<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 27
1996 REGISTRATION NO.
33-65337
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
EASTGROUP PROPERTIES
(Exact name of registrant as specified in its charter)
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MARYLAND 6798 13-2711135
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(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification No.) Identification No.)
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300 ONE JACKSON PLACE
188 EAST CAPITOL STREET
JACKSON, MISSISSIPPI 39201-2195
(601) 354-3555
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
DAVID H. HOSTER II, PRESIDENT
300 ONE JACKSON PLACE
188 EAST CAPITOL STREET
JACKSON, MISSISSIPPI 39201-2195
(601) 354-3555
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES TO:
JOSEPH P. KUBAREK, ESQ. DANIEL G. HISE, ESQ.
JAECKLE, FLEISCHMANN & MUGEL BUTLER, SNOW, O'MARA, STEVENS & CANNADA, PLLC
800 FLEET BANK BUILDING 17TH FLOOR, DEPOSIT GUARANTY PLAZA
TWELVE FOUNTAIN PLAZA 210 EAST CAPITOL STREET, P.O. BOX 22567
BUFFALO, NEW YORK 14202 JACKSON, MISSISSIPPI 39225-2567
(716) 856-0600 (601) 948-5711
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS
PROMPTLY AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO BE OFFERED IN
CONNECTION WITH THE FORMATION OF A HOLDING COMPANY AND THERE IS COMPLIANCE WITH
GENERAL INSTRUCTION G, CHECK THE FOLLOWING BOX. / /
The Registrant amends this registration statement on such date or dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
================================================================================
<PAGE> 2
CROSS REFERENCE SHEET PURSUANT TO RULE 404(a)
SHOWING THE LOCATION IN THE PROSPECTUS
OF THE INFORMATION REQUIRED BY PART I OF FORM S-4
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FORM S-4 ITEM LOCATION IN PROSPECTUS
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A. INFORMATION ABOUT THE
TRANSACTION
1. Forepart of Registration Statement
and Outside Front Cover Page
of Prospectus....................................... Outside front cover page.
2. Inside Front and Outside Back Cover
Pages of Prospectus................................. AVAILABLE INFORMATION;
INCORPORATION OF CERTAIN
3. Summary Information, Risk Factors,
Ratio of Earnings to Fixed Charges and PROXY STATEMENT/ PROSPECTUS
Other Information................................... SUMMARY; RISK FACTORS.
4. Terms of the Transaction ........................... INTRODUCTION--The Merger Agreement;
THE MERGER; DESCRIPTION OF
CAPITAL STOCK OF EASTGROUP;
DIFFERENCES IN SHAREHOLDERS'
RIGHTS; APPENDIX A.
5. Pro Forma Financial Information..................... INDEX TO FINANCIAL STATEMENTS.
6. Material Contacts with the Company
Being Acquired ..................................... THE MERGER--Background of the Merger;
THE MERGER--LNH Directors' Reasons for
Recommending the Merger.
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters........................... Not applicable.
8. Interests of Named Experts
and Counsel ........................................ Not applicable.
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ii
<PAGE> 3
<TABLE>
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FORM S-4 ITEM LOCATION IN PROSPECTUS
------------- ----------------------
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9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities ....................................... INDEMNIFICATION PROVISIONS.
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3
Registrants ........................................ INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE;
AVAILABLE INFORMATION;
INFORMATION CONCERNING
EASTGROUP; MARKET PRICES AND
DIVIDENDS.
11. Incorporation of Certain Information by
Reference........................................... INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE;
INFORMATION CONCERNING
EASTGROUP.
12. Information with Respect to S-2 or S-3
Registrants......................................... Not applicable.
13. Incorporation of Certain Documents by
Reference........................................... INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE.
14. Information with Respect to Registrants
Other than S-3 or S-2 Registrants................... Not applicable.
C. INFORMATION ABOUT THE COMPANY
BEING ACQUIRED
15. Information with Respect to S-3
Companies........................................... Not applicable.
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<TABLE>
<CAPTION>
FORM S-4 ITEM LOCATION IN PROSPECTUS
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16. Information with Respect to S-2 or S-3
Companies........................................... INCORPORATION OF
CERTAIN DOCUMENTS BY
REFERENCE; AVAILABLE
INFORMATION; INFORMATION
CONCERNING LNH; MARKET
PRICES AND DIVIDENDS.
17. Information with Respect to Companies
Other Than S-3 or S-2 Companies..................... Not applicable.
D. VOTING AND MANAGEMENT
INFORMATION
18. Information if Proxies, Consents or
Authorizations are to be Solicited.................. INTRODUCTION; VOTING AND PROXY
INFORMATION; THE MERGER--No Dissen-
ters' Rights; THE MERGER--Interest of LNH
Management and EastGroup in the Merger;
THE MERGER--Board of Trustees and
Management of EastGroup;
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE.
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or
in an Exchange Offer ............................... Not applicable.
</TABLE>
iv
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LNH REIT, INC.
300 ONE JACKSON PLACE
188 EAST CAPITOL STREET
JACKSON, MISSISSIPPI 39201-2195
____________, 1996
Dear Shareholder:
A special meeting of shareholders of LNH REIT, Inc. ("LNH") will be
held on __________, 1996. The purpose of the meeting is to vote on a merger
(the "Merger") of LNH with and into EastGroup-LNH Corporation ("Sub"), a
wholly-owned subsidiary of EastGroup Properties ("EastGroup"). The proposed
transaction would result in LNH being acquired by EastGroup and the
shareholders of LNH receiving, in exchange for each share of common stock of
LNH, the number of shares of beneficial interest of EastGroup ("EastGroup
Shares"), determined by dividing the value $8.10 by the average closing price
for EastGroup Shares for the 10 trading days preceding the closing of the
transaction (the "Exchange Ratio"). It is anticipated that the closing will be
held on the date of the special meeting of LNH shareholders. As a result of the
transaction, EastGroup will succeed to the operations and assets of LNH and LNH
will cease to be a reporting company under the Securities Exchange Act of 1934,
as amended.
The proposed Merger has been approved by LNH's Board of Directors,
which believes the transaction to be in the best interest of LNH and its
shareholders and recommends a vote FOR its approval. The reasons for this
belief are set forth in "The Merger--LNH Directors' Reasons for Recommending
the Merger" in the accompanying Proxy Statement/Prospectus. The investment
banking firm of Rauscher Pierce Refsnes, Inc. has issued its opinion to LNH, a
copy of which is attached as Appendix B to this Proxy Statement/Prospectus,
that the consideration to be received by LNH shareholders in the Merger is fair
to the shareholders of LNH from a financial point of view.
The proposed transaction is very important to you as a shareholder.
Therefore, whether or not you plan to attend the meeting, I urge you to give
your immediate attention to the proposal. Please review the enclosed materials,
sign and date the enclosed proxy card and return it promptly in the enclosed
postage-paid envelope.
Very truly yours,
LELAND R. SPEED
Chairman of the Board of Directors
<PAGE> 6
LNH REIT, INC.
300 ONE JACKSON PLACE
188 EAST CAPITOL STREET
JACKSON, MISSISSIPPI 39201-2195
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON ____________, 1996
To the Shareholders:
Notice is hereby given that a special meeting of shareholders of LNH
REIT, Inc. ("LNH") will be held at LNH's offices, 300 One Jackson Place, 188
East Capitol Street, Jackson, Mississippi on ___________, 1996 at ____ a.m.,
local time, for the following purpose:
To consider and act on a proposal to approve the Agreement and Plan of
Merger dated as of December 22, 1995 among LNH, EastGroup-LNH Corporation
("Sub"), and EastGroup Properties ("EastGroup"), pursuant to which, among other
things, (i) LNH will be merged with and into Sub (the "Merger"), (ii) each
outstanding share of common stock of LNH will be converted into the right to
receive the number of shares of beneficial interest of EastGroup ("EastGroup
Shares"), determined by dividing the value $8.10 by the average closing price
for EastGroup Shares for the 10 trading days preceding the closing of the
transaction (the "Exchange Ratio"), and (iii) LNH will cease to exist as a
separate legal entity.
Only shareholders of record at the close of business on ____________,
1996 are entitled to notice of and to vote at the meeting and any adjournment
thereof.
Dissenting shareholders will not have appraisal rights in connection
with the Merger.
By Order of the Board of Directors
N. Keith McKey
Senior Vice-President, Chief Financial
Officer and Secretary
DATE: ____________, 1996
- --------------------------------------------------------------------------------
THIS IS AN IMPORTANT MEETING. SHAREHOLDERS ARE URGED TO VOTE BY SIGNING,
DATING AND RETURNING THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE TO WHICH
NO POSTAGE NEED BE AFFIXED IF MAILED IN THE UNITED STATES.
- --------------------------------------------------------------------------------
<PAGE> 7
PROXY STATEMENT OF LNH REIT, INC.
AND
PROSPECTUS OF EASTGROUP PROPERTIES
This Proxy Statement/Prospectus is being furnished to the shareholders
of LNH REIT, Inc. ("LNH") in connection with the solicitation of proxies by the
Board of Directors of LNH for use at the special meeting of its shareholders to
be held __________, 1996, to consider and vote on a proposal to approve and
adopt the Agreement and Plan of Merger dated December 22, 1995 (the "Merger
Agreement"), a copy of which is attached hereto as Appendix A. Pursuant to the
Merger Agreement, LNH will be merged (the "Merger") with and into EastGroup-LNH
Corporation ("Sub"), a wholly-owned subsidiary of EastGroup Properties
("EastGroup"). In the Merger, each share of common stock, $0.50 par value per
share, of LNH ("LNH Shares"), will be converted into the right to receive the
number of shares of beneficial interest, $1.00 par value per share, of
EastGroup ("EastGroup Shares"), determined by dividing the value $8.10 by the
average closing price for EastGroup Shares for the 10 trading days preceding
the closing of the Merger (the "Exchange Ratio"). It is anticipated that the
closing will take place on the date of the special meeting of LNH shareholders.
As a result of the Merger, LNH will cease to be a reporting company under the
Securities Exchange Act of 1934, as amended.
This document also constitutes a Prospectus of EastGroup covering the
EastGroup Shares to be issued upon consummation of the Merger. EastGroup is a
Maryland real estate investment trust ("REIT"), with its principal executive
offices located at 300 One Jackson Place, 188 East Capitol Street, Jackson,
Mississippi 39201-2195, telephone number (601) 354-3555. Sub was formed for the
purpose of effecting the Merger. The principal executive offices of LNH are
also located at 300 One Jackson Place, 188 East Capitol Street, Jackson,
Mississippi 39201-2195, and the telephone number of LNH is (601) 354-3555.
SEE "RISK FACTORS" ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED IN EVALUATING THE MERGER.
-----------------------------------
NEITHER THIS TRANSACTION NOR THE SHARES OF BENEFICIAL INTEREST OF
EASTGROUP HAVE BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION. THE COMMISSION HAS NOT PASSED UPON THE FAIRNESS OF THIS TRANSACTION
NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------------------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK
HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
-----------------------------------
Consummation of the Merger is subject to the affirmative approval of
the holders of at least two-thirds of the LNH Shares outstanding and entitled
to vote, and certain other conditions. EastGroup owns 515,200 of the LNH Shares
entitled to vote (23.42% of the LNH Shares entitled to vote). The directors and
officers of LNH do not own any of the LNH Shares entitled
<PAGE> 8
to vote. EastGroup's trustees and officers have indicated they intend to vote
EastGroup's LNH Shares in favor of the Merger.
The date of this Proxy Statement/Prospectus is _____________, 1996.
This Proxy Statement/Prospectus is first being mailed to shareholders of LNH
on or about _____________, 1996.
ii
<PAGE> 9
AVAILABLE INFORMATION
EastGroup and LNH are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "SEC"). Such reports, proxy
statements and other information may be inspected at and, upon payment of the
SEC's customary charges, copies obtained from, the Public Reference Section of
the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549. Such reports, proxy
statements and other information are also available for inspection and copying
at prescribed rates at the SEC's regional offices in New York, New York (Seven
World Trade Center, 15th Floor, New York, New York 10007), and in Chicago,
Illinois (Suite 1400, Northwestern Atrium Center, 500 West Madison Street,
Chicago, Illinois 60551-2511). In addition, LNH shares are traded on the New
York Stock Exchange, Inc. (the "NYSE") under the symbol "LHC" and EastGroup
Shares are traded on the NYSE under the symbol "EGP." Similar information
concerning both EastGroup and LNH can be inspected and copied at the offices of
the NYSE, 20 Broad Street, New York, New York 10005.
EastGroup and LNH have filed with the SEC a Registration Statement on
Form S-4 (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to shares of EastGroup to be
issued in the Merger. This Proxy Statement/Prospectus constitutes the
Prospectus of EastGroup filed as part of the Registration Statement. As
permitted by the rules and regulations of the SEC, this Proxy
Statement/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 SEC noted above, and copies of which can be obtained from the SEC at
prescribed rates as indicated above.
No person has been authorized to give any information or to make any
representation other than as contained herein in connection with the matters
described herein and, if given or made, such information or representation must
not be relied upon as having been authorized by EastGroup or LNH. Neither the
delivery hereof nor any distribution of securities made hereunder shall, under
any circumstances, create an implication that there has been no change in the
facts herein set forth since the date hereof. This Proxy Statement/Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy the
securities offered by this Proxy Statement/Prospectus or a solicitation of a
proxy in any jurisdiction where, or to any person to whom, it is unlawful to
make such an offer or solicitation.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Incorporated into this Proxy Statement/Prospectus by reference are the
documents listed below filed by EastGroup and LNH under the Securities Exchange
Act of 1934, as amended. Copies of any such documents, other than exhibits to
such documents, are available without charge to each person to whom a copy of
this Proxy Statement/Prospectus has been delivered upon written or oral request
of such person from EastGroup, 300 One Jackson Place, 188 East
iii
<PAGE> 10
Capitol Street, Jackson, Mississippi 39201-2195, Attention: Chief Financial
Officer, telephone number (601) 354-3555. In order to insure timely delivery of
the documents, requests should be received by ______________, 1996.
The following documents or portions thereof are hereby incorporated
into this Proxy Statement/Prospectus by reference:
1. EastGroup's 1994 Annual Report to Shareholders (Commission file No.
1-7094).
2. EastGroup's Annual Report on Form 10-K for the year ended December 31,
1994 (Commission file No. 1-7094).
3. EastGroup's Form 10-K/A (Amendment No. 1 to 1994 Form 10-K) dated March
31, 1995 (Commission file No. 1-7094).
4. EastGroup's Form 10-K/A (Amendment No. 2 to 1994 Form 10-K) dated
February 21, 1996 (Commission file No. 1-7094).
5. EastGroup's Quarterly Reports on Form 10-Q for the quarters ended March
31, 1995, June 30, 1995 and September 30, 1995 (Commission file No.
1-7094).
6. EastGroup's Form 10-Q/A (Amendment No. 1 to Form 10-Q for the quarter
ended March 31, 1995) dated May 16, 1995 (Commission file No. 1-7094).
7. EastGroup's Form 10-Q/A (Amendment No. 2 to Form 10-Q for the quarter
ended March 31, 1995) dated February 21, 1996 (Commission file No.
1-7094).
8. EastGroup's Form 10-Q/A (Amendment No. 1 to Form 10-Q for the quarter
ended June 30, 1995) dated February 21, 1996 (Commission file No.
1-7094).
9. EastGroup's Form 10-Q/A (Amendment No. 1 to Form 10-Q for the quarter
ended September 30, 1995) dated February 21, 1996 (Commission file No.
1-7094).
10. EastGroup's Proxy Statement, dated April 27, 1995, used in connection
with the 1995 Annual Meeting of Shareholders of EastGroup (Commission
file No. 1-7094).
11. LNH's 1994 Annual Report to Shareholders (Commission file No. 1-8330).
12. LNH's Annual Report on Form 10-KSB for the year ended December 31, 1994
(Commission file No. 1-8330).
13. LNH's Quarterly Report on Form 10-QSB for the quarters ended March 31,
1995, June 30, 1995 and September 30, 1995 (Commission file No.
1-8330).
14. LNH's Form 10-QSB/A (Amendment No. 1 to Form 10-QSB for the quarter
ended March 31, 1995) dated May 16, 1995 (Commission file No. 1-8330).
iv
<PAGE> 11
15. LNH's Current Report on Form 8-K dated April 20, 1995 (Commission file
No. 1-8330).
16. LNH's Proxy Statement dated April 27, 1995, used in connection with
the 1995 Annual Meeting of Shareholders (Commission file No. 1-8330).
17. LNH'S Current Report on Form 8-K dated December 15, 1995 (Commission
file No. 1-8330).
18. The Agreement and Plan of Merger dated as of December 22, 1995 among
LNH, Sub and EastGroup (attached hereto as Appendix A).
All documents filed by EastGroup pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this Proxy Statement/Prospectus
and prior to the date of the meetings shall be deemed to be incorporated by
reference herein and to be a part hereof from the respective dates of the
filing thereof. Any statement contained in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Proxy Statement/Prospectus to the extent that a
statement contained herein, or in any other subsequently filed document that
also is or is 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 Proxy Statement/Prospectus.
v
<PAGE> 12
TABLE OF CONTENTS
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Page
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PROXY STATEMENT/PROSPECTUS SUMMARY.............................................................................. 1
LNH REIT, Inc. and EastGroup Properties................................................................ 1
Date, Time and Place of Shareholders' Meeting.......................................................... 1
Record Date; Securities Entitled to Vote............................................................... 1
The Merger............................................................................................. 2
Certain Effects of the Merger.......................................................................... 2
Conflicts of Interest.................................................................................. 2
Benefits to LNH Affiliates............................................................................. 3
Required Votes......................................................................................... 3
Management's Recommendation............................................................................ 3
LNH Fairness Opinion................................................................................... 3
Conditions to Closing.................................................................................. 4
Regulatory Approval.................................................................................... 4
No Dissenters' Rights.................................................................................. 5
Risk Factors........................................................................................... 5
Market Prices.......................................................................................... 6
Stock Certificates..................................................................................... 6
Differences in Shareholders' Rights.................................................................... 7
Unaudited Pro Forma Consolidated Selected Financial Data............................................... 7
Selected Comparative Per Share Data.................................................................... 8
RISK FACTORS.................................................................................................... 10
Conflicts of Interest.................................................................................. 10
Benefits to LNH Affiliates............................................................................. 10
Certain Effects of the Merger.......................................................................... 11
Risks of Real Estate Ownership......................................................................... 11
Uncertain Market for and Price of EastGroup Shares..................................................... 11
Dividends.............................................................................................. 12
No Dissenters' Rights.................................................................................. 12
Continuation of REIT Status............................................................................ 12
Differences Between Rights of EastGroup Shareholders and LNH Shareholders.............................. 13
INTRODUCTION.................................................................................................... 14
The Merger Agreement................................................................................... 14
VOTING AND PROXY INFORMATION.................................................................................... 17
THE MERGER...................................................................................................... 20
Background of the Merger............................................................................... 20
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LNH Directors' Reasons for Recommending the Merger..................................................... 24
EastGroup's Reasons for Effecting the Merger........................................................... 29
LNH Fairness Opinion................................................................................... 31
Operations Following the Merger........................................................................ 34
Expense-Sharing Arrangements........................................................................... 34
Federal Income Tax Consequences........................................................................ 36
Taxation of EastGroup.................................................................................. 37
Taxation of the Shareholders of a REIT................................................................. 39
Accounting Treatment................................................................................... 40
No Dissenters' Rights.................................................................................. 40
Restrictions on Resales of Securities.................................................................. 40
Board of Trustees and Management of EastGroup.......................................................... 41
Other Directors and Trusteeships....................................................................... 43
Interest of LNH Management and EastGroup in the Merger................................................. 44
Executive Compensation................................................................................. 44
Certain Relationships and Related Transactions......................................................... 47
INFORMATION CONCERNING LNH...................................................................................... 48
INFORMATION CONCERNING EASTGROUP................................................................................ 54
MARKET PRICES AND DIVIDENDS..................................................................................... 56
EastGroup Shares....................................................................................... 56
LNH Shares............................................................................................. 57
DIFFERENCES IN SHAREHOLDERS' RIGHTS............................................................................. 58
DESCRIPTION OF CAPITAL STOCK OF EASTGROUP....................................................................... 59
INDEMNIFICATION PROVISIONS...................................................................................... 60
EXPERTS......................................................................................................... 60
LEGAL OPINIONS.................................................................................................. 60
REPORTS TO SHAREHOLDERS......................................................................................... 61
OTHER MATTERS................................................................................................... 61
</TABLE>
APPENDIX A Agreement and Plan of Merger among EastGroup Properties,
EastGroup-LNH Corporation and LNH REIT, Inc. dated as of
December 22, 1995
APPENDIX B Opinion of Rauscher Pierce Refsnes, Inc. dated as of
December 21, 1995.
APPENDIX C Tax Opinion of Jaeckle, Fleischmann & Mugel dated
as of February 26, 1996 as to certain tax matters
vii
<PAGE> 14
PROXY STATEMENT/PROSPECTUS SUMMARY
The following summary is a selective outline of certain information
from this Proxy Statement/Prospectus and is qualified in its entirety by the
more detailed information and financial statements included or incorporated
herein by reference.
LNH REIT, INC. AND EASTGROUP PROPERTIES
LNH. LNH REIT, Inc. ("LNH") (formerly known as L&N Housing Corp.) is a
Maryland corporation qualified as a real estate investment trust ("REIT") under
the Internal Revenue Code of 1986, as amended (the "Code"). LNH's primary
investments consist of mortgage loans, real estate and shares of a REIT. The
principal executive offices of LNH are located at 300 One Jackson Place, 188
East Capitol Street, Jackson, Mississippi 39201, and its telephone number is
(601) 354-3555.
EastGroup. EastGroup Properties ("EastGroup") is a Maryland REIT which
is qualified under the Code. EastGroup owns a balanced portfolio of income
producing real estate properties, with a primary emphasis on industrial
buildings, garden apartment complexes and selected office properties in the
southeastern and southwestern United States. At October 10, 1995, EastGroup
owned or had an interest in ten apartment complexes, twenty one industrial
facilities and three office buildings. For more information regarding
EastGroup, see the 1994 Annual Report to Shareholders of EastGroup that
accompanies this Proxy Statement/Prospectus. EastGroup-LNH Corporation ("Sub"),
is a wholly-owned subsidiary of EastGroup formed on September 29, 1995 for the
purpose of effecting the Merger (as defined below). EastGroup's offices are
located at 300 One Jackson Place, 188 East Capitol Street, Jackson, Mississippi
39201. Its telephone number is (601) 354-3555.
DATE, TIME AND PLACE OF SHAREHOLDERS' MEETING
The special meeting of the shareholders of LNH will be held on
______________, 1996 at _____ a.m., local time, at 300 One Jackson Place, 188
East Capitol Street, Jackson, Mississippi (the "Meeting"). The purpose of the
Meeting is to consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger dated as of December 22, 1995 among LNH, Sub and
EastGroup (the "Merger Agreement").
RECORD DATE; SECURITIES ENTITLED TO VOTE
The record date for the Meeting is ___________, 1996; holders of the
2,200,000 shares of common stock, $0.50 par value per LNH Share, of LNH
outstanding ("LNH Shares"), are entitled to one vote per LNH Share.
1
<PAGE> 15
THE MERGER
Under the terms of the Merger Agreement, LNH will be merged with and
into Sub (the "Merger"), EastGroup will succeed to the operations and assets of
LNH and LNH will cease to exist as a separate legal entity. Upon consummation
of the Merger, each outstanding LNH Share will be converted into the right to
receive a certain amount of shares of beneficial interest, $1.00 par value per
share, of EastGroup ("EastGroup Shares"), based on an exchange ratio (the
"Exchange Ratio"). The Exchange Ratio will be determined by dividing the value
$8.10 by the average closing price for EastGroup Shares for the ten trading
days preceding the closing of the Merger (the "Closing Price"). It is
anticipated that the closing will be held on the date of the special meeting of
LNH shareholders.No fractional EastGroup Shares will be issued but, in lieu
thereof, each holder of LNH Shares otherwise entitled to receive a fractional
EastGroup Share will be paid cash in an amount equal to the Closing Price. The
currently outstanding EastGroup Shares will not be exchanged in the Merger. See
"Introduction--The Merger Agreement."
CERTAIN EFFECTS OF THE MERGER
If the Merger is approved, shareholders of LNH will become
shareholders of EastGroup. Other than LNH's officers and directors, the
shareholders of LNH who currently beneficially own 77% of the outstanding LNH
Shares will only own 13% of the EastGroup Shares outstanding after the Merger
and, accordingly, will have less voting power and less of a percentage interest
in the LNH assets which will become assets of EastGroup by reason of the
Merger. See "Risk Factors--Certain Effects of the Merger."
CONFLICTS OF INTEREST
Two members of the four-person Board of Directors of LNH (Messrs.
Speed and Bailey) are also members of the Board of Trustees of EastGroup, and
have abstained from voting on the Merger as members of LNH's Board. Three
officers of LNH were also officers of EastGroup at the time the Merger was
proposed and negotiated. The Special Committee of the LNH Board of Directors
received much of the financial, economic and other data upon which it relied in
its decision making process from management personnel of LNH who are also
management personnel of EastGroup. See "Risk Factors -- Conflicts of Interest."
EastGroup and LNH, along with four other companies, were parties to
expense-sharing arrangements. As contemplated by the expense-sharing
arrangements, the executive officers of LNH also served as executive officers
of EastGroup and the other participants. These expense- sharing arrangements
terminated on December 31, 1994. See "The Merger -- Expense-Sharing
Arrangements." Pursuant to an Administration Agreement (defined herein),
EastGroup and LNH were parties to certain arrangements concerning the
administration of LNH. The Administration Agreement was terminated effective
March 31, 1995. Additionally, pursuant to a Management Agreement, EastGroup,
through its wholly-owned subsidiary EGP Managers, Inc. ("EGP Managers"),
provides management services to LNH. See "The Merger -- Expense-Sharing
Arrangements."
2
<PAGE> 16
The relationships between LNH and EastGroup described above may have
resulted or may result in the directors and officers of LNH having a conflict
of interest with the shareholders of LNH in the negotiation, proposal,
recommendation and consummation of the Merger. In this regard, the idea of
combining LNH and EastGroup originated with the common management. The
transaction was first proposed, however, by a special committee of EastGroup's
disinterested trustees to a committee of LNH's disinterested directors, and the
structure and terms of the Merger were negotiated by these two committees, with
common management providing to those committees economic analyses and
information regarding the companies' respective assets.
BENEFITS TO LNH AFFILIATES
According to the terms of the Merger Agreement, EastGroup has agreed
to indemnify each of the members of the Board of Directors of LNH against
certain liabilities, including any liability arising under the Merger Agreement
or in connection with the Merger. See "Risk Factors--Benefits to LNH
Affiliates."
REQUIRED VOTES
The proposal to approve and adopt the Merger Agreement must be
approved by the affirmative vote of the holders of at least two-thirds of the
outstanding LNH Shares entitled to vote. As of the date hereof, the directors
and officers of LNH and members of their immediate families do not beneficially
own any of the outstanding LNH Shares. As of the date hereof, EastGroup owns
515,200 of the outstanding LNH Shares (23.42% of the outstanding LNH Shares).
EastGroup's officers and trustees have indicated that they intend to vote all
of the LNH Shares held by them in favor of the Merger. See "Voting and Proxy
Information."
MANAGEMENT'S RECOMMENDATION
The directors of LNH are of the opinion that the Merger is fair to and
in the best interests of both LNH and its shareholders, and have unanimously
recommended (with Messrs. Speed and Bailey abstaining) to LNH's shareholders
that they vote in favor of the Merger. The Board of Directors believes that the
Merger will: tend to maximize the value of LNH's assets; result in LNH
shareholders owning a portion of the equity interest in a more viable entity
with greater financial resources than LNH; and enable LNH shareholders to
participate in the ownership of a larger and more diversified real estate
investment trust than LNH. See "The Merger--LNH Directors' Reasons for
Recommending the Merger."
LNH FAIRNESS OPINION
Rauscher Pierce Refsnes, Inc. ("Rauscher Pierce") has rendered an
opinion to the Board of Directors of LNH that the consideration to be received
by the holders of LNH Shares in the Merger is fair from a financial point of
view to such shareholders. A copy of the opinion is included as Appendix B
hereto. Rauscher Pierce's opinion was based on Rauscher Pierce's review and
analysis of (i) the trading histories of LNH Shares and EastGroup Shares prior
to
3
<PAGE> 17
and after the public announcement of the proposed Merger on September 6, 1995
and the announcement of the revised agreement in principle on December 6, 1995;
(ii) LNH's quarterly operating results for the quarters ended March 31, 1995,
June 30, 1995 and September 30, 1995 plus LNH's operating results for the years
ended December 31, 1992, 1993, and 1994; (iii) EastGroup's quarterly operating
results for the quarters ended March 31, 1995, June 30, 1995 and September 30,
1995 plus EastGroup's operating results for the years ended December 31, 1992,
1993 and 1994; (iv) the fact that the Merger would be submitted to a vote of
the shareholders of LNH; (v) the fact that the transaction is intended to be
tax-free; and (vi) certain other matters and other factors as Rauscher Pierce
deemed relevant. See "The Merger--LNH Fairness Opinion."
FEDERAL TAX CONSEQUENCES
LNH has received an opinion of Jaeckle, Fleischmann & Mugel that no
gain or loss will be recognized by the holders of LNH Shares to the extent they
receive EastGroup Shares in the Merger in exchange for their LNH Shares, and
that such shareholders' basis in the EastGroup Shares received by such LNH
shareholders in the Merger will be the same as their basis in the LNH Shares
exchanged. See "The Merger--Federal Income Tax Consequences."
CONDITIONS TO CLOSING
Consummation of the Merger is subject to a number of conditions,
including the approval of the Merger Agreement by the holders of two-thirds of
the outstanding LNH Shares and the continued accuracy of the representations
and warranties of EastGroup, Sub and LNH as of the effective date of the
Merger. The representations and warranties relate to, among other things, the
absence of any material adverse changes in the business or assets of EastGroup
or LNH. The Merger may also be abandoned at any time prior to its consummation
by the agreement of the Board of Trustees of EastGroup and the Board of
Directors of LNH. See "Introduction--The Merger Agreement."
REGULATORY APPROVAL
EastGroup and LNH believe that the Merger may be consummated without
notification being given or certain information being furnished to the Federal
Trade Commission (the "FTC") or the Antitrust Division of the Department of
Justice (the "Antitrust Division") pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), and that no waiting
period requirements under the HSR Act are applicable to the Merger. However,
there can be no assurance that the consummation of the Merger will not be
delayed by reason of the HSR Act. At any time before or after consummation of
the Merger, the Antitrust Division or the FTC could take such action under the
antitrust laws as it deems necessary or desirable in the public interest,
including seeking to enjoin the consummation of the Merger or seeking
divestiture of substantial assets of EastGroup or LNH. At any time before or
after the effective time of the Merger, any state could take such action under
its own antitrust laws as it deems necessary or desirable. Such action could
include seeking to enjoin the consummation of the Merger or seeking divestiture
of LNH or assets of EastGroup or LNH by EastGroup.
4
<PAGE> 18
Private parties may also seek to take legal action under antitrust laws under
certain circumstances.
NO DISSENTERS' RIGHTS
If the Merger is approved, such approval will bind all the
shareholders of LNH, including those who vote against the Merger or abstain or
fail to return a completed Proxy. No holder of LNH Shares will have any
dissenters' rights in connection with, or as a result of, the matters to be
acted upon relating to the Merger at the Meeting. See "The Merger--No
Dissenters' Rights."
RISK FACTORS
Two members of LNH's four-person Board of Directors are members of
EastGroup's Board of Trustees. Each of the members of the Board of Directors of
LNH will enter into an indemnification agreement with EastGroup pursuant to
which EastGroup will agree to indemnify such persons against certain
liabilities, including any liability arising under the Merger Agreement or in
connection with the Merger. Additionally, three of the officers of LNH also
serve as officers of EastGroup. The Special Committee of the LNH Board of
Directors received much of the financial, economic and other data upon which it
relied in its decision making process from management personnel of LNH who are
also management personnel of EastGroup. The relationships described above may
result in the directors and officers of LNH having a conflict of interest with
the shareholders of LNH in the negotiation, proposal, recommendation and
consummation of the Merger. See "Risk Factors--Benefits to LNH Affiliates and
Conflicts of Interest."
Risks Associated with Real Estate. Shareholders of LNH and EastGroup
should be aware that there are certain risks inherent in the ownership of real
estate and the securities of companies that own real estate, and that
EastGroup's assets and LNH's assets may have particular risks associated with
them. These risks include, among others: adverse changes in general or local
economic conditions; adverse changes in interest rates and in the availability
of permanent mortgage funds which may render the acquisition, sale or
refinancing of properties difficult or unattractive; existing laws, rules and
regulations and judicial decisions regarding liability for a variety of
potential problems related to real estate generally; adverse changes in real
estate, zoning, environmental or land-use laws; increases in real property
taxes and federal or local economic or rent controls; other governmental rules;
increases in operating costs and the need for additional capital and tenant
improvements; the supply of and demand for properties; possible insolvencies
and other material defaults by tenants; overbuilding in certain markets;
ability to obtain or maintain full occupancy of properties or to provide for
adequate maintenance or insurance; the presence of hazardous waste materials;
mechanics liens resulting from construction; property related claims and
litigation; fiscal policies; and acts of God. The illiquidity of real estate
investments generally impairs the ability of real estate owners to respond
quickly to changed circumstances. See "Risk Factors--Risks of Real Estate
Ownership."
5
<PAGE> 19
MARKET PRICES
EastGroup Shares are traded on the New York Stock Exchange ("NYSE")
under the symbol "EGP." LNH Shares are traded on NYSE under the symbol "LHC."
The following table shows the sales prices of EastGroup Shares and LNH Shares
as reported by NYSE, on the dates indicated.
<TABLE>
<CAPTION>
Closing
Price
-----------------
<S> <C>
September 5, 1995, the last trading day before LNH and EastGroup issued a
joint press release announcing that they had agreed in principle to the
Merger(1):
EastGroup Share $19.875
LNH Share 6.50
February 23, 1996, the most recent trading day prior to the date of this Proxy
Statement/Prospectus with respect to which it is practicable to provide market
price information(1):
EastGroup Share $22.25
LNH Share 7.75
</TABLE>
- ------------------------------------------------
(1) Price per share as of a particular day reflects the last reported
transaction in the indicated shares on or before that day.
EastGroup paid a quarterly dividend of $0.45 per EastGroup Share for
the last quarter of 1994 and the first and second quarter of 1995. EastGroup
increased the quarterly dividend to $0.47 per EastGroup Share for the third
quarter of 1995 and paid $0.47 for the fourth quarter of 1995. LNH paid a
quarterly dividend of $0.14 per LNH Share for the first and second quarter of
1994, $0.09 per LNH Share for the third and last quarter of 1994 and for the
first, second and third quarter of 1995, and $0.15 for the fourth quarter of
1995. LNH paid a special dividend of $1.50 per LNH Share in the third quarter
of 1994 and a special dividend of $0.66 per LNH Share in the first quarter of
1995. See "Market Prices and Dividends" for more information regarding
historical market prices and dividends.
STOCK CERTIFICATES
Promptly after the Effective Time, EastGroup shall cause its transfer
agent, KeyCorp Shareholder Services, Inc. (the "Exchange Agent"), to mail to
each record holder, as of the Effective Time, of an outstanding certificate or
certificates which immediately prior to the Effective Time represented LNH
Shares (the "Certificate(s)"), a form Letter of Transmittal and instructions
for use in effecting the surrender of the Certificate and for receiving any
payment for fractional shares. Upon surrender to the Exchange Agent of a
Certificate, together with such Letter of Transmittal duly executed, the holder
of such Certificate shall be entitled to receive in exchange therefor a
certificate or certificates representing EastGroup Shares and cash and such
6
<PAGE> 20
surrendered Certificate shall then be cancelled. Shareholders of LNH who fail
to deliver their LNH Share certificates and Letter of Transmittal to the
Exchange Agent will not receive their EastGroup Share certificates, nor any
dividends with respect to such EastGroup Shares, unless and until such LNH
Share certificates are forwarded to the Exchange Agent. Upon the Exchange
Agent's receipt of the LNH Share certificates and Letter of Transmittal, the
LNH shareholder will receive all unpaid dividends, if any, with respect to such
LNH Shares, without interest. Shareholders who are unable to locate their LNH
Share certificates may contact the Exchange Agent at the address indicated in
the Letter of Transmittal for assistance. Shareholders of EastGroup will not
need to exchange their share certificates. See "Introduction-- The Merger
Agreement--Exchange of Shares."
DIFFERENCES IN SHAREHOLDERS' RIGHTS
The laws and charter documents governing the rights of shareholders of
EastGroup differ in certain respects from those governing the rights of
shareholders of LNH. For example, shareholders of EastGroup are limited by
EastGroup's Restated Declaration of Trust, as amended (the "EastGroup
Declaration"), to vote only on the election and removal of trustees, amendment
of the EastGroup Declaration and termination of EastGroup. LNH shareholders,
however, are not restricted by LNH's Articles of Incorporation, as amended (the
"LNH Articles"), as to those matters upon which LNH shareholders may vote.
UNAUDITED PRO FORMA CONSOLIDATED SELECTED FINANCIAL DATA
The selected pro forma financial data that appears below is based on
LNH's and EastGroup's historical financial data as adjusted to give effect to
the Merger and EastGroup's proposed merger with Copley Properties, Inc.
("Copley"), on the basis described in the notes to the Pro Forma Consolidated
Financial Statements (Unaudited). See "Information Concerning EastGroup." This
information is not necessarily indicative of the results that actually would
have occurred and should be read in conjunction with the Pro Forma Financial
Statements (Unaudited) included elsewhere in this Proxy Statement/Prospectus.
7
<PAGE> 21
<TABLE>
<CAPTION>
Twelve Months Ended Nine Months Ended
December 31, 1994 for September 30, 1995 for
EastGroup, LNH and Copley(1) EastGroup, LNH and Copley(1)
----------------------------- -------------------------------
(In thousands, except per share data)
Unaudited Pro Forma Consolidated
Operation Data:
<S> <C> <C>
Net Revenues $ 46,909 $34,454
Expenses 42,687 30,600
Income before gain on investments 4,222 4,854
Net income 4,185 4,854
Net income per share 0.61 0.69
Weighted average number of shares
of beneficial interest outstanding 6,885 6,996
</TABLE>
<TABLE>
<CAPTION>
As of September 30, 1995
for EastGroup, LNH and Copley(1)
--------------------------------
(In thousands)
Unaudited Pro Forma Consolidated
Balance Sheet Data:
<S> <C>
Total assets $288,332
Total liabilities 145,777
Shareholders' equity 142,555
<FN>
- ---------------------------
(1) EastGroup, LNH and Copley have a December 31 fiscal year.
</TABLE>
SELECTED COMPARATIVE PER SHARE DATA
The following tables set forth certain information concerning EastGroup
Shares, LNH Shares and Copley shares. Entries captioned "EastGroup pro forma
consolidated" is EastGroup's and LNH's historical data combined and adjusted to
give effect to the Merger and EastGroup's proposed merger with Copley on the
basis described in the notes to the Pro Forma Consolidated Financial Statements
(Unaudited). LNH's equivalent pro forma consolidated per share data is
determined by multiplying the EastGroup pro forma consolidated data by
8
<PAGE> 22
the number of shares EastGroup issues to LNH shareholders (617,000) divided by
the total number of weighted average shares outstanding after the proposed LNH
and Copley mergers (6,885,000 for the twelve months ended December 31, 1994 and
6,996,000 for the nine months ended September 30, 1995). Copley's equivalent
pro forma consolidated per share data is determined by multiplying the
EastGroup pro forma consolidated data by the number of shares EastGroup issues
to Copley shareholders (2,154,000) divided by the total number of weighted
average shares outstanding after the proposed LNH and Copley mergers (6,885,000
for the twelve months ended December 31, 1994 and 6,996,000 for the nine months
ended September 30, 1995).
The following data should be read in conjunction with the Pro Forma
Consolidated Financial Statements (Unaudited) included elsewhere in this Proxy
Statement/Prospectus, EastGroup's Consolidated Financial Statements
incorporated by reference in this Proxy Statement/Prospectus and LNH's
Financial Statements incorporated by reference in this Proxy
Statement/Prospectus and Copley's Financial Statements included herein.
<TABLE>
<CAPTION>
As of September 30, 1995
for EastGroup, LNH and Copley
------------------------------
Book value per share of beneficial interest:
<S> <C>
EastGroup historical
EastGroup pro forma consolidated
$19.22
Book value per share of common stock:
LNH historical 20.37
10.85
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
LNH equivalent pro forma consolidated 1.80
Book value per share of common stock:
Copley historical 10.66
Copley equivalent pro forma consolidated 6.27
</TABLE>
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, 1994 September 30, 1995
----------------- ------------------------
<S> <C> <C>
EastGroup:
Historical net income per share of
beneficial interest $1.74 $1.14
Pro forma consolidated net income per
share of beneficial interest
.61 .69
Historical consolidated cash dividends
declared per share of beneficial 1.31 1.37
interest
</TABLE>
9
<PAGE> 23
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, 1994 September 30, 1995
----------------- ------------------------
<S> <C> <C>
LNH:
Historical net income per share of
common stock $0.12 $0.52
Equivalent pro forma consolidated net
income per share of common stock
0.05 0.06
Historical cash dividends declared per
share of common stock 1.96 0.93
Equivalent pro forma consolidated cash
dividends declared per share of common
stock 0.12 0.12
COPLEY:
Historical net income (loss) per share of
common stock $(.15) $ .15
Equivalent pro forma consolidated
net income per share of common stock .19 .21
Historical cash dividends declared per
share of common stock .94 .79
Equivalent pro forma consolidated cash
dividends declared per share of common
stock .41 .72
</TABLE>
10
<PAGE> 24
RISK FACTORS
In analyzing the Merger, shareholders of LNH should consider, among
other factors, the following:
CONFLICTS OF INTEREST
Two members of the four-person Board of Directors of LNH (Messrs.
Speed and Bailey) are also members of the Board of Trustees of EastGroup, and
have abstained from voting on the Merger as members of LNH's Board. Three
officers of LNH are also officers of EastGroup. The Special Committee of the
LNH Board of Directors received much of the financial, economic and other data
upon which it relied in its decision making process from management personnel
of LNH who are also management personnel of EastGroup.
EastGroup and LNH, along with four other companies, were parties to
expense-sharing arrangements pursuant to which certain executive officers of
LNH also served as executive officers of EastGroup. These expense-sharing
arrangements were terminated on December 31, 1994. See "The Merger --
Expense-Sharing Arrangements." Pursuant to an Administration Agreement,
EastGroup and LNH were parties to certain arrangements concerning the
administration of LNH. The Administration Agreement was terminated effective
March 31, 1995. Additionally, pursuant to a Management Agreement, EastGroup's
wholly-owned subsidiary, EGP Managers, is currently responsible for the
management of LNH subject to the oversight of LNH's Board of Directors. See
"The Merger -- Expense-Sharing Arrangements."
The relationships between LNH and EastGroup described above may have
resulted or may result in the directors and officers of LNH having a conflict
of interest with the shareholders of LNH in the negotiation, proposal,
recommendation and consummation of the Merger. In this regard, the idea of
combining LNH and EastGroup originated with common management. There can be no
assurance that the terms and conditions of the Merger were not affected by
these relationships.
BENEFITS TO LNH AFFILIATES
Pursuant to the Merger Agreement, EastGroup has agreed to indemnify
each of the members of the Board of Directors of LNH against certain
liabilities, including any liability arising under the Merger Agreement or in
connection with the Merger.
11
<PAGE> 25
CERTAIN EFFECTS OF THE MERGER
If the Merger is approved, shareholders of LNH will become
shareholders of EastGroup. The shareholders of LNH other than EastGroup, who
currently beneficially own 77% of the outstanding LNH Shares, will only own
approximately 13% of EastGroup Shares outstanding after the Merger and,
accordingly, will have less voting power and less of a percentage interest in
LNH assets which will become assets of EastGroup by reason of the Merger.
RISKS OF REAL ESTATE OWNERSHIP
EastGroup's assets primarily consist of equity investments in various
types of real property. If the Merger is consummated, shareholders of LNH will
become shareholders of EastGroup, which will own all of the outstanding stock
of Sub, and Sub, by operation of law, will own all of the assets of LNH. As a
result, shareholders of LNH will be, as shareholders of EastGroup, subject to
the risks inherent in the ownership and management of real property owned by
both LNH and EastGroup. These risks include, among others: adverse changes in
general or local economic conditions; adverse changes in interest rates and in
the availability of permanent mortgage funds which may render the acquisition,
sale or refinancing of properties difficult or unattractive; existing law,
rules and regulations and judicial decisions regarding liability for a variety
of potential problems related to real estate generally; adverse changes in real
estate, zoning, environmental or land-use laws; increases in real property
taxes and federal or local economic or rent controls; other governmental rules;
increases in operating costs and the need for additional capital and tenant
improvements; the supply of and demand for properties; possible insolvencies
and other material defaults by tenants; overbuilding in certain markets;
ability to obtain or maintain full occupancy of properties or to provide for
adequate maintenance or insurance; the presence of hazardous waste materials;
mechanics liens resulting from construction; property related claims and
litigation; fiscal policies; and acts of God. The illiquidity of real estate
investments generally impairs the ability of real estate owners to respond
quickly to changed circumstances.
UNCERTAIN MARKET FOR AND PRICE OF EASTGROUP SHARES
There can be no assurance as to the trading volume or price of
EastGroup Shares after the Merger. Events outside the control of EastGroup and
LNH which would adversely affect the market value of their existing real estate
and other investments, as well as the market value of LNH Shares and EastGroup
Shares, may occur during the period from the date of this Proxy
Statement/Prospectus to the date the Merger is consummated or thereafter.
12
<PAGE> 26
DIVIDENDS
EastGroup has paid 63 consecutive quarterly cash distributions to its
shareholders. From December 1994 until September 1995, EastGroup paid a
quarterly distribution of $0.45 per EastGroup Share. Based on improvements in
EastGroup's funds from operations, in September 1995, the Board of Trustees
raised EastGroup's quarterly distribution from $0.45 to $0.47 per EastGroup
Share. Dividends paid during the twelve months ended June 30, 1995 totaled
$1.80 per EastGroup Share. EastGroup intends to maintain a conservative
dividend policy. Assuming an EastGroup Share price of $21.50 and the present
EastGroup quarterly dividend rate, a LNH shareholder can expect an annual
dividend of $0.71 per LNH Share cancelled in the Merger. Dividends paid by LNH
during the fourth quarter of 1995 were $0.15 per LNH Share ($0.60 per LNH Share
on an annualized basis). See "Market Prices and Dividends" and "LNH Directors'
Reasons For Recommending the Merger." For federal income tax purposes,
EastGroup has determined that of the $1.84 per EastGroup Share distributed in
1995, none was a return of capital and all was ordinary income. See "The
Merger--Taxation of EastGroup." Further distributions by EastGroup will be at
the discretion of its Board of Trustees and will depend on EastGroup's actual
cash available for distribution, its financial condition, capital requirements,
the annual distribution requirements under the REIT provisions of the Code and
such other factors as the Board of Trustees deems relevant.
NO DISSENTERS' RIGHTS
Shareholders of LNH who vote against the Merger (or do not vote) will
be bound by the results of the vote if LNH's shareholders approve the Merger.
Dissenting shareholders will not have appraisal rights in connection with, or
as a result of, the matters to be acted upon relating to the Merger at the
Meeting. See "The Merger--No Dissenters' Rights."
CONTINUATION OF REIT STATUS
EastGroup is a REIT. If the Merger is approved, the shareholders of
LNH will become shareholders of EastGroup and, consequently, will continue to
experience the tax benefits available to REITs. Continuation of these tax
benefits will depend on EastGroup continuing to meet the various REIT
qualification rules, which include: (a) maintaining ownership of specified
minimum levels of real estate related assets; (b) maintaining specified minimum
levels of real estate related income; (c) maintaining certain ownership
restrictions on its shares of beneficial interest; and (d) distributing
substantially all real estate investment taxable income on an annual basis. The
consummation of the Merger should not affect EastGroup's continuing ability to
13
<PAGE> 27
qualify as a REIT. See "The Merger -- Taxation of EastGroup" and "The Merger --
Taxation of the Shareholders of a REIT."
DIFFERENCES BETWEEN RIGHTS OF EASTGROUP SHAREHOLDERS AND LNH SHAREHOLDERS
If the Merger is consummated, the rights of the holders of LNH Shares
that are converted into EastGroup Shares pursuant to the Merger will be
governed by the Maryland General Corporation Law and Maryland Real Estate
Investment Trusts Law and the rights of holders of EastGroup Shares will differ
from the rights of holders of LNH Shares by virtue of different provisions
appearing in the charter documents of these two companies and different
statutory provisions. Certain differences between the rights of stockholders
of EastGroup and the rights of stockholders of LNH include the following: (i)
shareholders of EastGroup are limited by the EastGroup Declaration to vote only
on the election and removal of trustees, amendment of the EastGroup Declaration
and termination of EastGroup, whereas LNH shareholders are not restricted by
the LNH Articles or by Maryland Law as to those matters upon which LNH
shareholders may vote, (ii) the EastGroup Declaration requires the affirmative
vote of the holders of not less than two-thirds of the EastGroup Shares then
outstanding to remove a trustee from office, to amend the EastGroup Declaration
and to terminate EastGroup, whereas LNH requires only the affirmative vote of
the holders of a majority of the LNH Shares outstanding and entitled to vote
for comparable actions involving LNH, and (iii) the LNH charter documents
provide that the Chairman of the Board of Directors, the President or a
majority of the Board of Directors may call a special meeting of LNH
shareholders, whereas any trustee or officer of EastGroup, upon receiving the
written request of EastGroup shareholders holding not less than 25 percent of
the outstanding EastGroup Shares, shall call a special meeting of EastGroup
shareholders. See "Differences in Shareholders' Rights."
14
<PAGE> 28
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to the shareholders
of LNH in connection with the solicitation of proxies by the Board of Directors
of LNH for use at the Meeting, which will be held on ______________, 1996, at
___________, local time, at LNH's offices, 300 One Jackson Place, 188 East
Capitol Street, Jackson, Mississippi, and at all adjournments and postponements
thereof.
As set forth more fully below, at the Meeting, the holders of LNH
Shares will be asked to consider and vote upon a proposal to approve and adopt
the Merger Agreement. A copy of the Merger Agreement is attached as Appendix A
to this Proxy Statement/Prospectus, and is hereby incorporated by this
reference into this Proxy Statement/Prospectus. Upon satisfaction of certain
conditions set forth therein, the Merger Agreement provides for, among other
things, (i) the merger of LNH with and into Sub, (ii) the conversion of each
LNH Share outstanding into the right to receive a certain amount of EastGroup
Shares based upon the Exchange Ratio (as defined below); and (iii) LNH's
ceasing to exist as a separate legal entity.
THE MERGER AGREEMENT
The statements and descriptions contained in this Proxy
Statement/Prospectus with respect to the terms and conditions of the Merger
Agreement are intended only as a summary of the material terms of the Merger
and all descriptions of the transaction and of the Merger Agreement and are
qualified in their entirety by the detailed provisions set forth in the Merger
Agreement reprinted as Appendix A. Each shareholder of LNH is advised to read
the Merger Agreement carefully.
General. The Merger Agreement provides that, subject to the approval
and adoption thereof by the shareholders of LNH and the satisfaction of the
other conditions set forth therein, LNH will be merged with and into Sub and
LNH will cease to exist as a separate legal entity. At the time the Merger
becomes effective, each LNH Share will be converted into the right to receive a
certain number of EastGroup Shares based on the following Exchange Ratio. The
Exchange Ratio is the number of EastGroup Shares determined by dividing $8.10
by the average closing price for EastGroup Shares for the 10 trading days
preceding the closing of the Merger (the "Closing Price"). It is the intention
of the parties to consummate the Merger as soon as possible following adoption
and approval of the Merger Agreement by the shareholders of LNH and
satisfaction of all conditions (or, to the extent permitted, waiver thereof) to
the parties' respective obligations to consummate the Merger. The Merger will
become effective when Articles of Merger are filed with the Secretary of State
of the State of Maryland and any other necessary documents are so filed (the
"Effective Time"), which will occur on or about the date of the Meeting.
15
<PAGE> 29
Exchange of Shares. At the Effective Time, each outstanding LNH Share
will be converted into the right to receive a certain amount of EastGroup
Shares based on the Exchange Ratio. No fractional EastGroup Shares will be
issued but, in lieu thereof, each holder of LNH Shares entitled to receive a
fractional EastGroup Share will be paid cash in an amount equal to the value of
such fractional share, which value will be based on the Closing Price. No
interest will be paid or accrued on any cash amounts payable in lieu of
fractional shares.
Each holder of one or more certificates that represent LNH Shares
prior to the Effective Time will be required to surrender such stock
certificate(s), together with a duly executed Letter of Transmittal, to the
Exchange Agent, in order to receive a new certificate representing the number
of whole EastGroup Shares into which such LNH Shares were converted in the
Merger and the cash payable with respect to any fractional shares, as set forth
in the Merger Agreement. From and after the Effective Time of the Merger, until
so surrendered, each certificate that theretofore represented LNH Shares will
be deemed for all purposes to evidence the number of whole shares of EastGroup
into which such LNH Shares were converted in the Merger, except that dividends,
if any, with respect to such LNH Shares will not be paid until the certificates
for LNH Shares are forwarded to the Exchange Agent together with a properly
completed Letter of Transmittal, at which time the shareholder will receive all
unpaid dividends, if any, with respect to such LNH Shares, without interest.
Promptly after the Effective Time, each LNH shareholder will be sent a form of
Letter of Transmittal which sets forth instructions concerning procedures to be
followed for the submission of LNH Share certificates to the Exchange Agent
after the Effective Time.
If a new certificate representing EastGroup Shares is to be issued in
the name of a person other than the one to whom the surrendered LNH Share
certificate is registered on the stock transfer books of LNH immediately prior
to the Effective Time, it will be a condition of such issuance that the
certificate so surrendered be properly endorsed or otherwise be in proper form
for transfer and that the person requesting such issuance either pay to the
Exchange Agent any transfer or other taxes required by reason of the issuance
to a person other than the registered owner of the certificate or establish
that such tax has been paid or is not applicable.
At and after the Effective Time, there will be no transfers of LNH
Shares on the books of LNH.
Conditions to the Merger. The obligations of EastGroup, Sub and LNH to
effect the Merger are subject to the fulfillment or waiver of, among others,
the following conditions: (i) no "stop order" shall be in effect with respect
to the Registration Statement of which this Proxy Statement/Prospectus forms a
part and there shall be no proceeding instituted or threatened by the SEC or
any state to suspend the effectiveness thereof; (ii) the holders of outstanding
LNH Shares shall have approved the Merger Agreement as required by LNH's
organization documents and Maryland law; (iii) all necessary permits,
authorizations, regulatory approvals and consents necessary for the
consummation of the Merger shall have been received; and (iv) the Effective
Time shall have occurred on or before April 15, 1996.
16
<PAGE> 30
The obligations of EastGroup and Sub to effect the Merger are also
subject to the fulfillment or waiver of certain additional conditions,
including the following: (i) the material accuracy of the representations and
warranties made by LNH in the Merger Agreement; (ii) the material compliance by
LNH with all agreements contained in the Merger Agreement required to be
performed by it prior to the Effective Time; (iii) the absence of any action or
proceeding that seeks to restrain, enjoin or otherwise prohibit the Merger;
(iv) the receipt by EastGroup of an opinion of counsel to LNH as to certain
specified matters, including LNH's good standing and existence, and LNH's
authorization, execution and delivery of the Merger Agreement; (v) the receipt
of all permits, authorizations, regulatory approvals and consents from third
parties necessary for consummation of the Merger; and (vi) the absence of any
material adverse developments with respect to the business or assets of LNH.
The obligation of LNH to consummate the Merger is also subject to the
fulfillment or waiver of certain additional conditions, including the
following: (i) the material accuracy of the representations and warranties made
by EastGroup and Sub in the Merger Agreement; (ii) the material compliance by
EastGroup and Sub with all agreements contained in the Merger Agreement
required to be performed by them prior to the Effective Time; (iii) the absence
of any action or proceeding that seeks to restrain, enjoin or otherwise
prohibit the Merger; (iv) the receipt by LNH of an opinion of counsel to
EastGroup and Sub as to certain specified matters, including the good standing
and existence of EastGroup and Sub, and the due authorization, execution and
delivery by EastGroup and Sub of the Merger Agreement; (v) the confirmation by
Rauscher Pierce of its fairness opinion described below as of the day before
the date of the Effective Time; (vi) the receipt of all permits,
authorizations, regulatory approvals and consents from third parties necessary
for consummation of the Merger; and (vii) the absence of any material adverse
development with respect to the business or assets of EastGroup.
Amendment and Termination of the Merger Agreement. The Merger
Agreement may be amended at any time, whether before or after approval of the
Merger Agreement by LNH shareholders, by LNH, EastGroup and Sub; provided,
however, that after any such approval, no amendment shall be made without the
further approval of LNH shareholders if it decreases the number of EastGroup
Shares to be exchanged for LNH Shares or adversely affects the rights of LNH
shareholders.
The Merger Agreement may be terminated by the mutual consent of the
Boards of Trustees and Directors of EastGroup, Sub and LNH at any time prior to
the Effective Time, whether before or after approval of the Merger Agreement by
the shareholders of LNH. In addition, the Merger Agreement may be terminated
(i) by EastGroup or LNH if the Effective Time has not occurred on or before
April 15, 1996, (ii) by the Board of Trustees of EastGroup if the conditions to
its closing are not satisfied prior to the Effective Time, or (iii) by the
Board of Directors of LNH if the conditions to its closing are not satisfied
prior to the Effective Time.
In the event either EastGroup or LNH elects to terminate the Merger
Agreement because the other party has breached any covenant in the Merger
Agreement or any representation or warranty by the other party is untrue in any
material respect, the party in breach shall pay to
17
<PAGE> 31
the non-terminating party its out-of-pocket expenses incurred in connection
with the Merger and the non-terminating party will have any other remedy
available at law or in equity.
If the Merger is consummated, EastGroup has agreed to indemnify each
person who becomes an employee, agent, officer or trustee of EastGroup with
respect to claims arising after the Effective Time, and LNH has agreed to
indemnify each person who was an employee, agent, officer or director of LNH
prior to the Effective Time with respect to claims arising in connection with
such person's service. EastGroup has also agreed to assume any liability of LNH
pursuant to such indemnification to the extent of any distributions from LNH to
EastGroup or any affiliate or to the extent of any claim against any person
indemnified by LNH arising under the Merger Agreement or pursuant to the
Merger.
No business will be presented, or be in order for consideration, at
the Meeting other than the proposal described above and such matters as may be
necessary in connection therewith.
EastGroup is not required to submit the Merger to its shareholders for
approval under Maryland law or under the EastGroup Declaration and EastGroup
has elected not to do so.
VOTING AND PROXY INFORMATION
The Board of Directors of LNH has fixed the close of business on
__________, 1996 as the record date for determining the holders of LNH Shares
entitled to receive notice of and to vote at the Meeting (the "Record Date").
At the close of business on the Record Date, there were outstanding 2,200,000
LNH Shares, the only outstanding securities of LNH entitled to vote at the
Meeting. Approval of the Merger will require the affirmative vote of the
holders of at least two-thirds of the outstanding LNH Shares.
The accompanying proxy is solicited on behalf of the Board of
Directors of LNH and is revocable at any time before it is exercised. A proxy
may be revoked by written notice of revocation or by a later dated proxy, in
either case delivered to the Secretary of LNH. Attendance at the Meeting will
not automatically revoke a proxy, but a shareholder in attendance may request a
ballot and vote in person, thereby revoking a prior granted proxy.
All outstanding LNH Shares represented by properly executed and
unrevoked proxies received in the accompanying form in time for the Meeting
will be voted. Shareholders may (i) vote "FOR" approval of the Merger
Agreement, (ii) vote "AGAINST" approval of the Merger Agreement, or (iii)
"ABSTAIN" from voting on the Merger Agreement. A vote to abstain from voting on
the Merger Agreement (as well as a failure to vote at all) would have the
effect of a vote against the Merger Agreement. LNH Shares will be voted as
instructed in the accompanying proxy. If no instructions are given, the shares
will be voted for approval of the Merger Agreement.
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<PAGE> 32
A proxy submitted by a shareholder may indicate that all or a portion
of LNH Shares represented by such proxy are not being voted by such
shareholder. This could occur, for example, when a broker is not permitted to
vote shares held in street name in the absence of instructions from the
beneficial owner of the shares (a "broker non-vote"). Broker non-votes will be
counted in determining whether a quorum is present at the Meeting, but such
shares will not be counted as having voted for or against the Merger and will
have the effect of having been voted against the Merger Agreement, as approval
of the Merger Agreement will require the affirmative vote of two-thirds of the
outstanding LNH Shares.
The following table sets forth information concerning ownership of LNH
Shares by each person known to LNH to be the beneficial owner of more than five
percent of the outstanding LNH Shares based on public filings with the SEC as
of the Record Date.
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percent
of Beneficial Owner Beneficial Ownership of Class
- ------------------------------------------------------------------ ----------------------------- -----------
<S> <C> <C>
EastGroup ........................................................ 515,200(1) 23.42%
300 One Jackson Place
188 East Capitol Street
Jackson, Mississippi 39201
Cardinal Portfolios Company and others............................ 139,600(2) 6.35%
500 Crescent Court
Suite 250
Dallas, Texas 75201
Dimensional Fund Advisors Inc..................................... 139,100(3) 6.32%
1299 Ocean Avenue
Suite 650
Santa Monica, California 90401
Spiritas, Inc..................................................... 110,800(1) 5.04%
5219 Second Avenue
Dallas, Texas 75210
</TABLE>
- ---------------------------------
(1) Based upon an amended Schedule 13D filed with the SEC.
(2) Based upon an amended Schedule 13D filed with the SEC by Cardinal
Portfolios Company ("Cardinal") and certain individuals and entities
that have business and personal relationships with the principals of
Cardinal.
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<PAGE> 33
(3) As disclosed in a filing with the SEC dated February 11, 1992, on
Schedule 13G by Dimensional Fund Advisors Inc. ("Dimensional"),
as registered investment advisor, Dimensional is deemed to have
beneficial ownership of 139,100 LNH Shares, all of which LNH Shares
are held in portfolios of DFA Investment Dimensions Group, Inc., a
registered open end investment company, or the DFA Group Trust and DFA
Participation Group Trust, investment vehicles for qualified employee
benefit plans, for all of which Dimensional serves as investment
manager. Dimensional disclaims beneficial ownership of all such LNH
Shares.
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<PAGE> 34
THE MERGER
BACKGROUND OF THE MERGER
In 1992, EastGroup and Walker Investments, L.P. and affiliated
entities including Walker Investments, L.P., whose general partner is Billco,
Inc., a Mississippi corporation wholly-owned by the William E. Walker, Jr.
Revocable Trust, a grantor trust of which the late William E. Walker, Jr. was
settlor, and the W. E. Walker Foundation, a Mississippi charitable foundation,
(collectively the "Walker Interests") began to purchase LNH Shares in open
market transactions. At the time of these purchases Lomas Financial Corporation
("LFC") was under court protection from its creditors under Chapter 11 of the
United States Bankruptcy Code. LFC owned 16% of the outstanding LNH Shares. In
early 1992, EastGroup and the Walker Interests entered into an agreement with
LFC pursuant to which the Walker Interests and EastGroup jointly purchased the
LNH Shares owned by LFC (75% by the Walker Interests, 25% by EastGroup), and a
partnership affiliated with EastGroup and Walker became the manager for LNH
under the Management Agreement as part of the purchase. As a result of the
purchase of LNH Shares from LFC, EastGroup and the Walker Interests jointly
owned 23.12% of the outstanding LNH Shares.
In March 1995, EastGroup announced that it had agreed to purchase the
383,775 LNH Shares owned by the Walker Interests for $7.50 per LNH Share in
cash. At the same time, EastGroup also agreed to purchase the Walker Interests'
share of the partnership that was the manager under the Management Agreement
for $183,738 in cash. As a result of these transactions, which were consummated
in April 1995, EastGroup became the beneficial owner of a total of 515,200 LNH
Shares (23.42%). At the time that management proposed that EastGroup purchase
the LNH Shares from the Walker Interests, management also suggested that a
future business combination transaction between LNH and EastGroup might be
appropriate. When it announced the agreements with the Walker Interests,
EastGroup also announced that it had formed a Special Committee comprised of
independent trustees (Alexander G. Anagnos and Harold B. Judell) to consider
EastGroup's future strategy for its investment in LNH. EastGroup also disclosed
at that time that its future strategy with respect to LNH could include a
business combination transaction in which EastGroup would be the surviving
entity. LNH formed a similar committee, comprised entirely of disinterested
directors (Robert Ted Enloe and George R. Farish).
During early April 1995, both Special Committees requested that
management provide them with information with respect to LNH, EastGroup, their
assets and the historic prices of LNH Shares and EastGroup Shares. EastGroup's
Special Committee held a meeting by telephone on April 13, 1995, in which
Messrs. Anagnos and Judell participated along with counsel and N. Keith McKey,
Chief Financial Officer of both LNH and EastGroup. Mr. McKey answered the
EastGroup Special Committee's questions about the financial position and
results of operations of both LNH and EastGroup. The EastGroup Special
Committee requested that management provide it with additional information with
respect to LNH's assets.
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<PAGE> 35
On May 1, 1995, the EastGroup Special Committee held another meeting
by telephone, in which Messrs. Anagnos and Judell participated. Also present
were counsel, Mr. McKey and David H. Hoster II, President of EastGroup and
Executive Vice President of LNH. The Special Committee conducted a detailed
review of LNH's assets, and asked questions of the members of management
present. In particular, the Special Committee looked into the situation with
respect to the Cowesett Corners investment, which is a mortgage loan made by
LNH secured by a shopping center in Rhode Island. The borrower with respect to
this loan had sought protection under the United States Bankruptcy Code, and
the Special Committee was concerned as to the value of LNH's investment.
Later on May 1, 1995, the full EastGroup Board of Trustees held a
meeting at which the EastGroup Special Committee discussed its findings with
respect to LNH and recommended that EastGroup propose a business combination
transaction to LNH if acceptable terms could be negotiated. The Board decided
that EastGroup should hold off making such a proposal to LNH until legal
decisions with respect to Cowesett were rendered and the status of certain
other business combination transactions that EastGroup was studying became
clearer. With respect to Cowesett, the borrower pursuant to a mortgage secured
by the Cowesett Corners Shopping Center had filed for relief under Chapter 11
of the United States Bankruptcy Code on February 11, 1995. Following the filing
of various motions concerning issues of foreclosure, an agreement was reached
whereby the property would be sold to an unrelated third party and the lien
held by LNH and its co-investor would be released. The potential purchaser
decided not to proceed with the transaction and, following the proposed sale
deadline of November 30, 1995, LNH and its co-investor foreclosed their lien
and took title to the property on December 1, 1995. See "Information Concerning
LNH -- Recent Developments." With respect to other potential business
combinations, EastGroup was considering whether to engage in a business
combination transaction with Copley. EastGroup began acquiring shares of the
capital stock of Copley in April 1995 and made a proposal to merge with Copley
in May 1995. In the late summer of 1995 Copley advised EastGroup that it had
determined that it was in the best interest of Copley's shareholders to gauge
the market's interest in acquiring Copley by soliciting the interest of third
parties in merging with Copley or acquiring Copley's stock or assets. Following
an extended process during which Copley received a number of preliminary
proposals to merge with Copley or acquire Copley's stock or assets, including a
proposal submitted by EastGroup, Copley and EastGroup entered into an Agreement
and Plan of Merger dated February 12, 1996 (the "Copley Merger Agreement"). See
"Information Concerning EastGroup -- Recent Developments."
In mid-August 1995, common management suggested that it might be
appropriate for EastGroup to consider whether to propose a business combination
to LNH. The EastGroup Special Committee requested further information with
respect to LNH and also directed management to prepare financial analyses with
respect to a merger between LNH and EastGroup. The EastGroup Special Committee
met by telephone on August 28, 1995. Messrs. Anagnos and Judell, counsel, and
Messrs. McKey and Hoster participated in the meeting. After a discussion of the
present situation with respect to Cowesett Corners and the financial analysis,
the EastGroup Special Committee decided that it would like to meet with the LNH
Special
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<PAGE> 36
Committee. Counsel to EastGroup communicated to counsel for LNH the EastGroup
Special Committee's desire to meet LNH's Special Committee.
The LNH Special Committee met by teleconference on August 31, 1995.
Messrs. Farish and Enloe participated at the meeting, and also present was LNH
Counsel. Counsel reported that EastGroup management had requested the LNH
Special Committee to give preliminary consideration to a merger of LNH into
EastGroup based upon a ratio that would assume a value of LNH in the $7.50 per
share range and the value of EastGroup in the $20.00 per share range. After a
discussion of the assumed ratio, the Committee concluded that they were not
presently discouraged by the values of the assumed ratio, and that they saw
merit in the idea of a possible combination with EastGroup.
On September 6, 1995, the LNH Special Committee met again in Jackson,
Mississippi. Present at the meeting were Messrs. Farish, Enloe (via telephone)
and LNH counsel. Also present (via telephone) for a portion of the meeting was
Mr. G. Clyde Buck of Rauscher Pierce. Although Rauscher Pierce was not formally
engaged to deliver a fairness opinion until October 19, 1995, there was a
sufficient possibility of such an engagement that the Special Committee
believed it to be desirable to include Mr. Buck in this significant meeting. No
reports, oral or written, were provided by Mr. Buck at the September 6, 1995
meeting. The Committee discussed at length specific assets of LNH. Mr. Farish
gave a summary of the report on the Cowesett Corners property that had been
given to the full LNH Board of Directors at its regular meeting earlier in the
day. According to that report, a third party had made a preliminary offer to
purchase the property, but consummation of the purchase was subject to many
contingencies.
Simultaneously, the EastGroup Special Committee was also meeting in
Jackson, Mississippi. Present at the meeting were Messrs. Anagnos and Judell
and EastGroup counsel. Following discussion, the EastGroup Special Committee
proposed that there be a merger of LNH into EastGroup in which each LNH Share
would be valued at $7.50. Assuming a value per EastGroup Share of $20.00, the
shares of LNH would be exchanged for EastGroup Shares in the merger at a ratio
of one LNH Share for each .375 EastGroup Shares. This proposal was communicated
to the LNH Special Committee.
Following the discussion of the proposal of the EastGroup Special
Committee, the LNH Special Committee offered a counter-proposal whereby each
LNH Share would be converted into EastGroup Shares at a value of $8.40 per LNH
Share. The EastGroup Special Committee met separately to consider the proposal,
and decided that they could not recommend a transaction at that exchange ratio
because it would be dilutive to EastGroup's shareholders on a funds from
operations per share basis. Counsel for EastGroup met with the LNH Special
Committee and its counsel to explain EastGroup's position.
The LNH Special Committee once again met separately. With the
participation of Mr. Buck, the LNH Special Committee discussed a number of
factors, and sought additional information from LNH's Chief Financial Officer
and from EastGroup Counsel. After that meeting, counsel to EastGroup again met
with the LNH Special Committee and LNH's counsel,
23
<PAGE> 37
at which time the LNH Special Committee proposed that there be a merger of LNH
into EastGroup in which each LNH Share would be valued at $7.75. The EastGroup
Special Committee decided it could recommend a merger of LNH into an EastGroup
wholly-owned subsidiary in which each LNH Share was converted into EastGroup
Shares with a value of $7.75; PROVIDED, HOWEVER, that the exchange ratio would
not be greater than four tenths of one (0.4) EastGroup Share or less than three
hundred seventy five thousandths of one (0.375) EastGroup Share. On September
6, 1995, the agreement in principle between the Special Committees was publicly
announced.
The LNH Special Committee met again on October 27, 1995 by
teleconference. Present were Messrs. Farish and Enloe, and also present was LNH
Counsel. Following a discussion of the possible sale of the Cowesett Corners
property, and related issues, the LNH Special Committee decided to make
alternative proposals to the EastGroup Special Committee regarding the terms of
the merger, as follows: (1) assuming a sale of the Cowesett Corners property
prior to the merger with EastGroup, there would be an exchange of shares at the
previously agreed values, and the shareholders of LNH would also receive cash
equal to the amount realized from the sale of Cowesett Corners in excess of its
current net asset value; or (2) if no sale occurred, the exchange ratio in the
merger would be based upon a value of $8.00 per LNH Share.
The EastGroup Special Committee met by telephone on October 30, 1995
to consider the desire of the LNH Special Committee to revise the terms of the
Merger. Messrs. Anagnos, Judell and McKey and EastGroup counsel were present at
the meeting. The EastGroup Special Committee discussed the LNH Special
Committee's proposal and asked questions about the Cowesett Corners situation,
the complicated nature of the proposal made by the LNH Special Committee, and
the probability that the sale of Cowesett Corners would actually take place.
The EastGroup Special Committee decided that it would not agree to a
transaction in which consideration other than EastGroup Shares would be paid by
EastGroup. The EastGroup Special Committee decided to propose to LNH a
transaction in which each LNH Share would be converted into EastGroup Shares
with a value of $8.00, with floor and ceiling ratios of .368 and .393.
On November 3, 1995, the LNH Special Committee met to consider the
response of the EastGroup Special Committee to its October 27 proposal. Present
by teleconference were Messrs. Farish and Enloe, and also present was LNH
Counsel. Present for a portion of the meeting (via telephone) was Mr. Buck of
Rauscher Pierce. Following discussion, Mr. Enloe suggested that it would be
valuable for the LNH Special Committee to be furnished with an analysis by the
Chief Financial Officer of LNH as to what LNH might reasonably expect to
realize if all of its assets were liquidated within the next several months.
The LNH Special Committee determined to request such an analysis prior to
making any additional proposals to the EastGroup Special Committee.
The LNH Special Committee met again on November 30, 1995, by
teleconference. Present were Messrs. Farish and Enloe, and also present was Mr.
McKey, Chief Financial Officer of LNH. Mr. Farish reported that LNH was in the
process of foreclosure on the
24
<PAGE> 38
Cowesett Corners property, and would take title to it. Mr. Farish also reported
that a potential buyer was still interested in the property, but that any sale
of the property in the near future was not certain. There followed a discussion
of the liquidation analysis furnished to the LNH Special Committee by Mr.
McKey. The Committee determined that for a number of reasons it would be
preferable for LNH to combine with EastGroup rather than undertake other
strategic alternatives. (See "LNH Directors' Reasons for Recommending the
Merger.") The LNH Special Committee determined to propose that LNH merge into
EastGroup based upon a valuation of $8.10 per LNH Share and $21.00 per
EastGroup Share, with floor and ceiling ratios of .375 and .40.
The EastGroup Special Committee met by telephone on December 4, 1995
to consider the proposal of the LNH Special Committee. Present at the meeting
were Messrs. Anagnos and Judell and EastGroup counsel. The EastGroup Special
Committee once again analyzed the Cowesett Corners situation, the present price
of EastGroup Shares and the other assets of LNH. The EastGroup Special
Committee decided to request that management do an analysis of the effect that
the proposed merger as revised would have on EastGroup's funds from operations
per share. If that analysis showed that the proposed merger would not be
dilutive to EastGroup's funds from operations per share, the EastGroup Special
Committee would accept the proposal by the LNH Special Committee.
On December 6, 1995, the LNH Special Committee met in Atlanta,
Georgia. The LNH Special Committee determined that the shareholders should be
offered a specific dollar value of EastGroup Shares for their LNH Shares and
that the final exchange ratio should not be subject to a collar. They also
requested the 30 day trading period be reduced to 10 days. Later on December 6,
1995, the LNH Special Committee met with the EastGroup Special Committee, and
the two special committees reached the revised agreement in principle on the
Merger. The revised agreement in principle was announced on December 6, 1995.
On December 22, 1995, the Merger Agreement was executed by the parties.
LNH DIRECTORS' REASONS FOR RECOMMENDING THE MERGER
25
<PAGE> 39
At a Special Meeting of the LNH Board of Directors on December 22,
1995, the independent members of the Board of Directors voted unanimously, with
Messrs. Bailey and Speed abstaining, to approve the Merger Agreement and the
transactions contemplated thereby. The vote was based upon the Board's
determination that the proposed Merger was in the best interests of and fair to
the shareholders of LNH.
In making its determination, the Board considered the following
factors to be material to its decision:
1. Limited Opportunities for Growth. Due to a number of factors,
principally the real estate recession of the late 1980's and several poorly
performing investments, LNH has not experienced any growth in assets in the
last five years. Approximately 5% of LNH's assets were non-earning. Although
the real estate investment trust industry as a whole was experiencing a
recovery, the LNH Board believed that recovery was based substantially upon the
growth of real estate investment trusts that were focused on a single type of
property or a single geographic area, or both. The assets of LNH were located
in a number of different geographic areas and consisted of a number of
different types of properties, with no core group upon which LNH could base an
effort to generate new growth. At the time LNH commenced serious merger
discussions with EastGroup, in August 1995, the LNH Board believed that any
opportunities for short-term growth were negligible, and that there was no
clear assurance that a long-term growth strategy would result in a significant
improvement in shareholder value above that of the EastGroup offer.
2. Premium over Walker Purchase. On March 24, 1995, EastGroup entered
into an agreement with the Walker Interests pursuant to which EastGroup agreed
to purchase 383,775 shares of LNH for $2,878,312.50, or $7.50 per share, from
the Walker Interests. This substantial transaction was negotiated at arm's
length by a willing buyer and a willing seller with each having reasonably full
knowledge of all relevant facts and neither being under any compulsion to act.
The Board believed that the $7.50 per share price in March 1995 provided a
clear indication that an $8.10 per share price in December 1995 (with few
material changes in the asset value of LNH during the interim) was fair to and
in the best interests of the shareholders of LNH.
3. Premium over Market Value. During July 1995, immediately prior to
the time when serious merger discussions between LNH and EastGroup commenced,
the average market price for LNH stock was $6.375 per share. During the first
eight months of 1995, prior to the public announcement on September 6, 1995
that the two companies had reached an agreement in principle with respect to a
merger, the average market price of LNH stock was $6.27 per share. The $8.10
value per share to be received by the LNH shareholders represented a 27%
premium over the average market price of LNH stock during July 1995, and a 29%
premium over the average market price of LNH stock during the first eight
months of 1995. In addition,
26
<PAGE> 40
the $8.10 value represented a premium of 8% over a per share value of $7.50,
which was the highest price of LNH Shares during the 12 months prior to the
execution of the Merger Agreement on December 22, 1995.
4. Absence of Other Offers. On March 24, 1995, EastGroup filed a
Schedule 13D relating to the purchase of the Walker Interests in LNH Shares. In
describing the purpose of the transaction, EastGroup indicated that it had
formed a special committee of the EastGroup Board of Trustees to consider a
future strategy for its LNH investment, and that such a strategy might include
a business combination between LNH and EastGroup in which EastGroup would be
the surviving company. On September 6, 1995, the two companies announced
publicly that an agreement in principle on the exchange ratio of a
stock-for-stock merger had been reached between special committees of the
respective Boards. Between March 24, 1995, when the possibility that LNH might
be a merger candidate was first made public, and December 22, 1995, when LNH
and EastGroup entered into the Merger Agreement, a period of nearly nine
months, no offers to enter into a merger or other business combination were
received by LNH from any company other than EastGroup, nor did LNH receive
during that period any other indications of interest in such a transaction.
5. Merger Preferable to Liquidation. The Board considered whether an
orderly liquidation of the assets of LNH might provide more value to the
shareholders of LNH than a merger with EastGroup under the terms proposed. On
November 3, 1995, the LNH Special Committee requested from LNH management a
liquidation analysis which would show the amount of cash available for
distribution if all of LNH's assets were liquidated in a 12-month period. The
liquidation analysis was furnished to members of the LNH Special Committee on
November 8, 1995. The analysis, which consisted of estimates prepared by LNH
management and which was not based upon an independent valuation, concluded
that the estimated 12-month cash liquidation value of LNH's assets was
$19,835,671, or $9.02 per share. Assuming net operating income during the
12-month period of $1,039,516, the analysis estimated a total value of
$20,875,187, or $9.49 per share. After factoring in a discount of 9%,
representing the time value of money, the analysis concluded that the estimated
per share value of an LNH Share in such a liquidation process would be $8.68,
or an estimated $0.58 per share higher than the $8.10 offer from EastGroup.
Given this analysis, the LNH Board concluded that the difference in values was
insufficient for it to reject the EastGroup offer in favor of liquidation
because (i) the EastGroup offer was certain, while there could be no assurance
that the estimated liquidation values could be achieved in one year, (ii) a
merger with EastGroup could be accomplished in a relatively short period of
time, while a liquidation process might continue indefinitely and (iii) during
the liquidation process, LNH would continue to incur substantial fixed costs in
connection with the management of its residual assets (such costs having been
approximately $598,000 in fiscal 1993, $565,000 in fiscal 1994, and $574,000
for the first nine months of fiscal 1995).
6. Increase in Dividend Income. Based upon the dividend declared for
the fourth quarter of 1995, LNH was paying an annual cash dividend of $0.60 per
share, or $0.15 per quarter (up from $0.09 per quarter during the first three
quarters of 1995). Given a market
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<PAGE> 41
price of $7.50 per share in December of 1995, at the time the Merger Agreement
was entered into, the current dividend yield per LNH Share was 8%
($0.60/$7.50). During the same period, EastGroup was paying an annual cash
dividend of $1.88 per share, representing a current yield of 8.7% based upon a
market price for EastGroup Shares during December 1995 of $21.625
($1.88/$21.625). Assuming an exchange based upon values of $8.10 per LNH Share
and $21.625 per EastGroup Share, the dividend value per LNH Share would rise
from $0.60 per share on an annual basis to approximately $0.70 per share,
representing an increase of approximately 16.7%.
7. Improved Liquidity. The Board believed that exchanging LNH stock
for EastGroup stock would provide greater liquidity for LNH shareholders, based
upon the following: (i) the market capitalization of EastGroup was 4,227,000
shares compared to 2,200,000 for LNH; (ii) the average daily trading volume
during the first nine months of 1995 was 5,618 for EastGroup compared to 1,854
for LNH; and (iii) EastGroup Shares were followed by four research analysts
compared to none for LNH.
8. Tax Considerations. The Board of Directors viewed as favorable to
its determination the fact that the transaction is structured as a tax free
reorganization, thus providing its shareholders the opportunity to share as
equity participants in EastGroup's on-going activities without payment of any
federal income tax, while preserving the ability of those LNH shareholders who
wish to obtain cash the continued ability to do so by sale of the EastGroup
shares received in the Merger on the open market.
9. Fairness Opinion. In making its determinations, the Board took into
consideration the opinion of Rauscher Pierce that, as of the date of such
opinion, the consideration to be received by the shareholders of LNH pursuant
to the proposed Merger was fair to the shareholders of LNH from a financial
point of view. While the Board did not explicitly adopt Rauscher Pierce's
financial analyses, the Board placed special emphasis on such analyses in its
overall evaluation of the Merger and viewed such analyses as favorable to its
determination. The Board viewed Rauscher Pierce's opinion as favorable to its
determination because Rauscher Pierce is a nationally recognized investment
banking firm with experience in evaluation of businesses and their securities
in connection with mergers and other business combinations, and with experience
in providing services to real estate investment trusts in particular. The
opinion of Rauscher Pierce as to the fairness of the exchange ratio was
confirmed in writing on December 21, 1995.
10. No Break-Up Fee. The LNH Board took into consideration that the
terms of the Merger Agreement did not impose a termination fee or obligation to
reimburse EastGroup's expenses in the event that LNH should terminate the
Merger Agreement and accept a competing offer from another company.
The LNH Board also considered the following potentially negative
factors in its deliberations concerning the Merger:
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1. Discount to Book Value. As of September 30, 1995, the book value of
LNH's assets was $23,877,000, or $10.85 per share. At a value per LNH Share of
$8.10, the EastGroup offer represented a discount of approximately 25% from
LNH's book value per share. However, based upon the November 8, 1995
liquidation analysis discussed above, the Board believed that a one year
liquidation of assets resulted in a liquidation value lower than their book
value. The LNH Board did not seek an independent appraisal of the liquidation
value of LNH's assets, primarily because the Board believed that such an
appraisal would substantially confirm the valuations provided by LNH Management
and that the expense of such an appraisal would be unjustified.
2. No Auction Process. The Board considered the advisability of
engaging a financial advisor to conduct an auction process for the sale of
LNH's stock or assets, but elected not to do so. Had such an advisor been
retained, merger candidates or bidders other than EastGroup may have been
identified, and other offers may have been obtained based upon a valuation of
LNH stock higher than $8.10 per share. The Board believed, however, that the
expense to LNH of such a bidding process was likely to equal or exceed any
increase in valuation. Moreover, given the fact that LNH and EastGroup were
both listed on the NYSE and the public announcement of merger discussions had
not elicited any indications of interest from other potential bidders (as
discussed above), the Board believed that an auction process was unlikely to
identify other bidders willing to make competing offers significantly higher in
value than the offer of EastGroup.
3. Uncertain Market and Price. The Board considered that there
could be no assurance as to the trading volume or price of EastGroup Shares
after Merger. See "Risk Factors--Uncertain Market for and Price of EastGroup
Shares."
4. Diluted Voting Power. The Board considered that the shareholders
of LNH, other than EastGroup, who currently beneficially own 77% of the
outstanding LNH stock will only own 13% of EastGroup stock outstanding after
the Merger and, accordingly, will have less voting power and less of a
percentage interest in LNH assets which will become assets of EastGroup by
reason of the Merger. See "Risk Factors--Certain Effects of the Merger."
In view of the wide variety of factors considered by the LNH Board of
Directors, the LNH Board did not quantify or otherwise attempt to assign
relative weights to the specific factors considered in making its
determination. However, the LNH Board concluded that the potentially negative
factors considered by it were not sufficient, either individually or
collectively, to outweigh the positive factors considered by the Board in its
deliberations relating to the Merger.
In the event the Merger is not consummated for any reason, LNH will
continue to pursue its business objectives of maximizing the value of its
assets and reducing overhead and fixed costs to increase its net cash flow. LNH
may also seek other financial or strategic business
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combinations. The LNH Board of Directors believes that there are no feasible
alternatives to the Merger available to LNH at the present time that are likely
to significantly improve the profitability of LNH's existing operations or
result in greater shareholder value.
EASTGROUP'S REASONS FOR EFFECTING THE MERGER
The Board of Trustees of EastGroup believes that the Merger is fair to
and in the best interest of EastGroup and its shareholders. In reaching this
determination, the EastGroup Special Committee and Board of Trustees of
EastGroup consulted with EastGroup management, legal counsel and accountants
and considered a number of factors. The material factors considered by
EastGroup's Board of Trustees in reaching the foregoing conclusions are
described below.
In making its determination with respect to the Merger and the
consideration to be paid to LNH shareholders in the Merger, the EastGroup
Special Committee and Board of Trustees considered the following factors, all
of which the Board of Trustees deemed favorable, in approving the Merger and
the Merger Agreement:
(i) The Merger would increase the total market capitalization of
EastGroup. Based upon the analysis provided to the EastGroup Board of Trustees
by EastGroup management, the Merger would increase the number of outstanding
EastGroup Shares by approximately 13%. This is in furtherance of the Board of
Trustees' goal of increasing EastGroup's market capitalization. The Board had
examined other methods of increasing EastGroup's market capitalization, such as
a public or private offering of EastGroup Shares, but believed that such a sale
of securities was not in the best interests of EastGroup's shareholders at that
time.
(ii) The Board reviewed information relating to the financial
performance, business operations and prospects of LNH and EastGroup and current
industry, economic and market conditions. In this regard, the EastGroup Board
placed special emphasis on and viewed as favorable to its determination the
analysis prepared by EastGroup management which indicated that the Merger would
be not dilutive to EastGroup's FFO per share and cash available for
distribution per share.
(iii) The Merger would reduce the ratio of EastGroup's total debt to
total market capitalization from 45% to 42% as of September 30, 1995 because
LNH has no indebtedness. The EastGroup Board believed that this would increase
EastGroup's liquidity by making it a more attractive borrower to lending
institutions.
(iv) The Board considered the effect that the Merger would have on
other business combination transactions that EastGroup was considering. The
Board believed that each would be beneficial to the existing shareholders of
EastGroup and that the increase in EastGroup's market capitalization and the
decrease in the ratio of EastGroup's total debt to total market capitalization
would make EastGroup Shares more attractive as consideration for other business
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combination transactions and increase the likelihood that such other business
combination transactions would be completed.
(v) The Merger would result in ongoing cost savings, such as legal,
audit, shareholder relations and directors' fees, initially estimated to be
approximately $400,000 per year, approximately 25% of which would have been
borne by EastGroup shareholders through EastGroup's ownership of LNH.
(vi) The Merger could be effected through the issuance of EastGroup
Shares, which the Board viewed as favorable and in accordance with its goal of
increasing EastGroup's market capitalization.
The Board also considered the following factors, all of which the
Board considered negative in its deliberations concerning the Merger:
(i) The uncertainty with respect to the Cowesett Corners Shopping
Plaza, and the legal proceedings in connection therewith. As the status of
Cowesett Corners became more certain, the EastGroup Board became willing to
increase the amount of consideration per LNH shareholders. See "Background of
Merger."
(ii) The fact that certain of LNH's assets consisted of non-recourse
loans secured by undeveloped real property in Houston, Texas.
(iii) The transaction costs to be incurred in connection with
consummating the Merger (approximately $300,000) and the substantial management
time and effort required to effectuate Merger.
(iv) The risk that the anticipated benefits of the Merger might
not be fully realized.
In the opinion of the EastGroup Special Committee and Board, the
factors listed above represent the material potential risks and adverse
consequences to EastGroup's existing shareholders which could occur as a result
of the Merger. Considering the Merger, the Special Committee and Board
considered the impact of these risks and consequences on EastGroup's existing
shareholders. In the opinion of the EastGroup Board, however, these potential
risks and consequences were outweighed by the potential favorable factors
considered by the Board which are described above. Accordingly, the EastGroup
Board voted to approve the Merger and the Merger Agreement as recommended by
the EastGroup Special Committee. In view of the wide variety of factors
considered by the EastGroup Board and Special Committee in determining whether
to enter into the Merger and the consideration to be paid to LNH shareholders,
the EastGroup Board did not quantify or otherwise attempt to assign relative
rights to the specific factors considered in making this determination.
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LNH FAIRNESS OPINION
LNH engaged Rauscher Pierce on October 19, 1995 to evaluate the
fairness from a financial point of view of the consideration to be received in
the Merger by the shareholders of LNH. Rauscher Pierce has not performed
investment banking services for LNH or EastGroup during the past five years,
but it has performed investment banking services for The Parkway Company, First
Continental Real Estate Investment Trust and Eastover Corporation. The Parkway
Company is and Eastover Corporation was affiliated with EastGroup and were
parties to the Expense-Sharing Agreement described below, and First Continental
Real Estate Investment Trust was merged into The Parkway Company. Within the
past two years, Rauscher Pierce received the following fees (plus expenses) for
fairness opinions delivered in connection with the transactions indicated:
merger of First Continental Real Estate Investment Trust into The Parkway
Company ($50,000); merger of EB, Inc. into The Parkway Company ($45,000);
merger of Eastover Corporation into EastGroup ($30,000); and The Parkway
Company's shareholder rights plan ($15,000). See "--Expense-Sharing
Arrangements". LNH agreed to pay Rauscher Pierce a fee of $50,000 plus
reasonable out-of-pocket expenses for its services. LNH agreed to pay Rauscher
Pierce 50% of such amount when it engaged Rauscher Pierce and the remaining 50%
upon the delivery of Rauscher Pierce's opinion or termination of the
transaction.
LNH interviewed three investment banking firms with which it was
familiar with a view to selecting one firm to opine on the fairness of the
Merger, and selected Rauscher Pierce on the basis of Rauscher Pierce's general
reputation as a nationally recognized investment banking firm with experience
in evaluation of businesses and their securities in connection with mergers and
other business combinations, and with experience in providing services to real
estate investment trusts in particular. As part of Rauscher Pierce's investment
banking business, Rauscher Pierce is continually engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of listed and unlisted
securities, private placements, and valuations for estate, corporate and other
purposes.
On December 21, 1995, Rauscher Pierce delivered to the Board of
Directors of LNH its written opinion dated December 21, 1995 setting forth its
opinion that, based on its review and on the information provided to it by LNH
and EastGroup, the consideration to be received by shareholders of LNH in the
Merger is fair to LNH and its shareholders from a financial point of view. A
copy of Rauscher Pierce's opinion is reproduced as Appendix B to this Proxy
Statement/Prospectus and should be read in its entirety.
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Rauscher Pierce's opinion was based on Rauscher Pierce's review and
analysis of, among other things: (i) the trading histories of LNH Shares and
EastGroup Shares prior to and after the public announcement of the proposed
Merger; (ii) LNH's quarterly operating results for the quarters ended March 31,
1995, June 30, 1995, September 30, 1995 and yearly operating results for the
years ended December 31, 1992, 1993 and 1994; (iii) EastGroup's quarterly
operating results for the quarters ended March 31, 1995, June 30, 1995 and
September 30, 1995 plus EastGroup's operating results for the years ended
December 31, 1992, 1993 and 1994; (iv) the fact that the Merger would be
submitted to a vote of the shareholders of LNH; (v) the fact that the
transaction is intended to be tax-free; and (vi) certain other matters and
other factors as Rauscher Pierce deemed relevant such as the lack of
indications of interest in LNH's assets from any third party.
As part of its review, Rauscher Pierce reviewed: (i) drafts of the
Agreement and Plan of Merger subsequently dated December 22, 1995 and entered
into by EastGroup, Sub and LNH; (ii) an analysis dated November 8, 1995,
prepared by LNH, of the values of assets and liabilities of LNH and EastGroup
with adjustments for the estimated fair market value of certain assets; (iii)
EastGroup's recent annual and quarterly reports filed pursuant to the Exchange
Act; (iv) LNH's recent annual and quarterly reports filed pursuant to the
Exchange Act; (v) EastGroup's Notice of Annual Meeting and Proxy Statement
dated April 27, 1995; (vi) LNH's Notice of Annual Meeting and Proxy Statement
dated April 27, 1995; (vii) pro forma financial statements; (viii) LNH Board of
Directors' meeting file dated September 6, 1995, May 31, 1995, and March 21,
1995; (ix) EastGroup Board of Directors meeting file dated September 6, 1995,
June 1, 1995, and March 16, 1995; and (x) a draft of this Registration
Statement on Form S-4. In addition, representatives of Rauscher Pierce
discussed with management of EastGroup and LNH the respective outlooks for
future operating results, the assets and liabilities of both companies, various
matters disclosed in the documents Rauscher Pierce reviewed as described above,
and other matters Rauscher Pierce considered relevant to its review.
Stock Trading Histories. As noted above, Rauscher Pierce reviewed the
trading histories of LNH Shares and EastGroup Shares prior to and after the
September 6, 1995 public announcement that EastGroup and LNH had agreed in
principal to the proposed Merger. Based on such review, Rauscher Pierce
observed that the $8.10 per LNH Share in market value of EastGroup Shares to be
issued represented a 27% premium to LNH shareholders over the $6.375 average
price during July 1995 of LNH Shares and an 8% premium over the highest price
of LNH Shares during the past 12 months of $7.50 per LNH Share.
Annual and Quarterly Operating Results. Rauscher Pierce reviewed LNH's
and EastGroup's quarterly operating results as set forth in their quarterly
reports on Form 10-Q for the quarters ended March 31, 1995, June 30, 1995 and
September 30, 1995 plus their annual reports and Form 10-K for the years ended
December 31, 1992, 1993 and 1994.
Submission to a Vote of LNH's Shareholders. Rauscher Pierce noted that
the Merger will be submitted to a vote of LNH's Shareholders, and that a
two-thirds majority of the LNH Shares outstanding and entitled to vote must be
voted in favor of the transaction for the Merger to be
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consummated. If holders of one-third of the LNH Shares believe that they should
receive more value than is offered, they can avoid being forced into what they
believe to be an unfair transaction by voting against it.
No Unrecognized Value. Based upon discussions with LNH management,
Rauscher Pierce noted that there is no potential source of substantial "hidden"
or "unrecognized value" in LNH that would suddenly make the assets of LNH much
more valuable in the future. Rauscher Pierce discussed the status of the
Cowesett Corners Shopping Center and the Liberty Corners Shopping Center with
management and took those matters into account in connection with its fairness
opinion.
No Dilution. Rauscher Pierce considered certain specific information
regarding the potential dilution per EastGroup Share from such items as
outstanding options, stock appreciation rights and incentive compensation
units. Assuming the exercise of all such items, the resulting dilution of
approximately 0.19% was considered by Rauscher Pierce to be immaterial to the
analysis of the fairness of the Merger. Rauscher Pierce also considered the
dilutive effects of the Merger on LNH shareholders discussed above at "Risk
Factors -- Certain Effects of the Merger."
In analyzing the benefits of a tax free reorganization, Rauscher
Pierce took into account the tax consequences that would apply in the event
there was no tax free reorganization and LNH sold its assets and liquidated,
with all proceeds distributed to the LNH shareholders. The LNH shareholders
would treat the receipt of these liquidating distribution amounts as amounts
received from the sale of their LNH stock. Accordingly, if they have held the
stock for more than one year, and as a capital asset, they would recognize long
term capital gain to the extent they receive amounts in excess of their tax
basis in the shares, and long term capital loss to the extent the amount
received was less than the basis in their shares. LNH would not be subject to
tax on the sale of its assets, since it would receive a dividends paid
deduction as long as it distributed amounts to its shareholders in excess of
the capital gain realized on the sale of the underlying assets. Since the LNH
shareholders have acquired their shares under various circumstances and for
various prices, Rauscher Pierce could not quantify the tax costs associated
with a liquidation of LNH in comparison to a tax free reorganization. Rauscher
Pierce did ascribe some value, however, to a tax free reorganization that would
not be available in a taxable liquidation, since those shareholders who desire
to obtain tax free reorganization status would do so and those who desire a
taxable transaction could obtain the same by sale of their LNH Shares (prior to
the Merger) or sale of their EastGroup Shares (subsequent to the Merger).
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Rauscher Pierce indicated that based upon its review and analysis and
considering the lack of other interested buyers of LNH, the consideration to be
received in the Merger by the shareholders of LNH was fair to LNH's
shareholders from a financial point of view.
Neither LNH, EastGroup nor any other person imposed any limitation of
any nature on the scope or any other aspect of Rauscher Pierce's review.
Rauscher Pierce did not independently verify the accuracy of any of the
information provided to it by EastGroup or LNH, and did not make an independent
evaluation or appraisal of specific real estate holdings or other assets of
EastGroup or LNH. The consideration to be paid to LNH shareholders upon
consummation of the Merger was determined by negotiations between directors and
officers of LNH and trustees and officers of EastGroup; Rauscher Pierce did not
recommend the amount.
OPERATIONS FOLLOWING THE MERGER
If the Merger Agreement is approved by the shareholders of LNH,
EastGroup will survive as the parent corporation, and LNH will merge with and
into Sub, which will succeed to all of the assets and liabilities of LNH.
EastGroup, both directly and through its subsidiaries, will continue to
actively seek new investment properties to add to its portfolio of real estate
properties. See "Information Concerning EastGroup."
EXPENSE-SHARING ARRANGEMENTS
Description of Arrangements. Until December 31, 1994, EastGroup had an
expense-sharing agreement with Congress Street Properties, Inc. ("Congress
Street"), The Parkway Company ("Parkway"), and Eastover Corporation
("Eastover") pursuant to which the participants shared administrative offices
at the same location in Jackson, Mississippi and common officers and other
personnel, subject to the authority of the board of each member company to
elect or appoint and remove its officers in accordance with its certificate of
incorporation, declaration of trust or other charter documents and applicable
law. EB, Inc. ("EB") had a separate administrative agreement with Congress
Street which allowed EB to participate in the expense-sharing arrangement on
the same basis as the companies which were parties to the expense-sharing
agreement. LNH had a separate administration agreement with Congress Street
(and later EastGroup) which terminated effective March 31, 1995. See
"--Administration Agreement." Under this arrangement, the participants shared
the cost of the common officers and other employees and of shared facilities
and activities. These common costs were initially paid by Congress Street,
which served as the administrator of the arrangement, and the other
participants paid Congress Street an annual fee (on a monthly basis) of
one-half of one percent of their assets which were publicly-traded securities,
and Congress Street was paid a fixed annual fee in equal monthly installments
by LNH. After these fees and any profits of Eastover Realty Corporation, a real
estate company that was a subsidiary of Congress Street, were subtracted from
total common costs, the remaining common costs were allocated on a monthly
basis among EastGroup, Parkway, Congress Street, Eastover and EB (collectively,
the "Expense-Sharing Participants") in proportion to their assets other than
publicly-traded securities, based on their balance sheets as contained in their
most recent SEC
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filings. Certain costs which the common officers believed to be particularly
attributable to each member company were not shared. These non-allocable costs
included but were not limited to directors' and trustees' fees, legal, audit
and stock transfer expenses, stationery and items of similar nature. Since the
allocation formula was not based upon actual costs incurred by each member
company, the allocation may have, from time to time, resulted in a greater or
lesser charge to each member company than would have resulted if actual costs
to each member company were allocated.
In connection with the business combinations involving the
Expense-Sharing Participants (i.e., Congress Street merged with a wholly-owned
subsidiary of Parkway on November 29, 1994, Eastover combined with EastGroup on
December 22, 1994 and EB combined with Parkway on April 27, 1995), the above
described expense-sharing arrangements terminated on December 31, 1994, except
that EastGroup had the responsibility for managing LNH under the prior
administration agreement between LNH and Congress Street. See "--
Administration Agreement." Since that date, Parkway and EastGroup each have
their own respective officers and employees, who do not serve as officers or
employees of the other company, except for Leland R. Speed, who continues to
serve as the Chief Executive Officer of both companies, and a small number of
clerical and support staff employees. The officers of EastGroup also continue
to serve as officers of LNH; in addition, the President of Parkway--Steven G.
Rogers--continues to serve as an officer of LNH. David H. Hoster II and N.
Keith McKey, who formerly served as officers of all the Expense-Sharing
Participants, now serve as officers of EastGroup and LNH and not Parkway.
EastGroup, LNH and Parkway continue to share the same leased office space at
One Jackson Place in Jackson, Mississippi and share the services of Mr. Speed
and certain clerical and support staff employees and expenses related thereto
are shared among Parkway and EastGroup (except for certain costs which can be
attributed to either company based on its actual use of the services involved).
LNH's costs are paid as provided in the Management Agreement (described below).
LNH Management Agreement. LNH has no salaried employees; its officers
are elected by the Board of Directors solely to facilitate the execution of
commitments and other obligations on behalf of LNH. Except for certain benefits
received pursuant to the Incentive Compensation Plan effective October 1, 1993,
none of the officers of LNH receives any remuneration from LNH in his or her
capacity as an officer of LNH. EGP Managers provides all executive and
administrative personnel, office space and general services required by LNH.
Management services for LNH are rendered by EGP Managers under a
Management Agreement. Until April 3, 1995, the manager, pursuant to the
Management Agreement, was LNH REIT Managers, a Mississippi general partnership
in which Walker Managers, L.P. ("Walker") and EGP Managers were equal partners.
In connection with EastGroup's purchase of 383,775 LNH Shares for $7.50 in cash
per LNH Share from affiliates of Walker, EGP Managers purchased Walker's
one-half interest in LNH REIT Managers, and EGP Managers replaced LNH REIT
Managers as manager under the Management Agreement. EGP Managers is entitled to
receive a basic annual fee (the "Basic Fee"), payable in monthly installments,
equal to the sum of 1.25% of the first $100,000,000 or portion thereof of LNH's
Invested Assets (as
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defined in the Management Agreement), 1.125% of the second $100,000,000 or
portion thereof, 1.00% of the third $100,000,000 or portion thereof, 0.875% of
the fourth $100,000,000 or portion thereof and 0.75% of the portion (if any) of
Invested Assets exceeding $400,000,000.
EGP Managers may also receive incentive compensation equal to the
excess, if any, of (x) the Average Annual Incentive Fee (as defined below) for
the period from May 26, 1981 (the date on which LNH received the net proceeds
of the public offering of LNH Shares), to the end of any fiscal year,
multiplied by the number of 12-month fiscal years and fractions thereof in such
period, over (y) the aggregate amount of incentive fee, if any, earned by the
manager in prior years. The "Average Annual Incentive Fee" at the end of any
fiscal year will be equal to the sum of:
(i) 10% of the amount by which the Average Annual Net Profit (as
defined in the Management Agreement) from May 26, 1981, to such time exceeds
12% of the Average Net Worth (as defined in the Management Agreement) for such
period; and
(ii) 5% of the amount by which the Average Annual Net Profit from May
26, 1981, to such time exceeds 17% of the Average Net Worth for such period;
and
(iii) 5% of the amount by which the Average Annual Net Profit from May
26, 1981, to such time exceeds 22% of the Average Net Worth for such period.
During the year ended December 31, 1994, LNH paid Management Fees of
$338,000. EGP Managers did not receive incentive compensation in the fiscal
year ended December 31, 1994, and is not expected to receive incentive
compensation in the current fiscal year. Effective July 1, 1994, EGP Managers
agreed to amend the Management Agreement to provide that the Management Fee
paid by LNH will not exceed $29,167 per month. The Management Agreement will be
terminated on the Effective Date.
Administration Agreement. Effective April 22, 1992, LNH REIT Managers
entered into an administration agreement (the "Administration Agreement"), with
Congress Street. Under the Administration Agreement, Congress Street (and later
EastGroup) administered the day-to-day business of LNH in return for a $125,000
annual fee, payable by LNH's manager. In connection with the termination of the
expense-sharing arrangements described above, EastGroup assumed Congress
Street's duties under the Administration Agreement. The Administration
Agreement was terminated effective March 31, 1995.
FEDERAL INCOME TAX CONSEQUENCES
Set forth below is a discussion of certain federal income tax
consequences of the Merger generally applicable to EastGroup, LNH and their
respective shareholders. This discussion has been prepared by and is based on
an opinion rendered by Jaeckle, Fleischmann & Mugel, counsel to EastGroup, a
copy of which is attached as Appendix C.
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Effect of the Merger. LNH has received an opinion from Jaeckle,
Fleischmann & Mugel, based on the terms of the Merger Agreement and certain
related factual representations and assumptions that:
(i) The Merger will constitute a reorganization within the
meaning of section 368(a) of the Code, and EastGroup, LNH and
Sub will each be a party to the reorganization within the
meaning of section 368(b) of the Code.
(ii) No gain or loss will be recognized by EastGroup, LNH or Sub
in the Merger.
(iii) No gain or loss will be recognized by the holders of LNH
Shares upon their receipt of EastGroup Shares in exchange for
their LNH Shares, except that holders of LNH Shares who
receive cash proceeds from the sale of fractional interests
in EastGroup Shares will recognize gain or loss equal to the
difference between such proceeds and the tax basis allocated
to their fractional share interests and such gain or loss
will constitute capital gain or loss if their LNH Shares are
held as a capital asset at the Effective Time.
(iv) The aggregate tax basis of the EastGroup Shares (including
fractional share interests treated as received) received by
the holders of LNH Shares will be the same as the aggregate
tax basis of their LNH Shares.
(v) The holding period of the EastGroup Shares in the hands of
the holders of LNH Shares will include the holding period of
their LNH Shares, provided such LNH Shares are held as a
capital asset at the Effective Time.
In rendering the foregoing opinions, counsel has relied upon
information contained in this document and the Merger Agreement, and upon the
representations by EastGroup, Sub and LNH set forth in their respective
officers' certificates dated the date of such opinion.
TAXATION OF EASTGROUP
Since its inception, EastGroup has elected to be taxed as a REIT under
the Code. To qualify as a REIT for a taxable year, EastGroup must meet certain
requirements. Generally, at the end of each calendar quarter at least 75% of
the value of its total assets must consist of real estate assets, cash or
governmental securities and not more than 25% of the value of its total assets
may consist of securities that are not counted as good assets under the
foregoing 75% test. EastGroup may not own more than 10% of the outstanding
voting securities of any corporation and may not own securities of any one
issuer comprising more than 5% of the total value of its assets; shares of
qualified REITs and of certain wholly-owned subsidiaries, such as the Sub, are
exempt from these prohibitions.
The Code also places restrictions on a REIT's sources of income. It
requires that in each taxable year at least 95% of EastGroup's gross income be
derived from certain real estate
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activities, plus dividends, interest or gains from disposition of stock or
securities. Additionally, gross income from the sale or other disposition of
stock and securities held for less than one year and of real property held for
less than four years must comprise less than 30% of the gross income for each
taxable year of EastGroup. For each taxable year, at least 75% of a REIT's
gross income must be derived from specified real estate sources. Real estate
income for purposes of those requirements includes gains from the sale of real
property not held primarily for sale to customers in the ordinary course of
business, dividends on REIT shares, interest on loans secured by mortgages on
real property, certain rents from real property and income from foreclosure
property. For rents to qualify, they may not be based on the income or profits
of any person, except that they may be based on a fixed percentage or
percentages of gross income or receipts, and the REIT may not manage the
property or furnish services to tenants except (i) through an independent
contractor which is paid an arm's-length fee and from which the REIT derives no
income, or (ii) for any services performed which are of a type customarily
rendered in connection with the rental of space for occupancy only and are not
otherwise considered rendered to the occupant. The requirements that must be
satisfied for income to be within the 75% class of gross income are highly
technical and not always consistent with normal real estate practice.
EastGroup must satisfy certain ownership restrictions that limit (i)
concentration of ownership of shares by a few individuals and (ii) ownership by
or common ownership of EastGroup of its tenants. The shares of EastGroup must
be held by at least 100 shareholders. No more than 50% in value of the
outstanding shares may be owned actually or constructively by five or fewer
individuals or certain other entities at any time during the last half of
EastGroup's taxable year. Accordingly, EastGroup's Declaration of Trust, as
amended, authorizes EastGroup to redeem its shares if directors are of the good
faith opinion that the beneficial ownership of EastGroup has become
concentrated to such an extent as to jeopardize its REIT classification.
However, because the Code imposes broad attribution rules in determining
constructive ownership, no assurances can be given that the restrictions of the
Declaration of Trust, as amended, will be effective in maintaining EastGroup's
REIT status.
So long as EastGroup qualifies for taxation as a REIT and distributes
at least 95% of its real estate investment trust taxable income (computed
without respect to net capital gains or the dividends received deduction) for
its taxable year to its shareholders annually, EastGroup will not be subject to
federal income tax on that portion of such income distributed to shareholders.
Any undistributed taxable income or gain, however, will be taxed to EastGroup
at regular corporate rates. In addition, EastGroup may be subject to other
special income and excise taxes in certain circumstances.
If EastGroup fails to qualify as a REIT for any taxable year and
certain relief provisions do not apply, EastGroup will be subject to federal
income tax (including the alternative minimum tax) on its taxable income at
regular corporate rates and it will not receive a deduction for dividends paid
to its shareholders. Distributions to shareholders will be taxable as ordinary
income to the extent of current and accumulated earnings and profits and,
subject to certain limitations, will be eligible for the corporate dividends
received deduction, but there can be no
39
<PAGE> 53
assurance that any such distributions would be made. Failure to qualify as a
REIT could result in EastGroup significantly reducing its distributions and
incurring substantial indebtedness or liquidating substantial investments in
order to pay the resulting taxes. In addition, EastGroup would not be eligible
to elect REIT status for the four subsequent taxable years, unless its failure
to qualify was due to reasonable cause, and not to willful neglect, and certain
other requirements were satisfied. In order to renew its REIT qualification,
EastGroup would be required to distribute all of its current and accumulated
earnings and profits, which distributions would be taxable as ordinary income
to its shareholders, and EastGroup might be subject to taxation on any
unrealized gain inherent in its assets.
TAXATION OF THE SHAREHOLDERS OF A REIT
Distributions made to its shareholders out of current or accumulated
earnings and profits of EastGroup (including earnings and profits from LNH)
will generally be taxed to them as ordinary income. A distribution by EastGroup
of net capital gains will generally be treated as a capital gain to
shareholders to the extent properly designated by EastGroup as a capital gain
dividend. Capital gains of corporations are generally taxed in the same manner
as ordinary income except that capital losses are deductible only to the extent
of capital gains. Under Section 291 of the Code, however, corporate
shareholders may be required to treat up to 20% of any such capital gain as
ordinary income. For noncorporate taxpayers, net capital gains are taxed at a
maximum rate of 28%, while short-term capital gains and ordinary income are
taxed at a maximum rate of 39.6%. However, because of certain limitations on
itemized deductions and personal exemptions, the effective rate may be higher
in certain circumstances. Except to a very limited extent, capital losses of
noncorporate taxpayers are deductible only to the extent of capital gains.
Neither distributions of earnings and profits nor capital gains dividends are
eligible for the dividends-received deduction for corporations. Any loss on a
sale of shares of a REIT which were held for six months or less and with
respect to which a capital gain dividend was received will be treated as a
long-term capital loss, up to the amount of the capital gain dividend received
with respect to such shares. A distribution in excess of current or accumulated
earnings and profits will constitute a nontaxable return of capital, to the
extent of the shareholder's basis in his shares of the REIT, and is applied to
reduce the shareholder's basis in such shares. To the extent such a
distribution is greater than such basis, it will be treated as capital gain to
those shareholders holding their shares as capital assets. EastGroup will
notify each shareholder as to the portions of each distribution which, in its
judgment, constitute ordinary income, capital gain or return of capital. Should
EastGroup incur ordinary or capital losses, shareholders will not be entitled
to include such losses in their own income tax returns.
THE DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION
ONLY. IT DOES NOT ADDRESS THE STATE, LOCAL OR FOREIGN TAX ASPECTS OF THE MERGER
OR REIT OPERATIONS. THE DISCUSSION IS BASED ON CURRENTLY EXISTING PROVISIONS OF
THE CODE, EXISTING AND PROPOSED TREASURY REGULATIONS THEREUNDER AND CURRENT
ADMINISTRATIVE RULINGS AND COURT DECISIONS. THE OPINIONS OF COUNSEL DESCRIBED
ABOVE ARE NOT BINDING UPON THE INTERNAL REVENUE SERVICE AND NO
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<PAGE> 54
RULINGS OF THE INTERNAL REVENUE SERVICE HAVE BEEN OR WILL BE SOUGHT OR
OBTAINED. THERE IS NO ASSURANCE THAT THE INTERNAL REVENUE SERVICE WILL AGREE
WITH THE OPINIONS DESCRIBED ABOVE. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE
AND ANY SUCH CHANGE COULD AFFECT THE CONTINUING VALIDITY OF THIS DISCUSSION.
ANY SUCH CHANGE MAY OR MAY NOT BE RETROACTIVE AND COULD AFFECT THE TAX
CONSEQUENCES OF THE MERGER AND QUALIFICATION AND TAXATION OF EASTGROUP AS A
REIT. EACH HOLDER OF LNH SHARES SHOULD CONSULT HIS OR HER OWN TAX ADVISOR WITH
RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER AND THE OWNERSHIP OF
EASTGROUP SHARES TO SUCH HOLDER, INCLUDING THE APPLICATION AND EFFECT OF STATE,
LOCAL AND FOREIGN TAX LAWS.
ACCOUNTING TREATMENT
EastGroup will account for the Merger as a "purchase" transaction in
accordance with Accounting Principles Board Opinion No. 16. Purchase accounting
for a combination is similar to the accounting treatment used in the
acquisition of any asset group. The fair market value of the consideration
(cash, stock, debt securities, etc.) given by the acquiring firm is used as the
valuation basis for the combination. The assets and liabilities of the acquired
firm are revalued to their respective fair market values at the combination
date. The financial statements of the acquiring company reflect the combined
operations from the date of combination.
NO DISSENTERS' RIGHTS
Shareholders of LNH who vote against the Merger (or abstain or fail to
vote at all) will nevertheless be bound by the results of the vote if LNH's
shareholders approve the Merger. Dissenting shareholders do not have appraisal
rights in connection with the Merger.
RESTRICTIONS ON RESALES OF SECURITIES
The EastGroup Shares to be issued pursuant to the Merger Agreement have
been registered under the Securities Act. Under present law, any public
reoffering or sale of such shares by any person who is not an "affiliate" of
LNH at the time the Merger Agreement is submitted to a vote of LNH's
shareholders will not have restrictions thereon. Also, under present law, any
public reoffering or sale of such shares by any person who is an "affiliate" of
LNH at the time the Merger Agreement is submitted to a vote of LNH's
shareholders ("LNH Affiliate") will require either (i) the further registration
of such shares under the Securities Act, (ii) compliance with Rule 145
promulgated under the Securities Act, which permits sales under certain
conditions, as discussed below, or (iii) the availability of another exemption
from such further registration. In very general terms, under Rule 145, assuming
that the LNH Affiliate is not, at any time, an affiliate of EastGroup, the LNH
Affiliate may publicly sell such EastGroup Shares if the LNH Affiliate: (1) (a)
sells during any three-month period no more than the number of EastGroup Shares
permitted under Rule 144(e) (which is generally the
41
<PAGE> 55
greater of (i) 1% of the total number of EastGroup Shares outstanding, or (ii)
the average weekly volume of trading of EastGroup Shares for the four calendar
weeks prior to the sale); (b) sells in a "brokers' transaction" (which means,
generally, that the broker can do no more than execute the order as agent for
the seller, can receive no more than the usual broker's commission, cannot
solicit orders to buy in connection with the transaction, and does not believe
that the seller is an underwriter of the securities being sold); (c) does not
solicit orders to buy in connection with the transaction and does not make any
payment in connection with such sale to anyone other than the selling broker;
and (d) sells at a time when there is adequate current public information about
EastGroup (which will be satisfied so long as EastGroup Shares remain
registered under the Exchange Act and EastGroup continues to file the necessary
reports under the Exchange Act); or (2) (a) holds the EastGroup Shares for at
least two years and (b) sells at a time where there is adequate public
information about EastGroup (as in 1(d) above); or (3) holds the EastGroup
Shares for at least three years.
BOARD OF TRUSTEES AND MANAGEMENT OF EASTGROUP
The following table describes the present trustees and executive
officers of EastGroup:
<TABLE>
<CAPTION>
Name, Position and Tenure with Principal Occupation and Business
EastGroup Age Experience for the Past Five Years (1)
- ---------------------------------------------- ------- --------------------------------------------------------
<S> <C> <C>
Leland R. Speed 63 Chief Executive Officer of LNH since 1992,
Chief Executive Officer since EB from 1993 to 1995, Eastover from 1977
1988 and Managing Trustee to 1994, Congress Street from 1984 to 1994,
since 1978 EastPark Realty Trust from 1983 to 1990,
Rockwood National Corporation from 1980
to 1994, Parkway and EastGroup.(2)(3)(4)
David H. Hoster II 50 Executive Vice President of EB until 1995,
President and Trustee since Parkway, Congress Street and Eastover until
1993 1994; President of EastGroup since 1993 and
Executive Vice President of EastGroup from
1988 to 1993 and Rockwood National
Corporation from 1988 to 1994; President of
EastPark Realty Trust from 1976 to 1990;
Executive Vice President of LNH until 1995
and President of LNH since 1995.(2)(3)(4)
</TABLE>
42
<PAGE> 56
<TABLE>
<CAPTION>
Name, Position and Tenure with Principal Occupation and Business
EastGroup Age Experience for the Past Five Years (1)
- ---------------------------------------------- ------- --------------------------------------------------------
<S> <C> <C>
N. Keith McKey 44 Executive Vice President since 1993 and
Executive Vice President Chief Financial Officer of EastGroup since
Chief Financial Officer and 1992; Senior Vice President since 1988 and
Secretary since 1993 Chief Financial Officer and Secretary since
1992; Executive Vice President of Parkway
from 1993 to 1994 and Chief Financial
Officer of Parkway from 1992 to 1994;
Senior Vice President of Congress Street and
Eastover until 1994; Chief Financial Officer
and Secretary of Congress Street and
Eastover from 1992 to 1994; Senior Vice
President until 1994 and Chief Financial
Officer and Secretary from 1992 to 1994 of
Rockwood National Corporation.(2)(3)(4)
Alexander G. Anagnos 69 Financial Advisor with WR Family
Trustee since 1994 Associates.
H.C. Bailey, Jr. 56 President of H.C. Bailey Company (real
Trustee since 1980 estate development and investment);
President of Bailey Mortgage Company
(mortgage banking) until 1992; Chairman of
the Board and Chief Executive Officer and
President of Security Savings & Loan
Association until 1992; Director of EB until
1995; Director of LNH since 1992.(5)
Harold B. Judell 80 Senior partner in the law firm of Foley &
Trustee since 1981 Judell LLP (municipal bond attorneys).
David M. Osnos 64 Partner in the law firm of Arent, Fox,
Trustee since 1993 Kintner, Plotkin & Kahn.
John N. Palmer 61 Chairman of Mobile Telecommunication
Trustee since 1994 Technologies Corp. since 1989.
- -----------------------
<FN>
(1) Unless otherwise stated, each nominee has held the positions indicated
for at least the past five years.
(2) Each of these companies was or is primarily engaged in the real estate
business.
</TABLE>
43
<PAGE> 57
(3) The Expense-Sharing Participants are the companies that formerly
participated in the expense-sharing arrangements described above under
"Expense-Sharing Arrangements." The date indicated in the table as the
date an executive officer began serving as such for the Expense-Sharing
Participants indicates generally that the officer began serving as such
for the companies that were participants at that time. Service as an
executive officer for a company that became an Expense-Sharing
Participant after that date began generally at the time the company
became a participant.
(4) Rockwood National Corporation, through its subsidiaries, is engaged in
the real estate business in New Orleans, Louisiana. Rockwood National
Corporation ceased participating in the expense sharing arrangements
described above under "Expense-Sharing Arrangements" on June 28, 1994
and no longer shares common management with EastGroup and LNH.
(5) Security Savings & Loan Association was seized by the Resolution Trust
Company in 1992.
OTHER DIRECTORS AND TRUSTEESHIPS
Members of EastGroup's Board of Trustees serve on the Boards of
Directors or the Boards of Trustees of the following publicly-held companies:
<TABLE>
<CAPTION>
Name Company
<S> <C>
H.C. Bailey, Jr. LNH
The Parkway Company
Harold B. Judell Sizeler Property Investors, Inc.
David M. Osnos VSE Corporation
Washington Real Estate Investment Trust
John N. Palmer Entergy Corporation
Mobile Telecommunications Technologies
Corp.
Deposit Guaranty National Bank
Leland R. Speed Farm Fish, Inc.
First Mississippi Corporation
KLLM Transport Services, Inc.
LNH
The Parkway Company
</TABLE>
44
<PAGE> 58
INTEREST OF LNH MANAGEMENT AND EASTGROUP IN THE MERGER
If the Merger is approved and consummated, LNH will be merged with and
into Sub, which is a wholly-owned subsidiary of EastGroup. As a result,
EastGroup will own all of the assets of LNH.
EXECUTIVE COMPENSATION
The following table summarizes, for the fiscal years ended
December 31, 1995, 1994 and 1993 the amount of the compensation paid by
EastGroup to its Chief Executive Officer and all other executive officers whose
cash compensation during 1995 exceeded $100,000 (the "Named Officers").
<TABLE>
<CAPTION>
Annual Compensation (1)(2)
Other Annual
Name and Principal Position Year Salary Bonus Compensation
--------------------------- ---- ------ ----- ------------
<S> <C> <C> <C> <C> <C>
1995 $129,863 (3) (4) -0-
Leland R. Speed 1994 $139,423 $58,715 -0-
Chief Executive Officer 1993 $113,367 -0- -0-
David H. Hoster II 1995 $174,745 (4) -0-
President 1994 $ 89,977 $42,314 -0-
1993 $72,240 $12,230 -0-
N. Keith McKey 1995 $127,212 (4) -0-
Executive Vice President, 1994 $ 63,911 $30,103 -0-
Chief Financial Officer 1993 $51,900 $3,669 -0-
and Secretary
-----------------------------------------------------------
Long Term
Compensation Awards
-----------------------------------------------------------
LTIP Payouts All Other
Options/SARs(5) $(6) Compensation(7)
--------------- ------------- ---------------
<C> <C> <C>
-0- -0- $7,500
Leland R. Speed 50,000 $23,047 $5,145
Chief Executive Officer -0- $13,608 $6,664
David H. Hoster II -0- -0- $7,500
President 40,000 $21,203 $5,145
-0- $12,519 $4,991
N. Keith McKey -0- -0- $7,500
Executive Vice President, 25,000 $13,828 $4,397
Chief Financial Officer -0- $8,165 $2,878
and Secretary
<FN>
(1) Until December 31, 1994, the executive officers of Eastgroup
also served as executive officers of all the Expense-Sharing
Participants. See "The Merger -- Expense-Sharing
Arrangements." Their salaries were paid by Congress Street
and then allocated among the Expense-Sharing Participants in
accordance with the allocation formula set forth in the
agreement.
(2) For 1993 and 1994, all amounts are EastGroup's share of the
particular Named Officer's compensation as allocated under
the Expense-Sharing Agreement.
</TABLE>
45
<PAGE> 59
(3) Mr. Speed's salary is paid one-half by EastGroup and one-half
by The Parkway Company, of which he is also Chief Executive
Officer. See "The Merger--Expense Sharing Arrangements."
This amount is EastGroup's share of Mr. Speed's compensation.
(4) EastGroup's Compensation Committee has not yet determined the
amount of bonus payable to the Named Officers under
EastGroup's 1994 Incentive Plan.
(5) These options were granted under EastGroup's 1994 Management
Incentive Plan (the "1994 Incentive Plan") and become
exercisable with respect to one-half the shares on the first
anniversary date of grant and one-half the shares on the
second anniversary date of grant.
(6) These payments were made under Incentive Compensation Units
granted under EastGroup's 1989 Incentive Plan (the "1989
Plan"). The amount for 1994 includes a payment made in
December 1994 in consideration of the officer agreeing to
cancel the remaining term of the Incentive Compensation
Units, which payment was made in EastGroup Shares. An
Incentive Compensation Unit was a right to receive an amount
equal to the dividend paid on a specified number of EastGroup
Shares during a five year period beginning on the date of the
grant of the unit. The amount that was payable with respect
to an Incentive Compensation Unit was credited to an account
for the holder of such unit. The grantee of the Incentive
Compensation Unit shall be entitled to a cash payment of 20%
of the amount in the account on the first anniversary date of
its grant, 40% on the second anniversary date, 60% on the
third anniversary date, 80% on the fourth anniversary date
and 100% on the fifth anniversary date.
(7) For 1995, this is EastGroup's discretionary contribution to
its 401(K) Plan for the Named Officer's benefit and for 1993
and 1994 this amount is EastGroup's share of Congress
Street's discretionary contribution to a 401(K) plan for the
respective Named Officer's benefit.
Option Grants. No options were granted to the Named Officers
during the year ended December 31, 1995.
Option Exercises and Year End Values. No options were exercised by
the Named Officers during 1995. The following table shows the year end value
of unexercised in-the-money options held by the Named Officers. Year end values
are based upon the closing price of EastGroup Shares on the NYSE on December
29, 1995 ($21.375).
46
<PAGE> 60
Aggregated Options/SAR Exercises with Last Fiscal Year
and FY-End Option/SAR Values
<TABLE>
<CAPTION>
Value of
Number of Unexercised Unexercised In-The-Money
Name Options at FY-End (#) Options at FY-End($)
<S> <C> <C>
Exercisable/Unexercisable(1) Exercisable/Unexercisable
Leland R. Speed 25,000/25,000 $59,375/$59,375
Chief Executive Officer
David H. Hoster II 20,000/20,000 $47,500/$47,500
President
N. Keith McKey 12,500/12,500 $29,687.50/$29,687.50
Executive Vice President,
Chief Financial Officer
and Secretary
</TABLE>
Trustees' Fees. Under EastGroup's standard compensation
arrangements with trustees (except Mr. Speed and Mr. Hoster, who are salaried
officers), trustees are paid a monthly stipend of $500, plus $1,000 and
reimbursement of actual expenses for attendance at each meeting of the Board of
Trustees and $750 and reimbursement of expenses for each meeting of a committee
established by the Board of Trustees. Only one fee is paid in the event more
than one meeting is held on a single day.
Trustees Stock Option Plan. At the 1991 annual meeting, the
shareholders of EastGroup approved the EastGroup Properties 1991 Trustees Stock
Option Plan (the "Trustees Plan"). The Trustees Plan authorizes the issuance of
options for up to 100,000 EastGroup Shares to trustees of EastGroup who are
not, and have not been for at least one year prior to the date of
determination, employees of EastGroup ("Non-Employee Trustees"). Under the
Trustees Plan, each Non-Employee Trustee of EastGroup on March 15, 1991 was
automatically granted an option to purchase 5,000 EastGroup Shares. Each person
who first becomes a Non-Employee Trustee after March 15, 1991 will
automatically be granted an option to purchase 5,000 EastGroup Shares on the
date the person becomes a Non-Employee Trustee, if such EastGroup Shares are
available. Each Non-Employee Trustee will also be granted an option to purchase
1,500 additional EastGroup Shares on the date of any annual meeting at which
such Non-Employee Trustee is reelected to the Board of Trustees. The option
exercise price is the closing price of an EastGroup Share if EastGroup Shares
are listed on an exchange or the average between the bid and the asked price
for the date if the EastGroup Shares are traded over-the-counter (or, if no
EastGroup Shares were publicly traded on that date, the next preceding date
that such EastGroup Shares were so traded). Such options are exercisable in
full on the date of grant and expire ten years after the date of grant, or, if
earlier, six months after the termination of the optionee's service as a
Non-Employee Trustee, unless such service is terminated by reason
47
<PAGE> 61
of death, in which case the optionee's legal representative shall have one year
in which to exercise the option.
No options were exercised by trustees under the Trustees Plan during
1995. On June 1, 1995, Messrs. Palmer, Bailey, Judell, Anagnos and Osnos were
each granted options to purchase 1,500 EastGroup Shares at an exercise price of
$19.00 per EastGroup Share.
CERTAIN RELATIONSHIPS AND RELATED TRANSCTIONS
For a description of certain relationships among EastGroup, LNH and
The Parkway Company, see "Expense-Sharing Arrangements."
48
<PAGE> 62
INFORMATION CONCERNING LNH
The following information regarding LNH is supplementary to the
information contained in LNH's Annual Report to Shareholders for the year ended
December 31, 1994 and LNH's Form 10-QSB for the quarter ended September 30,
1995, which accompany this Proxy Statement/Prospectus and are incorporated
herein by reference. Shareholders should refer to the Annual Report and Form
10-QSB for financial statements regarding LNH and Management's Discussion and
Analysis of Financial Condition and Results of Operations with respect to LNH.
RECENT DEVELOPMENTS
COWESETT MORTGAGE. As disclosed in LNH's most recent Form 10-Q, the
borrower with respect to the mortgage secured by the Cowesett Corners Shopping
Center in Warwick, Rhode Island, petitioned for relief under Chapter 11 of the
United States Bankruptcy Code on February 11, 1995. After various motions with
respect to whether LNH and its co-investor should be able to foreclose on the
Cowesett Corners Shopping Center and sell it at public auction, an agreement
was reached and approved by the Court pursuant to which the Cowesett Corners
Shopping Center was to be sold to an unrelated third party and LNH and its
co-investor would release their lien on the Cowesett Corners Shopping Center in
return for a cash payment of $13,250,000, of which $6,625,000 was to be paid to
LNH. The potential purchaser of the Cowesett Corners Shopping Center decided
not to proceed with the transaction. Because the proposed sale did not take
place by the November 30, 1995 deadline, LNH and its co-investor foreclosed
their lien on the property and took title to the property on December 1, 1995.
LIBERTY CORNERS. On December 6, 1995, LNH's management and Audit
Committee, based upon management's evaluation of operations in 1995 to date and
projected operations for 1996, decided to record a write-down with respect to
LNH's carrying value of the Liberty Corners Shopping Plaza to $4,650,000. This
write-down will be reflected in the Company's December 31, 1995 financial
statements. The resulting carrying value of Liberty Corners is management's
best estimate of the property's net realizable value.
DESCRIPTION OF PROPERTIES
LNH's primary investments in real estate related assets are
summarized below.
Mortgage Loans
Citrus Center. This 20.99% mortgage loan participation is
secured by a 136,228 square foot shopping center in Inverness, Florida and has
an outstanding principal balance of $1,868,000 and net carrying value of
$1,593,000 at December 31, 1995. The other 79.01% of this mortgage loan,
amounting to $7,029,000, is held by a mortgage fund. This project was funded in
1988 and was scheduled to mature May 31, 1998. However, the borrowers on the
49
<PAGE> 63
Citrus Center mortgage loan failed to make five scheduled payments during 1993
and 1994 and, as a result, LNH recorded a provision for loss of $275,000 at
December 31, 1994 to write down the investment to its estimated net realizable
value. In June 1995, the borrowers and LNH agreed to a Modification Agreement.
The Modification called for the interest rate to be reduced from 9% to 8%, with
1% to be deferred until the note matures on November 30, 1998. Also, of the
five past due payments, the two payments most current were to be brought
current, with the three remaining payments becoming due on November 30, 1998.
As of December 31, 1995, the borrowers have made all payments agreed to in the
Modification Agreement. During 1995, LNH has recognized interest income of
$174,000 as compared to $85,000 in 1994. The shopping center is 84% occupied at
year end.
West Houston, Ltd. In September 1993, pursuant to the sale of
a 1,108 acre parcel of the Houston land, LNH received cash of $1,108,000 and a
mortgage note receivable of $3,324,000. The terms of the note include interest
at the prime lending rate (8% at year-end); payments of interest only for 18
months, increasing thereafter to fixed principal and interest payments based on
a 20-year amortization; and, maturity on September 17, 1999. After being
discounted to yield a market rate of interest, the note has a net carrying
value of $3,091,000 at December 31, 1994.
MBSLD, Ltd. On March 18, 1994, LNH sold an 8.5 acre parcel of
the unimproved Houston land to MBSLD, Ltd., a Texas limited partnership. LNH
received $44,000 cash (net of closing costs) and a first mortgage of $200,000.
The terms of the note include 36 monthly principal and interest payments
beginning on May 1, 1994 that are based on a 15-year amortization accruing
interest at 8 percent. The next 24 monthly payments will accrue interest at the
lower of the prime rate plus 1.5% or a fixed rate of 10%. On April 1, 1999, a
final principal payment of $158,000 becomes due along with any remaining
accrued interest. No gain or loss was recorded at the time of this sale, and
the principal balance of this loan at year-end was $146,000.
Baypointe. On April 20, 1994, LNH sold a 90 acre parcel of
land located in Houston, Texas to Elektra Enterprises, Inc. LNH received cash
of $550,000 and a mortgage note receivable of $2,200,000. The terms of the note
call for semi-annual principal and interest payments for four years. These
payments will be based on a 20-year amortization, and the balance of the note
will be due after four years. Interest will accrue on the unpaid balance at the
rate of 9.5% for the first 3 years and at prime plus 1.5% (with a 12% ceiling)
for the fourth year. The balance of the note at December 31, 1995 was
$2,046,000.
Real Estate
Cowesett Corners Shopping Center. LNH owns a 50% undivided
interest in a 135,713 square foot shopping center in Warwick, Rhode Island. LNH
acquired title through foreclosure on December 1, 1995 and recorded its net
loan investment of $5,971,000 as an investment in a joint venture. LNH accounts
for this investment on the equity method of
50
<PAGE> 64
accounting. The investment at December 31, 1994 amounted to $6,011,000. The
shopping center is 97% leased at December 31, 1995.
The following table sets forth certain information regarding the
leases of the tenants that occupy more than 10% of the rentable square footage:
<TABLE>
<CAPTION>
Edward's Painting &
Super Stop N' Shop The Fabric Place Decorating
<S> <C> <C> <C>
Minimum rent per year $500,000 $213,000 $135,000
Expiration date 2007 1998 2005
Renewal option 6/5 yrs. ea. 2/5 yrs. ea. 3/5 yrs. ea.
</TABLE>
Lease expirations by year of expiration are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
1996 1997 1998 2000 2001 2005 2007 2010
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Number of leases expiring 3 1 8 3 2 1 1 1
Total area (in sq. ft.) 4,646 900 37,343 8,757 10,727 17,059 55,532 5,599
Annual rental $68 $14 $412 $121 $105 $135 $500 $50
Percent of gross rental 4.8% 1.0% 29.3% 8.6% 7.5% 9.6% 35.6% 3.6%
</TABLE>
Based upon its experience to date, LNH believes that leases
expiring in 1996 will be renewed (or replaced with new tenants in a few cases)
at minimum rentals at least equal to existing rents for leases. However, LNH
can give no assurance in this respect.
Linpro Commerce Center. This 99,000 square foot commercial
building was acquired on December 6, 1992 through a deed in lieu of foreclosure
on a land purchase-leaseback investment of $1,200,000 and a mortgage loan
investment with a net book value of $3,930,000. It is used as an office,
showroom and warehouse and was 95% occupied and 100% leased at December 31,
1995. The asset has a net book value of $3,730,000 at December 31, 1995.
The following table sets forth certain operating data with
respect to the property during the period owned by LNH:
51
<PAGE> 65
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31 September 30
<S> <C> <C> <C> <C>
1993 1994 1994 1995
Occupancy rate (at end of period) 85% 95% 95% 95%
Total rent per leased square foot $4.77 $4.13 $4.03 $4.22
</TABLE>
The following table sets forth certain information regarding
the leases of the tenants that occupy more than 10% of the rentable square
footage:
<TABLE>
<CAPTION>
Progressive
Games Mayor Supply Pride Outdoor Lennox
<S> <C> <C> <C> <C>
Minimum rent per year $61,000 $100,000 $60,000 $77,000
Expiration date 1997 1997 1998 1998
Renewal option 2/2 yrs. ea. 1/2 yrs. ea. --- 2/5 yrs. ea.
</TABLE>
Lease expirations by year of expiration are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
1997 1998 1999 2000
<S> <C> <C> <C> <C>
Number of leases expiring 3 3 1 1
Total area (in sq. ft.) 43,000 32,500 9,500 9,000
Annual rental $199 $159 $52 $46
Percent of annual rental 43.6% 34.8% 11.4% 10.2%
</TABLE>
Based upon its experience to date, LNH believes that leases
expiring in 1996 will be renewed (or replaced with new tenants in a few cases)
at minimum rentals at lease equal to existing rents for leases. However, LNH
can give no assurance in this respect.
The realty taxes for the year ended December 31, 1994
amounted to $77,210. The federal income tax basis of the property at December
31, 1994 was $5,214,390.
52
<PAGE> 66
Liberty Corners. This 121,432 square foot shopping center was
acquired on February 25, 1994 through a deed in lieu of foreclosure on a
mortgage loan investment with a book value of $6,689,000 and a carrying value
of $5,294,000. LNH owns 77.78% of the investment and records the total assets,
liabilities, revenues and expenses of the center with minority interests
provided for the 22.22% not owned. The net book value at December 31, 1995 was
$4,650,000 net of an allowance for loss of $439,000. The shopping center was
87% occupied at December 31, 1995.
The following table sets forth certain operating date with respect to
the property during the period owned by LNH:
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31 September 30
1994 1994 1995
<S> <C> <C> <C>
Occupancy rate (at end of
period) 83% 82% 85%
Total rent per leased square foot $6.74 $6.93 $7.15
</TABLE>
The following table sets forth certain information regarding
the leases of the tenants that occupy more than 10% of the rentable square
footage:
<TABLE>
<CAPTION>
Price Chopper
<S> <C>
Mininum rent per year $290,000
Expiration date 2007
</TABLE>
Lease expiration by year of expiration are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
1997 1998 1999 2000 2002 2007
<S> <C> <C> <C> <C> <C> <C>
Number of leases expiring 5 3 2 4 1 1
Total area (in sq. ft.) 10,650 6,700 9,850 18,070 1,400 56,000
Annual rental $99 $68 $73 $157 $12 $290
Percent of annual rental 14.2% 9.7% 10.4% 22.5% 1.7% 41.5%
</TABLE>
Based upon its experience to date, LNH believes that leases
expiring in 1997 will be renewed (or replaced with new tenants in a few cases)
at minimum rentals at least equal to existing rents for leases. However, LNH
can give no assurance in this respect.
53
<PAGE> 67
The realty taxes for the year ended December 31, 1994 amounted to
$137,626. The federal income tax basis of the property at December 31, 1994 was
$6,677,189.
Unimproved Land. In December 1990, LNH received a deed in lieu of
foreclosure on a mortgage loan investment collateralized by approximately 1,360
acres of unimproved land in Houston, Texas. At December 31, 1995, LNH had three
tracts of land remaining consisting of 140 acres with a book value of $776,000.
Marketable Equity Securities
Liberte' Investors. LNH owns 300,000 shares of this REIT, which was
formerly known as Lomas & Nettleton Mortgage Investors and was managed by a
subsidiary of LFC. The investment has a carrying value and a market value of
$675,000 ($2.25 per LNH Share) at December 31, 1995. No dividends have been
received from this investment since 1990.
54
<PAGE> 68
INFORMATION CONCERNING EASTGROUP
The following information regarding EastGroup is supplementary to the
information contained in EastGroup's Annual Report or Form 10-K and Annual
Report to Shareholders for the year ended December 31, 1994 and EastGroup's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1995, which
are incorporated herein by reference.
RECENT DEVELOPMENTS
PURCHASE OF LNH SHARES. In April 1995, EastGroup purchased 383,775
shares (17.4%) of LNH for $7.50 per LNH Share in cash and a one-half interest
of LNH REIT Managers. As a result of this purchase, EastGroup owns 515,200 LNH
Shares (23.42%). See "The Merger - Background of the Merger."
PURCHASE OF SHARES OF COPLEY. In April 1995, EastGroup acquired
187,000 shares (5.2%) of common stock, $1.00 par value per share, of Copley, a
Boston-based REIT with a portfolio of 13 industrial properties and two office
buildings located in Maryland, Georgia, Florida, Arizona and California. On May
24, 1995, EastGroup proposed an offer to merge with Copley pursuant to which
Copley shareholders would receive an amount of EastGroup Shares having a value
of $12.00 for each Copley share held by such shareholder. After not receiving a
formal response from Copley, EastGroup withdrew its offer on June 8, 1995.
Since then, EastGroup purchased an additional 342,000 shares of Copley
increasing EastGroup's ownership to 529,000 shares of Copley (14.76%). On
November 15, 1995, EastGroup made a preliminary proposal to Copley pursuant to
which Copley would be merged into EastGroup or a wholly-owned subsidiary of
EastGroup in a transaction in which each Copley share would be converted into
EastGroup shares with a value of $13.50 to $14.00.
On February 12, 1996, Copley and EastGroup entered into the Copley
Merger Agreement, pursuant to which Copley is to be merged with EastGroup. In
the merger, each share of Copley common stock will be converted into EastGroup
Shares based upon a value per Copley share of $15.60. If, however, Copley has
sold its interest in University Business Center Associates ("UBC") to Copley's
joint venture partner prior to the closing of the merger, each share of Copley
common stock will be converted into EastGroup Shares based upon a value of
$12.00 for each Copley share and the proceeds from the sale of the UBC interest
will be distributed to Copley's shareholders prior to the merger. The value
into which each share of Copley's common stock will be converted into EastGroup
Shares is subject to further adjustment in the event certain other cash
distributions are made to Copley shareholders prior to the effective date of
the merger.
The value of EastGroup Shares for purposes of calculating the ratio at
which Copley's shares of common stock will be converted into EastGroup Shares
in the merger will be the average of the closing price of EastGroup Shares on
the NYSE on the 20 trading days immediately preceding the fifth trading day
prior to the effective date of the merger (the
55
<PAGE> 69
"EastGroup Stock Price"); however, the EastGroup Stock Price will be deemed to
equal $20.25 if the average price of EastGroup Shares calculated above is less
than or equal to $20.25 and $23.00 if the average price of EastGroup Shares is
greater than or equal to $23.00. Copley has the right, waivable by it, to
terminate the Copley Merger Agreement without liability if the average closing
price of EastGroup Shares on the NYSE on the 20 trading days immediately
preceding the fifth trading day prior to (i) the date on which the SEC declares
EastGroup's Registration Statement with respect to the merger with Copley
effective or (ii) the date on which Copley's stockholders' meeting with respect
to the merger is held is equal to or less than $18.25.
The merger is subject to several conditions including approval by the
shareholders of both Copley and EastGroup and registration of the EastGroup
Shares to be issued in the merger with the SEC.
PURCHASE OF ADDITIONAL BUILDING AT JETPORT COMMERCE PARK. In September
1995, EastGroup acquired a 75 percent ownership interest in a 40,200 square
foot multi-tenant industrial building at the JetPort Commerce Park, located in
Tampa, Florida, for a purchase price of approximately $807,000. This
acquisition increases EastGroup's ownership to nine buildings at the JetPort
Commerce Park with a total of 219,900 square feet and also increases
EastGroup's ownership of industrial facilities in the Tampa market to 515,900
square feet.
SALE OF SUNCHASE APARTMENTS. In October 1995, EastGroup sold SunChase
Apartments, a 224 unit apartment complex located in Corpus Christi, Texas, for
an aggregate purchase price of $4,580,000 in cash. As a result of this sale,
EastGroup will record a gain of approximately $1,895,000 ($0.45 per EastGroup
Share) in the fourth quarter of 1995. The net proceeds from this sale were used
to reduce EastGroup's outstanding variable rate debt.
SALE OF CASCADE VII. In September 1995, EastGroup sold Cascade VII, a
20,000 square foot office building in Columbus, Ohio, for $1,600,000 which
resulted in no gain or loss on the transaction. The net proceeds from this sale
were used to reduce EastGroup's outstanding variable rate debt.
SALE OF GARDEN VILLA APARTMENTS. In January 1996, EastGroup sold
Garden Villa Apartments, a 146-unit apartment complex located in Seattle,
Washington, for an aggregate purchase price of $4,400,000 in cash. As a result
of this sale, EastGroup will record a gain of approximately $1,296,000 ($0.31
per EastGroup Share) in the first quarter of 1996. The net proceeds of
approximately $3,132,000 from this sale were used to pay off a mortgage on this
property and the remaining proceeds were used to reduce EastGroup's outstanding
variable rate debt.
56
<PAGE> 70
MARKET PRICES AND DIVIDENDS
EASTGROUP SHARES
On May 3, 1994 EastGroup Shares became listed on the NYSE under the
symbol "EGP." Prior to this date EastGroup Shares were listed on the American
Stock Exchange under the symbol "EGP." As of February 23, 1996, there were
4,231,656 EastGroup Shares outstanding held of record by approximately 796
shareholders.
The following table sets forth the high and low sales prices during
and the cash distributions paid by EastGroup for the calendar quarters
specified:
<TABLE>
<CAPTION>
Distribution
Quarter Ended High Low Paid Per Share
- --------------------------------------------------------- ----------- -------------- ------------------
<S> <C> <C> <C>
March 31, 1993........................................... $20 1/4 $16 1/2 $0.38
June 30, 1993............................................ 19 1/8 17 0.38
September 30, 1993....................................... 23 5/8 18 1/4 0.38
December 31, 1993........................................ 24 1/4 20 1/8 0.41
March 31, 1994........................................... 21 1/8 19 0.43
June 30, 1994............................................ 20 7/8 18 1/4 0.43
September 30, 1994....................................... 19 7/8 18 3/8 0.43
December 31, 1994........................................ 19 3/4 16 1/2 0.45
March 31, 1995........................................... 19 5/8 17 1/4 0.45
June 30, 1995............................................ 20 18 3/8 0.45
September 30, 1995....................................... 20 3/4 19 0.47
December 31, 1995........................................ 22 3/8 20 1/4 0.47
March 31, 1996........................................... 22 1/2 20 3/4 0.0
(through February 23, 1996)
</TABLE>
On September 5, 1995, the most recent trading day on which EastGroup
Shares traded prior to the public announcement as to the agreement in principle
between EastGroup and LNH regarding the Merger (which occurred on September 6,
1995), the closing price for EastGroup Shares on NYSE was $19.875. On December
4, 1995, the most recent trading day on which EastGroup Shares traded prior to
the public announcement as to the revised agreement in principle between
EastGroup and LNH regarding the Merger (which occurred on December 6, 1995),
the closing price for EastGroup Shares on NYSE was $21.00. As of February 23,
1996, the most recent trading day as to which it is practicable to provide
market price information, the closing price for EastGroup Shares on NYSE was
$22.25 per share.
57
<PAGE> 71
LNH SHARES
LNH Shares are traded on the NYSE under the symbol "LHC." As of
February 23, 1996 there were 2,200,000 LNH Shares outstanding held of record by
approximately 506 shareholders.
The following table sets forth, for the periods indicated, the high
and low sales prices for LNH Shares and the cash distributions paid by LNH for
the calendar quarters specified:
<TABLE>
<CAPTION>
Distribution
Quarter Ended High Low Paid Per Share
- --------------------------------------------------------- ----------- -------------- ------------------
<S> <C> <C> <C>
March 31, 1993........................................... $10 3/4 $8 $2.14
June 30, 1993............................................ 8 3/4 7 7/8 0.14
September 30, 1993....................................... 9 5/8 7 3/4 0.14
December 31, 1993........................................ 9 1/4 8 1/8 0.14
March 31, 1994........................................... 8 7/8 7 7/8 0.14
June 30, 1994............................................ 8 7/8 7 3/4 0.14
September 30, 1994....................................... 9 1/4 6 1/2 1.59
December 31, 1994........................................ 7 6 1/8 0.09
March 31, 1995........................................... 6 3/4 5 3/4 0.75
June 30, 1995............................................ 6 3/4 6 0.09
September 30, 1995....................................... 7 1/2 6 1/8 0.09
December 31, 1995........................................ 7 3/4 7 1/8 0.15
March 31, 1996........................................... 8 7 5/8 0.0
(through February 23, 1996)
</TABLE>
On September 5, 1995, the most recent trading day on which LNH Shares
were traded prior to the public announcement that EastGroup and LNH had reached
an agreement in principle with respect to the Merger (which occurred on
September 6, 1995), the closing price for LNH Shares was $6.50. On December 5,
1995, the most recent trading day on which LNH Shares traded prior to the
public announcement as to the revised agreement in principle between LNH and
EastGroup regarding the Merger (which occurred on December 6, 1995), the
closing price for LNH Shares on NYSE was $7.125. On February 23, 1996, the most
recent trading day as to which it is practicable to provide market price
information, the closing price for LNH Shares was $7.75.
58
<PAGE> 72
DIFFERENCES IN SHAREHOLDERS' RIGHTS
The rights of holders of LNH Shares are governed by the provisions of
the LNH Articles originally filed December 23, 1980, and by the Bylaws of LNH,
as amended (the "Bylaws"), as well as by the Maryland General Corporation Law
and other Maryland law. If the Merger is consummated, shareholders of LNH
(other than those holding fewer than three shares on the Record Date) will
become shareholders of EastGroup, and their rights as such will be governed by
the EastGroup Declaration, and Trustees' Regulations, as amended (the
"EastGroup Regulations"), as well as by the Maryland General Corporation Law,
the Maryland Real Estate Investment Trusts Law and other Maryland law.
The rights of LNH shareholders differ in certain respects from the
rights they will have if they become shareholders of EastGroup pursuant to the
Merger. A summary of some of these differences is set forth below. This summary
is not intended in any way to be a complete description of all such
differences.
Capital Stock. The LNH Articles authorize LNH to issue 15,000,000 LNH
Shares. As of February 23, 1996, 2,200,000 LNH Shares were issued and
outstanding. EastGroup is presently authorized to issue up to 10,000,000
EastGroup Shares, of which 4,231,656 were issued and outstanding as of February
23, 1996.
Voting. Under the LNH Bylaws, the presence, in person or by proxy, of
the holders of a majority of the outstanding LNH Shares constitutes a quorum at
any shareholders' meeting. The LNH Articles and LNH Bylaws do not restrict the
matters on which shareholders of LNH may vote. The LNH Articles further provide
that, notwithstanding any other provision of the Maryland General Corporation
Law, an action shall be valid and effective if authorized by the affirmative
vote of the holders of a majority of the LNH Shares outstanding and entitled to
vote.
In all elections for directors of LNH, shareholders of LNH are
entitled to cumulate their votes. Each LNH Share may be voted for as many
individuals as there are directors to be elected and for whose election the LNH
Share is entitled to vote.
Under the EastGroup Declaration, a majority of the outstanding
EastGroup Shares represented in person or by proxy shall constitute a quorum at
any meeting. The EastGroup Declaration authorizes shareholders to vote on the
election and removal of trustees, amendment of the EastGroup Declaration and
termination of EastGroup, but no other matters. The affirmative vote of the
holders of not less than two-thirds of the EastGroup Shares then outstanding
shall be necessary to remove a trustee, amend the EastGroup Declaration and
terminate EastGroup.
59
<PAGE> 73
In the case of the election of trustees, shareholders of EastGroup are
also entitled to cumulate their votes. Each shareholder of EastGroup is
entitled to as many votes as shall equal the number of EastGroup Shares owned
by him or her multiplied by the number of trustees to be elected, and each such
shareholder may cast all of such votes for a single candidate for trustee or
may distribute them among any two or more of the candidates as such shareholder
may determine in his or her discretion. The candidates receiving the highest
number of votes, up to the number of trusteeships to be filled in the election,
shall be elected.
Special Meetings of Shareholders. Pursuant to the LNH Bylaws, special
meetings of the LNH shareholders may be called at any time in the interval
between annual meetings by the Chairman of the Board of Directors or the
President or by a majority of the Board of Directors by vote at a meeting
thereof or in writing. The written request must be addressed to the Secretary
of LNH. The EastGroup Declaration provides that special meetings of
shareholders may be called by any trustee or officer upon the written request
of shareholders holding not less than 25 percent of the outstanding EastGroup
Shares. Additionally, the Maryland General Corporation Law provides that a
special meeting may be called by the President, the Board of Directors or
Trustees or on the written request of stockholders entitled to cast at least 25
percent of all the votes entitled to be cast at the special meeting.
[/R]
Term of Office. Directors of LNH and trustees of EastGroup are each
elected for one year terms and must stand for reelection annually. As of the
date of this Proxy Statement/Prospectus, LNH had four directors and EastGroup
had seven trustees.
DESCRIPTION OF CAPITAL STOCK OF EASTGROUP
EastGroup is authorized to issue up to 10,000,000 EastGroup Shares.
Holders of EastGroup Shares will be entitled to receive such dividends as may
be declared from time to time by the trustees out of funds legally available
therefor. All of the issued and outstanding EastGroup Shares are fully paid and
non-assessable and have equal voting, distribution and liquidation rights.
EastGroup Shares shall not be subject to call or redemption; provided, however,
if the EastGroup trustees determine that the direct or indirect ownership of
EastGroup Shares has or may become concentrated to an extent which threatens
EastGroup's status as a REIT, the trustees may call for the redemption of a
number of EastGroup Shares.
Each EastGroup Share is entitled to one vote on matters put to a vote
of the shareholders, except that in the election of trustees, shareholders
shall have cumulative voting rights. This means an EastGroup shareholder is
entitled to as many votes as equal the number of EastGroup Shares owned by him
or her multiplied by the number of trustees to be elected. Shareholders may
cast all their votes for one trustee candidate or distribute the votes as they
so determine.
60
<PAGE> 74
INDEMNIFICATION PROVISIONS
Under the EastGroup Declaration, EastGroup is required to indemnify
its trustees and officers to the fullest extent permitted by Maryland law as
currently existing or later amended (but in the case of such amendment, only to
the extent that it permits broader indemnification rights than permitted prior
to such amendment). Each trustee and officer of EastGroup has a written
agreement with EastGroup which requires, among other things, that EastGroup
shall indemnify the trustee or officer to the fullest extent permitted under
Maryland law. The EastGroup Declaration provides that its trustees shall not be
personally liable to EastGroup or its shareholders except for acts, omissions
or errors constituting bad faith, willful misfeasance, gross negligence or
reckless disregard of a trustee's duties. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to trustees,
officers and controlling persons of EastGroup pursuant to the foregoing
provisions or otherwise, EastGroup has been advised that in the opinion of the
SEC such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
EXPERTS
The consolidated financial statements of EastGroup as of December 31,
1994 and 1993, and for each of the years in the three year period ended
December 31, 1994, have been incorporated by reference in the Proxy
Statement/Prospectus and the Registration Statement in reliance upon the report
of KPMG Peat Marwick LLP, independent certified public accountants,
incorporated by reference herein.
The consolidated financial statements of LNH REIT, Inc. appearing in
LNH REIT, Inc.'s Annual Report (Form 10-KSB) for the years ended December 31,
1994 and 1993, have been audited by Ernst & Young LLP, independent auditors, as
set forth in their report thereon included therein and incorporated herein by
reference.
The financial statements referred to above are incorporated herein by
reference in reliance upon such reports given upon the authority of such firms
as experts in accounting and auditing.
The consolidated financial statements of Copley as of December 31,
1994 and 1993, and for each of the three years in the period ended December 31,
1994 in this Registration Statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
61
<PAGE> 75
LEGAL OPINIONS
The validity of the EastGroup Shares being offered hereby has been
passed upon for EastGroup by Jaeckle, Fleischmann & Mugel. Jaeckle, Fleischmann
& Mugel has also passed upon the significant federal income tax consequences of
the Merger to the holders of LNH Shares.
REPORTS TO SHAREHOLDERS
EastGroup will provide shareholders with annual reports containing
financial statements reported upon by independent auditors, and also unaudited
quarterly statements of operations.
OTHER MATTERS
The management of the LNH does not know of any other matters to come
before the Meeting. However, if any other matters come before the Meeting, it
is the intention of the persons designated as proxies to vote in accordance
with their judgment on such matters.
A portion of the expense of preparing, printing and mailing the form
of proxy and the material used in the solicitation thereof initially will be
borne by LNH, but ultimately will be borne, directly or indirectly, by
EastGroup if the Merger is consummated. If the Merger is not consummated, LNH
would bear all expenses it incurred relating to this Proxy
Statement/Prospectus.
In addition to solicitation by mail, members of the Board of
Directors, officers and regular employees of LNH may solicit the return of
proxies by telephone, telegram and personal interview.
LNH may require brokers, custodians, nominees and other record holders
to forward copies of this Proxy Statement/Prospectus to persons for whom they
hold LNH Shares and to seek authority for the execution of proxies; in such
cases, LNH will reimburse such holders for their charges and expenses. LNH has
retained Beacon Hill Partners, Inc. ("Beacon Hill") to assist with the
solicitation of proxies and will pay Beacon Hill a fee of $3,000 (subject to
increase for additional services such as telephone solicitation) plus
reimbursement for out of pocket expenses for its services.
62
<PAGE> 76
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF EASTGROUP PROPERTIES
- -------------------------------------------------------------------
<S> <C>
Pro Forma Consolidated Balance Sheet
as of September 30, 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . F-2
Notes to Pro Forma Consolidated Balance Sheet
as of September 30, 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . F-5
Pro Forma Consolidated Statement of Operations for the year
ended December 31, 1994 (unaudited) . . . . . . . . . . . . . . . . . . . . F-8
Pro Forma Consolidated Statement of Operations
for the nine months ended September 30, 1995 (unaudited) . . . . . . . . . . F-11
Notes to Pro Forma Consolidated Statements of Operations (unaudited) . . . . . . . . . . . . F-13
CONSOLIDATED FINANCIAL STATEMENTS OF COPLEY PROPERTIES
- ------------------------------------------------------
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-24
Consolidated Balance Sheets - December 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . F-25
Consolidated Statements of Operations and Cumulative Deficit -
Years ended December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . F-26
Consolidated Statements of Cash Flows-
Years ended December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . F-27
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . F-28
Consolidated Balance Sheets - September 30, 1995 (Unaudited)
and December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . F-45
Consolidated Statements of Operations and Cumulative Deficit-
Three months and Nine months ended September 30, 1995 and 1994 (Unaudited) . F-46
Consolidated Statements of Cash Flows -
Nine months ended September 30, 1995 and 1994 (Unaudited) . . . . . . . . . F-47
Notes to Consolidated Financial Statements (Unaudited) . . . . . . . . . . . . . . . . . . . F-48
</TABLE>
F-1
<PAGE> 77
EASTGROUP PROPERTIES
PRO FORMA CONSOLIDATED BALANCE SHEET (Unaudited)
As of September 30, 1995
The following unaudited pro forma consolidated balance sheet sets
forth the effect of EastGroup Properties proposed merger with LNH REIT, Inc.
and with Copley Properties, Inc. as if the mergers had been consummated on
September 30, 1995. The pro forma consolidated balance sheet has been prepared
by management of EastGroup based upon the historical financial statements of
EastGroup, LNH REIT and Copley. This pro forma consolidated balance sheet may
not be indicative of the financial position had the merger been in effect on
the dates indicated or which may occur in the future. The pro forma
consolidated balance sheet should be read in conjunction with the other
financial statements and the notes to the financial statements of EastGroup and
LNH REIT incorporated by reference herein. The pro forma consolidated balance
sheet has been prepared using a price of $15.60 per share for the Copley
shares. As discussed in Note (16), the price may be reduced to $12.00 per
share due to the potential impact of the sale of University Business Center
(UBC) prior to the Merger.
F-2
<PAGE> 78
<TABLE>
<CAPTION>
EastGroup LNH
September 30, September 30, Merger Pro Forma
1995 1995 Pro Forma Consolidated
(Historical) (Historical) Adjustments Before Copley
--------------- ---------------- ----------- -------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
ASSETS
Real estate properties (net of
accumulated depreciation) $139,271 $ 11,123 $ (2,924) (1) $147,470
Investments in tenancies-in-
common - - - -
Mortgage loans (net of
allowance for losses) 5,984 12,856 (3,298) (1) 15,542
Land and land purchase-
leasebacks 1,327 - - 1,327
Investment securities 6,150 675 - 6,825
Equity method investments 4,009 - (4,009) (1) -
Cash and cash equivalents 159 1,322 - 1,481
Other assets 3,493 445 (24) (2) 3,914
--------------- ---------------- ----------- -------------
$160,393 $ 26,421 $ (10,255) $176,559
=============== ================ =========== =============
LIABILITIES
Mortgage notes payable $ 62,202 $ - $ - $ 62,202
Notes payable to banks 13,835 - - 13,835
Accounts payable and accrued
expenses 2,189 1,064 (24) (2) 3,229
Minority interest 922 1,480 - 2,402
--------------- ---------------- ----------- -------------
79,148 2,544 (24) 81,668
--------------- ---------------- ----------- -------------
SHAREHOLDERS' EQUITY
Shares of beneficial interest 4,227 1,100 (1,100) (1) 4,844
617 (1)
Additional paid-in-capital 68,269 25,169 (25,169) (1) 81,298
13,029 (1)
Treasury stock - - - -
Unrealized gain (loss) on
securities (2) 506 (506) (1) (2)
Undistributed earnings (deficit) 8,751 (2,898) 2,898 (1) 8,751
Class A common stock - - - -
--------------- ---------------- ----------- -------------
81,245 23,877 (10,231) 94,891
--------------- ---------------- ----------- -------------
$160,393 $ 26,421 $(10,255) $176,559
=============== ================ =========== =============
Book value per share $19.22 $10.85 $19.59
Shares outstanding (In thousands) 4,227 2,200 4,844
</TABLE>
F-3
<PAGE> 79
<TABLE>
<CAPTION>
Copley
Pro Forma September 30, Copley Merger
Consolidated 1995 Exchanges/ Pro Forma Pro Forma
Before Copley (Historical) Dispositions Adjustments Consolidated
------------- ------------ ------------ ----------- ------------
(See page F-3) (In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
ASSETS
Real estate properties (net of
accumulated depreciation) $147,470 $80,548 $14,871 (4) $13,935 (3) $256,824
Investments in tenancies-in-
common - 2,186 (2,186)(4) - -
Mortgage loans (net of
allowance for losses) 15,542 739 - - 16,281
Land and land purchase
leasebacks 1,327 - - - 1,327
Investment securities 6,825 - - (6,150)(3) 675
Equity method investments - - - - -
Cash and cash equivalents 1,481 1,401 6,428 (4) - 9,310
Other assets 3,914 185 (184)(4) - 3,915
------------- ------------ ------------ ----------- ------------
$176,559 $85,059 $18,929 (4) $7,785 $288,332
============= ============ ============ =========== ============
LIABILITIES
Mortgage notes payable $ 62,202 $41,649 $18,529 (4) - $122,380
Notes payable to banks 13,835 - - - 13,835
Accounts payable,
accrued expenses and other 3,229 5,221 (1,290)(4) - 7,160
Minority interest 2,402 - - - 2,402
------------- ------------ ------------ ----------- ------------
81,668 46,870 17,239 - 145,777
------------- ------------ ------------ ----------- ------------
SHAREHOLDERS' EQUITY
Shares of beneficial interest 4,844 4,008 - (4,008)(3) 6,998
2,154 (3)
Additional paid-in-capital 81,298 69,625 - (69,625)(3) 126,808
45,510 (3)
Treasury stock - (4,896) - 4,896 (3) -
Unrealized gain (loss) on -
securities (2) - - (2)
Undistributed earnings (deficit) 8,751 (30,549) 1,690 (4) 28,859 (3) 8,751
Class A common stock - 1 - (1)(3) -
------------- ------------ ------------ ----------- ------------
94,891 38,189 1,690 (4) 7,785 142,555
------------- ------------ ------------ ----------- ------------
$176,559 $85,059 $18,929 (4) $7,785 $288,332
============= ============ ============ =========== ============
Book value per share $19.59 $10.66 $20.37
Shares outstanding (In thousands) 4,844 3,584 6,998
</TABLE>
F-4
<PAGE> 80
EASTGROUP PROPERTIES
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET (Unaudited)
As of September 30, 1995
1. EastGroup issues 616,805 shares to all LNH REIT shareholders (except for
EastGroup) in exchange for all LNH REIT shares outstanding. The 515,200
LNH REIT shares owned by EastGroup (representing 23.42% of the total
shares outstanding) are retired. The merger with LNH REIT is accounted
for under the purchase method of accounting.
<TABLE>
<S> <C>
LNH REIT shares outstanding 2,200,000
Less LNH REIT shares owned by EastGroup (515,200)
------------
1,684,800
Exchange ratio (8.10/22.125) Closing price of
EastGroup on February 16, 1996. .3661
------------
New EastGroup shares issued 616,805
Market value per EastGroup share $22.125
------------
$ 13,646,000
EastGroup's investment in LNH at
September 30, 1995 4,009,000
------------
EastGroup's cost of LNH REIT's net assets $ 17,655,000
============
</TABLE>
The difference between LNH's book value and EastGroup's cost is allocated
to LNH's noncurrent assets (real estate and mortgage loans) based upon
estimated fair values.
<TABLE>
<S> <C>
Cost $17,655,000
Book value 23,877,000
------------
Difference $ (6,222,000)
============
Difference is allocated as follows:
Real estate $ (2,924,000)
Mortgage loans (3,298,000)
------------
$ (6,222,000)
============
</TABLE>
2. Eliminate LNH's management fee payable to EastGroup against EastGroup's
management fee receivable.
F-5
<PAGE> 81
EASTGROUP PROPERTIES
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET (Unaudited)
As of September 30, 1995
3. EastGroup issues 2,161,049 shares to all Copley shareholders (except for
EastGroup) in exchange for all Copley shares outstanding. The 529,000
Copley shares owned by EastGroup (representing 14.76% of the total shares
outstanding) are retired. The merger with Copley is accounted for under
the purchase method of accounting.
<TABLE>
<S> <C>
Copley shares outstanding 3,584,350
Less Copley shares owned by EastGroup (529,000)
------------
3,055,350
Exchange ratio (15.60/22.125) Closing price of
EastGroup on February 16, 1996. .7051
------------
New EastGroup shares issued 2,154,327
Market value per EastGroup share $22.125
------------
$ 47,664,000
EastGroup's investment in Copley at
September 30, 1995 6,150,000
------------
EastGroup's cost of Copley's net assets $ 53,814,000
============
</TABLE>
The difference between Copley's book value and EastGroup's cost is
allocated to Copley's noncurrent assets (real estate) based upon estimated
fair values. The interest rates on Copley's mortgage notes payable
approximate market value rates.
<TABLE>
<S> <C>
Cost $53,814
Book value after Copley
exchanges/dispositions 39,879
-------
Difference $13,935
=======
</TABLE>
F-6
<PAGE> 82
EASTGROUP PROPERTIES
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET (Unaudited)
As of September 30, 1995
4. Copley's acquisition / disposition / exchanges:
<TABLE>
<CAPTION>
Pro Forma Adjustments
---------------------------------------------------------------------------------------------
Real Estate Investments in Accounts Payable
Properties, Tenancies-in Cash and Cash and
net Common Equivalents Other Assets Accrued Expenses
---- ------ ----------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Peachtree Corners
Distribution Center (A) $ (8,205) $ - $ 6,336 $ - $ (1,290)
Columbia Place (B) 11,550 (1,463) 230 - -
Metro Business Park
& East Dominguez (B) 11,526 (723) (138) (184) -
---------------------------------------------------------------------------------------------
TOTAL $ 14,871 $(2,186) $ 6,428 $(184) $ (1,290)
=============================================================================================
<CAPTION>
Pro Forma Adjustments
-----------------------------------
Mortgage Gain on
Notes Payable Sale/Exchange
------------- -------------
<S> <C> <C>
Peachtree Corners
Distribution Center (A) $ (2,250) $ 1,671
Columbia Place (B) 10,298 19
Metro Business Park
& East Dominguez (B) 10,481 -
-----------------------------------
TOTAL $ 18,529 $ 1,690
===================================
<FN>
(A) In November 1995, Copley sold all of its interests and rights related to the Peachtree Corners Distribution Center investment.
In exchange for its interest in this investment, Copley received $6,336,000 in cash, realized a $1,290,000 deposit previously
received and was relieved of its obligation to repay a $2,250,000 mortgage note payable.
(B) In February 1996, Copley effected two exchange transactions. In the first exchange transaction Copley exchanged its
tenancy-in-common interest in 270 Technology Park to gain 100% ownership of Columbia Place, subject to a mortgage note payable
of $10,298,000. In addition, Copley received $230,000 of monetary consideration. In the second exchange transaction Copley
exchanged its tenancy-in-common interest in West Side Business Park, Central Distribution Center, Carson Industrial Center and
three buildings located on El Presidio Street in Carson, California to gain 100% ownership of Metro Business Park and a
building located on East Dominguez Street in Carson, California, subject to a mortgage note payable of $10,481,000. In
addition, Copley was required to make a $138,000 cash payment. These transactions were accounted for at the book value of the
assets exchanged.
For purposes of determining pro forma adjustments, it was assumed that the exchange transaction occurred at September 30,
1995. As a result, all investments in tenancies-in-common have been eliminated from the pro forma balance sheet and the
real estate properties which are eventually 100% owned by Copley have been reflected as such, with associated debt
separately stated.
</TABLE>
F-7
<PAGE> 83
EASTGROUP PROPERTIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
For the year ended December 31, 1994 and the nine months ended September 30,
1995
The following unaudited pro forma consolidated statements of operations
for the year ended December 31, 1994 and the nine months ended September 30,
1995 set forth the effect of EastGroup's proposed merger with LNH REIT and
Copley as if these transactions had been consummated on January 1, 1994. These
pro forma consolidated statements of operations have been prepared by
management of EastGroup based upon historical statements of operations of
EastGroup, LNH REIT and Copley. These pro forma statements of operations may
not be indicative of the results that actually would have occurred if the
transactions had been in effect on the dates indicated or which may be obtained
in the future. These pro forma statements of operations should be read in
conjunction with their notes and the other financial statements and notes to
the financial statements of EastGroup and LNH REIT incorporated by reference
herein. The pro forma consolidated statements of operations for the year ended
December 31, 1994 and the nine months ended September 30, 1995, have been
prepared using a price of $15.60 per share for the Copley shares. As discussed
in Note (16), the price may be reduced to $12.00 per share due to the potential
impact of the sale of University Business Center (UBC) prior to the Merger.
F-8
<PAGE> 84
EASTGROUP PROPERTIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
For the year ended December 31, 1994
<TABLE>
<CAPTION>
EastGroup LNH EastGroup's
December 31, December 31, Recent Merger Pro Forma
1994 1994 Acquisitions/ Pro Forma Consolidated
(Historical) (Historical) Dispositions(1) Adjustments Before Copley
------------ ------------ --------------- ----------- -------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
REVENUES
Income from real estate operations $ 23,194 $ 1,249 $4,137 $ - $ 28,580
Share of joint venture earnings
(losses)
Joint venture operations - - - - -
Lease termination charges - - - - -
Land rents 398 - (94) - 304
Equity in earnings of real estate
investment trust 123 - - (123) (2) -
Interest:
Mortgage loans 1,041 574 109 - 1,724
Other 13 101 - - 114
Other 126 226 - (107) (3) 245
------------ ------------ --------------- ----------- -------------
24,895 2,150 4,152 (230) 30,967
------------ ------------ --------------- ----------- -------------
EXPENSES
Management fees - 338 - (338) (4) -
Operating expenses from real
estate operations 9,741 605 1,490 - 11,836
Interest expense 3,747 - 1,768 224 (5) 5,739
Depreciation and amortization 4,481 277 646 - 5,404
Minority interests in joint 163 54 104 - 321
ventures
General and administrative
expenses 2,046 227 - 125 (6) 2,398
Stock appreciation rights and
incentive compensation recovery (129) - - - (129)
Provision for possible losses - 525 - - 525
------------ ------------ --------------- ----------- -------------
20,049 2,026 4,008 11 26,094
------------ ------------ --------------- ----------- -------------
Income (loss) before gain (loss)
on investments 4,846 124 144 (241) 4,873
------------ ------------ --------------- ----------- -------------
GAIN (LOSS) ON INVESTMENTS
Real estate and mortgage loans 2,322 135 (2,494) - (37)
------------ ------------ --------------- ----------- -------------
2,322 135 (2,494) - (37)
------------ ------------ --------------- ----------- -------------
NET INCOME (LOSS) $ 7,168 $ 259 $ (2,350) ($ 241) $ 4,836
============ ============ =============== =========== =============
Net income (loss) per share $1.74 $0.12 $1.02
============ ============ =============
WEIGHTED AVERAGE SHARES 4,114 2,200 4,730
OUTSTANDING (7)(8)
============ ============ =============
</TABLE>
F-9
<PAGE> 85
EASTGROUP PROPERTIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
For the year ended December 31, 1994
<TABLE>
<CAPTION>
Copley Copley's
Pro Forma December 31, Acquisitions/ Merger
Consolidated 1994 Dispositions/ Pro Forma Pro Forma
Before Copley (Historical) Exchanges(9) Adjustments Consolidated
------------- ------------ ------------ ----------- ------------
(See page F-9) (In thousands except per share data)
<S> <C> <C> <C> <C> <C>
REVENUES
Income from real estate operations $ 28,580 $ 13,338 $2,524 $ - $44,442
Share of joint venture earnings
(losses)
Joint venture operations - 416 (416)
Lease termination charges - (1,770) 1,770 - -
Land rents 304 - - - 304
Equity in earnings of real estate
investment trust - - - - -
Interest:
Mortgage loans 1,724 - - - 1,724
Other 114 80 - - 194
Other 245 - - - 245
--------------- ------------ ------------ ----------- --------------
30,967 12,064 3,878 - 46,909
--------------- ------------ ------------ ----------- --------------
EXPENSES
Management fees - 715 - - 715
Operating expenses from real
estate operations 11,836 3,073 (175) - 14,734
Interest expense 5,739 4,907 911 519 (11) 12,076
Depreciation and amortization 5,404 3,999 2,000 110 (12) 11,513
Minority interests in joint 321 118 - - 439
ventures
General and administrative
expenses 2,398 416 - - 2,814
Stock appreciation rights and
incentive compensation recovery (129) - - - (129)
Provision for possible losses 525 - - - 525
--------------- ------------ ------------ ----------- --------------
26,094 13,228 2,736 629 42,687
--------------- ------------ ------------ ----------- --------------
Income (loss) before gain (loss
on investments 4,873 (1,164) 1,142 (629) 4,222
--------------- ------------ ------------ ----------- --------------
GAIN (LOSS) ON INVESTMENTS
Real estate and mortgage loans (37) 627 (627) - (37)
--------------- ------------ ------------ ----------- --------------
(37) 627 (627) - (37)
--------------- ------------ ------------ ----------- --------------
NET INCOME (LOSS) $ 4,836 $ (537) $ 515 $(629) $ 4,185
=============== ============ ============ =========== ==============
Net income (loss) per share $ 1.02 $ (.15) $ .61
=============== ============ ==============
WEIGHTED AVERAGE SHARES
OUTSTANDING 4,730 3,584 6,885(8)
=============== ============ ==============
</TABLE>
F-10
<PAGE> 86
EASTGROUP PROPERTIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
For the nine months ended September 30, 1995
<TABLE>
<CAPTION>
EastGroup LNH Pro Forma
September 30, September 30, Merger Consolidated
1995 1995 Pro Forma Before
(Historical) (Historical) Adjustments Copley
------------ ------------ ----------- -------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
REVENUES
Income from real estate
operations $ 21,427 $ 1,083 $ - $ 22,510
Share of real estate investment
operations - - - -
Land rents 177 - - 177
Equity in earnings of real
estate investment trust 167 - (167) (2) -
Interest:
Mortgage loans 800 510 - 1,310
Other 41 - 41
Other 224 43 (91) (3) 176
------------ ------------ ----------- -------------
22,795 1,677 (258) 24,214
------------ ------------ ----------- -------------
EXPENSES
Management fees - 221 (221) (4) -
Operating expenses from real
estate operations 8,762 400 - 9,162
Interest expense 4,508 - 67 (5) 4,575
Depreciation and amortization 4,371 273 - 4,644
Minority interest in joint
ventures 185 73 - 258
Recovery of possible losses - (250) - (250)
General and administrative
expenses 1,604 353 95 (6) 2,052
Write-off of deferred financing
costs - - - -
------------ ------------ ----------- -------------
19,430 1,070 (59) 20,441
------------ ------------ ----------- -------------
Income before gain
on investments 3,365 607 (199) 3,773
------------ ------------ ----------- -------------
GAIN ON INVESTMENTS
Real estate and mortgage loans 1,451 535 (1986) (1) -
------------ ------------ ----------- -------------
1,451 535 (1986) -
------------ ------------ ----------- -------------
NET INCOME $ 4,816 $ 1,142 $(2,185) $ 3,773
============ ============ =========== =============
Net income per share $ 1.14 $ 0.52 $ 0.78
============ ============ =============
WEIGHTED AVERAGE
SHARES OUTSTANDING(7)(8) 4,224 2,200 4,841
============ ============ =============
</TABLE>
F-11
<PAGE> 87
EASTGROUP PROPERTIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
For the nine months ended September 30, 1995
<TABLE>
<CAPTION>
Copley Copley's
Pro Forma September 30, Acquisitions/ Merger
Consolidated 1995 Dispositions/ Pro Forma Pro Forma
Before Copley (Historical) Exchanges(9) Adjustments Consolidated
------------- ----------- ------------ ----------- ------------
(See p. F-11) (In thousands except per share data)
<S> <C> <C> <C> <C> <C>
REVENUES
Income from real estate
operations $ 22,510 $ 9,738 1,595 - 33,843
Share of real estate investment
operations - 609 (609) - -
Land rents 177 - - - 177
Equity in earnings of real
estate investment trust - - - - -
Interest:
Mortgage loans 1,310 - - - 1,310
Other 41 18 - - 59
Other 176 - - (111) (10) 65
------------- ----------- ------------ ----------- -------------
24,214 10,365 986 (111) 35,454
------------- ----------- ------------ ----------- -------------
EXPENSES
Management fees - 390 - - 390
Operating expenses from real
estate operations 9,162 2,333 (71) - 11,424
Interest expense 4,575 3,520 791 40 (11) 8,926
Depreciation and amortization 4,644 2,877 (178) 83 (12) 7,426
Minority interest in joint
ventures 258 84 - - 342
Recovery of possible losses (250) - - - (250)
General and administrative
expenses 2,052 874 - (584) (13) 2,342
Write-off of deferred financing
costs - 501 - (501) (14) -
------------- ----------- ------------ ----------- -------------
20,441 10,579 542 (962) 30,600
------------- ----------- ------------ ----------- -------------
Income (loss) before gain
(loss) on investments 3,773 (214) 444 851 4,854
------------- ----------- ------------ ----------- -------------
GAIN (LOSS) ON INVESTMENTS
Real estate and mortgage loans - 758 (758) - 0
------------- ----------- ------------ ----------- -------------
- 758 (758) - -
------------- ----------- ------------ ----------- -------------
NET INCOME $3,773 $ 544 $(314) $851 $4,854
============= =========== ============ =========== =============
Net income per share $ 0.78 $ 0.15 $ 0.69
============= =========== =============
WEIGHTED AVERAGE
SHARES OUTSTANDING 4,841 3,584 6,996
============= =========== =============
</TABLE>
F-12
<PAGE> 88
EASTGROUP PROPERTIES
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(1) EastGroup's recent acquisitions / dispositions:
During 1994 EastGroup purchased ten properties and sold one land purchase
leaseback. The Pro Forma Consolidated Statement of Operations is presented
as if these transactions had been consummated on January 1, 1994. The
operating revenues and expenses associated with EastGroup's acquisitions
and dispositions in 1995 are immaterial. Gain on dispositions of
$1,451,000 in 1995 has been removed in determining pro forma net income.
The operating revenues and expenses associated with the LNH acquisitions
and dispositions in 1994 and 1995 are immaterial. The operating revenues
and expenses associated with the gain on dispositions of $535,000 in
1995 has been removed in determining pro forma net income.
Recent transactions include the following properties purchased or sold by
EastGroup:
<TABLE>
<CAPTION>
Pro Forma Adjustments
------------------------------------------------------------------------------------------
Income from Operating
Transaction real estate Interest expense from Interest
Property Date operations Land rents Income real estate expense
-------- ---- ---------- ---------- ------ ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Santa Fe Energy
Building February 1994 $ 237 $- $- $109 $-
Plantations at
Killearn Apartments April 1994 301 - - 122 -
Exchange
Distribution Center May 1994 212 - 26 55 100
(75% ownership)
JetPort Commerce
Park 516 Building May 1994 83 - - 43 40
(75% ownership)
Phillips
Distribution Center July 1994 367 - - 131 198
Hampton House
Apartments August 1994 624 - - 270 310
Grande Pointe
Apartments September 1994 818 - - 338 358
<CAPTION>
Pro Forma Adjustments
-------------------------------------------------------
Minority Net
interest in Gain on Income
Property Depreciation joint venture investments (loss)
-------- ------------ ------------- ----------- ------
<S> <C> <C> <C> <C>
Santa Fe Energy
Building $30 $- $- $98
Plantations at
Killearn Apartments 65 - - 114
Exchange
Distribution Center 25 33 - 25
(75% ownership)
JetPort Commerce
Park 516 Building 11 2 - (13)
(75% ownership)
Phillips
Distribution Center 40 - - (2)
Hampton House
Apartments 116 - - (72)
Grande Pointe
Apartments 146 - - (24)
</TABLE>
F-13
<PAGE> 89
EASTGROUP PROPERTIES
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Pro Forma Adjustments
------------------------------------------------------------------------------------------
Income from Operating
Transaction real estate Interest expense from Interest
Property Date operations Land rents Income real estate expense
-------- ---- ---------- ---------- ------ ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Northwest Point
Distribution Center September 1994 $750 $- $- $182 $411
WestPort Commerce
Center October 1994 580 - 83 227 248
(75% ownership)
Baxter Warehouse December 1994 165 - - 13 103
Parklane land
purchase-leaseback Sold April 1994 - (94) - - -
------------------------------------------------------------------------------------------
Total $4,137 $(94) $109 $1,490 $1,768
==========================================================================================
<CAPTION>
Pro Forma Adjustments
-------------------------------------------------------
Minority Net
interest in Gain on Income
Property Depreciation joint venture investments (loss)
-------- ------------ ------------- ----------- ------
<S> <C> <C> <C> <C>
Northwest Point
Distribution Center $106 $- $- $51
WestPort Commerce
Center 79 69 - 40
(75% ownership)
Baxter Warehouse 28 - - 21
Parklane land
purchase-leaseback - - (2,494) (2,588)
---------------------------------------------------------
$646 $104 $(2,494) $(2,350)
=========================================================
</TABLE>
F-14
<PAGE> 90
EASTGROUP PROPERTIES
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(2) Eliminate equity in earnings of LNH REIT, Inc.
(3) Eliminate equity in earnings of EastGroup Managers, Inc.
(4) Eliminate LNH management fee expense payable to LNH REIT Managers.
(5) Increase interest expense for borrowings to purchase LNH Shares from the
Walker Interests. The borrowings to purchase these shares was $3,070,000
at an average rate of 8.5% for 1994 and for the nine months of 1995.
(6) Eliminate management fee income received from LNH REIT Managers.
(7) A $1.00 change in the per share price of EastGroup will result in a
corresponding change (increase or decrease) in the number of shares issued
to LNH shareholders and pro forma net income per share as follows:
<TABLE>
<CAPTION>
Change in EastGroup Market Price Per Share
------------------------------------------
<S> <C> <C>
$ 1.00 Increase $1.00 Decrease
--------------- --------------
Shares issued 26,668 decrease 29,201 increase
Pro forma Net Income
before Copley
1994 $.01 increase No effect
9 months - 1995 No effect $.01 decrease
Book value 9-30-95 $.11 increase $.12 decrease
</TABLE>
F-15
<PAGE> 91
EASTGROUP PROPERTIES
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(8) Weighted average EastGroup Shares outstanding were computed as follows:
<TABLE>
<CAPTION>
Twelve Months Nine Months
Ended Ended
December 31, 1994 September 30, 1995
----------------- ------------------
<S> <C> <C>
Historical weighted average
EastGroup Shares outstanding 4,113,627 4,224,403
EastGroup Shares issued in
merger with LNH REIT 616,805 616,805
----------------- ------------------
Pro forma weighted average
EastGroup Shares outstanding before
Copley 4,730,432 4,841,208
----------------- ------------------
EastGroup Shares issued in
merger with Copley 2,154,327 2,154,327
----------------- ------------------
Pro Forma weighted average
EastGroup Shares outstanding 6,884,759 6,995,535
================= ==================
</TABLE>
F-16
<PAGE> 92
EASTGROUP PROPERTIES
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(9) Copley's acquisitions / dispositions / exchanges:
EastGroup Properties
Pro Forma Adjustments
December 31, 1994
<TABLE>
<CAPTION>
Amounts (000's)
Property
-------- Income From R.E.
Sale, Purchase Real Estate Operating Depreciation Interest
or Exchange Operations Expense Expense Expense
----------- ---------- ------- ------- -------
Description Date
----------- -----
<S> <C> <C> <C> <C> <C> <C>
Baygreen Industrial Park Partial Dec. 1994 $ (51) $ 33 $ 40 $
Sale(A)
Peachtree Corners Dist Center Sale Nov. 1995 (1,177) 306 428
Sample\I-95 Business Park (B) 80
Huntwood Associates (C) (96)
University Business Center (B) 343
Park North Business Center Sale June 1995 (1,688) 368 813 472
Broadway Industrial Center Purchase March 1994 90 (30) (26)
Kingsview Industrial Center Purchase July 1995 438 (84)
Columbia Place Exchange(D) Feb. 1996 2,614 (85) (2,811) (1,063)
Metro Business Park Exchange(D) Feb. 1996 1,448 (377) (180) (472)
Dominguez Properties Exchange(D) Feb. 1996 946 (40) (180) (481)
<CAPTION>
Amounts (000's)
Property Share Of
-------- R.E. Lease
Investment Termination Gain on
Operations Charges Investments Total
---------- ------- ----------- -----
<S> <C> <C> <C> <C>
Baygreen Industrial Park $ $ $ (627) $ (605)
Peachtree Corners Dist Center (443)
Sample\I-95 Business Park 80
Huntwood Associates (96)
University Business Center 343
Park North Business Center (45) (80)
Broadway Industrial Center 34
Kingsview Industrial Center 354
Columbia Place (377) 1,770(E) 48
Metro Business Park 120 539
Dominguez Properties (131) 114
</TABLE>
F-17
<PAGE> 93
EASTGROUP PROPERTIES
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Property
-------- Income From R.E.
Sale, Purchase Real Estate Operating Depreciation Interest
or Exchange Operations Expense Expense Expense
----------- ---------- ------- ------- -------
Description Date
----------- -----
<S> <C> <C> <C> <C> <C> <C>
270 Technology Park Exchange(D) Feb. 1996
West Side Business Park Exchange(D) Feb. 1996
Central Distribution Exchange(D) Feb. 1996
Center
Carson Industrial Center Exchange(D) Feb. 1996
Line of Credit (B) 210
----------------------------------------------------------
Total $2,524 175 (2,000) (911)
==========================================================
<CAPTION>
Property Share Of
-------- R.E. Lease
Investment Termination Gain on
Operations Charges Investments Total
---------- ------- ----------- -----
<S> <C> <C> <C> <C>
270 Technology Park (155) (155)
West Side Business Park 103 103
Central Distribution 103 103
Center
Carson Industrial Center (34) (34)
Line of Credit 210
-----------------------------------------------------
Total (416) 1,770 (627) 515
=====================================================
</TABLE>
<TABLE>
<CAPTION>
Amounts (000's)
Property
-------- Income From R.E.
Sale, Purchase Real Estate Operating Depreciation Interest
or Exchange Operations Expense Expense Expense
-------------------------- ---------- ------- ------- -------
Description Date
----------- -----
<S> <C> <C> <C> <C> <C> <C>
Peachtree Corners Dist Center Sale Nov. 1994 $(961) $215 $302 $
University Business Center (B) 57
Park North Business Center Sale June 1995 (770) 207 410 374
Kingsview Industrial Center Purchase July 1995 231 (45)
<CAPTION>
Amounts (000's)
Property Share Of
-------- R.E.
Investment Gain on
Operations Investments Total
---------- ----------- -----
<S> <C> <C>
Peachtree Corners Dist Center $ $ $(444)
University Business Center 57
Park North Business Center (758) (537)
Kingsview Industrial Center 186
</TABLE>
F-18
<PAGE> 94
EASTGROUP PROPERTIES
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Property
-------- Income From R.E.
Sale, Purchase Real Estate Operating Depreciation Interest
or Exchange Operations Expense Expense Expense
-------------------------- ---------- ------- ------- -------
Description Date
----------- -----
<S> <C> <C> <C> <C> <C> <C>
Columbia Place Exchange(D) Feb. 1996 1,377 (23) (219) (690)
Metro Business Park Exchange(D) Feb. 1996 986 (273) (135) (385)
Dominguez Properties Exchange(D) Feb. 1996 732 (55) (135) (320)
270 Technology Park Exchange(D) Feb. 1996
West Side Business Park Exchange(D) Feb. 1996
Central Distribution Center Exchange(D) Feb. 1996
Carson Industrial Center Exchange(D) Feb. 1996
Line of Credit (B) 173
------------------------------------------------------
Total $1,595 $71 $178 $(791)
=======================================================
<CAPTION>
Property Share Of
-------- R.E.
Investment Gain on
Operations Investments Total
---------- ----------- -----
<S> <C> <C> <C>
Columbia Place (487) (42)
Metro Business Park 77 270
Dominguez Properties (101) 121
270 Technology Park (115) (115)
West Side Business Park 60 60
Central Distribution Center (19) (19)
Carson Industrial Center (24) (24)
Line of Credit 173
------------------------------------
Total $(609) $(758) $(314)
====================================
<FN>
(A) In December 1994, Copley sold two of the four buildings at Baygreen
Industrial Park.
(B) Effect of Debt Repayments
-------------------------
For purposes of determining pro forma adjustments, it was assumed that the
principal due under certain debt agreements was repaid with available cash
and net proceeds available from dispositions which were assumed to occur on
January 1, 1994. Principal on notes payable at Sample\I-95 Business Park
and University Business Center were assumed to be repaid on January 1,
1994. As the Sample\I-95 Business Park $3.6 million note was actually
repaid on June 30, 1994, the pro forma adjustment reduces interest expense
by the interest accrued through June 1994 of $80,000. As the $3.5 million
pay down on the University Business Center note actually occurred in
February 1995, the pro forma adjustment reduces the interest expense by the
interest accrued for that portion of the note ($343,000 in 1994 and $57,000
in 1995). As discussed above, on a pro forma basis Copley had sufficient
cash available throughout the pro forma period to mitigate any need to draw
on the line of credit. Therefore, the pro forma adjustments eliminate the
effect of interest charges incurred related to amounts drawn under the line
of credit during the pro forma period.
</TABLE>
F-19
<PAGE> 95
EASTGROUP PROPERTIES
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(C) During 1992, Copley sold two buildings at Huntwood Associates, as part of
this transaction Copley accepted an interest-bearing purchase money
mortgage note from the purchaser. In 1994, Copley received payment in full
satisfaction of this note. For pro forma purposes, this note is assumed to
have been repaid on January 1, 1994. Therefore, income of $96,000 which
was earned on the note during 1994 has been eliminated.
(D) As discussed in footnote 4(B) to the pro forma balance sheet, in February
1996 Copley effected two exchange transactions swaping tenancy-in-common
interests for wholly owned properties. For purposes of the pro forma
statement of operations, share of real estate investment operations for all
investments involved in the exchange has been eliminated and the separate
components of income from operations for the 100% owned real estate
properties have been reflected for the pro forma periods.
(E) Lease termination charges relate to a lease cancellation at Columbia Place
which has been reclassified as depreciation expense in the pro forma
presentation.
(10) Eliminate dividend income from Copley's shares.
(11) Increase interest expense for borrowings to purchase Copley shares. The
borrowings to purchase these shares were $6,193,000 for 1994 at an
average rate of 8.38% and $1,992,000 for six months and $14,201,000 for
three months of 1995 at an average rate 8.42%.
(12) Depreciation on step up in basis from allocation of the purchase price
over an estimated life of forty years.
(13) Eliminate professional expenses associated with the assessment of the
strategic alternatives available to Copley in order to maximize
shareholder value, including the retention of Morgan Stanley as financial
advisor.
(14) Eliminate the charge related to the write-off of certain costs incurred
in connection with an unsuccessful private placement.
F-20
<PAGE> 96
EASTGROUP PROPERTIES
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(15) A $1.00 change in the per share price of EastGroup (subject to a collar
of $20.25 to $23.00) will result in a corresponding change ( increase or
decrease) in the number of shares issued to Copley shareholders and pro
forma net income per share as follows:
<TABLE>
<CAPTION>
Change in EastGroup Market Price Per Share
------------------------------------------
$ 1.00 Increase $1.00 Decrease
--------------- --------------
<S> <C> <C>
Shares issued 93,203 decrease 101,931 increase
Pro forma Net Income
1994 $.01 increase $.01 decrease
9 months - 1995 .01 increase .01 decrease
Book value 9-30-95 .28 increase .29 decrease
</TABLE>
F-21
<PAGE> 97
EASTGROUP PROPERTIES
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(16) Potential impact of sale of University Business Center (UBC) prior to the
merger
Copley currently owns an 80% equity interest in UBC. The execution of the
merger with EastGroup, triggered the 20% equity partner's right of first
refusal to purchase Copley's interest in UBC. At the time of this filing,
the 20% equity partner's rights are operative. If UBC is sold to the 20%
equity partner prior to the merger of Copley and EastGroup, all net proceeds
from the sale will be distributed to the Copley shareholders prior to the
merger and the merger price for Copley shares will be reduced from $15.60 per
share to $12.00 per share. This disclosure is presented to demonstrate the
effect of sale of UBC prior to the merger of Copley and EastGroup on the pro
forma information contained in the accompanying schedules.
<TABLE>
<S> <C>
EastGroup shares:
Shares issued at $15.60 per Copley share 2,154,327
Shares issued at $12.00 per Copley share 1,657,222
-------------
Decrease in shares issued 497,105
-------------
Market value per EastGroup share 22.125
-------------
Reduction in purchase price 10,998,000
=============
Effect on Pro Forma Balance Sheet: Increase
(Decrease)
--------------
(In thousands)
Real estate properties:
UBC book value (21,974)
Reduction of purchase price allocation (10,998)
(above)
Mortgage notes payable (19,399)
Shares of Beneficial Interest (497)
Additional paid in capital (10,501)
Undistributed Earnings
Gain on Sale 10,328
Dividend (12,903)
=============
(2,575)
-------------
</TABLE>
F-22
<PAGE> 98
EASTGROUP PROPERTIES
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
UBC adjustments for the Pro Forma Income Statements:
<TABLE>
<CAPTION>
Increase (Decrease) category
Year Ended Nine Months Ended
December 31, 1994 September 30, 1995
----------------- ------------------
<S> <C> <C>
Income from real estate operations $ (4,519) $ (3,432)
Operating expenses from real estate
operations (879) (682)
Interest expense (1,867) (1,403)
Depreciation (830) (642)
Minority interest in joint ventures (118) (84)
--------------------------------------------
Net Income (825) (621)
============================================
Net income per share effect (.13) (.10)
============================================
Weighted average shares:
Per pro forma statements 6,885 6,996
Adjusted for UBC (497) (497)
--------------------------------------------
6,388 6,499
============================================
</TABLE>
F-23
<PAGE> 99
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Copley Properties, Inc.
We have audited the accompanying consolidated balance sheets of Copley
Properties, Inc. (a Delaware corporation) and subsidiaries as of December 31,
1994 and 1993, and the related statements of operations and cumulative deficit
and cash flows for each of the three years in the period ended December 31,
1994. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Copley Properties,
Inc. and subsidiaries as of December 31, 1994 and 1993, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 28, 1995
F-24
<PAGE> 100
COPLEY PROPERTIES, INC.
- -------------------------------------------------------------------------------
Consolidated Balance Sheets
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
1994 1993
------------------- -------------------
<S> <C> <C> <C>
ASSETS
Real estate investments (Note 4):
Property, net $ 88,795,709 $ 78,168,097
Joint ventures 1,037,178 1,791,735
Loans to joint ventures 5,036,792 9,114,237
Ground lease 1,187,000 1,187,000
Notes receivable 824,077 2,568,696
Investment income receivable 681,356 683,573
------------------- ---------------------
Total real estate investments 97,562,112 93,513,338
Cash and cash equivalents 1,491,554 1,901,790
Short-term investments - 1,996,896
Deferred financing costs (Note 10) 486,366 -
------------------- ---------------------
Total assets $ 99,540,032 $ 97,412,024
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Losses of joint ventures
in excess of investment $ 3,261,463 $ 3,774,364
Accounts payable 436,478 109,500
Accrued management advisory fees 2,491,445 2,281,165
Line of credit borrowings 3,500,000 -
Mortgage notes payable (Notes 4 and 5) 49,374,668 46,864,843
------------------- ---------------------
Total liabilities 59,064,054 53,029,872
------------------- ---------------------
SHAREHOLDERS' EQUITY (Note 8):
Common stock, $1.00 par value;
authorized 20,000,000 shares;
issued 4,007,500 shares 4,007,500 4,007,500
Additional paid-in capital 69,625,444 69,625,444
Treasury stock; 423,150 shares
of common stock, at cost (4,895,726) (4,895,726)
Cumulative deficit (28,261,241) (24,355,067)
Class A common stock 1 1
------------------- ---------------------
Total shareholders' equity 40,475,978 44,382,152
------------------- ---------------------
Total liabilities and
shareholders' equity $ 99,540,032 $ 97,412,024
=================== =====================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-25
<PAGE> 101
COPLEY PROPERTIES, INC.
- -------------------------------------------------------------------------------
Consolidated Statements of Operations and Cumulative Deficit
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31,
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
INVESTMENT ACTIVITY (Notes 3 and 6):
Property operations, net $ 1,452,003 $ 1,128,334 $ 1,258,538
Share of joint venture earnings (losses)
Joint venture operations 415,742 191,333 (1,463,750)
Lease termination charges (Note 3) (1,770,471) - -
Investment valuation allowances - (900,000) (1,703,636)
------------------ ----------------- ----------------
Total real estate operations 97,274 419,667 (1,908,848)
Share of gains on sales of
properties by joint ventures - - 754,590
Gain on sales of Property 626,931 - 381,520
------------------ ----------------- ----------------
Total real estate activity 724,205 419,667 (772,738)
Interest on short-term investments
and cash equivalents 79,975 195,885 53,525
------------------ ---------------- ----------------
Total investment activity 804,180 615,552 (719,213)
------------------ ---------------- ----------------
PORTFOLIO EXPENSES:
Management advisory fee 714,761 601,535 533,483
General and administrative 416,123 324,999 270,042
Interest expense 210,241 - -
------------------ ----------------- -----------------
1,341,125 926,534 803,525
------------------ ----------------- -----------------
NET LOSS (536,945) (310,982) (1,522,738)
Common stock dividends (3,369,229) (2,867,442) (2,863,982)
CUMULATIVE DEFICIT:
Beginning of year (24,355,067) (21,176,643) (16,789,923)
------------------ ----------------- ----------------
End of year $ (28,261,241) $ (24,355,067) $ (21,176,643)
================== ================= =================
PER SHARE DATA:
Net loss $ (.15) $ (.09) $ (.42)
================== ================= ================
Dividends $ .94 $ .80 $ .80
================== ================ ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-26
<PAGE> 102
COPLEY PROPERTIES, INC.
- -------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31,
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (536,945) $ (310,982) $ (1,522,738)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Equity in joint venture (earnings) losses
Joint venture operations (352,606) 16,832 1,204,976
Lease termination charges 1,770,471 - -
Cash distributions from joint ventures 1,632,460 3,136,357 2,048,426
Property depreciation and amortization 3,999,341 810,305 975,716
Gain on sales of Property (626,931) - (381,520)
Investment valuation allowances - 900,000 1,703,636
Increase in investment income receivable (30,365) (211,559) (241,810)
Increase in deferred lease commissions (519,173) (33,153) (53,489)
Decrease (increase) in property working capital (358,974) 133,263 (3,697)
Increase in accounts payable and
accrued management advisory fees 318,478 228,202 147,497
Other, net - (72,683) 23,725
---------------- ------------- ---------------
Net cash provided by operating
activities 5,295,756 4,596,582 3,900,722
---------------- ------------ ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in loans to joint ventures (191,037) (42,290) (2,889,425)
Reduction of loans to joint ventures - 551,895 368,757
Investment in joint ventures (143,494) (3,336,120) (151,054)
Return of capital from joint ventures - 25,119 1,048,216
Investment in Property (3,928,552) (2,291,721) (317,283)
Net proceeds from sale of Property 1,082,925 - 7,157,650
Decrease (increase) in short-term investments, net 1,967,451 (979,408) (988,139)
Decrease in notes receivable 2,444,619 - -
---------------- ------------- ---------------
Net cash provided by (used in) investing
activities 1,231,912 (6,072,525) 4,228,722
---------------- ------------ ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in line of credit borrowings, net 3,500,000 - -
Principal payments on mortgage notes (6,801,089) - -
Dividends paid (3,369,229) (2,867,442) (2,863,982)
Financing costs (267,586) - -
---------------- ------------ --------------
Net cash used in financing activities (6,937,904) (2,867,442) (2,863,982)
---------------- ------------ --------------
Net increase (decrease) in cash and cash
equivalents (410,236) (4,343,385) 5,265,462
CASH AND CASH EQUIVALENTS:
Beginning of year 1,901,790 6,245,175 979,713
---------------- ------------ --------------
End of year $ 1,491,554 $ 1,901,790 $ 6,245,175
================ ============ ==============
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 4,784,473 $ 358,177 -
=============== =========== ==============
NON-CASH INVESTING AND FINANCING ACTIVITIES (NOTE 12)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-27
<PAGE> 103
COPLEY PROPERTIES, INC.
- ------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- ------------------------------------------------------------------------------
1 ORGANIZATION AND BUSINESS
Copley Properties, Inc. (the Company), a Delaware corporation, was
incorporated in May 1985 and operates as a qualified real estate investment
trust under applicable provisions of the Internal Revenue Code of 1986, as
amended. The Company acquires, develops, operates and owns industrial real
estate. The Company currently owns and operates, either directly or through
joint ventures, 16 properties totaling over 3.3 million square feet of net
rentable area. Copley Real Estate Advisors, Inc. (the Advisor) provides
investment management and administrative services to the Company. The Advisor
is a wholly-owned subsidiary of New England Investment Companies, L.P. (NEIC),
a publicly traded limited partnership. New England Mutual Life Insurance
Company is the principal unitholder of NEIC.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
the Company and its consolidated investment joint ventures as of and subsequent
to the date on which the Company acquired a controlling ownership interest
therein. The Company has several other joint ventures which are presented in
these financial statements using the equity method, since control of the
business is shared with the respective joint venture partner. All interentity
balances and transactions have been eliminated.
Under circumstances arising from the inability of certain of its venture
partners to perform under joint venture agreements, the Company has assumed
control over the respective businesses. Upon restructuring, these investments
are classified as Properties in the consolidated balance sheets and any
third-party mortgage financing is separately presented, and operating revenues
and expenses are separately classified in property operations. Prior to
restructuring, the real estate assets and third-party mortgage loans of joint
ventures are considered in the investment balances and operating results are
reported as joint venture earnings (losses). The restructuring transactions do
not affect the Company's net income (loss) or shareholders' equity.
Property
Property includes land and buildings wholly-owned by the Company or owned
by consolidated joint ventures. These investments are referred to herein as
"Properties" and are stated at cost less accumulated depreciation. The
Company's cost of a Property previously owned by a joint venture or by a
borrower equals the Company's carrying value of the prior investment on the
conversion date. It is the Company's policy to estimate the remaining useful
life of real estate assets at the
F-28
<PAGE> 104
COPLEY PROPERTIES, INC.
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
conversion date. This balance sheet caption also includes deferred leasing
costs, incidental working capital items related to Properties, and the minority
interest related to a consolidated joint venture.
Joint Ventures and Secured Loans
The Company accounts for its investments in unconsolidated joint ventures
using the equity method, under which the cost of the investment is adjusted by
the Company's share of the respective joint venture's results of operations and
reduced by certain cash distributions received. The Company has also made
loans to joint ventures in which the Company has an ownership interest. The
loan balances reflect amounts funded net of principal repayments.
Share of joint venture earnings (losses) in the accompanying consolidated
statements of operations includes joint venture earnings (losses) allocated to
the Company. Allocations of joint venture earnings (losses) are made to the
Company's joint venture partners in accordance with the terms of the respective
joint venture agreements as long as they have economic equity in the project.
A joint venture partner is determined to have economic equity if the appraised
value of the property exceeds the Company's total cash investment plus accrued
preferential returns and interest thereon, or if the venture partner is
entitled to current operating cash distributions.
Depreciation and Capitalization
Maintenance and repair costs on property owned by the Company directly, or
by joint ventures in which the Company is a participant, are charged to
operations as incurred. Significant improvements and renewals are capitalized.
Depreciation is computed using the straight-line method based on the estimated
useful lives of the buildings and improvements. Leasing and financing costs
are also capitalized and amortized over the related agreement terms.
Rental Revenues
Rental revenues from certain operating leases with fixed rent increases or
rent credits are recognized on a straight-line basis over the terms of the
leases. The difference between straight-line rental revenues and cash rents
received in accordance with the terms of the leases is recorded as accounts
receivable.
Net Realizable Value
The carrying value of the Company's real estate investments is reduced to
net realizable value, if lower. Since the Company's intention is to hold
properties for long-term investment, net realizable value is measured by the
recoverability of the investment carrying value through expected undiscounted
future cash flows, net of the cost of third-party financing associated with the
investment. As of December 31, 1994 and 1993, after the valuation allowances
described in Note
F-29
<PAGE> 105
COPLEY PROPERTIES, INC.
- ------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- ------------------------------------------------------------------------------
6, the estimated net realizable value of each real estate investment either
exceeded or approximated its carrying value.
Carrying value may be greater or less than current appraised value. Based
on estimates prepared by the Advisor which have not been audited, the appraised
values of certain investments exceeded the related carrying values by an
aggregate of $19,400,000 and $14,000,000 at December 31, 1994 and 1993,
respectively. The appraised values of the remaining investments were less than
the related carrying values by an aggregate of $4,700,000 and $9,900,000 at
December 31, 1994 and 1993, respectively.
The current appraised value of real estate investments has been estimated
based on a combination of traditional appraisal approaches. Because of the
subjectivity inherent in the valuation process, the estimated current appraised
value of real estate may differ significantly from that which could be realized
if the real estate were offered for sale in the marketplace.
Cash Equivalents and Short-Term Investments
Cash equivalents and short-term investments are stated at cost, plus
accrued interest, which approximates market. Such investments consist
primarily of certificates of deposit and commercial paper. The Company
considers all highly liquid debt instruments purchased with a maturity of
ninety days or less to be cash equivalents; otherwise, they are classified as
short-term investments.
Financial Instruments
Statement of Financial Accounting Standards No. 107 entitled "Disclosures
about Fair Value of Financial Instruments" becomes effective for the Company
for the year ending December 31, 1995. Mortgage notes payable are the
Company's most significant financial instruments at December 31, 1994. Based
on the interest rates on these notes, some of which are variable and several of
which have recently been negotiated, management does not believe the fair value
of the mortgage loans will be significantly different from their carrying
value.
Per Share Computations
Net income (loss) per share is computed by dividing net income (loss),
after deducting any Class A dividends, by the weighted average number of shares
outstanding during each year (3,584,350 in 1994, 1993 and 1992).
Reclassifications
Certain reclassifications have been made to prior year amounts to conform
with the 1994 presentation. There is no effect on net income (loss) or cash
flow from operations.
F-30
<PAGE> 106
COPLEY PROPERTIES, INC.
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
3 REAL ESTATE INVESTMENTS
The Company's real estate investments are either owned in their entirety or
jointly through a joint venture. Wholly-owned property operations are under
the oversight of local management companies. The joint ventures are organized
as general or limited partnerships. The Company's venture partners are
responsible for day-to-day operating activities and they are entitled to fees
for such services. Joint venture agreements provide for the funding of cash
flow deficits by the venture partners in proportion to ownership interests, and
for the dilution of ownership interest in cases where a partner does not so
contribute.
The Company's cash investments in joint ventures is in two forms. It makes
a capital contribution which is generally subject to preferential cash
distributions at a specified rate and to priority distributions with respect to
sale or refinancing proceeds. The Company has also made secured,
interest-bearing loans to certain ventures.
Acquisitions
------------
The Company purchased an industrial building located in Tempe, Arizona on
March 31, 1994, which is referred to as Broadway Industrial Center. The total
purchase price was approximately $2,350,000.
The Company purchased four industrial buildings located in Hayward,
California in October 1993, which are referred to as Baygreen Industrial Park.
The total purchase price was approximately $1,980,000.
In November 1993, the Company purchased an additional 30% interest in the
University Business Center joint venture. The total purchase price was
approximately $1,990,000.
Sales and Dispositions
----------------------
During 1994, the Company sold two buildings at the Baygreen Industrial
Park. Proceeds from the sales totaled $1,782,925, including a $700,000
purchase money mortgage note. Under the terms of this note, interest only is
due monthly at the rate of 9% per annum, and the note matures January 1, 1997.
The note is included in Notes Receivable in the accompanying consolidated
balance sheet at December 31, 1994. The Company recognized a gain on these
sales of $626,931.
In March 1993, the Woods at Patuxent joint venture deeded back the
venture's property to the first mortgage lender. In anticipation of this
transaction, the Company reduced the carrying value of its investment to zero
at December 31, 1992, with the recognition of an investment valuation allowance
of $1,003,636 in 1992.
F-31
<PAGE> 107
COPLEY PROPERTIES, INC.
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
During 1992, two buildings owned by the Huntwood Associates joint venture
were sold. Proceeds from this sale, which included cash as well as a purchase
money mortgage note, were retained by the joint venture. The Company
recognized a gain of $754,590. The note receivable of $2,336,319 appears on
the Company's consolidated balance sheet at December 31, 1993. The note, which
had a stated interest rate of 9.5% per annum, was repaid prior to maturity in
June 1994.
In December 1992, the Company sold its Calibre Park apartment property. It
received net proceeds of $7,157,650 and realized a gain of $381,520.
Restructurings
--------------
As of December 31, 1993, the ownership of three joint ventures (Huntwood
Associates, Sample/I-95 Associates and Wiegman Associates) was restructured
whereby the Company became owner of the property in the entirety or became the
controlling venturer.
As of January 1, 1994, the ownership of three partnerships that were formed
to own a portion of the Park North Business Center investment (the "Parknorth
Partnerships") was restructured whereby the Company became the controlling
venturer and increased its legal ownership percentage. The restructuring
agreement also provides for the transfer of 100% ownership of the property
owned by the Parknorth Partnerships to the Company on March 30, 1995. Another
portion of the Park North Business Center investment includes land that is
leased under a long-term ground lease arrangement. The lessee was in arrears
on its ground lease payments and, effective February 1994, the Company agreed
to forebear from exercising the remedies available to it as a result of the
arrearages provided 1) all operating cash flow from the property is paid to the
Company and 2) if all amounts in arrears are not paid by January 1, 1996, the
Company may exercise an option to purchase the buildings for an amount equal to
the amounts then owed to the Company (see Note 13).
The following is a summary of the real estate investment structures at
December 31, 1994:
F-32
<PAGE> 108
COPLEY PROPERTIES, INC.
- ------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Date Cessation Date
Consolidated for Preferred Interest
Legal or Converted Allocations Rate on
Ownership from Joint and Loan Secured
Investment Share Venture Interest Accrual Loans
- --------------------------------- ----- ------- ---------------- ------
<S> <C> <C> <C> <C>
Broadway Industrial Center 100% 3/31/94 -- --
Central Distribution Center (1) 50% -- 1991 Prime + 2%
West Side Business Park (1) 150% -- 1990 9.8%,
Prime + 2%
Metro Business Park (1) 50% -- 1991 12%,
Prime + 2%
Carson Industrial Center (1) 50% -- -- 10%
Dominguez Properties (1) 55% -- -- --
Los Angeles Corporate Center 100% 12/18/90 1988 --
University Business Center 80% 11/01/93 -- --
Huntwood Associates 100% 12/31/93 1990 --
Wiegman Associates 80% 12/31/93 1989 12%
Baygreen Industrial Park 100% 10/26/93 -- --
Columbia Place (3) 50% -- 1992 Prime + .5%
270 Technology Park 50% -- -- 11%
Peachtree Corners Distribution Center 100% 09/03/91 1990 --
Park North Business Center 75%-80% 01/01/94 1992 12%
Sample\I-95 Business Park (2) 100% 12/31/93 1989 --
<FN>
(1) Formerly referred to collectively as the Southwest Business Parks.
(2) Formerly referred to as Andrews Avenue Associates.
(3) Formerly referred to as the BDM Building.
</TABLE>
F-33
<PAGE> 109
COPLEY PROPERTIES, INC.
- ------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- ------------------------------------------------------------------------------
4 REAL ESTATE ASSETS AND LIABILITIES
The following is a summary of the assets and liabilities underlying the
Company's real estate investments:
<TABLE>
<CAPTION>
December 31,
1994 1993
----------------- -----------------
<S> <C> <C>
PROPERTY
Land $ 24,018,575 $ 20,908,911
Buildings and improvements 66,402,879 55,467,299
Accumulated depreciation (5,079,353) (1,632,724)
Deferred leasing costs and other assets, net 1,487,678 1,265,492
Minority interest 1,471,483 1,453,873
----------------- ---------------
Total real estate assets 88,301,262 77,462,851
Accounts receivable 2,254,603 1,453,923
Accounts payable and other liabilities (1,760,156) (748,677)
----------------- ----------------
$ 88,795,709 $ 78,168,097
================= ================
Mortgage notes payable to third-parties (see Note 5) $ 49,374,668 $ 46,864,843
================= ================
JOINT VENTURES
Land $ 8,246,048 $ 11,064,288
Buildings and improvements 35,542,264 47,640,970
Accumulated depreciation (12,370,021) (13,605,441)
Cash 346,176 585,232
Other, net 3,521,924 2,798,304
----------------- ---------------
Total assets 35,286,391 48,483,353
----------------- ---------------
Mortgage notes payable to third-parties (see Note 5) 32,127,307 42,121,052
Other 1,913,431 2,560,201
----------------- ---------------
Total liabilities 34,040,738 44,681,253
----------------- ---------------
Net assets $ 1,245,653 $ 3,802,100
================= ===============
Company's share:
Loans to joint ventures $ 5,023,392 $ 9,114,237
Capital (2,210,885) (1,982,629)
----------------- ---------------
$ 2,812,507 $ 7,131,608
================= ===============
</TABLE>
F-34
<PAGE> 110
COPLEY PROPERTIES, INC.
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
Assets of joint ventures exclude capitalized interest or preferred returns
to the Company. Liabilities of joint ventures exclude amounts owed to the
Company in connection with secured loans, accrued interest thereon, or accrued
preferred returns.
5 MORTGAGE NOTES PAYABLE
Mortgage notes payable on Properties are summarized below. They are
collateralized by real estate and, in certain cases, the assignment of rents.
The mortgage notes are generally non-recourse to the other assets of the
Company.
<TABLE>
<CAPTION>
December 31,
1994 1993
--------------- -----------------
<S> <C> <C>
University Business Center
--------------------------
CIGNA; interest at 9.79% payable monthly;
principal due February 28, 1995 $ 13,000,000 $ 13,000,000
CIGNA; interest at 9.37% payable monthly;
principal due January 1, 1997 10,000,000 10,000,000
Sample/I-95 Business Park
-------------------------
Citicorp; interest at 1% over the Citicorp reference rate
or .75% over LIBOR, payable monthly. Principal
balance was paid at maturity on June 30, 1994 - 3,600,000
Huntwood Associates
-------------------
Wells Fargo Bank; interest is a fixed rate option with
interest based on LIBOR plus 3.25% and a variable rate
option with interest based on the prime rate plus
1% (the effective interest rate was 9.5% at
December 31, 1994); principal due June 15, 1995 2,350,292 2,378,943
Massachusetts Mutual Life Insurance Company;
interest at 9.875% payable monthly; principal due
January 1, 1996 10,000,000 10,000,000
Wiegman Associates
------------------
Massachusetts Mutual Life Insurance Company;
interest at 9.875% payable monthly; principal due
January 1, 1996 6,700,000 6,700,000
Allstate Insurance Company; interest at 8.75%, payable
monthly; principal due October 1, 1997 1,011,311 1,034,133
Park North Business Center
--------------------------
Wells Fargo Realty Advisors; interest at .65% over the
prime rate or 1.75% over LIBOR, payable monthly
(the effective interest rate was 8.19% at December 31,
1994); principal due May 31, 1995 3,362,692 See Note 3
Wells Fargo Realty Advisors; interest at .65% over the
prime rate or 1.75% over LIBOR, payable monthly
</TABLE>
F-35
<PAGE> 111
COPLEY PROPERTIES, INC.
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
(the effective interest rate was 8.19% at December 31,
1994); principal due May 31, 1995 2,795,153 See Note 3
------------ -------------
Total of principal balances 49,219,448 46,713,076
Aggregate accrued interest 155,220 151,767
------------ -------------
$49,374,668 $ 46,864,843
=========== ============
</TABLE>
Mortgage notes payable to third-parties, based on contractual terms in
existence as of December 31, 1994, mature as follows:
<TABLE>
<CAPTION>
Year ended
December 31, Properties Joint Ventures
------------ ---------- --------------
<S> <C> <C>
1995 $21,688,258 $4,233,921
1996 16,727,170 567,299
1997 10,959,240 10,997,965
1998 -- 5,206,566
1999 -- 1,855,141
Thereafter -- 9,266,415
---------------- ------------
$49,374,668 $32,127,307
=========== ===========
</TABLE>
The $13,000,000 University Business Center mortgage note payable to CIGNA,
included in the $21,688,258 amounts payable in 1995 above, matured and was
refinanced in February 1995. A principal paydown of $3,500,000 was made, the
interest rate was reduced to 9.06% and the maturity date was extended to April
1, 2000. The modified note requires principal amortization payments based on a
20-year amortization schedule with the remaining balance due at maturity.
Funds for the paydown were obtained from a short-term mortgage loan secured by
the Peachtree Corners Distribution Center property (see Note 13).
The Company has provided a guarantee of $700,000 on the Wells Fargo Realty
Advisors mortgage loan at Park North Business Center.
Mortgage notes payable do not include revenue bonds at Park North Business
Center owed by the ground lessee, repayment of which is guaranteed by the
Company. The ground lease arrangement resulted from a transaction in which the
Company purchased land in a portion of Park North Business Center for lease
back to the seller for a term of sixty years. Contractual rent is $142,440 per
annum. The Company subordinated its interest in the land and has guaranteed
revenue bonds, totaling $7,200,000 at issuance. As of December 31, 1994 and
1993, principal totaling $5,324,000 and $5,494,000, respectively, was
outstanding.
The Company has guaranteed 50% of the outstanding obligation of the revenue
bonds at 270 Technology Park up to a maximum of $2,000,000. The outstanding
F-36
<PAGE> 112
COPLEY PROPERTIES, INC.
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
principal balance of the bonds at December 31, 1994 and 1993 was $3,713,011 and
$4,000,000, respectively.
The Company has a master lease agreement which expires December 25, 1995
with the permanent mortgagee of one of the buildings at Wiegman Associates.
No significant liability is anticipated by the Company under any of these
guarantees or the master lease arrangement.
6 RESULTS OF REAL ESTATE INVESTMENTS
Operations
----------
The following is a summary of the operating results of the properties
underlying the Company's real estate investments:
F-37
<PAGE> 113
COPLEY PROPERTIES, INC.
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
PROPERTY
Rentals $ 13,338,097 $ 3,128,332 $ 3,450,011
Operating expenses (3,072,560) (821,215) (1,215,757)
Interest expense (4,696,303) (358,177) -
Depreciation and amortization (3,999,341) (810,305) (975,716)
Minority interest (117,890) $ (10,301) $ -
----------------- --------------- ----------
$ 1,452,003 $ 1,128,334 $ 1,258,538
================= ================ ==========
JOINT VENTURES
Rentals $ 7,442,165 $ 14,850,192 $15,630,833
Operating expenses (1,136,267) (2,749,486) (2,909,546)
Interest expense (2,931,718) (7,615,524) (9,211,815)
Depreciation and amortization (4,551,781) (4,551,489) (5,481,424)
----------------- ---------------- ----------
$ (1,177,601) $ (66,307) $ (1,971,952)
================= ================ ===========
Company share:
Interest on loans to joint ventures $ 63,136 $ 208,165 $ 495,816
Equity in net income (losses) (1,417,865) (16,832) (1,959,566)
----------------- ---------------- ----------
$ (1,354,729) $ 191,333 $(1,463,750)
================= =============== ===========
</TABLE>
Expenses of joint ventures exclude amounts attributable to the various
financing arrangements with the Company.
Future minimum rentals under non-cancelable operating leases are as follows:
<TABLE>
<CAPTION>
Year ended
December 31, Properties Joint Ventures
------------ ---------- --------------
<S> <C> <C>
1995 $ 10,489,698 $ 4,697,745
1996 8,845,880 4,231,188
1997 7,136,707 2,335,294
1998 6,009,863 2,086,943
1999 5,252,986 2,008,606
Thereafter 12,153,814 11,127,830
-------------- -----------
$ 49,888,948 $26,487,606
============== ===========
</TABLE>
F-38
<PAGE> 114
COPLEY PROPERTIES, INC.
- ------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- ------------------------------------------------------------------------------
Investment Valuation Allowances
-------------------------------
The estimated net realizable value of the undeveloped land at Sample/I-95
Business Park declined significantly in 1993 and 1992. In accordance with the
Company's policy, the carrying value was reduced to approximate estimated net
realizable value, resulting in an investment valuation allowance of $900,000 in
1993 and $700,000 in 1992.
Significant Lease Transaction
-----------------------------
In September 1994, M.O.R. XXXVI Associates Limited Partnership, a
partnership in which the Company is a general partner (the "Partnership") and
the owner of Columbia Place, modified the existing terms of its sole lease and
mortgage loan agreements. BDM Federal, Inc. ("BDM"), the original tenant with
a lease expiring in March 1998, desired to vacate the building and Ceridian
Corporation ("Ceridian"), a new tenant, desired to occupy the building. BDM,
Ceridian, and the Partnership entered into a series of agreements (the
"Agreements") under which BDM is obligated for certain payments to the
Partnership through March 1998. The payments are contingent on future events
and are being recognized as income when the contingencies expire. In 1994,
approximately $864,000 was recognized as additional income from BDM as a result
of the transaction.
Ceridian entered into a lease with the Partnership which commenced September
1994 and expires December 2009, subject to earlier termination options in
December 2004 and December 2006.
Ceridian was responsible for the cost of all of its tenant improvements and
chose to substantially re-fit this space. This resulted in the write-off by
the Partnership of approximately $2,635,000 of tenant improvements and other
capital costs.
In conjunction with the leasing transaction, the mortgage note payable to a
third-party lender of approximately $10,490,000 was restructured. The
interest rate was reduced from 10.125% to 8.875% per annum effective December
1, 1994, and the maturity date was extended from May 1998 to December 2009.
The maturity date may be accelerated if Ceridian exercises its termination
options. The revised mortgage note requires monthly payments of principal and
interest based on a twenty-year amortization schedule.
The Partnership's costs of the transaction have been capitalized and are
being amortized over the life of the lease or loan as applicable.
F-39
<PAGE> 115
COPLEY PROPERTIES, INC.
- ------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- ------------------------------------------------------------------------------
7 LINES OF CREDIT
The Company has an unsecured line of credit agreement with a bank which
expires on June 1, 1995. Under its terms, the Company can borrow up to
$5,000,000 at the prime rate of interest or LIBOR plus 1.5%. There were no
borrowings in 1992 and 1993. The Company has an outstanding balance of
$3,500,000 on its line of credit as of December 31, 1994. The average
outstanding balance on the line of credit during 1994 was $3,402,000 and the
weighted average interest rate was 6.18%. The Company has obtained a
commitment and is currently negotiating documents for a new $15,000,000 line of
credit which will replace this existing arrangement (see Note 10).
8 SHAREHOLDERS' EQUITY
Increase in Authorized Shares
The total number of authorized shares of the Company was increased from
8,000,000 to 20,000,000 effective June 14, 1994.
Class A Common Stock
On June 3, 1985, the Company sold one share of Class A Common Stock (par
value of one dollar) to the Advisor for $50,000. As the holder of such share,
the Advisor is entitled to receive 10% of the Company's net gain (as defined)
from the disposition of properties, reduced by any accumulated net losses.
Upon termination of the Advisory Agreement, the Company will have an option to
purchase the share of Class A Common Stock for an amount equal to 10% of the
net gain which would be realized by the Company had all of the real estate
owned by the Company as of the date of termination been sold at its fair market
value. If the Company does not elect to purchase the Class A Common Stock,
such share will automatically convert to shares of common stock of the Company.
Stock Repurchase Plan
In January 1990, the Company adopted a stock repurchase plan, under which it
could repurchase up to a maximum of 800,000 shares of its outstanding common
stock on the open market. Through 1991, a total of 423,150 shares were
repurchased at a total cost of $4,895,726. There were no repurchases in 1992
and the plan was terminated in January 1993.
F-40
<PAGE> 116
COPLEY PROPERTIES, INC.
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
Shareholders' Rights Plan
The Company's Board of Directors unanimously adopted a shareholders' rights
plan on June 28, 1990 applicable to shareholders of record on July 19, 1990.
The plan provides for the dividend of a right to buy one share of common stock
for a stated amount determined in accordance with the provisions of the plan
for each share of common stock outstanding. Rights would initially become
exercisable on the earlier of (1) the tenth day after the date on which a
person has acquired beneficial ownership of 20% or more of the Company's common
stock or (2) the tenth business day after a person commences a tender or
exchange offer, the consummation of which would result in such person owning
30% or more of the Company's common stock.
9 MANAGEMENT ADVISORY FEES
The Company has an agreement with the Advisor, pursuant to which the Advisor
provides investment management and administrative services to the Company.
Fees for these services totaled $714,761, $601,535 and $533,483 for 1994, 1993
and 1992, respectively, and are determined as:
a. A base fee of 7.5% of net cash flow (as defined in the
Advisory Agreement) from sources other than short-term
assets, as defined.
b. An incentive fee of 5% of net cash flow (as defined in the
Advisory Agreement) from sources other than short-term
assets, as defined.
c. A short-term investment fee of 0.25% of average annual
short-term assets, as defined.
At December 31, 1994 and 1993, payments of the incentive fees totaling
$2,473,054 and $2,188,702, respectively, have been deferred and become payable
only after the Company has achieved a specified return to shareholders, or
refinancing or sale proceeds are distributed to shareholders. Payment of the
deferred fee would also become payable upon termination or resignation of the
Advisor.
10 COSTS ASSOCIATED WITH PENDING EQUITY OFFERING AND AN INCREASED LINE OF
CREDIT
The Company is pursuing the raising of additional equity capital. In
addition, the Company has obtained a commitment and is currently negotiating
documents for a $15,000,000 line of credit to be used for interim financing of
property acquisitions. Among the conditions to the closing of the new line of
credit is the successful completion of due diligence by the lender and the
closing of the equity offering. Costs associated with these efforts are being
capitalized and will be charged against equity or
F-41
<PAGE> 117
COPLEY PROPERTIES, INC.
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
amortized when the equity is raised or the new line of credit is obtained,
which is expected to occur in 1995. Such costs are included in Deferred
Financing Costs on the accompanying consolidated balance sheets.
11 INCOME TAXES
The Company believes that it continues to qualify as a real estate
investment trust under the Internal Revenue Code. The Company has distributed
all of its taxable income for 1994, 1993 and 1992. Accordingly, no provision
for income taxes has been made in the accompanying consolidated financial
statements. For federal income tax purposes, the amounts distributed as
dividends were ordinary income for all years presented in the accompanying
consolidated financial statements, except for $.17 per share, $.06 per share
and $.34 per share in 1994, 1993 and 1992, respectively, which relate to
capital gains.
12 NON-CASH INVESTING AND FINANCING ACTIVITIES
The restructuring of certain joint ventures, as more fully described in
Note 3, resulted in the following non-cash investing and financing activities:
<TABLE>
<CAPTION>
1994 1993 1992
----------------- ------------- --------------
<S> <C> <C> <C>
Conversion of loans to joint ventures and
accrued interest to Property $ 4,109,037 $ 265,694 $ -
Conversion of investments in joint ventures
to Property - 14,424,483 -
Conversion of losses of joint ventures in
excess of investment to Property (2,095,608) -
Recording of third-party mortgage notes 9,310,914 46,864,843 -
--------------- --------------- --------------
Total converted assets $ 11,324,343 $ 61,555,020 $ -
=============== =============== ==============
</TABLE>
In December 1994, the Company sold a building at Baygreen Industrial Park
for cash proceeds of $1,082,925 and a note receivable of $700,000.
F-42
<PAGE> 118
COPLEY PROPERTIES, INC.
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
13 SUBSEQUENT EVENTS
On March 28, 1995, the Company signed a purchase and sale agreement to sell
all of its interests and rights related to the Park North Business Center
investment (see Note 3) for approximately $18,500,000. The terms of the
agreement provide for the buyer to either 1) pay all cash or 2) assume the
existing mortgage debt of approximately $11,480,000 (including $5,324,000 of
mortgage debt on the ground lease buildings for which the Company is currently
the guarantor). Under either option, the Company will receive cash of
approximately $7,020,000.
Also on March 28, 1995, the Company signed a purchase and sale agreement,
with the same buyer, to sell its interest in the Peachtree Corners Distribution
Center investment for a purchase price of approximately $10,000,000. This sale
is contingent upon the closing of the Park North Business Center sale. In
addition, the buyer loaned the Company $3,250,000 in February 1995. The loan
is secured by a first mortgage on the Peachtree property, bears interest at the
rate of 10% per annum payable monthly in arrears, may be prepaid at any time,
and matures November 30, 1995.
The Company expects to recognize a gain on each of these sales.
F-43
<PAGE> 119
COPLEY PROPERTIES, INC.
- -------------------------------------------------------------------------------
Consolidated Balance Sheets (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------------- -------------------
<S> <C> <C>
ASSETS
Real estate investments (Notes 4 and 5):
Property, net $ 80,548,368 $ 88,795,709
Joint ventures - 1,037,178
Investment in tenancies-in-common 2,186,305 -
Loans to joint ventures - 5,036,792
Ground lease (Note 4) - 1,187,000
Notes receivable 738,873 824,077
Other 184,260 681,356
----------------- ------------------
Total real estate investments 83,657,806 97,562,112
Cash and cash equivalents 1,401,071 1,491,554
Deferred financing costs (Note 7) - 486,366
----------------- ------------------
Total assets $ 85,058,877 $ 99,540,032
================= ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Losses of joint ventures
in excess of investment $ - $ 3,261,463
Accounts payable and other liabilities 357,418 436,478
Deposit on sale of property (Note 4) 1,290,000 -
Accrued management advisory fees 2,606,205 2,491,445
Line of credit borrowings - 3,500,000
Mortgage notes payable (Notes 4 and 5) 41,649,080 49,374,668
Dividend payable 967,754 -
----------------- ------------------
Total liabilities 46,870,457 59,064,054
----------------- ------------------
SHAREHOLDERS' EQUITY:
Common stock, $1.00 par value;
authorized 20,000,000 shares;
issued 4,007,500 shares 4,007,500 4,007,500
Additional paid-in capital 69,625,444 69,625,444
Treasury stock; 423,150 shares
of common stock, at cost (4,895,726) (4,895,726)
Cumulative deficit (30,548,799) (28,261,241)
Class A common stock 1 1
----------------- ------------------
Total shareholders' equity 38,188,420 40,475,978
----------------- ------------------
Total liabilities and
shareholders' equity $ 85,058,877 $ 99,540,032
================= ==================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-44
<PAGE> 120
COPLEY PROPERTIES, INC.
- -------------------------------------------------------------------------------
Consolidated Statements of Operations and Cumulative Deficit (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended Nine Months Ended Nine Months Ended
Sept. 30, 1995 Sept. 30, 1994 Sept. 30, 1995 Sept. 30, 1994
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY (Note 6):
Property operations, net $ 314,475 $ 410,147 $ 1,097,441 $ 1,078,734
Share of real estate investment earnings
Operations 256,536 63,999 608,987 346,423
Lease termination charges - (2,020,471) - (2,020,471)
-------------- ------------- ------------- -------------
Total from real estate investments 571,011 (1,546,325) 1,706,428 (595,314)
Gain on sale of property - - 757,776 -
-------------- ------------- ------------- ------------
Total real estate activity 571,011 (1,546,325) 2,464,204 (595,314)
Interest on short-term investments
and cash equivalents 13,634 17,052 18,237 70,204
-------------- ------------- ------------- ------------
Total investment activity 584,645 (1,529,273) 2,482,441 (525,110)
-------------- ------------- ------------- -------------
PORTFOLIO EXPENSES:
Management advisory fee (109,807) (151,023) (390,152) (533,679)
General and administrative (87,839) (65,974) (289,655) (196,549)
Professional fees (229,882) (44,516) (583,959) (135,603)
Interest expense (9,520) (76,178) (173,427) (134,916)
Write-off of deferred financing costs (Note 7) - - (501,227) -
-------------- ------------- ------------- ------------
(437,048) (337,691) (1,938,420) (1,000,747)
-------------- ------------- ------------- -------------
NET INCOME (LOSS) 147,597 (1,866,964) 544,021 (1,525,857)
Common stock dividends (967,754) (896,071) (2,831,579) (2,473,159)
CUMULATIVE DEFICIT:
Beginning of period (29,728,642) (25,591,048) (28,261,241) (24,355,067)
-------------- ------------- ------------- -------------
End of period $ (30,548,799) $(28,354,083) $(30,548,799) $(28,354,083)
============== ============= ============= =============
PER SHARE DATA:
Net Income $ .04 $ (.52) $ .15 $ (.43)
============= ============ ============= ============
Dividends $ .27 $ .25 $ .79 $ .69
============= ============ ============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-45
<PAGE> 121
Consolidated Statements of Cash Flows (Unaudited)
- -------------------------------------------------------------------------------
COPLEY PROPERTIES, INC.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months ended September 30,
1995 1994
-------------------- --------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 544,021 $ (1,525,857)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Joint venture and tenancy-in common operations (539,142) (287,710)
Lease termination charges - 2,020,471
Cash distributions from joint ventures
and tenancies-in-common 629,020 1,216,676
Property depreciation and amortization 2,877,433 2,930,965
Write-off of deferred financing costs 501,227 -
Gain on sale of property (757,776) -
Increase in investment income receivable (79,088) -
Increase in deferred leasing commissions (380,147) (292,789)
Decrease (Increase) in property working capital 194,214 (226,284)
Increase in accounts payable and
accrued management advisory fees 27,853 120,872
Other, net - (27,068)
-------------------- --------------------
Net cash provided by operating
activities 3,017,615 3,929,276
-------------------- ---------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in loans to joint ventures (6,436) (28,225)
Reduction of loans to joint ventures - 85,271
Investment in Property (4,318,206) (3,259,167)
Decrease in short-term investments, net - 1,967,451
Investment in joint ventures (18,809) -
Proceeds from sale of property 12,982,793 -
Decrease in notes receivable 85,204 2,416,998
Increase in other assets (46,040) (199,477)
Deposit received on sale of property 1,290,000 -
-------------------- -------------------
Net cash provided by investing activities 9,968,506 982,851
-------------------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) increase in line of credit borrowings, net (3,500,000) 3,600,000
Proceeds from third-party mortgage note 3,250,000 -
Principal payments on mortgage notes (10,820,368) (6,776,019)
Dividends paid (1,863,825) (1,577,088)
Financing costs paid (142,411) -
-------------------- --------------------
Net cash used in financing activities (13,076,604) (4,753,107)
-------------------- --------------------
Net (decrease) increase in cash and cash
equivalents (90,483) 159,020
CASH AND CASH EQUIVALENTS:
Beginning of period 1,491,554 1,901,790
-------------------- --------------------
End of period $ 1,401,071 $ 2,060,810
==================== ====================
===============================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-46
<PAGE> 122
COPLEY PROPERTIES, INC.
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (Unaudited)
- -------------------------------------------------------------------------------
1 GENERAL
These financial statements have been prepared by Copley Properties,
Inc. (the "Company") without audit and reflect all normal and required
adjustments which are, in the opinion of management, necessary to fairly
present the interim results. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted. It is suggested that these
financial statements be read in conjunction with the financial statements and
notes thereto included in the Company's audited financial statements for the
year ended December 31, 1994.
Certain 1994 amounts have been reclassified to conform to the 1995
presentation.
2 ORGANIZATION AND BUSINESS
Copley Properties, Inc., a Delaware corporation, was incorporated in
May 1985 and operates as a qualified real estate investment trust under
applicable provisions of the Internal Revenue Code of 1986, as amended. The
Company acquires, develops, operates and owns primarily industrial real estate.
The Company currently owns and operates, either directly or through
tenancy-in-common arrangements, 16 properties totaling over 2.8 million square
feet of net rentable area. Copley Real Estate Advisors, Inc. (the "Advisor")
provides investment management and administrative services to the Company. The
Advisor is an indirect wholly-owned subsidiary of New England Investment
Companies, L.P. ("NEIC"), a publicly traded limited partnership. New England
Mutual Life Insurance Company is the principal unitholder of NEIC.
3 LINE OF CREDIT
The Company has an unsecured line of credit agreement with a bank
which expires on November 30, 1995. Under its terms, the Company can borrow up
to $5,000,000 at the prime rate of interest or LIBOR plus 1.5%. As of
September 30, 1995, the Company had no borrowings under the line of credit.
The Company is currently negotiating an extension of the line of credit.
4 RESTRUCTURINGS, FINANCINGS, ACQUISITIONS AND SALES
Restructurings
--------------
On March 30, 1995, the restructuring of the ownership of three
partnerships that were formed to own certain of the Park North Business Center
properties was completed and transfer of 100% ownership of the properties to
the Company occurred. This restructuring does not impact the accompanying
consolidated financial statements as the Company obtained 100% economic control
of the entities at the beginning of 1994. As discussed further under "Sales,"
the entire property was sold on June 30, 1995.
F-47
<PAGE> 123
COPLEY PROPERTIES, INC.
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (Unaudited)
- -------------------------------------------------------------------------------
On August 16, 1995, the Company entered into agreements with certain
of its co-venture partners to restructure the ownership of their joint venture
investments as tenancies-in-common between the Company and the respective
co-venturers. Certain amounts previously recorded by the Company as loans to
the joint ventures have been reclassified as part of the Company's capital
contribution to its ownership interest in the tenancies-in-common. These
transactions did not generate a gain or loss or have an impact on shareholders'
equity. Subsequent to the establishment of the tenancies in common, the
respective ownership interests of the Company and its co-tenants-in-common are
substantially as follows:
<TABLE>
<CAPTION>
Copley
Properties, Inc. Co-tenant
-----------------------------------------
<S> <C> <C>
Central Distribution Center 57.38% 42.62%
West Side Business Park 75.49% 24.51%
Metro Business Park 69.03% 30.97%
Dominguez Properties 55.00% 45.00%
Columbia Place 78.00% 22.00%
270 Technology Park 61.00% 39.00%
</TABLE>
In September 1995, the Company paid approximately $100,000 to terminate an
incentive property management agreement in the Broadway Industrial Center
investment and paid approximately $200,000 in October 1995 to terminate an
incentive property management agreement at the Baygreen Industrial Park. As
the incentive property management agreements represent a contingent equity
interest in the properties granted at the date of acquisition, payable upon
sale, refinancing, or termination, the termination fees paid have been recorded
as acquisition costs and consequently added to the Company's carrying value of
the investments.
Financings
- ----------
A mortgage note payable to CIGNA, secured by the University Business Center
property, with a $13,000,000 outstanding principal balance at December 31,
1994, matured and was refinanced in February 1995. A principal paydown of
$3,500,000 was made, the interest rate was reduced to 9.06% and the maturity
date was extended to April 1, 2000. The modified note requires principal
amortization payments based on a 20-year amortization schedule with the
remaining balance due at maturity. The Company obtained funds for the
principal paydown from a short-term mortgage loan secured by the Peachtree
Corners Distribution Center.
In May 1995, the Company entered into an agreement to extend the maturity
of the mortgage notes payable to Wells Fargo Realty Advisors which were secured
by certain properties included in the Park North Business Center investment.
The maturity date of the
F-48
<PAGE> 124
COPLEY PROPERTIES, INC.
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (Unaudited)
- -------------------------------------------------------------------------------
notes was extended from May 31, 1995 to June 30,1995 and the notes were paid in
full with proceeds from the sale of the Park North Business Center discussed
below.
In June 1995, the Company entered into an agreement to extend the maturity
of a mortgage note payable to Wells Fargo Bank which is secured by the Huntwood
Associates property from June 15, 1995 to January 15, 1997 on the same terms
and conditions as the original financing.
In July 1995, the Company entered into an agreement to extend the maturity
of the mortgage notes payable to Massachusetts Mutual Life Insurance Company
which are secured by the Huntwood Associates and Wiegman Associates properties
from January 1, 1996 to June 1, 1996 on the same terms and conditions as the
original financings.
Acquisitions
- ------------
In July 1995, the Company purchased the Kingsview Industrial Center, an
83,000 square foot industrial building located in Carson, California, for
approximately $3,000,000 in cash.
Sales
- -----
On March 28, 1995, the Company signed a purchase and sale agreement to sell
all of its interests and rights, including its ground lease position, related
to the Park North Business Center investment for approximately $18,500,000.
The closing occurred on June 30, 1995. Proceeds from the sale were used to pay
off the mortgage notes payable to Wells Fargo Realty Advisors discussed above
and the revenue bonds which were owed by the ground lessee and guaranteed by
the Company. After settlement of the debt and payment of selling expenses, the
Company received net cash proceeds of approximately $6,825,000, including a
deposit of $125,000 received in March 1995. The proceeds from this sale were
used to purchase the Kingsview Industrial Center property discussed above and
to pay off the Company's line of credit. The Company recognized a gain of
approximately $758,000 on the sale of this investment.
Also on March 28, 1995, the Company signed a purchase and sale agreement,
with the same buyer, to sell its interest in the Peachtree Corners Distribution
Center investment for a purchase price of approximately $10,000,000. It is
anticipated that the closing will occur by November 30, 1995. In addition, the
buyer loaned the Company $3,250,000 in February 1995. The loan is secured by a
first mortgage on the Peachtree Corners Distribution Center, bears interest at
the rate of 10% per annum payable monthly in arrears, may be prepaid at any
time without penalty, and matures November 30, 1995. In July 1995, the Company
made a payment to reduce the outstanding principal by $1,000,000. In June
1995, coincident with the closing of the Park North Business Center sale, the
buyer made an additional deposit of $1,165,000. Upon consummation of the
Peachtree Corners Distribution Center sale, the Company expects to have
received net cash proceeds of approximately $7,750,000, which includes an
initial deposit of $125,000 received in March 1995 and the additional deposit
F-49
<PAGE> 125
COPLEY PROPERTIES, INC.
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (Unaudited)
- -------------------------------------------------------------------------------
received in June 1995. The Company also expects to recognize a gain on the
sale of this investment.
5 REAL ESTATE ASSETS AND LIABILITIES
The following is a summary of the assets and liabilities underlying the
Company's real estate investments:
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------------- --------------
<S> <C> <C>
PROPERTY
Land $ 22,694,254 $ 24,018,575
Buildings and improvements 60,634,384 66,402,879
Accumulated depreciation (6,472,554) (5,079,353)
Deferred leasing costs and other assets, net 1,384,082 1,487,678
Minority interest 1,507,692 1,471,483
---------------- ---------------
Total real estate assets 79,747,858 88,301,262
Accounts receivable 1,825,703 2,254,603
Accounts payable and other liabilities (1,025,193) (1,760,156)
---------------- ---------------
$ 80,548,368 $ 88,795,709
================ ===============
Mortgage notes payable to third-parties $ 41,649,080 $ 49,374,668
================ ===============
INVESTMENTS IN TENANCIES-IN-COMMON AND JOINT VENTURES
Land $ 8,246,048 $ A,246,048
Buildings and improvements 35,667,726 35,542,264
Accumulated depreciation (13,624,385) (12,370,021)
Cash 462,240 346,176
Other, net 3,709,268 3,521,924
---------------- ---------------
Total assets 34,460,897 35,286,391
---------------- ---------------
Mortgage notes payable to third-parties 31,719,754 32,127,307
Other 1,052,193 1,913,431
---------------- ---------------
Total liabilities 32,771,947 34,040,738
---------------- ---------------
Net assets $ 1,688,950 $ 1,245,653
================ ===============
Company's share:
Loans to joint ventures $ - $ 5,036,792
Capital 2,186,305 (2,224,285)
---------------- ---------------
$ 2,186,305 $ 2,812,507
================ ===============
</TABLE>
F-50
<PAGE> 126
COPLEY PROPERTIES, INC.
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (Unaudited)
- -------------------------------------------------------------------------------
6 RESULTS OF REAL ESTATE INVESTMENTS
Operations
----------
The following is a summary of the operating results of the properties
underlying the Company's real estate investments:
<TABLE>
<CAPTION>
Nine Months ended September 30,
1995 1994
-------------------- --------------------
<S> <C> <C>
PROPERTY
Rentals $ 9,737,669 $ 9,910,390
Operating expenses (2,332,605) (2,263,831)
Interest expense (3,346,967) (3,523,708)
Depreciation and amortization (2,876,865) (2,950,492)
Minority interest (83,791) (93,625)
-------------------- -------------------
$ 1,097,441 $ 1,078,734
=================== ===================
OPERATIONS OF TENANCIES-IN-COMMON AND JOINT VENTURES
Rentals $ 5,131,829 $ 5,599,091
Operating expenses (937,771) (854,372)
Interest expense (2,167,829) (2,180,695)
Depreciation and amortization (1,366,612) (4,084,520)
-------------------- --------------------
$ 659,617 $ (1,520,496)
=================== =====================
Company share:
Interest on loans to joint ventures $ 69,845 $ 58,713
Equity in net income (losses) 539,142 (1,732,761)
-------------------- --------------------
$ 608,987 $ (1,674,048)
==================== =====================
</TABLE>
7 COSTS ASSOCIATED WITH PROPOSED EQUITY OFFERING AND AN INCREASED LINE OF
CREDIT
In late 1994, the Company commenced the marketing of additional equity on a
private placement basis and incurred $501,227 in Deferred Financing Costs in
connection with pursuing the private placement and arranging for an increased
line of credit, which was contingent on additional equity. Discussions with
potential investors did not produce an agreement on the terms of an equity
investment and the Company wrote off the Deferred Financing Costs in the
quarter ended March 31, 1995.
F-51
<PAGE> 127
Appendix A
AGREEMENT AND PLAN OF MERGER
AMONG
EASTGROUP PROPERTIES,
EASTGROUP-LNH CORPORATION
AND
LNH REIT, INC.
DATED: DECEMBER 22, 1995
<PAGE> 128
<TABLE>
<CAPTION>
<S> <C> <C>
TABLE OF CONTENTS
ARTICLE I.
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
----------
Section 1.2 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
--------------
Section 1.3 Effects of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
---------------------
Section 1.4 Articles of Incorporation and Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
------------------------------------
Section 1.5 Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
---------
Section 1.6 Conversion of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
--------------------
Section 1.7 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
-------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE II.
DISSENTING SHARES; EXCHANGE OF SHARES . . . . . . . . . . . . . . . . . 2
Section 2.1 Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
-----------------
Section 2.2 Exchange of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF LNH . . . . . . . . . . . . . . . . . 3
Section 3.1 Organization and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
------------------------------
Section 3.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
--------------
Section 3.3 Authority Relative to this Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
------------------------------------
Section 3.4 SEC Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
-----------
Section 3.5 Proxy Statement/Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
--------------------------
Section 3.6 Consents and Approvals; No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
------------------------------------
Section 3.7 Litigation, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
----------------
Section 3.8 Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
-------
Section 3.9 Property and Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
----------------------------------
Section 3.10 ERISA Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
-------------
Section 3.11 REIT Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
-----------
Section 3.12 Taxes, Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
------------------
Section 3.13 Tax Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
----------
Section 3.14 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
-----------------------
Section 3.15 No Default; Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
----------------------
Section 3.16 Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
-------------------------
Section 3.17 Compliance with Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
-----------------------
Section 3.18 Title to Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
-----------------
Section 3.19 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
---------
Section 3.20 Control Share Provisions Inapplicable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
-------------------------------------
Section 3.21 Representations and Warranties Continuing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
-----------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
OF EASTGROUP AND SUB . . . . . . . . . . . . . . . . . . . . . 13
Section 4.1 Organization and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
------------------------------
Section 4.2 Capitalization; Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
----------------------------
Section 4.3 Authority Relative to this Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
------------------------------------
Section 4.4 SEC Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
-----------
Section 4.5 Proxy Statements/Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
---------------------------
</TABLE>
<PAGE> 129
<TABLE>
<S> <C>
Section 4.6 Consents and Approvals; No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
------------------------------------
Section 4.7 Litigation, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
----------------
Section 4.8 Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
-------
Section 4.9 Property and Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
----------------------------------
Section 4.10 Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
---------------------
Section 4.11 REIT Status. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
-----------
Section 4.12 Taxes, Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
------------------
Section 4.13 Tax Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
----------
Section 4.14 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
-----------------------
Section 4.15 No Default; Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
----------------------
Section 4.16 Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
-------------------------
Section 4.17 Compliance with Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
-----------------------
Section 4.18 Title to Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
-----------------
Section 4.19 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
---------
Section 4.20 Shares of Beneficial Interest of EastGroup . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
------------------------------------------
Section 4.21 Representations and Warranties Continuing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
-----------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE V.
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . 23
Section 5.1 Conduct of Business of LNH and EastGroup . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
----------------------------------------
Section 5.2 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
---------------------
Section 5.3 Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
------------
Section 5.4 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
--------
Section 5.5 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
--------------------
Section 5.6 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
---------------
Section 5.7 Meetings of Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
------------------------
Section 5.8 Blue Sky . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
--------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE VI.
CONDITIONS TO CONSUMMATION OF THE MERGER . . . . . . . . . . . . . . . 27
Section 6.1 Certificates, Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
--------------------------------
Section 6.2 Other Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
----------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE VII.
TERMINATION; AMENDMENTS; WAIVER . . . . . . . . . . . . . . . . . 29
Section 7.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
-----------
Section 7.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
---------------------
Section 7.3 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
---------
Section 7.4 Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
-----------------
Section 7.5 Reimbursement of Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
-------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE VIII.
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . 30
Section 8.1 Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
------------------------------------------
Section 8.2 Brokerage Fees; Commissions and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
----------------------------------------
Section 8.3 Entire Agreement; Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
----------------------------
Section 8.4 Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
--------
</TABLE>
ii
<PAGE> 130
<TABLE>
<S> <C>
Section 8.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
-------
Section 8.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
-------------
Section 8.7 Jurisdiction and Venue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
----------------------
Section 8.8 Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
--------------------
Section 8.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
------------
Section 8.10 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
--------
Section 8.11 Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
-------------------
Section 8.12 Performance by Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
------------------
Section 8.13 Disclosure Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
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Section 8.14 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
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</TABLE>
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AGREEMENT AND PLAN OF MERGER
----------------------------
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of
December 22, 1995, by and among LNH REIT, INC., a Maryland corporation engaged
in the real estate business ("LNH"), EASTGROUP-LNH CORPORATION, a Maryland
corporation and a wholly-owned subsidiary of EastGroup Properties ("Sub"), and
EASTGROUP PROPERTIES, a Maryland real estate investment trust ("EastGroup").
WHEREAS, the respective Boards of Trustees and Directors of
EastGroup, Sub and LNH have duly approved the acquisition of LNH by EastGroup
by means of a merger of LNH with and into Sub pursuant to the terms of this
Agreement, it is therefore agreed as follows:
ARTICLE I.
THE MERGER
Section 1.1 THE MERGER. Upon the terms and subject to
the conditions hereof, and in accordance with the relevant provisions of the
Maryland General Corporation Law (the "Maryland Law"), including, without
limitation, any required vote of shareholders of LNH as described in Section
5.7 of this Agreement, LNH shall be merged with and into Sub (the "Merger") as
soon as practicable following the satisfaction or waiver, if permissible, of
the conditions set forth in Article VI hereof. Following the Merger, Sub shall
continue as the surviving corporation (the "Surviving Corporation") under the
laws of the State of Maryland and the separate corporate existence of LNH shall
cease.
Section 1.2 EFFECTIVE TIME. The Merger shall be
consummated by filing with the Maryland Secretary of State the Articles of
Merger in the form attached hereto as Exhibit A (the "Articles of Merger") (the
time of such filing being the "Effective Time").
Section 1.3 EFFECTS OF THE MERGER. The Merger shall
have the effects set forth in Section 3-114 of the Maryland Law. As of the
Effective Time, LNH shall merge with and into Sub.
Section 1.4 ARTICLES OF INCORPORATION AND BYLAWS. The
Articles of Incorporation and Bylaws of Sub, both as in effect at the Effective
Time, shall be the Articles of Incorporation and Bylaws of the Surviving
Corporation.
Section 1.5 DIRECTORS. As of the Effective Time,
directors of Sub in office on the date of execution hereof shall be directors
of the Surviving Corporation until their respective successors are duly elected
and qualified.
Section 1.6 CONVERSION OF SHARES.
(a) Each share of common stock, $.50 par value
per share ("Shares"), of LNH issued and outstanding immediately prior to the
Effective Time (other than Shares held by LNH as treasury stock or held by
EastGroup, which shall be cancelled) shall, by virtue of the Merger and without
any action on the part of any holder thereof, be
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converted into the right to receive a certain amount of newly issued, fully
paid and non-assessable shares of beneficial interest of EastGroup based on an
exchange ratio (the "Exchange Ratio") as determined and set forth below. Such
shares shall be issuable upon surrender of the certificates formerly
representing Shares of LNH. The Exchange Ratio will be determined by dividing
the value $8.10 by the average closing price for shares of beneficial interest
of EastGroup for the 10 trading days preceding the Closing (as defined in
Section 1.7) (the "Closing Price"). No fractional shares of beneficial
interest of EastGroup shall be issued. Instead shareholders of LNH will be
entitled to receive cash in lieu of fractional shares in an amount based upon
the Closing Price, multiplied by the fraction of a share of beneficial interest
of EastGroup to which the shareholder would have otherwise been entitled. The
shares of beneficial interest of EastGroup issuable in exchange for the Shares
of LNH and the cash payment in lieu of fractional shares are referred to herein
as the "Merger Consideration." All shares issued to the shareholders of LNH
representing the Merger Consideration shall be registered under the Securities
Act of 1933, as amended (the "Securities Act"), on a Form S-4 Registration
Statement being filed by EastGroup with the Securities and Exchange Commission
(the "SEC"). Any shares representing the Merger Consideration held by persons
who are affiliates (as that term is defined in SEC Rule 405) of LNH shall bear
a legend restricting the transferability of shares pursuant to SEC Rule 145.
EastGroup shall have no obligation to keep the Form S-4 Registration Statement
effective and it shall expire by its terms on the earlier of (i) ninety (90)
days after the Effective Time or (ii) the date that any event occurs which
would cause EastGroup to be required to file a post-effective amendment under
the Securities Act in order to update the Proxy Statement/Prospectus (as
defined in Section 8.10) pursuant to Section 10 of the Securities Act.
(b) Each Share held in the treasury of LNH and
each Share held by EastGroup immediately prior to the Effective Time shall, at
the Effective Time, by virtue of the Merger and without any action on the part
of the holder thereof, be cancelled and retired and cease to exist and no
payment shall be made with respect thereto.
Section 1.7 CLOSING. Upon the terms and subject to
the conditions hereof, as soon as practicable after the satisfaction of all
conditions described in Article VI, LNH and Sub shall execute in the manner
required by the Maryland Law and deliver to the Maryland Secretary of State the
duly executed Articles of Merger, and the parties shall take such other and
further actions as may be required by law to make the Merger effective.
Contemporaneous with the filing referred to in this Section, a closing (the
"Closing") will be held at the offices of EastGroup in Jackson, Mississippi (or
such other place as the parties may agree), for the purpose of implementing all
transactions described in this Agreement.
ARTICLE II.
DISSENTING SHARES; EXCHANGE OF SHARES
Section 2.1 DISSENTING SHARES. Shareholders of LNH
who do not vote for the Merger will not have appraisal rights.
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Section 2.2 EXCHANGE OF SHARES.
(a) Promptly after the Effective Time, Sub
shall cause EastGroup's transfer agent (the "Agent") to mail to each record
holder, as of the Effective Time, of an outstanding certificate or certificates
which immediately prior to the Effective Time represented Shares of LNH (the
"Certificate(s)") a form letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss of and title to the Certificate
shall pass to Sub upon physical delivery to the Agent) and instructions for use
in effecting the surrender of the Certificate and for receiving any payment for
fractional shares. Upon surrender to the Agent of a Certificate, together with
such letter of transmittal duly executed, the holder of such Certificate shall
be entitled to receive in exchange therefor a certificate or certificates and
cash representing the Merger Consideration and such surrendered Certificate
shall then be cancelled. If issuance is to be made to a person other than the
person in whose name the Certificate surrendered is registered, it shall be a
condition of issuance that the Certificate so surrendered shall be properly
endorsed or otherwise in proper form for transfer and that the person
requesting such issuance shall pay transfer or other taxes required by reason
of the payment to a person other than the registered holder of the Certificate
or Certificates surrendered or established to the satisfaction of EastGroup
that such tax has been paid or is not applicable. Until surrendered in
accordance with the provisions of this Section 2.2, each Certificate shall
represent for all purposes the right to receive the Merger Consideration.
(b) At and after the Effective Time there
shall be no transfers of Shares which were outstanding immediately prior to the
Effective Time on the stock transfer books of LNH. If, after the Effective
Time, Certificates are presented to Sub, they shall be cancelled and exchanged
for the Merger Consideration provided in this Article II. At the close of
business on the day prior to the Effective Time the stock ledger of LNH shall
be closed.
(c) From and after the Effective Time, holders
of Certificates formerly evidencing Shares shall cease to have any rights as
shareholders of LNH, except as provided herein or by law.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF LNH
LNH represents and warrants to EastGroup as follows:
Section 3.1 ORGANIZATION AND QUALIFICATION. LNH is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Maryland. All Subsidiaries of LNH are legal entities that
are duly organized, validly existing and in good standing under the laws of
their respective jurisdictions of incorporation. Each of LNH and its
Subsidiaries has all requisite power and authority to own or operate its
properties and conduct its business as it is now being conducted. LNH and each
of its Subsidiaries is duly qualified and in good standing as a foreign
corporation or entity authorized to do business in each of the jurisdictions in
which the character of the properties owned or held under lease by it or the
nature of the business transacted by it makes such qualification necessary,
except
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where the failure to be so qualified and in good standing would not have a
Material Adverse Effect (as defined in Section 8.10) on LNH or such Subsidiary.
Section 3.2 CAPITALIZATION.
(a) The authorized capital stock of LNH
consists of 15,000,000 Shares. As of the date hereof, 2,200,000 Shares were
issued and outstanding and no Shares were held in treasury. Neither LNH nor
any Subsidiary has any shares of its capital stock reserved for issuance. All
issued and outstanding Shares are validly issued, fully paid, non-assessable
and free of preemptive rights.
(b) The Disclosure Schedule sets forth the
name, the number of shares of authorized capital stock and the number of issued
and outstanding shares of capital stock or other indicia of ownership of each
direct or indirect Subsidiary of LNH. Except as set forth in such schedule,
all of the outstanding shares of capital stock of each of such Subsidiaries are
owned, directly or indirectly, by LNH, beneficially and of record. All of such
shares of capital stock of the Subsidiaries are owned free and clear of all
liens, charges, encumbrances, rights of others, mortgages, pledges or security
interests, and are not subject to any agreements or understandings among any
persons with respect to the voting or transfer of such shares. There are no
outstanding subscriptions, options, convertible securities, warrants or claims
of any kind issued or granted by or binding on LNH to purchase or otherwise
acquire any security of or equity interest in any of such Subsidiaries. All of
the outstanding shares of capital stock of each such Subsidiary have been duly
authorized and validly issued and are fully paid and non-assessable, and none
has been issued in violation of the preemptive rights of any stockholder.
Section 3.3 AUTHORITY RELATIVE TO THIS AGREEMENT. LNH
has all requisite power and authority to execute and deliver this Agreement and
(other than approval of the Merger and this Agreement by the holders of
two-thirds of all the votes entitled to be cast) to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been authorized by
the Board of Directors of LNH, and no other corporate proceedings on the part
of LNH are necessary to authorize this Agreement or to consummate the
transactions so contemplated (other than approval of the Merger and this
Agreement by the holders of two-thirds of the Shares entitled to vote). This
Agreement has been duly and validly executed and delivered by LNH and
constitutes a valid and binding agreement of LNH, enforceable against LNH in
accordance with its terms.
Section 3.4 SEC REPORTS. To the best of its
knowledge, LNH has filed all required forms, reports and documents with the SEC
("LNH SEC Reports") required to be filed by it pursuant to the federal
securities laws and the SEC rules and regulations thereunder, all of which have
complied in all material respects with all applicable requirements of the
Securities Act and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and interpretive releases promulgated
thereunder. None of such LNH SEC Reports, including without limitation any
financial statements, notes, or schedules included therein, at the time filed,
contained nor contains, or if to be filed in the future, will contain, any
untrue statement of a material fact, or omitted, omits or will omit to
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state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading.
Each of the financial statements in or incorporated by
reference into the LNH SEC Reports is fairly stated as of its date (subject, in
the case of unaudited interim statements, to normal year-end audit adjustments)
and is presented in accordance with generally accepted accounting principles
consistently applied throughout the periods involved, except as may be noted
therein; and independent certified public accountants for LNH have rendered or
will render an unqualified opinion with respect to each audited financial
statement included in the LNH SEC Reports or, if qualified, such qualification
is or will be reasonably satisfactory to EastGroup. The financial statements
included or to be included in the LNH SEC Reports are hereinafter sometimes
collectively referred to as the "LNH Financial Statements."
Section 3.5 PROXY STATEMENT/PROSPECTUS. The Proxy
Statement/Prospectus required for the consummation of the Merger will comply in
all material respects with the Securities Act and the Exchange Act, except that
no representation will be made by LNH with respect to information supplied in
writing by EastGroup or any affiliate of EastGroup specifically for inclusion
in the Proxy Statement/Prospectus. None of the information relating to LNH and
its Subsidiaries supplied in writing by LNH specifically for inclusion in the
Proxy Statement/Prospectus shall, at the time the Proxy Statement/Prospectus is
mailed or at the time of the Special Meeting (as defined in Section 8.10),
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
Section 3.6 CONSENTS AND APPROVALS; NO VIOLATION.
Except as described in the Disclosure Schedule delivered herewith, neither the
execution and delivery of this Agreement by LNH nor the consummation of the
transactions contemplated hereby nor compliance by LNH with any of the
provisions hereof will (a) conflict with or result in any breach of any
provision of the Articles of Incorporation, as amended, Bylaws, as amended, or
other organization documents of LNH or the Articles of Incorporation and Bylaws
of any Subsidiary, (b) require any consent, approval, authorization or permit
of, or filing with or notification to, any Governmental Authority (as defined
in Section 8.10), except (i) pursuant to the Securities Act and the Exchange
Act, (ii) the filing of the Articles of Merger pursuant to the Maryland Law,
(iii) such filings and approvals as may be required under the "blue sky,"
takeover or securities laws of various states, or (iv) where the failure to
obtain such consent, approval, authorization or permit, or to make such filing
or notification, would not in the aggregate have a Material Adverse Effect, (c)
result in a default (with or without due notice or lapse of time or both) (or
give rise to any right of termination, cancellation or acceleration) under any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
Contract (as defined in Section 3.16), license, agreement or other instrument
or obligation to which LNH or any of its Subsidiaries is a party or by which
LNH, any of its Subsidiaries or any of their respective assets may be bound,
except for such defaults (or rights of termination, cancellation or
acceleration) as to which requisite waivers or consents have been obtained or
which, in the aggregate, would not have a Material Adverse Effect, (d) result
in the creation or imposition of any lien, charge or other encumbrance on the
assets
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of LNH or any of its Subsidiaries which would have a Material Adverse Effect on
LNH or any of its Subsidiaries, or (e) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to LNH, any of its Subsidiaries
or any of their respective assets, except for violations which would not in the
aggregate have a Material Adverse Effect.
Section 3.7 LITIGATION, ETC. Except as described in
the Disclosure Schedule, (a) there is no action, claim, or proceeding pending
or, to the knowledge of LNH, threatened, to which LNH or any of its
Subsidiaries is or would be a party before any court or Governmental Authority
acting in an adjudicative capacity or any arbitrator or arbitration tribunal
with respect to which there is a reasonable likelihood of a determination
having, or which, insofar as reasonably can be foreseen, in the future would
have a Material Adverse Effect on LNH, (b) neither LNH nor any of its
Subsidiaries is subject to any outstanding order, writ, injunction or decree
having, or which, insofar as reasonably can be foreseen, in the future would
have a Material Adverse Effect on LNH and (c) there are no claims asserted or
actions or proceedings pending against any officer or director of LNH arising
out of or pertaining to any action or omission within the scope of his or her
employment or position with LNH, which claim, action or proceeding would
involve a Material Adverse Effect on LNH. All litigation and other
administrative, judicial or quasi-judicial proceedings to which LNH is a party
or to which it has been threatened, to LNH's knowledge, to be made a party, are
described in the Disclosure Schedule.
Section 3.8 CHANGES. Except as expressly contemplated
by this Agreement or as reflected in the Disclosure Schedule or in LNH SEC
Reports, since December 31, 1994, LNH and its Subsidiaries has conducted its
business only in the ordinary and usual course, and, except as set forth in the
Disclosure Schedule or in LNH SEC Reports, none of the following has occurred:
(a) any material adverse change in the
condition (financial or other), results of operations, business, assets and
employee relations of LNH and its Subsidiaries, taken as a whole;
(b) any change in accounting methods,
principles or practices by LNH materially affecting its assets, liabilities or
business, except insofar as may have been required by a change in generally
accepted accounting principles;
(c) any damage, destruction or loss, whether
or not covered by insurance, materially adversely affecting the condition
(financial or other), business or operations of LNH and its Subsidiaries, taken
as a whole;
(d) any declaration, setting aside or payment
of dividends or distributions in respect of the Shares (other than those
dividends publicly announced, declared and paid by LNH), or any redemption,
purchase or other acquisition of any of LNH's securities;
(e) any issuance by LNH of, or commitment of
LNH to issue, any shares of capital stock or securities convertible into or
exchangeable or exercisable for shares of capital stock;
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(f) any entry by LNH or any of LNH's
Subsidiaries into any commitment or transaction material to the condition
(financial or other), business or operations of LNH and its Subsidiaries, taken
as a whole, which is not in the ordinary course of business and consistent with
past practice;
(g) any revaluation by LNH or any of LNH's
Subsidiaries of any of its assets, including, without limitation, writing down
the value of assets or writing off notes or accounts receivables other than in
the ordinary course of business and consistent with past practice;
(h) any action taken by LNH or any of LNH's
Subsidiaries of the type referred to in Section 5.1;
(i) any agreement by LNH to do any of the
things described in the preceding clauses (a) through (h) other than as
expressly contemplated or provided for herein; and
(j) any waiver by LNH or any of its
Subsidiaries of any rights that, singularly or in the aggregate, are material
to the business, assets, financial condition or results of operation of LNH and
its Subsidiaries, taken as a whole.
Section 3.9 PROPERTY AND ENVIRONMENTAL MATTERS.
(a) Except as disclosed in the Disclosure
Schedule, to the best knowledge of LNH, the location, construction, occupancy,
operation, condition and use of the real property now or previously owned,
leased by or in the possession of LNH or its Subsidiaries (the "Real
Property"), the facilities or improvements located thereon and the operations
and practices of LNH and its Subsidiaries are or at the time of ownership,
lease or possession were in substantial compliance with all Environmental Laws
(as defined in Section 8.10) and any restrictive covenant or deed restriction
(recorded or otherwise) affecting the Real Property, including, without
limitation, all applicable zoning ordinances and building codes in effect at
the time of improvement of such Real Property, flood disaster and occupational
health and safety laws.
(b) Neither LNH nor any of its Subsidiaries is
subject to any material liability or obligation, including investigatory or
remedial obligations under any Environmental Law or the common law with respect
to Hazardous Materials (as defined in Section 8.10), relating to (i) the
environmental conditions on, under or about the Real Property, including,
without limitation, the air, soil, surface water and groundwater conditions at
the Real Property, or (ii) the use, management, handling, transport, treatment,
generation, storage, disposal, release or discharge of any Hazardous Materials.
(c) With the exception of those Hazardous
Materials and activities described in the Disclosure Schedule, to the best
knowledge of LNH, no portion of the Real Property is being used, nor has been
used by LNH or its Subsidiaries at any previous time, for the generation,
storage, treatment, processing, disposal or other handling of any Hazardous
Materials.
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(d) Neither LNH nor any of its Subsidiaries
has received any notice and is not aware of any existing condition (including
the condition of the Real Property, whether or not caused by LNH or any
Subsidiary) or the practice of the business conducted by LNH or its
Subsidiaries which forms or could form the basis of any claim, action, suit,
proceeding, administrative consent or agreement, litigation or settlement,
hearing or investigation, arising out of the manufacture, processing,
distribution, use, treatment, storage, spill, disposal, transport or handling
of, or the emission, discharge, release or threatened release into the
environment of, any Hazardous Materials which, if decided against LNH or any of
its Subsidiaries, would have a Material Adverse Effect on LNH and its
Subsidiaries.
(e) LNH and its Subsidiaries have listed and
described on the Disclosure Schedule or made available to EastGroup, as
appropriate (i) all treatment, storage and disposal facilities, as defined in
the Resource Conservation and Recovery Act of 1976, 42 U.S.C. Section 6901, et
seq., as amended, or under similar Environmental Laws, and all underground
storage tanks, whether empty, filled, or partially filled with any substance,
that are located on the Real Property; (ii) the current and past Hazardous
Material disposal practices of LNH and its Subsidiaries; and (iii) any
environmental assessment or environmental audit reports delivered to LNH or its
Subsidiaries.
(f) To the best of its knowledge, LNH and its
Subsidiaries are not required to obtain or apply for any permit, license,
registration, notification or similar authorization under any Environmental Law
for the conduct of LNH's or its Subsidiaries' business or relating to the Real
Property, the facilities, improvements or equipment located thereon.
(g) No portion of the Real Property has been
designated as a covered facility under CERCLA (as defined in Section 8.10(a))
or included on any similar "superfund" list or registry or has been made
subject to any environmental lien pursuant to any Environmental Law or by any
Governmental Authority.
Section 3.10 ERISA MATTERS. LNH and each of its
Subsidiaries have no "Employee Benefit Plans" as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), that
cover any of its employees. LNH has never contributed to a "multiemployer
plan" as defined in Section 3(37) of ERISA.
Section 3.11 REIT STATUS. For all years in which it
has been in existence, LNH has continuously been organized and operated in
conformity with the requirements for qualification as a real estate investment
trust under the Internal Revenue Code of 1986, as amended (the "Code"). LNH
has no intention of changing its operations or engaging in activities which
adversely affect its ability to qualify, or make economically undesirable its
continued qualification as, a real estate investment trust.
Section 3.12 TAXES, TAX RETURNS.
(a) LNH has delivered to EastGroup copies of
the federal income tax returns of LNH for each of the last three fiscal years
and all schedules and exhibits
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thereto. Except as set forth on the Disclosure Schedule, each of LNH and its
Subsidiaries has duly and timely filed in correct form all federal, state and
local information returns and tax returns ("Returns") required to be filed by
it and its Subsidiaries on or prior to the date hereof (all such Returns, to
the best knowledge of LNH, being accurate and complete in all material
respects) and, to the best knowledge of LNH, has duly paid or made provision
for the payment of all taxes and other governmental charges which have been
incurred or are due or claimed to be due from them by any governmental
authority (including, without limitation, those due in respect of LNH's
properties, income, business, capital stock, franchises, licenses, sales and
payrolls) other than taxes or other charges (i) which are not yet delinquent or
are being contested in good faith, and set forth in the Disclosure Schedule and
(ii) have not been finally determined. The liabilities and reserves for taxes
in the LNH Financial Statements are sufficient in the aggregate for the payment
of all unpaid federal, state and local taxes (including any interest or
penalties thereon), whether or not disputed or accrued, for the period ended
December 31, 1994 or for any year or period prior thereto, and for which LNH or
any of its Subsidiaries may be liable in its own right or as transferee of the
assets of, or successor to, any corporation, person, association, partnership,
joint venture or other entity.
(b) To the best knowledge of LNH, (i) proper
and accurate amounts have been withheld by LNH and its Subsidiaries from its
employees and others for all prior periods in compliance in all material
respects with the tax withholding provisions of applicable federal, state and
local laws and regulations, and proper due diligence steps have been taken in
connection with back-up withholding, (ii) Returns which are accurate and
complete in all material respects have been filed by LNH and its Subsidiaries
for all periods for which Returns were due with respect to income tax
withholding, Social Security and unemployment taxes, and (iii) the amounts
shown on such Returns to be due and payable have been paid in full or adequate
provision therefor has been included by LNH in the most recent LNH Financial
Statements.
Section 3.13 TAX AUDITS. Except as disclosed in LNH
SEC Reports or in the Disclosure Schedule, (a) no audit of any material Return
of LNH or any Subsidiary is currently in progress nor has LNH or any Subsidiary
been notified that such an audit is contemplated by any taxing authority, (b)
neither LNH nor any Subsidiary has extended any statute of limitations with
respect to the period for assessment of any federal, state or local tax, (c)
neither LNH nor any Subsidiary contemplates the filing of an amendment to any
Return, which amendment would have a Material Adverse Effect on LNH and its
Subsidiaries, and (d) neither LNH nor any Subsidiary has any actual or
potential material liability for any tax obligation of any taxpayer (including,
without limitation, any affiliated group of corporations or other entities
which included LNH or any Subsidiary during a prior period) other than LNH or
its Subsidiaries. Except as disclosed in the LNH SEC Reports or the Disclosure
Schedule, there are no material tax claims pending against LNH or any
Subsidiary, there are no material tax claims threatened to be asserted against
LNH or any Subsidiary, and there are no material issues which have been raised
in prior periods or audits which by application of similar principles are
expected to result in a material tax claim for any other period. For purposes
of this Section 3.12, "tax" and "taxes" shall include all income, gross
receipt, franchise, excise, real and personal property, sales, ad valorem,
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employment, withholding and other taxes imposed by any foreign, federal, state,
municipal, local or other Governmental Authority, including assessments in the
nature of taxes.
Section 3.14 UNDISCLOSED LIABILITIES. LNH and its
Subsidiaries are not liable for or subject to any material Liabilities (as
hereinafter defined), except (a) Liabilities adequately disclosed or reserved
for in the most recent LNH Financial Statements and not heretofore paid or
discharged, (b) Liabilities under any contract, commitment or agreement
specifically disclosed on the Disclosure Schedule, none of which Liabilities
under any such contract, commitment or agreement was required under generally
accepted accounting principles consistently applied to have been adequately and
specifically disclosed or reserved for in the most recent LNH Financial
Statements, or (c) Liabilities incurred, consistent with past practice, in or
as a result of the ordinary course of business of LNH, and in accordance with
this Agreement, since the date of the most recent LNH Financial Statements. As
used in this Agreement, the term "Liability" shall include any direct or
indirect liability, indebtedness, obligation, guarantee or endorsement (other
than endorsements of notes, bills and checks presented to banks for collection
or deposit in the ordinary course of business), whether known or unknown,
accrued, absolute, contingent or otherwise.
Section 3.15 NO DEFAULT; COMPLIANCE.
(a) Except as set forth in the Disclosure
Schedule, neither LNH nor any of its Subsidiaries is in default under, and no
condition exists that with notice or lapse of time or both would constitute a
default under, (i) any mortgage, loan agreement, indenture, evidence of
indebtedness or other instrument evidencing borrowed money to which LNH or any
of its Subsidiaries is a party or by which either LNH or any of its
Subsidiaries or any of its properties is bound, (ii) any judgment, order or
injunction of any court, arbitrator or governmental agency or (iii) any other
agreement, contract, lease, license or other instrument, which default or
potential default might reasonably be expected to have a Material Adverse
Effect.
(b) Except as set forth in the Disclosure
Schedule, LNH and each of its Subsidiaries has complied with all laws,
regulations, orders, judgments or decrees of any federal or state court or
governmental authority applicable to its business and operations, the
non-compliance with which might reasonably be expected to have a Material
Adverse Effect.
Section 3.16 CONTRACTS AND COMMITMENTS. Except as
listed and described in the Disclosure Schedule, to the best of its knowledge,
neither LNH nor any of its Subsidiaries is a party to, nor is it or any of its
assets bound by, any written or oral:
(a) contract with any present or former
shareholder, director, officer, employee or consultants;
(b) contract with any labor union or other
representative of employees;
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(c) contract for the future
purchase of, or payment for, supplies or products, or for the
performance of services by a third party, involving payment or
potential payment by LNH of $25,000 or more under any one
contract or series of related contracts;
(d) any contract, including,
without limitation, any outstanding quotations, bids or
proposals, to sell goods or to perform services in an
aggregate amount in excess of $25,000;
(e) distributorship,
representative or sales agency agreement, contract or
commitment;
(f) conditional sale agreement
or lease under which LNH is either the seller or purchaser,
lessor or lessee, involving annualized payments or potential
payments by or to LNH that are in excess of $25,000;
(g) contract (including, without
limitation, any note, debenture, bond, conditional sale or
equipment trust agreement, letter of credit agreement or loan
agreement) for the borrowing or lending of money (including,
without limitation, those to or from officers, directors or
shareholders of LNH, or any affiliates or members of their
immediate families, for a line of credit, or for a guarantee,
security, indemnitee, pledge or undertaking of the
indebtedness or obligations of any other person);
(h) contract for any charitable
or political contribution;
(i) contract for any capital
expenditure involving future payments, which, together with
future payments under all other existing contracts for the
same capital project, are in excess of $25,000;
(j) contract limiting or
restraining LNH from engaging or competing in any lines of
business with any person, nor is any officer or employee of
LNH subject to any such agreement, contract or commitment;
(k) license, franchise,
distributorship or other contract relating in whole or in part
to any ideas, technical assistance or other know-how of or
used by LNH;
(l) contract which is expected
to continue for more than six months from the date hereof;
(m) contract not made in the
ordinary course of business; or
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(n) any guaranty, direct or
indirect, of any contract, lease or agreement entered into by
LNH, any of its Subsidiaries, their officers or directors.
(Each of the foregoing is referred to herein as a "Contract".) Except as may
be disclosed on the Disclosure Schedule, each of the Contracts listed on the
Disclosure Schedule is valid and enforceable in accordance with its terms; LNH
and, to the best of LNH's knowledge, the other parties thereto are in
substantial compliance with the provisions thereof; except as may be disclosed
on the Disclosure Schedule, neither LNH nor any other party is (or, by reason
of the consummation of the transactions contemplated by this Agreement, will
be) in default in the performance, observance or fulfillment of any obligation,
covenant or condition contained therein and no event has occurred or is
anticipated to occur (including the consummation of the transactions
contemplated by this Agreement) which with or without the giving of notice or
lapse of time, or both, would constitute a default or give the right of
termination thereunder; furthermore, except as may be disclosed on the
Disclosure Schedule, no such Contract contains any contractual requirement with
which there is a reasonable likelihood that either (i) LNH or any other party
thereto will be unable to comply or (ii) compliance therewith by LNH will have
a Material Adverse Effect on LNH and its Subsidiaries, taken as a whole.
Except as set forth in the Disclosure Schedule, neither LNH nor any of its
officers has made any oral commitments or has any oral understandings which may
be material to LNH.
Section 3.17 COMPLIANCE WITH PERMITS. To the best of
LNH's knowledge, all necessary governmental certificates, consents, permits,
licenses or other authorizations with regard to the ownership or operation by
LNH or its Subsidiaries of its properties and assets have been obtained and no
violation exists in respect of such licenses, permits or authorizations, except
where the failure to obtain and hold such permits, or any violation thereof by
LNH or its Subsidiaries, would not reasonably be expected to have a Material
Adverse Effect. None of the documents and materials filed with or furnished to
any Governmental Authority with respect to the properties, assets or business
of LNH or its Subsidiaries contains any untrue statement of a material fact or
fails to state a material fact necessary to make the statements therein not
misleading.
Section 3.18 TITLE TO PROPERTY. Except as disclosed on
the Disclosure Schedule, LNH and each of its Subsidiaries has good and
marketable title, free and clear (except as indicated in the most recent LNH
Financial Statements and liens for current taxes not yet due and payable), of
all security interests, liens, encumbrances and encroachments of a material
nature, to its property and assets that are material to LNH's business.
Section 3.19 INSURANCE. The Disclosure Schedule sets
forth a complete and accurate list and description of all insurance policies in
force naming LNH, any of its Subsidiaries or any employees of any of them as an
insured or beneficiary or as a loss payable payee or for which LNH or any of
its Subsidiaries has paid or is obligated to pay all or part of the premiums.
Neither LNH nor any of its Subsidiaries has received notice of any pending or
threatened termination or retroactive premium increase with respect thereto,
and LNH and its Subsidiaries are in compliance with all conditions contained
therein, the noncompliance with which could result in the termination of
insurance coverage or increased
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premiums for prior or future periods. There are no pending material claims
against such insurance by LNH or any of its Subsidiaries as to which insurers
have denied liability, no defenses provided by insurers under reservations of
rights, and no material claim under such insurance that has not been properly
filed by LNH or any of its Subsidiaries.
Section 3.20 CONTROL SHARE PROVISIONS INAPPLICABLE.
The Merger will not be subject to Sections 3-601 et. seq. of the Maryland Law
concerning special voting requirements for transactions with interested
stockholders and Sections 3-701 et. seq. of the Maryland Law concerning the
voting rights of certain control shares.
Section 3.21 REPRESENTATIONS AND WARRANTIES CONTINUING.
The representations and warranties set forth herein shall be true and correct
on the date hereof and at all times prior to the Effective Time as if made from
time to time, including, without limitation, at the Effective Time.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
OF EASTGROUP AND SUB
EastGroup and Sub, jointly and severally, represent and
warrant to LNH as follows:
Section 4.1 ORGANIZATION AND QUALIFICATION. EastGroup
is a real estate investment trust duly organized, validly existing and in good
standing under the laws of the State of Maryland and Sub is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Maryland. All Subsidiaries of EastGroup are legal entities that are duly
organized, validly existing and in good standing under the laws of their
respective jurisdictions of incorporation. Each of EastGroup and its
Subsidiaries has all requisite power and authority to own or operate its
properties and conduct its business as it is now being conducted. EastGroup
and each of its Subsidiaries is duly qualified and in good standing as a
foreign corporation or entity authorized to do business in each of the
jurisdictions in which the character of the properties owned or held under
lease by it or the nature of the business transacted by it makes such
qualification necessary, except where the failure to be so qualified and in
good standing would not have a Material Adverse Effect on EastGroup or such
Subsidiary.
Section 4.2 CAPITALIZATION; SUBSIDIARIES.
(a) The authorized capital stock of EastGroup
consists of 10,000,000 shares of beneficial interest, par value $1.00 per
share. As of December 19, 1995, 4,231,656 shares of beneficial interest were
issued are outstanding and no shares held in treasury. Neither EastGroup nor
any Subsidiary has any shares of its capital stock reserved for issuance,
except for 300,000 shares of beneficial interest of EastGroup issuable pursuant
to employee and director stock options. No other options, warrants or other
securities convertible into capital stock of EastGroup are outstanding. All
issued and outstanding shares of beneficial interest of EastGroup are validly
issued, fully paid, non-assessable and free of preemptive rights.
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(b) The Disclosure Schedule sets forth the
name, the number of shares of authorized capital stock and the number of issued
and outstanding shares of capital stock or other indicia of ownership of each
direct or indirect Subsidiary of EastGroup. Except as set forth in such
schedule, all of the outstanding shares of capital stock of each of such
Subsidiaries are owned, directly or indirectly, by EastGroup, beneficially and
of record. All of such shares of capital stock of the Subsidiaries are owned
free and clear of all liens, charges, encumbrances, rights of others,
mortgages, pledges or security interests, and are not subject to any agreements
or understandings among any persons with respect to the voting or transfer of
such shares. There are no outstanding subscriptions, options, convertible
securities, warrants or claims of any kind issued or granted by or binding on
EastGroup and Sub to purchase or otherwise acquire any security of or equity
interest in any of such Subsidiaries. All of the outstanding shares of capital
stock of each such Subsidiary have been duly authorized and validly issued and
are fully paid and non-assessable, and none has been issued in violation of the
preemptive rights of any stockholder.
Section 4.3 AUTHORITY RELATIVE TO THIS AGREEMENT.
EastGroup and Sub have all requisite corporate power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly and validly authorized by
the Board of Trustees of EastGroup and the Board of Directors of Sub and by
EastGroup as sole shareholder of Sub, and no other corporate proceedings on the
part of EastGroup and Sub are necessary to authorize this Agreement or to
consummate the transactions so contemplated. This Agreement has been duly and
validly executed and delivered by EastGroup and Sub and constitutes a valid and
binding agreement of EastGroup and Sub, enforceable against EastGroup and Sub
in accordance with its terms.
Section 4.4 SEC REPORTS. To the best of its
knowledge, EastGroup has filed all required forms, reports and documents with
the SEC ("EastGroup SEC Reports") required to be filed by it pursuant to the
federal securities laws and the SEC rules and regulations thereunder, all of
which have complied in all material respects with all applicable requirements
of the Securities Act and the Exchange Act, and the rules and interpretive
releases promulgated thereunder. None of such EastGroup SEC Reports, including
without limitation any financial statements, notes, or schedules included
therein, at the time filed, contained or contains, or, if to be filed in the
future will contain, any untrue statement of a material fact, or omitted, omits
or will omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Each of the consolidated financial statements in or
incorporated by reference into the EastGroup SEC Reports is fairly stated as of
its date (subject, in the case of unaudited interim statements, to normal
year-end audit adjustments), and is presented in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved, except as may be noted therein; and independent certified public
accountants for EastGroup have rendered or will render an unqualified opinion
with respect to each audited financial statement included in the EastGroup SEC
Reports or, if qualified, such qualification is reasonably satisfactory to LNH.
The consolidated financial statements
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included or to be included in the EastGroup SEC Reports are hereinafter
sometimes collectively referred to as the "EastGroup Financial Statements."
Section 4.5 PROXY STATEMENTS/PROSPECTUS. The Proxy
Statement/Prospectus required for the consummation of the Merger will comply in
all material respects with the Securities Act and the Exchange Act, except that
no representation will be made by EastGroup with respect to information
supplied in writing by LNH or any affiliate of LNH specifically for inclusion
in the Proxy Statement/Prospectus. None of the information relating to
EastGroup and its Subsidiaries supplied in writing by EastGroup specifically
for inclusion in the Proxy Statement/Prospectus shall, at the time the Proxy
Statement/Prospectus is mailed or at the time of the Special Meeting, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
Section 4.6 CONSENTS AND APPROVALS; NO VIOLATION.
Except as described in the Disclosure Schedule, neither the execution and
delivery of this Agreement by EastGroup and Sub nor the consummation of the
transactions contemplated hereby nor compliance by EastGroup and Sub with any
of the provisions hereof will (a) conflict with or result in any breach of any
provision of the Declaration of Trust, as amended or Trustees Regulations of
EastGroup or the Articles of Incorporation and Bylaws of any Subsidiary, (b)
require any consent, approval, authorization or permit of, or filing with or
notification to, any Governmental Authority, except (i) pursuant to the
Securities Act and the Exchange Act, (ii) the filing of the Articles of Merger
pursuant to the Maryland Law, (iii) such filings and approvals as may be
required under the "blue sky," takeover or securities laws of various states,
or (iv) where the failure to obtain such consent, approval, authorization or
permit, or to make such filing or notification, would not in the aggregate have
a Material Adverse Effect, (c) result in a default (with or without due notice
or lapse of time or both) (or give rise to any right of termination,
cancellation or acceleration) under any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, EastGroup Contract (as defined in
Section 4.16), license, agreement or other instrument or obligation to which
EastGroup or any of its Subsidiaries is a party or by which EastGroup, any of
its Subsidiaries or any of their respective assets may be bound, except for
such defaults (or rights of termination, cancellation or acceleration) as to
which requisite waivers or consents have been obtained or which, in the
aggregate, would not have a Material Adverse Effect, (d) result in the creation
or imposition of any lien, charge or other encumbrance on the assets of
EastGroup or any of its Subsidiaries, which would have a material Adverse
Effect on EastGroup or any of its Subsidiaries or (e) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to EastGroup, any of
its Subsidiaries or any of their respective assets, except for violations which
would not in the aggregate have a Material Adverse Effect.
Section 4.7 LITIGATION, ETC. Except as described in
the Disclosure Schedule, (a) there is no action, claim, or proceeding pending
or, to the knowledge of EastGroup and Sub, threatened, to which EastGroup or
any of its Subsidiaries is or would be a party before any court or Governmental
Authority acting in an adjudicative capacity or any arbitrator or arbitration
tribunal with respect to which there is a reasonable likelihood of a
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determination having, or which, insofar as reasonably can be foreseen, in the
future would have a Material Adverse Effect on EastGroup and Sub, (b) neither
EastGroup nor any of its Subsidiaries is subject to any outstanding order,
writ, injunction or decree having, or which, insofar as reasonably can be
foreseen, in the future would have a Material Adverse Effect on EastGroup and
Sub, and (c) there have been no claims made or actions or proceedings brought
against any officer, trustee or director of EastGroup and Sub arising out of or
pertaining to any action or omission within the scope of his or her employment
or position with EastGroup and Sub, which claim, action or proceeding would
involve a Material Adverse Effect on EastGroup and Sub taken as a whole. All
litigation and other administrative, judicial or quasi-judicial proceedings to
which EastGroup or Sub is a party or to which it has been threatened to
EastGroup's knowledge to be made a party, are described in the Disclosure
Schedule.
Section 4.8 CHANGES. Except as expressly contemplated
by this Agreement or as reflected in the Disclosure Schedule or in the
EastGroup SEC Reports, since December 31, 1994, EastGroup and the Subsidiaries
have conducted their business only in the ordinary and usual course, and,
except as set forth in the Disclosure Schedule or in the EastGroup SEC Reports,
none of the following has occurred:
(a) any material adverse change in the
condition (financial or other), results of operations, business, assets and
employee relations of EastGroup and its Subsidiaries, taken as a whole;
(b) any change in accounting methods,
principles or practices by EastGroup materially affecting its assets,
liabilities or business, except insofar as may have been required by a change
in generally accepted accounting principles;
(c) any damage, destruction or loss, whether
or not covered by insurance, materially adversely affecting the condition
(financial or other), business or operations of EastGroup and its Subsidiaries,
taken as a whole;
(d) any declaration, setting aside or payment
of dividends or distributions in respect of the shares of beneficial interest
of EastGroup (other than those dividends publicly announced, declared and paid
by EastGroup), or any redemption, purchase or other acquisition of any of its
securities;
(e) any issuance by EastGroup and Sub of, or
commitment of EastGroup and Sub to issue, any shares of capital stock or
securities convertible into or exchangeable or exercisable for shares of
capital stock;
(f) any entry by EastGroup and Sub or any of
EastGroup's Subsidiaries into any commitment or transaction material to the
condition (financial or other), business or operations of EastGroup and its
Subsidiaries, taken as a whole, which is not in the ordinary course of business
and consistent with past practice;
(g) any revaluation by EastGroup or any of its
Subsidiaries of any of their respective assets, including without limitation,
writing down the value of assets
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or writing off notes or accounts receivables other than in the ordinary course
of business and consistent with past practice;
(h) any action taken by EastGroup or any of
its Subsidiaries of the type referred to in Section 5.1;
(i) any agreement by EastGroup and Sub to do
any of the things described in the preceding clauses (a) through (h) other than
as expressly contemplated or provided for herein; and
(j) any waiver by EastGroup or any of its
Subsidiaries of any rights that, singularly or in the aggregate, are material
to the business, assets, financial condition or results of operation of
EastGroup and its Subsidiaries, taken as a whole.
Section 4.9 PROPERTY AND ENVIRONMENTAL MATTERS.
(a) Except as disclosed in the Disclosure
Schedule, to the best knowledge of EastGroup and Sub, the location,
construction, occupancy, operation, condition and use of the real property now
or previously owned, leased by or in the possession of EastGroup or its
Subsidiaries (the "EastGroup Real Property"), the facilities or improvements
located thereon and the operations and practices of EastGroup and its
Subsidiaries are or at the time of ownership, lease or possession were in
substantial compliance with all Environmental Laws and any restrictive covenant
or deed restriction (recorded or otherwise) affecting EastGroup Real Property,
including, without limitation, all applicable zoning ordinances and building
codes in effect at the time of improvements to such EastGroup Real Property,
flood disaster and occupational health and safety laws.
(b) Neither EastGroup nor any of its
Subsidiaries is subject to any material liability or obligation, including
investigatory or remedial obligations under any Environmental Law or the common
law with respect to Hazardous Materials relating to (i) the environmental
conditions on, under or about EastGroup Real Property, including, without
limitation, the air, soil, surface water and groundwater conditions at the
EastGroup Real Property, or (ii) the use, management, handling, transport,
treatment, generation, storage, disposal, release or discharge of any Hazardous
Materials.
(c) With the exception of those Hazardous
Materials and activities described in the Disclosure Schedule, to the best
knowledge of EastGroup and Sub, no portion of the EastGroup Real Property is
being used, nor has been used by EastGroup or its Subsidiaries at any previous
time, for the generation, storage, treatment, processing, disposal or other
handling of any Hazardous Materials.
(d) Neither EastGroup nor any of its
Subsidiaries has received any notice or is aware of any existing condition
(including the condition of the EastGroup Real Property, whether or not caused
by EastGroup or any Subsidiary) or the practice of the businesses conducted by
EastGroup or its Subsidiaries which forms or could form the basis of any claim,
action, suit, proceeding, administrative consent or agreement, litigation or
settlement, hearing or investigation, arising out of the manufacture,
processing, distribution,
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use, treatment, storage, spill, disposal, transport, or handling of, or the
emission, discharge, release or threatened release into the environment of, any
Hazardous Material which, if decided against EastGroup or any of its
Subsidiaries, would have a Material Adverse Effect on EastGroup and its
Subsidiaries.
(e) EastGroup and its Subsidiaries have listed
and described on the Disclosure Schedule (i) all treatment, storage and
disposal facilities, as defined in the Resource Conservation and Recovery Act
of 1976, 42 U.S.C. Section 6901, et seq., as amended, or under similar
Environmental Laws, and all underground storage tanks, whether empty, filled,
or partially filled with any substance, that are located on the EastGroup Real
Property; (ii) the current and past Hazardous Material disposal practices of
EastGroup and its Subsidiaries; and (iii) any environmental assessment or
environmental audit reports delivered to EastGroup or its Subsidiaries.
(f) To the best of their knowledge, EastGroup
and its Subsidiaries have obtained or applied for all permits, licenses,
registrations, notifications and similar authorizations required under
Environmental Laws for the conduct of EastGroup's or its Subsidiaries' business
or relating to EastGroup's Real Property, the facilities, improvements or
equipment located thereon. The Disclosure Schedule includes a list of the
Environmental Permits.
(g) Except as identified in the Disclosure
Schedule, EastGroup and its Subsidiaries are in substantial compliance with all
terms and conditions of the Environmental Permits and no proceeding is pending
for the revocation of any Environmental Permit.
(h) No portion of the EastGroup Real Property
has been designated as a covered facility under CERCLA or included on any
similar "superfund" list or registry or has been made subject to any
environmental lien pursuant to any Environmental Law or by any Governmental
Authority.
Section 4.10 COMPLIANCE WITH ERISA. EastGroup, each of
its Subsidiaries and all EastGroup Employee Benefit Plans, that cover any of
its or their employees (which EastGroup Employee Benefit Plans are listed on
the Disclosure Schedule), comply with all laws, requirements and orders under
ERISA and the Code, the breach or violation of which would have a Material
Adverse Effect on EastGroup and its Subsidiaries, taken as a whole; the present
value of all of the assets of each of its EastGroup Employee Benefit Plans that
is subject to Title VI of ERISA equals or exceeds the present value of all of
the benefits accrued under each such EastGroup Employee Benefit Plan as of the
end of the most recent plan year with respect to such plan ending prior to the
date hereof, calculated on the basis of the actuarial assumptions used in the
last actuarial evaluation for each such plan; none of the employees of
EastGroup or any of its Subsidiaries is covered by a collective bargaining
agreement; neither EastGroup nor any of its Subsidiaries has ever contributed
to a "multiemployer plan" as defined in Section 3(37) of ERISA; neither the
EastGroup Employee Benefit Plans nor any fiduciary or administrator thereof has
engaged in a "prohibited transaction" as defined in Section 406 of ERISA or,
where applicable, Section 4975 of the Code for which no exemption is
applicable, that may have any Material Adverse Effect on
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EastGroup and its Subsidiaries, taken as a whole, nor have there been any
"reportable events" as defined in Section 4043 of ERISA for which the
thirty-day notice has not been waived.
Section 4.11 REIT STATUS. For all years in which it
has been in existence, EastGroup has continuously been organized and operated
in conformity with the requirements for qualification as a real estate
investment trust under the Code. EastGroup has no intention of changing its
operations or engaging in activities which adversely affect its continued
qualification as, a real estate investment trust.
Section 4.12 TAXES, TAX RETURNS.
(a) EastGroup will deliver to LNH copies of
the federal income tax returns of EastGroup for each of the last three fiscal
years and all schedules and exhibits thereto. Except as set forth on the
Disclosure Schedule, each of EastGroup and its Subsidiaries has duly and timely
filed in correct form all Returns required to be filed by it and its
Subsidiaries on or prior to the date hereof (all such Returns to the best
knowledge of EastGroup being accurate and complete in all material respects)
and, to the best knowledge of EastGroup, has duly paid or made provision for
the payment of all taxes and other governmental charges which have been
incurred or are due or claimed to be due from them by any governmental
authority (including, without limitation, those due in respect of their
properties, income, business, capital stock, franchises, licenses, sales and
payrolls) other than taxes or other charges (i) which are not yet delinquent or
are being contested in good faith and set forth in the Disclosure Schedule and
(ii) have not been finally determined. The liabilities and reserves for taxes
in the EastGroup Financial Statements are sufficient in the aggregate for the
payment of all unpaid federal, state and local taxes (including any interest or
penalties thereon), whether or not disputed or accrued, for the period ended
December 31, 1995 or for any year or period prior thereto, and for which
EastGroup or any of its Subsidiaries may be liable in its own right or as
transferee of the assets of, or successor to, any corporation, person,
association, partnership, joint venture or other entity.
(b) To the best knowledge of EastGroup, (i)
proper and accurate amounts have been withheld by EastGroup and its
Subsidiaries from their employees and others for all prior periods in
compliance in all material respects with the tax withholding provisions of
applicable federal, state or local laws and regulations, and proper due
diligence steps have been taken in connection with back-up withholding, (ii)
Returns which are accurate and complete in all material respects have been
filed by EastGroup and each of its Subsidiaries for all periods for which
returns were due with respect to income tax withholding, Social Security and
unemployment taxes, and (iii) the amounts shown on such returns to be due and
payable have been paid in full, or adequate provision therefore has been
included by EastGroup in the EastGroup Financial Statements.
Section 4.13 TAX AUDITS. Except as disclosed in the
EastGroup SEC Reports or in the Disclosure Schedule, (a) no audit of any
material Return of EastGroup or any Subsidiary is currently in progress, nor
has EastGroup or any Subsidiary been notified that such an audit is
contemplated by any taxing authority, (b) neither EastGroup nor any Subsidiary
has extended any statute of limitations with respect to the period for
assessment of
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any federal, state or local tax, (c) neither EastGroup nor any Subsidiary
contemplates the filing of an amendment to any Return, which amendment would
have a Material Adverse Effect on EastGroup and its Subsidiaries, taken as a
whole, and (d) neither EastGroup nor any Subsidiary has any actual or potential
material liability for any tax obligation of any taxpayer (including, without
limitation, any affiliated group of corporations or other entities which
included EastGroup or any Subsidiary during a prior period) other than
EastGroup or its Subsidiaries. Except as disclosed in the EastGroup SEC
Reports or the Disclosure Schedule, there are no material tax claims pending
against EastGroup or any Subsidiary, there are no material tax claims
threatened to be asserted against EastGroup or any Subsidiary, and there are no
material issues which have been raised in prior periods or audits which by
application of similar principles are expected to result in a material tax
claim for any other period. For purposes of this Section 4.12, "tax" and
"taxes" shall include all income, gross receipt, franchise, excise, real and
personal property, sales, ad valorem, employment, withholding and other taxes
imposed by any foreign, federal, state, municipal, local or other Governmental
Authority, including assessments in the nature of taxes.
Section 4.14 UNDISCLOSED LIABILITIES. EastGroup and
its Subsidiaries are not liable for or subject to any material Liabilities
except (a) Liabilities adequately disclosed or reserved for in the most recent
EastGroup Financial Statements and not heretofore paid or discharged, (b)
Liabilities under any contract, commitment or agreement specifically disclosed
on the Disclosure Schedule, none of which Liabilities under any such contract,
commitment or agreement were required under generally accepted accounting
principles consistently applied to have been adequately and specifically
disclosed or reserved for in the most recent EastGroup Financial Statements, or
(c) Liabilities incurred, consistent with past practice, in or as a result of
the ordinary course of business of EastGroup, and in accordance with this
Agreement, since the date of the most recent EastGroup Financial Statements.
Section 4.15 NO DEFAULT; COMPLIANCE.
(a) Except as set forth in the Disclosure
Schedule, neither EastGroup nor any of its Subsidiaries is in default under,
and no condition exists that with notice or lapse of time or both would
constitute a default under, (i) any mortgage, loan agreement, indenture,
evidence of indebtedness or other instrument evidencing borrowed money to which
either EastGroup or any of its Subsidiaries is a party or by which either
EastGroup or any of its Subsidiaries or its properties is bound, (ii) any
judgment, order or injunction of any court, arbitrator or governmental agency
or (iii) any other agreement, contract, lease, license or other instrument,
which default or potential default might reasonably be expected to have a
Material Adverse Effect.
(b) Except as set forth in the Disclosure
Schedule, EastGroup and each of its Subsidiaries have complied with all laws,
regulations, orders, judgments or decrees of any federal or state court or
governmental authority applicable to their respective businesses and
operations, the non-compliance with which might reasonably be expected to have
a Material Adverse Effect.
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Section 4.16 CONTRACTS AND COMMITMENTS. Except as
listed and described in the Disclosure Schedule, to the best of EastGroup's
knowledge, neither EastGroup nor any of its Subsidiaries is a party to, nor are
they or their assets bound by any written or oral:
(a) contract with any present or
former stockholder, trustee, director, officer, employee or
consultants;
(b) contract with any labor
union or other representative of employees;
(c) contract for the future
purchase of, or payment for, supplies or products, or for the
performance of services by a third party, involving payment or
potential payment by EastGroup of $25,000 or more under any
one contract or series of related contracts;
(d) any contract, including,
without limitation, any outstanding quotations, bids or
proposals, to sell goods or to perform services in an
aggregate amount in excess of $25,000;
(e) distributorship,
representative or sales agency agreement, contract or
commitment;
(f) conditional sale agreement
or lease under which EastGroup is either the seller or
purchaser, lessor or lessee, involving annualized payments or
potential payments by or to EastGroup that are in excess of
$25,000;
(g) contract (including, without
limitation, any note, debenture, bond, conditional sale or
equipment trust agreement, letter of credit agreement or loan
agreement) for the borrowing or lending of money (including,
without limitation, those to or from officers, trustees or
shareholders of EastGroup, or any affiliates or members of
their immediate families, for a line of credit, or for a
guarantee, security, indemnitee, pledge or undertaking of the
indebtedness or obligations of any other person);
(h) contract for any charitable
or political contribution;
(i) contract for any capital
expenditure involving future payments, which, together with
future payments under all other existing contracts for the
same capital project, are in excess of $25,000;
(j) contract limiting or
restraining EastGroup from engaging or competing in any lines
of business with any person, nor is any officer or employee of
EastGroup subject to any such agreement, contract or
commitment;
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(k) license, franchise,
distributorship or other contract relating in whole or in part
to any ideas, technical assistance or other know-how of or
used by EastGroup;
(l) contract which is expected
to continue for more than six months from the date hereof;
(m) contract not made in the
ordinary course of business; or
(n) any guaranty, direct or
indirect, of any person of any contract, lease or agreement
entered into by EastGroup, any of its Subsidiaries or any of
their officers, trustees or directors.
(Each of the foregoing is referred to herein as a "EastGroup Contract.")
Except as may be disclosed on the Disclosure Schedule, each of the EastGroup
Contracts listed on the Disclosure Schedule is valid and enforceable in
accordance with its terms; EastGroup and, to the best of EastGroup's knowledge,
the other parties thereto are in substantial compliance with the provisions
thereof; except as may be disclosed on the Disclosure Schedule, neither
EastGroup nor any other party is (or by reason of the consummation of the
transactions contemplated by this Agreement, will be) in default in the
performance, observance or fulfillment of any obligation, covenant or condition
contained therein and no event has occurred or is anticipated to occur
(including the consummation of the transactions contemplated by this Agreement)
which with or without the giving of notice or lapse of time, or both, would
constitute a default or give the right of termination thereunder; furthermore,
except as may be disclosed on the Disclosure Schedule, no such contract
contains any contractual requirement with which there is a reasonable
likelihood that either (i) EastGroup or any other party thereto will be unable
to comply or (ii) compliance therewith by EastGroup will have a Material
Adverse Effect on EastGroup and its Subsidiaries taken as a whole. Except as
set forth in the Disclosure Schedule, neither EastGroup nor any of its officers
has made any oral commitments or has any oral understandings which may be
material to EastGroup.
Section 4.17 COMPLIANCE WITH PERMITS. To the best of
EastGroup's knowledge, all necessary governmental certificates, consents,
permits, licenses or other authorizations with regard to the ownership or
operation by EastGroup or its Subsidiaries of their respective properties and
assets have been obtained and no violation exists in respect of such licenses,
permits or authorizations, except where the failure to obtain and hold such
permits, or any violation thereby by EastGroup or its Subsidiaries, would not
reasonably be expected to have a Material Adverse Effect. None of the
documents and materials filed with or furnished to any Governmental Authority
with respect to the properties, assets or businesses of EastGroup or its
Subsidiaries contains any untrue statement of a material fact or fails to state
a material fact necessary to make the statements therein not misleading.
Section 4.18 TITLE TO PROPERTY. Except as disclosed on
the Disclosure Schedule, EastGroup and each of its Subsidiaries has good and
marketable title, free and clear (except as indicated in the most recent
EastGroup Financial Statements and liens for
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current taxes not yet due and payable), of all security interests, liens,
encumbrances and encroachments of a material nature, to its property and assets
that are material to EastGroup's businesses on a consolidated basis.
Section 4.19 INSURANCE. The Disclosure Schedule sets
forth a complete and accurate list and description of all insurance policies in
force naming EastGroup, any of its Subsidiaries or any employees of any of them
as an insured or beneficiary or as a loss payable payee or for which EastGroup
or any of its Subsidiaries has been paid or is obligated to pay all or part of
the premiums. Neither EastGroup nor its Subsidiaries has received notice of
any pending or threatened termination or retroactive premium increase with
respect thereto, and EastGroup and its Subsidiaries are in compliance with all
conditions contained therein, the noncompliance with which could result in the
termination of insurance coverage or increased premiums for prior or future
periods. There are no pending material claims against such insurance by
EastGroup or any of its Subsidiaries as to which insurers have denied
liability, no defenses provided by insurers under reservations of rights, and
no material claim under such insurance that has not been properly filed by
EastGroup or any of its Subsidiaries.
Section 4.20 SHARES OF BENEFICIAL INTEREST OF
EASTGROUP. The shares of beneficial interest of EastGroup to be issued in the
Merger will have been duly authorized and, when issued in accordance with the
terms of the Articles of Merger and this Agreement, will be validly issued and
fully paid and nonassessable, and no shareholder of EastGroup will have any
preemptive rights with respect thereto.
Section 4.21 REPRESENTATIONS AND WARRANTIES CONTINUING.
The representations and warranties set forth herein shall be true and correct
on the date hereof and at all times prior to the Effective Time as if made from
time to time, including, without limitation, at the Effective Time.
ARTICLE V.
COVENANTS
Section 5.1 CONDUCT OF BUSINESS OF LNH AND EASTGROUP.
Except as contemplated by this Agreement or disclosed in the Disclosure
Schedule, during the period from the date of this Agreement to the Effective
Time, LNH, LNH's Subsidiaries, EastGroup and EastGroup's Subsidiaries will each
conduct their operations according to their ordinary and usual course of
business and consistent with past practice. Without limiting the generality of
the foregoing, and except as otherwise expressly provided in this Agreement or
disclosed in the Disclosure Schedule, neither LNH or any of LNH's Subsidiaries
nor EastGroup or any of EastGroup's Subsidiaries will, prior to the Effective
Time, without the prior written consent of EastGroup and LNH (a) issue, sell or
pledge, or authorize or propose the issuance, sale or pledge of (i) additional
shares of capital stock of any class, or securities convertible into any such
shares, or any rights, warrants or options to acquire any such shares or other
convertible securities, other than pursuant to commitments outstanding at the
date hereof and referred to in Section 3.2 or 4.2, or (ii) any other securities
in respect of, in lieu of or in substitution for, capital stock outstanding on
the date hereof, (b) purchase or otherwise acquire, or propose to purchase or
otherwise acquire, any of its outstanding
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securities, (c) declare or pay any dividend or distribution on any shares of
its capital stock (except, in the case of EastGroup and LNH, EastGroup's and
LNH's regular quarterly dividend with respect to their shares ), (d) authorize,
recommend, propose or announce an intention to authorize, recommend or propose,
or enter into an agreement in principle or an agreement with respect to, any
merger, consolidation or business combination (other than the Merger), any
acquisition of a material amount of assets or securities, any disposition of a
material amount of assets or securities or any material change in its
capitalization, or any entry into a material contract or any release or
relinquishment of any material contract rights, not in the ordinary course of
business, (e) propose or adopt any amendments to its charter or bylaws, (f)
enter into, assign or terminate, or amend in any material respect, any Contract
or EastGroup Contract, (g) acquire, dispose of, encumber or relinquish any
material asset (other than the sale of real properties with the consent of the
other parties, which consent shall not be unreasonably withheld), (h) waive,
compromise or settle any right or claim that would adversely affect the
ownership, operation or value of any asset, (i) make any material capital
expenditures other than pursuant to existing capital expenditure programs that
are disclosed in the Disclosure Schedule, (j) allow or permit the expiration,
termination or cancellation at any time prior to the Effective Time of any of
the insurance policies or coverages or surety bonds currently maintained by or
on behalf of EastGroup or LNH unless replaced with a policy, coverage or bond
having substantially the same coverage and similar terms and conditions, (k)
waive, settle or compromise any material litigation or other claim on a basis
materially adverse to LNH, LNH's Subsidiaries, EastGroup or EastGroup's
Subsidiaries, (l) agree in writing or otherwise to take any of the foregoing
actions or any action which would make any representation or warranty in this
Agreement untrue or incorrect, or (m) incur any indebtedness for borrowed money
(other than indebtedness in place at the date of this Agreement).
Section 5.2 Access to Information.
---------------------
(a) Between the date of this Agreement and the
Effective Time, the parties will afford to each other and their authorized
representatives reasonable access (subject to tenants' rights) to the real
estate, offices, warehouses or other facilities and to the books and records of
such party and LNH's Subsidiaries and EastGroup's Subsidiaries, will permit the
parties and their representatives to make such reasonable inspections as they
may require and will cause their officers and those of LNH's Subsidiaries and
EastGroup's Subsidiaries to furnish the parties and their representatives with
such financial and operating data, environmental assessments and other
information with respect to the business and real property of the parties,
LNH's Subsidiaries and EastGroup's Subsidiaries as they and their
representatives may from time to time reasonably request. No inspection or
examination by either party will constitute a waiver of any claim against the
other party for misrepresentation or breach of this Agreement.
(b) The parties will hold and will cause their
representatives to hold in strict confidence, unless compelled to disclose by
judicial or administrative process, or, in the opinion of counsel, by other
requirements of law, all documents and information concerning the parties
furnished to them and their representatives in connection with the transactions
contemplated by this Agreement (except to the extent that such information can
be shown to have been (i) in the public domain through no fault of the parties
or their
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representatives, or (ii) later lawfully acquired by the parties or their
representatives from other sources unless they or their representatives know
that such other sources are not entitled to disclose such information) and will
not release or disclose such information to any other person, except their
auditors, attorneys, financial advisors and other consultants and advisors in
connection with this Agreement, provided that such person shall have first been
advised of the confidentiality provision of this Section 5.2. If the
transactions contemplated by this Agreement are not consummated, such
confidence shall be maintained except to the extent such information can be
shown to have been (iii) in the public domain through no fault of EastGroup,
Sub or LNH, as the case may be, or their respective representatives, or (ii)
later lawfully acquired by the parties or representatives from other sources,
and, if requested, either party will, and will cause its agents, auditors,
consultants, representatives and advisors to return to the other, or destroy,
all copies of written information furnished.
(c) Each of EastGroup and LNH agrees to
furnish the other at the time of filing with copies of all reports and filings
(including exhibits and schedules) filed by either party with the SEC between
the date hereof and the Closing.
Section 5.3 BEST EFFORTS. Subject to the terms and
conditions herein provided, and to the fiduciary duties of the Boards of
Trustees and Directors of the parties under applicable law, each of the parties
hereto agrees to use its best efforts to take, or cause to be taken, all
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement. In case at any time
after the Effective Time any further action is necessary or desirable to carry
out the purposes of this Agreement, the proper officers and trustees and
directors of each party to this Agreement shall take all such necessary action.
Section 5.4 CONSENTS. EastGroup and LNH each will use
its best efforts to obtain such consents of third parties to agreements which
would otherwise be violated by any provisions hereof, to take all actions
necessary to effect the transactions contemplated hereby, and to make such
filings with Governmental Authorities necessary to consummate the transactions
contemplated by this Agreement including, without limitation, (a) the vigorous
defense of any lawsuits or other legal proceedings, whether judicial or
administrative, challenging this Agreement or the consummation of the
transaction contemplated hereby, including seeking to have any stay or
temporary restraining order entered by any court or Governmental Authority
vacated or reviewed, and (b) the execution and delivery of any additional
instruments necessary to consummate the transactions contemplated by this
Agreement.
Section 5.5 PUBLIC ANNOUNCEMENTS. Except as required
by law, neither party shall make any news releases or other public announcement
pertaining to the existence of this Agreement or the Merger without the prior
consent of the other party hereto. To the extent such a release or
announcement is required by law, the party making the same shall give the other
party advance notice of, and an opportunity to comment on, the proposed release
or announcement.
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Section 5.6 INDEMNIFICATION. If the Merger occurs,
then from and after its Effective Time EastGroup shall indemnify each person
who becomes an employee, agent, officer or trustee of EastGroup to the full
extent permitted by the Declaration of Trust, as amended, and Trustees
Regulations of EastGroup and permitted by law in respect of any claim arising
after the Effective Time in connection with such person's service as such. In
addition, LNH shall indemnify to the full extent of its assets and to the
fullest extent permitted by its Articles of Incorporation, as amended, and
Bylaws, as amended, and permitted by law, each person who held positions with
LNH prior to the Effective Time as an employee, agent, officer or director in
respect of any claim arising in connection with such person's service as such.
Any obligation of LNH hereunder shall be assumed by EastGroup to the extent of
(a) any distribution of assets from LNH to EastGroup or any affiliate of
EastGroup following the Merger and (b) any liability or obligation of such
person arising under this Agreement or in connection with the Merger. All
persons indemnified herewith are referred to as "Indemnified Parties." All
such indemnification provided for herein shall be to the fullest extent
authorized by law as now in effect or as hereafter amended (but, in the case of
any amendment, only to the extent that such amendment permits greater
indemnification rights than prior to such amendment) against any losses,
claims, damages, liabilities, costs, expenses (including legal fees and
disbursements of counsel), penalties, judgments and amounts paid in settlement
("Damages"), including but not limited to those based in contract, tort,
negligence, strict liability, or any theory of recovery, arising out of or
relating to any act, omission, transaction, cause of action, liability, debt or
obligation pertaining to (a) the fact that the Indemnified Party was an
officer, trustee, director, employee or agent of LNH or a Subsidiary of LNH or
EastGroup or a Subsidiary of EastGroup or (b) this Agreement or any of the
transactions contemplated hereby; provided, however, that (a) EastGroup and LNH
as appropriate will be entitled to participate in and, to the extent that they
may wish, to assume the defense of any action, with counsel reasonably
satisfactory to the Indemnified Party but if any Indemnified Party (or group
thereof) believes that, by reason of an actual or potential conflict of
interest, it is advisable for such Indemnified Party (or group thereof) to be
represented by separate counsel, such Indemnified Party (or group thereof) may
retain counsel reasonably satisfactory to EastGroup who will represent such
Indemnified Party (or group thereof) and EastGroup and Sub as appropriate shall
pay all reasonable fees and disbursements of such counsel promptly as
statements therefor are received, (b) the Indemnified Party, EastGroup and Sub
will cooperate with each other, and use their respective best efforts to
assist, in the vigorous defense of any such matter, and (c) EastGroup and Sub
shall not be liable for any settlement effected without its written consent,
which consent, however, shall not be unreasonably withheld.
Section 5.7 MEETINGS OF SHAREHOLDERS. LNH shall
promptly take all action necessary in accordance with applicable law and its
Articles of Incorporation, as amended, and Bylaws, as amended, to convene the
Special Meeting to consider and vote on the Merger and this Agreement. LNH and
EastGroup shall prepare the Form S-4 Registration Statement, file it with the
SEC under the Securities Act as promptly as practicable after execution hereof,
and use all reasonable efforts to have the Form S-4 Registration Statement
declared effective by the SEC. As promptly as practicable after the Proxy
Statement/Prospectus has been cleared by the SEC, LNH shall mail the Proxy
Statement/Prospectus forming a part of the Form S-4 Registration Statement to
the shareholders of LNH as of the record date for the Special Meeting.
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Section 5.8 BLUE SKY. EastGroup shall use its best
efforts to obtain, prior to the SEC effective date of the Form S-4 Registration
Statement, all necessary state law or "blue sky" permits and approvals required
to carry out the transactions contemplated by this Agreement, provided that
EastGroup shall not be required by virtue thereof to submit to general
jurisdiction in any state.
ARTICLE VI.
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 6.1 CERTIFICATES, OPINION OF COUNSEL.
Immediately prior to the Effective Time, LNH and EastGroup shall cause to be
delivered to each other or to have received the following:
(a) A certificate, dated the date of the
Effective Time, as the case may be, of the chief executive and chief financial
officer certifying that all representations and warranties made herein are true
and correct as of the date made and as of the Effective Time and that all
agreements or other actions required to be performed prior to the Effective
Time as a condition to consummating the Merger have been performed or taken and
such conditions satisfied in accordance with the terms of this Agreement.
(b) An opinion of counsel to LNH dated the
date of the Effective Time in form and substance satisfactory to each as to the
matters set forth in Sections 3.1 and 3.3 (except as to the Subsidiaries of
LNH, for which no opinion need be given), and such other matters as EastGroup
shall request, which opinion may contain customary exceptions and
qualifications.
(c) An opinion of counsel to EastGroup and Sub
dated the date of the Effective Time as to each of the matters set forth in
Sections 4.1 and 4.3 (except as to the Subsidiaries of EastGroup, for which no
opinion need be given), and such other matters as LNH may request, which
opinion may contain customary exceptions and qualifications.
(d) Jaeckle, Fleischmann & Mugel shall have
rendered an opinion, dated the Effective Time, in form and substance
satisfactory to LNH, to the effect that, on the basis of facts, representations
and assumptions set forth in such opinion, the Merger will for federal income
tax purposes constitute a reorganization within the meaning of Section 368, or
any successor thereto, of the Code and that (except with respect to cash in
lieu of fractional share interests), (i) no gain or loss will be recognized by
a holder of Shares upon conversation in the Merger into shares of beneficial
interest of EastGroup, (ii) the basis of shares of beneficial interest of
EastGroup to be received in the Merger by a holder of Shares of LNH will be the
same as such holder's basis in the Shares of LNH exchanged therefore, and (iii)
the holding period of the Shares of beneficial interest of EastGroup to be
received in the Merger by a holder of such LNH Shares will include the period
during which such holder of such Shares held the Shares exchanged therefore,
provided that such Shares were held as a capital asset immediately prior to the
consummation of the Merger; in rendering such opinion, such tax advisor may
rely upon certificates of officers of EastGroup and LNH as to factual matters.
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(e) LNH shall have received an opinion of
Rauscher Pierce Refsnes, Inc. updated to the Effective Time to the effect that
the Merger and the transactions provided for herein are fair to the
shareholders of LNH from a financial point of view.
Section 6.2 OTHER CONDITIONS. The respective
obligations of each party to effect the Merger are subject to the satisfaction
or waiver, where permissible, prior to the Effective Time of the following
conditions:
(a) This Agreement and the transactions
contemplated hereby shall have been approved by the affirmative vote of the
shareholders of LNH by the requisite vote.
(b) No statute, rule, regulation, executive
order, decree, or injunction shall have been enacted, entered, promulgated or
enforced by any court of competent jurisdiction in the United States or
domestic governmental authority which prohibits or restricts the consummation
of the Merger.
(c) LNH shall have obtained all material
consents listed on the Disclosure Schedule.
(d) There shall have been no Material Adverse
Change in the business, properties or financial condition of EastGroup or LNH.
(e) All parties shall have delivered all
documents and taken all other actions required by this Agreement.
(f) The Form S-4 Registration Statement shall
have become effective and no stop order suspending the effectiveness of the
Form S-4 Registration Statement shall have been issued and no proceedings for
that purpose shall have been initiated or threatened by the SEC or any state.
(g) EastGroup shall have received all state
securities laws and "blue sky" permits and other authorizations necessary to
consummate the transactions contemplated hereby and no stop order suspending
the effectiveness thereof shall have been issued and no proceeding for that
purpose shall have been initiated or threatened by any state.
(h) All representations and warranties of any
party shall be true and effective as of the Closing.
(i) Sub shall have incurred no material
indebtedness between its date of formation and the Closing except as
specifically contemplated by this Agreement.
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ARTICLE VII.
TERMINATION; AMENDMENTS; WAIVER
Section 7.1 TERMINATION. This Agreement may be
terminated and the Merger contemplated hereby may be abandoned at any time,
notwithstanding approval thereof by the shareholders of LNH, prior to the
Effective Time:
(a) by mutual written consent duly authorized
by the Boards of Trustees and Directors of LNH, EastGroup and Sub;
(b) by EastGroup or LNH if the Effective Time
shall not have occurred on or before April 15, 1996;
(c) by EastGroup or LNH if any court of
competent jurisdiction or other Governmental Authority shall have issued an
order, decree or ruling or taken any other action restraining, enjoining or
otherwise prohibiting the Merger or if litigation or proceedings shall be
pending that are reasonably likely to result in any of the foregoing;
(d) by LNH, if EastGroup or Sub shall not have
performed all obligations required to be performed by them under this
Agreement, except where any failures to perform would, in the aggregate, not
materially impair or delay the ability of LNH to effect the Merger;
(e) by EastGroup or Sub, if LNH shall not have
performed all obligations required to be performed by it under this Agreement,
except where any failures to perform would, in the aggregate, not materially
impair or delay the ability of EastGroup and Sub to effect the Merger;
(f) by LNH, if there shall have been a breach
by EastGroup or Sub of any of the covenants contained herein or if any
representation or warranty made by EastGroup or Sub is untrue in any material
respect; and
(g) by EastGroup or Sub, if there shall have
been a breach by LNH of any of the covenants contained herein or if any
representation or warranty made by LNH is untrue in any material respect.
Section 7.2 EFFECT OF TERMINATION. In the event of
the termination and abandonment of this Agreement pursuant to Section 7.1
subsections (a), (b) or (c) this Agreement shall forthwith become void and have
no effect, without any liability on the part of any party or its trustees,
directors, officers or shareholders, other than the provisions of Section
5.2(b), 7.5 and 8.9.
Section 7.3 AMENDMENT. This Agreement may be amended
by action taken by or on behalf of the Boards of Trustees and Directors of LNH,
EastGroup and Sub at any time before or after any adoption of this Agreement by
the shareholders of LNH but, after any such approval, no amendment shall be
made which decreases the Merger
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Consideration per Share or which adversely affects the rights of LNH's
shareholders hereunder without the approval of such shareholders. This
Agreement may not be amended except by an instrument in writing signed on
behalf of EastGroup, LNH and Sub.
Section 7.4 EXTENSION; WAIVER. At any time prior to
the Effective Time, the parties hereto, by action taken by or on behalf of the
respective Boards of Trustees and Directors of LNH, EastGroup and Sub, may (a)
extend the time for the performance of any of the obligations or other acts of
any other applicable party hereto, (b) waive any inaccuracies in the
representations and warranties contained herein by any other applicable party
or in any document, certificate or writing delivered pursuant hereto by any
other applicable party, or (c) subject to the proviso contained in Section 7.3,
waive compliance with any of the agreements of any other applicable party or
with any conditions to its own obligations. Any agreement on the part of any
other applicable party to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
Section 7.5 REIMBURSEMENT OF EXPENSES. In the event
that either EastGroup or LNH terminates this Agreement and the Merger pursuant
to the provision of Section 7.1(d) or (e) hereof, (the party receiving notice
that it has failed to perform under Section 7.1(d) or (e) being referred to in
this section as the "Terminating Party"), the Terminating Party shall pay the
other party (for purposes of this Section 7.5, the "Non-Terminating Party") the
Non-Terminating Party's out-of-pocket expenses incurred in connection with this
transaction, including without limitation professional fees and travel
expenses, which shall be paid by wire transfer not later than three (3)
business days after the Non-Terminating Party notifies the Terminating Party of
the amount of such expenses. Payment of such expenses shall not preclude the
Non-Terminating Party from asserting any other claim it may have in law or in
equity against the Terminating Party. If the Terminating Party fails to pay
such expenses on the date provided herein, the Terminating Party shall pay
interest thereon from the due date thereof until the date paid at the rate of
ten percent per annum and shall reimburse the Non-Terminating Party all
reasonable attorneys' fees and other costs and expenses incurred in collecting
such expenses from the Terminating Party.
ARTICLE VIII.
MISCELLANEOUS
Section 8.1 SURVIVAL OF REPRESENTATIONS AND
WARRANTIES. The representations and warranties made in this Agreement shall
not survive beyond the Effective Time. This Section 8.1, however, shall not
limit any covenant or agreement of the parties hereto, which by its terms
contemplates performance after the Effective Time.
Section 8.2 BROKERAGE FEES; COMMISSIONS AND EXPENSES.
LNH hereby represents and warrants to EastGroup with respect to LNH, and
EastGroup hereby represents and warrants to LNH with respect to EastGroup, that
no person or entity is entitled to receive from LNH or EastGroup, respectively,
any investment banking, brokerage or finder's fee or fees for financial
consulting or advisory services (except the fee for the fairness opinions) in
connection with this Agreement or the transactions contemplated hereby. Other
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costs, expenses and liabilities which may be incurred in connection with the
consummation of this Agreement or the Merger, such as, for example and without
limitation, the cost of professional fees shall be paid by the party incurring
the cost, except as contemplated by Section 7.5.
Section 8.3 ENTIRE AGREEMENT; ASSIGNMENT. This
Agreement (a) constitutes the entire agreement among the parties with respect
to the subject matter hereof and supersedes all other prior agreements and
understandings, both written and oral, among the parties or any of them with
respect to the subject matter hereof and (b) shall not be assigned by operation
of law or otherwise.
Section 8.4 VALIDITY. The invalidity or
unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provisions of this Agreement, each of
which shall remain in full force and effect.
Section 8.5 NOTICES. All notices, requests, claims,
demands and other communications hereunder shall be in writing and shall be
deemed to have been duly given when (i) delivered in person or (ii) on the
fifth business day following the day duly sent by facsimile telegram, telex or
by registered or certified mail (postage prepaid, return receipt requested) to
the respective parties as follows:
If to LNH:
LNH REIT, Inc.
300 One Jackson Place
188 East Capitol Street
Jackson, MS 39201-2195
Attention: Leland R. Speed, Chief Executive Officer
with a copy (which shall not affect the validity of notice
hereunder) to:
Butler, Snow, O'Mara, Stevens & Cannada
17th Floor, Deposit Guaranty Plaza
210 East Capitol Street, P.O. Box 22567
Jackson, MS 39225-2567
Attention: Daniel G. Hise, Esq.
If to EastGroup or Sub:
EastGroup Properties
300 One Jackson Place
188 East Capitol Street
Jackson, MS 39201-2195
Attention: David H. Hoster II, President
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with a copy (which shall not affect the validity of
notice hereunder) to:
Jaeckle, Fleischmann & Mugel
800 Fleet Bank Building
Twelve Fountain Plaza
Buffalo, New York 14202
Attention: Joseph P. Kubarek, Esq.
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
Section 8.6 GOVERNING LAW. This Agreement shall be
governed by and construed in accordance with the laws of the State of Maryland,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws thereof.
Section 8.7 JURISDICTION AND VENUE. The parties agree
that the courts of the State of Mississippi shall have personal jurisdiction
over all parties to this Agreement and any action involving a dispute under
this Agreement shall have as its venue a court located in the State of
Mississippi.
Section 8.8 DESCRIPTIVE HEADINGS. The descriptive
headings herein are inserted for convenience of reference only and are not
intended to be part of or to affect the meaning or interpretation of this
Agreement.
Section 8.9 COUNTERPARTS. This Agreement may be
executed in two or more counterparts, each of which shall be deemed to be an
original, but all of which shall constitute one and the same agreement.
Section 8.10 EXPENSES. Except as otherwise provided
herein, each of the parties shall bear and pay all costs and expenses incurred
by it or on its behalf in connection with the transactions contemplated
hereunder, including fees and expenses of its own financial or other
consultants, investment bankers, accountants and counsel.
Section 8.11 CERTAIN DEFINITIONS.
(a) "Environmental Laws" shall mean any and
all laws, subsequent enactments, modifications and amendments, including,
without limitation, any foreign, federal, state and local laws, statutes,
ordinances, rules, regulations, permits, licenses, approvals, administrative
consent orders or agreements, interpretations, orders and decrees of courts or
Governmental Authorities relating to the protection of human health or the
environment, including, but not limited to, requirements pertaining to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transportation, handling, reporting, licensing, permitting, investigation or
remediation of Hazardous Materials. Environmental Laws include, for example
and without limitation, the Resource Conservation and Recovery Act of 1976; the
Comprehensive Environmental Response, Cleanup and Liability Act of 1980
("CERCLA"); the Hazardous Materials Transportation Act; the Clean Water Act
(the Federal
32
<PAGE> 163
Water Pollution Control Act); the Toxic Substances Control Act; the Safe
Drinking Water Act; the Emergency Planning and Community Right-to-Know Act; the
United States Environmental Protection Agency's Underground Storage Tank
Regulations; all as amended and modified; and occupational health and safety,
flood control and sanitation laws.
(b) "Governmental Authority" shall mean the
United States, any foreign country, state, county, city or other political
subdivision, agency or instrumentality exercising executive, legislative,
judicial, regulatory or administration jurisdiction, over EastGroup, Sub, LNH,
LNH's Subsidiaries and EastGroup's Subsidiaries.
(c) "Hazardous Material" shall mean any
substance or material (i) which is or becomes defined as a hazardous waste,
hazardous substance, pollutant, contaminant or toxic substance or water under
any Environmental Law; (ii) which is toxic, explosive, corrosive, flammable,
infectious, radioactive, mutagenic or otherwise hazardous and is or becomes
regulated by any Governmental Authority; (iii) the presence of which requires
investigation or remediation under any Environmental Law or common law; or
(iv)the presence of which is deemed to constitute a nuisance, trespass or pose
a health or safety hazard to persons or neighboring properties.
(d) "Material Adverse Effect" shall mean any
adverse change in the financial condition, assets, business or operations of
any party which is material to such party taken as a whole.
(e) "Proxy Statement/Prospectus" shall mean
the document forming Part I of the Registration Statement on Form S-4 filed
with the SEC pursuant to the requirements of the Securities Act and the
Exchange Act.
(f) "Special Meeting" shall mean the special
meeting of the shareholders of LNH called pursuant to the Proxy
Statement/Prospectus to consider approval of the Merger.
(g) "Subsidiary" shall mean, when used with
reference to an entity, any corporation, a majority of the outstanding voting
securities of which are owned directly or indirectly by such entity. Such term
shall also refer to any other partnership, limited partnership, joint venture,
trust, or other business entity in which a party hereto owns a majority
interest.
Section 8.12 PERFORMANCE BY SUB. EastGroup agrees to
cause Sub to comply with its obligations hereunder and to cause Sub to
consummate the Merger as contemplated herein.
Section 8.13 DISCLOSURE SCHEDULE. If the Disclosure
Schedule becomes misleading in any respect, LNH and EastGroup shall notify the
other, in writing, of any facts making the Disclosure Schedule misleading;
provided, however, that no such notice shall be deemed to amend or modify the
representations and warranties herein.
33
<PAGE> 164
Section 8.14 Parties in Interest. This Agreement shall
be binding upon and inure solely to the benefit of each party hereto, and
nothing in this Agreement, express or implied, is intended to or shall confer
upon any other person or persons any rights, benefits or remedies of any nature
whatsoever under or by reason of this Agreement.
IN WITNESS WHEREOF, each of the parties has caused this
Agreement to be executed on its behalf by its officers thereunto duly
authorized, all as of the day and year set forth above.
LNH REIT, INC.
By: /s/ Leland R. Speed
--------------------
Leland R. Speed
Chief Executive Officer
ATTEST:
/s/ N. Keith McKey
- -------------------------
N. Keith McKey, Secretary
EASTGROUP-LNH CORPORATION
By: /s/David H. Hoster II
----------------------
David H. Hoster II
President
ATTEST:
/s/ N. Keith McKey
- -------------------------
N. Keith McKey, Secretary
EASTGROUP PROPERTIES
By: /s/David H. Hoster II
----------------------
David H. Hoster II
President
ATTEST:
/s/ N. Keith McKey
- ------------------
N. Keith McKey, Secretary
34
<PAGE> 165
APPENDIX C
JAECKLE, FLEISCHMANN & MUGEL
ATTORNEYS AT LAW
FLEET BANK BUILDING TWELVE FOUNTAIN PLAZA BUFFALO, NEW YORK 14202-2292
TEL (716) 856-0600 FAX (716) 856-0432
TAX OPINION OF JAECKLE, FLEISCHMANN & MUGEL
February 26, 1996
LNH REIT, Inc.
300 One Jackson Place
188 East Capitol Street
Jackson, Mississippi 39201-2195
Ladies and Gentlemen:
We have acted as counsel to EastGroup Properties, a Maryland
real estate investment trust ("EastGroup"), in connection with the transactions
contemplated by the Agreement and Plan of Merger dated December 22, 1995 among
EastGroup, LNH REIT, Inc., a Maryland corporation ("LNH"), and EastGroup-LNH
Corporation, a Maryland corporation and wholly-owned subsidiary of EastGroup
("Sub"), (the "Agreement").
We have examined executed counterparts of the Agreement and
have examined such other documents and records as we have deemed necessary and
relevant for purposes hereof. We have relied on certificates of officers of
EastGroup and Sub and on certificates of officers of LNH as well as upon
information set forth in the Registration Statement on Form S-4 relating to the
transactions contemplated by the Agreement and on representations of the
parties set forth in the Agreement. We have assumed the genuineness of all
signatures, the authenticity of all documents and records submitted to us as
originals, the conformity to authentic original documents and records of all
documents and records submitted to us as copies, and the truthfulness of all
statements of fact contained therein.
In rendering our opinion, we have considered the applicable
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
Treasury Regulations, pertinent judicial authorities, interpretive rulings of
the Internal Revenue Service and such other authorities as we have considered
necessary and relevant. Based on the foregoing and subject to the limitations
and assumptions set forth herein, and having due regard for such legal
considerations as we deem relevant, we are of the opinion that:
1. The merger of LNH with and into Sub (the "Merger"),
will constitute a reorganization within the meaning
of section 368(a) of the Code, and
<PAGE> 166
LNH REIT, Inc.
February 26, 1996
Page 2
EastGroup, LNH and Sub will each be a party to the
reorganization within the meaning of section 368(b)
of the Code.
2. No gain or loss will be recognized by EastGroup, LNH
or Sub in the Merger.
3. No gain or loss will be recognized by the holders of
shares of common stock, $0.50 par value per share, of
LNH ("LNH Shares"), upon their receipt of shares of
beneficial interest, $1.00 par value per share, of
EastGroup ("EastGroup Shares"), in exchange for their
LNH Shares, except that holders of LNH Shares who
receive cash proceeds from the sale of fractional
interests in EastGroup Shares will recognize gain or
loss equal to the difference between such proceeds
and the tax basis allocated to their fractional share
interests and such gain or loss will constitute
capital gain or loss if their LNH Shares are held as
a capital asset at the effective time of the Merger.
4. The aggregate tax basis of the EastGroup Shares
(including fractional share interests treated as
received) received by the holders of LNH Shares will
be the same as the aggregate tax basis of their LNH
Shares.
5. The holding period of the EastGroup Shares in the
hands of the holders of LNH Shares will include the
holding period of their LNH Shares, provided such LNH
Shares are held as a capital asset at the effective
time of the Merger.
Except as set forth above, we express no opinion as to the tax
consequences, whether federal, state, local, or foreign, to any party of the
Merger or of any transactions related to the Merger or contemplated by the
Agreement. This opinion is being furnished to you in connection with the
Merger and may not be used or relied upon for any other purpose. We hereby
consent to the filing of this opinion as an exhibit to the Registration
Statement and to its attachment as an exhibit to the Proxy Statement/Prospectus
contained therein, as well as to the reference to this opinion therein.
Very truly yours,
JAECKLE, FLEISCHMANN & MUGEL
<PAGE> 167
PART II
-------
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF TRUSTEES AND OFFICERS
EastGroup's Restated Declaration of Trust, as amended,
contains a provision authorizing EastGroup to indemnify and hold harmless, to
the fullest extent permitted by Maryland law, trustees and officers involved in
an action, suit or proceeding.
Section 2-418 of the Maryland General Corporation Law (the
"Indemnification Statute"), the law of the state in which EastGroup is
organized, empowers a Trust, subject to certain limitations, to indemnify its
officers and trustees against expenses, including attorneys' fees, judgments,
penalties, fines, settlements and expenses, actually and reasonably incurred by
them in any suit or proceeding to which they are parties unless the act or
omission of the trustee was material to the matter giving rise to the
proceeding and was committed in bad faith, or was the result of active and
deliberate dishonesty, or the trustee received an improper personal benefit or,
with respect to a criminal action or proceeding, the trustee had no reasonable
cause to believe their conduct was unlawful.
EastGroup has entered into an indemnification agreement (the
"Indemnification Agreement") with each of its trustees and officers, and the
Board of Trustees has authorized EastGroup to enter into an Indemnification
Agreement with each of the future trustees and officers of EastGroup. The
Indemnification Statute permits a corporation to indemnify its trustees and
officers. However, the protection that is specifically afforded by the
Indemnification Statute authorizes other arrangements for indemnification of
trustees and officers, including insurance. The Board of Trustees has approved
and the shareholders have ratified the Indemnification Agreement, which is
intended to provide indemnification to the maximum extent allowable by, or not
in violation of, or offensive to, any law of the State of Maryland.
The Indemnification Agreement provides that EastGroup shall
indemnify a trustee or officer who is a party to the agreement (the
"Indemnitee") if he or she was or is a party to or otherwise involved in any
proceeding by reason of the fact that he or she was or is a trustee or officer
of EastGroup, or was or is serving at its request in a certain capacity of
another entity, against losses incurred in connection with the defense or
settlement of such proceeding. This indemnification shall be provided to the
fullest extent permitted by Maryland law. This is similar to the
indemnification provided by the Indemnification Statute except that
indemnification is not available to the Indemnitee who is adjudged liable on
the basis that a personal benefit was improperly received or who pays any
amount in settlement of a proceeding without EastGroup's written consent.
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<PAGE> 168
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following exhibits are filed herewith (or incorporated by reference):
(2)(a) Agreement and Plan of Merger among EastGroup, Sub and LNH dated as of
December 22, 1995, attached to the Proxy Statement/Prospectus as
Appendix A. EastGroup agrees to furnish supplementally to the SEC upon
request a copy of any omitted schedule or exhibit to the Merger
Agreement.
(b) EastGroup's Annual Report on Form 10-K for the year ended December 31,
1994 (incorporated by reference).
(c) Amendment No. 2 to EastGroup's Registration Statement on Form S-2 (No.
33-70574) filed January 20, 1994 (incorporated by reference).
(3)(a) EastGroup's Restated Declaration of Trust, filed herewith.
(b) EastGroup's Trustees Regulations (incorporated by reference to Exhibit
3 of EastGroup's 1980 Annual Report on Form 10-K).
(c) Amendment to EastGroup's Trustees Regulations (incorporated by
reference to Exhibit 3 of EastGroup's 1980 Annual Report on Form 10-K).
(d) Amendment to EastGroup's Trustees Regulations (incorporated by
reference to Exhibit 3(d) of EastGroup's 1983 Annual Report on Form 10-
K).
(5) Opinion of Jaeckle, Fleischmann & Mugel regarding legality of shares
being registered, filed herewith.
(8) Opinion of Jaeckle, Fleischmann & Mugel, as to federal income tax
consequences of the Merger, attached to the Proxy Statement/Prospectus
as Appendix C.
(10)(a) Amendment and Restatement of the Expense-Sharing Agreement among
Congress Street Properties, Inc., Eastover Corporation, EastGroup
Properties and The Parkway Company dated as of September 1, 1990
(incorporated by reference to Exhibit 10(a) of EastGroup's 1991
Annual Report on Form 10-K).
(b) First Amendment to Amendment and Restatement of Expense-Sharing
Agreement among Congress Street Properties, Inc., Eastover Corporation,
EastGroup Properties and The Parkway Company dated as of October 1,
1993 (incorporated by reference to Exhibit 10B of EastGroup's
Registration Statement on Form S-2 (No. 33-70574) filed October 19,
1993).
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<PAGE> 169
(c) EastGroup Properties 1989 Incentive Plan (incorporated by reference to
Exhibit A of EastGroup's proxy statement dated April 26, 1991).
(d) EastGroup Properties 1991 Trustees Stock Option Plan (incorporated by
reference to Exhibit B of EastGroup's proxy statement dated April 26,
1991).
(e) Agreement and Plan of Merger dated February 12, 1996 by and between
EastGroup and Copley Properties, Inc., filed herewith.
(11) Statement regarding computation of earnings per share (incorporated by
reference to Exhibit (11) of EastGroup's 1993 Annual Report on Form
10-K).
(13)(a) EastGroup's Annual Report to Shareholders for the year ended December
31, 1994 (incorporated by reference).
(b) LNH's Annual Report to Shareholders for the year ended December 31,
1994 (incorporated by reference).
(22) Subsidiaries of EastGroup, filed herewith.
(23)(a) Consent of Ernst & Young LLP, filed herewith.
(b) Consent of KPMG Peat Marwick LLP, filed herewith.
(c) Consent of Arthur Andersen LLP, filed herewith.
(d) Consent of Rauscher Pierce Refsnes, Inc., filed herewith.
(e) Consent of Jaeckle, Fleischmann & Mugel, contained in Exhibit 5(a)
hereto.
(24) Powers of Attorney (incorporated by reference).
(28) Agreement of EastGroup to furnish the SEC with copies of instruments
defining the rights of holders of long-term debt (incorporated by
reference to Exhibit 28(e) of EastGroup's 1986 Annual Report on Form
10-K).
99 (a) Opinion of Rauscher Pierce Refsnes, Inc. as to the fairness of the
transaction to LNH shareholders, attached as Appendix B to the Proxy
Statement/Prospectus.
99 (b) Form of proxy, filed herewith.
ITEM 22. UNDERTAKINGS
EastGroup, the undersigned registrant, hereby undertakes:
(1) To file, during any period during which offers or sales are being made,
a post-effective amendment to this Registration Statement:
II-3
<PAGE> 170
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the Registration Statement;
(c) To include any additional or changed material information with
respect to the plan of distribution.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act, and, is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a trustee, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such trustee, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of this issue.
(5) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the effective
date of the registration statement through the date of responding to the
request.
(6) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it
became effective.
II-4
<PAGE> 171
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant
has duly caused the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Jackson, State of
Mississippi, on February 26, 1996.
EASTGROUP PROPERTIES
By: /s/ David H. Hoster II
------------------------
David H. Hoster II, President
Pursuant to the requirements of the Securities Act of 1933,
this Amendment has been signed below by N. Keith McKey on February
26, 1996, individually and as attorney-in-fact for the following persons:
II-5
<PAGE> 172
Name Title
Leland R. Speed Managing Trustee and Chief
Executive Officer (Principal
Executive Officer)
N. Keith McKey Executive Vice President, Chief
Financial Officer and Secretary
(Principal Financial Officer)
Diane W. Hayman Controller (Principal
Accounting Officer)
Alexander G. Anagnos Trustee
H.C. Bailey, Jr. Trustee
/s/ N. Keith McKey
N. Keith McKey,
Individually and as
Attorney-in-Fact
David H. Hoster II President and Trustee
Harold B. Judell Trustee
David M. Osnos Trustee
John N. Palmer Trustee
II-6
<PAGE> 173
Appendix B
[logo]
RAUSCHER PIERCE REFSNES, INC.
G. CLYDE BUCK
Managing Director
December 21, 1995
LNH REIT, Inc.
300 One Jackson Place
188 East Capitol Street
Jackson, Mississippi 39201
Attention: Mr. N. Keith McKey
Senior Vice President, Chief Financial Officer and Secretary
Dear Mr. McKey:
You have asked us for our opinion as to the fairness from a financial
point of view to the shareholders of LNH REIT, Inc. ("LNH") of the consideration
to be received pursuant to the terms of a merger agreement between LNH and
EastGroup Properties ("EastGroup") whereby the shareholders of LNH would
receive a value of $8.10 for each share of LNH stock in the form of EastGroup
common stock (the "Exchange") based on the average of EastGroup's closing
market price for the 10 trading days prior to the Effective Date (as defined in
the Merger Agreement).
Rauscher Pierce Refsnes, Inc., as part of its investment banking
business, is continually engaged in the valuation of businesses and their
securities in connection with mergers and acquistions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements, and valuations for estate, corporate and other purposes.
1001 Fannin, Suite 700 - Houston, Texas 77002 - (713) 651-3354
Member New York Stock Exchange, Inc.
<PAGE> 174
LNH REIT, Inc.
December 21, 1995
Page 2
In arriving at our opinion, we have, among other things:
1. Reviewed a draft dated December 13, 1995 of an "Agreement and
Plan of Merger" between LNH and EastGroup;
2. Reviewed a draft dated December 13, 1995 of a Form S-4
registration statement for the merger of LNH into EastGroup;
3. Reviewed an analysis dated August 23, 1995 prepared by LNH, of
the values of assets and liabilties indicating a ratio of 0.375
for the Exchange;
4. Reviewed EastGroup's annual report and Form 10-K for the years
ended December 31, 1994 plus quarterly earnings reports on Form
10-Q for the quarters ended March 31, 1994; June 30, 1994;
September 30, 1994; March 31, 1995; June 30, 1995 and
September 30, 1995;
5. Reviewed quarterly earnings reports on Form 10-Q for LNH for
the quarters ended March 31, 1994; June 30, 1994; September
30, 1994; March 31, 1995; June 30, 1995 and September 30, 1995
plus LNH's annual report and Form 10-K for the year ended
December 31, 1994;
6. Reviewed LNH's Notice of Annual Meeting and Proxy Statement
dated April 27, 1995;
7. Reviewed EastGroup's Notice of Annual Meeting and Proxy
Statement dated April 27, 1995;
8. Reviewed LNH Board of Directors' Meeting file dated September
6, 1995, May 31, 1995 and March 21, 1995;
9. Reviewed EastGroup Properties Board of Trustees meeting file
dated September 6, 1995, June 1, 1995 and March 16, 1995;
10. Reviewed proforma financial statements for Form S-4;
<PAGE> 175
LNH REIT, Inc.
December 21, 1995
Page 3
11. Reviewed a liquidation value estimate for LNH in a memo
prepared by LNH management on November 8, 1995;
12. Discussed with management of LNH and EastGroup the outlook for
future operating results, the assets and liabilities of
both companies, material in the foregoing documents, and other
matters we considered relevant to our inquiry.
In our review and in arriving at our opinion, we have, with your
permission, (i) not independently verified any of the foregoing information
and have relied upon its being complete and accurate in all material respects,
and (ii) not made an independent evaluation or appraisal of specific real
estate holdings or other assets of LNH and EastGroup. Our opinion is provided
solely for your benefit in connection with the proposed transaction, according
to the terms of our engagement letter dated October 19, 1995.
Based upon and subject to the foregoing, it is our opinion that, as of
the date hereof, the consideration to be received by the shareholders of LNH
pursuant to the proposed Exchange is fair to the shareholders of LNH from a
financial point of view.
RAUSCHER PIERCE REFSNES, INC.
By: /s/ Clyde Buck
------------------------------
G. Clyde Buck
Managing Director
<PAGE> 1
Exhibit 3(a)
RESTATED
DECLARATION OF TRUST
OF
EASTGROUP PROPERTIES
ARTICLE I.
THE TRUST
SECTION 1. NAME OF TRUST. The trust established by
this Declaration (the "Trust"), shall be known and designated as "EastGroup
Properties", in which name the Trustees shall insofar as practicable conduct
the business of the Trust.
SECTION 2. LOCATION. The office of the Trust shall
be in Baltimore, Maryland. The Trust may have such other offices or places of
business, either in New York or elsewhere, and may change its principal office,
all as the Trustees may from time to time determine.
SECTION 3. NATURE OF TRUST. The Trust shall be an
unincorporated real estate investment trust according to the laws of the State
of Maryland and shall not be a general or limited partnership, a joint stock
association or company, or a corporation. The Shareholders shall be the
beneficiaries of the Trust, and their relationship to the Trustees shall be in
that capacity and in accordance with the rights conferred upon them hereunder.
SECTION 4. STATEMENT OF INVESTMENT POLICY AND
PURPOSES. The primary investment objective of the Trust is to invest the Trust
property in real property and interests therein affording a combination of
maximum initial income and the opportunity for increasing income over the long
term, commensurate with acceptable risk, together with the possibility of
long-term appreciation; it will not be an investment objective of the Trust to
provide tax-sheltered income. To further this objective, the Trust may invest
in land purchase-leaseback transactions involving income-producing properties
such as apartments, shopping centers, office buildings and hotels or outright
purchase of such properties or junior mortgages on such properties which may or
may not be convertible into land purchase-leaseback investments. Additionally,
the Trust may invest in the shares of other "real estate investment trusts", to
the extent permitted by the Internal Revenue Code.
Subject to the investment restrictions
stated in Article II, Section 4, the Trustees may alter the above-described
investment policy if they should determine such change to be in the best
interests of the Trust and the Shareholders. Subject to the preceding
sentence, the Trustees shall endeavor to invest the Trust's assets in
accordance with the investment policy set forth in this Section 4, but the
failure so to invest its assets shall not affect the validity of any investment
made or action taken by the Trustees.
The general purpose of this Trust is to
seek real estate investment trust income as defined in Part II, Subchapter M,
Chapter 1 of Subtitle A of the
<PAGE> 2
Internal Revenue Code, as amended. The Trustees intend to make investments in
such a manner as to comply with the requirements of said provisions of the
Internal Revenue Code with respect to the composition of the Trust's
investments and the derivation of its income, provided, however, that no
Trustee, officer, employee or agent of the Trust or the Investment
Administrator shall be liable for any act or omission resulting in the loss of
tax benefits under the Internal Revenue Code, except for that arising from his
or its own bad faith, willful misconduct, gross negligence or reckless
disregard of his or its duties or for his or its failure to act in good faith
in the reasonable belief that his or its action was in the best interests of
the Trust.
To the extent that the Trust has assets
not otherwise invested in accordance with this Section 4, the Trustees may
invest such assets on an interim basis in:
(a) Construction mortgage loans or
other short-term mortgage loans or real property investments.
(b) Obligations of, or guaranteed or
insured by, the United States Government or any agencies or political
subdivisions thereof, including the Federal Housing Administration and the
Federal National Mortgage Association.
(c) Evidences of deposits in, or
obligations of, banking institutions which are members of the Federal Deposit
Insurance Corporation or of the Federal Home Loan Bank System.
(d) Other marketable securities
which, in the opinion of the Trustees, may be held by the Trust without
jeopardizing the Trust's qualification as a real estate investment trust under
the Internal Revenue Code.
SECTION 5. OFFICERS AND AGENTS. The Trustees may
appoint a Secretary, a Treasurer, Assistant Secretaries, Assistant Treasurers
and such other officers, agents and representatives for the performance of the
business of the Trust, as the Trustees deem advisable, all such officers,
agents, and representatives to have the authority and duties prescribed in the
Trustees' Regulations and/or by the Trustees.
The resident agent of the Trust in the
State of Maryland shall be The Corporation Trust Incorporated, 32 South Street,
Baltimore, Maryland 21202.
ARTICLE II.
THE TRUSTEES
SECTION 1. TRUSTEES' REGULATIONS. The Trustees may
make, adopt, amend or repeal regulations (the "Trustees' Regulations") make
provision for the management, conduct, and regulation of the affairs and
proceedings of the Trust and the
2
<PAGE> 3
Trustees in any manner not inconsistent with applicable law or the provisions
of this Declaration.
SECTION 2. NUMBER, TERM OF OFFICE, QUALIFICATIONS AND
COMPENSATION OF TRUSTEES. There shall at all times be not less than three nor
more than twelve Trustees. There shall be initially three Trustees, and this
number may be changed from time to time by the Trustees in such manner as shall
be stated in the Trustees' Regulations. The term of office of each Trustee
shall be for one year and until the election or appointment and qualification
of his successor in accordance with this Declaration and the Trustees'
Regulations. An election of Trustees shall be held at each annual meeting of
Shareholders. Trustees may succeed themselves in office. No person shall
qualify as a Trustee unless he is an American citizen at least twenty-one years
of age and is not under legal disability, and until he shall have either signed
this Declaration or agreed in writing to serve as Trustee hereunder and to be
bound by the terms hereof. Unless otherwise required by law or by the
Trustees' Regulations, no Trustee shall be required to give bond, surety or
security to secure the performance of his duties and obligations hereunder.
Except as hereinafter provided with respect to certain Trustees, the Trustees
shall receive such compensation, regular or special, as they shall deem
reasonable and proper and such compensation shall be reported annually to the
Shareholders. In addition, the Trustees shall be entitled to reimbursement by
the Trust for all reasonable out-of-pocket expenses incurred by them in
connection with the performance of their duties as Trustees hereunder. Any
Trustee who is an officer, director or employee of the Investment Administrator
shall receive not more than $2,000 per annum as compensation for his services
as Trustee; PROVIDED, HOWEVER, that such Trustee shall also be entitled to
reimbursement by the Trust for all reasonable out-of-pocket expenses incurred
in connection with the performance of his duties as a Trustee.
SECTION 3. POWERS OF TRUSTEES. The Trustees shall
have, without other or further authorization, full and absolute power, control
and authority over the Trust Property (as defined in Article VI) and of the
affairs of the Trust to the same extent as if they were the sole owners of the
Trust Property in their own right, subject only to the limitations herein
expressly stated. Such powers of the Trustees may be exercised without order
of or resort to any court.
Without restricting or limiting the
general powers granted in the preceding paragraph, the powers of the Trustees
shall include, among others, the following (subject always to the limitations
and restrictions stated elsewhere in this Declaration):
(1) To purchase, acquire, own,
hold, sell, exchange and pledge securities (as defined in Article VI) of every
kind and description to the extent consistent with the purposes of the Trust as
set forth in Section 4 of Article I.
(2) To purchase, acquire, own,
hold, manage, improve, lease (for a term extending beyond the possible
termination of the Trust or for a
3
<PAGE> 4
lesser term), option, grant, sell, exchange, dispose of, encumber, mortgage
(with or without power of sale), partition, surrender, release or otherwise
deal in and with real property interests (as defined in Article VI) and assets,
real or personal; and to erect, construct, alter, repair, demolish or otherwise
physically affect any buildings, structures or improvements situated on or
comprising any real property interests owned or to be owned by the Trust.
(3) To cause record of title to any
Trust Property to be held by and/or in the name of one or more of the Trustees
or, when in the circumstances such is deemed to be in the best interest of the
Trust and the Shareholders, by any other person or local entity, or on such
terms, in such manner, and with such powers as the Trustees may determine and
with or without disclosure of the interest of the Trust therein.
(4) To borrow money (subject to the
limitations contained in Article II, Section 21) on such terms and conditions,
at such rates of interest, and on a secured or unsecured basis, all as the
Trustees may determine; to enter into obligations and contracts of every kind
and description on behalf of the Trust; and to mortgage, pledge or otherwise
encumber all or any of the Trust Property to secure such obligations or
contracts.
(5) To invest any funds of the
Trust in such manner as the Trustees shall deem wise and without limitation as
to any type or category of investment; and to create a reserve fund or funds
for such purposes as the Trustees may deem necessary, appropriate or desirable.
(6) To deposit any moneys or
securities included in the Trust Property with any one or more banks, trust
companies or other banking institutions, such moneys or securities to be
subject to withdrawal on notice or upon demand and in such manner as the
Trustees may determine; and the Trustees shall have no responsibility for any
loss which may occur by reason of the failure of the bank, trust company or
institution with which such moneys or securities have been deposited to account
therefor.
(7) To pay all taxes and
assessments, of whatever kind or nature, imposed upon or against the Trust
Property, or any part thereof, or upon or against any Trustee, in connection
with the activities, affairs or business of the Trust, and in that connection
to make such returns, claims for refund, or agreements, and to do such other
acts or things, as may be deemed necessary, appropriate or desirable by the
Trustees.
(8) To issue Shares (as defined in
Article III) of the Trust (including fractional Shares and scrip evidencing
fractional Shares), warrants and rights to purchase such Shares, or bonds,
debentures and notes (which may be convertible into Shares) to such
individuals, corporations, partnerships, trusts, associations or other
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entities, at such time or times, and for such consideration and on such other
terms, as the Trustees may deem advisable.
(9) To exercise all the rights,
privileges and powers appertaining to the ownership of all or any securities
forming part of the Trust Property to the same extent as an individual might,
and, without limiting the generality of the foregoing, to vote, give consents
or waive notices, either in person or by proxy or power of attorney, which
proxies and powers of attorney may grant the exercise of discretionary powers.
(10) To appoint, employ, engage and
compensate such agents, employees, and independent contractors, of every kind
and description (any of whom may be employed in multiple capacities and may
receive compensation in each such capacity), as the Trustees deem necessary,
appropriate or desirable for the conduct of the business and affairs of the
Trust, including, without limiting the generality of the foregoing, fiscal
agents, transfer agents, registrars, lawyers, accountants, appraisers, real
estate agents and brokers and independent contractors to manage and operate the
real property interests of, or to perform other services for, the Trust; and to
delegate to one or more agents, employees, independent contractors or other
persons such powers and duties as the Trustees may deem necessary, appropriate
or desirable.
(11) To determine conclusively the
allocation to principal, income, expense or other appropriate accounts of all
receipts, expenses, disbursements and Property of the Trust, regardless of the
allocation which might be necessary or appropriate in the absence of this
provision.
(12) To determine conclusively the
values of the securities, real property interests and assets at any time held
by the Trust and of any securities, real property interests, assets, services
or other consideration to be acquired by the Trust; and to revalue the
securities, real property interests and assets of the Trust from time to time
in accordance with valuations or appraisals made by one or more of the
Trustees, or by such independent appraiser or appraisers as the Trustees deem
competent.
(13) To determine the fiscal year of
the Trust and the method or form in which its accounts shall be kept and, from
time to time, to change the fiscal year or method or form of accounts.
(14) To collect, sue for, receive
and receipt for all sums of money coming due to the Trust; to consent to the
extension of the time for payment, or to the renewal, of any obligations owing
to the Trust; to engage or intervene in, prosecute, defend, abandon or
compromise, by arbitration or otherwise, any actions, suits, proceeding, or
other litigation relating to the Trust or to the Trust Property.
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(15) To participate in
reorganizations, arrangements and other plans for the benefit of creditors and,
in that connection, to deposit with any committee, trustee, assignee or other
person and securities belonging to the Trust; to participate in and deposit
securities under any voting trust or voting agreement; to delegate
discretionary power in connection with any such reorganization arrangement,
plan or trust; to pay any assessment levied in connection therewith; and to pay
or satisfy any debts or claims upon any evidence that the Trustees shall think
sufficient.
(16) To enter into partnerships,
joint ventures or other arrangements of any kind and description which the
Trustees deem necessary, appropriate or desirable to carry on the business of
the Trust or exercising any of the powers herein granted.
(17) To delegate from time to time
to one or more of the Trustees or to such other person as the Trustees may deem
desirable, the doing of such things and the execution of such instruments,
either in the name of the Trust, or the Trustees, or as their proxy or
attorney-in-fact, or otherwise, as the Trustees may from time to time deem
necessary, appropriate or desirable.
(18) To incur and pay any charges or
expenses which the Trustees deem necessary, appropriate or desirable for the
conduct of the business and affairs, or the carrying out of any of the
purposes, of the Trust, including without limitation, any and all charges and
expenses incurred in connection with the organization of the Trust.
(19) To require Shareholders of
record to disclose the beneficial owner or owners of Shares held by them
whenever the Trustees deem such disclosure to be necessary or desirable; and to
solicit and vote proxies from Shareholders.
(20) To refuse to transfer or call
for redemption and redeem the Shares of the Trust in accordance with the
provisions of Sections 5 and 6 of Article III.
(21) To declare and pay dividends in
cash, Shares, fractional Shares, scrip or in kind out of the Trust Property and
make such distributions to Shareholders, whether out of current or accumulated
income, capital gains, principal or from any other source as the Trustees in
their discretion deem appropriate.
(22) To loan money to promote and
attain the purposes of the Trust on such terms and conditions, except as
expressly restricted in Section 18 of this Article II, at such rate of interest
or without interest and on a secured or unsecured basis, all as the Trustees
may determine.
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SECTION 4. RESTRICTIONS. The Trustees shall not
engage in any of the activities set forth below:
(a) invest in commodities;
(b) engage in trading as contrasted
with investing activities;
(c) engage in underwriting or agency
distribution of securities issued by others;
(d) issue warrants, options or
similar evidence or rights to buy securities of the Trust unless issued (i) to
all Shareholders ratably or (ii) as part of a public offering of securities or
(iii) as part of a financial arrangement (which might include the issuance of
warrants or options in exchange for property) with any Persons, other than the
Investment Administrator or an Affiliate of the Investment Administrator or of
the Trust, at an exercise price not less than the fair market value of the
securities which are the subject of the option or warrant as of the date
agreement is reached as to their issuance or (iv) to Persons, other than the
Investment Administrator or an Affiliate of the Investment Administrator or of
the Trust, at an exercise price not less than the fair market value of the
securities which are the subject of the option or warrant as at the date of
grant thereof or (v) to officers, Trustees or key employees of the Trust or any
subsidiary pursuant to a plan approved by holders of a majority of the Shares
represented in person or by proxy at any annual or special meeting of
Shareholders;
(e) invest in real estate contracts
of sale;
(f) invest in equity securities
(except equity securities acquired as additional consideration in connection
with mortgage loans by the Trust or leases of real property owned by the Trust)
issued by any company, including any other real estate investment trust, which
to the actual knowledge of the Trustees is then holding investments or engaging
in activities prohibited to the Trust if, after giving effect to the
investments, the aggregate amount of such investments exceeds 5% of the Total
Assets of the Trust;
(g) acquire options for the purchase
of property at a cost of more than 1% of the purchase price of the property
involved.
SECTION 5. RESIGNATION. A Trustee may resign at any
time by giving notice in writing to the other Trustees at the principal office
of the Trust. Such resignation shall take effect on the date it is received or
at any later time specified therein. Unless the resignation specifies
otherwise, its acceptance shall not be necessary to make it effective.
SECTION 6. SUSPENSION AND REMOVAL. Any Trustee may
be suspended or removed by the unanimous vote of all Trustees (except the
Trustee so to be suspended or
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removed) for disability, incompetency or any other cause deemed sufficient by
the Trustees so voting; vacancies created by such removal shall be filled in
accordance with the provisions of Section 7 below. Any or all of the Trustees
may be removed and a new Trustee may be elected to take the place of each
Trustee so removed at any special meeting of Shareholders called for such
purpose by the affirmative vote of holders of not less than two-thirds of the
Shares then outstanding.
SECTION 7. VACANCIES. The resignation, removal or
death of any or all of the Trustees shall not terminate the Trust or affect its
continuity. During a vacancy, the remaining Trustee or Trustees may exercise
the powers of the Trustees hereunder. Vacancies among the Trustees, whether
created by resignation, removal, death or otherwise, including an increase in
the number of Trustees pursuant to Article II, Section 2, may be filled by a
written appointment signed by a majority of the Trustees then in office.
Appointments shall take effect upon the qualification of the appointee, and
shall be for a term continuing until the next annual election of Trustees and
until the election or appointment and qualification of a successor in
accordance with this Declaration and the Trustees' Regulations.
SECTION 8. ACTIONS BY TRUSTEES. The Trustees may act
with or without a meeting. Except as provided in Article II, Sections 6, 16
and 18, and in Article V, any action by a majority of the Trustees (which,
where otherwise required by this Declaration, includes a majority of a
particular group of the Trustees) present at a duly convened meeting of the
Trustees shall be conclusive and binding as an action of the Trustees. A
quorum for meetings of Trustees shall be any two of the Trustees in office.
Action may be taken without a meeting upon the consent of a majority of the
Trustees in office and such consent may be, but need not be, evidenced by a
written certificate or instrument signed by such Trustees.
All or any one or more Trustees may
participate in a duly convened meeting of the Trustees by means of conference
telephone or any similar communications equipment by means of which all persons
participating in the meeting can hear each other and participation in a meeting
in such a manner shall constitute presence in person at such meeting.
Any committee appointed by the Trustees
may act in the same manner as provided in this Section 8 for action by the
Trustees.
Any action taken by the Trustees in
accordance with the provisions of this Section 8 shall be conclusive and
binding upon the Trust.
SECTION 9. TITLE AND AUTHORITY OF TRUSTEES. Subject
to the provisions of Section 3(3) of Article II hereof, the Trustees shall hold
the legal title to all Trust Property as joint tenants with right of
survivorship. They shall have absolute and exclusive control over the
management and conduct of the business and affairs of the Trust, free from any
control on the part of the Shareholders.
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SECTION 10. SUCCESSOR TRUSTEES. The right, title and
interest of the Trustees in and to the Trust Property shall vest automatically
in all persons who may hereafter become Trustees upon their due election or
appointment and qualification without any further act, and thereupon they shall
have the same rights, privileges, powers, duties and immunities as though
originally named as Trustees in this Declaration. Appropriate written evidence
of the election or appointment and qualification of successor Trustees shall be
filed with the records of the Trust and in such other offices or places as the
Trustees may deem necessary, appropriate or desirable. Upon the resignation,
removal or death of a Trustee he (and in the event of his death, his estate)
shall automatically cease to have any right, title or interest in or to any of
the Trust Property, and the right, title and interest of such Trustee in and to
the Trust Property shall vest automatically in the remaining Trustees without
any further act.
A certificate or other written instrument
signed by the Secretary of the Trust or by any two or more of the Trustees
stating who at any time are or were Trustees shall constitute PRIMA FACIE proof
of the matters set forth therein.
SECTION 11. TRANSACTIONS BETWEEN TRUSTEES AND THE
TRUST. No contract or other transaction to which the Trust is or may at any
time be a party including, without limitation, any contract or agreement
between the Trust and any trust, corporation or other business entity having
officers, offices and other personnel and facilities in common with the Trust
and which may or may not be reimbursed by the Trust for expenses incurred on
behalf of the Trust, shall be rendered void or voidable, or shall otherwise be
subject to any infirmity, nor shall any Trustee be considered to have violated
or breached any fiduciary obligation in connection therewith, solely by reason
of the fact that any or all of the Trustees is a director, officer, employee,
security holder, associate, affiliate or fiduciary of the other party to such
contract or transaction, or is otherwise directly or indirectly interested in
or affected by such contract or transaction.
SECTION 12. NON-LIABILITY OF TRUSTEES. No Trustee
shall be subject to any personal liability whatsoever, in tort, contract or
otherwise, to any other person or persons, in connection with the Trust
Property or the affairs of the Trust or by reason of any act, omission or error
of any other Trustee or of any agent or employee of the Trust, or of any
independent contractor engaged by the Trust, or for any act, omission or error
made by him in good faith in the conduct of his duties as Trustee, and all such
other persons shall look solely to the Trust Property for satisfaction of
claims of any nature arising in connection with the affairs of the Trust, but
any Trustee shall be personally liable for his own acts, omissions or errors if
they constitute bad faith, willful misfeasance, gross negligence or reckless
disregard of his duties. The Trustees shall be entitled to rely on opinions,
certificates or advice of independent certified public accountants or of
counsel in making determinations relating to accounting or legal matters and on
verified or certified accounts of independent contractors engaged by the Trust.
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SECTION 13. INDEMNIFICATION OF TRUSTEES AND OFFICERS.
(a) Right to Indemnification. Each
individual who was or is made a party or is threatened to be made a party to or
is involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative ("Proceeding"), by reason of the fact that he,
or an individual for whom he is the legal representative, is or was a Trustee
or officer of the Trust, or is or was serving at the request of the Trust as a
director, trustee, officer, employee or agent of another entity (including
service with respect to an employee benefit plan), whether the basis of such
Proceeding is alleged action in an official capacity as a Trustee, officer,
employee or agent or in any other capacity while serving as a director,
trustee, officer, employee or agent, shall be indemnified and held harmless by
the Trust to the fullest extent permitted by Maryland law (the "Law"), as the
same exists or hereafter may be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Trust to provide
broader indemnification rights than the Law permitted the Trust to provide
prior to such amendment) against all expenses, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid or to be paid in settlement) (collectively "Losses") reasonably incurred
or suffered by such individual in connection therewith. Such right shall
include the right to be reimbursed by the Trust to the fullest extent permitted
by the Law for expenses incurred in defending any such Proceeding in advance of
its final disposition.
(b) Right of Claimant to Bring Suit.
If a claim under Paragraph (a) of this Section is not paid in full by the Trust
within 90 days after a written claim has been received by the Trust, the
claimant may at any time thereafter bring suit against the Trust to recover the
unpaid amount of the claim and, if successful in whole or in part, the claimant
shall be entitled to be paid also the expense of prosecuting such claim. It
shall be a defense to any such action that the claimant has not met any
applicable standard of conduct under the Law which makes it permissible for the
Trust to indemnify the claimant for the amount claimed, but the burden of
proving such defense shall be on the Trust.
(c) Non-Exclusivity of Rights. The
rights conferred on an individual by Paragraphs (a) and (b) of this Section
shall not be exclusive of any other right which such individual may have or
hereafter acquire under any statute, provision of the Declaration of Trust,
agreement, vote of Shareholders or disinterested Trustees or otherwise.
(d) Insurance. The Trust may
purchase and maintain insurance, at its expense, to protect itself and any
Trustee, officer, employee or agent of the Trust, any other person, against any
Losses, to the fullest extent permitted by Law.
(e) Limitation on Source of
Indemnity. No Trustee, officer, employee or agent may satisfy any right of
indemnity or reimbursement granted herein or to which he may be otherwise
entitled except out of the Trust Property, and no Shareholder shall be
personally liable to any Person with respect to any claim for indemnity or
reimbursement or otherwise.
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SECTION 14. PERSONS DEALING WITH THE TRUSTEES.
Persons dealing in good faith with the Trust shall be entitled to rely upon the
authority of the Trustees, officers, employees and agents of the Trust to the
same extent as if the Trust were a corporation and the Trustees, officers,
employees and agents of the Trust were directors, officers, employees and
agents, respectively, of such corporation.
SECTION 15. THE INVESTMENT ADMINISTRATOR. The
Trustees may contract for the services of a firm or corporation (including
without limitation, Investors Central Management Corporation) as Investment
Administrator of the Trust to assist the Trustees in the management and
administration of the affairs of the Trust. Any such contract shall provide
for an initial term of not longer than two years. Any such contract shall
provide that it may be terminated at any time without penalty, upon not more
than 60 days' written notice, by vote of a majority of the Trustees or by vote
of the holders of a majority of the outstanding Shares. Any such contract
shall provide that, if the Investment Administrator acts as investment
administrator or adviser for any Person other than the Trust, the Investment
Administrator shall be required to act on a basis which is fair and reasonable
to the Trust and the Shareholders in selecting, from among the investment
opportunities that come to the Investment Administrator, those investment
opportunities which it offers to the Trust, and that the Investment
Administrator shall furnish upon demand of any two or more Trustees such
information as such Trustees deem necessary or desirable with respect to
transactions by the Investment Administrator with such Person involving
investments of the type customarily made by the Trust, and if the Investment
Administrator recommends to any such Person an investment of more than $500,000
of the type customarily made by the Trust, the Investment Administrator shall
offer the Trust the right to participate in such an Investment in an amount up
to 25% of such investment.
SECTION 16. INDEPENDENCE OF TRUSTEES. Not more than
49% of the total number of Trustees may be Affiliates of the Investment
Administrator nor may more than 49% of the total number of Trustees of any
committee thereof be Affiliates of the Investment Administrator; PROVIDED,
HOWEVER, that, if at any time the percentage of all Trustees who are Affiliates
of the Investment Administrator becomes more than 49% of the Trustees because
of the death, resignation, removal or change in affiliation of a Trustee who is
not such an Affiliate, such requirement shall not be applicable for a period of
60 days, during which time a majority of the Trustees then in office shall
appoint a sufficient number of other individuals as Trustees so that there is
again not more than 49% of the total number of all Trustees who are Affiliates
of the Investment Administrator. The Trustees shall at all times endeavor to
comply with such requirement, but failure so to comply shall not affect the
validity or effectiveness of any action of the Trustees. No investment
recommended to the Trust by the Investment Administrator shall be made by the
Trust at a time when a Trustee is an Affiliate of the Investment Administrator
unless each such investment has been approved or ratified by a majority of the
Trustees of the Trust, including a majority of the Trustees not Affiliates of
the Investment Administrator, whether such Trustees are acting as a committee
of the Trustees, or otherwise.
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SECTION 17. THE CUSTODIAN. The Trustees may contract
for the services of one or more banks or trust companies to hold all or any
part of the moneys, securities or other instruments constituting or evidencing
the Trust Property. The agreement with such bank or trust company may provide
that title to all or any part of said securities or other instruments shall all
be held for the Trust in the name of a nominee of such bank or trust company.
SECTION 18. CONCERNING THE TRUST, THE INVESTMENT
ADMINISTRATOR, INDIVIDUALS, ETC. Notwithstanding any other provisions of this
Declaration, the Trustees may not knowingly, directly or indirectly, lend any
of the Trust Property to, purchase or otherwise acquire any property whatsoever
(other than securities of the Trust) from, sell or otherwise transfer any
property whatsoever (other than securities of the Trust) to, contract with, or
pay any commission or other remuneration, directly or indirectly in connection
with the purchase or sale of Trust assets to (a) any Trustee, officer or
employee of the Trust (acting in their individual capacities), (b) the
Investment Administrator, (c) any corporation, partnership, trust or other
organization with which a Trustee, any officer or employee of the Trust, the
Investment Administrator, any independent contractor to the Trust or any
officer, director or employee of the Investment Administrator or any such
independent contractor to the Trust is an Affiliate, or (d) any officer,
director or employee (acting in their individual capacities) of the Investment
Administrator, of any Affiliate of the Investment Administrator or of any
independent contractor to the Trust; except that the Trustees shall be entitled
to engage in any transaction on behalf of the Trust notwithstanding any such
affiliation, provided (i) each such transaction has been approved or ratified
after full disclosure of such affiliation, by a majority of the Trustees of the
Trust, including a majority of the Trustees who are not Affiliates of any
Person (other than the Trust) who is a party to the transaction, whether such
Trustees are acting as a committee of the Trustees or otherwise and (ii) the
Trustees approving the transaction have determined that such transaction is
fair and reasonable to the Trust and its Shareholders and that such transaction
is on terms not less favorable to the Trust than terms available for a
comparable transaction with others that are not so affiliated, and (iii) if
such transaction with such Persons relates to: (x) the acquisition by the
Trust of federally insured or guaranteed mortgages, it shall be effected at
prices not exceeding the currently quoted prices at which the Federal National
Mortgage Association is committing to purchase comparable mortgages; (y) the
acquisition by the Trust of other mortgages on terms not less favorable to the
Trust than similar transactions involving Persons that are not so affiliated;
or (z) the acquisition by the Trust of other property, it shall be effected at
prices not exceeding the fair value thereof as determined by independent
appraisal. The simultaneous acquisition by the Trust and the Investment
Administrator or any Affiliate of the Investment Administrator of
participations in a loan or other investment shall not be deemed to constitute
an acquisition of property by one of them from the other, provided that the
terms, other than the size of the participation, are not less favorable to the
Trust than to such other Person.
Any Trustee or officer, employee or agent of the
Trust may acquire, own, hold and dispose of securities of the Trust, for his
individual account, and may exercise
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all rights of a holder of such securities to the same extent and in the same
manner as if he were not such a Trustee or officer, employee or agent. The
Trustees shall use their best efforts to obtain through an Investment
Administrator or other Persons a continuing and suitable investment program,
consistent with the investment policies and objectives of the Trust, and the
Trustees shall be responsible for reviewing and approving or rejecting
investment opportunities presented by the Investment Administrator or such
other Persons. So long as there is such Investment Administrator or other
Person, the Trustees shall have no responsibility for the origination of
investment opportunities for the Trust. Any Trustee or officer, employee, or
agent of the Trust may, in his personal capacity, or in a capacity of trustee,
officer, director, stockholder, partner, member, adviser or employee of any
Person, have business interests and engage in business activities in addition
to those relating to the Trust, which interests and activities may be similar
to those of the Trust and include the acquisition, syndication, holding,
management, operation or disposition, for his own account or for the account of
such Person, of interests in mortgages, interests in real property, or
interests in Persons engaged in the real estate business, and each Trustee,
officer, employee and agent of the Trust shall be free of any obligation to
present to the Trust any investment opportunity which comes to him in any
capacity other than as Trustee, officer, employee or agent of the Trust, even
if such opportunity is of a character which, if presented to the Trust, could
be taken by the Trust, PROVIDED, HOWEVER, that the provisions of this sentence
shall not extend to any of the following who is not acting as a trustee,
officer, director, stockholder, partner, member, adviser or employee of any
Person but is acting for his own personal account: (A) to any of such Trustees
or agents of the Trust who are Affiliates of the Investment Administrator, (B)
to any officer or employee of the Trust or (C) at a time when there is no such
Investment Administrator or other Person providing an investment program for
the Trust as aforesaid, to any Trustee of the Trust. Each Trustee shall
disclose any interest he has, and any interest known to him of any Affiliate of
his, in any investment opportunity presented to the Trust. Subject to the
provisions of Article II, Section 16 and this Section 18, any Trustee or
officer, employee or agent of the Trust may be interested as trustee, officer,
director, stockholder, partner, member, adviser or employee of, or otherwise
have a direct or indirect interest in, any Person who may be engaged to render
advice or services to the Trust, and may receive compensation from such Person
as well as compensation as Trustee, officer, employee or agent of the Trust or
otherwise hereunder. None of the activities referred to in, and permitted by,
this paragraph shall be deemed to conflict with his duties and powers as
Trustee, officer, employee or agent of the Trust. The Trust shall not pay any
commissions or other remuneration in connection with the acquisition of Trust
assets to the Investment Administrator or so long as such remuneration is
compensation provided for in the contract with the Investment Administrator.
SECTION 19. APPRAISALS. The Trustees shall obtain as
and when required by Section 18 of this Article II and otherwise when they deem
the same necessary, appropriate or desirable an appraisal from an independent,
qualified appraiser with respect to each acquisition of the Trust of a real
property interest and, where such an appraisal is obtained, shall not acquire
any such real property interest for an amount greater than its appraised value.
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SECTION 20. BROKERAGE COMMISSIONS. Without limiting
the provisions of Article II, Section 18, the Investment Administrator may
receive brokerage commissions for services rendered in the acquisition by the
Trust of Trust assets provided that:
(a) such commissions are paid by
the sellers of the assets and not by the Trust;
(b) after giving effect to such
commissions, the purchase price of such asset does not exceed the fair market
value thereof as determined (except for mortgages) by an independent, qualified
appraiser;
(c) such commissions are no greater
in amount than brokerage commissions customarily paid with respect to the
acquisition of similar assets; and
(d) no such commission may be
received by the Investment Administrator in respect to the sale, exchange or
other disposition of Trust assets.
SECTION 21. FINANCIAL ARRANGEMENTS. The Trustees
shall have the power to borrow or in any other manner raise such sum or sums of
money or other property as they shall determine in any amount and in any manner
and on any terms and to execute and deliver any mortgage, pledge, note or other
obligation, undertaking or instrument to secure such borrowing; PROVIDED,
HOWEVER, that upon and immediately after giving effect to any proposed
borrowing, the amount of "outstanding indebtedness" of the Trust in respect to
its borrowings may not exceed 300% of the Net Assets of the Trust. The term
"outstanding indebtedness" as used in the preceding sentence shall include all
direct obligations of the Trust for borrowed money, whether secured or
unsecured, and all indebtedness to which the properties of the Trust are
subject which would be required to be shown as liabilities of the Trust on a
balance sheet of the Trust prepared in accordance with generally accepted
accounting principles. The Trustees shall not issue any debt securities to the
public unless the historical cash flow of the Trust or the substantiated
further cash flow of the Trust is sufficient in the judgement of the Trustees
to service such indebtedness.
ARTICLE III.
THE SHARES
SECTION 1. SHARES. The Units into which the
beneficial interest in the Trust are divided shall be known as "Shares."
Certificates evidencing ownership of the Shares shall be in such form and
signed on behalf of the Trust in such manner as the Trustees may from time to
time prescribe. The registered holders of Shares, shown on the register
maintained pursuant to Section 4 of this Article III, shall be known as
"Shareholders." Shareholders shall take and hold their Shares subject to all
of the terms and provisions of this Declaration, as amended from time to time.
The Trustees shall be
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authorized to issue up to 10,000,000 Shares, each having a par value of $1.00
per Share. The Trustees shall have the power to classify or reclassify any
unissued Shares from time to time by setting or changing the preference,
conversion or other rights, voting powers, restrictions, limitation as to
dividends, qualifications, or terms or conditions of redemption of the Shares.
Shares currently issued and outstanding shall not be subject to call or
redemption, except as provided in Section 6 of this Article III.
SECTION 2. OWNERSHIP OF TRUST PROPERTY. The Trustees
shall have the ownership, both legal and equitable, of the Trust Property. The
Shareholders shall have no legal or equitable title in or to the Trust Property
and shall have no right to a partition thereof or to an accounting of the
income or profits therefrom during the continuance of the Trust. Shareholders
shall have only the rights provided for in this Declaration and in the
Trustees' Regulations.
SECTION 3. SHARES DEEMED PERSONAL PROPERTY. The
Shares shall be personal property. The death, insolvency or incapacity of a
Shareholder during the continuance of the Trust shall not terminate the Trust
or give the legal representative of such Shareholder any right to any partition
or accounting with respect to the Trust Property or any income or profits
therefrom, or to take any action in the courts or otherwise against other
Shareholders or the Trustees or the Trust Property, but shall simply entitle
such legal representative to demand and, subject to any requirements of law, to
receive a new certificate representing Shares in place of the certificate held
by said Shareholder, upon the receipt of which such legal representative shall
succeed to all the rights of the said Shareholder under this Declaration.
SECTION 4. SHARE REGISTER. A register shall be kept
by or on behalf of the Trustees, under the direction of the Trustees, which
shall contain the names and addresses of the Shareholders, the number of Shares
held by each of them, the number of the certificates representing such Shares
and a record of all transfers thereof. The persons in whose names the Shares
are recorded on said register shall be deemed the absolute owners thereof, and
only such persons shall be entitled to vote or to receive dividends or
distributions, or otherwise to exercise or enjoy the rights of Shareholders.
No Shareholder shall be entitled to receive payment of any dividend or
distribution, or to have any notice given to him as herein provided, until he
has given his address to such employee or agent of the Trust as shall keep the
said register for entry thereon.
SECTION 5. TRANSFER OF SHARES. Shares shall be
transferable only on the aforesaid Share register and only by the record holder
thereof or by his agent thereunto duly authorized in writing, upon delivery to
the Trustees, or to a transfer agent of the Trust, of the certificate or
certificates therefor, properly endorsed or accompanied by a duly executed
instrument of transfer, together with such evidence of authority and of the
genuineness of signatures of other matters, as may reasonably be required.
Upon such delivery the transfer shall be recorded on the Share register and a
new certificate for the Shares so transferred shall be issued to the
transferee, and in case of a transfer of a part only of the Shares
15
<PAGE> 16
represented by any certificate a new certificate for the remainder thereof
shall be issued to the transferor. Until a transfer is recorded on the Share
register, the Shareholder of record shall be deemed for all purposes hereof to
be the holder of the Shares otherwise subject to such transfer, and neither the
Trustees nor any transfer agent or registrar nor any employee or agent of the
Trust shall be affected by any notice or information to the contrary.
Notwithstanding the foregoing, the Trustees, or any transfer agent of the
Trust, shall not be required to accept for transfer or issue a new certificate
for any Shares delivered for such transfer where the Trustees, in good faith,
believe that a transfer of such Shares will or could result in the loss of the
status of the Trust as a "real estate investment trust" within the meaning of
Part II, Subchapter M, Chapter 1 of Subtitle A of the Internal Revenue Code of
1954, as it may from time to time be amended.
The Trustees shall not, nor shall any
employee, transfer agent or other agent of the Trust, be bound to ascertain or
inquire as to the authorization, execution, validity or enforceability of any
trust, charge, pledge, lien or equity to which any of the Shares of the Trust
may be subject, or to ascertain or inquire whether any sale or transfer of any
such Shares is authorized by such trust, charge, pledge, lien or equity, or to
recognize any person as having any interest in Shares except the persons
recorded as Shareholders on the Share register.
SECTION 6. REDEMPTION OF SHARES. If the Trustees
shall, at any time and in good faith, be of the opinion that the direct or
indirect ownership of Shares has or may become concentrated to an extent which
is contrary to the requirements of Section 856(a)(6) of the Internal Revenue
Code of 1954, as it may from time to time be amended, the Trustees may, by any
means deemed equitable by them, call for the redemption of a number of such
Shares sufficient, in their opinion, to maintain or bring the direct or
indirect ownership of Shares into conformity with the requirements of said
Section 856(a)(6). The redemption price shall be determined in good faith by
the Trustees. From and after the date fixed for redemption by the Trustees,
the holder of any Shares so called for redemption shall cease to be entitled to
dividends, voting rights and other benefits with respect to such Shares
excepting only the right to payment of the redemption price fixed as aforesaid.
Shares redeemed in accordance with this Section 6 shall be cancelled. To the
extent that any redemption under the provisions of this Section 6 results in
authorized but unissued Shares, the Trustees may issue the authorized but
unissued Shares in accordance with the provisions of Sections 3(8) and 4(f) of
Article II, except that the Trustees shall not be required to issue the Shares
ratably if such issuance would result in a concentration of Shares contrary to
the provisions of Section 856(a)(6) of the Internal Revenue Code of 1954, as it
may from time to time be amended.
SECTION 7. NOTICE TO SHAREHOLDERS. Any and all
notices and communications to Shareholders shall be deemed duly served or given
if mailed, postage prepaid, addressed to Shareholders of record at their last
known post office address as recorded on the Share register.
16
<PAGE> 17
SECTION 8. LOST CERTIFICATES. In case of the loss,
mutilation, or destruction of any certificate for Shares, the Trustees may
issue or cause to be issued a new certificate on such terms as they may see
fit.
SECTION 9. FRACTIONAL SHARES. In connection with any
issuance of Shares, the Trustees may issue fractional Shares and may provide
for the issuance of scrip evidencing such fractional Shares, on such terms as
they deem advisable including, without limitation, the time within which any
such scrip must be surrendered for exchange into full Shares and the rights, if
any, of holders of scrip upon the expiration of the time so fixed, the rights,
if any, to receive dividends thereon and the rights, if any, to redeem scrip
for cash. The Trustees may in their discretion provide in lieu of issuing
fractional Shares or scrip for the cash adjustment of any fractions resulting
from the issuance of Shares. The provisions of this Article III relative to
certificates of Shares shall apply so far as applicable to such scrip, except
that such scrip may in the discretion of the Trustees be signed by a transfer
agent alone.
SECTION 10. TRANSFER AGENT. The Trustees shall have
power to employ in the City of Baltimore, Maryland, the City of New York, New
York, and/or in any other city, a transfer agent or transfer agents and, if
they so determine, a registrar or registrars. The transfer agent or transfer
agents may keep the register and record therein the original issues and
transfers of Shares and countersign certificates for Shares issued to the
persons entitled thereto. Any such transfer agents and registrars shall
perform the duties usually performed by transfer agents and registrars of
certificates of stock in a corporation, except as modified by the Trustees.
SECTION 11. BLANK CERTIFICATES. In accordance with
the usual custom of corporations having a transfer agent, signed certificates
for Shares in blank may be deposited with any transfer agent of the Trust, to
be used by such transfer agent in accordance with authority conferred upon it
as occasion may require, and in so doing the signers of such certificates shall
not be responsible for any loss resulting therefrom.
SECTION 12. FACSIMILE SIGNATURES. The Trustees may
authorize the use of facsimile signatures on Shares or securities of the Trust,
PROVIDED, HOWEVER, that where facsimile signatures are used, one of the
authorized signatures be manual or the Shares or securities be manually
countersigned or authenticated by a transfer agent or registrar or by an
authenticating agent or trustee or similar person.
ARTICLE IV.
SHAREHOLDERS
SECTION 1. MEETINGS. There shall be an annual
meeting of the Shareholders of the Trust in Baltimore, Maryland, or New York,
New York, at such time and place as the Trustees' Regulations shall prescribe,
at which (i) the Trustees shall make a report as to the business, operations,
financial conditions, and Property of the Trust, (ii) Trustees shall be
17
<PAGE> 18
elected, and (iii) any other appropriate business may be conducted. Special
meeting of Shareholders may be called as specified in the Trustees' Regulations
and shall be called by any Trustee or officer of the Trust upon the written
request of Shareholders holding not less than 25% of the outstanding Shares of
the Trust. A majority of the outstanding Shares represented in person or by
proxy shall constitute a quorum at any meeting.
SECTION 2. NOTICE OF MEETINGS. Notice of all
meetings of Shareholders shall be given by mail to each Shareholder; such
notice shall be mailed at least ten days prior to the meeting. No business
shall be transacted at any special meeting of Shareholders unless notice of
such business has been given in the notice of the meeting. Any adjourned
meeting may be held as adjourned without further notice.
SECTION 3. VOTING. Shareholders shall be entitled to
vote on the election and removal of Trustees and as provided in Article V, but
on no other matters. Shareholders may vote by proxy. Each Shareholder shall
be entitled to as many votes in the election of Trustees as shall equal the
number of Shares owned by him multiplied by the number of Trustees to be
elected, and each such Shareholder may cast all of such votes for a single
candidate for Trustee or may distribute them among any two or more of such
candidates as such Shareholder may determine in his discretion. The candidates
receiving the highest number of votes, up to the number of Trusteeships to be
filled in the election, shall be elected.
SECTION 4. RECORD DATE. For the purpose of
determining the Shareholders who are entitled to vote or act at any meeting, or
who are entitled to participate in any dividend, the Trustees may from time to
time close the Share register for such period, not exceeding twenty (20) days,
prior to the meeting as the Trustees may determine; or without closing said
register the Trustees may fix a date not more than forty-five (45) days prior
to the date of any meeting of Shareholders or dividend payment as a record date
for the determination of Shareholders entitled to vote at such meeting or to
receive such dividend and any shareholder who was a Shareholder at the time so
fixed shall be entitled to vote at such meeting or to receive such dividend
even though he has since that date disposed of his Shares, and no Shareholder
becoming such after said date shall be so entitled to vote at said meeting or
to receive such dividend. The provisions of this Section 4 shall be applicable
to distributions of Trust Property in like manner as to the payment of
dividends.
SECTION 5. REPORTS TO SHAREHOLDERS. Within ninety
days after the end of each fiscal year and prior to the Annual Meeting of
Shareholders, the Trustees shall transmit to the Shareholders and public
debentureholders, to appropriate Federal and State authorities which so
require, and to such others as the Trustees may deem necessary, appropriate or
desirable, a report or reports which shall contain: (i) a statement as to the
activities of the Trust during such fiscal year; (ii) financial statements
including a balance sheet, and statements of income and undistributed income
and changes in financial position, all prepared in accordance with generally
accepted accounting principles; and (iii) such other information as may, in the
opinion of the Trustees, be of material interest to Shareholders and public
18
<PAGE> 19
debentureholders. Such financial statements shall be certified by a firm of
independent certified public accountants of nationally recognized standing.
Within sixty days after the close of each of the first three quarters of each
fiscal year, the Trustees shall transmit a balance sheet, and statements of
income and undistributed income and other pertinent information to the
Shareholders and public debentureholders, to such Federal and State authorities
which so require and to such others as the Trustees may deem necessary,
appropriate or desirable, which financial statements shall be certified by the
chief financial officer of the Trust but need not be audited or certified by
independent certified public accountants.
SECTION 6. REPORTS BY SHAREHOLDERS. Each Shareholder
shall, upon request by the Trustees, furnish such information including,
without limitation, information as to the actual ownership of the Shares held
by it, as the Trustees may require in order to comply with the requirements of
Part II, Subchapter M, Chapter 1 of Subtitle A of the Internal Revenue Code of
1954, as it may from time to time be amended, and any regulations issued
thereunder.
SECTION 7. DISTRIBUTIONS. The Trustees may, from
time to time, declare and pay to the Shareholders such distributions in cash,
Shares, fractional Shares, scrip or in kind out of the Trust Property, as the
Trustees in their sold discretion shall deem appropriate or desirable,
including, but not limited to, amounts sufficient, in their opinion, to enable
the Trust to reduce or eliminate any liability of the Trust for federal income
tax in respect to any fiscal year. Each distribution in cash or property shall
be accompanied by a written communication advising whether the cash or property
so distributed will be treated, in the hands of the Shareholders, as capital
gains, ordinary income or return of capital for federal income tax purposes;
provided, however, that in case there shall be any doubt as to such treatment,
such communication may so state, in which event the Shareholders shall be
advised as to such treatment not later than sixty days after the close of the
fiscal year in which the distribution was made.
SECTION 8. NON-LIABILITY OF SHAREHOLDERS. The
Shareholders shall not be liable to assessment by or on behalf of the Trust,
and the Trustees shall have no power to bind the Shareholders personally. The
Shareholders shall not be personally liable upon any claim against or
obligation of the Trust or any Trust Property, the Trustees, or any employee or
agent of the Trust, whether founded upon contract, tort, or otherwise, and
whether civil or criminal, private or public. Resort shall not be had to the
private property of any Shareholder for the satisfaction of any such debt,
claim, demand, judgment, decree or obligation.
SECTION 9. NOTICE OF NON-LIABILITY OF SHAREHOLDERS
AND TRUSTEES. The Trustees shall use every reasonable means to assure that all
persons having dealings with the Trust shall be informed that the private
property of the Shareholders and the Trustees shall not be subject to claims
against and obligations of the Trust to any extent whatever. The Trustees
shall cause to be inserted in every agreement under which substantial
obligations are
19
<PAGE> 20
assumed on behalf of the Trust an appropriate provision to the effect that the
Shareholders and the Trustees shall not be personally liable thereunder, and
that all parties concerned shall look solely to the Trust Property for the
satisfaction of any claim thereunder, and appropriate reference shall be made
to this Declaration. The omission of such a provision from any such agreement
or the failure to use any other means of giving such notice shall not, however,
render the Shareholders or the Trustees personally liable or affect the
validity of any such agreement.
SECTION 10. INDEMNIFICATION OF SHAREHOLDERS. The
Trust shall indemnify and hold each Shareholder harmless against all claims and
liabilities, whether they proceed to judgment or are settled or otherwise
brought to a conclusion, to which such Shareholder may become subject by reason
of his being or having been a Shareholder of the Trust, and shall reimburse him
for all legal and other expenses reasonably incurred by him in connection with
any such claim or liability. The rights accruing to a Shareholder under this
Section shall not exclude any other right to which he may be lawfully entitled,
nor shall anything herein contained restrict the right of the Trust to
indemnify or reimburse a Shareholder in any appropriate situation even though
not specifically provided herein.
SECTION 11. INSURANCE. The Trustees shall maintain or
cause to be maintained such insurance as is adequate and appropriate, in their
opinion, to insure the Trust and its real property interests and other assets
against loss, damage or liability.
SECTION 12. INSPECTION OF RECORDS. Shareholders and
appropriate Federal and State authorities which so require shall be entitled to
inspect the books of account of the Trust and the Share register during normal
business hours under such reasonable conditions as may be established by the
Trustees.
ARTICLE V.
AMENDMENT AND TERMINATION
SECTION 1. AMENDMENT. The provisions of this
Declaration may at any time be amended (except as to the exemption from
personal liability of Shareholders and the prohibition of assessments upon
Shareholders) by the action of a majority of the Trustees in office taken in
the manner provided in Section 8 of Article II, PROVIDED, HOWEVER, that no such
amendment shall be effective until consented to by the holders of not less than
two-thirds of the Shares then outstanding at a meeting of Shareholders called
for such purpose or consented to in writing by the holders of not less than
two-thirds of the Shares then outstanding, and, PROVIDED FURTHER, HOWEVER, that
the Trustees may, from time to time by a two-thirds vote of the Trustees, amend
or alter the provisions of this Declaration without the vote or consent of the
Shareholders to the extent deemed by the Trustees in good faith to be necessary
to meet the requirements for a real estate investment trust pursuant to the
Internal Revenue Code of 1954, as amended, the regulations thereunder, or any
interpretation thereof by a court or other governmental agency of competent
jurisdiction.
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<PAGE> 21
SECTION 2. TERMINATION. This Trust may at any time
be terminated by the action of a majority of the Trustees in office taken in
the manner provided in Section 8 of Article II, PROVIDED, HOWEVER, that no such
termination shall be effective until consented to by the holders of not less
than two-thirds of the Shares then outstanding at a meeting of Shareholders
called for such purpose. Notwithstanding any other provision hereof, until the
Shares of this Trust are issued, the Trust may be terminated or the provisions
of this Declaration amended in any respect by the Trustees. The powers of the
Trustees shall continue until the affairs of the Trust have been wound up. In
connection with the termination of the Trust, the Trustees, upon receipt of
such releases or indemnities as they may deem necessary, appropriate or
desirable for their protection may (i) sell and convert into cash the Trust
Property and distribute the net proceeds thereof among the Shareholders
ratably; or (ii) convey the Trust Property to one or more corporations, trusts,
partnerships, associations or other organizations for consideration consisting
in whole or in part of cash, securities or other assets of any kind, and after
providing for all outstanding obligations and commitments of the Trust,
distribute such consideration among the Shareholders ratably at valuations
fixed by the Trustees. Upon discharge of all obligations and commitments of
the Trust and distribution to Shareholders as herein provided, a majority of
the Trustees may execute and lodge among the records of the Trust, and file in
all governmental offices where such filing is required and in such places as
they may deem necessary, appropriate or desirable, a written certificate or
instrument stating that the Trust has been terminated, and upon such execution
of such certificate or instrument, the Trustees shall be discharged from all
further liabilities and duties hereunder, all rights of Shareholders under this
Declaration shall cease, and the Trust shall be deemed conclusively to be
terminated.
ARTICLE VI.
MISCELLANEOUS
SECTION 1. DEFINITIONS. The following terms shall
have the meaning set forth below when used in this Declaration:
(a) The term "securities" shall mean
and include shares of stock of any class, notes, debentures, bonds,
obligations, certificates of indebtedness, certificates of interest or
participation, certificates of deposit, options, warrants, rights, or any other
interest or instrument commonly known as a "security".
(b) The term "real property
interests" shall mean and include all interests, of every kind and description
in and to real estate (including air space above the surface of the ground) or
any buildings, improvements or structures thereon.
(c) The terms "Property of the Trust"
and "Trust Property" shall mean and include all moneys, securities, real
property interests and other assets of every kind and description, whether real
or personal, belonging to the Trust or in which the Trust may have any
beneficial interest, directly or indirectly.
21
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(d) The term "Affiliate" shall mean
as to any corporation, partnership or trust any Person which (a) holds
beneficially, directly or indirectly, 1% or more of the outstanding capital
stock, shares or equity interests of such corporation, partnership or trust,
(b) is an officer, director, employee, partner or trustee of such corporation,
partnership or trust or of any Person which controls, is controlled by, or
under common control with, such corporation, partnership or trust, or (c)
controls, is controlled by, or under common control with, such corporation,
partnership or trust.
(e) The term "Total Assets of the
Trust" shall mean the aggregate amount of all of the assets of the Trust
Property appearing on the most recent balance sheet of the Trust, prepared in
accordance with generally accepted accounting principles, without deduction for
indebtedness secured by mortgages or other security interests to which such
assets are subject and without deduction, if any, for accumulated depreciation
and amortization and other asset valuation reserves.
(f) The term "Net Assets of the
Trust" shall mean Total Assets of the Trust less all liabilities which would be
required to be shown on a balance sheet of the Trust prepared in accordance
with generally accepted accounting principles.
(g) The term "Person" shall mean and
include individuals, corporations, limited partnerships, general partnerships,
joint stock companies, joint ventures, associations, companies, trusts, banks,
trust companies, land trusts, business trusts, or other organizations whether
or not legal entities and governments and agencies and political subdivisions
thereof.
(h) The term "Investment
Administrator" shall mean any Person appointed, employed or contracted with by
the Trustees pursuant to the provisions of Article II, Section 15, but shall
not include a trust, corporation or other business entity, or the officers,
directors or trustees thereof, where such trust, corporation, or other business
entity has officers, offices and other personnel and facilities in common with
the Trust and may or may not be reimbursed by the Trust for expenses incurred
on behalf of the Trust but does not receive any fee for advising the Trust or
managing the assets of the Trust.
(i) The term "unimproved real
property" shall mean all real property upon which there are no improvements
existing or under construction except real property (i) which is subject to a
lease or mortgage granted by the Trust which covers both improved real property
and such unimproved real property or (ii) for which a firm mortgage commitment
has been obtained from a Person other than the Trust to provide funds for the
construction of improvements thereon.
SECTION 2. APPLICABLE LAW. This instrument has been
executed by the Trustees to take effect in the State of Maryland, and the
rights, duties and obligations of the Trustees, the Shareholders, and all other
parties, if any, claiming hereunder, and the construction, validity and effect
of every provision hereof, and the administration of the Trust created hereby,
shall be subject to and construed according to the laws of that State.
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SECTION 3. COUNTERPARTS. This Declaration may be
executed in several counterparts, each of which when so executed shall be
deemed to be an original, and such counterparts, together, shall constitute but
one and the same instrument, which shall be sufficiently evidenced by any such
counterpart.
SECTION 4. HEADINGS FOR REFERENCE ONLY. Headings
preceding the text of the articles and sections hereof have been inserted
solely for convenience and reference and shall not be construed to affect the
meaning, construction or effect of any provision of this Declaration.
SECTION 5. DURATION. Unless this Trust shall be
terminated in accordance with the provisions of Section 2 of Article V, it
shall have perpetual existence.
SECTION 6. SEVERABILITY. If any provision of this
Declaration shall be held invalid or unenforceable in any jurisdiction, such
invalidity or unenforceability shall attach only to such provision in such
jurisdiction and shall not in any manner affect or render invalid or
unenforceable such provision in any other jurisdiction or any other provision
of this Declaration in any jurisdiction.
SECTION 7. RECORDATION. This Declaration and any
amendment hereto shall, as soon as reasonably practicable after its execution
or adoption, be filed in the Department of Assessments and Taxation of the
State of Maryland. The Trustees shall also cause to be filed in all other
offices in which recording of this Declaration or any amendment hereto shall be
necessary, desirable or appropriate, this Declaration and all amendments
hereto. Any such filing shall not be deemed a condition to the effectiveness
of, and the failure so to file shall not be deemed to invalidate, this
Declaration and any such amendment.
23
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EXHIBIT 5
JAECKLE, FLEISCHMANN & MUGEL
A T T O R N E Y S A T L A W
FLEET BANK BUILDING TWELVE FOUNTAIN PLAZA BUFFALO, NEW YORK 14202-2292
TEL (716) 856-0600 FAX (716) 856-0432
December 22, 1995
EastGroup Properties
300 One Jackson Place
188 East Capitol Street
Jackson, Mississippi 39201-2195
Ladies and Gentlemen:
We are furnishing this opinion in connection with a
Registration Statement on Form S-4 (the "Registration Statement") filed by
EastGroup Properties ("EastGroup"), covering shares of beneficial interest,
$1.00 par value per share (the "Shares"), to be issued by EastGroup in
connection with the merger of EastGroup-LNH Corporation ("Sub") and LNH REIT,
Inc. ("LNH") under the terms of an Agreement and Plan of Merger dated as of
December 22, 1995 among EastGroup, Sub and LNH (the "Merger Agreement").
We have examined EastGroup's Restated Declaration of Trust, as
amended, and Trustees Regulations, as amended, such records of proceedings of
EastGroup as we deemed material, the Registration Statement and such other
documents as we deemed necessary for the purposes of this opinion.
Based on the foregoing, we are of the opinion that the Shares
have been duly authorized for issuance by all necessary corporate action and,
upon the issuance thereof in accordance with the terms of the Merger Agreement,
the Shares will be legally issued, fully paid and non-assessable.
Very truly yours,
JAECKLE, FLEISCHMANN & MUGEL
<PAGE> 1
- -------------------------------------------------------------------------------
EXHIBIT 10 (e)
AGREEMENT AND PLAN OF MERGER
between
COPLEY PROPERTIES, INC.
and
EASTGROUP PROPERTIES
Dated as of February 12, 1996
- -------------------------------------------------------------------------------
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
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<S> <C> <C>
ARTICLE 1. THE MERGER......................................................................................1
1.1 The Merger......................................................................................1
1.2 The Closing.....................................................................................2
1.3 Effective Time..................................................................................2
ARTICLE 2. CHARTER AND TRUSTEES REGULATIONS OF THE SURVIVING
CORPORATION.....................................................................................2
2.1 Charter.........................................................................................2
2.2 Trustees Regulations............................................................................2
ARTICLE 3. TRUSTEES AND OFFICERS OF THE SURVIVING CORPORATION..............................................2
3.1 Trustees........................................................................................2
3.2 Officers........................................................................................3
ARTICLE 4. EXCHANGE OF STOCK...............................................................................3
4.1 Conversion and Redemption of Stock..............................................................3
4.2 Exchange of Certificates Representing Copley Stock..............................................4
4.3 Return of Exchange Fund.........................................................................6
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF COPLEY........................................................6
5.1 Existence; Good Standing; Authority; Compliance With Law........................................6
5.2 Authorization, Validity and Effect of Agreements................................................7
5.3 Capitalization..................................................................................8
5.4 Subsidiaries....................................................................................8
5.5 Other Interests.................................................................................9
5.6 No Violation....................................................................................9
5.7 SEC Documents...................................................................................9
5.8 Litigation.....................................................................................10
5.9 Absence of Certain Changes.....................................................................10
5.10 Taxes..........................................................................................11
5.11 Books and Records..............................................................................12
5.12 Properties.....................................................................................12
5.13 Environmental Matters..........................................................................14
5.14 No Brokers.....................................................................................15
5.15 Opinion of Financial Advisor...................................................................15
5.16 Related Party Transactions.....................................................................15
5.17 Contracts and Commitments......................................................................15
5.18 Definition of Copley's Knowledge...............................................................16
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
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<S> <C> <C>
ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF BUYER........................................................16
6.1 Existence; Good Standing; Authority; Compliance With Law.......................................16
6.2 Authorization, Validity and Effect of Agreements...............................................17
6.3 Capitalization.................................................................................17
6.4 Subsidiaries...................................................................................18
6.5 Other Interests................................................................................18
6.6 No Violation...................................................................................18
6.7 SEC Documents..................................................................................19
6.8 Litigation.....................................................................................19
6.9 Absence of Certain Changes.....................................................................20
6.10 Taxes..........................................................................................20
6.11 Books and Records..............................................................................21
6.12 Properties.....................................................................................21
6.13 Environmental Matters..........................................................................22
6.14 No Brokers.....................................................................................23
6.15 Opinion of Financial Advisor...................................................................23
6.16 Copley Stock Ownership.........................................................................24
6.17 Related Party Transactions.....................................................................24
6.18 Contracts and Commitments......................................................................24
6.19 Buyer Stock....................................................................................24
6.20 Convertible Securities.........................................................................25
6.21 Definition of Buyer's Knowledge................................................................25
ARTICLE 7. COVENANTS......................................................................................25
7.1 Acquisition Proposals..........................................................................25
7.2 Conduct of Businesses..........................................................................26
7.3 Meetings of Stockholders.......................................................................30
7.4 Filings; Other ................................................................................31
7.5 Inspection of Records..........................................................................31
7.6 Publicity......................................................................................31
7.7 Registration Statement.........................................................................31
7.8 Listing Application............................................................................32
7.9 Further Action.................................................................................32
7.10 Affiliates of Copley...........................................................................32
7.11 Expenses.......................................................................................33
7.12 Indemnification and Insurance..................................................................33
7.13 Reorganization.................................................................................35
7.14 Redemption of Rights...........................................................................35
7.15 Payment of Advisory Fee........................................................................35
7.16 REIT Status....................................................................................35
ARTICLE 8. CONDITIONS.....................................................................................36
8.1 Conditions to Each Party's Obligation to Effect the Merger.....................................36
8.2 Conditions to Obligations of Copley to Effect the Merger.......................................37
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<CAPTION>
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<S> <C> <C>
8.3 Conditions to Obligation of Buyer to Effect the Merger.........................................38
ARTICLE 9. TERMINATION....................................................................................38
9.1 Termination....................................................................................38
9.2 Effect of Termination..........................................................................40
9.4 Extension; Waiver..............................................................................42
ARTICLE 10. GENERAL PROVISIONS.............................................................................42
10.1 Nonsurvival of Representations, Warranties and Agreements......................................42
10.2 Notices........................................................................................42
10.3 Assignment; Binding Effect; Benefit............................................................43
10.4 Entire Agreement...............................................................................44
10.5 Confidentiality................................................................................44
10.6 Amendment......................................................................................44
10.7 Governing Law..................................................................................44
10.8 Counterparts...................................................................................44
10.9 Headings.......................................................................................45
10.10 Waivers........................................................................................45
10.11 Incorporation..................................................................................45
10.12 Severability...................................................................................45
10.13 Interpretation and Certain Definitions.........................................................45
10.14 Schedules......................................................................................46
EXHIBIT A - Bermant/UBC Purchase and Sale Agreement
EXHIBIT B - Form of Affiliate Letter
EXHIBIT C - Quarterly Dividend Dates
EXHIBIT D - Proxy Agreement
</TABLE>
(iii)
<PAGE> 5
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and
entered into as of February 12, 1996 between Copley Properties, Inc., a Delaware
corporation which operates as a real estate investment trust ("Copley"), and
EastGroup Properties, a Maryland real estate investment trust ("Buyer").
RECITALS
A. The Board of Directors of Copley and the Board of Trustees of Buyer
each have determined that a business combination between Copley and Buyer is in
the best interests of their respective companies and stockholders and presents
an opportunity for their respective companies to achieve long-term strategic and
financial benefits, and accordingly have agreed to effect the merger provided
for herein upon the terms and subject to the conditions set forth herein.
B. It is intended that the merger provided for herein, for federal
income tax purposes, shall qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
and for financial accounting purposes shall be accounted for as a "purchase."
C. Copley and Buyer have each received a fairness opinion from their
respective financial advisors relating to the transactions contemplated hereby
as more fully described herein.
D. Copley and Buyer desire to make certain representations,
warranties and agreements in connection with the merger.
E. As a condition to the willingness of Copley to enter into this
Agreement, the principal stockholders of Buyer (the "Principal Stockholders")
have entered into a Proxy Agreement, dated as of the date hereof, with Copley
substantially in the form of EXHIBIT D attached hereto (the "Proxy Agreement"),
pursuant to which each of the Principal Stockholders has granted to Copley an
irrevocable proxy to vote his or its shares of Buyer Stock (as defined below) in
favor of the merger and all other actions necessary to consummate the merger,
upon the terms and subject to the conditions set forth in the Proxy Agreement.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE 1. THE MERGER
1.1 THE MERGER. Subject to the terms and conditions of this
Agreement, at the Effective Time (as defined in Section 1.3 hereof), Copley
shall be merged with and into Buyer
<PAGE> 6
in accordance with this Agreement and the separate corporate existence of Copley
shall thereupon cease (the "Merger"). Buyer shall be the surviving corporation
in the Merger (sometimes hereinafter referred to as the "Surviving
Corporation"). The Merger shall have the effects specified in Section 259 of the
Delaware General Corporation Law (the "DGCL"), Section 3-114 of the Maryland
General Corporation Law (the "MGCL") and Section 8-501.1 of the Maryland Real
Estate Investment Trust Law ("MDREIT Law").
1.2 THE CLOSING. Subject to the terms and conditions of this Agreement,
the closing of the Merger (the "Closing") shall take place (a) at the offices of
Hale and Dorr in Boston, Massachusetts, at 9:00 a.m., local time, on the first
business day immediately following the day on which the last of the conditions
set forth in Article 8 shall be fulfilled or waived in accordance herewith or
(b) at such other time, date or place as the parties hereto may agree. The date
on which the Closing occurs is hereinafter referred to as the "Closing Date."
1.3 EFFECTIVE TIME. If all the conditions to the Merger set forth in
Article 8 shall have been fulfilled or waived in accordance herewith and this
Agreement shall not have been terminated as provided in Article 9, the parties
hereto shall cause Articles of Merger satisfying the requirements of the MGCL
and MDREIT Law to be properly executed, verified and delivered for filing in
accordance with the MGCL and MDREIT Law on the Closing Date. The Merger shall
become effective upon the acceptance for record of the Articles of Merger by the
State Department of Assessments and Taxation of Maryland in accordance with the
MGCL and MDREIT Law or at such later time which the parties hereto shall have
agreed upon and designated in such filing in accordance with applicable law as
the effective time of the Merger (the "Effective Time").
ARTICLE 2. CHARTER AND TRUSTEES REGULATIONS OF THE SURVIVING
CORPORATION
2.1 CHARTER. The Restated Declaration of Trust, as amended (the
"Declaration of Trust") of Buyer in effect immediately prior to the Effective
Time shall be the Declaration of Trust of the Surviving Corporation, until duly
amended in accordance with applicable law.
2.2 TRUSTEES REGULATIONS. The Trustees Regulations of Buyer in effect
immediately prior to the Effective Time shall be the Trustees Regulations of
the Surviving Corporation, until duly amended in accordance with applicable law.
ARTICLE 3. TRUSTEES AND OFFICERS OF THE SURVIVING CORPORATION
3.1 TRUSTEES. The trustees of Buyer immediately prior to the
Effective Time, shall be the trustees of the Surviving Corporation as of the
Effective Time.
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<PAGE> 7
3.2 OFFICERS. The officers of Buyer immediately prior to the
Effective Time shall be the officers of the Surviving Corporation as of the
Effective Time.
ARTICLE 4. EXCHANGE OF STOCK
4.1 CONVERSION AND REDEMPTION OF STOCK.
(a) At the Effective Time, each share of beneficial interest,
par value $1.00 per share, of Buyer ("Buyer Stock") outstanding immediately
prior to the Effective Time shall remain outstanding and shall represent one
share of beneficial interest, par value $1.00 per share, of the Surviving
Corporation.
(b) At the Effective Time, the outstanding share of Class A
common stock, $1.00 par value per share, of Copley (the "Copley Class A Stock")
issued and outstanding immediately prior to the Effective Time shall be redeemed
for a price of $1.00.
(c) At the Effective Time, each share of common stock, par
value $1.00 per share, of Copley (the "Copley Stock") issued and outstanding
immediately prior to the Effective Time (other than those shares of Copley Stock
to be canceled pursuant to Section 4.1(f)) shall, by virtue of the Merger and
without any action on the part of Copley, Buyer or the holders of any of the
securities of any of these corporations, be converted into a number of shares of
Buyer Stock equal to a fraction, the numerator of which is the Share Value and
the denominator of which is the Buyer Stock Price (collectively, the "Stock
Consideration"). The "Buyer Stock Price" means an amount equal to the average of
the closing sales prices of Buyer Stock on the New York Stock Exchange on the
twenty trading days immediately preceding the fifth trading day prior to the
date of the Effective Time; PROVIDED, that if such average closing price as
calculated in accordance with this sentence (i) is less than $20.25, the Buyer
Stock Price shall be deemed to equal $20.25 or (ii) is greater than $23.00, the
Buyer Stock Price shall be deemed to equal $23.00. Notwithstanding the
foregoing, if the average closing sales prices of Buyer Stock on the New York
Stock Exchange on the twenty (20) trading days immediately preceding the fifth
trading day prior to either (A) the date on which the Form S-4 (as hereinafter
defined) is declared effective by the Securities and Exchange Commission or (B)
the date on which the meeting of Copley stockholders is to be convened pursuant
to Section 7.3 hereof, is equal to or less than $18.25, Copley shall have the
right, waivable by it, to terminate this Agreement pursuant to Section 9.1(f)
without any liability on the part of Copley. The "Share Value" shall equal
(subject to the adjustments as described in the next succeeding sentences and as
described in Section 7.16) $15.60; PROVIDED, HOWEVER, that if prior to the
Effective Time Copley shall have conveyed all of its right, title and interest
in and to its partnership interest (the "UBC Interest") in University Business
Center Associates, a California general partnership, to JCB Limited, or an
affiliate or nominee thereof ("Bermant"), pursuant to a Purchase and Sale
Agreement in substantially the form of EXHIBIT A attached hereto (as the same
may be amended from time to time, the "Bermant/UBC Agreement"), then the Share
Value shall equal $12.00. In the event the Summer Hill Option
3
<PAGE> 8
(as defined in Section 7.1 hereof) is exercised and Copley conveys the real
property subject to such option to Summer Hill Ltd. prior to the Effective Date
in accordance with the terms of such option, the Share Value shall be reduced by
the quotient equal to (x) $1,060,000 divided by (y) the total number of shares
of Copley Stock issued and outstanding immediately prior to the Effective Time.
(d) Buyer acknowledges and agrees that the value of the UBC
Interest is $12,903,660 and that Copley may disclose such valuation to Bermant
in accordance with the provisions of that certain Second Amended and Restated
Joint Venture Agreement, dated as of November 1, 1993 and amended as of January
19, 1996, between Copley and Bermant (the "Joint Venture Agreement").
Immediately following the execution of this Agreement, Copley shall deliver to
Bermant written notice of the terms of this Agreement in accordance with the
Joint Venture Agreement.
(e) As a result of the Merger and without any action on the
part of the holders thereof, all shares of Copley Stock shall cease to be
outstanding, shall be canceled and retired and shall cease to exist and each
holder of a certificate (a "Certificate") representing any shares of Copley
Stock shall thereafter cease to have any rights with respect to such shares of
Copley Stock, except the right to receive, without interest, shares of Buyer
Stock, dividends payable in accordance with Section 4.2(c) and cash in lieu of
fractional shares of Buyer Stock in accordance with Section 4.2(e) upon the
surrender of such Certificate.
(f) Each share of Copley Stock issued and held in Copley's
treasury and each share of Copley Stock held by Buyer or any of the Buyer
Subsidiaries immediately prior to the Effective Time, if any, by virtue of the
Merger, shall cease to be outstanding, shall be canceled and retired and shall
cease to exist and no payment of any consideration shall be made with respect
thereto.
4.2 EXCHANGE OF CERTIFICATES REPRESENTING COPLEY STOCK.
(a) As of the Effective Time, Buyer shall deposit, or shall
cause to be deposited, with an exchange agent selected by Buyer on or prior to
the Effective Time (the "Exchange Agent"), for the benefit of the holders of
shares of Copley Stock, for exchange in accordance with this Article 4,
certificates representing the shares of Buyer Stock and the cash in lieu of
fractional shares (such cash and certificates for shares of Buyer Stock being
hereinafter referred to as the "Exchange Fund") to be issued pursuant to Section
4.1 and paid pursuant to this Section 4.2, respectively, in exchange for
outstanding shares of Copley Stock.
(b) Promptly after the Effective Time, Buyer shall cause the
Exchange Agent to mail to each holder of record of a Certificate or Certificates
(i) a letter of transmittal which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon delivery of
the Certificates to the Exchange Agent and shall be in such form and have such
other provisions as Buyer may reasonably specify and (ii) instructions for use
in effecting the surrender of the Certificates in exchange for certificates
representing
4
<PAGE> 9
shares of Buyer Stock and cash in lieu of fractional shares. Upon surrender of a
Certificate for cancellation to the Exchange Agent together with such letter of
transmittal, duly executed and completed in accordance with the instructions
thereto, the holder of such Certificate shall be entitled to receive in exchange
therefor (x) a certificate representing the number of whole shares of Buyer
Stock to which such holder shall be entitled, and (y) a check representing the
amount of cash in lieu of fractional shares, if any, plus the amount of any
dividends or distributions, if any, pursuant to paragraph (c) below, after
giving effect to any required withholding tax, and the Certificate so
surrendered shall forthwith be canceled. No interest will be paid or accrued on
the cash in lieu of fractional shares or on the dividend or distribution, if
any, payable to holders of Certificates, pursuant to this Section 4.2. In the
event of a transfer of ownership of Copley Stock which is not registered in the
transfer records of Copley, a Certificate representing the proper number of
shares of Buyer Stock, together with a check for the cash to be paid in lieu of
fractional shares plus, to the extent applicable, the amount of any dividend or
distribution, if any, payable pursuant to paragraph (c) below, may be issued to
such a transferee if the Certificate representing shares of such Copley Stock is
presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid.
(c) Notwithstanding any other provisions of this Agreement, no
dividends or other distributions on Buyer Stock shall be paid with respect to
any shares of Copley Stock represented by a Certificate until such Certificate
is surrendered for exchange as provided herein; provided, however, that subject
to the effect of applicable laws, following surrender of any such Certificate,
there shall be paid by the Surviving Corporation to the holder of the
certificates representing whole shares of Buyer Stock issued in exchange
therefor, without interest, (i) at the time of such surrender, the amount of
dividends or other distributions with a record date after the Effective Time
theretofore payable with respect to such whole shares of Buyer Stock and not
paid, less the amount of any withholding taxes which may be required thereon,
and (ii) at the appropriate payment date, the amount of dividends or other
distributions with a record date after the Effective Time but prior to surrender
and a payment date subsequent to surrender payable with respect to such whole
shares of Buyer Stock, less the amount of any withholding taxes which may be
required thereon.
(d) At and after the Effective Time, there shall be no
transfers on the stock transfer books of Copley of the shares of Copley Stock
which were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation, they
shall be canceled and exchanged for certificates for shares of Buyer Stock,
dividends and cash in lieu of fractional shares, if any, in accordance with this
Section 4.2. Certificates surrendered for exchange by any person constituting an
"affiliate" of Copley for purposes of Rule 145, as such rule may be amended from
time to time ("Rule 145"), of the rules and regulations promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), shall not be
exchanged until Buyer has received an Affiliate Letter in the form of EXHIBIT B
attached hereto, from such person as provided in Section 7.10.
5
<PAGE> 10
(e) No fractional shares of Buyer Stock shall be issued
pursuant hereto. In lieu of the issuance of any fractional share of Buyer Stock
pursuant to this Agreement, each holder of Copley Stock upon surrender of a
Certificate for exchange shall be paid an amount in cash (without interest),
rounded to the nearest cent, determined by multiplying (i) the Buyer Stock Price
by (ii) the fraction of a share of Buyer Stock which such holder would otherwise
be entitled to receive under this Article 4.
4.3 RETURN OF EXCHANGE FUND. Any portion of the Exchange Fund
(including the proceeds of any investments thereof and any shares of Buyer
Stock) that remains unclaimed by the former stockholders of Copley one year
after the Effective Time shall be delivered to the Surviving Corporation. Any
former stockholders of Copley who have not theretofore complied with this
Article 4 shall thereafter look only to the Surviving Corporation for payment of
their shares of Buyer Stock and cash in lieu of fractional shares (plus
dividends and distributions to the extent set forth in Section 4.2(c), if any),
as determined pursuant to this Agreement, without any interest thereon. None of
Buyer, Copley, the Exchange Agent or any other person shall be liable to any
former holder of shares of Copley Stock for any amount properly delivered to a
public official pursuant to applicable abandoned property, escheat or similar
laws. In the event any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and, if required by the Surviving
Corporation, the posting by such person of a bond in such reasonable amount as
the Surviving Corporation may direct as indemnity against any claim that may be
made against it with respect to such Certificate, the Exchange Agent or the
Surviving Corporation will issue in exchange for such lost, stolen or destroyed
Certificate the shares of Buyer Stock and cash in lieu of fractional shares (and
to the extent applicable, dividends and distributions payable pursuant to
Section 4.2(c)).
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF COPLEY
Except as set forth in the disclosure letter delivered at or prior to
the execution hereof to Buyer, which shall refer to the relevant Sections of
this Agreement (the "Copley Disclosure Letter"), Copley represents and warrants
to Buyer as follows:
5.1 EXISTENCE; GOOD STANDING; AUTHORITY; COMPLIANCE WITH LAW.
(a) Copley is a corporation duly organized, validly existing
and in good standing under the laws of Delaware. Copley is duly licensed or
qualified to do business as a foreign corporation and is in good standing under
the laws of any other state of the United States in which the character of the
properties owned or leased by it therein or in which the transaction of its
business makes such qualification necessary, except where the failure to be so
licensed or qualified would not have a material adverse effect on the business,
results of operations or financial condition of Copley and the Copley
Subsidiaries (as defined below) taken as a whole (a "Copley Material Adverse
Effect"). Copley has all requisite corporate
6
<PAGE> 11
power and authority to own, operate, lease and encumber its properties and carry
on its business as now conducted.
(b) Each of the Copley Subsidiaries is a corporation or
partnership duly incorporated or organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or organization,
has the corporate or partnership power and authority to own its properties and
to carry on its business as it is now being conducted, and is duly qualified to
do business and is in good standing in each jurisdiction in which the ownership
of its property or the conduct of its business requires such qualification,
except for jurisdictions in which such failure to be so qualified or to be in
good standing would not have a Copley Material Adverse Effect.
(c) Except as set forth in Section 5.1(c) of the Copley
Disclosure Letter, to the best knowledge of Copley, neither Copley nor any of
the Copley Subsidiaries is in violation of any order of any court, governmental
authority or arbitration board or tribunal, or any law, ordinance, governmental
rule or regulation to which Copley or any Copley Subsidiary or any of their
respective properties or assets is subject, where such violation would have a
Copley Material Adverse Effect.
(d) Copies of the Certificate of Incorporation or other
charter documents, Bylaws, organizational documents and partnership and joint
venture agreements (and in each such case, all amendments thereto) of Copley and
each of the Copley Subsidiaries are listed in Section 5.1 of the Copley
Disclosure Letter, and the copies of such documents, which have previously been
delivered or made available to Buyer and its counsel, are true and correct. For
the purposes of this Agreement, the term "Copley Subsidiary" shall include any
of the entities listed under such heading in Section 5.4 of the Copley
Disclosure Letter.
5.2 AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENTS. Each of Copley
and the Copley Subsidiaries has the requisite power and authority to enter into
the transactions contemplated hereby and to execute and deliver this Agreement.
The Board of Directors of Copley has approved this Agreement, the Merger, and
the transactions contemplated by this Agreement and has agreed to recommend that
the holders of Copley Stock adopt and approve this Agreement, the Merger, and
the transactions contemplated by this Agreement at the Copley stockholders'
meeting which will be held in accordance with the provisions of Section 7.3
hereof. In connection with the foregoing, the Board of Directors of Copley has
taken such actions and votes as are necessary on its part to render the
provisions of Section 203 of the DGCL, Article Ninth of Copley's Restated
Certificate of Incorporation ("Copley's Certificate"), and the Rights Agreement,
dated as of June 28, 1990, between Copley and State Street Bank and Trust
Company, as amended (the "Rights Agreement"), inapplicable to this Agreement,
the Merger, and the transactions contemplated by this Agreement. As of the date
hereof, all of the directors and executive officers of Copley have indicated
that they presently intend to vote all shares of Copley Stock which they own to
approve this Agreement, the Merger, and the transactions contemplated by this
Agreement at the Copley stockholders meeting which will be held in accordance
with the provisions of
7
<PAGE> 12
Section 7.3. Subject only to the approval of this Agreement and the transactions
contemplated hereby by the holders of a majority of the outstanding shares of
Copley Stock, the execution by Copley of this Agreement and the consummation of
the transactions contemplated by this Agreement have been duly authorized by all
requisite action on the part of Copley. This Agreement constitutes the valid and
legally binding obligations of Copley, enforceable against Copley in accordance
with its terms, subject to applicable bankruptcy, insolvency, moratorium or
other similar laws relating to creditors' rights and general principles of
equity.
5.3 CAPITALIZATION. The authorized capital stock of Copley consists of
20,000,000 shares of Copley Stock and one (1) share of Copley Class A Stock. As
of the date hereof, there are 3,584,350 shares of Copley Stock issued and
outstanding and one share of Copley Class A Stock issued and outstanding. All
such shares of Copley Stock are duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights. Except as set forth in Section 5.3
of the Copley Disclosure Letter, Copley has no outstanding bonds, debentures,
notes or other obligations the holders of which have the right to vote (or which
are convertible into or exercisable for securities having the right to vote)
with the stockholders of Copley on any matter. There are not at the date of this
Agreement any existing options, warrants, calls, subscriptions, convertible
securities, or other rights, agreements or commitments which obligate Copley to
issue, transfer or sell any shares of capital stock of Copley except for the
provisions of Copley's Certificate relating to the Copley Class A Stock and the
rights issued pursuant to the Rights Agreement. Except as set forth in Section
5.3 of the Copley Disclosure Letter, there are no agreements or understandings
to which Copley or any Copley Subsidiary is a party with respect to the voting
of any shares of capital stock of Copley or which restrict the transfer of any
such shares, nor does Copley have knowledge of any such agreements or
understandings with respect to the voting of any such shares or which restrict
the transfer of any such shares other than those set forth in Copley's
Certificate with respect to the maintenance of Copley as a real estate
investment trust ("REIT"). Except as set forth in Section 5.3 of the Copley
Disclosure Letter, there are no outstanding contractual obligations of Copley or
any Copley Subsidiary to repurchase, redeem or otherwise acquire any shares of
capital stock, partnership interests or any other securities of Copley or any
Copley Subsidiary. Except as set forth in Section 5.3 of the Copley Disclosure
Letter, neither Copley nor any Copley Subsidiary is under any obligation,
contingent or otherwise, by reason of any agreement to register any of their
securities under the Securities Act.
5.4 SUBSIDIARIES. Except as set forth in Section 5.4 of the Copley
Disclosure Letter, Copley owns directly or indirectly each of the outstanding
shares of capital stock or all of the partnership or other equity interests of
each of the Copley Subsidiaries. Each of the outstanding shares of capital stock
in each of the Copley Subsidiaries having corporate form is duly authorized,
validly issued, fully paid and nonassessable. Except as set forth in Section 5.4
of the Copley Disclosure Letter, each of the outstanding shares of capital stock
of, or partnership or other equity interests in, each of the Copley Subsidiaries
is owned, directly or indirectly, by Copley free and clear of all liens,
pledges, security interests, claims or other encumbrances. The following
information for each Copley Subsidiary as of February 12, 1996 is set forth in
Section 5.4 of the Copley Disclosure Letter: (i) its name and jurisdiction
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<PAGE> 13
of incorporation or organization; (ii) its authorized capital stock or share
capital or partnership or other interests; (iii) the name of each stockholder or
owner of a partnership or other equity interest and the number of issued and
outstanding shares of capital stock or share capital or percentage ownership for
non-corporate entities held by it and (iv) the names of the general partners, if
applicable.
5.5 OTHER INTERESTS. Except as set forth in Sections 5.4 and 5.5 of the
Copley Disclosure Letter, neither Copley nor any Copley Subsidiary owns directly
or indirectly any interest or investment (whether equity or debt) in any
corporation, partnership, joint venture, business, trust or other entity (other
than investments in short-term investment securities).
5.6 NO VIOLATION. Except as set forth in Section 5.6 of the Copley
Disclosure Letter, neither the execution and delivery by Copley of this
Agreement nor the consummation by Copley of the transactions contemplated by
this Agreement in accordance with its terms, will: (i) conflict with or result
in a breach of any provisions of Copley's Certificate, the Bylaws,
organizational documents, partnership agreements or joint venture agreements of
Copley or any Copley Subsidiary; (ii) violate, or conflict with, or result in a
breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result in
the termination or in a right of termination or cancellation of, or accelerate
the performance required by, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties of Copley or the
Copley Subsidiaries under, or result in being declared void, voidable or without
further binding effect, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust or any license, franchise, permit,
lease, contract, agreement or other instrument, commitment or obligation to
which Copley or any of the Copley Subsidiaries is a party, or by which Copley or
any of the Copley Subsidiaries or any of their properties is bound or affected,
except for any of the foregoing matters which, individually or in the aggregate,
would not have a Copley Material Adverse Effect; or (iii) other than the filings
provided for in Article 1 of this Agreement, required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Securities
Act or applicable state securities and "Blue Sky" laws (collectively, the
"Regulatory Filings"), require any consent, approval or authorization of, or
declaration, filing or registration with, any governmental or regulatory
authority, except where the failure to obtain any such consent, approval or
authorization of, or declaration, filing or registration with, any governmental
or regulatory authority would not have a Copley Material Adverse Effect.
5.7 SEC DOCUMENTS. Copley has filed all required forms, reports and
documents with the Securities and Exchange Commission ("SEC") since December 31,
1994 (collectively, the "Copley SEC Reports") all of which were prepared in
accordance with the applicable requirements of the Exchange Act and the
Securities Act. The Copley SEC Reports were filed with the SEC in a timely
manner and constitute all forms, reports and documents required to be filed by
Copley since December 31, 1994 under the Securities Act, the Exchange Act and
the rules and regulations promulgated thereunder (the "Securities Laws"). As of
their respective dates, the Copley SEC Reports (i) complied as to form in all
material
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<PAGE> 14
respects with the applicable requirements of the Securities Laws and (ii) did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading. Each of the consolidated balance sheets of Copley included in or
incorporated by reference into the Copley SEC Reports (including the related
notes and schedules) fairly presents the consolidated financial position of
Copley and the Copley Subsidiaries as of its date and each of the consolidated
statements of income, retained earnings and cash flows of Copley included in or
incorporated by reference into the Copley SEC Reports (including any related
notes and schedules) fairly presents the results of operations, retained
earnings or cash flows, as the case may be, of Copley and the Copley
Subsidiaries for the periods set forth therein (subject, in the case of
unaudited statements, to normal year-end audit adjustments which would not be
material in amount or effect), in each case in accordance with generally
accepted accounting principles consistently applied during the periods involved,
except as may be noted therein and except, in the case of the unaudited
statements, as permitted by Form 10-Q pursuant to Section 13 or 15(d) of the
Exchange Act.
5.8 LITIGATION. Except as set forth in Section 5.8 of the Copley
Disclosure Letter, there are (i) no continuing orders, injunctions or decrees of
any court, arbitrator or governmental authority to which Copley or any Copley
Subsidiary is a party or by which any of its properties or assets are bound, or,
to the reasonable best knowledge of Copley, to which any person who is now, or
has been at any time prior to the date hereof, a director, officer, employee or
agent of Copley or any Copley Subsidiary acting in such capacity is a party, and
(ii) no actions, suits or proceedings pending against Copley or any Copley
Subsidiary or, to the reasonable best knowledge of Copley, threatened against
Copley or any Copley Subsidiary or against any person who is now, or has been at
any time prior to the date hereof, a director, officer, employee or agent of
Copley or any Copley Subsidiary acting in such capacity, at law or in equity, or
before or by any federal or state commission, board, bureau, agency or
instrumentality, that in the case of clause (i) or (ii) are reasonably likely,
individually or in the aggregate, to have a Copley Material Adverse Effect.
There are no written, nor to Copley's knowledge threatened, claims made against
Copley or any Copley Subsidiary by any existing or former joint venture partner
or other partner of Copley or any Copley Subsidiary that are reasonably likely,
individually or in the aggregate, to have a Copley Material Adverse Effect.
5.9 ABSENCE OF CERTAIN CHANGES. Except as disclosed in the Copley SEC
Reports filed with the SEC prior to the date hereof or as set forth in Section
5.9 of the Copley Disclosure Letter, since December 31, 1994, Copley and the
Copley Subsidiaries have conducted their business only in the ordinary course of
such business and there has not been (i) any Copley Material Adverse Effect;
(ii) any declaration, setting aside or payment of any dividend or other
distribution with respect to the Copley Stock, except dividends of $0.25 per
share paid on April 11, 1995, and $0.27 per share paid on July 11, 1995, October
10, 1995 and December 26, 1995; (iii) any material commitment, contractual
obligation, borrowing, capital expenditure or transaction (each, a "Commitment")
entered into by Copley or any of the Copley Subsidiaries, outside the ordinary
course of business except for Commitments for
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expenses of attorneys, accountants and investment bankers incurred in connection
with the Merger; or (iv) any material change in Copley's accounting principles,
practices or methods.
5.10 TAXES. Except as set forth in Section 5.10 of the Copley
Disclosure Letter:
(a) Copley and each of the Copley Subsidiaries has paid,
caused to be paid or accrued all federal, state, local, foreign, and other
taxes, including without limitation, income taxes, estimated taxes, alternative
minimum taxes, excise taxes, sales taxes, use taxes, value-added taxes, gross
receipts taxes, franchise taxes, capital stock taxes, employment and
payroll-related taxes, withholding taxes, stamp taxes, transfer taxes, windfall
profit taxes, property taxes and environmental taxes, whether or not measured in
whole or in part by net income, and all deficiencies, or other additions to tax,
interest, fines and penalties (collectively, "Taxes"), required to be paid or
accrued by it through the date hereof;
(b) Copley and each of the Copley Subsidiaries has timely
filed all federal, state, local and foreign tax returns required to be filed by
any of them through the date hereof, and all such returns completely and
accurately set forth the amount of any Taxes relating to the applicable period;
(c) Copley and each Copley Subsidiary has withheld and paid
all taxes required to have been withheld and paid in connection with amounts
paid or owing to any employee, independent contractor, creditor, stockholder or
other party;
(d) For its taxable year ended December 31, 1994 and at all
times thereafter up to and including the date hereof, Copley has qualified to be
treated as a REIT within the meaning of Sections 856-860 of the Code, including,
without limitation, the requirements of Sections 856 and 857 of the Code. Copley
has qualified as a REIT for every taxable year in which it existed. For the
periods described in the preceding sentence, Copley has met all requirements
necessary to be treated as a REIT for purposes of the income tax provisions of
those states in which Copley is subject to income tax and which provide for the
taxation of a REIT in a manner similar to the treatment of REITs under Sections
856-860 of the Code;
(e) Neither the Internal Revenue Service ("IRS") nor any
governmental authority is now asserting by written notice to Copley or any
Copley Subsidiary or, to the knowledge of Copley, threatening to assert against
Copley or any Copley Subsidiary any deficiency or claim for additional Taxes.
There is no dispute or claim concerning any tax liability of Copley or any
Copley Subsidiary either claimed or raised in writing by the IRS. There is no
dispute or claim concerning any tax liability of a material nature of Copley or
any Copley Subsidiary either claimed or raised in writing by any governmental
authority other than the IRS, or, to the knowledge of Copley, which may be
claimed or raised by any federal or state governmental authority. No written
claim has ever been made by a taxing authority in a jurisdiction where Copley
does not file reports and returns that Copley is or may be subject to taxation
by that jurisdiction. To the knowledge of Copley, there are no security
interests on any of the assets of Copley or any Copley Subsidiary that arose in
connection with any failure
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(or alleged failure) to pay any Taxes when due. Copley has never entered into
a closing agreement pursuant to Section 7121 of the Code;
(f) Copley has not received written notice of any audit of any
tax return filed by Copley, and Copley has not been notified in writing by any
tax authority that any such audit is contemplated or pending. Neither Copley nor
any of the Copley Subsidiaries has executed or filed with the IRS or any other
taxing authority any agreement now in effect extending the period for assessment
or collection of any income or other Taxes, and no extension of time with
respect to any date on which a tax return was or is to be filed by Copley is in
force. True, correct and complete copies of all federal, state and local income
or franchise tax returns filed by Copley and each of the Copley Subsidiaries and
all written communications relating thereto have been delivered to Buyer or made
available to representatives of Buyer; and
(g) Each of the Copley Subsidiaries of which all the
outstanding capital stock is owned solely by Copley is a Qualified REIT
Subsidiary as defined in Section 856(i) of the Code. Except as set forth in
Section 5.10 of the Copley Disclosure Letter, the Copley Subsidiaries listed as
partnerships in Section 5.4 of the Copley Disclosure Letter are, and have been
at all times, properly classified as partnerships for federal income tax
purposes and have not been classified as publicly-traded partnerships for
federal income tax purposes.
5.11 BOOKS AND RECORDS.
(a) The books of account and other financial records of Copley
and each of the Copley Subsidiaries are true, complete and correct in all
material respects, have been maintained in accordance with good business
practices, and are accurately reflected in all material respects in the
financial statements included in the Copley SEC Reports.
(b) The minute books and other records of Copley and each of
the Copley Subsidiaries have been, or will be prior to the Closing, made
available to Buyer, contain in all material respects accurate records of all
meetings and accurately reflect in all material respects all other corporate
action of the stockholders and directors and any committees of the Board of
Directors of Copley and each of the Copley Subsidiaries and all actions of the
partners of each of the Copley Subsidiaries.
5.12 PROPERTIES. All of the real estate properties owned by Copley and
each of the Copley Subsidiaries (the "Copley Properties") are set forth in
Section 5.12 of the Copley Disclosure Letter. Copley has made available to Buyer
for inspection the title reports ("Title Reports") and surveys ("Surveys")
relating to the Copley Properties listed in Section 5.12 of the Copley
Disclosure Letter. Copley is not aware of any encumbrance to title to the Copley
Properties or any survey matter affecting the Copley Properties other than (i)
matters listed in the Title Reports, (ii) matters shown on the Surveys, (iii)
ordinances and regulations, including zoning ordinances and building codes,
affecting building use or occupancy, (iv) mechanics', carriers', workmen's liens
or encumbrances which are the responsibility of tenants under
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leases, or which otherwise do not have a material adverse effect on the value of
the Copley Properties as a whole, (v) the title insurance policies referred to
in the next sentence, (vi) new Leases permitted under Section 7.2(e) hereof and
(vii) matters disclosed in Section 5.12 of the Copley Disclosure Letter. Section
5.12 of the Copley Disclosure Letter sets forth all of the title insurance
policies of Copley or the applicable Copley Subsidiary relating to the Copley
Properties and such policies are, at the date hereof, in full force and effect
and no claims have been made against any such policies. To the best knowledge of
Copley (i) except as set forth in Section 5.12 of the Copley Disclosure Letter,
Copley has obtained all material certificates, permits and licenses from any
governmental authority having jurisdiction over any of the Copley Properties
which are not the responsibility of tenants and to Copley's knowledge no tenant
has failed to obtain any such certificate, permit or license, and all
agreements, easements and other rights which are necessary to permit the lawful
use and operation of all driveways, roads and other means of egress and ingress
to and from any of the Copley Properties, have been obtained and are in full
force and effect; (ii) the Copley Properties are in full compliance with all
governmental permits, licenses and certificates except where the failure to be
in compliance would not be reasonably likely to have a Copley Material Adverse
Effect; (iii) except as set forth in Section 5.1(c) of the Copley Disclosure
Letter, no written notice of any violation of any federal, state or municipal
law, ordinance, order, regulation or requirement affecting any portion of any of
the Copley Properties has been issued by any governmental authority which has
not been remedied or cured; (iv) there are no material structural defects
relating to any of the Copley Properties, except as set forth in the reports
referred to in Section 5.12 of the Copley Disclosure Letter; (v) the building
systems of each Copley Property are in working order in all material respects,
except as set forth in the reports referred to in Section 5.12 of the Copley
Disclosure Letter; (vi) except as set forth in Section 5.12 of the Copley
Disclosure Letter, there is no physical damage to any Copley Property in excess
of $50,000 for which there is no insurance in effect covering the full cost of
the restoration; or (vii) except as set forth in Section 5.12 of the Copley
Disclosure Letter, there is no current renovation or restoration or tenant
improvements to any Copley Property or any portion thereof, the cost of which
exceeds $50,000 individually. Except as disclosed in Section 5.1(c) of the
Copley Disclosure Letter, the use and occupancy of each of the Copley Properties
complies in all material respects with all applicable codes and zoning laws and
regulations, and Copley has no knowledge of any pending or threatened proceeding
or action that will in any manner affect the size of, use of, improvements on,
construction on, or access to any of the Copley Properties, with such exceptions
as are not material and do not interfere with the use made and proposed to be
made of such Copley Properties. Neither Copley nor any of the Copley
Subsidiaries has received any written notice to the effect that (A) any
betterment assessments have been levied against, or any condemnation or rezoning
proceedings are pending or threatened with respect to any of the Copley
Properties except as set forth in the Title Reports referred to in Section 5.12
of the Copley Disclosure Letter, or (B) any zoning, building or similar law,
code, ordinance, order or regulation is or will be violated by the continued
maintenance, operation or use of any buildings or other improvements on any of
the Copley Properties or by the continued maintenance, operation or use of the
parking areas except as set forth in Section 5.1(c) of the Copley Disclosure
Letter.
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5.13 ENVIRONMENTAL MATTERS. Except as set forth in Section 5.13 of the
Copley Disclosure Letter and any environmental assessment or report listed
therein, to the best of Copley's actual knowledge: (i) no Hazardous Substances
or Hazardous Wastes have been or are being released into the environment,
discharged into the environment or disposed of from, at, on or under the Copley
Properties; (ii) no Hazardous Substances or Hazardous Wastes have been or are
being generated or treated at the Copley Properties or discharged from the
Copley Properties, except in compliance in all material respects with applicable
Laws (defined below); (iii) no Hazardous Wastes have been or are being stored
for more than 90 days or handled at or on the Copley Properties, except in
compliance in all material respects with applicable Laws; (iv) none of the
Copley Properties are listed on, and Copley has not received written or oral
notice that any of the Copley Properties are being considered for inclusion on,
the National Priorities List ("NPL"), the Comprehensive Environmental Response,
Compensation and Liability Information System ("CERCLIS"), or any State or local
listing of sites which are known or suspected to be contaminated by Hazardous
Substances or Hazardous Wastes; (v) there are no on-going violations of any
Federal, State or local law, statute, ordinance, rule or regulation ("Law") at
any Copley Properties which could result in contamination of the land, surface
water or groundwater from, at, on or under any such properties; and (vi) no
Federal, State or local governmental board, body, department or agency
(collectively "Government Agency") is investigating or has provided written
notice that it is considering investigating any alleged or potential release,
discharge, disposal or storage of Hazardous Substances or Hazardous Wastes at,
on, under or from any Copley Properties.
Except as disclosed in Section 5.13 of the Copley Disclosure Letter,
with respect to properties previously owned, leased or in the possession of
Copley or Copley Subsidiaries ("Copley Previous Properties"), Copley has no
actual knowledge that any of the activities or conditions described in clauses
(i), (ii) or (iii) as not having taken place or existed at the Copley
Properties, took place or existed at the Copley Previous Properties during the
period when Copley or the Copley Subsidiaries owned, leased or possessed the
properties. In addition, Copley has no actual knowledge that any of the Copley
Previous Properties are listed or are being considered for listing on any of the
lists described in clause (iv) or are being investigated or considered for
investigation as described in clause (vi).
As used in this Agreement, the term "Hazardous Substance" shall mean
any hazardous or toxic chemical, waste, byproduct, pollutant, contaminant,
compound, product or substance, including without limitation, asbestos,
polychlorinated biphenyls, petroleum (including crude oil or any fraction
thereof), radioactive substances and any material the manufacture, possession,
presence, use, generation, storage, transportation, treatment, release,
disposal, discharge, abatement, cleanup, removal, remediation or handling of
which is prohibited, controlled or regulated by any Government Agency pursuant
to any Law relating to protection of the environment or human health. The term
"Hazardous Waste" shall have the meaning set forth in the Resource Conservation
and Recovery Act, as amended, the regulations thereunder, and any similar or
implementing State or local law, statute, ordinance, rule or regulation.
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Except as disclosed in Section 5.13 of the Copley Disclosure Letter, to
the best knowledge of Copley after due inquiry, neither Copley nor any Copley
Subsidiary has received any written notice from any Government Agency with
respect to alleged or potential liability relating in any way to Hazardous
Substances or Hazardous Wastes at, on, under or from any Copley Property or
Copley Previous Properties.
5.14 NO BROKERS. Neither Copley nor any of the Copley Subsidiaries has
entered into any contract, arrangement or understanding with any person or firm
which may result in the obligation of such entity or Buyer to pay any finder's
fees, brokerage or agent's commissions or other like payments in connection with
the negotiations leading to this Agreement or the consummation of the
transactions contemplated hereby, except that Copley has retained Morgan Stanley
& Co. Incorporated ("Morgan Stanley") to act as its financial advisor in
connection with the transactions contemplated by this Agreement. Other than
Buyer's arrangement with PaineWebber Incorporated ("PaineWebber"), Copley is not
aware of any claim for payment of any finder's fees, brokerage or agent's
commissions or other like payments in connection with the negotiations leading
to this Agreement or the consummation of the transactions contemplated hereby.
5.15 OPINION OF FINANCIAL ADVISOR. Copley has received the opinion of
Morgan Stanley, to the effect that, as of the date hereof, the Stock
Consideration is fair to the holders of Copley Stock from a financial point of
view, and has delivered a true and correct copy of such opinion to Buyer.
5.16 RELATED PARTY TRANSACTIONS. Set forth in Section 5.16 of the
Copley Disclosure Letter is a list of all arrangements, agreements and contracts
entered into by Copley or any of the Copley Subsidiaries (which are or will be
in effect as of or after the date of this Agreement) with (i) any consultant
(excluding legal counsel, accountants and financial advisors) involving payments
in excess of $50,000 and which may not be terminated within 90 days by Copley or
the Copley Subsidiary which is a party thereto, (ii) any person who is an
officer, director or affiliate of Copley or any of the Copley Subsidiaries, any
relative of any of the foregoing or any entity of which any of the foregoing is
an affiliate or (iii) any person who acquired Copley Stock in a private
placement. All such documents are listed in Section 5.16 of the Copley
Disclosure Letter and the copies of such documents, which have previously been
provided or made available to Buyer and its counsel, are true and correct
copies.
5.17 CONTRACTS AND COMMITMENTS. Section 5.17 of the Copley Disclosure
Letter sets forth (i) all notes, debentures, bonds and other evidence of
indebtedness which are secured or collateralized by mortgages, deeds of trust or
other security interests in the Copley Properties or personal property of Copley
and each of the Copley Subsidiaries and (ii) each Commitment entered into by
Copley or any of the Copley Subsidiaries which may result in total payments by
or liability of Copley or any Copley Subsidiary in excess of $50,000 and which
may not be terminated within 90 days by Copley or the Copley Subsidiary which is
a party thereto. Copies of the foregoing are listed in Section 5.17 of the
Copley Disclosure Letter and the copies of such documents, which have previously
been provided or made available to Buyer
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and its counsel, are true and correct. None of Copley or any of the Copley
Subsidiaries has received any written notice of a default that has not been
cured under any of the documents described in clause (i) above or is in default
respecting any payment obligations thereunder beyond any applicable grace
periods except where such default would not have a Copley Material Adverse
Effect. To the best knowledge of Copley, neither Copley nor any of the Copley
Subsidiaries is in default with respect to any obligations, which individually
or in the aggregate are material, under any joint venture agreements to which
Copley or any of the Copley Subsidiaries is a party.
5.18 DEFINITION OF COPLEY'S KNOWLEDGE. As used in this Agreement, the
phrase "to the knowledge of Copley" or "to the best knowledge of Copley" or any
similar phrase means the actual, not the constructive or imputed, knowledge of
Mary Lentz, Steven E. Wheeler and Norman de Greve without any obligation on any
of their parts to make any independent investigation of the matters being
represented and warranted, or to make any inquiry of any other persons, or to
search or examine any files, records, books, correspondence and the like.
ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF BUYER
Except as set forth in the disclosure letter delivered at or prior to
the execution hereof to Copley, which shall refer to the relevant Sections of
this Agreement (the "Buyer Disclosure Letter"), Buyer represents and warrants to
Copley as follows:
6.1 EXISTENCE; GOOD STANDING; AUTHORITY; COMPLIANCE WITH LAW.
(a) Buyer is a REIT duly formed, validly existing and in good
standing under the laws of the State of Maryland. Buyer is duly licensed or
qualified to do business as a foreign corporation and is in good standing under
the laws of any other state of the United States in which the character of the
properties owned or leased by it therein or in which the transaction of its
business makes such qualification necessary, except where the failure to be so
licensed or qualified would not have a material adverse effect on the business,
results of operations or financial condition of Buyer and the Buyer Subsidiaries
(as defined below) taken as a whole (a "Buyer Material Adverse Effect"). Buyer
has all requisite corporate power and authority to own, operate, lease and
encumber its properties and carry on its business as now conducted.
(b) Each of the Buyer Subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization, has the corporate power and
authority to own its properties and to carry on its business as it is now being
conducted, and is duly qualified to do business and is in good standing in each
jurisdiction in which the ownership of its property or the conduct of its
business requires such qualification, except for jurisdictions in which such
failure to be so qualified or to be in good standing would not have a Buyer
Material Adverse Effect.
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(c) To the best knowledge of Buyer, neither Buyer nor any
Buyer Subsidiary is in violation of any order of any court, governmental
authority or arbitration board or tribunal, or any law, ordinance, governmental
rule or regulation to which Buyer or any Buyer Subsidiary or any of their
respective properties or assets is subject, where such violation would have a
Buyer Material Adverse Effect.
(d) Copies of the Declaration of Trust or other charter
documents and Trustees Regulations (and all amendments thereto) of Buyer and
each of the Buyer Subsidiaries are listed in Section 6.1 of the Buyer Disclosure
Letter, and the copies of such documents, which have previously been delivered
or made available to Copley or its counsel, are true and correct copies. For
purposes of this Agreement, the term "Buyer Subsidiary" shall include any of the
entities set forth under such heading in Section 6.4 of the Buyer Disclosure
Letter.
(e) Neither Buyer nor any of the Buyer Subsidiaries is an
"interested stockholder" of Copley for purposes of Section 203(c)(5) of the
DGCL.
6.2 AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENTS. Buyer has the
requisite corporate power and authority to enter into the transactions
contemplated hereby and to execute and deliver this Agreement. The Board of
Trustees of Buyer has, by resolutions adopted by unanimous vote, approved this
Agreement, the Merger and the other transactions contemplated by this Agreement
and has agreed to recommend that the holders of Buyer Stock adopt and approve
this Agreement, the Merger, and the transactions contemplated by this Agreement
at the Buyer stockholders' meeting which will be held in accordance with the
provisions of Section 7.3 hereof. In connection with the foregoing, the Board of
Trustees of Buyer has taken such actions and votes as are necessary on its part
to render the provisions of the Control Share Acquisition Statute, the Business
Combination Statute and all other applicable takeover statutes of the MGCL and
any other applicable takeover statutes of any state, inapplicable to this
Agreement, the Merger, and the transactions contemplated by this Agreement. As
of the date hereof, all of the trustees and executive officers of Buyer have
indicated that they presently intend to vote all shares of Buyer Stock which
they own to approve this Agreement, the Merger, and the transactions
contemplated by this Agreement at the Buyer stockholders meeting which will be
held in accordance with the provisions of Section 7.3. Subject only to the
approval of this Agreement and the transactions contemplated hereby by the
holders of a majority of the outstanding shares of Buyer Stock, the execution by
Buyer of this Agreement, and the consummation of the transactions contemplated
by this Agreement have been duly authorized by all requisite corporate action on
the part of Buyer. This Agreement constitutes the valid and legally binding
obligations of Buyer, enforceable against Buyer in accordance with its terms,
subject to applicable bankruptcy, insolvency, moratorium or other similar laws
relating to creditors' rights and general principles of equity.
6.3 CAPITALIZATION. The authorized capital stock of Buyer consists of
10,000,000 shares of Buyer Stock. As of the date hereof, there are 4,231,656
shares of Buyer Stock issued and outstanding. All such issued and outstanding
shares of Buyer Stock are duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights. Buyer has
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no outstanding bonds, debentures, notes or other obligations the holders of
which have the right to vote (or which are convertible into or exercisable for
securities having the right to vote) with the stockholders of Buyer on any
matter. There are not at the date of this Agreement any existing options,
warrants, calls, subscriptions, convertible securities, or other rights,
agreements or commitments which obligate Buyer to issue, transfer or sell any
shares of Buyer Stock, other than the issuance by Buyer of up to 222,750 shares
of Buyer Stock upon the exercise of stock options issued pursuant to Buyer's
stock option plans. There are no agreements or understandings to which Buyer or
any Buyer Subsidiary is a party with respect to the voting of any shares of
Buyer Stock or which restrict the transfer of any such shares, nor does Buyer
have knowledge of any such agreements or understandings with respect to the
voting of any such shares or which restrict the transfer of such shares.
6.4 SUBSIDIARIES. Buyer owns all of the outstanding shares of capital
stock of each of the Buyer Subsidiaries. All of the outstanding shares of
capital stock of each of the Buyer Subsidiaries are duly authorized, validly
issued, fully paid and nonassessable, and are owned, by Buyer free and clear of
all liens, pledges, security interests, claims or other encumbrances. The
following information for each Buyer Subsidiary as of February 12, 1996 is set
forth in Section 6.4 of the Buyer Disclosure Letter: (i) its name and
jurisdiction of incorporation or organization and (ii) its authorized capital
stock.
6.5 OTHER INTERESTS. Except for interests in the Buyer Subsidiaries,
neither Buyer nor any Buyer Subsidiary owns directly or indirectly any interest
or investment (whether equity or debt) in any corporation, partnership, joint
venture, business, trust or other entity (other than investments in short-term
investment securities).
6.6 NO VIOLATION. Except as set forth in Section 6.6 of the Buyer
Disclosure Letter, neither the execution and delivery by Buyer of this Agreement
nor the consummation by Buyer of the transactions contemplated by this Agreement
in accordance with its terms will: (i) conflict with or result in a breach of
any provisions of the Declaration of Trust, Trustees Regulations, organizational
documents, partnership agreements or joint venture agreements of Buyer or any
Buyer Subsidiary; (ii) result in a breach or violation of, a default under, or
the triggering of any payment or other material obligations pursuant to, or
accelerate vesting under, any of Buyer's stock option plans, or any grant or
award under any of the foregoing; (iii) violate, or conflict with, or result in
a breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result in
the termination or in a right of termination or cancellation of, or accelerate
the performance required by, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties of Buyer or any of
the Buyer Subsidiaries under, or result in being declared void, voidable, or
without further binding effect, any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, deed of trust or any license, franchise,
permit, lease, contract, agreement or other instrument, commitment or obligation
to which Buyer or any of the Buyer Subsidiaries is a party, or by which Buyer or
any of the Buyer Subsidiaries or any of their properties is bound or affected,
except for any of the foregoing matters which, individually or in the aggregate,
would not have a Buyer Material
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Adverse Effect; or (iv) other than the Regulatory Filings, require any consent,
approval or authorization of, or declaration, filing or registration with, any
governmental or regulatory authority except where the failure to obtain any such
consent, approval or authorization of, or declaration, filing or registration
with, any governmental or regulatory authority would not have a Buyer Material
Adverse Effect.
6.7 SEC DOCUMENTS. Buyer has filed all required forms, reports and
documents with the SEC since December 31, 1994 (collectively, the "Buyer SEC
Reports") all of which were prepared in accordance with the applicable
requirements of the Securities Laws. The Buyer SEC Reports were filed with the
SEC in a timely manner and constitute all forms, reports and documents required
to be filed by Buyer since December 31, 1994 under the Securities Laws. As of
their respective dates, the Buyer SEC Reports (i) complied as to form in all
material respects with the applicable requirements of the Securities Laws and
(ii) did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
made therein, in the light of the circumstances under which they were made, not
misleading. Each of the consolidated balance sheets of Buyer included in or
incorporated by reference into the Buyer SEC Reports (including the related
notes and schedules) fairly presents the consolidated financial position of
Buyer and the Buyer Subsidiaries as of its date and each of the consolidated
statements of income, retained earnings and cash flows of Buyer included in or
incorporated by reference into the Buyer SEC Reports (including any related
notes and schedules) fairly presents the results of operations, retained
earnings or cash flows, as the case may be, of Buyer and the Buyer Subsidiaries
for the periods set forth therein (subject, in the case of unaudited statements,
to normal year-end audit adjustments which would not be material in amount or
effect), in each case in accordance with generally accepted accounting
principles consistently applied during the periods involved, except as may be
noted therein and except, in the case of the unaudited statements, as permitted
by Form 10-Q pursuant to Section 13 or 15(d) of the Exchange Act.
6.8 LITIGATION. Except as set forth in Section 6.8 of the Buyer
Disclosure Letter, there are (i) no continuing orders, injunctions or decrees of
any court, arbitrator or governmental authority to which Buyer or any Buyer
Subsidiary is a party or by which any of its properties or assets are bound, or,
to the reasonable best knowledge of Buyer, to which any person who is now, or
has been at any time prior to the date hereof, a director, officer, employee or
agent of Buyer or any Buyer Subsidiary acting in such capacity is a party, and
(ii) no actions, suits or proceedings pending against Buyer or any Buyer
Subsidiary or, to the reasonable best knowledge of Buyer, threatened against
Buyer or any Buyer Subsidiary or against any person who is now, or has been at
any time prior to the date hereof, a director, officer, employee or agent of
Buyer or any Buyer Subsidiary acting in such capacity, at law or in equity, or
before or by any federal or state commission, board, bureau, agency or
instrumentality, that in the case of clause (i) or (ii) are reasonably likely,
individually or in the aggregate, to have a Buyer Material Adverse Effect. There
are no written, nor to Buyer's knowledge threatened, claims made against Buyer
or any Buyer Subsidiary by any existing or
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former joint venture partner or other partner of Buyer or any Buyer Subsidiary
that are reasonably likely, individually or in the aggregate, to have a Buyer
Material Adverse Effect.
6.9 ABSENCE OF CERTAIN CHANGES. Except as disclosed in the Buyer SEC
Reports filed with the SEC prior to the date hereof, since December 31, 1994,
Buyer and the Buyer Subsidiaries have conducted their business only in the
ordinary course of such business and there has not been (i) any Buyer Material
Adverse Effect; (ii) as of the date hereof, any declaration, setting aside or
payment of any dividend or other distribution with respect to the Buyer Stock,
except dividends of $0.45 per share paid on March 31, 1995 and June 30, 1995,
and $0.47 per share paid on September 29, 1995 and December 29, 1995; or (iii)
any material change in Buyer's accounting principles, practices or methods.
6.10 TAXES. Except as set forth in Section 6.10 of the Buyer
Disclosure Letter:
(a) Buyer and each of the Buyer Subsidiaries has paid,
caused to be paid or accrued all Taxes required to be paid or accrued by it
through the date hereof;
(b) Buyer and each of the Buyer Subsidiaries has timely filed
all federal, state, local and foreign tax returns required to be filed by any of
them through the date hereof, and all such returns completely and accurately set
forth the amount of any Taxes relating to the applicable period;
(c) Buyer and each Buyer Subsidiary has withheld and paid all
taxes required to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor, stockholder or other
party;
(d) For its taxable year ended December 31, 1994 and at all
times thereafter up to and including the date hereof, Buyer has qualified to be
treated as a REIT within the meaning of Sections 856-860 of the Code, including,
without limitation, the requirements of Sections 856 and 857 of the Code. Buyer
has qualified as a REIT for every taxable year in which it existed. For the
periods described in the preceding sentence, Buyer has met all requirements
necessary to be treated as a REIT for purposes of the income tax provisions of
those states in which Buyer is subject to income tax and which provide for the
taxation of a REIT in a manner similar to the treatment of REITs under Sections
856-860 of the Code;
(e) Neither the IRS nor any governmental authority is now
asserting by written notice to Buyer or any Buyer Subsidiary or, to the
knowledge of Buyer, threatening to assert against Buyer or any Buyer Subsidiary
any deficiency or claim for additional Taxes. There is no dispute or claim
concerning any tax liability of Buyer or any Buyer Subsidiary either claimed or
raised in writing by the IRS. There is no dispute or claim concerning any tax
liability of a material nature of Buyer or any Buyer Subsidiary either claimed
or raised in writing by any other governmental authority, or, to the knowledge
of Buyer, which may be claimed or raised by any federal or state governmental
authority. No written claim has ever been made by a taxing authority in a
jurisdiction where Buyer does not file reports and returns
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that Buyer is or may be subject to taxation by that jurisdiction. To the
knowledge of Buyer, there are no security interests on any of the assets of
Buyer or any Buyer Subsidiary that arose in connection with any failure (or
alleged failure) to pay any Taxes when due. Buyer has never entered into a
closing agreement pursuant to Section 7121 of the Code;
(f) Buyer has not received written notice of any audit of any
tax return filed by Buyer, and Buyer has not been notified in writing by any tax
authority that any such audit is contemplated or pending. Neither Buyer nor any
of the Buyer Subsidiaries has executed or filed with the IRS or any other taxing
authority any agreement now in effect extending the period for assessment or
collection of any income or other Taxes, and no extension of time with respect
to any date on which a tax return was or is to be filed by Buyer is in force.
True, correct and complete copies of all federal, state and local income or
franchise tax returns filed by Buyer and each of the Buyer Subsidiaries and all
written communications relating thereto have been delivered to Copley or made
available to representatives of Copley; and
(g) Each of the Buyer Subsidiaries of which all the
outstanding capital stock is owned solely by Buyer is a Qualified REIT
Subsidiary as defined in Section 856(i) of the Code. The Buyer Subsidiaries
listed as partnerships in Section 6.4 of the Buyer Disclosure Letter are, and
have been at all times, properly classified as partnerships for federal income
tax purposes and have not been classified as publicly-traded partnerships for
federal income tax purposes.
6.11 BOOKS AND RECORDS.
(a) The books of account and other financial records of Buyer
and each of the Buyer Subsidiaries are true, complete and correct in all
material respects, have been maintained in accordance with good business
practices, and are accurately reflected in all material respects in the
financial statements included in the Buyer SEC Reports.
(b) The minute books and other records of Buyer and each of
the Buyer Subsidiaries have been made available to Copley, contain in all
material respects accurate records of all meetings and accurately reflect in all
material respects all other corporate action of the shareholders and directors
and any committees of the Board of Directors of Buyer and each of the Buyer
Subsidiaries.
6.12 PROPERTIES. All of the real estate properties owned by Buyer and
each of the Buyer Subsidiaries (the "Buyer Properties") are set forth in Section
6.12 of the Buyer Disclosure Letter. Buyer has made available to Copley for
inspection the title reports ("Buyer Title Reports") and surveys ("Buyer
Surveys") relating to the Buyer Properties listed in Section 6.12 of the Buyer
Disclosure Letter. Buyer is not aware of any encumbrance to title to the Buyer
Properties or any survey matter affecting the Buyer Properties other than (i)
matters listed in the Buyer Title Reports, (ii) matters shown on the Buyer
Surveys, (iii) ordinances and regulations, including zoning ordinances and
building codes, affecting building use or occupancy, (iv) mechanics', carriers',
workmen's liens or encumbrances which are the
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responsibility of tenants under leases, or which otherwise do not have a
material adverse effect on the value of the Buyer Properties as a whole and (v)
the title insurance policies referred to in the next sentence. Section 6.12 of
the Buyer Disclosure Letter sets forth all of the title insurance policies of
Buyer or the applicable Buyer Subsidiary relating to the Buyer Properties and
such policies are, at the date hereof, in full force and effect and no claims
have been made against any such policies. Except as set forth in Section 6.12 of
the Buyer Disclosure Letter, to the best knowledge of Buyer (i) Buyer has
obtained all material certificates, permits and licenses from any governmental
authority having jurisdiction over any of the Buyer Properties which are not the
responsibility of tenants and to Buyer's knowledge no tenant has failed to
obtain any such certificate, permit or license, and all agreements, easements
and other rights which are necessary to permit the lawful use and operation of
all driveways, roads and other means of egress and ingress to and from any of
the Buyer Properties have been obtained and are in full force and effect; (ii)
the Buyer Properties are in full compliance with all governmental permits,
licenses and certificates except where the failure to be in compliance would not
be reasonably likely to have a Buyer Material Adverse Effect; (iii) no written
notice of any violation of any federal, state or municipal law, ordinance,
order, regulation or requirement affecting any portion of any of the Buyer
Properties has been issued by any governmental authority which has not been
remedied or cured; (iv) there are no material structural defects relating to any
of the Buyer Properties; (v) the building systems of each Buyer Property are in
working order in all material respects; (vi) there is no physical damage to any
Buyer Property in excess of $50,000 for which there is no insurance in effect
covering the full cost of the restoration; or (vii) there is no current
renovation or restoration or tenant improvements to any Buyer Property or any
portion thereof, the cost of which exceeds $50,000 individually. Except as
disclosed in Section 6.12 of the Buyer Disclosure Letter, the use and occupancy
of each of the Buyer Properties complies in all material respects with all
applicable codes and zoning laws and regulations, and Buyer has no knowledge of
any pending or threatened proceeding or action that will in any manner affect
the size of, use of, improvements on, construction on, or access to any of the
Buyer Properties, with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such Buyer Properties. Neither
Buyer nor any of the Buyer Subsidiaries has received any written notice to the
effect that (A) any betterment assessments have been levied against, or any
condemnation or rezoning proceedings are pending or threatened with respect to
any of the Buyer Properties, or (B) any zoning, building or similar law, code,
ordinance, order or regulation is or will be violated by the continued
maintenance, operation or use of any buildings or other improvements on any of
the Buyer Properties or by the continued maintenance, operation or use of the
parking areas.
6.13 ENVIRONMENTAL MATTERS. Except as set forth in Section 6.13 of the
Buyer Disclosure Letter and any environmental assessment or report listed
therein, to the best of Buyer's actual knowledge: (i) no Hazardous Substances or
Hazardous Wastes have been or are being released into the environment,
discharged into the environment or disposed of from, at, on or under the Buyer
Properties; (ii) no Hazardous Substances or Hazardous Wastes have been or are
being generated or treated at the Buyer Properties or discharged from the Buyer
Properties, except in compliance in all material respects with applicable Laws;
(iii) no
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Hazardous Wastes have been or are being stored for more than 90 days or handled
at or on the Buyer Properties, except in compliance in all material respects
with applicable Laws; (iv) none of the Buyer Properties are listed on, and Buyer
has not received written or oral notice that any of the Buyer Properties are
being considered for inclusion on, NPL, CERCLIS, or any State or local listing
of sites which are known or suspected to be contaminated by Hazardous Substances
or Hazardous Wastes; (v) there are no on-going violations of any Law at any
Buyer Properties which could result in contamination of the land, surface water
or groundwater from, at, on or under any such properties; and (vi) no Government
Agency is investigating or has provided written notice that it is considering
investigating any alleged or potential release, discharge, disposal or storage
of Hazardous Substances or Hazardous Wastes at, on, under or from any Buyer
Properties.
With respect to properties previously owned, leased or in the
possession of Buyer or Buyer Subsidiaries ("Buyer Previous Properties"), Buyer
has no actual knowledge that any of the activities or conditions described in
clauses (i), (ii) or (iii) as not having taken place or existed at the Buyer
Properties took place or existed at the Buyer Previous Properties during the
period when Buyer or the Buyer Subsidiaries owned, leased or possessed the
properties. In addition, Buyer has no actual knowledge that any of the Buyer
Previous Properties are listed or are being considered for listing on any of the
lists described in clause (iv) or are being investigated or considered for
investigation as described in clause (vi).
Except as disclosed in Section 6.13 of the Buyer Disclosure Letter, to
the best knowledge of Buyer after due inquiry, neither Buyer nor any Buyer
Subsidiary has received any written notice from any Government Agency with
respect to alleged or potential liability relating in any way to Hazardous
Substances or Hazardous Wastes at, on, under or from any Buyer Property or Buyer
Previous Properties.
6.14 NO BROKERS. Neither Buyer nor any of the Buyer Subsidiaries has
entered into any contract, arrangement or understanding with any person or firm
which may result in the obligation of such entity or Copley to pay any finder's
fees, brokerage or agent's commissions or other like payments in connection with
the negotiations leading to this Agreement or the consummation of the
transactions contemplated hereby, except that Buyer has retained PaineWebber as
its financial advisor, the arrangements with which have been disclosed in
writing to Copley prior to the date hereof. Other than the foregoing
arrangements and Copley's arrangements set forth in Section 5.14, Buyer is not
aware of any claim for payment of any finder's fees, brokerage or agent's
commissions or other like payments in connection with the negotiations leading
to this Agreement or the consummation of the transactions contemplated hereby.
6.15 OPINION OF FINANCIAL ADVISOR. Buyer has received the opinion of
PaineWebber to the effect that, as of the date hereof, the Stock Consideration
is fair to the holders of Buyer Stock from a financial point of view, and has
delivered a true and correct copy of such opinion to Copley.
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6.16 COPLEY STOCK OWNERSHIP. Except as set forth in Section 6.16 of the
Buyer Disclosure Letter, neither Buyer nor any of the Buyer Subsidiaries owns
any shares of capital stock of Copley or other securities convertible into
capital stock of Copley.
6.17 RELATED PARTY TRANSACTIONS. Set forth in Section 6.17 of the Buyer
Disclosure Letter is a list of all arrangements, agreements and contracts
entered into by Buyer or any of the Buyer Subsidiaries (which are or will be in
effect as of or after the date of this Agreement) with (i) any consultant
(excluding legal counsel, accountants and financial advisors) involving payments
in excess of $50,000 and which may not be terminated within 90 days by Buyer,
(ii) any person who is an officer, director or affiliate of Buyer or any of the
Buyer Subsidiaries, any relative of any of the foregoing or any entity of which
any of the foregoing is an affiliate or (iii) any person who acquired Buyer
Stock in a private placement. All such documents are listed in Section 6.17 of
the Buyer Disclosure Letter and the copies of such documents, which have
previously been provided or made available to Copley and its counsel, are true
and correct.
6.18 CONTRACTS AND COMMITMENTS. Section 6.18 of the Buyer Disclosure
Letter sets forth (i) all notes, debentures, bonds and other evidence of
indebtedness which are secured or collateralized by mortgages, deeds of trust or
other security interests in the Buyer Properties or personal property of Buyer
and each of the Buyer Subsidiaries and (ii) each Commitment entered into by
Buyer or any of the Buyer Subsidiaries which may result in total payments or
liability in excess of $50,000 and which may not be terminated within 90 days by
Buyer or the Buyer Subsidiary which is a party thereto. Copies of the foregoing
are listed in Section 6.18 of the Buyer Disclosure Letter and the copies of such
documents, which have previously been provided or made available to Copley and
its counsel, are true and correct copies. None of Buyer or any of the Buyer
Subsidiaries has received any written notice of a default that has not been
cured under any of the documents described in clause (i) above or is in default
respecting any payment obligations thereunder beyond any applicable grace
periods, except where such default would not have a Buyer Material Adverse
Effect. To the best knowledge of Buyer, neither Buyer nor any of the Buyer
Subsidiaries is in default with respect to any obligations, which individually
or in the aggregate are material, under any joint venture agreements to which
Buyer or any of the Buyer Subsidiaries is a party.
6.19 BUYER STOCK. The issuance and delivery by Buyer of shares of Buyer
Stock in connection with the Merger and this Agreement have been duly and
validly authorized by all necessary corporate action on the part of Buyer except
for the approval of its stockholders contemplated by this Agreement. The shares
of Buyer Stock to be issued in connection with the Merger and this Agreement,
when issued in accordance with the terms of this Agreement, will be validly
issued, fully paid, nonassessable and free of preemptive rights.
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6.20 CONVERTIBLE SECURITIES. Buyer has no outstanding options, warrants
or other securities exercisable for, or convertible into, shares of Buyer Stock,
the terms of which would require any anti-dilution adjustments by reason of the
consummation of the transactions contemplated hereby.
6.21 DEFINITION OF BUYER'S KNOWLEDGE. As used in this Agreement, the
phrase "to the knowledge of Buyer" or "to the best knowledge of Buyer" or any
similar phrase shall mean the actual, not constructive or imputed, knowledge of
Leland R. Speed, David H. Hoster II and N. Keith McKey without any obligation on
any of their parts to make any independent investigation of the matters being
represented and warranted, or to make any inquiry of any other persons, or to
search or examine any files, records, books, correspondence and the like.
ARTICLE 7. COVENANTS
7.1 ACQUISITION PROPOSALS.
(a) Unless and until this Agreement shall have been terminated
in accordance with its terms, Copley agrees and covenants that (A) neither it
nor any Copley Subsidiary shall, and each of them shall direct and use its best
efforts to cause its respective officers, directors, employees, agents and
representatives (including, without limitation, any investment banker, attorney
or accountant retained by it or any of the Copley Subsidiaries) not to, directly
or indirectly, initiate, solicit or knowingly encourage any inquiries or the
making or implementation of any proposal or offer (including, without
limitation, any proposal or offer to its stockholders) with respect to a merger,
acquisition, tender offer, exchange offer, consolidation or similar transaction
involving, or any purchase (except as permitted under Section 7.2 hereof) of 10%
or more of the assets, any equity securities or partnership interests of Copley
or any Copley Subsidiary, other than the transactions contemplated by this
Agreement (any such proposal or offer being hereinafter referred to as an
"Acquisition Proposal") or engage in any negotiations concerning, or provide any
confidential information or data to, or have any discussions with, any person
relating to an Acquisition Proposal, or otherwise facilitate any effort or
attempt to make or implement an Acquisition Proposal; (B) Copley will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing and will take the necessary steps to inform the
individuals or entities referred to above of the obligations undertaken in this
Section 7.1; and (C) Copley will notify Buyer immediately if any such inquiries
or proposals are received by, any such information is requested from, or any
such negotiations or discussions are sought to be initiated or continued with,
Copley.
(b) Notwithstanding anything set forth in this Agreement to
the contrary (i) the Board of Directors of Copley may furnish information to or
enter into discussions or negotiations with any person or entity that makes an
unsolicited bona fide Acquisition Proposal, if, and only to the extent that, the
Board of Directors of Copley, after consultation
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with and based upon the advice of Goodwin Procter & Hoar, Hale and Dorr or
another nationally recognized law firm selected by the Board of Directors of
Copley, determines in good faith that such action is required for the Board of
Directors to comply with its fiduciary duties to stockholders under applicable
law, PROVIDED that prior to furnishing such information to, or entering into
discussions or negotiations with, such person or entity, Copley provides written
notice to Buyer to the effect that it is furnishing information to, or entering
into discussions or negotiations with, such person or entity, and Copley keeps
Buyer informed of the status of any such discussions or negotiations, (ii) the
Board of Directors of Copley may, to the extent applicable, comply with Rules
14d-9 and 14e-2 promulgated under the Exchange Act with regard to an Acquisition
Proposal, and (iii) Copley may furnish information to, enter into discussions or
negotiations with, execute an agreement with, or consummate transactions
concerning (w) Bermant (including, without limitation, the Bermant/UBC
Agreement) in connection with the sale of the UBC Interest, (x) Summer Hill,
Ltd. and its affiliates, successors and assigns in connection with that certain
purchase option of Summer Hill, Ltd. described in Section 7.2 of the Copley
Disclosure Letter (the "Summer Hill Option"), and (y) Gary and Lenora Hewson, in
connection with the exchange of tenancy-in-common interests affecting certain
property of the Company described in Section 5.9 of the Copley Disclosure
Letter.
7.2 CONDUCT OF BUSINESSES.
(a) Prior to the Effective Time, except as specifically
permitted by this Agreement, unless the other party has consented in writing
thereto, Buyer and Copley:
(i) Shall use their reasonable best efforts,
and shall cause each of their respective Subsidiaries to use their reasonable
best efforts, to preserve intact their business organizations and goodwill and
keep available the services of their respective officers and employees;
(ii) Shall confer on a regular basis with one or
more representatives of the other to report operational matters of materiality
and, subject to Section 7.1, any proposals to engage in material transactions;
(iii) Shall promptly notify the other of any
material emergency or other material change in the condition (financial or
otherwise), business, properties, assets, liabilities, prospects or the normal
course of their businesses or in the operation of their properties, any
material governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated), or the breach in any material
respect of any representation or warranty contained herein; and
(iv) Shall promptly deliver to the other true
and correct copies of any report, statement or schedule filed with the SEC
subsequent to the date of this Agreement.
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(b) Prior to the Effective Time, unless Buyer has consented
thereto (and Buyer hereby agrees to give good faith consideration to any such
request for consent by Copley and to respond to any such request within five (5)
business days and in the event no response is received by Copley by the
expiration of such five business day period, such consent shall be deemed given)
Copley:
(i) Shall, and shall cause each Copley
Subsidiary to, conduct its operations according to their usual, regular and
ordinary course in substantially the same manner as heretofore conducted,
subject to clauses (ii)-(ix) below;
(ii) Shall not, and shall cause each Copley
Subsidiary not to, acquire, enter into an option to acquire or exercise an
option or contract to acquire additional real property, incur additional
indebtedness, encumber assets or commence construction of, or enter into any
agreement or commitment to develop or construct, any other type of real estate
projects except for the transactions contemplated in the Copley Disclosure
Letter;
(iii) Shall not amend Copley's Certificate or
its By-laws, and shall cause each Copley Subsidiary not to amend its charter,
bylaws, joint venture documents, partnership agreements or equivalent documents
except as contemplated by this Agreement or the Copley Disclosure Letter;
(iv) Shall not (A) issue any shares of its
capital stock, effect any stock split, reverse stock split, stock dividend,
recapitalization or other similar transaction, (B) grant, confer or award any
option, warrant, conversion right or other right not existing on the date
hereof to acquire any shares of its capital stock, (C) increase any
compensation or enter into or amend any employment agreement with any of its
present or future officers or directors, or (D) adopt any new employee benefit
plan (including any stock option, stock benefit or stock purchase plan) or
amend any existing employee benefit plan in any material respect, except for
changes which are less favorable to participants in such plans;
(v) Shall not, and shall not permit any of the
Copley Subsidiaries to, except in accordance with and as permitted under
Section 7.2(d) and (e) hereof or as contemplated in the Copley Disclosure
Letter, sell, lease or otherwise dispose of (A) any Copley Properties or any
portion thereof or any of the capital stock of or partnership or other
interests in any of the Copley Subsidiaries or (B) except in the ordinary
course of business, any of its other assets which are material,
individually or in the aggregate;
(vi) Shall not, and shall not permit any of the
Copley Subsidiaries to, make any loans, advances or capital contributions to,
or investments in, any other person;
(vii) Shall not, and shall not permit any of the
Copley Subsidiaries to, pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the ordinary
course of business consistent with past practice or in accordance with their
terms, of
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liabilities reflected or reserved against in, or contemplated by, the most
recent consolidated financial statements (or the notes thereto) of Copley
included in the Copley SEC Reports or incurred in the ordinary course of
business consistent with past practice;
(viii) Shall not, and shall not permit any of the
Copley Subsidiaries to, enter into any Commitment which may result in total
payments or liability by or to it in excess of $50,000 other than Commitments
for expenses of attorneys, accountants and investment bankers incurred in
connection with the Merger; and
(ix) Shall not, and shall not permit any of the
Copley Subsidiaries to, enter into any Commitment with any officer, director,
consultant or affiliate of Copley or any of the Copley Subsidiaries.
(c)(i) Prior to the Effective Time, Buyer shall not,
without the prior written consent of Copley (and Copley hereby agrees to give
good faith consideration to any such request for consent by Buyer and to
respond to any such request within five (5) business days and in the event no
response is received by Buyer by the expiration of such five business day
period, such consent shall be deemed given): (x) directly or indirectly through
a Buyer Subsidiary merge or consolidate with, or acquire all or substantially
all of the assets of, any person or entity except for LNH REIT, Inc.; (y)
incur, in one transaction or a series of transactions, an additional
$15,000,000 of indebtedness; or (z) issue any shares of its capital stock
(except in connection with Buyer's employee or trustee benefit plans), effect
any stock split, reverse stock split, stock dividend, recapitalization or other
similar transaction, or grant, confer or award any option, warrant, conversion
right or other right not existing on the date hereof to acquire any shares of
its capital stock (except in connection with Buyer's employee or trustee
benefit plans). Notwithstanding anything to the contrary in the foregoing
sentence, in connection with any potential merger or acquisition relating to
TargetCo (as such term is defined in Section 7.2 of the Buyer Disclosure
Letter), prior to Buyer entering into a definitive agreement with TargetCo,
Buyer shall first deliver written notice to Copley identifying and describing
the price and other terms of the proposed transaction (the "Notice") and,
within 15 calendar days after receiving the Notice, Copley shall consent or
withhold its consent to the transaction (which consent will not be unreasonably
withheld). In the event Copley withholds its consent to the proposed
transaction, Buyer shall be prohibited from entering into a definitive
agreement with TargetCo until after the Effective Time. In the event Copley
consents to the price and terms of the proposed transaction, Buyer shall be
permitted to enter into a definitive agreement with TargetCo to consummate the
proposed transaction but only upon (A) the price which is not less favorable to
Buyer and its stockholders than the price set forth in the Notice and (B) terms
and conditions which are not less favorable in any material respect to Buyer
and its stockholders than those described in the Notice; PROVIDED, HOWEVER,
that Buyer may not enter into such definitive agreement during the period
between the mailing of the Form S-4 to the Copley stockholders and the
Effective Time.
(ii) Except for the limitations described in
clause (i) of Section 7.2(c) above. between the date of this Agreement and the
Effective Time, Buyer and the Buyer
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Subsidiaries may enter into leases with respect to all or any portion of the
Buyer Properties, acquire, lease, enter into an option to acquire, lease or
exercise an option or contract to acquire, additional real property, incur
additional indebtedness, encumber assets or commence construction of, or enter
into any agreement or commitment to develop or construct, other real estate
projects.
(d) Notwithstanding anything to the contrary set forth in this
Agreement and without limiting any of the other rights of Copley set forth
herein, between the date hereof and the Effective Time:
(i) Copley may enter into the Bermant/UBC
Agreement or any other agreement with Bermant to convey the UBC Interest,
perform its obligations contemplated thereunder and take such other actions as
Copley deems appropriate to fulfill its obligations under the Joint Venture
Agreement;
(ii) Copley may, in the event the Summer Hill
Option is exercised on or prior to the Effective Time, convey to Summer Hill
Ltd. or its successors, assigns or nominees the real property subject to such
option (the "Option Property") in accordance with the terms thereof;
(iii) to the extent Copley conveys the UBC
Interest to Bermant or the Option Property to Summer Hill Ltd., Copley shall
distribute the net proceeds therefrom to its stockholders prior to the
Effective Time; and
(iv) Copley may declare, set aside and pay
dividends of not more than $.27 per Copley Share (except as permitted in
clause (iii) above or Section 7.16 hereof) for each full calendar quarter prior
to the Effective Time, it is currently anticipated that such dividends shall
have declaration dates, record dates and payment dates substantially
similar to those dates set forth in EXHIBIT C. Notwithstanding the foregoing, in
the event the Effective Time shall occur between the record dates set forth in
EXHIBIT C, Copley may declare, establish a record date and set aside a dividend
for the period commencing on the most recent record date and ending on the date
of the Effective Time (the "Partial Period") in an amount which equals the
quotient the numerator of which equals $.27 multiplied by the number of days
comprising such Partial Period and the denominator of which equals 90.
(e) Copley shall not, without the written consent of Buyer,
which consent may not be unreasonably withheld, (i) effect any material change
in any lease or occupancy agreement currently in effect which affects the Copley
Properties (together with such additional leases approved or permitted pursuant
to this Agreement, the "Leases"), (ii) renew or extend the term of any Lease,
unless the same is an extension or expansion permitted pursuant to the terms of
an existing Lease, or (iii) enter into any new Lease or cancel or terminate any
Lease. When seeking consent to a new or modified Lease, Copley shall provide
notice of the identity of the tenant, a term sheet, letter of intent or proposed
lease containing material business terms (including, without limitation, rent,
expense base, concessions, tenant
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improvement allowances, brokerage commissions, and expansion and extension
options) and whatever credit and background information, if any, Copley then
possesses with respect to such tenant. Buyer shall be deemed to have consented
to any proposed Lease or Lease modification if it has not responded to Copley
within five (5) business days after receipt of such information. Upon Buyer's
approval or deemed approval, Copley shall be entitled to enter into a Lease on
the standard lease form for such Property, without material change other than
changes customarily made to leases to other comparable tenants of the Property.
Buyer hereby designates David H. Hoster II and Marshall A. Loeb as individuals
who will be available and authorized to grant Lease approvals. Notwithstanding
anything in this Agreement to the contrary, Copley may cancel or terminate any
Lease or commence collection, unlawful detainer or other remedial action against
any tenant without Buyer's consent upon the occurrence of a default by the
tenant under said Lease.
7.3 MEETINGS OF STOCKHOLDERS. Each of Buyer and Copley will take all
action necessary in accordance with applicable law and its Certificate of
Incorporation and Bylaws or Declaration of Trust and Trustees Regulations, as
the case may be, to convene a meeting of its stockholders as promptly as
practicable to consider and vote upon the approval of this Agreement and the
transactions contemplated hereby. The Board of Trustees of Buyer and Board of
Directors of Copley each shall recommend that its stockholders approve this
Agreement and the transactions contemplated hereby and Buyer and Copley each
shall use their reasonable best efforts to obtain such approval, including,
without limitation, by timely mailing the joint proxy statement/prospectus
contained in the Form S-4 (as defined in Section 7.7 hereof) to their respective
stockholders; PROVIDED, HOWEVER, that nothing contained in this Section 7.3
shall prohibit the Board of Trustees of Buyer or the Board of Directors of
Copley from failing to make such recommendation or using their reasonable best
efforts to obtain such approval if the Board of Trustees of Buyer or the Board
of Directors of Copley, as the case may be, has determined in good faith, after
consultation with and based upon the advice of counsel, that such action is
necessary for such Board of Trustees or Board of Directors to comply with its
fiduciary duties to its stockholders under applicable law. Buyer and Copley
shall coordinate and cooperate with respect to the timing of such meetings and
shall use their reasonable best efforts to hold such meetings on the same day.
It shall be a condition to the mailing of the Form S-4 that (i) Buyer shall have
received a "comfort" letter from Arthur Andersen LLP, independent public
accountants for Copley, dated as of a date within two business days before the
date on which the Form S-4 shall become effective, with respect to the financial
statements of Copley included or incorporated in the Form S-4, in form and
substance reasonably satisfactory to Buyer, and customary in scope and substance
for "comfort" letters delivered by independent public accountants in connection
with registration statements and proxy statements similar to the Form S-4, and
(ii) Copley shall have received a "comfort" letter from KPMG Peat Marwick, LLP,
independent public accountants for Buyer, dated as of a date within two business
days before the date on which the Form S-4 shall become effective, with respect
to the financial statements of Buyer included or incorporated in the Form S-4,
in form and substance reasonably satisfactory to Copley, and customary in scope
and substance for "comfort" letters delivered by independent public accountants
in connection with registration statements and proxy statements similar to the
Form S-4.
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7.4 FILINGS; OTHER ACTION. Subject to the terms and conditions herein
provided, Copley and Buyer shall: (a) to the extent required, promptly make
their respective filings and thereafter make any other required submissions
under the HSR Act with respect to the Merger; (b) use all reasonable best
efforts to cooperate with one another in (i) determining which filings are
required to be made prior to the Effective Time with, and which consents,
approvals, permits or authorizations are required to be obtained prior to the
Effective Time from, governmental or regulatory authorities of the United
States, the several states and foreign jurisdictions and any third parties in
connection with the execution and delivery of this Agreement, the consummation
of the transactions contemplated by this Agreement and (ii) timely making all
such filings and timely seeking all such consents, approvals, permits or
authorizations; (c) use all reasonable best efforts to obtain in writing any
consents required from third parties to effectuate the Merger, such consents to
be in reasonably satisfactory form to Copley and Buyer; and (d) use all
reasonable best efforts to take, or cause to be taken, all other actions and do,
or cause to be done, all other things necessary, proper or appropriate to
consummate and make effective the transactions contemplated by this Agreement.
If, at any time after the Effective Time, any further action is necessary or
desirable to carry out the purpose of this Agreement, the proper officers and
trustees or directors of Buyer and Copley shall take all such necessary action.
7.5 INSPECTION OF RECORDS. From the date hereof to the Effective Time,
each of Copley and Buyer shall allow all designated officers, attorneys,
accountants and other representatives of the other access at all reasonable
times to the records and files, correspondence, audits and properties, as well
as to all information relating to commitments, contracts, titles and financial
position, or otherwise pertaining to the business and affairs, of Copley and
Buyer and their respective subsidiaries.
7.6 PUBLICITY. Buyer and Copley shall consult with each other before
issuing any press release or otherwise making any public statements with respect
to this Agreement or any transaction contemplated herein and shall not issue any
such press release or make any such public statement without the prior consent
of the other party, which consent shall not be unreasonably withheld; PROVIDED,
HOWEVER, that a party may, without the prior consent of the other party, issue
such press release or make such public statement as may be required by law or
the rules of the applicable stock exchange if it has used its reasonable best
efforts to consult with the other party and to obtain such party's consent but
has been unable to do so in a timely manner.
7.7 REGISTRATION STATEMENT. Buyer and Copley shall cooperate and
promptly prepare and Buyer shall file with the SEC as soon as practicable a
Registration Statement on Form S-4 under the Securities Act, with respect to the
shares of Buyer Stock issuable in the Merger, a portion of which Form S-4 shall
also serve as the joint proxy statement with respect to the meetings of the
stockholders of Copley and of Buyer in connection with the Merger (in its
entirety, the "Form S-4"). The respective parties will cause the Form S-4 to
comply as to form in all material respects with the applicable provisions of the
Securities Act, the Exchange Act and the rules and regulations thereunder. Each
of Buyer and Copley shall furnish all
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information about itself and its business and operation and all necessary
financial information to the other as the other may reasonably request in
connection with the preparation of the Form S-4. Buyer shall use its reasonable
best efforts, and Copley will cooperate with Buyer, to have the Form S-4
declared effective by the SEC as promptly as practicable. Buyer shall use its
reasonable best efforts to obtain, prior to the effective date of the Form S-4,
all necessary state securities law or "blue sky" permits or approvals required
to carry out the transactions contemplated by this Agreement and will pay all
expenses incident thereto. Buyer agrees that the Form S-4 and each amendment or
supplement thereto at the time of mailing thereof and at the time of the
respective meetings of stockholders of Buyer and Copley, will not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; PROVIDED, HOWEVER,
that the foregoing shall not apply to the extent that any such untrue statement
of a material fact or omission to state a material fact was made by Buyer in
reliance upon and in conformity with information concerning Copley furnished to
Buyer by Copley for use in the Form S-4. Copley agrees that the information
provided by it for inclusion in the Form S-4 and each amendment or supplement
thereto, at the time of mailing thereof and at the time of the respective
meetings of stockholders of Buyer and Copley, will not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Buyer will advise and
deliver copies (if any) to Copley, promptly after it receives notice thereof, of
the time when the Form S-4 has become effective or any supplement or amendment
has been filed, the issuance of any stop order, the suspension of the
qualification of the Buyer Stock issuable in connection with the Merger for
offering or sale in any jurisdiction, or any request by the SEC for amendment of
the Form S-4 or comments thereon and responses thereto or requests by the SEC
for additional information.
7.8 LISTING APPLICATION. Buyer shall promptly prepare and submit to the
New York Stock Exchange a listing application covering the shares of Buyer Stock
issuable in the Merger, and shall obtain prior to the Effective Time approval
for the listing of such Buyer Stock, subject to official notice of issuance.
7.9 FURTHER ACTION. Each party hereto shall, subject to the fulfillment
at or before the Effective Time of each of the conditions of performance set
forth herein or the waiver thereof, perform such further acts and execute such
documents as may reasonably be required to effect the Merger. In connection with
the Closing, Copley and each Copley Subsidiary shall use its best efforts to
deliver to Buyer such deeds, bills of sale, assignments, certificates,
affidavits and indemnities as are required to effectuate the consummation of the
transactions described herein.
7.10 AFFILIATES OF COPLEY.
(a) At least 30 days prior to the Closing Date, Copley shall
deliver to Buyer a list of names and addresses of those persons who were, in
Copley's reasonable judgment, at
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the record date for its stockholders' meeting to approve the Merger,
"affiliates" (each such person, an "Affiliate") of Copley within the meaning of
Rule 145. Copley shall provide Buyer such information and documents as Buyer
shall reasonably request for purposes of reviewing such list. Copley shall use
its reasonable best efforts to deliver or cause to be delivered to Buyer, prior
to the Closing Date, from each of the Affiliates of Copley identified in the
foregoing list, an Affiliate Letter in the form attached hereto as EXHIBIT B.
Buyer shall be entitled to place legends as specified in such Affiliate Letters
on the certificates evidencing any shares of Buyer Stock to be received by such
Affiliates pursuant to the terms of this Agreement, and to issue appropriate
stop transfer instructions to the transfer agent for the shares of Buyer Stock,
consistent with the terms of such Affiliate Letters.
(b) Buyer shall file the reports required to be filed by it
under the Exchange Act and the rules and regulations adopted by the SEC
thereunder, and it will take such further action as any Affiliate of Copley may
reasonably request, all to the extent required from time to time to enable such
Affiliate to sell shares of Buyer Stock received by such Affiliate in the Merger
without registration under the Securities Act pursuant to (i) Rule 145(d)(1) or
(ii) any successor rule or regulation hereafter adopted by the SEC.
7.11 EXPENSES. Subject to the provisions of Article 9, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses. All
costs and expenses for professional services rendered pursuant to the
transactions contemplated by this Agreement including, but not limited to,
investment banking and legal services, will be paid by each party incurring such
services.
7.12 INDEMNIFICATION AND INSURANCE.
(a) In the event of any threatened or actual claim, action,
suit, proceeding or investigation, whether civil, criminal or administrative,
including, without limitation, any such claim, action, suit, proceeding or
investigation in which any person who is now, or has been at any time prior to
the date hereof, or who becomes prior to the Effective Time, a director,
officer, employee, fiduciary or agent of Copley (including Copley Real Estate
Advisors, Inc.) or any of its subsidiaries (the "Indemnified Parties") is, or is
threatened to be, made a party based in whole or in part on, or arising in whole
or in part out of, or pertaining to (i) the fact that he, she or it is or was a
director, officer, employee or agent of Copley or any of its subsidiaries, or is
or was serving at the request of Copley or any of its subsidiaries as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (ii) this Agreement or any of the
transactions contemplated hereby, whether in any case asserted or arising before
or after the Effective Time, the parties hereto agree to cooperate and use their
reasonable best efforts to defend against and respond thereto. It is understood
and agreed that Copley shall indemnify and hold harmless, and after the
Effective Time Buyer shall indemnify and hold harmless, as and to the full
extent permitted by applicable law, each Indemnified Party against any losses,
claims, damages, liabilities, costs, expenses (including attorneys' fees and
expenses), judgments, fines and amounts paid in
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settlement in connection with any such threatened or actual claim, action, suit,
proceeding or investigation, and in the event of any such threatened or actual
claim, action, suit, proceeding or investigation (whether asserted or arising
before or after the Effective Time), (i) Copley, and the Buyer after the
Effective Time, shall promptly pay expenses in advance of the final disposition
of any claim, suit, proceeding or investigation to each Indemnified Party to the
full extent permitted by law, (ii) the Indemnified Parties may retain counsel
satisfactory to them, and Copley, and Buyer after the Effective Time, shall pay
all fees and expenses of such counsel for the Indemnified Parties within thirty
days after statements therefor are received, and (iii) Copley and Buyer will use
their respective reasonable best efforts to assist in the vigorous defense of
any such matter; provided, that neither Copley nor Buyer shall be liable for any
settlement effected without its prior written consent (which consent shall not
be unreasonably withheld); and provided further that the Buyer shall have no
obligation hereunder to any Indemnified Party when and if a court of competent
jurisdiction shall ultimately determine, and such determination shall have
become final and non-appealable, that indemnification of such Indemnified Party
in the manner contemplated hereby is prohibited by applicable law. Any
Indemnified Party wishing to claim indemnification under this Section 7.12, upon
learning of any such claim, action, suit, proceeding or investigation, shall
notify Copley and, after the Effective Time, Buyer, thereof, provided that the
failure to so notify shall not affect the obligations of Copley or Buyer except
to the extent such failure to notify materially prejudices such party.
(b) Buyer agrees that all rights to indemnification existing
in favor, and all limitations on the personal liability, of the Indemnified
Parties provided for in Copley's Certificate or its By-Laws or the charter or
by-laws or similar organizational documents of any of its subsidiaries as in
effect as of the date hereof with respect to matters occurring prior to the
Effective Time shall survive the Merger and shall continue in full force and
effect for a period of not less than six (6) years from the Effective Time;
PROVIDED, HOWEVER, that all rights to indemnification in respect of any claim (a
"Claim") asserted or made within such period shall continue until the
disposition of such Claim. At or prior to the Effective Time, Buyer shall
purchase directors' and officers' liability insurance coverage for Copley's
directors and officers in a form acceptable to Copley which shall provide such
directors and officers with $5,000,000 of aggregate coverage for six years
following the Effective Time and which shall have a retention of no more than
$500,000; PROVIDED, HOWEVER, that the cost of such policy shall not exceed
$600,000.
(c) This Section 7.12 is intended for the irrevocable benefit
of, and to grant third party rights to, the Indemnified Parties and shall be
binding on all successors and assigns of Buyer and Copley. Each of the
Indemnified Parties shall be entitled to enforce the covenants contained in this
Section 7.12 and Buyer acknowledges and agrees that each Indemnified Party would
suffer irreparable harm and that no adequate remedy at law exists for a breach
of such covenants.
(d) In the event the Surviving Corporation or any of
its successors or assigns (i) consolidates with or merges into any other
person or entity and shall not be the
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continuing or surviving corporation or entity of such consolidation or merger or
(ii) transfers or conveys all or substantially all of its properties and assets
to any person or entity, then, and in each such case, proper provision shall be
made so that the successors and assigns of Buyer assume the obligations set
forth in this Section 7.12.
7.13 REORGANIZATION. From and after the date hereof and until the
Effective Time, none of Buyer, Copley or any of their respective subsidiaries or
other affiliates shall (i) knowingly take any action, or knowingly fail to take
any action, that would jeopardize qualification of the Merger as a
reorganization within the meaning of Section 368(a) of the Code or (ii) enter
into any contract, agreement, commitment or arrangement with respect to the
foregoing. Following the Effective Time, Buyer shall use its reasonable best
efforts to conduct its business in a manner that would not jeopardize the
characterization of the Merger as a reorganization within the meaning of Section
368(a) of the Code.
7.14 REDEMPTION OF RIGHTS. The Board of Directors of Copley shall amend
the Rights Agreement so that neither the execution nor the delivery of this
Agreement will trigger or otherwise affect any rights or obligations under the
Rights Agreement, including causing the occurrence of a "Distribution Date" or a
"Stock Acquisition Date," as defined in the Rights Agreement. Copley will redeem
all outstanding Rights at a redemption price of $.01 per Right effective
immediately prior to the Effective Time.
7.15 PAYMENT OF ADVISORY FEE. Notwithstanding anything to the contrary
set forth in this Agreement, Buyer and Copley hereby agree that, immediately
prior to the Effective Time, Copley shall pay to Copley Real Estate Advisors,
Inc. (the "Advisor") a fee the amount of which shall not exceed the amount of
advisory fee which the Advisor would be entitled to receive under that certain
Advisory Agreement, dated as of June 30, 1985, as amended to date, between
Copley and the Advisor.
7.16 REIT STATUS. Notwithstanding anything to the contrary set forth in
this Agreement, nothing in this Agreement shall prohibit Copley or any Copley
Subsidiary from taking any action at any time or from time to time that in the
reasonable judgment of Copley is necessary for Copley to maintain its
qualification as a REIT within the meaning of Sections 856-860 of the Code for
any period or portion thereof ending on or prior to the Merger including,
without limitations, making dividend or distribution payments to stockholders.
To the extent that any dividends or distributions are paid to Copley
stockholders other than the payments permitted to be made pursuant to Sections
7.2(d)(iii) or 7.2(d)(iv), the Share Value shall be reduced by the per share
amount of such dividend or distribution payments. Prior to the payment of any
such dividend or distribution contemplated by the preceding sentence, Copley
shall provide written notice of its intention to make such dividend or
distribution and the reasons therefor to Buyer. Following the Merger, Buyer
shall use its best efforts to take any such actions as may be necessary to
maintain Copley's status as a REIT for any period or portion thereof ending on
or prior to the Merger (including, without limitation, the mailing of
stockholder demand letters as required by Treasury Regulation Section 1.857-8).
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ARTICLE 8.CONDITIONS
8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each party to effect the Merger and the other
transactions contemplated herein shall be subject to the fulfillment at or prior
to the Effective Time of the following conditions, any or all of which may be
waived, in whole or in part by the parties hereto, to the extent permitted by
applicable law:
(a) This Agreement and the transactions contemplated hereby
shall have been approved by the requisite vote of stockholders of Buyer and
Copley.
(b) The waiting period applicable to the consummation of the
Merger under the HSR Act, if applicable, shall have expired or been terminated.
(c) Neither of the parties hereto shall be subject to any
order, ruling or injunction of a court of competent jurisdiction which prohibits
the consummation of the transactions contemplated by this Agreement. In the
event any such order, ruling or injunction shall have been issued, each party
agrees to use its best efforts to have any such order, ruling or injunction
lifted, stayed or reversed.
(d) The Form S-4 shall have been declared effective by the SEC
under the Securities Act, and no stop order suspending the effectiveness of the
Form S-4 shall have been issued by the SEC, and no proceedings for that purpose
shall have been initiated or, to the knowledge of Buyer or Copley, threatened by
the SEC.
(e) Buyer shall have obtained the approval for the listing of
the shares of Buyer Stock issuable in the Merger on the New York Stock Exchange,
subject to official notice of issuance.
(f) All consents, authorizations, orders and approvals of (or
filings or registrations with) any governmental commission, board, other
regulatory body or third parties required to be made or obtained by Buyer,
Copley and their respective subsidiaries and affiliated entities in connection
with the execution, delivery and performance of this Agreement shall have been
obtained or made, except (A) for any consents or approvals which are required
from any holders of mortgages affecting any Copley Properties (the "Lender
Consents") and (B) where the failure to have obtained or made any such consent,
authorization, order, approval, filing or registration, would not have a Copley
Material Adverse Effect or a Buyer Material Adverse Effect, as the case may be.
It shall be the sole responsibility of Buyer to obtain the Lender Consents and
to pay all costs, principal paydowns, fees and expenses associated therewith. In
the event Buyer is unable to obtain any Lender Consent, Buyer shall cause the
obligation underlying the respective mortgage to be satisfied and the mortgage
to be discharged on or prior to Closing. The parties acknowledge and agree that
the failure to obtain any of the Lender Consents shall not constitute a basis
for Buyer to terminate or otherwise amend the terms of this Agreement.
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8.2 CONDITIONS TO OBLIGATIONS OF COPLEY TO EFFECT THE MERGER. The
obligation of Copley to effect the Merger shall be subject to the fulfillment at
or prior to the Effective Time of the following conditions, unless waived by
Copley:
(a) Each of the representations and warranties of Buyer
contained in this Agreement shall be true and correct in all material respects
as of the date of this Agreement and as of the Effective Time as though made on
and as of the Effective Time and Copley shall have received a certificate, dated
the Closing Date, signed on behalf of Buyer by the President of Buyer to the
foregoing effect.
(b) Buyer shall have performed or complied in all material
respects with all agreements and covenants required by this Agreement to be
performed or complied with by it on or prior to the Effective Time, and Copley
shall have received a certificate, dated the Closing Date, signed on behalf of
Buyer by the President of Buyer to the foregoing effect.
(c) Copley shall have received the opinion of counsel, dated
not less than five business days prior to the date the Form S-4 is declared
effective by the SEC, reasonably acceptable to Copley, and subject to customary
conditions and qualifications (including reliance, in part, on representations
of Buyer and Copley and certain stockholders of Copley), to the effect that the
Merger will be treated for federal income tax purposes as a tax-free
reorganization qualifying under the provisions of Sections 368(a) of the Code,
which opinion shall not have been withdrawn or modified in any material respect.
(d) From the date of this Agreement through the Effective
Time, there shall not have occurred any change concerning Buyer or any of the
Buyer Subsidiaries, that has had or could be reasonably likely to have a Buyer
Material Adverse Effect and Copley shall have received a certificate, dated the
Closing Date, signed on behalf of Buyer by the President of Buyer to the
foregoing effect.
(e) The transactions contemplated by the Bermant/UBC Agreement
shall have been consummated prior to the Effective Date and the UBC Interest
shall have been conveyed to Bermant or, alternatively, Bermant shall have failed
to exercise (or failed to fulfill its obligations under) its right of first
refusal set forth in the Joint Venture Agreement or such right of first refusal
shall have otherwise been terminated in accordance with its terms and the UBC
Interest shall remain the property of Copley at the Effective Time.
(f) Buyer shall have purchased directors' and officers'
liability insurance coverage in accordance with Section 7.12(b) hereof and such
insurance shall be in full force and effect.
(g) The officers of Copley shall have resigned from their
positions at Baygreen Eden Landing Industrial Park Owners Association and
Buyer's nominees shall have been appointed to fill such positions.
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8.3 CONDITIONS TO OBLIGATION OF BUYER TO EFFECT THE MERGER. The
obligations of Buyer to effect the Merger shall be subject to the fulfillment at
or prior to the Closing Date of the following conditions, unless waived by
Buyer:
(a) Each of the representations and warranties of Copley
contained in this Agreement shall be true and correct in all material respects
as of the date of this Agreement and as of the Effective Time as though made on
and as of the Effective Time, and Buyer shall have received a certificate, dated
the Closing Date, signed on behalf of Copley by the President of Copley to the
foregoing effect.
(b) Copley shall have performed or complied in all material
respects with all agreements and covenants required by this Agreement to be
performed or complied with by it on or prior to the Effective Time, and Buyer
shall have received a certificate, dated the Closing Date, signed on behalf of
Copley by the President of Copley to the foregoing effect.
(c) Buyer shall have received the opinion of counsel, dated
not less than five business days prior to the date the Form S-4 is declared
effective by the SEC, reasonably acceptable to Buyer, and subject to customary
conditions and qualifications (including reliance, in part, on representations
of Buyer and Copley and certain stockholders of Copley), to the effect that the
Merger will be treated for federal income tax purposes as a tax-free
reorganization qualifying under the provisions of Sections 368(a) of the Code,
which opinion shall not have been withdrawn or modified in any material respect.
(d) From the date of this Agreement through the Effective
Time, there shall not have occurred any change concerning Copley or any of the
Copley Subsidiaries, that has had or could be reasonably likely to have a Copley
Material Adverse Effect and Buyer shall have received a certificate, dated the
Closing Date, signed on behalf of Copley by the President of Copley to the
foregoing effect.
(e) The Board of Directors of Copley shall have amended the
Rights Agreement so that neither the execution nor the delivery of this
Agreement will trigger or otherwise affect any rights or obligations under the
Rights Agreement, including causing the occurrence of a "Distribution Date" or a
"Stock Acquisition Date," as defined in the Rights Agreement, and shall redeem
all outstanding Rights.
ARTICLE 9.TERMINATION
9.1 TERMINATION. This Agreement may be terminated and abandoned at any
time prior to the Effective Time, whether before or after approval and adoption
of this Agreement by the stockholders of Copley and Buyer:
(a) by mutual written consent of Buyer and Copley; or
(b) by either Buyer or Copley if any United States
federal or state court of
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competent jurisdiction or other governmental entity shall have issued an order,
decree or ruling or taken any other action permanently restraining, enjoining or
otherwise prohibiting the Merger and such order, decree, ruling or other action
shall have become final and non-appealable, provided that the party seeking to
terminate shall have used its best efforts to appeal such order, decree, ruling
or other action; or
(c) by Buyer upon a breach of any representation, warranty,
covenant or agreement on the part of Copley set forth in this Agreement, or if
any representation or warranty of Copley shall have become untrue, in either
case such that the conditions set forth in Section 8.3(a) or Section 8.3(b), as
the case may be, would be incapable of being satisfied by September 1, 1996;
PROVIDED, HOWEVER, that, in any case, a willful breach shall be deemed to cause
such conditions to be incapable of being satisfied for purposes of this Section
9.1(c);
(d) by Copley upon a breach of any representation, warranty,
covenant or agreement on the part of Buyer set forth in this Agreement, or if
any representation or warranty of Buyer shall have become untrue, in either case
such that the conditions set forth in Section 8.2(a) or Section 8.2(b), as the
case may be, would be incapable of being satisfied by September 1, 1996;
PROVIDED, HOWEVER, that, in any case, a willful breach shall be deemed to cause
such conditions to be incapable of being satisfied for purposes of this Section
9.1(d);
(e) by Buyer if (i) the Board of Directors of Copley shall
have withdrawn, amended, modified or changed its approval or recommendation of
this Agreement or any of the transactions contemplated hereby; (ii) Copley shall
have failed as soon as practicable to mail the Form S-4 to its stockholders or
to include the recommendation of its Board of Directors of this Agreement and
the transactions contemplated hereby in the Form S-4; or (iii) the Board of
Directors of Copley shall have recommended that stockholders of Copley accept or
approve an Acquisition Proposal by a person other than Buyer (or Copley or its
Board shall have resolved to do such);
(f) by Copley, if (i) the Board of Directors of Copley
recommends to Copley's stockholders approval or acceptance of an Acquisition
Proposal by a person other than Buyer, but only in the event that the Board of
Directors of Copley, after consultation with and based upon the advice of
Goodwin Procter & Hoar, Hale and Dorr or another nationally recognized law firm
selected by the Board of Directors of Copley, has determined in good faith that
such action is necessary for the Board of Directors of Copley to comply with its
fiduciary duties to its stockholders under applicable law, (ii) if Buyer shall
have failed as soon as practicable to mail the Form S-4 to its stockholders or
to include the recommendation of its Board of Trustees of this Agreement and the
transactions contemplated hereby in the Form S-4 or (iii) if the average closing
sales prices of Buyer Stock on the New York Stock Exchange on each of the twenty
(20) trading days immediately preceding the fifth trading day prior to either
(A) the date on which the Form S-4 is declared effective by the SEC or (B) the
date on which the meeting of Copley stockholders is to be convened pursuant to
Section 7.3 hereof, is equal to or less than $18.25 without any liability on the
part of Copley;
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(g) by either Buyer or Copley if this Agreement and the
transactions contemplated hereby shall have failed to receive the requisite vote
for approval and adoption by the stockholders of Buyer or Copley upon the
holding of a duly convened stockholder meeting;
(h) by either Buyer or Copley, if the Merger shall not have
been consummated on or before September 1, 1996 (other than due to the failure
of the party seeking to terminate this Agreement to perform its obligations
under this Agreement required to be performed by it at or prior to the Effective
Time).
The right of any party hereto to terminate this Agreement pursuant to
this Section 9.1 shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of any party hereto, any person
controlling any such party or any of their respective employees, officers,
trustees, directors, agents, representatives or advisors, whether prior to or
after the execution of this Agreement.
9.2 EFFECT OF TERMINATION.
(a) In the event of the termination and abandonment of this
Agreement pursuant to Section 9.1 hereof, this Agreement shall forthwith become
void and have no effect, without any liability on the part of any party hereto
or its affiliates, trustees, directors, officers or stockholders and all rights
and obligations of any party hereto shall cease except for the agreements
contained in Section 10.5; PROVIDED, HOWEVER, that nothing contained in this
Section 9.2 shall relieve any party from liability for any breach of this
Agreement or shall relieve Copley from any liability under this Article 9.
(b) If (x) Buyer terminates this Agreement pursuant to Section
9.1(e)(iii) or pursuant to 9.1(c) as a result of a willful breach by Copley or
(y) if Copley terminates this Agreement pursuant to Section 9.1(f)(i) then
Copley shall pay to Buyer an amount (the "Termination Amount") in cash equal to
the sum of (i) $1,500,000, plus (ii) Buyer's out-of-pocket costs and expenses in
connection with this Agreement and the transactions contemplated hereby,
evidenced by documentation reasonably acceptable to Copley, up to a maximum of
$375,000 in accordance with the provisions of Section 9.3.
(c) If Buyer terminates this Agreement pursuant to Section
9.1(e)(i), 9.1(e)(ii) or 9.1(c) (except for a termination because of a willful
breach by Copley in which case, the provisions of Section 9.2(b) will apply),
Copley shall pay all of Buyer's out-of-pocket costs and expenses in connection
with this Agreement and the transactions contemplated thereby, evidenced by
documentation reasonably acceptable to Copley, up to a maximum of $375,000
("Expenses").
(d) The parties acknowledge and agree that the provisions for
payment of Expenses or the Termination Amount are included herein in order to
induce Buyer to enter into this Agreement and to reimburse Buyer for incurring
the costs and expenses related to
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<PAGE> 45
entering into this Agreement and consummating the transactions contemplated by
this Agreement. The parties hereto agree that the payment of Expenses or the
Termination Amount by Copley to Buyer shall constitute liquidated damages with
respect to any claim for damages which would otherwise be entitled to assert
against Copley with respect to this Agreement and the transactions contemplated
hereby and shall constitute the only remedy to which Buyer shall be entitled in
connection therewith.
9.3 PAYMENT OF TERMINATION AMOUNT OR EXPENSES.
(a) In the event that Copley is obligated to pay Buyer the
Termination Amount or Expenses pursuant to Section 9.2 (the "Section 9.2
Amount"), Copley (or any other person to the extent provided by Section 9.2(d))
shall pay to Buyer from the applicable Section 9.2 Amount deposited into escrow
in accordance with the next sentence, an amount equal to the lesser of (m) the
Section 9.2 Amount and (n) the sum of (1) the maximum amount that can be paid to
Buyer without causing Buyer to fail to meet the requirements of Sections
856(c)(2) and (3) of the Code determined as if the payment of such amount did
not constitute income described in Sections 856(c)(2)(A)-(H) or 856(c)(3)(A)-(I)
of the Code ("Qualifying Income"), as determined by Buyer's certified public
accountants, plus (2) in the event Buyer receives either (X) a letter from
Buyer's counsel indicating that Buyer has received a ruling from the IRS
described in Section 9.3(b)(ii) or (Y) an opinion from Buyer's counsel as
described in Section 9.3(b)(ii), an amount equal to the Section 9.2 Amount less
the amount payable under clause (1) above. To secure Copley's obligation to pay
these amounts, Copley shall deposit into escrow an amount in cash equal to the
Section 9.2 Amount with an escrow agent selected by Buyer and on such terms
(subject to Section 9.3(b)) as shall be agreed upon by Buyer and the escrow
agent. The payment or deposit into escrow of the Section 9.2 Amount pursuant to
this Section 9.3(a) shall be made within three days of the event which gives
rise to the payment of the Section 9.2 Amount by wire transfer or bank check.
(b) The escrow agreement shall provide that the Section 9.2
Amount in escrow or any portion thereof shall not be released to Buyer unless
the escrow agent receives any one or combination of the following: (i) a letter
from Buyer's certified public accountants indicating the maximum amount that can
be paid by the escrow agent to Buyer without causing Buyer to fail to meet the
requirements of Sections 856(c)(2) and (3) of the Code determined as if the
payment of such amount did not constitute Qualifying Income or a subsequent
letter from Buyer's accountants revising that amount, in which case the escrow
agent shall release such amount to Buyer, or (ii) a letter from Buyer's counsel
indicating that Buyer received a ruling from the IRS holding that the receipt by
Buyer of the Section 9.2 Amount would either constitute Qualifying Income or
would be excluded from gross income within the meaning of Sections 856(c)(2) and
(3) of the Code (or alternatively, Buyer's legal counsel has rendered a legal
opinion to the effect that the receipt by Buyer of the Section 9.2 Amount would
either constitute Qualifying Income or would be excluded from gross income
within the meaning of Sections 856(c)(2) and (3) of the Code), in which case the
escrow agent shall release the remainder of the Section 9.2 Amount to Buyer. The
escrow agreement shall also provide that any portion of the Section 9.2 Amount
held in escrow for five years shall be released by the
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<PAGE> 46
escrow agent to Copley. Copley shall not be a party to such escrow agreement and
shall not bear any cost of or have liability resulting from the escrow
agreement.
(c) Notwithstanding anything to the contrary set forth in this
Agreement, in the event Buyer is required to file suit to seek all or a portion
of the Termination Amount and/or the Expenses and Buyer prevails in such
litigation, it shall be entitled to all expenses, including attorneys' fees and
expenses, which it has incurred in enforcing its rights hereunder; provided that
payment of such expenses shall be subject to the limitations of Section 9.3(a)
(determined as if such expenses were included in the Section 9.2 Amount).
9.4 EXTENSION; WAIVER. At any time prior to the Effective Time, any
party hereto, by action taken by its Board of Trustees or Board of Directors,
may, to the extent legally allowed, (a) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
ARTICLE 10. GENERAL PROVISIONS
10.1 NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement, including, without limitation,
the certificates described in Sections 8.2(a), 8.2(b), 8.2(d), 8.3(a), 8.3(b)
and 8.3(d), shall terminate as of the Effective Time and shall not survive the
Merger, PROVIDED, HOWEVER, that the agreements contained in Article 4, the last
sentence of Section 7.4 and Sections 7.10, 7.12, 7.13 and 7.14 and this Article
10 shall survive the Merger.
10.2 NOTICES. Any notice required to be given hereunder shall be in
writing and shall be sent by facsimile transmission (confirmed by any of the
methods that follow), courier service (with proof of service), hand delivery or
certified or registered mail (return receipt requested and first-class postage
prepaid) and addressed as follows:
If to Buyer: EastGroup Properties
300 One Jackson Place
188 East Capitol Street
Jackson, Mississippi 39201
Attn: David H. Hoster II
Tel.: (601) 354-3555
Fax: (601) 949-4077
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<PAGE> 47
With copies to: Jaeckle, Fleischmann & Mugel
800 Fleet Bank Building
Twelve Fountain Plaza
Buffalo, New York 14202
Attn: Joseph P. Kubarek, Esq.
Tel.: (716) 856-0600
Fax: (716) 856-0432
If to Copley: Copley Properties, Inc.
399 Boylston Street, 13th Floor
Boston, Massachusetts 02116
Attn: Mary L. Lentz
Tel.: (617) 578-1200
Fax: (617) 578-1350
With copies to: Hale and Dorr
60 State Street
Boston, Massachusetts 02116
Attn: Kenneth A. Hoxsie, Esq. and
William R. O'Reilly, Jr., Esq.
Tel: (617) 526-6000
Fax: (617) 526-5000
And
Goodwin, Procter & Hoar
Exchange Place, 53 State Street
Boston, MA 02109
Attn: Richard E. Floor, P.C. and
Joseph L. Johnson III, Esq.
Tel: (617) 570-1000
Fax: (617) 523-1231
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
delivered.
10.3 ASSIGNMENT; BINDING EFFECT; BENEFIT. Neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by any
of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties. Subject to the preceding sentence,
this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns. Notwithstanding
anything contained in this Agreement to the contrary, except for the provisions
of Article 4 and Sections 7.10, 7.12, 7.13 and 7.14, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto or their
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respective heirs, successors, executors, administrators and assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
10.4 ENTIRE AGREEMENT. This Agreement, the Exhibits, the Copley
Disclosure Letter, the Buyer Disclosure Letter and any documents delivered by
the parties in connection herewith constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings among the partes with respect thereto except that
the Confidentiality Agreements (as hereinafter defined) shall remain in effect
and shall be binding upon Buyer and Copley in accordance with its terms. No
addition to or modification of any provision of this Agreement shall be binding
upon any party hereto unless made in writing and signed by all parties hereto.
10.5 CONFIDENTIALITY. Each of Buyer and Copley understands and agrees
that it is still bound by and subject to the terms of the Confidentiality
Agreements, dated as of October 18, 1995 and February 1, 1996, by and between
Buyer and Copley (the "Confidentiality Agreements").
10.6 AMENDMENT. This Agreement may be amended by the parties hereto, by
action taken by their respective Board of Trustees and Board of Directors, at
any time before or after approval of matters presented in connection with the
Merger by the stockholders of Copley and Buyer, but after any such stockholder
approval, no amendment shall be made which by law requires the further approval
of stockholders without obtaining such further approval. This Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto.
10.7 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware without regard to its rules
of conflict of laws. Each of Copley and Buyer hereby irrevocably and
unconditionally consents to submit to the exclusive jurisdiction of the courts
of the State of Delaware and of the United States of America located in the
State of Delaware (the "Delaware Courts") for any litigation arising out of or
relating to this Agreement and the transactions contemplated hereby (and agrees
not to commence any litigation relating thereto except in such courts), waives
any objection to the laying of venue of any such litigation in the Delaware
Courts and agrees not to plead or claim in any Delaware Court that such
litigation brought therein has been brought in any inconvenient forum.
10.8 COUNTERPARTS. This Agreement may be executed by the parties hereto
in separate counterparts, each of which so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
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<PAGE> 49
10.9 HEADINGS. Headings of the Articles and Sections of this
Agreement are for the, convenience of the parties only, and shall be given no
substantive or interpretive effect whatsoever.
10.10 WAIVERS. Except as provided in this Agreement, no action taken
pursuant to this Agreement, including, without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representations, warranties, covenants
or agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision hereunder shall not operate or be construed as a waiver
of any prior or subsequent breach of the same or any other provision hereunder.
10.11 INCORPORATION. The Copley Disclosure Letter and the Buyer
Disclosure Letter and all Exhibits and Schedules attached hereto and thereto and
referred to herein and therein are hereby incorporated herein and made a part
hereof for all purposes as if fully set forth herein.
10.12 SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
10.13 INTERPRETATION AND CERTAIN DEFINITIONS.
(a) In this Agreement, unless the context otherwise requires,
words describing the singular number shall include the plural and vice versa,
and words denoting any gender shall include all genders.
(b) As used in this Agreement, the word "Subsidiary" or
"Subsidiaries" when used with respect to any party means any corporation,
partnership, joint venture, business trust or other entity, of which such party
directly or indirectly owns or controls at least a majority of the securities or
other interests having by their terms ordinary voting power to elect a majority
of the board of directors or others performing similar functions with respect to
such corporation or other organization.
(c) As used in this Agreement, the word "person" means an
individual, a corporation, a partnership, an association, a joint-stock company,
a trust, a limited liability company, any unincorporated organization or any
other entity.
(d) As used in this Agreement, the word "affiliate" shall have
the meaning set forth in Rule 12b-2 of the Exchange Act.
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<PAGE> 50
10.14 SCHEDULES. Any fact or item disclosed in one section of any
Disclosure Letter or schedule hereto ("Schedule") shall be deemed to be
disclosed with respect to any other relevant section of such Disclosure Letter
or Schedule, whether or not an explicit cross-reference appears.
[END OF TEXT]
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<PAGE> 51
IN WITNESS WHEREOF, the parties have executed this Agreement and caused
the same to be duly delivered on their behalf on the day and year first written
above.
COPLEY PROPERTIES, INC.
ATTEST:
By:/S/Peter P. Twining By:/s/Mary L. Lentz
------------------- ------------------
Name: Peter P. Twining Name:Mary L. Lentz
Title: Secretary Title:Chief Operating Officer
EASTGROUP PROPERTIES
ATTEST:
By:/s/N. Keith Mckey By:/s/Leland R. Speed
----------------- ------------------
Name: N. Keith Mckey Name: Leland R. Speed
Title: CFO & Secretary Title: Chief Executive Officer
219588.c16
47
<PAGE> 1
EXHIBIT (22)
EASTGROUP PROPERTIES' SUBSIDIARIES
<TABLE>
<CAPTION>
Jurisdiction of
Incorporation or
Name Organization
- ---- ----------------
<S> <C>
EastGroup Virginia, Inc. Virginia
EastGroup California, Inc. California
EastGroup Florida, Inc. Florida
EastGroup Sunbelt, Inc. Florida
EGP Managers, Inc. Mississippi
EastGroup Texas, Inc. Texas
EastGroup Tampa, Inc. Florida
EastGroup Jacksonville, Inc. Florida
EastGroup San Antonio, Inc. Texas
EastGroup Houston, Inc. Texas
EastGroup Tallahassee, Inc. Florida
EastGroup Jackson, Inc. Mississippi
EastGroup Alabama, Inc. Alabama
EastGroup - LNH Corporation Maryland
EGP Texas Partners Ltd. Texas
EGP Houston Partners Ltd. Texas
EGP San Antonio Partners Ltd. Texas
</TABLE>
<PAGE> 1
Exhibit 23(a)
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 1 to the Registration Statement (Form S-4, No. 33-65337) and
related prospectus of EastGroup Properties for the registration of 682,344
shares of EastGroup's shares of beneficial interest and to the incorporation by
reference therein of our report dated March 24, 1995, with respect to the
consolidated financial statements of LNH Reit, Inc., included in its Annual
Report (Form 10-KSB) for the year ended December 31, 1994, filed with the
Securities and Exchange Commission, and its Annual Report to Shareholders,
included in Exhibit 13(b) to this Registration Statement.
/s/ERNST & YOUNG LLP
Ernst & Young LLP
Jackson, Mississippi
February 23, 1996
<PAGE> 1
Exhibit 23(b)
INDEPENDENT AUDITORS' CONSENT
-----------------------------
The Trustees
EastGroup Properties:
We consent to the use of our reports incorporated herein by reference and to
the reference to our firm under the heading "Experts" in the prospectus.
/s/KPMG PEAT MARWICK LLP
-------------------------
KPMG PEAT MARWICK LLP
Jackson, Mississippi
February 26, 1996
<PAGE> 1
Exhibit 23(c)
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
to the Board of Directors of Copley Properties, Inc. dated March 28, 1995,
included in or made a part of Amendment No. 1 of Registration Statement File
No. 33-65337.
/s/ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 23, 1996
<PAGE> 1
Exhibit 23(d)
CONSENT OF RAUSCHER PIERCE REFSNES, INC.
On behalf of Rauscher Pierce Refsnes, Inc. ("RPR"), the undersigned
hereby consents to the inclusion of the opinion of RPR, dated as of December
21, 1995, as to the fairness, from a financial point of view, of the
consideration to be received by the shareholders of LNH REIT, Inc. ("LNH") in
the merger of LNH with and into a subsidiary of EastGroup Properties.
DATED: FEBRUARY 26, 1996
Sincerely,
/s/Clyde Buck
---------------------------------
G. Clyde Buck
Managing Director
<PAGE> 1
EXHIBIT 99(b)
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF LNH REIT, INC.
SPECIAL MEETING OF SHAREHOLDERS
_____________, 1996
The undersigned hereby appoints Leland R. Speed and N. Keith McKey, or either
of them, as Proxies, each with full power of substitution and resubstitution,
and hereby authorizes them to represent and to vote as designated below, on
behalf of the undersigned, all of the shares of common stock, $0.50 par value
per share, of LNH REIT, Inc. ("LNH"), held of record by the undersigned at the
close of business on ______________________, 1996 at the special meeting of
shareholders to be held at __________ a.m. on __________________, 1996, at 300
One Jackson Place, 188 East Capitol Street, Jackson, Mississippi, and at any
adjournment or postponement thereof.
1. APPROVAL OF THE AGREEMENT AND PLAN OF MERGER dated as of
December 22, 1995 among LNH REIT, Inc., EastGroup Properties
and EastGroup-LNH Corporation.
/ / FOR / / AGAINST / / ABSTAIN
2. In their discretion, Proxies are authorized to vote upon such
other business as may properly come before the special meeting
and any adjournment or postponement thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE MATTER INDICATED IN 1 ABOVE AND WILL BE VOTED IN THE DISCRETION
OF THE PROXIES NAMED HEREIN WITH RESPECT TO ANY MATTER REFERRED TO IN 2 ABOVE.
Dated: _________________, 1996 PLEASE SIGN
EXACTLY AS NAME(S) APPEAR ON STOCK
CERTIFICATE(S). A corporation is
requested to sign its name by its President
or other authorized officer, with the office
held so designated. A partnership should
sign in the partnership name by an authorized
person. Executors, trustees, administrators,
etc. are requested to indicate the capacity
in which they are signing. JOINT TENANTS
SHOULD BOTH SIGN.
--------------------------------------------
--------------------------------------------
(Signature(s) of Shareholder(s))
PLEASE SIGN, DATE AND RETURN THIS PROXY CARD
IN THE ACCOMPANYING POSTAGE-PAID ENVELOPE.
