, preferences, privileges and voting power thereof unchanged in
any material and adverse respect, taking into account that upon the occurrence
of an Event the Corporation may not be the surviving entity, the occurrence of
any such Event shall not be deemed to materially and adversely affect such
rights, preferences, privileges or voting power of holders of the Series E
Preferred Stock; and provided further that (x) any increase in the amount of
authorized preferred stock or the creation or issuance of any series of
preferred stock, or (y) any increase in the amount of authorized shares of such
series, in each case ranking on parity with or junior to the Series E Preferred
Stock with respect to payment of dividends or the distribution of assets upon
liquidation, dissolution or winding up, shall not be deemed to materially and
adversely affect such rights, preferences, privileges or voting powers. Except
as provided above and as required by law, the holders of Series E Preferred
Stock are not entitled to vote on any merger or consolidation involving the
Corporation, on any share exchange, on a sale of all or substantially all of the
assets of the Corporation or on any other similar reorganization or change of
control transaction.

Section 4. Redemption Rights.

(a) By the Holders of Series E Preferred Stock Following Fifth Anniversary.

(i) From and after the five (5) year anniversary of the Issue Date, each holder
of Series E Preferred Stock will have the right, at such holder’s option, to
require that the Corporation, to the extent it shall have Legally Available
Funds therefor, redeem all but not less than all of such holder’s Series E
Preferred Stock at a redemption price per share of Series E Preferred Stock (to
be paid in cash by wire transfer of immediately available funds) equal to the
greater of (A) the Liquidation Preference of a share of Series E Preferred Stock
plus the amount of any accrued but unpaid dividends thereon to the date fixed
for redemption, without interest, and (B) the Average Closing Price multiplied
by the number of shares of Common Stock into which a share of Series E Preferred
Stock could be converted in accordance with Section 6 (but, for purposes of this
clause (B), without taking into account any limitations or restrictions on the
convertibility of the shares of Series E Preferred Stock and without taking into
account any adjustment to the Conversion Ratio (as defined below) pursuant to
Section 6(g)), in each case measured as of the date on which the Corporation
receives a General Election Notice (as defined below) or the last Trading Day
immediately prior to such date, in each instance pursuant to this
Section 4(a)(i). A holder may exercise this option by delivering notice of such
exercise to the Corporation (a “General Election Notice”), which General
Election Notice shall certify (A) such holder’s address, (B) the number of
shares of Series E Preferred Stock held by such holder and (C) the holder’s
desired date of redemption, which shall be a Business Day that is no earlier
than thirty (30) days and no later than sixty (60) days from the date such
notice is sent, or such later date as may be required to comply with the
requirements of applicable law. “Average Closing Price” shall mean, as of any
date, the average closing price per share of the Common Stock on the New York
Stock Exchange (or if the Corporation’s Common Stock is not listed on the New
York Stock Exchange, then on the principal U.S. securities exchange on which the
Common Stock is listed or, if the Common Stock is not listed on a U.S. national
or regional securities exchange, then on the principal other market on which the
Common Stock is then traded or quoted) as reported by Bloomberg L.P. for the
twenty (20) Trading Days immediately preceding such date. “Trading Day” means a
day during which trading in securities generally occurs (from

 

5

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9:30 a.m. to 4:00 p.m. (New York City time)) on the New York Stock Exchange or,
if the Corporation’s Common Stock is not listed on the New York Stock Exchange,
then a day during which trading in securities generally occurs on the principal
U.S. securities exchange on which the Common Stock is listed or, if the Common
Stock is not listed on a U.S. national or regional securities exchange, then on
the principal other market on which the Common Stock is then traded or quoted.

(ii) Within fifteen (15) days following the receipt of any General Election
Notice, the Corporation shall deliver a notice to each holder of Series E
Preferred Stock who has delivered a General Election Notice (a “General
Redemption Notice”), at such holder’s address specified in the General Election
Notice, stating (A) the closing date on which such redemption shall occur, which
date shall be the date set forth in the applicable General Election Notice or,
at the option of the Corporation, a date that is no later than one hundred
eighty (180) days after the date specified in the General Election Notice,
(B) the price per share of Series E Preferred Stock to be redeemed, as
calculated in accordance with the applicable General Election Notice and (C) the
place or places where certificates for such shares of Series E Preferred Stock
are to be surrendered for payment of the applicable redemption price.

(iii) On the closing date set forth in any General Redemption Notice, the
Corporation will, to the extent lawful, purchase from such holder of Series E
Preferred Stock (but only upon surrender by such holder at the Corporation’s
office specified in the General Redemption Notice of the certificates
representing such shares or, if such certificate or certificates have been lost,
stolen, or destroyed, a lost certificate affidavit and indemnity in form and
substance reasonably acceptable to the Corporation), such holder’s shares of
Series E Preferred Stock at a price per share (to be paid in cash by wire
transfer of immediately available funds) specified in the General Redemption
Notice.

(iv) Upon receipt of any General Election Notice, the Corporation shall apply
its Legally Available Funds to such redemption. If on any applicable closing
date for a redemption specified in any General Redemption Notice, the
Corporation does not have sufficient Legally Available Funds to redeem all
shares of Series E Preferred Stock that the holders have elected to be redeemed,
then the Corporation shall ratably redeem the maximum number of shares that may
be redeemed with such Legally Available Funds and, except to the extent a holder
withdraws its General Election Notice, shall redeem any remaining shares as soon
as it has any additional Legally Available Funds. Notwithstanding the foregoing,
if the Corporation does not have sufficient Legally Available Funds on any
applicable closing date specified in any General Redemption Notice to redeem all
shares of Series E Preferred Stock that holders have elected to be redeemed, or
otherwise fails to comply with any provisions of this Section 4, the Applicable
Quarterly Dividend Rate shall increase three percent (3%) per annum (0.75% per
quarter) for each Series E Quarterly Period that commences after the
then-current Series E Quarterly Period with respect to any shares of Series E
Preferred Stock that remain outstanding, and the applicable redemption price for
any share of Series E Preferred Stock redeemed thereafter shall be the greater
of (i) the redemption price set forth in the original General Redemption Notice,
as adjusted to reflect all unpaid dividends accrued on such share on the date
the redemption price for such share is paid in full, and (ii) the Average
Closing Price multiplied by the number of shares of Common Stock into which a
share of Series E Preferred Stock could be converted in accordance with
Section 6 (but, for purposes of this clause (ii),

 

6

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without taking into account any limitations or restrictions on the
convertibility of the shares of Series E Preferred Stock and without taking into
account any adjustment to the Conversion Ratio pursuant to Section 6(g)),
measured as of the date that is three (3) Business Days prior to the date the
redemption price for such share is paid in full.

(v) No share of Series E Preferred Stock that is redeemed in accordance with
this Section 4(a) shall be entitled to receive any dividends in respect thereof
after the date on which the payments required by this Section 4(a) are paid or
set apart for payment to the holder of such share of Series E Preferred Stock in
accordance with the terms hereof. From and after the receipt of all such
payments in cash in full, all rights of the holder of such share of Series E
Preferred Stock shall, in respect of such share of Series E Preferred Stock,
cease, and such share of Series E Preferred Stock shall no longer be deemed to
be outstanding.

(b) By the Holders of Series E Preferred Stock Upon Change of Control.

(i) Upon the public announcement of a Change of Control (as defined below)
approved by the Board, or, if a Change of Control otherwise occurs, the Company
shall promptly notify each holder of Series E Preferred Stock of such approval
or occurrence, and of the general terms of such transaction. Each such holder
shall then have the right, during the twenty (20) day period following receipt
of such notice from the Company (the “Option Period”), at such holder’s option,
to require that the Corporation redeem all but not less than all of such
holder’s Series E Preferred Stock at a redemption price per share of Series E
Preferred Stock (to be paid in cash by wire transfer of immediately available
funds) equal to the greater of (A) the sum of (I) the Liquidation Preference of
a share of Series E Preferred Stock plus the amount of any accrued but unpaid
dividends thereon to the date of the Change of Control, without interest, plus
(II) the Change of Control Make Whole Amount, and (B) the Change of Control
Price (as defined below) multiplied by the number of shares of Common Stock into
which a share of Series E Preferred Stock could be converted in accordance with
Section 6 (but, for purposes of this clause (B), without taking into account any
limitations or restrictions on the convertibility of the shares of Series E
Preferred Stock and without taking into account any adjustment to the Conversion
Ratio pursuant to Section 6(g)), in each case measured as of the date that is
five (5) Business Days prior to the date that the Change of Control is
consummated, or the last Trading Day immediately prior to such measurement date,
in each instance pursuant to this Section 4(b)(i) (such date, the “Measurement
Date”). A holder may exercise this option by delivering notice to the
Corporation during the Option Period of such exercise (a “Change of Control
Election Notice”), which Change of Control Election Notice shall certify
(A) such holder’s address, and (B) the number of shares of Series E Preferred
Stock held by such holder.

(ii) Within five (5) days following the receipt of any Change of Control
Election Notice, the Corporation shall deliver a notice to each holder of Series
E Preferred Stock who has delivered a Change of Control Election Notice (a
“Change of Control Redemption Notice”), at such holder’s address specified in
the Change of Control Election Notice, stating (A) the estimated price per share
of Series E Preferred Stock to be redeemed, as calculated in accordance with the
applicable Change of Control Election Notice and (B) the place or places where
certificates for such shares of Series E Preferred Stock are to be surrendered
for payment of the applicable redemption price.

 

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(iii) On the date the Change of Control is consummated (or, in the event the
Change of Control occurs prior to the public announcement thereof, on the date
no later than thirty (30) days following the date the Change of Control occurs),
the Corporation will, to the extent lawful, purchase from such holder of Series
E Preferred Stock (but only upon surrender by such holder at the Corporation’s
office specified in the Chance of Control Redemption Notice of the certificates
representing such shares or, if such certificate or certificates have been lost,
stolen, or destroyed, a lost certificate affidavit and indemnity in form and
substance reasonably acceptable to the Corporation) such holder’s shares of
Series E Preferred Stock at a price per share (to be paid in cash by wire
transfer of immediately available funds) calculated as set forth above as of the
Measurement Date.

(iv) Upon receipt of any Change of Control Election Notice, the Corporation
shall apply its Legally Available Funds to such redemption. If on the date of
consummation of the Change of Control, the Corporation does not have sufficient
Legally Available Funds to redeem all shares of Series E Preferred Stock that
the holders have elected to be redeemed, then the Corporation shall ratably
redeem the maximum number of shares that may be redeemed with such Legally
Available Funds and, except to the extent a holder withdraws its Change of
Control Election Notice, shall redeem any remaining shares as soon as it has any
additional Legally Available Funds. Notwithstanding the foregoing, if the
Corporation does not have Legally Available Funds on the date of consummation of
the Change of Control to purchase, or otherwise may not lawfully purchase, all
shares of Series E Preferred Stock that holders have elected to be purchased, or
otherwise fails to comply with any provisions of this Section 4, the Applicable
Quarterly Dividend Rate shall increase three percent (3%) per annum (0.75% per
quarter) for each Series E Quarterly Period that commences after the
then-current Series E Quarterly Period with respect to any shares of Series E
Preferred Stock that remain outstanding, and the applicable redemption price for
any share of Series E Preferred Stock redeemed thereafter shall be the greater
of (i) the redemption price to be paid on the date the Change of Control is
consummated, as adjusted to reflect all unpaid dividends accrued on such share
on the date the redemption price for such share is paid in full, and (ii) the
Change of Control Price multiplied by the number of shares of Common Stock into
which a share of Series E Preferred Stock could be converted in accordance with
Section 6 (but, for purposes of this clause (ii), without taking into account
any limitations or restrictions on the convertibility of the shares of Series E
Preferred Stock and without taking into account any adjustment to the Conversion
Ratio pursuant to Section 6(g)), measured as of the date that is three
(3) Business Days prior to the date the redemption price for such share is paid
in full.

(v) No share of Series E Preferred Stock that is redeemed in accordance with
this Section 4(b) shall be entitled to receive any dividends in respect thereof
after the date on which the payments required by this Section 4(b) are paid or
set apart for payment to the holder of such share of Series E Preferred Stock in
accordance with the terms hereof. From and after the receipt of all such
payments in cash in full, all rights of the holder of such share of Series E
Preferred Stock shall, in respect of such share of Series E Preferred Stock,
cease, and such share of Series E Preferred Stock shall no longer be deemed to
be outstanding.

 

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(vi) For purposes of this Articles Supplementary, the following capitalized
terms shall have the following meanings:

“Beneficial Ownership” means, with respect to any Security, the ownership of
such Security by any “Beneficial Owner,” as such term is defined in Rule 13d-3
and Rule 13d-5 under the Exchange Act, except that, in calculating the
beneficial ownership of any particular “person” (as that term is used in
Section 13(d)(3) of the Exchange Act), such “person” will be deemed to have
beneficial ownership of all securities that such “person” has the right to
acquire by conversion or exercise of other securities, whether such right is
currently exercisable or is exercisable only after the passage of time.

“Change of Control” means (i) a sale of all or substantially all of the direct
or indirect assets of the Company (including by way of any reorganization,
merger, consolidation or other similar transaction), (ii) a direct or indirect
acquisition of Beneficial Ownership of Voting Securities of the Corporation by
another Person or “group” (within the meaning of Rules 13d-3 and 13d-5 under the
Exchange Act) by means of any transaction or series of transactions (including
any reorganization, merger, consolidation, joint venture, share transfer or
other similar transaction), pursuant to which the stockholders of the Company
immediately preceding such transaction or transactions collectively own,
following the consummation of such transaction or transactions, less than fifty
percent (50%) of the Voting Securities of the Corporation or the surviving
entity, as the case may be, or (iii) the obtaining by any Person or “group”
(within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act) of the
power (whether or not exercised) of the power to elect a majority of the members
of the Board (or similar governing body).

“Change of Control Price” means the Average Closing Price as of the Measurement
Date; provided, that such price shall not be less than the fair market value of
the consideration to be received by stockholders with respect to a share of
Common Stock pursuant to such Change of Control.

“Change of Control Make Whole Amount” means, if the date of consummation of the
Change of Control occurs prior to the date that is the fifth anniversary of the
Issue Date, an amount equal to the aggregate amount of all dividends that would
have accrued on a share of Series E Preferred Stock pursuant to Section 2(b)
from the date of consummation of the Change of Control through the date that is
the fifth anniversary of the Issue Date (which, for the avoidance of doubt,
shall be calculated assuming that no dividends will be declared pursuant to
Section 2(a) hereof, and shall not be subject to any discount rate).

“Exchange Act” means the Securities Exchange Act of 1934, as amended, together
with all rules and regulations promulgated thereunder.

“Person” means an individual, corporation, partnership, limited liability
company, association, trust, or other entity or organization, including any
governmental authority.

“Securities” means capital stock, limited partnership interests, limited
liability company interests, beneficial interests, warrants, options, restricted
stock units, notes, bonds, debentures, and other securities, equity interests,
ownership interests and similar obligations of every kind and nature of any
Person.

 

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“Voting Securities” means at any time shares of any class of capital stock or
other Securities of the Corporation that are then entitled to vote generally in
the election of directors and not solely upon the occurrence and during the
continuation of certain specified events, and any evidence of indebtedness,
shares of capital stock (other than Common Stock) or other Securities (including
options, warrants and similar securities) that may be converted into, exercised
for, or otherwise exchanged for such shares of capital stock.

(c) By the Corporation.

(i) From and after the one (1) year anniversary of the Issue Date and until the
two (2) year anniversary of the Issue Date, the Corporation shall have the
right, at its option, at any time, to redeem all (but not less than all) of the
outstanding shares of Series E Preferred Stock at a redemption price per share
of Series E Preferred Stock (the “Call Price”) equal to the greater of (A) the
sum of (I) the Liquidation Preference of a share of Series E Preferred Stock
plus the amount of any accrued but unpaid dividends thereon to the date fixed
for redemption, without interest, plus (II) the Make Whole Amount, and (B) the
Average Closing Price multiplied by the number of shares of Common Stock into
which a share of Series E Preferred Stock could be converted in accordance with
Section 6 (but, for purposes of this clause (B), without taking into account any
limitations or restrictions on the convertibility of the shares of Series E
Preferred Stock and without taking into account any adjustment to the Conversion
Ratio pursuant to Section 6(g)), in each case measured as of the date on which
the Corporation delivers a Call Notice (as defined below), or the last Trading
Day immediately prior to such date, pursuant to this Section 4(c). The “Make
Whole Amount” shall be (x) if the Corporation delivers a Call Notice (as defined
below) that provides for a Redemption Date (as defined below) on or prior to the
fifteen (15) month anniversary of the Issue Date of the Series E Preferred Stock
in accordance with this Section 4(c)(i), an amount equal to the present value at
the Redemption Date of the aggregate amount of all dividends that would have
accrued on a share of Series E Preferred Stock pursuant to Section 2(b) from the
Redemption Date pursuant to this Section 4(c) through the date that is the fifth
anniversary of the Issue Date (which, for the avoidance of doubt, shall be
calculated assuming that no dividends pursuant to Section 2(a) hereof will be
declared), computed using a discount rate equal to the Treasury Rate as of the
date that the Corporation delivers a Call Notice (as defined below), or the last
Trading Day immediately prior to such date, and (y) if the Corporation delivers
a Call Notice that provides for a Redemption Date after the fifteen (15) month
anniversary of the Issue Date and on or prior to the two (2) year anniversary of
the Issue Date in accordance with this Section 4(c)(i), an amount equal to the
aggregate amount of all dividends that would have accrued on a share of Series E
Preferred Stock pursuant to Section 2(b) from the Redemption Date pursuant to
this Section 4(c) through the date that is the fifth anniversary of the Issue
Date (which, for the avoidance of doubt, shall be calculated assuming that no
dividends will be declared pursuant to Section 2(a) hereof, and shall not be
subject to any discount rate). The “Treasury Rate” shall mean, as of the
Redemption Date, the yield to maturity of United States Treasury securities with
a constant maturity most nearly equal to the period from the Redemption Date to
the fifth anniversary of the Issue Date.

(ii) The Corporation may exercise its option pursuant to this Section 4(c) by
delivering notice of such exercise (a “Call Notice”) to each holder of Series E
Preferred Stock at such holder’s address as it shall appear in the records of
the Corporation or such other address as such holder shall specify to the
Corporation in writing from time to time, stating (i) the date

 

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of redemption (the “Redemption Date”), which shall be a Business Day that is no
earlier than thirty (30) days and no later than sixty (60) days from the date
such notice is sent, or such later date as may be necessary to comply with the
requirements of applicable law including the Exchange Act, and (ii) the
estimated Call Price, (iii) the place or places where certificates for such
shares of Series E Preferred Stock are to be surrendered for payment, and
(iv) that dividends on shares of Series E Preferred Stock shall cease to accrue
on the Redemption Date.

(iii) Redemption pursuant to this Section 4(c) shall become effective on the
Redemption Date. On or before the applicable Redemption Date, each holder of
outstanding shares of Series E Preferred Stock shall surrender the certificate
or certificates representing such shares (or, if such certificate or
certificates have been lost, stolen, or destroyed, a lost certificate affidavit
and indemnity in form and substance reasonably acceptable to the Corporation) to
the Corporation at the place or places specified in the Call Notice, and upon
receipt thereof by the Corporation the aggregate Call Price for such redeemed
shares shall be immediately due and payable in cash to the record holder of the
shares of Series E Preferred Stock being redeemed. If a Call Notice has been
delivered in accordance with Section 4(c)(ii) and if the funds necessary for
redemption have been paid to, or set aside by the Corporation for payment to,
the holders of Series E Preferred Stock, then from and after the redemption
date, whether or not a holder has surrendered its certificate or certificates
representing its shares (or, if such certificate or certificates have been lost,
stolen, or destroyed, a lost certificate affidavit and indemnity in form and
substance reasonably acceptable to the Corporation), distributions will cease to
accrue on the Series E Preferred Stock, the Series E Preferred Stock shall no
longer be deemed outstanding and all rights of the holders of Series E Preferred
Stock as holders thereof will terminate, except the right to receive the
aggregate Call Price for the shares of Series E Preferred Stock held by each
such holder.

(c) Nothing in this Section 4 shall in any way prevent or limit redemption,
conversion or exchange of Series E Preferred Stock in accordance with Article V
of the Charter prior to the date of redemption under this Article IV.

Section 5. Liquidation Rights.

(a) Liquidation Payment. Subject to the rights of any series of preferred stock
which by its terms expressly ranks senior to the Series E Preferred Stock in
respect of the right to receive payment of the distribution of assets upon
liquidation of the Corporation which may from time to time come into existence,
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 Junior Stock (as to
dividends or upon liquidation, dissolution or winding up), but subject to
paragraph (b) below, the holders of the Series E Preferred Stock shall be
entitled to be paid out of assets of the Corporation legally available for
distribution to stockholders, in respect of each share of Series E Preferred
Stock, the greater of (i) the Liquidation Preference, 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 and (ii) the
amount that such holder would have been entitled to receive in respect of the
Common Stock into which such share of Series E Preferred Stock could have been
converted assuming that, immediately prior to such event of liquidation,
dissolution or winding up of the Corporation, all holders of Series E Preferred
Stock had, pursuant to, and in accordance with,

 

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Section 6, converted all shares of Series E Preferred Stock into shares of
Common Stock (but, for purposes of this clause (ii), without taking into account
any limitations or restrictions on the convertibility of the shares of Series E
Preferred Stock and without taking into account any adjustment to the Conversion
Ratio pursuant to Section 6(g)). Except as provided in this Section 5(a), the
holders of the Series E Preferred Stock shall be entitled to no other or further
distribution in connection with such liquidation, dissolution or winding up and
shall have no further right or claim to any of the remaining assets of the
Corporation. Absent an actual liquidation, dissolution or winding up of the
Corporation, no merger or consolidation, share exchange, sale of all or
substantially all of the assets of the Corporation or any other similar
reorganization or change of control transaction involving the Corporation shall
be deemed to be a liquidation, dissolution or winding up of the Corporation for
purposes of this Section 5.

(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 E Preferred Stock and the Parity Stock shall be
insufficient to permit payment in full to such holders of the sums that such
holders are entitled to receive in such case, then all of the assets available
for distribution to the holders of the Series E Preferred Stock and the Parity
Stock shall be distributed among and paid to the holders of the Series E
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 6. Conversion.

(a) Conversion by the Holders of Series E Preferred Stock. Pursuant to, and in
accordance with, the provisions of this Section 6, a holder of Series E
Preferred Stock shall have the right, at such holder’s option at any time
following (i) the approval by the requisite holders of Common Stock (other than
Common Stock held by holders of Series E Preferred Stock) of the conversion
rights set forth in this Section 6 (such conversion rights, the “Preferred Stock
Conversion Rights” and such approval by the holders of the Common Stock of the
Preferred Stock Conversion Rights, the “Stockholder Approval”), and (ii) the
expiration or termination of any applicable waiting periods (together with any
extensions thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (the “HSR Act”), to convert all or a portion of such holder’s shares of
Series E Preferred Stock into the number of fully paid and non-assessable shares
of Common Stock obtained by multiplying the number of shares of Series E
Preferred Stock being converted by the Conversion Ratio (as defined below and as
in effect at the time of such conversion) by surrendering such Series E
Preferred Stock to be converted. Such surrender shall be made in accordance with
Section 6(c). The “Conversion Ratio” with respect to any share of Series E
Preferred Stock shall initially be equal to one (1) share of Common Stock per
share of Series E Preferred Stock, subject to adjustment as set forth herein.

(b) Conversion by the Corporation. The Corporation shall have the right at any
time following (i) the Stockholder Approval of the Preferred Stock Conversion
Rights and (ii) the expiration or termination of any applicable waiting periods
(together with any extensions thereof) under the HSR Act, to convert all shares
of Series E Preferred Stock into the number of fully paid and non-assessable
shares of Common Stock obtained by multiplying the number of shares of Series E
Preferred Stock being converted by the Conversion Ratio (as in effect at the
time of such conversion) by providing notice of such conversion to the record
holders of the Preferred Stock.

 

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(c) Manner of Conversion.

(i) In order to convert a share of Series E Preferred Stock pursuant to
Section 6(a), the holder of such share to be converted shall surrender to the
Corporation the certificate representing such share, duly endorsed or assigned
to the Corporation or in blank (or, if such certificate or certificates have
been lost, stolen, or destroyed, a lost certificate affidavit and indemnity in
form and substance reasonably acceptable to the Corporation), accompanied by
written notice to the Corporation (in the case of conversion pursuant to
Section 6(a)) that the holder thereof elects to convert such Series E Preferred
Stock.

(ii) Until a holder of a share of Series E Preferred Stock converted pursuant to
Section 6(b) surrenders to the Corporation the certificate that represented such
share of Series E Preferred Stock, duly endorsed or assigned to the Corporation
or in blank (or, if such certificate or certificates have been lost, stolen, or
destroyed, a lost certificate affidavit and indemnity in form and substance
reasonably acceptable to the Corporation), the certificate that represented such
share of Series E Preferred Stock shall represent the number of shares of Common
Stock into which such share of Series E Preferred Stock was converted.

(iv) Unless the shares of Common Stock issuable on conversion are to be issued
in the same name as the name in which such Series E Preferred Stock are
registered, each share of Series E 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).

(iv) As promptly as practicable after the surrender of certificates of Series E
Preferred Stock in accordance with Section 6(c)(i), 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 E Preferred Stock in
accordance with the provisions of this Section 6, and any fractional interest in
respect of a share of Common Stock arising upon such conversion shall be settled
as provided in paragraph (e) of this Section 6.

(v) Each conversion pursuant to Section 6(a) shall be deemed to have been
effected immediately prior to the close of business on the date on which
certificates for the Series E Preferred Stock (or, if such certificate or
certificates have been lost, stolen, or destroyed, a lost certificate affidavit
and indemnity in form and substance reasonably acceptable to the Corporation)
have been surrendered and such notice received by the Corporation in the manner
required hereby. Each conversion pursuant to Section 6(b) shall be deemed to
have been effected immediately prior to the close of business on the date on
which the Company delivers notice of such conversion to the holders of the
Series E Preferred Stock. The person or persons in whose name or names any
certificate or certificates for shares of Common Stock shall be issuable upon
any such conversion shall be deemed to have become the holder or holders of

 

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record of the shares represented thereby at the time and on the date such
conversion is deemed to have been effected, 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 conversion would have been effective if the stock transfer
books of the Corporation had not been closed.

(d) Accrued Dividends. Upon the conversion of each share of Series E Preferred
Stock and contemporaneously with the deliveries contemplated by Section 6(c),
the Corporation shall pay to the holder of such share all accrued but unpaid
dividends earned in respect of such share through the date prior to the
effective date of conversion, such payment to be in cash (by wire transfer of
immediately available funds).

(e) Fractional Shares. No fractional shares or scrip representing fractions of
shares of Common Stock shall be issued upon conversion of the Series E Preferred
Stock. Instead of any fractional interest in a share of Common Stock that would
otherwise be deliverable upon the conversion of Series E Preferred Stock, the
Corporation shall pay to the holder of such fractional share an amount in cash
equal to such fraction multiplied by the Average Closing Price, in each case
measured as of the Trading Date immediately preceding the date of conversion. If
more than one share of Series E Preferred Stock shall be surrendered for
conversion at one time by the shareholder, the number of full shares of Common
Stock issuable upon conversion thereof shall be computed on the basis of the
aggregate number of Series E Preferred Stock so surrendered.

(f) Adjustment of Conversion Ratio. The Conversion Ratio shall be adjusted from
time to time as follows:

(i) If the Corporation shall, while any shares of Series E Preferred Stock are
outstanding, (A) pay a dividend or make a distribution with respect to its
capital stock in shares of its Common Stock (which, for the avoidance of doubt,
shall not include any dividends paid in shares of Series E Preferred Stock
pursuant to Section 2(b))), (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
(in the case of the foregoing clause (A)), or at the opening of business on the
day following the day on which such subdivision, combination or reclassification
becomes effective (in the cases of the foregoing clauses (B), (C) and (D)),
shall be adjusted and shall become effective immediately so that the holder of
any Series E 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 E Preferred Stock been converted
immediately prior to the record date (in the case of the foregoing clause (A))
or the effective date (in the cases of the foregoing clauses (B), (C) and (D)).

 

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(ii) If the Corporation shall, while any shares of Series E Preferred Stock are
outstanding, issue rights, options or warrants to holders of Common Stock (other
than any issuances pursuant to the Corporation’s existing compensation
arrangements for its directors, officers, employees, consultants and agents or
any future compensation arrangements for its directors, officers, employees,
consultants and agents that are approved by the Corporation’s compensation
committee) entitling them to subscribe for or purchase Common Stock at a price
per share less than the Average Closing Price, measured as of 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 (A) the Conversion Ratio in effect at the opening of
business on the day next following such record date by (B) a fraction, the
numerator of which shall be the sum of (I) the number of shares of Common Stock
outstanding on the close of business on the date fixed for such determination
plus (II) the number of shares of Common Stock that the aggregate proceeds to
the Corporation from the exercise of such rights or warrants for Common Stock
would purchase at such Average Closing Price, and the denominator of which shall
be the sum of (X) the number of shares of Common Stock outstanding on the close
of business on the date fixed for such determination and (Y) 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 immediately following such record date.
In determining whether any rights or warrants entitle the holders of Common
Stock to subscribe for or purchase shares of Common Stock at a per share price
that is less than such Average Closing Price, all consideration received by the
Corporation upon issuance and upon exercise of such rights or warrants shall be
taken into account, the value of such consideration, if in a form other than
cash, to be determined by the Board of Directors in the reasonable exercise of
their business judgment.

(g) Additional Adjustment of Conversion Ratio and Liquidation Preference. In the
event that the Stockholder Approval is not obtained within one hundred
eighty (180) days of the Issue Date then, upon the occurrence of such event,
each of the Conversion Ratio and the Liquidation Preference shall immediately be
adjusted, such that, immediately following such adjustment, each of the
Conversion Ratio and the Liquidation Preference, as adjusted, is equal to the
product of one hundred and ten percent (110%) multiplied by the amount of the
Conversion Ratio and the Liquidation Preference, respectively, in effect
immediately prior to such adjustment.

(h) 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 deliver such notice of such
adjustment of the Conversion Ratio to the holders of the Series E Preferred
Stock at such holders’ last address as shown on the stock records of the
Corporation.

(i) Other Adjustments to Conversion Ratio. In the event the Corporation takes
any action that affects the Common Stock in a manner that could materially
adversely affect the conversion rights of the holders of the Series E Preferred
Stock or the value of such conversion rights (which action is not otherwise
contemplated by this Section 6), the Conversion Ratio for the Series E Preferred
Stock may be adjusted, to the extent permitted by law, as the members of the
Board of Directors (excluding, for the purposes of this Section 6(i), any
directors who have been nominated by TPG), in the exercise of their reasonable
business judgment, shall determine to be equitable in the circumstances.

 

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(j) Reservation and Validity.

(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 E Preferred Stock, the full number of shares of Common Stock
deliverable upon the conversion of all outstanding Series E Preferred Stock not
therefore converted or redeemed.

(ii) The Corporation covenants that any shares of Common Stock issued upon the
conversion of the Series E Preferred Stock shall be validly issued, fully paid
and non-assessable.

(k) 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 E 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 E 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.

Section 7. Status of Redeemed Stock. All shares of Series E Preferred Stock that
have been issued and reacquired in any manner by the Corporation (including,
without limitation, shares of Series E Preferred Stock which have been
surrendered for conversion) shall be returned to the status of authorized but
unissued shares of Series E Preferred Stock and shall not be re-issued as Series
E Preferred Stock or transferred by the Corporation without the written consent
of TPG (regardless of whether TPG or any of its affiliates owns any shares of
Series E Preferred Stock); provided, however, that the Corporation may, at any
time, reclassify such shares of Series E Preferred Stock as Common Stock without
the consent of TPG.

 

16

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IN WITNESS WHEREOF, PARKWAY PROPERTIES, INC. has caused these presents to be
signed in its name and on its behalf by its President and witnessed by its
Secretary on [ • ], 2012.

 

PARKWAY PROPERTIES, INC. By:     WITNESS By:    

THE UNDERSIGNED, President of PARKWAY PROPERTIES, INC., who executed on behalf
of the Corporation the 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
hereby certifies that the matters and facts set forth herein with respect to the
authorization and approval thereof are true in all material respects under
penalties of perjury.

By:    

 

17

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Exhibit E

Form of REIT Representation Letter

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Exhibit E

[TPG LETTERHEAD]

                    , 2012

Board of Directors

Parkway Properties, Inc.

Bank of America Center, Suite 2400

390 North Orange Avenue

Orlando, FL 32801

Ladies and Gentlemen:

This letter is being delivered to you in connection with our request that the
Board of Directors (the “Board”) of Parkway Properties, Inc. (the “Company”)
grant the members of the Stockholder Group (as defined below) a limited
exemption from the Ownership Limit contained in the Articles of Incorporation of
the Company dated May 6, 1996, as amended and supplemented through the date
hereof (the “Charter”). Capitalized terms not defined herein shall have the
meaning assigned to such terms in the Charter.

In connection with the transactions contemplated by the Securities Purchase
Agreement dated May __, 2012, by and between the Company and the Investors (as
defined therein) listed on Schedule 1 thereof (the “SPA”), it is expected that
TPG VI Pantera Holdings, LP (the “TPG Fund”) will acquire, in the aggregate, all
of the issued and outstanding Series E Convertible Cumulative Redeemable
Preferred Stock (the “Series E Preferred Stock”) from the Company, and may
acquire Common Stock and Series E Preferred Stock in excess of the Ownership
Limit. As a result of these transactions, the TPG Fund and one or more of the
entities listed on Exhibit A hereto (each a “TPG Member”, and collectively the
“TPG Members”) may, Beneficially Own or Constructively Own shares of Equity
Stock in excess of the Ownership Limit as set forth in Sections 2(b)(i) and
2(b)(ii) of Article V of the Charter.

Pursuant to Section 2(f)(i) of Article V of the Charter, the Board may, in its
sole and absolute discretion and upon the receipt of evidence satisfactory to
the Board, grant a Person an exemption from the Ownership Limit related to such
Person’s Beneficial Ownership of Equity Stock in excess of the Ownership Limit.
Pursuant to Section 2(f)(ii) of Article V of the Charter, the Board may, in its
sole and absolute discretion and upon the receipt of evidence satisfactory to
the Board, grant a Person an exemption from the Ownership Limit related to such
Person’s Constructive Ownership of Equity Stock in excess of the Ownership Limit
if (i) such Person does not and represents that it will not own, directly or
Constructively, more than a 9.8% interest (as set forth in Section 856(d)(2)(B)
of the Internal Revenue Code of 1986, as amended (the “Code”)) in a tenant of
the Company; (ii) the Company obtains such representations and undertakings from
such Person as are reasonably necessary to ascertain the accuracy of clause (i);
and (iii) such Person agrees that any violation of any representation or
undertakings described in clause (ii) will result in Equity Stock in excess of
the Ownership Limit being exchanged for Excess Stock in accordance with
Section 2(c) of Article V of the Charter.

--------------------------------------------------------------------------------

Accordingly, and pursuant to Section 7.7 of the SPA, the TPG Fund hereby submits
this Request for Waiver of the Ownership Limit (this “Waiver Request”)
requesting that the Board grant to the TPG Fund, together with the members of
the Stockholder Group (as defined below), an exemption from the Ownership Limit,
and establish for the Stockholder Group (as defined below) an aggregate
substitute limit in lieu of the Ownership Limit (such limit, the “Excepted
Holder Limit”) to permit it to Constructively Own and Beneficially Own (without
duplication):

 

  (1) 100% of the Series E Preferred Stock;

 

  (2) the Common Stock issued to the TPG Fund on the date hereof;

 

  (3) the Common Stock into which the Series E Preferred Stock is convertible
(on an as-converted basis without taking into account any limitations or
restrictions on the convertibility of shares of Series E Preferred Stock);

 

  (4) the Common Stock (A) distributable in respect of the Series E Preferred
Stock (in accordance with the terms, and subject to any restrictions, set forth
in the Articles Supplementary for the Series E Preferred Stock); or (B) issuable
pursuant to Section 2 of the Management Services Agreement dated as of the date
hereof by and between the Company and TPG Capital, L.P. (the “MSA”) (subject to
any restrictions set forth therein); and

 

  (5) the Equity Stock that may be acquired by the TPG Fund and its “Affiliates”
(as such term is defined in the Stockholders Agreement dated as of the date
hereof by and between the Company and the TPG Fund (the “Stockholders
Agreement”)) pursuant to Section 5.1(a)(i) of the Stockholders Agreement.

provided, however, that

 

  (i) the Excepted Holder Limit granted to the Stockholder Group with respect to
clauses (2) through (5) above, in the aggregate, will (A) automatically decrease
(to not less than the amount permitted by the Ownership Limit) by the extent to
which the aggregate Beneficial Ownership or Constructive Ownership of Common
Stock by the TPG Fund and its “Affiliates” (as such term is defined in the
Stockholders Agreement) is, beginning on the earlier of the dates set forth in
clauses (ii) and (iii) of Section 5.1(a) (initial flush) of the Stockholders
Agreement, less than otherwise permitted by clauses (2) through (5) in the
aggregate, and (B) thereafter automatically increase by the amount of additional
Common Stock that may thereafter at such time be issued under the MSA (subject
to any restrictions set forth in the MSA); and

 

  (ii) the Excepted Holder Limit will terminate automatically on the date set
forth in clause (i) of Section 5.1(a) (initial flush) of the Stockholders
Agreement.

In connection with this Waiver Request, the TPG Fund (on behalf of itself and
the TPG Members) makes the following representations, warranties and covenants.

 

  1. Neither the TPG Fund nor any TPG Member is an individual for purposes of
Section 542(a)(2) of the Code (determined taking into account
Section 856(h)(3)(A) of the Code) (an “Individual”).

 

  2. To the knowledge of the TPG Fund, and assuming that the TPG Fund has
Beneficial Ownership and Constructive Ownership of Equity Stock up to its
Excepted Holder Limit:

 

  a) No Person (other than members of Stockholder Group (as defined below)) who
will be considered to Beneficially Own or Constructively Own shares of Equity
Stock by reason of the TPG Fund’s ownership thereof will Beneficially Own or
Constructively Own Equity Stock in excess of the Ownership Limit.

 

2

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  b) The “Stockholder Group” means the TPG Fund and each TPG Member.

 

  3. Exhibit B hereto sets forth a complete and accurate description of the
ownership, as of the date hereof, of any member of the Stockholder Group of an
equity interest in those direct and indirect tenants of the REIT set forth on
Exhibit C. Furthermore, in order to guard against the possibility that the
Company might fail to satisfy the gross income requirements of Section 856(c) of
the Code for any year during which any member of the Stockholder Group
Constructively Owns Equity Stock in excess of the Ownership Limit (without
taking into account the Excepted Holder Limit): (a) the Company may provide to
the TPG Fund, at the end of each calendar quarter after the date hereof, a list
of all or a number of the direct and/or indirect tenants (and/or prospective
tenants) of the Company; and (b) promptly upon the Company’s request, the TPG
Fund, on behalf all members of the Stockholder Group, will (i) review such list
and will notify the Company if the Stockholder Group owns, or reasonably
anticipates owning, in the aggregate, in excess of 8% of the equity interests in
any such direct or indirect tenant (or prospective tenant) . The Company and the
members of the Stockholder Group (including the TPG Fund) will then use the
information provided in the preceding sentence to cooperate in good faith to
ensure that no member of the Stockholder Group owns more than a 9.8% equity
interest in a direct or indirect tenant (or prospective tenant) of the Company.

 

  4. For purposes of paragraph 3: (i) a member of the Stockholder Group has
“ownership” or “owns” an equity interest in a direct or indirect tenant (or
prospective tenant) of the Company if such member of the Stockholder Group would
be treated as the owner of such equity interest either directly or
constructively through the application of Section 318 of the Code (as modified
by Section 856(d)(5) of the Code); (ii) an equity interest in a direct or
indirect tenant (or prospective tenant) means an interest in such direct or
indirect tenant (or prospective tenant) that is treated as equity for U.S.
federal income tax purposes and includes, in the case of a direct or indirect
tenant (or prospective tenant) that is an entity taxable as a corporation for
U.S. federal income tax purposes, stock of such entity (determined for U.S.
federal income tax purposes), and, in the case of a direct or indirect tenant
(or prospective tenant) that is an entity other than a corporation for U.S.
federal income tax purposes, an interest in the assets or net profits of such
entity (determined for U.S. federal income tax purposes); and (iii) a member of
the Stockholder Group will not be deemed to reasonably anticipate owning an
equity interest in a direct or indirect tenant of the Company unless such
member, at the relevant time either (a) is actively considering acquiring or
actively in negotiations to acquire ownership of equity interests in such direct
or indirect tenant (or prospective tenant); or (b) holds or is actively
considering acquiring or actively in negotiations to acquire debt interests or
securities of an entity that are convertible into equity interests of the
entity.

 

  5. No member of the Stockholder Group will knowingly take any action or fail
to take any action after the date of this Waiver Request that will cause any
representation, warranty, or covenant made herein to fail to be true and
accurate in all material respects in the future with respect to any Equity Stock
held by any member of the Stockholder Group or acquired by such member of the
Stockholder Group in the future.

 

  6. The TPG Fund will use commercially reasonable efforts to provide such
information requested by the Company from time to time for the Company to
confirm the accuracy of the representations, warranties and covenants of the TPG
Fund (including the members of the Stockholder Group), or to determine the
number of shares of Equity Stock and amount of equity interests in any tenant or
service provider owned (within the meaning of paragraph 3) by any member(s) of
the Stockholder Group, and by direct and indirect owners of any such member.
Notwithstanding the foregoing, the TPG Fund shall not be required to provide the
Company with the names or, except in general terms, the percentage interests of
its direct or indirect owners.

 

3

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  7. The TPG Fund (and the members of the Stockholder Group) agrees to be
subject to the Excepted Holder Limit for the TPG Fund (together with the members
of the Stockholder Group), unless and until the TPG Fund receives another
exemption from the Board and such ownership would not otherwise violate the
requirements of Section 2(b)(iii) or Section 2(b)(iv) of Article V of the
Charter.

 

  8. The TPG Fund will notify the Board of any change to the representations in
paragraphs 2 and/or 3 above, or any warranty or covenant made herein, as soon as
practicable after it learns that such change has occurred, or is expected to
take place, whichever is sooner.

 

  9. Representations, warranties and covenants made herein will also apply to
any additional Equity Stock that the TPG Fund (including any member of the
Stockholder Group) acquires in the future (whether by purchase, conversion,
operation of law, or otherwise).

 

  10. In the event that the TPG Fund or any member of the Stockholder Group
determines that any of the representations or covenants herein have become
untrue or have been violated, the TPG Fund will promptly inform the Company.

 

  11. The undersigned has the authority to execute this document on behalf of
each member of the Stockholder Group.

In connection with this Waiver Request, the TPG Fund (on behalf of itself and
the members of the Stockholder Group) agrees and acknowledges that:

 

  •  

In connection with this Waiver Request, the Board will grant a waiver of the
Ownership Limit set forth in Sections 2(b)(i) and 2(b)(ii) of Article V of the
Charter only to the TPG Fund and the members of the Stockholder Group, and not
to any other Person; for the sake of clarity, the Board will not grant to any
Person (including to the TPG Fund or any member of the Stockholder Groups) any
waiver of the ownership limits set forth in the Sections 2(b)(iii) and 2(b)(iv)
of Article V of the Charter;

 

  •  

Taking into account the effects of any waiver of the Ownership Limit that may be
granted by the Board to the TPG Fund (and the members of its Stockholder Group),
the TPG Fund (and the members of its Stockholder Group) will be required to
comply with Section 2(e) of Article V of the Charter (Notice Requirements and
General Authority of the Board of Directors to Implement REIT-Related
Restrictions and Limitations);

 

  •  

Any violation of any representation, warranty, covenant, or undertaking
described herein above will result in Equity Stock in excess of the Ownership
Limit being exchanged for Excess Stock in accordance with Section 2(c) of
Article V of the Charter or shall be void ab initio (thereby resulting in the
cancellation of the relevant transaction, and, as relevant, a return of
consideration) or may be redeemed by the Company pursuant to the Charter and
these shall constitute the sole remedies for any such violation; and

 

  •  

The Board will rely on the truth, completeness and accuracy of the
representations and warranties contained herein, in granting a waiver of the
Ownership Limit, and such waiver will be void and/or rendered ineffective if
these representations and warranties are not true, complete and accurate in all
material respects either as of the date hereof or at any time in the future.

 

4

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IN WITNESS WHEREOF, the undersigned have executed this document effective as of
the date first written above.

By:     Name:     Title:    

 

5

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Exhibit A

TPG Members

TPG VI Delfir AIV II, L.P.

 

6

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Exhibit B

Tenant Ownership

None

 

7

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Exhibit C

Tenants

 

8