BLACKACRE
---------
CAPITAL MANAGEMENT LLC
June 17, 1998
The Board of Directors
J.C. Nichols Company
310 Ward Parkway
Kansas City, Missouri 64112
Attention: Chairman of the Board
Lady and Gentlemen:
As you know, affiliates of Blackacre Capital Management LLC
(Blackacre") own approximately 14% of the outstanding shares of Common Stock of
J.C. Nichols Company (the "Company"). We have been carefully following the
proposed transaction between Highwoods Properties Inc. and the Company (the
"Proposed Highwoods Transaction"). After reviewing the proxy materials and
meeting with Company representatives, we strongly believe that the Proposed
Highwoods Transaction is inadequate from a financial point of view, does not
reflect the values inherent in the Company, would subject the Company's
stockholders to significant downside equity risk in the Highwoods stock and
provides for an above market breakup fee. We believe that the Company and its
Board are not taking the best interests of all shareholders into account in
recommending this transaction. The proxy materials do not provide compelling
evidence that this transaction maximizes value for all shareholders, and in fact
we believe, given certain dynamics in the marketplace, there is significant
financial risk to any shareholder who takes Highwoods stock.
Consistent with our views of the Proposed Highwoods Transaction, we and
our affiliates intend to vote against approval of the Proposed Highwoods
Transaction and, if it is nonetheless approved, to exercise appraisal rights for
our shares of Common Stock. As you know and as we believe should be conveyed to
the Company's stockholders in supplemental proxy materials, this would have the
effect, among other things, of reducing by over 35% the amount of cash that
would otherwise be available to the Company's stockholders in the Proposed
Highwoods
Transaction, thereby forcing stockholders who prefer to take cash to take
additional Highwoods shares instead.
Because we see values in the Company not reflected in the Prosposed
Highwoods Transaction, we are submitting an offer to acquire the Company at
$70.00 per share in an all cash merger, subject to certain structuring for tax
advantages to shareholders as described below. If the Company furnishes us
information which establishes a higher valuation for the Company, we are
prepared to consider increasing our offer. We believe that this offer would
result in value to the Company's shareholders that is more certain and
significantly above those realizable through the Proposed Highwoods Transaction.
Although we have conducted an extensive analysis of the Company based
on publicly available information, our offer is subject to, among other things,
satisfactory completion of our due diligence of the Company. Our offer is also
subject to the Company's Board of Directors terminating the merger agreement
relating to the Proposed Highwoods Transaction under circumstances in which the
break-up fee and expense reimbursement payable to Highwoods does not exceed
$2,500,000.
It is intended that the transaction would be structured so as to
provide to the Company's long-term stockholders with an ability to transfer
their stock on a tax-free basis. In order to facilitate this, we believe that
the Company's Employee Stock Onwership Plan and Trust (the "ESOT") would agree
to purchase (on a pro rata basis in the event of oversubscription) up to
approximately 15% of the outstanding shares of Common Stock from shareholders
desiring to effectuate a Section 1042 transaction under the Internal Revenue
Code. We believe that the ESOT would also agree to retain approximately 15%
interest in the surviving corporation following the merger.
Blackacre and its affiliates have sufficient equity capital to complete
the transaction and Blackacre is highly confident that it can secure the debt
financing necessary to refinance the existing debt of the Company.
Blackacre stands ready to commence negotiations and due diligence. Once
the Company has provided to Blackacre information and access which are
equivalent to that received by Highwoods, we believe that a definitive agreement
could be achieved expeditiously. Representatives of Blackacre and the Company
would then prepare proxy materials necessary to obtain approvals from the
2
Company's shareholders, which we believe would be quickly received given the
significant premium to the current Proposed Highwoods Transaction being offered
to the Company's shareholders.
Following consummation of the transaction, we intend on maintaining the
Company's corporate identity including owning and operating the Country Club
Plaza. In addition, we will honor all current employment contracts and other
related agreements with management.
We firmly believe that our all cash proposal provides shareholders of
the Company with immediate superior value over the Proposed Highwoods
Transaction as well as certainty. Highwoods common stock, a significant
component of the value in the Proposed Highwoods Transaction, is a volatile
security which will expose Company shareholders to significant market risk after
consummation of the Proposed Highwoods Transaction. In the Registration
Statement filed in connection with the Proposed Highwoods Transaction, Highwoods
has identified a number of disturbing risk factors relating to ownership of
Highwoods common stock, including, but not limited to, the following:
o the potential adverse impact on share price and dilution in
ownership resulting from subsequent offerings of Highwoods
common stock;
o possible difficulties in integrating Highwoods and the
Company;
o the fact that Highwoods' management and its board of
directors have divergent interests from those of Highwoods
stockholders regarding the sale or refinancing of Highwoods'
properties; and
o the fact that Highwoods has no expertise in retail
apartments and homebuilding.
Moreover, since the execution of the Highwoods merger agreement, there
has been a significant decline in the Highwoods stock price as well as a
contraction in the average multiple at which larger public REITs have been
trading in the marketplace, reflecting the market's increased concern over the
inherent riskiness of such entities.
3
In summary, we strongly believe that our proposal represents an
extraordinary opportunity for the Company and its shareholders. Because time is
of the essence, this offer will remain open until July 2, 1998 or its earlier
termination by Blackacre upon written notice to the Company. We look forward to
meeting with the Company's Board of Directors to discuss our proposal in greater
detail at your earliest convenience. Blackacre is determined to take every
appropriate action to consummate this transaction.
Sincerely,
BLACKACRE CAPITAL MANAGEMENT LLC
By /s/ Ronald Kravit
--------------------------