PROSPECTUS SUPPLEMENT Filed Pursuant to Rule 424(b)(5)
(To Prospectus dated July 1, 1998) Registration No. 333-58309
1,320,000 Shares
EASTGROUP PROPERTIES, INC.
7.95% Series D Cumulative Redeemable Preferred Stock
Liquidation Preference $25.00 Per Share
We are offering and selling 1,320,000 shares of our 7.95% Series D
Cumulative Redeemable Preferred Stock, par value $0.0001 per share. We will pay
cumulative dividends on the Series D preferred stock from the date of original
issuance at the rate of 7.95% per annum of the $25.00 liquidation preference per
share, equivalent to $1.9875 per share per year. Dividends on the Series D
preferred stock will be payable quarterly in arrears, beginning on July 15,
2003. The shares of Series D preferred stock have no stated maturity, will not
be subject to any sinking fund or mandatory redemption and will not be
convertible into any other securities. Holders of shares of Series D preferred
stock will generally have no voting rights, but will have limited voting rights
if we fail to pay dividends for six or more quarterly periods (whether or not
consecutive) and in certain other events.
Except in limited circumstances to preserve our status as a real estate
investment trust (a "REIT"), we may not redeem the Series D preferred stock
until July 2, 2008. On or after July 2, 2008, we may, at our option, redeem the
Series D preferred stock, in whole or in part, at any time and from time to
time, for cash at $25.00 per share, plus accrued and unpaid dividends, if any,
to the redemption date. Any partial redemption will generally be on a pro rata
basis.
We are organized and conduct our operations to qualify as a REIT for
federal income tax purposes. To assist us in complying with certain federal
income tax requirements applicable to REITs, our charter contains certain
restrictions relating to the ownership and transfer of our stock, including an
ownership limit of 9.8% of our outstanding equity stock, including the Series D
preferred stock. See "Description of Series D Preferred Stock" and "Description
of Capital Stock" in this prospectus supplement for a discussion of these
restrictions.
No market currently exists for our Series D preferred stock. We have
applied to list our Series D preferred stock on the New York Stock Exchange
(NYSE) under the symbol "EGP PrD," subject to official notice of issuance. If
the application is approved, we expect that trading will commence within 30 days
after the initial delivery of the Series D preferred stock. Our common stock is
listed on the New York Stock Exchange under the symbol "EGP."
See "Risk Factors" beginning on page S-5 in this prospectus supplement for
a discussion of the risks relevant to an investment in our Series D preferred
stock.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus supplement and the accompanying
prospectus. Any representation to the contrary is a criminal offense.
In connection with our offering of securities, we have retained Mercury
Capital Markets LLC as our placement agent. Mercury has no commitment to
purchase securities and will act only as an agent in the obtaining of
indications of interest on the securities from certain investors in various
jurisdictions.
The date of this prospectus supplement is June 2, 2003.
You should rely only on the information contained in or incorporated by
reference into this prospectus supplement and the accompanying prospectus. We
have not authorized anyone to provide you with different information. We are not
making an offer of these securities in any state where the offer is not
permitted. The information contained in this prospectus supplement and the
accompanying prospectus is accurate only as of the date of this prospectus
supplement and the date of the prospectus, respectively.
To the extent any inconsistency or conflict exists between the information
included in this prospectus supplement and the information included in the
accompanying prospectus, the information included or incorporated by reference
in this prospectus supplement updates and supersedes the information in the
accompanying prospectus.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Page
FORWARD-LOOKING INFORMATION.....................................................................................iii
WHERE YOU CAN FIND MORE INFORMATION.............................................................................iii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE..................................................................iv
PROSPECTUS SUPPLEMENT SUMMARY...................................................................................S-1
RISK FACTORS....................................................................................................S-5
USE OF PROCEEDS................................................................................................S-16
DESCRIPTION OF SERIES D PREFERRED STOCK........................................................................S-16
DESCRIPTION OF CAPITAL STOCK...................................................................................S-24
CERTAIN PROVISIONS OF MARYLAND LAW.............................................................................S-33
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES.........................................................S-38
PLAN OF DISTRIBUTION...........................................................................................S-55
EXPERTS........................................................................................................S-56
LEGAL MATTERS..................................................................................................S-56
PROSPECTUS
AVAILABLE INFORMATION.............................................................................................2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...................................................................3
THE COMPANY.......................................................................................................4
RATIO OF EARNINGS TO FIXED CHARGES................................................................................4
USE OF PROCEEDS...................................................................................................5
DESCRIPTION OF PREFERRED STOCK....................................................................................5
DESCRIPTION OF DEPOSITARY SHARES.................................................................................13
DESCRIPTION OF COMMON STOCK......................................................................................18
FEDERAL INCOME TAX CONSIDERATIONS................................................................................21
PLAN OF DISTRIBUTION.............................................................................................32
EXPERTS..........................................................................................................33
LEGAL MATTERS....................................................................................................33
FORWARD-LOOKING INFORMATION
We have made forward-looking statements with respect to our financial
condition, results of operations and business and on the possible impact of this
offering on our financial performance. Words such as "anticipates," "expects,"
"intends," "plans," "believes," "seeks," "estimates" and similar expressions as
they relate to us or our management, are intended to identify forward-looking
statements. These forward-looking statements are not guarantees of future
performance and are subject to risks and uncertainties, including those
described under "Risk Factors" in this prospectus supplement, that could cause
actual results to differ materially from the results contemplated by the
forward-looking statements.
In evaluating the securities offered by this prospectus supplement, you
should carefully consider the discussion of risks and uncertainties in the
section entitled "Risk Factors" on pages S-5 to S-16 of this prospectus
supplement.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission, or the SEC, a
registration statement under the Securities Act with respect to the securities
offered hereunder. As permitted by the SEC's rules and regulations, this
prospectus supplement and the accompanying prospectus, do not contain all the
information set forth in the registration statement. For further information
regarding our company and our equity stock, please refer to the registration
statement and the contracts, agreements and other documents filed as exhibits to
the registration statement. Additionally, we file annual, quarterly and special
reports, proxy statements and other information with the SEC.
You may read and copy all or any portion of the registration statement or
any other materials that we file with the SEC at the SEC public reference room
at 450 Fifth Street, Washington, D.C., 20549. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
rooms. Our SEC filings, including the registration statement, are also available
to you on the SEC's Web site (www.sec.gov). We also have a Web site
(www.eastgroup.net) through which you may access our SEC filings. In addition,
you may look at our SEC filings at the offices of the New York Stock Exchange,
Inc., which is located at 20 Broad Street, New York, New York 10005. Our SEC
filings are available at the NYSE because our common stock is listed and traded
on the NYSE under the symbol "EGP."
Information contained on our Web site is not and should not be deemed a
part of this prospectus supplement or the accompanying prospectus.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to incorporate by reference the information contained in
documents that we file with them. The information incorporated by reference is
considered to be part of this prospectus supplement and accompanying prospectus,
and information that we file later with the SEC will automatically update and
supersede this information.
We incorporate by reference the documents listed below and any future
filings we make with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act prior to the completion of this offering:
- Our Annual Report on Form 10-K for the year ended December 31, 2002;
- Amendment No. 1 to our Annual Report on Form 10-K for the year ended
December 31, 2002;
- Amendment No. 1 to our Annual Report on Form 10-K for the year ended
December 31, 2001;
- Our Quarterly Report on Form 10-Q for the three months ended March 31,
2003;
- Our Current Report on Form 8-K dated June 2, 2003; and
- Our Proxy Statement on Schedule 14A for the Annual Meeting of Stockholders
to be held on May 29, 2003.
You may request a free copy of these filings (other than exhibits, unless
they are specifically incorporated by reference in the documents) by writing or
telephoning us at the following address and telephone number:
EastGroup Properties, Inc.
Attention: Chief Financial Officer
300 One Jackson Place
188 East Capitol Street
Jackson, Mississippi 39201-2195
(601) 354-3555
PROSPECTUS SUPPLEMENT SUMMARY
This summary highlights selected information about us. It may not contain
all the information that may be important to you in deciding whether to invest
in our Series D preferred stock. You should read this entire prospectus
supplement and the accompanying prospectus, together with the information
incorporated by reference, including the financial data and related notes,
before making an investment decision.
EASTGROUP PROPERTIES, INC.
We are an equity real estate investment trust, or REIT, focused on the
acquisition, operation and development of industrial properties in major Sunbelt
markets throughout the United States with a special emphasis in the states of
California, Florida, Texas and Arizona. We are a self-administered REIT in that
we provide our own investment and administrative services internally through our
own employees. Our strategy for growth is based on property portfolio
orientation toward premier distribution facilities located near major
transportation centers. As of March 31, 2003, our portfolio included 18.7
million square feet with an additional 510,000 square feet of properties under
development. As of March 31, 2003, our industrial properties were, on average,
approximately 90.5% leased. Our mission is to maximize stockholder value by
being the leading provider of highly functional and flexible quality
warehouse/distribution space for tenants in the 10,000 to 50,000 square foot
range.
We are a corporation organized under the laws of the State of Maryland. Our
principal executive offices are located at 300 One Jackson Place, 188 East
Capitol Street, Jackson, Mississippi 39201-2195, and our telephone number is
(601) 354-3555. We also have a Web site at www.eastgroup.net. Information
contained on our Web site is not and should not be deemed a part of this
prospectus supplement or the accompanying prospectus.
THE OFFERING
Securities Offered.................................... 1,320,000 shares of 7.95% Series D Cumulative Redeemable
Preferred Stock.
Ranking............................................... With respect to the payment of dividends and amounts upon
liquidation, the 7.95% Series D Cumulative Redeemable Preferred Stock
will rank senior to our common stock and equal to our 9.00% Series A
Cumulative Redeemable Preferred Stock and 8.75% Series B Cumulative
Convertible Preferred Stock. See "Description of Series D Preferred
Stock--Rank," "--Dividends" and "--Liquidation Preference."
Use of proceeds....................................... The net proceeds from the sale of the Series D preferred stock
will be used to pay a portion of the redemption price of our
9.00% Series A preferred stock. See "Use of Proceeds."
Dividends............................................. Dividends on the Series D preferred stock are cumulative from
the date of original issue and are payable quarterly in arrears
on or before the fifteenth day of each January, April, July and
October or, if not a business day, the next succeeding business
day, to stockholders of record at the close of business on the
last business day of March, June, September and December,
or on such date designated by our Board of Directors for payment of
distributions that is not more than 30 nor less than ten days prior to
the Dividend Payment Date (as defined herein), commencing on October 15,
2003, at the fixed rate of 7.95% per annum of the liquidation preference
(equivalent to a fixed annual rate of $1.9875 per share). The
first dividend will be for less than a full quarter. Dividends
on the Series D preferred stock will accrue whether or not our
credit facilities at any time prohibit the current payment of
dividends, whether or not we have earnings, whether or not
there are funds legally available for the payment of such
dividends and whether or not such dividends are declared. See
"Description of Series D Preferred Stock--Dividends."
Liquidation Preference................................ The liquidation preference for each share of Series D preferred
stock is $25.00, plus an amount equal to all accrued and unpaid
dividends (whether or not declared). See "Description of Series
D Preferred Stock--Liquidation Preference."
Redemption............................................ The Series D preferred stock is not redeemable prior to July 2,
2008 except as provided for in our charter. On and after such
date, we may redeem the Series D preferred stock for cash at
our option, upon not less than 30 nor more than 60 days written
notice, in whole or in part, at a redemption price of $25.00
per share, plus all accrued and unpaid dividends thereon, if
any, to the date fixed for redemption, without interest. See
"Description of Series D Preferred Stock--Redemption."
Voting Rights......................................... Holders of Series D preferred stock generally will have no
voting rights except as required by law. However, whenever
dividends on any shares of Series D preferred stock or equal
stock shall be in arrears for six or more quarterly periods
(whether or not consecutive), whether or not earned or
declared, the holders of such shares (voting separately as a
class with all other series of preferred stock upon which like
voting rights have been conferred and are exercisable, other
than the holders of our Series B preferred stock) will be
entitled to vote for the election of a total of two additional
directors to serve on the Board of Directors of the Company until
all dividends accumulated on such shares of Series D preferred stock
have been fully paid or declared and a sum sufficient for the payment
thereof set aside for payment. In addition, certain changes to the
terms of the Series D preferred stock that would be materially adverse
to the rights of holders of the Series D preferred stock cannot be made
without the affirmative vote of the holders of at least
two-thirds of the outstanding shares of Series D preferred
stock. Holders of Series D preferred stock will have certain
other voting rights under Maryland law. See "Description of
Series D Preferred Stock--Voting Rights."
Conversion............................................ The Series D preferred stock is not convertible into or
exchangeable for any other property or securities, except that
we may exchange shares of Series D preferred stock for shares
of Excess Stock in order to ensure that we remain a qualified
REIT for federal income tax purposes. See "Description of
Series D Preferred Stock--Restrictions on Ownership and
Transfer."
Restrictions on Ownership............................. Ownership by a single holder of more than 9.8% (in value or in
number, whichever is more restrictive) of our equity stock,
including the Series D preferred stock but excluding Excess
Stock, is restricted in order to ensure that the Company
remains a qualified REIT for federal income tax purposes.
Shares held in violation of the ownership limit will be
converted into Excess Stock. See "Description of Series D
Preferred Stock--Restrictions on Ownership and Transfer."
Maturity.............................................. The Series D preferred stock has no stated maturity and will not
be subject to any sinking fund or mandatory redemption. See
"Description of Series D Preferred Stock--Maturity."
Trading............................................... We have applied to the NYSE to list the Series D preferred
stock under the symbol "EGP PrD." If approved, trading of the
Series D preferred stock on the NYSE is expected to commence
within a 30-day period after the initial delivery of the shares
of Series D preferred stock.
RISK FACTORS
From time to time, we may make forward-looking statements (within the
meaning of Section 27A of the Securities Act and Section 21F of the Securities
Exchange Act), in documents filed under the Securities Act, the Securities
Exchange Act, press releases or other public statements. If we make
forward-looking statements, we assume no obligation to update forward-looking
statements, except as required by law. Stockholders should not place undo
reliance on forward-looking statements as they involve numerous risks and
uncertainties that could cause actual results to differ materially from the
results stated or implied in the forward-looking statements. In addition to
specific factors that may be disclosed simultaneously with any forward-looking
statement, some of the factors related to us and our businesses that could cause
actual results to differ materially from a forward-looking statement are set
forth below.
Risks Relating to the Series D Preferred Stock
There is no established trading market for the Series D preferred stock,
which may negatively affect its market value and your ability to transfer or
sell your Series D preferred stock. The shares of Series D preferred stock are a
new issue of securities with no established trading market. We have applied to
list the Series D preferred shares on the NYSE. There is no assurance that the
NYSE will approve our listing application. An active trading market on the NYSE
for the shares may not develop or, even if it develops, may not last, in which
case the trading price of the Series D preferred stock could be adversely
affected.
Real Estate Industry Risks
We face risks associated with local real estate conditions in areas where
we own properties. We may be affected adversely by general economic conditions
and local real estate conditions. For example, an oversupply of industrial
properties in a local area or a decline in the attractiveness of our properties
to tenants would have a negative effect on us.
Other factors that may affect general economic conditions or local real
estate conditions include:
- population and demographic trends;
- employment and personal income trends;
- income tax laws;
- changes in interest rates and availability and costs of financing;
- construction costs; and
- weather conditions that may increase or decrease energy costs.
We may be unable to compete with our larger competitors and other
alternatives available to tenants or potential tenants of our properties. The
real estate business is highly competitive. We compete for interests in
properties with other real estate investors and purchasers, many of whom have
greater financial resources, revenues, and geographical diversity than we have.
Furthermore, we compete for tenants with other property owners. All of our
industrial properties are subject to significant local competition. We also
compete with a wide variety of institutions and other investors for capital
funds necessary to support our investment activities and asset growth. In
addition, our portfolio of retail properties faces competition from other
properties within each submarket where they are located.
We are subject to significant regulation that inhibits our activities.
Local zoning and use laws, environmental statutes and other governmental
requirements restrict our expansion, rehabilitation and reconstruction
activities. These regulations may prevent us from taking advantage of economic
opportunities. Legislation such as the Americans with Disabilities Act may
require us to modify our properties and noncompliance could result in the
imposition of fines or an award of damages to private litigants. Future
legislation may impose additional requirements. We cannot predict what
requirements may be enacted or what changes may be implemented to existing
legislation.
Risks Associated with Our Properties
We may be unable to renew leases or relet space as leases expire. When a
lease expires, a tenant may elect not to renew it. We may not be able to relet
the property on similar terms, if we are able to relet the property at all. The
terms of renewal or re-lease (including the cost of required renovations or
concessions to tenants) may be less favorable to us than the prior lease. In the
past two years, we had an unusually high percentage of leases that expired.
Also, the lease termination fees generated were significantly lower in 2002 as
compared to 2001. If we are unable to relet all or a substantial portion of our
properties, or if the rental rates upon such reletting are significantly lower
than expected rates, our cash generated before debt repayments and capital
expenditures, and our ability to make expected distributions to stockholders,
may be adversely affected.
We have been and may continue to be affected negatively by tenant
bankruptcies and leasing delays. At any time, a tenant may experience a downturn
in its business that may weaken its financial condition. Similarly, a general
decline in the economy may result in a decline in the demand for space at our
industrial properties. As a result, our tenants may delay lease commencement,
fail to make rental payments when due, or declare bankruptcy. Any such event
could result in the termination of that tenant's lease and losses to us.
We receive a substantial portion of our income as rents under long-term
leases. If tenants are unable to comply with the terms of their leases because
of rising costs or falling sales, we may deem it advisable to modify lease terms
to allow tenants to pay a lower rent or a smaller share of operating costs,
taxes and insurance.
Development and acquisition risks could impact our profitability. We intend
to continue to develop and acquire industrial properties. Such activities may be
conducted through wholly-owned affiliated companies or through joint ventures
with unaffiliated parties. We cannot be sure that properties will be available
for acquisition or development or, if available, that we will be able to acquire
or develop those properties upon favorable terms or that favorable financing
will be available for acquisitions or development. The unavailability of
properties could limit our growth. In addition, acquisitions and the development
of new properties may fail to perform in accordance with our expectations and
our cost estimates for marketing, acquisition, development and operation may be
inaccurate. Our acquisition and development activities may also be exposed to
the following risks:
- we may not be able to acquire a desired property because of competition
from other real estate investors with greater capital and resources;
- we may overpay for new acquisitions;
- we may be unable to obtain, or face delays in obtaining, necessary zoning,
land-use, building, occupancy and other required governmental permits and
authorizations, which could result in increased development costs;
- we may incur construction costs for a property that exceed original
estimates due to increased materials, labor or other costs, which could
make completion of the property uneconomical, and we may not be able to
increase rents to compensate for the increase in construction costs;
- we may abandon development opportunities that we have already begun to
explore, and we may fail to recover expenses already incurred in connection
with exploring those opportunities;
- we have been and may continue to be unable to complete construction and
lease-up of a property on schedule and meet financial goals for development
projects;
- new development activities, regardless of their ultimate success, typically
require a substantial portion of our management's time and attention,
diverting their attention from our day-to-day operations; and
- because occupancy rates and rents at a newly developed property may
fluctuate depending on a number of factors, including market and economic
conditions, we may be unable to meet our profitability goals for that
property.
Coverage under our existing insurance policies may be inadequate to cover
losses. We generally maintain insurance policies related to our business,
including casualty, general liability and other policies, covering our business
operations, employees and assets. However, we would be required to bear all
losses that are not adequately covered by insurance. In addition, there are
certain losses that are not generally insured because it is not economically
feasible to insure against them, including losses due to riots or acts of war.
If an uninsured loss or a loss in excess of insured limits occurs with respect
to one or more of our properties, then we could lose the capital we invested in
the properties, as well as the anticipated future revenue from the properties
and, in the case of debt, which is with recourse to us, we would remain
obligated for any mortgage debt or other financial obligations related to the
properties. Moreover, as a number of our properties are located in California,
an area known for seismic activity, we may incur material losses in the future
in excess of insurance proceeds from our earthquake insurance. Although we
believe that our insurance programs are adequate, we cannot assure you that we
will not incur losses in excess of our insurance coverage, or that we will be
able to obtain insurance in the future at acceptable levels and reasonable
costs.
Increased operating costs may reduce our profitability and have an adverse
effect on our cash flow and our ability to make distributions to our
stockholders. We may face higher operating expenses as a result of rising costs
generally and following the September 11, 2001 terrorist attacks in particular.
For example, due to the events of September 11th, there are increased costs
relating to building security, property maintenance and insurance coverage.
Specifically, as a result of the events of September 11th, the insurance
industry has changed its risk assessment approach and cost structure. As a
result, the premiums for our property and casualty insurance coverage more than
doubled from 2001 to 2003 on a comparable basis. We cannot assure you that
further premium increases will not take place in future years which would
further adversely affect our operating results. Furthermore, we may not be able
to obtain in the future insurance coverage comparable to that which we presently
carry.
In general, under our leases with tenants, we pass on a portion of our
operating costs to them. However, we cannot assure you that tenants will
actually bear the full burden of any higher operating costs, or that such
increased costs will not lead them, or other prospective tenants, to seek
leasing space elsewhere. Also, lower occupancy rates of our properties affect
our ability to pass on our operating costs to our tenants. For example, we
incurred higher operating expenses in 2002 because we were forced to absorb a
greater percentage of operating expenses as a result of lower occupancy.
Moreover, the availability of other comparable warehouse space in our specific
geographic markets may limit our ability to increase rents.
We face risks due to lack of geographic diversity. Substantially all of our
properties are located in the Sunbelt region of the United States with a special
emphasis in the states of California, Florida, Texas and Arizona, which in the
aggregate represent 82.9% of the total square footage of our industrial
operating properties and 82.9% of our industrial annualized base rent as of
March 31, 2003. A downturn in general economic conditions and local real estate
conditions in these geographic regions, as a result of oversupply of or reduced
demand for industrial properties, local business climate, business layoffs and
changing demographics, would have a particularly strong adverse effect on us.
We face risks due to the illiquidity of real estate which may limit our
ability to vary our portfolio. Real estate investments are relatively illiquid.
Our ability to vary our portfolio in response to changes in economic and other
conditions will therefore be limited. In addition, the Internal Revenue Code
limits our ability to sell our properties. If we must sell an investment, we
cannot ensure that we will be able to dispose of the investment in the time
period we desire or that the sales price of the investment will recoup or exceed
our cost for the investment.
We face possible environmental liabilities. Current and former real estate
owners and operators may be required by law to investigate and clean up
hazardous substances released at the properties they own or operate. They may
also be liable to the government or to third parties for substantial property or
natural resource damage, investigation costs and cleanup costs. In addition,
some environmental laws create a lien on the contaminated site in favor of the
government for damages and costs the government incurs in connection with the
contamination. Contamination may affect adversely the owner's ability to use,
sell or lease real estate or to borrow using the real estate as collateral.
For example, we currently own the Industry Distribution Center in City of
Industry, California. The center is on a parcel of land that was previously used
as a facility to manufacture air conditioners by Carrier Corporation. In
connection with these manufacturing activities, there was a spill of a hazardous
material that affected both the soil and groundwater. Carrier presently is
remediating this groundwater contamination in accordance with an order of the
Regional Water Quality Control Board. Carrier has also executed a Remediation,
Indemnity and Access Agreement that protects us and any subsequent owner of the
property from environmental liabilities relating to the spill and requires
Carrier to pay the entire cost of all environmental remediation programs at the
property. However, we cannot assure you that Carrier will not, in a future
period, become unable to indemnify and protect us against all liabilities
related to the spill or property. We also cannot assure you that the spill is
the only environmental liability or compliance matter related to the property or
other sources in the area, or that the agreement will sufficiently protect us
against all liabilities related to the spill, property or other sources.
Moreover, we cannot assure you that environmental liabilities will not arise in
the future related to the property or other sources that may have a material
adverse effect on our business, assets or results of operations.
We have no way of determining at this time the magnitude of any potential
liability to which we may be subject arising out of environmental conditions or
violations with respect to the properties we currently or formerly owned.
Environmental laws today can impose liability on a previous owner or operator of
a property that owned or operated the property at a time when hazardous or toxic
substances were disposed of, released from, or present at, the property. A
conveyance of the property, therefore, does not relieve the owner or operator
from liability. Although we have conducted Phase I environmental site
assessments ("ESAs") at some of our properties to identify potential sources of
contamination at those properties, such ESAs do not reveal all environmental
liabilities or compliance concerns that could arise from those properties.
Moreover, material environmental liabilities or compliance concerns may exist of
which we are currently unaware that in the future may have a material adverse
effect on our business, assets or results of operations.
Financing Risks
We face risks generally associated with our debt. We finance a portion of
our investments in real estate through debt. At March 31, 2003, mortgages and
other indebtedness for which we are liable totaled $327,984,000, of which
approximately $1,353,000 matures in 2003. This debt obligation creates risks for
our business, including:
- rising interest rates on our floating rate debt, which as of March 31, 2003
totaled approximately $81,214,000;
- failure to repay or refinance existing debt as it matures which may result
in forced disposition of properties on disadvantageous terms;
- refinancing terms less favorable than the terms of existing debt; and
- failure to meet required payments of principal and/or interest.
If we fail to make the required payments of principal and/or interest, our
operations and ability to make expected distributions to stockholders may be
adversely affected. Also, since some of our properties are mortgaged to secure
payments of indebtedness, if we are unable to pay that indebtedness, those
properties could be transferred to the mortgagee, resulting in a loss of income
and a decline in asset value.
We face risks associated with our hedging arrangements. In November 2002,
we entered into an interest rate swap agreement to hedge our exposure to the
variable interest rate on our $11 million Tower Automotive Center recourse
mortgage. Such an agreement may expose us to additional risks because developing
an effective interest rate risk strategy is complex and no strategy can
completely insulate us from risks associated with interest rate fluctuations. We
cannot assure you that our hedging arrangement will have the desired beneficial
impact on our results of operations or financial condition. The hedging
arrangement may involve costs, such as transaction fees or breakage costs, if we
terminate it.
We face risks associated with the use of debt to fund acquisitions and
developments, including refinancing risk. We are subject to the risks normally
associated with debt financing, including the risk that our cash flow will be
insufficient to meet required payments of principal and interest. We anticipate
that a portion of the principal of our debt will not be repaid prior to
maturity. Therefore, we will likely need to refinance at least a portion of our
outstanding debt as it matures. There is a risk that we may not be able to
refinance existing debt or that the terms of any refinancing will not be as
favorable as the terms of the existing debt. If principal payments due at
maturity cannot be refinanced, extended or repaid with proceeds from other
sources, such as new equity capital or sales of properties, our cash flow will
not be sufficient to repay all maturing debt in years when significant "balloon"
payments come due.
We face risks associated with our dependence on external sources of
capital. In order to qualify as a REIT, we are required each year to distribute
to our stockholders at least 90% of our REIT taxable income, and we are subject
to tax on our income to the extent it is not distributed. Because of this
distribution requirement, we may not be able to fund all future capital needs
from cash retained from operations. As a result, to fund capital needs, we rely
on third-party sources of capital, which we may not be able to obtain on
favorable terms, if at all. Our access to third-party sources of capital depends
upon a number of factors, including (i) general market conditions; (ii) the
market's perception of our growth potential; (iii) our current and potential
future earnings and cash distributions; and (iv) the market price of our capital
stock. Additional debt financing may substantially increase our debt-to-total
capitalization ratio. Additional equity financing will dilute the holdings of
our current stockholders.
We could default on cross-collateralized and cross-defaulted debt. As of
March 31, 2003, we had six secured loans that are cross-collateralized by 56
properties, totaling $166,821,000. If we default on any of these loans, then we
could be required to repay the aggregate of all indebtedness, together with
applicable prepayment charges, to avoid foreclosure on all the
cross-collateralized properties within the applicable pool. In addition, our
credit facilities contain cross-default provisions, which may be triggered in
the event that our other material indebtedness is in default. These
cross-default provisions may require us to repay or restructure the credit
facilities.
We may amend our business policies without your approval. Our Board of
Directors determines our growth, investment, financing, capitalization,
borrowing, REIT status, operating and distribution policies. Although the Board
of Directors has no present intention to amend or revise any of these policies,
these policies may be amended or revised without notice to stockholders.
Accordingly, stockholders may not have control over changes in our policies. We
cannot assure you that changes in our policies will serve fully the interests of
all stockholders.
Other Risks
The market value of our common stock could decrease based on our
performance and market perception and conditions. The market value of our common
stock may be based primarily upon the market's perception of our growth
potential and current and future cash dividends, and may be secondarily based
upon the real estate market value of our underlying assets. The market price of
our common stock is influenced by the dividend on our common stock relative to
market interest rates. Rising interest rates may lead potential buyers of our
common stock to expect a higher dividend rate, which would adversely affect the
market price of our common stock. In addition, rising interest rates would
result in increased expense, thereby adversely affecting cash flow and our
ability to service our indebtedness and pay dividends.
Adverse legislative or regulatory tax changes may affect the tax treatment
of our company or our stockholders and the value of our stock. The U.S. federal
income tax laws governing REITs and other corporations or the administrative
interpretations of those laws may be amended at any time. Any of those new laws
or interpretations thereof may take effect retroactively and could adversely
affect our company or you, as a stockholder. On May 28, 2003, the President
signed into law legislation that, for individual taxpayers, will generally
reduce the tax rate on corporate dividends to a maximum of 15% for tax years
from 2003 to 2008. REIT dividends generally will not qualify for this reduced
tax rate because REITs' income generally is not subject to corporate level tax.
This new law could cause stock in non-REIT corporations to be a more attractive
investment to individual investors than stock in REITs and could have an adverse
effect on the market price of our equity securities.
There are limits on the ownership of our capital stock as a result of which
a stockholder may lose beneficial ownership of its shares. The Internal Revenue
Code provides that, in order for us to maintain our REIT status, not more than
50% of the value of our outstanding capital stock may be owned, directly or
constructively, by five or fewer individuals or entities. In addition, our
charter prohibits, with limited exceptions, direct or constructive ownership of
more than 9.8% in value or in number of our outstanding equity stock (defined as
all of our classes of capital stock, except our excess stock), whichever is more
restrictive, by any individual or entity. The constructive ownership rules are
complex and may cause shares of our capital stock owned directly or
constructively by a group of related individuals or entities to be
constructively owned by one individual or entity. An acquisition of shares by a
person, or a transfer of shares to a person, as a result of which the ownership
limits set forth above are violated, may be void or may be deemed to be made to
a trust designated by us, or the shares of capital stock to be purchased or
transferred may be converted into another form of our securities.
Future terrorist attacks in the United States or the escalation of
international hostilities may result in a decline in economic activity, which
could reduce the demand for and the value of our properties. Future terrorist
attacks in the United States, such as the attacks that occurred in New York and
Washington, D.C. on September 11, 2001, or other acts of terrorism or war may
result in a decline in economic activity and reduce demand for our properties. A
decrease in demand would make it difficult for us to renew or re-lease our
properties at lease rates equal to or above historical rates. In the future,
terrorism insurance may not be available at a reasonable price, if at all. To
the extent that our tenants are impacted by future attacks, their businesses
similarly could be adversely affected, which could impact our tenants' ability
to continue to pay rent under their existing leases.
Limitations on the ownership of our common stock, our stockholder rights
plan and severance agreements with our executive officers may preclude the
acquisition or change of control of our company. Certain provisions contained in
our charter and bylaws, our stockholder rights plan and severance agreements
with our executive officers may have the effect of discouraging a third party
from making an acquisition proposal for us and thereby inhibit a change in
control. These provisions include the following:
- Our charter generally limits any holder from acquiring more than 9.8% (in
value or in number, whichever is more restrictive) of our outstanding
equity stock (defined as all of our classes of capital stock, except our
excess stock). The ownership limit may limit the opportunity for
stockholders to receive a premium for their shares of common stock that
might otherwise exist if an investor were attempting to assemble a block of
shares in excess of 9.8% of the outstanding shares of equity stock or
otherwise effect a change in control. Also, the request of the holders of a
majority or more of our common stock is necessary for stockholders to call
a special meeting. We also require advance notice by stockholders for the
nomination of directors or proposal of business to be considered at a
meeting of stockholders.
- We have a stockholder rights plan. Under the terms of the plan, we declared
a dividend of rights on our common stock and Series B preferred stock. The
rights issued under the plan will be triggered, with certain exceptions, if
and when any person or group acquires, or commences a tender offer to
acquire, 15% or more of our shares, our Board of Directors determines that
a substantial stockholder's ownership may be adverse to the interests of
our other stockholders or our qualification as a REIT, or other similar
events. The plan could have the effect of deterring or preventing our
acquisition, even if a majority of our stockholders were in favor of such
acquisition, and could have the effect of making it more difficult for a
person or group to gain control of us or to change existing management.
- We have entered into change of control agreements with each of our
executives providing for the payment of money to these executives upon the
occurrence of our change of control as defined in these agreements. If,
within a certain time period (as set in the executive's agreement)
following a change of control, we terminate the executive's employment
other than for cause, or if the executive elects to terminate his or her
employment with us for reasons specified in the agreement, we will make a
severance payment equal to the executive's average annual compensation
times an amount specified in the executive's agreement, together with the
executive's base salary and vacation pay that have accrued but are unpaid
through the date of termination. These agreements may deter our change of
control because of the increased cost for a third party to acquire control
of us.
Maryland business statutes may limit the ability of a third party to
acquire control of us. As a Maryland corporation, we are subject to various
Maryland laws which may have the effect of discouraging offers to acquire our
company and of increasing the difficulty of consummating any such offers, even
if our acquisition would be in our stockholders' best interests. The Maryland
General Corporation Law restricts mergers and other business combination
transactions between us and any person who acquires beneficial ownership of
shares of our stock representing 10% or more of the voting power without our
Board of Directors' prior approval. Any such business combination transaction
could not be completed until five years after the person acquired such voting
power, and generally only with the approval of stockholders representing 80% of
all votes entitled to be cast and 66 2/3% of the votes entitled to be cast,
excluding the interested stockholder, or upon payment of a fair price. Maryland
law also provides generally that a person who acquires shares of our equity
stock that represent 10% or more of the voting power in electing directors will
have no voting rights unless approved by a vote of two-thirds of the shares
eligible to vote.
Additionally, Maryland law provides, among other things, that our Board of
Directors has broad discretion in adopting stockholders' rights plans and has
the sole power to fix the record date, time and place for special meetings of
the stockholders. Furthermore, Maryland corporations that:
- have three independent directors who are not officers or employees of the
entity or related to an acquiring person; and
- are subject to the reporting requirements of the Securities Exchange Act of
1934,
may elect in their charter or bylaws or by resolution of the board of directors
to be subject to all or part of a special subtitle that provides that:
- the corporation will have a staggered board of directors;
- any director may be removed only for cause and by the vote of two-thirds of
the votes entitled to be cast in the election of directors generally, even
if a lesser proportion is provided in the charter or bylaws;
- the number of directors may only be set by the board of directors, even if
the procedure is contrary to the charter or bylaws;
- vacancies may only be filled by the remaining directors, even if the
procedure is contrary to the charter or bylaws; and
- the Secretary of the corporation may call a special meeting of stockholders
at the request of stockholders only upon the written request of the
stockholders entitled to cast at least a majority of all the votes entitled
to be cast at the meeting, even if the procedure is contrary to the charter
or bylaws.
To date, we have not made any of the elections described above although our
charter and bylaws contain some of these provisions independent of these
elections.
We may fail to qualify as a REIT. If we fail to qualify as a REIT, we will
not be allowed to deduct distributions to stockholders in computing our taxable
income and will be subject to federal income tax, including any applicable
alternative minimum tax, at regular corporate rates. In addition, we might be
barred from qualification as a REIT for the four years following
disqualification. The additional tax incurred at regular corporate rates would
reduce significantly the cash flow available for distribution to stockholders
and for debt service.
Furthermore, we would no longer be required by the Internal Revenue Code to
make any distributions to our stockholders as a condition to REIT qualification.
Any distributions to stockholders that otherwise would have been subject to tax
as capital gain dividends would be taxable as ordinary income to the extent of
our current and accumulated earnings and profits. Corporate distributees,
however, may be eligible for the dividends received deduction on the
distributions, subject to limitations under the Internal Revenue Code.
To qualify as a REIT, we must comply with certain highly technical and
complex requirements. We cannot be certain we have complied with these
requirements because there are few judicial and administrative interpretations
of these provisions. In addition, facts and circumstances that may be beyond our
control may affect our ability to qualify as a REIT. We cannot assure you that
new legislation, regulations, administrative interpretations or court decisions
will not change the tax laws significantly with respect to our qualification as
a REIT or with respect to the federal income tax consequences of qualification.
We cannot assure you that we are qualified or will remain qualified as a REIT.
We may be unable to comply with the strict income distribution requirements
applicable to REITs. To obtain the favorable tax treatment associated with
qualifying as a REIT, among other requirements, we are required each year to
distribute to our stockholders at least 90% of our REIT taxable income (other
than our net capital gain). We will be subject to corporate income tax on any
undistributed REIT taxable income. In addition, we will incur a 4% nondeductible
excise tax on the amount by which our distributions (including any capital gains
we elect to retain) in any calendar year are less than the sum of: (i) 85% of
our ordinary income for the year; (ii) 95% of our capital gain net income for
the year; and (iii) any undistributed taxable income from prior years. We could
be required to borrow funds on a short-term basis to meet the distribution
requirements that are necessary to achieve the tax benefits associated with
qualifying as a REIT (and to avoid corporate income tax and the 4% excise tax),
even if conditions were not favorable for borrowing.
Notwithstanding our status as a REIT, we are subject to various federal,
state, local and foreign taxes on our income and property. For example, as
described above, we will be taxed at regular corporate rates on any
undistributed taxable income, including undistributed net capital gains,
provided, however, that properly designated undistributed capital gains will
effectively avoid taxation at the stockholder level. We may be subject to other
federal income taxes as more fully described in "Material United States Federal
Income Tax Consequences -- Taxation of Us as a REIT." We may also have to pay
some state income or franchise taxes because not all states treat REITs in the
same manner as they are treated for federal income tax purposes.
Increases in U.S. state and local taxes could adversely affect our cash
available for distribution. Many U.S. states and localities are considering
increases in their income and/or real property tax rates (or increases in the
assessments of real property) to cover the revenue shortfalls they are currently
facing. We are subject to state and local income and property taxation in
various jurisdictions in which we transact business and own property. Increases
in income and/or property taxes in those jurisdictions could adversely affect
our cash available for distribution to stockholders.
Our Chairman serves as the Chairman of another REIT. Leland R. Speed serves
as our Chairman and as the Chairman of Parkway Properties, Inc., a REIT with a
focus on office properties in the Southeastern and Southwestern United States
and Chicago. Parkway's offices are separate from ours and we have no other
common directors or officers. As we both carry out our separate strategic plans,
our management and the management of Parkway have each stated their intentions
not to transfer properties between the two companies, and we each intend to
pursue our distinct corporate plan. However, we cannot assure you that conflicts
of interest will not arise between Parkway and us in the future. In the event
that there is a transaction between Parkway and us, we cannot assure you that
the terms will be as favorable to us as they would have been if the described
relationships did not exist.
USE OF PROCEEDS
We expect to receive net proceeds of approximately $32.3 million from this
offering, after deducting estimated transaction costs payable by us. We expect
to use the net proceeds from this offering to pay a portion of the redemption
price of our outstanding Series A Cumulative Redeemable Preferred Stock.
DESCRIPTION OF SERIES D PREFERRED STOCK
General
Our Board of Directors has authorized the reclassification of 1,320,000
shares of common stock into shares of Series D preferred stock under authority
granted the Board under our charter. See "Description of Capital Stock."
Maturity
The Series D preferred stock has no stated maturity and will not be subject
to any sinking fund or mandatory redemption except as provided in our charter.
Rank
The Series D preferred stock will, with respect to dividend rights and
rights upon liquidation, dissolution or winding up of the Company, rank (i)
senior to all classes or series of our common stock, and to all equity
securities ranking junior to the Series D preferred stock with respect to
dividend rights or rights upon liquidation, dissolution or winding up; (ii) on a
parity with our Series A Cumulative Redeemable Preferred Stock and Series B
Cumulative Convertible Preferred Stock and with all equity securities we issue,
the terms that specifically provide that such equity securities rank on a parity
with the Series D preferred stock with respect to dividend rights or rights upon
liquidation, dissolution or winding up; (iii) junior to any class or series of
capital stock of the Company ranking senior to the Series D preferred stock as
to the payment of dividends and the distribution of assets in the event of any
liquidation, dissolution or winding up; and (iv) junior to all of our existing
and future indebtedness including debt securities of the Company.
Dividends
Subject to the rights of series of preferred stock which may from time to
time come into existence, holders of shares of the Series D preferred stock are
entitled to receive, when and as declared by our Board of Directors, out of
funds legally available for the payment of dividends, cumulative preferential
cash dividends at the rate of 7.95% per annum of the liquidation preference per
share (equivalent to a fixed annual amount of $1.9875 per share).
Dividends on the Series D preferred stock shall be cumulative from the date
of original issue and shall be payable quarterly in arrears on or before the
fifteenth day of January, April, July and October of each year, or, if not a
business day, the next succeeding business day (each, a "Dividend Payment
Date"). The first dividend will be paid on or before October 15, 2003 and will
be for less than a full quarter. Dividends payable on the Series D preferred
stock for any partial dividend period will be computed on the basis of a 360-day
year consisting of twelve 30-day months. Dividends will be payable to holders of
record as they appear in our stock records at the close of business on the
applicable record date, which shall be the last business day of March, June,
September and December, or on such other date designated by our Board of
Directors for the payment of dividends that is not more than 30 nor less than
ten days prior to the applicable Dividend Payment Date (each, a "Dividend Record
Date"). The first Dividend Record Date for determination of stockholders
entitled to receive dividends on the Series D preferred stock is expected to be
September 30, 2003.
No dividends on shares of Series D preferred stock shall be declared by our
Board of Directors or paid or set apart for payment by us at such time as the
terms and provisions of any agreement to which we are a party, including any
agreement relating to its indebtedness, that prohibits such declaration, payment
or setting apart for payment or provides that such declaration, payment or
setting apart for payment would constitute a breach thereof or a default
thereunder, or if such declaration or payment shall be restricted or prohibited
by law.
Notwithstanding the foregoing, dividends on the Series D preferred stock
will accrue whether or not we have earnings, whether or not there are funds
legally available for the payment of such dividends and whether or not such
dividends are declared. Accrued but unpaid dividends on the Series D preferred
stock will accumulate as of the Dividend Payment Date on which they become
payable.
If for any taxable year, we elect to designate as "capital gain dividends"
(as defined in Section 857 of the Code) any portion (the "Capital Gains Amount")
of the dividends (as determined for federal income tax purposes) paid or made
available for the year to holders of all classes of capital stock (the "Total
Dividends"), then the portion of the Capital Gains Amount that shall be
allocable to the holders of Series D preferred stock shall be the amount that
the Total Dividends (as determined for federal income tax purposes) paid or made
available to the holders of the Series D preferred stock for the year bears to
the Total Dividends. We may elect to retain and pay income tax on our net
long-term capital gains. In such a case, the holders of Series D preferred stock
would include in income their proportionate share of our undistributed long-term
capital gains, as we designate.
Except as set forth in the next sentence, no dividends will be declared or
paid or set apart for payment on any of our capital stock or any other series of
preferred stock ranking, as to dividends, on a parity with or junior to the
Series D preferred stock (other than a dividend in shares of the Company's
common stock or in shares of any other class of stock ranking junior to the
Series D preferred stock as to dividends and upon liquidation) 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 is set apart for
such payment on the Series D preferred stock for all past dividend periods and
the then current dividend period. When dividends are not paid in full (or a sum
sufficient for such full payment is not so set apart) upon the Series D
preferred stock and the shares of any other series of preferred stock ranking on
a parity as to dividends with the Series D preferred stock, all dividends
declared upon the Series D preferred stock and any other series of preferred
stock ranking on a parity as to dividends with the Series D preferred stock
shall be declared pro rata so that the amount of dividends declared per share of
Series D preferred stock and such other series of preferred stock shall in all
cases bear to each other the same ratio that accrued dividends per share on the
Series D preferred stock and such other series of preferred stock (which shall
not include any accrual in respect of unpaid dividends for prior dividend
periods if such preferred stock does not have a cumulative dividend) bear to
each other. No interest, or sum of money in lieu of interest, shall be payable
in respect of any dividend payment or payments on the Series D preferred stock
which may be in arrears.
Except as provided in the immediately preceding paragraph, unless full
cumulative dividends on the Series D preferred stock have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof is set apart for payment for all past dividend periods and the
then current dividend period, no dividends (other than in shares of common stock
or other shares of capital stock ranking junior to the Series D preferred stock
as to dividends and upon liquidation) shall be declared or paid or set aside for
payment nor shall any other distribution be declared or made upon the common
stock or any other capital stock ranking junior to or on a parity with the
Series D preferred stock as to dividends or upon liquidation, nor shall any
shares of common stock, or any other shares of capital stock ranking junior to
or on a parity with the Series D preferred stock as to dividends or upon
liquidation, be redeemed, purchased or otherwise acquired for any consideration
(or any monies be paid to or made available for a sinking fund for the
redemption of any such shares) by us (except by conversion into or exchange for
other capital stock ranking junior to the Series D preferred stock as to
dividends and amounts upon liquidation or redemptions for the purpose of
preserving our qualification as a REIT). Holders of shares of the Series D
preferred stock shall not be entitled to any dividend, whether payable in cash,
property or stock, in excess of full cumulative dividends on the Series D
preferred stock as provided above. Any dividend payment made on shares of the
Series D preferred stock shall first be credited against the earliest accrued
but unpaid dividend due with respect to such shares which remains payable.
Liquidation Preference
Subject to the rights of series of preferred stock which may from time to
time come into existence, upon any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company, the holders of shares
of Series D preferred stock are entitled to be paid out of the assets legally
available for distribution to its stockholders the liquidation preference of
$25.00 per share, plus an amount equal to any accrued and unpaid dividends to
the date of payment, before any distribution of assets is made to holders of
common stock or any other class or series of capital stock of the Company that
ranks junior to the Series D preferred stock as to liquidation rights. Holders
of Series D preferred stock will be entitled to written notice of any event
triggering the right to receive such liquidation preference. After payment of
the full amount of the liquidation preference, plus any accrued and unpaid
dividends to which they are entitled, the holders of Series D preferred stock
will have no right or claim to any of our remaining assets. If we consolidate or
merge with or into any other trust or entity or any other corporation, or we
enter into a transaction involving sale, lease or consolidation, conveyance or
disposition of all or substantially all of our property or business, or the
effectuation of a transaction or series of related transactions in which more
than 50% of our voting power is disposed of, such transaction shall not be
deemed to constitute a liquidation, dissolution or winding up.
In the event that, upon any such voluntary or involuntary liquidation or
winding up of our affairs, the available assets are insufficient to pay the
amount of the liquidation distributions on all outstanding shares of Series D
preferred stock and the corresponding amounts payable on all shares of other
classes or series of our capital stock ranking on a parity with Series D
preferred stock in the distribution of assets upon any liquidation, dissolution
or winding up of the affairs of the Company ("Parity Stock"), then the holders
of shares of Series D preferred stock and Parity Stock shall share ratably in
any such distribution of assets in proportion to the full liquidating
distributions to which they would otherwise be respectively entitled.
Redemption
The Series D preferred stock is not redeemable prior to July 2, 2008,
except as provided for in our charter. However, in order to ensure that the
Company will remain qualified as a REIT for federal tax purposes, the Series D
preferred stock owned by a stockholder in excess of the Ownership Limit, as
defined herein, may automatically be exchanged for shares of Excess Stock and
the Company will have the right to purchase Excess Stock from the holder. See
"--Restrictions on Ownership and Transfer." On and after July 2, 2008, we may,
at our option, upon not less than 30 nor more than 60 days written notice,
redeem shares, in whole or in part, at any time or from time to time, for cash
at a redemption price of $25.00 per share, plus all accrued and unpaid dividends
thereon, if any, to the date fixed for redemption (except as provided below),
without interest.
Procedures for Redemption
Holders of Series D preferred stock to be redeemed shall surrender such
Series D preferred stock at the place designated in such notice and shall be
entitled to the redemption price and any accrued and unpaid dividends payable
upon such redemption following such surrender. If notice of redemption of any
shares of Series D preferred stock has been given and if the funds necessary for
such redemption have been set aside by the Company in trust for the benefit of
the holders of any shares of Series D preferred stock so called for redemption,
then from and after the redemption date, dividends will cease to accrue on such
shares of Series D preferred stock, such shares of Series D preferred stock
shall no longer be deemed outstanding and all rights of the holders of such
shares will terminate, except the right to receive the redemption price. If less
than all of the outstanding Series D preferred stock is to be redeemed, the
Series D preferred stock to be redeemed shall be selected pro rata (as nearly as
may be practicable without creating fractional shares) or by any other equitable
method determined by the Company. The Company's ability to redeem Series D
preferred stock is subject to the limitations on distributions in the Maryland
General Corporation Law.
Unless full cumulative dividends on all shares of Series D preferred stock
shall have been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for payment for all past dividend
periods and the then current dividend period, no shares of Series D preferred
stock or Parity Stock shall be redeemed unless all outstanding shares of Series
D preferred stock or Parity Stock are simultaneously redeemed, and we shall not
purchase or otherwise acquire directly or indirectly any shares of Series D
preferred stock (except by exchange for capital stock of the Company ranking
junior to the Series D preferred stock as to dividends and upon liquidation);
provided, however, that the foregoing shall not prevent us from purchasing
shares of Excess Stock in order to ensure we continue to meet the requirements
for qualification as a REIT for federal income tax purposes, or the purchase or
acquisition of shares of Series D preferred stock pursuant to a purchase or
exchange offer made on the same terms to holders of all outstanding shares of
Series D preferred stock.
Notice of redemption will be given by publication in a newspaper of general
circulation in the City of New York, such publication to be made once a week for
two successive weeks commencing not less than 30 nor more than 60 days prior to
the redemption date. A similar notice will be mailed by the Company, postage
prepaid, not less than 30 nor more than 60 days prior to the redemption date,
addressed to the respective holders of record of the Series D preferred stock to
be redeemed at their respective addresses as they appear on our stock transfer
records. No failure to give such notice or any defect therein or in the mailing
thereof shall affect the validity of the proceedings for the redemption of any
shares of Series D preferred stock except as to the holder to whom notice was
defective or not given. Each notice shall state: (i) the redemption date; (ii)
the redemption price; (iii) the number of shares of Series D preferred stock to
be redeemed; (iv) the place or places where certificates for shares of the
Series D preferred stock are to be surrendered for payment of the redemption
price; and (v) that dividends on the shares to be redeemed will cease to accrue
on such redemption date. If less than all of the Series D preferred stock held
by any holder is to be redeemed, the notice mailed to such holder shall also
specify the number of shares of Series D preferred stock held by such holder to
be redeemed.
Immediately prior to any redemption of Series D preferred stock, we shall
pay, in cash, any accumulated and unpaid dividends through the redemption date,
unless a redemption date falls after a Dividend Record Date and prior to the
corresponding Dividend Payment Date, in which case each holder of Series D
preferred stock at the close of business on such Dividend Record Date shall be
entitled to the dividend payable on such shares on the corresponding Dividend
Payment Date notwithstanding the redemption of such shares between such Dividend
Record Date and the corresponding Dividend Payment Date or the Company's default
in the payment of the dividend due. Except as provided above, we will make no
payment or allowance for unpaid dividends, whether or not in arrears, on called
Series D preferred stock.
The Series D preferred stock has no stated maturity and will not be subject
to any sinking fund or mandatory redemption. However, in order to ensure that we
continue to meet the requirements for qualification as a REIT for federal income
tax purposes, Series D preferred stock acquired by a stockholder in excess of
the Ownership Limit will automatically be exchanged for shares of Excess Stock
and the Company will have the right to purchase Excess Stock from the holder.
Voting Rights
Holders of the Series D preferred stock will not have any voting rights,
except as set forth below or as otherwise from time to time required by law.
Whenever dividends on any shares of Series D preferred stock or any Parity
Stock shall be in arrears for six or more quarters (whether consecutive or not)
(a "Preferred Dividend Default"), whether or not earned or declared, the holders
of such shares of Series D preferred stock (voting separately as a voting group
with all other series of Parity Stock upon which like voting rights have been
conferred and are exercisable other than the Series B preferred stock (the
"Voting Parity Stock")) will be entitled to vote separately as a voting group
for the election of a total of two additional directors to serve on the Board of
Directors of the Company (the "Preferred Stock Directors") at a special meeting
called by the holders of record of at least 20% of the Series D preferred stock
and the holders of record of at least 20% of any series of Voting Parity Stock
so in arrears (unless such request is received less than 90 days before the date
fixed for the next annual or special meeting of stockholders) or at the next
annual meeting of stockholders, and at each subsequent annual meeting until all
dividends accumulated on such shares of Series D preferred stock for the past
dividend periods and the dividend for the then current dividend period shall
have been fully paid or declared and a sum sufficient for the payment thereof
set aside for payment. A quorum for any such meeting shall exist if at least a
majority of the outstanding shares of Series D preferred stock and shares of
Voting Parity Stock upon which like voting rights have been conferred and are
exercisable are represented in person or by proxy at such meeting. Such
Preferred Stock Directors shall be elected upon the affirmative vote of a
plurality of the shares of Series D preferred stock and such Voting Parity Stock
present and voting in person or by proxy at a duly called and held meeting at
which a quorum is present. If and when all accumulated dividends and the
dividend for the then current dividend period on the Series D preferred stock
shall have been paid in full or set aside for payment in full, the holders
thereof shall be divested of the foregoing voting rights (subject to revesting
in the event of each and every Preferred Dividend Default) and, if all
accumulated dividends and the dividend for the then current dividend period have
been paid in full or declared and set aside for payment in full on all series of
Voting Parity Stock upon which like voting rights have been conferred and are
exercisable, the term of office of each Preferred Stock Director so elected
shall terminate. The Preferred Stock Directors shall each be entitled to one
vote per director on any matter.
So long as any shares of Series D preferred stock remain outstanding, we
will not without the affirmative vote or consent of the holders of at least
two-thirds of the shares of the Series D preferred stock outstanding at the
time, given in person or by proxy, either in writing or at a meeting (voting
separately as a class), (a) authorize or create, or increase the authorized or
issued amount of, any class or series of capital stock ranking senior to the
Series D 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 into such shares, or create, authorize, or issue
any obligation or security convertible into or evidencing the right to purchase
any such shares; or (b) amend, alter or repeal the provisions of the our charter
and 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 D preferred stock or the holders thereof
provided, however, with respect to the occurrence of any Event set forth in (b)
above, so long as the Series D preferred stock remains outstanding with the
terms thereof materially unchanged, taking into account that, upon the
occurrence of an Event, we 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 D
preferred stock and provided further that: (i) any increase in the amount of the
authorized preferred stock or the creation or issuance of any series of
preferred stock; or (ii) any increase in the amount of authorized shares of such
series, including the Series D preferred stock, in each case ranking on a parity
with or junior to the Series D 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.
In addition to the above, under Maryland law, the Series D preferred stock
will be entitled to vote as a separate voting group to approve a dividend
payable in shares of Series D preferred stock to the holders of another class of
our stock or to approve a dividend payable in shares of our stock other than
Series D preferred stock to the holders of Series D preferred stock.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of Series D preferred stock shall have been
redeemed or called for redemption upon proper notice and sufficient funds shall
have been deposited in trust to effect such redemption.
Conversion
The Series D preferred stock is not convertible into or exchangeable for
any of our property or securities, except that the shares of Series D preferred
stock may be exchanged for shares of Excess Stock in order to ensure that we
remain qualified as a REIT for federal income tax purposes.
Restrictions on Ownership and Transfer
For us to qualify as a REIT under the Code, certain restrictions apply to
the ownership of shares of our equity stock (as defined in our charter). See
"Material United States Income Tax Consequences--Requirements for
Qualification." Because our Board of Directors believes it is essential for us
to continue to qualify as a REIT, our charter restricts the ownership,
acquisition and transfer of our equity stock, including shares of Series D
preferred stock.
Our charter provides that if, at any time during our qualification as a
REIT, a transfer of any of our equity stock that would result in: (i) any person
acquiring directly or indirectly beneficial ownership of more than 9.8% of the
total number of outstanding shares of our equity stock (by value or by number,
whichever is more restrictive) (the "Ownership Limit"); (ii) our outstanding
equity stock being constructively or beneficially owned by fewer than 100
persons; or (iii) us being "closely held" within the meaning of Section 856 of
the Code, then: (A) any proposed transfer will be void ab initio and will not be
recognized by us; (B) we will have the right to redeem the shares proposed to be
transferred; and (C) the shares proposed to be transferred will be automatically
converted into and exchanged for shares of a separate class of stock, Excess
Stock, having no dividend or voting rights. Holders of Excess Stock do have
certain rights in the event of any liquidation, dissolution or winding up. Our
charter further provides that the Excess Stock will be held by us as trustee for
the person or persons to whom the shares are ultimately transferred, until such
time as the shares are re-transferred to a person or persons in whose hands the
shares would not be Excess Stock and certain price-related restrictions are
satisfied.
Transfer and Dividend Paying Agent
Equiserve Trust Company, N.A. will act as the transfer and dividend payment
agent with respect to the Series D preferred stock.
DESCRIPTION OF CAPITAL STOCK
The following description is only a summary of certain terms and provisions
of our capital stock. You should refer to our charter and bylaws for the
complete provisions thereof.
General
The total number of shares of capital stock of all classes that we are
authorized to issue is 100,000,000. Our Board of Directors has authorized the
reclassification of 1,320,000 shares of common stock into Series D preferred
stock. Upon filing of the Articles Supplementary creating the Series D preferred
stock, our charter will authorize the issuance of 63,555,000 shares of common
stock, par value $.0001 per share; 1,725,000 shares of 9.00% Series A Cumulative
Redeemable Preferred Stock, par value $.0001 per share; 2,800,000 shares of
Series B Cumulative Convertible Preferred Stock, par value $.0001 per share;
600,000 shares of Series C Preferred Stock, par value $.0001 per share,
1,320,000 shares of 7.95% Series D Cumulative Redeemable Preferred Stock, par
value $.0001 per share; and 30,000,000 shares of Excess Stock, par value $.0001
per share. As of May 30, 2003, 17,950,808 shares of common stock, 1,725,000
shares of Series A preferred stock, 1,750,000 shares of Series B preferred
stock, no shares of Series C or D preferred stock and no shares of Excess Stock
were issued and outstanding. The common stock and the Series A preferred stock
are currently listed on the New York Stock Exchange under the symbols "EGP" and
"EGP PrA," respectively. There is no public market for our Series B preferred
stock.
Our Board of Directors is authorized by the charter, to classify and
reclassify any of our unissued shares of capital stock, by, among other
alternatives, setting, altering or eliminating the designation, preferences,
conversion or other rights, voting powers, qualifications and terms and
conditions of redemption of, limitations as to dividends and any other
restrictions on, our capital stock. The power of the Board of Directors to
classify and reclassify any of the shares of capital stock includes the
authority to classify or reclassify such shares into a class or classes of
preferred stock or other stock.
Pursuant to the provisions of our charter, if a transfer of stock occurs
such that any person would own, beneficially or constructively (applying the
applicable attribution rules of the Code), more than 9.8% (in value or in
number, whichever is more restrictive) of our outstanding equity stock
(excluding shares of Excess Stock), then the amount in excess of the 9.8% limit
will automatically be converted into shares of Excess Stock, any such transfer
will be void from the beginning, and we will have the right to redeem such
stock. These restrictions also apply to any transfer of stock that would result
in our being "closely held" within the meaning of Section 856(h) of the Code, or
otherwise failing to qualify as a REIT for federal income tax purposes. Upon any
transfer that results in Excess Stock, such Excess Stock shall be held in trust
for the exclusive benefit of one or more charitable beneficiaries designated by
us. Upon the satisfaction of certain conditions, the person who would have been
the recordholder of the equity stock if the transfer had not resulted in Excess
Stock may designate a beneficiary of an interest in the trust. Upon such
transfer of an interest in the trust, the corresponding shares of Excess Stock
in the trust shall be automatically exchanged for an equal number of shares of
equity stock of the same class as such stock had been prior to it becoming
Excess Stock and shall be transferred of record to the designated beneficiary.
Excess Stock has no voting rights, except as required by law, and any vote cast
by a purported transferee in respect of shares of Excess Stock prior to the
discovery that shares of equity stock had been converted into Excess Stock shall
be void from the beginning. Excess Stock shall not be entitled to dividends. Any
dividend paid prior to our discovery that equity stock has been converted into
Excess Stock shall be repaid to us upon demand. In the event of our liquidation,
each holder of Excess Stock shall be entitled to receive that portion of our
assets that would have been distributed to the holder of equity stock in respect
of which such Excess Stock was issued. The trustee of the trust holding Excess
Stock shall distribute such assets to the beneficiaries of such trust. These
restrictions will not prevent the settlement of a transaction entered into
through the facilities of any interdealer quotation system or national
securities exchange upon which shares of our capital stock are traded.
Notwithstanding the prior sentence, certain transactions may be settled by
providing shares of Excess Stock.
Our Board of Directors, upon receipt of a ruling from the Internal Revenue
Service or an opinion of counsel or other evidence satisfactory to the Board of
Directors and upon at least 15 days written notice from a transferee prior to a
proposed transfer that, if consummated, would result in the intended transferee
"beneficially owning" (as defined in our charter, and determined after the
application of the applicable attribution rules of the Code) equity stock in
excess of the 9.8% ownership limit and the satisfaction of such other conditions
as the Board may direct, may in its sole and absolute discretion exempt a person
from the 9.8% ownership limit. Additionally, our Board of Directors, upon
receipt of a ruling from the Internal Revenue Service or an opinion of counsel
or other evidence satisfactory to our Board, may in its sole and absolute
discretion exempt a person from the limitation on a person "constructively
owning" (as defined in our charter, and determined after the application of the
applicable attribution rules of the Code) equity stock in excess of the 9.8%
ownership limit if (x) such person does not and represents that it will not
directly or "constructively own" (after the application of the applicable
attribution rules of the Code) more than a 9.8% interest in a tenant of ours;
(y) we obtain such representations and undertakings as are reasonably necessary
to ascertain this fact; and (z) such person agrees that any violation or
attempted violation of such representations, undertakings and agreements will
result in such equity stock in excess of the ownership limit being converted
into and exchanged for Excess Stock. Our Board of Directors may from time to
time increase or decrease the 9.8% limit, provided that the 9.8% limit may be
increased only if five individuals could not "beneficially own" or
"constructively own" (applying the applicable attribution rules of the Internal
Revenue Code) more than 50.0% in value of the shares of equity stock then
outstanding.
Description of Common Stock
Distributions. Subject to the preferential rights of any shares of
preferred stock currently outstanding or subsequently classified and to the
provisions of our charter regarding restrictions on transfer and ownership of
shares of common stock, a holder of our common stock is entitled to receive
distributions, if, as and when declared by our Board of Directors, out of our
assets that we may legally use for distributions to stockholders and to share
ratably in our assets that we may legally distribute to our stockholders in the
event of our liquidation, dissolution or winding up after payment of, or
adequate provision for, all of our known debts and liabilities. We currently pay
regular quarterly distributions on our common stock.
Relationship to Preferred Stock and Other Shares of Common Stock. The
rights of a holder of shares of common stock will be subject to, and may be
adversely affected by, the rights of holders of preferred stock that have been
issued and that may be issued in the future. Our Board of Directors may cause
preferred stock to be issued to obtain additional capital, in connection with
acquisitions, to our officers, directors and employees pursuant to benefit plans
or otherwise and for other corporate purposes.
A holder of our common stock has no preferences, conversion rights, sinking
fund, redemption rights or preemptive rights to subscribe for any of our
securities. Subject to the provisions of our charter regarding restrictions on
ownership and transfer, all shares of common stock have equal distribution,
liquidation, voting and other rights.
Voting Rights. Subject to the provisions of our charter regarding
restrictions on transfer and ownership of shares of common stock, a holder of
common stock has one vote per share on all matters submitted to a vote of
stockholders, including the election of directors.
There is no cumulative voting in the election of directors, which means
that the holders of a plurality of the outstanding shares of common stock voting
can elect all of the directors then standing for election and the holders of the
remaining shares of common stock, if any, will not be able to elect any
directors, except as otherwise provided for any series of our preferred stock.
Stockholder Liability. Under Maryland law applicable to Maryland
corporations, holders of common stock will not be liable as stockholders for our
obligations solely as a result of their status as stockholders.
Description of Preferred Stock
The description of the provisions of the shares of preferred stock set
forth in this prospectus supplement is only a summary, does not purport to be
complete and is subject to, and is qualified in its entirety by, reference to
the definitive Articles Supplementary to our charter relating to such series of
shares of preferred stock. You should read these documents carefully to fully
understand the terms of the shares of preferred stock.
Series A Preferred Stock. The Series A preferred stock and the Series B
preferred stock rank equally as to dividends and upon liquidation, dissolution
and winding up and rank prior to our common stock.
Holders of Series A preferred stock receive dividends at the fixed rate of
9.00% per annum of their liquidation preference. The liquidation preference for
the Series A preferred stock is $25.00 per share plus all accrued and unpaid
dividends. Dividends on the Series A preferred stock are cumulative.
If any shares of Series A preferred stock are outstanding, generally, no
full distributions may be declared or paid, or set apart for payment, on any
shares of series of our preferred stock ranking, as to distributions, on a
parity with or junior to Series A preferred stock for any period unless full
cumulative distributions have been or contemporaneously are declared and paid,
or declared and a sufficient sum is set apart for such payments, on shares of
Series A preferred stock for all past distribution periods and the then current
distribution period. In addition, unless full cumulative distributions on shares
of Series A preferred stock have been or contemporaneously are declared and
paid, or declared and a sufficient sum is set apart for payment, for all past
distribution periods and the then current distribution period, (i) generally, no
distributions may be declared or paid, or set apart for payment, and (ii) no
redemption, purchase or other acquisition for any consideration by us may be
made (except for the purpose of preserving our REIT status), on any shares of
our common stock or any other capital stock ranking junior to or on a parity
with Series A preferred stock as to distributions or upon liquidation.
The Series A preferred stock is not redeemable prior to June 19, 2003,
except as provided in our charter. On and after June 19, 2003, the Series A
preferred stock may be redeemed, at our option, for $25.00 per share plus all
accrued and unpaid dividends, without interest. The redemption price (other than
the portion consisting of accrued and unpaid dividends) is payable solely out of
the proceeds of other capital stock and from no other source.
Holders of Series A preferred stock generally have no voting rights.
However, whenever dividends on any shares of Series A preferred stock are in
arrears for six or more quarters (whether consecutive or not), the holders of
such shares may elect a total of two additional directors to serve on our Board
of Directors. If and when all accumulated dividends and the dividend for the
then current dividend period on the Series A preferred stock have been paid in
full or set aside for payment in full, the holders thereof will be divested of
the foregoing voting rights and the term of office of each preferred stock
director so elected will terminate. In addition, so long as shares of Series A
preferred stock are outstanding, without the consent of the holders of at least
two-thirds of the outstanding Series A preferred stock voting separately as a
class, we may not: (i) authorize or increase, or increase the authorized or
issued amount of, any class or series of capital stock ranking senior to the
Series A preferred stock (as to dividends or upon liquidation, dissolution or
winding up), or (ii) amend, alter or repeal any provision of our charter or
Articles Supplementary which would adversely affect any right, preference,
privilege or voting power of the Series A preferred stock. Holders of Series A
preferred stock will have certain other voting rights under Maryland law.
The Series A preferred stock is not convertible or exchangeable for any
other property or any of our other securities, except that each share of Series
A preferred stock is convertible into shares of Excess Stock as provided in our
charter. The Series A preferred stock has no stated maturity and will not be
subject to any sinking fund or mandatory redemption, except as provided in our
charter.
The transfer agent for shares of our Series A preferred stock is EquiServe
Trust Company, N.A.
Series B Preferred Stock. The Series B preferred stock, unless converted by
the holder or redeemed by us, has a perpetual term, with no maturity. The Series
B preferred stock, unless converted by the holder or redeemed by us, has a
perpetual term, with no maturity. Holders of Series B preferred stock are
entitled to dividends per share equal to the greater of: (i) the quarterly
dividend payable for the applicable quarter per share of common stock into which
the shares of Series B preferred stock are convertible, or (ii) $.547 (the
"Applicable Dividend Rate"). The dividends on Series B preferred stock are fully
cumulative and, with respect to unpaid dividends, will accrue interest equal to
the Applicable Dividend Rate divided by $25.00, compounded quarterly until such
dividends are paid.
Unless the dividends for Series B preferred stock which should have been
paid, have been paid in full or declared or set apart for payment, we may not
pay dividends on, make any other distributions on, or redeem or purchase or
otherwise acquire for consideration any of our capital stock, other than: (i)
the Series A preferred stock or any other preferred stock which ranks on a
parity with the Series B preferred stock, all of which payments shall be made on
a parity with the Series B preferred stock, and (ii) shares of preferred stock
that rank senior to the Series B preferred stock if the issuance of such
preferred stock has been approved by the holders of a majority of the Series B
preferred stock.
We can redeem the Series B preferred stock on or after December 30, 2003
(or earlier in the event of a change of control or "put event," as described in
the next paragraph), provided, the initial redemption of the Series B preferred
stock will not be less than 50% of the outstanding Series B preferred stock. We
must send a notice of redemption containing specified information within
prescribed time periods to the holders of the Series B preferred stock. For 30
days following the date of mailing a notice of redemption, each holder of the
Series B preferred stock may exercise its conversion rights. Upon the 30th day
following the mailing of the redemption notice to the holder of Series B
preferred stock, and unless such holder of the Series B preferred stock has
exercised its conversion rights, we will purchase from such holder (upon
surrender by such holder at our principal office of the certificate representing
such shares) such shares of Series B preferred stock specified in the redemption
notice, at a price per share equal to the sum of: (i) $25.00 per share plus
accrued and unpaid dividends (whether or not declared and accrued through the
date of payment for redemption or the date payment is made available for payment
to the holder thereof) plus a premium equal to the following percentage of
$25.00:
Redemption Occurs
On or After: But Prior to: % Premium
January 1, 2004 December 31, 2004 4.0
January 1, 2005 December 31, 2005 3.0
January 1, 2006 December 31, 2006 2.0
January 1, 2007 December 31, 2007 1.0
January 1, 2008 0.0
and (ii) the number of shares of Series B preferred stock to be redeemed as
provided in the redemption notice.
Each holder of Series B preferred stock is entitled to require us to redeem
the shares for 102% of their liquidation value, plus accrued and unpaid
distributions whether or not declared, if any (the "Put Payment") upon our
voluntary act, omission or participation in our change of control or a "put
event." If a change of control or "put event" occurs that is not the result of
our voluntary act, omission or participation, we may elect to make the Put
Payment but may, in our discretion, elect not to make the Put Payment, in which
event the conversion ratio will be revised to the greater of: (i) 133% of the
then current conversion ratio so that each share of Series B preferred stock
will be convertible into 133% of the number of shares of common stock into which
it would otherwise have been convertible, and (ii) a fraction the denominator of
which is 75% of the then current market price and the numerator of which is
$25.00. Notwithstanding the foregoing, if the SEC or its staff, by written
communication to us, indicates that the provisions regarding redemption on a
voluntary change of control or "put event" would preclude us from treating the
shares of Series B preferred stock as equity on our financial statements, then
we will have the right, in lieu of application of such provisions, to apply the
conversion ratio revision alternative set forth in the provisions regarding an
involuntary change of control or "put event."
Each share of Series B preferred stock is convertible at the holder's
option into 1.1364 shares of common stock (subject to adjustment). The Series B
preferred stock has a liquidation preference of $25.00 per share plus any
accrued and unpaid dividends (whether or not declared).
Holders of Series B preferred stock are entitled to vote on all matters
submitted to the holders of common stock together with the holders of common
stock as a single class. Each share of Series B preferred stock will entitle the
holder thereof to one vote for each share of common stock into which such share
of Series B preferred stock is convertible.
In certain circumstances, the Board will be expanded and the holders of
Series B preferred stock will be entitled to elect these additional directors
(the "Series B Preferred Directors"). Currently, and so long as Five Arrows II
owns all of our outstanding Series B preferred stock or more than 10% of our
common stock on a fully diluted basis, the holders of Series B preferred stock
are entitled to elect one Series B Preferred Director. Additionally, our Board
will be automatically increased by one Series B Preferred Director if: (i) we
fail to pay regular quarterly dividends on our common stock for any quarter in
an amount of at least $0.30 per share (as adjusted); or (ii) we fail to pay in
full a quarterly dividend for the Series B preferred stock. If Five Arrows II
does not own all of our outstanding Series B preferred stock or more than 10% of
our common stock on a fully diluted basis, and we fail to pay the quarterly
dividend for the Series B preferred stock for three consecutive quarters, the
Board will be automatically increased by two Series B Preferred Directors.
So long as shares of Series B preferred stock are outstanding, without the
consent of the holders of at least a majority of the outstanding Series B
preferred stock voting separately as a class or by unanimous written consent of
all of the holders of the Series B preferred stock (in addition to any other
vote or consent of stockholders required by law or by the charter), we may not:
(i) amend, alter or repeal the Articles Supplementary creating the Series B
preferred stock; (ii) amend, alter or repeal any provision of the charter which
would adversely affect the rights of the holders of Series B preferred stock;
(iii) amend, alter or repeal any provision of our charter which would increase
in any respect the restrictions or limitations on ownership applicable to the
Series B preferred stock; (iv) amend, alter or repeal our charter or bylaws to
limit the right of indemnification provided to any Preferred Director; (v) issue
additional shares of Series B preferred stock (or a series of preferred stock
that would vote as a class with the shares of Series B preferred stock with
respect to the election of any Preferred Director) or shares of stock ranking
senior or equal to the Series B preferred stock (as to dividends or upon
liquidation, dissolution or winding up); or (vi) amend, alter or repeal any
provision of our charter or bylaws to increase the number of directors on the
Board beyond eleven (not including any Preferred Directors).
Series C Preferred Stock. Shares of Series C preferred stock are issuable
upon exercise of any rights issued pursuant to our stockholder rights plan
discussed below. Series C preferred stock ranks junior to: (i) the Series A
preferred stock; (ii) the Series B preferred stock; and (iii) all other series
of our preferred stock as to the payment of dividends and the distribution of
assets, unless the terms of any such series shall provide otherwise. Commencing
after the first issuance of a share or fraction of a share of Series C preferred
stock and subject to the prior and superior rights of the holders of any shares
of any class or series of preferred stock, holders of shares of Series C
preferred stock are entitled to receive, when, as and if declared by our Board
of Directors, quarterly dividends, payable in cash, on a day in each quarterly
period of each year commencing on or after January 1, 1999 (but in no event
later than the 15th day of each January, April, July and October or, if any such
day is not a business day, on the next succeeding business day), in an amount
per share (rounded to the nearest cent) equal to the greater of: (a) $.01 or (b)
subject to the provision for adjustment, 1,000 times the aggregate per share
amount of all cash dividends, and 1,000 times the aggregate per share amount
(payable in kind) of all non-cash dividends or other distributions other than a
dividend payable in shares of our common stock, or a subdivision of the
outstanding shares of common stock (by reclassification or otherwise), declared
on the common stock, since the immediately preceding quarterly dividend payment
date, or, with respect to the first quarterly dividend payment date, since the
first issuance of any share or fraction of a share of Series A preferred stock.
If we, at any time after December 3, 1998: (i) declare any dividend on common
stock payable in shares of common stock, (ii) subdivide the outstanding common
stock, or (iii) combine the outstanding common stock into a smaller number of
shares, then in each such case, the amount to which holders of shares of Series
C preferred stock were entitled immediately prior to such event under clause (b)
of the preceding sentence will be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of common stock
outstanding immediately after such event and the denominator of which is the
number of shares of common stock that were outstanding immediately prior to such
event. Dividends on Series C preferred stock are cumulative.
Each share of Series C preferred stock entitles the holder thereof to 1,000
votes on all matters submitted to a vote of our stockholders. In the event that
we shall at any time after December 3, 1998: (i) declare any dividend on common
stock payable in shares of common stock, (ii) subdivide the outstanding common
stock, or (iii) combine the outstanding common stock into a smaller number of
shares, then in each such case, the number of votes per share to which holders
of shares of Series C preferred stock were entitled immediately prior to such
event shall be adjusted by multiplying such number by a fraction, the numerator
of which is the number of shares of common stock outstanding immediately after
such event and the denominator of which is the number of shares of common stock
that were outstanding immediately prior to such event. Except as otherwise
provided by Maryland law, the holders of shares of Series C preferred stock and
the holders of shares of common stock vote together as one class on all matters
submitted to a vote of stockholders.
Whenever quarterly dividends or other dividends or distributions payable on
the Series C preferred stock are in arrears, thereafter and until all accrued
and unpaid dividends and distributions, whether or not declared, on shares of
Series C preferred stock outstanding are paid in full, we may not: (a) declare
or pay dividends on, make any other distributions on, or redeem or purchase or
otherwise acquire for consideration any shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding up) to, the Series C
preferred stock; (b) declare or pay dividends on, or make any other
distributions on, any shares of stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Series C preferred stock and
all such junior stock on which dividends are payable or in arrears in proportion
to the total amounts to which the holders of all such shares are then entitled;
(c) redeem or purchase or otherwise acquire for consideration shares of any
stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series C preferred stock, provided that we
may at any time redeem, purchase or otherwise acquire shares of any such parity
stock in exchange for shares of any stock ranking junior (either as to dividends
or upon dissolution, liquidation or winding up) to the Series C preferred stock;
or (d) purchase or otherwise acquire for consideration of any shares of Series C
preferred stock, or any shares of stock ranking on a parity with the Series C
preferred stock, except in accordance with a purchase offer made in writing or
by publication (as determined by our Board of Directors) to all holders of such
shares upon such terms as our Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and preferences of
the respective series and classes, shall determine in good faith will result in
fair and equitable treatment among the respective series or classes.
Holders of Series C preferred stock have a liquidation preference
equivalent to $.0001 per share, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment. Notwithstanding any provision of our charter to the contrary,
following the payment of the full amount of the Series C liquidation preference,
no additional distributions shall be made to the holders of shares of Series C
preferred stock unless, prior thereto, the holders of shares of common stock
have received an amount per share (the "Common Adjustment") equal to the
quotient obtained by dividing (i) the Series C liquidation preference by (ii)
1,000 (as appropriately adjusted to reflect such events as stock splits, stock
dividends and recapitalizations with respect to the common stock) (the "Adjusted
Number"). Following the payment of the full amount of the Series C liquidation
preference and the Common Adjustment in respect of all outstanding shares of
Series C preferred stock and common stock, respectively, holders of Series C
preferred stock and holders of shares of common stock are to receive their
ratable and proportionate share of the remaining assets to such preferred stock
and common stock, on a per share basis, respectively. If there are not
sufficient assets available to permit payment in full of the Series C
liquidation preference and the liquidation preferences of all other series of
preferred stock, if any, which rank on a parity with the Series C preferred
stock, then such remaining assets shall be distributed ratably to the holders of
such parity shares in proportion to their respective liquidation preferences. In
the event, however, that there are not sufficient assets available to permit
payment in full of the Common Adjustment, then such remaining assets shall be
distributed ratably to the holders of common stock.
If we enter into any consolidation, merger, combination or other
transaction in which the shares of common stock are exchanged for or changed
into other stock, securities, cash or any other property, then in any such case
the shares of Series C preferred stock shall at the same time be similarly
exchanged or changed in an amount per share (subject to the provision for
adjustment) equal to 1,000 times the aggregate amount of stock, securities, cash
and/or any other property (payable in kind), as the case may be, into which or
for which each share of common stock is changed or exchanged. In the event that
we shall at any time after December 3, 1998: (i) declare any dividend on common
stock, or (ii) combine the outstanding common stock into a smaller number of
shares, when in each such case the amount set forth in the preceding sentence
with respect to the exchange or change of shares of Series C preferred stock
shall be adjusted by multiplying such amount by a fraction the numerator of
which is the number of shares of common stock outstanding immediately after such
event and the denominator of which is the number of shares of common stock that
were outstanding immediately prior to such event.
The outstanding shares of Series C preferred stock, at the option of our
Board of Directors, may be redeemed as a whole, but not in part, at any time, or
from time to time, at a cash price per share equal to 105% of (i) the product of
the Adjusted Number times the Average Market Value (as such term is hereinafter
defined) of our common stock, plus (ii) all dividends which on the redemption
date have accrued on the shares to be redeemed and have not been paid, or
declared and a sum sufficient for the payment thereof set apart, without
interest. The "Average Market Value" is the average of the closing sale prices
of our common stock during the 30 day period immediately preceding the date
before the redemption date on the Composite Tape for New York Stock Exchange
Listed Stocks, or, if such stock is not quoted on the Composite Tape, on the New
York Stock Exchange, or, if such stock is not listed on such Exchange, on the
principal United States securities exchange registered under the Securities
Exchange Act of 1934, as amended, on which such stock is listed, or, if such
stock is not listed on any such exchange, the average of the closing sale prices
with respect to a share of our common stock during such 30 day period, as quoted
on the National Association of Securities Dealers, Inc. Automated Quotation
System or any system then in use, or if no such quotations are available, the
fair market value of our common stock as determined by our Board of Directors in
good faith.
Description of Stockholder Rights Plan
Our Board of Directors has adopted a stockholder rights plan. As a result,
we issued one right for each outstanding share of common stock and 1.1364 rights
(subject to adjustments) for each share of Series B preferred stock outstanding.
One right and 1.1364 rights (subject to adjustments) will be issued for each
additional share of common stock or Series B preferred stock, respectively, that
we issue. Each right entitles the holder to purchase one one-thousandth of a
share of our Series C preferred stock at an exercise price of $70.00 (subject to
adjustments). The rights become exercisable 10 business days after any party
acquires or announces an offer to acquire 15% or more of our common stock, our
Board of Directors determines that a substantial stockholder's ownership may be
adverse to the interests of our other stockholders or our qualification as a
REIT, or certain similar event. The rights expire on December 3, 2008, unless
earlier redeemed. The rights are redeemable at $0.0001 per right at any time
before 10 business days following the time that any party acquires, or obtains
the right to acquire, beneficial ownership of 15% or more of our outstanding
common stock, or our Board of Directors determines that a substantial
stockholder's ownership may be adverse to the interests of our other
stockholders or our qualification as a REIT.
CERTAIN PROVISIONS OF MARYLAND LAW
The following paragraphs summarize certain provisions of Maryland law and
our charter and bylaws. The summary does not purport to be complete and is
subject to and qualified in its entirety by reference to Maryland law and our
charter, including any Articles Supplementary, and bylaws. You should read these
documents carefully to fully understand the terms of Maryland law, our charter
and our bylaws.
The Board of Directors
Our Board of Directors is currently comprised of eight directors. Our
bylaws provide that the Board of Directors may alter the number of directors to
a number not exceeding 15 nor below the minimum permitted in our bylaws,
currently set at three directors. Each director is to serve for a one-year term
or until his or her successor is duly elected and has been qualified. Holders of
shares will have no right to cumulative voting in the election of directors.
Instead, directors are elected by a plurality of the votes with each share being
voted for as many individuals as there are directors to be elected and for whose
election the share is entitled to vote.
Amendment of Charter and Bylaws
Our charter generally may be amended only by the approval of a majority of
directors and by the affirmative vote of the holders of a majority of the
aggregate votes entitled to be cast on the matter. However, any amendment
relating to the Board of Directors, indemnification and limitation of liability
provisions and amendments to the charter requires the advice and recommendation
of at least 75% of our Board of Directors. In addition, charter amendments
regarding our REIT qualification, removal of directors, bylaw and charter
amendments, indemnification and limitation of liability, cumulative voting in
the election for directors require the affirmative approval of holders of not
less than 80% of all the votes entitled to be cast on the matter. If an
amendment to the charter affects one or more series of preferred stock, such
amendment must be approved by any vote set forth in the terms of such preferred
stock.
Our bylaws may be amended only by vote of two-thirds of our Board of
Directors or by the affirmative vote of not less than 80% of the aggregate votes
entitled to be cast on the matter.
Business Combinations
As a Maryland corporation, we are subject to certain restrictions
concerning certain "business combinations" (including a merger, consolidation,
share exchange or, in certain circumstances, an asset transfer or issuance or
reclassification of equity securities) between us and an "interested
stockholder." Interested stockholders are persons: (i) who beneficially own 10%
or more of the voting power of our shares, or (ii) are affiliates or associates
of us who, at any time within the two-year period prior to the date in question,
were the beneficial owners of 10% or more of the voting power of our shares.
Such business combinations are prohibited for five years after the most recent
date on which the interested stockholder became an interested stockholder.
Thereafter, any such business combination must be recommended by our Board of
Directors and approved by the affirmative vote of at least: (i) 80% of the votes
entitled to be cast by holders of our outstanding voting shares, and (ii) 66
2/3% of the votes entitled to be cast by holders of our outstanding voting
shares other than shares held by the interested stockholder or an affiliate or
associate of the interested stockholder with whom the business combination is to
be effected, unless, among other things, the corporation's stockholders receive
a minimum price for their shares and the consideration is received in cash or in
the same form as previously paid by the interested stockholder for its shares.
These provisions of Maryland law do not apply, however, to business combinations
that are approved or exempted by our Board of Directors prior to the time that
the interested stockholder becomes an interested stockholder.
Control Share Acquisitions
Maryland law provides that, with certain exceptions, "control shares" of a
corporation acquired in a "control share acquisition" have no voting rights
except to the extent approved by the stockholders by the affirmative vote of
two-thirds of all the votes entitled to be cast on the matter, excluding shares
of stock owned by the acquiring person or by officers or directors who are
employees of the corporation. "Control shares" are shares of voting stock which,
if aggregated with all other such shares previously acquired by such a person,
would entitle the acquiring person to exercise voting power in electing
directors within one of the following ranges of voting power: (i) 10% or more
but less than 33 1/3%; (ii) 33 1/3% or more but less than a majority; or (iii) a
majority or more of all voting power. Control shares do not include shares the
acquiring person is then entitled to vote as a result of having previously
obtained stockholder approval. A "control share acquisition" means, subject to
certain exceptions, the acquisition of, ownership of or the power to direct the
exercise of voting power with respect to, control shares.
Advance Notice of Director Nominations and New Business
Pursuant to our bylaws, a stockholder seeking to nominate persons for
election to our Board of Directors or propose other business to be conducted at
an annual meeting of stockholders or to nominate persons for election of
directors at any special meeting of stockholders called for the purpose of
electing directors must provide the required notice to our Chairman of the
Board: (i) in the case of an annual meeting, generally not less than 60 days nor
more than 90 days prior to the first anniversary of the preceding year's annual
meeting, and (ii) in the case of a special meeting, not earlier than the 90th
day prior to the special meeting and not later than the close of business on the
later of the 60th day prior to the special meeting or the 10th day following the
day on which public announcement is first made of the date of the special
meeting and of the nominees proposed by the Board of Directors to be elected at
such meeting.
The purpose of requiring such advance notice by stockholders is to provide
the Board of Directors a meaningful opportunity to consider the qualifications
of the proposed nominees or the advisability of the other proposed business and,
to the extent deemed necessary or advisable by the Board of Directors, to inform
stockholders and make recommendations about such qualifications or business, as
well as to provide a more orderly procedure for conducting meetings of
stockholders. Although our bylaws do not give the Board of Directors any power
to disapprove of stockholder nominations or proposals for action, they may have
the effect of precluding a contest for the election of directors or the
consideration of stockholder proposals if the proper procedures are not
followed. In addition, these provisions may discourage or deter a third party
from conducting a solicitation of proxies to elect its own slate of directors or
to approve its own proposal, without regard to whether consideration of such
nominees or proposals might be harmful or in the best interests of us and our
stockholders. The provisions in our bylaws regarding advance notice could have
the effect of discouraging a takeover or other transaction in which holders of
some, or a majority, of the shares of our common stock might receive a premium
for their shares over the then prevailing market price or which such holders
might believe to be otherwise in their best interests.
Meetings of Stockholders
Under our bylaws, annual meetings of stockholders are to be held on such
day and time as is set by the Board of Directors. Special meetings of
stockholders may be called by the President, the Chief Executive Officer and the
Chairman of the Board of Directors by a vote of a majority of the directors, and
must be called by the Secretary, upon the written request of the stockholders
entitled to cast at least a majority of all the votes entitled to be cast at
such a meeting. Only matters set forth in the notice of the meeting may be
considered and acted upon at such a meeting. Our bylaws provide that any action
required or permitted to be taken at a meeting of stockholders may be taken
without a meeting by unanimous written consent, if that consent sets forth that
action and is signed by each stockholder entitled to vote on the matter and a
written waiver of any right to dissent is signed by each stockholder entitled to
notice of the meeting but not entitled to vote at that meeting.
Certain Elective Provisions of Maryland Law
Publicly-held Maryland corporations may elect to be governed by all or any
part of Maryland law provisions relating to extraordinary actions and
unsolicited takeovers. The election to be governed by one or more of these
provisions can be made by a Maryland corporation in its articles or bylaws or by
resolution adopted by its board of directors so long as the corporation has at
least three directors who, at the time of electing to be subject to the
provisions, are not:
- officers or employees of the corporation;
- persons seeking to acquire control of the corporation;
- directors, officers, affiliates or associates of any person seeking to
acquire control; or
- nominated or designated as directors by a person seeking to acquire
control.
Articles Supplementary must be filed with the Maryland State Department of
Assessments and Taxation if a Maryland corporation elects to be subject to any
or all of the provisions by board resolution or bylaw amendment. Stockholder
approval is not required for the filing of Articles Supplementary.
The Maryland legislation provides that a corporation can elect to be
subject to all or any portion of the following provisions, notwithstanding any
contrary provisions contained in that corporation's existing charter documents:
- Classified Board: The corporation may divide its board into three classes
which, to the extent possible, will have the same number of directors, the
terms of which will expire at the third annual meeting of stockholders
after the election of each class;
- Two-thirds Stockholder Vote to Remove Directors Only for Cause: The
stockholders may remove any director only by the affirmative vote of at
least two-thirds of all votes entitled to be cast by the stockholders
generally in the election of directors, but a director may not be removed
without cause;
- Size of Board Fixed by Vote of Board: The number of directors will be fixed
only by resolution of the board;
- Board Vacancies Filled by the Board for the Remaining Term: Vacancies that
result from an increase in the size of the board, or the death,
resignation, or removal of a director, may be filled only by the
affirmative vote of a majority of the remaining directors even if they do
not constitute a quorum. Directors elected to fill vacancies will hold
office for the remainder of the full term of the class of directors in
which the vacancy occurred, as opposed to until the next annual meeting of
stockholders, and until a successor is elected and qualifies; and
- Stockholder Calls of Special Meetings: Special meetings of stockholders may
be called by the Secretary of the corporation only upon the written request
of stockholders entitled to cast at least a majority of all votes entitled
to be cast at the meeting and only in accordance with procedures set out in
the Maryland General Corporation Law.
We have not elected to be governed by these specific provisions. However, our
charter and/or bylaws, as applicable, already provide for a two-thirds vote to
remove directors only for cause, that the number of directors may be determined
by a resolution of our Board, subject to a minimum number, and that our
Secretary must call a special meeting of stockholders only upon the written
request of the holders of a majority of our outstanding securities entitled to
vote. In addition, we can elect to be governed by any or all of the provisions
of the Maryland legislation at any time in the future.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
Introductory Notes
The following is a description of the material federal income tax
considerations to a holder of our preferred stock. This discussion supercedes
the discussion under the caption "Federal Income Tax Considerations" in the
accompanying prospectus. The following discussion is not exhaustive of all
possible tax considerations and does not provide a detailed discussion of any
state, local or foreign tax considerations, nor does it discuss all of the
aspects of federal income taxation that may be relevant to a prospective
stockholder in light of his or her particular circumstances or to stockholders
(including insurance companies, tax-exempt entities, financial institutions or
broker-dealers, foreign corporations, and persons who are not citizens or
residents of the United States) who are subject to special treatment under the
federal income tax laws. This discussion addresses only stock held as a capital
asset.
The information in this section is based on the Code, current, temporary
and proposed Treasury regulations, the legislative history of the Code, current
administrative interpretations and practices of the Internal Revenue Service,
and court decisions. The reference to Internal Revenue Service interpretations
and practices includes Internal Revenue Service practices and policies as
endorsed in private letter rulings, which are not binding on the Internal
Revenue Service except with respect to the taxpayer that receives the ruling. In
each case, these sources are relied upon as they exist on the date of this
prospectus supplement. No assurance can be given that future legislation,
regulations, administrative interpretations and court decisions will not
significantly change current law, or adversely affect existing interpretations
of existing law, on which the information in this section is based. Any change
of this kind could apply retroactively to transactions preceding the date of the
change. Accordingly, even if there is no change in applicable law, no assurance
can be provided that the statements made in the following discussion will not be
challenged by the Internal Revenue Service or will be sustained by a court if so
challenged.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT THIS PROSPECTUS SUPPLEMENT
AS WELL AS HIS OR HER OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO
HIM OR HER OF THE ACQUISITION, OWNERSHIP AND SALE OF PREFERRED STOCK OF AN
ENTITY ELECTING TO BE TAXED AS A REAL ESTATE INVESTMENT TRUST, INCLUDING THE
FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF SUCH ACQUISITION,
OWNERSHIP, SALE, AND ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
Taxation of Us as a REIT
General. We have elected to be taxed as a REIT under Sections 856 through
859 of the Code, commencing with our initial tax year. Our qualification and
taxation as a REIT depends upon our ability to meet on a continuing basis,
through actual annual (or in some cases quarterly) operating results,
distribution levels and diversity of stock ownership, the various qualification
tests and organizational requirements imposed under the Code, as discussed
below. We believe that we are organized and have operated in such a manner as to
qualify under the Code for taxation as a REIT since the effective date of our
election, and we intend to continue to operate in such a manner. No assurances,
however, can be given that we will operate in a manner so as to qualify or
remain qualified as a REIT. See "-- Failure to Qualify" below.
The following is a general summary of the material Code provisions that
govern the federal income tax treatment of a REIT and its stockholders. These
provisions of the Code are highly technical and complex. This summary is
qualified in its entirety by the applicable Code provisions, the regulations
promulgated thereunder ("Treasury Regulations"), and administrative and judicial
interpretations thereof.
Qualification and taxation as a REIT depends upon our ability to meet on a
continuing basis, through actual annual (or in some cases quarterly) operating
results, the various requirements under the Code described in this prospectus
supplement with regard to, among other thing, the sources of our gross income,
the composition of our assets, our distribution levels, and our diversity of
stock ownership. While we intend to operate so that we continue to qualify as a
REIT, given the highly complex nature of the rules governing REITs, the ongoing
importance of factual determinations, and the possibility of future changes in
our circumstances, no assurance can be given that we satisfy all of the tests
for REIT qualification or will continue to do so.
If we qualify for taxation as a REIT, we generally will not be subject to
federal corporate income taxes on net income that we currently distribute to
stockholders. This treatment substantially eliminates the "double taxation" (at
the corporate and stockholder levels) that generally results from investment in
a corporation.
Notwithstanding our REIT election, however, we will be subject to federal
income tax in the following circumstances. First, we will be taxed at regular
corporate rates on any undistributed REIT taxable income, including
undistributed net capital gains. Second, under certain circumstances, we may be
subject to the "alternative minimum tax" on any items of tax preference and
alternative minimum tax adjustments. Third, if we have: (i) net income from the
sale or other disposition of "foreclosure property" (which is, in general,
property acquired by foreclosure or otherwise on default of a loan secured by
the property) that is held primarily for sale to customers in the ordinary
course of business, or (ii) other nonqualifying income from foreclosure
property, we will be subject to tax at the highest corporate rate on such
income. Fourth, if we have net income from prohibited transactions (which are,
in general, certain sales or other dispositions of property (other than
foreclosure property) held primarily for sale to customers in the ordinary
course of business), such income will be subject to a 100% tax on prohibited
transactions. Fifth, if we should fail to satisfy the 75% gross income test or
the 95% gross income test (as discussed below), and have nonetheless maintained
our qualification as a REIT because certain other requirements have been met, we
will be subject to a 100% tax equal to the gross income attributable to the
greater of either: (i) the amount by which 75% of our gross income exceeds the
amount qualifying under the 75% test for the taxable year, or (ii) the amount by
which 90% of our gross income exceeds the amount of our income qualifying under
the 95% test for the taxable year, multiplied in either case by a fraction
intended to reflect our profitability. Sixth, if we should fail to distribute
during each calendar year at least the sum of: (i) 85% of our REIT ordinary
income for such year; (ii) 95% of our REIT capital gain net income for such year
(for this purpose such term includes capital gains which we elect to retain but
which we report as distributed to our stockholders. See "-- Annual Distribution
Requirements" below); and (iii) any undistributed taxable income from prior
years, we would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. Seventh, if we acquire any
asset from a C corporation (i.e., a corporation generally subject to full
corporate level tax) in a transaction in which the basis of the asset in our
hands is determined by reference to the basis of the asset (or any other
property) in the hands of the C corporation, and we recognize gain on the
disposition of such asset during the 10-year period beginning on the date on
which such asset was acquired by us, then, to the extent of such property's
built-in gain (the excess of the fair market value of such property at the time
of acquisition by us over the adjusted basis of such property at such time),
such gain will be subject to tax at the highest regular corporate rate then
applicable. Eighth, we will be subject to a 100% penalty tax on amounts we
receive (or on certain expenses deducted by a taxable REIT subsidiary) if
arrangements among us, our tenants and a taxable REIT subsidiary are not
comparable to similar arrangements among unrelated parties.
Requirements for Qualification
The Code defines a REIT as a corporation, trust or association: (i) which
is managed by one or more trustees or directors; (ii) the beneficial ownership
of which is evidenced by transferable shares or by transferable certificates of
beneficial interest; (iii) which would be taxable as a domestic corporation but
for Sections 856 through 859 of the Code; (iv) which is neither a financial
institution nor an insurance company subject to certain provisions of the Code;
(v) the beneficial ownership of which is held by 100 or more persons; (vi) of
which not more than 50% in value of the outstanding capital stock is owned,
directly or indirectly, by five or fewer individuals (as defined in the Code to
include certain entities) during the last half of each taxable year after
applying certain attribution rules; (vii) that makes an election to be treated
as a REIT for the current taxable year or has made an election for a previous
taxable year which has not been revoked; and (viii) which meets certain other
tests, described below, regarding the nature of its income and assets. The Code
provides that conditions (i) through (iv), inclusive, must be met during the
entire taxable year and that condition (v) must be met during at least 335 days
of a taxable year of 12 months, or during a proportionate part of a taxable year
of less than 12 months. Condition (vi) must be met during the last half of each
taxable year other than the first taxable year for which an election to become a
REIT is made. For purposes of determining stock ownership under condition (vi),
a supplemental unemployment compensation benefits plan, a private foundation or
a portion of a trust permanently set aside or used exclusively for charitable
purposes generally is considered an individual. However, a trust that is a
qualified trust under Section 401(a) of the Code generally is not considered an
individual, and beneficiaries of a qualified trust are treated as holding shares
of a REIT in proportion to their actuarial interests in the trust for purposes
of condition (vi). Conditions (v) and (vi) do not apply until after the first
taxable year for which an election is made to be taxed as a REIT. We have issued
sufficient common stock with sufficient diversity of ownership to allow us to
satisfy requirements (v) and (vi). In addition, our charter contains
restrictions regarding the transfer of our shares intended to assist us in
continuing to satisfy the share ownership requirements described in (v) and (vi)
above. See "Description of Series D Preferred Stock -- Restrictions on Ownership
and Transfer." These restrictions, however, may not ensure that we will be able
to satisfy these share ownership requirements. If we fail to satisfy these share
ownership requirements, we will fail to qualify as a REIT.
In addition, a corporation may not elect to become a REIT unless its
taxable year is the calendar year. Our taxable year is the calendar year.
To qualify as a REIT, we cannot have at the end of any taxable year any
undistributed earnings and profits that are attributable to a non-REIT taxable
year. We believe that we have complied with this requirement.
For our tax years beginning prior to January 1, 1998, pursuant to
applicable Treasury Regulations, to be taxed as a REIT, we were required to
maintain certain records and request on an annual basis certain information from
our stockholders designed to disclose the actual ownership of our outstanding
shares. We have complied with such requirements. For our tax years beginning on
or after January 1, 1998, these records and informational requirements are no
longer a condition to REIT qualification. Instead, a monetary penalty will be
imposed for failure to comply with these requirements. If we comply with these
regulatory rules, and we do not know, or exercising reasonable diligence would
not have known, whether we failed to meet requirement (vi) above, we will be
treated as having met the requirement.
Qualified REIT Subsidiaries
If a REIT owns a corporate subsidiary that is a "qualified REIT
subsidiary," the separate existence of that subsidiary will be disregarded for
federal income tax purposes. Generally, a qualified REIT subsidiary is a
corporation, other than a taxable REIT subsidiary, all of the capital stock of
which is owned by the REIT. All assets, liabilities and items of income,
deduction and credit of the qualified REIT subsidiary will be treated as assets,
liabilities and items of income, deduction and credit of the REIT itself. A
qualified REIT subsidiary of ours will not be subject to federal corporate
income taxation, although it may be subject to state and local taxation in some
states.
Taxable REIT Subsidiaries
A "taxable REIT subsidiary" is a corporation in which we directly or
indirectly own stock and that elects with us to be treated as a taxable REIT
subsidiary under Section 856(l) of the Code. In addition, if one of our taxable
REIT subsidiaries owns, directly or indirectly, securities representing more
than 35% of the vote or value of a subsidiary corporation, that subsidiary will
automatically be treated as a taxable REIT subsidiary of ours. A taxable REIT
subsidiary is a corporation subject to federal income tax, and state and local
income tax where applicable, as a regular "C" corporation. As a result, our
earnings derived through a taxable REIT subsidiary are effectively subject to a
corporate level tax notwithstanding our status as a REIT. No more than 20% of
our assets may consist of the securities of one or more taxable REIT
subsidiaries.
Generally, a taxable REIT subsidiary can perform impermissible tenant
services without causing us to receive impermissible tenant services income
under the REIT income tests. However, several provisions regarding the
arrangements between a REIT and its taxable REIT subsidiaries ensure that a
taxable REIT subsidiary will be subject to an appropriate level of federal
income taxation. For example, a taxable REIT subsidiary may be limited in its
ability to deduct interest payments made to us. In addition, we will be
obligated to pay a 100% penalty tax on some payments that we receive or on
certain expenses deducted by the taxable REIT subsidiary if the economic
arrangements among us, our tenants and the taxable REIT subsidiary are not
comparable to similar arrangements among unrelated parties.
We have established a wholly owned taxable REIT subsidiary, EGP TRS, Inc.,
for the purpose of developing and selling certain real property located in
Houston, Texas.
Income Tests
In order for us to maintain qualification as a REIT, two percentage tests
relating to the source of our gross income must be satisfied annually. First, at
least 75% of our gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived directly or indirectly from
investments relating to real property or mortgages on real property (including
"rents from real property" and, in certain circumstances, interest) or from
certain types of temporary investments. Second, at least 95% of our gross income
(excluding gross income from prohibited transactions) for each taxable year must
be derived from such real property investments described above, dividends,
interest and gain from the sale or disposition of stock or securities, some
payments under hedging instruments, or from any combination of the foregoing.
Rents received by us will qualify as "rents from real property" in
satisfying the above gross income tests only if several conditions are met.
First, the amount of rent must not be based in whole or in part on the income or
profits of any person. However, amounts received or accrued generally will not
be excluded from "rents from real property" solely by reason of being based on a
fixed percentage or percentages of receipts or sales.
Second, rents received from a tenant will not qualify as "rents from real
property" if we, or a direct or indirect owner of 10% or more of our stock,
actually or constructively owns 10% or more of such tenant. We may, however,
lease our properties to a taxable REIT subsidiary and rents received from that
subsidiary will not be disqualified from being "rents from real property" by
reason of our ownership interest in the subsidiary if at least 90% of the
property in question is leased to unrelated tenants and the rent paid by the
taxable REIT subsidiary is substantially comparable to the rent paid by the
unrelated tenants for comparable space.
Third, if rent attributable to personal property that is leased in
connection with a lease of real property is greater than 15% of the total rent
received under the lease, then the portion of rent attributable to such personal
property will not qualify as "rents from real property." Under prior law, this
15% test was based on the relative adjusted tax basis of both the real and
personal property. For taxable years beginning after December 31, 2000, the test
is based on the relative fair market value of the real and personal property.
Generally, for rents to qualify as "rents from real property" for the
purposes of the gross income tests, we are only allowed to provide services that
are both "usually or customarily rendered" in connection with the rental of real
property for occupancy only and not otherwise considered "rendered to the
occupant." Income received from any other service will be treated as
"impermissible tenant service income" unless the service is provided through an
independent contractor that bears the expenses of providing the services and
from whom we derive no revenue or through a taxable REIT subsidiary, subject to
specified limitations. The amount of impermissible tenant service income we
receive is deemed to be the greater of the amount actually received by us or
150% of our direct cost of providing the service. If the impermissible tenant
service income exceeds 1% of our total income from a property, then all of the
income from that property will fail to qualify as rents from real property. If
the total amount of impermissible tenant service income from a property does not
exceed 1% of our total income from that property, the income will not cause the
rent paid by tenants of that property to fail to qualify as rents from real
property, but the impermissible tenant service income itself will not qualify as
rents from real property.
Our investment in commercial and industrial properties generally gives rise
to rental income that is qualifying income for purposes of the 75% and 95% gross
income tests. We do not receive any rent that is based on the income or profits
of any person. In addition, we do not own, directly or indirectly, 10% or more
of any tenant (other than, perhaps, a tenant that is a taxable REIT subsidiary
where other requirements are satisfied). Furthermore, we believe that any
personal property rented in connection with our facilities is well within the
15% restriction. Moreover, we do not provide services, other than within the 1%
de minimis exception described above, to our tenants that are not customarily
furnished or rendered in connection with the rental of property, other than
through an independent contractor or a taxable REIT subsidiary. Finally, we
anticipate that income on our other investments will not result in our failing
the 75% or 95% gross income test for any year.
If we fail to satisfy one or both of the 75% or 95% gross income tests for
any taxable year, we may nevertheless qualify as a REIT for such year if we are
entitled to relief under certain provisions of the Code. These relief provisions
generally will be available if our failure to meet such tests was due to
reasonable cause and not due to willful neglect, if we attach a schedule of the
sources of our income to our federal income tax return for such years, and if
any incorrect information on the schedules was not due to fraud with intent to
evade tax. It is not possible, however, to state whether in all circumstances we
would be entitled to the benefit of these relief provisions. As discussed above
in "-- Taxation of Us as a REIT -- General," even if these relief provisions
were to apply, a tax would be imposed with respect to the excess net income.
Asset Tests
At the close of each quarter of our taxable year, we must satisfy six tests
relating to the nature of our assets.
1. At least 75% of the value of our total assets must be represented by
"real estate assets," cash, cash items and government securities. Our real
estate assets include, for this purpose, our allocable share of real estate
assets held by the partnerships in which we own an interest, and the
non-corporate subsidiaries of these partnerships, as well as stock or debt
instruments held for less than one year purchased with the proceeds of an
offering of our shares or long term debt.
2. Not more than 25% of our total assets may be represented by securities,
other than those in the 75% asset class.
3. Except for equity investments in REITs and equity and debt investments
in qualified REIT subsidiaries and taxable REIT subsidiaries, the value of any
one nongovernmental issuer's securities owned by us may not exceed 5% of the
value of our total assets.
4. Except for equity investments in REITs and equity and debt investments
in qualified REIT subsidiaries and taxable REIT subsidiaries, we may not own
more than 10% of any one nongovernmental issuer's outstanding voting securities.
5. Except for equity investments in REITs and equity and debt investments
in qualified REIT subsidiaries and taxable REIT subsidiaries, we may not own
more than 10% of the total value of the outstanding securities of any one
nongovernmental issuer, other than securities that qualify as "straight debt"
under the Code.
6. Not more than 20% of our total assets may be represented by the
securities of one or more taxable REIT subsidiaries.
For purposes of these asset tests, any shares of qualified REIT
subsidiaries are not taken into account, and any assets owned by our qualified
REIT subsidiaries are treated as owned directly by us.
Securities, for purposes of the assets tests, may include debt we hold.
However, debt we hold in an issuer will not be taken into account for purposes
of the 10% value test if the debt securities meet the "straight debt" safe
harbor and either: (1) the issuer is an individual, (2) the only securities of
the issuer that we hold are straight debt, or (3) if the issuer is a
partnership, we hold at least a 20% profits interest in the partnership. Debt
will meet the "straight debt" safe harbor if the debt is a written unconditional
promise to pay on demand or on a specified date a sum certain in money: (1)
which is not convertible, directly or indirectly, into stock, and (2) the
interest rate (or the interest payment dates) of which is not contingent on
profits, the borrower's discretion or similar factors.
With respect to each nongovernmental issuer in which we currently own an
interest that does not qualify as a REIT, a qualified REIT subsidiary or a
taxable REIT subsidiary, we believe that our pro rata share of the value of the
securities, including unsecured debt, of any such issuer does not exceed 5% of
the total value of our assets and that we comply with the 10% voting securities
limitation and 10% value limitation (taking into account the "straight debt"
exceptions with respect to certain issuers). In addition, we believe that our
securities of taxable REIT subsidiaries do not exceed 20% of the value of our
total assets. With respect to our compliance with each of these asset tests,
however, we cannot provide any assurance that the Internal Revenue Service might
not disagree with our determination.
After initially meeting the asset tests after the close of any quarter, we
will not lose our status as a REIT if we fail to satisfy the 25%, 20% or 5%
asset test or the 10% value limitation at the end of a later quarter solely by
reason of changes in the relative values of our assets. If the failure to
satisfy the 25%, 20% or 5% asset test or the 10% value limitation results from
an increase in the value of our assets after the acquisition of securities or
other property during a quarter, the failure can be cured by a disposition of
sufficient non-qualifying assets within 30 days after the close of that quarter.
We have maintained and intend to continue to maintain adequate records of the
value of our assets to ensure compliance with the asset tests and to take any
available actions within 30 days after the close of any quarter as may be
required to cure any noncompliance with the 25%, 20% or 5% asset test or the 10%
value limitation. We cannot ensure that these steps always will be successful.
If we were to fail to cure the noncompliance with the assets tests within this
30 day period, we could fail to qualify as a REIT.
Annual Distribution Requirements
We, in order to qualify as a REIT, are required to distribute dividends
(other than capital gain dividends) to our stockholders in an amount at least
equal to (i) the sum of (a) 90% of our "REIT taxable income" (computed without
regard to the dividends paid deduction and our net capital gain) and (b) 90% of
the net income (after tax), if any, from foreclosure property, minus (ii) the
sum of certain items of noncash income. Such distributions generally must be
paid in the taxable year to which they relate. Dividends may be paid in the
following year in two circumstances. First, dividends may be declared in the
following year if the dividends are declared before we timely file our tax
return for the year and if made before the first regular dividend payment made
after such declaration. Second, if we declare a dividend in October, November or
December of any year with a record date in one of these months and pay the
dividend on or before January 31 of the following year, we will be treated as
having paid the dividend on December 31 of the year in which the dividend was
declared. To the extent that we do not distribute all of our net capital gain or
distribute at least 90%, but less than 100%, of our "REIT taxable income," as
adjusted, we will be subject to tax on the nondistributed amount at regular
capital gains and ordinary corporate tax rates. Furthermore, if we should fail
to distribute during each calendar year at least the sum of: (i) 85% of our REIT
ordinary income for such year; (ii) 95% of our REIT capital gain net income for
such year; and (iii) any undistributed taxable income from prior periods, we
will be subject to a 4% excise tax on the excess of such required distribution
over the amounts actually distributed.
We may elect to retain and pay tax on our net long-term capital gains and
require our stockholders to include their proportionate share of such
undistributed net capital gains in their income. If we make such election, our
stockholders would receive a tax credit attributable to their share of the
capital gains tax paid by us, and would receive an increase in the basis of
their shares in us in an amount equal to the stockholder's share of the
undistributed net long-term capital gain reduced by the amount of the credit.
Further, any undistributed net long-term capital gains that are included in the
income of our stockholders pursuant to this rule will be treated as distributed
for purposes of the 4% excise tax.
We have made and intend to continue to make timely distributions sufficient
to satisfy the annual distribution requirements. It is possible, however, that
we, from time to time, may not have sufficient cash or liquid assets to meet the
distribution requirements due to timing differences between the actual receipt
of income and actual payment of deductible expenses and the inclusion of such
income and deduction of such expenses in arriving at our taxable income, or if
the amount of nondeductible expenses such as principal amortization or capital
expenditures exceeds the amount of noncash deductions. In the event that such
timing differences occur, in order to meet the distribution requirements, we may
arrange for short-term, or possibly long-term, borrowing to permit the payment
of required dividends. If the amount of nondeductible expenses exceeds noncash
deductions, we may refinance our indebtedness to reduce principal payments and
may borrow funds for capital expenditures.
Under certain circumstances, we may be able to rectify a failure to meet
the distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year that may be included in our deduction for dividends
paid for the earlier year. Thus, we may avoid being taxed on amounts distributed
as deficiency dividends; however, we will be required to pay interest to the
Internal Revenue Service based upon the amount of any deduction taken for
deficiency dividends.
Failure to Qualify
If we fail to qualify for taxation as a REIT in any taxable year and no
relief provisions apply, we will be subject to tax (including any applicable
alternative minimum tax) on our taxable income at regular corporate rates.
Distributions to stockholders in any year in which we fail to qualify will not
be deductible by us, nor will such distributions be required to be made. In such
event, to the extent of our current and accumulated earnings and profits, all
distributions to stockholders will be taxable as ordinary income, and, subject
to certain limitations in the Code, corporate distributees may be eligible for
the dividends received deduction. Unless entitled to relief under specific
statutory provisions, we will also be disqualified from taxation as a REIT for
the four taxable years following the year during which qualification was lost.
It is not possible to state whether in all circumstances we would be entitled to
such statutory relief.
Tax Aspects of Our Investments in Partnerships
General. At present, substantially all of our investments are held through
EastGroup Properties LP. Because we currently own all of the interests in
EastGroup Properties LP, it is a disregarded entity for federal income tax
purposes, and all of its income, assets and liabilities are treated as our
income, assets and liabilities for such purposes. If in the future unaffiliated
partners were admitted to EastGroup Properties LP, for example, as a result of
the issuance of partnership units in connection with real property acquisitions,
EastGroup Properties LP would no longer be a disregarded entity for federal
income tax purposes. In addition, it is possible that in the future we (directly
or through EastGroup Properties LP) will hold investments through other
subsidiary partnerships or limited liability companies that are not disregarded
for federal income tax purposes. A structure involving subsidiary partnerships
(including EastGroup Properties LP, if unaffiliated partners are admitted to
that partnership) or limited liability companies that are not disregarded may
involve special tax considerations, including the following:
1. the status of each subsidiary partnership and limited liability company
as a partnership (as opposed to an association taxable as a corporation) for
income tax purposes; and
2. the taking of actions by any of the subsidiary partnerships or limited
liability companies that could adversely affect our qualification as a REIT.
We expect that any of our subsidiary partnerships and limited liability
companies that are not disregarded entities for federal income tax purposes will
be treated for tax purposes as partnerships (and not as associations taxable as
corporations). If any of the partnerships were to be treated as a corporation,
it would be subject to an entity level tax on its income. In such a situation,
the character of our assets and items of gross income would change, which could
preclude us from satisfying the asset tests and possibly the income tests, and
in turn prevent us from qualifying as a REIT. In addition, if any of the
partnerships were treated as a corporation, it is likely that we would hold more
than 10% of the voting power or value of the entity and would fail to qualify as
a REIT. See "-- Asset Tests."
A REIT that is a partner in a partnership will be deemed to own its
proportionate share of the assets of the partnership and will be deemed to earn
its proportionate share of the partnership's income. In addition, the assets and
gross income of the partnership retain the same character in the hands of the
REIT for purposes of the gross income and asset tests applicable to REITs. Thus,
our proportionate share of the assets and items of income of each subsidiary
partnership and limited liability company that is treated as a partnership for
federal income tax purposes would be treated as our assets and items of income
for purposes of applying the asset and income tests. We expect to have
sufficient control over all of the subsidiaries that are treated as partnerships
for federal income tax purposes to protect our REIT status and intend to operate
them in a manner that is consistent with the requirements for our qualification
as a REIT.
Taxation of Stockholders
Taxation of Taxable U.S. Stockholders. As used in the remainder of this
discussion, the term "U.S. Stockholder" means a beneficial owner of equity stock
that is for United States federal income tax purposes:
1. a citizen or resident, as defined in Section 7701(b) of the Code, of the
United States;
2. a corporation or partnership, or other entity treated as a corporation
or partnership for federal income tax purposes, created or organized in or under
the laws of the United States or any state or the District of Columbia;
3. an estate the income of which is subject to United States federal income
taxation regardless of its source; or
4. in general, a trust subject to the primary supervision of a United
States court and the control of one or more United States persons.
Generally, in the case of a partnership that holds our stock, any partner
that would be a U.S. Stockholder if it held the stock directly is also a U.S.
Stockholder. As long as we qualify as a REIT, distributions made to our taxable
U.S. Stockholders out of current or accumulated earnings and profits (and not
designated as capital gain dividends or retained capital gains) will be taken
into account by them as ordinary income, and corporate stockholders will not be
eligible for the dividends received deduction as to such amounts. Distributions
in excess of current and accumulated earnings and profits will not be taxable to
a stockholder to the extent that they do not exceed the adjusted basis of such
stockholder's stock, but rather will reduce the adjusted basis of such shares as
a return of capital. To the extent that such distributions exceed the adjusted
basis of a stockholder's stock, they will be included in income as long-term
capital gain (or short-term capital gain if the shares have been held for one
year or less). In addition, any dividend declared by us in October, November or
December of any year payable to a stockholder of record on a specific date in
any such month shall be treated as both paid by us and received by the
stockholder on December 31 of such year, provided that the dividend is actually
paid by us during January of the following calendar year. For purposes of
determining what portion of a distribution is attributable to current or
accumulated earnings and profits, earnings and profits will first be allocated
to distributions made to holders of the shares of preferred stock. Stockholders
may not include in their individual income tax returns any net operating losses
or capital losses of the Company.
In general, any gain or loss realized upon a taxable disposition of shares
by a stockholder who is not a dealer in securities will be treated as a
long-term capital gain or loss if the shares have been held for more than one
year, otherwise as short-term capital gain or loss. However, any loss upon a
sale or exchange of stock by a stockholder who has held such shares for six
months or less (after applying certain holding period rules) will be treated as
long-term capital loss to the extent of distributions from us required to be
treated by such stockholder as long-term capital gain.
Distributions that we properly designate as capital gain dividends will be
taxable to stockholders as gains (to the extent that they do not exceed our
actual net capital gain for the taxable year) from the sale or disposition of a
capital asset held for greater than one year. If we designate any portion of a
dividend as a capital gain dividend, a U.S. Stockholder will receive an Internal
Revenue Service Form 1099-DIV indicating the amount that will be taxable to the
stockholder as capital gain. However, stockholders that are corporations may be
required to treat up to 20% of certain capital gain dividends as ordinary
income. A portion of capital gain dividends received by noncorporate taxpayers
may be subject to tax at a 25% rate to the extent attributable to certain gains
realized on the sale of real property. In addition, noncorporate taxpayers are
generally taxed at a maximum rate of 15% on net long-term capital gain
(generally, the excess of net long-term capital gain over net short-term capital
loss) attributable to gains realized on the sale of property held for greater
than one year.
Distributions we make and gain arising from the sale or exchange by a
stockholder of shares of our stock will not be treated as passive activity
income, and, as a result, stockholders generally will not be able to apply any
"passive losses" against such income or gain. Distributions we make (to the
extent they do not constitute a return of capital) generally will be treated as
investment income for purposes of computing the investment interest limitation.
Gain arising from the sale or other disposition of our stock (or distributions
treated as such) will not be treated as investment income under certain
circumstances.
Upon any taxable sale or other disposition of our stock, a U.S. Stockholder
will recognize gain or loss for federal income tax purposes on the disposition
of our stock in an amount equal to the difference between:
- the amount of cash and the fair market value of any property received on
such disposition; and
- the U.S. Stockholder's adjusted basis in such stock for tax purposes.
Gain or loss will be capital gain or loss if the stock has been held by the
U.S. Stockholder as a capital asset. The applicable tax rate will depend on the
stockholder's holding period in the asset (generally, if an asset has been held
for more than one year it will produce long-term capital gain) and the
stockholder's tax bracket. A U.S. Stockholder who is an individual or an estate
or trust and who has long-term capital gain or loss will be subject to a maximum
capital gain rate of 15%. U.S. Stockholders that acquire, or are deemed to
acquire, stock after December 31, 2000 and who hold the stock for more than five
years and certain low income taxpayers may be eligible for a lower long-term
capital gains rate. However, to the extent that the capital gain realized by a
non-corporate stockholder on the sale of REIT stock corresponds to the REIT's
"unrecaptured Section 1250 gain," such gain would be subject to tax at a rate of
25%. Stockholders are advised to consult with their own tax advisors with
respect to their capital gain tax liability.
On May 28, 2003, the President signed into law the Jobs and Growth Tax
Relief Reconciliation Act of 2003. This new tax law will reduce the maximum
individual tax rate for long-term capital gains generally from 20% to 15% (for
sales occurring after May 6, 2003 through December 31, 2008) and for dividends
generally from 38.6% to 15% (for tax years from 2003 through 2008). Without
future congressional action, the maximum tax rate on long-term capital gains
will return to 20% in 2009, and the maximum rate on dividends will move to 35%
in 2009 and 39.6% in 2011. Because we are not generally subject to federal
income tax on the portion of our REIT taxable income or capital gains
distributed to our stockholders, our dividends will generally not be eligible
for the new 15% tax rate on dividends. As a result, our ordinary REIT dividends
will continue to be taxed at the higher tax rates applicable to ordinary income.
However, the 15% tax rate for long-term capital gains and dividends will
generally apply to:
(1) your long-term capital gains, if any, recognized on the disposition of
our shares;
(2) our distributions designated as long-term capital gain dividends
(except to the extent attributable to "unrecaptured Section 1250 gain," in which
case such distributions would continue to be subject to a 25% tax rate);
(3) our dividends attributable to dividends received by us from non-REIT
corporations, such as taxable REIT subsidiaries; and
(4) our dividends to the extent attributable to income upon which we have
paid corporate income tax (e.g., to the extent that we distribute less than 100%
of our taxable income).
Economic Accrual of Redemption Premium on Preferred Stock. For federal
income tax purposes, if a corporation issues preferred stock that may be
redeemed at a price that is more than a de minimis amount higher than its issue
price, the difference is treated as a "redemption premium" that is taxable to
the holder on an annual economic accrual basis. If a U.S. Stockholder recognizes
income as a result of redemption premium on the preferred stock, the holder's
tax basis in the preferred stock will increase by the amount included in the
holder's gross income.
Taxation of Tax-Exempt Stockholders. Provided that a tax-exempt stockholder
has not held its stock as "debt financed property" within the meaning of the
Code, dividend income from us will not be unrelated business taxable income,
referred to as UBTI, to a tax-exempt stockholder. Similarly, income from the
sale of stock will not constitute UBTI unless the tax-exempt stockholder has
held its stock as debt financed property within the meaning of the Code or has
used the stock in a trade or business. However, for a tax-exempt stockholder
that is a social club, voluntary employee benefit association, supplemental
unemployment benefit trust, or qualified group legal services plan exempt from
federal income taxation under Sections 501(c)(7), (c)(9), (c)(17) and (c)(20) of
the Code, respectively, or a single parent title-holding corporation exempt
under Section 501(c)(2) of the Code the income of which is payable to any of the
aforementioned tax-exempt organizations, income from an investment in the
Company will constitute UBTI unless the organization properly sets aside or
reserves such amounts for purposes specified in the Code. These tax-exempt
stockholders should consult their own tax advisors concerning these "set aside"
and reserve requirements.
A "qualified trust" (defined to be any trust described in Section 401(a) of
the Code and exempt from tax under Section 501(a) of the Code) that holds more
than 10% of the value of the shares of a REIT may be required, under certain
circumstances, to treat a portion of distributions from the REIT as UBTI. This
requirement will apply for a taxable year only if: (i) the REIT satisfies the
requirement that not more than 50% of the value of its shares be held by five or
fewer individuals (the "five or fewer requirement") only by relying on a special
"look-through" rule under which shares held by qualified trust stockholders are
treated as held by the beneficiaries of such trusts in proportion to their
actuarial interests therein; and (ii) the REIT is "predominantly held" by
qualified trusts. A REIT is "predominantly held" by qualified trusts if either:
(i) a single qualified trust holds more than 25% of the value of the REIT
shares, or (ii) one or more qualified trusts, each owning more than 10% of the
value of the REIT shares, hold in the aggregate more than 50% of the value of
the REIT shares. If the foregoing requirements are met, the percentage of any
REIT dividend treated as UBTI to a qualified trust that owns more than 10% of
the value of the REIT shares is equal to the ratio of (i) the UBTI earned by the
REIT (computed as if the REIT were a qualified trust and therefore subject to
tax on its UBTI) to (ii) the total gross income (less certain associated
expenses) of the REIT for the year in which the dividends are paid. A de minimis
exception applies where the ratio set forth in the preceding sentence is less
than 5% for any year.
The provisions requiring qualified trusts to treat a portion of REIT
distributions as UBTI will not apply if the REIT is able to satisfy the five or
fewer requirement without relying on the "look-through" rule. The restrictions
on ownership of stock in our charter should prevent application of the foregoing
provisions to qualified trusts purchasing our stock, absent a waiver of the
restrictions by our Board of Directors.
Taxation of Non-U.S. Stockholders. The rules governing U.S. federal income
taxation of nonresident alien individuals, foreign corporations, foreign
partnerships and other foreign stockholders (collectively, "Non-U.S.
Stockholders") are complex, and no attempt will be made herein to provide more
than a limited summary of such rules. The discussion does not consider any
specific facts or circumstances that may apply to a particular Non-U.S.
Stockholder. Prospective Non-U.S. Stockholders should consult with their own tax
advisors to determine the impact of U.S. federal, state and local income tax
laws with regard to an investment in our common stock, including any reporting
requirements.
Distributions that are not attributable to gain from sales or exchanges by
us of U.S. real property interests and not designated by us as capital gain
dividends or retained capital gains will be treated as dividends of ordinary
income to the extent that they are made out of our current or accumulated
earnings and profits. Such distributions ordinarily will be subject to a
withholding tax equal to 30% of the gross amount of the distribution unless an
applicable tax treaty reduces such rate. However, if income from the investment
in our stock is treated as effectively connected with the Non-U.S. Stockholder's
conduct of a U.S. trade or business (or, if a treaty applies, attributable to a
U.S. permanent establishment of the Non-U.S. Stockholder), the Non-U.S.
Stockholder generally will instead be subject to a tax at graduated rates in the
same manner as U.S. Stockholders are taxed with respect to such dividends (and
may also be subject to a branch profits tax of up to 30% if the stockholder is a
foreign corporation). We expect to withhold U.S. income tax at the rate of 30%
on the gross amount of any dividends paid to a Non-U.S. Stockholder that are not
designated as capital gain dividends, unless: (i) a lower treaty rate applies
and the Non-U.S. Stockholder files an IRS Form W-8BEN evidencing eligibility for
that reduced rate with us, or (ii) the Non-U.S. Stockholder files an IRS Form
W-8ECI with us claiming that the distribution is income treated as effectively
connected to a U.S. trade or business.
Distributions in excess of our current and accumulated earnings and profits
will not be taxable to a stockholder to the extent that they do not exceed the
adjusted basis of the stockholder's stock, but rather will reduce the adjusted
basis of such shares. To the extent that such distributions exceed the adjusted
basis of a Non-U.S. Stockholder's shares, they will give rise to tax liability
if the Non-U.S. Stockholder would otherwise be subject to tax on any gain from
the sale or disposition of his or her stock as described below. We may be
required to withhold United States federal income tax at the rate of at least
10% on distributions to a Non-U.S. Stockholder that are not paid out of current
or accumulated earnings and profits. If it cannot be determined at the time that
such a distribution is made whether or not such distribution will be in excess
of current and accumulated earnings and profits, the distribution will be
subject to withholding at the rate applicable to dividends. However, the
Non-U.S. Stockholder may seek a refund of such amounts from the Internal Revenue
Service if it is subsequently determined that such distribution was, in fact, in
excess of our current and accumulated earnings and profits.
For any year in which we qualify as a REIT, distributions that are
attributable to gain from sales or exchanges by us of U.S. real property
interests will be taxed to a Non-U.S. Stockholder under the provisions of the
Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under FIRPTA,
these distributions are taxed to a Non-U.S. Stockholder as if such gain were
effectively connected with a U.S. business. Thus, Non-U.S. Stockholders will be
taxed on such distributions at the normal capital gain rates applicable to U.S.
Stockholders (subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien individuals). Also,
distributions subject to FIRPTA may be subject to a 30% branch profits tax in
the hands of a corporate Non-U.S. Stockholder not entitled to treaty relief or
exemption. We are required by applicable Treasury Regulations to withhold 35% of
any distribution that could be designated by us as a capital gain dividend. This
amount is creditable against the Non-U.S. Stockholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Stockholder upon the sale or exchange of our
stock generally would not be subject to United States taxation unless:
- the investment in our stock is effectively connected with the Non-U.S.
Stockholder's United States trade or business (or, if a treaty applies,
attributable to a U.S. permanent establishment of the Non-U.S.
Stockholder), in which case the Non-U.S. Stockholder will be subject to the
same treatment as domestic stockholders with respect to any gain (and in
the case of a corporate Non-U.S. Stockholder, may also be subject to the
branch profits tax discussed above);
- the Non-U.S. Stockholder is a non-resident alien individual who is present
in the United States for 183 days or more during the taxable year and
certain other conditions are present, in which case the non-resident alien
individual will be subject to a 30% tax on the individual's net capital
gains for the taxable year; or
- our stock constitutes a United States real property interest within the
meaning of FIRPTA and certain other conditions are present, as described
below.
Our stock will not constitute a United States real property interest if we
are a domestically-controlled REIT. We will be a domestically-controlled REIT
if, at all times during a specified testing period, less than 50% in value of
our stock is held directly or indirectly by Non-U.S. Stockholders.
We believe that, currently, we are a domestically controlled REIT and,
therefore, that the sale of our stock would not be subject to taxation under
FIRPTA. Because our stock is publicly traded, however, we cannot guarantee that
we are or will continue to be a domestically-controlled REIT.
Even if we do not qualify as a domestically-controlled REIT at the time a
Non-U.S. Stockholder sells our stock, gain arising from the sale still would not
be subject to FIRPTA tax if:
- the class or series of shares sold is considered regularly traded under
applicable Treasury Regulations on an established securities market, such
as the NYSE; and
- the selling Non-U.S. Stockholder owned, actually or constructively, 5% or
less in value of the outstanding class or series of stock being sold
throughout the five-year period ending on the date of the sale or exchange.
If gain on the sale or exchange of our stock were subject to taxation under
FIRPTA, the Non-U.S. Stockholder would be subject to regular United States
federal income tax with respect to any gain in the same manner as a taxable U.S.
Stockholder, subject to any applicable alternative minimum tax and special
alternative minimum tax in the case of non-resident alien individuals.
Backup Withholding Tax and Information Reporting
U.S. Stockholders. In general, information-reporting requirements will
apply to certain U.S. Stockholders with regard to payments of dividends on our
stock and payments of the proceeds of the sale of our stock, unless an exception
applies.
The payor will be required to withhold tax on such payments at the rate of
28% if: (i) the payee fails to furnish a taxpayer identification number, or TIN,
to the payor or to establish an exemption from backup withholding, or (ii) the
Internal Revenue Service notifies the payor that the TIN furnished by the payor
is incorrect.
In addition, a payor of dividends on our stock will be required to withhold
tax at a rate of 28% if: (i) there has been a notified payee under-reporting
with respect to interest, dividends or original issue discount described in
Section 3406(c) of the Code, or (ii) there has been a failure of the payee to
certify under the penalty of perjury that the payee is not subject to backup
withholding under the Code.
Some holders, including corporations, may be exempt from backup
withholding. Any amounts withheld under the backup withholding rules from a
payment to a holder will be allowed as a credit against the holder's United
States federal income tax and may entitle the holder to a refund, provided that
the required information is furnished to the Internal Revenue Service.
Non-U.S. Stockholders. Generally, information reporting will apply to
payments of dividends on our stock, and backup withholding will also apply as
described above for a U.S. Stockholder unless the payee certifies that it is not
a U.S. person or otherwise establishes an exemption.
The payment of the proceeds from the disposition of our stock to or through
the U.S. office of a U.S. or foreign broker will be subject to information
reporting and backup withholding as described above for U.S. Stockholders unless
the Non-U.S. Stockholder satisfies the requirements necessary to be an exempt
Non-U.S. Stockholder or otherwise qualifies for an exemption. The proceeds of a
disposition by a Non-U.S. Stockholder of our stock to or through a foreign
office of a broker generally will not be subject to information reporting or
backup withholding. However, if the broker is a U.S. person, a controlled
foreign corporation for U.S. tax purposes, a foreign person 50% or more of whose
gross income from all sources for specified periods is from activities that are
effectively connected with a U.S. trade or business, a foreign partnership if
partners who hold more than 50% of the interests in the partnership are U.S.
persons, or a foreign partnership that is engaged in the conduct of a trade or
business in the U.S., then information reporting generally will apply as though
the payment was made through a U.S. office of a U.S. or foreign broker.
Applicable Treasury Regulations provide presumptions regarding the status
of holders when payments to the holders cannot be reliably associated with
appropriate documentation provided to the payor. Because the application of
these Treasury Regulations varies depending on the stockholder's particular
circumstances, you are advised to consult your tax advisor regarding the
information reporting requirements applicable to you.
State and Local Taxes
We and our stockholders may be subject to state or local taxation in
various state or local jurisdictions, including those in which we or they
transact business or reside (although U.S. Stockholders who are individuals
generally should not be required to file state income tax returns outside of
their state of residence with respect to our operations and distributions). The
state and local tax treatment of us and our stockholders may not conform to the
federal income tax consequences discussed above. Consequently, prospective
stockholders should consult their own tax advisors regarding the effect of state
and local tax laws on an investment in the common stock.
PLAN OF DISTRIBUTION
It is anticipated that Mercury Capital Markets LLC will obtain indications
of interest from potential investors in various jurisdictions in connection with
the sale of the Series D preferred stock offered hereby. Mercury has no
commitment to take or purchase any of the securities in this offering and will
act only as an agent in the sales of the securities, where permitted by
applicable state securities laws. Mercury will be paid a placement fee in the
amount of approximately 1.75% of the aggregate amount of Series D preferred
stock sold in this offering to such investors. The foregoing fee is contingent
upon the consummation of this offering.
In addition, we will reimburse Mercury for its out-of-pocket expenses,
whether or not this offering is consummated. We have also agreed to indemnify
Mercury against certain liabilities, including liabilities under the Securities
Act of 1933, or to contribute to payments Mercury may be required to make in
respect thereof.
In the ordinary course of business, Mercury and/or its affiliates have
engaged and may in the future engage in financial advisory, investment banking
and other transactions with us for which customary compensation has been, and
will be, received.
EXPERTS
The consolidated financial statements and schedules of EastGroup
Properties, Inc. as of December 31, 2002 and 2001, and for each of the years in
the three-year period ended December 31, 2002, have been incorporated by
reference herein in reliance upon the reports of KPMG LLP, independent
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters will be passed upon for us by Jaeckle Fleischmann &
Mugel, LLP, Buffalo, New York who will rely upon an opinion of Piper Rudnick
LLP, Baltimore, Maryland as to the validity of the preferred stock offered
hereby and certain other Maryland law matters.
PROSPECTUS
$250,000,000
EASTGROUP PROPERTIES, INC.
COMMON STOCK
PREFERRED STOCK
DEPOSITARY SHARES
EastGroup Properties, Inc. ("EastGroup") may from time to time offer in one
or more series or classes (i) shares of its common stock, par value $0.0001 per
share (the "Common Stock"); (ii) shares of its preferred stock, par value
$0.0001 per share (the "Preferred Stock"); and (iii) Preferred Stock represented
by depositary shares (the "Depositary Shares"); with an aggregate public
offering price of up to $250,000,000 in amounts, at prices and on terms to be
determined at the time of offering. The Common Stock, Preferred Stock and
Depositary Shares (collectively, the "Securities") may be offered, separately or
together, in one or more supplements to this Prospectus (each, a "Prospectus
Supplement").
The specific terms of the Securities in respect of which this Prospectus is
being delivered will be set forth in the applicable Prospectus Supplement and
will include, where applicable (i) in the case of Common Stock, any initial
public offering price; (ii) in the case of Preferred Stock, the specific
designation and stated value per share, any dividend, liquidation, redemption,
conversion, voting and other rights, and any initial public offering price; and
(iii) in the case of Depositary Shares, the fractional share of Preferred Stock
represented by each such Depositary Share. In addition, such specific terms may
include limitations on direct or beneficial ownership and restrictions on
transfer of the Securities, in each case as may be consistent with EastGroup's
Articles of Incorporation, as amended (the "Charter"), or as otherwise
appropriate to preserve the status of EastGroup as a real estate investment
trust ("REIT") for federal income tax purposes.
The applicable Prospectus Supplement will also contain information, where
applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Securities covered
by such Prospectus Supplement.
The Securities may be offered directly, through agents designated from time
to time by EastGroup, or to or through underwriters or dealers. If any agents or
underwriters are involved in the sale of any of the Securities, their names, and
any applicable purchase price, fee, commission or discount arrangement between
or among them, will be set forth, or will be calculable from the information set
forth, in the applicable Prospectus Supplement. See "Plan of Distribution." No
Securities may be sold without delivery of the applicable Prospectus Supplement
describing the method and terms of the offering of such series of Securities.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is July 1, 1998.
AVAILABLE INFORMATION
EastGroup is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by EastGroup may be inspected at, and,
upon payment of the Commission's customary charges, copies obtained from, the
Public Reference Section maintained by the Commission, 450 Fifth Street, N.W.,
Washington, DC 20549. Such reports, proxy statements and other information are
also available for inspection and copying at prescribed rates at the
Commission's regional offices in New York, New York (7 World Trade Center, 13th
Floor, New York, New York 10048) and in Chicago, Illinois (Suite 1400, Citicorp
Center, 500 West Madison Street, Chicago, Illinois 60661-2511). The Commission
maintains a Web site (http://www.sec.gov) that also contains reports, proxy
statements and other information concerning EastGroup. In addition, the Common
Stock is traded on the New York Stock Exchange, Inc. ("NYSE") under the symbol
"EGP" and reports and other information can be inspected and copied at the
offices of the NYSE, 20 Broad Street, New York, New York 10005.
EastGroup has filed with the Commission a Registration Statement on Form
S-3 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), and the rules and regulations promulgated thereunder,
with respect to the Securities. This Prospectus constitutes the Prospectus of
EastGroup, filed as part of the Registration Statement. As permitted by the
rules and regulations of the Commission, this Prospectus omits certain
information contained in the Registration Statement, and reference is made to
the Registration Statement and the exhibits listed therein, which can be
inspected at the public reference facilities of the Commission noted above, and
copies of which can be obtained from the Commission at prescribed rates as
indicated above. Statements contained in this Prospectus as to the contents of
any contract or other documents are not necessarily complete, and in each
instance, reference is made to the copy of such contract or documents filed as
an exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Incorporated into this Prospectus by reference are the documents listed
below filed by EastGroup under the Exchange Act. Copies of any such documents,
other than exhibits to such documents, are available without charge to each
person to whom a copy of this Prospectus has been delivered upon written or oral
request of such person from EastGroup, 300 One Jackson Place, 188 East Capitol
Street, Jackson, Mississippi 39201-2195, Attention: Chief Financial Officer,
telephone number (601) 354-3555.
The following documents are hereby incorporated into this Prospectus by
reference and are made a part hereof:
(1) EastGroup Properties, Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1997 (Commission File No. 1-7094).
(2) EastGroup Properties, Inc.'s Proxy Material for its Annual Meeting of
Stockholders held on June 4, 1998 (Commission File No. 1-7094).
(3) EastGroup Properties, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998 (Commission File No. 1-7094).
(4) EastGroup Properties, Inc.'s Current Report on Form 8-K dated February
23, 1998 (Commission File No. 1-7094).
(5) EastGroup Properties, Inc.'s Current Report on Form 8-K dated June 1,
1998 (Commission File No. 1-7094).
(6) EastGroup Properties, Inc.'s Current Report on Form 8-K dated June 19,
1998 (Commission File No. 1-7094).
Each document filed by EastGroup subsequent to the date of this Prospectus
pursuant to Sections 13(a), 14 or 15(d) of the Exchange Act and prior to the
termination of the offering of all Securities to which this Prospectus relates
shall be deemed to be incorporated by reference in this Prospectus and shall be
part hereof from the date of filing of such document. Any statement contained
herein or in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained in this Prospectus (in the
case of a previously filed document incorporated or deemed to be incorporated by
reference herein) in any accompanying Prospectus Supplement relating to a
specific offering of Securities or in any other subsequently filed document that
is also incorporated or deemed to be incorporated by reference herein, modifies
or supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus or any accompanying Prospectus Supplement. Subject to the foregoing,
all information appearing in this Prospectus and each accompanying Prospectus
Supplement is qualified in its entirety by the information appearing in the
documents incorporated by reference.
Unless the context otherwise requires, all references in this Prospectus to
"EastGroup" shall mean EastGroup Properties, Inc. and its subsidiaries on a
consolidated basis or, where the context so requires, EastGroup Properties, Inc.
only, and, as the context may require, their predecessors.
THE COMPANY
EastGroup is a self-administered real estate investment trust ("REIT")
focused primarily on the ownership, acquisition and selective development of
industrial properties located in major Sunbelt markets throughout the United
States. As of June 26, 1998 EastGroup's portfolio included 77 industrial
properties in ten states containing approximately 13.8 million square feet of
leasable space, six industrial properties under development or in initial
lease-up containing approximately 468,000 square feet of leasable space, and
three office buildings containing approximately 390,000 square feet of leasable
space. As of May 31, 1998, the industrial portfolio (excluding the six
properties currently under development or in initial lease-up) was 97% leased.
EastGroup is the successor to EastGroup Properties, a Maryland real estate
investment trust ("Parent"). EastGroup was incorporated under the laws of the
State of Maryland on April 4, 1997. Formed as a wholly-owned subsidiary of
Parent, EastGroup merged with Parent on June 5, 1997 (the "Merger"), pursuant to
the Agreement and Plan of Merger dated April 23, 1997 by and between EastGroup
and Parent. As a result of the Merger, EastGroup succeeded to the business and
operations of Parent.
EastGroup's principal executive offices are located at 300 One Jackson
Place, 188 East Capitol Street, Jackson, Mississippi 39201-2195. Its telephone
number is (601) 354-3555.
RATIO OF EARNINGS TO FIXED CHARGES
EastGroup's ratio of earnings to fixed charges for the three months ended
March 31, 1998 was 2.7, for the year ended December 31, 1997 was 3.0, for the
year ended December 31, 1996 was 2.4, for the year ended December 31, 1995 was
2.2, for the year ended December 31, 1994 was 2.8 and for the year ended
December 31, 1993 was 2.9. There was no Preferred Stock outstanding for any of
the periods shown above. Accordingly, the ratio of earnings to fixed charges and
Preferred Stock dividends are identical to the ratio of earnings to fixed
charges.
For purposes of computing these ratios, earnings have been calculated by
adding fixed charges, excluding capitalized interest, to pre-tax income from
continuing operations (net income or loss). Fixed charges consist of interest
costs, whether expensed or capitalized, the interest component of rental expense
and amortization of debt issuance costs.
USE OF PROCEEDS
Unless otherwise described in the applicable Prospectus Supplement,
EastGroup intends to use the net proceeds from the offering for general
corporate purposes including, without limitation, the acquisition of real estate
properties, whether by acquisition of properties directly or through potential
business combination transactions, development of new real estate properties,
the repayment of debt and to fund working capital requirements.
DESCRIPTION OF PREFERRED STOCK
General
EastGroup is authorized to issue Preferred Stock. The Board of Directors of
EastGroup may classify or reclassify any unissued shares of its capital stock
from time to time by setting, altering or voiding the preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends or
distributions, qualifications, or terms or conditions of redemption of such
shares. As of June 26, 1998, EastGroup had authorized, issued and outstanding
1,725,000 shares of 9.00% Series A Cumulative Redeemable Preferred Stock, par
value $0.0001 per share (the "Series A Preferred Stock"), there were no other
shares of Preferred Stock outstanding.
The following description of the Preferred Stock sets forth certain general
terms and provisions of the Preferred Stock to which any Prospectus Supplement
may relate. The statements below describing the Preferred Stock are in all
respects subject to and qualified in their entirety by reference to the
applicable provisions of the Charter and Bylaws and any applicable articles
supplementing the Charter designating terms of a series of Preferred Stock (a
"Designating Amendment").
Terms
Subject to the limitations prescribed by the Charter, the Board of
Directors is authorized to fix the number of shares constituting each series of
Preferred Stock and the preference, conversion or other rights, voting powers,
restrictions, limitation as to dividends, qualifications, or terms or conditions
of redemption of the Preferred Stock. The Preferred Stock will, when issued, be
fully paid and nonassessable by EastGroup (except as described under
"--Stockholder Liability" below) and will have no preemptive rights.
Reference is made to the Prospectus Supplement relating to the Preferred
Stock offered thereby for specific terms thereof, including:
(i) The title and stated value of such Preferred Stock;
(ii) The number of such shares of Preferred Stock offered, the liquidation
preference per share and the offering price of such Preferred Stock;
(iii) The dividend rate(s), period(s) and/or payment date(s) or method(s)
of calculation thereof applicable to such Preferred Stock;
(iv) The date from which dividends on such Preferred Stock shall
accumulate, if applicable;
(v) The procedures for any auction or remarketing, if any, for such
Preferred Stock;
(vi) The provision for a sinking fund, if any, for such Preferred Stock;
(vii) The provision for redemption, if applicable, of such Preferred Stock;
(viii) Any listing of such Preferred Stock on any securities exchange;
(ix) The terms and conditions, if applicable, upon which such Preferred
Stock will be convertible into Common Stock, including the conversion price (or
manner of calculation thereof);
(x) Whether interests in such Preferred Stock will be represented by
Depositary Shares;
(xi) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock;
(xii) A discussion of U.S. federal income tax considerations applicable to
such Preferred Stock;
(xiii) The relative ranking of preferences of such Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up of the
affairs of EastGroup;
(xiv) Any limitations on issuance of any series of Preferred Stock ranking
senior to or on a parity with such series of Preferred Stock as to dividend
rights and rights upon liquidation, dissolution or winding up of the affairs of
EastGroup; and
(xv) Any limitations on direct or beneficial ownership and restrictions on
transfer, in each case as may be appropriate to preserve the status of EastGroup
as a REIT.
Rank
Unless otherwise specified in the Prospectus Supplement, the Preferred
Stock, will, with respect to dividend rights and rights upon liquidation,
dissolution or winding up of EastGroup, rank (i) senior to all classes or series
of Common Stock of EastGroup, and to all equity securities ranking junior to
such Preferred Stock; (ii) on a parity with all equity securities issued by
EastGroup the terms of which specifically provide that such equity securities
rank on a parity with the Preferred Stock; and (iii) junior to all equity
securities issued by EastGroup the terms of which specifically provide that such
equity securities rank senior to the Preferred Stock. The term "equity
securities" does not include debt securities.
Dividends
Holders of Preferred Stock of each series will be entitled to receive,
when, as and if declared by the Board of Directors of EastGroup, out of assets
of EastGroup legally available for payment, cash dividends at such rates and on
such dates as will be set forth in the applicable Prospectus Supplement. Each
such dividend shall be payable to holders of record as they appear on the share
transfer books of EastGroup on such record dates as shall be fixed by the Board
of Directors of EastGroup.
Dividends on any series of Preferred Stock may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Directors of EastGroup fails
to declare a dividend payable on a dividend payment date on any series of the
Preferred Stock for which dividends are non-cumulative, then the holders of such
series of the Preferred Stock will have no right to receive a dividend in
respect of the dividend period ending on such dividend payment date, and
EastGroup will have no obligation to pay the dividend accrued for such period,
whether or not dividends on such series are declared payable on any future
dividend payment date.
If Preferred Stock of any series are outstanding, no dividends will be
declared or paid or set apart for payment on any capital stock of EastGroup of
any other series ranking, as to dividends, on a parity with or junior to the
Preferred Stock of such series for any period unless (i) if such series of
Preferred Stock has a cumulative dividend, 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 payment on the Preferred Stock of such
series for all past dividend periods and the then current dividend period or
(ii) if such series of Preferred Stock does not have a cumulative dividend, full
dividends for the then current dividend period have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for such payment on the Preferred Stock of such series. When dividends
are not paid in full (or a sum sufficient for such full payment is not so set
apart) upon Preferred Stock of any series and the shares of any other series of
Preferred Stock ranking on a parity as to dividends with the Preferred Stock of
such series, all dividends declared upon Preferred Stock of such series and any
other series of Preferred Stock ranking on a parity as to dividends with such
Preferred Stock shall be declared pro rata so that the amount of dividends
declared per share of Preferred Stock of such series and such other series of
Preferred Stock shall in all cases bear to each other the same ratio that
accrued dividends per share on the Preferred Stock of such series (which shall
not include any accumulation in respect of unpaid dividends for prior dividend
periods if such Preferred Stock do not have a cumulative dividend) and such
other series of Preferred Stock bear to each other. No interest, or sum of money
in lieu of interest, shall be payable in respect of any dividend payment or
payments on Preferred Stock of such series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Stock has a cumulative dividend, full cumulative
dividends on the Preferred Stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for all past dividend periods and the then current
dividend period; and (ii) if such series of Preferred Stock does not have a
cumulative dividend, full dividends on the Preferred Stock of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for payment for the then current dividend
period, no dividends (other than in shares of Common Stock or other capital
shares ranking junior to the Preferred Stock of such series as to dividends and
upon liquidation) shall be declared or paid or set aside for payment or other
distribution shall be declared or made upon the Common Stock, or any other
capital shares of EastGroup ranking junior to or on a parity with the Preferred
Stock of such series as to dividends or upon liquidation, nor shall any shares
of Common Stock, or any other capital shares of EastGroup ranking junior to or
on a parity with the Preferred Stock of such series as to dividends or upon
liquidation be redeemed, purchased or otherwise acquired for any consideration
(or any moneys be paid to or made available for a sinking fund for the
redemption of any such shares) by EastGroup (except by conversion into or
exchange for other capital shares of EastGroup ranking junior to the Preferred
Stock of such series as to dividends and upon liquidation). Any dividend payment
made on a series of Preferred Stock shall first be credited against the earliest
accrued but unpaid dividend due with respect to shares of such series which
remain payable.
Redemption
If so provided in the applicable Prospectus Supplement, the Preferred Stock
will be subject to mandatory redemption or redemption at the option of
EastGroup, as a whole or in part, in each case upon the terms, at the times and
at the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Stock that is
subject to mandatory redemption will specify the number of such shares of
Preferred Stock that shall be redeemed by EastGroup in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon (which
shall not, if such shares of Preferred Stock do not have a cumulative dividend,
include any accumulation in respect of unpaid dividends for prior dividend
periods) to the date of redemption. The redemption price may be payable in cash
or other property, as specified in the applicable Prospectus Supplement. If the
redemption price for Preferred Stock of any series is payable only from the net
proceeds of the issuance of capital shares of EastGroup, the terms of such
Preferred Stock may provide that, if no such capital shares have been issued or
to the extent the net proceeds from any issuance are insufficient to pay in full
the aggregate redemption price then due, such Preferred Stock shall
automatically and mandatorily be converted into the applicable capital shares of
EastGroup pursuant to conversion provisions specified in the applicable
Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred Stock
has a cumulative dividend, full cumulative dividends on all shares of any series
of Preferred Stock have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
all past dividend periods and the then current dividend period; and (ii) if such
series of Preferred Stock does not have a cumulative dividend, full dividends of
the Preferred Stock of any series have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof set apart for
payment for the then current dividend period, no shares of any series of
Preferred Stock shall be redeemed unless all outstanding Preferred Stock of such
series is simultaneously redeemed; provided, however, that the foregoing shall
not prevent the purchase or acquisition of Preferred Stock of such series to
preserve the REIT status of EastGroup or pursuant to a purchase or exchange
offer made on the same terms to holders of all outstanding Preferred Stock of
such series. In addition, unless (i) if such series of Preferred Stock has a
cumulative dividend, full cumulative dividends on all outstanding shares of any
series of Preferred Stock have been or contemporaneously are declared and paid
or declared and a sum sufficient for the payment thereof set apart for payment
for all past dividend periods and the then current dividend period; and (ii) if
such series of Preferred Stock does not have a cumulative dividend, full
dividends on the Preferred Stock of any series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for the then current dividend period, EastGroup shall not
purchase or otherwise acquire directly or indirectly any Preferred Stock of such
series (except by conversion into or exchange for capital stock of EastGroup
ranking junior to the Preferred Stock of such series as to dividends and upon
liquidation); provided, however, that the foregoing shall not prevent the
purchase or acquisition of Preferred Stock of such series to preserve the REIT
status of EastGroup or pursuant to a purchase or exchange offer made on the same
terms to holders of all outstanding Preferred Stock of such series.
If fewer than all of the outstanding Preferred Stock of any series are to
be redeemed, the number of shares to be redeemed will be determined by EastGroup
and such shares may be redeemed pro rata from the holders of record of such
shares in proportion to the number of such shares held or for which redemption
is requested by such holder (with adjustments to avoid redemption of fractional
shares) or by lot in a manner determined by EastGroup.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Stock of
any series to be redeemed at the address shown on the share transfer books of
EastGroup. Each notice shall state: (i) the redemption date; (ii) the number of
shares and series of the Preferred Stock to be redeemed; (iii) the redemption
price; (iv) the place or places where certificates for such Preferred Stock are
to be surrendered for payment of the redemption price; (v) that dividends on the
shares to be redeemed will cease to accrue on such redemption date; and (vi) the
date upon which the holder's conversion rights, if any, as to such shares shall
terminate. If fewer than all the Preferred Stock of any series are to be
redeemed, the notice mailed to each such holder thereof shall also specify the
number of Preferred Stock to be redeemed from each such holder. If notice of
redemption of any Preferred Stock has been given and if the funds necessary for
such redemption have been set aside by EastGroup in trust for the benefit of the
holders of any Preferred Stock so called for redemption, then from and after the
redemption date dividends will cease to accrue on such Preferred Stock, and all
rights of the holders of such shares will terminate, except the right to receive
the redemption price.
Liquidation Preference
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of EastGroup, then, before any distribution or payment shall be made
to the holders of any shares of Common Stock or any other class or series of
capital shares of EastGroup ranking junior to the Preferred Stock in the
distribution of assets upon any liquidation, dissolution or winding up of
EastGroup, the holders of each series of Preferred Stock shall be entitled to
receive out of assets of EastGroup legally available for distribution to
stockholders liquidating distributions in the amount of the liquidation
preference per share (set forth in the applicable Prospectus Supplement), plus
an amount equal to all dividends accrued and unpaid thereon (which shall not
include any accumulation in respect of unpaid dividends for prior dividend
periods if such Preferred Stock do not have a cumulative dividend). After
payment of the full amount of the liquidating distributions to which they are
entitled, the holders of Preferred Stock will have no right or claim to any of
the remaining assets of EastGroup. In the event that, upon any such voluntary or
involuntary liquidation, dissolution or winding up, the available assets of
EastGroup are insufficient to pay the amount of the liquidating distributions on
all outstanding shares of Preferred Stock and the corresponding amounts payable
on all shares of other classes or series of capital shares of EastGroup ranking
on a parity with the Preferred Stock in the distribution of assets, then the
holders of the Preferred Stock and all other such classes or series of capital
shares shall share ratably in any such distribution of assets in proportion to
the full liquidating distributions to which they would otherwise be respectively
entitled.
If liquidating distributions shall have been made in full to all holders of
Preferred Stock, the remaining assets of EastGroup shall be distributed among
the holders of any other classes or series of capital shares ranking junior to
the Preferred Stock upon liquidation, dissolution or winding up, according to
their respective rights and preferences and in each case according to their
respective number of shares. For such purposes, the consolidation or merger of
EastGroup with or into any other corporation, trust or entity, or the sale,
lease or conveyance of all or substantially all of the property or business of
EastGroup, shall not be deemed to constitute a liquidation, dissolution or
winding up of EastGroup.
Voting Rights
Holders of Preferred Stock will not have any voting rights, except as set
forth below or as otherwise from time to time required by law or as indicated in
the applicable Prospectus Supplement.
Whenever dividends on any Preferred Stock shall be in arrears for six or
more consecutive quarterly periods, the holders of such Preferred Stock (voting
separately as a class with all other series of Preferred Stock upon which like
voting rights have been conferred and are exercisable) will be entitled to vote
for the election of two additional directors of EastGroup at a special meeting
called by the holders of record of at least ten percent (10%) of any series of
Preferred Stock so in arrears (unless such request is received less than 90 days
before the date fixed for the next annual or special meeting of the
stockholders) or at the next annual meeting of stockholders, and at each
subsequent annual meeting until (i) if such series of Preferred Stock has a
cumulative dividend, all dividends accumulated on such Preferred Stock for the
past dividend periods and the then current dividend period shall have been
declared and fully paid or declared and a sum sufficient for the payment thereof
set aside for payment or (ii) if such series of Preferred Stock does not have a
cumulative dividend, four consecutive quarterly dividends shall have been
declared and fully paid or declared and a sum sufficient for the payment thereof
set aside for payment. In such case, the number of persons constituting the
entire Board of Directors of EastGroup will be increased by two directors.
Unless provided otherwise for any series of Preferred Stock, so long as any
shares of Preferred Stock remain outstanding, EastGroup will not, without the
affirmative vote or consent of the holders of at least two-thirds of the shares
of each series of Preferred Stock outstanding at the time, given in person or by
proxy, either in writing or at a meeting (such series 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 prior to such series of 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 EastGroup 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 Charter or the
Designating Amendment for such series of Preferred Stock, whether by merger,
consolidation or otherwise (an "Event"), so as to materially and adversely
affect any right, preference, privilege or voting power of such series of
Preferred Stock or the holder thereof; provided, however, as to the occurrence
of any of the Events set forth in (ii) above, so long as the Preferred Stock
remains outstanding with the terms thereof materially unchanged, taking into
account that upon the occurrence of an Event, EastGroup 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 Preferred Stock and provided further that (a) any increase in the amount of
the authorized Preferred Stock or the creation or issuance of any other series
of Preferred Stock; or (b) any increase in the amount of authorized shares of
such series or any other series of Preferred Stock, in each case ranking on a
parity with or junior to the Preferred Stock of such series 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.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected all outstanding shares of such series of Preferred Stock shall have
been redeemed or called for redemption and sufficient funds shall have been
deposited in trust to effect such redemption.
Under Maryland law, notwithstanding anything to the contrary set forth
above, holders of each series of Preferred Stock will be entitled to vote upon
any proposed amendment to the Charter if the amendment would change the contract
rights of such shares as expressly set forth in the Charter.
Conversion Rights
The terms and conditions, if any, upon which any series of Preferred Stock
are convertible into Common Stock will be set forth in the applicable Prospectus
Supplement relating thereto. Such terms will include the number of shares of
Common Stock into which the shares of Preferred Stock are convertible, the
conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversions will be at the option of the holders of the
Preferred Stock or EastGroup, the events requiring an adjustment of the
conversion price and provisions affecting conversion in the event of the
redemption of such series of Preferred Stock.
Stockholder Liability
As discussed below under "Description of Common Stock--General," applicable
Maryland law provides that no stockholder, including holders of Preferred Stock,
will be personally liable for the acts and obligations of EastGroup and that the
funds and property of EastGroup will be the only recourse for such acts or
obligations.
Restrictions on Ownership
As discussed below under "Description of Common Stock--Restrictions on
Transfer," for EastGroup to qualify as a REIT under the Code, not more than 50%
in value of its outstanding capital shares may be owned, directly or indirectly,
by five or fewer individuals (as defined in the Code to include certain
entities) during the last half of a taxable year. To assist EastGroup in meeting
this requirement, EastGroup may take certain actions to limit the beneficial
ownership, directly or indirectly, by a single person of EastGroup's outstanding
equity securities, including any Preferred Stock of EastGroup. Therefore, the
Designating Amendment for each series of Preferred Stock may contain provisions
restricting the ownership and transfer of the Preferred Stock. The applicable
Prospectus Supplement will specify any additional ownership limitation relating
to a series of Preferred Stock.
Registrar and Transfer Agent
The Registrar and Transfer Agent for the Preferred Stock will be set forth
in the applicable Prospectus Supplement.
DESCRIPTION OF DEPOSITARY SHARES
General
EastGroup may issue receipts ("Depositary Receipts") for Depositary Shares,
each of which will represent a fractional interest of a share of a particular
series of Preferred Stock, as specified in the applicable Prospectus Supplement.
Preferred Stock of each series represented by Depositary Shares will be
deposited under a separate deposit agreement (each, a "Deposit Agreement") among
EastGroup, the depositary named therein (a "Preferred Stock Depositary"), and
the holders from time to time of the Depositary Receipts. Subject to the terms
of the applicable Deposit Agreement, each owner of a Depositary Receipt will be
entitled, in proportion to the fractional interest of a share of a particular
series of Preferred Stock represented by the Depositary Shares evidenced by such
Depositary Receipt, to all the rights and preferences of the Preferred Stock
represented by such Depositary Shares (including dividend, voting, conversion,
redemption and liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the issuance
and delivery of the Preferred Stock by EastGroup to a Preferred Stock
Depositary, EastGroup will cause such Preferred Stock Depositary to issue, on
behalf of EastGroup, the Depositary Receipts. Copies of the applicable form of
Deposit Agreement and Depositary Receipt may be obtained from EastGroup upon
request, and the statements made hereunder relating to Deposit Agreements and
the Depositary Receipts to be issued thereunder are summaries of certain
anticipated provisions thereof and do not purport to be complete and are subject
to, and qualified in their entirety by reference to, all of the provisions of
the applicable Deposit Agreement and related Depositary Receipts.
Dividends and Other Distributions
A Preferred Stock Depositary will be required to distribute all cash
dividends or other cash distributions received in respect of the applicable
Preferred Stock to the record holders of Depositary Receipts evidencing the
related Depositary Shares in proportion to the number of such Depositary
Receipts owned by such holders, subject to certain obligations of holders to
file proofs, certificates and other information and to pay certain charges and
expenses to such Preferred Stock Depositary.
In the event of a distribution other than in cash, a Preferred Stock
Depositary will be required to distribute property received by it to the record
holders of Depositary Receipts entitled thereto, subject to certain obligations
of holders to file proofs, certificates and other information and to pay certain
charges and expenses to such Preferred Stock Depositary, unless such Preferred
Stock Depositary determines that it is not feasible to make such distribution,
in which case such Preferred Stock Depositary may, with the approval of
EastGroup, sell such property and distribute the net proceeds from such sale to
such holders.
No distribution will be made in respect of any Depositary Share to the
extent that it represents any Preferred Stock which have been converted or
exchanged.
Withdrawal of Shares
Upon surrender of the Depositary Receipts at the corporate trust office of
the applicable Preferred Stock Depositary (unless the related Depositary Shares
have previously been called for redemption or converted), the holders thereof
will be entitled to delivery at such office, to or upon each such holder's
order, of the number of whole or fractional shares of the applicable Preferred
Stock and any money or other property represented by the Depositary Shares
evidenced by such Depositary Receipts. Holders of Depositary Receipts will be
entitled to receive whole or fractional shares of the related Preferred Stock on
the basis of the proportion of Preferred Stock represented by each Depositary
Share as specified in the applicable Prospectus Supplement, but holders of such
Preferred Stock will not thereafter be entitled to receive Depositary Shares
therefor. If the Depositary Receipts delivered by the holder evidence a number
of Depositary Shares in excess of the number of Depositary Shares representing
the number of Preferred Stock to be withdrawn, the applicable Preferred Stock
Depositary will be required to deliver to such holder at the same time a new
Depositary Receipt evidencing such excess number of Depositary Shares.
Redemption of Depositary Shares
Whenever EastGroup redeems Preferred Stock held by a Preferred Stock
Depositary, such Preferred Stock Depositary will be required to redeem as of the
same redemption date the number of Depositary Shares representing the Preferred
Stock so redeemed, provided EastGroup shall have paid in full to such Preferred
Stock Depositary the redemption price of the Preferred Stock to be redeemed plus
an amount equal to any accrued and unpaid dividends thereon to the date fixed
for redemption. The redemption price per Depositary Share will be equal to the
redemption price and any other amounts per share payable with respect to the
Preferred Stock. If fewer than all the Depositary Shares are to be redeemed, the
Depositary Shares to be redeemed will be selected pro rata (as nearly as may be
practicable without creating fractional Depositary Shares) or by any other
equitable method determined by EastGroup that preserves the REIT status of
EastGroup.
From and after the date fixed for redemption, all dividends in respect of
the Preferred Stock so called for redemption will cease to accrue, the
Depositary Shares so called for redemption will no longer be deemed to be
outstanding and all rights of the holders of the Depositary Receipts evidencing
the Depositary Shares so called for redemption will cease, except the right to
receive any moneys payable upon such redemption and any money or other property
to which the holders of such Depositary Receipts were entitled upon such
redemption upon surrender thereof to the applicable Preferred Stock Depositary.
Voting of the Preferred Stock
Upon receipt of notice of any meeting at which the holders of the
applicable Preferred Stock are entitled to vote, a Preferred Stock Depositary
will be required to mail the information contained in such notice of meeting to
the record holders of the Depositary Receipts evidencing the Depositary Shares
which represent such Preferred Stock. Each record holder of Depositary Receipts
evidencing Depositary Shares on the record date (which will be the same date as
the record date for the Preferred Stock) will be entitled to instruct such
Preferred Stock Depositary as to the exercise of the voting rights pertaining to
the amount of Preferred Stock represented by such holder's Depositary Shares.
Such Preferred Stock Depositary will be required to vote the amount of Preferred
Stock represented by such Depositary Shares in accordance with such
instructions, and EastGroup will agree to take all reasonable action which may
be deemed necessary by such Preferred Stock Depositary in order to enable such
Preferred Stock Depositary to do so. Such Preferred Stock Depositary will be
required to abstain from voting the amount of Preferred Stock represented by
such Depositary Shares to the extent it does not receive specific instructions
from the holders of Depositary Receipts evidencing such Depositary Shares. A
Preferred Stock Depositary will not be responsible for any failure to carry out
any instruction to vote, or for the manner or effect of any such vote made, as
long as any such action or non-action is in good faith and does not result from
negligence or willful misconduct of such Preferred Stock Depositary.
Liquidation Preference
In the event of the liquidation, dissolution or winding up of EastGroup,
whether voluntary or involuntary, the holders of each Depositary Receipt will be
entitled to the fraction of the liquidation preference accorded each Preferred
Share represented by the Depositary Share evidenced by such Depositary Receipt,
as set forth in the applicable Prospectus Supplement.
Conversion of Preferred Stock
The Depositary Shares, as such, will not be convertible into Common Stock
or any other securities or property of EastGroup. Nevertheless, if so specified
in the applicable Prospectus Supplement relating to an offering of Depositary
Shares, the Depositary Receipts may be surrendered by holders thereof to the
applicable Preferred Stock Depositary with written instructions to such
Preferred Stock Depositary to instruct EastGroup to cause conversion of the
Preferred Stock represented by the Depositary Shares evidenced by such
Depositary Receipts into whole shares of Common Stock, other Preferred Stock or
other shares of stock, and EastGroup will agree that upon receipt of such
instructions and any amounts payable in respect thereof, it will cause the
conversion thereof utilizing the same procedures as those provided for delivery
of Preferred Stock to effect such conversion. If the Depositary Shares evidenced
by a Depositary Receipt are to be converted in part only, a new Depositary
Receipt or Receipts will be issued for any Depositary Shares not to be
converted. No fractional shares of Common Stock will be issued upon conversion,
and if such conversion will result in a fractional share being issued, an amount
will be paid in cash by EastGroup equal to the value of the fractional interest
based upon the closing price of the Common Stock on the last business day prior
to the conversion.
Amendment and Termination of a Deposit Agreement
Any form of Depositary Receipt evidencing Depositary Shares which will
represent Preferred Stock and any provision of a Deposit Agreement will be
permitted at any time to be amended by agreement between EastGroup and the
applicable Preferred Stock Depositary. However, any amendment that materially
and adversely alters the rights of the holders of Depositary Receipts or that
would be materially and adversely inconsistent with the rights granted to the
holders of the related Preferred Stock will not be effective unless such
amendment has been approved by the existing holders of at least two-thirds of
the applicable Depositary Shares evidenced by the applicable Depositary Receipts
then outstanding. No amendment shall impair the right, subject to certain
anticipated exceptions in the Deposit Agreements, of any holders of Depositary
Receipts to surrender any Depositary Receipt with instructions to deliver to the
holder the related Preferred Stock and all money and other property, if any,
represented thereby, except in order to comply with law. Every holder of an
outstanding Depositary Receipt at the time any such amendment becomes effective
shall be deemed, by continuing to hold such Depositary Receipt, to consent and
agree to such amendment and to be bound by the applicable Deposit Agreement as
amended thereby.
A Deposit Agreement will be permitted to be terminated by EastGroup upon
not less than 30 days' prior written notice to the applicable Preferred Stock
Depositary if (i) such termination is necessary to preserve EastGroup's status
as a REIT or (ii) a majority of each series of Preferred Stock affected by such
termination consents to such termination, whereupon such Preferred Stock
Depositary will be required to deliver or make available to each holder of
Depositary Receipts, upon surrender of the Depositary Receipts held by such
holder, such number of whole or fractional Preferred Stock as are represented by
the Depositary Shares evidenced by such Depositary Receipts together with any
other property held by such Preferred Stock Depositary with respect to such
Depositary Receipts. EastGroup will agree that if a Deposit Agreement is
terminated to preserve EastGroup's status as a REIT, then EastGroup will use its
best efforts to list the Preferred Stock issued upon surrender of the related
Depositary Shares on a national securities exchange. In addition, a Deposit
Agreement will automatically terminate if (i) all outstanding Depositary Shares
thereunder shall have been redeemed; (ii) there shall have been a final
distribution in respect of the related Preferred Stock in connection with any
liquidation, dissolution or winding up of EastGroup and such distribution shall
have been distributed to the holders of Depositary Receipts evidencing the
Depositary Shares representing such Preferred Stock; or (iii) each share of the
related Preferred Stock shall have been converted into stock of EastGroup not so
represented by Depositary Shares.
Charges of a Preferred Stock Depositary
EastGroup will pay all transfer and other taxes and governmental charges
arising solely from the existence of a Deposit Agreement. In addition, EastGroup
will pay the fees and expenses of a Preferred Stock Depositary in connection
with the performance of its duties under a Deposit Agreement. However, holders
of Depositary Receipts will pay the fees and expenses of a Preferred Stock
Depositary for any duties requested by such holders to be performed which are
outside of those expressly provided for in the applicable Deposit Agreement.
Resignation and Removal of Depositary
A Preferred Stock Depositary will be permitted to resign at any time by
delivering to EastGroup notice of its election to do so, and EastGroup will be
permitted at any time to remove a Preferred Stock Depositary, any such
resignation or removal to take effect upon the appointment of a successor
Preferred Stock Depositary. A successor Preferred Stock Depositary will be
required to be appointed within 60 days after delivery of the notice of
resignation or removal and will be required to be a bank or trust company having
its principal office in the United States and having a combined capital and
surplus of at least $50,000,000.
Miscellaneous
A Preferred Stock Depositary will be required to forward to holders of
Depositary Receipts any reports and communications from EastGroup which are
received by such Preferred Stock Depositary with respect to the related
Preferred Stock.
Neither a Preferred Stock Depositary nor EastGroup will be liable if it is
prevented from or delayed in, by law or any circumstances beyond its control,
performing its obligations under a Deposit Agreement. The obligations of
EastGroup and Preferred Stock Depositary under a Deposit Agreement will be
limited to performing their duties thereunder in good faith and without
negligence (in the case of any action or inaction in the voting of Preferred
Stock represented by the applicable Depositary Shares), gross negligence or
willful misconduct, and neither EastGroup nor any applicable Preferred Stock
Depositary will be obligated to prosecute or defend any legal proceeding in
respect of any Depositary Receipts, Depositary Shares or Preferred Stock
represented thereby unless satisfactory indemnity is furnished. EastGroup and
any Preferred Stock Depositary will be permitted to rely on written advice of
counsel or accountants, or information provided by persons presenting Preferred
Stock represented thereby for deposit, holders of Depositary Receipts or other
persons believed in good faith to be competent to give such information, and on
documents believed in good faith to be genuine and signed by a proper party.
In the event a Preferred Stock Depositary shall receive conflicting claims,
requests or instructions from any holders of Depositary Receipts, on the one
hand, and EastGroup on the other hand, such Preferred Stock Depositary shall be
entitled to act on such claims, requests or instructions received from
EastGroup.
DESCRIPTION OF COMMON STOCK
General
EastGroup is authorized to issue up to 68,275,000 shares of Common Stock.
As of June 10, 1998 there were 16,304,176 shares of Common Stock outstanding and
740,108 shares of Common Stock reserved for issuance upon the exercise of
options granted under EastGroup's stock option plans. All of the issued and
outstanding shares of Common Stock are fully paid and non-assessable and have
equal voting, distribution and liquidation rights. Shares of Common Stock are
not subject to call or redemption; provided, however, if the EastGroup Board of
Directors determines that the direct or indirect ownership of Common Stock has
or may become concentrated to an extent which threatens EastGroup's status as a
REIT, the Board of Directors may call for the redemption of a number of shares
of Common Stock.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. The holders of Common Stock have
no cumulative voting rights. Additionally, subject to the rights of holders of
Preferred Stock, holders of Common Stock are entitled to receive such dividends
as may be declared from time to time by the directors out of funds legally
available therefor.
The shares of Common Stock currently outstanding are listed for trading on
the NYSE under the symbol "EGP." EastGroup will apply to the NYSE to list the
additional shares of Common Stock to be sold pursuant to any Prospectus
Supplement, and EastGroup anticipates that such shares will be so listed.
Under Maryland law, stockholders are generally not liable for EastGroup's
debts or obligations. If EastGroup is liquidated, subject to the right of any
holders of Preferred Stock, if any, to receive preferential distributions, each
outstanding share of Common Stock will be entitled to participate pro rata in
the assets remaining after payment of, or adequate provision for, all known
debts and liabilities of EastGroup.
Provisions of EastGroup's Charter and Bylaws
EastGroup's Charter provides that the number of directors will be ten,
which number may be increased or decreased pursuant to EastGroup's Bylaws.
Currently, the number of directors is nine and all nine positions on the Board
of Directors are filled by the vote of the stockholders at the annual meeting.
Stockholders do not have cumulative voting rights in the election of directors.
Stockholders are entitled to one vote for each share of Common Stock held by
them.
Other Matters
The transfer agent and registrar for the Common Stock is Harris Trust and
Savings Bank, Chicago, Illinois.
Restrictions on Transfer
Ownership Limits. For EastGroup to qualify as a REIT under the Code, no
more than 50% in value of its outstanding Common Stock may be owned, actually
and constructively under the applicable attribution provisions of the Code, by
five or fewer individuals (as defined in the Code to include certain entities)
during the last half of a taxable year (other than the first year) or during a
proportionate part of a shorter taxable year. The Common Stock must also be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year (other than the first year) or during a proportionate part of a shorter
taxable year. Because EastGroup intends to elect to be treated as a REIT, the
Charter contains restrictions on the acquisition of Common Stock intended to
ensure compliance with these requirements.
Pursuant to the provisions of the Charter, if a transfer of stock occurs
whereby any person would own, beneficially or constructively, 9.8 percent or
more (in value or in number, whichever is more restrictive) of the outstanding
capital stock of EastGroup (excluding Excess Shares, as defined below), then
such amount in excess of the 9.8 percent limit shall automatically be converted
into shares of a separate class of stock, the excess stock, par value $0.001 per
share, of EastGroup (the "Excess Shares"), and any such transfer will be void ab
initio. However, such restrictions will not prevent the settlement of a
transaction entered into through the facilities of any interdealer quotation
system or national securities exchange upon which shares of capital stock of
EastGroup are traded, provided that certain transactions may be settled by
providing Excess Shares. Although holders of Excess Shares have no dividend or
voting rights, such holders do have certain rights in the event of any
liquidation, dissolution or winding up of the corporation. The Charter further
provides that the Excess Shares will be held by EastGroup as trustee for the
person or persons to whom the shares are ultimately transferred, until such time
as the shares are re-transferred to a person or persons in whose hands the
shares would not be Excess Shares and certain price-related restrictions are
satisfied. These provisions are designed to enable EastGroup to meet the share
ownership requirements applicable to REITs under the Code, but may also have an
anti-takeover effect. EastGroup currently has 30,000,000 Excess Shares
authorized pursuant to its Charter.
Each stockholder shall, upon request by EastGroup, furnish such information
that EastGroup may reasonably request in order to determine EastGroup's status
as a REIT, to comply with the requirements of any taxing authority or
governmental agency or to determine any such compliance.
The foregoing ownership limitations may have the effect of precluding
acquisition of control of EastGroup without the consent of the Board of
Directors.
Special Voting Requirements for Certain Business Combinations. Pursuant to
Maryland law, EastGroup is governed by special procedures that apply to certain
business combinations between a corporation and interested stockholders. The
purpose of such provisions is to protect the corporation and its stockholders
against hostile takeovers by requiring that certain criteria are satisfied.
These criteria include prior approval by the board of directors, prior approval
by a majority or supermajority vote of disinterested stockholders and
requirements that a "fair price" be paid to the disinterested stockholders.
Maryland law provides that a Maryland corporation may not engage in any
"business combination" with any "interested stockholder." An "interested
stockholder" is defined, in essence, as any person owning beneficially, directly
or indirectly, ten percent or more of the outstanding voting stock of a Maryland
corporation. Unless an exemption applies, EastGroup may not engage in any
business combination with an interested stockholder for a period of five years
after the interested stockholder became an interested stockholder, and
thereafter may not engage in a business combination unless it is recommended by
the board of directors and approved by the affirmative vote of at least (i)
eighty percent of the votes entitled to be cast by the holders of all
outstanding voting stock of EastGroup, voting together as a single voting group
and (ii) two-thirds of the votes entitled to be cast by all holders of
outstanding shares of voting stock other than voting stock held by the
interested stockholder. The voting requirements do not apply at any time to
business combinations with an interested stockholder or its affiliates if
approved by the board of directors of the corporation prior to the time the
interested stockholder first became an interested stockholder. Additionally, if
the business combination involves the receipt of consideration by the
stockholders in exchange for the corporation's stock, the voting requirements do
not apply if certain "fair price" conditions are met.
Control Share Acquisitions. Maryland law provides for the elimination of
the voting rights of shares held by any person who makes a "control share
acquisition" except to the extent that such acquisition is exempt or is approved
by at least two-thirds of all votes entitled to be cast on the matter, excluding
shares of capital stock owned by the acquirer or by officers or directors who
are employees of the corporation whose shares were acquired. A "control share
acquisition" is the direct or indirect acquisition by any person of ownership
of, or the power to direct the exercise of voting power with respect to, shares
of voting stock ("control shares") that would, if aggregated with all other
voting stock owned by such person, entitle such person to exercise voting power
in electing directors within one of the following ranges of voting power: (i)
one-fifth or more but less than one-third; (ii) one-third or more but less than
a majority; or (iii) a majority or more of voting power.
A person who has made or proposes to make a control share acquisition, upon
the satisfaction of certain conditions (including an undertaking to pay
expenses), may compel the board of directors to call a special meeting of
stockholders to be held within 50 days of demand to consider the voting rights
of the shares. If no request for a meeting is made, the corporation may itself
present the question at any stockholders meeting. If voting rights are not
approved at the meeting or if the acquiring person does not deliver an acquiring
person statement as permitted by the statute, then, subject to certain
conditions and limitations, the corporation may redeem any or all of the control
shares (except those for which voting rights have previously been approved) for
fair value determined, without regard to voting rights, as of the date of the
last control share acquisition or as of the date of any meeting of stockholders
at which the voting rights of such shares are considered and not approved.
If voting rights for control shares are approved at a stockholders meeting
and the acquirer becomes entitled to vote a majority of the shares entitled to
vote, all other stockholders may exercise appraisal rights. The fair value of
the stock as determined for purposes of such appraisal rights may not be less
than the highest price per share paid in the control share acquisition, and
certain limitations and restrictions otherwise applicable to the exercise of
dissenters' rights do not apply in the context of a control share acquisition.
The control share acquisition statute does not apply to stock acquired in a
merger, consolidation or stock exchange if the corporation is a party to the
transaction.
Supermajority Votes. The Charter provides that (i) no term or provision of
the Charter may be added, amended or repealed in any respect which, in the
determination of the Board of Directors, causes EastGroup not to qualify as a
REIT under the Code; (ii) the sections of the Charter concerning the removal of
directors, amendment of the Bylaws, the indemnification of agents and limitation
of liability of directors and officers and the section concerning special
stockholder vote requirements shall not be amended or repealed; and (iii) no
provision imposing cumulative voting in the election of directors may be added
to the Charter, except, in addition to any vote required by the terms of then
outstanding Preferred Stock, upon the affirmative vote of the holders of not
less than eighty percent of all votes entitled to be cast on the matter.
FEDERAL INCOME TAX CONSIDERATIONS
Introductory Notes
The following discussion summarizes certain Federal income tax
considerations that may be relevant to a prospective holder of securities of
EastGroup. This discussion is based on current law. The discussion is not
exhaustive of all possible tax considerations and does not give a detailed
discussion of any state, local, or foreign tax considerations. It also does not
discuss all of the aspects of Federal income taxation that may be relevant to a
prospective stockholder in light of his particular circumstances or to certain
types of stockholders (including insurance companies, tax-exempt entities,
financial institutions or broker-dealers, foreign corporations and persons who
are not citizens or residents of the United States) who are subject to special
treatment under the Federal income tax laws.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT WITH HIS OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP AND
SALE OF SECURITIES IN AN ENTITY ELECTING TO BE TAXED AS A REAL ESTATE INVESTMENT
TRUST, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES
OF SUCH PURCHASE, OWNERSHIP, SALE, AND ELECTION AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
Taxation of the Company
General. EastGroup has elected to be taxed as a REIT under Sections 856
through 860 of the Code effective since its inception. EastGroup's qualification
and taxation as a REIT depends upon its ability to meet on a continuing basis,
through actual annual operating results, distribution levels and diversity of
stock ownership, the various qualification tests and organizational requirements
imposed under the Code, as discussed below. EastGroup believes that it is
organized and has operated in such a manner as to qualify under the Code for
taxation as a REIT commencing since its inception, and it intends to continue to
operate in such a manner. No assurances, however, can be given that EastGroup
will operate in a manner so as to qualify or remain qualified as a REIT. See
"Failure to Qualify" below.
The following is a general summary of the Code provisions that govern the
Federal income tax treatment of a REIT and its stockholders. These provisions of
the Code are highly technical and complex. This summary is qualified in its
entirety by the applicable Code provisions, the regulations promulgated
thereunder ("Treasury Regulations"), and administrative and judicial
interpretations thereof.
If EastGroup qualifies for taxation as a REIT and distributes to its
stockholders at least 95% of its REIT taxable income, it generally will not be
subject to Federal corporate income taxes on net income that it currently
distributes to stockholders. This treatment substantially eliminates the "double
taxation" (at the corporate and stockholder levels) that generally results from
investment in a corporation. Notwithstanding its REIT election, however,
EastGroup will be subject to Federal income tax in the following circumstances.
First, EastGroup will be taxed at regular corporate rates on any undistributed
taxable income, including undistributed net capital gains. Second, under certain
circumstances, the company may be subject to the "alternative minimum tax" on
its items of tax preference. Third, if EastGroup has (i) net income from the
sale or other disposition of "foreclosure property" (which is, in general,
property acquired by foreclosure or otherwise on default of a loan secured by
the property) that is held primarily for sale to customers in the ordinary
course of business or (ii) other non-qualifying income from foreclosure
property, it will be subject to tax at the highest corporate rate on such
income. Fourth, if EastGroup has net income from prohibited transactions (which
are, in general, certain sales or other dispositions of property (other than
foreclosure property) held primarily for sale to customers in the ordinary
course of business), such income will be subject to a 100% tax. Fifth, if
EastGroup should fail to satisfy the 75% gross income test or the 95% gross
income test (as discussed below), and has nonetheless maintained its
qualification as a REIT because certain other requirements have been met, it
will be subject to a 100% tax on the net income attributable to the greater of
the amount by which it fails the 75% or 95% test, multiplied by a fraction
intended to reflect its profitability. Sixth, if EastGroup should fail to
distribute during each calendar year at least the sum of (i) 85% of its REIT
ordinary income for such year; (ii) 95% of its REIT capital gain net income for
such year (for this purpose such term includes capital gains which EastGroup
elects to retain but which it reports as distributed to its stockholders, see
"Annual Distribution Requirements" below); and (iii) any undistributed taxable
income from prior years, EastGroup would be subject to a 4% excise tax on the
excess of such required distribution over the amounts actually distributed.
Seventh, if EastGroup acquires any asset from a C corporation (i.e., a
corporation generally subject to full corporate level tax) in a transaction in
which the basis of the asset in EastGroup's hands is determined by reference to
the basis of the asset (or any other property) in the hands of the C
corporation, and EastGroup recognizes gain on the disposition of such asset
during the 10-year period beginning on the date on which such asset was acquired
by it, then, to the extent of such property's built-in gain (the excess of the
fair market value of such property at the time of acquisition by EastGroup over
the adjusted basis of such property at such time), such gain will be subject to
tax at the highest regular corporate rate applicable (as provided in Service
regulations that have not yet been promulgated).
Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association (i) which is managed by one or more trustees or directors;
(ii) the beneficial ownership of which is evidenced by transferable shares or by
transferable certificates of beneficial interest; (iii) which would be taxable
as a domestic corporation but for Sections 856 through 860 of the Code; (iv)
which is neither a financial institution nor an insurance company subject to
certain provisions of the Code; (v) the beneficial ownership of which is held by
100 or more persons; (vi) during the last half of each taxable year not more
than 50% in value of the outstanding stock of which is owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities); and (vii) which meets certain other tests, described below,
regarding the nature of its income and assets. The Code provides that conditions
(i) through (iv), inclusive, must be met during the entire taxable year and that
condition (v) must be met during at least 335 days of a taxable year of 12
months, or during a proportionate part of a taxable year of less than 12 months.
Conditions (v) and (vi) will not apply until after the first taxable year for
which an election is made to be taxed as a REIT. EastGroup has issued sufficient
Common Stock with sufficient diversity of ownership to allow it to satisfy
requirements (v) and (vi). In addition, EastGroup's Charter contains
restrictions regarding the transfer of its shares that are intended to assist it
in continuing to satisfy the share ownership requirements described in (v) and
(vi) above. See "Capital Stock of EastGroup -- Restrictions on Transfer."
EastGroup is currently in the process of reorganizing its operations into
an umbrella partnership REIT ("UPREIT") structure pursuant to which all of
EastGroup's real estate assets will be owned by EastGroup Properties, L.P., a
Delaware limited partnership the sole partners of which are wholly-owned
subsidiaries of EastGroup (the "Operating Partnership"). EastGroup anticipates
completing the reorganization of its operations into an UPREIT structure in July
1998. EastGroup anticipates that the UPREIT structure will enable it to pursue
new investment opportunities by giving EastGroup the ability to offer units in
the Operating Partnership to property owners in exchange for properties in
transactions intended to achieve certain tax advantages.
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the gross
income of the partnership attributable to such share. In addition, the assets
and gross income of the partnership will retain the same character in the hands
of the REIT for purposes of section 856 of the Code, including satisfying the
gross income and asset tests described below. Thus, EastGroup's proportionate
share of the assets, liabilities and items of income of the Operating
Partnership and the non-corporate subsidiaries, which are either limited
liability companies or partnerships, will be treated as assets, liabilities and
items of income of EastGroup for purposes of applying the requirements described
herein.
Code section 856(i) provides that a corporation that is a "qualified REIT
subsidiary" shall not be treated as a separate corporation, and all assets,
liabilities and items of income, deduction and credit of a "qualified REIT
subsidiary" shall be treated as assets, labilities and items of income,
deduction and credit of the REIT. A "qualified REIT subsidiary" is a
corporation, all the capital stock of which is owned by the REIT. In applying
the requirements described herein, any "qualified REIT subsidiary" will be
ignored, and all assets, liabilities and items of income, deduction and credit
of such subsidiaries will be treated as assets, liabilities and items of income,
deduction and credit of EastGroup.
In addition, a corporation may not elect to become a REIT unless its
taxable year is the calendar year. EastGroup's taxable year is the calendar
year.
For tax years beginning prior to January 1, 1998, pursuant to applicable
Treasury Regulations, to be able to elect to be taxed as a REIT, EastGroup must
maintain certain records and request on an annual basis certain information from
its stockholders designed to disclose the actual ownership of its outstanding
shares. EastGroup has complied with such requirements. For tax years beginning
January 1, 1998 and beyond, these records and informational requirements are no
longer a condition to REIT election. Instead, a monetary penalty will be imposed
for failure to comply with these requirements.
Income Tests. In order for EastGroup to maintain qualification as a REIT,
three separate percentage tests relating to the source of its gross income must
be satisfied annually. First, at least 75% of the REIT's gross income (excluding
gross income from prohibited transactions) for each taxable year must be derived
directly or indirectly from investments relating to real property or mortgages
on real property (including "rents from real property" and, in certain
circumstances, interest) or from certain types of temporary investments. Second,
at least 95% of the REIT's gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived from such real property
investments described above, and from dividends, interest and gain from the sale
or disposition of stock or securities, or from any combination of the foregoing.
Third, for tax years beginning prior to January 1, 1998, gain from the sale or
other disposition of (i) stock or securities held for less than one year; (ii)
prohibited transactions; and (iii) certain real property held for less than four
years (apart from involuntary conversions and sales of foreclosure property)
must represent less than 30% of the REIT's gross income (including gross income
from prohibited transactions) for each taxable year.
Rents received by EastGroup will qualify as "rents from real property" in
satisfying the above gross income tests only if several conditions are met.
First, the amount of rent must not be based in whole or in part on the income or
profits of any person. However, amounts received or accrued generally will not
be excluded from "rents from real property" solely by reason of being based on a
fixed percentage or percentages of receipts or sales. Second, rents received
from a tenant will not qualify as "rents from real property" if EastGroup, or a
direct or indirect owner of 10% or more of EastGroup, actually or constructively
owns 10% or more of such tenant (a "Related Party Tenant"). Third, if rent
attributable to personal property that is leased in connection with a lease of
real property is greater than 15% of the total rent received under the lease,
then the portion of rent attributable to such personal property will not qualify
as "rents from real property." Finally, for rents received to qualify as "rents
from real property," EastGroup generally must not operate or manage the
property, or furnish or render services to tenants, other than through an
"independent contractor" who is adequately compensated and from whom EastGroup
derives no revenue. The "independent contractor" requirement, however, does not
apply to the extent the services provided by EastGroup are "usually or
customarily rendered" in connection with the rental of space for occupancy only
and are not otherwise considered "rendered to the occupant."
For taxable years beginning after December 31, 1997, rental income received
by EastGroup will not cease to qualify as "rents from real property" merely
because EastGroup performs non-customary services for a tenant if the amount
that EastGroup receives as a result of performing such services does not exceed
1% of all amounts received directly or indirectly by EastGroup with respect to
such property. In applying this limitation, the amount that EastGroup is treated
as having received for performing such services will not be less than 150% of
the direct cost to EastGroup of providing those services. EastGroup believes
that all services that are provided to its tenants will be considered "usually
or customarily" rendered in connection with the rental of comparable properties.
Further, any noncustomary services will be provided only through qualifying
independent contractors or within the 1% safe harbor described above. EastGroup
believes that the income generated from its currently owned assets and its
proposed method of operations will permit it to meet the income tests outlined
above.
If EastGroup fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions generally will be available if its failure to meet such tests was due
to reasonable cause and not due to willful neglect, EastGroup attaches a
schedule of the sources of its income to its federal income tax return for such
years, and any incorrect information on the schedules was not due to fraud with
intent to evade tax. It is not possible, however, to state whether in all
circumstances EastGroup would be entitled to the benefit of these relief
provisions. As discussed above in "--General," even if these relief provisions
were to apply, a tax would be imposed with respect to the excess net income.
Asset Tests. At the close of each quarter of its taxable year, EastGroup
must also satisfy three tests relating to the nature of its assets. First, at
least 75% of the value of EastGroup's total assets must be represented by real
estate assets (including stock or debt instruments held for not more than one
year purchased with the proceeds of a stock or debt offering of the company),
cash, cash items and government securities. Second, not more than 25% of
EastGroup's total assets may be represented by securities other than those in
the 75% asset class. Third, of the investments included in the 25% asset class,
the value of any one issuer's securities owned by EastGroup may not exceed 5% of
the value of EastGroup's total assets, and EastGroup may not own more than 10%
of any one issuer's outstanding voting securities (excluding securities of a
qualified REIT subsidiary or another REIT). The 5% test must generally be met
for any quarter in which a REIT acquires securities of an issuer.
If EastGroup should fail to satisfy the asset tests at the end of a
calendar quarter, such a failure would not cause it to lose its REIT status if
(i) it satisfied the asset tests at the close of the preceding calendar quarter,
and (ii) the discrepancy between the value of EastGroup's assets and the asset
tests either did not exist immediately after the acquisition of any particular
asset or was not wholly or partly caused by such an acquisition (e.g., the
discrepancy arose from changes in the market values of its assets). If the
conditions described in clause (ii) of the preceding sentence were not
satisfied, EastGroup still could avoid disqualification by eliminating any
discrepancy within 30 days after the close of the calendar quarter in which it
arose.
Annual Distribution Requirements. EastGroup, in order to qualify as a REIT,
is required to distribute dividends (other than capital gain dividends) to its
stockholders in an amount at least equal to (i) the sum of (a) 95% of its "REIT
taxable income" (computed without regard to the dividends paid deduction and the
REIT's net capital gain) and (b) 95% of the net income (after tax), if any, from
foreclosure property, minus (ii) the sum of certain items of noncash income.
Such distributions must be paid in the taxable year to which they relate, or in
the following taxable year if declared before EastGroup timely files its tax
return for such year and if paid on or before the first regular dividend payment
after such declaration. To the extent that EastGroup does not distribute all of
its net capital gain or distributes at least 95%, but less than 100%, of its
"REIT taxable income," as adjusted, it will be subject to tax on the
nondistributed amount at regular capital gains and ordinary corporate tax rates.
Furthermore, if EastGroup should fail to distribute during each calendar year at
least the sum of (i) 85% of its REIT ordinary income for such year; (ii) 95% of
its REIT capital gain income for such year; and (iii) any undistributed taxable
income from prior periods, it will be subject to a 4% excise tax on the excess
of such required distribution over the amounts actually distributed.
For taxable years beginning after December 31, 1997, EastGroup may elect to
retain and pay tax on net long-term capital gains and require its stockholders
to include their proportionate share of such undistributed net capital gains in
their income. If EastGroup makes such election, stockholders would receive a tax
credit attributable to their share of the capital gains tax paid by EastGroup,
and would receive an increase in the basis of their shares in EastGroup in an
amount equal to the stockholder's share of the undistributed net long-term
capital gain reduced by the amount of the credit. Further, any undistributed net
long-term capital gains that are included in the income of EastGroup
stockholders pursuant to this rule, will be treated as distributed for purposes
of the 4% excise tax.
EastGroup has made and intends to continue to make timely distributions
sufficient to satisfy the annual distribution requirements. It is possible,
however, that the company, from time to time, may not have sufficient cash or
liquid assets to meet the distribution requirements due to timing differences
between the actual receipt of income and actual payment of deductible expenses,
and the inclusion of such income and deduction of such expenses in arriving at
EastGroup's taxable income, or if the amount of nondeductible expenses such as
principal amortization or capital expenditures exceed the amount of noncash
deductions. In the event that such timing differences occur, in order to meet
the distribution requirements, EastGroup may arrange for short-term, or possible
long-term, borrowing to permit the payment of required dividends. If the amount
of nondeductible expenses exceeds noncash deductions, EastGroup may refinance
its indebtedness to reduce principal payments and borrow funds for capital
expenditures.
Under certain circumstances, EastGroup may be able to rectify a failure to
meet the distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year that may be included in EastGroup's deduction for
dividends paid for the earlier year. Thus, EastGroup may be able to avoid being
taxed on amounts distributed as deficiency dividends; however, the company will
be required to pay interest to the Service based upon the amount of any
deduction taken for deficiency dividends.
Failure to Qualify. If EastGroup fails to qualify for taxation as a REIT in
any taxable year and no relief provisions apply, EastGroup will be subject to
tax (including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to stockholders in any year in which
EastGroup fails to qualify will not be deductible by it, nor will such
distributions be required to be made. In such event, to the extent of current
and accumulated earnings and profits, all distributions to stockholders will be
taxable as ordinary income, and, subject to certain limitations in the Code,
corporate distributees may be eligible for the dividends received deduction.
Unless entitled to relief under specific statutory provisions, EastGroup also
will be disqualified from taxation as a REIT for the four taxable years
following the year during which qualification was lost. It is not possible to
state whether in all circumstances EastGroup would be entitled to such statutory
relief.
Taxation of Stockholders
Taxation of Taxable Domestic Stockholders. As long as EastGroup qualifies
as a REIT, distributions made to its taxable domestic stockholders out of
current or accumulated earnings and profits (and not designated as capital gain
dividends) will be taken into account by them as ordinary income, and corporate
stockholders will not be eligible for the dividends received deduction as to
such amounts. Distributions that are designated as capital gain dividends will
be taxed as long-term capital gains (to the extent they do not exceed
EastGroup's actual net capital gain for the taxable year) without regard to the
period for which the stockholder has held his shares. However, corporate
stockholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income. Distributions in excess of current and accumulated
earnings and profits will not be taxable to a stockholder to the extent that
they do not exceed the adjusted basis of such stockholder's Common Stock, but
rather will reduce the adjusted basis of such shares. To the extent that such
distributions exceed the adjusted basis of a stockholder's Common Stock, they
will be included in income as long-term capital gain (or short-term capital gain
if the shares have been held for one year or less), assuming the shares are a
capital asset in the hands of the stockholder. In addition, any dividend
declared by the company in October, November or December of any year payable to
a stockholder of record on a specific date in any such month shall be treated as
both paid by EastGroup and received by the stockholder on December 31 of such
year, provided that the dividend is actually paid by the company during January
of the following calendar year. Stockholders may not include in their individual
income tax returns any net operating losses or capital losses of EastGroup.
In general, any gain or loss realized upon a taxable disposition of shares
by a stockholder who is not a dealer in securities will be treated as a long
term capital gain or loss if the shares have been held for more than one year
and otherwise a short term capital gain or loss. However, any loss upon a sale
or exchange of Common Stock by a stockholder who has held such shares for six
months or less (after applying certain holding period rules) will be treated as
long-term capital loss to the extent of distributions from EastGroup required to
be treated by such stockholder as long-term capital gain.
The Taxpayer Relief Act of 1997 reduced the top tax rate for individuals,
estates and trusts on certain long-term capital gains. Generally, long-term
capital gains on property held for more than 18 months will not be taxed at a
rate greater than 20% and the maximum rate is reduced to 18% for assets acquired
after December 31, 2000 and held for more than five years. For taxpayers subject
to the 15% regular tax bracket, long-term capital gains on property held for
more than 18 months will not be taxed at a rate greater than 10%, and, effective
for taxable years beginning after December 31, 2000, the rate is reduced to 8%
for assets held more than five years. Long-term capital gain from the sale or
exchange of certain depreciable real property held for more than 18 months which
would be treated as ordinary income if the real property was depreciable
personal property is subject to a maximum tax rate of 25% rather than 20%.
Long-term capital gain (other than certain depreciation recapture taxable as
ordinary income) allocated to a stockholder by EastGroup will be subject to the
25% rate to the extent that the gain does not exceed depreciation on real
property sold by EastGroup. The maximum rate of capital gains tax for capital
assets held for more than one year but not more than 18 months remains at 28%.
The taxation of capital gains by corporations was not changed.
In addition, Internal Revenue Notice 97-64 provides temporary guidance with
respect to the taxation of distributions by EastGroup designated as capital gain
dividends. Pursuant to Internal Revenue Notice 97-64, forthcoming Temporary
Regulations will provide that capital gains allocated to a stockholder by a REIT
may be designated as a 20% rate gain distribution, an unrecaptured Section 1250
gain distribution (subject to the 25% rate), or a 28% rate gain distribution. In
determining the amounts which may be designated as each class of capital gains
dividends, a REIT must calculate its net capital gains as if it were an
individual subject to a marginal tax rate of 28%. Unless specifically designated
otherwise by EastGroup, a distribution designated as a capital gain distribution
is presumed to be a 28% rate gain distribution. If EastGroup elects to retain
any net long-term capital gain, as discussed above, the undistributed long-term
capital gains are considered to be designated as capital gain dividends for
purposes of Internal Revenue Notice 97-64.
Backup Withholding. EastGroup will report to its domestic stockholders and
the Service the amount of dividends paid during each calendar year, and the
amount of tax withheld, if any, with respect thereto. Under the backup
withholding rules, a stockholder may be subject to backup withholding at the
rate of 31% with respect to dividends paid unless such holder (i) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact, or (ii) provides a taxpayer identification number,
certifies as to no loss of exemption from backup withholding, and otherwise
complies with applicable requirements of the backup withholding rules. A
stockholder who does not provide EastGroup with its correct taxpayer
identification number may also be subject to penalties imposed by the Service.
Any amount paid as backup withholding will be creditable against the
stockholder's income tax liability. In addition, EastGroup may be required to
withhold a portion of capital gain distributions made to any stockholders who
fail to certify their non-foreign status to the company. See "Taxation of
Non-U.S. Stockholders" below.
Taxation of Tax-Exempt Stockholders. Most tax-exempt entities, including
employees' pension trusts, are not subject to Federal income tax except to the
extent of "unrelated business taxable income" ("UBTI"). The Service has ruled
that amounts distributed by a REIT to a tax-exempt employees' pension trust do
not constitute UBTI. Based upon this ruling and the analysis therein, and
subject to the discussion below regarding qualified pension trust investors,
distributions by EastGroup to a stockholder that is a tax-exempt entity
generally should not constitute UBTI, provided that the tax-exempt entity has
not financed the acquisition of its shares with "acquisition indebtedness"
within the meaning of the Code and the Common Stock is not otherwise used in an
unrelated trade or business of the tax-exempt entity. Revenue rulings, however,
are interpretative in nature and subject to revocation or modification by the
Service.
A "qualified trust" (defined to be any trust described in section 401(a) of
the Code and exempt from tax under section 501(a) of the Code) that holds more
than 10% of the value of the shares of a REIT may be required, under certain
circumstances, to treat a portion of distributions from the REIT as UBTI. This
requirement will apply for a taxable year only if (i) the REIT satisfies the
requirement that not more than 50% of the value of its shares be held by five or
fewer individuals (the "five or fewer requirement") only by relying on a special
"look-through" rule under which shares held by qualified trust stockholders are
treated as held by the beneficiaries of such trusts in proportion to their
actuarial interests therein; and (ii) the REIT is "predominantly held" by
qualified trusts. A REIT is "predominantly held" by qualified trusts if either
(i) a single qualified trust holds more than 25% of the value of the REIT
shares, or (ii) one or more qualified trusts, each owning more than 10% of the
value of the REIT shares, hold in the aggregate more than 50% of the value of
the REIT shares. If the foregoing requirements are met, the percentage of any
REIT dividend treated as UBTI to a qualified trust that owns more than 10% of
the value of the REIT shares is equal to the ratio of (i) the UBTI earned by the
REIT (computed as if the REIT were a qualified trust and therefore subject to
tax on its UBTI) to (ii) the total gross income (less certain associated
expenses) of the REIT for the year in which the dividends are paid. A de minimis
exception applies where the ratio set forth in the preceding sentence is less
than 5% for any year.
The provisions requiring qualified trusts to treat a portion of REIT
distributions as UBTI will not apply if the REIT is able to satisfy the five or
fewer requirement without relying on the "look-through" rule. The restrictions
on ownership of Common Stock in EastGroup's Charter should prevent application
of the foregoing provisions to qualified trusts purchasing Common Stock of
EastGroup pursuant to the Offering, absent a waiver of the restrictions by the
Board of Directors.
Taxation of Non-U.S. Stockholders. The rules governing U.S. Federal income
taxation of nonresident alien individuals, foreign corporations, foreign
partnerships and other foreign stockholders (collectively, "Non-U.S.
Stockholders") are complex, and no attempt will be made herein to provide more
than a limited summary of such rules. The discussion does not consider any
specific facts or circumstances that may apply to a particular Non-U.S.
Stockholder. Prospective Non-U.S. Stockholders should consult with their own tax
advisors to determine the impact of U.S. Federal, state and local income tax
laws with regard to an investment in Common Stock, including any reporting
requirements.
Distributions that are not attributable to gain from sales or exchanges by
EastGroup of U.S. real property interests and not designated by EastGroup as
capital gain dividends will be treated as dividends of ordinary income to the
extent that they are made out of current or accumulated earnings and profits of
EastGroup. Such distributions, ordinarily, will be subject to a withholding tax
equal to 30% of the gross amount of the distribution unless an applicable tax
treaty reduces such rate. However, if income from the investment in Common Stock
is treated as effectively connected with the Non-U.S. Stockholder's conduct of a
U.S. trade or business, the Non-U.S. Stockholder generally will be subject to a
tax at graduated rates, in the same manner as U.S. stockholders are taxed with
respect to such dividends (and may also be subject to a branch profits tax of up
to 30% if the stockholder is a foreign corporation). EastGroup expects to
withhold U.S. income tax at the rate of 30% on the gross amount of any dividends
paid to a Non-U.S. Stockholder that are not designated as capital gain
dividends, unless (i) a lower treaty rate applies and the required form
evidencing eligibility for that reduced rate is filed with EastGroup or (ii) the
Non-U.S. Stockholder files an IRS Form 4224 with EastGroup claiming that the
distribution is income treated as effectively connected to a U.S. trade or
business.
Distributions in excess of current and accumulated earnings and profits of
EastGroup will not be taxable to a stockholder to the extent that they do not
exceed the adjusted basis of the stockholder's Common Stock, but rather will
reduce the adjusted basis of such shares. To the extent that such distributions
exceed the adjusted basis of a Non-U.S. Stockholder's shares, they will give
rise to tax liability if the Non-U.S. Stockholder would otherwise be subject to
tax on any gain from the sale or disposition of his or her Common Stock as
described below. If at any time EastGroup is not a "domestically controlled
REIT," as defined below, EastGroup must withhold U.S. income tax at the rate of
10% on distributions to Non-U.S. Stockholders that are not paid out of current
or accumulated earnings and profits unless the Non-U.S. Stockholders provide
EastGroup with withholding certificates evidencing their exemption from
withholding tax. If it cannot be determined at the time that such a distribution
is made whether or not such distribution will be in excess of current and
accumulated earnings and profits, the distribution will be subject to
withholding at the rate applicable to dividends. However, the Non-U.S.
Stockholder may seek a refund of such amounts from the Service if it is
subsequently determined that such distribution was, in fact, in excess of
current and accumulated earnings and profits of EastGroup.
For any year in which EastGroup qualifies as a REIT, distributions that are
attributable to gain from sales or exchanges by EastGroup of U.S. real property
interests will be taxed to a Non-U.S. Stockholder under the provisions of the
Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under FIRPTA,
these distributions are taxed to a Non-U.S. Stockholder as if such gain were
effectively connected with a U.S. business. Thus, Non-U.S. Stockholders will be
taxed on such distributions at the normal capital gain rates applicable to U.S.
stockholders (subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien individuals). Also,
distributions subject to FIRPTA may be subject to a 30% branch profits tax in
the hands of a corporate Non-U.S. Stockholder not entitled to treaty relief or
exemption. EastGroup is required by applicable Treasury Regulations to withhold
35% of any distribution that could be designated by EastGroup as a capital gain
dividend. This amount is creditable against the Non-U.S. Stockholder's FIRPTA
tax liability.
Gain recognized by a Non-U.S. Stockholder upon a sale of Common Stock
generally will not be taxed under FIRPTA if EastGroup is a "domestically
controlled REIT," defined generally as a REIT in which at all times during a
specified testing period less than 50% in value of its shares was held directly
or indirectly by Non-U.S. Stockholders. EastGroup believes that it currently
qualifies as a "domestically controlled REIT," and that the sale of Common Stock
will not therefore be subject to tax under FIRPTA. Because EastGroup is publicly
traded, however, no assurance can be given that the company will continue to be
a domestically controlled REIT. Even if EastGroup is not a "domestically
controlled REIT," a Non-U.S. Stockholder's sale of Common Stock generally will
not be subject to tax under FIRPTA as a sale of U.S. real property interests,
provided that (i) EastGroup's Common Stock is "regularly traded" on an
established securities market, and (ii) the selling Non-U.S. Stockholder held 5%
or less of EastGroup's Common Stock at all times during the specified testing
period. In addition, gain not subject to FIRPTA will be taxable to a Non-U.S.
Stockholder if (i) the investment in Common Stock is treated as effectively
connected with the Non-U.S. Stockholder's trade or business, in which case the
Non-U.S. Stockholder will be subject to the same treatment as the U.S.
stockholders with respect to such gain; or (ii) the Non-U.S. Stockholder is a
nonresident alien individual who was present in the United States for 183 days
or more during the taxable year and has a "tax home" in the United States, in
which case the nonresident alien individual will be subject to a 30% withholding
tax on the individual's capital gains. If the gain on the sale of Common Stock
were to be subject to tax under FIRPTA, the Non-U.S. Stockholder would be
subject to the same treatment as U.S. stockholders with respect to such gain
(subject to applicable alternative minimum tax and a special alternative minimum
tax in the case of nonresident alien individuals).
State and Local Taxes. EastGroup and its stockholders may be subject to
state or local taxation in various state or local jurisdictions, including those
in which it or they transact business or reside (although stockholders who are
individuals generally should not be required to file state income tax returns
outside of their state of residence with respect to EastGroup's operations and
distributions). The state and local tax treatment of EastGroup and its
stockholders may not conform to the Federal income tax consequences discussed
above. Consequently, prospective stockholders should consult their own tax
advisors regarding the effect of state and local tax laws on an investment in
the Securities.
PLAN OF DISTRIBUTION
EastGroup may sell Securities to or through underwriters or dealers for
public offering and sale by or through them, and also may sell Securities
directly to other purchasers or agents or through any combination of these
methods of sale.
The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
In connection with the sale of Securities, underwriters may receive
compensation from EastGroup or from purchasers of Securities, for whom they may
act as agents, in the form of discounts, concessions or commissions.
Underwriters may sell Securities to or through dealers, and such dealers may
receive compensation in the form of discounts, concessions or commissions from
the underwriters and/or commissions from the purchasers for whom they may act as
agents. Underwriters, dealers, and agents that participate in the distribution
of Securities may be deemed to be underwriters, and any discounts or commissions
they receive from EastGroup and any profit on the resale of Securities they
realize may be deemed to be underwriting discounts and commissions, under the
Securities Act. Any such underwriter or agent will be identified, and any such
compensation received from EastGroup will be described, in the applicable
Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, each
series of Securities will be a new issue with no established trading market,
other than the shares of Common Stock which are listed on the NYSE. Any shares
of Common Stock sold pursuant to a Prospectus Supplement will be listed on such
exchange, subject to official notice of issuance. EastGroup may elect to list
any series of Preferred Stock or Depositary Shares on an exchange, but is not
obligated to do so. It is possible that one or more underwriters may make a
market in a series of Securities, but will not be obligated to do so and may
discontinue any market making at any time without notice. Therefore, no
assurance can be given as to the liquidity of the trading market for the
Securities.
Under agreements EastGroup may enter into, underwriters, dealers and agents
who participate in the distribution of Securities may be entitled to
indemnification by EastGroup against certain liabilities, including liabilities
under the Securities Act.
Underwriters, dealers and agents may engage in transactions with, or
perform services for, or be customers of, EastGroup in the ordinary course of
business.
If so indicated in the applicable Prospectus Supplement, EastGroup will
authorize underwriters or other persons acting as EastGroup's agents to solicit
offers by certain institutions to purchase Securities from EastGroup pursuant to
contracts providing for payment and delivery on a future date. Institutions with
which such contracts may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions and others, but in all cases such institutions must be approved by
EastGroup. The obligations of any purchaser under any such contract will be
subject to the condition that the purchase of the Securities shall not at the
time of delivery be prohibited under the laws of the jurisdiction to which such
purchaser is subject. The underwriters and such other agents will not have any
responsibility in respect of the validity or performance of such contracts.
EXPERTS
The consolidated financial statements and financial statement schedules of
EastGroup as of December 31, 1997 and 1996, and for each of the years in the
three year period ended December 31, 1997, and the December 31, 1997 historical
summaries of gross income and direct operating expenses of Wal-Mart Distribution
Center, World Houston 1 and 2, Estrella Distribution Center and Industry
Distribution Center, have been incorporated by reference in the Prospectus and
Registration Statement in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
LEGAL MATTERS
The legality of the Securities will be passed upon for EastGroup by Jaeckle
Fleischmann & Mugel, LLP, Buffalo, New York.
1,320,000 Shares
EastGroup Properties, Inc.
7.95% SERIES D CUMULATIVE
REDEEMABLE PREFERRED STOCK
PROSPECTUS SUPPLEMENT
June 2, 2003