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PROSPECTUS SUPPLEMENT Filed Pursuant to Rule 424(b)(2)
(TO PROSPECTUS DATED JULY 1, 1998) Registration No. 333-58309
2,800,000 SHARES
EASTGROUP PROPERTIES, INC.
SERIES B
CUMULATIVE CONVERTIBLE
PREFERRED STOCK
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THE 2,800,000 SHARES OF SERIES B CUMULATIVE CONVERTIBLE PREFERRED STOCK
(THE "SERIES B PREFERRED STOCK") OF THE COMPANY OFFERED HEREBY (THE "OFFERING")
ARE BEING SOLD DIRECTLY BY THE COMPANY. PRIOR TO THIS OFFERING THERE HAS BEEN NO
PUBLIC MARKET FOR SHARES. EACH SHARE IS CONVERTIBLE INTO 1.1364 SHARES OF COMMON
STOCK OF THE COMPANY, SUBJECT TO ADJUSTMENT, AND IS ENTITLED TO ONE (1) VOTE FOR
EACH SHARE OF COMMON STOCK INTO WHICH SUCH SHARE IS CONVERTIBLE. SEE "VOTING
RIGHTS". THE COMMON STOCK INTO WHICH THE SERIES B PREFERRED STOCK IS CONVERTIBLE
IS LISTED ON THE NEW YORK STOCK EXCHANGE (THE "NYSE") UNDER THE SYMBOL "EGP".
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO
WHICH IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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See "Risk Factors" beginning on page S-3 of this Prospectus Supplement
for a discussion of certain risk factors relevant to an investment in the Series
B Preferred Stock.
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS SEPTEMBER 25, 1998
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THE COMPANY
EastGroup Properties, Inc. ("EastGroup" or the "Company") is a self-administered
REIT focused primarily on the ownership, acquisition and selective development
of industrial properties located in major Sunbelt markets throughout the United
States. As of August 31, 1998, EastGroup's portfolio included industrial
properties in ten states containing approximately 13.8 million square feet of
leasable space, industrial properties under development or in initial lease-up
containing approximately 1.1 million square feet of leasable space, and three
office buildings containing approximately 390,000 square feet of leasable space.
As of August 31, 1998, the industrial portfolio (excluding the 12 properties
currently under development or in initial lease-up) was 97% leased.
EastGroup's principal executive offices are located at 300 One Jackson
Place, 188 East Capitol Street, Jackson, Mississippi, 39201-2195. Its telephone
number is (601) 354-3555.
THE OFFERING
The Company has entered into an Investment Agreement (the "Investment
Agreement") dated September 25, 1998 with Five Arrows Realty Securities II, LLC
(the "Purchaser") pursuant to which the Company will issue and sell to the
Purchaser for a net price of $24.50 per share up to 2,800,000 shares of Series
B Preferred Stock at up to five closings designated by the Company. See "Plan
of Distribution".
RECENT DEVELOPMENTS
On September 17, 1998, EastGroup sold the Doral Club and Sutton House
Apartments (both in San Antonio, Texas) for a total price of $18,625,000.
EastGroup also sold two small industrial properties (401 Exchange in Arlington,
Texas and the East Maricopa Distribution Center in Phoenix, Arizona) during
September 1998 for a total price of $1,395,000. EastGroup purchased the
Northpoint Commerce Center in Oklahoma City, Oklahoma (58,400 square feet) on
September 1, 1998 for $3,875,000 and World Houston Three, Four and Five (a total
of approximately 151,000 square feet) on September 25, 1998 for a total purchase
price of $7,390,000.
USE OF PROCEEDS
The net proceeds to EastGroup from the Offering (assuming the issuance
of all 2,800,000 shares of Series B Preferred Stock), after payment of expenses
incurred in connection with the Offering, are estimated to be approximately $
67.6 Million. EastGroup intends to use the net proceeds from the Offering for
general corporate purposes, including repayment of debt and payment of the cost
of acquisitions and development projects. The Working Capital Facility and the
Acquisition Facility (defined below) bear interest at LIBOR plus 1.40%, which
translated into 7.06% interest rate as of August 31, 1998. The Working Capital
Facility matures on September 30, 1998. The Acquisition Facility matures on
September 30, 2000.
Pending application of the net proceeds, EastGroup will invest such
proceeds in interest-bearing accounts and short-term, interest-bearing
securities, which are consistent with EastGroup's status as a REIT. Such
investments may include certificates of deposits, interest-bearing bank deposits
and money market investments.
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RISK FACTORS
An investment in the Series B Preferred Stock involves various risks.
Prospective investors should carefully consider the following information in
conjunction with the other information contained or incorporated by reference in
this Prospectus Supplement and the accompanying Prospectus before making a
decision to purchase the Series B Preferred Stock.
FAILURE TO MANAGE RAPID GROWTH AND INTEGRATE OPERATIONS
EastGroup has been experiencing a period of rapid growth. Since January
1, 1998, EastGroup has acquired 29 industrial properties aggregating
approximately 4.8 million square feet of leaseable space, for a total purchase
price of approximately $176.6 million. The integration of the recent
acquisitions into existing management and operating structures presents a
significant management challenge. Although EastGroup believes that it has
sufficient management depth to lead EastGroup through this period of rapid
growth, there can be no assurance that it will be able to assimilate the recent
acquisitions or any future acquisitions into its portfolio without certain
operating disruptions or unanticipated costs. The failure to successfully
integrate the Recent Acquisitions or any future acquisitions could have a
material adverse effect on the results of operations and financial condition of
EastGroup and its ability to pay expected distributions to stockholders.
Further, there can be no assurance that properties which are acquired will
perform in accordance with expectations or that cost estimates for improvements
to, or further development of, acquired properties (including improvements
which may be necessary to bring acquired properties up to the Company's
standards) will be accurate. In addition, in connection with EastGroup's
acquisition of Ensign Properties, Inc. in March 1998, EastGroup commenced its
self-management for properties it owns or may acquire in Orlando and Tampa,
Florida. There can be no assurance that the cost benefits anticipated in
connection with such self-management will be achieved or that EastGroup will
successfully integrate the operational structure necessary for the
self-management of such properties.
REAL ESTATE FINANCING RISKS
Existing Debt and Refinancing Risks. EastGroup is subject to the risks
normally associated with debt financing, including the risk that EastGroup's
cash flow will be insufficient to meet required payments of principal and
interest, the risk of violating loan covenants, the risk of rising interest
rates on EastGroup's variable rate debt and the risk that EastGroup will not be
able to repay or refinance existing indebtedness on its properties (which
generally will not have been fully amortized at maturity) or that the terms of
such refinancing will not be as favorable as the terms of existing indebtedness.
There can be no assurance that EastGroup will be able to refinance any
indebtedness it may incur or otherwise obtain funds by selling assets or raising
equity to make required payments on indebtedness.
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Substantial Debt Obligations; Secured Mortgage Debt. As of June 30,
1998, EastGroup had approximately $135.5 million of non-recourse mortgage
indebtedness secured by 26 of its properties, approximately $7.5 million of
recourse mortgage indebtedness secured by two of its properties and 11 of
the properties secured a revolving credit facility used to pay for acquisitions
(the "Acquisition Facility"). In addition, properties which EastGroup may
acquire in the future could be mortgaged to secure payment of indebtedness. If
EastGroup is unable to generate funds to cover required payments of principal
and interest on borrowings secured by any of these properties, the mortgage
securing such properties could be foreclosed upon by, or such properties could
otherwise be transferred to, the mortgagee with a consequent loss of income and
asset value to EastGroup.
Variable Rate Indebtedness. Advances under the Acquisition Facility and
EastGroup's working capital credit facility (the "Working Capital Facility")
bear interest at variable rates. As of August 31, 1998, EastGroup had a total of
$115.7 million of variable rate debt. In addition, EastGroup may incur
indebtedness in the future that also bears interest at a variable rate or may be
required to refinance its debt at higher rates. Accordingly, increases in
interest rates could increase EastGroup's interest expense, which could
adversely affect EastGroup's financial condition and ability to pay expected
distributions to stockholders.
No Limitation on Debt. As of September 23, 1998, EastGroup's ratio of
debt to total market capitalization was approximately 39.7%. EastGroup's
organizational documents do not contain any limitation on the amount of
indebtedness it may incur. Accordingly, EastGroup's Board of Directors (the
"Board") could alter EastGroup's current debt structure and would do so, for
example, if it were necessary in order for EastGroup to continue to qualify as a
REIT. As a result, EastGroup could become more highly leveraged, resulting in an
increase in debt service that could adversely affect EastGroup's financial
condition and cash available for distribution to stockholders and could increase
the risk of default on EastGroup's indebtedness.
REAL ESTATE INVESTMENT RISKS
General Risks. EastGroup's investments generally consist of investments
in industrial properties and as such will be subject to varying degrees of risk
generally incident to the ownership of real property. The underlying value of
EastGroup's real estate investments and EastGroup's financial condition and
ability to make expected distributions to its stockholders will be dependent
upon its ability to operate its properties in a manner sufficient to maintain or
increase revenues and to generate sufficient income in excess of operating
expenses. Income from EastGroup's properties may be adversely affected by
changes in national economic conditions, changes in local market conditions due
to changes in general or local economic conditions and neighborhood
characteristics, changes in interest rates and in the availability, cost and
terms of mortgage financings, the impact of present or future environmental
legislation and compliance with environmental laws, the ongoing need for capital
improvements, particularly in older structures, changes in real estate tax rates
and other
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operating expenses, adverse changes in governmental rules and fiscal policies,
adverse changes in zoning laws, civil unrest, acts of God, including earthquakes
and other natural disasters (which may result in uninsured losses), acts of war
and other factors which are beyond the control of EastGroup.
Dependence on Primary Markets. Substantially all of EastGroup's
properties are located in the Sunbelt region of the United States and,
therefore, EastGroup's financial condition and its ability to make expected
distributions to stockholders will be linked to economic conditions in these
markets as well as the market for industrial space generally. To the extent that
these conditions impact the market rents for industrial space, they could have
an adverse effect on EastGroup's financial condition and ability to make
expected distributions to stockholders.
Acquisition and Development Risks. EastGroup intends to pursue
acquisitions of additional properties and selected development opportunities.
Acquisitions and the development of new properties entail various risks,
including that such properties will fail to perform in accordance with
expectations and that estimates of the cost of improvements necessary to market,
acquire, develop and operate such properties will prove inaccurate. The fact
that EastGroup generally must distribute 95% of its ordinary taxable income in
order to maintain its qualification as a REIT may limit EastGroup's ability to
rely upon lease income from its properties or subsequently acquired properties
to finance acquisitions or new developments. As a result, if debt or equity
financing were not available on acceptable terms, further acquisitions or
development activities might be curtailed or EastGroup's financial condition and
cash available for distributions to stockholders might be adversely affected.
Tenant Defaults. A substantial part of EastGroup's revenues and income
is derived from rental income from real property. Consequently, EastGroup's
financial condition and ability to make expected distributions to stockholders
and to use its properties as collateral for its borrowings would be adversely
affected if a significant number of tenants failed to meet their lease
obligations. In the event of a default by a tenant, EastGroup may experience
delays in enforcing its rights as lessor and may incur substantial costs in
protecting its investment. At any time, a tenant may also seek protection under
the bankruptcy laws, which could result in the rejection and termination of such
tenant's lease and thereby adversely affect EastGroup's financial condition and
ability to make expected distributions to stockholders. If a tenant rejects its
lease pursuant to applicable bankruptcy laws, EastGroup's claim for breach of
the lease in excess of any applicable security deposit would (absent collateral
securing the claim) be treated as a general unsecured claim. The amount of the
claim would be capped at the amount owed for unpaid pre-petition lease payments
unrelated to the rejection, plus the greater of one year's lease payment or 15%
of the remaining lease payments payable under the lease (but not to exceed the
amount of three year's lease payments).
Value and Illiquidity of Real Estate. Real estate investments are
relatively illiquid. EastGroup's ability to vary its portfolio in response to
changes in economic and other
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conditions will therefore be limited. If EastGroup must sell an investment,
there can be no assurance that it will be able to dispose of the investment in
the time period it desires or that the sales price of the investment will recoup
or exceed the amount of EastGroup's cost for the investment.
Environmental Matters. EastGroup's operating costs may be affected by
the obligation to pay for the cost of complying with existing environmental
laws, ordinances and regulations, as well as the cost of complying with future
legislation. Under various federal, state and local environmental laws,
ordinances and regulations, a current or previous owner or operator of real
property may be liable for the costs of removal or remediation of hazardous or
toxic substances on, under, or in such property. Such laws often impose
liability whether or not the owner or operator knew of, or was responsible for,
the presence of such hazardous or toxic substances. In addition, the presence of
hazardous or toxic substances, or the failure to remediate such property
properly, may adversely affect the owner's ability to borrow by using such real
property as collateral. Persons who arrange for the transportation, disposal or
treatment of hazardous or toxic substances may also be liable for the costs of
removal or remediation of such substances at the disposal or treatment facility,
whether or not such facility is or ever was owned or operated, by such person.
Certain environmental laws and common law principles could be used to impose
liability for releases of hazardous materials, including asbestos-containing
materials ("ACMs"), into the environment, and third parties may seek recovery
from owners or operators of real properties for personal injury associated with
exposure to released ACMs or other hazardous materials. EastGroup is not aware
of any material ACM issues at its properties. However, there can be no assurance
that ACMs do not exist at properties owned by EastGroup. If there are ACMs at
the properties that require removal or other remediation, the cost thereof could
be substantial and could have an adverse effect on the value of the such
property.
Environmental laws may also impose restrictions on the manner in which
a property may be used or transferred or in which businesses may be operated,
and these restrictions may require expenditures. In connection with the
ownership and operation of its properties, EastGroup may be potentially liable
for any such costs. The cost of defending against claims of liability or
remediating contaminated property and the cost of complying with environmental
laws could materially adversely affect EastGroup's results of operations and
financial condition and ability to make expected distributions to stockholders.
Phase I environmental site assessments ("ESAs") have been conducted at all of
the properties by qualified independent environmental engineers. The purpose of
Phase I ESAs is to identify potential sources of contamination for which any of
the properties may be responsible and to assess the status of environmental
regulatory compliance. Except as described in the next paragraph, ESAs have not
revealed any environmental liability or compliance concerns, nor is EastGroup
aware of any such liability or concerns. It is possible, however, that these
ESAs did not reveal all environmental liabilities or compliance concerns or that
material environmental liabilities or compliance concerns exist of which
EastGroup is currently unaware. EastGroup has not been notified by any
governmental authority, and has no other knowledge of, any material
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noncompliance, liability or claim relating to hazardous or toxic substances or
other environmental substances in connection with any of its properties.
EastGroup intends to perform additional Phase I ESAs with respect to all
properties acquired in the future.
The Industry Distribution Center in City of Industry, California is on
a parcel of land that was previously used as a facility to manufacture air
conditioners by Carrier Corporation ("Carrier"). In connection with these
manufacturing activities, there was a spill of a hazardous material that
effected both soil and groundwater. Carrier presently is remediating this
groundwater contamination in accordance with an order of the Regional Water
Quality Control Board. Carrier has also executed a Remediation, Indemnity and
Access Agreement that protects the Company and any subsequent owner of the
property from environmental liabilities relating to this spill and requires
Carrier to pay the entire cost of all environmental remediation programs at this
property.
Competition. All of the properties owned by EastGroup are located in
developed areas. There are numerous other industrial properties and real estate
companies within the market area of each such property which will compete with
EastGroup for tenants and acquisition and development opportunities. The number
of competitive industrial properties and real estate companies in such areas
could have a material effect on (i) EastGroup's ability to rent space at its
properties; (ii) the amount of rents currently charged and to be charged upon
expiration of leases; (iii) the amount of tenant improvements and other tenant
concessions required to lease the properties; and (iv) acquisition and
development opportunities. EastGroup will compete for tenants and acquisitions
with other competitors who have greater financial resources than EastGroup.
Uninsured and Underinsured Losses. EastGroup has obtained or has caused
its tenants to obtain commercial general liability, fire and extended coverage
insurance with respect to its properties of the types and in the amounts which
EastGroup believes are customarily obtained for or by an owner of industrial
properties. EastGroup plans to obtain similar coverage for properties acquired
in the future. However, there are certain types of losses, generally of a
catastrophic nature, such as earthquakes and floods, that may be uninsurable or
not economically insurable. The Board and management of EastGroup will use their
discretion in determining amounts, coverage limits and deductibility provisions
of insurance, with a view to maintaining appropriate insurance coverage on the
investments of EastGroup, as the case may be, at a reasonable cost and on
suitable terms. This may result in insurance coverage that, in the event of a
substantial loss, would not be sufficient to pay the full current market value
or current replacement cost of the lost investment of EastGroup. Inflation,
changes in building codes and ordinances, environmental considerations, and
other factors also might make it infeasible to use insurance proceeds to replace
the property after such property has been damaged or destroyed. Under such
circumstances, the insurance proceeds received by EastGroup might not be
adequate to restore its economic position with respect to such property.
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Property Taxes. EastGroup's properties are subject to real property
taxes. The real property taxes on the properties may increase or decrease as
property tax rates change and as the value of the properties are assessed or
reassessed by taxing authorities. If property taxes increase, EastGroup's
ability to make distributions to its stockholders could be adversely affected.
Cost of Compliance with Americans with Disabilities Act. Under the
Americans with Disabilities Act of 1990, as amended (the "ADA"), all public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. Compliance with the public accommodations
provision of the ADA could require the removal of access barriers, and
noncompliance could result in the imposition of fines or awards of damages.
Additional legislation may impose further burdens or restrictions on owners with
respect to access by disabled persons. In many instances, the applicability and
requirements of the ADA are not clear. Accordingly, the cost of compliance with
the ADA or such legislation is not currently ascertainable, and, while such
costs are not expected to have a material adverse effect on EastGroup's
financial condition, such costs could be substantial. EastGroup has not
undertaken ADA studies of all of its properties and, as to those properties with
respect to which EastGroup has not undertaken ADA studies, possible costs of
compliance could arise.
CONFLICTS OF INTEREST
Leland R. Speed serves as Chairman of both EastGroup and Parkway
Properties, Inc. ("Parkway"), a REIT with a focus on office properties
principally in the Southeastern United States and Texas. EastGroup and Parkway
are housed in separate offices and have no other common directors or officers.
As both companies carry out their strategic plans, management of each company
has stated its intention not to transfer properties between the two entities,
and each company intends to pursue its distinct corporate plan. There can be no
assurance that conflicts of interest will not arise between the two companies in
the future.
LIMITS ON CHANGES IN CONTROL
Certain provisions contained in the Charter, Bylaws, certain of
EastGroup's agreements, and certain provisions of Maryland law may have the
effect of discouraging a third party from making an acquisition proposal for
EastGroup and may thereby inhibit a Change of Control of EastGroup. These
include provisions of the Maryland General Corporation Law relating to certain
"business combinations" and "control share" acquisitions involving Maryland
corporations, EastGroup's Change of Control Agreements with certain executive
officers, and certain provisions of the Charter intended to protect EastGroup's
status as a REIT described in the attached Prospectus under "Restrictions or
Transfer". Such provisions may (i) deter tender offers for the capital stock of
the Company, which may be attractive to the stockholders; or (ii) deter
purchases of large blocks of capital stock of the
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Company, thereby limiting the opportunity for stockholders to receive a premium
for their shares over then-prevailing market prices.
POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES
The provisions of the Charter provide that if a transfer of stock of
EastGroup or a change in the capital structure of EastGroup would result in (i)
any person (as defined in the Charter) directly or indirectly acquiring
beneficial ownership of more than 9.8% (in value or in number, whichever is more
restrictive) of the outstanding capital stock of EastGroup excluding Excess
Stock; (ii) the outstanding shares of EastGroup being constructively or
beneficially owned by fewer than 100 persons; or (iii) EastGroup being "closely
held" within the meaning of Section 856 of the Internal Revenue Code of 1986, as
amended (the "Code"), then: (A) any proposed transfer will be void ab initio and
will not be recognized by EastGroup; (B) EastGroup will have the right to redeem
the shares proposed to be transferred; and (C) the shares proposed to be
transferred will be automatically converted into and exchanged for shares of a
separate class of stock, the excess stock, par value $0.0001 per share, of
EastGroup ("Excess Stock"), having no dividend or voting rights. Holders of
Excess Stock do have certain rights in the event of any liquidation, dissolution
or winding up of the Company. The Charter further provides that the Excess Stock
will be held by EastGroup as trustee for the person or persons to whom the
shares are ultimately transferred, until such time as the shares are
retransferred to a person or persons in whose hands the shares would not be
Excess Stock and certain price-related restrictions are satisfied. These
provisions are designed to enable EastGroup to meet the share ownership
requirements applicable to REITs under the Code, but may also have an
anti-takeover effect of discouraging tender offers or purchases of large blocks
of stock, thereby limiting the opportunity for stockholders to receive a premium
for their shares over then-prevailing market prices.
REIT TAX RISKS
EastGroup believes that it has operated in a manner so as to qualify as
a REIT under the Code for each of its taxable years since its formation in 1969.
Although the Company believes that EastGroup has been organized and will operate
in such a manner, no assurance can be given that EastGroup will be able to
continue to operate in a manner so as to qualify or remain so qualified.
Qualification as a REIT depends upon EastGroup meeting and continuing to meet
the various highly technical and complex Code provisions and REIT qualification
rules, which include (i) maintaining ownership of specified minimum levels of
real estate related assets; (ii) generating specified minimum levels of real
estate related income; (iii) maintaining certain diversity of ownership
requirements with respect to EastGroup shares; and (iv) distributing at least
95% of all real estate investment taxable income on an annual basis. There are
only limited judicial and administrative interpretations of such rules.
Furthermore, the determination of various factual matters and circumstances not
entirely
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within EastGroup's control may affect EastGroup's ability to qualify as a REIT.
If EastGroup fails to qualify as a REIT, EastGroup will be subject to
federal income tax (including any applicable alternative minimum tax) on its
taxable income at corporate rates. In addition, unless entitled to relief under
certain statutory provisions, EastGroup will be disqualified from treatment as a
REIT for the four taxable years following the year during which qualification is
lost. This treatment would reduce the net earnings of EastGroup available for
investment or distribution to stockholders because of the additional tax
liability to EastGroup for the year or years involved. In addition,
distributions would no longer be required to be made. To the extent that
distributions to stockholders had been made based on EastGroup's qualifying as a
REIT, EastGroup might be required to borrow funds or to liquidate certain of its
investments to pay the applicable tax. See "Federal Income Tax
Considerations -- Taxation of the Company" in the Prospectus attached hereto.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. This Prospectus Supplement, the
accompanying Prospectus and other materials filed or to be filed by the Company
with the Securities and Exchange Commission (the "Commission") under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
incorporated by reference in the accompanying Prospectus contain or will contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Security Act"), and Section 21E of the Exchange
Act. Such statements include information relating to acquisitions and other
business development activities, future capital expenditures, financing sources
and availability and the effects of regulations (including environmental
regulation) and competition. Such forward-looking information involves important
risks and uncertainties that could significantly affect anticipated results in
the future and, accordingly, such results may differ from those expressed in any
forward-looking statements contained in this Prospectus Supplement or the
accompanying Prospectus or incorporated by reference in such Prospectus. These
risks and uncertainties include, but are not limited to, uncertainties affecting
real estate businesses generally (such as entry into new leases, renewals of
leases and dependence on tenants' business operations), risks relating to
acquisition and development activities, possible environmental liabilities,
risks relating to leverage, debt service and obligations with respect to the
payment of dividends (including availability of financing terms acceptable to
the Company and sensitivity of the Company's operations to fluctuations in
interest rates), the potential for the need to use borrowings to make
distributions necessary for the Company to qualify as a REIT or to fund the
payment of dividends, dependence on the primary markets in which the Company's
properties are located, the existence of complex regulations relating to the
Company's status as a REIT and the adverse consequences of the failure of the
Company to qualify as a REIT and
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the potential adverse impact of market interest rates on the market price for
the Company's securities.
DESCRIPTION OF SERIES B PREFERRED STOCK
The summary of certain terms and provisions of the Series B Preferred
Stock contained in this Prospectus Supplement does not purport to be complete
and is subject to, and qualified in its provisions of, the Company's Charter,
Bylaws and Articles Supplementary to the Charter setting forth the particular
terms of the Series B Preferred Stock (the "Series B Amendment").
The Charter authorizes the issuance of 70,000,000 shares of Common
Stock, par value $0.0001 per share (the "Common Stock"). The Articles
Supplementary filed June 12, 1998 reclassified 1,725,000 shares of Common Stock
into 1,725,000 shares of 9.00% Series A Cumulative Redeemable Preferred Stock
(the "Series A Preferred Stock"). The Articles Supplementary authorized by the
Board on September 21, 1998 reclassified 2,800,000 shares of Common Stock into
2,800,000 shares of Series B Cumulative Convertible Preferred Stock (the "Series
B Preferred Stock"). The two reclassifications of Common Stock into Preferred
Stock have decreased the total number of shares of Common Stock authorized for
issuance to 65,475,000. On September 25, 1998, the Company entered into an
agreement with the Purchaser pursuant to which the Company agreed to sell, and
the Purchaser agreed to buy, up to 2,800,000 shares of the Series B Preferred
Stock. No series of Preferred Stock other than the Series A Preferred Stock or
the Series B Preferred Stock have been authorized or issued.
GENERAL
On September 21, 1998, the Board authorized the Company to
reclassify 2,800,000 shares of Common Stock into 2,800,000 shares of the Series
B Preferred Stock, and further authorized the issuance of the Series B Preferred
Stock. When issued, the Series B Preferred Stock will be validly issued, fully
paid and non-assessable. The Series B Preferred Stock will not be subject to any
sinking fund or other obligation of the Company to redeem or retire the Series B
Preferred Stock. Unless converted or redeemed by the Company, the Series B
Preferred Stock will have a perpetual term, with no maturity.
RANKING
The Series B Preferred Stock will rank senior to the Common Stock with
respect to the payment of dividends and amounts upon liquidation, dissolution or
winding up of the Company and, as to dividends and upon liquidation, dissolution
and winding up, ranks equal to and on a parity with the Series A Preferred
Stock.
The Company may create additional classes of stock, increase the
authorized number of shares of Common Stock or issue a different series of
Preferred Stock ranking equal or junior
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to the Series B Preferred Stock with respect, in each case, to the payment of
dividends and amounts upon liquidation, dissolution and winding up without the
consent of any holder of Series B Preferred Stock. See "-- Voting Rights" below.
No dividends shall be set apart for or paid upon the Common Stock or any other
shares of stock ranking junior to the Series B Preferred Stock unless all such
cumulative dividends on the Series B Preferred Stock have been paid. Dividend
payments with respect to the Series B Preferred Stock shall be made pari passu
with the dividend payments on the Series A Preferred Stock.
DIVIDENDS
Dividend Rate. Holders of shares of Series B Preferred Stock will be
entitled to receive, when, as and if declared by the Board, out of funds of the
Company legally available for payment, cash dividends payable in an amount per
share equal to the greater of (i) the quarterly dividend payable for the
applicable quarter per share of Common Stock into which shares of Series B
Preferred Stock are convertible and (ii) $.547 (the "Applicable Dividend Rate").
Cumulative Dividends. Dividends on the Series B Preferred Stock shall
be fully cumulative, to the extent not previously paid. Dividends on the Series
B Preferred Stock Stock be cumulative and payable (if declared) quarterly on
each January 15, April 15, July 15 and October 15 of each year in respect of the
prior quarter; provided, however, that the Corporation shall have the right to
declare and pay dividends at any time. Each such dividend will be payable to
holders of record as they appear on the stock records of the Company at the
close of business on such record dates, not exceeding 30 days preceding the
payment dates thereof, as shall be fixed by the Board. Dividends will accrue and
be cumulative from the date of original issuance of the Series B Preferred
Stock.
Interest on Unpaid Dividends. Dividends on the Series B Preferred Stock
not paid in full on the dates set forth above shall accrue dividends at the
Applicable Dividend Rate divided by $25.00. Any dividend payment with respect to
the Series B Preferred Stock shall first be credited against any prior accrued
or unpaid dividend. No dividends shall be set apart for or paid upon the Common
Stock or any other shares of stock ranking junior to the Series B Preferred
Stock unless all such cumulative dividends on the Series B Preferred Stock have
been paid. Dividend payments with respect to the Series B Preferred Stock shall
be made pari passu with the dividend payments on the Series A Preferred Stock.
Prohibitions on Dividends, Distributions and Repurchases. Unless the
dividends on the Series B Preferred Stock (including accrued and unpaid
dividends in arrears whether or not declared) which pursuant to their terms
should have been paid, have been paid in full or declared and set apart for
payment in full on the Series B Preferred Stock, the Company will not pay
dividends on, make any other distributions on, or redeem or repurchase or
otherwise acquire for consideration any capital stock of the Company (without
regard to rank, either as to dividends or upon liquidation, dissolution or
winding up), other than (i) the Series A
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Preferred Stock or any other Preferred Stock of the Company which ranks pari
passu with the Series B Preferred Stock, all of which payments shall be made
pari passu with the Series B Preferred Stock, and (ii) shares of Preferred Stock
of the Company that rank senior to the Series B Preferred Stock if the issuance
of Series B Preferred Stock has been approved by the holders of a majority of
the Series B Preferred Stock.
REDEMPTION
General. The Series B Preferred Stock will not be redeemable by the
Company prior to the date which is the fifth anniversary of the original date of
issuance of the Series B Preferred Stock; provided, however, that the Company
may redeem all of the Series B Preferred Stock prior to such fifth anniversary
in the event of a Change of Control, as defined below, in which case the
redemption price for the Series B Preferred Stock shall equal $25.00 per share
plus accrued and unpaid dividends (whether or not declared and accrued through
the date of payment for redemption or the date payment is made available for
payment to the holder thereof) plus a premium equal to 6.0% of $25.00; and
provided, further, the initial redemption of the Series B Preferred Stock shall
not be less than 50% of the outstanding Series B Preferred Stock. On and after
such date, the Series B Preferred Stock will be redeemable by the Company, in
whole or in part, at the option of the Company.
Notice of Redemption. The Company may exercise its option to redeem the
Series B Preferred Stock only by mailing a written notice of election (the
"Redemption Notice") to the holders of shares of Series B Preferred Stock, at
each holder's address appearing on the records of the Company, at least 30 days
prior to the date specified therein for the redemption of the Series B Preferred
Stock. In the event of a Change of Control, as defined below, the Company shall
mail a notice to each holder no later than 15 days after the date of occurrence
of such Change of Control as to whether or not it elects to redeem.
Such notice shall state, at a minimum, the amount of shares of Series B
Preferred Stock to be redeemed, the date on which such redemption shall occur
and the last date on which such holder can exercise the conversion rights
(described under "-- Conversion Rights" below).
Conversion. During the period beginning on the date on which the
Company mailed to each holder of the Series B Preferred Stock a written notice
of election, as set forth above, and ending on the thirtieth day following the
date of such mailing, each holder of the Series B Preferred Stock may exercise
its conversion rights (described under "-- Conversion Rights" below).
Redemption Price. Upon the thirtieth day following the mailing of the
redemption notice described above to the holder of the Series B Preferred Stock,
and unless such holder of the Series B Preferred Stock has exercised its
conversion rights described above, the Company shall purchase from such holder
of Series B Preferred Stock (upon surrender by such holder at the Company's
principal office of the certificate representing such shares) such shares of
Series
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<PAGE> 14
B Preferred Stock specified in the Redemption Notice, at a price per share equal
to the sum of (i) $25.00 per share plus accrued and unpaid dividends (whether or
not declared and accrued through the date of payment for redemption or the date
payment is made available for payment to the holder thereof) plus a premium
equal to the following percentage of $25.00:
<TABLE>
<CAPTION>
Redemption Occurs
On or After But Prior To % Premium
- --------------------- ------------ ---------
<S> <C> <C>
January 1, 2004 December 31, 2004 4.0
January 1, 2005 December 31, 2005 3.0
January 1, 2006 December 31, 2006 2.0
January 1, 2007 December 31, 2007 1.0
January 1, 2008 0.0
</TABLE>
and (ii) the number of Series B Preferred Stock to be redeemed in the Redemption
Notice.
LIQUIDATION PREFERENCE
Liquidation Payment. The holders of shares of Series B Preferred Stock
will be entitled to receive, in the event of any liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, before any
distribution or payment to the holders of shares of capital stock of the Company
ranking junior to the Series B Preferred Stock, $25.00 per share of Series B
Preferred Stock plus accrued and unpaid dividends (whether or not declared), if
any (or a pro rata portion thereof with respect to fractional shares), to the
date of final distribution or the distribution is made available (the
"Liquidation Preference"); provided, however, that if such liquidation,
dissolution or winding up of the Company occurs in connection with or subsequent
to a Change of Control, as defined below, then the holders of the Series B
Preferred Stock shall be entitled to be paid the Put Payment (as defined below
under "-- Change of Control and Put Option"). The Series B Preferred Stock, as
to liquidation, dissolution and winding up, ranks equal to and on a parity with
the Series A Preferred Stock.
Pro Rata Payments. If, upon any liquidation, dissolution or winding up
of the Company, the assets of the Company available for distribution to the
holders of the shares of Series B Preferred Stock are insufficient to pay in
full the sums which such holders are entitled to receive in such case, then such
assets available for distribution to the holders of Series B Preferred Stock and
Series A Preferred Stock shall be distributed among and paid to the holders of
the Series B Preferred Stock and Series A Preferred Stock ratably in proportion
to the respective amounts that would be payable to such holders if such assets
were sufficient to permit payment in full.
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<PAGE> 15
VOTING RIGHTS
General. Except as limited by law, the holders of the Series B
Preferred Stock shall be entitled to vote or consent on all matters submitted to
the holders of Common Stock together with the holders of Common Stock as a
single class. Each share of Series B Preferred Stock will entitle the holder
thereof to one vote for each share of Common Stock into which such share of
Series B Preferred Stock is convertible as of the record date for such vote or
consent or, if no record date is specified, as of the date of such vote or
consent.
Preferred Directors. In addition to the voting rights described herein,
and also except as set forth below, the number of directors constituting the
Board shall automatically be increased by one member upon the first and second
to occur of (i) the Company's failure to pay the Regular Quarterly Dividend, as
defined below, on the Common Stock for any quarter in an amount of at least $.30
per share (as may be adjusted under certain circumstances); (ii) the Company's
failure to pay in full the quarterly dividend payable on the Series B Preferred
Stock (whether or not declared) (the "Dividend Payment Default") (together with
the director appointed pursuant to clause (i) hereof, the "Default Directors");
and (iii) the issuance by the Company of such number of shares of Series B
Preferred Stock such that the total number of outstanding shares of Series B
Preferred Stock exceeds 1,600,000 ( the "Minimum Issuance Condition") (the
"Minimum Condition Director" and, together with the Default Directors, the
"Preferred Directors"), for an aggregate maximum increase in any event of two
directors. The position on the Board established pursuant to clause (i) above,
shall remain available until the first to occur of the following: (x) the
Purchaser, or the 99% member of the Purchaser ceases to own either (A) all of
the outstanding shares of the Series B Preferred Stock or (B) an amount of
voting securities of the Company which, if converted into shares of Common
Stock, would exceed 10% of the outstanding Common Stock on a fully diluted basis
(the "Minimum Threshold") and (y) the Dividend Reduction Cure, as defined below.
The position on the Board established pursuant to clause (ii) above shall remain
available until the first to occur of such time as (x) the Minimum Threshold
fails to be satisfied and (y) the Dividend Payment Cure (as defined under
"--Cures" below). In no event shall the positions created under this paragraph
be reduced below one as long as the Minimum Issuance Condition has been
satisfied. The term "Regular Quarterly Dividend" means any cash dividend(s) paid
in any calendar year that do not in the aggregate exceed the Company's reported
Funds From Operations (as defined by NAREIT prior to 1996) for the quarter
relating to such dividend.
Except as set forth below, at any time after the Minimum Threshold
ceases to be satisfied and a Dividend Payment Default occurs for three
consecutive fiscal quarters, the number of directors constituting the Board
shall be automatically increased by a maximum of two members. The position on
the Board created thereby shall continue to be available until the earlier to
occur of such time as (i) there are no shares of Series B Preferred Stock
outstanding and (ii) the Dividend Payment Cure (as defined under "-- Cures"
below).
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<PAGE> 16
Election of Preferred Directors. The holders of the Series B Preferred
Stock shall have the special right, voting separately as a single class, to
elect as soon as practical, a director to fill each vacancy created pursuant to
"-- Preferred Directors" above and to elect their respective successors at each
succeeding annual meeting of the Company thereafter at which such successor is
to be elected. At no time shall there be more than two Preferred Directors on
the Board.
Cures. Upon occurrence of a Dividend Reduction Default, the same shall
be deemed to continue to exist until such time as (x) the Regular Quarterly
Dividend paid in the immediately preceding quarter on the Common Stock shall be
greater than $.30 per share and (y) all dividends, and all other accrued and
unpaid dividends whether or not declared, on the Series B Preferred Stock have
been paid or made available for payment (the "Dividend Reduction Cure").
Upon the occurrence of the Dividend Payment Default, the same shall be
deemed to continue and exist until such time as the earlier to occur of (x) none
of the Series B Preferred Stock shall remain outstanding or (y) all dividends,
including accrued and unpaid dividends on the Series B Preferred Stock whether
or not declared, have been paid or made available for payment (the "Dividend
Payment Cure").
Board Committees. Such of the Preferred Directors as is first elected
shall be designated as a member of every committee of the Board, other than two
committees, such two committees to be specified by such Director. The other
Director elected under "-- Preferred Directors" shall be designated as a member
of each committee of the Board on which such other Director is not a member.
Voting Procedures. At each meeting of the stockholders of the Company
at which the holders of the Series B Preferred Stock shall have the right to
vote as a single class, the presence in person or by proxy of the holders of
record of a majority of the total number of Series B Preferred Stock then
outstanding shall be necessary and sufficient to constitute a quorum of such
class for such election by such stockholders as a class. At any such meeting or
adjournment thereof, the absence of a quorum of holders of Series B Preferred
Stock shall not prevent the election of directors other than the Preferred
Directors, and the absence of a quorum of the holders of any other class or
series of stock for the election of such other directors shall not prevent the
election of any Preferred Directors by the holders of the Series B Preferred
Stock.
Vacancy. If any vacancy shall occur among the directors elected by
the holders of the Series B Preferred Stock, such vacancy shall be filled by the
vote of holders of the Series B Preferred Stock, voting as a single class, at a
special meeting of such stockholders called for that purpose.
Written Consent. Notwithstanding the foregoing, any action required or
permitted to
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<PAGE> 17
be taken by holders of Series B Preferred Stock at any meeting of stockholders
may be taken without a meeting, without prior notice and without a vote, if a
unanimous written consent, setting forth the action so taken, shall be signed by
each of the holders of Series B Preferred Stock and shall be executed and
delivered to the Secretary of the Company for placement among the minutes of
proceedings of the stockholders of the Company.
Approval by the Company. The Company acting through a majority of its
Directors shall have the right to approve the nomination of any Preferred
Director, such approval not to be unreasonably withheld.
Restrictions on the Company. So long as shares of Series B Preferred
Stock are outstanding, without the consent of the holders of at least a majority
of the outstanding Series B Preferred Stock voting separately as a class or by
unanimous written consent of all of the holders of the Series B Preferred Stock
(in addition to any other vote or consent of stockholders required by law or by
the Charter), the Company may not (i) amend or alter the Series B Amendment;
(ii) amend or alter the Charter which would adversely affect the rights of the
holders of Series B Preferred Stock as such; (iii) amend, alter or repeal any
provision of the Charter which would increase in any respect the restrictions or
limitations on ownership applicable to the Series B Preferred Stock; (iv) amend,
alter or repeal the Charter or Bylaws of the Company to limit the right of
indemnification provided to any Preferred Director; (v) issue additional shares
of Series B Preferred Stock or of Preferred Stock (or a series of Preferred
Stock that would vote as a class with the shares of Series B Preferred Stock
with respect to the election of any Preferred Director) or shares of stock
ranking senior to the Class B Preferred Stock; (vi) amend, alter or repeal any
provision of the Charter or Bylaws to increase the number of directors on the
Board above 11 (not including any Preferred Directors).
Reports. The Company shall mail to each holder of record of Series B
Preferred Stock, at such holder's address in the records of the Company, within
45 days after the end of the first three fiscal quarters of each fiscal year and
within 90 days after the end of each fiscal year, its financial reports for such
fiscal period in such form and containing such independent accountants report as
set forth under the rules of the Securities and Exchange Commission
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<PAGE> 18
(together with the report of the Company's independent accountants with respect
to such fiscal period) irrespective of whether the Company is then required to
file reports under such rules.
CONVERSION RIGHTS
Shares of Series B Preferred Stock will be convertible, in whole or in
part, at any time, at the option of the holders thereof, into the number of
fully paid and non-assessable shares of Common Stock obtained by multiplying the
number of shares of Series B Preferred Stock being converted by the Conversion
Ratio (as defined below and as in effect at such time) by surrendering such
shares of Series B Preferred Stock to be converted. The "Conversion Ratio" with
respect to any shares of Series B Preferred Stock will initially be equal to
1.1364, subject to adjustment as described in "-- Conversion Ratio Adjustments"
below. The right to convert shares of Series B Preferred Stock called for
redemption will terminate at the close of business on the last day on which the
holder of Series B Preferred Stock can exercise its conversion rights, unless
the Company shall default in making payment of any cash payable upon such
redemption under "-- Redemption" above. For information as to notices of
redemption see "-- Redemption" above.
Conversion of shares of Series B Preferred Stock, or a specified
portion thereof, may be effected by delivering a certificate or certificates
evidencing such shares, together with written notice of conversion and a proper
assignment of such certificate or certificates to the Company or in blank,
together with an amount sufficient to pay any transfer or similar tax (or
satisfactory evidence that such taxes have been paid) to the Company for that
purpose.
Each conversion will be deemed to have been effected immediately prior
to the close of business on the date on which the certificates for shares of
Class B Preferred Stock shall have been surrendered and notice shall have been
received by the Company as aforesaid, and the conversion shall be at the
Conversion Ratio in effect at such time and on such date.
Fractional shares of Common Stock are not to be issued upon conversion
but, in lieu thereof, the Company will pay a cash adjustment based on the
current market price of the Common Stock on the day prior to the conversion
date.
CONVERSION RATIO ADJUSTMENTS
The Conversion Ratio is subject to adjustment upon certain events,
including the following:
Dividends, Subdivisions, Combinations, Reclassifications. If the
Company shall, while any shares of Series B Preferred Stock are outstanding, (i)
pay a dividend or make a distribution with respect to its capital stock in
shares of its Common Stock, (ii) subdivide its outstanding Common Stock into a
greater number of shares, (iii) combine its outstanding Common Stock into a
smaller number of shares or (iv) issue any shares of capital stock by
S-18
<PAGE> 19
reclassification of its Common Stock, the Conversion Ratio in effect at the
opening of business on the day next following the date fixed for the
determination of shareholders entitled to receive such dividend or distribution
or at the opening of business on the day following the day on which such
subdivision, combination or reclassification becomes effective, as the case may
be, shall be adjusted so that the holder of any shares of Series B Preferred
Stock thereafter surrendered for conversion shall be entitled to receive the
number of shares of Common Stock that such holder would have owned or have been
entitled to receive after the happening of any of the events described above had
such shares of Series B Preferred Stock been converted immediately prior to the
record date in the case of a dividend or distribution or the effective date in
the case of a subdivision, combination or reclassification.
Issuance of Rights, Options or Warrants to Purchase Common Stock. If
the Company shall, while any shares of Series B Preferred Stock are outstanding,
issue rights, options or warrants to all holders of Common Stock entitling them
(for a period expiring within 45 days after the record date mentioned below) to
subscribe for or purchase Common Stock at a price per share less than the
current market price per share of Common Stock on the record date for the
determination of shareholders entitled to receive such rights or warrants, then
the Conversion Ratio in effect at the opening of business on the day next
following such record date shall be adjusted to equal the ratio determined by
dividing (i) the Conversion Ratio in effect immediately prior to the opening of
business on the day next following the date fixed for such determination by (ii)
a fraction, the numerator of which shall be the sum of (A) the number of shares
of Common Stock outstanding on the close of business on the date fixed for such
determination and (B) the number of shares that the aggregate proceeds to the
Company from the exercise of such rights or warrants for Common Stock would
purchase at such current market price, and the denominator of which shall be the
sum of (x) the number of shares of Common Stock outstanding on the close of
business on the date fixed for such determination and (y) the number of
additional shares of Common Stock offered for subscription or purchase pursuant
to such rights or warrants.
Issuance of Rights, Options or Warrants to Purchase Securities Other
Than Common Stock. If the Company shall distribute to all holders of its Common
Stock any shares of capital stock of the Company (other than Common Stock) or
evidence of its indebtedness or assets (excluding Regular Quarterly Dividends)
or rights or warrants to subscribe for or purchase any of its securities (any of
the foregoing being hereinafter called the "Securities"), then in each such case
each holder of shares of Series B Preferred Stock shall receive concurrently
with the receipt by holders of the Common Stock the kind and amount of such
Securities that it would have owned or been entitled to receive had such shares
of Series B Preferred Stock been converted immediately prior to such
distribution or related record date, as the case may be.
Distribution of Cash. If the Company shall pay or make a dividend
or other distribution on its Common Stock exclusively in cash (excluding Regular
Quarterly Dividends), each holder of shares of Series B Preferred Stock shall
receive concurrently with
S-19
<PAGE> 20
the receipt by holders of the Common Stock the kind and amount of any such
distribution that it would have owned or been entitled to receive had such
shares of Series B Preferred Stock been converted immediately prior to such
distribution or related record date, as the case may be.
Certain Significant Transactions. If the Company shall be a party to
any transaction (including, without limitation, a merger, consolidation,
statutory share exchange, self tender offer for all or substantially all shares
of Common Stock, sale of all or substantially all of the Company's assets or
recapitalization of the Common Stock and excluding any transaction as to which
the other provisions of the Series B Amendment apply) (each of the foregoing
being referred to herein as a "Transaction"), in each case as a result of which
shares of Common Stock shall be converted into the right to receive stock,
securities or other property (including cash or any combination thereof), each
share of Series B Preferred Stock that is not converted into the right to
receive stock, securities or other property in connection with such Transaction
shall thereafter be convertible into the kind and amount of shares of stock,
securities and other property (including cash or any combination thereof)
receivable upon the consummation of such Transaction by a holder of that number
of shares of Common Stock into which one share of Series B Preferred Stock was
convertible immediately prior to such Transaction, assuming such holder of
Common Stock (i) is not a person with which the Company consolidated or into
which the Company merged or which merged into the Company or to which such sale
or transfer was made, as the case may be (a "Constituent Person"), or an
affiliate of a Constituent Person or (ii) failed to exercise his or her rights
of election, if any, as to the kind or amount of stock, securities and other
property (including cash) receivable upon such Transaction (provided that if the
kind or amount of stock, securities and other property (including cash)
receivable upon such Transaction is not the same for each share of Common Stock
of the Company held immediately prior to such Transaction by other than a
Constituent Person or an affiliate thereof and in respect of which such rights
of election shall not have been exercised ("Non-electing Share"), then for the
purpose of this provision the kind and amount of stock, securities and other
property (including cash) receivable upon such Transaction by each Non-electing
Share shall be deemed to be the kind and amount so receivable per share by a
plurality of the Non-electing Shares). The Company shall not be a party to any
Transaction unless the terms of such Transaction are consistent with this
provision, and it shall not consent or agree to the occurrence of any
Transaction until the Company has entered into an agreement with the successor
or purchasing entity, as the case may be, for the benefit of the holders of the
shares of Series B Preferred Stock that will contain provisions enabling the
holders of the shares of Series B Preferred Stock that remain outstanding after
such Transaction to convert into the consideration received by holders of Common
Stock at the Conversion Ratio in effect immediately prior to such Transaction.
Other Actions. If the Company shall take any action affecting the
Common Stock, other than the actions described above, that would materially
adversely affect the conversion rights of the holders of the shares of Series B
Preferred Stock or the value of such conversion rights, the Conversion Ratio for
the shares of Series B Preferred Stock may be adjusted, to the
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<PAGE> 21
extent permitted by law, in such manner, if any, and at such time, as the Board,
in its sole discretion, may determine to be equitable in the circumstances.
OTHER CONVERSION PROVISIONS
Cumulative Adjustments. No adjustment in the Conversion Ratio shall be
required unless such adjustment would require a cumulative increase or decrease
of at least 1%; provided, however, that any adjustments that by reason of this
provision are not required to be made shall be carried forward and taken into
account in any subsequent adjustment until made. If any action or transaction
would require adjustment of the Conversion Ratio pursuant to more than one
provision of the Series B Amendment, only one adjustment shall be made and such
adjustment shall be the amount of adjustment that has the highest absolute
value.
Exempted Transactions. The Company shall not be required to make any
adjustment of the Conversion Ratio for (x) the issuance of any shares of Common
Stock pursuant to any plan providing for the reinvestment of dividends or
interest payable on securities of the Company and the investment of additional
optional amounts in shares of Common Stock pursuant to any plan providing for
the reinvestment of dividends or interest payable on securities of the Company
and the investment of additional optional amounts in shares of Common Stock
under such plan, (y) the issuance of contingent rights issued pursuant to a
stockholders' rights plan adopted by the Company pursuant to which the
acquisition by any third party of a specified percentage of Common Stock
triggers the exercisability of such rights to purchase Common Stock, for so long
as no event has occurred triggering such rights to exercise, and (z) the
issuance of Common Stock or options to purchase Common Stock pursuant to an
employee benefit plan.
Reduction In Conversion Ratio. The Company shall be entitled, to the
extent permitted by law, to make such reductions in the Conversion Ratio, as it
in its discretion shall determine to be advisable in order that any stock
dividends, subdivision of shares, reclassification or combination of shares,
distribution of rights or warrants to purchase stock or securities, or a
distribution of other assets (other than cash dividends) hereafter made by the
Company to its shareholders shall not be taxable, or if that is not possible, to
diminish any income taxes that are otherwise payable because of such event.
Notice of Adjustment in Conversion Ratio. Whenever the Conversion Ratio
is adjusted as herein provided, the Company shall prepare a notice of such
adjustment of the Conversion Ratio setting forth the adjusted Conversion Ratio
and the effective date of such adjustment and shall mail such notice of such
adjustment of the Conversion Ratio to the holders of the shares of Series B
Preferred Stock at each holder's last address as shown on the stock records of
the Company.
Notice of Certain Events. If:
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<PAGE> 22
(i) the Company shall declare a dividend (or any other distribution) on
the Common Stock (other than the Regular Quarterly Dividend); or (ii) the
Company shall authorize the granting to all holders of the Common Stock of
rights or warrants to subscribe for or purchase any shares of any class or any
other rights or warrants; or (iii) there shall be any reclassification of the
Common Stock (other than any event to which other provision of the Series B
Amendment applies) or any consolidation or merger to which the Company is a
party and for which approval of any shareholders of the Company is required, or
a statutory share exchange, or self tender offer by the Company for all or
substantially all of its outstanding shares of Common Stock or the sale or
transfer of all or substantially all of the assets of the Company as an entity;
or (iv) there shall occur the involuntary or voluntary liquidation, dissolution
or winding up of the Company, then the Company shall cause to be mailed to the
holders of shares of Series B Preferred Stock, at the address as shown on the
stock records of the Company, as promptly as possible, but at least 15 business
days prior to the applicable date hereinafter specified, a notice stating (A)
the date on which a record is to be taken for the purpose of such dividend,
distribution or rights or warrants, or, if a record is not to be taken, the date
as of which the holders of Common Stock of record to be entitled to such
dividend, distribution or rights or warrants are to be determined or (B) the
date on which such reclassification, consolidation, merger, statutory share
exchange, sale, transfer, liquidation, dissolution or winding up is expected to
become effective, and the date as of which it is expected that holders of Common
Stock shall be entitled to exchange their shares of Common Stock for securities
or other property, if any, deliverable upon such reclassification,
consolidation, merger, statutory share exchange, sale, transfer, liquidation,
dissolution or winding up.
Reservation, Validity, Listing and Securities Law Compliance With
Respect to Shares of Common Stock; Transfer Taxes. The Company will reserve and
keep available form its authorized but unissued shares of Common Stock for the
purpose of affecting conversion of the Series B Preferred Stock, a sufficient
number of shares of Common Stock as may be required to effect conversion of the
Series B Preferred Stock. Any shares of Common Stock issued upon the conversion
of the Shares of Series B Preferred Stock shall be validly issued, fully paid
and non-assessable. The Company will endeavor (i) to list the shares of Common
Stock required to be delivered upon conversion of the Series B Preferred Stock,
prior to such delivery, upon each national securities exchange, if any, upon
which the outstanding Common Stock is listed at the time of such delivery and
(ii) to comply with all federal and state laws and regulations thereunder
requiring the registration of such securities with, or any approval of or
consent to the delivery thereof, by any governmental authority. The Company will
pay any and all documentary stamp or similar issue or transfer taxes payable in
respect of the issue or delivery of shares of Common Stock or other securities
or property on conversion of the Series B Preferred Stock pursuant hereto;
provided, however, that the Company shall not be required to pay any tax that
may be payable in respect of any transfer involved in the issue or delivery of
shares of Common Stock or other securities or property in a name other than that
of the holder of the shares of Series B Preferred Stock to be converted, and no
such issue or delivery shall be made unless and until the person requesting
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such issue or delivery has paid to the Company the amount of any such tax or
established, to the reasonable satisfaction of the Company, that such tax has
been paid.
CHANGE OF CONTROL AND PUT OPTION
If a Change of Control or Put Event (each, as defined below) occurs as
a result of the voluntary (and not legally compelled) act, omission or
participation of the Company, which act, omission, or participation the Company
had the discretion under existing laws and regulations to refrain from, then
each holder of shares of Series B Preferred Stock will have the right to require
the Company to redeem such holder's shares of Series B Preferred Stock at a
redemption price payable in cash in an amount equal to 102% of the Liquidation
Value thereof, plus accrued and unpaid dividends whether or not declared, if
any, to the date of purchase or the date that payment is made available.
The following terms, as used herein, have the following meanings:
"Change of Control" means each occurrence of any of the following: (i)
the acquisition, directly or indirectly, by any individual or entity or group
(as such term is used in Section 13(d)(3) of the Exchange Act) of beneficial
ownership (as defined in Rule 13d-3 under the Exchange Act, except that such
individual or entity shall be deemed to have beneficial ownership of all shares
that any such individual or entity has the right to acquire, whether such right
is exercisable immediately or only after passage of time) of more than 33% of
the aggregate outstanding voting power of capital stock of the Company; (ii)
other than with respect to the election, resignation or replacement of the
Preferred Directors, during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board (together with any new
directors whose election by the Board or whose nomination for election by the
stockholders of the Company was approved by a vote of 66 2/3% of the directors
of the Company (excluding Preferred Directors) then still in office who were
either directors at the beginning of such period, or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board then in office; and (iii) (A) the Company
consolidates with or merges into another entity (the "Merger Entity") or
conveys, transfers or leases all or substantially all of its respective assets
(including, but not limited to, real property investments) to any individual or
entity (the "Acquiring Entity", and, together with the Merger Entity, the
"Successor Entity"), or (B) any corporation consolidates with or merges into the
Company, which in either event (A) or (B) is pursuant to a transaction in which
the outstanding voting capital stock of the Company is reclassified or changed
into or exchanged for cash, securities or other property (unless the holders of
the voting capital stock of the Company immediately prior to such transaction
hold immediately after such transaction more than 45% of the outstanding voting
capital stock of the Successor Entity).
"Put Event" means each occurrence of any of (i) the Company fails to
qualify as a real estate investment trust as described in Section 856 of the
Internal Revenue Code of 1986, as
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amended, other than as a result of any action, or unreasonable failure to act,
by any holder of shares of Series B Preferred Stock; (ii) the Company becomes a
"Pension-held REIT" as defined in Section 856(h)(3)(D) of the Internal Revenue
Code of 1986, as amended, other than as a result of any action, or unreasonable
failure to act, by the holders of shares of Series B Preferred Stock; or (iii)
the Company ceases to be engaged primarily in the business of owning and
managing multi-family properties and/or industrial properties directly, or
through subsidiaries, as carried on as of the date hereof and described in the
Company's Annual Report on Form 10-K, as amended, as filed with the Securities
and Exchange Commission for the year ended December 31, 1997.
RATIO OF EARNINGS TO FIXED CHARGES
EastGroup's ratio of earnings to fixed charges and Preferred Stock
dividends for the six months ended June 30, 1998 was 2.4, for the year ended
December 31, 1997 was 3.0, for the year ended December 31, 1996 was 2.4, for the
year ended December 31, 1995 was 2.2, for the year ended December 31, 1994 was
2.8 and for the year ended December 31, 1993 was 2.9. Except for the six months
ended June 30, 1998, there was no Preferred Stock outstanding for any of the
periods shown above. Accordingly, the ratio of earnings to fixed charges and
Preferred Stock dividends for those periods are identical to the ratio of
earnings to fixed charges.
For purposes of computing these ratios, earnings have been calculated
by adding fixed charges, excluding capitalized interest, to pre-tax income from
continuing operations (net income or loss). Fixed charges consist of interest
costs, whether expensed or capitalized, the interest component of rental expense
and amortization of debt issuance costs.
RESTRICTIONS ON TRANSFER
Except as described below under "Related Agreements -- Limited Waiver
of Ownership Limit," the Series B Preferred Stock is subject to the restrictions
on ownership and transfer set forth in the Company's Charter and described in
the section captioned "Restrictions on Transfer of Capital Stock" in the
accompanying Prospectus.
RELATED AGREEMENTS
Operating Agreement/Registration Rights. Pursuant to an Operating
Agreement entered into by and between the Company and the Purchaser (the
"Operating Agreement"), the Company will grant the Purchaser certain
registration rights, including two demand registrations exercisable at the
earlier of the expiration of the 90 day period after the date of the last
closing and September 25, 1999, and certain piggyback registration rights. The
two demand registration rights may be exercised so long as the holder requests
the registration of more than
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$10 million in market value of Registerable Securities (as defined below). The
Company shall also file a shelf registration statement and use its best efforts
to have such shelf registration declared effective prior to the earlier of the
expiration of the 90 day period after the date after the last closing and
September 25, 1999. Generally, the right of the holders of Series B Preferred
Stock to demand registration, either pursuant to the demand registration or the
shelf registration, shall expire, unless earlier expired, when such holders may
sell the Registrable Securities without registration under the Securities Act or
under Rule 144 promulgated under the Securities Act without regard to the volume
limitations therein.
The following terms, as used herein, have the following meanings:
"Majority Holders" means (i) the Purchaser, so long as (A) the
Purchaser holds at least 25% of the outstanding Registrable Securities and (B)
no underwritten demand registration or piggyback registration has been
consummated by the Company pursuant to the Operating Agreement, or (ii)
otherwise, the holder or holders at the relevant time (excluding the Company or
any of its subsidiaries) of more than 50% of the Series B Preferred Stock or
Registrable Securities then outstanding. For purposes of calculating such
percentage, shares of Common Stock constituting Registrable Securities shall be
deemed to equal the number of shares of converted shares of Series B Preferred
Stock in respect of which such shares of Common Stock were issued.
"Registrable Securities" means (i) all shares of Series B Preferred
Stock and all shares of Common Stock that have been issued, or are issuable on
conversion, in respect of the Series B Preferred Stock, (ii) any other
securities that are received by the Holders pursuant to the provisions of
Section 7 of the Series B Amendment, (iii) any other capital stock of the
Company, the holders of which shall have the right, without limitation as to
amount, either to all or to a share of the balance of current dividends and
liquidating dividends after the payment of dividends and distributions on any
shares entitled to preference, and (iv) any other securities into which or for
which any of the securities described in clauses (i) through (iii) above may be
or have been converted or exchanged pursuant to a plan of recapitalization,
reorganization, merger, sale of assets or otherwise, until such time as (a) they
have been effectively registered under the Securities Act for resale and sold
thereunder, (b) they are distributed to the public pursuant to Rule 144 (or any
similar provisions then in force) under the Securities Act, (c) they shall have
been otherwise transferred, new certificates therefor not bearing a legend
restricting further transfer shall have been issued by the Company and
subsequent disposition thereof shall not require registration under the
Securities Act, or (d) they shall have ceased to be outstanding.
Limited Waiver of Ownership Limit. The Charter of the Company provides
certain restrictions on the ownership of the Company's capital stock (the
"Ownership Restrictions") intended to preserve the Company's status as a REIT.
In order to enable the Purchaser to own the Series B Preferred Stock (and Common
Stock into which the Series B Preferred Stock is converted), the Company granted
a limited waiver of the Ownership Restrictions to the
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Purchaser and its majority member. The waiver generally covers the Series B
Preferred Stock and any Common Stock into which the Series B Preferred Stock is
converted. The waiver contains additional terms designed to preserve the
Company's status as a REIT, including provisions that cause the waiver to become
void ab initio or to expire upon the occurrence of certain events. The waiver
enables the Purchaser to transfer shares covered thereby to another person in a
transaction that otherwise would violate the Ownership Restrictions, subject to
conditions that include the Company's right of first refusal to acquire the
shares in excess of the shares that the transferee could acquire without
violating the Ownership Restrictions.
TAX LAW CHANGE
The Internal Revenue Service Restructuring and Reform Act of 1998 reduced
the holding period for property to qualify for long-term capital gain from more
than 18 months to more than 12 months, effective for tax years ending after
December 31, 1997.
PLAN OF DISTRIBUTION
General. The Series B Preferred Stock will be issued and sold to the
Purchaser pursuant to the Investment Agreement at a purchase price of $25.00
per share less a discount of $.50 per share, for a net price of $24.50 per
share.
Closings. The Company is entitled to designate up to five closings of
the issuance and sale of Series B Preferred Stock to the Purchases, each of
which shall provide for the issuance and sale of at least 200,000 shares. The
Company must sell and issue to the Purchaser at least 1,600,000 shares of Series
B Preferred Stock, and has the option to sell up to 2,800,000 shares of Series B
Preferred Stock to the Company. The Company may, prior to March 31, 1999, in its
sole discretion and upon written notice, elect to terminate the Purchaser's
commitment to purchase in excess of 1,600,000 (or such other number up to
2,800,000) shares of Series B Preferred Stock (the "Excess Funding
Termination"). If the Purchaser receives written notice from the Company of an
Excess Funding Termination subsequent to December 31, 1998 and on or prior to
March 31, 1999, then the Purchaser shall be entitled to receive an additional
discount in the form of a refund or prepayment (the "Additional Discount") on
the purchase of the shares of Series B Preferred Stock that have been or are
purchased by the Purchaser after giving effect to such Excess Funding
Termination in an amount equal to the product of $0.625 multiplied by the number
of shares of Series B Preferred Stock the purchase of which has been canceled
pursuant to the Excess Funding Termination.
Lock-Up. Pursuant to the Investment Agreement, the Purchaser agreed
that until September 25, 2000 it shall not sell, transfer, convey, assign,
pledge or hypothecate any of the shares of Series B Preferred Stock or any
shares of Common Stock obtained upon conversion of any shares of Series B
Preferred Stock.
Standstill. Pursuant to the Investment Agreement, the Purchaser agreed
so long as it holds Series B Preferred Stock or the Common Stock into which the
Series B Preferred Stock has been converted, it and its affiliates will not (i)
acquire, offer to acquire, or agree to acquire, directly or indirectly, by
purchase or otherwise, any voting securities, direct or indirect rights or
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<PAGE> 27
options to acquire any voting securities, direct or indirect rights or options
to acquire any voting securities, or securities or instruments convertible into
voting securities, of the Company; provided, however, that they shall not
prohibit the acquisition of securities of the Company in an amount that does not
exceed the Ownership Limitation, as set forth in the Charter; (ii) make, or in
any way participate, directly or indirectly, in any "solicitation" of "proxies"
to vote (as such terms are used in the proxy rules of the Securities and
Exchange Commission) securities of the Company, or seek to advise or influence;
any person or entity with respect to any voting of any securities of the Company
(iii) form, join or in any way participate in a "group" within the meaning of
Section 13(d)(3) of the Exchange Act, with respect to any voting securities of
the Company; (iv) make any public announcement with respect to or make or submit
a proposal or offer (with or without conditions) for the securities or assets of
the Company or any extraordinary transaction involving the Company or any of its
Subsidiaries; (v) submit or effect any filing or application, or seek to obtain
any permit, consent or agreement, approval or other action, required by or from
any regulatory agency with respect to an acquisition of the Company or any of
its securities or assets; (vi) otherwise act alone or in concert with others to
seek to control the Board, the management or policies of the Company; or (vii)
propose any of the foregoing unless and until such proposal is specifically
invited by the Company.
Financial Adviser. The Company has retained PaineWebber Incorporated as
its exclusive financial adviser in connection with the issuance and sale of the
Series B Preferred Stock, and will pay PaineWebber Incorporated a fee of
$875,000 for its services.
LEGAL MATTERS
Certain legal matters related to the shares of Series B Preferred Stock
offered by the Company will be passed upon for the Company by Jaeckle
Fleischmann & Mugel, LLP, Buffalo, New York. Jaeckle Fleischmann & Mugel, LLP
will rely upon the opinion of Piper & Marbury LLP, Baltimore, Maryland, as to
certain matters of Maryland law.
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PROSPECTUS
$250,000,000
EASTGROUP PROPERTIES, INC.
COMMON STOCK
PREFERRED STOCK
DEPOSITARY SHARES
------------------------
EastGroup Properties, Inc. ("EastGroup") may from time to time offer in one
or more series or classes (i) shares of its common stock, par value $0.0001 per
share (the "Common Stock"); (ii) shares of its preferred stock, par value
$0.0001 per share (the "Preferred Stock"); and (iii) Preferred Stock represented
by depositary shares (the "Depositary Shares"); with an aggregate public
offering price of up to $250,000,000 in amounts, at prices and on terms to be
determined at the time of offering. The Common Stock, Preferred Stock and
Depositary Shares (collectively, the "Securities") may be offered, separately or
together, in one or more supplements to this Prospectus (each, a "Prospectus
Supplement").
The specific terms of the Securities in respect of which this Prospectus is
being delivered will be set forth in the applicable Prospectus Supplement and
will include, where applicable (i) in the case of Common Stock, any initial
public offering price; (ii) in the case of Preferred Stock, the specific
designation and stated value per share, any dividend, liquidation, redemption,
conversion, voting and other rights, and any initial public offering price; and
(iii) in the case of Depositary Shares, the fractional share of Preferred Stock
represented by each such Depositary Share. In addition, such specific terms may
include limitations on direct or beneficial ownership and restrictions on
transfer of the Securities, in each case as may be consistent with EastGroup's
Articles of Incorporation, as amended (the "Charter"), or as otherwise
appropriate to preserve the status of EastGroup as a real estate investment
trust ("REIT") for federal income tax purposes.
The applicable Prospectus Supplement will also contain information, where
applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Securities covered
by such Prospectus Supplement.
The Securities may be offered directly, through agents designated from time
to time by EastGroup, or to or through underwriters or dealers. If any agents or
underwriters are involved in the sale of any of the Securities, their names, and
any applicable purchase price, fee, commission or discount arrangement between
or among them, will be set forth, or will be calculable from the information set
forth, in the applicable Prospectus Supplement. See "Plan of Distribution." No
Securities may be sold without delivery of the applicable Prospectus Supplement
describing the method and terms of the offering of such series of Securities.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is July 1, 1998.
<PAGE> 29
AVAILABLE INFORMATION
EastGroup is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by EastGroup may be inspected at, and,
upon payment of the Commission's customary charges, copies obtained from, the
Public Reference Section maintained by the Commission, 450 Fifth Street, N.W.,
Washington, DC 20549. Such reports, proxy statements and other information are
also available for inspection and copying at prescribed rates at the
Commission's regional offices in New York, New York (7 World Trade Center, 13th
Floor, New York, New York 10048) and in Chicago, Illinois (Suite 1400, Citicorp
Center, 500 West Madison Street, Chicago, Illinois 60661-2511). The Commission
maintains a Web site (http://www.sec.gov) that also contains reports, proxy
statements and other information concerning EastGroup. In addition, the Common
Stock is traded on the New York Stock Exchange, Inc. ("NYSE") under the symbol
"EGP" and reports and other information can be inspected and copied at the
offices of the NYSE, 20 Broad Street, New York, New York 10005.
EastGroup has filed with the Commission a Registration Statement on Form
S-3 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), and the rules and regulations promulgated thereunder,
with respect to the Securities. This Prospectus constitutes the Prospectus of
EastGroup, filed as part of the Registration Statement. As permitted by the
rules and regulations of the Commission, this Prospectus omits certain
information contained in the Registration Statement, and reference is made to
the Registration Statement and the exhibits listed therein, which can be
inspected at the public reference facilities of the Commission noted above, and
copies of which can be obtained from the Commission at prescribed rates as
indicated above. Statements contained in this Prospectus as to the contents of
any contract or other documents are not necessarily complete, and in each
instance, reference is made to the copy of such contract or documents filed as
an exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Incorporated into this Prospectus by reference are the documents listed
below filed by EastGroup under the Exchange Act. Copies of any such documents,
other than exhibits to such documents, are available without charge to each
person to whom a copy of this Prospectus has been delivered upon written or oral
request of such person from EastGroup, 300 One Jackson Place, 188 East Capitol
Street, Jackson, Mississippi 39201-2195, Attention: Chief Financial Officer,
telephone number (601) 354-3555.
The following documents are hereby incorporated into this Prospectus by
reference and are made a part hereof:
(1) EastGroup Properties, Inc.'s Annual Report on Form 10-K for the
year ended December 31, 1997 (Commission File No. 1-7094).
(2) EastGroup Properties, Inc.'s Proxy Material for its Annual Meeting
of Stockholders held on June 4, 1998 (Commission File No. 1-7094).
(3) EastGroup Properties, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998 (Commission File No. 1-7094).
(4) EastGroup Properties, Inc.'s Current Report on Form 8-K dated
February 23, 1998 (Commission File No. 1-7094).
(5) EastGroup Properties, Inc.'s Current Report on Form 8-K dated June
1, 1998 (Commission File No. 1-7094).
(6) EastGroup Properties, Inc.'s Current Report on Form 8-K dated June
19, 1998 (Commission File No. 1-7094).
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<PAGE> 30
Each document filed by EastGroup subsequent to the date of this Prospectus
pursuant to Sections 13(a), 14 or 15(d) of the Exchange Act and prior to the
termination of the offering of all Securities to which this Prospectus relates
shall be deemed to be incorporated by reference in this Prospectus and shall be
part hereof from the date of filing of such document. Any statement contained
herein or in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained in this Prospectus (in the
case of a previously filed document incorporated or deemed to be incorporated by
reference herein) in any accompanying Prospectus Supplement relating to a
specific offering of Securities or in any other subsequently filed document that
is also incorporated or deemed to be incorporated by reference herein, modifies
or supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus or any accompanying Prospectus Supplement. Subject to the foregoing,
all information appearing in this Prospectus and each accompanying Prospectus
Supplement is qualified in its entirety by the information appearing in the
documents incorporated by reference.
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<PAGE> 31
Unless the context otherwise requires, all references in this Prospectus to
"EastGroup" shall mean EastGroup Properties, Inc. and its subsidiaries on a
consolidated basis or, where the context so requires, EastGroup Properties, Inc.
only, and, as the context may require, their predecessors.
THE COMPANY
EastGroup is a self-administered real estate investment trust ("REIT")
focused primarily on the ownership, acquisition and selective development of
industrial properties located in major Sunbelt markets throughout the United
States. As of June 26, 1998 EastGroup's portfolio included 77 industrial
properties in ten states containing approximately 13.8 million square feet of
leasable space, six industrial properties under development or in initial
lease-up containing approximately 468,000 square feet of leasable space, and
three office buildings containing approximately 390,000 square feet of leasable
space. As of May 31, 1998, the industrial portfolio (excluding the six
properties currently under development or in initial lease-up) was 97% leased.
EastGroup is the successor to EastGroup Properties, a Maryland real estate
investment trust ("Parent"). EastGroup was incorporated under the laws of the
State of Maryland on April 4, 1997. Formed as a wholly-owned subsidiary of
Parent, EastGroup merged with Parent on June 5, 1997 (the "Merger"), pursuant to
the Agreement and Plan of Merger dated April 23, 1997 by and between EastGroup
and Parent. As a result of the Merger, EastGroup succeeded to the business and
operations of Parent.
EastGroup's principal executive offices are located at 300 One Jackson
Place, 188 East Capitol Street, Jackson, Mississippi 39201-2195. Its telephone
number is (601) 354-3555.
RATIO OF EARNINGS TO FIXED CHARGES
EastGroup's ratio of earnings to fixed charges for the three months ended
March 31, 1998 was 2.7, for the year ended December 31, 1997 was 3.0, for the
year ended December 31, 1996 was 2.4, for the year ended December 31, 1995 was
2.2, for the year ended December 31, 1994 was 2.8 and for the year ended
December 31, 1993 was 2.9. There was no Preferred Stock outstanding for any of
the periods shown above. Accordingly, the ratio of earnings to fixed charges and
Preferred Stock dividends are identical to the ratio of earnings to fixed
charges.
For purposes of computing these ratios, earnings have been calculated by
adding fixed charges, excluding capitalized interest, to pre-tax income from
continuing operations (net income or loss). Fixed charges consist of interest
costs, whether expensed or capitalized, the interest component of rental expense
and amortization of debt issuance costs.
USE OF PROCEEDS
Unless otherwise described in the applicable Prospectus Supplement,
EastGroup intends to use the net proceeds from the offering for general
corporate purposes including, without limitation, the acquisition of real estate
properties, whether by acquisition of properties directly or through potential
business combination transactions, development of new real estate properties,
the repayment of debt and to fund working capital requirements.
DESCRIPTION OF PREFERRED STOCK
GENERAL
EastGroup is authorized to issue Preferred Stock. The Board of Directors of
EastGroup may classify or reclassify any unissued shares of its capital stock
from time to time by setting, altering or voiding the preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends or
distributions, qualifications, or terms or conditions of redemption of such
shares. As of June 26, 1998, EastGroup had authorized, issued and outstanding
1,725,000 shares of 9.00% Series A Cumulative Redeemable Preferred
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<PAGE> 32
Stock, par value $0.0001 per share (the "Series A Preferred Stock"), there were
no other shares of Preferred Stock outstanding.
The following description of the Preferred Stock sets forth certain general
terms and provisions of the Preferred Stock to which any Prospectus Supplement
may relate. The statements below describing the Preferred Stock are in all
respects subject to and qualified in their entirety by reference to the
applicable provisions of the Charter and Bylaws and any applicable articles
supplementing the Charter designating terms of a series of Preferred Stock (a
"Designating Amendment").
TERMS
Subject to the limitations prescribed by the Charter, the Board of
Directors is authorized to fix the number of shares constituting each series of
Preferred Stock and the preference, conversion or other rights, voting powers,
restrictions, limitation as to dividends, qualifications, or terms or conditions
of redemption of the Preferred Stock. The Preferred Stock will, when issued, be
fully paid and nonassessable by EastGroup (except as described under
" -- Stockholder Liability" below) and will have no preemptive rights.
Reference is made to the Prospectus Supplement relating to the Preferred
Stock offered thereby for specific terms thereof, including:
(i) The title and stated value of such Preferred Stock;
(ii) The number of such shares of Preferred Stock offered, the
liquidation preference per share and the offering price of such Preferred
Stock;
(iii) The dividend rate(s), period(s) and/or payment date(s) or
method(s) of calculation thereof applicable to such Preferred Stock;
(iv) The date from which dividends on such Preferred Stock shall
accumulate, if applicable;
(v) The procedures for any auction or remarketing, if any, for such
Preferred Stock;
(vi) The provision for a sinking fund, if any, for such Preferred
Stock;
(vii) The provision for redemption, if applicable, of such Preferred
Stock;
(viii) Any listing of such Preferred Stock on any securities exchange;
(ix) The terms and conditions, if applicable, upon which such
Preferred Stock will be convertible into Common Stock, including the
conversion price (or manner of calculation thereof);
(x) Whether interests in such Preferred Stock will be represented by
Depositary Shares;
(xi) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock;
(xii) A discussion of U.S. federal income tax considerations
applicable to such Preferred Stock;
(xiii) The relative ranking of preferences of such Preferred Stock as
to dividend rights and rights upon liquidation, dissolution or winding up
of the affairs of EastGroup;
(xiv) Any limitations on issuance of any series of Preferred Stock
ranking senior to or on a parity with such series of Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of EastGroup; and
(xv) Any limitations on direct or beneficial ownership and
restrictions on transfer, in each case as may be appropriate to preserve
the status of EastGroup as a REIT.
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred
Stock, will, with respect to dividend rights and rights upon liquidation,
dissolution or winding up of EastGroup, rank (i) senior to all classes or series
of Common Stock of EastGroup, and to all equity securities ranking junior to
such Preferred
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<PAGE> 33
Stock; (ii) on a parity with all equity securities issued by EastGroup the terms
of which specifically provide that such equity securities rank on a parity with
the Preferred Stock; and (iii) junior to all equity securities issued by
EastGroup the terms of which specifically provide that such equity securities
rank senior to the Preferred Stock. The term "equity securities" does not
include debt securities.
DIVIDENDS
Holders of Preferred Stock of each series will be entitled to receive,
when, as and if declared by the Board of Directors of EastGroup, out of assets
of EastGroup legally available for payment, cash dividends at such rates and on
such dates as will be set forth in the applicable Prospectus Supplement. Each
such dividend shall be payable to holders of record as they appear on the share
transfer books of EastGroup on such record dates as shall be fixed by the Board
of Directors of EastGroup.
Dividends on any series of Preferred Stock may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Directors of EastGroup fails
to declare a dividend payable on a dividend payment date on any series of the
Preferred Stock for which dividends are non-cumulative, then the holders of such
series of the Preferred Stock will have no right to receive a dividend in
respect of the dividend period ending on such dividend payment date, and
EastGroup will have no obligation to pay the dividend accrued for such period,
whether or not dividends on such series are declared payable on any future
dividend payment date.
If Preferred Stock of any series are outstanding, no dividends will be
declared or paid or set apart for payment on any capital stock of EastGroup of
any other series ranking, as to dividends, on a parity with or junior to the
Preferred Stock of such series for any period unless (i) if such series of
Preferred Stock has a cumulative dividend, full cumulative dividends have been
or contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for such payment on the Preferred Stock of such
series for all past dividend periods and the then current dividend period or
(ii) if such series of Preferred Stock does not have a cumulative dividend, full
dividends for the then current dividend period have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for such payment on the Preferred Stock of such series. When dividends
are not paid in full (or a sum sufficient for such full payment is not so set
apart) upon Preferred Stock of any series and the shares of any other series of
Preferred Stock ranking on a parity as to dividends with the Preferred Stock of
such series, all dividends declared upon Preferred Stock of such series and any
other series of Preferred Stock ranking on a parity as to dividends with such
Preferred Stock shall be declared pro rata so that the amount of dividends
declared per share of Preferred Stock of such series and such other series of
Preferred Stock shall in all cases bear to each other the same ratio that
accrued dividends per share on the Preferred Stock of such series (which shall
not include any accumulation in respect of unpaid dividends for prior dividend
periods if such Preferred Stock do not have a cumulative dividend) and such
other series of Preferred Stock bear to each other. No interest, or sum of money
in lieu of interest, shall be payable in respect of any dividend payment or
payments on Preferred Stock of such series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Stock has a cumulative dividend, full cumulative
dividends on the Preferred Stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for all past dividend periods and the then current
dividend period; and (ii) if such series of Preferred Stock does not have a
cumulative dividend, full dividends on the Preferred Stock of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for payment for the then current dividend
period, no dividends (other than in shares of Common Stock or other capital
shares ranking junior to the Preferred Stock of such series as to dividends and
upon liquidation) shall be declared or paid or set aside for payment or other
distribution shall be declared or made upon the Common Stock, or any other
capital shares of EastGroup ranking junior to or on a parity with the Preferred
Stock of such series as to dividends or upon liquidation, nor shall any shares
of Common Stock, or any other capital shares of EastGroup ranking junior to or
on a parity with the Preferred Stock of such series as to dividends or upon
liquidation be redeemed, purchased or otherwise acquired for any consideration
(or
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<PAGE> 34
any moneys be paid to or made available for a sinking fund for the redemption of
any such shares) by EastGroup (except by conversion into or exchange for other
capital shares of EastGroup ranking junior to the Preferred Stock of such series
as to dividends and upon liquidation). Any dividend payment made on a series of
Preferred Stock shall first be credited against the earliest accrued but unpaid
dividend due with respect to shares of such series which remain payable.
REDEMPTION
If so provided in the applicable Prospectus Supplement, the Preferred Stock
will be subject to mandatory redemption or redemption at the option of
EastGroup, as a whole or in part, in each case upon the terms, at the times and
at the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Stock that is
subject to mandatory redemption will specify the number of such shares of
Preferred Stock that shall be redeemed by EastGroup in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon (which
shall not, if such shares of Preferred Stock do not have a cumulative dividend,
include any accumulation in respect of unpaid dividends for prior dividend
periods) to the date of redemption. The redemption price may be payable in cash
or other property, as specified in the applicable Prospectus Supplement. If the
redemption price for Preferred Stock of any series is payable only from the net
proceeds of the issuance of capital shares of EastGroup, the terms of such
Preferred Stock may provide that, if no such capital shares have been issued or
to the extent the net proceeds from any issuance are insufficient to pay in full
the aggregate redemption price then due, such Preferred Stock shall
automatically and mandatorily be converted into the applicable capital shares of
EastGroup pursuant to conversion provisions specified in the applicable
Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred Stock
has a cumulative dividend, full cumulative dividends on all shares of any series
of Preferred Stock have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
all past dividend periods and the then current dividend period; and (ii) if such
series of Preferred Stock does not have a cumulative dividend, full dividends of
the Preferred Stock of any series have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof set apart for
payment for the then current dividend period, no shares of any series of
Preferred Stock shall be redeemed unless all outstanding Preferred Stock of such
series is simultaneously redeemed; provided, however, that the foregoing shall
not prevent the purchase or acquisition of Preferred Stock of such series to
preserve the REIT status of EastGroup or pursuant to a purchase or exchange
offer made on the same terms to holders of all outstanding Preferred Stock of
such series. In addition, unless (i) if such series of Preferred Stock has a
cumulative dividend, full cumulative dividends on all outstanding shares of any
series of Preferred Stock have been or contemporaneously are declared and paid
or declared and a sum sufficient for the payment thereof set apart for payment
for all past dividend periods and the then current dividend period; and (ii) if
such series of Preferred Stock does not have a cumulative dividend, full
dividends on the Preferred Stock of any series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for the then current dividend period, EastGroup shall not
purchase or otherwise acquire directly or indirectly any Preferred Stock of such
series (except by conversion into or exchange for capital stock of EastGroup
ranking junior to the Preferred Stock of such series as to dividends and upon
liquidation); provided, however, that the foregoing shall not prevent the
purchase or acquisition of Preferred Stock of such series to preserve the REIT
status of EastGroup or pursuant to a purchase or exchange offer made on the same
terms to holders of all outstanding Preferred Stock of such series.
If fewer than all of the outstanding Preferred Stock of any series are to
be redeemed, the number of shares to be redeemed will be determined by EastGroup
and such shares may be redeemed pro rata from the holders of record of such
shares in proportion to the number of such shares held or for which redemption
is requested by such holder (with adjustments to avoid redemption of fractional
shares) or by lot in a manner determined by EastGroup.
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Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Stock of
any series to be redeemed at the address shown on the share transfer books of
EastGroup. Each notice shall state: (i) the redemption date; (ii) the number of
shares and series of the Preferred Stock to be redeemed; (iii) the redemption
price; (iv) the place or places where certificates for such Preferred Stock are
to be surrendered for payment of the redemption price; (v) that dividends on the
shares to be redeemed will cease to accrue on such redemption date; and (vi) the
date upon which the holder's conversion rights, if any, as to such shares shall
terminate. If fewer than all the Preferred Stock of any series are to be
redeemed, the notice mailed to each such holder thereof shall also specify the
number of Preferred Stock to be redeemed from each such holder. If notice of
redemption of any Preferred Stock has been given and if the funds necessary for
such redemption have been set aside by EastGroup in trust for the benefit of the
holders of any Preferred Stock so called for redemption, then from and after the
redemption date dividends will cease to accrue on such Preferred Stock, and all
rights of the holders of such shares will terminate, except the right to receive
the redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of EastGroup, then, before any distribution or payment shall be made
to the holders of any shares of Common Stock or any other class or series of
capital shares of EastGroup ranking junior to the Preferred Stock in the
distribution of assets upon any liquidation, dissolution or winding up of
EastGroup, the holders of each series of Preferred Stock shall be entitled to
receive out of assets of EastGroup legally available for distribution to
stockholders liquidating distributions in the amount of the liquidation
preference per share (set forth in the applicable Prospectus Supplement), plus
an amount equal to all dividends accrued and unpaid thereon (which shall not
include any accumulation in respect of unpaid dividends for prior dividend
periods if such Preferred Stock do not have a cumulative dividend). After
payment of the full amount of the liquidating distributions to which they are
entitled, the holders of Preferred Stock will have no right or claim to any of
the remaining assets of EastGroup. In the event that, upon any such voluntary or
involuntary liquidation, dissolution or winding up, the available assets of
EastGroup are insufficient to pay the amount of the liquidating distributions on
all outstanding shares of Preferred Stock and the corresponding amounts payable
on all shares of other classes or series of capital shares of EastGroup ranking
on a parity with the Preferred Stock in the distribution of assets, then the
holders of the Preferred Stock and all other such classes or series of capital
shares shall share ratably in any such distribution of assets in proportion to
the full liquidating distributions to which they would otherwise be respectively
entitled.
If liquidating distributions shall have been made in full to all holders of
Preferred Stock, the remaining assets of EastGroup shall be distributed among
the holders of any other classes or series of capital shares ranking junior to
the Preferred Stock upon liquidation, dissolution or winding up, according to
their respective rights and preferences and in each case according to their
respective number of shares. For such purposes, the consolidation or merger of
EastGroup with or into any other corporation, trust or entity, or the sale,
lease or conveyance of all or substantially all of the property or business of
EastGroup, shall not be deemed to constitute a liquidation, dissolution or
winding up of EastGroup.
VOTING RIGHTS
Holders of Preferred Stock will not have any voting rights, except as set
forth below or as otherwise from time to time required by law or as indicated in
the applicable Prospectus Supplement.
Whenever dividends on any Preferred Stock shall be in arrears for six or
more consecutive quarterly periods, the holders of such Preferred Stock (voting
separately as a class with all other series of Preferred Stock upon which like
voting rights have been conferred and are exercisable) will be entitled to vote
for the election of two additional directors of EastGroup at a special meeting
called by the holders of record of at least ten percent (10%) of any series of
Preferred Stock so in arrears (unless such request is received less than 90 days
before the date fixed for the next annual or special meeting of the
stockholders) or at the next annual meeting of stockholders, and at each
subsequent annual meeting until (i) if such series of Preferred Stock has a
cumulative dividend, all dividends accumulated on such Preferred Stock for the
past dividend periods and
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the then current dividend period shall have been declared and fully paid or
declared and a sum sufficient for the payment thereof set aside for payment or
(ii) if such series of Preferred Stock does not have a cumulative dividend, four
consecutive quarterly dividends shall have been declared and fully paid or
declared and a sum sufficient for the payment thereof set aside for payment. In
such case, the number of persons constituting the entire Board of Directors of
EastGroup will be increased by two directors.
Unless provided otherwise for any series of Preferred Stock, so long as any
shares of Preferred Stock remain outstanding, EastGroup will not, without the
affirmative vote or consent of the holders of at least two-thirds of the shares
of each series of Preferred Stock outstanding at the time, given in person or by
proxy, either in writing or at a meeting (such series voting separately as a
class), (i) authorize or create, or increase the authorized or issued amount of,
any class or series of capital stock ranking prior to such series of Preferred
Stock with respect to payment of dividends or the distribution of assets upon
liquidation, dissolution or winding up or reclassify any authorized capital
stock of EastGroup into such shares, or create, authorize or issue any
obligation or security convertible into or evidencing the right to purchase any
such shares; or (ii) amend, alter or repeal the provisions of the Charter or the
Designating Amendment for such series of Preferred Stock, whether by merger,
consolidation or otherwise (an "Event"), so as to materially and adversely
affect any right, preference, privilege or voting power of such series of
Preferred Stock or the holder thereof; provided, however, as to the occurrence
of any of the Events set forth in (ii) above, so long as the Preferred Stock
remains outstanding with the terms thereof materially unchanged, taking into
account that upon the occurrence of an Event, EastGroup may not be the surviving
entity, the occurrence of any such Event shall not be deemed to materially and
adversely affect such rights, preferences, privileges or voting power of holders
of Preferred Stock and provided further that (a) any increase in the amount of
the authorized Preferred Stock or the creation or issuance of any other series
of Preferred Stock; or (b) any increase in the amount of authorized shares of
such series or any other series of Preferred Stock, in each case ranking on a
parity with or junior to the Preferred Stock of such series with respect to
payment of dividends or the distribution of assets upon liquidation, dissolution
or winding up, shall not be deemed to materially and adversely affect such
rights, preferences, privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such series of Preferred Stock shall have
been redeemed or called for redemption and sufficient funds shall have been
deposited in trust to effect such redemption.
Under Maryland law, notwithstanding anything to the contrary set forth
above, holders of each series of Preferred Stock will be entitled to vote upon
any proposed amendment to the Charter if the amendment would change the contract
rights of such shares as expressly set forth in the Charter.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any series of Preferred Stock
are convertible into Common Stock will be set forth in the applicable Prospectus
Supplement relating thereto. Such terms will include the number of shares of
Common Stock into which the shares of Preferred Stock are convertible, the
conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversions will be at the option of the holders of the
Preferred Stock or EastGroup, the events requiring an adjustment of the
conversion price and provisions affecting conversion in the event of the
redemption of such series of Preferred Stock.
STOCKHOLDER LIABILITY
As discussed below under "Description of Common Stock -- General,"
applicable Maryland law provides that no stockholder, including holders of
Preferred Stock, will be personally liable for the acts and obligations of
EastGroup and that the funds and property of EastGroup will be the only recourse
for such acts or obligations.
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RESTRICTIONS ON OWNERSHIP
As discussed below under "Description of Common Stock -- Restrictions on
Transfer," for EastGroup to qualify as a REIT under the Code, not more than 50%
in value of its outstanding capital shares may be owned, directly or indirectly,
by five or fewer individuals (as defined in the Code to include certain
entities) during the last half of a taxable year. To assist EastGroup in meeting
this requirement, EastGroup may take certain actions to limit the beneficial
ownership, directly or indirectly, by a single person of EastGroup's outstanding
equity securities, including any Preferred Stock of EastGroup. Therefore, the
Designating Amendment for each series of Preferred Stock may contain provisions
restricting the ownership and transfer of the Preferred Stock. The applicable
Prospectus Supplement will specify any additional ownership limitation relating
to a series of Preferred Stock.
REGISTRAR AND TRANSFER AGENT
The Registrar and Transfer Agent for the Preferred Stock will be set forth
in the applicable Prospectus Supplement.
DESCRIPTION OF DEPOSITARY SHARES
GENERAL
EastGroup may issue receipts ("Depositary Receipts") for Depositary Shares,
each of which will represent a fractional interest of a share of a particular
series of Preferred Stock, as specified in the applicable Prospectus Supplement.
Preferred Stock of each series represented by Depositary Shares will be
deposited under a separate deposit agreement (each, a "Deposit Agreement") among
EastGroup, the depositary named therein (a "Preferred Stock Depositary"), and
the holders from time to time of the Depositary Receipts. Subject to the terms
of the applicable Deposit Agreement, each owner of a Depositary Receipt will be
entitled, in proportion to the fractional interest of a share of a particular
series of Preferred Stock represented by the Depositary Shares evidenced by such
Depositary Receipt, to all the rights and preferences of the Preferred Stock
represented by such Depositary Shares (including dividend, voting, conversion,
redemption and liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the issuance
and delivery of the Preferred Stock by EastGroup to a Preferred Stock
Depositary, EastGroup will cause such Preferred Stock Depositary to issue, on
behalf of EastGroup, the Depositary Receipts. Copies of the applicable form of
Deposit Agreement and Depositary Receipt may be obtained from EastGroup upon
request, and the statements made hereunder relating to Deposit Agreements and
the Depositary Receipts to be issued thereunder are summaries of certain
anticipated provisions thereof and do not purport to be complete and are subject
to, and qualified in their entirety by reference to, all of the provisions of
the applicable Deposit Agreement and related Depositary Receipts.
DIVIDENDS AND OTHER DISTRIBUTIONS
A Preferred Stock Depositary will be required to distribute all cash
dividends or other cash distributions received in respect of the applicable
Preferred Stock to the record holders of Depositary Receipts evidencing the
related Depositary Shares in proportion to the number of such Depositary
Receipts owned by such holders, subject to certain obligations of holders to
file proofs, certificates and other information and to pay certain charges and
expenses to such Preferred Stock Depositary.
In the event of a distribution other than in cash, a Preferred Stock
Depositary will be required to distribute property received by it to the record
holders of Depositary Receipts entitled thereto, subject to certain obligations
of holders to file proofs, certificates and other information and to pay certain
charges and expenses to such Preferred Stock Depositary, unless such Preferred
Stock Depositary determines that it is not feasible to make such distribution,
in which case such Preferred Stock Depositary may, with the approval of
EastGroup, sell such property and distribute the net proceeds from such sale to
such holders.
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No distribution will be made in respect of any Depositary Share to the
extent that it represents any Preferred Stock which have been converted or
exchanged.
WITHDRAWAL OF SHARES
Upon surrender of the Depositary Receipts at the corporate trust office of
the applicable Preferred Stock Depositary (unless the related Depositary Shares
have previously been called for redemption or converted), the holders thereof
will be entitled to delivery at such office, to or upon each such holder's
order, of the number of whole or fractional shares of the applicable Preferred
Stock and any money or other property represented by the Depositary Shares
evidenced by such Depositary Receipts. Holders of Depositary Receipts will be
entitled to receive whole or fractional shares of the related Preferred Stock on
the basis of the proportion of Preferred Stock represented by each Depositary
Share as specified in the applicable Prospectus Supplement, but holders of such
Preferred Stock will not thereafter be entitled to receive Depositary Shares
therefor. If the Depositary Receipts delivered by the holder evidence a number
of Depositary Shares in excess of the number of Depositary Shares representing
the number of Preferred Stock to be withdrawn, the applicable Preferred Stock
Depositary will be required to deliver to such holder at the same time a new
Depositary Receipt evidencing such excess number of Depositary Shares.
REDEMPTION OF DEPOSITARY SHARES
Whenever EastGroup redeems Preferred Stock held by a Preferred Stock
Depositary, such Preferred Stock Depositary will be required to redeem as of the
same redemption date the number of Depositary Shares representing the Preferred
Stock so redeemed, provided EastGroup shall have paid in full to such Preferred
Stock Depositary the redemption price of the Preferred Stock to be redeemed plus
an amount equal to any accrued and unpaid dividends thereon to the date fixed
for redemption. The redemption price per Depositary Share will be equal to the
redemption price and any other amounts per share payable with respect to the
Preferred Stock. If fewer than all the Depositary Shares are to be redeemed, the
Depositary Shares to be redeemed will be selected pro rata (as nearly as may be
practicable without creating fractional Depositary Shares) or by any other
equitable method determined by EastGroup that preserves the REIT status of
EastGroup.
From and after the date fixed for redemption, all dividends in respect of
the Preferred Stock so called for redemption will cease to accrue, the
Depositary Shares so called for redemption will no longer be deemed to be
outstanding and all rights of the holders of the Depositary Receipts evidencing
the Depositary Shares so called for redemption will cease, except the right to
receive any moneys payable upon such redemption and any money or other property
to which the holders of such Depositary Receipts were entitled upon such
redemption upon surrender thereof to the applicable Preferred Stock Depositary.
VOTING OF THE PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of the
applicable Preferred Stock are entitled to vote, a Preferred Stock Depositary
will be required to mail the information contained in such notice of meeting to
the record holders of the Depositary Receipts evidencing the Depositary Shares
which represent such Preferred Stock. Each record holder of Depositary Receipts
evidencing Depositary Shares on the record date (which will be the same date as
the record date for the Preferred Stock) will be entitled to instruct such
Preferred Stock Depositary as to the exercise of the voting rights pertaining to
the amount of Preferred Stock represented by such holder's Depositary Shares.
Such Preferred Stock Depositary will be required to vote the amount of Preferred
Stock represented by such Depositary Shares in accordance with such
instructions, and EastGroup will agree to take all reasonable action which may
be deemed necessary by such Preferred Stock Depositary in order to enable such
Preferred Stock Depositary to do so. Such Preferred Stock Depositary will be
required to abstain from voting the amount of Preferred Stock represented by
such Depositary Shares to the extent it does not receive specific instructions
from the holders of Depositary Receipts evidencing such Depositary Shares. A
Preferred Stock Depositary will not be responsible for any failure to carry out
any instruction to vote, or for the manner or effect of any such vote made, as
long as any such action or non-action is in good faith and does not result from
negligence or willful misconduct of such Preferred Stock Depositary.
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LIQUIDATION PREFERENCE
In the event of the liquidation, dissolution or winding up of EastGroup,
whether voluntary or involuntary, the holders of each Depositary Receipt will be
entitled to the fraction of the liquidation preference accorded each Preferred
Share represented by the Depositary Share evidenced by such Depositary Receipt,
as set forth in the applicable Prospectus Supplement.
CONVERSION OF PREFERRED STOCK
The Depositary Shares, as such, will not be convertible into Common Stock
or any other securities or property of EastGroup. Nevertheless, if so specified
in the applicable Prospectus Supplement relating to an offering of Depositary
Shares, the Depositary Receipts may be surrendered by holders thereof to the
applicable Preferred Stock Depositary with written instructions to such
Preferred Stock Depositary to instruct EastGroup to cause conversion of the
Preferred Stock represented by the Depositary Shares evidenced by such
Depositary Receipts into whole shares of Common Stock, other Preferred Stock or
other shares of stock, and EastGroup will agree that upon receipt of such
instructions and any amounts payable in respect thereof, it will cause the
conversion thereof utilizing the same procedures as those provided for delivery
of Preferred Stock to effect such conversion. If the Depositary Shares evidenced
by a Depositary Receipt are to be converted in part only, a new Depositary
Receipt or Receipts will be issued for any Depositary Shares not to be
converted. No fractional shares of Common Stock will be issued upon conversion,
and if such conversion will result in a fractional share being issued, an amount
will be paid in cash by EastGroup equal to the value of the fractional interest
based upon the closing price of the Common Stock on the last business day prior
to the conversion.
AMENDMENT AND TERMINATION OF A DEPOSIT AGREEMENT
Any form of Depositary Receipt evidencing Depositary Shares which will
represent Preferred Stock and any provision of a Deposit Agreement will be
permitted at any time to be amended by agreement between EastGroup and the
applicable Preferred Stock Depositary. However, any amendment that materially
and adversely alters the rights of the holders of Depositary Receipts or that
would be materially and adversely inconsistent with the rights granted to the
holders of the related Preferred Stock will not be effective unless such
amendment has been approved by the existing holders of at least two-thirds of
the applicable Depositary Shares evidenced by the applicable Depositary Receipts
then outstanding. No amendment shall impair the right, subject to certain
anticipated exceptions in the Deposit Agreements, of any holders of Depositary
Receipts to surrender any Depositary Receipt with instructions to deliver to the
holder the related Preferred Stock and all money and other property, if any,
represented thereby, except in order to comply with law. Every holder of an
outstanding Depositary Receipt at the time any such amendment becomes effective
shall be deemed, by continuing to hold such Depositary Receipt, to consent and
agree to such amendment and to be bound by the applicable Deposit Agreement as
amended thereby.
A Deposit Agreement will be permitted to be terminated by EastGroup upon
not less than 30 days' prior written notice to the applicable Preferred Stock
Depositary if (i) such termination is necessary to preserve EastGroup's status
as a REIT or (ii) a majority of each series of Preferred Stock affected by such
termination consents to such termination, whereupon such Preferred Stock
Depositary will be required to deliver or make available to each holder of
Depositary Receipts, upon surrender of the Depositary Receipts held by such
holder, such number of whole or fractional Preferred Stock as are represented by
the Depositary Shares evidenced by such Depositary Receipts together with any
other property held by such Preferred Stock Depositary with respect to such
Depositary Receipts. EastGroup will agree that if a Deposit Agreement is
terminated to preserve EastGroup's status as a REIT, then EastGroup will use its
best efforts to list the Preferred Stock issued upon surrender of the related
Depositary Shares on a national securities exchange. In addition, a Deposit
Agreement will automatically terminate if (i) all outstanding Depositary Shares
thereunder shall have been redeemed; (ii) there shall have been a final
distribution in respect of the related Preferred Stock in connection with any
liquidation, dissolution or winding up of EastGroup and such distribution shall
have been distributed to the holders of Depositary Receipts evidencing the
Depositary
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<PAGE> 40
Shares representing such Preferred Stock; or (iii) each share of the related
Preferred Stock shall have been converted into stock of EastGroup not so
represented by Depositary Shares.
CHARGES OF A PREFERRED STOCK DEPOSITARY
EastGroup will pay all transfer and other taxes and governmental charges
arising solely from the existence of a Deposit Agreement. In addition, EastGroup
will pay the fees and expenses of a Preferred Stock Depositary in connection
with the performance of its duties under a Deposit Agreement. However, holders
of Depositary Receipts will pay the fees and expenses of a Preferred Stock
Depositary for any duties requested by such holders to be performed which are
outside of those expressly provided for in the applicable Deposit Agreement.
RESIGNATION AND REMOVAL OF DEPOSITARY
A Preferred Stock Depositary will be permitted to resign at any time by
delivering to EastGroup notice of its election to do so, and EastGroup will be
permitted at any time to remove a Preferred Stock Depositary, any such
resignation or removal to take effect upon the appointment of a successor
Preferred Stock Depositary. A successor Preferred Stock Depositary will be
required to be appointed within 60 days after delivery of the notice of
resignation or removal and will be required to be a bank or trust company having
its principal office in the United States and having a combined capital and
surplus of at least $50,000,000.
MISCELLANEOUS
A Preferred Stock Depositary will be required to forward to holders of
Depositary Receipts any reports and communications from EastGroup which are
received by such Preferred Stock Depositary with respect to the related
Preferred Stock.
Neither a Preferred Stock Depositary nor EastGroup will be liable if it is
prevented from or delayed in, by law or any circumstances beyond its control,
performing its obligations under a Deposit Agreement. The obligations of
EastGroup and Preferred Stock Depositary under a Deposit Agreement will be
limited to performing their duties thereunder in good faith and without
negligence (in the case of any action or inaction in the voting of Preferred
Stock represented by the applicable Depositary Shares), gross negligence or
willful misconduct, and neither EastGroup nor any applicable Preferred Stock
Depositary will be obligated to prosecute or defend any legal proceeding in
respect of any Depositary Receipts, Depositary Shares or Preferred Stock
represented thereby unless satisfactory indemnity is furnished. EastGroup and
any Preferred Stock Depositary will be permitted to rely on written advice of
counsel or accountants, or information provided by persons presenting Preferred
Stock represented thereby for deposit, holders of Depositary Receipts or other
persons believed in good faith to be competent to give such information, and on
documents believed in good faith to be genuine and signed by a proper party.
In the event a Preferred Stock Depositary shall receive conflicting claims,
requests or instructions from any holders of Depositary Receipts, on the one
hand, and EastGroup on the other hand, such Preferred Stock Depositary shall be
entitled to act on such claims, requests or instructions received from
EastGroup.
DESCRIPTION OF COMMON STOCK
GENERAL
EastGroup is authorized to issue up to 68,275,000 shares of Common Stock.
As of June 10, 1998 there were 16,304,176 shares of Common Stock outstanding and
740,108 shares of Common Stock reserved for issuance upon the exercise of
options granted under EastGroup's stock option plans. All of the issued and
outstanding shares of Common Stock are fully paid and non-assessable and have
equal voting, distribution and liquidation rights. Shares of Common Stock are
not subject to call or redemption; provided, however, if the EastGroup Board of
Directors determines that the direct or indirect ownership of Common Stock has
or may become concentrated to an extent which threatens EastGroup's status as a
REIT, the Board of Directors may call for the redemption of a number of shares
of Common Stock.
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The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. The holders of Common Stock have
no cumulative voting rights. Additionally, subject to the rights of holders of
Preferred Stock, holders of Common Stock are entitled to receive such dividends
as may be declared from time to time by the directors out of funds legally
available therefor.
The shares of Common Stock currently outstanding are listed for trading on
the NYSE under the symbol "EGP." EastGroup will apply to the NYSE to list the
additional shares of Common Stock to be sold pursuant to any Prospectus
Supplement, and EastGroup anticipates that such shares will be so listed.
Under Maryland law, stockholders are generally not liable for EastGroup's
debts or obligations. If EastGroup is liquidated, subject to the right of any
holders of Preferred Stock, if any, to receive preferential distributions, each
outstanding share of Common Stock will be entitled to participate pro rata in
the assets remaining after payment of, or adequate provision for, all known
debts and liabilities of EastGroup.
PROVISIONS OF EASTGROUP'S CHARTER AND BYLAWS
EastGroup's Charter provides that the number of directors will be ten,
which number may be increased or decreased pursuant to EastGroup's Bylaws.
Currently, the number of directors is nine and all nine positions on the Board
of Directors are filled by the vote of the stockholders at the annual meeting.
Stockholders do not have cumulative voting rights in the election of directors.
Stockholders are entitled to one vote for each share of Common Stock held by
them.
OTHER MATTERS
The transfer agent and registrar for the Common Stock is Harris Trust and
Savings Bank, Chicago, Illinois.
RESTRICTIONS ON TRANSFER
Ownership Limits. For EastGroup to qualify as a REIT under the Code, no
more than 50% in value of its outstanding Common Stock may be owned, actually
and constructively under the applicable attribution provisions of the Code, by
five or fewer individuals (as defined in the Code to include certain entities)
during the last half of a taxable year (other than the first year) or during a
proportionate part of a shorter taxable year. The Common Stock must also be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year (other than the first year) or during a proportionate part of a shorter
taxable year. Because EastGroup intends to elect to be treated as a REIT, the
Charter contains restrictions on the acquisition of Common Stock intended to
ensure compliance with these requirements.
Pursuant to the provisions of the Charter, if a transfer of stock occurs
whereby any person would own, beneficially or constructively, 9.8 percent or
more (in value or in number, whichever is more restrictive) of the outstanding
capital stock of EastGroup (excluding Excess Shares, as defined below), then
such amount in excess of the 9.8 percent limit shall automatically be converted
into shares of a separate class of stock, the excess stock, par value $0.001 per
share, of EastGroup (the "Excess Shares"), and any such transfer will be void ab
initio. However, such restrictions will not prevent the settlement of a
transaction entered into through the facilities of any interdealer quotation
system or national securities exchange upon which shares of capital stock of
EastGroup are traded, provided that certain transactions may be settled by
providing Excess Shares. Although holders of Excess Shares have no dividend or
voting rights, such holders do have certain rights in the event of any
liquidation, dissolution or winding up of the corporation. The Charter further
provides that the Excess Shares will be held by EastGroup as trustee for the
person or persons to whom the shares are ultimately transferred, until such time
as the shares are re-transferred to a person or persons in whose hands the
shares would not be Excess Shares and certain price-related restrictions are
satisfied. These provisions are designed to enable EastGroup to meet the share
ownership requirements applicable to REITs under the Code, but may also have an
anti-takeover effect. EastGroup currently has 30,000,000 Excess Shares
authorized pursuant to its Charter.
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Each stockholder shall, upon request by EastGroup, furnish such information
that EastGroup may reasonably request in order to determine EastGroup's status
as a REIT, to comply with the requirements of any taxing authority or
governmental agency or to determine any such compliance.
The foregoing ownership limitations may have the effect of precluding
acquisition of control of EastGroup without the consent of the Board of
Directors.
Special Voting Requirements for Certain Business Combinations. Pursuant to
Maryland law, EastGroup is governed by special procedures that apply to certain
business combinations between a corporation and interested stockholders. The
purpose of such provisions is to protect the corporation and its stockholders
against hostile takeovers by requiring that certain criteria are satisfied.
These criteria include prior approval by the board of directors, prior approval
by a majority or supermajority vote of disinterested stockholders and
requirements that a "fair price" be paid to the disinterested stockholders.
Maryland law provides that a Maryland corporation may not engage in any
"business combination" with any "interested stockholder." An "interested
stockholder" is defined, in essence, as any person owning beneficially, directly
or indirectly, ten percent or more of the outstanding voting stock of a Maryland
corporation. Unless an exemption applies, EastGroup may not engage in any
business combination with an interested stockholder for a period of five years
after the interested stockholder became an interested stockholder, and
thereafter may not engage in a business combination unless it is recommended by
the board of directors and approved by the affirmative vote of at least (i)
eighty percent of the votes entitled to be cast by the holders of all
outstanding voting stock of EastGroup, voting together as a single voting group
and (ii) two-thirds of the votes entitled to be cast by all holders of
outstanding shares of voting stock other than voting stock held by the
interested stockholder. The voting requirements do not apply at any time to
business combinations with an interested stockholder or its affiliates if
approved by the board of directors of the corporation prior to the time the
interested stockholder first became an interested stockholder. Additionally, if
the business combination involves the receipt of consideration by the
stockholders in exchange for the corporation's stock, the voting requirements do
not apply if certain "fair price" conditions are met.
Control Share Acquisitions. Maryland law provides for the elimination of
the voting rights of shares held by any person who makes a "control share
acquisition" except to the extent that such acquisition is exempt or is approved
by at least two-thirds of all votes entitled to be cast on the matter, excluding
shares of capital stock owned by the acquirer or by officers or directors who
are employees of the corporation whose shares were acquired. A "control share
acquisition" is the direct or indirect acquisition by any person of ownership
of, or the power to direct the exercise of voting power with respect to, shares
of voting stock ("control shares") that would, if aggregated with all other
voting stock owned by such person, entitle such person to exercise voting power
in electing directors within one of the following ranges of voting power: (i)
one-fifth or more but less than one-third; (ii) one-third or more but less than
a majority; or (iii) a majority or more of voting power.
A person who has made or proposes to make a control share acquisition, upon
the satisfaction of certain conditions (including an undertaking to pay
expenses), may compel the board of directors to call a special meeting of
stockholders to be held within 50 days of demand to consider the voting rights
of the shares. If no request for a meeting is made, the corporation may itself
present the question at any stockholders meeting. If voting rights are not
approved at the meeting or if the acquiring person does not deliver an acquiring
person statement as permitted by the statute, then, subject to certain
conditions and limitations, the corporation may redeem any or all of the control
shares (except those for which voting rights have previously been approved) for
fair value determined, without regard to voting rights, as of the date of the
last control share acquisition or as of the date of any meeting of stockholders
at which the voting rights of such shares are considered and not approved.
If voting rights for control shares are approved at a stockholders meeting
and the acquirer becomes entitled to vote a majority of the shares entitled to
vote, all other stockholders may exercise appraisal rights. The fair value of
the stock as determined for purposes of such appraisal rights may not be less
than the highest price per share paid in the control share acquisition, and
certain limitations and restrictions otherwise applicable to the exercise of
dissenters' rights do not apply in the context of a control share acquisition.
The
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control share acquisition statute does not apply to stock acquired in a merger,
consolidation or stock exchange if the corporation is a party to the
transaction.
Supermajority Votes. The Charter provides that (i) no term or provision of
the Charter may be added, amended or repealed in any respect which, in the
determination of the Board of Directors, causes EastGroup not to qualify as a
REIT under the Code; (ii) the sections of the Charter concerning the removal of
directors, amendment of the Bylaws, the indemnification of agents and limitation
of liability of directors and officers and the section concerning special
stockholder vote requirements shall not be amended or repealed; and (iii) no
provision imposing cumulative voting in the election of directors may be added
to the Charter, except, in addition to any vote required by the terms of then
outstanding Preferred Stock, upon the affirmative vote of the holders of not
less than eighty percent of all votes entitled to be cast on the matter.
FEDERAL INCOME TAX CONSIDERATIONS
INTRODUCTORY NOTES
The following discussion summarizes certain Federal income tax
considerations that may be relevant to a prospective holder of securities of
EastGroup. This discussion is based on current law. The discussion is not
exhaustive of all possible tax considerations and does not give a detailed
discussion of any state, local, or foreign tax considerations. It also does not
discuss all of the aspects of Federal income taxation that may be relevant to a
prospective stockholder in light of his particular circumstances or to certain
types of stockholders (including insurance companies, tax-exempt entities,
financial institutions or broker-dealers, foreign corporations and persons who
are not citizens or residents of the United States) who are subject to special
treatment under the Federal income tax laws.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT WITH HIS OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP AND
SALE OF SECURITIES IN AN ENTITY ELECTING TO BE TAXED AS A REAL ESTATE INVESTMENT
TRUST, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES
OF SUCH PURCHASE, OWNERSHIP, SALE, AND ELECTION AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
General. EastGroup has elected to be taxed as a REIT under Sections 856
through 860 of the Code effective since its inception. EastGroup's qualification
and taxation as a REIT depends upon its ability to meet on a continuing basis,
through actual annual operating results, distribution levels and diversity of
stock ownership, the various qualification tests and organizational requirements
imposed under the Code, as discussed below. EastGroup believes that it is
organized and has operated in such a manner as to qualify under the Code for
taxation as a REIT commencing since its inception, and it intends to continue to
operate in such a manner. No assurances, however, can be given that EastGroup
will operate in a manner so as to qualify or remain qualified as a REIT. See
"Failure to Qualify" below.
The following is a general summary of the Code provisions that govern the
Federal income tax treatment of a REIT and its stockholders. These provisions of
the Code are highly technical and complex. This summary is qualified in its
entirety by the applicable Code provisions, the regulations promulgated
thereunder ("Treasury Regulations"), and administrative and judicial
interpretations thereof.
If EastGroup qualifies for taxation as a REIT and distributes to its
stockholders at least 95% of its REIT taxable income, it generally will not be
subject to Federal corporate income taxes on net income that it currently
distributes to stockholders. This treatment substantially eliminates the "double
taxation" (at the corporate and stockholder levels) that generally results from
investment in a corporation. Notwithstanding its REIT election, however,
EastGroup will be subject to Federal income tax in the following circumstances.
First, EastGroup will be taxed at regular corporate rates on any undistributed
taxable income, including undistributed net capital gains. Second, under certain
circumstances, the company may be subject to the
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"alternative minimum tax" on its items of tax preference. Third, if EastGroup
has (i) net income from the sale or other disposition of "foreclosure property"
(which is, in general, property acquired by foreclosure or otherwise on default
of a loan secured by the property) that is held primarily for sale to customers
in the ordinary course of business or (ii) other non-qualifying income from
foreclosure property, it will be subject to tax at the highest corporate rate on
such income. Fourth, if EastGroup has net income from prohibited transactions
(which are, in general, certain sales or other dispositions of property (other
than foreclosure property) held primarily for sale to customers in the ordinary
course of business), such income will be subject to a 100% tax. Fifth, if
EastGroup should fail to satisfy the 75% gross income test or the 95% gross
income test (as discussed below), and has nonetheless maintained its
qualification as a REIT because certain other requirements have been met, it
will be subject to a 100% tax on the net income attributable to the greater of
the amount by which it fails the 75% or 95% test, multiplied by a fraction
intended to reflect its profitability. Sixth, if EastGroup should fail to
distribute during each calendar year at least the sum of (i) 85% of its REIT
ordinary income for such year; (ii) 95% of its REIT capital gain net income for
such year (for this purpose such term includes capital gains which EastGroup
elects to retain but which it reports as distributed to its stockholders, see
"Annual Distribution Requirements" below); and (iii) any undistributed taxable
income from prior years, EastGroup would be subject to a 4% excise tax on the
excess of such required distribution over the amounts actually distributed.
Seventh, if EastGroup acquires any asset from a C corporation (i.e., a
corporation generally subject to full corporate level tax) in a transaction in
which the basis of the asset in EastGroup's hands is determined by reference to
the basis of the asset (or any other property) in the hands of the C
corporation, and EastGroup recognizes gain on the disposition of such asset
during the 10-year period beginning on the date on which such asset was acquired
by it, then, to the extent of such property's built-in gain (the excess of the
fair market value of such property at the time of acquisition by EastGroup over
the adjusted basis of such property at such time), such gain will be subject to
tax at the highest regular corporate rate applicable (as provided in Service
regulations that have not yet been promulgated).
Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association (i) which is managed by one or more trustees or directors;
(ii) the beneficial ownership of which is evidenced by transferable shares or by
transferable certificates of beneficial interest; (iii) which would be taxable
as a domestic corporation but for Sections 856 through 860 of the Code; (iv)
which is neither a financial institution nor an insurance company subject to
certain provisions of the Code; (v) the beneficial ownership of which is held by
100 or more persons; (vi) during the last half of each taxable year not more
than 50% in value of the outstanding stock of which is owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities); and (vii) which meets certain other tests, described below,
regarding the nature of its income and assets. The Code provides that conditions
(i) through (iv), inclusive, must be met during the entire taxable year and that
condition (v) must be met during at least 335 days of a taxable year of 12
months, or during a proportionate part of a taxable year of less than 12 months.
Conditions (v) and (vi) will not apply until after the first taxable year for
which an election is made to be taxed as a REIT. EastGroup has issued sufficient
Common Stock with sufficient diversity of ownership to allow it to satisfy
requirements (v) and (vi). In addition, EastGroup's Charter contains
restrictions regarding the transfer of its shares that are intended to assist it
in continuing to satisfy the share ownership requirements described in (v) and
(vi) above. See "Capital Stock of EastGroup -- Restrictions on Transfer."
EastGroup is currently in the process of reorganizing its operations into
an umbrella partnership REIT ("UPREIT") structure pursuant to which all of
EastGroup's real estate assets will be owned by EastGroup Properties, L.P., a
Delaware limited partnership the sole partners of which are wholly-owned
subsidiaries of EastGroup (the "Operating Partnership"). EastGroup anticipates
completing the reorganization of its operations into an UPREIT structure in July
1998. EastGroup anticipates that the UPREIT structure will enable it to pursue
new investment opportunities by giving EastGroup the ability to offer units in
the Operating Partnership to property owners in exchange for properties in
transactions intended to achieve certain tax advantages.
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the gross
income of the partnership attributable to such share. In addition, the assets
and gross income of the
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partnership will retain the same character in the hands of the REIT for purposes
of section 856 of the Code, including satisfying the gross income and asset
tests described below. Thus, EastGroup's proportionate share of the assets,
liabilities and items of income of the Operating Partnership and the
non-corporate subsidiaries, which are either limited liability companies or
partnerships, will be treated as assets, liabilities and items of income of
EastGroup for purposes of applying the requirements described herein.
Code section 856(i) provides that a corporation that is a "qualified REIT
subsidiary" shall not be treated as a separate corporation, and all assets,
liabilities and items of income, deduction and credit of a "qualified REIT
subsidiary" shall be treated as assets, labilities and items of income,
deduction and credit of the REIT. A "qualified REIT subsidiary" is a
corporation, all the capital stock of which is owned by the REIT. In applying
the requirements described herein, any "qualified REIT subsidiary" will be
ignored, and all assets, liabilities and items of income, deduction and credit
of such subsidiaries will be treated as assets, liabilities and items of income,
deduction and credit of EastGroup.
In addition, a corporation may not elect to become a REIT unless its
taxable year is the calendar year. EastGroup's taxable year is the calendar
year.
For tax years beginning prior to January 1, 1998, pursuant to applicable
Treasury Regulations, to be able to elect to be taxed as a REIT, EastGroup must
maintain certain records and request on an annual basis certain information from
its stockholders designed to disclose the actual ownership of its outstanding
shares. EastGroup has complied with such requirements. For tax years beginning
January 1, 1998 and beyond, these records and informational requirements are no
longer a condition to REIT election. Instead, a monetary penalty will be imposed
for failure to comply with these requirements.
Income Tests. In order for EastGroup to maintain qualification as a REIT,
three separate percentage tests relating to the source of its gross income must
be satisfied annually. First, at least 75% of the REIT's gross income (excluding
gross income from prohibited transactions) for each taxable year must be derived
directly or indirectly from investments relating to real property or mortgages
on real property (including "rents from real property" and, in certain
circumstances, interest) or from certain types of temporary investments. Second,
at least 95% of the REIT's gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived from such real property
investments described above, and from dividends, interest and gain from the sale
or disposition of stock or securities, or from any combination of the foregoing.
Third, for tax years beginning prior to January 1, 1998, gain from the sale or
other disposition of (i) stock or securities held for less than one year; (ii)
prohibited transactions; and (iii) certain real property held for less than four
years (apart from involuntary conversions and sales of foreclosure property)
must represent less than 30% of the REIT's gross income (including gross income
from prohibited transactions) for each taxable year.
Rents received by EastGroup will qualify as "rents from real property" in
satisfying the above gross income tests only if several conditions are met.
First, the amount of rent must not be based in whole or in part on the income or
profits of any person. However, amounts received or accrued generally will not
be excluded from "rents from real property" solely by reason of being based on a
fixed percentage or percentages of receipts or sales. Second, rents received
from a tenant will not qualify as "rents from real property" if EastGroup, or a
direct or indirect owner of 10% or more of EastGroup, actually or constructively
owns 10% or more of such tenant (a "Related Party Tenant"). Third, if rent
attributable to personal property that is leased in connection with a lease of
real property is greater than 15% of the total rent received under the lease,
then the portion of rent attributable to such personal property will not qualify
as "rents from real property." Finally, for rents received to qualify as "rents
from real property," EastGroup generally must not operate or manage the
property, or furnish or render services to tenants, other than through an
"independent contractor" who is adequately compensated and from whom EastGroup
derives no revenue. The "independent contractor" requirement, however, does not
apply to the extent the services provided by EastGroup are "usually or
customarily rendered" in connection with the rental of space for occupancy only
and are not otherwise considered "rendered to the occupant."
For taxable years beginning after December 31, 1997, rental income received
by EastGroup will not cease to qualify as "rents from real property" merely
because EastGroup performs non-customary services for a tenant if the amount
that EastGroup receives as a result of performing such services does not exceed
1% of all
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amounts received directly or indirectly by EastGroup with respect to such
property. In applying this limitation, the amount that EastGroup is treated as
having received for performing such services will not be less than 150% of the
direct cost to EastGroup of providing those services. EastGroup believes that
all services that are provided to its tenants will be considered "usually or
customarily" rendered in connection with the rental of comparable properties.
Further, any noncustomary services will be provided only through qualifying
independent contractors or within the 1% safe harbor described above. EastGroup
believes that the income generated from its currently owned assets and its
proposed method of operations will permit it to meet the income tests outlined
above.
If EastGroup fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions generally will be available if its failure to meet such tests was due
to reasonable cause and not due to willful neglect, EastGroup attaches a
schedule of the sources of its income to its federal income tax return for such
years, and any incorrect information on the schedules was not due to fraud with
intent to evade tax. It is not possible, however, to state whether in all
circumstances EastGroup would be entitled to the benefit of these relief
provisions. As discussed above in "-- General," even if these relief provisions
were to apply, a tax would be imposed with respect to the excess net income.
Asset Tests. At the close of each quarter of its taxable year, EastGroup
must also satisfy three tests relating to the nature of its assets. First, at
least 75% of the value of EastGroup's total assets must be represented by real
estate assets (including stock or debt instruments held for not more than one
year purchased with the proceeds of a stock or debt offering of the company),
cash, cash items and government securities. Second, not more than 25% of
EastGroup's total assets may be represented by securities other than those in
the 75% asset class. Third, of the investments included in the 25% asset class,
the value of any one issuer's securities owned by EastGroup may not exceed 5% of
the value of EastGroup's total assets, and EastGroup may not own more than 10%
of any one issuer's outstanding voting securities (excluding securities of a
qualified REIT subsidiary or another REIT). The 5% test must generally be met
for any quarter in which a REIT acquires securities of an issuer.
If EastGroup should fail to satisfy the asset tests at the end of a
calendar quarter, such a failure would not cause it to lose its REIT status if
(i) it satisfied the asset tests at the close of the preceding calendar quarter,
and (ii) the discrepancy between the value of EastGroup's assets and the asset
tests either did not exist immediately after the acquisition of any particular
asset or was not wholly or partly caused by such an acquisition (e.g., the
discrepancy arose from changes in the market values of its assets). If the
conditions described in clause (ii) of the preceding sentence were not
satisfied, EastGroup still could avoid disqualification by eliminating any
discrepancy within 30 days after the close of the calendar quarter in which it
arose.
Annual Distribution Requirements. EastGroup, in order to qualify as a REIT,
is required to distribute dividends (other than capital gain dividends) to its
stockholders in an amount at least equal to (i) the sum of (a) 95% of its "REIT
taxable income" (computed without regard to the dividends paid deduction and the
REIT's net capital gain) and (b) 95% of the net income (after tax), if any, from
foreclosure property, minus (ii) the sum of certain items of noncash income.
Such distributions must be paid in the taxable year to which they relate, or in
the following taxable year if declared before EastGroup timely files its tax
return for such year and if paid on or before the first regular dividend payment
after such declaration. To the extent that EastGroup does not distribute all of
its net capital gain or distributes at least 95%, but less than 100%, of its
"REIT taxable income," as adjusted, it will be subject to tax on the
nondistributed amount at regular capital gains and ordinary corporate tax rates.
Furthermore, if EastGroup should fail to distribute during each calendar year at
least the sum of (i) 85% of its REIT ordinary income for such year; (ii) 95% of
its REIT capital gain income for such year; and (iii) any undistributed taxable
income from prior periods, it will be subject to a 4% excise tax on the excess
of such required distribution over the amounts actually distributed.
For taxable years beginning after December 31, 1997, EastGroup may elect to
retain and pay tax on net long-term capital gains and require its stockholders
to include their proportionate share of such undistributed net capital gains in
their income. If EastGroup makes such election, stockholders would receive a tax
credit attributable to their share of the capital gains tax paid by EastGroup,
and would receive an increase in the
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basis of their shares in EastGroup in an amount equal to the stockholder's share
of the undistributed net long-term capital gain reduced by the amount of the
credit. Further, any undistributed net long-term capital gains that are included
in the income of EastGroup stockholders pursuant to this rule, will be treated
as distributed for purposes of the 4% excise tax.
EastGroup has made and intends to continue to make timely distributions
sufficient to satisfy the annual distribution requirements. It is possible,
however, that the company, from time to time, may not have sufficient cash or
liquid assets to meet the distribution requirements due to timing differences
between the actual receipt of income and actual payment of deductible expenses,
and the inclusion of such income and deduction of such expenses in arriving at
EastGroup's taxable income, or if the amount of nondeductible expenses such as
principal amortization or capital expenditures exceed the amount of noncash
deductions. In the event that such timing differences occur, in order to meet
the distribution requirements, EastGroup may arrange for short-term, or possible
long-term, borrowing to permit the payment of required dividends. If the amount
of nondeductible expenses exceeds noncash deductions, EastGroup may refinance
its indebtedness to reduce principal payments and borrow funds for capital
expenditures.
Under certain circumstances, EastGroup may be able to rectify a failure to
meet the distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year that may be included in EastGroup's deduction for
dividends paid for the earlier year. Thus, EastGroup may be able to avoid being
taxed on amounts distributed as deficiency dividends; however, the company will
be required to pay interest to the Service based upon the amount of any
deduction taken for deficiency dividends.
Failure to Qualify. If EastGroup fails to qualify for taxation as a REIT in
any taxable year and no relief provisions apply, EastGroup will be subject to
tax (including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to stockholders in any year in which
EastGroup fails to qualify will not be deductible by it, nor will such
distributions be required to be made. In such event, to the extent of current
and accumulated earnings and profits, all distributions to stockholders will be
taxable as ordinary income, and, subject to certain limitations in the Code,
corporate distributees may be eligible for the dividends received deduction.
Unless entitled to relief under specific statutory provisions, EastGroup also
will be disqualified from taxation as a REIT for the four taxable years
following the year during which qualification was lost. It is not possible to
state whether in all circumstances EastGroup would be entitled to such statutory
relief.
TAXATION OF STOCKHOLDERS
Taxation of Taxable Domestic Stockholders. As long as EastGroup qualifies
as a REIT, distributions made to its taxable domestic stockholders out of
current or accumulated earnings and profits (and not designated as capital gain
dividends) will be taken into account by them as ordinary income, and corporate
stockholders will not be eligible for the dividends received deduction as to
such amounts. Distributions that are designated as capital gain dividends will
be taxed as long-term capital gains (to the extent they do not exceed
EastGroup's actual net capital gain for the taxable year) without regard to the
period for which the stockholder has held his shares. However, corporate
stockholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income. Distributions in excess of current and accumulated
earnings and profits will not be taxable to a stockholder to the extent that
they do not exceed the adjusted basis of such stockholder's Common Stock, but
rather will reduce the adjusted basis of such shares. To the extent that such
distributions exceed the adjusted basis of a stockholder's Common Stock, they
will be included in income as long-term capital gain (or short-term capital gain
if the shares have been held for one year or less), assuming the shares are a
capital asset in the hands of the stockholder. In addition, any dividend
declared by the company in October, November or December of any year payable to
a stockholder of record on a specific date in any such month shall be treated as
both paid by EastGroup and received by the stockholder on December 31 of such
year, provided that the dividend is actually paid by the company during January
of the following calendar year. Stockholders may not include in their individual
income tax returns any net operating losses or capital losses of EastGroup.
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In general, any gain or loss realized upon a taxable disposition of shares
by a stockholder who is not a dealer in securities will be treated as a
long-term capital gain or loss if the shares have been held for more than one
year and otherwise a short-term capital gain or loss. However, any loss upon a
sale or exchange of Common Stock by a stockholder who has held such shares for
six months or less (after applying certain holding period rules) will be treated
as long-term capital loss to the extent of distributions from EastGroup required
to be treated by such stockholder as long-term capital gain.
The Taxpayer Relief Act of 1997 reduced the top tax rate for individuals,
estates and trusts on certain long-term capital gains. Generally, long-term
capital gains on property held for more than 18 months will not be taxed at a
rate greater than 20% and the maximum rate is reduced to 18% for assets acquired
after December 31, 2000 and held for more than five years. For taxpayers subject
to the 15% regular tax bracket, long-term capital gains on property held for
more than 18 months will not be taxed at a rate greater than 10%, and, effective
for taxable years beginning after December 31, 2000, the rate is reduced to 8%
for assets held more than five years. Long-term capital gain from the sale or
exchange of certain depreciable real property held for more than 18 months which
would be treated as ordinary income if the real property was depreciable
personal property is subject to a maximum tax rate of 25% rather than 20%.
Long-term capital gain (other than certain depreciation recapture taxable as
ordinary income) allocated to a stockholder by EastGroup will be subject to the
25% rate to the extent that the gain does not exceed depreciation on real
property sold by EastGroup. The maximum rate of capital gains tax for capital
assets held for more than one year but not more than 18 months remains at 28%.
The taxation of capital gains by corporations was not changed.
In addition, Internal Revenue Notice 97-64 provides temporary guidance with
respect to the taxation of distributions by EastGroup designated as capital gain
dividends. Pursuant to Internal Revenue Notice 97-64, forthcoming Temporary
Regulations will provide that capital gains allocated to a stockholder by a REIT
may be designated as a 20% rate gain distribution, an unrecaptured Section 1250
gain distribution (subject to the 25% rate), or a 28% rate gain distribution. In
determining the amounts which may be designated as each class of capital gains
dividends, a REIT must calculate its net capital gains as if it were an
individual subject to a marginal tax rate of 28%. Unless specifically designated
otherwise by EastGroup, a distribution designated as a capital gain distribution
is presumed to be a 28% rate gain distribution. If EastGroup elects to retain
any net long-term capital gain, as discussed above, the undistributed long-term
capital gains are considered to be designated as capital gain dividends for
purposes of Internal Revenue Notice 97-64.
Backup Withholding. EastGroup will report to its domestic stockholders and
the Service the amount of dividends paid during each calendar year, and the
amount of tax withheld, if any, with respect thereto. Under the backup
withholding rules, a stockholder may be subject to backup withholding at the
rate of 31% with respect to dividends paid unless such holder (i) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact, or (ii) provides a taxpayer identification number,
certifies as to no loss of exemption from backup withholding, and otherwise
complies with applicable requirements of the backup withholding rules. A
stockholder who does not provide EastGroup with its correct taxpayer
identification number may also be subject to penalties imposed by the Service.
Any amount paid as backup withholding will be creditable against the
stockholder's income tax liability. In addition, EastGroup may be required to
withhold a portion of capital gain distributions made to any stockholders who
fail to certify their non-foreign status to the company. See "Taxation of
Non-U.S. Stockholders" below.
Taxation of Tax-Exempt Stockholders. Most tax-exempt entities, including
employees' pension trusts, are not subject to Federal income tax except to the
extent of "unrelated business taxable income" ("UBTI"). The Service has ruled
that amounts distributed by a REIT to a tax-exempt employees' pension trust do
not constitute UBTI. Based upon this ruling and the analysis therein, and
subject to the discussion below regarding qualified pension trust investors,
distributions by EastGroup to a stockholder that is a tax-exempt entity
generally should not constitute UBTI, provided that the tax-exempt entity has
not financed the acquisition of its shares with "acquisition indebtedness"
within the meaning of the Code and the Common Stock is not otherwise used in an
unrelated trade or business of the tax-exempt entity. Revenue rulings, however,
are interpretative in nature and subject to revocation or modification by the
Service.
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A "qualified trust" (defined to be any trust described in section 401(a) of
the Code and exempt from tax under section 501(a) of the Code) that holds more
than 10% of the value of the shares of a REIT may be required, under certain
circumstances, to treat a portion of distributions from the REIT as UBTI. This
requirement will apply for a taxable year only if (i) the REIT satisfies the
requirement that not more than 50% of the value of its shares be held by five or
fewer individuals (the "five or fewer requirement") only by relying on a special
"look-through" rule under which shares held by qualified trust stockholders are
treated as held by the beneficiaries of such trusts in proportion to their
actuarial interests therein; and (ii) the REIT is "predominantly held" by
qualified trusts. A REIT is "predominantly held" by qualified trusts if either
(i) a single qualified trust holds more than 25% of the value of the REIT
shares, or (ii) one or more qualified trusts, each owning more than 10% of the
value of the REIT shares, hold in the aggregate more than 50% of the value of
the REIT shares. If the foregoing requirements are met, the percentage of any
REIT dividend treated as UBTI to a qualified trust that owns more than 10% of
the value of the REIT shares is equal to the ratio of (i) the UBTI earned by the
REIT (computed as if the REIT were a qualified trust and therefore subject to
tax on its UBTI) to (ii) the total gross income (less certain associated
expenses) of the REIT for the year in which the dividends are paid. A de minimis
exception applies where the ratio set forth in the preceding sentence is less
than 5% for any year.
The provisions requiring qualified trusts to treat a portion of REIT
distributions as UBTI will not apply if the REIT is able to satisfy the five or
fewer requirement without relying on the "look-through" rule. The restrictions
on ownership of Common Stock in EastGroup's Charter should prevent application
of the foregoing provisions to qualified trusts purchasing Common Stock of
EastGroup pursuant to the Offering, absent a waiver of the restrictions by the
Board of Directors.
Taxation of Non-U.S. Stockholders. The rules governing U.S. Federal income
taxation of nonresident alien individuals, foreign corporations, foreign
partnerships and other foreign stockholders (collectively, "Non-U.S.
Stockholders") are complex, and no attempt will be made herein to provide more
than a limited summary of such rules. The discussion does not consider any
specific facts or circumstances that may apply to a particular Non-U.S.
Stockholder. Prospective Non-U.S. Stockholders should consult with their own tax
advisors to determine the impact of U.S. Federal, state and local income tax
laws with regard to an investment in Common Stock, including any reporting
requirements.
Distributions that are not attributable to gain from sales or exchanges by
EastGroup of U.S. real property interests and not designated by EastGroup as
capital gain dividends will be treated as dividends of ordinary income to the
extent that they are made out of current or accumulated earnings and profits of
EastGroup. Such distributions, ordinarily, will be subject to a withholding tax
equal to 30% of the gross amount of the distribution unless an applicable tax
treaty reduces such rate. However, if income from the investment in Common Stock
is treated as effectively connected with the Non-U.S. Stockholder's conduct of a
U.S. trade or business, the Non-U.S. Stockholder generally will be subject to a
tax at graduated rates, in the same manner as U.S. stockholders are taxed with
respect to such dividends (and may also be subject to a branch profits tax of up
to 30% if the stockholder is a foreign corporation). EastGroup expects to
withhold U.S. income tax at the rate of 30% on the gross amount of any dividends
paid to a Non-U.S. Stockholder that are not designated as capital gain
dividends, unless (i) a lower treaty rate applies and the required form
evidencing eligibility for that reduced rate is filed with EastGroup or (ii) the
Non-U.S. Stockholder files an IRS Form 4224 with EastGroup claiming that the
distribution is income treated as effectively connected to a U.S. trade or
business.
Distributions in excess of current and accumulated earnings and profits of
EastGroup will not be taxable to a stockholder to the extent that they do not
exceed the adjusted basis of the stockholder's Common Stock, but rather will
reduce the adjusted basis of such shares. To the extent that such distributions
exceed the adjusted basis of a Non-U.S. Stockholder's shares, they will give
rise to tax liability if the Non-U.S. Stockholder would otherwise be subject to
tax on any gain from the sale or disposition of his or her Common Stock as
described below. If at any time EastGroup is not a "domestically controlled
REIT," as defined below, EastGroup must withhold U.S. income tax at the rate of
10% on distributions to Non-U.S. Stockholders that are not paid out of current
or accumulated earnings and profits unless the Non-U.S. Stockholders provide
EastGroup with withholding certificates evidencing their exemption from
withholding tax. If it cannot be
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determined at the time that such a distribution is made whether or not such
distribution will be in excess of current and accumulated earnings and profits,
the distribution will be subject to withholding at the rate applicable to
dividends. However, the Non-U.S. Stockholder may seek a refund of such amounts
from the Service if it is subsequently determined that such distribution was, in
fact, in excess of current and accumulated earnings and profits of EastGroup.
For any year in which EastGroup qualifies as a REIT, distributions that are
attributable to gain from sales or exchanges by EastGroup of U.S. real property
interests will be taxed to a Non-U.S. Stockholder under the provisions of the
Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under FIRPTA,
these distributions are taxed to a Non-U.S. Stockholder as if such gain were
effectively connected with a U.S. business. Thus, Non-U.S. Stockholders will be
taxed on such distributions at the normal capital gain rates applicable to U.S.
stockholders (subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien individuals). Also,
distributions subject to FIRPTA may be subject to a 30% branch profits tax in
the hands of a corporate Non-U.S. Stockholder not entitled to treaty relief or
exemption. EastGroup is required by applicable Treasury Regulations to withhold
35% of any distribution that could be designated by EastGroup as a capital gain
dividend. This amount is creditable against the Non-U.S. Stockholder's FIRPTA
tax liability.
Gain recognized by a Non-U.S. Stockholder upon a sale of Common Stock
generally will not be taxed under FIRPTA if EastGroup is a "domestically
controlled REIT," defined generally as a REIT in which at all times during a
specified testing period less than 50% in value of its shares was held directly
or indirectly by Non-U.S. Stockholders. EastGroup believes that it currently
qualifies as a "domestically controlled REIT," and that the sale of Common Stock
will not therefore be subject to tax under FIRPTA. Because EastGroup is publicly
traded, however, no assurance can be given that the company will continue to be
a domestically controlled REIT. Even if EastGroup is not a "domestically
controlled REIT," a Non-U.S. Stockholder's sale of Common Stock generally will
not be subject to tax under FIRPTA as a sale of U.S. real property interests,
provided that (i) EastGroup's Common Stock is "regularly traded" on an
established securities market, and (ii) the selling Non-U.S. Stockholder held 5%
or less of EastGroup's Common Stock at all times during the specified testing
period. In addition, gain not subject to FIRPTA will be taxable to a Non-U.S.
Stockholder if (i) the investment in Common Stock is treated as effectively
connected with the Non-U.S. Stockholder's trade or business, in which case the
Non-U.S. Stockholder will be subject to the same treatment as the U.S.
stockholders with respect to such gain; or (ii) the Non-U.S. Stockholder is a
nonresident alien individual who was present in the United States for 183 days
or more during the taxable year and has a "tax home" in the United States, in
which case the nonresident alien individual will be subject to a 30% withholding
tax on the individual's capital gains. If the gain on the sale of Common Stock
were to be subject to tax under FIRPTA, the Non-U.S. Stockholder would be
subject to the same treatment as U.S. stockholders with respect to such gain
(subject to applicable alternative minimum tax and a special alternative minimum
tax in the case of nonresident alien individuals).
State and Local Taxes. EastGroup and its stockholders may be subject to
state or local taxation in various state or local jurisdictions, including those
in which it or they transact business or reside (although stockholders who are
individuals generally should not be required to file state income tax returns
outside of their state of residence with respect to EastGroup's operations and
distributions). The state and local tax treatment of EastGroup and its
stockholders may not conform to the Federal income tax consequences discussed
above. Consequently, prospective stockholders should consult their own tax
advisors regarding the effect of state and local tax laws on an investment in
the Securities.
PLAN OF DISTRIBUTION
EastGroup may sell Securities to or through underwriters or dealers for
public offering and sale by or through them, and also may sell Securities
directly to other purchasers or agents or through any combination of these
methods of sale.
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<PAGE> 51
The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
In connection with the sale of Securities, underwriters may receive
compensation from EastGroup or from purchasers of Securities, for whom they may
act as agents, in the form of discounts, concessions or commissions.
Underwriters may sell Securities to or through dealers, and such dealers may
receive compensation in the form of discounts, concessions or commissions from
the underwriters and/or commissions from the purchasers for whom they may act as
agents. Underwriters, dealers, and agents that participate in the distribution
of Securities may be deemed to be underwriters, and any discounts or commissions
they receive from EastGroup and any profit on the resale of Securities they
realize may be deemed to be underwriting discounts and commissions, under the
Securities Act. Any such underwriter or agent will be identified, and any such
compensation received from EastGroup will be described, in the applicable
Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, each
series of Securities will be a new issue with no established trading market,
other than the shares of Common Stock which are listed on the NYSE. Any shares
of Common Stock sold pursuant to a Prospectus Supplement will be listed on such
exchange, subject to official notice of issuance. EastGroup may elect to list
any series of Preferred Stock or Depositary Shares on an exchange, but is not
obligated to do so. It is possible that one or more underwriters may make a
market in a series of Securities, but will not be obligated to do so and may
discontinue any market making at any time without notice. Therefore, no
assurance can be given as to the liquidity of the trading market for the
Securities.
Under agreements EastGroup may enter into, underwriters, dealers and agents
who participate in the distribution of Securities may be entitled to
indemnification by EastGroup against certain liabilities, including liabilities
under the Securities Act.
Underwriters, dealers and agents may engage in transactions with, or
perform services for, or be customers of, EastGroup in the ordinary course of
business.
If so indicated in the applicable Prospectus Supplement, EastGroup will
authorize underwriters or other persons acting as EastGroup's agents to solicit
offers by certain institutions to purchase Securities from EastGroup pursuant to
contracts providing for payment and delivery on a future date. Institutions with
which such contracts may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions and others, but in all cases such institutions must be approved by
EastGroup. The obligations of any purchaser under any such contract will be
subject to the condition that the purchase of the Securities shall not at the
time of delivery be prohibited under the laws of the jurisdiction to which such
purchaser is subject. The underwriters and such other agents will not have any
responsibility in respect of the validity or performance of such contracts.
EXPERTS
The consolidated financial statements and financial statement schedules of
EastGroup as of December 31, 1997 and 1996, and for each of the years in the
three year period ended December 31, 1997, and the December 31, 1997 historical
summaries of gross income and direct operating expenses of Wal-Mart Distribution
Center, World Houston 1 and 2, Estrella Distribution Center and Industry
Distribution Center, have been incorporated by reference in the Prospectus and
Registration Statement in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
LEGAL MATTERS
The legality of the Securities will be passed upon for EastGroup by Jaeckle
Fleischmann & Mugel, LLP, Buffalo, New York.
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