<PAGE> 1
As filed with the Securities and Exchange Commission on March 9, 1995
--
Registration No. 33-85950_
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------
THE PARKWAY COMPANY
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
Texas 6552 74-2123597
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification No.) Identification No.)
</TABLE>
300 One Jackson Place
188 East Capitol Street
Jackson, Mississippi 39201-2195
(601) 948-4091
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
STEVEN G. ROGERS, President
300 One Jackson Place
188 East Capitol Street
Jackson, Mississippi 39201-2195
(601) 948-4091
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES TO:
CHARLES F. HORNE, IV, Esq. STEVEN HENDRIX, Esq.
Jaeckle, Fleischmann & Mugel Forman, Perry, Watkins & Krutz
800 Fleet Bank Building 188 East Capitol Street
Buffalo, New York 14202 P. O. Box 22608
(716) 856-0600 Jackson, Mississippi 39225-2608
(601) 960-8603
Approximate date of commencement of proposed sale to the public: As
promptly as practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
It is the intention of The Parkway Company ("Parkway") and EB, Inc. ("EB")
that EB will cease to be a reporting company under the Securities Exchange Act
of 1934 following consummation of the merger transaction.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE> 2
CROSS REFERENCE SHEET PURSUANT TO RULE 404(A)
SHOWING THE LOCATION IN THE PROSPECTUS
OF THE INFORMATION REQUIRED BY PART I OF FORM S-4
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FORM S-4 ITEM LOCATION IN PROSPECTUS
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A. INFORMATION ABOUT THE
TRANSACTION
1. Forepart of Registration
Statement and Outside
Front Cover Page of
Prospectus................................. Outside front cover page.
2. Inside Front and Outside Back
Cover Pages of Prospectus.................. AVAILABLE INFORMATION;
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE;
TABLE OF CONTENTS.
3. Risk Factors, Ratio of Earnings
to Fixed Charges and Other
Information................................ JOINT PROXY STATEMENT/ PROSPECTUS SUMMARY.
4. Terms of the Transaction................... SPECIAL FACTORS.
5. Pro Forma Financial Information............ PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED).
6. Material Contacts with the
Company Being Acquired..................... SPECIAL FACTORS.
7. Additional Information Required for
Reoffering by Persons and
Parties Deemed to be Underwriters.......... Not applicable.
8. Interests of Named Experts
and Counsel................................ Not applicable.
9. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities............................ Not applicable.
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<CAPTION>
FORM S-4 ITEM LOCATION IN PROSPECTUS
------------- ----------------------
<S> <C> <C>
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to
S-3 Registrants............................ Not applicable.
11. Incorporation of Certain
Information by Reference................... Not applicable.
12. Information with Respect to S-2
or S-3 Registrants......................... Not applicable.
13. Incorporation of Certain
Information by Reference................... INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.
14. Information with Respect to
Registrants Other than S-3 or
S-2 Registrants............................ INFORMATION CONCERNING PARKWAY; MARKET PRICES AND DIVIDENDS.
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to
S-3 Companies.............................. Not applicable.
16. Information with Respect to
S-2 or S-3 Companies....................... INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE; INFORMATION
CONCERNING EB; MARKET PRICES AND DIVIDENDS.
17. Information with Respect to
Companies Other Than S-3 or
S-2 Companies.............................. Not Applicable.
</TABLE>
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<CAPTION>
FORM S-4 ITEM LOCATION IN PROSPECTUS
------------- ----------------------
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D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies,
Consents or Authorizations
are to be Solicited........................ INTRODUCTION; VOTING AND PROXY INFORMATION; SPECIAL FACTORS--
Appraisal Rights of Dissenting Shareholders; SPECIAL FACTORS--
No Appraisal Rights for Parkway Shareholders; SPECIAL FACTORS--
Interest of Parkway in the Merger; SPECIAL FACTORS--Board of
Directors and Management of Parkway After the Merger; SPECIAL
FACTORS--Expense-Sharing Arrangements; INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE.
19. Information if Proxies, Consents
or Authorizations are not to be
Solicited or in an Exchange
Offer...................................... Not applicable.
</TABLE>
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<PAGE> 5
EB, INC.
300 ONE JACKSON PLACE
188 EAST CAPITOL STREET
JACKSON, MISSISSIPPI 39201-2195
_______, 1995
Dear Shareholder:
A special meeting of shareholders of EB, Inc. ("EB") will be held on
April __, 1995. The purpose of the meeting is to vote on a merger of Parkway
Acquisition Corporation ("PAC"), a wholly-owned subsidiary of The Parkway
Company ("Parkway"), with and into EB. The proposed transaction would result
in EB being acquired by Parkway and the shareholders of EB receiving the right
to receive, for each EB share, a cash payment in the amount of eight dollars
($8.00) plus the number of shares of common stock of Parkway determined by
dividing the value $9.25 by the average closing price for Parkway shares for
the 30 trading days preceding the closing of the transaction. Additionally, EB
would cease to be a reporting company under the Securities Exchange Act of
1934, as amended.
The proposed transaction has been approved by EB's Board of Directors,
which believes the transaction to be in the best interest of EB and its
shareholders and recommends its approval. The reasons for this belief are set
forth in "Special Factors--EB's Reasons for Recommending the Merger" in the
accompanying Joint Proxy Statement/Prospectus. The investment banking firm of
Howard Frazier Barker Elliott, Inc. has issued its opinion to EB that the terms
of the transaction are fair to the shareholders of EB from a financial point of
view.
The proposed transaction is very important to you as a shareholder.
Therefore, whether or not you plan to attend the meeting, I urge you to give
your immediate attention to the proposal. Please sign and date the enclosed
proxy card and return it promptly in the enclosed postage-paid envelope.
Very truly yours,
LELAND R. SPEED
President
<PAGE> 6
EB, INC.
300 ONE JACKSON PLACE
188 EAST CAPITOL STREET
JACKSON, MISSISSIPPI 39201-2195
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL __, 1995
To the Shareholders:
Notice is hereby given that a special meeting of shareholders of EB,
Inc. ("EB") will be held at 300 One Jackson Place, 188 East Capitol Street,
Jackson, Mississippi, on April __, 1995 at 9:30 a.m., local time, for the
following purpose:
To consider and act on a proposal to approve an Agreement and Plan of
Merger dated as of October 28, 1994 (as amended by the First Amendment to
Agreement and Plan of Merger dated January 26, 1995) (the "Merger Agreement")
among EB, Parkway Acquisition Corporation, a wholly-owned subsidiary of The
Parkway Company ("PAC"), and The Parkway Company ("Parkway"), pursuant to
which, among other things, (i) PAC will be merged with and into EB, (ii) each
outstanding share of common stock of EB will be converted into the right to
receive a cash payment in the amount of eight dollars ($8.00) plus the number
of shares of common stock of Parkway determined by dividing the value $9.25 by
the average closing price for Parkway shares for the 30 trading days preceding
the closing under the Merger Agreement and (iii) EB will become a wholly-owned
subsidiary of Parkway.
Only shareholders of record at the close of business on February 22,
1995 are entitled to notice of and to vote at the meeting and any adjournment
thereof. Shareholders of EB who do not vote for the Merger will have the right
to an appraisal of their EB shares under Mississippi law.
By Order of the Board of Directors
Sarah P. Clark
Vice President,
Chief Financial Officer
and Assistant Secretary
DATE: ____________, 1995
________________________________________________________________________________
THIS IS AN IMPORTANT MEETING. SHAREHOLDERS ARE URGED TO VOTE BY SIGNING,
DATING AND RETURNING THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE TO WHICH NO
POSTAGE NEED BE AFFIXED IF MAILED IN THE UNITED STATES.
________________________________________________________________________________
<PAGE> 7
THE PARKWAY COMPANY
300 ONE JACKSON PLACE
188 EAST CAPITOL STREET
JACKSON, MISSISSIPPI 39201-2195
_____________________, 1995
Dear Shareholder:
A special meeting of shareholders of The Parkway Company ("Parkway")
will be held on April __, 1995. The purpose of the meeting is to vote on a
merger of Parkway Acquisition Corporation ("PAC"), a wholly-owned subsidiary of
Parkway, with and into EB, Inc. ("EB"). The proposed transaction would result
in EB being acquired by Parkway and the shareholders of EB receiving the right
to receive, for each EB share, a cash payment in the amount of eight dollars
($8.00) plus the number of shares of common stock of Parkway determined by
dividing the value $9.25 by the average closing price for Parkway shares for
the 30 trading days preceding the closing of the transaction. The currently
outstanding Parkway shares will not be exchanged in the merger.
The proposed transaction has been approved by Parkway's Board of
Directors, which believes the transaction to be in the best interest of Parkway
and its shareholders and recommends its approval. The reasons for this belief
are set forth in "Special Factors -- Parkway's Reasons for Effecting the
Merger" in the accompanying Joint Proxy Statement/Prospectus. The investment
banking firm of Rauscher Pierce Refsnes, Inc. has issued its opinion to Parkway
that the terms of the transaction are fair to the shareholders of Parkway from
a financial point of view.
The proposed transaction is very important to you as a shareholder.
Therefore, whether or not you plan to attend the meeting, I urge you to give
your immediate attention to the proposal. Please sign and date the enclosed
proxy card and return it promptly in the enclosed postage-paid envelope.
Very truly yours,
STEVEN G. ROGERS
President
<PAGE> 8
THE PARKWAY COMPANY
300 ONE JACKSON PLACE
188 EAST CAPITOL STREET
JACKSON, MISSISSIPPI 39201-2195
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL __, 1995
To the Shareholders:
Notice is hereby given that a special meeting of shareholders of The
Parkway Company ("Parkway") will be held at 300 One Jackson Place, 188 East
Capitol Street, Jackson, Mississippi, on April __, 1995 at 10:00 a.m., local
time, for the following purpose:
To consider and act on a proposal to approve an Agreement and Plan of
Merger dated as of October 28, 1994 (as amended by the First Amendment to
Agreement and Plan of Merger dated January 26, 1995) (the "Merger Agreement")
among EB, Inc. ("EB"), Parkway Acquisition Corporation, a wholly-owned
subsidiary of Parkway ("PAC"), and Parkway, pursuant to which, among other
things, (i) PAC will be merged with and into EB, (ii) each outstanding share of
common stock of EB will be converted into the right to receive a cash payment
in the amount of eight dollars ($8.00) plus the number of shares of common
stock of Parkway determined by dividing the value $9.25 by the average closing
price for Parkway shares for the 30 trading days preceding the closing under
the Merger Agreement, and (iii) EB will become a wholly-owned subsidiary of
Parkway.
Only shareholders of record at the close of business on February 22,
1995, are entitled to notice of and to vote at the meeting and any adjournment
thereof. Shareholders of Parkway who do not vote for the Merger will not have
the right to an appraisal of their Parkway shares.
By Order of the Board of Directors
Sarah P. Clark
Vice President, Chief Financial Officer
and Secretary
DATE: _____________________, 1995
________________________________________________________________________________
THIS IS AN IMPORTANT MEETING. SHAREHOLDERS ARE URGED TO VOTE BY SIGNING, DATING
AND RETURNING THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE TO WHICH NO POSTAGE
NEED BE AFFIXED IF MAILED IN THE UNITED STATES.
________________________________________________________________________________
<PAGE> 9
JOINT PROXY STATEMENT
OF
EB, INC. AND THE PARKWAY COMPANY
AND
PROSPECTUS
OF
THE PARKWAY COMPANY
This Joint Proxy Statement/Prospectus is being furnished to the
shareholders of EB, Inc. ("EB") in connection with the solicitation of proxies
by the Board of Directors of EB for use at the special meeting of its
shareholders to be held April __, 1995, to consider and vote on a proposal to
approve and adopt the Agreement and Plan of Merger dated October 28, 1994 (as
amended by the First Amendment to Agreement and Plan of Merger dated January
26, 1995) (the "Merger Agreement"), a copy of which is attached hereto as
Appendix B. Pursuant to the Merger Agreement, Parkway Acquisition Corporation
("PAC"), a Mississippi corporation and wholly-owned subsidiary of The Parkway
Company ("Parkway"), will be merged (the "Merger") with and into EB. In the
Merger, each share of common stock, $2.00 stated value, of EB ("EB Shares")
will be converted into the right to receive a cash payment in the amount of
eight dollars ($8.00) plus the number of shares of common stock of Parkway
("Parkway Shares") determined by dividing the value $9.25 by the average
closing price for Parkway Shares for the 30 trading days preceding the closing
under the Merger Agreement (the "Exchange Ratio"). As a result of the Merger,
EB will become a wholly-owned subsidiary of Parkway and cease to be a reporting
company under the Securities Exchange Act of 1934, as amended.
This Joint Proxy Statement/Prospectus is also being furnished to the
holders of common stock of Parkway in connection with the solicitation of
proxies by the Board of Directors of Parkway for use at the special meeting of
its shareholders to be held April __, 1995. The purpose of the meeting is to
consider and vote on a proposal to approve and adopt the Merger Agreement.
This document also constitutes a Prospectus of Parkway covering the
Parkway Shares to be issued upon consummation of the Merger. Parkway is a
Texas corporation engaged in the real estate business with its principal
executive offices located at 300 One Jackson Place, 188 East Capitol Street,
Jackson, Mississippi 39201-2195, telephone number: (601) 948-4091. PAC was
formed for the purpose of effecting the Merger. The principal executive
offices of EB are also located at 300 One Jackson Place, 188 East Capitol
Street, Jackson, Mississippi 39201- 2195, and the telephone number of EB is
(601) 948-4091.
______________________________
NEITHER THIS TRANSACTION NOR THE PARKWAY COMMON STOCK HAS BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION. THE
COMMISSION HAS NOT PASSED UPON THE FAIRNESS OF THIS TRANSACTION NOR UPON THE
ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
______________________________
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS
NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
______________________________
Consummation of the Merger is subject to the affirmative approval of
holders of at least a majority of the outstanding EB Shares entitled to vote,
the affirmative approval of holders of
<PAGE> 10
at least a majority of the outstanding Parkway Shares present or represented by
proxy at the shareholders' meetings and certain other conditions. Parkway owns
294,101 of the EB Shares entitled to vote (29.86% of the EB Shares entitled to
vote) plus another 465,144 EB Shares which are currently not entitled to vote
under the provisions of the Mississippi Control Share Statute. The directors
and officers of EB beneficially own, in the aggregate, approximately 6.90% of
EB Shares entitled to vote. Parkway and EB's officers and directors have
indicated they intend to vote in favor of the Merger.
____________________
The date of this Joint Proxy Statement/Prospectus is _____________,
1995. This Joint Proxy Statement/Prospectus is first being mailed to
shareholders of EB and shareholders of Parkway on or about ____________, 1995.
<PAGE> 11
AVAILABLE INFORMATION
Parkway and EB are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "SEC"). Such reports, proxy
statements and other information may be inspected at and, upon payment of the
SEC's customary charges, copies obtained from, the Public Reference Section of
the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549. Such reports, proxy
statements and other information are also available for inspection and copying
at prescribed rates at the SEC's regional offices in New York, New York (Seven
World Trade Center, 15th Floor, New York, New York 10007), and in Chicago,
Illinois (Suite 1400, Northwestern Atrium Center, 500 West Madison Street,
Chicago, Illinois 60551-2511).
Parkway has filed with the SEC a Registration Statement on Form S-4
(the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to its shares to be issued in the Merger.
This Joint Proxy Statement/Prospectus constitutes the Prospectus of Parkway
filed as part of the Registration Statement. As permitted by the rules and
regulations of the SEC, this Joint Proxy Statement/Prospectus omits certain
information contained in the Registration Statement, and reference is made to
the Registration Statement and the exhibits listed therein, which can be
inspected at the public reference facilities of the SEC noted above, and copies
of which can be obtained from the SEC at prescribed rates as indicated above.
No person has been authorized to give any information or to make any
representation other than as contained herein in connection with the matters
described herein and, if given or made, such information or representation must
not be relied upon as having been authorized by Parkway, PAC or EB. Neither
the delivery hereof nor any distribution of securities made hereunder shall,
under any circumstances, create an implication that there has been no change in
the facts herein set forth since the date hereof. This Joint Proxy
Statement/Prospectus does not constitute an offer to sell or a solicitation of
an offer to buy the securities offered by this Joint Proxy Statement/Prospectus
or a solicitation of a proxy in any jurisdiction where, or to any person to
whom, it is unlawful to make such an offer or solicitation.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
ACCOMPANYING THIS JOINT PROXY STATEMENT/PROSPECTUS IS THE MOST RECENT
ANNUAL REPORT TO SHAREHOLDERS OF EB AND THE MOST RECENT QUARTERLY REPORT ON
FORM 10-QSB FOR EB. THESE DOCUMENTS, AS WELL AS CERTAIN OTHER DOCUMENTS WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH, ARE INCORPORATED HEREIN BY
REFERENCE. COPIES OF ANY SUCH DOCUMENTS, OTHER THAN EXHIBITS TO SUCH
DOCUMENTS, ARE AVAILABLE WITHOUT CHARGE TO EACH PERSON TO WHOM A COPY OF THIS
JOINT PROXY STATEMENT/PROSPECTUS HAS BEEN DELIVERED UPON WRITTEN OR ORAL
REQUEST OF SUCH PERSON FROM PARKWAY, 300 ONE JACKSON PLACE, 188 EAST CAPITOL
STREET, JACKSON, MISSISSIPPI 39201-2195, ATTENTION: SARAH P. CLARK, TELEPHONE
NUMBER (601) 948-
<PAGE> 12
4091. IN ORDER TO INSURE TIMELY DELIVERY OF THE DOCUMENTS, REQUESTS SHOULD BE
RECEIVED BY ____________, 1995.
The following documents or portions thereof are hereby incorporated
into this Joint Proxy Statement/Prospectus by reference:
1. EB's 1993 Annual Report to Shareholders.
2. EB's Annual Report on Form 10-KSB for the year ended December
31, 1993.
3. EB's Form 10-KSB/A (Amendment No. 1 to 1993 Form 10-KSB) dated
April 29, 1994.
4. EB's Form 10-KSB/A (Amendment No. 2 to 1993 Form 10-KSB) dated
January 26, 1995.
5. EB's Quarterly Reports on Form 10-QSB for the quarters ended
March 31, 1994, June 30, 1994 and September 30, 1994 and
Amendment No. 1 thereto.
6. EB's Proxy Statement dated April 28, 1993, used in connection
with the 1993 Annual Meeting of Shareholders of EB.
7. The Agreement and Plan of Merger dated as of October 28, 1994
(as amended by the First Amendment to the Agreement and Plan
of Merger dated January 26, 1995) among EB, PAC and Parkway,
which is attached hereto as Appendix B.
All documents filed by EB or Parkway pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Joint Proxy
Statement/Prospectus and prior to the date of the meetings shall be deemed to
be incorporated by reference herein and to be a part hereof from the respective
dates of the filing thereof. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Joint Proxy
Statement/Prospectus to the extent that a statement contained herein, or in any
other subsequently filed document that also is or is deemed to be incorporated
by reference herein, modifies or supersedes such statement. Any such statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Joint Proxy Statement/Prospectus.
- ii -
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TABLE OF CONTENTS
PAGE
JOINT PROXY STATEMENT/PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . 1
EB, Inc. and The Parkway Company . . . . . . . . . . . . . . . . . 1
Date, Time and Place of Shareholders Meetings . . . . . . . . . . 2
Record Date; Securities Entitled to Vote . . . . . . . . . . . . . 2
The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Certain Effects of the Merger . . . . . . . . . . . . . . . . . . 3
Benefits to EB Affiliates and Conflicts of Interest . . . . . . . . 3
Required Votes . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Managements' Recommendation . . . . . . . . . . . . . . . . . . . 4
Fairness Opinions . . . . . . . . . . . . . . . . . . . . . . . . 5
Federal Tax Consequences . . . . . . . . . . . . . . . . . . . . . 5
Conditions to Closing . . . . . . . . . . . . . . . . . . . . . . 5
Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . . . . 5
Special Considerations . . . . . . . . . . . . . . . . . . . . . . 6
Market Prices . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Stock Certificates . . . . . . . . . . . . . . . . . . . . . . . . 7
Differences in Shareholders' Rights . . . . . . . . . . . . . . . 8
Unaudited Pro Forma Consolidated Selected Financial Data . . . . . 8
Selected Comparative Per Share Data . . . . . . . . . . . . . . . 9
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
VOTING AND PROXY INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 12
Ownership of EB Shares . . . . . . . . . . . . . . . . . . . . . . 14
Ownership of Parkway Shares . . . . . . . . . . . . . . . . . . . 15
SPECIAL FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Special Considerations . . . . . . . . . . . . . . . . . . . . . . 16
Background of the Merger . . . . . . . . . . . . . . . . . . . . . 19
EB's Reasons for Recommending the Merger . . . . . . . . . . . . . 25
Parkway's Position on Fairness to EB Shareholders . . . . . . . . 32
Parkway's Reasons for Effecting the Merger . . . . . . . . . . . . 33
The Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . 33
EB Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . . 37
Parkway Fairness Opinion . . . . . . . . . . . . . . . . . . . . . 40
Operations Following the Merger . . . . . . . . . . . . . . . . . 45
Interest of Parkway in the Merger . . . . . . . . . . . . . . . . 45
- iii -
<PAGE> 14
PAGE
Expense-Sharing Arrangements . . . . . . . . . . . . . . . . . . . 45
Federal Income Tax Consequences . . . . . . . . . . . . . . . . . 50
Expenses of the Merger . . . . . . . . . . . . . . . . . . . . . . 52
Accounting Treatment of the Merger . . . . . . . . . . . . . . . . 53
Appraisal Rights of Dissenting Shareholders of EB . . . . . . . . 53
No Appraisal Rights for Parkway Shareholders . . . . . . . . . . . 55
Restrictions on Resales of Securities . . . . . . . . . . . . . . 55
Board of Directors and Management of
Parkway After the Merger . . . . . . . . . . . . . . . . . 56
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . 59
Certain Transactions and Relationships . . . . . . . . . . . . . . 61
INFORMATION CONCERNING EB . . . . . . . . . . . . . . . . . . . . . . . . . 63
Recent Developments . . . . . . . . . . . . . . . . . . . . . . . 63
INFORMATION CONCERNING PARKWAY . . . . . . . . . . . . . . . . . . . . . . 65
Description of Business . . . . . . . . . . . . . . . . . . . . . 65
Administration . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Description of Operations . . . . . . . . . . . . . . . . . . . . 66
Description of Properties . . . . . . . . . . . . . . . . . . . . 66
Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . 71
Recent Developments . . . . . . . . . . . . . . . . . . . . . . . 83
INFORMATION CONCERNING CONGRESS STREET . . . . . . . . . . . . . . . . . . 85
Description of Business . . . . . . . . . . . . . . . . . . . . . 85
Description of Operations . . . . . . . . . . . . . . . . . . . . 86
Description of Properties . . . . . . . . . . . . . . . . . . . . 87
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . 87
Directors, Executive Officers, Promoters and
Control Persons . . . . . . . . . . . . . . . . . . . . . 89
Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . 94
Certain Relationships and Related Transactions . . . . . . . . . . 97
- iv -
<PAGE> 15
PAGE
MARKET PRICES AND DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . 98
Parkway Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 98
EB Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
DIFFERENCES IN SHAREHOLDERS' RIGHTS . . . . . . . . . . . . . . . . . . . . 99
DESCRIPTION OF CAPITAL STOCK OF PARKWAY . . . . . . . . . . . . . . . . . . 101
INDEMNIFICATION PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . 102
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
LEGAL OPINIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
REPORTS TO SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . 103
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
APPENDIX A Opinion of Howard Frazier Barker Elliott, Inc. dated as of
October 12, 1994
APPENDIX B Agreement and Plan of Merger among The Parkway Company,
Parkway Acquisition Corporation and EB, Inc. dated as of
October 28, 1994 and First Amendment to Agreement and Plan of
Merger among The Parkway Company, Parkway Acquisition
Corporation and EB, Inc. dated January 26, 1995
APPENDIX C Opinion of Jaeckle, Fleischmann & Mugel Regarding Tax Matters
APPENDIX D Copy of Article 13 of the Mississippi Business Corporation Act
- v -
<PAGE> 16
APPENDIX E Directors and Executive Officers of EB, Inc.
APPENDIX F Directors and Executive Officers of The Parkway Company
APPENDIX G Opinion of Rauscher Pierce Refsnes, Inc. dated as of September
27, 1994
- vi -
<PAGE> 17
JOINT PROXY STATEMENT/PROSPECTUS SUMMARY
The following summary is a selective outline of certain information
from this Joint Proxy Statement/Prospectus and is qualified in its entirety by
the more detailed information and financial statements included or incorporated
herein by reference.
EB, INC. AND THE PARKWAY COMPANY
EB. EB, Inc. ("EB") is a Mississippi corporation engaged in the real
estate business. EB's assets consist principally of loans and real estate
which were retained by EB when it sold its banking assets to Sunburst Bank,
Mississippi ("Sunburst") on March 1, 1993 and 438,889 shares of common stock of
Grenada Sunburst Systems Corporation ("Grenada") received in the sale. (Prior
to that, EB was a Mississippi-chartered savings bank named "Eastover Bank for
Savings.") On December 31, 1994 Grenada merged with GSSC Acquisition
Corporation, Inc., a wholly-owned subsidiary of Union Planters Corporation, a
Tennessee corporation ("UPC"), resulting in EB receiving 1.453 shares of common
stock of UPC in exchange for each share of common stock of Grenada. This
resulted in EB owning 637,705 shares of UPC stock. For more information
regarding EB, see the 1993 Annual Report to Shareholders of EB that accompanies
this Joint Proxy Statement/Prospectus. The principal executive offices of EB
are located at 300 One Jackson Place, 188 East Capitol Street, Jackson,
Mississippi 39201-2195, and its telephone number is (601) 948-4091.
Parkway. The Parkway Company ("Parkway") is a Texas corporation
engaged in the real estate business. Parkway's investment strategy involves
acquiring equity positions in private or publicly traded real estate companies
which may or may not result in mergers or acquisitions. Parkway will also
invest directly in real property in the form of equity ownership or mortgages.
However, Parkway will seek to control its investments by owning substantially
all of the investment and will avoid investments directly in real property that
would result in a minority interest. Parkway owns equity interests in various
properties, including six office buildings, a motel, a shopping center,
developed lots surrounding a member-owned country club and other improved and
unimproved land. A significant portion of Parkway's assets consists of notes
receivable and mortgage investments. Parkway also has significant
stockholdings in several real estate companies. On November 29, 1994, Congress
Street Properties, Inc. ("Congress Street"), a former real estate company that
participated in the expense sharing arrangements described below under "Special
Factors--Expense Sharing Arrangements," merged with Parkway Congress
Corporation, a wholly-owned subsidiary of Parkway. See "Information Concerning
Parkway." Parkway Acquisition Corporation ("PAC") is a wholly-owned subsidiary
of Parkway recently formed for the purpose of effecting the Merger.
The principal executive offices of Parkway are located at 300 One
Jackson Place, 188 East Capitol Street, Jackson, Mississippi 39201- 2195, and
its telephone number is (601) 948-4091.
- 1 -
<PAGE> 18
DATE, TIME AND PLACE OF SHAREHOLDERS MEETINGS
The meeting of the shareholders of EB will be held on April __, 1995 at
9:30 a.m., local time, at 300 One Jackson Place, 188 East Capitol Street,
Jackson, Mississippi (the "EB Meeting"). The purpose of the EB Meeting is to
consider and vote upon a proposal to approve and adopt the Agreement and Plan
of Merger dated as of October 28, 1994 (as amended by the First Amendment to
Agreement and Plan of Merger dated January 26, 1995) among EB, Parkway and PAC
(the "Merger Agreement").
The meeting of the shareholders of Parkway will be held on April __,
1995 at 10:00 a.m., local time, at 300 One Jackson Place, 188 East Capitol
Street, Jackson, Mississippi (the "Parkway Meeting"). The purpose of the
Parkway Meeting is to consider and vote upon a proposal to approve and adopt
the Merger Agreement.
RECORD DATE; SECURITIES ENTITLED TO VOTE
The record date for the EB Meeting is February 22, 1995; holders of
984,973 EB Shares are entitled to one vote per share. There are an additional
465,144 EB Shares outstanding which are owned by Parkway which Parkway is
currently not entitled to vote under the provisions of the Mississippi Control
Share Statute. See "Voting and Proxy Information."
The record date for the Parkway Meeting is February 22, 1995; holders
of 1,563,308 Parkway Shares are entitled to one vote per share.
THE MERGER
Under the terms of the Merger Agreement, PAC will be merged into EB
and PAC will cease to exist as a separate legal entity. Upon consummation of
the Merger, each outstanding EB Share will be converted into the right to
receive a cash payment in the amount of eight dollars ($8.00) plus a certain
amount of Parkway Shares based on the Exchange Ratio. The Exchange Ratio will
be determined by dividing the value $9.25 by the average closing price for
Parkway Shares for the 30 trading days preceding the closing under the Merger
Agreement. No fractional Parkway Shares will be issued but, in lieu thereof,
each holder of EB Shares entitled to receive a fractional Parkway Share will be
paid cash in an amount equal to the average closing price of Parkway Shares
over the 30 trading days preceding the effective date of the Merger. The cash
payment and Parkway Shares issuable in exchange for the EB Shares and the cash
payment in lieu of fractional shares are referred to herein as the "Merger
Consideration." The currently outstanding Parkway Shares will not be exchanged
in the Merger. See "Special Factors--The Merger Agreement."
- 2 -
<PAGE> 19
CERTAIN EFFECTS OF THE MERGER
If the Merger is approved, shareholders of EB will become shareholders
of Parkway. The shareholders of EB (the "Minority Shareholders") other than
Parkway and EB's officers and directors currently beneficially own 42.96% of
the outstanding EB Shares. If the Merger is consummated, the Minority
Shareholders will only own 21.57% of the Parkway Shares outstanding after the
Merger and, accordingly, will have less voting power and less of a percentage
interest in the underlying assets of EB which will, as a result of the Merger,
become indirectly owned by Parkway (through its ownership of all of the EB
Shares). See "Special Factors--Special Considerations--Certain Effects of the
Merger."
BENEFITS TO EB AFFILIATES AND CONFLICTS OF INTEREST
Two members of the six-person Board of Directors of EB (Messrs. Speed
and Bailey) are also members of the Board of Directors of Parkway and a third
member (David H. Hoster II), was an officer of both EB and Parkway at the time
the Merger was proposed and negotiated. See "Special Factors -- Special
Considerations."
Additionally, according to the terms of the Merger Agreement, Parkway
has agreed to indemnify each of the former members of the Board of Directors of
EB against certain liabilities, including any liability arising under the
Merger Agreement or in connection with the Merger.
Mr. Friou (a director of EB) will become a director of Parkway,
although Mr. Friou did not receive or accept the invitation to become a
director until after an agreement in principle for the Merger had been reached.
Furthermore, Mr. Friou did not expect to be asked to join Parkway's Board of
Directors. Parkway directors have the authority to determine their own
compensation. Upon becoming a director of Parkway, Mr. Friou will receive an
option for 5,000 Parkway Shares under Parkway's 1991 Directors Stock Option
Plan, as amended. See "Special Factors-- Special Considerations."
Parkway and EB, along with four other companies, were parties to
certain expense-sharing arrangements. As contemplated by the expense- sharing
arrangements, the executive officers of EB also served as executive officers of
Parkway and the other participants. See "Special Factors--Expense-Sharing
Arrangements" and "Parkway--Description of Business."
The relationships described above may have resulted or may result in
the directors and officers of EB having a conflict of interest with the
shareholders of EB in the negotiation, proposal, recommendation and
consummation of the Merger. In this regard, the idea of combining EB and
Parkway originated with the common management and directors (Messrs. Speed and
Bailey). The transaction was first proposed, however, by a special committee
of Parkway's disinterested directors to a committee of EB's disinterested
directors (which included Mr. Friou), and the structure and terms of the Merger
were negotiated by these two committees, with common management providing
economic analyses and information regarding the companies' respective assets to
those committees.
- 3 -
<PAGE> 20
REQUIRED VOTES
The proposal to approve and adopt the Merger Agreement must be
approved by the holders of at least a majority of the outstanding EB Shares
entitled to vote. As of the date hereof, the directors and officers of EB
beneficially owned, in the aggregate, approximately 6.82% of the EB Shares
entitled to vote (4.69% of the EB Shares outstanding). Parkway owns 294,101 of
the EB Shares entitled to vote (29.86% of the EB Shares entitled to vote) and
465,144 EB Shares (32.08% of the EB Shares outstanding) which are currently not
entitled to vote under the provisions of the Mississippi Control Share Statute.
Parkway and EB's directors and officers have indicated that they intend to vote
all of the EB Shares held by them in favor of the Merger. Parkway similarly
intends to vote all EB Shares held by Parkway which are entitled to vote in
favor of the Merger. See "Voting and Proxy Information."
The proposal to approve and adopt the Merger Agreement must be
approved by the holders of at least a majority of the Parkway Shares entitled
to vote present or represented by proxy at the Parkway Meeting (assuming a
quorum is so present or represented). As of the date hereof, the directors and
officers of Parkway beneficially owned, in the aggregate, approximately 18.76%
of the Parkway Shares outstanding and entitled to vote. Parkway's directors
and officers have indicated that they intend to vote all of the Parkway Shares
held by them in favor of the Merger. See "Voting and Proxy Information."
MANAGEMENTS' RECOMMENDATION
The directors of EB are of the opinion that the Merger is in the best
interests of both EB and its shareholders, and have unanimously recommended
(with Messrs. Leland R. Speed and H. C. Bailey, Jr., who are also directors of
Parkway, and David H. Hoster II, a former officer of Parkway, abstaining) to
EB's shareholders that they vote in favor of the Merger. The Board believes
that the Merger will: tend to maximize the value of EB's assets; result in EB
shareholders owning a portion of the equity interest in a more viable entity
with greater financial resources than EB; enable EB shareholders to participate
in the ownership of a larger and more diversified real estate company than EB;
and result in EB shareholders owning a NASDAQ National Market System security.
See "Special Factors--EB's Reasons for Recommending the Merger."
The directors of Parkway are of the opinion that the Merger is in the
best interest of Parkway and its shareholders, and recommend to its
shareholders that they vote in favor of the Merger. The Merger is in
accordance with Parkway's business strategy of acquiring real estate interests
by combining with other companies. See "Special Factors--Parkway's Reasons for
Effecting the Merger."
- 4 -
<PAGE> 21
FAIRNESS OPINIONS
Howard Frazier Barker Elliott, Inc. has rendered an opinion to the
Board of Directors of EB that the consideration to be received by the holders
of EB Shares in the Merger is fair from a financial point of view to such
shareholders other than Parkway. The opinion is reproduced as Appendix A
hereto. See "Special Factors--EB Fairness Opinion."
Rauscher Pierce Refsnes, Inc. ("Rauscher Pierce") has rendered an
opinion to the Board of Directors of Parkway that the terms of the Merger were
fair from a financial point of view to the shareholders of Parkway. The
opinion is reproduced as Appendix G hereto. See "Special Factors--Parkway
Fairness Opinion."
FEDERAL TAX CONSEQUENCES
EB has received an opinion of Jaeckle, Fleischmann & Mugel that gains
or losses will be recognized by the holders of EB Shares for federal income tax
purposes to the extent of the difference between their tax basis in the EB
Shares surrendered and the fair market value of the Merger Consideration
received in exchange therefor, and that the tax basis of the Parkway Shares
received by the holders of EB Shares will equal the fair market value of the
Parkway Shares received as of the Effective Date. There will be no federal
income tax consequences to shareholders of Parkway as a result of the Merger.
See "Special Factors--Federal Income Tax Consequences."
CONDITIONS TO CLOSING
Consummation of the Merger is subject to a number of conditions,
including (i) the approval of the Merger Agreement by the shareholders of EB
and Parkway and (ii) the continued accuracy of the representations and
warranties of Parkway and EB as of the effective date of the Merger. The
representations and warranties relate to, among other things, the absence of
any material adverse changes in the business or assets of Parkway or EB. The
Merger Agreement is subject to termination in the event that the average
closing price for Parkway Shares for the 30 trading days preceding the closing
under the Merger Agreement equals an amount less than $11.50 per Parkway Share
or exceeds $16.00 per Parkway Share. The Merger may also be abandoned at any
time prior to its consummation by the agreement of the Boards of Parkway and
EB. See "Special Factors--The Merger Agreement."
DISSENTERS' RIGHTS
If the holders of at least a majority of EB Shares entitled to vote
approve the Merger, such approval will bind all the shareholders of EB,
including those who vote against the Merger or abstain or fail to return a
completed proxy. Shareholders of EB who do not vote for the Merger will have
the right to an appraisal of their EB Shares under Mississippi law. Parkway
shareholders will not have any appraisal rights in connection with the Merger.
See "Voting and Proxy Information", "Special Factors--Appraisal Rights of
Dissenting Shareholders" and "Special Factors--No Appraisal Rights for Parkway
Shareholders."
- 5 -
<PAGE> 22
SPECIAL CONSIDERATIONS
Conflicts of Interest. Two members of EB's six-person Board of
Directors (Messrs. Speed and Bailey) are members of Parkway's Board of
Directors. One other member of EB's Board (Mr. Friou) has agreed to join
Parkway's Board after the Merger, although Mr. Friou did not receive or accept
the invitation to become a director until after an agreement in principle for
the Merger had been reached. Furthermore, Mr. Friou did not expect to be asked
to join Parkway's Board of Directors. In addition, EB and Parkway shared
certain common officers and offices under an expense-sharing arrangement which
terminated on December 31, 1994. One of EB's directors, David H. Hoster II,
formerly served as an officer of both EB and Parkway. The relationships
described above may result in the directors and officers of EB having a
conflict of interest with the shareholders of EB in the negotiation, proposal,
recommendation and consummation of the Merger. In this regard, the idea of
combining EB and Parkway originated with the common management and directors
(Messrs. Speed and Bailey). The transaction was first proposed, however, by a
special committee of Parkway's disinterested directors to a committee of EB's
disinterested directors (which included Mr. Friou), and the structure and terms
of the Merger were negotiated by these two committees, with common management
providing economic analyses and information regarding the companies' respective
assets to those committees. See "Special Factors--Special
Considerations--Benefits to EB Affiliates and Conflicts of Interest."
Risks Associated with Real Estate. Shareholders of EB and Parkway
should be aware that there are certain risks inherent in the ownership of real
estate and the securities of companies that own real estate, and that Parkway's
assets may have particular risks associated with them. These risks include,
among others: adverse changes in general or local economic conditions; adverse
changes in interest rates and in the availability of permanent mortgage funds
which may render the acquisition, sale or refinancing of properties difficult
or unattractive; existing laws, rules and regulations and judicial decisions
regarding liability for a variety of potential problems related to real estate
generally; adverse changes in real estate, zoning, environmental or land-use
laws; increases in real property taxes and federal or local economic or rent
controls; other governmental rules; increases in operating costs and the need
for additional capital and tenant improvements; the supply of and demand for
properties; possible insolvencies and other material defaults by tenants;
overbuilding in certain markets; ability to obtain or maintain full occupancy
of properties or to provide for adequate maintenance or insurance; the presence
of hazardous waste materials; mechanics liens resulting from construction;
property related claims and litigation; fiscal policies; and acts of God. The
illiquidity of real estate investments generally impairs the ability of real
estate owners to respond quickly to changed circumstances. See "Special
Factors--Special Considerations--Risks of Real Estate Ownership."
Risks Associated with Parkway's Assets. In addition to the risks
described above which are applicable to the ownership of real estate or
interests therein generally, there are certain potential risks associated with
Parkway's Bullard Road property. See "Special Factors-- Special
Considerations--Specific Risks Related to Certain Parkway Property."
Additionally, certain of Parkway's properties consist of unimproved land.
Parkway may have to hold this property indefinitely before it can be sold at
prices that Parkway would consider fair. Parkway has no
- 6 -
<PAGE> 23
present plans or proposals to develop any such property. See "Special Factors
- -- Special Considerations -- Specific Risks Related to Certain Parkway
Property."
Risks Associated with EB's Assets. EB's assets include foreclosed
real estate and loans with borrowers in various stages of bankruptcy and,
accordingly, there can be no assurance that Parkway will realize the value of
those assets. See "Special Factors--Special Considerations- -Specific Risks
Related to EB Property."
MARKET PRICES
Parkway Shares are traded over-the-counter on the NASDAQ National
Market System ("NASDAQ NMS") under the symbol "PKWY." EB Shares are traded
over-the-counter and are quoted on the NASDAQ Small-Cap Market ("NASDAQ SCM")
under the symbol "EBEB." The following table shows the closing price of
Parkway Shares as reported by NASDAQ NMS, and the closing bid price of EB
Shares as reported by NASDAQ SCM, on the dates indicated.
<TABLE>
<CAPTION>
EB Share Parkway Share
-------- -------------
<S> <C> <C>
July 26, 1994, the last trading day before EB and
Parkway issued a joint press release announcing
that they had agreed in principle to the Merger
(1) . . . . . . . . . . . . . . . . . . . . . . . . $14.25 $12.50
March 7, 1995, the most recent trading day prior
to the date of this Joint Proxy
Statement/Prospectus with respect to which it is
practicable to provide market price information
(1) . . . . . . . . . . . . . . . . . . . . . . . . $15.75 $15.00
<FN>
- --------------------
(1) Price per share as of a particular day reflects the last reported
transaction in the indicated shares on or before that day.
</TABLE>
Parkway is currently paying a quarterly dividend of $.16 per Parkway
Share; EB paid a quarterly dividend of $.10 per EB Share in the second, third
and fourth quarters of 1994. See "Market Prices and Dividends" for more
information regarding historical market prices and dividends.
STOCK CERTIFICATES
A Letter of Transmittal will be sent to shareholders of record of EB
as of the effective date of the Merger (the "Effective Date"). Shareholders of
Parkway will not need to exchange their stock certificates. Shareholders of EB
should mail their certificates representing EB Shares, together with a properly
completed Letter of Transmittal, to Society National Bank, the exchange agent
with respect to the Merger (the "Exchange Agent"), as soon as possible after
the
- 7 -
<PAGE> 24
Effective Date. The Exchange Agent will begin forwarding certificates for
Parkway Shares and checks for the cash payment and cash in lieu of fractional
Parkway Shares promptly after the Effective Date to those shareholders who have
surrendered their EB Share certificates together with a completed Letter of
Transmittal. Shareholders of EB who fail to deliver their EB Share
certificates and Letter of Transmittal to the Exchange Agent will not receive
their Parkway Share certificates, nor any dividends with respect to such
Parkway Shares, unless and until such EB Share certificates are forwarded to
the Exchange Agent. Shareholders who are unable to locate their EB Share
certificates may contact the Exchange Agent at the address indicated in the
Letter of Transmittal for assistance. See "Special Factors--The Merger
Agreement--Exchange of Shares."
DIFFERENCES IN SHAREHOLDERS' RIGHTS
The laws and charter documents governing the rights of shareholders of
Parkway differ in certain respects from those governing the rights of
shareholders of EB. For example, to be elected a director of Parkway, a
nominee must receive the affirmative vote of the holders of at least a majority
of the Parkway Shares present (in person or by proxy) at a meeting at which a
quorum is present, with each share equivalent to one vote. In the case of the
election of directors of EB, however, shareholders are entitled to cumulate
their votes and directors are elected by a plurality of the votes cast. See
"Differences in Shareholders' Rights."
UNAUDITED PRO FORMA CONSOLIDATED SELECTED FINANCIAL DATA
The selected pro forma financial data that appears below is based on
EB's, Congress Street's and Parkway's historical financial data as adjusted to
give effect to the Merger and the merger of Parkway and Congress Street (see
"Information Concerning Parkway--Recent Developments") on the basis described
in the notes to the Pro Forma Consolidated Financial Statements (Unaudited).
This information is not necessarily indicative of the results that actually
would have occurred and should be read in conjunction with the Pro Forma
Consolidated Financial Statements (Unaudited) included elsewhere in this Joint
Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
September 30, 1994 June 30, 1994(1)
------------------ -------------------
(In thousands, except per share information)
<S> <C> <C>
Net Revenues $3,364 $12,152
Expenses 2,654 11,247
Net income from continuing operations 710 904
Net income from continuing operations per common share .36 .45
Weighted average number of common shares outstanding 1,993 1,993
</TABLE>
- 8 -
<PAGE> 25
<TABLE>
<CAPTION>
As of September 30,
1994(1)
-------------------
Unaudited Pro Forma Consolidated Balance Sheet Data: (In thousands)
<S> <C>
Total assets $69,663
Total liabilities 32,143
Stockholders' equity 37,520
<FN>
- --------------------
(1) Parkway has a June 30 fiscal year end, Congress Street had an August
31 fiscal year end and EB has a December 31 fiscal year end. The
unaudited pro forma consolidated statements of income and balance
sheet data combines data for different periods as described in the Pro
Forma Consolidated Financial Statements (Unaudited) included elsewhere
in this Joint Proxy Statement/Prospectus.
</TABLE>
SELECTED COMPARATIVE PER SHARE DATA
The following tables set forth certain information concerning Parkway
Shares, shares of common stock, $.10 par value of Congress Street ("Congress
Street Shares"), and EB Shares. Data captioned "Parkway pro forma
consolidated" represents Parkway's, Congress Street's, and EB's historical data
adjusted to give effect to the Merger and Parkway's merger with Congress Street
effective on November 29, 1994 (see "Information Concerning Parkway--Recent
Developments") on the basis described in the notes to the Pro Forma
Consolidated Financial Statements (Unaudited), included elsewhere in this Joint
Proxy Statement/Prospectus. Congress Street's equivalent pro forma
consolidated per share data is determined by multiplying Parkway's pro forma
consolidated data by .29, which is the number of Parkway Shares that were
issued to Congress Street shareholders in exchange for one Congress Street
Share in the merger. EB's equivalent pro forma per share data is obtained by
multiplying Parkway's pro forma consolidated data by .66, which is the number
of Parkway Shares that will be issued to EB shareholders in exchange for one EB
Share (based on Parkway's market price on February 3, 1995 of $14.00 per
share).
The following data (unaudited) should be read in conjunction with the
Pro Forma Consolidated Financial Statements (Unaudited), Parkway's Consolidated
Financial Statements, Congress Street's Consolidated Financial Statements and
EB's Financial Statements included elsewhere in this Joint Proxy
Statement/Prospectus or incorporated in this Joint Proxy Statement/Prospectus
by reference.
- 9 -
<PAGE> 26
<TABLE>
<CAPTION>
As of September 30, 1994 for
Parkway and EB and August 31,
1994 for Congress Street
-----------------------------
<S> <C>
Book value per common share:
Parkway historical $21.64
Parkway pro forma consolidated 18.83
Congress Street historical 2.78
Congress Street equivalent pro forma consolidated 5.46
EB historical 23.88
EB equivalent pro forma consolidated 12.43
</TABLE>
<TABLE>
<CAPTION>
Parkway: Quarter Ended Year Ended
September 30, 1994 June 30, 1994
------------------ -------------
<S> <C> <C>
Historical income from
continuing operations per
common share $.23 $.96
Pro forma consolidated income
from continuing operations
per common share .36 .45
Historical cash dividends
declared per common share .16 .60
Pro forma consolidated cash
dividends declared per common share .12 .39
</TABLE>
<TABLE>
<CAPTION>
Congress Street: Quarter Ended Year Ended
August 31, 1994 May 31, 1994
--------------- ------------
<S> <C> <C>
Historical income from continuing
operations per common share ($1.69) $.62
Equivalent pro forma consolidated income
from continuing operations per common share .10 .13
Historical cash dividends declared per common
share --- ---
Equivalent pro forma consolidated cash
dividends declared per common share .03 .11
</TABLE>
- 10 -
<PAGE> 27
<TABLE>
<CAPTION>
EB, Inc.: Quarter Ended Year Ended
September 30, 1994 June 30, 1994
------------------ -------------
<S> <C> <C>
Historical income from continuing operations
per common share $.52 $.70
Equivalent pro forma consolidated income from
continuing operations per common share .24 .30
Historical cash dividends per common share .10 .20
Equivalent pro forma consolidated cash
dividends declared per common share .08 .26
</TABLE>
- 11 -
<PAGE> 28
INTRODUCTION
This Joint Proxy Statement/Prospectus is being furnished to the
shareholders of EB and Parkway in connection with the solicitation of proxies
by the Boards of Directors of EB and Parkway, respectively for use at the EB
Meeting and Parkway Meeting, which will both be held on April __, 1995, at 9:30
a.m. and 10:00 a.m., respectively, local time, at 300 One Jackson Place, 188
East Capitol Street, Jackson, Mississippi, and at all adjournments and
postponements thereof.
As set forth more fully below, at the EB Meeting and the Parkway
Meeting, the holders of EB Shares and the holders of Parkway Shares,
respectively, will be asked to consider and vote upon a proposal to approve and
adopt the Merger Agreement. A copy of the Merger Agreement (without exhibits)
is attached as Appendix B to this Joint Proxy Statement/Prospectus, and is
hereby incorporated by this reference into this Joint Proxy
Statement/Prospectus. The Merger Agreement provides for, among other things,
upon satisfaction of certain conditions set forth therein, (i) the merger of
PAC with and into EB; (ii) the conversion of each EB Share outstanding into the
right to receive a cash payment in the amount of eight dollars ($8.00) plus a
certain amount of Parkway Shares based on the Exchange Ratio; and (iii) EB
becoming a wholly-owned subsidiary of Parkway.
VOTING AND PROXY INFORMATION
The Board of Directors of EB has fixed the close of business on
February 22, 1995 as the record date for determining the holders of EB Shares
entitled to receive notice of and to vote at the EB Meeting (the "EB Record
Date"). As of February 22, 1995, there were outstanding 1,450,117 EB Shares,
984,973 of which are entitled to vote at the EB Meeting. (Parkway owns 465,144
EB Shares which are currently not entitled to vote under the Mississippi
Control Share Statute--see the table below and note (1) thereto.) Approval of
the Merger will require the affirmative vote of the holders of at least a
majority of the outstanding EB Shares entitled to be voted.
The Board of Directors of Parkway has fixed the close of business on
February 22, 1995 as the record date for determining the holders of Parkway
Shares entitled to receive notice of and to vote at the Parkway Meeting (the
"Parkway Record Date"). As of February 22, 1995, there were 1,563,308 Parkway
Shares outstanding and entitled to vote. Approval of the Merger will require
the affirmative vote of the holders of at least a majority of the outstanding
Parkway Shares entitled to vote present or represented by proxy at the Parkway
Meeting (at which a quorum must be present or represented by proxy).
- 12 -
<PAGE> 29
The accompanying proxies are solicited on behalf of the Board of
Directors of EB and the Board of Directors of Parkway and are revocable at any
time before they are exercised. A proxy may be revoked by written notice of
revocation or by a later dated proxy delivered to the Secretary of EB in the
case of EB Shares and to the Secretary of Parkway in the case of Parkway
Shares. Attendance at the EB Meeting or the Parkway Meeting will not
automatically revoke a proxy, but a shareholder in attendance may request a
ballot and vote in person, thereby revoking a prior granted proxy.
All outstanding EB Shares and Parkway Shares entitled to vote
represented by properly executed and unrevoked proxies received in the
accompanying form in time for the EB Meeting and Parkway Meeting will be voted.
Shareholders may (i) vote "FOR" approval of the Merger, (ii) vote "WITHHOLD
AUTHORITY" for the Merger, or (iii) "ABSTAIN" from voting on the Merger. A
vote to abstain from voting on the Merger (as well as a failure to vote at all)
would have the effect of a vote against the Merger. EB Shares and Parkway
Shares will be voted as instructed in the accompanying proxies. If no
instructions are given, the shares will be voted for approval of the Merger.
A proxy submitted by a shareholder may indicate that all or a portion
of the shares represented by such proxy are not being voted by such
shareholder. This could occur, for example, when a broker is not permitted to
vote shares held in street name in the absence of instructions from the
beneficial owner of the shares. The shares subject to any such proxy which are
not being voted will have the effect of having been voted against the Merger,
as approval of the Merger will require the affirmative vote of a majority of
the outstanding Parkway Shares and EB Shares entitled to vote present or
represented by proxy at the Parkway Meeting and EB Meeting, respectively
(assuming a quorum is so present or represented).
- 13 -
<PAGE> 30
OWNERSHIP OF EB SHARES
<TABLE>
The following table sets forth information concerning ownership of EB
Shares by each person known to EB to be the beneficial owner of more than five
percent of the outstanding EB Shares based on public filings with the SEC as of
February 22, 1995.
<CAPTION>
Amount and
Nature of
Name and Address Beneficial Percent
of Beneficial Owner Ownership of Class
------------------- ---------- --------
<S> <C> <C>
The Parkway Company 759,245(1) 52.4%
300 One Jackson Place
188 East Capitol Street
Jackson, Mississippi 39201
<FN>
- --------------------
(1) Includes 453,471 EB Shares which Parkway is not entitled to vote under
the provisions of the Mississippi Control Share Statute until (i) the
shareholders of EB approve voting rights for the shares or (ii) three
years after the shareholders of EB fail to approve voting rights for
the shares. Also includes 11,673 EB Shares held by Parkway's
wholly-owned subsidiary, Parkway Congress Corporation, which are also
not entitled to be voted under the provisions of the Mississippi
Control Share Statute.
</TABLE>
- 14 -
<PAGE> 31
OWNERSHIP OF PARKWAY SHARES
<TABLE>
The following table sets forth information concerning ownership of
Parkway Shares by each person known to Parkway to be the beneficial owner of
more than five percent of the outstanding Parkway Shares based on public
filings with the SEC as of February 22, 1995.
<CAPTION>
Amount and
Nature of
Name and Address Beneficial Percent
of Beneficial Owner Ownership of Class
------------------- ---------- --------
<S> <C> <C>
Leland R. Speed 144,431(1) 9.24%
300 One Jackson Place
188 East Capitol Street
Jackson, Mississippi 39201
<FN>
- ---------------------
(1) Includes (i) 14,105 Parkway Shares owned by Mr. Speed's spouse, (ii)
25,300 Parkway Shares owned by Mr. Speed's son, Stewart, (iii) 12,523
Parkway Shares held by Mr. Speed's son, Forrest, and (iv) 5,929
Parkway Shares owned by Mr. Speed's, son Warren.
</TABLE>
- 15 -
<PAGE> 32
SPECIAL FACTORS
SPECIAL CONSIDERATIONS
In analyzing the Merger, shareholders of EB and Parkway should
consider, among other factors, the following:
Benefits to EB Affiliates and Conflicts of Interest. Two members of
the six-person Board of Directors of EB (Messrs. Speed and Bailey) are also
members of the Board of Directors of Parkway and a third member (David H.
Hoster II) served as an officer of both EB and Parkway until December 31, 1994.
One other member of EB's Board of Directors (Mr. Friou) has agreed to join
Parkway's Board of Directors upon consummation of the Merger although Mr. Friou
did not receive or accept the invitation to become a director until after an
agreement in principle for the Merger had been reached. Furthermore, Mr. Friou
did not expect to be asked to join Parkway's Board of Directors. As a director
of Parkway he will receive compensation as determined by Parkway's Board of
Directors and an option for 5,000 Parkway Shares at an exercise price equal to
the fair market value of a Parkway Share on the date the option is granted.
Additionally, according to the terms of the Merger Agreement, Parkway has
agreed to indemnify each of the former members of the Board of Directors of EB
against certain liabilities, including any liability arising under the Merger
Agreement or in connection with the Merger.
Parkway and EB, along with four other companies, were parties to
certain expense-sharing arrangements. As contemplated by the expense-sharing
arrangements, the executive officers of EB also served as executive officers of
Parkway and the other participants. See "Special Factors--Expense-Sharing
Arrangements."
The relationships described above may have resulted or may result in
the directors and officers of EB and Parkway having a conflict of interest with
the shareholders of EB and Parkway in the negotiation, proposal, recommendation
and consummation of the Merger. In this regard, the idea of combining EB and
Parkway originated with the common management and directors (Messrs. Speed and
Bailey). The transaction was first proposed, however, by a special committee
of Parkway's disinterested directors to a committee of EB's disinterested
directors (which included Mr. Friou), and the structure and terms of the Merger
were negotiated by these two committees, with common management providing
economic analyses and information regarding the companies' respective assets to
those committees.
Certain Effects of the Merger. If the Merger is approved,
shareholders of EB will become shareholders of Parkway. The Minority
Shareholders, who currently beneficially own 42.96% of the outstanding EB
Shares, will only own 21.57% of Parkway Shares outstanding after the Merger
and, accordingly, will have less voting power and less of a percentage interest
- 16 -
<PAGE> 33
in EB assets. Shareholders of Parkway will be diluted in their percentage
ownership of Parkway by the issuance of Parkway Shares to EB shareholders.
Risks of Real Estate Ownership. Parkway's assets primarily consist of
equity investments in various types of real property, as well as controlling
interests in securities of other real estate companies. If the Merger is
consummated, shareholders of EB will become shareholders of Parkway, and
Parkway, through its ownership of PAC, will own the assets of EB. As a result,
shareholders of EB will be, as shareholders of Parkway, subject to the risks
inherent in the ownership and management of real property owned by both EB and
Parkway. These risks include, among others: adverse changes in general or
local economic conditions; adverse changes in interest rates and in the
availability of permanent mortgage funds which may render the acquisition, sale
or refinancing of properties difficult or unattractive; existing laws, rules
and regulations and judicial decisions regarding liability for a variety of
potential problems related to real estate generally; adverse changes in real
estate, zoning, environmental or land-use laws; increases in real property
taxes and federal or local economic or rent controls; other governmental rules;
increases in operating costs and the need for additional capital and tenant
improvements; the supply of and demand for properties; possible insolvencies
and other material defaults by tenants; overbuilding in certain markets;
ability to obtain or maintain full occupancy of properties or to provide for
adequate maintenance or insurance; the presence of hazardous waste materials;
mechanics liens resulting from construction; property related claims and
litigation; fiscal policies; and acts of God. The illiquidity of real estate
investments generally impairs the ability of real estate owners to respond
quickly to changed circumstances.
Specific Risks Related to Certain Parkway Property. In addition to
the risks described above which are applicable to the ownership of real estate
or interests therein generally, there are certain potential risks associated
with Parkway's Bullard Road property described in "Information Concerning
Parkway--Description of Properties." In this regard, the Bullard Road property
is surrounded by property owned by Rockwood National Corporation ("Rockwood"),
which is a former affiliate of Parkway. Parkway currently owns 24.23% of
Rockwood's outstanding common stock. In its Form 10-K for the year ended March
31, 1994, Rockwood disclosed that if its cash flow is not improved through the
sale of land or by receiving additional financing, it may be forced to seek
protection from its creditors under the United States Bankruptcy Code. If
Rockwood were to file for bankruptcy and, in connection with such a proceeding,
sell its land at auction or otherwise than in the ordinary course of business,
such sales could have a depressing effect on the value of Parkway's Bullard
Road property. Parkway has already written down the book value of its
investment in Rockwood stock to zero. In addition, Parkway has notes
receivable from Lake Forest, Inc., a subsidiary of Rockwood, aggregating
$176,674 at December 31, 1994, the payment of which would be jeopardized by a
bankruptcy filing.
Certain of Parkway's properties consist of unimproved land (e.g.,
Gilbert Road, Big Run and Mesquite Property--see "Information Concerning
Parkway--Description of Properties").
- 17 -
<PAGE> 34
Parkway may have to hold these properties indefinitely before it can be sold at
prices that Parkway would consider fair. Parkway has no present plans or
proposals to develop any such property.
Risks Related to EB Property. EB's real estate was acquired by
foreclosure when EB operated as a Mississippi-chartered savings bank prior to
the sale of most of its assets to Sunburst in 1993, and EB's loans are with
borrowers, some of who are in various stages of bankruptcy proceedings. These
assets were not acquired by Sunburst in 1993 because they were considered
undesirable. Accordingly, these assets present a significant amount of risk as
to whether their value will ultimately be realized.
Uncertain Market for and Price of Parkway Shares. There can be no
assurance as to the trading volume or price of Parkway Shares after the Merger.
Parkway Shares trade at low volumes--the average daily trading volumes during
the months of September, October, November and December of 1994 were 2,595
shares, 1,289 shares, 1,258 shares and 1,214 shares, respectively. While there
can be no assurance, Parkway believes that it is likely that the Merger will
result in some increase in the trading volume of Parkway Shares. Moreover,
events outside the control of Parkway and EB could adversely affect the market
value of their existing real estate and other investments, EB Shares and
Parkway Shares during the period from the date of this Joint Proxy
Statement/Prospectus to the date the Merger is consummated or thereafter.
Shares of real estate entities such as Parkway and EB sometimes trade
at a discount to the aggregate fair market value of their underlying assets
less their aggregate liabilities. The amount a shareholder of Parkway may
realize on a sale of Parkway Shares may be less than a proportionate share of
the aggregate net value of Parkway's assets.
Change In Parkway Dividend. In June 1993, Parkway's Board of
Directors decided to reduce Parkway's regular quarterly dividend from $.20 to
$.15. This reduction was made to strengthen Parkway's liquidity and to assist
Parkway in implementing its newly adopted goals and investment strategy, which
focus on more aggressive growth through investments and acquisitions. At the
time of this decision, Parkway had over $8 million in cash and cash
equivalents, but was already considering several potential investment
opportunities, including, among others, a business combination with First
Continental Real Estate Investment Trust ("First Continental" or "FCREIT")
(which was consummated in May 1994) and the acquisition of EB Shares from the
Resolution Trust Corporation (which was consummated in January 1994). On
September 23, 1994, Parkway's Board increased its regular quarterly dividend
per Parkway Share from $.15 per Parkway Share to $.16 per Parkway Share.
Parkway's Board has no present plan or proposal to further change the quarterly
dividend, but there can be no assurance in this regard. As with any
corporation, Parkway may at times be legally unable to pay dividends, and in
any case will pay dividends only when its Board of Directors elects to do so.
- 18 -
<PAGE> 35
BACKGROUND OF THE MERGER
On April 28, 1994, the Board of Directors of Parkway established a
special committee composed entirely of disinterested directors (B. Pat Green
Jr. and George R. Farish). The purpose of the Parkway special committee was to
study possible business combinations with other companies in accordance with
Parkway's business strategy, which is described under "Information Concerning
Parkway--Description of Business." On April 26, 1994, the Board of Directors of
EB established a special committee composed entirely of disinterested directors
(Roger Friou, William Cassell and Kenneth Warren) to study options for the
future of EB. The Board of Directors of Congress Street, a former participant
in the expense sharing arrangements described under "Special
Factors--Expense-Sharing Arrangements," had also appointed (on April 28, 1994)
a special committee composed entirely of disinterested directors (J. Will Young
and Frederick R. Clark) for the purpose of studying options for Congress
Street's future. At the time these three special committees were appointed,
common management of Parkway, EB and Congress Street desired to have these
three companies engage in a business combination in which Parkway would be the
surviving entity.
During May 1994, each of these special committees requested and was
provided with financial and other information regarding Parkway, EB and
Congress Street. This information was compiled and prepared by common
management of Parkway, EB and Congress Street and consisted of information with
respect to (i) the historical financial performance of the companies, including
financial condition, cash flows and results of operations; (ii) the market
prices of each company's shares; (iii) the respective book value of each
company's shares; and (iv) management's estimates as to the net realizable
value of the respective company's assets on a property-by-property basis, in
the aggregate and on a per share basis. After receipt of this information, the
special committees each met separately on one or more occasions to consider the
issues that their respective boards of directors had requested that the
committees study. These meetings were attended by all members of the special
committees and counsel participated in all or portions of these meetings.
Also, N. Keith McKey, then Chief Financial Officer of each of the companies,
participated in the meetings to explain the data that had been provided to the
special committees and the derivation of such data.
At these meetings, the EB special committee analyzed the information
provided to it by management and had detailed discussions with respect to that
information and the factors set forth in "Special Factors--EB's Reasons for
Recommending the Merger," and concluded that a business combination with
Parkway could be in the best interests of EB's shareholders. The EB special
committee formulated the EB special committee's strategy for negotiating with
the Parkway special committee. The Parkway special committee similarly
analyzed the information provided to it and formulated its negotiating strategy
for dealing with both EB and Congress Street. The Congress Street special
committee also analyzed the information provided to it and a possible business
combination with Parkway. Congress Street's special committee believed that a
business combination with Parkway at an appropriate exchange ratio would be in
the best
- 19 -
<PAGE> 36
interests of Congress Street's shareholders, especially in light of the lack of
liquidity in Congress Street's Shares and the fact that Congress Street's only
material asset was stock of Parkway. The Congress Street special committee
also determined that it would condition Congress Street's entering into a
business combination transaction on the transaction qualifying as a tax-free
reorganization.
During May 1994, the special committees began to communicate and meet
with one another to discuss the possibility of business combinations between
Parkway and EB and Parkway and Congress Street. These discussions continued
into June 1994. Most of these discussions were held among the chairmen of the
respective special committees, i.e. Mr. Green for Parkway, Mr. Friou for EB,
and Mr. Clark for Congress Street. The communications among the committee
chairmen took place by telephone conference in most instances. In addition to
consideration of the factors listed in the preceding paragraph, the special
committees also held discussions with their legal and tax advisors to determine
whether there was a manner in which a three-way combination of Parkway, EB and
Congress Street could be structured as a tax-free reorganization under the
Internal Revenue Code of 1986, as amended (the "Code"). As noted above, the
Congress Street special committee had conditioned its recommending such a
transaction on it qualifying as a tax-free reorganization. Parkway's tax
advisors determined that it was not possible to consummate such a three-way
transaction as a tax-free reorganization, and the Parkway special committee,
after discussion with the Parkway Board of Directors, decided to attempt to
negotiate a transaction with EB.
The discussion between the Parkway special committee and EB's special
committee continued through early June 1994. Most of the discussions were held
by telephone conferences between Mr. Friou, Chairman of EB's special committee,
and Mr. Green, Chairman of the Parkway special committee. Mr. Friou, on behalf
of EB's special committee, made it clear to Mr. Green that EB's special
committee would not recommend a transaction with Parkway unless the
consideration paid to EB's shareholders in the business combination contained a
significant cash component. Mr. Green informed Mr. Friou that the Parkway
special committee had hoped that any business combination would have been a
stock for stock transaction. After discussion with other members of the
Parkway special committee and Steven G. Rogers, President of Parkway, the
Parkway special committee determined that Parkway would have sufficient cash to
provide a significant cash payment to EB shareholders in connection with a
business combination transaction and that Parkway's future financial condition
and prospects would not be adversely affected by the cash payment. Mr. Green
then began discussions with Mr. Friou with respect to a transaction in which EB
shareholders would receive a combination of cash and Parkway Shares. Mr.
Green, as authorized by the Parkway special committee, first proposed to Mr.
Friou a transaction in which each EB Share would be converted into $5.00 and
.6957 Parkway Share. Mr. Friou countered with a proposal in which each EB
Share would be converted into $5.00 and .8696 Parkway Share. Messrs. Friou and
Green continued their discussions, and each consulted with the members of his
respective special committee regarding the progress of the negotiations. After
these discussions, the Parkway special committee and
- 20 -
<PAGE> 37
EB's special committee reached an agreement pursuant to which EB would enter
into a merger with a wholly-owned subsidiary of Parkway and in which each EB
Share would be converted into $5.00 cash and .7826 of a Parkway Share (the
"First Proposed Merger").
After the approval of the First Proposed Merger by each special
committee, the Parkway special committee made a report to Parkway's Board of
Directors at a telephone meeting on June 13, 1994 at which all directors and
counsel were present. The Parkway Board of Directors approved the First
Proposed Merger on that date. In determining to approve the First Proposed
Merger, the Parkway Board of Directors took account of the facts set forth
under "Special Factors--Parkway's Reasons for Effecting the Merger"
and"--Parkway's Position on Fairness." While EB's special committee was
preparing to make its report to EB's full Board of Directors with respect to
the First Proposed Merger, EB's tax advisers advised the special committee that
the First Proposed Merger probably could not be effected as a tax free
reorganization because EB probably did not have "continuity of business
enterprise" as required by the Code. This resulted from EB's reorganization
from a savings and loan holding company into a real estate company in 1993.
EB's special committee, at a meeting at which all members and counsel
were present, studied whether it would recommend a merger which was not a
tax-free reorganization to EB's full Board of Directors. After reviewing the
terms of the First Proposed Merger and conducting a study of what the EB
special committee believed to be the adjusted basis of most of EB's
shareholders in their EB Shares, EB's special committee decided to recommend
the First Proposed Merger to the full Board of Directors as a taxable merger.
In determining to approve the First Proposed Merger, EB's Board of Directors
took account of the same factors set forth below in a description of EB's July
27, 1994 Board of Directors meeting and also those factors set forth under
"Special Factors--EB's Reasons for Recommending the Merger," but valued the
Grenada stock at its market value prior to the announcement of Grenada's
transaction with UPC. The agreement in principle between the Parkway special
committee and EB's special committee was publicly announced on June 30, 1994.
A Parkway Board of Directors meeting was scheduled for July 5, 1994 to consider
this proposal.
On July 1, 1994, Grenada, a bank holding company in which EB holds
438,889 shares (4.6%), announced an agreement in principle to merge with UPC,
which announcement caused a significant increase in the price of Grenada stock.
This caused EB's special committee to terminate the agreement in principle with
respect to the First Proposed Merger and to suspend further negotiations to
determine the effect on EB of the Grenada merger with UPC. On July 1, 1994,
EB issued a press release in which it stated that the EB special committee had
terminated the agreement in principle with respect to the First Proposed Merger
and was suspending further discussions with the Parkway special committee so
that it could evaluate the effect of the proposed Grenada/UPC merger on EB.
- 21 -
<PAGE> 38
At a July 5, 1994 Parkway Board of Directors meeting at which all
Parkway directors, counsel and members of management were present, the Parkway
special committee reported that it had reached an agreement in principle with
Congress Street's special committee with respect to an exchange ratio for
exchanging Congress Street Shares for Parkway Shares in a proposed merger, but
that tax concerns had prevented them from coming to an agreement. Those tax
issues were satisfactorily addressed and the Parkway special committee
recommended that Parkway's Board of Directors approve a merger with an exchange
ratio of .29 Parkway Shares for each Congress Street share. After hearing the
special committee's reasons for recommending the merger with Congress Street
and the manner in which that exchange ratio was determined and negotiated, the
Parkway Board of Directors approved the agreement in principle, and the Parkway
special committee contacted the Congress Street special committee to inform
them of such approval. The full Congress Street Board of Directors then
approved the proposed merger, which was consummated on November 29, 1994.
The EB special committee held a meeting in early July 1994 to analyze
the effect of the proposed Grenada/UPC transaction on EB. All members of the
EB special committee were present at this meeting and counsel participated in a
portion of this meeting. After a careful analysis of the effect of the
proposed Grenada/UPC transaction on EB, the EB special committee decided that
the same factors (discussed below) that indicated that a transaction with
Parkway was in the best interest of EB prior to the announcement of the
Grenada/UPC merger still made a transaction with Parkway advisable for EB's
shareholders if an appropriate increase in the consideration to be given to
EB's shareholders could be negotiated. The EB special committee determined
what it believed to be an appropriate price in light of the increase in value
of the Grenada stock. Mr. Friou was authorized to contact Mr. Green and
indicate that the EB special committee would recommend to the EB Board of
Directors a business combination in which each EB Share was converted into
$8.00 and .7303 Parkway Share. Mr. Friou contacted Mr. Green and made the
proposal to him. The Parkway special committee, at a meeting shortly after Mr.
Friou contacted Mr. Green, at which all members were present, discussed the
proposed transaction, and indicated that it would be interested in pursuing
such a transaction, but at a lower price per EB Share and it would desire some
protection in the event that the value of the Grenada stock were to drop. Mr.
Green began discussions with Mr. Friou with respect to the appropriate price
and other conditions. During this period, Mr. Green frequently held
discussions with the other members of the Parkway special committee and Mr.
Friou with the other members of the EB special committee with respect to the
progress of the negotiations and the appropriate responses to proposals by the
other side. After several discussions between Mr. Green and Mr. Friou, the
Parkway special committee and EB's special committee came to an agreement with
respect to the Merger whereby each EB Share was converted into $8.00 and $9.25
in market value of Parkway Shares.
EB's special committee made its report to EB's Board of Directors on
July 27, 1994. All EB Board members were present at the meeting. EB's special
committee detailed the information it had reviewed in connection with preparing
for its discussions with Parkway's
- 22 -
<PAGE> 39
special committee, which included financial information regarding Parkway,
detailed information regarding Parkway's assets, detailed information regarding
the trading volume and prices of Parkway Shares and similar information with
respect to EB. EB's special committee detailed how they had required that a
portion of the consideration to be paid by Parkway be cash. EB's special
committee also discussed how it had evaluated the Grenada merger with UPC and
how that merger affected the value of EB. EB's special committee also
discussed other options that it had considered for EB's future, and the limits
placed upon those options by Parkway's position as a majority shareholder of
EB. In this regard, EB had explored selling its loans and real estate, which
were retained by EB after the sale of assets to Sunburst on March 1, 1993,
principally because Sunburst declined to acquire such assets due to the
doubtful nature of their value. The expressions of interest EB obtained in the
assets retained after the sale to Sunburst were at a significant discount to
book value. EB had determined at that time that the shareholders of EB were
more likely to realize the value of the retained assets by an orderly
disposition of the real estate and through normal collections on the loans.
For the last 10 months of 1993, EB collected $7.5 million in loan payments and
$2.9 million from the sale of real estate (as well as $1.9 million in loan
payments and $535,000 in real estate sales during the first nine months of
1994), and EB determined that this kind of performance could not reasonably be
expected to continue in light of the nature of EB's retained assets. For this
reason, EB's Board of Directors believed that it was a propitious time to
attempt to engage in a business combination with another company from the point
of view of obtaining the most value for the EB shareholders. EB decided to
pursue a transaction with Parkway first because EB recognized that, since
Parkway owned a majority of EB's outstanding shares, it would not be feasible
to do a transaction with a third party unless Parkway supported the
transaction. Further, as a majority stockholder and with certain common board
members and management, Parkway was familiar with EB's assets and prospects.
Since Parkway was willing to pursue a business combination with EB, EB did not
contact any third parties with respect to a possible business combination.
Following its discussion of the foregoing, EB's Board of Directors approved the
Merger, with Messrs. Speed, Bailey and Hoster abstaining.
The Parkway special committee made its report to Parkway's Board of
Directors on July 27, 1994. Parkway's special committee detailed the
information that it reviewed with respect to the proposed business combination
with EB, and the factors set forth under "Special Factors-- Parkway's Reasons
for Effecting the Merger." After a discussion of those matters, the Parkway
Board of Directors approved the Merger, with Messrs. Speed and Bailey
abstaining. The Merger was publicly announced on July 27, 1994.
The business combination between Grenada and UPC closed on
December 31, 1994. As a result, each of EB's shares of Grenada were converted
into shares of UPC. As originally executed, the Merger Agreement could be
terminated by either party if the closing price per share of Grenada on the
last trading day on which Grenada shares traded prior to the closing equalled
an amount less than $28.00 per share or greater than $40.00 per share. After
the Grenada/UPC merger, the Parkway special committee desired to have this
"collar" adjusted
- 23 -
<PAGE> 40
so that the high and low price limits would be changed to $19.27 and $27.53 per
UPC share. The EB special committee resisted this change, arguing that the
collar was included to protect Parkway from the risk that the Grenada/UPC
merger would not close and the related volatility in the market price of
Grenada stock. After discussion of the issue, the Parkway special committee
decided to accept the risk of fluctuations in the price of UPC shares. On
January 26, 1995, the parties entered into an amendment to the Merger Agreement
which removed the provisions with respect to the price of Grenada stock from the
Merger Agreement.
- 24 -
<PAGE> 41
EB'S REASONS FOR RECOMMENDING THE MERGER
The directors of EB are of the opinion that the Merger is in the best
interest of both EB and its shareholders other than Parkway and is fair to such
shareholders. As a result of the decrease in the amount of EB's assets during
recent years, the directors considered whether it was in the best interest of
EB's shareholders to maintain its status as a separate public company with all
of the costs attached thereto or combine with Parkway. In this regard, the
directors believe that the length of time that would be required to realize the
value of EB's assets remaining after the sale of its banking assets to Sunburst
in 1993, together with the sale of assets since that date which were
more readily marketable and the fact that many of the remaining assets are of
speculative value, militates against maintaining EB as a separate public
company. The EB directors believe that the Merger will tend to maximize the
value of EB's assets in that it will allow the assets to continue to be managed
and held for sale and collection without as much general and administrative
costs over the long term on a proportionate basis relative to the size of the
assets held. There are two bases for this belief: first, the expectation that
Parkway will have less general and administrative cost, on a proportionate
basis relative to the amount of assets held, than EB; and second, the directors
of EB believe that the costs of maintaining EB as a separate company relative
to the size of its assets would continue to increase on a proportionate basis
due to the fact that EB is in a mode of selling off its real estate assets and
collecting payments on its loans while not reinvesting such proceeds, thereby
reducing its asset base, whereas Parkway is pursuing a growth strategy (see
"Information Concerning Parkway--Description of Business"). The EB directors
further believe that the Merger will result in EB shareholders owning a portion
of the equity interest in a more viable entity with greater financial resources
than EB because Parkway has a larger asset base than EB and Parkway has a
growth strategy, whereas EB is selling its real estate and collecting loan
payments and not reinvesting the proceeds--see "EB's Reasons for Recommending
the Merger" below. Further, the assets of Parkway are, in the view of the
directors and the management of Parkway and EB, less speculative than the
assets of EB, as evidenced by the fact that EB's real estate and loans were
refused by Sunburst when it purchased the rest of the assets of EB (then named
"Eastover Bank for Savings") in 1993. The EB directors also believe that the
Merger will allow the EB shareholders to participate in the ownership of a
larger and more diversified real estate company than EB.
The benefits to EB of the Merger include: (i) diversification of EB's
assets by combining them with the assets of Parkway, (ii) combining with an
entity with prospects for continued growth (for the reasons given above, EB has
no investment strategy to grow the company on a long-term basis, but rather was
selling its real estate and collecting payments on its loans) and (iii) for the
reasons stated in the preceding paragraph, it was believed by the EB directors
that the proportionate cost of maintaining EB as a separate company relative to
the size of its assets over the long term would be less if EB were combined
with Parkway. The benefits of the Merger to EB shareholders other than Parkway
include the benefits described in the preceding sentence as well as: (i)
receiving cash in the transaction and (ii) receiving a security with a
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somewhat larger trading volume and that has a history of regularly paying
quarterly cash dividends (see discussion of factors (8) and (9) below). The
detriments to EB of the Merger include: (i) the risks associated with
Parkway's assets (see "Special Factors--Special Considerations--Risk of Real
Estate Ownership"), (ii) the fact that EB will no longer be operating as a
separate company and, therefore, the future direction and control of the EB
assets will rest with directors elected by the shareholders of Parkway rather
than the shareholders of EB, and (iii) certain conflicts of interest were
present among the directors and officers of EB in the negotiation, proposal,
recommendation and consummation of the Merger (see "Special Factors--Special
Considerations"). The detriments to the EB shareholders of the Merger include
the ones listed in the preceding sentence, as well as the fact that their
percentage interest in the assets of EB will be diluted by reason of the
Merger; to illustrate, the shareholders of EB other than Parkway currently own
42.96% of the outstanding EB Shares, but after the Merger will only own 21.57%
of the Parkway Shares outstanding.
The directors of EB, in reaching their determination that the Merger
is fair to the shareholders of EB other than Parkway, considered the following
factors:
(i) The respective financial conditions, cash flows, operations
and prospects of EB and of Parkway;
(ii) The respective market prices per share of Parkway Shares and
EB Shares;
(iii) The respective book value per share of Parkway Shares and EB
Shares;
(iv) Management's estimates as to the value of EB's assets and
Parkway's assets on a per share basis;
(v) The fact that the structure and terms of the Merger were
negotiated by EB's special committee;
(vi) The fact that the obligation of EB to conclude the Merger
would be conditioned upon the receipt by EB of an opinion from an investment
banking firm selected by EB's special committee stating that the terms of the
Merger are fair to the shareholders of EB other than Parkway from a financial
point of view;
(vii) The structure of the Merger affording EB shareholders the
opportunity to receive Parkway Shares as well as cash;
(viii) The fact that the Merger would result in EB shareholders
benefitting from the ownership of shares in a real estate company which is
significantly larger and more diversified than EB and, unlike EB, has paid
quarterly dividends on a regular basis for a number of years;
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(ix) The limited prospects for future growth of EB given its
relatively small asset base, speculative nature of its assets and the limited
amount of public trading in EB Shares;
(x) The risk associated with attempting to realize estimates of
the values of EB's assets, including the risk of market downturns, unexpected
repair costs and defaults by borrowers on the loans held by EB;
(xi) The administrative costs associated with maintaining EB as a
separate publicly held entity;
(xii) The costs that would be incurred if EB were liquidated over a
period of time, including selling and operating costs, which, in effect,
Parkway is assuming as a result of the Merger;
(xiii) The fact that it is appropriate to discount liquidation values
in determining the fair market value of equity securities where a majority
shareholder already exists because, among other things, there is no opportunity
for an unaffiliated third party to pay a premium to obtain control from the
public shareholders; and
(xiv) The fact that EB was not offered for sale as an entity to any
unaffiliated third party and the only alternatives considered other than a
gradual liquidation of EB was the business combination with Parkway (although,
as discussed above, when EB explored selling its assets as a whole after the
Sunburst transaction, the expression of interest it received was at a
substantial discount to the book value of the assets).
In view of the wide variety of factors considered in connection with
its evaluation of the Merger, the EB directors found it impractical to, and did
not, quantify or otherwise attempt to assign relative weights to the specific
factors considered in reaching its determinations, although, on balance it
viewed the matters set forth in (i) through (xiii) above as favorable to its
decision and the matters set forth in (xiv) above as neutral to its decision.
The factors discussed above were considered by the EB directors in the
manner set forth below:
(1) With respect to the matters set forth in item (i) above, the
directors reviewed the historical financial statements for both EB and Parkway
for the last two fiscal years and for interim periods through, in the case of
EB, June 30, 1994, and, in the case of Parkway, March 31, 1994. In this
regard, the directors were aware that EB had a loss from continuing operations
for the year ended December 31, 1993 of $1,049,000, or $.72 per EB Share;
Parkway, on the other hand, had a net income of $2,712,000 for its then most
recent fiscal year (ended June 30, 1993) and had net income of $921,000 for the
nine-month period ended March 31, 1994. EB's cash flow was declining as a
result of the sale of the assets to Sunburst,
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as net cash provided by operating activities dropped from $3,402,000 in 1992 to
$432,000 in 1993. Parkway's cash provided by operating activities increased
from $1,028,000 for the year ended June 30, 1992 to $1,891,000 for the fiscal
year ended June 30, 1993, and for the nine months ended March 31, 1994 was
$432,000. As noted previously, the asset base of EB had declined steadily as a
result of the Sunburst transaction and since that transaction as a result of
loan payoffs and the sale of real estate; at December 31, 1992, EB had total
assets of $35,241,000, whereas at June 30, 1994, EB had total assets of
$32,744,000 ($11,192,000 of which represented the Sunburst stock received in
the Sunburst transaction). Parkway's assets, on the other hand, increased from
$54,581,000 at June 30, 1992 to $55,850,000 at June 30, 1993, and had increased
subsequent to that date due to the merger with First Continental Real Estate
Investment Trust. The EB directors also had available to them descriptions of
each of the properties and investments of both EB and Parkway (see discussion
of factor (4) below). In light of the foregoing, EB directors considered the
matters referred to in item (i) above to be favorable to their determination.
(2) The EB directors were furnished with historical market price
information for EB Shares and Parkway Shares for the last two years. The
market price of EB Shares had reached a high of $13.00 in 1993 and was trading
in the range of $14.00 when the EB directors made their fairness determination.
The market price of Parkway Shares had traded at a high in the range of $14.00
a share and a low in the range of $11.00 per share. To account for
fluctuations in the market price of Parkway Shares prior to the Closing, the
Merger Agreement contains a mechanism to adjust the number of Parkway Shares to
be received by the EB shareholders based on the average market price for
Parkway Shares for the 30 trading days preceding the Closing. The EB directors
considered the market price information as favorable to their fairness
determination, especially since the value of the cash and Parkway Shares to be
received by the EB shareholders in the Merger ($17.25) represented a 21%
premium over the market price of EB Shares at the time of the EB directors'
determination, which was $14.25.
(3) The book values per share of Parkway Shares and EB Shares were
$21.94 and $20.19, respectively, at December 31, 1993. Since EB shareholders
are to receive approximately three-fourths of a Parkway Share, which when
multiplied by $21.94 results in a value of $16.46, plus $8.00 in cash per EB
Share in the Merger (a total value of $24.46 in a book value analysis), the EB
directors considered this as favorable to the fairness determination.
As of September 30, 1994, the book values per share of Parkway Shares
and EB Shares were $21.64 and $23.88, respectively; three-fourths of the
Parkway book value per share (the actual fraction of a Parkway Share that each
EB Share will receive may vary depending on the average closing price for
Parkway Shares for the thirty (30) days preceding the closing under the Merger
Agreement) is $16.23 which, when added to the $8.00 cash per share that EB
shareholders are to receive in the Merger, results in a value of $24.33 per EB
Share, which still compares favorably to the EB book value per share of
$23.88 at September 30, 1994. The EB directors believe that the book value
analysis is favorable to their fairness determination
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notwithstanding that, if the Merger consideration is valued using the average
of Parkway's trading price over the 30 days preceding the Closing ($9.25 per EB
Share), the consideration received per EB Share ($17.25) will be
less than the book value per EB Share. This is because the EB directors
recognize that both companies are currently trading at significant discounts
from their respective book values per share, which the EB directors believe is
not unusual for real estate companies. Further, the realization of the book
value of EB's assets will, in EB's management's view, take a significant amount
of time and involve the costs of maintaining those assets and operational
costs.
(4) The EB directors considered management's estimate of the value
of EB's assets on a per EB Share basis as a favorable factor in their fairness
determination. The directors were aware that (i) management's estimates were
not intended to represent a liquidation valuation analysis, as management did
not attempt to quantify the risk associated with achieving the estimated values
in a liquidation process in arriving at its valuation, (ii) the estimates
reflected optimistic assumptions about the results that might be achieved in
the future with EB's assets and (iii) that no appraisals were performed to
serve as a basis for these estimates. The directors also recognized that
management's estimate did not take into account any of the administrative costs
associated with maintaining EB as a separate publicly held entity, or the
transaction costs associated with adopting and implementing a plan of
liquidation. In addition, the EB directors were aware that management's
estimate did not include a discount for the length of time required to sell
EB's assets, which management estimated could take several years. The EB
directors also took account of management's valuation of Parkway Shares in an
analysis of the net realizable value of the assets (which was $29.42 per
Parkway Share), and recognized that the market prices for the shares of both
companies represent discounts from management's estimated asset valuations
(when the consideration to be received by EB shareholders was calculated by
reference to the $29.42 valuation of Parkway Shares, it resulted in a value of
$30.07 per EB Share to be received by EB shareholders in the Merger). In light
of the factors described above, the EB directors considered management's
estimate of the realizable value of EB Shares and Parkway Shares to be a
favorable factor in its fairness determination.
(5) The EB directors viewed as favorable to their fairness
determination the fact that the structure and terms of the Merger were
negotiated by EB's special committee. The directors considered Messrs. Friou,
Cassel and Warren to be disinterested with respect to the Merger in view of the
fact that none of them had any affiliation with Parkway. The Parkway Board of
Directors did not decide to invite Mr. Friou to join Parkway's Board of
Directors until its August 1994 meeting, which was after the Parkway special
committee and the EB special committee had negotiated the terms of the Merger.
Mr. Friou had not expected to be asked to join the Parkway Board of Directors
during the negotiations. In light of the foregoing, the directors believe that
Mr. Friou's disinterestedness was not impaired by reason of the Parkway Board
of Directors subsequent invitation. The EB directors also considered the fact
that the terms of the Merger were negotiated by a committee of its
disinterested members to outweigh the fact that two members of EB's six-person
Board of Directors were also directors of Parkway,
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<PAGE> 46
a third director was an officer of both EB and Parkway and that EB and
Parkway had common officers. This disinterestedness was demonstrated by the
fact that Parkway did not want a cash component in the transaction and by the
fact that the initial agreement in principle between EB and Parkway was
terminated by EB's special committee after the announcement of the Grenada
transaction with Union Planters Corporation (see "Background of the Merger").
(6) The EB directors viewed as favorable to their decision the
matter referred to in (vi) above. At their meeting at which their fairness
determination was made, the EB directors directed the special committee to
engage the services of an investment banking firm, to be selected by the
members of the special committee, to render an opinion with respect to the
fairness of the Merger to the shareholders (other than Parkway) from a
financial point of view. The Board was prepared to reconsider its opinion if
the investment banking firm was unable to opine that the Merger was fair to EB
shareholders other than Parkway, and EB was not obligated to proceed to
consummate the Merger under such circumstances. In viewing this factor as
favorable to its decision, the EB directors were aware that the investment
banking firm would be opining on terms to which the parties had already agreed
without any prior involvement or participation of the investment banking firm
in the negotiation process.
(7) The EB directors viewed as favorable to their determination
the matters specified in (vii) above. Structuring the Merger so that
shareholders received cash and Parkway Shares allows shareholders to receive
part of the consideration for the transaction in cash while allowing them to
continue their equity participation in EB's assets, albeit in the form of an
investment in a company with other assets in which EB shareholders would have a
lesser percentage interest than EB. The EB directors considered that EB
shareholders who desire to receive cash for their entire interest in EB would
have the opportunity to sell the Parkway Shares at any time after the Merger
was consummated. Although structuring the transaction so that EB shareholders
receive cash will result in the transaction being taxable to the EB
shareholders, the EB directors believed that, on balance, it was preferable to
have a cash component in the Merger consideration, and that the cash could be
used to defray any taxes to which the EB shareholders might be subject.
(8) As noted above, the EB directors considered it a desirable
aspect of the Merger that the shareholders received stock in a company that is
significantly larger and more diversified than EB. The EB directors believe
that Parkway, particularly after its combination with EB, will be a more stable
and viable entity than EB. See the Pro Forma Consolidated Financial Statements
included elsewhere in this Joint Proxy Statement/Prospectus.
(9) Another factor that the EB directors considered favorable to
their decision was their perception of EB's limited prospects for growth given
its relatively small asset base and limited amount of public trading in EB
Shares. To illustrate, during 1992 and through July 22, 1993, trading in EB
Shares was so sporadic that reliable quotations were unavailable. During the
month of April 1994, the average daily trading volume of EB Shares was 15,
whereas the average daily trading volume of Parkway Shares was 237 (and often
exceeds 1,000). As
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mentioned in (8) above, the Merger had the advantage of affording EB
shareholders an opportunity to have an equity interest in a larger company. In
addition, the value of Parkway Shares held by non-affiliates was estimated, at
the time of the Board's fairness determination, to be approximately $11
million, whereas the market value of EB Shares held by non-affiliates was
approximately $7.7 million.
(10) As noted above, the EB directors considered as favorable to
their decision the matters set forth in (x). While the EB directors did not
attempt to quantify these risks, they were discussed at length with management
in connection with the Board's evaluation of management's estimate of the value
of EB's assets on a per EB Share basis. Management noted for the EB directors
that, in their view, it would be more likely than not that EB would be required
to take a mortgage note from the buyer as part of the purchase price for the
sale of EB's real estate assets and that on occasion the mortgage notes would
have to be subordinate to mortgage notes held by banks which had loaned the
buyer the remaining portion of the purchase price. The possibility of having
to accept such notes presented certain practical problems if EB were to
liquidate (otherwise than in the context of the Merger) because EB would either
have to maintain a liquidating trust for the life of the notes (which can have
15-year or longer maturities) or else try to sell the notes, probably at
substantial discounts. Such notes also carried with them the attendant risk of
collection, including the possibility that EB would have to foreclose on the
property if the buyer defaulted. In this regard, the EB directors were aware
that many of the most desirable of EB's assets retained after the Sunburst
transaction had already been sold, and the remaining assets consisted of
foreclosed real estate and loans, some of which were in various stages of
bankruptcy proceedings, which were not desired by Sunburst.
(11) The EB directors considered it favorable to their fairness
determination that the Merger would have the effect of eliminating the expense
of maintaining EB as a separate publicly held entity. EB estimates that the
cost of maintaining EB as a separate public entity for 1993 and 1994 was
$86,000 and $69,000, respectively. Although Parkway would continue to have
the expense of maintaining itself as a public entity, the EB directors
believed that it would cost less on a proportionate basis relative to the total
assets of Parkway after the Merger than it would relative to the size of EB
assets, particularly as EB's assets continued to decline due to loan payoffs
and sales of real estate.
(12) The EB directors also considered the costs that would be
incurred if EB were to liquidate over a several year period as a factor
favorable to their fairness determination. These costs, which were not
quantified, but which management estimates would have involved several hundreds
of thousands of dollars, were, in effect, being assumed by Parkway, as well as
the cost of the Merger itself, since the consideration being paid by Parkway in
the Merger--cash and Parkway Shares--was being distributed to EB shareholders.
The EB directors did not determine a liquidation value for EB, however, and
there can be no assurance that liquidation of EB would not produce a
higher value than the Merger Consideration.
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<PAGE> 48
(13) The matter described in item (xiii) above was also viewed as
favorable to the EB directors' fairness determination. The EB directors
considered it improbable that an unaffiliated third party would be willing to
pay a per share price for the Minority Shareholders' interest in EB that
equalled or exceeded the premium over market price that Parkway was willing to
pay (see (2) above).
(14) The EB directors considered the matters noted in (xiv) above
as neutral to their fairness determination because (i) they believed that it
was highly unlikely that an unaffiliated third party would be willing to pay as
much to the Minority Shareholders as Parkway was willing to pay; (ii) they took
account of the matters described in (xiii) above and recognized that Parkway
was not interested in selling its holdings of EB Shares, particularly in light
of the fact that Parkway had acquired 430,371 shares of EB for approximately
$5.6 million on January 6, 1994. (However, the price per share--$13.00--paid
by Parkway for those EB Shares or its other EB Shares was not taken into
account by the EB directors in making their fairness determination.) The EB
directors also believed that an agreement in principle that would result in the
Minority Shareholders receiving the consideration in the Merger proposed by
Parkway was preferable to pursuing offers from unaffiliated third parties which
might not materialize.
The EB directors did not consider whether the transaction should be
structured so that the approval of a majority of the unaffiliated shareholders
would be required for the Merger.
PARKWAY'S POSITION ON FAIRNESS TO EB SHAREHOLDERS
Parkway believes that the Merger and the consideration to be received
by the shareholders of EB other than Parkway are fair to such shareholders.
This belief is based on (i) the factors, as well as the analysis of such
factors, considered by EB's special committee and EB's directors discussed
above, which Parkway has reviewed and adopted, and (ii) the fact that Howard
Frazier Barker Elliott, Inc. has delivered an opinion to EB that the Merger is
fair to the shareholders of EB other than Parkway from a financial point of
view, as described below under "EB Fairness Opinion." In considering the
opinion of Howard Frazier Barker Elliott, Inc., Parkway was aware that (i) the
consideration to be received by the shareholders of EB other than Parkway was
determined prior to EB's engagement of Howard Frazier Barker Elliott, Inc. and,
accordingly, Howard Frazier Barker Elliott, Inc. did not participate in the
negotiation of the consideration to be received by the shareholders of EB or
the meeting of EB's Board of Directors at which the EB directors made their
fairness determination; and (ii) the fact that Howard Frazier Barker Elliott,
Inc. was retained by EB and that, accordingly, there is no financial advisory
relationship between Parkway and Howard Frazier Barker Elliott, Inc. Parkway
believes that the terms of the transaction are fair to EB shareholders
notwithstanding the fact that the Merger is an affiliated transaction (i.e., a
transaction between a company and its majority shareholder) and, therefore,
should be considered to have been negotiated at arms' length; the basis for
this belief consists of the factors described above and the fact that there was
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no affiliation or contractual arrangements on the part of any member of the EB
special committee with Parkway at the time the terms of the Merger were
negotiated. In view of the wide variety of factors considered in connection
with its evaluation of the Merger, Parkway did not believe it practicable to
quantify or otherwise attempt to assign relative weights to the previously
enumerated specific factors considered in reaching its fairness determination.
The belief of Parkway as to the fairness of the Merger should not be construed
as a recommendation by Parkway to the EB shareholders. The Merger has not been
structured so as to require the approval of a majority of EB shareholders not
affiliated with Parkway.
PARKWAY'S REASONS FOR EFFECTING THE MERGER
The Merger is in accordance with Parkway's business strategy of
acquiring real estate or interests in real estate by entering into business
combinations with other companies. Also, as a result of the Merger, EB will
cease to be a publicly-held company and the cost attendant thereto will be
saved, benefitting the shareholders of Parkway, because, since Parkway is a 52%
shareholder of EB, Parkway shareholders are bearing their proportionate share
of maintaining EB as a separate public company. Further, the Merger simplifies
the organizational structure of Parkway by, in effect, making EB a consolidated
entity for financial reporting purposes rather than a majority owned, publicly
held entity for which Parkway must use the equity method of accounting. The
transaction contemplated herein is not structured to require approval of at
least a majority of unaffiliated shareholders of EB or Parkway.
THE MERGER AGREEMENT
The statements and descriptions contained in this Joint Proxy
Statement/Prospectus with respect to the terms and conditions of the Merger
Agreement are intended only as a general discussion of the Merger Agreement and
are qualified in their entirety by the detailed provisions set forth in the
Merger Agreement reprinted (without exhibits) as Appendix B. Each shareholder
of EB and Parkway is advised to read the Merger Agreement carefully.
General. The Merger Agreement provides that, subject to the approval
and adoption thereof by the shareholders of EB and Parkway and the satisfaction
of the other conditions set forth therein, PAC will be merged with and into EB
and PAC will cease to exist as a separate legal entity. EB will then be a
wholly-owned subsidiary of Parkway. At the time the Merger becomes effective,
each EB Share will be converted into the right to receive a cash payment in the
amount of eight dollars ($8.00) plus a certain amount of Parkway Shares based
on the Exchange Ratio (determined as described below). It is the intention of
the parties to consummate the Merger as soon as possible following adoption and
approval of the Merger Agreement by the shareholders of EB and satisfaction of
all conditions (or, to the extent permitted, waiver thereof) to the parties'
respective obligations to consummate the Merger. A
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total of approximately $5.5 million in cash will be needed to distribute to EB
shareholders upon consummation of the Merger, the source of which is expected
to be EB's existing cash, which at January 17, 1995 totaled approximately $7.5
million.
Exchange of Shares. At the Effective Date, each outstanding EB Share
will be converted into the right to receive a cash payment in the amount of
eight dollars ($8.00) plus a certain amount of Parkway Shares based on the
Exchange Ratio. The currently outstanding Parkway Shares will not to be
converted. The Exchange Ratio will be determined by dividing the value $9.25
by the average closing price for Parkway Shares for the 30 trading days
preceding the closing of the transactions contemplated by the Merger Agreement
(the "Closing Price"). Notwithstanding any other provision in the Merger
Agreement, the Merger Agreement is subject to termination in the event that the
Closing Price per Parkway Share equals an amount less than $11.50 per Parkway
Share or exceeds $16.00 per Parkway Share. No fractional Parkway Shares will
be issued but, in lieu thereof, each holder of EB Shares entitled to receive a
fractional Parkway Share will be paid cash in an amount equal to the value of
such fractional share, which value will be based on the closing price of
Parkway Shares as quoted on the NASDAQ NMS averaged over the 30 trading days
preceding the Effective Date. No interest will be paid or accrued on any cash
amounts payable in lieu of fractional shares.
Each holder of one or more certificates that represent EB Shares prior
to the Effective Date will be required to surrender such stock certificate(s),
together with a duly executed Letter of Transmittal, to the Exchange Agent, in
order to receive the cash payment and a new certificate representing the number
of whole Parkway Shares into which such EB Shares were converted in the Merger
and the cash payable with respect to any fractional shares, as set forth in the
Merger Agreement. From and after the Effective Date of the Merger, until so
surrendered, each certificate that theretofore represented EB Shares will be
deemed for all purposes to evidence the number of whole shares of Parkway into
which such EB Shares were converted in the Merger, except that dividends, if
any, with respect to such shares will not be paid until the certificates for
shares are forwarded to the Exchange Agent together with a properly completed
Letter of Transmittal, at which time the shareholder will receive all unpaid
dividends, if any, with respect to such shares, without interest. A form of
Letter of Transmittal which sets forth instructions concerning procedures to be
followed for the submission of share certificates to the Exchange Agent after
the Effective Date will be forwarded to each shareholder of EB as of the
Effective Date.
If a new certificate representing the Parkway Shares is to be issued
in the name of a person other than the one to whom the surrendered EB Share
certificate is registered on the stock transfer books of EB immediately prior
to the Effective Date, it will be a condition of such issuance that the
certificate so surrendered be properly endorsed or otherwise be in proper form
for transfer and that the person requesting such issuance either pay to the
Exchange Agent any transfer or other taxes required by reason of the issuance
to a person other than the registered owner of the certificate or establish
that such tax has been paid or is not applicable.
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At and after the Effective Date, there will be no transfers of EB
Shares on the books of EB. EB Shares held by EB as treasury stock will be
cancelled in the Merger and no shares or other consideration will be issued in
exchange therefor.
Conditions to the Merger. The obligations of Parkway, PAC, and EB to
effect the Merger are subject to the fulfillment or waiver of, among others,
the following conditions: (i) no "stop order" shall be in effect with
respect to the Registration Statement of which this Joint Proxy
Statement/Prospectus forms a part and there shall be no proceeding instituted
or threatened by the SEC or any state to suspend the effectiveness thereof;
(ii) the holders of outstanding EB Shares entitled to vote shall have approved
the Merger Agreement as required by EB's Restated Articles of Incorporation, as
amended, and by Texas and Mississippi law; (iii) the holders of a majority
of the Parkway Shares present at the Parkway Meeting or represented by person
shall have approved the Merger as required by the rules and regulations of
NASDAQ; (iv) all necessary permits, authorizations, regulatory approvals and
consents necessary for the consummation of the Merger shall have been received;
and (v) the Effective Date shall have occurred on or before March 31, 1995.
The obligations of Parkway and PAC to effect the Merger are also
subject to the fulfillment or waiver of certain additional conditions,
including the following: (i) the material accuracy of the representations and
warranties made by EB in the Merger Agreement; (ii) the material compliance by
EB with all agreements contained in the Merger Agreement required to be
performed by it prior to the Effective Date; (iii) the absence of any action or
proceeding that seeks to restrain, enjoin or otherwise prohibit the Merger;
(iv) the receipt by Parkway of an opinion of counsel to EB as to certain
specified matters, including EB's good standing and existence, and EB's
authorization, execution, and delivery of the Merger Agreement; (v) the
confirmation by Howard Frazier Barker Elliott, Inc. of its fairness opinion
described below as of the day before the date of the Effective Date; (vi) the
receipt of all permits, authorizations, regulatory approvals and consents from
third parties necessary for consummation of the Merger; and (vii) the absence
of any material adverse developments with respect to the business or assets of
EB.
The obligation of EB to consummate the Merger is also subject to the
fulfillment or waiver of certain additional conditions, including the
following: (i) the material accuracy of the representations and warranties
made by Parkway and PAC in the Merger Agreement; (ii) the material compliance
by Parkway and PAC with all agreements contained in the Merger Agreement
required to be performed by them prior to the Effective Date; (iii) the absence
of any action or proceeding that seeks to restrain, enjoin or otherwise
prohibit the Merger; (iv) the receipt by EB of an opinion of counsel to Parkway
and PAC as to certain specified matters, including the good standing and
existence of Parkway and PAC, and the due authorization, execution, and
delivery by Parkway and PAC of the Merger Agreement; (v) the confirmation by
Howard Frazier Barker Elliott, Inc. of its fairness opinion described below as
of the day before the date of the Effective Date; (vi) the receipt of all
permits, authorizations, regulatory
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approvals and consents from third parties necessary for consummation of the
Merger; and (vii) the absence of any material adverse development with respect
to the business or assets of Parkway.
Amendment and Termination of the Merger Agreement. The Merger
Agreement may be amended at any time, whether before or after approval of the
Merger Agreement by EB shareholders, by EB, Parkway and PAC; provided, however,
that after any such approval, no amendment shall be made without the further
approval of EB shareholders if it decreases the number of Parkway Shares or
materially alters the amount of the Merger Consideration to be exchanged for EB
Shares or adversely affects the rights of EB shareholders.
The Merger Agreement may be terminated by the mutual consent of the
Boards of Directors of Parkway, PAC and EB at any time prior to the Effective
Date, whether before or after approval of the Merger Agreement by the
shareholders of EB. In addition, the Merger Agreement may be terminated (i) by
Parkway or EB if the Effective Date has not occurred on or before March 31,
1995, (ii) by the Board of Directors of Parkway if the conditions to its
closing are not satisfied prior to the Effective Date, or (iii) by the Board of
Directors of EB if the conditions to its closing are not satisfied prior to the
Effective Date.
The Merger Agreement may also be terminated by EB or Parkway in the
event that the Closing Price per Parkway Share equals an amount less than
$11.50 per Parkway Share or exceeds $16.00 per Parkway Share.
In the event either Parkway or EB elects to terminate the Merger
Agreement (the "Terminating Party") because the other party has breached any
covenant in the Merger Agreement or any representation or warranty by the other
party is untrue in any material respect, or based on the above provision
concerning the Closing Price of Parkway Shares the Terminating Party shall pay
to the non-terminating party its out-of- pocket expenses incurred in connection
with the Merger and the non-terminating party will have any other remedy
available at law or in equity.
Other Provisions. If the Merger is consummated, Parkway has agreed to
indemnify each person who becomes an employee, agent, officer or director of
Parkway with respect to claims arising after the Effective Date, and EB has
agreed to indemnify each person who was an employee, agent, officer or director
of EB prior to the Effective Date with respect to claims arising in connection
with such person's service. Parkway has also agreed to assume any liability of
EB pursuant to such indemnification to the extent of any distributions from EB
to Parkway or any affiliate or to the extent of any claim against any person
indemnified by EB arising under the Merger Agreement or pursuant to the Merger.
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EB FAIRNESS OPINION
EB engaged Howard Frazier Barker Elliott, Inc. on August 31, 1994, to
evaluate the fairness from a financial point of view of the Merger to the
shareholders of EB. Howard Frazier Barker Elliott, Inc. has not performed
investment banking services for EB or Parkway during the past five years. EB
agreed to pay Howard Frazier Barker Elliott, Inc. a fee of $15,000, plus
reasonable out-of-pocket expenses for its services. EB agreed to pay Howard
Frazier Barker Elliott, Inc. half of such amount when it engaged Howard Frazier
Barker Elliott, Inc. and the other half upon the delivery of Howard Frazier
Barker Elliott, Inc.'s opinion or termination of the transaction.
EB interviewed seven investment banking firms with which it was
familiar with a view to selecting one firm to opine on the fairness of the
Merger, and selected Howard Frazier Barker Elliott, Inc. on the basis of Howard
Frazier Barker Elliott, Inc.'s general reputation. As part of Howard Frazier
Barker Elliott, Inc.'s investment banking business, Howard Frazier Barker
Elliott, Inc. is continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, private placements and
valuations for estate, corporate and other purposes. EB also considered it
important that the firm it selected not have close ties to Parkway.
On October 12, 1994, Howard Frazier Barker Elliott, Inc. delivered to
the Board of Directors of EB its written opinion dated October 12, 1994 setting
forth its opinion that, based on its review and on the information provided to
it by EB and Parkway, the consideration to be received by shareholders of EB
(other than Parkway) in the Merger is fair to EB and its shareholders from a
financial point of view. A copy of Howard Frazier Barker Elliott, Inc.'s
opinion is reproduced as Appendix A to this Joint Proxy Statement/Prospectus
and should be read in its entirety.
As part of its review, Howard Frazier Barker Elliott, Inc. analyzed
the following: (i) the Merger Agreement; (ii) an analysis prepared by
management of EB and Parkway of the values of assets and liabilities of EB and
Parkway with adjustments for the estimated fair market value of certain assets;
(iii) Parkway's recent annual and quarterly reports filed pursuant to the
Exchange Act; (iv) EB's recent annual and quarterly reports filed pursuant to
the Exchange Act; (v) the Joint Proxy Statement/Prospectus in regard to the
Parkway/First Continental merger; (vi) various press releases pertaining to the
Merger; (vii) various press releases and other documents related to the
proposed acquisition of Grenada by UPC; (viii) a draft of the Registration
Statement on Form S-4 of which this Joint Proxy Statement/Prospectus forms a
part; and (ix) various other information and documents relating to the history,
business and financial condition of EB and Parkway. In addition,
representatives of Howard Frazier Barker Elliott, Inc. discussed with
management of Parkway and EB the respective outlooks for future operating
results, the assets and liabilities of both companies, various matters
disclosed in the documents
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Howard Frazier Barker Elliott, Inc. reviewed as described above, and other
matters Howard Frazier Barker Elliott, Inc. considered relevant to its review.
Methodology. In support of Howard Frazier Barker Elliott, Inc.'s
opinion that the Merger Consideration is fair to the shareholders of EB (other
than Parkway), Howard Frazier Barker Elliott, Inc. submitted to EB's special
committee a written presentation dated September 1, 1994 which was revised and
restated as of October 12, 1994. The presentation described the background of
both EB and Parkway, as well as the background of the Merger and of the merger
of Congress Street and a wholly-owned subsidiary of Parkway. The presentation
also included information as to the market price and trading volume of Parkway
Shares and EB Shares, information concerning the assets of Parkway and EB and
information regarding the valuation of the major assets of EB and Parkway by
management. In this regard, Howard Frazier Barker Elliott, Inc. noted that
the shares of both EB and Parkway could not be considered to be actively
traded. Management had estimated the net realizable value of Parkway's assets
to be $46,383,000 at June 30, 1994, which was $30.06 per Parkway Share after
adjustment as of October 12, 1994 to reflect an increase of $1.15 per Parkway
Share for the expected sale of Parkway's Sugarland Triangle property (see
"Information Concerning Parkway-- Recent Developments") and an increase of $.48
per Parkway Share for the increase in the market price of EB Shares from $14.00
to $15.00 per share. Howard Frazier Barker Elliott, Inc. reviewed the
background of EB, including the sale by EB of most of its assets to Sunburst on
March 1, 1993 and the aggressive sale by EB management of the retained assets
of EB (a portfolio of troubled loans and foreclosed real estate not desired by
Sunburst), which allowed EB to pay back in full the $12,300,000 it borrowed
from Sunburst in connection with the March 1, 1993 transaction. Howard Frazier
Barker Elliott, Inc. also reviewed the terms of the UPC/Grenada transaction,
pursuant to which each share of Grenada would be exchanged for 1.453 shares of
UPC which, based on the October 11, 1994 market value of UPC stock of $24
1/8 per share, would result in a value of $34.26 per Grenada Share (the actual
market price of Grenada shares on that day was $33.00 per share). Management
of EB had estimated the net realizable value of EB's assets at June 30, 1994 to
be $34,410,000, or $23.70 per EB Share, after adjustment (i) to reflect the
increase in the price of Grenada shares subsequent to June 30, 1994, (ii) to
reflect the projected net proceeds from contracts for the sale of EB's Mill
Shopping Center and Aloma Arms Apartment properties, (iii) to reflect
management's revised estimate of the fair market value of the Virginia Beach
office complex at August 18, 1994, and (iv) to reflect the dividend declared on
September 9, 1994 of $.10 per EB Share, payable on November 30, 1994.
In evaluating the fairness of the Merger from a financial point of
view, Howard Frazier Barker Elliott, Inc. assumed that the Grenada shares owned
by EB were distributed to the EB shareholders and the remaining net assets of
EB were exchanged for Parkway Shares at the ratio of management's estimate of
the net realizable value of EB's assets compared to management's estimate of
the net realizable value of Parkway's assets, and then comparing the resulting
value to the Merger consideration to be received by the EB shareholders ($17.25
per EB Share).
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Howard Frazier Barker Elliott, Inc. considered this approach to be a favorable
one from the point of view of EB's shareholders because the assets of EB other
than the Grenada shares consisted of problem real estate properties and loans.
In following this approach, Howard Frazier Barker Elliott, Inc. took
management's estimate of the net realizable value of Parkway's assets on a per
Parkway Share basis ($30.06) and compared it to management's estimate of the
net realizable value of EB's assets on a per EB Share basis ($23.73) minus the
per EB Share value of the Grenada Shares ($9.99) and minus the estimated tax
per EB Share of the hypothetical distribution of Grenada Shares ($1.06), which
resulted in a value of $12.68 per EB share--42.18% of the estimated net
realizable value of Parkway's assets on a per Parkway Share basis ($30.06). In
this analysis, each EB Share would theoretically receive $9.99 (representing
the per EB Share value of the Grenada Shares) and $6.12 (representing .4218 of
a Parkway Share at the then current market price of $14.50 per Parkway Share),
resulting in a total value of $16.11 per EB Share. Howard Frazier Barker
Elliott, Inc. noted that the estimates at August 18, 1994 for the Virginia
Beach office complex and McComb Hotel Properties of EB might be high in light
of recent developments, and that the U.S. Supreme Court had announced it would
not review a Court of Appeals decision in regard to the Austin
Development/Sowashee Venture case, which in effect would allow EB to collect a
first mortgage loan of $1,202,000 which had previously been written off EB's
books (see "Information Concerning EB--Recent Developments"), which would
increase the hypothetical amount to be received by the EB shareholders to
$16.50 per EB Share--still below the Merger consideration of $17.25 per EB
Share.
Reasons for Conclusion. The reasons set forth in Howard Frazier
Barker Elliott, Inc.'s presentation for its belief that the Merger
consideration offered to the shareholders of EB (other than Parkway) is fair,
from a financial point of view are as follows: (i) Howard Frazier Barker
Elliott, Inc.'s determination that the Merger Consideration had a higher value
per EB Share ($17.25) than the value ($16.11) which would result to the EB
shareholders in the hypothetical distribution by EB to its shareholders of the
Grenada shares and subsequent business combination of Parkway and EB where
shareholders of EB received Parkway Shares in exchange for their EB shares
based on an exchange ratio using management's estimate of the per share net
realizable value of EB's assets remaining after the hypothetical distribution
of Grenada shares and management's estimate of the per share net realizable
value of Parkway's assets; (ii) the speculative character of the real estate
assets owned by EB (which are comprised of problem loans and foreclosed real
estate), which were perceived to be subject to a high degree of risk and the
value of which could only be realized over an extended period of time; (iii)
the Merger Consideration represented a substantial premium over the average per
share market price for EB Shares prior to the announcement of the Merger; (iv)
EB's operating strategy of not actively pursuing investments but simply
managing, operating and disposing of its assets, with inactive trading in its
common stock and lack of interest on the part of the investment community,
together with the perception of Parkway and the investment community, which has
been communicated to Parkway by Parkway's market makers and other brokerage
firms, that the consolidation of EB, Parkway and Congress Street would reduce
the complexity of those
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companies and perhaps increase the interest of the market place in Parkway
Shares; and (v) the annual savings that would result from operating Parkway and
EB as a single public company as opposed to two separate public companies.
Neither EB, Parkway nor any other person imposed any limitation of any
nature on the scope or any other aspect of Howard Frazier Barker Elliott,
Inc.'s review. Howard Frazier Barker Elliott, Inc. did not independently
verify the accuracy of any of the information provided to it by Parkway or EB,
and did not make an independent evaluation or appraisal of specific real estate
holdings or other assets of Parkway or EB. The consideration to be paid to EB
shareholders upon consummation of the Merger was determined by negotiations
between independent committees of the Boards of Directors of EB and Parkway;
Howard Frazier Barker Elliott, Inc. did not recommend the amount.
The form of fairness opinion delivered by Howard Frazier Barker
Elliott, Inc. to EB and attached to this Joint Proxy Statement/Prospectus as
Appendix A does not set forth any analysis (which was provided separately in
the form of the written presentation). The written presentation is available
for inspection and copying at the principal offices of EB at 188 East Capitol
Street, Jackson, Mississippi, during regular business hours by any interested
shareholder or his or her representative who has been so designated in writing.
EB will also furnish a copy of the written presentation to any interested EB
shareholder or his or her representative who has been so designated in writing
upon the written request and at the expense of the requesting shareholder.
PARKWAY FAIRNESS OPINION
On August 18, 1994, Parkway engaged Rauscher Pierce Refsnes, Inc.
("Rauscher Pierce"), an investment banking firm, to evaluate the fairness from
a financial point of view to shareholders of Parkway of the terms of the
Merger, as well as the merger of Parkway's wholly-owned subsidiary and Congress
Street, which was effected on November 29, 1994--see "Information Concerning
Parkway--Description of Business." As part of its investment banking business,
Rauscher Pierce is continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements, and valuations for estate, corporate and other purposes.
Parkway interviewed five investment banking firms with which it was
familiar, including Rauscher Pierce, prior to retaining Rauscher Pierce.
Rauscher Pierce did not perform any services for Parkway during the past two
years, but it served as the investment banker for First Continental Real Estate
Investment Trust ("FCREIT"), a former Texas real estate investment trust which
merged into a wholly owned subsidiary of Parkway effective May 10, 1994 (see
"Information Concerning Parkway--Description of Business"), and Rauscher Pierce
gave an
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opinion that the terms of that transaction were fair to the shareholders of
FCREIT from a financial point of view. For the services of Rauscher Pierce,
FCREIT paid Rauscher Pierce a fee of $50,000 plus out-of-pocket expenses.
On September 27, 1994, Rauscher Pierce delivered its written report to
Parkway that the terms of the Merger and the Congress Street/Parkway merger
were fair from a financial point of view to the shareholders of Parkway.
Rauscher Pierce did not make an oral presentation to the Parkway Board of
Directors, nor was it involved in determining the amount of consideration to be
paid in the Merger or the Congress Street/Parkway merger.
In arriving at its opinion, Rauscher Pierce reviewed (i) a draft dated
August 30, 1994 of the Merger Agreement; (ii) a draft dated September 7, 1994
of the Agreement and Plan of Merger between Parkway and Congress Street; (iii)
a draft received September 27, 1994 of the Proxy Statement/Prospectus for the
Merger; (iv) a draft dated September 7, 1994 of the Proxy Statement/Prospectus
for the Parkway/Congress Street merger; (v) Parkway's Form 10-KSB for the years
ended June 30, 1992, 1993 and 1994 and Parkway's quarterly 10-QSB reports for
the quarters ended March 31, 1993, September 30, 1993, December 31, 1993 and
March 31, 1994; (vi) quarterly earnings reports on Form 10-Q for EB for the
quarters ended March 31, 1993, June 30, 1993, September 30, 1993, March 31
1994, and June 30, 1994 plus EB's Annual Reports on Form 10-KSB for the years
ended December 31, 1991, 1992 and 1993; (vii) quarterly earnings reports on
Form 10-Q for Congress Street for the quarters ended November 30, 1993,
February 28, 1994 and May 31, 1994 plus Congress Street's Annual Reports on
Form 10-KSB for the years ended August 31, 1992 and August 31, 1993; (viii)
financial forecasts prepared by management of each entity as follows for (a)
Parkway for the year ending June 30, 1994, (b) EB for the year ending December
31, 1994 and (c) Congress Street for the year ending August 31, 1994; (ix)
recent appraisals (net asset value sheets) for major real estate holdings of
Parkway, Parkway Texas Corporation (the wholly-owned subsidiary of Parkway that
merged with FCREIT) ("Parkway Texas") and EB; (x) Parkway's Management Summary
report on various assets dated September 14, 1993; (xi) the Proxy
Statement/Prospectus for the merger of Parkway Texas and FCREIT dated April 5,
1994; (xii) the Proxy Statement for Parkway dated November 12, 1993; (xiii) the
Proxy Statement for EB dated April 28, 1993; (xiv) the Proxy Statement for
Congress Street dated March 8, 1994; and (xv) various press releases related to
the transactions. In addition, Rauscher Pierce discussed the transactions with
the management of Parkway, EB and Congress Street, focusing specifically on the
outlook for future operating results, the assets and liabilities of all three
entities, material in the above-referenced documents, and other matters
considered relevant to the inquiry.
Neither Rauscher Pierce, Parkway, EB, Congress Street nor any other
person imposed any limitation of any nature on the scope or any other aspect of
Rauscher Pierce's review. However, with the permission of Parkway, Rauscher
Pierce did not independently verify the accuracy of any of the information
provided to it by Parkway, Congress Street or EB, but rather
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it assumed the information provided was complete and accurate in all material
respects. Nor did Rauscher Pierce make an independent evaluation or appraisal
of real estate holdings or other assets of Parkway, EB or Congress Street.
Methodology. The principal methodology of Rauscher Pierce in arriving
at its fairness determination was to look at the relative market value of each
company and to recognize that a substantial degree of interdependence existed
by virtue of certain companies owning a significant share of another company.
Rauscher Pierce's first effort in determining relative market value was to look
at the market value of each entity as indicated by recent market prices for the
publicly traded stock of each entity. Since the transactions involved were
mergers, Rauscher Pierce's analysis of fairness involved looking only at
relative value (i.e., whether the exchange ratio was fair) and not necessarily
absolute values (i.e., the value of each company). In this regard, Rauscher
Pierce noted that, because of their interdependence through ownership, if the
value of EB increases, then the value of Parkway increases.
Congress Street/Parkway Merger. Rauscher Pierce noted that the
trading volume for Congress Street was very thin and that stock price quotes
were not readily available and were not considered by Congress Street's
management to be reliable indicators of value. Rauscher Pierce also noted that
the Parkway/Congress Street merger was essentially a distribution of Congress
Street's principal and essentially sole significant asset, 567,067 Parkway
Shares, to the shareholders of Congress Street. Rauscher Pierce stated that if
Congress Street merely distributed the 567,067 shares of Parkway pro rata to
the holders of Congress Street's 2,150,818 shares, the exchange ratio would be
0.26 and each share of Congress Street would be entitled to 0.26 shares of
Parkway. The ratio was adjusted upwards to 0.29 by Congress Street's special
Board committee in its negotiations with Parkway to account for other assets
and liabilities, including a $338,000 note receivable with no value on Congress
Street's books and Congress Street's additional value from its 35.5% interest
in the One Jackson Place office building. Rauscher Pierce concluded that the
logic and fairness of the Parkway/Congress Street merger was not dependent upon
relative stock prices or relative asset values, but rather the fairness of the
merger was evidenced by the fact that the shareholders of Congress Street were
getting their fair pro rata share of what was, essentially, Congress Street's
sole asset.
The Merger. In analyzing the Merger, Rauscher Pierce adjusted
Parkway's December 31, 1993 balance sheet to reflect the merger with FCREIT and
Parkway's purchase of 430,371 EB Shares in January of 1994, as well as an
additional purchase of 3,500 EB Shares by Parkway subsequent to December 31,
1993. By virtue of the Congress Street/Parkway merger, Parkway would acquire
an additional 11,673 EB Shares. Noting that the value of the Parkway Shares to
be issued in the Merger is set at $9.25 per EB Share (but noting that the
number of Parkway Shares to be issued is subject to adjustment based on the
average trading price over the 30 trading days preceding the Closing), Rauscher
Pierce valued the Merger Consideration at $17.25 per EB Share, which would
result in Parkway paying $11,917,544 for the EB Shares not already owned by
Parkway. Rauscher Pierce added to that the $11,899,850 cost basis of the EB
Shares
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<PAGE> 59
already owned by Parkway and determined that Parkway is paying $23,817,394 for
EB's net assets. Rauscher Pierce observed that Parkway intended to write down
the $7,250,000 difference between the $23,817,000 Merger value and the
$31,067,000 net book value of the EB assets (as of June 30, 1994) by allocating
the write-down as follows: $1,160,000 (16%) to the value of real estate and
$6,090,394 (84%) to the value of mortgage loans (subject to change prior to the
Closing).
Rauscher Pierce reviewed management's estimates of the fair market
values of all assets and liabilities of EB, Parkway and Congress Street. In
this regard, the total fair market value of the assets of EB were estimated by
management to be $37,119,000 at March 31, 1994, compared to the book value of
those assets at that date of $30,458,000, and that the net fair market value of
the assets at March 31, 1994 was estimated by management to be $35,638,000
compared to a net book value at that date of $28,977,000. Most of this
difference ($5,705,000) was due to the increase in the market price of the
Grenada shares held by EB, which had risen significantly as a result of the
announcement of the UPC transaction--see "Information Concerning EB--Recent
Developments"--$773,000 of it was due to management's estimates of the value of
EB's mortgage loans and $183,000 was attributable to estimates of the real
estate owned by EB. The net fair market value of the assets and liabilities of
EB was estimated to be $24.58 per EB Share at March 31, 1994, compared to the
book value per EB Share of $19.98 at that date. In this regard, Rauscher
Pierce noted that the actual value per share would be significantly lower due
to lower actual asset values EB would realize if forced to liquidate on short
notice, which would not permit some properties to mature to full value, and
that the values were exclusive of capital gains taxes (which would decrease the
per EB Share value to $23.01).
Management's estimates of the fair market value of Parkway's total
assets at June 30, 1994 was $72,168,000, compared to a book value of
$58,935,000 at June 30, 1994 (with most of the difference being allocable to
Parkway's real estate owned). The net fair market value of Parkway's assets
was estimated by management to be $43,937,000 at June 30, 1994 compared to the
net book value of $31,750,000 at that date. On a per Parkway Share basis, the
net fair market value of Parkway's assets at June 30, 1994 was estimated to be
$28.47, compared to the book value at that date of $20.58 per share. Congress
Street's total assets were estimated by management to have a fair market value
of $5,871,000 at February 28, 1994, compared to the book value of $10,442,000
at that date, principally because the market value of the Parkway Shares owned
by Congress Street was less than the book value; on a per Congress Street share
basis, the net assets of Congress Street were estimated to be $2.28 per share,
compared to the book value of $4.41 per share at February 28, 1994.
Rauscher Pierce noted that the Merger was intended to be tax-free to
the shareholders of Parkway and would be voted on by the shareholders of
Parkway and EB.
Rauscher Pierce stated that it was not aware of any logical buyers who
would be likely to offer more per share for EB or Congress Street than the
Parkway proposal. There were no
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other offers or expressions of serious interest in acquiring or merging with
Parkway, EB or Congress Street even following the public announcements of the
transactions. Rauscher Pierce noted that even after entering the draft forms
of merger agreement, Parkway would still be allowed to consider any other offer
which might be made to purchase Parkway (EB, however, does not have that
flexibility under the terms of the Merger Agreement). Rauscher Pierce also
noted that there was no potential source of substantial "hidden" or
"unrecognized value" in Parkway, EB or Congress Street that would suddenly make
the assets of these companies much more valuable in the near future.
Rauscher Pierce also considered the potential dilution from
outstanding options and stock appreciation rights and found it to be
immaterial. EB did not have any options or stock appreciation rights
outstanding in 1994. Regarding Parkway, Rauscher Pierce noted that the
dilutive effect of outstanding options in market value per share was 3.17%.
Rauscher Pierce noted that if all of the "in-the-money" Congress Street options
were exercised the amount of dilution per share would be minimal.
Benefits to Shareholders. Rauscher Pierce noted that the shareholders
of Parkway, Congress Street and EB would receive the following benefits as a
result of the contemplated transactions: (i) annual savings in professional
fees, director fees and shareholder related costs for EB and Congress Street of
approximately $130,000 and $89,000, respectively; (ii) other overhead related
cost savings; (iii) improved float and simplified ownership structure; (iv)
improved and simplified shareholder relations as Parkway's "story" would become
easier to communicate to the market place; and (v) simplified corporate policy
and decision making resulting from Parkway's independence.
Management's Forecast for EB for the Year Ended December 31, 1994.
Rauscher Pierce reviewed management's forecasted income statement and statement
of cash flows for EB for the year ended December 31, 1994, which were prepared
in June 1994. The income statement projected net income of $1,418,000, based
on interest on loans of $1,673,000; dividend income of $351,000, other income of
$214,000. Net real estate owned operating expense was projected at $192,000,
administrative expenses were projected at $256,000, professional fees were
projected at $156,000 and other operating expenses were projected at $216,000.
Total expenses were projected at $820,000 and income before income taxes was
projected at $1,418,000. EB management estimates that the actual net income of
EB for the year ended December 31, 1994 (unaudited) was $1,606,000.
EB's forecasted statement of cash flows projected an increase in cash
and cash equivalents for the year ended December 31, 1994 of $3.3 million,
based on net cash provided by operating activities of $1,326,000, net cash
provided by investing activities of $2,416,000 and net cash used in financing
activities of $435,000. EB management estimates that the actual increase in
cash and cash equivalents for the year ended December 31, 1994 (unaudited) was
$7,615,000.
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Reasons for Conclusion. The principal reasons given by Rauscher
Pierce for the Merger and the Parkway/Congress Street merger being fair to
Parkway and Parkway shareholders were as follows: (i) the Congress
Street/Parkway merger was essentially a distribution of Congress Street's
567,067 Parkway Shares to the shareholders of Congress Street; (ii) eliminating
Congress Street and EB as separate public companies would create significant
cost savings; and (iii) Parkway was paying $17.25 for the 690,872 EB Shares not
owned by Parkway, but that was only 70% of management's estimate of the net
realizable value of the EB assets on a per EB Share basis, which was $24.58.
Rauscher Pierce also noted that the Merger consideration of $17.25 per EB Share
was 12% over the average market price of EB Shares in July 1994 (which was
$15.39 per EB Share) and a 40% premium over the average price of EB Shares in
June 1994 (prior to announcement of the Merger) of $12.34 per EB Share.
The form of fairness opinion delivered by Rauscher Pierce to Parkway
is attached to this Joint Proxy Statement/Prospectus as Appendix G. A copy of
Rauscher Pierce's memorandum in support of its opinion is available for
inspection and copying at the offices of Parkway at 300 One Jackson Place, 188
East Capitol Street, Jackson, Mississippi, during Parkway's regular business
hours by any interested shareholder of Parkway or his or her representative who
has been so designated in writing, and a copy of the memorandum will be
transmitted by Parkway to any interested Parkway shareholder (or his or her
representative who has been so designated in writing) upon written request and
at the expense of the requesting shareholder.
OPERATIONS FOLLOWING THE MERGER
If the Merger Agreement is approved by the shareholders of EB, PAC
will merge with and into EB and EB will become a wholly-owned subsidiary of
Parkway. Parkway, both directly and through its subsidiaries, will continue to
actively seek new investment properties to add to its portfolio of real estate
properties. See "Information Concerning Parkway--Description of Business"
below.
INTEREST OF PARKWAY IN THE MERGER
If the Merger is approved and consummated, EB will become a
wholly-owned subsidiary of Parkway. Accordingly, Parkway will own, indirectly
through its ownership of all of the outstanding EB Shares, all of EB's assets.
EXPENSE-SHARING ARRANGEMENTS
Description of Arrangements. Until December 31, 1994, Parkway had an
expense-sharing agreement with Congress Street, EastGroup Properties
("EastGroup") and Eastover Corporation ("Eastover") (which are more fully
described below) pursuant to which the participants shared administrative
offices at the same location in Jackson, Mississippi and
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common officers and other personnel, subject to the authority of the board of
each member company to elect or appoint and remove its officers in accordance
with its certificate of incorporation, declaration of trust or other charter
documents and applicable law. EB had a separate administrative agreement with
Congress Street which allowed EB to participate in the expense-sharing
agreement on the same basis as the companies which were parties to the
expense-sharing arrangement. Under this arrangement, the participants shared
the cost of the common officers and other employees and of shared facilities
and activities. These common costs were initially paid by Congress Street,
which served as the administrator of the arrangement, and the other
participants paid Congress Street an annual fee (on a monthly basis) of
one-half of one percent of their assets which were publicly-traded securities.
After these fees and any profits of Eastover Realty Corporation (see "Eastover
Realty Corporation" below) were subtracted from total common costs, the
remaining common costs were allocated on a monthly basis among EastGroup,
Parkway, Congress Street, Eastover and EB in proportion to their assets other
than publicly-traded securities, based on their balance sheets as contained in
their most recent SEC filing. Certain costs which the common officers believed
to be particularly attributable to each member company were not shared. These
non-allocable costs included but were not limited to directors' and trustees'
fees, legal, audit and stock transfer expenses, stationery and items of similar
nature. Since the allocation formula was not based upon actual costs incurred
by each member company, the allocation may have, from time to time, resulted in
a greater or lesser charge to each member company than would have resulted if
actual costs to each member company were allocated.
LNH REIT, Inc. ("LNH") also had a separate administration agreement
with Congress Street pursuant to which LNH shared common offices and personnel
with Congress Street, Parkway, EB and the other participants, and LNH paid
Congress Street a fixed annual fee of $125,000.
Because conflicts of interest may have arisen from the management of
the participating companies by common officers, agreements governing these
expense-sharing arrangements included the following provisions designed to
prevent such conflicts of interest and to deal with those that have arisen on
an equitable basis:
(1) Subject to the conditions described below, when officers submit
and recommend to the board of any company the proposed acquisition of any
property or security, the officers of that company shall cause the same
opportunity to be presented to the board of each of the other companies. If
two or more of the companies determine to participate in the transaction, the
provisions of paragraph (3) below will govern. Notwithstanding the foregoing
provisions, an investing company need not present an investment opportunity to
another company if it proposes to purchase securities issued by it or if, in
the good faith judgment of their common officers, the investment opportunity
involves the acquisition of (i) an investment which is one in which that
company would not invest because it does not come under that company's
Investment Strategy (as defined below), (ii) property in which the investing
company has an existing
- 46 -
<PAGE> 63
ownership or other type of interest and the latter company has none, or (iii)
securities of an issuer in which the investing company has an existing
investment and the latter company has none. Whenever any company authorizes
the sale, transfer or modification of its interest in a property or of its
holdings of securities of an issuer, it must so inform the board of each
company which also has an interest in that property or which owns securities of
that issuer; unless impractical to do so, that information must be given to the
board of the latter company at the next scheduled meeting of the board of the
latter company. If the board of the latter company authorizes similar action,
the provisions of paragraph (3) will govern.
(2) No company will sell any property or security to, or purchase any
property or security from, any other company unless that sale or purchase is
approved and determined to be fair to each company in the transaction by a
majority of the trustees or directors of that company who are not affiliated as
officers, trustees, directors or controlling persons of any other company in
the transaction.
(3) Whenever two or more of the companies shall concurrently undertake
to acquire or dispose of interests in the same property or in the same class of
securities under circumstances in which it appears likely that the price or
other consideration to be paid or received will not be equal for all property
or securities to be acquired or disposed of in a single transaction, the
property or securities will be acquired or disposed of in such a manner that,
as nearly as feasible, each company will participate in each transaction in
proportion to the total amount of such property or securities which its board
has determined to acquire or dispose of until each company has acquired or
disposed of the total amount of that property or class of security which its
board has determined to acquire or dispose of. In the event that the boards
have not determined in advance the total amount to be acquired or disposed of
or the participating companies desire in the aggregate to acquire more than is
available, the participation of each company in each transaction will be
proportionate to its total assets as shown on its balance sheet as at the close
of its quarterly fiscal period ended on or prior to the date of that
transaction, or, if that balance sheet is not available, as at the close of the
latest quarterly fiscal period for which a balance sheet is available. The
provisions of this paragraph may be modified with respect to a particular
transaction by the board of each company if it appears that such modification
is required in the interests of fairness, but any such modification must be
approved by majorities of the trustees or directors of each company
participating in the transaction, including a majority of the trustees or
directors of each participating company who are not officers, trustees,
directors or controlling persons of any other company participating in the
transaction.
(4) Each company shall from time to time provide each of the other
companies with a statement approved by that company's board of directors or
trustees setting forth that company's present strategy with respect to the
acquisition of additional property or other investments, describing the type of
assets which that company desires to purchase, that company's financial and
other objectives with respect to investments, the types of assets in which that
company does not wish to invest, and any other factors deemed appropriate by
the company's board of
- 47 -
<PAGE> 64
directors or trustees (the "Investment Strategy"). A company may change its
Investment Strategy by giving notice to the other companies, and such change
shall take effect 30 days after the date of the notice.
The Investment Strategy of EB, Congress Street, LNH and Eastover was
not to make further investments. Parkway's Investment Strategy involves
acquiring equity positions in private or publicly traded companies which may or
may not result in mergers or acquisitions. Parkway will also invest directly
in real property in the form of equity ownership or mortgages, however, Parkway
will seek to control its investments by owning substantially all of the
investment and will avoid investments directly in real property that would
result in a minority interest. EastGroup's Investment Strategy also involves
acquiring equity interests in real property; however, based on EastGroup's size
relative to that of Parkway, any investment opportunity of EastGroup in which
Parkway could seek to participate would result in Parkway holding only a non-
controlling minority interest. Accordingly, Parkway believes that EastGroup is
not presently required to offer any of its investment opportunities to Parkway
or any other member company of the Eastover Group.
The expense-sharing agreement was in effect from year to year and was
automatically renewable although any participant may have terminated its
participation in the arrangement at any time upon 60 days notice (or a shorter
period if necessary for a participating real estate investment trust to
maintain its tax status). If a participant did terminate, the expense-sharing
agreement would remain in effect with the remaining participants so long as
Congress Street had not given notice of termination. The expense-sharing
agreement contemplated that other real estate companies may have participated
in the future upon the same terms, unless one or more of the other
participating companies objected.
Background of Participants. EB and Parkway began participating in the
expense-sharing arrangement in 1993 and 1980, respectively. Other than Parkway
and EB, the other participants and the dates they began participating in the
expense-sharing arrangement are as follows: EastGroup, a Maryland real estate
investment trust, since 1983; Congress Street, a former Delaware corporation
engaged in the real estate business which merged with a wholly-owned subsidiary
of Parkway on November 29, 1994, since 1984; Eastover, a former Louisiana real
estate investment trust which merged with a wholly-owned subsidiary of
EastGroup on December 22, 1994, since 1979; and LNH, a Maryland corporation
operating as a real estate investment trust, since 1992. Eastover and Parkway
controlled (as that term is defined in the federal securities laws) EastGroup
by reason of (i) their substantial shareholdings in EastGroup (21% in the
aggregate); (ii) the presence of four of their directors or trustees or
officers on EastGroup's eight-person Board of Trustees; and (iii) management of
the day-to-day business of EastGroup by officers who were also officers of
Eastover and Parkway. Congress Street controlled Parkway by reason of (i) its
substantial shareholdings in Parkway (37% in the aggregate); (ii) the presence
of three of its directors on Parkway's nine-person Board of Directors; and
(iii) management of the day-to-day business of Parkway by officers who were
also
- 48 -
<PAGE> 65
officers of Congress Street. Parkway controls EB by reason of (i) its
substantial shareholdings in EB (52%); (ii) the presence of three of its
directors or officers on EB's six person Board of Directors; and (iii)
management of the day-to-day business of EB by officers who are also officers
of Parkway. (The companies which participated in the expense-sharing
arrangement, including LNH, are collectively referred to herein as the
"Expense-Sharing Participants.")
Total Assets and Common Costs. The following table shows the total
assets of each of the participants in the expense-sharing arrangement that were
publicly-traded securities and assets other than publicly-traded securities as
shown on their most recent publicly available balance sheets, the date of such
balance sheets and the percentage relationship of each participant's
non-securities assets to the total non-securities assets of all participants as
a group.
<TABLE>
<CAPTION>
Amount of Assets That Amount of Assets Percent of Total
Date of Balance are Publicly Traded Other than Publicly Non-Securities
Name of Company(1) Sheet Securities(2) Traded Assets of Groups
Securities(2)
------------------------- --------------- --------------------- ------------------- ----------------
<S> <C> <C> <C> <C>
EastGroup . . . . . . . . 9/30/94 $ 978,000 $149,940,000 68.60%
Parkway . . . . . . . . . 9/30/94 16,371,000 46,083,000 21.08
Eastover . . . . . . . . 9/30/94 14,551,000 385,000 .18
EB . . . . . . . . . . . 9/30/94 14,154,000 22,164,000 10.14
Congress Street . . . . . 8/31/94 11,957,000 ---(3) ---
<FN>
- --------------------
(1) Asset information as to LNH, is not included because it paid a fixed
annual fee as its contribution to the expense-sharing agreement.
(2) Asset figures are unaudited with respect to all companies .
(3) Number is negative and assumed to be zero for purposes of allocating
common costs.
</TABLE>
During the twelve months ended August 31, 1994, a total of $2,094,172
of common costs were incurred by EastGroup, Parkway, Eastover, Congress Street
and EB. These common costs were allocated under the expense-sharing
arrangement as follows: $1,114,849 to EastGroup; $538,203 to Parkway; $84,103
to Eastover; $55,528 to Congress Street; and $301,489 to EB.
Termination of Arrangements. In connection with the business
combinations involving the Expense-Sharing Participants (i.e., Congress Street
merged with a wholly-owned subsidiary of Parkway on November 29, 1994, EB is
combining with Parkway and Eastover combined with EastGroup on December 22,
1994), the above described expense-sharing arrangements
- 49 -
<PAGE> 66
terminated on December 31, 1994 , except that EastGroup has the responsibility
for managing LNH under the prior administration agreement between LNH and
Congress Street. Since that date, Parkway and EastGroup each have their own
respective officers and employees, who do not serve as officers or employees of
the other company, except for Leland R. Speed, who continues to serve as the
Chief Executive Officer of both companies, and a small number of clerical and
support staff employees. Certain officers of Parkway continue to serve as
officers of EB, and EB pays Parkway an administrative fee based on EB's share
of the common costs for the last quarter of 1994 (estimated to be $20,000 per
month), which will be prorated if terminated by reason of the Merger or
otherwise (either party may terminate the arrangement on 30 days' notice). The
officers of EastGroup also continue to serve as officers of LNH; in addition,
the President of Parkway--Steven G. Rogers--continues to serve as an officer
of LNH. David H. Hoster and N. Keith McKey, who formerly served as officers
of all the Expense-Sharing Participants, now serve as officers of EastGroup
and LNH and not Parkway because EastGroup and Parkway continue to share the
same leased office space at One Jackson Place in Jackson, Mississippi and
share the services of Mr. Speed and certain clerical and support staff
employees, the expenses related thereto are shared among Parkway and
EastGroup (except for certain costs which can be attributed to either
company based on its actual use of the services involved). Management of
Parkway estimates that the annual administrative costs for Parkway, after
expected increases as a result of the EB and Congress Street mergers, will not
increase significantly as a result of the termination of the expense- sharing
arrangements.
Eastover Realty Corporation. Eastover Realty Corporation ("Eastover
Realty"), currently a wholly-owned subsidiary of Parkway and prior to November
29, 1994, a wholly-owned subsidiary of Congress Street, manages several
commercial and multi-family residential properties, for which it receives
management fees. Eastover Realty also performs leasing and brokerage services
on a commission basis. Pursuant to an understanding among the Expense-Sharing
Participants, any income derived from Eastover Realty was used to offset common
costs under the expense-sharing arrangements. In connection with the
termination of the expense-sharing arrangements and the combinations of various
of the Expense-Sharing Participants, the sharing of Eastover Realty's income
has been terminated, so that Parkway, as a result of its business combination
with Congress Street, receives all of that income (or loss).
FEDERAL INCOME TAX CONSEQUENCES
Set forth below is a discussion of certain federal income tax
consequences of the Merger generally applicable to Parkway, EB and their
respective shareholders. This discussion has been prepared by and is hereto
based on an opinion rendered by Jaeckle, Fleischmann & Mugel, a copy of which
is attached hereto as Appendix C.
Effect of the Merger. EB has received an opinion from Jaeckle,
Fleischmann & Mugel, based on the terms of the Merger Agreement and certain
related factual representations and assumptions that:
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<PAGE> 67
(i) The Merger of PAC into EB and exchange by the holders of EB
Shares for the Merger Consideration will be treated for
federal income tax purposes as a purchase of EB Shares by
Parkway, and will not be treated as a tax free reorganization
within the meaning of Section 368 of the Code.
(ii) Gains or losses will be recognized by the holders of EB Shares
upon their receipt of the Merger Consideration in exchange for
their EB Shares. The amount of gain recognized will equal the
excess of the fair market value of the Merger Consideration
received over the tax basis in EB Shares surrendered. The
amount of loss recognized will equal the excess of the tax
basis in the EB Shares surrendered over the fair market value
of the Merger Consideration received. This gain or loss will
constitute capital gain or loss if the EB Shares surrendered
are held as a capital asset at the Effective Date.
(iii) The tax basis of the Parkway Shares received by the holders of
EB Shares will equal the fair market value of the Parkway
Shares received as of the Effective Date.
(iv) The holding period of the Parkway Shares in the hands of the
holders of EB Shares will not include the holding period of
such EB Shares, but will begin as of the Effective Date.
(v) No gains or losses will be recognized by EB, PAC, Parkway or
Parkway's shareholders as a result of this Merger.
In rendering the foregoing opinions, Jaeckle, Fleischmann & Mugel has
relied upon information contained in this document and the Merger Agreement,
and upon the representations by Parkway, PAC and EB set forth in their
respective officers' certificates dated the date of such opinion.
THE DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION
ONLY. IT DOES NOT ADDRESS THE STATE, LOCAL OR FOREIGN TAX ASPECTS OF THE
MERGER. THE DISCUSSION IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE CODE,
EXISTING AND PROPOSED TREASURY REGULATIONS THEREUNDER AND CURRENT
ADMINISTRATIVE RULINGS AND COURT DECISIONS. THE OPINIONS OF JAECKLE,
FLEISCHMANN & MUGEL DESCRIBED ABOVE ARE NOT BINDING UPON THE INTERNAL REVENUE
SERVICE AND NO RULINGS OF THE INTERNAL REVENUE SERVICE HAVE BEEN OR WILL BE
SOUGHT OR OBTAINED. THERE IS NO ASSURANCE THAT THE INTERNAL REVENUE SERVICE
WILL AGREE WITH THE OPINIONS DESCRIBED ABOVE. ALL OF THE FOREGOING ARE SUBJECT
TO CHANGE AND ANY SUCH CHANGE COULD AFFECT THE CONTINUING VALIDITY OF THIS
DISCUSSION. ANY SUCH CHANGE
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<PAGE> 68
MAY OR MAY NOT BE RETROACTIVE AND COULD AFFECT THE TAX CONSEQUENCES OF THE
MERGER. EACH HOLDER OF EB SHARES SHOULD CONSULT HIS/HER OWN TAX ADVISOR WITH
RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER AND THE OWNERSHIP OF
PARKWAY SHARES TO SUCH HOLDER, INCLUDING THE APPLICATION AND EFFECT OF STATE,
LOCAL AND FOREIGN TAX LAWS.
<TABLE>
EXPENSES OF THE MERGER
The estimated costs and fees in connection with the Merger are as
follows:
<S> <C>
Financial Advisor Fees . . . . . . . . . . . . . . . . . . . . $ 45,000
Legal Fees . . . . . . . . . . . . . . . . . . . . . . . . . . 140,000
Accounting Fees . . . . . . . . . . . . . . . . . . . . . . . . 50,000
Printing and Mailing Expenses . . . . . . . . . . . . . . . . . 60,000
Miscellaneous Expenses . . . . . . . . . . . . . . . . . . . . 5,000
--------
TOTAL . . . . . . . . . . . . . . . . . . . . $300,000
========
<FN>
- --------------------
</TABLE>
EB and Parkway will reimburse brokers, dealers, commercial banks and
trust companies for customary mailing expenses incurred by them in forwarding
material to their customers. EB has retained Beacon Hill Partners, Inc. to
assist with the solicitation of proxies and will pay Beacon Hill a fee of
$3,500 (subject to increase for additional services such as telephonic
solicitation of proxies) plus reimbursement of out of pocket expenses for its
services.
All costs and expenses incurred in connection with the Merger will be
paid by the party on behalf of whom such expenses are incurred, except that, if
the Merger is consummated, Parkway will assume responsibility for EB's expenses
to the extent they remain unpaid on the Effective Date.
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<PAGE> 69
ACCOUNTING TREATMENT OF THE MERGER
The Merger will be accounted for as a "purchase" transaction.
APPRAISAL RIGHTS OF DISSENTING SHAREHOLDERS OF EB
Shareholders of EB who follow the procedures specified in Section
79-4-13.21 ("Section 79-4-13.21") of the Mississippi Business Corporation Act
(the "MBCA") will be entitled to have their EB Shares appraised and to receive
payment of the "fair value" of such shares, exclusive of any element of value
arising from the accomplishment or expectation of the Merger. DISSENTING
SHAREHOLDERS SHOULD STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN SECTION
79-4-13.21. FAILURE TO FOLLOW ANY SUCH PROCEDURES MAY RESULT IN A TERMINATION
OR WAIVER OF APPRAISAL RIGHTS UNDER SECTION 79-4-13.21.
The following discussion of the applicable provisions of the MBCA is
not intended to be a complete statement of its provisions and is qualified in
its entirety by reference to the full text of Article 13 of the MBCA, a copy of
which is attached as Appendix D to this Joint Proxy Statement/Prospectus and
incorporated herein by this reference.
Under Section 79-4-13.21, a shareholder of EB electing to exercise
appraisal rights must both:
(1) Deliver to EB, before the taking of the vote on the Merger
Agreement, a written demand for appraisal of that person's EB Shares, which
reasonably informs EB of the identity of the shareholder of record and that
such record shareholder intends thereby to demand the appraisal of his or her
EB Shares. This written demand is in addition to and separate from any proxy
or vote against the proposal relating to the Merger Agreement. Neither a vote
against the proposal relating to the Merger nor a proxy directing such vote
shall satisfy the requirement that a written demand for appraisal be delivered
to EB before the vote on the proposal relating to the Merger Agreement. Such
written demand for appraisal should be delivered either in person to the
Corporate Secretary of EB at the EB Meeting before the vote on the Merger
Agreement or in person or by mail (certified mail, return receipt requested,
being the recommended form of transmittal) to the Corporate Secretary, at EB,
Inc., 300 One Jackson Place, 188 East Capitol Street, Jackson, Mississippi
39201-2195, prior to the Meeting.
(2) Not vote in favor of the proposal relating to the Merger
Agreement. A failure to vote against the proposal relating to the Merger
Agreement will not constitute a waiver of appraisal rights. HOWEVER, ANY
SHAREHOLDER WHO EXECUTES A PROXY AND WHO DESIRES TO PERFECT HIS OR HER
APPRAISAL RIGHTS MUST MARK THE PROXY "WITHHOLD AUTHORITY" FOR THE PROPOSAL
RELATING TO THE MERGER AGREEMENT because if the Proxy is left blank, it will be
voted for the proposal relating to the Merger Agreement.
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<PAGE> 70
The written demand for appraisal must be made by or for the holder of
EB Shares registered in the holder's name. Accordingly, such demand should be
executed by or for such shareholder of record, fully and correctly, as such
shareholder's name appears on his or her stock certificates. If the stock is
owned of record in a fiduciary capacity, such as by a trustee, guardian or
custodian, execution of the demand should be made in such capacity and if the
stock is owned of record by more than one person as in a joint tenancy or
tenancy in common, such demand should be executed by or for all joint owners.
An authorized agent, including one of two or more joint owners, may execute the
demand for appraisal for a shareholder of record. However, the agent must
identify the record owner or owners and expressly disclose the fact that in
executing the demand he is acting as agent for the record owner.
A record owner, such as a broker, who holds EB Shares as nominee for
others may exercise his right of appraisal with respect to the shares held for
all or less than all of the others. In such case the written demand should set
forth the number of shares covered by such demand and the name and address of
each person on whose behalf the record owner asserts dissenters' rights. Where
no number of shares is expressly mentioned, the demand will be presumed to
cover all shares standing in the name of such record owner.
A beneficial owner may assert dissenter rights as to shares held on his
or her behalf only if the beneficial owner submits to EB the record
shareholder's written consent to the dissent no later than the time the
beneficial shareholder asserts dissenter's rights and the beneficial owner does
so with respect to all shares of which he or she is the beneficial shareholder
or over which he or she has the power to direct the vote.
Within 10 days after the Effective Date, EB is required to, and will,
provide each shareholder of EB who has satisfied the foregoing conditions with
a dissenters' notice as required by the MBCA ("Dissenters' Notice"). A
shareholder sent a Dissenters' Notice must demand payment, certify whether he
or she acquired beneficial ownership of EB Shares prior to the date of the
first announcement of this Merger to news media (which occurred on July 27,
1994) or to shareholders of the Merger and deposit his or her certificates in
accordance with the terms of the Dissenters' Notice. A SHAREHOLDER WHO DOES
NOT DEMAND PAYMENT OR DEPOSIT HIS OR HER SHARE CERTIFICATE WHERE REQUIRED, EACH
BY THE DATE SET IN THE DISSENTERS' NOTICE, IS NOT ENTITLED TO PAYMENT FOR HIS
OR HER EB SHARES PURSUANT TO ARTICLE 13 OF THE MBCA.
As of the Effective Date or upon receipt of a payment demand, EB shall
pay to the dissenting shareholder (in compliance with all applicable
procedures) the amount EB estimates to be the fair value of the dissenting
shareholder's EB Shares, plus accrued interest. EB will provide with the
payment (i) a copy of EB's balance sheet, income statement and a statement of
changes in shareholders' equity for the most recent fiscal year, and the latest
available interim financial statements (if any); (ii) a statement of EB's
estimate of the fair value of EB Shares; (iii) an explanation of how the
interest was calculated; (iv) a statement of the dissenter's right to demand
payment; and (v) a copy of Article 13 of the MBCA.
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<PAGE> 71
A dissenting shareholder dissatisfied with the payment or offer may
notify EB in writing, within 30 days after EB made or offered payment for the
dissenting shareholder's EB Shares, of his or her own estimate of the fair
value of EB Shares and amount of interest due and demand payment of such
estimate or may reject EB's offer and demand payment of the fair value of EB
Shares and interest due if: (i) the dissenting shareholder believes EB's offer
or payment is less than the fair value of his or her EB Shares or the interest
is incorrectly calculated; (ii) EB fails to make a payment within 60 days after
the date set for demand payment, (iii) EB fails to consummate the Merger and
does not return the deposited certificates within 60 days after the date set
for demand payment. The dissenting shareholder's failure to demand this
payment within the requisite 30 days results in the waiver of his or her
appraisal rights.
Should EB and the dissenting shareholder fail to resolve the demand for
payment, EB shall commence a proceeding within 60 days after receiving the
payment demand and petition the courts to determine the fair value of EB Shares
and accrued interest. EB's failure to commence the suit within the 60 day
period will result in EB paying each dissenter whose demand remains unsettled
the amount demanded.
NO APPRAISAL RIGHTS FOR PARKWAY SHAREHOLDERS
Shareholders of Parkway will not have any appraisal rights in
connection with the Merger.
RESTRICTIONS ON RESALES OF SECURITIES
The Parkway Shares to be issued pursuant to the Merger Agreement have
been registered under the Securities Act. Under present law, any public
reoffering or sale of such shares by any person who is an "affiliate" of EB at
the time the Merger Agreement is submitted to a vote of EB's shareholders ("EB
Affiliate") will require either (i) the further registration of such shares
under the Securities Act, (ii) compliance with Rule 145 promulgated under the
Securities Act, which permits sales under certain conditions, as discussed
below, or (iii) the availability of another exemption from such further
registration. In very general terms, under Rule 145, assuming that the EB
Affiliate is not, at any time, an affiliate of Parkway, the EB Affiliate may
publicly sell such Parkway Shares if the EB Affiliate: (1) (a) sells during
any three- month period no more than the number of Parkway Shares permitted
under Rule 144(e) (which is generally the greater of (i) 1% of the total number
of Parkway Shares outstanding, or (ii) the average weekly volume of trading of
Parkway Shares for the four calendar weeks prior to the sale); (b) sells in a
"brokers' transaction" (which means, generally, that the broker can do no more
than execute the order as agent for the seller, can receive no more than the
usual broker's commission, cannot solicit orders to buy in connection with the
transaction, and does not believe that the seller is an underwriter of the
securities being sold); (c) does not solicit orders to buy in connection with
the transaction and does not make any payment in connection with such sale to
anyone other than the selling broker; and (d) sells at a time when there is
adequate current public information about Parkway (which will be satisfied so
long as Parkway Shares remain
- 55 -
<PAGE> 72
registered under the Exchange Act and Parkway continues to file the necessary
reports under the Exchange Act); or (2) (a) holds the Parkway Shares for at
least two years and (b) sells at a time where there is adequate public
information about Parkway (as in 1(d) above); or (3) holds the Parkway Shares
for at least three years.
BOARD OF DIRECTORS AND MANAGEMENT OF PARKWAY AFTER THE MERGER
If the Merger is approved, one of the directors of EB--Roger P.
Friou--will become a director of Parkway. The following table describes the
directors and the executive officers of Parkway expected to be in office
following the Merger:
<TABLE>
<CAPTION>
Principal Occupation and Business
Name, Position and Tenure with Parkway Age Experience for Past Five Years(1)
- --------------------------------------- ----- ----------------------------------------------------
<S> <C> <C>
Daniel C. Arnold 64 Director of Farm & Home Financial Corporation from
Director since 1994 1989 to 1994 and served as its Chairman of the Board,
President and Chief Executive Officer from 1989 to
1991; director of U.S. Physical Therapy, Inc.;
trustee of Baylor College of Medicine; trustee of
First Continental Real Estate Investment Trust
("First Continental") from 1993 to 1994.
H.C. Bailey, Jr. 54 President of H.C. Bailey Company (real estate
Director since 1988 development and investment); Chairman of the Board
and Chief Executive Officer and President of Security
Savings & Loan Association until 1992; President of
Bailey Mortgage Company (mortgage banking) until
1992.
George R. Farish 41 Chief Executive Officer of Houston Savings
Director since 1981 Association.
Roger P. Friou 60 Director and Chief Financial Officer of Jitney Jungle
Director upon Effective Date Stores of America, Inc. (a retail supermarket chain);
Director of EB since 1993.
</TABLE>
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<PAGE> 73
<TABLE>
<CAPTION>
Principal Occupation and Business
Name, Position and Tenure with Parkway Age Experience for Past Five Years(1)
- --------------------------------------- ----- ----------------------------------------------------
<S> <C> <C>
B. Pat Green, Jr. 61 Chairman of Green Oil Company, Inc. (a retail chain
Director since 1981 of gasoline stations and car washes); sole proprietor
of Green Investment Company (real estate
development).
Sidney W. Lassen 59 Chairman and Chief Executive Officer of Sizeler
Director since 1993 Property Investors, Inc. (a real estate investment
trust); Chief Executive Officer of Sizeler Realty
Co., Inc. (a real estate company).
Joe F. Lynch 60 Chairman of the Board and Chief Executive Officer of
Director since 1994 First Continental from 1989 to 1994 and President of
First Continental until 1989; Vice Chairman of the
Board of Farm & Home Financial Corporation and of
Farm & Home Savings Association from 1991 to 1994.
C. Herbert Magruder 61 Physician and a partner in the medical firm of
Director since 1988 Carolina Pathology Associates.
W. Lincoln Mossop, Jr. 59 General partner of Barrett & Co. (securities brokers
Director since 1986 and dealers and a member firm of the Boston Stock
Exchange, Inc.)
Leland R. Speed 62 Chief Executive Officer of LNH since 1992, EB since
Chairman since 1993, Chief Executive 1993, Eastover from 1977 to 1994, Congress Street
Officer since 1980 and Director from 1984 to 1994, EastPark Realty Trust from 1983
since 1978 to 1990, Rockwood from 1980 to 1994, and Parkway,
Eastover and EastGroup.(2)(3)(4)
Steven G. Rogers 40 President of Parkway since 1993 and Senior Vice
President since 1993 President of Parkway from 1988 to 1993; Senior Vice
President of Rockwood from 1988 to 1994; Senior Vice
President of Eastover and Congress Street from 1988
to 1994; Senior Vice President of EB and LNH since
1988; Senior Vice President of EastGroup from 1988 to
1994.(2)(3)(4)
</TABLE>
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<PAGE> 74
<TABLE>
<CAPTION>
Principal Occupation and Business
Name, Position and Tenure with Parkway Age Experience for Past Five Years(1)
- --------------------------------------- ----- ----------------------------------------------------
<S> <C> <C>
Sarah P. Clark 35 Vice President and Assistant Secretary of Parkway
Vice-President, Chief Financial since 1992; Vice President and Assistant Secretary of
Officer and Secretary on January 1, EB since 1993 and Rockwood, EastGroup, Eastover and
1995. Congress Street from 1992 to 1994; Vice President and
Assistant Secretary of LNH since 1992;
Controller of Eastover from 1986 to 1992 and
EastGroup from 1990 to 1992; Controller of Parkway
from 1986 to 1990. (2)(3)(4)
<FN>
- --------------------
(1) Unless otherwise stated, each individual has held the position
indicated for at least the past five years.
(2) Each of these companies was or is primarily engaged in the real estate
business. See "Expense-Sharing Arrangements" above.
(3) The Expense-Sharing Participants are the companies that participated in
the expense-sharing arrangements described above under "Expense-Sharing
Arrangements." The date indicated in the table as the date an
executive officer began serving as such for the Expense-Sharing
Participants indicates generally that the officer began serving as such
for the companies that were participants at that time. Service as an
executive officer for a company that became an Expense-Sharing
Participant after that date began generally at the time the company
became a participant.
(4) Rockwood, through its subsidiaries, is engaged in the real estate
business in New Orleans, Louisiana. Rockwood ceased participating in
the expense sharing arrangements described above under "Expense-Sharing
Arrangements" on June 28, 1994 and no longer shares common management
with EB and Parkway. Parkway and its wholly-owned subsidiary, Parkway
Congress Corporation, own an aggregate of 3,288,286 shares of Rockwood
(24.23%) as of January 11, 1995.
</TABLE>
- 58 -
<PAGE> 75
EXECUTIVE COMPENSATION
Until December 31, 1994, the salaries of the executive officers of
Parkway were paid by Congress Street and then allocated among the
Expense-Sharing Participants in accordance with the expense-sharing
arrangements. Beginning January 1, 1995, Parkway pays the salaries of its own
officers and (although Mr. Speed receives a salary from EastGroup as well) and
EB pays Parkway a share of these costs--see "Expense-Sharing
Arrangements--Termination of Arrangements" above.
<TABLE>
The following table summarizes, for the fiscal years ended June 30,
1994, 1993 and 1992 (i) the amount of the compensation allocated to Parkway
that was paid by Congress Street to Parkway's Chief Executive Officer and all
other officers whose cash compensation for service to all of the companies in
the Eastover Group during the year ended June 30, 1994 exceeded $100,000 (the
"Named Officers".)
<CAPTION>
Annual Compensation (1) Long Term
Compensation Awards
--------------------------------- ------------------------------------------------
LTIP
Name and Principal Other Annual Payouts All Other
Position Year Salary Bonus Compensation Options/SARs (2) $ (3) Compensation (4)
- ----------------------- ---- ------- -------- -------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Leland R. Speed 1994 $63,723 $7,379 -- -- $4,415 $3,315
Chief Executive 1993 81,067 8,870 -- -- 1,152 3,867
Officer 1992 87,814 -- -- 15,991/8,795 -- --
Steven G. Rogers 1994 33,432 5,985 -- -- 3,316 2,817
President 1993 40,350 8,870 -- -- 921 2,912
1992 37,451 -- -- 12,796/7,038 -- --
David H. Hoster II 1994 41,036 4,788 -- 3,814 3,205
Executive Vice 1993 51,908 7,096 -- -- 1,059 2,895
President 1992 55,005 -- -- 14,714/8,093 -- --
N. Keith McKey 1994 29,163 3,420 -- 2,487 1,922
Executive Vice- 1993 34,447 2,129 -- 3,201/1,761 691 1,670
President, 1992 31,590 -- -- 9,595/5,277 -- --
Chief Financial
Officer and
Secretary
<FN>
- --------------------
(1) All amounts are Parkway's share of the particular Named Officer's
compensation as allocated under the expense-sharing agreements.
(2) These options and SARs were granted in tandem under Parkway's 1991
Incentive Plan (the "Incentive Plan") and became exercisable in three
equal annual installments beginning on the first anniversary of their
date of grant. The Options and SARs granted in fiscal 1992 were
granted on October 29, 1991 and those granted in fiscal 1993 were
granted on December 18, 1992.
</TABLE>
- 59 -
<PAGE> 76
(3) These payments were made under Incentive Compensation Units granted
under the Incentive Plan. An Incentive Compensation Unit is a right to
receive an amount equal to the dividend paid on a specified number of
Shares during a five year period beginning on the date of the grant of
the unit. The amount payable with respect to an Incentive Compensation
Unit shall be credited to an account for the holder of such unit. The
grantee of the Incentive Compensation Unit shall be entitled to a cash
payment of 20% of the amount in the account of the first anniversary
date of its grant, 40% on the second anniversary date, 60% on the third
anniversary date, 80% on the fourth anniversary date and 100% on the
fifth anniversary date.
(4) This amount is Parkway's share of Congress Street's discretionary
contribution to a 401(K) plan for the respective Named Officer's
benefit.
Option Exercises and Year End Value. None of the Named Officers was
granted or exercised any options during the year ended June 30, 1994. The
following table shows the value of "in-the-money" exercisable and
unexerciseable options held by the Named Officers as of June 30, 1994.
Valuations are based upon the closing price of Parkway's Shares on the
over-the-counter market on June 30, 1994 ($12.25).
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED IN-
UNEXERCISED THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FY-END(#) FY-END($)
EXERCISABLE/ EXERCISABLE/
UNEXERCISABLE UNEXERCISABLE
---------------------------- ---------------
NAME
-------------------------
<S> <C> <C>
Leland R. Speed 10,660 Options (5,863 SARs)/ $113,661/
5,331 Options (2,932 SARs) $ 57,841
Steven G. Rogers 8,530 Options (4,692 SARs)/ $ 92,554/
4,266 Options (2,346 SARs) $ 46,284
David H. Hoster 9,809 Options (5,395 SARs)/ $106,428/
4,905 Options (3,188 SARs) $ 56,651
N. Keith McKey 7,463 Options (4,099 SARs)/ $ 80,934/
5,333 Options (2,933 SARs) $ 57,862
</TABLE>
- 60 -
<PAGE> 77
Directors Plan. At the 1991 Annual Meeting, the shareholders approved
Parkway's 1991 Directors Stock Option Plan (the "Directors Plan"). The
Directors Plan authorizes the issuance of options for up to 40,000 Shares to
directors of Parkway who are not, and have not been for at least one year prior
to the date of determination, employees of Parkway ("Non-Employee Directors").
Under the Directors Plan, each Non- Employee Director of Parkway on September
13, 1991 was automatically granted an option to purchase 5,000 Shares. Each
person who first becomes a Non-Employee Director after September 13, 1991 will
automatically be granted an option to purchase 5,000 Shares on the date the
person becomes a Non-Employee Director, if such shares are available. The
option exercise price is the closing price of a share if Parkway's Shares are
listed on an exchange or the average between the bid and the asked price for
that date if the shares are traded over-the-counter (or, if no shares were
publicly traded on that date, the next preceding date that such shares were so
traded). Such options are exercisable in full on the date of grant and expire
ten years after the date of grant or, if earlier, six months after the
termination of the optionee's service as a Non-Employee Director, unless such
service is terminated by reason of death, in which case the optionee's legal
representative shall have one year in which to exercise the option.
CERTAIN TRANSACTIONS AND RELATIONSHIPS
During the year ended June 30, 1994, Parkway had loan agreements
whereby it advanced funds to Lake Forest, Inc.("Lake Forest"), a wholly-owned
subsidiary of Rockwood, to fund continuing operations. Rockwood was a
participant in the expense sharing arrangements until June 29, 1994, at which
time Rockwood entered into a series of transactions pursuant to which its debts
and the debts of its wholly-owned subsidiary, Lake Forest, were restructured,
the Administration Agreement between Congress Street and Rockwood was
transferred to Eastover Realty, Inc. ("ERI"), an unrelated entity, and
designees of ERI were appointed directors and officers of Rockwood. In
connection with the restructuring, Parkway prepaid on June 29, 1994 a
promissory note in the principal amount of $2,274,000 payable to Lake Forest.
This debt was incurred in connection with the purchase of 80 acres of
undeveloped commercial land from Lake Forest. Immediately prior to the
restructuring, Parkway also had the following outstanding credit facilities
with Rockwood and Lake Forest:
(i) Participation in a line of credit with Trustmark National Bank
to the extent of $750,000 bearing interest at the prime rate
(an additional 2% interest is being accrued but not paid
effective June 12, 1990). Interest was payable monthly and
the note was due on demand. Terms of the participation called
for Parkway to advance up to $750,000 under the line of
credit. Parkway was participating pari passu on the loan,
which was collateralized by approximately 465 acres of real
estate in New Orleans. On June 29, 1994 this
- 61 -
<PAGE> 78
note was paid in full in connection with the restructuring of
Rockwood's debts described above.
(ii) Revolving credit note dated July 14, 1993 in the maximum
principal amount of $250,000 bearing interest at the prime
rate plus 2%. Interest was payable quarterly with the note
maturing July 14, 1994. This note was guaranteed by Rockwood
and secured by real estate in New Orleans, Louisiana. This
note was restructured in connection with the restructuring of
Rockwood's debts on June 29, 1994, and as of December 31,
1994, $177,000 was outstanding on this restructured debt.
In connection with the purchase of 80 acres of undeveloped commercial
land from Lake Forest, Rockwood issued to Parkway a warrant to purchase 800,000
shares of Rockwood common stock exercisable at $.375 per share during the
period beginning June 17, 1991, and ending December 31, 1995. Parkway is a
major shareholder in Rockwood (approximately 24.23% after the November 29, 1994
merger with Congress Street).
Parkway signed an amendment to the One Place Partner's Partnership
Agreement whereby Parkway loaned Congress Street funds for their portion of
capital contributions. This note accrued interest at prime plus one percent
with interest due annually. At June 30, 1994, $413,000 was outstanding on the
loan to Congress Street. This note was cancelled in connection with the merger
of Congress Street into a wholly-owned subsidiary of Parkway.
On January 1, 1994, Parkway signed a note whereby it loaned $100,000 to
Eastover. This note accrued interest at prime plus 1% with interest due
quarterly. The collateral for this note was a security interest in shares of
EastGroup. At June 30, 1994, the note had been paid in full.
- 62 -
<PAGE> 79
INFORMATION CONCERNING EB
Information concerning EB is contained in EB's 1993 Annual Report to
Shareholders under the headings "Description of Business" on pages 6 and 7,
"Market for Common Equity and Related Stockholder Matters" on page 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 8 and 9, "Financial Statements" and "Notes to Financial
Statements" on pages 12 through 25 and in EB's Quarterly Report on Form 10-QSB
for the quarter ended September 30, 1994 under the headings "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
page 9 through 11, and "Financial Statements" and "Notes to Financial
Statements" on pages 3 through 8, which accompany this Joint Proxy
Statement/Prospectus and are incorporated herein by this reference.
RECENT DEVELOPMENTS
On July 1, 1994, Grenada announced an agreement to merge with a
wholly-owned subsidiary of UPC, which announcement caused a significant
increase in the price of Grenada stock. On June 30, 1994, the day before the
announcement of the transaction, Grenada stock traded at $26.25. Since that
date and until October 19, 1994, the high and low bid prices were $35.00 and
$32.00, respectively for shares of Grenada, and traded on October 19, 1994 at
$32.25. The Merger was effected on December 31, 1994. EB held 438,889 shares
of Grenada stock, which EB carried on its books at September 30, 1994, at an
aggregate value of $14,154,000 ($32.25 per share). As a result of the
UPC/Grenada merger, EB now holds 637,705 shares of UPC (approximately 1.6% of
the outstanding shares). At March 7, 1995, UPC shares were trading at
$24.125.
On May 9, 1994, EB received a favorable ruling from the U.S. Fifth
Circuit Court in a lawsuit involving the Austin Development Company and
Sowashee Venture. This ruling allows EB to collect on a debt of $1,202,000
(including the principal of $918,000 and interest through September 30, 1994 of
$284,000). The collateral on this debt is a first mortgage on a leasehold
interest in the property and a first lien on rents payable from the theater
which is located on the property. Approximately $377,000 at September 30, 1994
was in an escrow account which may be applied to the debt. Prior to 1994, EB
fully reserved the note and interest receivable. Sowashee Venture requested
that the United States Supreme Court hear the case. On October 3, 1994, EB
received notice from the United States Supreme Court that Sowashee Venture's
petition for a writ of certiorari was denied in the case. At September 30,
1994, EB recorded interest income of $284,000 and other income of $93,000,
representing the $377,000 held in escrow, which was released to EB. EB has
begun receiving monthly rental payments of approximately $9,500 from the
theater and acquired this property by foreclosure in January 1995. See note 6
on page 8 and Management Discussion and Analysis of Financial Condition
- 63 -
<PAGE> 80
and Results of Operations on page 10 of EB's Quarterly Report on Form 10-QSB
for the quarter ended September 30, 1994.
- 64 -
<PAGE> 81
INFORMATION CONCERNING PARKWAY
DESCRIPTION OF BUSINESS
Original Organization. Parkway was created in 1971 under the Texas
Real Estate Investment Trust Act and operated under the name Texas First
Mortgage Real Estate Investment Trust ("TFMR"). From its inception through
June 30, 1974, TFMR operated as a qualified real estate investment trust under
the Internal Revenue Code of 1954, as amended ("Code"). TFMR terminated its
qualification as a real estate investment trust under the Code for fiscal years
ending after 1974. Although for federal income tax purposes TFMR was an
association taxable as a corporation, under Texas law it was still a business
trust meeting the requirements of the Texas Real Estate Investment Trust Act.
TFMR was reorganized and converted into a Texas corporation known as The
Parkway Company on January 7, 1981.
Investment Strategy. Parkway intends to invest in a wide variety of
opportunistic investments. These investments will include acquiring equity
positions in private or publicly traded companies which may or may not result
in mergers or acquisitions. Parkway will invest directly in real property in
the form of equity ownership or mortgages. Parkway will seek to control its
investments by owning substantially all of the ownership and will avoid
investments directly in real property that would result in a minority interest.
Parkway will seek investments where the expertise of the existing Parkway staff
can add value to assets selling at significant discounts to value. Parkway
will take advantage of its liquidity, financial strength, and management
experience in adding value to these acquisitions and in doing so will seek to
maximize its shareholders' value.
A fundamental component of Parkway's business strategy is the
investigation of possible mergers or acquisitions of other real estate
companies to increase its asset base and, thereby, its ability to compete with
larger real estate investors for attractive real estate opportunities. This
was carried out in the past through the acquisition of GNB in August 1979 and
Sugar Creek Corporation in March 1980, mergers of the NOVA Real Estate
Investment Trust in June 1983 and Highlands National, Inc. in April 1986 and
the acquisition of EastPark Realty Trust in April 1990. Most recently, this
was accomplished through the merger of First Continental effective May 10,
1994, the merger of Congress Street effective November 29, 1994 and the
agreement in principle to merge with EB.
- 65 -
<PAGE> 82
ADMINISTRATION
Parkway operated under an expense-sharing agreement with certain
affiliated companies from 1980 to 1994. The expense-sharing agreement provided
that the participating companies have common officers, facilities and
personnel, and the costs of these were shared among the participants. The
costs of the common facilities and personnel were initially paid by the company
administering the agreement and then allocated monthly to other participating
companies in accordance with the agreement. See "Special Factors--Expense
Sharing Arrangements."
As a result of Parkway's participation in the expense-sharing
agreement, Parkway had no employees. All personnel required for Parkway's
affairs, including Parkway's seven officers, received their salaries from
Congress Street, a portion of which was reimbursed by Parkway and other
participants in the agreement.
On December 31, 1994, the expense-sharing arrangements were terminated,
and Parkway now has its own employees, although it continues to share office
space with EastGroup, EB and LNH. See "Special Factors--Expense Sharing
Arrangements--Termination of Arrangements."
DESCRIPTION OF OPERATIONS
Parkway is currently engaged in the management and sale of its existing
real estate properties and mortgage loan portfolio as well as seeking new
investments that meet the criteria set forth in the investment strategy.
DESCRIPTION OF PROPERTIES
The operations of Parkway are conducted from approximately 12,000
square feet of office space located at 188 East Capitol Street, 300 One Jackson
Place, Jackson, Mississippi. The space is owned by One Jackson Place, Ltd., an
affiliate of Parkway.
In addition to owning real estate directly, Parkway also invests in
real estate indirectly through its ownership of securities of entities involved
primarily in real estate activities. Parkway uses the equity method of
accounting for its investment in the securities of EB and EastGroup. Below is
a description of these investees.
EB. On March 1, 1993, as part of a plan approved at a special
shareholders meeting on February 10, 1993, Eastover Bank for Savings (which was
a Mississippi-chartered savings bank, insured by the Federal Deposit Insurance
Corporation) changed its charter and name to EB, Inc. and sold its banking
assets to Sunburst, a wholly-owned subsidiary of Grenada pursuant to a
- 66 -
<PAGE> 83
"Purchase and Assumption Agreement" dated July 22, 1992. EB retained the
assets which were not sold to Sunburst and received 438,889 shares of Grenada,
common stock. The shares were valued at the fair market value on March 1,
1993, as quoted on NASDAQ. These assets consist principally of loans and real
estate owned. EB is currently involved in the management, operation and
disposition of the retained assets.
EB recognized a gain on sale of banking assets to Grenada of $4,992,000
which was calculated as follows (dollars in thousands):
<TABLE>
<S> <C>
Liabilities assumed by Grenada $408,700
Value of stock received (FMV of $22.625 per share) 9,930
Cash received 100
--------
418,730
Less:
Basis of assets sold (396,383)
Loans made to EB ( 12,317)
Write off of deferred charges ( 4,025)
Costs of sale ( 1,013)
--------
Gain $ 4,992
========
</TABLE>
Parkway's share of this gain was $1,030,000 and was recorded through
equity in earnings as Income on sale of discontinued operations.
During the year, Parkway purchased 453,471 shares of EB's outstanding
shares and received 221,784 shares through the dissolution of AllMiss Capital
Corporation ("AllMiss"), a 95% owned subsidiary of Parkway, increasing its
ownership to 51.5%. Under the Mississippi Control Share Statue, certain of the
shares of EB may not be voted by Parkway until (i) shareholders of EB approve
voting rights for the shares or (ii) three years after the shareholders of EB
fail to approve voting rights for the shares. Although Parkway's ownership is
equal to 51.5% (52.36% after the November 29, 1994 merger with Congress
Street), Parkway does not have a majority voting interest and continues to
record this investment on the equity method of accounting until majority voting
interest is obtained.
EASTGROUP. EastGroup is a tax-qualified Maryland real estate
investment trust that owns income producing properties, land purchase-leaseback
investments, mortgage loans and other real estate related investments.
CONGRESS STREET. On November 29, 1994, Parkway and Congress Street
combined through a merger of Congress Street and a wholly-owned subsidiary of
Parkway Congress
- 67 -
<PAGE> 84
Corporation. Under the terms of the merger, Congress Street shareholders
received .29, Parkway Shares.
Description of Real Estate and Operating Data.
ONE JACKSON PLACE. This is the only property owned by Parkway in which
its carrying value exceeds ten percent of Parkway's total assets. This
14-story office building was 100% leased at August 31, 1994 and competes with
other office buildings in downtown Jackson, Mississippi. Parkway and Parkway
Congress Corporation own a 73.125% effective interest through their general
partnership interest in One Place Partners, a Mississippi general partnership.
One Place Partners has a general partnership interest in Jackson Place
Investments, a Texas general partnership, equivalent to 73.125% of this office
building. Because Parkway has majority voting control over the building, the
operations of the building have been consolidated in the financial statements
of Parkway. One Place Partners has distributed $71,000 from the operations of
the building to its partners during fiscal 1994.
One Jackson Place has a total rentable area of 217,991 square feet with
the average effective annual rental per square foot of $17.34. At June 30,
1994, no tenant occupies ten percent or more of this area. The principal
tenants in the building are professional services firms, including
communications, legal, accounting, advertising and investment brokerage firms.
<TABLE>
<CAPTION>
LEASES EXPIRING
---------------------------------------------------------------------
YEAR ENDING MINIMUM PERCENTAGE OF
JUNE 30 NUMBER SQUARE FEET ANNUAL RENTS GROSS ANNUAL RENTS
- ----------- ------ ----------- ------------ ------------------
<S> <C> <C> <C>
1995 6 21,728 395,000 10.45%
1996 7 29,153 505,000 13.36%
1997 12 97,835 1,766,000 46.70%
1998 3 20,833 328,000 8.67%
1999 2 11,842 181,000 4.78%
2001 3 35,079 606,000 16.02%
</TABLE>
Depreciation is computed using the straight-line method over their
estimated useful lives. Below is a schedule of the estimated useful lives and
federal tax basis of the One Jackson Place office building.
- 68 -
<PAGE> 85
<TABLE>
<CAPTION>
LIFE TAX BASIS
------- ----------
<S> <C> <C>
Land --- $1,798,969
Building and improvement 40 yrs. 7,411,487
Equipment, furniture and fixtures 5 yrs. 22,674
Tenant improvements 10 yrs. 2,974,772
</TABLE>
Real estate taxes paid for 1994 and 1993 were $360,000 and $360,000,
respectively.
The following is a description of other major parcels of real estate
and real estate investments that are owned by Parkway at June 30, 1994 which do
not exceed ten percent of total assets. Unless otherwise indicated, Parkway or
a wholly-owned subsidiary of Parkway has title in fee simple to the properties
listed below.
Office Buildings and Retail Center
CASCADE III. Cascade III is a two-story office building located in
Worthington, a suburb of Columbus, Ohio. The building was completed in 1978
and contains a total of 24,900 square feet. The office building was 100%
leased at June 30, 1994.
CORPORATE SQUARE EAST. This 84,436 square foot office center is
located on 8.75 acres in suburban Indianapolis, Indiana. The center, which was
completed in 1964, was 87% leased at June 30, 1994.
CORPORATE SQUARE WEST. This office center consists of 95,917 square
feet of rentable office space located in Indianapolis, Indiana. The center,
which was completed in 1970, consists of four "L" shaped one-story buildings
located on 9.5 acres. The center was 99% leased at June 30, 1994, and is
subject to a $498,000 mortgage at June 30, 1994.
WEST OFFICE BUILDING. This 20,900 square foot single story office
building is located in Houston, Texas. This building, completed in 1984, was
100% leased to one tenant at June 30, 1994 and was acquired through the merger
with First Continental.
PLANTATION VILLAGE SHOPPING CENTER. This shopping center consists of
57,525 square feet of rentable retail space and is located in Lake Jackson,
Texas. At June 30, 1994, the center was 50% leased and was acquired through
the merger with First Continental.
Motel
AMERICAN INN NORTH. American Inn North is a discount motel located in
northeastern Indianapolis, Indiana. The motel, which was completed in 1975, is
comprised of 19 buildings on a 9.4 acre site. The motel is comprised of 345
efficiency units with kitchenettes, of which
- 69 -
<PAGE> 86
235 are currently rentable. Parkway allocated value only to the land on this
asset and no value was assigned to the buildings. The motel is currently
operating at an average occupancy of 51.6% and an average daily rate of $17.82.
Other Real Estate Investments
HIGHLANDS FALLS. This property is owned and developed by Golf
Properties, Inc. ("GPI"), a North Carolina corporation that is 65.45% owned by
Parkway and 34.55% owned by Citizens Growth Properties. Lots surround a
member-owned country club that includes an 18-hole golf course. During fiscal
1994, GPI recorded 17 lot sales, three equity membership sales and two social
membership sales. At June 30, 1994, GPI had 46 developed lots, 86 equity
memberships and 130 social memberships in the country club available for sale.
WINK OFFICE BUILDING. This 32,000 square foot office/warehouse
building located in New Orleans, Louisiana, is owned by the Wink- Parkway
Partnership, a partnership that is owned 50% by each Parkway and Wink
Engineering. At June 30, 1994, the building was 100% leased, of which Wink
Engineering occupied 93% on a 15 year net lease. This 50% ownership was
purchased by Parkway on June 15, 1994. The investment is accounted for on the
equity method of accounting as an investment in a partnership.
SILVER HOLLOW TOWNHOMES. Parkway owns 15 townhomes in a 240 unit
project located in West Houston. These units are 2 bedrooms, 2-1/2 baths with
an average of 1,450 square feet per unit. This property was acquired through
the merger of First Continental. The property was 93% leased at June 30, 1994.
BULLARD ROAD. This property consists of 80 acres of undeveloped
commercial land in New Orleans, Louisiana purchased in December 1990. The
property is being held for sale.
SUGAR CREEK. Parkway owns one 15.4 acre and one 5.4 acre commercial
tract in Sugar Creek Center, a mixed use commercial development comprised of
landscaped tracts with streets and utilities located in Sugarland, Texas
(southwest of Houston). These parcels are being held for sale. The 15.4 acres
at Sugar Creek Center are subject to a mortgage with a principal balance of
$640,000 at June 30, 1994.
SUGARLAND TRIANGLE. This property consists of 9 tracts totalling 29.27
acres located in Sugarland, Texas. Parkway owns a 50% undivided interest in
the property and it is being held for sale. This property was received in the
First Continental merger. On September 2, 1994, Parkway purchased the
remaining 50% interest in this property for $1,500,000. See "Recent
Developments."
- 70 -
<PAGE> 87
GREENBUSH. This property consists of a 162 acre undeveloped tract
located in Katy, Texas, approximately 27 miles west of the downtown Houston
area. This property was acquired through the First Continental merger and is
being held for sale.
STONEHENGE. This patio home subdivision is located in west Houston and
was developed in the early 1970's. It originally consisted of 163 patio lots.
The remaining 62 lots were acquired through the merger with First Continental.
This property is being held for sale.
It is the opinion of Parkway's management that the individual
properties are adequately covered by insurance. Parkway currently has no plans
for renovation, improvement or development of any of its real estate
properties, beyond that required for the maintenance of the property and tenant
improvements required to obtain new tenants.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
YEAR ENDED JUNE 30, 1994
Financial Condition. Assets of Parkway increased from $55,850,000 at
June 30, 1993, to $59,735,000 at June 30, 1994, a net increase of $3,885,000.
Liabilities decreased $661,000 to $28,006,000 during the same period. Book
value per share decreased from $21.57 at June 30, 1993 to $20.56 at June 30,
1994.
Effective May 10, 1994, the merger of First Continental with Parkway
Texas Corporation (a wholly-owned subsidiary of Parkway) was completed. This
merger increased Parkway's net assets as follows:
<TABLE>
<S> <C>
Operating real estate $2,298,000
Real estate held for sale 2,696,000
Mortgage loans 1,451,000
Interest receivable & other assets 228,000
Cash 195,000
Notes payable to banks (1,912,000)
Accounts payable & other liabilities (158,000)
----------
$4,798,000
==========
</TABLE>
- 71 -
<PAGE> 88
<TABLE>
Parkway's purchase price of these assets consisted of:
<S> <C>
Investment in FCREIT at 5/9/94 $1,235,000
Common stock issued 3,393,000
Merger expenses 170,000
----------
$4,798,000
==========
</TABLE>
The financial reporting and income tax accounting may vary considerably
in a business combination. Parkway has historically used and plans to continue
to use the purchase method of accounting for financial reporting purposes.
Because mergers have such a material impact on Parkway, a brief explanation of
the purchase method of accounting and its effect on Parkway is set forth below.
For financial reporting purposes, the assets of the company acquired
are assigned new cost basis amounts based on the cost of the assets to Parkway.
The cost to Parkway consists of the new shares issued at the market price of
the Parkway stock on the date of the merger plus cash paid, if any, and the
previous investment Parkway has in the company. Since the Parkway stock is
selling at a discount to book value and the stocks acquired are also selling at
discounts, the accounting results in a writedown of the assets acquired from
their book value and also a decrease in book value per share of the Parkway
stock. In some cases, real estate and loans are written down as much as 50%
from their previous book values. As the assets are sold or loans are
collected, income will be recorded to the extent of cash received less the new
written down basis.
For income tax purposes, Parkway typically receives a carryover basis
in the assets purchased which is equal to the tax basis of those assets prior
to the merger. In most cases, this basis is higher than book basis due to
allowance for losses and writedowns that were recorded for financial reporting
purposes but not income tax purposes, so as in the example above assets sold
may generate tax losses.
In summary, if assets from merged companies are sold for their
pre-merger book value, two positive things happen: (1) gains for financial
reporting purposes are recorded and (2) losses for income tax purposes are
recorded. Management believes that Parkway is positioned to record earnings
without creating income tax liabilities by selling assets of the acquired
companies.
During fiscal 1994, Parkway's investment in real estate increased a net
$4,542,000. This increase is due primarily to the merger of First Continental.
Also contributing to an increase in real estate was the purchase of an
additional 23.45% interest in the Big Run land for $10,000. Real estate assets
decreased $472,000 due to the sale of 2.8556 acres in Sugarland, Texas. The
2.8556 acres were a part of Parkway's 18.3 acre tract of land referred to as
Sugar Creek. The sales price was $525,000 and Parkway recorded a loss on the
sale of $14,000. Parkway
- 72 -
<PAGE> 89
received $105,000 cash and a $420,000 mortgage note in the sale. Terms of the
mortgage note include interest at 8%, quarterly interest payments and maturity
on March 16, 1996. Real estate assets also decreased $62,000 due to writedowns
on real estate to fair value.
The investment in real estate companies increased a net $5,998,000
during the year. Parkway recorded equity in earnings of $755,000, unrealized
gains on securities of $652,000, and dividends received of $332,000 during that
period. Parkway purchased an additional 453,471 shares of EB, an equity method
investee, for $5,864,000 increasing its ownership to 51.5% at June 30, 1994.
Parkway will continue to record this investment on the equity method due to
voting restrictions on the additional shares. Parkway also purchased shares of
another real estate investment trust for $312,000 from EastGroup, an affiliated
company. The price was based on the market price of the shares on the open
market on the date the shares were purchased. Parkway also purchased 117,232
shares of Congress Street at $.80 a share for a total purchase price of $94,000
pursuant to a rights offering by Congress Street.
On December 13, 1993, Parkway purchased 1,218,910 shares of First
Continental from EastGroup for $1,198,000. As previously mentioned, the merger
with First Continental was effective May 10, 1994 and decreased investments in
real estate companies by $1,235,000, which represented Parkway's investment in
First Continental prior to the merger.
Also a decrease of $1,077,000 in investments in real estate companies
was due to the sale of all of the securities of Medical Resources Co. of
America and Hotel Investors, shares of EastGroup and other stock investments.
The investment in mortgage loans increased a net $2,566,000, primarily
due to the merger of First Continental discussed previously, the mortgage note
received in the sale discussed above and the purchase of 35 mortgage loans and
two foreclosed lots from Eastgroup. In December 1989, Parkway transferred 53
mortgages with a yield of 10.25% to EastGroup in exchange for 327,981 shares of
EastPark Realty Trust ("EastPark") stock. EastPark is a former equity method
investee of Parkway. As a result of the exchange with EastGroup, Parkway's
ownership increased from 38.6% to 77.2% of the EastPark stock outstanding.
This acquisition of EastPark stock was the first in a series of transactions
that led to Parkway's purchase of 100% of EastPark's assets (subject to its
liabilities) and the subsequent liquidation of EastPark in April 1990. Parkway
guaranteed the collection of 100% of the mortgage loans transferred. The gain
on the transaction of $411,000 was deferred at the time of the sale. At
September 30, 1993 two of these mortgages had defaulted and been foreclosed and
35 loans remained. Parkway purchased the remaining loans and foreclosed
property for a purchase price of $956,000, which represented EastGroup's book
value of those loans on September 30, 1993 and will yield a 10.25% return to
Parkway. Parkway recognized $270,000 of the deferred gain on the loans during
the year ending June 10, 1994. Principal payments on mortgage loans totalled
$269,000 during the year.
- 73 -
<PAGE> 90
The investment in real estate partnerships and corporate joint venture
decreased a net $29,000 during the year ended June 30, 1994. Parkway recorded
equity in earnings of real estate partnerships and corporate joint ventures of
$239,000 and received distributions totalling $571,000. The decrease in real
estate partnerships and corporate joint venture is also due in part to the sale
of Parkway's 22% investment in GV Partners to its 78% partner, EastGroup. The
sales price was $275,000 cash plus the assumption of 22% of the outstanding
mortgage and was based on an appraisal by an independent third party. Parkway
recognized a gain of $280,000 on the sale.
On June 15, 1994, Parkway purchased a 50% interest in the Wink Office
Building, a 32,000 square foot office/warehouse building in New Orleans,
Louisiana. Parkway's 50% ownership is held through the Wink-Parkway
Partnership. The building was purchased from 4949 Partnership, a 50/50
partnership consisting of Wink Engineering and Lake Forest. The purchase price
was $1,500,000 (of which Parkway's 50% share was $750,000) consisting of
$500,000 cash plus the refinancing debt totalling $1,000,000. This debt is a 15
year non-recourse mortgage. At June 30, 1994, Wink Engineering occupied 93% of
the building on a 15 year non-cancelable net lease. This building will be
managed by Wink Engineering and will be accounted for under the equity method.
Parkway's investment at June 30, 1994 totalled $291,000.
Notes payable to banks increased a net $2,691,000 during the year. The
borrowings were from two lines of credit totalling $6,000,000. One line of
credit has a $5,000,000 credit limit, interest at the prime rate with interest
due monthly, an unused line fee of .25% due quarterly and maturity on June 30,
1995. The balance on this note totalled $1,991,000 at June 30, 1994. The
second line has a $1,000,000 credit limit, interest at prime plus .50% with
interest due monthly, an unused line fee of .75% due quarterly and maturity on
April 30, 1995. The balance on this note totalled $1,000,000 at June 30, 1994.
Notes payable to banks also increased by $1,912,000 due to the merger of First
Continental. Immediately following the merger, the $1,912,000 debt of First
Continental was repaid.
Notes payable to affiliates had a decrease of $2,274,000 for the year
due to the pre-payment of the note payable to Lake Forest on June 28, 1994. As
a result of this pre-payment, Lake Forest repaid its $750,000 note payable to
Parkway. This decrease in Parkway's note receivable is included in the
decrease in other assets. The decrease in mortgage notes payable without
recourse of $867,000 is due to scheduled payments and maturities of outstanding
debt.
- 74 -
<PAGE> 91
Shareholders' equity increased $4,546,000 during the year as a result
of the following factors (amounts in thousands):
<TABLE>
<CAPTION>
Increase
(Decrease)
----------
<S> <C>
Net income $1,303
Dividends declared (799)
Adjustment to unrealized gain on securities 652
Shares issued - FCREIT merger 3,393
Stock options exercised (3)
------
$4,546
======
</TABLE>
Parkway retired 1,073,000 treasury shares during the year ended June
30, 1994.
Results of Operations 1994 Compared to 1993. Revenues increased to
$8,956,000 for the 1994 fiscal year compared to $8,719,000 for the 1993 fiscal
year.
<TABLE>
Operations of real estate properties are summarized below:
<CAPTION>
Twelve Months Ended
June 30
------------------------
1994 1993
-------- --------
(In thousands)
<S> <C> <C>
Income from real estate properties $ 6,429 $ 6,019
Real estate operating expenses (3,760) (3,686)
------- -------
2,669 2,333
Interest expense on real estate properties (2,392) (2,487)
Depreciation and amortization (1,022) (981)
Minority interest 542 598
------- -------
$ (203) $ (537)
======= =======
</TABLE>
Revenues have increased reflecting higher occupancy levels, as well as
the added revenues from the properties acquired in the merger with First
Continental from May 10, 1994 through June 30, 1994.
- 75 -
<PAGE> 92
Operations of One Place Partners have been recorded through
consolidation for fiscal years 1994 and 1993 and are included in the table
above. The effect on Parkway's operations related to One Jackson Place
follows:
<TABLE>
<CAPTION>
Twelve Months Ended
June 30
---------------------
1994 1993
------ ------
(In thousands)
<S> <C> <C>
Revenues $3,517 $3,317
Operating expense (1,463) (1,370)
Interest expense (2,072) (2,076)
Depreciation (877) (870)
Minority interest 542 598
------ ------
Net loss $ (363) $ (401)
====== ======
</TABLE>
Interest on mortgage loans decreased $147,000 primarily as a result of
scheduled maturities of mortgage loans and the payoff of the Cedar Park first
and second mortgages in fiscal 1993. The interest recorded during fiscal 1993
on the Cedar Park mortgages was $276,000. Interest income on mortgage loans
increased during the year as a result of the purchase of loans from EastGroup
discussed previously and the loans acquired in the merger with First
Continental.
The gain on sale of real estate partnership of $280,000 in fiscal 1994
represents the sale of Parkway's 22% investment in GV Partners to the 78%
partner, EastGroup. The sales price was $275,000 cash plus the assumption of
22% of the outstanding mortgage and was based on an appraisal by an independent
third party.
The gain (loss) on real estate and mortgage loans varied from that
recognized in the prior year as follows (amounts in thousands):
<TABLE>
<CAPTION>
Twelve Months Ended
June 30
-------------------
1994 1993
------ ------
(In thousands)
<S> <C> <C>
Gain on sales of real estate $ 19 $1,707
Writedown of real estate and loans to fair value (132) --
Gain on payoff of mortgage loan -- 767
----- ------
$(113) $2,474
===== ======
</TABLE>
- 76 -
<PAGE> 93
In fiscal 1993, Parkway sold one 247 acre tract of land in Louisville,
Kentucky for a gain of $1,712,000 and recognized deferred gains of $767,000
upon the payoff of the Cedar Park first and second mortgage loans.
<TABLE>
Equity in earnings (losses) of real estate companies consists of the
following (amounts in thousands):
<CAPTION>
Twelve Months Ended
June 30
---------------------
1994 1993
------ ------
(In thousands)
<S> <C> <C>
EB $337 $ (758)
EastGroup 443 (2)
Congress Street (67) (64)
FCREIT (9) ---
---- ------
704 (824)
Plus amount recognized
as discontinued
operations from EB 51 1,490
---- ------
$755 $ 666
==== ======
</TABLE>
<TABLE>
Equity in earnings of real estate partnerships and corporate joint
venture consists of the following:
<CAPTION>
Twelve Months Ended
June 30
---------------------
1994 1993
------ ------
(In thousands)
<S> <C> <C>
Golf Properties, Inc. $233 $289
GV Partners 6 30
---- ----
$239 $319
==== ====
</TABLE>
The gain on securities of $579,000 represents the sale of Parkway's
remaining investment in Medical Resources Co. of America for $212,000 with a
gain of $104,000, all of the investment in Hotel Investors for $268,000 with a
gain of $125,000, 58,525 shares of EastGroup, an equity method investee, for
$1,152,000 with a gain of $337,000 and other stock investments for $24,000 with
gains of $13,000. Gain on securities of $22,000 in fiscal 1993 represented the
sale of 11,000 shares of Medical Resources Co. of America for $37,000 having a
net basis of $15,000.
- 77 -
<PAGE> 94
Net income for the year ending June 30, 1994 was $1,303,000 ($1.00 per
share) compared to net income for the year ending June 30, 1993 of $2,712,000
($2.15 per share). Income before discontinued operations for the year ending
June 30, 1994, was $1,252,000 ($.96 per share) compared to $1,222,000 ($.97 per
share) for the year ending June 30, 1993. Below is a table showing the effect
of gains included in net income.
<TABLE>
<CAPTION>
Twelve Months Ended
June 30
-------------------
1994 1993
------ ------
(In thousands)
<S> <C> <C>
Gain on sale of real estate partnership $ 280 $ ---
Gain (loss) on real estate and mortgage loans, net (113) 2,474
Gain on securities 579 22
----- ------
Gains included in income before
discontinued operations 746 2,496
Equity in earnings from sale of discontinued
operations by equity method investee --- 1,030
----- ------
Gains included in net income $ 746 $3,526
===== ======
</TABLE>
Liquidity and Capital Resources. Funds provided by operations,
mortgage loan payments, bank borrowings, proceeds from the sales of stock,
sales of real estate and the sale of a partnership interest were the primary
sources of funds for Parkway during fiscal 1994. Funds provided by these
sources and cash balances were sufficient to cover repayment of long-term debt,
bank debt, dividends paid to shareholders, improvements to real estate owned
properties, the purchase of real estate investments and the payment of
operating expenses. At June 30, 1994, Parkway had available $217,000 in cash
and short-term investments. Management believes that funds generated from
operations, borrowings and cash on hand will be sufficient to cover future cash
requirements.
As discussed previously, Parkway established two lines of credit during
the year totalling $6,000,000. One line of credit has a $5,000,000 credit
limit, interest at prime due monthly, an unused line fee of .25% due quarterly
and maturity on June 30, 1995. The second line has a $1,000,000 credit limit,
interest at prime plus .50% due monthly, an unused line fee of .75% due
quarterly and maturity on April 30, 1995. At June 30, 1994, the balance on
these lines totalled $2,991,000 leaving $3,009,000 available for use.
On November 29, 1994, Congress Street and Parkway Congress Corporation,
a wholly owned subsidiary of Parkway, merged. Under the terms of the merger,
Congress Street shareholders received .29 shares of Parkway for each Congress
Street share owned. The exchange ratio was recommended to the board of
directors of each company by negotiating committees comprised of independent
directors.
- 78 -
<PAGE> 95
On July 27, 1994, Parkway and EB jointly announced that their boards of
directors had agreed in principle to a merger of EB and PAC. See "Special
Factors--The Merger Agreement." Parkway believes that the cash available from
the proposed merger with EB will be sufficient for the cash requirements of the
proposed merger of approximately $5,527,000.
On September 2, 1994, Parkway purchased the remaining 50% interest in
the Sugarland Triangle land. The purchase price was $1,500,000 and was
purchased with funds drawn under the available lines of credit. On December
21, 1994, Parkway entered into a contract to sell substantially all of the
Sugarland Triangle land to the Woodmont Corporation, a Texas corporation. See
"Recent Developments" below.
QUARTER ENDED SEPTEMBER 30, 1994
Financial Condition. (Comments are for the balance sheet dated
September 30, 1994 compared to the balance sheet dated June 30, 1994.)
Total assets of Parkway increased $2,719,000 to $62,454,000 at
September 30, 1994. The primary reason for the increase was the purchase of
real estate properties for $1,500,000 and recording unrealized gains on
marketable equity securities of $1,554,000. Liabilities increased $1,057,000 to
$29,063,000 during the same period. Book value per share increased from $20.56
at June 30, 1994 to $21.64 at September 30, 1994.
The investments in real estate increased a net $1,333,000. This
increase is due primarily to the September 2, 1994 purchase of the remaining
50% interest in the Sugarland Triangle land for a purchase price of $1,500,000.
Decreases in investments in real estate are due to the sale of 9 residential
lots, 5 townhomes and one commercial parcel. The sales prices totalled
$362,000 consisting of $178,000 in cash and $184,000 in mortgage notes. Total
gains on the sales were $216,000. Of this amount, $115,000 was recognized as
gains on sale of real estate and $101,000 was deferred to be realized using the
installment method of accounting.
The investment in real estate companies increased a net $1,682,000
during the quarter. Parkway recorded equity in earnings of $252,000 and
dividends received of $123,000. Parkway also recorded $1,554,000 of unrealized
gains on securities. Of this amount, $27,000 is due to the adoption of
Statement of Financial Accounting Standard (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" which requires that
investment securities be carried at fair market value. The remaining increase
of $1,527,000 is due to certain of Parkway's investees application of SFAS No.
115.
Mortgage loans increased a net $118,000 primarily due to mortgage notes
of $184,000 received in the sales mentioned above. Parkway received $124,000 in
principal payments and recognized $58,000 from amortization of valuations and
deferred gains.
- 79 -
<PAGE> 96
The net decrease in real estate partnerships and corporate joint
venture for the quarter was $91,000. Parkway recorded equity in earnings of
real estate partnerships and corporate joint venture of $106,000 and received
distributions of $196,000.
Notes receivable from affiliates had a net decrease of $28,000. This
included advances of $48,000 and repayments of $76,000.
The increase in notes payable to banks of $714,000 included advances of
$1,945,000 and payments of $1,231,000. The decrease of $37,000 in mortgage
notes payable without recourse was due to scheduled principal payments.
The increase in deferred gains of $101,000 is due to the sales
mentioned previously. These deferred gains will be recognized as payments are
received on the notes.
Shareholders' equity increased $1,662,000 during the comparison period
as a result of the following factors:
<TABLE>
<CAPTION>
Increase (decrease)
-------------------
(In thousands)
<S> <C>
Net income $ 355
Dividends declared (247)
Unrealized gains 1,554
------
$1,662
======
</TABLE>
Results of Operations. (Comments are for the three months ended
September 30, 1994 compared to the three months ended September 30, 1993.)
- 80 -
<PAGE> 97
<TABLE>
Operations of real estate properties are summarized below:
<CAPTION>
Three Months Ended
September 30
----------------------
1994 1993
------- --------
(In thousands)
<S> <C> <C>
Income from real estate properties $1,842 $1, 551
Real estate operating expense (977) (923)
------ -------
865 628
Interest expense on real estate properties (539) (610)
Depreciation and amortization (273) (247)
Minority interest 123 158
------ -------
$ 176 $ (71)
====== =======
</TABLE>
<TABLE>
The effect on Parkway's operations related to One Jackson Place which
are included in the table above) follows:
<CAPTION>
Three Months Ended
September 30
----------------------
1994 1993
------- --------
(In thousands)
<S> <C> <C>
Revenues $ 902 $ 839
Operating expenses (370) (369)
Interest expense (518) (518)
Depreciation (220) (220)
Minority interest income 123 161
----- -----
Net loss $ (83) $(107)
===== =====
</TABLE>
The increase in interest on mortgage loans of $106,000 is due primarily
to $72,000 of interest income recorded on the mortgage loans received in the
merger with FCREIT. Also contributing to this increase was interest recorded
on a mortgage loan made during the last fiscal year in connection with the sale
of real estate.
The gain on sale of real estate partnership of $280,000 in September
1993, is due to the sale of Parkway's 22% investment in GV Partners to the 78%
partner, EastGroup.
- 81 -
<PAGE> 98
<TABLE>
Equity in earnings of real estate companies consists of the following:
<CAPTION>
Three Months Ended
September 30
---------------------------
1994 1993
------ ------
(In thousands)
<S> <C> <C>
EB $221 $ 96
EastGroup 45 54
Congress Street (14) (18)
---- ----
$220 $132
Less amounts recognized as
discontinued operations -- 51
---- ----
$252 $ 81
==== ====
</TABLE>
<TABLE>
Equity in operations of real estate partnerships and corporate joint
venture consists of the following:
<CAPTION>
Three Months Ended
September 30
---------------------------
1994 1993
------ ------
(In thousands)
<S> <C> <C>
Golf Properties, Inc. $ 93 $ 53
GV Partners -- 5
Wink/Parkway 13 --
---- ----
Partnership
$106 $ 58
==== ====
</TABLE>
Interest expense of $61,000 in the quarter ending September 30, 1994 is
due to borrowings under lines of credit.
Other expenses increased $174,000 during the three months ending
September 30, 1994 as compared to the three months ended September 30, 1993
primarily as a result of stock appreciation rights expense recorded of $92,000,
increased directors fees of $19,000 due to special meetings held in connection
with the proposed mergers with Congress Street and EB and increased
administrative expenses due to the merger of FCREIT.
Liquidity and Capital Resources. Funds provided by operations,
mortgage loan payments, bank borrowings and proceeds from sales of real estate
were the primary sources of funds for Parkway during the three months. Funds
provided by these sources and cash balances were sufficient to cover repayment
of long-term debt and bank debt, dividends paid to shareholders, improvements
to real estate owned properties, the purchase of real estate properties and the
payment of operating expenses.
- 82 -
<PAGE> 99
At September 30, 1994, Parkway had available for general use $175,000
in cash and $2,220,000 available under two lines of credit. Management
believes that funds generated from operations, borrowings and cash on hand will
be sufficient to cover future cash requirements.
Parkway believes that the cash available from the proposed merger with
EB will be sufficient for the cash requirements of the merger of approximately
$5,527,000. At December 31, 1994, EB had available approximately $7.5 million
in cash and cash equivalents.
On November 8, 1994, Parkway sold a stock investment for $339,000 cash
and will recognize a gain of $27,000 on the sale in the quarter ending December
31, 1994. The funds from the sale will be used to reduce the lines of credit.
RECENT DEVELOPMENTS
Parkway and Congress Street merged pursuant to an agreement to merge
the terms of which provided that each share of Congress Street was converted
into twenty-nine one hundredths of one (.29) Parkway Share. This merger
transaction was completed on or about November 29, 1994. Congress Street owned
37% of the outstanding Parkway Shares and had virtually no other assets (except
the stock of Eastover Realty and a 35% effective interest in the One Jackson
Place Office Building) or liabilities (except for common costs incurred under
the expense-sharing arrangements described under "Expense-Sharing Arrangements"
above). The Congress Street/Parkway merger was treated as a "purchase"
transaction for accounting purposes. The effects of this transaction on
Parkway are reflected in the pro forma financial statements included under the
heading "Pro Forma Consolidated Financial Statements (Unaudited)."
On December 21, 1994, Parkway entered into a purchase and sale
agreement to sell substantially all of the Sugarland Triangle Land, located
south of Houston, Texas, to The Woodmont Corporation, a Texas corporation. The
purchase price for the 25.39 acres is approximately $7.7 million in cash, net
of closing costs. The agreement, as amended, gives an additional review period
through April 25, 1995 subject to the payment of certain non-refundable fees.
In November 1994, Parkway sold 3.25 acres of land in Sugarland, Texas
(Houston) to a developer of assisted living care facilities. The net cash
proceeds from the sale were approximately $445,000 resulting in a gain for
financial reporting purposes of approximately $145,000.
Also in November 1994, Parkway sold a 22.7 acre tract of high density
residential land located in Atlanta, Georgia, known as Kelly Land. The sale
price was $355,000 net of closing
- 83 -
<PAGE> 100
costs. The purchase price consisted of $5,000 cash and a promissory note in
the amount of $350,000 maturing December 31, 1994. Parkway expects to record a
gain of approximately $12,000 for financial reporting purposes on this sale in
the quarter ending December 31, 1994.
On December 8, 1994, Parkway's Board of Directors voted to change its
fiscal year end from June 30th to December 31st effective December 31, 1994.
On February 24, 1995, One Jackson Place, Ltd. entered into a
non-binding letter of intent to sell the One Jackson Place office building for
$24.4 million. Parkway owns an effective 73.125% interest in the One Jackson
Place office building by virtue of its indirect ownership of the partnership
which owns the office building. The willingness of the prospective purchaser
to acquire the office building is subject to a number of conditions, including
the assumption by the purchaser of the existing $22.4 million mortgage on the
office building and the extension of the maturity date of the mortgage from
August 1, 1999 to May 31, 2002 at no cost to the purchaser.
- 84 -
<PAGE> 101
INFORMATION CONCERNING CONGRESS STREET
Congress Street was merged into a wholly-owned subsidiary of Parkway on
November 29, 1994. The following discussion describes Congress Street before
the merger was consummated.
DESCRIPTION OF BUSINESS
Original Organization. Congress Street was incorporated in the State
of Delaware on February 22, 1984. On March 1, 1984, Congress Street issued
1,249,425 shares of common stock to Eastover in exchange for certain assets and
related liabilities of Eastover. Eastover, in turn, declared and paid on March
31, 1984, a distribution-in-kind of the Congress Street Shares on a
share-for-share basis to the holders of record of Eastover shares of beneficial
interest as of March 15, 1984.
Reason for Distribution. Eastover was a Louisiana real estate
investment trust which was organized in 1973. From its inception through
December 31, 1977, Eastover operated as a qualified REIT under the Code.
Because of the operational and asset restrictions imposed under the Code on
tax-qualified REITs and the substantial net operating loss carryforwards
accumulated by Eastover, which made useless the benefits which could be
obtained by passing through income directly to its beneficial owners, Eastover
terminated its qualification as a REIT for fiscal years ending after 1977.
Eastover exhausted its net operating loss carryforwards in fiscal year 1983,
and in February 1984, its Board of Trustees authorized it to "spin off" the
assets which were not permitted to be held by a REIT. Eastover, having
retained only qualified assets, requalified as a REIT for its year ended
December 31, 1984.
Administration. Congress Street had an expense-sharing agreement with
Eastover, Parkway and EastGroup pursuant to which the participants shared
administrative offices at the same location in Jackson, Mississippi and common
officers and other personnel, subject to the authority of the board of
directors of each participating company to elect or appoint and remove its
officers in accordance with its certificate of incorporation, declaration of
trust or other charter documents and applicable law. See "Special
Factors--Expense Sharing Arrangements." EB had a separate administrative
agreement with Congress Street which allowed EB to participate in the
expense-sharing agreement on the same basis as the companies which are parties
to the expense-sharing arrangement. Under this arrangement, the participants
shared the cost of the common officers and other employees and of shared
facilities and activities. These common costs were initially paid by Congress
Street, which served as the administrator of the agreement, and the other
participants paid Congress Street an annual fee (on a monthly basis) of one
half of one
- 85 -
<PAGE> 102
percent of their assets which are publicly-traded securities. After these
fees, any profits from Eastover Realty Corporation ("Eastover Realty") and the
fees from LNH, Citizens Growth Properties and Rockwood were subtracted from the
total common costs (see further description below), the remaining common costs
were allocated on a monthly basis among Congress Street, EastGroup, Parkway,
Eastover and EB in proportion to their assets other than publicly-traded
securities, based on their balance sheets as contained in their most recent SEC
filings. Certain costs which the common officers believed to be particularly
attributable to each member company were not shared. These non-allocable costs
include but are not limited to directors' and trustees' fees, legal, audit and
stock transfer expenses, stationery and items of a similar nature. Congress
Street received no fee income for fulfilling its duties as the administrator of
the expense-sharing agreement. Congress Street recorded its share of the
common expenses, computed as described above, as a general and administrative
expense. Congress Street's share of these common costs were $56,000 in 1994
and $49,000 in 1993. The amounts that Congress Street allocated to the other
companies totalled $2,039,000 for 1994 and $1,585,000 for 1993. Congress Street
had amounts payable to the participating companies totaling $90,000 in 1994 and
$260,000 in 1993, which represented advances made by the participating
companies to Congress Street.
Effective April 22, 1992, LNH moved its corporate offices to Jackson,
Mississippi and agreements were executed whereby Congress Street provided
certain management and administrative services for LNH for an annual fee of
$125,000. Rockwood signed an agreement separately with Congress Street,
whereby Congress Street provided management and administrative services for an
annual fee of the lessor of $196,000 or the amount that would have been paid
under the expense-sharing agreement. This agreement was terminated June 29,
1994.
For the years ended October 31, 1994 and 1993 Citizens Growth
Properties ("Citizens") also signed an agreement with Congress Street, whereby
Congress Street administered the day-to-day business affairs of Citizens, and
Citizens paid an annual administration fee of $40,000. Prior to October 1989,
Citizens was also a participant in the expense-sharing arrangement.
At August 31, 1994, Congress Street had 24 employees, including six
salaried officers which were allocated among the participants in the
expense-sharing agreement and 52 employees which were reimbursed by other
entities and not allocated under the expense-sharing agreement.
DESCRIPTION OF OPERATIONS.
Congress Street was engaged primarily in the real estate business. At
August 31, 1994 it owned notes and securities of other real estate companies.
Through Congress Street's wholly-owned subsidiary, Eastover Realty, Congress
Street managed several commercial and multi- family residential properties, for
which it received management fees. Eastover Realty also performed leasing and
brokerage services on a commission basis. The income derived from
- 86 -
<PAGE> 103
Eastover Realty, $291,000 in 1994 and $234,000 in 1993, offsets the shared
general and administrative expenses. See "Special Factors--Expense Sharing
Arrangement."
Congress Street conducted its activities through its officers and other
employees. However, Congress Street did contract with independent parties for
certain services such as engineering services, property renovation, management
and professional services. On November 29, 1994, Congress Street was merged
into a wholly-owned subsidiary of Parkway and thereupon ceased operating as a
separate corporate entity.
DESCRIPTION OF PROPERTIES
Congress Street accounted for its investments in the shares of other
real estate companies over which it was deemed to have significant influence or
control, either alone or in concert with other participants in the
Expense-Sharing Arrangements, using the equity method of accounting. Congress
Street's former equity method investees are described below:
The Parkway Company. Parkway is primarily involved in the management
and sale of its real estate properties and mortgage loan portfolio. See
"Information Concerning Parkway."
EB, Inc. As of the date of the Congress Street/Parkway merger,
Congress Street owned 11,673 EB Shares. For a description of EB, see
"Information Concerning EB."
One Jackson Place. This 14-story office building was, at August 31,
1994, 100% leased and competes with other office buildings in downtown Jackson,
Mississippi. Congress Street had a 48.5% general partnership interest in One
Place Partners, a Mississippi general partnership in which Parkway owned the
remaining interest. One Place Partners has a general partnership interest in
Jackson Place Investments, a Texas general partnership, equivalent to 73.125%
of this office building at August 31, 1994.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Financial Condition. Assets of Congress Street decreased to $6,816,000
at August 31, 1994, compared to $10,127,000 at August 31, 1993. The
investments in real estate companies decreased $2,970,000 due to total equity
in earnings of $920,000 offset by dividends received of $340,000 and a loss on
writedown of securities of $3,550,000. At August 31, 1994, the Company
recorded a loss on writedown of securities of $3,550,000 in its equity
investments in EB, Inc. ($34,000) and Parkway ($3,516,000). The adjustments
were required to reflect an "other than temporary" decline in the market price
of these securities due to the subsequent merger on November 29, 1994 of the
Company with Parkway. The securities were written down to reflect their market
values at the date of merger. Management believes that the recorded investments
in these securities, before the $3,550,000 writedown, would be recovered over
time if Congress Street continued to operate as a separate publicly traded
company.
- 87 -
<PAGE> 104
In May 1994, Parkway issued 283,496 shares of its stock in a merger with First
Continental. The stock issuance resulted in a decrease in Congress Street's
ownership in Parkway from 44.99% to 36.74%. Real estate partnerships decreased
$402,000 due to losses recorded from One Place Partners of $343,000 and
repayment of advances of $59,000.
During the same period, liabilities decreased $855,000 to $842,000
principally from the reduction in notes payable to banks (as discussed below)
and amounts payable to affiliates.
The deferred gain from the sale in 1990 of the Eastover Bank Building
and the note receivable balance on the note received in that sale were $336,000
at August 31, 1994. This gain was being recognized as principal payments were
received on the note receivable. For the year ended August 31, 1994, principal
payments of $5,000 were received and this amount was recognized as income.
On December 14, 1993, Congress Street successfully completed a rights
offering and issued 1,075,409 Congress Street Shares at $.80 per share.
Congress Street received proceeds of $805,000, net of expenses. The net
proceeds were used to reduce its bank indebtedness under its line of credit.
The book value of Congress Street decreased from $7.84 per share at August 31,
1993 to $4.55 per share at August 31, 1994 reflecting primarily the effect of
the additional Congress Street Shares outstanding and net income of $290,000
for fiscal 1994.
Results of Operations. Equity in earnings of real estate companies,
for the comparison period is as follows:
<TABLE>
<CAPTION>
Twelve Months Ended
August 31,
---------------------------
Company 1994 1993
------- ----------- ------------
<S> <C> <C>
The Parkway Company $913,000 $1,434,000
EB, Inc. 7,000 25,000
-------- ----------
920,000 1,459,000
Less amounts recognized as
discontinued operations 23,000 716,000
-------- ----------
Equity in earnings from
continuing operations $897,000 $ 743,000
======== ==========
</TABLE>
Equity in losses of the real estate partnership, One Place Partners,
for the twelve months ended August 31, 1994 and 1993 was $343,000 and $378,000,
respectively.
- 88 -
<PAGE> 105
Interest expense decreased from $127,000 for the twelve months ended
August 31, 1993 to $59,000 for the twelve months ended August 31, 1994 as a
result of the significant pay down of notes payable to bank.
In fiscal 1993, Congress Street recorded a gain of $18,000 on the sale
of the Tall Pines land and recognized $29,000 of deferred gain on the sale of
the Eastover Bank Building, resulting in total gains of $47,000. In fiscal
1994, Congress Street recognized $5,000 of deferred gain on the sale of the
Eastover Bank Building.
General and administrative expenses increased $42,000 compared to the
prior year. This reflects primarily the Stock Appreciation Rights expense
recorded of $20,000, an increase in franchise tax of $6,000 and an increase of
$7,000 in directors fees and travel as a result of the special meetings held to
negotiate the Congress Street/Parkway merger. Legal fees also increased due to
the merger negotiations.
Also during fiscal 1993, Congress Street collected $30,000 on a
mortgage note receivable that was fully reserved. This collection resulted in
a $30,000 positive adjustment in the provision for possible losses.
Liquidity and Capital Resources. Sources of funds for the twelve month
period ended August 31, 1994 were proceeds from the stock rights offering,
dividends from Parkway and proceeds from bank borrowings. Operating expenses,
interest expense, and repayment of bank debt utilized the majority of the funds
generated.
In December 1993, Congress Street completed its stock rights offering
and received proceeds of $805,000, net of expenses. Substantially all of the
net proceeds were used to reduce its bank indebtedness under its line of
credit.
At August 31, 1994, Congress Street had $74,000 available for future
cash needs. Congress Street's bank line of credit of $1,050,000 matured
December 30, 1993. After reducing the bank line of credit with proceeds from
the stock rights offering, the bank line of credit was renewed for $200,000 at
an interest rate of the bank's prime rate plus one percent. The note matured
December 30, 1994 and was collateralized by 75,000 Parkway Shares. There was
no amount outstanding on this line of credit at August 31, 1994.
On July 6, 1994, Parkway and Congress Street jointly announced that
their Boards of Directors had agreed in principle to a merger of Congress
Street and a wholly-owned subsidiary of Parkway. The merger was completed on
November 29, 1994 with shareholders of Congress Street receiving .29 Parkway
Shares for each Congress Street Share owned.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
- 89 -
<PAGE> 106
Directors. The table below sets forth certain information with respect
to the former directors of Congress Street, each of whom was elected at
Congress Street's annual shareholders' meeting held in March 1993 and served as
an director of Congress Street until its merger with Parkway Congress
Corporation on November 29, 1994 (the "Merger").
<TABLE>
<CAPTION>
NAME AND POSITION PRINCIPAL OCCUPATION AND BUSINESS
WITH CONGRESS STREET AGE EXPERIENCE FOR PAST FIVE YEARS (1)
----------------------- --- -----------------------------------
<S> <C> <C>
H.C. BAILEY, JR. 55 President of H.C. Bailey Company (real estate
Director development and investment); Chairman of the
Board and Chief Executive Officer and President
of Security Savings & Loan Association until
1992; President of Bailey Mortgage Company
(mortgage banking) until 1992; Director of EB
since 1988.
FREDERICK R. CLARK 68 Engineer and partner in the consulting firm of
Director Williams, Williams & Clark.
C. HERBERT MAGRUDER 62 Physician and a partner in the medical firm of
Director Carolina Pathology Associates.
LELAND R. SPEED 62 Chief Executive Officer of Congress Street from
President and Director 1984 to 1994, Eastover from 1977 to 1994, LNH
since 1992, EB since 1993, EastPark Realty
Trust from 1983 to 1990; Rockwood from 1983 to
1994, and Parkway, Eastover and EastGroup.(2)
J. WILL YOUNG 88 Retired attorney and formerly of counsel to the
Director law firm of Young, Scanlon & Sessums.
<FN>
- --------------------
(1) Unless otherwise stated, each director has held the positions indicated
for at least the past five years.
(2) Each of these companies is primarily engaged in the real estate
business. See "Special Factors--Expense Sharing Arrangements."
</TABLE>
- 90 -
<PAGE> 107
<TABLE>
Other Directorships and Trusteeships. Members of Congress Street's
Board of Directors serve on the Boards of Directors or the Boards of Trustees
of the following publicly-held companies:
<CAPTION>
Director Company
-------- -------
<S> <C>
H.C. BAILEY, JR. EastGroup
EB
LNH
Parkway
C. HERBERT MAGRUDER Parkway
United Financial Corporation of South
Carolina
LELAND R. SPEED EastGroup
EB
Farm Fish, Inc.
First Mississippi Corporation
LNH
Parkway
</TABLE>
Executive Officers. The following is a listing of Congress Street's
executive officers as of November 29, 1994, the date of the Congress
Street/Parkway merger. Certain of the executive officers also served as
executive officers of each of the other Expense Sharing Participants. The
expense-sharing agreement was terminated on December 31, 1994. See "Special
Factors--Expense Sharing Arrangements."
<TABLE>
<CAPTION>
NAME AND POSITION PRINCIPAL OCCUPATION AND BUSINESS
WITH CONGRESS STREET AGE EXPERIENCE FOR PAST FIVE YEARS (1)
----------------------- --- -----------------------------------
<S> <C> <C>
LELAND R. SPEED 62 See table under "Directors."
President since 1984
</TABLE>
- 91 -
<PAGE> 108
<TABLE>
<CAPTION>
NAME AND POSITION PRINCIPAL OCCUPATION AND BUSINESS
WITH CONGRESS STREET AGE EXPERIENCE FOR PAST FIVE YEARS (1)
----------------------- --- -----------------------------------
<S> <C> <C>
DAVID H. HOSTER II 49 Executive Vice-President of Parkway, Congress
Executive Vice-President since Street and Eastover from 1988 to 1994, and EB
1988 from 1988 to 1994; President of EastGroup since
1993 and Executive Vice President of EastGroup
from 1988 to 1993 and Rockwood from 1988 to
1994; President of EastPark Realty Trust from
1976 to 1990.
STEVEN G. ROGERS 40 President of Parkway since 1993 and Senior
Senior Vice-President since 1989 Vice-President of Parkway from 1988 to 1993;
Senior Vice President of Rockwood from 1988 to
1994; Senior Vice President of Eastover and
Congress Street from 1988 to 1994; Senior Vice
President of EB and LNH since 1988 and Senior
Vice President of EastGroup from 1988 to 1994.
N. KEITH McKEY 43 Executive Vice-President and Chief Financial
Senior Vice-President since 1988, Officer of Parkway from 1993 to 1994 and
Chief Financial Officer and EastGroup since 1993 and Senior Vice-President
Secretary since 1992 of those companies from 1988 to 1993; Senior
Vice President, Chief Financial Officer and
Secretary of Eastover and Congress Street from
1988 to 1994; Senior Vice-President from 1988
to 1994 and Chief Financial Officer and
Secretary from 1992 to 1994 of Rockwood.
<FN>
- -------------------
(1) The date indicated in the table as the date an executive officer
began serving as such for the participants in the Expense Sharing
Arrangements indicates generally that the officer began serving as
such for the companies that were participants at that time. Service
as an executive officer for a company that became an Expense-Sharing
</TABLE>
- 92 -
<PAGE> 109
Participant after that date began generally at the time the company
became a participant. See "Special Factors--Expense-Sharing
Arrangements."
There are no family relationships between any of the directors or
executive officers of Congress Street.
Executive Compensation. The executive officers of Congress Street
also served as executive officers of all the other participants in the Expense
Sharing Arrangements. See "Special Factors--Expense Sharing Arrangements."
Their salaries were paid by Congress Street and then allocated among the
participants in the Expense Sharing Arrangements in accordance with the
allocation formula set forth in the agreement.
<TABLE>
The following table summarizes, for the fiscal years ended August 31,
1994, 1993 and 1992 (i) Congress Street's allocated portion of the compensation
paid by Congress Street to Congress Street's Chief Executive Officer and all
other officers whose cash compensation service to all of the participants in
the Expense Sharing Arrangements during the year ended August 31, 1994 exceeded
$100,000 (the "Named Officers").
<CAPTION>
Annual Compensation (1) Long Term
Compensation Awards
------------------------------- -----------------------------------------------
LTIP
Name and Principal Other Annual Payouts All Other
Position Year Salary Bonus Compensation Options/SARs (2) $ Compensation(3)
- ----------------------- ---- ------- ------ ------------ ---------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Leland R. Speed 1994 $ 7,024 $767 -- $-- $338
Chief Executive 1993 7,759 240 -- -- -- 246
Officer 1992 10,036 -- -- -- -- 410
Steven G. Rogers 1994 3,714 55,380(4) -- -- -- 327
Senior Vice President 1993 5,451 52,624 -- -- -- 185
1992 5,202 35,646 -- -- -- 247
David H. Hoster II 1994 4,313 342 -- -- 287
Executive Vice 1993 4,973 154 -- -- 184
President 1992 6,223 -- -- -- -- 289
N. Keith McKey 1994 3,206 245 -- -- 196
Senior Vice- 1993 3,172 118 -- 2,500/2,500 -- 106
President, 1992 3,654 -- -- -- -- 166
Chief Financial
Officer and
Secretary
<FN>
- --------------------
(1) All amounts are Congress Street's share of the particular Named Officer's
compensation as allocated under the expense-sharing agreement.
- 93 -
<PAGE> 110
(2) These options and SARs were granted in tandem under Congress Street's 1984
Stock Option and Stock Appreciation Rights Plan (the "Plan") and became
exercisable on the first anniversary of their date of grant.
(3) This amount is Congress Street's share of Congress Street's discretionary
contribution to a 401(K) plan for the respective Named Officer's benefit.
(4) Includes $55,040 in 1994, $52,394 in 1993, and $35,646 in 1992 payable as a
bonus to Mr. Rogers based upon the profits of Eastover Realty Corporation
pursuant to the agreement described under "Certain Relationships and
Related Transactions."
</TABLE>
Option Grants. No Option grants were made to the Named Officers
during the fiscal year ended August 31, 1994.
Option Exercises and Year End Value. None of the Named Officers
exercised any options during the year ended August 31, 1994. The following
table shows the value of "in-the-money" exercisable and unexerciseable options
held by the Named Officers as of August 31, 1994. Valuations are based upon
the average bid and asked prices quoted with respect to Congress Street Shares
on August 15, 1994 ($3.63), the last day prior to August 31, 1994 for which
quotes were available.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FY-END(#) FY-END($)
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
---- ------------- -------------
<S> <C> <C>
Steven G. Rogers 5,000 Options and SARs/ $1,900/
0 Options and SARs $0
David H. Hoster 10,000 Options and SARs/ $3,800/
0 Options and SARs $0
N. Keith McKey 7,500 Options and SARs/ $12,550/
0 Options and SARs $0
</TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Security Ownership of Certain Beneficial Owners. To the best of
Congress Street's knowledge, no person or group (as those terms are used in
Section 13(d)(3) of the Securities Exchange Act of 1934) beneficially owned
more than 5% of the Congress Street Shares
- 94 -
<PAGE> 111
outstanding except for the person and groups named in the following table.
These Congress Street Shares were converted into shares of Parkway pursuant to
the Congress Street/Parkway merger.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT PERCENT
OF BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS
------------------- ------------------ --------
<S> <C> <C>
Certain Clients of American Securities 141,437(1) 6.6%
Corporation (1)
80 Pine Street
New York, New York 10004
Leland R. Speed 265,988(2) 12.4
300 One Jackson Place
188 East Capitol Street
Jackson, Mississippi 39201
Estate of William E. Walker, Jr. 186,000(3) 8.6
Suite 400
1675 Lakeland Drive
Jackson, Mississippi 39216
<FN>
- --------------------
(1) Based upon a Schedule 13D pertaining to shares filed with the SEC
(as most recently amended on January 21, 1986) by American
Securities Corporation, a registered broker-dealer, on behalf of 27
named persons, including Mr. William Rosenwald, members of his
family, his close business associates, members of their families
and persons serving as trustees of trusts established for the
benefit of certain members of Mr. Rosenwald's family.
(2) The shares indicated in the table do not include (i) 48,640 shares
held Mr. Speed's wife; (ii) 43,184 shares held by Mr. Speed's son,
Forrest; (iii) 20,448 shares held by Mr. Speed's son, Warren; and
(iv) 87,244 shares held by Mr. Speed's son, Stewart.
(3) Based upon a Schedule 13D pertaining to shares filed with the SEC
(as amended on January 15, 1991).
</TABLE>
Security Ownership of Management. The following table sets forth
the Congress Street Shares beneficially owned as of the date of the Congress
Street/Parkway merger by each director and by all directors and officers as a
group. Unless otherwise stated, each person had sole voting and investment
power with respect to the shares set forth in the table. The shares were
converted into shares of Parkway pursuant to the Congress Street/Parkway
merger.
- 95 -
<PAGE> 112
<TABLE>
<CAPTION>
NAME AMOUNT PERCENT
---- BENEFICIALLY OWNED OF CLASS
------------------ --------
<S> <C> <C>
H.C. BAILEY, JR. 39,456 (1) 1.83%
FREDERICK R. CLARK
56,576 (2) 2.63
C. HERBERT MAGRUDER
41,522 (3) 1.84
LELAND R. SPEED
265,988 (4) 12.37
J. WILL YOUNG
77,000 3.58
Directors and
officers as a group 606,806 (5) (6) 28.21
<FN>
- --------------------
(1) Mr. Bailey had sole voting and investment power with respect to
19,728 of these shares and shared voting and investment power with
respect to 5,760 shares.
(2) Does not include (i) 9,000 shares beneficially owned by Mr. Clark's
wife; and (ii) an aggregate of 31,000 shares beneficially owned by
Mr. Clark's four children.
(3) Includes 4,628 shares held by a trust under the Will of Dr.
Magruder's deceased spouse, as to which he had shared voting and
investment power.
(4) See note (2) to table in section captioned "Security Ownership of
Certain Beneficial Owners" above.
(5) Excludes (i) 200 shares beneficially owned by the spouse of an
officer; and (ii) shares that officers had the right to acquire
under Congress Street's 1984 Stock Option and Stock Appreciation
Rights Plan.
(6) See notes (1) through (3) above.
</TABLE>
- 96 -
<PAGE> 113
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain Transactions. Steven G. Rogers, an executive officer of
Congress Street has an agreement pursuant to which he is paid 15% of the
profits of Eastover Realty Corporation, a wholly-owned subsidiary of Congress
Street which is a commercial real estate brokerage company that offers leasing,
management and construction services. This payment is in addition to his
annual salary from Congress Street.
Expense-Sharing Agreement. See the description of the expense
sharing arrangements under the heading "Special Factors--Expense Sharing
Arrangements."
- 97 -
<PAGE> 114
MARKET PRICES AND DIVIDENDS
PARKWAY SHARES
Parkway Shares are traded over-the-counter and are listed on NASDAQ NMS
under the symbol "PKWY." As of January 19, 1995 there were 1,563,308 Parkway
Shares outstanding held of record by approximately 5,288 shareholders.
<TABLE>
The following table sets forth the high and low sales prices per Parkway
Share and the cash distributions paid by Parkway for the calendar quarters
specified:
<CAPTION>
Distribution Paid
High Low Per Share
Quarter Ended -------- -------- -----------------
- -------------
<S> <C> <C> <C>
September 30, 1992 . . . . . . . . . . . . . $ 5 7/8 $ 5 1/4 $.20
December 31, 1992 . . . . . . . . . . . . . . 6 1/4 5 1/4 .20
March 31, 1993 . . . . . . . . . . . . . . . 7 5 3/8 .20
June 30, 1993 . . . . . . . . . . . . . . . . 10 1/2 6 3/4 .20
September 30, 1993 . . . . . . . . . . . . . 11 1/2 7 3/4 .20
December 31, 1993 . . . . . . . . . . . . . . 14 3/4 11 .15
March 31, 1994 . . . . . . . . . . . . . . . 13 1/2 11 1/2 .15
June 30, 1994 . . . . . . . . . . . . . . . . 14 11 .15
September 30, 1994 . . . . . . . . . . . . . 14 1/2 12 .15
December 31, 1994 . . . . . . . . . . . . . . 15 1/2 13 .16
</TABLE>
On July 26, 1994, the most recent trading day on which Parkway Shares traded
prior to the public announcement as to the agreement in principle between
Parkway and EB regarding the Merger (which occurred on July 27, 1994), the
closing price for Parkway Shares on NASDAQ NMS was $12.50. As of March 7,
1995, the most recent trading day as to which it is practicable to provide
market price information, the closing price for Parkway Shares on NASDAQ NMS
was $15.00 per share.
EB SHARES
EB Shares are traded over-the-counter and are listed on NASDAQ SCM. As of
January 19, 1995 there were 1,450,117 EB Shares outstanding held of record by
approximately 2,371 shareholders of record.
During 1992 and through July 22, 1993 trading of EB's Shares was sporadic
and reliable quotations are unavailable. The following table sets forth, for
the periods indicated, the high
- 98 -
<PAGE> 115
and low bid prices for EB Shares and the cash distributions paid by EB for the
calendar quarters specified after July 22, 1993 (EB did not pay a dividend from
the period 1986 through April 1994):
<TABLE>
<CAPTION>
Distribution Paid
High Low Per Share
Quarter Ended ------- ----- -----------------
- -------------
<S> <C> <C> <C>
September 30, 1993 . . . . . . . . . . . . . $12 1/2 $10 $---
December 31, 1993 . . . . . . . . . . . . . . 13 11 ---
March 31, 1994 . . . . . . . . . . . . . . . 11 11 ---
June 30, 1994 . . . . . . . . . . . . . . . . 12 11 .10
September 30, 1994 . . . . . . . . . . . . . 171/4 15 .10
December 31, 1994 . . . . . . . . . . . . . . 171/4 15 .10
</TABLE>
On July 26, 1994, the most recent trading day on which EB Shares were traded
prior to the public announcement that Parkway and EB had reached an agreement
in principle with respect to the Merger, the closing bid price for EB Shares
was $14.25. On March 7, 1995, the most recent trading day as to which it is
practicable to provide market price information, the closing bid price for EB
Shares was $15.75.
DIFFERENCES IN SHAREHOLDERS' RIGHTS
The rights of holders of EB Shares are governed by the provisions of EB's
Restated Articles of Incorporation, as amended (the "EB Articles"), and by the
Bylaws of EB, as well as by the MBCA and other Mississippi law. If the Merger
is consummated, shareholders of EB will become shareholders of Parkway, and
their rights as such will be governed by Parkway's Articles of Incorporation,
as amended (the "Parkway Articles"), and Bylaws as well as by the Texas
Business Corporation Act ("TBCA") and other Texas law.
The rights of EB shareholders differ in certain respects from the rights
they will have if they become shareholders of Parkway pursuant to the Merger.
A summary of some of these differences is set forth below. This summary is not
intended in any way to be a complete description of all such differences.
Capital Stock. The EB Articles authorize EB to issue 25,000,000 EB Shares.
As of January 19, 1995, 1,450,117 EB Shares were outstanding and no EB Shares
were issued and being held as treasury stock. Parkway is presently authorized
to issue up to 10,000,000 Parkway Shares (Common Stock), and 5,000,000 shares
of Preferred Stock, $10.00 par value per share, of which 1,563,308 Parkway
Shares and no shares of Preferred Stock were issued and outstanding as of
January 19, 1995. Under the Parkway Articles, Parkway's Board of Directors has
the
- 99 -
<PAGE> 116
authority to determine the dividend and liquidation preferences, voting rights,
dividend rates and conversion rights of the Preferred Stock, except that (i)
preferred dividends must be cumulative, (ii) the stock must be redeemable, and
(iii) the holders of any series of Preferred Stock shall have the right, voting
as one class, to elect two directors of Parkway at any time at which dividends
on that series of the Preferred Stock are in arrears in an aggregate amount
equal to six quarterly dividends.
Preemptive Rights. Under the EB Articles, EB's shareholders are entitled to
preemptive rights. Pursuant to the MBCA, EB shareholders have the preemptive
right granted on uniform terms and conditions prescribed by the Board of
Directors to provide a fair and reasonable opportunity to exercise the right to
acquire proportional amounts of unissued EB Shares upon the decision of the
Board to issue them. No preemptive rights exist for EB shareholders with
respect to (i) EB Shares issued as compensation to directors or officers, (ii)
EB Shares issued to satisfy conversion or option rights and (iii) EB Shares
issued otherwise than for money. Parkway shareholders do not have preemptive
rights.
Voting. Under the EB Articles, the presence of a majority of the
outstanding EB Shares entitled to vote, represented in person or by proxy,
constitutes a quorum at a meeting of stockholders. A majority of the
outstanding EB Shares voted at any meeting is determinative of any question
except in those instances in which state law requires otherwise. At each
election for directors, every shareholder entitled to vote has the right to
vote, in person or by proxy, the number of shares owned by him or her for as
many persons as there are directors to be elected and for whose election he or
she has a right to vote, or to cumulate his or her votes by giving one
candidate as many votes as the number of such directors multiplied by the
number of his or her shares equals, or by distributing such votes on the same
principle among any number of such candidates. EB's Bylaws provide that any
one or more of the directors may be removed, either with or without cause, at
any special meeting of the shareholders called for that purpose, and by such
vote as is required by the MBCA. The MBCA further provides that the
affirmative vote of the shareholders of a majority of a quorum is necessary to
remove a director at a special meeting, however, since EB authorizes cumulative
voting, such a director may not be removed if the number of votes sufficient to
elect him under cumulative voting is voted against his removal. For a merger,
consolidation or sale of all or substantially all of EB's assets, Mississippi
law requires that the holders of at least a majority of the shares entitled to
vote approve the transaction unless the transaction is subject to the
Mississippi Shareholder Protection Act, in which case a business combination
shall be approved by the affirmative vote of at least 80% of votes entitled to
be cast by the outstanding voting shares and two-thirds of the votes entitled
to be cast by holders of outstanding voting stock other than the interested
shareholder who is (or whose affiliate or associate is) a party to the business
combination or an affiliate or associate of the interested shareholder, voting
together as a single class. The Merger requires approval of the holders of at
least a majority of the shares entitled to vote. Amendment of the Articles of
Incorporation requires the affirmative vote of the holders of at least a
majority of the outstanding shares entitled to vote thereon.
- 100 -
<PAGE> 117
Under Parkway's Bylaws, the presence of at least a majority of the
outstanding shares entitled to vote is required to constitute a quorum at a
meeting of shareholders. To be elected a director, a nominee must receive at
least a majority of the votes cast at the meeting. Unlike EB, Parkway does not
permit its shareholders to cumulate their votes in the election of directors.
Parkway's Bylaws provide that any director may be removed at a special meeting
expressly called for that purpose at which a quorum is present and a majority
of the shares entitled to vote are voted for such removal. For a merger,
consolidation or sale of all or substantially all of Parkway's assets, Texas
law requires that the holders of at least a majority of the outstanding voting
shares approve the transaction. Amendment of the Articles of Incorporation
requires a resolution adopted by the Board of Directors and the affirmative
vote of the holders of at least a majority of the outstanding shares entitled
to vote thereon, unless any class of shares is entitled to vote as a class, in
which event the proposed amendment shall be adopted upon receiving the
affirmative vote of the holders of at least a majority of the shares within
each class of outstanding shares entitled to vote as a class and of at least a
majority of the total outstanding shares entitled to vote thereon.
Special Meetings of Shareholders. Special meetings of EB stockholders may
be called at any time by a resolution of EB's Board of Directors, or upon the
written request of the record owners of no less than 10% of the outstanding
shares. Parkway's Bylaws provide that a special meeting of Parkway
shareholders may be called at any time by the Chairman of the Board (if any),
by the President or by a majority of Parkway's Board of Directors, or by a
majority of the executive committee (if any), and shall be called by the
Chairman of the Board (if any), by the President or the Secretary upon the
written request therefor, stating the purpose or purposes of the meeting,
delivered to such officer, signed by the holder(s) of at least ten percent
(10%) of the issued and outstanding shares entitled to vote at such meeting.
Term of Office. Directors of EB and Parkway are each elected for one year
terms and must stand for re-election annually. As of the date of this Joint
Proxy Statement/Prospectus, EB had six directors and Parkway had nine
directors.
DESCRIPTION OF CAPITAL STOCK OF PARKWAY
Parkway is authorized to issue up to 10,000,000 Parkway Shares, which are
neither redeemable nor subject to restriction on their transfer, except as may
be required by applicable securities laws. Parkway is also authorized to issue
without shareholder approval up to 5,000,000 shares of Preferred Stock (none of
which is currently outstanding), with such dividend and liquidation
preferences, voting rights, dividend rates, conversion rights and redemption
prices as the Parkway Board of Directors shall determine, provided that (i)
dividends must be cumulative, (ii) the stock must be redeemable and (iii) the
holders of any series of Preferred Stock shall have the right, voting as one
class, to elect two directors of Parkway at any time at
- 101 -
<PAGE> 118
which dividends on that series of Preferred Stock are in arrears in an
aggregate amount equal to six quarterly dividends.
Subject to the rights of holders of Preferred Stock, holders of Parkway
Shares will be entitled to receive such dividends as may be declared from time
to time by the directors out of funds legally available therefor. All of the
issued and outstanding Parkway Shares are fully paid and non-assessable and
have no preference, conversion, exchange, preemptive or redemption rights. In
the event of any liquidation, dissolution or winding up of Parkway, holders of
Parkway Shares are entitled to share ratably in any of its assets remaining
after satisfaction of all obligations and liabilities of Parkway and after
required distributions to holders of Preferred Stock, if any.
Each Parkway Share is entitled to one vote on all matters put to a vote of
the shareholders. Parkway Shares have no cumulative voting rights, which means
that the holders of more than 50% of Parkway Shares voting in the election of
directors can elect all of the respective directors who are then standing for
election if they choose to do so, and in such event the holders of the
remaining Parkway Shares will not be able to elect any directors at that
election.
INDEMNIFICATION PROVISIONS
Under Parkway's Bylaws, Parkway is required to indemnify its directors and
officers to the fullest extent permitted by Texas law as currently existing or
later amended (but in the case of such amendment, only to the extent that it
permits broader indemnification rights than permitted prior to such amendment).
Each director and officer of Parkway has a written agreement with Parkway which
requires, among other things, that Parkway shall indemnify them to the fullest
extent permitted under the TBCA as currently existing or later amended (but in
the case of such amendment, only to the extent that it permits broader
indemnification rights than permitted prior to such amendment). Parkway's
Articles provide that its directors shall not be liable to Parkway or its
shareholders for monetary damages to the fullest extent permitted by Texas law.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of Parkway pursuant
to the foregoing provisions or otherwise, Parkway has been advised that in the
opinion of the SEC such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
EXPERTS
The consolidated financial statements of Parkway at June 30, 1994 and 1993,
and for the years then ended, appearing in this Joint Proxy
Statement/Prospectus and Registration Statement
- 102 -
<PAGE> 119
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon appearing elsewhere herein, which is based in part on the
reports of KPMG Peat Marwick LLP and Deloitte & Touche LLP, independent
auditors. The financial statements referred to above are included in reliance
upon such reports given upon the authority of such firms as experts in
accounting and auditing.
The financial statements incorporated in this Joint Proxy
Statement/Prospectus by reference from EB's Annual Report on Form 10-KSB, as
amended, for the year ended December 31, 1993, have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report, which is
incorporated herein by reference, and have been so incorporated in reliance
upon the report of such firm given upon their authority as experts in
accounting and auditing.
The consolidated financial statements of Congress Street at August 31, 1994
and 1993 and for the years then ended, appearing in this Joint Proxy
Statement/Prospectus, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report appearing elsewhere herein and are
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
LEGAL OPINIONS
The validity of the Parkway Shares being offered hereby has been passed upon
for Parkway by Jaeckle, Fleischmann & Mugel. Jaeckle, Fleischmann & Mugel has
passed upon the significant federal income tax consequences of the Merger to
the holders of EB Shares.
REPORTS TO SHAREHOLDERS
Parkway will provide shareholders with annual reports containing financial
statements reported upon by independent auditors, and also unaudited quarterly
statements of operations.
- 103 -
<PAGE> 120
OTHER MATTERS
The management of EB and Parkway does not know of any other matters to come
before the meetings. However, if any other matters come before the meetings,
it is the intention of the persons designated as proxies to vote in accordance
with their judgment on such matters.
A portion of the expense of preparing, printing and mailing the form of
proxy and the material used in the solicitation thereof initially will be borne
by EB, but ultimately will be borne, directly or indirectly, by Parkway if the
Merger is consummated. If the Merger is not consummated, EB would bear all
expenses it incurred relating to this Joint Proxy Statement/Prospectus and
Parkway will bear all expenses Parkway incurred..
In addition to solicitation by mail, Board members, officers and regular
employees of EB and Parkway, who will receive no additional compensation
therefor, may solicit the return of proxies by telephone, telegram and personal
interview.
EB and Parkway may require brokers, custodians, nominees and other record
holders to forward copies of this Joint Proxy Statement/Prospectus to persons
for whom they hold EB Shares and Parkway Shares, respectively, and to seek
authority for the execution of proxies; in such cases, EB or Parkway, as the
case may be, will reimburse such holders for their charges and expenses. EB
has retained Beacon Hill to assist with the solicitation of proxies and will
pay Beacon Hill a fee of $3,500 (subject to increase for additional services
such as telephonic solicitation of proxies) plus reimbursement for out of
pocket expenses for its services.
- 104 -
<PAGE> 121
INDEX TO FINANCIAL STATEMENTS
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Pro Forma Consolidated Balance Sheet as of September 30, 1994 (Unaudited) . . . . . . . . . . F-3
Notes to Pro Forma Consolidated Balance Sheet
as of September 30, 1994 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Pro Forma Consolidated Statements of
Income for the Twelve Months Ended June 30, 1994 (Unaudited) . . . . . . . . . . . . F-7
Pro Forma Consolidated Statements of Income for
the Three Months Ended September 30, 1994 (Unaudited) . . . . . . . . . . . . . . . F-8
Notes to Pro Forma Consolidated Statements
of Income for the Twelve Months Ended June 30, 1994 (Unaudited)
and the Three Months Ended September 30, 1994 (Unaudited) . . . . . . . . . . . . . F-9
CONSOLIDATED FINANCIAL STATEMENTS OF PARKWAY
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-11
Consolidated Balance Sheets as of June 30, 1994 and 1993 . . . . . . . . . . . . . . . . . . F-12
Consolidated Statements of Income
for the Years Ended June 30, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . F-13
Consolidated Statements of Cash Flows
for the Years Ended June 30, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . F-14
Consolidated Statements of Shareholders' Equity
for the Years Ended June 30, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . F-15
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . F-16
Consolidated Balance Sheets as of September 30, 1994 (Unaudited)
and June 30, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-32
Consolidated Statements of Income for the Three
Months Ended September 30, 1994 and 1993 (Unaudited) . . . . . . . . . . . . . . . . F-33
Consolidated Statements of Cash Flows
for the Three Months Ended September 30, 1994 and 1993 (Unaudited) . . . . . . . . . F-34
</TABLE>
F-1
<PAGE> 122
<TABLE>
<S> <C>
Consolidated Statements of Shareholders' Equity
for the Three Months Ended September 30, 1994 and 1993 (Unaudited) . . . . . . . . . . . . . . . . . . F-35
Notes to Consolidated Financial Statements (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-36
CONSOLIDATED FINANCIAL STATEMENTS OF CONGRESS STREET
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-39
Consolidated Balance Sheets as of August 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . F-40
Consolidated Statements of Income for the Years
Ended August 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-41
Consolidated Statements of Cash Flows for the Years
Ended August 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-42
Consolidated Statements of Shareholders' Equity for the Years
Ended August 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-43
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-44
</TABLE>
F-2
<PAGE> 123
THE PARKWAY COMPANY
PRO FORMA CONSOLIDATED BALANCE SHEET (Unaudited)
As of September 30, 1994
The following unaudited pro forma consolidated balance sheet sets forth the
effect of Parkway's merger with Congress Street and proposed merger with EB as
if the mergers had been consummated on September 30, 1994. The pro forma
consolidated balance sheet has been prepared by management of Parkway based
upon the historical financial statements of Parkway, Congress Street and EB.
This pro forma consolidated balance sheet may not be indicative of the results
that actually would have occurred if the mergers had been in effect on the
dates indicated or which may be obtained in the future. The pro forma
consolidated balance sheet should be read in conjunction with the other
financial statements and notes to the financial statements of Parkway, Congress
Street and EB incorporated by reference or included herein.
<TABLE>
<CAPTION>
Parkway Congress St. Congress St. Pro Forma EB EB Other Pro Forma
9/30/94 8/31/94 Pro Forma Consolidated 9/30/94 Pro Forma Pro Forma Consolidated
(Historical) (Historical) Adjustments Before EB (Historical) Adjustments Adjustments After EB
------------ ------------ ----------- --------- ------------ ----------- ----------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments
Real estate (net of accumulated
depreciation) $ 39,363 $ $ 569 (5) $ 39,932 $ 2,802 $ (1,703) (7) $ $ 41,031
Real estate partnerships:
Wink-Parkway Partnership 303 303 303
One Jackson Place (1,553) 2,122 (1) 0 0
(569)(5)
Investment in marketable securities:
EB, Inc. 14,049 201 14,250 (12,071) (7) (2,179) (6) 0
Congress Street Properties, Inc. 364 (364)(1) 0 0
The Parkway Company 7,939 (7,939)(4) 0 0
Other real estate & financial
service companies 1,958 1,958 14,154 16,112
Mortgage loans 3,600 3,600 14,480 (8,938) (7) 9,142
Investment in Golf Properties, Inc. 628 628 628
------- -------- -------- ------- -------- -------- ------- -------
60,265 6,587 ( 6,181) 60,671 31,436 (22,712) (2,179) 67,216
Notes receivable from affiliates 385 (377)(2) 8 8
Interest and rents receivable and
other assets 1,283 155 1,438 418 1,856
Cash and cash items 175 74 (12)(3) 237 4,464 (4,464) (7) 237
Restricted cash 346 346 346
------- -------- -------- ------- -------- -------- ------- -------
$ 62,454 $ 6,816 $ (6,570) $ 62,700 $ 36,318 $ (27,176) $ (2,179) $ 69,663
======= ======== ======== ======= ======== ======== ======= =======
LIABILITIES
Notes payable to banks $ 4,345 $ 36 $ 4,381 $ $ 1,063 (7)$ $ 5,444
Notes payable to affiliate 0 389 (389)(2)(3) 0 0
Mortgage notes payable without
recourse 22,865 22,865 22,865
Accounts payable & other liabilities 1,611 417 (124)(1) 1,904 1,688 3,592
Deferred gain 242 242 242
------- -------- -------- ------- -------- -------- ------- -------
29,063 842 (513) 29,392 1,688 1,063 0 32,143
------- -------- -------- ------- -------- -------- ------- -------
STOCKHOLDERS' EQUITY
Common Stock 1,543 236 (242)(1)(4) 1,537 2,900 (2,444)(7) 1,993
Additional paid in capital 27,134 13,515 (13,592)(1)(4) 27,057 30,017 (24,082)(7) 32,992
Retained earnings 2,508 (6,260) 6,260 (1) 2,508 (2,511) 2,511 (7) 2,508
Treasury stock 0 (1,517) 1,517 (1) 0 0
Unrealized gains 2,206 - - (1) 2,206 4,224 (4,224)(7) (2,179)(6) 27
------- -------- -------- ------- -------- -------- ------- -------
33,391 5,974 (6,057) 33,308 34,630 (28,239) (2,179) 37,520
------- -------- -------- ------- -------- -------- ------- -------
$ 62,454 $ 6,816 $ (6,570) $ 62,700 $ 36,318 $ (27,176) $ (2,179) $ 69,663
======= ======== ======== ======= ======== ======== ======= =======
Book value per share $ 21.64 $ 18.83
Shares outstanding (In thousands) 1,543 2,151 (6) 1,537 1,450 456 1,993
</TABLE>
F-3
<PAGE> 124
THE PARKWAY COMPANY
NOTES TO PRO FORMA CONSOLIDATED BALANCE
SHEET (Unaudited) As of
September 30, 1994
(1) Parkway issues 561,086 shares of stock to all Congress Street
shareholders (except for Parkway) in exchange for all Congress
Street shares outstanding. The Congress Street shares owned by
Parkway are retired. The merger with Congress Street is accounted
for under the purchase method of accounting.
<TABLE>
<S> <C>
Congress Street Shares outstanding 2,155,818
Less Congress Street Shares owned by Parkway (220,577)
----------
1,935,241
Exchange ratio 0.29
----------
New Parkway Shares issued 561,086
Market value per Parkway share at date of merger $ 14.00
----------
$7,855,204
Basis of Congress Street shares held by Parkway 364,328
----------
Parkway's cost of Congress Street's net assets $8,219,532
==========
</TABLE>
The difference between Congress Street's book value and Parkway's cost is
allocated to Congress Street's net assets as follows:
<TABLE>
<S> <C>
Cost $ 8,220,000
Book value 5,974,000
-----------
Difference $ 2,246,000
===========
</TABLE>
Allocated as follows:
<TABLE>
<S> <C>
Investment in One Jackson Place $ 2,122,000
Deferred income taxes 124,000
-----------
$ 2,246,000
===========
</TABLE>
The investment in One Jackson Place, as shown on the pro forma consolidated
balance sheet, is recorded at the lower of cost or its fair value.
(2) Eliminate Congress Street's note payable to Parkway against
Parkway's note receivable from Congress Street.
(3) Reflect $12,000 payment made by Congress Street to Parkway
subsequent to Congress Street's August 31, 1994 quarter end.
(4) Retire Congress Street's Parkway Shares reacquired by Parkway
pursuant to the merger.
(5) Reclassify investment in One Jackson Place from partnerships to
real estate.
(6) Eliminate the unrealized gain related to EB's investment in
Grenada Sunburst.
F-4
<PAGE> 125
(7) Parkway issues 456,469 Parkway Shares and pays $8 in cash per share
of EB stock to all EB shareholders (except for Parkway) in exchange
for all EB shares outstanding. The EB shares owned by Parkway are
retired.
<TABLE>
<S> <C>
EB Shares outstanding 1,450,117
Less EB Shares owned by Parkway (759,245)
---------------
690,872
Exchange ratio $9.25 to $14.00
---------------
New Parkway Shares issued 456,469
Market value per Parkway Share $ 14.00
---------------
$ 6,390,566
Cash paid to EB shareholders (690,872 x $8) 5,526,976
Basis of EB Shares held by Parkway 12,071,000
---------------
Parkway's cost of EB's net assets $ 23,988,542
===============
</TABLE>
The difference between EB's book value and Parkway's cost is allocated to
real estate and mortgage loans pro-rata.
<TABLE>
<S> <C>
Cost $ 23,989,000
Book value $ 34,630,000
---------------
Difference $ (10,641,000)
---------------
Allocate writedown:
Real Estate (16%) $ (1,703,000)
Mortgage Loans (84%) (8,938,000)
---------------
$ (10,641,000)
===============
</TABLE>
(8) A reconciliation of pro forma stockholders' equity is presented on
the following page:
F-5
<PAGE> 126
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY UNREALIZED
STOCK CAPITAL EARNINGS STOCK GAINS TOTAL
------- ---------- --------- --------- -------------- --------
<S> <C> <C> <C> <C> <C> <C>
Parkway historical $ 1,543 $ 27,134 $ 2,508 $ -- $ 2,206 $ 33,391
Congress Street historical 236 13,515 (6,260) (1,517) -- 5,974
Congress Street
pro forma adjustments:
(1) Issue Parkway shares
in Congress Street merger 561 7,295 -- -- -- 7,856
(4) Retire Parkway shares
reacquired through
Congress Street merger (567) (7,372) -- -- -- (7,939)
(1) Retire Congress Street
shares outstanding (236) (13,515) 6,260 1,517 -- (5,974)
------ ------- ------- ------- -------- -------
Pro forma consolidated
before EB 1,537 27,057 2,508 -- 2,206 33,308
EB historical 2,900 30,017 (2,511) -- 4,224 34,630
EB pro forma adjustments:
(7) Issue Parkway shares
in EB merger 456 5,935 -- -- -- 6,391
(7) Retire EB shares
outstanding (2,900) (30,017) 2,511 -- (4,224) (34,630)
Other pro forma adjustments:
(6) Eliminate Parkway's
unrealized gain related
to investment in EB -- -- -- -- (2,179) (2,179)
-------- -------- ------ ------- ------ ------
Pro forma consolidated
after EB $1,993 $32,992 $2,508 $ -- $ 27 $37,520
====== ======= ====== ======= ====== =======
</TABLE>
F-6
<PAGE> 127
THE PARKWAY COMPANY
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
FOR THE TWELVE MONTHS ENDED JUNE 30, 1994
The following unaudited pro forma consolidated statements of income set
forth the effect of Parkway's proposed merger with EB, the November 29,
1994 merger with Congress Street and the May 10, 1994 merger with First
Continental as if these transactions had been consummated on July 1, 1993. The
pro forma consolidated statements of income have been prepared by management of
Parkway based upon historical statements of Parkway, Congress Street, EB and
First Continental. These pro forma statements of income may not be indicative
of the results that actually would have occurred if the proposed mergers had
been in effect on the dates indicated or which may be obtained in the future.
The pro forma statements of income should be read in conjunction with the other
financial statements and notes to the financial statements of Parkway, Congress
Street and EB incorporated by reference or included herein.
<TABLE>
<CAPTION>
Historical Pro Forma Adjustments
------------------------------------------ -------------------------------------
Parkway Congress
Company Street EB Congress Pro Forma
6-30-94(1) 5-31-94(2) 6-30-94(2) FCREIT(2) FCREIT Street EB Other Consolidated
---------- ---------- ---------- --------- ------ -------- -------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Income from real estate properties $ 6,429 $ $ $ 595 $ $ $ $ $ 7,024
Interest on mortgage loans 265 35 1,798 217 2,315
Gain on sale of real estate partnership 280 280
Gain (loss) on real estate & mortgage
loans, net (113) 3 71 28 (11)
Equity in earnings (losses):
Real estate companies:
Congress Street Properties, Inc. (67) 67 (4a) 0
EB, Inc. 337 39 (39)(4d) (337)(4b) 0
The Parkway Company 1,662 (1,662)(4e) 0
First Continental REIT (9) 9 (4c) 0
Other 443 443
Real estate partnerships and corp.
joint ventures:
One Jackson Place (381) 381 (4f) 0
Other 239 239
Gain on securities 579 44 623
Interest on short-term investments 235 23 (107)(4i) 151
Dividends and other income 338 616 134 1,088
------- ----- -------- --------- ----- ------- ------ ------ ------
8,956 1,358 2,552 974 9 (1,253) (337) (107) 12,152
EXPENSES
Interest 31 76 81 203 85(4h) 476
Management allocation 502 53 303 44(4l) 902
Provision for loan losses 396 396
Real estate operating expense:
Operations 3,760 168 417 4,345
Interest expense 2,392 2,392
Depreciation & amortization 1,022 41 13(4k) 1,076
Minority interest (542) 343(4g) (199)
Other expenses 538 141 555 625 1,859
------- ----- -------- --------- ----- ------- ------ ------ ------
7,703 270 1,544 1,245 0 400 85 0 11,247
------- ----- -------- --------- ----- ------- ------ ------ ------
Income (loss) before income taxes and
discontinued operations 1,253 1,088 1,008 (271) 9 (1,653) (422) (107) 905
Income tax expense 1 107 (107)(4j) 1
------- ----- -------- --------- ----- ------- ------ ------ ------
Net income (loss) from continuing
operations $ 1,252 $ 981 $ 1,008 $ (271) $ 9 $(1,546) $ (422) $(107) $ 904
======= ===== ======== ========= ===== ======= ====== ====== ======
Net income (loss) from continuing
operations per share $ 0.96 $ 0.62 $ 0.70 $ 0.45
======= ===== ======== ======
Weighted average shares
outstanding (3) 1,300 1,571 1,450 1,993
======= ===== ======== ======
</TABLE>
F-7
<PAGE> 128
<TABLE>
THE PARKWAY COMPANY
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1994
<CAPTION>
Historical Pro Forma Adjustments
--------------------------------------- ----------------------------------------------
Parkway Congress
Company Street EB Congress Pro Forma
9-30-94 (1) 8-31-94 (2) 9-30-94 (2) Street EB Other Consolidated
----------- ----------- ----------- -------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Income from real estate properties $ 1,842 $ $ 125 $ $ $ $ 1,967
Interest on mortgage loans 141 9 707 857
Gain (loss) on real estate & mortgage
loans, net 130 1 (25) 106
Loss on writedown of securities (3,550) 3,550 (4m) 0
Equity in earnings (losses):
Real estate companies:
Congress Street Properties, Inc. (14) 14 (4a) 0
EB, Inc. 221 3 (3)(4d) (221)(4b) 0
The Parkway Company 220 (220)(4e) 0
Other 45 45
Real estate partnerships and corp.
joint ventures:
One Jackson Place (60) 60 (4f) 0
Other 106 106
Interest on short-term investments 14 0 14
Dividends and other income 34 235 269
---------- ---------- ---------- ------- ------- ------ -----------
2,519 (3,377) 1,042 3,401 (221) 0 3,364
---------- ---------- ---------- ------- ------- ------ -----------
EXPENSES
Interest 61 10 0 21 (4h) 92
Management allocation 124 14 56 11 (4l) 205
Real estate operating expense:
Operations 977 121 1,098
Interest expense 539 539
Depreciation & amortization 273 9 3 (4k) 285
Minority interest (123) 76 (4g) (47)
Other expenses 313 59 110 482
---------- ---------- ---------- ------- ------- ------ -----------
2,164 83 296 79 21 11 2,654
---------- ---------- ---------- ------- ------- ------ -----------
Income (loss) before income taxes and
discontinued operations 355 (3,460) 746 3,322 (242) (11) 710
Income tax expense 3 (3)(4j) 0
---------- ---------- ---------- ------- ------- ------ -----------
Net income (loss) from continuing
operations $ 355 $ (3,463) $ 746 $ 3,325 $ (242) $ (11) $ 710
---------- ========== ---------- ======= ======= ====== -----------
Net income (loss) from continuing
operations per share $ 0.23 $ (1.69) $ 0.52 $ 0.36
========== ========== ========== ===========
Weighted average shares outstanding (3) 1,543 2,151 1,450 1,993
========== ========== ========== ===========
</TABLE>
F-8
<PAGE> 129
THE PARKWAY COMPANY
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(1) During the 1994 fiscal year, Parkway purchased 1,218,910 shares of
First Continental Real Estate Investment Trust for $1,198,000;
453,471 shares of EB, Inc. for $5,864,000 and 117,232 shares of
Congress Street Properties for $94,000. For purposes of the pro
forma consolidated statements of income, these transactions were
assumed to have taken place on July 1, 1993.
(2) For purposes of the pro forma consolidated statements of income,
income from operations of Congress Street has been converted from
an August 31 year end to a May 31 year end. Accordingly, income
for the twelve months ended May 31, 1994 and the three months ended
August 31, 1994 have been included in the pro forma consolidated
statements of income. Income from operations of EB has been
converted from a December 31 year end to a June 30 year end.
Accordingly, income for the twelve months ended June 30, 1994 and
the three months ended September 30, 1994 have been included in the
pro forma consolidated statements of income. Income from operations
of First Continental Real Estate Investment Trust has been adjusted
to reflect operations from June 1, 1993 to May 9, 1994, the date of
the merger with The Parkway Company.
(3) Weighted average Parkway Shares outstanding were computed as
follows:
<TABLE>
<CAPTION>
Twelve Months Three Months
Ended Ended
June 30, 1994 Sept. 30, 1994
------------- --------------
<S> <C> <C>
Historical weighted average Parkway
Shares outstanding 1,542,942 1,542,942
Parkway Shares issued in merger
with Congress Street 561,086 561,086
Parkway Shares retired in merger
with Congress Street (567,066) (567,066)
Parkway Shares to be issued in
proposed merger with EB 456,469 456,469
--------- ---------
Pro forma weighted average Parkway
Shares outstanding 1,993,431 1,993,431
========= =========
</TABLE>
F-9
<PAGE> 130
Notes to Pro Forma Consolidated Statements of Income (Unaudited) - Continued
(4) The pro forma adjustments to the consolidated statements of income
consist of the following:
<TABLE>
<CAPTION>
Twelve Months Three Months
Ended Ended
June 30, 1994 Sept. 30, 1994
------------- --------------
<S> <C> <C> <C>
(a) Elimination of Parkway's equity
in the losses of Congress Street. $ 67,000 $ 14,000
(b) Elimination of Parkway's equity
in the earnings of EB. (337,000) (221,000)
(c) Elimination of Parkway's equity
in the losses of First Continental. 9,000 0
(d) Elimination of Congress Street's
equity in the earnings of EB. (39,000) (3,000)
(e) Elimination of Congress Street's
equity in the earnings of Parkway. (1,662,000) (220,000)
(f) Elimination of Congress Street's
equity in the losses of One Jackson
Place. 381,000 60,000
(g) Adjust Parkway's minority interest
expense to reflect its additional
ownership of One Jackson Place. (343,000) (76,000)
(h) Additional interest expense on funds
borrowed at 8.5% to pay the $8 in
cash per share to the EB shareholders. (85,000) (21,000)
(i) Adjust Parkway's interest income on
investments to reflect the use of
short-term cash investments to
purchase additional ownership
interests in First Continental, EB
and Congress Street. (107,000) -
(j) Adjust Congress Street's deferred
income taxes applicable to federal
alternative minimum tax and deferred
state income tax expense to zero. 107,000 3,000
(k) Add depreciation on the increased
basis in the One Jackson Place real
estate investment. (13,000) (3,000)
(l) Adjust for fees related to managing
LNH REIT that will be eliminated with
the termination of the shared expense
agreement. (44,000) (11,000)
(m) Eliminate Congress Street's
writedown to the investments in
Parkway and EB securities. -- 3,550,000
</TABLE>
F-10
<PAGE> 131
THE PARKWAY COMPANY
REPORT OF INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF DIRECTORS
THE PARKWAY COMPANY
We have audited the accompanying consolidated balance sheets of The Parkway
Company and subsidiaries as of June 30, 1994 and 1993, and the related
consolidated statements of income, shareholders' equity and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. The financial statements of EB, Inc.
and EastGroup Properties (investees in which the Company has a 51.5% and 2.7%
interest, respectively), have been audited by other auditors whose reports have
been furnished to us; insofar as our opinion on the consolidated financial
statements relates to data included for EB, Inc. for its years ended December
31, 1993 and 1992; and EastGroup Properties for its years ended December 31,
1993 and 1992; it is based in part on their reports.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the reports of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material
respects, the consolidated financial position of The Parkway Company and
subsidiaries at June 30, 1994 and 1993, and the consolidated results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Ernst & Young LLP
Jackson, Mississippi
September 9, 1994
F-11
<PAGE> 132
THE PARKWAY COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30
-----------------------
1994 1993
---------- ----------
<S> <C> <C>
ASSETS
Real estate related investments
Operating real estate (net of accumulated depre-
ciation of $5,633 in 1994 and $4,739 in 1993)......$ 27,400 $ 33,488
Real estate held for sale............................ 10,630 -
Real estate companies................................ 14,689 8,691
Mortgage loans....................................... 3,482 916
Real estate partnerships and corporate joint venture. 1,022 1,051
-------- --------
57,223 44,146
Notes receivable from affiliates....................... 413 548
Interest and rents receivable and other assets......... 1,687 2,404
Cash and cash equivalents.............................. 217 237
Reverse repurchase agreements.......................... - 8,310
Restricted cash........................................ 195 205
-------- --------
$ 59,735 $ 55,850
-------- --------
LIABILITIES
Notes payable to banks.................................$ 3,631 $ 940
Note payable to affiliate without recourse............. - 2,274
Mortgage notes payable without recourse................ 22,902 23,769
Accounts payable and other liabilities................. 1,332 1,273
Deferred gain.......................................... 141 411
-------- --------
28,006 28,667
-------- --------
SHAREHOLDERS' EQUITY
Common stock, $1.00 par value, 10,000,000 shares
authorized, 1,542,942 shares issued in 1994 and
2,333,296 in 1993.................................... 1,543 2,333
Additional paid-in capital............................. 27,134 39,271
Retained earnings...................................... 2,400 1,899
-------- --------
31,077 43,503
Less: Treasury shares at cost - retired in 1994 and
1,073,070 shares in 1993....................... - (16,320)
Unrealized gain on securities.......................... 652 -
-------- --------
31,729 27,183
-------- --------
$ 59,735 $ 55,850
======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-12
<PAGE> 133
THE PARKWAY COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
------------------------
1994 1993
---------- ----------
<S> <C> <C>
REVENUES
Income from real estate properties................ $ 6,429 $ 6,019
Interest on mortgage loans........................ 265 412
Gain on sale of real estate partnership........... 280 -
Gain (loss) on real estate and mortgage loans, net
(costs of sales were $573 in 1994 and $1,001 in
1993)........................................... (113) 2,474
Equity in earnings (losses):
Real estate companies........................... 704 (824)
Real estate partnerships and corporate joint
venture....................................... 239 319
Gain on securities................................ 579 22
Interest on short-term investments................ 235 240
Dividends, deferred gains and other income........ 338 57
---------- ----------
8,956 8,719
---------- ----------
EXPENSES
Real estate owned:
Operating expense............................... 3,760 3,686
Interest expense................................ 2,392 2,487
Depreciation and amortization................... 1,022 981
Minority interest............................... (542) (598)
Shared general and administrative expenses........ 502 489
Other expenses.................................... 569 449
---------- ----------
7,703 7,494
---------- ----------
INCOME BEFORE INCOME TAXES AND DISCONTINUED
OPERATIONS...................................... 1,253 1,225
INCOME TAX PROVISION.............................. 1 3
---------- ----------
INCOME BEFORE DISCONTINUED OPERATIONS............. 1,252 1,222
---------- ----------
EQUITY IN EARNINGS FROM DISCONTINUED
OPERATIONS OF EQUITY METHOD INVESTEES:
Income from discontinued operations........... 51 460
Income on sale of discontinued operations..... - 1,030
---------- ----------
51 1,490
---------- ----------
NET INCOME........................................ $ 1,303 $ 2,712
========== ==========
INCOME PER SHARE:
From continuing operations...................... $ .96 $ .97
From discontinued operations.................... .04 1.18
---------- ----------
NET INCOME.................................... $ 1.00 $ 2.15
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING............... 1,300 1,260
========== ==========
DIVIDENDS DECLARED PER SHARE...................... $ .60 $ .80
========== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-13
<PAGE> 134
THE PARKWAY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended June 30
--------------------
1994 1993
--------- ---------
<S> <C> <C>
Operating Activities
Net income....... ............................................................... $ 1,303 $ 2,712
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in earnings............................................................. (994) (985)
Dividends received............................................................. 332 261
Distributions from operations of real estate
partnerships and corporate joint venture..................................... 543 940
Depreciation and amortization.................................................. 1,022 981
Amortization of discounts, deferred gains and other............................ (318) (26)
Gain on sale of real estate partnership........................................ (280) -
(Gain) loss on real estate and mortgage loans, net............................. 113 (2,474)
Gain on securities............................................................. (579) (22)
Changes in operating assets and liabilities:
Decrease in receivables...................................................... 46 434
Increase in accounts payable and accrued expenses............................ 133 70
--------- ---------
CASH PROVIDED BY OPERATING ACTIVITIES............................................. 1,321 1,891
--------- ---------
INVESTING ACTIVITIES
Payments received on mortgage loans.............................................. 269 3,659
Purchases of investments in real estate companies................................ (7,468) (33)
Purchase of real estate.......................................................... (66) -
Purchase of mortgage loans....................................................... (907) -
Purchase of real estate partnership interest..................................... (291) -
Proceeds from sale of investments in real estate companies....................... 1,656 37
Improvements to real estate owned................................................ (380) (426)
Proceeds from sale of real estate owned.......................................... 100 2,559
Proceeds from sale of real estate partnership owned.............................. 296 -
Proceeds from merger of First Continental (net).................................. 25 -
Payments (advances) on notes receivable from affiliates.......................... 135 (43)
(Deposit) release of restricted cash............................................. 165 (165)
--------- ---------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES................................... (6,466) 5,588
--------- ---------
FINANCING ACTIVITIES
Principal payments on long-term debt............................................. (867) (258)
Proceeds from long-term financing of partnership assets.......................... - 631
Proceeds from bank borrowings.................................................... 6,296 -
Principal payments on bank borrowings............................................ (5,517) (300)
Payments on note payable to affiliate............................................ (2,274) -
Dividends paid................................................................... (819) (1,009)
Purchases of treasury shares..................................................... - (11)
Stock options exercised.......................................................... (4) -
--------- ---------
CASH USED IN FINANCING ACTIVITIES................................................. (3,185) (947)
--------- ---------
INCREASE (DECREASE) IN CASH....................................................... (8,330) 6,532
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.................................. 8,547 2,015
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........................................ $ 217 $ 8,547
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Mortgage loans received on sales of real estate ................................. $ 420 $ -
Interest paid.................................................................... 2,441 2,491
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-14
<PAGE> 135
THE PARKWAY COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL UNREALIZED
COMMON PAID-IN RETAINED TREASURY GAIN (LOSS) ON
STOCK CAPITAL EARNINGS SHARES SECURITIES TOTAL
------- ---------- --------- --------- -------------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1992........... $ 2,333 $ 39,271 $ 196 $(16,309) $ (65) $ 25,426
Net income..................... 2,712 2,712
Cash dividends declared
($.80 per share).............. (1,009) (1,009)
Cash purchase of treasury
shares....................... (11) (11)
Unrealized loss on securities.. 65 65
------- -------- -------- -------- --------- --------
BALANCE, JUNE 30, 1993........... 2,333 39,271 1,899 (16,320) - 27,183
Net income..................... 1,303 1,303
Cash dividends declared
($.60 per share).............. (799) (799)
Retirement of treasury shares.. (1,073) (15,247) 16,320 -
Merger with First Continental
Real Estate Investment Trust. 283 3,110 - - 3,393
Unrealized gain on securities.. 652 652
Stock options exercised........ (3) (3)
------- -------- -------- -------- --------- --------
BALANCE, JUNE 30, 1994........... $ 1,543 $ 27,134 $ 2,400 $ - $ 652 $ 31,729
======= ======== ======== ======== ========= ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-15
<PAGE> 136
THE PARKWAY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of The Parkway
Company ("Parkway" or "the Company"); Sugar Creek Center Corporation and
Parkway Texas Corporation, its wholly-owned subsidiaries; AllMiss Capital
Corporation, its 95% owned subsidiary (dissolved in December 1993); and One
Place Partners (a Mississippi general partnership), its 51.5% owned
partnership. All significant intercompany transactions and accounts have been
eliminated.
For years ending after June 30, 1993, the Company adopted the financial
statement reporting provisions of Regulation S-B of the Securities and Exchange
Commission.
REAL ESTATE OPERATIONS
Gains from sales of real estate are recognized based on the provisions of
Statement of Financial Accounting Standards No. 66 which require upon closing,
the transfer of rights of ownership to the purchaser, receipt from the
purchaser of an adequate cash down payment and adequate continuing investment
by the purchaser. If the requirements for recognizing gains have not been met,
the sale and related costs are recorded, but the gain is deferred and
recognized generally on the installment method of accounting as collections are
received.
Depreciation of buildings and other improvements, including personal
property, is computed using the straight line method over estimated useful
lives of 40 years for buildings and building improvements and 10 years for
personal property. Maintenance and repair expenses are charged to expense as
incurred, while improvements are capitalized and depreciated in accordance with
the useful lives outlined above.
Revenue on real estate rentals is recognized and accrued as earned on a pro
rata basis over the term of the lease.
Real estate held for sale is carried at the lower of fair value minus
estimated costs to sell or cost. Operating real estate held for investment
is stated at the lower of cost or net realizable value.
F-16
<PAGE> 137
THE PARKWAY COMPANY
INVESTMENTS IN REAL ESTATE COMPANIES, PARTNERSHIPS AND CORPORATE JOINT VENTURE
The equity method of accounting is used to account for investments where
the Company has the ability to exercise significant influence over the
operating and financial policies of the investee but does not have majority
voting control. The Company shares voting control in Golf Properties, Inc.
("GPI") with a joint venture partner and, accordingly, accounts for its
investment in this corporate joint venture using the equity method. The
Company also shares voting control in the Wink-Parkway Partnership with a
partner and, accordingly, accounts for its investment using the equity method.
All other marketable equity investments are stated at the lower of aggregate
cost or market (closing price). Loss in value of equity investments that is
considered to be an other than temporary decline is charged to operations.
INTEREST INCOME RECOGNITION
Interest is generally accrued monthly based on the outstanding loan
balances. Recognition of interest income is discontinued whenever, in the
opinion of management, the collectability of such income becomes doubtful.
After a loan is classified as non-earning, interest is recognized as income
when received in cash.
RECLASSIFICATIONS
Certain reclassifications have been made in the 1993 financial statements
to conform to the 1994 classifications.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
BUSINESS SEGMENT
The Company's operations are in the real estate industry.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In May, 1993, Statement of Financial Accounting Standard (SFAS) No. 114,
"Accounting by Creditors for Impairment of a Loan" was issued. The statement
must be adopted for fiscal years beginning after December 15, 1994. Management
does not expect any material effect to the Company from the application of
Statement No. 114.
F-17
<PAGE> 138
THE PARKWAY COMPANY
In March 1993, SFAS No. 115 "Accounting for Certain Investments in Debt and
Equity Securities", was issued and is to be effective for fiscal years
beginning after December 15, 1993. Management does not expect any material
effect to the Company from the application of SFAS No. 115. Certain of the
Company's investees adopted SFAS No. 115 during fiscal 1994. The effect to the
Company is reflected in the accompanying consolidated statements of
shareholders' equity as unrealized gain on securities.
NOTE B - INVESTMENTS IN REAL ESTATE COMPANIES
The Company accounts for certain of its investees as shown below using the
equity method of accounting. The equity method is used for EastGroup
Properties ("EastGroup") because of the ownership interest in EastGroup by the
Company and its affiliates (21% in the aggregate), the presence of three
members of EastGroup's eight-person Board of Trustees who are directors of the
Company and management of the day-to-day business of EastGroup by officers who
are also officers of the Company. The equity method is used for Congress Street
Properties, Inc. ("Congress Street") because of the Company's ownership
interest in Congress Street and the presence of three members of Congress
Street's five- person Board of Directors who are directors of the Company and
management of the day-to-day business of Congress Street by officers who are
also officers of the Company.
Investments in real estate companies consist of the following:
<TABLE>
<CAPTION>
OWNERSHIP
PERCENTAGE
JUNE 30 JUNE 30, 1994 JUNE 30, 1993
------------- ----------------------- ---------------------
1994 1993 INVESTMENT MARKET INVESTMENT MARKET
------ ------ ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Equity method investees: (In thousands)
EB, Inc....................................... 51.5% 21.1% $12,376 $ 8,971 $ 5,779 $ (a)
EastGroup Properties.......................... 2.7% 7.0% 1,623 2,175 2,251 3,130
Congress Street Properties, Inc............... 10.3% 9.6% 378 (a) 352 (a)
------- -------
14,377 8,382
------- -------
Non-equity method investees:
Hotel Investors............................... - .9% - - 143 221
Medical Resources Co. of America ............. - .4% - - 108 233
First Continental Real Estate Investment
Trust....................................... - 6.2% - - 47 172
Rockwood National Corporation................. 17.4% 17.4% - 37 - 37
Other......................................... 1.3% .2% 312 324 11 13
------- -------
312 309
------- -------
$14,689 $ 8,691
======= =======
</TABLE>
(a) These stocks were not quoted on the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") for the
periods indicated nor were there any other reliable market
quotations. The market price of the other investments represents
the closing or bid price at June 30, 1994 and 1993, respectively,
as reported on the exchange in which the shares are traded or on
NASDAQ. EB, Inc. began being quoted on NASDAQ on July 23, 1993.
F-18
<PAGE> 139
THE PARKWAY COMPANY
During the year, the Company purchased 453,471 shares of EB, Inc.'s
outstanding shares and received 221,784 shares through the dissolution of
AllMiss Capital Corporation ("AllMiss"), a 95% owned subsidiary of Parkway,
increasing its ownership to 51.5%. Under the Mississippi Control Share Statue,
certain of the shares of EB., Inc. may not be voted by the Company until (i)
shareholders of EB, Inc. approve voting rights for the shares or (ii) three
years after the shareholders of EB, Inc. fail to approve voting rights for the
shares. Although the Company's ownership is equal to 51.5%, the Company does
not have a majority voting interest and continues to record this investment on
the equity method of accounting until majority voting interest is obtained.
The condensed financial information for EB, Inc. which is presented below
(in thousands) was summarized from the investees' most currently available
financial statements filed with the Securities and Exchange Commission prior to
June 30, 1994.
<TABLE>
<CAPTION>
MARCH 31, 1994
--------------
<S> <C>
ASSETS
Loans.................................. $ 15,839
Real estate investments, net........... 2,983
Marketable securities.................. 9,217
Cash and short-term investments........ 1,865
Other assets........................... 554
--------
$ 30,458
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and other expenses.... $ 1,481
Shareholders' equity................... 28,977
--------
$ 30,458
========
</TABLE>
Condensed statements of income summarized from EB, Inc.'s financial
statements filed with the Securities and Exchange Commission for the most
recent twelve months prior to June 30, 1994 and 1993, respectively, and from
which the Company has recorded its equity in earnings are as follows:
<TABLE>
<CAPTION>
FOR THE TWELVE MONTHS
ENDED MARCH 31
---------------------
1994 1993
-------- --------
(In thousands)
<S> <C> <C>
Revenues...................................... $ 2,650 $ 2,880
Expenses...................................... (1,993) (6,935)
Income tax expense............................ - (100)
Income from discontinued operations........... 342 7,174
------- -------
Net income.................................... $ 999 $ 3,019
======= =======
Equity in earnings recorded by Parkway........ $ 388 $ 732
======= =======
</TABLE>
F-19
<PAGE> 140
THE PARKWAY COMPANY
On March 1, 1993, Eastover Bank for Savings sold its banking operations to
Sunburst Bank, Mississippi. The disposition of the banking operations have
been treated in the financial statements of EB, Inc. as discontinued
operations. Through equity in earnings of EB, Inc., the Company has recorded
income from discontinued operations of $51,000 and $460,000 in the years ending
June 30, 1994 and 1993 respectively.
EB, Inc. recognized a gain on sale of banking assets to Sunburst of
$4,992,000 which was calculated as follows (dollars in thousands):
<TABLE>
<S> <C>
Liabilities assumed by Sunburst $ 408,700
Value of stock received (FMV of $22.625 per share) 9,930
Cash received 100
---------
418,730
Less:
Basis of assets sold (396,383)
Loans made to EB ( 12,317)
Write off of deferred charges ( 4,025)
Costs of sale ( 1,013)
---------
Gain $ 4,992
=========
</TABLE>
The Company's share of this gain was $1,030,000 and was recorded through
equity in earnings as Income on sale of discontinued operations.
Condensed statements of income summarized from EastGroup's financial
statements filed with the Securities and Exchange Commission for the most
recent twelve months prior to June 30, 1994 and 1993, respectively, and from
which the Company has recorded its equity in earnings are as follows:
<TABLE>
<CAPTION>
FOR THE TWELVE MONTHS
ENDED MARCH 31
---------------------
1994 1993
-------- --------
(In thousands)
<S> <C> <C>
Revenues...................................... $17,739 $14,137
Expenses...................................... (15,053) (14,060)
Gain (loss) on investments.................... 4,560 (3,598)
------- -------
Net income (loss)............................. $ 7,246 $(3,521)
======= =======
Equity in earnings recorded by Parkway........ $ 443 $ 2
======= =======
</TABLE>
Equity in losses of Congress Street during fiscal 1994 and 1993 was $67,000
and $64,000 respectively. In computing equity in earnings (losses) to be
recorded from the investment in Congress Street, the equity in earnings
(losses) of Parkway that are reflected in the operations of Congress Street
have been eliminated.
F-20
<PAGE> 141
The gain on securities of $579,000 represents the sale of the Company's
remaining investment in Medical Resources Co. of America for $212,000 with a
gain of $104,000, all of the investment in Hotel Investors for $268,000 with a
gain of $125,000, 58,525 shares of EastGroup Properties, an equity method
investee for $1,152,000 with a gain of $337,000 and other stock investments for
$24,000 with gains of $13,000.
Certain investments accounted for by the equity method have been purchased
at amounts different from the Company's pro rata share of the investees' book
value as follows:
<TABLE>
<CAPTION>
INVESTEE AMOUNT
--------- ------------
(In thousands)
<S> <C>
Equity in excess of cost:
EB, Inc............................ $3,506
Congress Street.................... 590
EastGroup.......................... 585
</TABLE>
The amounts above have been assigned to the investees' principal assets and
are primarily being recognized in operations as the assets are depreciated or
sold.
Effective May 10, 1994, the merger of First Continental Real Estate
Investment Trust ("First Continental" or "FCREIT") with Parkway Texas
Corporation (a wholly owned subsidiary of the Company) was completed. This
merger, which has been accounted for using the purchase method of accounting,
increased the Company's net assets as follows:
<TABLE>
<S> <C>
Real estate $4,994,000
Mortgage loans 1,451,000
Interest receivable & other assets 228,000
Cash 195,000
Notes payable to banks (1,912,000)
Accounts payable & other liabilities (158,000)
----------
$4,798,000
==========
</TABLE>
The operations of First Continental subsequent to May 10, 1994 have been
included in the accompanying consolidated statements of income. The unaudited
pro forma effects of the Company's acquisition of First Continental as if it
had occurred on July 1, 1992, would be to increase revenues by approximately
$983,000 in 1994 and $1,911,000 in 1993 and decrease net income by $262,000 in
1994 and $953,000 in 1993 and income per share by $.32 in fiscal 1994 and $.80
in 1993.
F-21
<PAGE> 142
THE PARKWAY COMPANY
NOTE C - INVESTMENTS IN REAL ESTATE, MORTGAGE LOANS, REAL ESTATE PARTNERSHIPS
AND CORPORATE JOINT VENTURE
The Company's investment in operating real estate includes five office
buildings, one retail center, one motel and 34 townhomes, patio homes and
condominiums. The operating properties represent 72% of the total investment
in real estate at June 30, 1994. The office buildings represent 64% of the
investment in real estate. The motel is located in Indianapolis, Indiana and
has a carrying value of $744,000. The office buildings are located in Jackson,
Mississippi ($19,942,000), Indianapolis, Indiana ($2,986,000), Columbus, Ohio
($1,473,000) and Houston, Texas ($429,000). The retail center is located in
Lake Jackson, Texas and has a carrying value of $1,124,000. All of the
operating properties, with the exception of the motel and townhomes, patio
homes and condominiums are leased to tenants under noncancellable operating
leases with lease terms ranging from six months to ten years. The location and
carrying value of the nonearning developed and undeveloped land, which is held
for sale, is as follows: Houston, Texas - $6,039,000, New Orleans, Louisiana
- -$3,799,000, Atlanta, Georgia - $530,000 and various other locations -
$262,000.
The Company classified all of its nonearning real estate, which has been
held for several years, as held for sale as of June 30, 1994. All of these
properties were previously classified as investment properties. The real
estate held for sale is carried at the lower of fair value minus estimated cost
to sell or cost. At June 30, 1994, there was no valuation allowance related to
real estate held for sale. Management believes that current market conditions
are more favorable to allow them to actively market the properties at prices
they consider appropriate.
The following is a schedule by year of future approximate minimum rental
receipts under noncancelable leases for the office buildings as of June 30,
1994:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- --------------
(In thousands)
<S> <C>
1995 $ 5,315
1996 4,346
1997 2,932
1998 1,256
1999 679
Subsequently 888
--------
$ 15,416
========
</TABLE>
The Company owns a 38% effective interest in One Jackson Place, an office
building, through its partnership interest in One Place Partners. One Place
Partners has an effective ownership of 73.125% of the One Jackson Place office
building. The Company has majority voting control over the building and has
consequently consolidated One Place Partners and its
F-22
<PAGE> 143
THE PARKWAY COMPANY
subsidiaries in its consolidated financial statements since March 1990. The
Company records a reduction in real estate owned expenses for the minority
owner's (principally Congress Street) interest in the losses of One Jackson
Place because the first mortgage of One Jackson Place is non-recourse and
Congress Street, which owns 48.5% of One Place Partners, has committed to fund
its share of operating or other losses.
The unpaid balances of mortgage loans, summarized by type of loan, are as
follows:
<TABLE>
<CAPTION>
TYPE OF LOAN JUNE 30
-------------------
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
First Mortgages secured by:
Residential real estate...................... $ 1,699 $ 76
Motels....................................... 1,029 840
Commercial real estate....................... 487 -
Land......................................... 195 -
Other........................................ 72 -
-------- --------
Total carrying amount of mortgage loans........ $ 3,482 $ 916
======== ========
</TABLE>
All loans are earning (performing) loans at June 30, 1994 and 1993.
Investments in real estate partnerships and corporate joint venture at June
30, 1994 and 1993, were as follows:
<TABLE>
<CAPTION>
INVESTMENT
OWNERSHIP JUNE 30
--------------
INVESTMENT PERCENTAGE 1994 1993
---------- ---------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Corporate joint venture:
Golf Properties, Inc.
(GPI), Resort development
in Highlands, NC........................ 65.45% $ 731 $1,021
GV Partners; owns a
100% interest in an
apartment complex in Seattle, WA........ 22.00% - 30
Wink-Parkway Partnership; owns a
100% interest in an office/warehouse
building in New Orleans, LA............. 50.00% 291 -
------ ------
$1,022 $1,051
====== ======
</TABLE>
Equity in earnings of GPI during fiscal 1994 and 1993 was $233,000 and
$289,000, respectively. The investment in GPI, which is accounted for by the
equity method, has been purchased at an amount different from the Company's pro
rata share of the investee's book
F-23
<PAGE> 144
THE PARKWAY COMPANY
value. At June 30, 1994, the equity in excess of cost was $246,000. This
amount has been assigned to GPI's principal net assets and is being recognized
in operations as the assets are depreciated or sold. The equity in earnings
recorded by the Company includes $65,000 and $132,000 amortization of equity in
excess of cost in 1994 and 1993, respectively.
Equity in earnings of GV Partners during fiscal 1994 and 1993 was $6,000
and $30,000, respectively. During fiscal 1994, the Company sold its 22%
investment in GV Partners to its 78% partner, EastGroup Properties. The sales
price was $275,000 cash plus the assumption of 22% of the outstanding mortgage
and was based on an appraisal by an independent third party. The Company
recognized a gain of $280,000 on the sale.
NOTE D - NOTES PAYABLE
A summary of notes payable to banks secured by real estate and security
investments as of June 30, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
1994 1993
------- -------
(IN THOOUSANDS)
<S> <C> <C>
NOTES PAYABLE TO BANKS:
Note payable to a bank at prime plus 1% (8.25%)
thru June 1, 1996, due in quarterly principal
payments of $75,000 plus interest; maturing
June 1, 1996; secured by real estate with a
carrying value of $2,551,000..................... $ 640 $ 940
$5,000,000 line of credit with bank at prime
(7.25%) maturing June 30, 1995; secured by
securities with a carrying value of
$12,376,000...................................... 1,991 -
$1,000,000 line of credit with bank at prime
plus .50% (7.75%) maturing April 30, 1995;
secured by securities with a carrying value
of $1,623,000.................................... 1,000 -
------- -------
$ 3,631 $ 940
======= =======
MORTGAGE NOTES PAYABLE WITHOUT RECOURSE:
Note payable to an insurance company at 9.25%;
payments of interest only through April 1996;
maturing in 1999; secured by real estate with
a carrying value of $19,942,000.................. $22,404 $22,404
</TABLE>
F-24
<PAGE> 145
THE PARKWAY COMPANY
<TABLE>
<S> <C> <C>
Note payable to an insurance company at 8.5%;
due in monthly payments of $22,000; maturing
June 1996; secured by real estate with a
carrying value of $2,375,000..................... 498 637
Note payable to an insurance company at 9.25%;
due in monthly payments of $7,000; the note
was repaid in September 1993;.................... - 728
------- -------
$22,902 $23,769
======= =======
</TABLE>
The principal maturities of all notes payable for the succeeding five years
are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- --------
(In thousands)
<S> <C>
1995 $ 3,443
1996 530
1997 338
1998 173
1999 190
Subsequently 21,859
--------
$ 26,533
========
</TABLE>
NOTE E - NOTE PAYABLE TO AFFILIATE
In December 1990, the Company purchased 80 acres of undeveloped commercial
land in New Orleans from Lake Forest, Inc., a wholly-owned subsidiary of its
affiliate, Rockwood National Corporation, for a total purchase price of
$3,790,000. This purchase price consisted of $1,516,000 cash at closing and a
ten-year non recourse promissory note of $2,274,000. This note was repaid on
June 28, 1994. Interest paid was $210,000 in 1994 and $205,000 in 1993.
NOTE F - INCOME TAXES
The Parkway Company adopted Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes", effective July 1, 1993. The
adoption had no effect on the Company's financial statements due to the
establishment of valuation reserves which offset the effect of potential
deferred tax assets. Deferred income taxes reflect the net tax effects of (a)
temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes,
and (b) operating loss and tax credit carryforwards. The tax effects of
significant items comprising Parkway's net deferred tax asset as of June 30,
1994 are as follows (in thousands):
F-25
<PAGE> 146
THE PARKWAY COMPANY
<TABLE>
<S> <C>
Deferred tax assets:
Differences in book and tax basis of assets.....................$3,779
Operating loss carryforwards.................................... 3,489
------
7,268
Valuation allowance.............................................(7,268)
------
Net deferred tax asset..........................................$ -
======
</TABLE>
An additional $16,000,000 of temporary differences related to assets
acquired in the merger with First Continental will be limited during the five
year period commencing with the merger date, and therefore have not been
included in the deferred tax asset calculation. After the five year period,
the temporary differences that exist on assets remaining at that time will be
unrestricted and will be included in the deferred tax assets of the Company.
The valuation allowance for the gross deferred tax assets as of July 1, 1993
was $8,142,000. The net decrease in the total valuation allowance for the year
ended June 30, 1994 was $874,000 and relates primarily to differences in book
and tax basis of securities and real estate sold. At June 30, 1994, the net
deferred tax asset of $7,268,000 is entirely offset by a valuation allowance
because the Company does not expect the net deferred tax asset to be realized.
The following is a reconciliation between the amount reported for income
taxes and the amount computed by multiplying income before income tax by the
statutory federal tax rate of 34%.
<TABLE>
<CAPTION>
JUNE 30
-------------------
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Income tax expense based on
statutory income tax rate.................... $ 443 $ 922
Operating loss carryforward for financial
reporting purposes........................... (353) (738)
Equity in earnings or other real estate
companies.................................... (90) (184)
-------- --------
Federal regular tax expense.................... - -
State income tax expense....................... 1 3
-------- --------
Income tax expense............................. $ 1 $ 3
======== ========
</TABLE>
F-26
<PAGE> 147
THE PARKWAY COMPANY
At June 30, 1994, the Company has available net operating loss
carryforwards for federal income tax purposes of approximately $10,265,000
which expire as follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- --------------
(IN THOUSANDS)
<S> <C>
1995 $ 760
1996 2,296
1998 760
1999 14
2000 57
2001 12
2002 8
2003 300
2004 47
2007 1,052
2008 3,112
2009 1,847
--------
$ 10,265
========
</TABLE>
In addition to these net operating losses, First Continental had net
operating losses of approximately $18,000,000 at the time of the merger with
Parkway. Parkway's utilization of these losses will be limited to a maximum of
approximately $280,000 in any given year, therefore a majority of these loss
carryforwards will be unavailable for use by the Company. These loss
carryforwards have not been reflected in the deferred tax asset of Parkway at
June 30, 1994.
The Company's income differs for tax and financial reporting purposes
principally because (1) the timing of the deduction for the provision for
possible losses or writedowns, (2) the timing of the recognition of gains or
losses from the sale of investments, (3) the timing of the recognition of
income or losses from partnerships, (4) the equity in undistributed earnings of
real estate companies differing from dividends received from those investments,
(5) real estate owned has a different basis for tax and financial reporting
purposes, producing different gains upon disposition, and (6) mortgage loans
have a different basis for tax and financial reporting purposes, producing
different gains upon collection of these receivables. At June 30, 1994, there
was no deferred federal or state income tax liability due to the availability
of net operating loss carryforwards.
NOTE G - COMPANY ADMINISTRATION AND RELATED PARTY TRANSACTIONS
The Company is a party to an expense-sharing agreement whereby certain
general and administrative expenses are paid by Congress Street and then
allocated on a monthly basis among the participants, as defined. At June 30,
1994, the parties to the expense-sharing agreement were the Company, Congress
Street, Eastover Corporation and EastGroup Properties.
F-27
<PAGE> 148
THE PARKWAY COMPANY
Parkway was a party to two loan agreements with Lake Forest, Inc., a wholly
owned subsidiary of Rockwood, the proceeds of which were used to fund the
continuing operations of Lake Forest, Inc. On June 28, 1994, Parkway repaid
its note payable of $2,274,000, (See Note E) incurred with the purchase of 80
acres of undeveloped commercial land in 1990, to Lake Forest, Inc. who in turn
repaid its $750,000 note payable to Parkway and the remaining line of credit
with a balance of $167,500 was reworked into two notes with interest at the
prime rate. The first note is for $117,500 and is a one year note with
quarterly interest. The second note is for $59,174 whose principal includes
$9,174 of unpaid interest reclassed into the note balance at June 28, 1994, and
is a two year note with interest due quarterly. The notes are secured by real
property in New Orleans, Louisiana. No additional advances are available under
the two loan agreements.
In connection with the purchase of the 80 acres of undeveloped commercial
land in 1990 mentioned above, Rockwood issued to Parkway a warrant to purchase
800,000 shares of Rockwood common stock exercisable at $.375 per share during
the period beginning June 17, 1991, and ending December 31, 1995. Parkway has
not purchased any Rockwood common stock under the warrant.
The Company signed an amendment to the One Place Partner's Partnership
Agreement whereby Parkway will loan Congress Street Properties, Inc. (an
affiliate) funds for their portion of capital contributions. This note accrues
interest at prime plus one percent with interest due annually. At June 30,
1994, $413,000 was outstanding on the loan to Congress Street. Interest earned
on the note for the years ended June 30, 1994 and 1993 was $32,000 and $27,000,
respectively.
On January 1, 1994, the Company renewed for one year a note whereby it will
loan up to $100,000 to its affiliate, Eastover Corporation. This note accrues
interest at prime plus 1% with interest due quarterly. The collateral for this
note is a security interest in shares of EastGroup Properties. At June 30,
1994, there was no balance outstanding on the note and interest earned on the
note for the years ended June 30, 1994 and 1993 was $2,000 and $7,000,
respectively.
In December 1989, the Company transferred 53 mortgage loans to EastGroup in
exchange for 327,981 shares of EastPark Realty Trust ("EastPark") stock.
EastPark is a former equity method investee of the Company. As a result of the
exchange with EastGroup, the Company's ownership increased from 38.6% to 77.2%
of the EastPark stock outstanding. This acquisition of EastPark stock was the
first in a series of transactions that led to the Company's purchase of 100% of
EastPark's assets (subject to its liabilities) and the subsequent liquidation
of EastPark in April 1990. The Company guaranteed to EastGroup the collection
of 100% of the mortgage loans, and the gain on the transaction of $411,000 was
deferred to be recognized as the contingent liability resulting from the
guarantee was reduced. At September 30, 1993, two of these mortgages had
defaulted and been foreclosed and 35 loans remained. Parkway purchased the
remaining loans and foreclosed property for a purchase price of $956,000, which
F-28
<PAGE> 149
THE PARKWAY COMPANY
represented EastGroup's book value of those loans on September 30, 1993. The
Company recognized $270,000 of the deferred gain on these loans during the year
ending June 30, 1994. The balance of the deferred gain will be recognized as
the loans are repaid.
NOTE H - ACCOUNTS PAYABLE AND OTHER LIABILITIES
<TABLE>
<CAPTION>
JUNE 30
---------------------
1994 1993
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Accounts payable......................... $ 385 $ 228
Accrued interest payable................. 138 144
Taxes payable, other than income taxes... 297 209
Dividends payable........................ 231 252
Other accrued expenses................... 212 183
Other payables........................... 69 29
Minority interests....................... - 228
--------- ---------
$ 1,332 $ 1,273
========= =========
</TABLE>
NOTE I - SUPPLEMENTAL PROFIT AND LOSS INFORMATION
Included in expenses are taxes, principally property taxes, of $871,000 and
$901,000 for the years ended June 30, 1994 and 1993, respectively.
NOTE J - STOCK OPTION AND STOCK APPRECIATION RIGHTS PLANS
The 1991 Incentive Plan was approved at the 1991 Annual Shareholder
Meeting. Under the 1991 Incentive Plan, a total of 65,892 (52,498 exercisable
at June 30, 1994) options may be granted to directors, officers, or key
employees of the Company. The stock option plan also has an accompanying stock
appreciation rights plan applicable to 55% (36,241) of the options and
incentive compensation units applicable to 45% (29,651) of the options.
Compensation under the stock appreciation rights plan is accrued by the Company
based on the excess of the market price over the option exercise price, subject
to a three year vesting period. Compensation under the incentive compensation
units is accrued based on the dividends paid on those units subject to a five
year vesting period. At June 30, 1994, 1,595 shares are available for grant
under the 1991 Incentive Plan.
F-29
<PAGE> 150
THE PARKWAY COMPANY
Stock option activity for the two years prior to June 30, 1994 was as
follows:
<TABLE>
<CAPTION>
NUMBER OPTION PRICE TOTAL OPTION
OF SHARES PER SHARES PRICE
--------- --------------- -------------
<S> <C> <C> <C>
Outstanding at June 30, 1992 65,892 $ 345,933
Relinquished (13,496) $5.25 to $5.625 (71,117)
Granted 12,201 $5.625 68,631
-------- ------------
Outstanding at June 30, 1993 64,597 343,447
Exercised (600) $5.625 (3,375)
Relinquished (300) $5.625 (1,687)
Granted - -
-------- ------------
Outstanding at June 30, 1994 63,697 $ 338,385
======== ============
</TABLE>
The compensation expense applicable to the stock appreciation rights plan
totalled $135,000 and $66,000 for the years ended June 30, 1994 and 1993,
respectively. Incentive compensation expense applicable to the incentive
compensation units totalled $21,000 and $12,000 for the years ended June 30,
1994 and 1993, respectively.
Also approved at the 1991 Annual Shareholders Meeting was the 1991
Directors Stock Option Plan. Under this plan, options for up to 40,000 shares
may be granted to "non-employee directors". As of June 30, 1994, 40,000
options have been granted at an option price ranging from $6.00 per share to
$14.00 per share, the market values at date of grant. The total option price
at June 30, 1994 of these options was $310,000. The 1991 Directors Stock
Option Plan does not carry stock appreciation rights or incentive compensation
units and is exercisable in full on the date of grant. At June 30, 1994, there
were no options available for grant under the 1991 Directors Stock Option Plan.
NOTE K - LITIGATION
The Company is not presently engaged in any litigation other than ordinary
routine litigation incidental to its business. Management believes such
litigation will not materially affect the financial position, operations or
liquidity of the Company.
NOTE L - REVERSE REPURCHASE AGREEMENTS
The Company does not in the ordinary course of business take possession of
the securities which collateralize its reverse repurchase agreements. The
Company has controls which consist of the right to demand additional collateral
or return of these invested funds at anytime the collateral value is less than
F-30
<PAGE> 151
THE PARKWAY COMPANY
the invested funds plus any accrued earnings thereon. The Company conducts
these transactions on a short term basis with Trustmark National Bank and
Deposit Guaranty National Bank with which it has normal business relationships.
At June 30, 1994, there were no reverse repurchase agreements. At June 30,
1993, the balance of reverse repurchase agreements consisted of $7,371,000 with
Trustmark National Bank and $939,000 with Deposit Guaranty National Bank. The
balances matured in July 1993.
NOTE M - SUBSEQUENT EVENTS
On July 6, 1994, Parkway and Congress Street jointly announced that their
Boards of Directors have agreed in principle to a merger of Congress Street and
a wholly-owned subsidiary of Parkway. Under the terms of the proposed merger,
Congress Street shareholders will receive .29 shares of Parkway for each
Congress Street share owned. The exchange ratio was recommended to the Boards
by negotiating committees comprised of independent directors. The merger is
subject to a number of conditions, including negotiation of a merger agreement
and approval of such agreement by the Boards of each company, receipt of
satisfactory fairness opinions, shareholder approval in the case of Congress
Street, and registration of the Parkway share to be issued in the proposed
merger with the Securities and Exchange Commission.
On July 27, 1994, Parkway and EB, Inc. jointly announced that their Boards
of Directors have agreed in principle to a merger of EB and a wholly-owned
subsidiary of Parkway. EB shareholders would receive $17.25 for each EB share
consisting of cash of $8 per share and shares of Parkway with a value of $9.25
based on a defined formula. The merger is subject to several conditions,
including execution and approval of the merger agreement by the Boards of each
company, shareholder approval in the case of EB, receipt of satisfactory
fairness opinions by Parkway and EB, and registration of the Parkway shares to
be issued in the merger with the Securities and Exchange Commission.
On September 2, 1994, the Company purchased the remaining 50% interest in
the Sugarland Triangle land for a purchase price of $1,500,000.
F-31
<PAGE> 152
The Parkway Company
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30 JUNE 30
1994 1994
------------ ----------
(Unaudited)
<S> <C> <C>
ASSETS
Real estate related investments
Operating real estate (net of accumulated
depreciation of $5,911 and $5,663)............ $ 27,296 $ 27,400
Real estate held for sale....................... 12,067 10,630
Real estate companies........................... 16,371 14,689
Mortgage loans.................................. 3,600 3,482
Real estate partnerships and corporate joint
venture....................................... 931 1,022
-------- --------
60,265 57,223
Notes receivable from affiliates.................. 385 413
Interest and rents receivable and other assets.... 1,283 1,687
Cash and cash equivalents......................... 175 217
Restricted cash................................... 346 195
-------- --------
$ 62,454 $ 59,735
======== ========
LIABILITIES
Notes payable to banks............................ $ 4,345 $ 3,631
Mortgage notes payable without recourse........... 22,865 22,902
Accounts payable and other liabilities............ 1,611 1,332
Deferred gain..................................... 242 141
-------- --------
29,063 28,006
-------- --------
SHAREHOLDERS' EQUITY
Common stock, $1.00 par value, 10,000,000 shares
authorized, 1,542,942 shares issued............. 1,543 1,543
Additional paid-in capital........................ 27,134 27,134
Retained earnings................................. 2,508 2,400
Unrealized gains on securities.................... 2,206 652
-------- --------
33,391 31,729
-------- --------
$ 62,454 $ 59,735
======== ========
</TABLE>
See notes to consolidated financial statements.
F-32
<PAGE> 153
THE PARKWAY COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30
--------------------
1994 1993
-------- --------
(In thousands,
except per share data)
<S> <C> <C>
REVENUES
Income from real estate properties...................... $ 1,842 $ 1,551
Interest on mortgage loans.............................. 141 35
Gain on sale of real estate partnership................. - 280
Equity in earnings:
Real estate companies................................. 252 81
Real estate partnerships and corporate joint venture.. 106 58
Gain on securities...................................... - 104
Interest on investments................................. 14 83
Deferred gains and other income......................... 34 270
Gain on real estate and mortgage loans.................. 130 -
-------- --------
2,519 2,462
-------- --------
EXPENSES
Interest expense........................................ 61 -
Real estate owned:
Operating expense..................................... 977 923
Interest expense...................................... 539 610
Depreciation and amortization......................... 273 247
Minority interest..................................... (123) (158)
Shared general and administrative expenses.............. 124 92
Other expenses.......................................... 313 171
-------- --------
2,164 1,885
-------- --------
INCOME BEFORE DISCONTINUED OPERATIONS................... 355 577
-------- --------
EQUITY IN EARNINGS FROM DISCONTINUED
OPERATIONS OF EQUITY METHOD INVESTEES:
Income from discontinued operations................. - 51
-------- --------
- 51
-------- --------
NET INCOME.............................................. $ 355 $ 628
======== ========
INCOME PER SHARE:
From continuing operations............................ $ .23 $ .46
From discontinued operations.......................... - .04
-------- --------
NET INCOME............................................ $ .23 $ .50
======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING..................... 1,543 1,260
======== ========
DIVIDENDS DECLARED PER SHARE............................ $ .16 $ .15
======== ========
</TABLE>
See notes to consolidated financial statements.
F-33
<PAGE> 154
<TABLE>
<CAPTION>
THE PARKWAY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED
SEPTEMBER 30
--------------------
1994 1993
-------- --------
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income............................................ $ 355 $ 628
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in earnings.................................. (358) (190)
Dividends received.................................. 123 65
Distributions from operations of real estate
partnership and corporate joint venture........... 196 118
Depreciation and amortization....................... 273 247
Amortization of discounts, deferred gains and other. (32) (258)
Gain on sale of real estate partnership............. - (280)
Gain on real estate and mortgage loans.............. (130) -
Gain on securities.................................. - (104)
Changes in operating assets and liabilities:
Decrease (increase) in receivables................ 76 (338)
Increase in accounts payable and accrued expenses. 264 236
-------- --------
CASH PROVIDED BY OPERATING ACTIVITIES.................. 767 124
-------- --------
INVESTING ACTIVITIES
Payments received on mortgage loans................... 124 36
Purchases of investments in real estate companies..... - (328)
Purchase of real estate properties.................... (1,502) (72)
Purchase of mortgages................................. - (907)
Proceeds from sale of real estate owned............... 178 -
Proceeds from sale of investments in real estate
companies........................................... - 212
Improvements to real estate owned..................... (82) (41)
Proceeds from sale of real estate partnership owned... - 296
Payments (advances) on notes receivable from
affiliates.......................................... 28 (43)
-------- --------
CASH USED IN INVESTING ACTIVITIES...................... (1,254) (847)
-------- --------
FINANCING ACTIVITIES
Principal payments on long-term debt.................. (37) (762)
Proceeds from bank borrowings......................... 1,945 -
Principal payments on bank borrowings................. (1,231) (75)
Dividends paid........................................ (231) (252)
Exercise of stock options............................. (1) -
-------- --------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES........ 445 (1,089)
-------- --------
DECREASE IN CASH....................................... (42) (1,812)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD....... 217 8,547
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............. $ 175 $ 6,735
======== ========
</TABLE>
See notes to consolidated financial statements.
F-34
<PAGE> 155
THE PARKWAY COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30
--------------------
1994 1993
-------- --------
(In thousands)
<S> <C> <C>
COMMON STOCK, $1.00 PAR VALUE
Balance at beginning and end of period............ $ 1,543 $ 2,333
-------- --------
ADDITIONAL PAID-IN CAPITAL
Balance at beginning and end of period............ 27,134 39,271
-------- --------
RETAINED EARNINGS (DEFICIT)
Balance at beginning of period.................... 2,400 1,899
Net income........................................ 355 628
Cash dividends declared........................... (247) (189)
-------- --------
Balance at end of period.......................... 2,508 2,338
-------- --------
TREASURY SHARES, AT COST
Balance at beginning and end of period............ - (16,320)
-------- --------
UNREALIZED GAIN ON SECURITIES
Balance at beginning of period.................... 652 -
Unrealized gain on securities..................... 1,554 -
-------- --------
Balance at end of period.......................... 2,206 -
-------- --------
TOTAL SHAREHOLDERS' EQUITY.......................... $ 33,391 $ 27,622
======== ========
</TABLE>
See notes to consolidated financial statements.
F-35
<PAGE> 156
THE PARKWAY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 1994
(1) BASIS OF PRESENTATION
The accompanying financial statements reflect all adjustments which are, in
the opinion of management, necessary for a fair statement of the results for
the interim periods presented. All such adjustments are of a normal recurring
nature. The financial statements should be read in conjunction with the annual
report and the notes thereto.
(2) RECLASSIFICATIONS
Certain reclassifications have been made in the fiscal 1994 financial
statements to conform to the fiscal 1995 classifications.
(3) INVESTMENTS IN REAL ESTATE COMPANIES
Investments in real estate companies consist of the following:
<TABLE>
<CAPTION>
QUOTED
SEPT. 30 MARKET
1994 INVESTMENTS VALUE
OWNERSHIP SEPT. 30 SEPT. 30
PERCENTAGE 1994 1994
---------- ---------- --------
(In thousands)
<S> <C> <C> <C>
INVESTEE
- --------
Equity method investees:
EB,Inc.............................. 51.55% $ 14,049 $ 11,214
EastGroup Properties................ 2.68% 1,619 2,175
Congress Street Properties, Inc..... 10.26% 364 (a)
--------
16,032
Non-equity method investees:
Other............................... 339 339
--------
$ 16,371
</TABLE> ========
(a) This stock is no longer quoted on the NASDAQ NMS National Market System.
During 1994, trading was sporadic and reliable quotations were
unavailable.
F-36
<PAGE> 157
THE PARKWAY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Condensed unaudited statements of income from which the Company has
recorded its equity in earnings for EB., Inc. are as follows:
<TABLE>
<CAPTION>
Three Months Ended
June 30, 1994
------------------
(In thousands)
<S> <C>
Revenues........................................ $ 570
Expenses........................................ (166)
--------
Net income...................................... $ 404
========
Equity in earnings recorded
by Parkway.................................... $ 221
========
</TABLE>
Condensed unaudited statements of income from which the Company has
recorded its equity in earnings for EastGroup are as follows:
<TABLE>
<CAPTION>
Three Months Ended
June 30, 1994
------------------
(In thousands)
<S> <C>
Revenues........................................ $ 5,965
Expenses........................................ (4,634)
Gains (losses).................................. $ 2,494
--------
$ 3,825
========
Equity in earnings recorded
by Parkway.................................... $ 45
========
</TABLE>
<TABLE>
Certain investments accounted for by the equity method have been purchased
at amounts different from the Company's pro-rata share of the investee's book
value as follows:
<CAPTION>
INVESTEE Amount
-------- --------------
(In thousands)
<S> <C> <C>
Equity in excess of cost: EB, Inc......................... $3,943
Congress Street................. 640
EastGroup....................... 594
</TABLE>
The amounts above have been assigned to the investee's principal net assets
and are primarily being recognized in operations as the assets are depreciated
or sold.
F-37
<PAGE> 158
THE PARKWAY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
(4) Supplemental Cash Flow Information
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
<TABLE>
<CAPTION>
September 30
-----------------------
1994 1993
---------- ----------
(In thousands)
<S> <C> <C>
Cash paid for interest....... $587 $565
Cash paid for income taxes... 49 63
Loans to facilitate sales
of real estate............. 184 -
</TABLE>
(5) CHANGE IN ACCOUNTING PRINCIPLE
Effective July 1, 1994, the Company adopted Statement of Financial
Accounting Standard (SFAS) No. 115, "Accounting for Certain Investments in Debt
and Equity Securities" which requires that investment securities be carried at
fair market value and unrealized gains or losses be reflected as a separate
component of shareholders' equity. The Company's investment in equity
securities to which SFAS 115 applied are all classified as "available for sale"
securities. The fair value of these securities at September 30, 1994 was
$339,000 and unrealized gain on these securities totaled $27,000. Also
included as unrealized gains in shareholders' equity at September 30, 1994 is
$1,527,000 from the application of SFAS 115 by certain of the Companies equity
investees.
F-38
<PAGE> 159
CONGRESS STREET PROPERTIES, INC.
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF DIRECTORS
CONGRESS STREET PROPERTIES, INC.
We have audited the accompanying consolidated balance sheets of Congress
Street Properties, Inc. and subsidiary as of August 31, 1994 and 1993, and the
related consolidated statements of income shareholders' equity, and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. The financial statements of EB, Inc.
(an investee in which the Company has a 19.24% direct and indirect interest)
and EastGroup Properties (an investee in which the Company has a 98% indirect
interest through the Company's investment in The Parkway Company), have been
audited by other auditors whose reports have been furnished to us; insofar as
our opinion on the consolidated financial statements relates to data included
for EB, Inc. for its years ended December 31, 1993 and 1992; and EastGroup
Properties for its years ended December 31, 1993 and 1992; it is based in part
on their reports.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the reports of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors,
the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Congress Street Properties,
Inc. and subsidiary at August 31, 1994 and 1993, and the consolidated results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
/s/ Ernst & Young LLP
Ernst & Young LLP
Jackson, Mississippi
January 24, 1995
F-40
<PAGE> 160
CONGRESS STREET PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 31
-------------------
1994 1993
------- --------
(IN THOUSANDS)
ASSETS
<S> <C> <C>
Real estate investments:
Real estate companies................................ $ 8,140 $ 11,110
Real estate partnership.............................. (1,553) (1,151)
-------- --------
6,587 9,959
Cash................................................... 74 24
Amount receivable from affiliate....................... 45 -
Other assets........................................... 110 144
-------- --------
$ 6,816 $ 10,127
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Note payable to affiliate.............................. $ 389 $ 448
Notes payable to bank.................................. 36 746
Amounts payable to affiliates.......................... 90 260
Deferred income taxes.................................. 124 83
Other liabilities...................................... 203 160
-------- --------
842 1,697
-------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common Stock, $.10 par value, authorized - 3,000,000
shares; issued and outstanding 2,358,714 in 1994 and
1,283,305 shares in 1993............................. 236 128
Capital in excess of par value......................... 13,515 12,818
Retained earnings (deficit)............................ (6,260) (2,997)
-------- --------
7,491 9,949
Less: Treasury shares at cost - 207,896 shares in
1994 and 1993.................................. (1,517) (1,519)
-------- --------
5,974 8,430
-------- --------
$ 6,816 $ 10,127
======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-41
<PAGE> 161
CONGRESS STREET PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31
-----------------------
1994 1993
-------- ---------
REVENUES
<S> <C> <C>
Equity in earnings (losses):
Real estate companies................... $ 897 $ 743
Real estate partnership................. (343) (378)
Loss on writedown of securities.......... (3,550) -
Interest................................. 35 34
Gain on sale of real estate investments.. 5 47
---------- ----------
(2,956) 446
---------- ----------
EXPENSES
Interest................................. 59 127
General and administrative............... 227 185
Real estate owned expenses............... - 1
Allowance for possible losses............ - (30)
---------- ----------
286 283
---------- ----------
Income (loss) before income taxes and
discontinued operations............... (3,242) 163
Income tax expense........................ 41 54
---------- ----------
Income (loss) before discontinued
operations............................ (3,283) 109
----------- ----------
EQUITY IN INCOME FROM DISCONTINUED
OPERATIONS OF EQUITY METHOD INVESTEES:
Income from discontinued operations...... 23 213
Gain on sale of discontinued operations.. - 503
---------- ----------
23 716
---------- ----------
NET INCOME (LOSS)........................ $ (3,260) $ 825
========== ==========
INCOME (LOSS) PER SHARE:
From continuing operations............... $ (1.78) $ .10
From discontinued operations............. .01 .67
---------- ----------
NET INCOME (LOSS)....................... $ (1.77) $ .77
========== ==========
Weighted average shares outstanding....... 1,841 1,075
========== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-42
<PAGE> 162
CONGRESS STREET PROPERTIES, INC.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED AUGUST 31
-----------------------
1994 1993
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................... $ (3,260) $ 825
Adjustments to reconcile net income to
net cash provided by operating activities:
Allowance for possible losses............... - (30)
Equity in earnings of real estate
companies and partnership.................. (577) (1,081)
Dividends received from real estate
companies.................................. 340 454
Loss on writedown of securities............. 3,550 -
Gains on real estate........................ - (47)
Deferred income taxes....................... 41 55
Deferred gain recognized.................... (5) -
Changes in operating assets and liabilities:
(Increase) Decrease in other assets........ 34 27
Increase (decrease) in other liabilities... 43 (16)
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES..... 166 187
---------- ----------
INVESTING ACTIVITIES
Decrease in deferred gain.................... - (65)
Collection of note receivable................ 5 30
Proceeds from sale of real estate............ - 339
Distributions from (contributions to)
partnership................................. 59 (63)
Advances (payments) of amounts due
affiliates.................................. (215) 126
---------- ----------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES.................................. (151) 367
---------- ----------
FINANCING ACTIVITIES
Proceeds from line of credit................. 1,733 2,185
Principal payments on line of credit......... (2,443) (2,751)
Principal payments on note payable to
affiliate................................... (59) -
Net proceeds from rights offering............ 805 -
Stock options exercised...................... (1) -
----------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES................................... 35 (566)
---------- ----------
INCREASE (DECREASE) IN CASH................... 50 (12)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR..................................... 24 36
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR...... $ 74 $ 24
========== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-43
<PAGE> 163
CONGRESS STREET PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CAPITAL RETAINED UNREALIZED
COMMON IN EXCESS EARNINGS TREASURY LOSS ON
STOCK OF PAR VALUE (DEFICIT) STOCK SECURITIES TOTAL
-------- ------------ --------- -------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT
AUGUST 31, 1992.. $ 128 $12,818 $(3,822) $(1,519) $ (29) $ 7,576
Net Income....... - - 825 - - 825
Unrealized loss
on securities... - - - - 29 29
------ ------- ------- ------- ------- -------
BALANCE AT
AUGUST 31, 1993.. 128 12,818 (2,997) (1,519) - 8,430
Net loss......... - - (3,260) - - (3,260)
Stock issued in
rights offering. 108 697 - - - 805
Stock options
exercised....... - - (3) 2 - (1)
------ ------- ------- ------- ------- -------
BALANCE AT
AUGUST 31, 1994.. $ 236 $13,515 $(6,260) $(1,517) $ - $ 5,974
====== ======= ======= ======= ======= =======
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-44
<PAGE> 164
CONGRESS STREET PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Congress
Street Properties, Inc. (the "Company"), and its wholly-owned subsidiary,
Eastover Realty Corporation. All significant intercompany transactions and
accounts have been eliminated.
For years ending after August 31, 1992, the Company adopted the financial
statement reporting provisions of Regulation S-B of the Securities and Exchange
Commission.
INVESTMENTS IN REAL ESTATE COMPANIES AND PARTNERSHIPS
The equity method of accounting is used to account for investments in
which the Company has the ability to exercise significant influence over the
operating and financial policies of the investee. Loss in value of equity
investments that is considered to be an other than temporary decline is charged
to operations.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In May, 1993, Statement of Financial Accounting Standard (SFAS) No. 114,
"Accounting by Creditors for Impairment of a Loan" was issued. The statement
must be adopted for fiscal years beginning after December 15, 1994. Management
does not expect any material effect to the Company from the application of
Statement No. 114.
In March 1993, SFAS No. 115 "Accounting for Certain Investments in Debt and
Equity Securities", was issued and is to be effective for fiscal years
beginning after December 15, 1993. Management does not expect any material
effect to the Company from the application of SFAS No. 115. Certain of the
Company's equity method investees adopted SFAS No. 115 during fiscal 1994. The
effect to the Company is reflected in the accompanying consolidated statements
of shareholders' equity as unrealized gain on securities.
INCOME RECOGNITION
Interest income on each loan is recognized based on the outstanding loan
balances, unless its collectibility is determined to be doubtful.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
F-45
<PAGE> 165
CONGRESS STREET PROPERTIES, INC.
RECLASSIFICATIONS
Certain reclassifications have been made in the 1993 financial statements
to conform to the 1994 classifications.
BUSINESS SEGMENT
The Company's operations are almost exclusively in the real estate
industry.
NOTE B - INVESTMENTS IN REAL ESTATE COMPANIES
The equity method of accounting was used to account for the investments
in The Parkway Company ("Parkway") and EB, Inc. because officers and directors
of the Company were also directors or officers of these investees, and the
Company and its other equity method investees own substantial shareholdings in
Parkway and EB, Inc. (36.74% and 52.36%, respectively, in the aggregate).
Investments in real estate companies consist of the following:
<TABLE>
<CAPTION>
AUG. 31,
1994 AUGUST 31, 1994 AUGUST 31, 1993
---------- ------------------ ------------------
DIRECT QUOTED QUOTED
OWNERSHIP MARKET MARKET
PERCENTAGE INVESTMENT VALUE INVESTMENT VALUE
---------- ---------- ------- ---------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
EQUITY METHOD INVESTEES
Parkway ...................... 36.74% $ 7,939 $7,939 $10,882 $ 5,671
EB, Inc. ..................... .80% 201 201 228 123
------- -------
$ 8,140 $11,110
======= =======
</TABLE>
The Company also owned 930,132 shares of Rockwood National Corporation
("Rockwood") at August 31, 1994 and 1993. This investment was written to zero
at March 31, 1992. Effective July 10, 1992, Rockwood stock was no longer
quoted on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ"). Trading of the Rockwood stock has been sporadic and
reliable quotations are unavailable for the stock.
At August 31, 1994, the Company recorded a loss on writedown of
securities of $3,550,000 in its equity investments in EB, Inc. ($34,000) and
Parkway ($3,516,000). The adjustments were required to reflect an "other than
temporary" decline in the market price of these securities due to the
subsequent merger on November 29, 1994 of the Company with Parkway. The
securities were written down to reflect their market values at the date of
merger. Management believes that the recorded investments in these securities,
before the $3,550,000 writedown, would be recovered over time if Congress
Street continued to operate as a separate publicly traded company.
F-46
<PAGE> 166
CONGRESS STREET PROPERTIES, INC.
The condensed financial information for the equity method investees
presented below was summarized from the investees' financial statements filed
with the Securities and Exchange Commission prior to August 31, 1994 and was
used by the Company to record the Company's equity in the investees'
operations.
<TABLE>
<CAPTION>
PARKWAY BALANCE SHEET (In thousands)
ASSETS JUNE 30, 1994
-------------
<S> <C>
Real estate and mortgage loans.................................$41,512
Investments in real estate companies,
partnerships and corporate joint venture...................... 15,711
Cash and short term investments................................ 412
Other.......................................................... 2,100
-------
$59,735
=======
LIABILITIES
Notes and mortgages payable....................................$26,533
Other liabilities.............................................. 1,473
-------
28,006
-------
SHAREHOLDERS' EQUITY........................................... 31,729
-------
$59,735
=======
</TABLE>
STATEMENTS OF OPERATIONS (In thousands)
<TABLE>
<CAPTION>
FOR THE TWELVE MONTHS ENDED
JUNE 30
---------------------------
1994 1993
---------- ----------
<S> <C> <C>
PARKWAY
Revenues................................ $ 8,956 $ 8,719
Expenses................................ (7,703) (7,494)
Income tax expense...................... (1) (3)
Income from discontinued operations..... 51 1,490
---------- ----------
Net income.............................. $ 1,303 $ 2,712
========== ==========
Equity in earnings recorded by
Congress Street....................... $ 913 $ 1,434
========== ==========
</TABLE>
In the fourth quarter of fiscal 1994, Parkway issued shares of its stock
to acquire the net assets of First Continental Real Estate Investment Trust
("First Continental"). Congress Street recognized no gain or loss on the
transaction, although its ownership percentage of Parkway decreased from 45% to
36.74%.
F-47
<PAGE> 167
CONGRESS STREET PROPERTIES, INC.
The Company's investment in Parkway was $3,722,000 and $1,350,000 less
than the Company's pro rata share of Parkway's book value as of August 31, 1994
and 1993, respectively. This amount had been assigned to Parkway's and First
Continental's principal assets and is being recognized as income and expense as
the assets of Parkway and First Continental are liquidated. The income
recognition amounted to $318,000 and $185,000 for the years ended August 31,
1994 and 1993, respectively.
<TABLE>
<CAPTION>
FOR THE TWELVE MONTHS ENDED
MARCH 31
---------------------------
1994 1993
--------- ---------
<S> <C> <C>
EB, INC.
Revenue........................................... $ 2,650 $ 2,880
Expenses.......................................... (1,993) (6,935)
Income from discontinued operations............... 342 7,174
Income tax expense................................ - (100)
------- -------
Net income........................................ $ 999 $ 3,019
======= =======
Equity in earnings recorded by
Congress Street................................. $ 7 $ 25
======= =======
</TABLE>
<TABLE>
<CAPTION>
FOR THE TWELVE MONTHS ENDED
MARCH 31
---------------------------
1994 1993
--------- ---------
<S> <C> <C>
EASTGROUP PROPERTIES
Revenue........................................... $17,739 $14,137
Expenses.......................................... (15,197) (12,385)
Recoveries of (Provision for) possible losses..... 144 (1,675)
Gains (losses) on investments..................... 4,560 (3,598)
------- -------
Net income (loss)................................. $ 7,246 $(3,521)
======= =======
</TABLE>
Congress Street does not have a direct ownership in EastGroup Properties.
The Company's equity method investee, Parkway, has a 2.68% ownership in
EastGroup and accounts for this investment under the equity method of
accounting. Congress Street, by virtue of its 36.74% ownership of Parkway, has
recorded the operations of EastGroup indirectly through its equity in earnings
of Parkway.
The investment in Parkway includes equity in earnings of Parkway through
June 30, 1994. Equity in earnings of EB, Inc. is recorded through its quarter
ended March 31, 1994. Congress Street owned its investment in EB, Inc. through
a corporation of which 5% was owned by Congress Street and 95% by Parkway.
This corporation was dissolved effective December 31, 1993 and the
F-48
<PAGE> 168
CONGRESS STREET PROPERTIES, INC.
EB, Inc. stock was distributed pro rata to Congress Street and Parkway. The
Company received 11,673 shares of EB, Inc. in the distribution and now owns the
investment directly. In computing equity in earnings to be recorded from the
investment in Parkway, the equity in earnings (losses) of Congress Street that
are reflected in the operations of Parkway have been eliminated.
On March 1, 1993, Eastover Bank sold its banking operations to Sunburst.
This disposition of the banking operations has been treated in the financial
statements of EB, Inc. as discontinued operations. The Company's share of
these discontinued operations, recorded directly through its ownership interest
and indirectly through the equity in earnings of Parkway, were $23,000 in 1994
and $716,000 in 1993.
At August 31, 1994 and 1993, the Company has recorded in shareholders'
equity approximately $6,251,000 and $5,678,000, respectively of undistributed
earnings of Parkway.
NOTE C - REAL ESTATE OWNED
Changes in real estate owned were as follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31
----------------------
1994 1993
---------- ----------
<S> <C> <C>
Balance at beginning of period............. $ - $ 321
Cost of real estate sold................... - (321)
---------- ----------
Balance at end of period................... $ - $ -
========== ==========
</TABLE>
<TABLE>
During the first quarter of fiscal 1993, the Company sold the Tall Pines land as follows:
<S> <C>
Sales price $ 350,000
Land (net of allowance of $126,000) (321,000)
Closing costs (11,000)
---------
Gain recognized $ 18,000
=========
</TABLE>
The proceeds from the sale were used to pay down the master note.
NOTE D - REAL ESTATE PARTNERSHIP
Investment in real estate partnership at August 31, 1994 and 1993 was as
follows:
<TABLE>
<CAPTION>
AUGUST 31
OWNERSHIP -----------------
INVESTMENT PERCENTAGE 1994 1993
- ---------- ---------- ------- -------
(In thousands)
<S> <C> <C> <C>
One Place Partners; owns a 73.125%
interest in an office building
(One Jackson Place) in Jackson, MS..... 48.5% $(1,553) $(1,151)
======= =======
</TABLE>
F-49
<PAGE> 169
CONGRESS STREET PROPERTIES, INC.
<TABLE>
<CAPTION>
Condensed financial statements for One Jackson Place were as follows:
<S> <C>
BALANCE SHEETS
JUNE 30, 1994
-----------------------
(In thousands)
ASSETS
Land and building, net.............. $ 15,064
Rent receivable..................... 669
Cash and other assets............... 584
--------
$ 16,317
========
LIABILITIES
Mortgage and notes payable.......... $ 23,895
Other liabilities................... 476
--------
24,371
PARTNERSHIP DEFICIT................. (8,054)
--------
$ 16,317
========
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
FOR THE TWELVE MONTHS ENDED
JUNE 30
----------------------------
1994 1993
---------- ----------
(In thousands)
<S> <C> <C>
Revenues........................ $ 3,504 $ 3,312
Operating expenses.............. (1,463) (1,368)
Depreciation and amortization... (847) (830)
Interest expense................ (2,179) (2,166)
Interest income................. 13 5
-------- --------
NET LOSS........................ $ (972) $ (1,047)
======== ========
EQUITY IN LOSS RECORDED BY
CONGRESS STREET............... $ (343) $ (378)
======== ========
</TABLE>
NOTE E - NOTES PAYABLE
The Company had a short-term line of credit with a bank totaling $200,000
($1,050,000 at August 31, 1993). No balance was outstanding on the note at
August 31, 1994 and $675,000 was outstanding at August 31, 1993. The line of
credit is secured by 75,000 shares of the Company's investment in Parkway which
had a market value of $919,000 and a carrying value of $1,543,000 at August 31,
1994. The effective average interest rate for the years ended August 31, 1993,
and 1994 was 7.8%, and 8.00% respectively. The maximum amount outstanding
during the years ended August 31, 1994, and 1993 was $972,000, and $1,500,000
respectively. The line of credit will mature on December 30, 1995. Interest
paid was $28,000 in 1994, and $98,000 in 1993.
F-50
<PAGE> 170
CONGRESS STREET PROPERTIES, INC.
NOTE F - DEFERRED GAIN
On February 2, 1990, the Company sold the Eastover Bank Building.
Congress Street recorded the sale under the deposit method and accounted for
the building as an operating asset until August 31, 1990 because Congress
Street had guaranteed net operating income ("NOI") to the purchaser and had
received as part of the purchase price a mortgage note of $727,000 at 10.3%
subordinate to an existing first mortgage. The purchaser repaid the
subordinated mortgage in October 1990, and the Company had no future ownership
claim to the building. Use of the deposit method was discontinued beginning in
fiscal 1991.
A deferred gain of approximately $827,000 was recorded as of August 31,
1990. The Company deferred the gain due to several contingencies and
commitments related to the sale of the building. The Company had guaranteed
$41,000 per month of net operating income to the purchaser which expired on
January 31, 1992. The second contingency was a capital improvements line of
credit. The terms of the sales agreement provided for a line of credit from
the Company to the purchaser for tenant improvements totaling $375,000. The
line of credit matured on January 31, 1993 with no funds to be advanced past
that date. The tenant improvement note is secured by an interest in the
limited partnership that purchased the building.
After the NOI contingency expired in January 1992, the Company recorded
for financial reporting purposes a gain of $682,000. The balance of the gain
will continue to be deferred and recognized as principal payments are received
on the tenant improvement note receivable. The note matures January 31, 1996
and the purchaser is making monthly payments based on a twenty-five year
amortization. The balance of the note and deferred gain was $336,000 at August
31, 1994.
NOTE G - INCOME TAX EXPENSE
The following is a reconciliation between the amount reported for income
taxes and the amount computed by multiplying income before taxes by the
statutory federal tax rate of 34%.
<TABLE>
<CAPTION>
AUGUST 31
----------------------
1994 1993
-------- --------
(In thousands)
<S> <C> <C>
Income tax expense based
on statutory tax rate.................. $ (1,094) $ 299
Operating losses not utilized............ 1,355 98
Equity in earnings not deductible
for federal income taxes............... (261) (397)
Federal alternative minimum tax expense.. 9 10
State income tax expense................. 32 44
-------- --------
Income tax expense....................... $ 41 $ 54
======== ========
</TABLE>
F-51
<PAGE> 171
CONGRESS STREET PROPERTIES, INC.
The Company has $4,682,000 of net operating loss carryforwards
for financial reporting purposes. For federal income tax reporting, the
Company has net operating loss carryforwards of approximately $5,937,000 which
expire as follows:
<TABLE>
<CAPTION>
AUGUST 31 AMOUNTS
--------- --------------
(In thousands)
<S> <C>
2000 $ 56
2001 692
2002 69
2003 988
2004 1,398
2006 1,137
2007 660
2008 558
2009 379
---------
$ 5,937
=========
</TABLE>
There were no income taxes paid in fiscal 1994 and 1993.
The Company's income differs for tax and financial reporting purposes
principally because (1) the timing of the recognition of earnings (losses) from
real estate partnership investments, (2) the timing of the recognition of
earnings (losses) of real estate companies compared to the dividends received
from those investments, and (3) the timing of the deduction for depreciation.
The components of the deferred tax liabilities follow:
<TABLE>
<CAPTION>
AUGUST 31
-----------------
1994 1993
---- ----
(IN THOUSANDS)
<S> <C> <C>
Federal alternative minimum tax $ 31 $ 22
State income tax 93 61
---- ----
$124 $ 93
==== ====
</TABLE>
NOTE H - STOCK OPTION AND STOCK APPRECIATION RIGHTS PLAN
The Company's Board of Directors and shareholders approved a key employee
stock option and stock appreciation rights plan under which 43,200 shares of
common stock are reserved for issuance upon exercise of options granted
thereunder. The option price may not be less than the fair market value at the
date of grant, and in no event may the option be exercisable for more than ten
years.
F-52
<PAGE> 172
CONGRESS STREET PROPERTIES, INC.
Under the Company's stock option plan stock appreciation rights are
granted to the same key employees and for the same number of shares for which
stock options are granted. The rights exercised cannot exceed the number of
options exercised. The stock appreciation rights entitle the optionees, upon
exercise of the stock option, to receive compensation equal to the excess of
the market price over the exercise price. At August 31, 1994, 30,767 options
were outstanding. 20,000 were granted with an exercise price of $3.44 and
10,767 with an exercise price of $1.50. During fiscal 1994, 500 options were
exercised. At August 31, 1994, 11,933 shares of common stock were available
for grant under this plan.
NOTE I - CAPITAL TRANSACTIONS
On October 14, 1993, the Company issued rights to purchase common stock
to its shareholders. The Company distributed to each shareholder of record on
the Record Date (August 30, 1993) one Right for each share owned. Each right
entitled a shareholder to purchase one share at the subscription price of $.80
per share. The rights were transferable and expired 60 days after issuance.
In December 1993, the Company completed its rights offering and received
proceeds of $805,000, net of expenses. The net proceeds were used by the
Company to reduce its bank indebtedness under its line of credit with a bank.
The Company has authorized 150,000 shares of preferred stock, no par
value, which may be issued in series by the Board of Directors with such
dividend and liquidation preferences, voting rights, dividend rates, conversion
rights and redemption price as the Board of Directors shall determine. At
August 31, 1994, and 1993, there were no shares of preferred stock outstanding.
On July 6, 1994, Parkway and Congress Street jointly announced that their
Boards of Directors had agreed in principle to a merger of Congress Street into
a wholly owned subsidiary of Parkway. The merger was completed on November 29,
1994 with shareholders of Congress Street receiving .29 Parkway shares for each
Congress Street share owned.
NOTE J - RELATED PARTY TRANSACTIONS
The Company had an expense-sharing agreement with Eastover, Parkway and
EastGroup Properties ("EastGroup") pursuant to which the participants shared
administrative offices at the same location in Jackson, Mississippi and common
officers and other personnel, subject to the authority of the board of
directors of each participating company to elect or appoint and remove its
officers in accordance with its certificate of incorporation, declaration of
trust or other charter documents and applicable law. EB, Inc. had a separate
administrative agreement with Congress Street which allowed EB to participate
in the expense-sharing agreement on the same basis as the companies which are
parties to the expense-sharing arrangement. Under this arrangement, the
participants shared the cost of the common officers and other employees and of
shared facilities and activities.
F-53
<PAGE> 173
CONGRESS STREET PROPERTIES, INC.
These common costs were initially paid by Congress Street, which served as the
administrator of the agreement, and the other participants paid the Company an
annual fee (on a monthly basis) of one-half of one percent of their assets
which are publicly-traded securities. After these fees, any profits from
Eastover Realty Corporation ("Eastover Realty") and the fees from LNH REIT,
Inc. ("LNH"), Citizens Growth Properties ("Citizens") and Rockwood National
Corporation ("Rockwood") were subtracted from the total common costs (see
further description below), the remaining common costs were allocated on a
monthly basis among the Company, EastGroup, Parkway, Eastover and EB, Inc. in
proportion to their assets other than publicly-traded securities, based on
their balance sheets as contained in their most recent SEC filings. Certain
costs which the common officers believed to be particularly attributable to
each member company were not shared. These non-allocable costs include but are
not limited to directors' and trustees' fees, legal, audit and stock transfer
expenses, stationery and items of a similar nature. Congress Street received
no fee income for fulfilling its duties as the administrator of the
expense-sharing agreement. Congress Street recorded its share of the common
expenses, computed as described above, as a general and administrative expense.
The Company's share of these common costs were $56,000 in 1994 and $49,000 in
1993. The amounts that Congress Street allocated to the other companies
totalled $2,039,000 for 1994 and $1,585,000 for 1993. The Company had amounts
payable to the participating companies totaling $90,000 in 1994 and $260,000 in
1993, which represented advances made by the participating companies to
Congress Street.
The following table summarizes the activity through the expense-sharing
agreement:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
AUGUST 31
-------------------------
1994 1993
--------- ----------
<S> <C> <C>
Total costs incurred under the
expense sharing arrangement $2,632,000 $2,213,000
Profit of Eastover Realty (291,000) (234,000)
Administrative fees received:
LNH REIT, Inc. (125,000) (125,000)
Citizens Growth Properties (40,000) (41,000)
Rockwood National Corporation (81,000) (179,000)
Reimbursements received:
Parkway (538,000) (489,000)
EastGroup (1,115,000) (821,000)
EB (302,000) (167,000)
Eastover (84,000) (108,000)
---------- ---------
Administrative expenses recognized
by Congress Street $ 56,000 $ 49,000
========== =========
</TABLE>
F-54
<PAGE> 174
CONGRESS STREET PROPERTIES, INC.
Citizens Growth Properties, a former member of the Eastover Group of
Companies withdrew from the expense sharing agreement effective September 30,
1989. Citizens contracted with Congress Street to manage the day-to-day
operations for a fixed annual fee of $40,000 cancelable on sixty days notice by
either party. Effective September 1, 1990, Rockwood withdrew from the expense
sharing agreement. Rockwood signed an agreement separately with the Company
whereby the Company provided management and administrative services for an
annual fee of the lessor of $196,000 or the amount that would have been paid
under the expense sharing agreement. This agreement was terminated June 29,
1994. Effective April 22, 1992, LNH REIT, Inc. moved its corporate offices to
Jackson, Mississippi and agreements were executed whereby the Company, through
an affiliated partnership, provided certain management and administrative
services for LNH REIT, Inc. for an annual fee of $125,000.
The Company signed an amendment to the One Place Partner's Partnership
Agreement whereby Parkway loaned to the Company the Company's portion of
capital contributions. This note accrued interest at prime plus one percent
with interest due annually. At August 31, 1994 and 1993, $389,000 and
$448,000, respectively, was outstanding on the loan from Parkway.
A part of the common expenses of the Eastover Group of Companies is the
cost of office space leased from One Jackson Place. The Company's lease
expires on March 31, 1995.
F-55
<PAGE> 175
APPENDIX A
H O W A R D F R A Z I E R VALUATION AND FINANCIAL ADVISORS
B A R K E R E L L I O T, I N C. ESPERSON BUILDING
815 WALKER, SUITE 1447
HOUSTON, TEXAS 77002
PHONE: 713-225-9580
FAX: 713-225-9588
October 12, 1994
Special Committee of the Board of Directors
EB, Inc.
300 One Jackson Place
188 East Capitol Street
Jackson, MS 39201-2195
Gentlemen:
EB, Inc. ("EB" or the "Company") has requested that Howard Frazier
Barker Elliott, Inc. ("HFBE") render its opinion as to the fairness, from a
financial point of view, to the shareholders of EB, other than The Parkway
Company ("Parkway"), of the consideration offered to EB shareholders in the
proposed merger (the "Proposed Transaction") between Parkway and EB, wherein
Parkway is to be the surviving entity. The Transaction is to be basically
conterminious with a merger between Parkway and Congress Street Properties,
Inc.
As part of its financial advisory activities, HFBE engages in the
valuation of businesses and securities in connection with mergers and
acquisition, private placements and valuations for estate, corporate and other
purposes. We have performed assignments similar in nature to that requested by
you.
Neither HFBE nor the individuals involved with this opinion have any
present and/or contemplated future interest in EB or any other interest which
might tend to prevent making a fair and unbiased evaluation.
In connection with rendering our opinion, we have reviewed all
information and performed such analyses that we considered relevant, including,
but not limited to the following:
1. The draft agreement and Plan of Merger among the Parkway Company,
Parkway Acquisition Corporation and EB, Inc.
2. A draft of Securities and Exchange Commission (the "SEC") Form S-4 to
be filed on behalf of The Parkway Company in regard to the Proposed
Transaction.
3. Financial statements of EB, Inc., including
a. Audited financial statements for the years ended December 31, 1992
through 1993.
b. Quarterly statements (Sec Form 10- QSB) for the periods ended March
31 and June 30, 1994.
4. Financial statements of Parkway, including
a. Audited financial statements for the years ended June 30, 1993 and
1994 and SEC Form 10- KSB for June 30, 1994.
b. Quarterly statements (SEC Form of 10- QSB) for the periods ended
September 30 and December 31, 1993 and March 31, 1994.
<PAGE> 176
Special Committee of the Board of Directors
EB, Inc.
October 12, 1994
Page two
5. The Notice of Special Meeting of Shareholders to be held May 10, 1994
and the Proxy Statement/Prospectus in regard to the merger of Parkway
with First Continental Real Estate Investment Trust.
6. Various press releases pertaining to the proposed merger of EB and
the wholly-owned subsidiary of Parkway - Parkway Acquisition
Corporation.
7. Various press releases and other documents related to the proposed
acquisition of Grenada Sunburst System Corporation by Union Planters
Corporation.
8. The draft of the logic memorandum prepared by Rauscher Pierce Refsnes
Inc., dated September 13, 1994 pertaining to both the EB and Congress
Street transactions.
9. Various schedules prepared by Parkway and EB indicating estimated
realizable values for assets owned by each Company.
10. The price and trading volume history of the common stock of Parkway
and EB over the last several months.
In addition to the foregoing, managements of EB and Parkway have furnished
us with various information and documents relating to the history, business and
financial condition of EB and Parkway. We have also utilized publicly
available information with respect to the national economy, the condition of
the stock and credit markets, merger and acquisition activity, and the
financial and stock market performance of companies involved in the real estate
business.
We have held discussions with the management of EB and Parkway at their
headquarters regarding the past, present and expected future financial and
operating condition of the respective companies. We have relied upon the
assurances of management of Parkway and the Company that they are unaware of
any facts which would make the information provided to us incomplete or
misleading. We have relied solely on the reports of the independent certified
public accountants for the completeness and accuracy of the historical
financial information and on the management for the accuracy of recent
financial information and asset values. We have assumed that the manner in
which the Proposed Transaction will be effected complies with applicable state
and federal laws.
Subject to and based upon the foregoing and our experience as financial
advisors, it is our opinion that the Proposed Transaction is fair, from a
financial point of view, to the non-Parkway shareholders of EB, Inc.
Sincerely,
HOWARD FRAZIER BARKER ELLIOTT, INC.
By: /s/ Charles L. Elliott, Jr.
---------------------------------
Charles L. Elliott, Jr., CFA, ASA
<PAGE> 177
APPENDIX B
AGREEMENT AND PLAN OF MERGER
AMONG
THE PARKWAY COMPANY,
PARKWAY ACQUISITION CORPORATION
AND
EB, INC.
DATED: OCTOBER 28, 1994
<PAGE> 178
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I.
<S> <C> THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
----------
Section 1.2 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
--------------
Section 1.3 Effects of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
---------------------
Section 1.4 Articles of Incorporation and By-Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
-------------------------------------
Section 1.5 Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
---------
Section 1.6 Conversion of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
--------------------
Section 1.7 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
-------
ARTICLE II.
DISSENTING SHARES; EXCHANGE OF SHARES . . . . . . . . . . . . . . . . . . 3
Section 2.1 Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
-----------------
Section 2.2 Exchange of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
------------------
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . . . 4
Section 3.1 Organization and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
------------------------------
Section 3.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
--------------
Section 3.3 Authority Relative to this Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
------------------------------------
Section 3.4 SEC Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
-----------
Section 3.5 Proxy Statement/Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
--------------------------
Section 3.6 Consents and Approvals; No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
------------------------------------
Section 3.7 Litigation, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
----------------
Section 3.8 Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
-------
Section 3.9 Property and Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
----------------------------------
Section 3.10 ERISA Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
-------------
Section 3.11 Taxes, Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
------------------
Section 3.12 Tax Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
----------
Section 3.13 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
-----------------------
Section 3.14 No Default; Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
----------------------
Section 3.15 Representations and Warranties Continuing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
-----------------------------------------
Section 3.16 Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
-------------------------
Section 3.17 Compliance with Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
-----------------------
Section 3.18 Title to Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
-----------------
Section 3.19 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
---------
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
OF PARKWAY AND PAC . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.1 Organization and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
------------------------------
Section 4.2 Capitalization; Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
----------------------------
Section 4.3 Authority Relative to this Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
------------------------------------
Section 4.4 SEC Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
-----------
Section 4.5 Proxy Statements/Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
---------------------------
Section 4.6 Consents and Approvals; No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
------------------------------------
Section 4.7 Litigation, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
----------------
Section 4.8 Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
-------
</TABLE>
- i -
<PAGE> 179
<TABLE>
<S> <C> <C>
Section 4.9 Property and Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
----------------------------------
Section 4.10 Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
---------------------
Section 4.11 Taxes, Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
------------------
Section 4.12 Tax Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
----------
Section 4.13 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
-----------------------
Section 4.14 No Default; Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
----------------------
Section 4.15 Representations and Warranties Continuing . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
-----------------------------------------
Section 4.16 Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
-------------------------
Section 4.17 Compliance with Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
-----------------------
Section 4.18 Title to Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
-----------------
Section 4.19 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
---------
Section 4.20 Shares of Common Stock of Parkway . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
---------------------------------
ARTICLE V.
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.1 Conduct of Business of the Company and Parkway . . . . . . . . . . . . . . . . . . . . . . . . . 25
----------------------------------------------
Section 5.2 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
---------------------
Section 5.3 Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
------------
Section 5.4 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
--------
Section 5.5 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
--------------------
Section 5.6 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
---------------
Section 5.7 Meetings of Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
------------------------
Section 5.8 Blue Sky . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
--------
ARTICLE VI.
CONDITIONS TO CONSUMMATION OF THE MERGER . . . . . . . . . . . . . . . . 29
Section 6.1 Certificates, Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
--------------------------------
Section 6.2 Other Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
----------------
ARTICLE VII.
TERMINATION; AMENDMENTS; WAIVER . . . . . . . . . . . . . . . . . . 30
Section 7.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
-----------
Section 7.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
---------------------
Section 7.3 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
---------
Section 7.4 Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
-----------------
Section 7.5 Reimbursement of Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
-------------------------
ARTICLE VIII.
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . 32
Section 8.1 Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
------------------------------------------
Section 8.2 Brokerage Fees; Commissions and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
----------------------------------------
Section 8.3 Entire Agreement; Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
----------------------------
Section 8.4 Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
--------
Section 8.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
-------
Section 8.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
-------------
Section 8.7 Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
--------------------
Section 8.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
------------
Section 8.9 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
--------
Section 8.10 Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
-------------------
Section 8.11 Performance by PAC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
------------------
Section 8.12 Disclosure Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
-------------------
Section 8.13 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
-------------------
</TABLE>
- ii -
<PAGE> 180
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of
October 28, 1994, among EB, INC., a Mississippi corporation (the "Company"),
PARKWAY ACQUISITION CORPORATION, a Mississippi corporation and a wholly-owned
subsidiary of The Parkway Company ("PAC"), and THE PARKWAY COMPANY, a Texas
corporation ("Parkway").
WHEREAS, the respective Boards of Directors of Parkway, PAC
and the Company have duly approved the acquisition of the Company by Parkway by
means of a merger of PAC with and into the Company pursuant to the terms of
this Agreement, it is therefore agreed as follows:
ARTICLE I.
THE MERGER
Section 1.1 THE MERGER. Upon the terms and subject to
the conditions hereof, and in accordance with the relevant provisions of the
Texas Business Corporation Act (the "Act") and the Mississippi Business
Corporation Act (the "Mississippi Act") including, without limitation, any
required vote of shareholders of the Company as described in Section 5.7 of
this Agreement, PAC shall be merged with and into the Company (the "Merger") as
soon as practicable following the satisfaction or waiver, if permissible, of
the conditions set forth in Article VI hereof. Following the Merger the
Company shall continue as the surviving corporation (the "Surviving
Corporation") under the laws of the State of Mississippi and the separate
corporate existence of PAC shall cease.
Section 1.2 EFFECTIVE TIME. The Merger shall be
consummated by filing with the Mississippi Secretary of State the Articles of
Merger in the form attached hereto as Exhibit A (the "Articles of Merger") (the
time of such filing being the "Effective Time").
Section 1.3 EFFECTS OF THE MERGER. The Merger shall have
the effects set forth in Section 79-4-11.06 of the Mississippi Act. As of the
Effective Time, PAC shall merge with and into the Company.
Section 1.4 ARTICLES OF INCORPORATION AND BY-LAWS. The
Articles of Incorporation and By-Laws of the Company, both as in effect at the
Effective Time, shall be the Articles of Incorporation and By-Laws of the
Surviving Corporation.
Section 1.5 DIRECTORS. As of the Effective Time,
directors of PAC in office on the date of execution hereof shall be directors
of the Surviving Corporation until their respective successors are duly elected
and qualified.
Section 1.6 CONVERSION OF SHARES.
(a) Each share of common stock, $2.00 stated
value per share ("Shares"), of the Company issued and outstanding
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immediately prior to the Effective Time (other than Shares held by the Company
as treasury stock or held by Parkway, which shall be cancelled) shall, by
virtue of the Merger and without any action on the part of any holder thereof,
be converted into the right to receive a cash payment in the amount of eight
dollars ($8.00) plus a certain amount of newly issued, fully paid and
non-assessable shares of common stock of Parkway based on an exchange ratio
(the "Exchange Ratio") as determined and set forth below. Such shares shall be
issuable upon surrender of the certificates formerly representing Shares of the
Company. The Exchange Ratio will be determined by dividing the value $9.25 by
the average closing price for shares of common stock of Parkway for the 30
trading days preceding the Closing (as defined in Section 1.7) (the "Closing
Price"). Notwithstanding the foregoing, this Agreement is subject to
termination as provided in Section 7.1 in the event that (i) the Closing Price
per share of common stock of Parkway equals an amount less than $11.50 per
share of common stock of Parkway or exceeds $16.00 per share of common stock of
Parkway or (ii) the closing price per share of common stock of Grenada Sunburst
System Corporation ("GSSC"), a Delaware corporation, on the last day on which
GSSC shares traded prior to the Closing equals an amount less than $28.00 per
share or exceeds $40.00 per share. No fractional shares of common stock of
Parkway shall be issued. Instead shareholders of the Company will be entitled
to receive cash in lieu of fractional shares in an amount based upon the per
share closing price of Parkway's shares of common stock averaged over the 30
trading days preceding the Closing, multiplied by the fraction of a share of
common stock of Parkway to which the shareholder would have otherwise been
entitled. The cash payment and shares of common stock of Parkway issuable in
exchange for the Shares of the Company and the cash payment in lieu of
fractional shares are referred to herein as the "Merger Consideration." All
shares issued to the shareholders of the Company representing the Merger
Consideration shall be registered under the Securities Act of 1933, as amended
(the "Securities Act"), on a Form S-4 Registration Statement being filed by
Parkway with the Securities and Exchange Commission (the "SEC"). Any shares
representing the Merger Consideration held by persons who are affiliates (as
that term is defined in SEC Rule 405) of the Company shall bear a legend
restricting the transferability of shares pursuant to SEC Rule 145. Parkway
shall have no obligation to keep the Form S-4 Registration Statement effective
and it shall expire by its terms on the earlier of (i) ninety (90) days after
the Effective Time or (ii) the date that any event occurs which would cause
Parkway to be required to file a post-effective amendment under the Securities
Act in order to update the Proxy Statement/Prospectus (as defined in Section
8.10) pursuant to Section 10 of the Securities Act.
(b) Each Share held in the treasury of the
Company and each Share held by Parkway immediately prior to the Effective Time
shall, at the Effective Time, by virtue of the Merger and without any action on
the part of the holder thereof,
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be cancelled and retired and cease to exist and no payment shall be made with
respect thereto.
Section 1.7 CLOSING. Upon the terms and subject to the
conditions hereof, as soon as practicable after the satisfaction of all
conditions described in Article VI, the Company and PAC shall execute in the
manner required by the Mississippi Act and deliver to the Mississippi Secretary
of State the duly executed Articles of Merger, and the parties shall take such
other and further actions as may be required by law to make the Merger
effective. Contemporaneous with the filings referred to in this Section, a
closing (the "Closing") will be held at the offices of Parkway in Jackson,
Mississippi (or such other place as the parties may agree), for the purpose of
implementing all transactions described in this Agreement.
ARTICLE II.
DISSENTING SHARES; EXCHANGE OF SHARES
Section 2.1 DISSENTING SHARES. Section 79-4-13.02 of the
Mississippi Act provides dissenter's rights in connection with the Merger to
the shareholders of the Company.
Section 2.2 EXCHANGE OF SHARES.
(a) Promptly after the Effective Time, PAC shall
cause Parkway's transfer agent (the "Agent") to mail to each record holder, as
of the Effective Time, of an outstanding certificate or certificates which
immediately prior to the Effective Time represented Shares (the
"Certificate(s)") a form letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss of and title to the Certificates
shall pass to PAC upon physical delivery to the Agent) and instructions for use
in effecting the surrender of the Certificate and for receiving any payment for
fractional shares. Upon surrender to the Agent of a Certificate, together with
such letter of transmittal duly executed, the holder of such Certificate shall
be entitled to receive in exchange therefor a certificate or certificates and
cash representing the Merger Consideration and such surrendered Certificate
shall then be cancelled. If issuance is to be made to a person other than the
person in whose name the Certificate surrendered is registered, it shall be a
condition of issuance that the Certificate so surrendered shall be properly
endorsed or otherwise in proper form for transfer and that the person
requesting such issuance shall pay transfer or other taxes required by reason
of the payment to a person other than the registered holder of the Certificate
or Certificates surrendered or established to the satisfaction of Parkway that
such tax has been paid or is not applicable. Until surrendered in accordance
with the provisions of this Section 2.2, each Certificate shall represent for
all purposes the right to receive the Merger Consideration.
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(b) At and after the Effective Time there shall
be no transfers of Shares which were outstanding immediately prior to the
Effective Time on the stock transfer books of the Company. If, after the
Effective Time, Certificates are presented to the Company, they shall be
cancelled and exchanged for the Merger Consideration provided in this Article
II. At the close of business on the day prior to the Effective Time the stock
ledger of the Company shall be closed.
(c) From and after the Effective Time, holders of
Certificates formerly evidencing Shares shall cease to have any rights as
shareholders of the Company, except as provided herein or by law.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.1 ORGANIZATION AND QUALIFICATION. The Company
is a corporation engaged in the real estate business duly organized, validly
existing and in good standing under the laws of the State of Mississippi. The
Company has no Subsidiaries. The Company has all requisite power and authority
to own or operate its properties and conduct its business as it is now being
conducted. The Company is duly qualified and in good standing as a foreign
corporation or entity authorized to do business in each of the jurisdictions in
which the character of the properties owned or held under lease by it or the
nature of the business transacted by it makes such qualification necessary,
except where the failure to be so qualified and in good standing would not have
a Material Adverse Effect (as defined in Section 8.10) on the Company.
Section 3.2 CAPITALIZATION.
The authorized capital stock of the Company consists
of 25,000,000 Shares. As of the date hereof, 1,450,117 Shares were issued, and
no Shares held in treasury. The Company does not have any shares of its
capital stock reserved for issuance. All issued and outstanding Shares are
validly issued, fully paid, non-assessable and free of preemptive rights.
Section 3.3 AUTHORITY RELATIVE TO THIS AGREEMENT. The
Company has all requisite power and authority to execute and deliver this
Agreement and (other than approval of the Merger and this Agreement by the
holders of a majority of all the votes entitled to be cast) to consummate the
transactions contemplated hereby. The parties acknowledge that certain of the
Shares may not be entitled to vote as a result of Sections 79-27-1 et seq. of
the Mississippi Act. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been authorized by
the Board of Directors of the Company, and no other corporate proceedings on
the part of the Company are necessary to authorize this Agreement or to
consummate the transactions so contemplated (other than approval
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of the Merger and this Agreement by the holders of a majority of the Shares
entitled to vote). This Agreement has been duly and validly executed and
delivered by the Company and, assuming this Agreement constitutes a valid and
binding obligation of each of Parkway and PAC, this Agreement constitutes a
valid and binding agreement of the Company, enforceable against the Company in
accordance with its terms.
Section 3.4 SEC REPORTS. To the best of its knowledge,
the Company has filed all required forms, reports and documents with the SEC
("Company SEC Reports") required to be filed by it pursuant to the federal
securities laws and the SEC rules and regulations thereunder, all of which have
complied in all material respects with all applicable requirements of the
Securities Act and the Securities Exchange Act of 1934 (the "Exchange Act"),
and the rules and interpretive releases promulgated thereunder. None of such
Company SEC Reports, including without limitation any financial statements,
notes, or schedules included therein, at the time filed, contained nor
contains, or if to be filed in the future, will contain, any untrue statement
of a material fact, or omitted, omits or will omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
Each of the financial statements in or incorporated by
reference into the Company SEC Reports is fairly stated as of its date
(subject, in the case of unaudited interim statements, to normal year-end audit
adjustments) and is presented in accordance with generally accepted accounting
principles consistently applied throughout the periods involved, except as may
be noted therein; and independent certified public accountants for the Company
have rendered or will render an unqualified opinion with respect to each
audited financial statement included in the Company SEC Reports or, if
qualified, such qualification is or will be reasonably satisfactory to Parkway.
The financial statements included or to be included in the Company SEC Reports
are hereinafter sometimes collectively referred to as the "Company Financial
Statements."
Section 3.5 PROXY STATEMENT/PROSPECTUS. ThE Proxy
Statement/Prospectus required for the consummation of the Merger will comply in
all material respects with the Securities Act and the Exchange Act, except that
no representation will be made by the Company with respect to information
supplied in writing by Parkway or any affiliate of Parkway specifically for
inclusion in the Proxy Statement/Prospectus. None of the information relating
to the Company supplied in writing by the Company specifically for inclusion in
the Proxy Statement/Prospectus shall, at the time the Proxy
Statement/Prospectus is mailed or at the time of the Special Meeting (as
defined in Section 8.10), contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
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Section 3.6 CONSENTS AND APPROVALS; NO VIOLATION. Except
as described in the Disclosure Schedule, neither the execution and delivery of
this Agreement by the Company nor the consummation of the transactions
contemplated hereby nor compliance by the Company with any of the provisions
hereof will (a) conflict with or result in any breach of any provision of the
Articles of Incorporation, By-Laws or other organization documents of the
Company, (b) require any consent, approval, authorization or permit of, or
filing with or notification to, any Governmental Authority (as defined in
Section 8.10), except (i) pursuant to the Securities Act and the Exchange Act,
(ii) the filing of the Articles of Merger pursuant to the Mississippi Act,
(iii) such filings and approvals as may be required under the "blue sky,"
takeover or securities laws of various states, or (iv) where the failure to
obtain such consent, approval, authorization or permit, or to make such filing
or notification, would not in the aggregate have a Material Adverse Effect, (c)
result in a default (with or without due notice or lapse of time or both) (or
give rise to any right of termination, cancellation or acceleration) under any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
Contract (as defined in Section 3.16), license, agreement or other instrument
or obligation to which the Company is a party or by which the Company or any of
its assets may be bound, except for such defaults (or rights of termination,
cancellation or acceleration) as to which requisite waivers or consents have
been obtained or which, in the aggregate, would not have a Material Adverse
Effect, (d) result in the creation or imposition of any lien, charge or other
encumbrance on the assets of the Company which would have a Material Adverse
Effect on the Company, or (e) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to the Company or any of its assets,
except for violations which would not in the aggregate have a Material Adverse
Effect.
Section 3.7 LITIGATION, ETC. Except as described in the
Disclosure Schedule, (a) there is no action, claim, or proceeding pending or,
to the knowledge of the Company, threatened, to which the Company is or would
be a party before any court or Governmental Authority acting in an adjudicative
capacity or any arbitrator or arbitration tribunal with respect to which there
is a reasonable likelihood of a determination having, or which, insofar as
reasonably can be foreseen, in the future would have a Material Adverse Effect
on the Company, (b) the Company is not subject to any outstanding order, writ,
injunction or decree having, or which, insofar as reasonably can be foreseen,
in the future would have a Material Adverse Effect on the Company and (c) there
are no claims asserted or actions or proceedings pending against any officer or
director of the Company arising out of or pertaining to any action or omission
within the scope of his employment or position with the Company, which claim,
action or proceeding would involve a Material Adverse Effect on the Company.
All litigation and other administrative, judicial or quasi-judicial proceedings
to which the Company is a party or to which it has been threatened, to the
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Company's knowledge, to be made a party, are described in the Disclosure
Schedule.
Section 3.8 CHANGES. Except as expressly contemplated by
this Agreement or as reflected in the Disclosure Schedule or in the Company SEC
Reports, since December 31, 1993, the Company has conducted its business only
in the ordinary and usual course, and, except as set forth in the Disclosure
Schedule or in the Company SEC Reports, none of the following has occurred:
(a) any material adverse change in the condition
(financial or other), results of operations, business, assets, and employee
relations of the Company;
(b) any change in accounting methods, principles
or practices by the Company materially affecting its assets, liabilities or
business, except insofar as may have been required by a change in generally
accepted accounting principles;
(c) any damage, destruction or loss, whether or
not covered by insurance, materially adversely affecting the condition
(financial or other), business or operations of the Company;
(d) any declaration, setting aside or payment of
dividends or distributions in respect of the Shares other than those dividends
publicly announced, declared and paid by the Company, or any redemption,
purchase or other acquisition of any of the Company's securities;
(e) any issuance by the Company of, or commitment
of the Company to issue, any shares of capital stock or securities convertible
into or exchangeable or exercisable for shares of capital stock;
(f) any entry by the Company into any commitment
or transaction material to the condition (financial or other), business or
operations of the Company which is not in the ordinary course of business and
consistent with past practice;
(g) any revaluation by the Company of any of its
assets, including, without limitation, writing down the value of assets or
writing off notes or accounts receivables other than in the ordinary course of
business and consistent with past practice;
(h) any action taken by the Company of the type
referred to in Section 5.1;
(i) any agreement by the Company to do any of the
things described in the preceding clauses (a) through (h) other than as
expressly contemplated or provided for herein; and
(j) any waiver by the Company of any rights that,
singularly or in the aggregate, are material to the business, assets, financial
condition or results of operation of the Company.
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Section 3.9 PROPERTY AND ENVIRONMENTAL MATTERS.
(a) Except as disclosed in the Disclosure
Schedule, to the best knowledge of the Company, the location, construction,
occupancy, operation, condition and use of the real property now or previously
owned, leased by or in the possession of the Company (the "Real Property"), the
facilities or improvements located thereon and the operations and practices of
the Company are or at the time of ownership, lease or possession were in
substantial compliance with all Environmental Laws (as defined in Section 8.10)
and any restrictive covenant or deed restriction (recorded or otherwise)
affecting the Real Property, including, without limitation, all applicable
zoning ordinances and building codes in effect at the time of improvement of
such Real Property, flood disaster and occupational health and safety laws.
(b) The Company is not subject to any material
liability or obligation, including investigatory or remedial obligations under
any Environmental Law or the common law with respect to Hazardous Materials (as
defined in Section 8.10), relating to (i) the environmental conditions on,
under or about the Real Property, including, without limitation, the air, soil,
surface water and groundwater conditions at the Real Property, or (ii) the use,
management, handling, transport, treatment, generation, storage, disposal,
release or discharge of any Hazardous Materials.
(c) With the exception of those Hazardous
Materials and activities described in the Disclosure Schedule, to the best
knowledge of the Company, no portion of the Real Property is being used, nor
has been used by the Company at any previous time, for the generation, storage,
treatment, processing, disposal or other handling of any Hazardous Materials.
(d) The Company has not received any notice and
is not aware of any existing condition (including the condition of the Real
Property, whether or not caused by the Company) or the practice of the business
conducted by the Company which forms or could form the basis of any claim,
action, suit, proceeding, administrative consent or agreement, litigation or
settlement, hearing or investigation, arising out of the manufacture,
processing, distribution, use, treatment, storage, spill, disposal, transport
or handling of, or the emission, discharge, release or threatened release into
the environment of, any Hazardous Materials which, if decided against the
Company, would have a Material Adverse Effect on the Company.
(e) The Company has listed and described on the
Disclosure Schedule or made available to Parkway, as appropriate (i) all
treatment, storage and disposal facilities, as defined in the Resource
Conservation and Recovery Act of 1976, 42 U.S.C. Section 6901, et seq., as
amended, or under similar Environmental Laws, and all underground storage
tanks, whether empty, filled, or partially filled with any substance, that are
located on the Real Property; (ii) the current and past Hazardous Material
disposal
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practices of the Company; and (iii) any environmental assessment or
environmental audit reports delivered to the Company.
(f) To the best of its knowledge, the Company is
not required to obtain or apply for any permit, license, registration,
notification or similar authorization under any Environmental Law for the
conduct of the Company's business or relating to the Real Property, the
facilities, improvements or equipment located thereon.
(g) No portion of the Real Property has been
designated as a covered facility under CERCLA (as defined in Section 8.10(a))
or included on any similar "superfund" list or registry or has been made
subject to any environmental lien pursuant to any Environmental Law or by any
Governmental Authority.
Section 3.10 ERISA MATTERS. The Company has no "Employee
Benefit Plans" as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), that cover any of its employees.
The Company has never contributed to a "multiemployer plan" as defined in
Section 3(37) of ERISA.
Section 3.11 TAXES, TAX RETURNS.
(a) The Company has delivered to Parkway copies
of the federal income tax returns of the Company for each of the last three
fiscal years and all schedules and exhibits thereto. Except as set forth on
the Disclosure Schedule, the Company has duly and timely filed in correct form
all federal, state and local information returns and tax returns ("Returns")
required to be filed by it on or prior to the date hereof (all such Returns, to
the best knowledge of the Company, being accurate and complete in all material
respects) and, to the best knowledge of the Company, has duly paid or made
provision for the payment of all taxes and other governmental charges which
have been incurred or are due or claimed to be due from them by any
governmental authority (including, without limitation, those due in respect of
the Company's properties, income, business, capital stock, franchises,
licenses, sales and payrolls) other than taxes or other charges (i) which are
not yet delinquent or are being contested in good faith, and set forth in the
Disclosure Schedule and (ii) have not been finally determined. The liabilities
and reserves for taxes in the Company Financial Statements are sufficient in
the aggregate for the payment of all unpaid federal, state and local taxes
(including any interest or penalties thereon), whether or not disputed or
accrued, for the period ended December 31, 1993 or for any year or period prior
thereto, and for which the Company may be liable in its own right or as
transferee of the assets of, or successor to, any corporation, person,
association, partnership, joint venture or other entity.
(b) To the best knowledge of the Company, (i)
proper and accurate amounts have been withheld by the Company from its
employees and others for all prior periods in compliance in all material
respects with the tax withholding provisions of
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applicable federal, state and local laws and regulations, and proper due
diligence steps have been taken in connection with back-up withholding, (ii)
Returns which are accurate and complete in all material respects have been
filed by the Company for all periods for which Returns were due with respect to
income tax withholding, Social Security and unemployment taxes and (iii) the
amounts shown on such Returns to be due and payable have been paid in full, or
adequate provision therefor has been included by the Company in the most recent
Company Financial Statements.
Section 3.12 TAX AUDITS. Except as disclosed in the
Company SEC Reports or in the Disclosure Schedule, (a) no audit of any material
Return of the Company is currently in progress, nor has the Company been
notified that such an audit is contemplated by any taxing authority, (b) the
Company has not extended any statute of limitations with respect to the period
for assessment of any federal, state or local tax, (c) the Company does not
contemplate the filing of an amendment to any Return, which amendment would
have a Material Adverse Effect on the Company and (d) the Company does not have
any actual or potential material liability for any tax obligation of any
taxpayer (including, without limitation, any affiliated group of corporations
or other entities which included the Company during a prior period) other than
the Company. Except as disclosed in the Company SEC Reports or the Disclosure
Schedule, there are no material tax claims pending against the Company, there
are no material tax claims threatened to be asserted against the Company, and
there are no material issues which have been raised in prior periods or audits
which by application of similar principles are expected to result in a material
tax claim for any other period. For purposes of this Section 3.12, "tax" and
"taxes" shall include all income, gross receipt, franchise, excise, real and
personal property, sales, ad valorem, employment, withholding and other taxes
imposed by any foreign, federal, state, municipal, local or other Governmental
Authority, including assessments in the nature of taxes.
Section 3.13 UNDISCLOSED LIABILITIES. The Company is not
liable for or subject to any material Liabilities (as hereinafter defined),
except (a) Liabilities adequately disclosed or reserved for in the most recent
Company Financial Statements and not heretofore paid or discharged, (b)
Liabilities under any contract, commitment or agreement specifically disclosed
on the Disclosure Schedule, none of which Liabilities under any such contract,
commitment or agreement were required under generally accepted accounting
principles consistently applied to have been adequately and specifically
disclosed or reserved for in the most recent Company Financial Statements, or
(c) Liabilities incurred, consistent with past practice, in or as a result of
the ordinary course of business of the Company, and in accordance with this
Agreement, since the date of the most recent Company Financial Statements. As
used in this Agreement, the term "Liability" shall include any direct or
indirect liability, indebtedness, obligation, guarantee or endorsement (other
than endorsements of notes, bills and checks presented to banks for collection
or
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deposit in the ordinary course of business), whether known or unknown, accrued,
absolute, contingent or otherwise.
Section 3.14 NO DEFAULT; COMPLIANCE
(a) Except as set forth in the Disclosure
Schedule, the Company is not in default under, and no condition exists that
with notice or lapse of time or both would constitute a default under, (i) any
mortgage, loan agreement, indenture, evidence of indebtedness or other
instrument evidencing borrowed money to which the Company is a party or by
which the Company or any of its properties is bound, (ii) any judgment, order
or injunction of any court, arbitrator or governmental agency or (iii) any
other agreement, contract, lease, license or other instrument, which default or
potential default might reasonably be expected to have a Material Adverse
Effect.
(b) Except as set forth in the Disclosure
Schedule, the Company has complied with all laws, regulations, orders,
judgments or decrees of any federal or state court or governmental authority
applicable to its business and operations, the non-compliance with which might
reasonably be expected to have a Material Adverse Effect.
Section 3.15 REPRESENTATIONS AND WARRANTIES CONTINUING.
The representations and warranties set forth herein shall be true and correct
on the date hereof and at all times prior to the Effective Time as if made from
time to time, including, without limitation, at the Effective Time.
Section 3.16 CONTRACTS AND COMMITMENTS. Except as listed
and described in the Disclosure Schedule, to the best of its knowledge, the
Company is not a party to, nor is it or any of its assets bound by, any written
or oral:
(a) contract with any present or
former shareholder, director, officer, employee or consultants;
(b) contract with any labor union
or other representative of employees;
(c) contract for the future
purchase of, or payment for, supplies or products, or for the
performance of services by a third party, involving payment or
potential payment by the Company of $25,000 or more under any
one contract or series of related contracts;
(d) any contract, including,
without limitation, any outstanding quotations, bids or
proposals, to sell goods or to perform services in an
aggregate amount in excess of $25,000;
(e) distributorship, representative
or sales agency agreement, contract or commitment;
(f) conditional sale agreement or
lease under which the Company is either the seller or
purchaser, lessor or lessee, involving annualized
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payments or potential payments by or to the Company that is in
excess of $25,000;
(g) contract (including, without
limitation, any note, debenture, bond, conditional sale or
equipment trust agreement, letter of credit agreement or loan
agreement) for the borrowing or lending of money (including,
without limitation, those to or from officers, directors or
shareholders of the Company, or any affiliates or members of
their immediate families, for a line of credit, or for a
guarantee, security, indemnitee, pledge or undertaking of the
indebtedness or obligations of any other person);
(h) contract for any charitable or
political contribution;
(i) contract for any capital
expenditure involving future payments, which, together with
future payments under all other existing contracts for the
same capital project, are in excess of $25,000;
(j) contract limiting or
restraining the Company from engaging or competing in any
lines of business with any person, nor is any officer or
employee of the Company subject to any such agreement,
contract or commitment;
(k) license, franchise,
distributorship or other contract relating in whole or in part
to any ideas, technical assistance or other know-how of or
used by the Company;
(l) contract which is expected to
continue for more than six months from the date hereof;
(m) contract not made in the
ordinary course of business; or
(n) any guaranty, direct or
indirect, of any person of any contract, lease or agreement
entered into by the Company.
(Each of the foregoing is referred to herein as a "Contract".) Except as may
be disclosed on the Disclosure Schedule, each of the Contracts listed on the
Disclosure Schedule is valid and enforceable in accordance with its terms; the
Company and, to the best of the Company's knowledge, the other parties thereto
are in substantial compliance with the provisions thereof; except as may be
disclosed on the Disclosure Schedule, neither the Company nor any other party
is (or, by reason of the consummation of the transactions contemplated by this
Agreement, will be) in default in the performance, observance or fulfillment of
any obligation, covenant or condition contained therein and no event has
occurred or is anticipated to occur (including the consummation of the
transactions contemplated by this Agreement) which with or without the giving
of notice or lapse of time, or both, would constitute a default or give the
right of termination thereunder;
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furthermore, except as may be disclosed on the Disclosure Schedule, no such
Contract contains any contractual requirement with which there is a reasonable
likelihood that either (a) the Company or any other party thereto will be
unable to comply or (b) compliance therewith by the Company will have a
Material Adverse Effect on the Company. Except as set forth in the Disclosure
Schedule, neither the Company nor any of its officers has made any oral
commitments or has any oral understandings which may be material to the
Company.
Section 3.17 COMPLIANCE WITH PERMITS. To the best of the
Company's knowledge, all necessary governmental certificates, consents,
permits, licenses or other authorizations with regard to the ownership or
operation by the Company of its properties and assets have been obtained and no
violation exists in respect of such licenses, permits or authorizations, except
where the failure to obtain and hold such permits, or any violation thereof by
the Company, would not reasonably be expected to have a Material Adverse
Effect. None of the documents and materials filed with or furnished to any
Governmental Authority with respect to the properties, assets or business of
the Company contains any untrue statement of a material fact or fails to state
a material fact necessary to make the statements therein not misleading.
Section 3.18 TITLE TO PROPERTY. Except as disclosed on
the Disclosure Schedule, the Company has good and marketable title, free and
clear (except as indicated in the most recent Company Financial Statements and
liens for current taxes not yet due and payable), of all security interests,
liens, encumbrances and encroachments of a material nature, to its property and
assets that are material to the Company's business.
Section 3.19 INSURANCE. The Disclosure Schedule sets
forth a complete and accurate list and description of all insurance policies in
force naming the Company, or any employees of the Company as an insured or
beneficiary or as a loss payable payee or for which the Company has paid or is
obligated to pay all or part of the premiums. The Company has not received
notice of any pending or threatened termination or retroactive premium increase
with respect thereto, and the Company is in compliance with all conditions
contained therein, the noncompliance with which could result in the termination
of insurance coverage or increased premiums for prior or future periods. There
are no pending material claims against such insurance by the Company as to
which insurers have denied liability, no defenses provided by insurers under
reservations of rights, and no material claim under such insurance that has not
been properly filed by the Company.
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ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
OF PARKWAY AND PAC
Parkway and PAC, jointly and severally, represent and warrant
to the Company as follows:
Section 4.1 ORGANIZATION AND QUALIFICATION. Parkway is a
corporation engaged in the real estate business duly organized, validly
existing and in good standing under the laws of the State of Texas and PAC is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Mississippi. All Subsidiaries of Parkway are legal
entities that are duly organized, validly existing and in good standing under
the laws of their respective jurisdictions of incorporation. Each of Parkway
and its Subsidiaries has all requisite power and authority to own or operate
its properties and conduct its business as it is now being conducted. Parkway
and each of its Subsidiaries is duly qualified and in good standing as a
foreign corporation or entity authorized to do business in each of the
jurisdictions in which the character of the properties owned or held under
lease by it or the nature of the business transacted by it makes such
qualification necessary, except where the failure to be so qualified and in
good standing would not have a Material Adverse Effect on Parkway or such
Subsidiary.
Section 4.2 CAPITALIZATION; SUBSIDIARIES.
(a) The authorized capital stock of Parkway consists
of 10,000,000 shares of common stock, par value $1.00 per share. As of the
date hereof, 1,542,942 shares of common stock were issued are outstanding.
Neither Parkway nor any Subsidiary has any shares of its capital stock reserved
for issuance, except for 65,292 shares of common stock of Parkway issuable
pursuant to employee and director stock options. No other options, warrants or
other securities convertible into capital stock of Parkway are outstanding.
All issued and outstanding shares of Preferred Stock and common stock of
Parkway are validly issued, fully paid, non-assessable and free of preemptive
rights. Parkway's shares of common stock are held of record by not less than
2,000 holders.
(b) The Disclosure Schedule sets forth the name,
the number of shares of authorized capital stock and the number of issued and
outstanding shares of capital stock or other indicia of ownership of each
direct or indirect Subsidiary of Parkway. Except as set forth in such
schedule, all of the outstanding shares of capital stock of each of such
Subsidiaries are owned, directly or indirectly, by Parkway, beneficially and of
record. All of such shares of capital stock of the Subsidiaries are owned free
and clear of all liens, charges, encumbrances, rights of others, mortgages,
pledges or security interests, and are not subject to any agreements or
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understandings among any persons with respect to the voting or transfer of such
shares. There are no outstanding subscriptions, options, convertible
securities, warrants or claims of any kind issued or granted by or binding on
Parkway and PAC to purchase or otherwise acquire any security of or equity
interest in any of such Subsidiaries. All of the outstanding shares of capital
stock of each such Subsidiary have been duly authorized and validly issued and
are fully paid and non-assessable, and none has been issued in violation of the
preemptive rights of any stockholder.
Section 4.3 AUTHORITY RELATIVE TO THIS AGREEMENT.
Parkway and PAC have all requisite corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Boards of Directors of Parkway and PAC and by Parkway as sole shareholder of
PAC, and no other corporate proceedings on the part of Parkway and PAC are
necessary to authorize this Agreement or to consummate the transactions so
contemplated. This Agreement has been duly and validly executed and delivered
by Parkway and PAC and, assuming this Agreement constitutes a valid and binding
obligation of the Company, this Agreement constitutes a valid and binding
agreement of Parkway and PAC, enforceable against Parkway and PAC in accordance
with its terms.
Section 4.4 SEC REPORTS. To the best of its knowledge,
Parkway has filed all required forms, reports and documents with the SEC
("Parkway SEC Reports") required to be filed by it pursuant to the federal
securities laws and the SEC rules and regulations thereunder, all of which have
complied in all material respects with all applicable requirements of the
Securities Act and the Exchange Act, and the rules and interpretive releases
promulgated thereunder. None of such Parkway SEC Reports, including without
limitation any financial statements, notes, or schedules included therein, at
the time filed, contained nor contains, or, if to be filed in the future will
contain, any untrue statement of a material fact, or omitted, omits or will
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
Each of the consolidated financial statements in or
incorporated by reference into the Parkway SEC Reports is fairly stated as of
its date (subject, in the case of unaudited interim statements, to normal
year-end audit adjustments), and is presented in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved, except as may be noted therein; and independent certified public
accountants for Parkway have rendered or will render an unqualified opinion
with respect to each audited financial statement included in the Parkway SEC
Reports or, if qualified, such qualification is reasonably satisfactory to the
Company. The consolidated financial statements included or to be included
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in the Parkway SEC Reports are hereinafter sometimes collectively referred to
as the "Parkway Financial Statements."
Section 4.5 PROXY STATEMENTS/PROSPECTUS. The Proxy
Statement/Prospectus required for the consummation of the Merger will
comply in all material respects with the Securities Act and the Exchange Act,
except that no representation will be made by Parkway with respect to
information supplied in writing by the Company or any affiliate of the Company
specifically for inclusion in the Proxy Statement/Prospectus. None of the
information relating to Parkway and its Subsidiaries shall, at the time the
Proxy Statement/Prospectus is mailed or at the time of the Special Meeting,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
Section 4.6 CONSENTS AND APPROVALS; NO VIOLATION. Except
as described in the Disclosure Schedule, neither the execution and delivery of
this Agreement by Parkway and PAC nor the consummation of the transactions
contemplated hereby nor compliance by Parkway and PAC with any of the
provisions hereof will (a) conflict with or result in any breach of any
provision of the Articles of Incorporation or By-laws of Parkway or any
Subsidiary, (b) require any consent, approval, authorization or permit of, or
filing with or notification to, any Governmental Authority, except (i) pursuant
to the Securities Act and the Exchange Act, (ii) the filing of the Articles of
Merger pursuant to the Mississippi Act, (iii) such filings and approvals as may
be required under the "blue sky," takeover or securities laws of various
states, or (iv) where the failure to obtain such consent, approval,
authorization or permit, or to make such filing or notification, would not in
the aggregate have a Material Adverse Effect, (c) result in a default (with or
without due notice or lapse of time or both) (or give rise to any right of
termination, cancellation or acceleration) under any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, Parkway Contract (as
defined in Section 4.16), license, agreement or other instrument or obligation
to which Parkway or any of its Subsidiaries is a party or by which Parkway, any
of its Subsidiaries or any of their respective assets may be bound, except for
such defaults (or rights of termination, cancellation or acceleration) as to
which requisite waivers or consents have been obtained or which, in the
aggregate, would not have a Material Adverse Effect, (d) result in the creation
or imposition of any lien, charge or other encumbrance on the assets of Parkway
or any of its Subsidiaries, or (e) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to Parkway, any of its Subsidiaries or
any of their respective assets, except for violations which would not in the
aggregate have a Material Adverse Effect.
Section 4.7 LITIGATION, ETC. Except as described in the
Disclosure Schedule, (a) there is no action, claim, or proceeding pending or,
to the knowledge of Parkway and PAC,
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threatened, to which Parkway or any of its Subsidiaries is or would be a party
before any court or Governmental Authority acting in an adjudicative capacity
or any arbitrator or arbitration tribunal with respect to which there is a
reasonable likelihood of a determination having, or which, insofar as
reasonably can be foreseen, in the future would have a Material Adverse Effect
on Parkway and PAC, (b) neither Parkway nor any of its Subsidiaries is subject
to any outstanding order, writ, injunction or decree having, or which, insofar
as reasonably can be foreseen, in the future would have a Material Adverse
Effect on Parkway and PAC, and (c) there have been no claims made or actions or
proceedings brought against any officer or director of Parkway and PAC arising
out of or pertaining to any action or omission within the scope of his
employment or position with Parkway and PAC, which claim, action or proceeding
would involve a Material Adverse Effect on Parkway and PAC taken as a whole.
All litigation and other administrative, judicial or quasi-judicial proceedings
to which Parkway and PAC is a party or to which it has been threatened to
Parkway's knowledge to be made a party, are described in the Disclosure
Schedule.
Section 4.8 CHANGES. Except as expressly contemplated by
this Agreement or as reflected in the Disclosure Schedule or in the Parkway SEC
Reports, since March 31, 1994 Parkway and the Subsidiaries have conducted their
business only in the ordinary and usual course, and, except as set forth in the
Disclosure Schedule or in the Parkway SEC Reports, none of the following has
occurred:
(a) any material adverse change in the condition
(financial or other), results of operations, business, assets and employee
relations of Parkway and its Subsidiaries, taken as a whole;
(b) any change in accounting methods, principles
or practices by Parkway materially affecting its assets, liabilities or
business, except insofar as may have been required by a change in generally
accepted accounting principles;
(c) any damage, destruction or loss, whether or
not covered by insurance, materially adversely affecting the condition
(financial or other), business or operations of Parkway and its Subsidiaries,
taken as a whole;
(d) any declaration, setting aside or payment of
dividends or distributions in respect of the shares of common stock of Parkway
(except regular quarterly dividends), or any redemption, purchase or other
acquisition of any of its securities;
(e) any issuance by Parkway and PAC of, or
commitment of Parkway and PAC to issue, any shares of capital stock or
securities convertible into or exchangeable or exercisable for shares of
capital stock;
(f) any entry by Parkway and PAC or any of
Parkway's Subsidiaries into any commitment or transaction material to the
condition (financial or other), business or
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operations of Parkway and its Subsidiaries, taken as a whole, which is not in
the ordinary course of business and consistent with past practice; provided,
however, that nothing contained herein shall prevent a merger between a
wholly-owned subsidiary of Parkway and Congress Street Properties, Inc.;
(g) any revaluation by Parkway or any of its
Subsidiaries of any of their respective assets, including without limitation,
writing down the value of assets or writing off notes or accounts receivables
other than in the ordinary course of business and consistent with past
practice;
(h) any action taken by Parkway or any of its
Subsidiaries of the type referred to in Section 5.1;
(i) any agreement by Parkway and PAC to do any of
the things described in the preceding clauses (a) through (h) other than as
expressly contemplated or provided for herein; and
(j) any waiver by Parkway or any of its
Subsidiaries of any rights that, singularly or in the aggregate, are material
to the business, assets, financial condition or results of operation of Parkway
and its Subsidiaries, taken as a whole;
Section 4.9 PROPERTY AND ENVIRONMENTAL MATTERS.
(a) Except as disclosed in the Disclosure
Schedule, to the best knowledge of Parkway and PAC, the location, construction,
occupancy, operation, condition and use of the real property now or previously
owned, leased by or in the possession of Parkway or its Subsidiaries (the
"Parkway Real Property"), the facilities or improvements located thereon and
the operations and practices of Parkway and its Subsidiaries are in substantial
compliance with all Environmental Laws and any restrictive covenant or deed
restriction (recorded or otherwise) affecting Parkway Real Property, including,
without limitation, all applicable zoning ordinances and building codes in
effect at the time of improvements to such Parkway Real Property, flood
disaster and occupational health and safety laws.
(b) Neither Parkway nor any of its Subsidiaries
is subject to any material liability or obligation, including investigatory or
remedial obligations under any Environmental Law or the common law with respect
to Hazardous Materials relating to (i) the environmental conditions on, under
or about Parkway Real Property, including, without limitation, the air, soil,
surface water and groundwater conditions at the Parkway Real Property, or (ii)
the use, management, handling, transport, treatment, generation, storage,
disposal, release or discharge of any Hazardous Materials.
(c) With the exception of those Hazardous
Materials and activities described in the Disclosure Schedule, to the best
knowledge of Parkway and PAC, no portion of the Parkway Real Property is being
used, nor has been used by Parkway or its Subsidiaries at any previous time,
for the generation, storage, treatment, processing, disposal or other handling
of any Hazardous Materials.
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(d) Neither Parkway nor any of its Subsidiaries
has received any notice or is aware of any existing condition (including the
condition of the Parkway Real Property, whether or not caused by Parkway or any
Subsidiary) or the practice of the businesses conducted by Parkway or its
Subsidiaries which forms or could form the basis of any claim, action, suit,
proceeding, administrative consent or agreement, litigation or settlement,
hearing or investigation, arising out of the manufacture, processing,
distribution, use, treatment, storage, spill, disposal, transport, or handling
of, or the emission, discharge, release or threatened release into the
environment of, any Hazardous Material which, if decided against Parkway or its
Subsidiaries, would have a Material Adverse Effect on Parkway and its
Subsidiaries.
(e) Parkway and its Subsidiaries have listed and
described on the Disclosure Schedule (i) all treatment, storage and disposal
facilities, as defined in the Resource Conservation and Recovery Act of 1976,
42 U.S.C. Section 6901, et seq., as amended, or under similar Environmental
Laws, and all underground storage tanks, whether empty, filled, or partially
filled with any substance, that are located on the Parkway Real Property; (ii)
the current and past Hazardous Material disposal practices of Parkway and its
Subsidiaries; and (iii) any environmental assessment or environmental audit
reports delivered to Parkway or its Subsidiaries.
(f) To the best of their knowledge, Parkway and
its Subsidiaries have obtained or applied for all permits, licenses,
registrations, notifications and similar authorizations required under
Environmental Laws for the conduct of Parkway's or its Subsidiaries' business
or relating to Parkway's Real Property, the facilities, improvements or
equipment located thereon. The Disclosure Schedule includes a list of the
Environmental Permits.
(g) Except as identified in the Disclosure
Schedule, Parkway and its Subsidiaries are in substantial compliance with all
terms and conditions of the Environmental Permits and no proceeding is pending
for the revocation of any Environmental Permit.
(h) No portion of the Parkway Real Property has
been designated as a covered facility under CERCLA or included on any similar
"superfund" list or registry or has been made subject to any environmental lien
pursuant to any Environmental Law or by any Governmental Authority.
Section 4.10 COMPLIANCE WITH ERISA. Parkway, each of its
Subsidiaries and all Parkway Employee Benefit Plans, that cover any of its or
their employees (which Parkway Employee Benefit Plans are listed on the
Disclosure Schedule), comply with all laws, requirements and orders under ERISA
and the Code, the breach or violation of which would have a Material Adverse
Effect on Parkway and its Subsidiaries, taken as a whole; the present value of
all of the assets of each of its Parkway Employee Benefit Plans that is subject
to Title VI of ERISA equals or
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exceeds the present value of all of the benefits accrued under each such
Parkway Employee Benefit Plan as of the end of the most recent plan year with
respect to such plan ending prior to the date hereof, calculated on the basis
of the actuarial assumptions used in the last actuarial evaluation for each
such plan; none of the employees of Parkway or any of its Subsidiaries is
covered by a collective bargaining agreement; neither Parkway nor any of its
Subsidiaries has ever contributed to a "multiemployer plan" as defined in
Section 3(37) of ERISA; neither the Parkway Employee Benefit Plans nor any
fiduciary or administrator thereof has engaged in a "prohibited transaction" as
defined in Section 406 of ERISA or, where applicable, Section 4975 of the Code
for which no exemption is applicable, that may have any Material Adverse Effect
on Parkway and its Subsidiaries, taken as a whole, nor have there been any
"reportable events" as defined in Section 4043 of ERISA for which the
thirty-day notice has not been waived.
Section 4.11 TAXES, TAX RETURNS.
(a) Parkway will deliver to the Company copies of
the federal income tax returns of Parkway for each of the last three fiscal
years and all schedules and exhibits thereto. Except as set forth on the
Disclosure Schedule, each of Parkway and its Subsidiaries has duly and timely
filed in correct form all Returns required to be filed by it and its
Subsidiaries on or prior to the date hereof (all such Returns to the best
knowledge of Parkway being accurate and complete in all material respects) and,
to the best knowledge of Parkway, has duly paid or made provision for the
payment of all taxes and other governmental charges which have been incurred or
are due or claimed to be due from them by any governmental authority
(including, without limitation, those due in respect of their properties,
income, business, capital stock, franchises, licenses, sales and payrolls)
other than taxes or other charges (i) which are not yet delinquent or are being
contested in good faith and set forth in the Disclosure Schedule and (ii) have
not been finally determined. The liabilities and reserves for taxes in the
Parkway Financial Statements are sufficient in the aggregate for the payment of
all unpaid federal, state and local taxes (including any interest or penalties
thereon), whether or not disputed or accrued, for the period ended June 30,
1993 or for any year or period prior thereto, and for which Parkway or any of
its Subsidiaries may be liable in its own right or as transferee of the assets
of, or successor to, any corporation, person, association, partnership, joint
venture or other entity.
(b) To the best knowledge of Parkway, (i) proper
and accurate amounts have been withheld by Parkway and its Subsidiaries from
their employees and others for all prior periods in compliance in all material
respects with the tax withholding provisions of applicable federal, state or
local laws and regulations, and proper due diligence steps have been taken in
connection with back-up withholding, (ii) Returns which are accurate and
complete in all material respects have been filed by Parkway and each of its
Subsidiaries for all periods for which
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returns were due with respect to income tax withholding, Social Security and
unemployment taxes and (iii) the amounts shown on such returns to be due and
payable have been paid in full, or adequate provision therefore has been
included by Parkway in the Parkway Financial Statements.
Section 4.12 TAX AUDITS. Except as disclosed in the
Parkway SEC Reports or in the Disclosure Schedule, (a) no audit of any material
Return of Parkway or any Subsidiary is currently in progress, nor has Parkway
or any Subsidiary been notified that such an audit is contemplated by any
taxing authority, (b) neither Parkway nor any Subsidiary has extended any
statute of limitations with respect to the period for assessment of any
federal, state or local tax, (c) neither Parkway nor any Subsidiary
contemplates the filing of an amendment to any Return, which amendment would
have a Material Adverse Effect on Parkway and its Subsidiary, taken as a whole,
and (d) neither Parkway nor any Subsidiary has any actual or potential material
liability for any tax obligation of any taxpayer (including, without
limitation, any affiliated group of corporations or other entities which
included Parkway or any Subsidiary during a prior period) other than Parkway or
its Subsidiaries. Except as disclosed in the Parkway SEC Reports or the
Disclosure Schedule, there are no material tax claims pending against Parkway
or any Subsidiary, there are no material tax claims threatened to be asserted
against Parkway or any Subsidiary, and there are no material issues which have
been raised in prior periods or audits which by application of similar
principles are expected to result in a material tax claim for any other period.
For purposes of this Section 4.12, "tax" and "taxes" shall include all income,
gross receipt, franchise, excise, real and personal property, sales, ad
valorem, employment, withholding and other taxes imposed by any foreign,
federal, state, municipal, local or other Governmental Authority, including
assessments in the nature of taxes.
Section 4.13 UNDISCLOSED LIABILITIES. Parkway and its
Subsidiaries are not liable for or subject to any material Liabilities except
(a) Liabilities adequately disclosed or reserved for in the most recent Parkway
Financial Statements and not heretofore paid or discharged, (b) Liabilities
under any contract, commitment or agreement specifically disclosed on the
Disclosure Schedule, none of which Liabilities under any such contract,
commitment or agreement were required under generally accepted accounting
principles consistently applied to have been adequately and specifically
disclosed or reserved for in the most recent Parkway Financial Statements, or
(c) Liabilities incurred, consistent with past practice, in or as a result of
the ordinary course of business of Parkway, and in accordance with this
Agreement, since the date of the most recent Parkway Financial Statements.
Section 4.14 NO DEFAULT; COMPLIANCE.
(a) Except as set forth in the Disclosure
Schedule, neither Parkway nor any of its Subsidiaries is in default under, and
no condition exists that with notice or lapse
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of time or both would constitute a default under, (i) any mortgage, loan
agreement, indenture, evidence of indebtedness or other instrument evidencing
borrowed money to which either Parkway or any of its Subsidiaries is a party or
by which either Parkway or any of its Subsidiaries or its properties is bound,
(ii) any judgment, order or injunction of any court, arbitrator or governmental
agency or (iii) any other agreement, contract, lease, license or other
instrument, which default or potential default might reasonably be expected to
have a Material Adverse Effect.
(b) Except as set forth in the Disclosure
Schedule, Parkway and each of its Subsidiaries have complied with all laws,
regulations, orders, judgments or decrees of any federal or state court or
governmental authority applicable to their respective businesses and
operations, the non-compliance with which might reasonably be expected to have
a Material Adverse Effect.
Section 4.15 REPRESENTATIONS AND WARRANTIES CONTINUING.
The representations and warranties set forth herein shall be true and correct
on the date hereof and at all times prior to the Effective Time as if made from
time to time, including, without limitation, at the Effective Time.
Section 4.16 CONTRACTS AND COMMITMENTS. Except as listed
and described in the Disclosure Schedule, to the best of Parkway's knowledge,
neither Parkway nor any of its Subsidiaries is a party to, nor are they or
their assets bound by any written or oral:
(a) contract with any present or former
stockholder, director, officer, employee or consultants;
(b) contract with any labor union or
other representative of employees;
(c) contract for the future purchase of,
or payment for, supplies or products, or for the performance of
services by a third party, involving payment or potential
payment by Parkway of $25,000 or more under any one Contract
or series of related Contracts;
(d) any contract, including, without
limitation, any outstanding quotations, bids or proposals, to
sell goods or to perform services in an aggregate amount in
excess of $25,000;
(e) distributorship, representative or
sales agency agreement, contract or commitment;
(f) conditional sale aggrement or lease
under which Parkway is either the seller or purchaser, lessor
or lessee, involving annualized payments or potential payments
by or to Parkway that is in excess of $25,000;
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(g) contract (including, without
limitation, any note, debenture, bond, conditional sale or
equipment trust agreement, letter of credit agreement or loan
agreement) for the borrowing or lending of money (including,
without limitation, those to or from officers, directors or
shareholders of Parkway, or any affiliates or members of their
immediate families, for a line of credit, or for a guarantee,
security, indemnitee, pledge or undertaking of the
indebtedness or obligations of any other person);
(h) contract for any charitable or
political contribution;
(i) contract for any capital expenditure
involving future payments, which, together with future
payments under all other existing contracts for the same
capital project, are in excess of $25,000;
(j) contract limiting or restraining
Parkway from engaging or competing in any lines of business
with any person, nor is any officer or employee of Parkway
subject to any such agreement, contract or commitment;
(k) license, franchise, distributorship
or other contract relating in whole or in part to any ideas,
technical assistance or other know-how of or used by Parkway;
(l) contract which is expected to
continue for more than six months from the date hereof;
(m) contract not made in the ordinary
course of business; or
(n) any guaranty, direct or indirect,
of any person of any contract, lease or agreement entered into
by Parkway or any of its Subsidiaries.
(Each of the foregoing is referred to herein as a "Parkway Contract.") Except
as may be disclosed on the Disclosure Schedule, each of the Parkway Contracts
listed on the Disclosure Schedule is valid and enforceable in accordance with
its terms; Parkway and, to the best of Parkway's knowledge, the other parties
thereto are in substantial compliance with the provisions thereof; except as
may be disclosed on the Disclosure Schedule, neither Parkway nor any other
party is (or by reason of the consummation of the transactions contemplated by
this Agreement, will be) in default in the performance, observance or
fulfillment of any obligation, covenant or condition contained therein and no
event has occurred or is anticipated to occur (including the consummation of
the transactions contemplated by this Agreement) which with or without the
giving of notice or lapse of time, or both, would constitute a default or give
the right of termination thereunder; furthermore, except as may be disclosed on
the Disclosure Schedule, no such contract contains any contractual requirement
with which there is a reasonable likelihood that either (i) Parkway or any
other party thereto will be unable to
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comply or (ii) compliance therewith by Parkway will have a Material Adverse
Effect on Parkway and its Subsidiaries taken as a whole. Except as set forth
in the Disclosure Schedule, neither the Company nor any of its officers has
made any oral commitments or has any oral understandings which may be material
to the Company.
Section 4.17 COMPLIANCE WITH PERMITS. To the best of
Parkway's knowledge, all necessary governmental certificates, consents,
permits, licenses or other authorizations with regard to the ownership or
operation by Parkway or its Subsidiaries of their respective properties and
assets have been obtained and no violation exists in respect of such licenses,
permits or authorizations, except where the failure to obtain and hold such
permits, or any violation thereby by Parkway or its Subsidiaries, would not
reasonably be expected to have a Material Adverse Effect. None of the
documents and materials filed with or furnished to any Governmental Authority
with respect to the properties, assets or businesses of Parkway or its
Subsidiaries contains any untrue statement of a material fact or fails to state
a material fact necessary to make the statements therein not misleading.
Section 4.18 TITLE TO PROPERTY. Except as disclosed on
the Disclosure Schedule, Parkway and each of its Subsidiaries has good and
marketable title, free and clear (except as indicated in the most recent
Parkway Financial Statements and liens for current taxes not yet due and
payable), of all security interests, liens, encumbrances and encroachments of a
material nature, to its property and assets that are material to Parkway's
businesses on a consolidated basis.
Section 4.19 INSURANCE. The Disclosure Schedule sets
forth a complete and accurate list and description of all insurance policies in
force naming Parkway, any of its Subsidiaries or any employees of any of them
as an insured or beneficiary or as a loss payable payee or for which Parkway or
any of its Subsidiaries has been paid or is obligated to pay all or part of the
premiums. Neither Parkway nor its Subsidiaries has received notice of any
pending or threatened termination or retroactive premium increase with respect
thereto, and Parkway and its Subsidiaries are in compliance with all conditions
contained therein, the noncompliance with which could result in the termination
of insurance coverage or increased premiums for prior or future periods. There
are no pending material claims against such insurance by Parkway or any of its
Subsidiaries as to which insurers have denied liability, no defenses provided
by insurers under reservations of rights, and no material claim under such
insurance that has not been properly filed by Parkway or its Subsidiaries.
Section 4.20 SHARES OF COMMON STOCK OF PARKWAY. The shares
of common stock of Parkway to be issued in the Merger will have been duly
authorized and, when issued in accordance with the terms of the Certificate of
Merger and this Agreement, will be validly authorized and issued and fully paid
and nonassessable,
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and no shareholder of Parkway will have any preemptive rights with respect
thereto.
ARTICLE V.
COVENANTS
Section 5.1 CONDUCT OF BUSINESS OF THE COMPANY AND
PARKWAY. Except as contemplated by this Agreement or disclosed in the
Disclosure Schedule, during the period from the date of this Agreement to the
Effective Time, the Company and Parkway and Parkway's Subsidiaries will each
conduct their operations according to their ordinary and usual course of
business and consistent with past practice. Without limiting the generality of
the foregoing, and except as otherwise expressly provided in this Agreement or
disclosed in the Disclosure Schedule, neither the Company nor Parkway or any of
Parkway's Subsidiaries will, prior to the Effective Time, without the prior
written consent of Parkway and the Company (a) issue, sell or pledge, or
authorize or propose the issuance, sale or pledge of (i) additional shares of
capital stock of any class, or securities convertible into any such shares, or
any rights, warrants or options to acquire any such shares or other convertible
securities, other than pursuant to commitments outstanding at the date hereof
and referred to in Section 3.2 or 4.2, or (ii) any other securities in respect
of, in lieu of or in substitution for, capital stock outstanding on the date
hereof, (b) purchase or otherwise acquire, or propose to purchase or otherwise
acquire, any of its outstanding securities, (c) declare or pay any dividend or
distribution on any shares of its capital stock (except, in the case of Parkway
and the Company, Parkway's and the Company's regular quarterly dividend with
respect to their shares ), (d) except as contemplated by Section 7.1(f),
authorize, recommend, propose or announce an intention to authorize, recommend
or propose, or enter into an agreement in principle or an agreement with
respect to, any merger, consolidation or business combination (other than the
Merger), any acquisition of a material amount of assets or securities, any
disposition of a material amount of assets or securities or any material change
in its capitalization, or any entry into a material contract or any release or
relinquishment of any material contract rights, not in the ordinary course of
business, (e) propose or adopt any amendments to its charter or by-laws, (f)
enter into, assign or terminate, or amend in any material respect, any Contract
or Parkway Contract, (g) acquire, dispose of, encumber or relinquish any
material asset (other than sale of real properties with the consent of the
other parties, which consent shall not be unreasonably withheld), (h) waive,
compromise or settle any right or claim that would adversely affect the
ownership, operation or value of any asset, (i) make any material capital
expenditures other than pursuant to existing capital expenditure programs that
are disclosed in the Disclosure Schedule (j) allow or permit the expiration,
termination or cancellation at any time prior to the Effective Time of any of
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the insurance policies or coverages or surety bonds currently maintained by or
on behalf of Parkway or the Company unless replaced with a policy, coverage or
bond having substantially the same coverage and similar terms and conditions,
(k) waive, settle or compromise any material litigation or other claim on a
basis materially adverse to the Company or Parkway or Parkway's Subsidiaries,
(l) agree in writing or otherwise to take any of the foregoing actions or any
action which would make any representation or warranty in this Agreement untrue
or incorrect or (m) incur any indebtedness for borrowed money (other than
indebtedness in place at the date of this Agreement).
Section 5.2 ACCESS TO INFORMATION.
(a) Between the date of this Agreement and the
Effective Time, the parties will afford to each other and their authorized
representatives reasonable access (subject to tenants' rights) to the real
estate, offices, warehouses or other facilities and to the books and records of
such party and Parkway's Subsidiaries, will permit the parties and their
representatives to make such reasonable inspections as they may require and
will cause their officers and those of Parkway's Subsidiaries to furnish the
parties and their representatives with such financial and operating data,
environmental assessments and other information with respect to the business
and real property of the parties and Parkway's Subsidiaries as they and their
representatives may from time to time reasonably request. No inspection or
examination by either party will constitute a waiver of any claim against the
other party for misrepresentation or breach of this Agreement.
(b) The parties will hold and will cause their
representatives to hold in strict confidence, unless compelled to disclose by
judicial or administrative process, or, in the opinion of counsel, by other
requirements of law, all documents and information concerning the parties
furnished to them and their representatives in connection with the transactions
contemplated by this Agreement (except to the extent that such information can
be shown to have been (i) in the public domain through no fault of the parties
or their representatives or (ii) later lawfully acquired by the parties or
their representatives from other sources unless they or their representatives
know that such other sources are not entitled to disclose such information) and
will not release or disclose such information to any other person, except their
auditors, attorneys, financial advisors and other consultants and advisors in
connection with this Agreement, provided that such person shall have first been
advised of the confidentiality provision of this Section 5.2. If the
transactions contemplated by this Agreement are not consummated, such
confidence shall be maintained except to the extent such information can be
shown to have been (i) in the public domain through no fault of Parkway, PAC or
the Company, as the case may be, or their respective representatives or (ii)
later lawfully acquired by the parties or representatives from other sources,
and, if requested, either party will, and will cause its agents, auditors,
consultants, representatives and advisors to return to
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the other, or destroy, all copies of written information furnished.
(c) Each of Parkway and the Company agrees to
furnish the other at the time of filing with copies of all reports and filings
(including exhibits and schedules) filed by either party with the SEC between
the date hereof and the Closing.
Section 5.3 BEST EFFORTS. Subject to the terms and
conditions herein provided, and to the fiduciary duties of the Boards of
Directors of the parties under applicable law, each of the parties hereto
agrees to use its best efforts to take, or cause to be taken, all action, and
to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement. In case at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement, the proper officers and directors of each party to
this Agreement shall take all such necessary action.
Section 5.4 CONSENTS. Parkway and the Company each will
use its best efforts to obtain such consents of third parties to agreements
which would otherwise be violated by any provisions hereof, to take all actions
necessary to effect the transactions contemplated hereby, and to make such
filings with Governmental Authorities necessary to consummate the transactions
contemplated by this Agreement including, without limitation, (a) the vigorous
defense of any lawsuits or other legal proceedings, whether judicial or
administrative, challenging this Agreement or the consummation of the
transaction contemplated hereby, including seeking to have any stay or
temporary restraining order entered by any court or Governmental Authority
vacated or reviewed, and (b) the execution and delivery of any additional
instruments necessary to consummate the transactions contemplated by this
Agreement.
Section 5.5 PUBLIC ANNOUNCEMENTS. Except as required by
law, neither party shall make any news releases or other public announcement
pertaining to the existence of this Agreement or the Merger without the prior
consent of the other party hereto. To the extent such a release or
announcement is required by law, the party making the same shall give the other
party advance notice of, and an opportunity to comment on, the proposed release
or announcement.
Section 5.6 INDEMNIFICATION. If the Merger occurs, then
from and after its Effective Time Parkway shall indemnify each person who
becomes an employee, agent, officer or director of Parkway to the full extent
permitted by the Articles of Incorporation and By-Laws of Parkway and permitted
by law in respect of any claim arising after the Effective Time in connection
with such person's service as such. In addition, the Company shall indemnify
to the full extent of its assets and to the fullest extent permitted by its
Articles of Incorporation and By-Laws and permitted by law, each person who
held positions with
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the Company prior to the Effective Time as an employee, agent, officer or
director in respect of any claim arising in connection with such person's
service as such. Any obligation of the Company hereunder shall be assumed by
Parkway to the extent of (a) any distribution of assets from the Company to
Parkway or any affiliate of Parkway following the Merger and (b) any liability
or obligation of such person arising under this Agreement or in connection with
the Merger. All persons indemnified herewith are referred to as "Indemnified
Parties." All such indemnification provided for herein shall be to the fullest
extent authorized by law as now in effect or as hereafter amended (but, in the
case of any amendment, only to the extent that such amendment permits greater
indemnification rights than prior to such amendment) against any losses,
claims, damages, liabilities, costs, expenses (including legal fees and
disbursements of counsel), penalties, judgments and amounts paid in settlement
("Damages"), including but not limited to those based in contract, tort,
negligence, strict liability, or any theory of recovery, arising out of or
relating to any act, omission, transaction, cause of action, liability, debt or
obligation pertaining to (a) the fact that the Indemnified Party was an
officer, director, employee or agent of the Company or Parkway or a Subsidiary
of Parkway or (b) this Agreement or any of the transactions contemplated
hereby; provided, however, that (a) Parkway and the Company as appropriate will
be entitled to participate in and, to the extent that they may wish, to assume
the defense of any action, with counsel reasonably satisfactory to the
Indemnified Party but if any Indemnified Party (or group thereof) believes
that, by reason of an actual or potential conflict of interest, it is advisable
for such Indemnified Party (or group thereof) to be represented by separate
counsel, such Indemnified Party (or group thereof) may retain counsel
reasonably satisfactory to Parkway who will represent such Indemnified Party
(or group thereof) and Parkway and PAC as appropriate shall pay all reasonable
fees and disbursements of such counsel promptly as statements therefor are
received, (b) the Indemnified Party, Parkway and PAC will cooperate with each
other, and use their respective best efforts to assist, in the vigorous defense
of any such matter, and (c) Parkway and PAC shall not be liable for any
settlement effected without its written consent, which consent, however, shall
not be unreasonably withheld.
Section 5.7 MEETINGS OF SHAREHOLDERS. The Company shall
promptly take all action necessary in accordance with applicable law and its
Articles of Incorporation and By-Laws to convene the Special Meeting to
consider and vote on the Merger and this Agreement. The Company and Parkway
shall prepare the Form S-4 Registration Statement and a Schedule 13e-3, file
them with the SEC under the Securities Act and the Exchange Act as promptly as
practicable after execution hereof, and use all reasonable efforts to have the
Form S-4 Registration Statement declared effective by the SEC. As promptly as
practicable after the Proxy Statement/Prospectus has been cleared by the SEC,
the Company shall mail the Proxy Statement/Prospectus forming a part
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of the Form S-4 Registration Statement to the shareholders of the Company as of
the record date for the Special Meeting.
Section 5.8 BLUE SKY. Parkway shall use its best efforts
to obtain, prior to the SEC effective date of the Form S-4 Registration
Statement, all necessary state law or "blue sky" permits and approvals required
to carry out the transactions contemplated by this Agreement, provided that
Parkway shall not be required by virtue thereof to submit to general
jurisdiction in any state.
ARTICLE VI.
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 6.1 CERTIFICATES, OPINION OF COUNSEL. Immediately
prior to the Effective Time, the Company and Parkway shall cause to be
delivered to each other or to have received the following:
(a) A certificate, dated the date of the
Effective Time, as the case may be, of the chief executive and chief financial
officer certifying that all representations and warranties made herein are true
and correct as of the date made and as of the Effective Time and that all
agreements or other actions required to be performed prior to the Effective
Time as a condition to consummating the Merger have been performed or taken and
such conditions satisfied in accordance with the terms of this Agreement.
(b) An opinion of counsel to the Company dated
the date of the Effective Time in form and substance satisfactory to each as to
the matters set forth in Sections 3.1 and 3.3 and such other matters as Parkway
shall request, which opinion may contain customary exceptions and
qualifications.
(c) An opinion of counsel to Parkway and PAC
dated the date of the Effective Time as to each of the matters set forth in
Sections 4.1 and 4.3 (except as to the Subsidiaries of Parkway, for which no
opinion need be given), and such other matters as the Company may request,
which opinion may contain customary exceptions and qualifications.
(d) The Company shall have received an opinion of
Howard Frazier Barker Elliott, Inc. updated to the Effective Time to the effect
that the Merger and the transactions provided for herein are fair to the
shareholders of the Company from a financial point of view.
Section 6.2 OTHER CONDITIONS. The respective obligations
of each party to effect the Merger are subject to the satisfaction or waiver,
where permissible, prior to the Effective Time of the following conditions:
(a) This Agreement and the transactions
contemplated hereby shall have been approved by the affirmative vote of the
shareholders of the Company by the requisite vote.
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(b) No statute, rule, regulation, executive
order, decree, or injunction shall have been enacted, entered, promulgated or
enforced by any court of competent jurisdiction in the United States or
domestic governmental authority which prohibits or restricts the consummation
of the Merger.
(c) The Company shall have obtained all material
consents listed on the Disclosure Schedule.
(d) There shall have been no Material Adverse
Change in the business, properties, or financial condition of Parkway or the
Company.
(e) All parties shall have delivered all
documents and taken all other actions required by this Agreement.
(f) The Form S-4 Registration Statement shall
have become effective and no stop effectiveness of the Form S-4 Registration
Statement shall have been issued and no proceedings for that purpose shall
have been initiated or threatened by the SEC or any state.
(g) Parkway shall have received all state
securities laws and "blue sky" permits and other authorizations necessary to
consummate the transactions contemplated hereby and no stop order suspending
the effectiveness thereof shall have been issued and no proceeding for that
purpose shall have been initiated or threatened by any state.
(h) All representations and warranties of any
party shall be true and effective as of the Closing.
(i) PAC shall have incurred no material
indebtedness between its date of formation and the Closing except as
specifically contemplated by this Agreement.
ARTICLE VII.
TERMINATION; AMENDMENTS; WAIVER
Section 7.1 TERMINATION. This Agreement may be
terminated and the Merger contemplated hereby may be abandoned at any time,
notwithstanding approval thereof by the shareholders of the Company, prior to
the Effective Time:
(a) by mutual written consent duly authorized by
the Boards of Directors of the Company, Parkway and PAC;
(b) by Parkway or the Company if the Effective
Time shall not have occurred on or before March 31, 1995;
(c) by Parkway or the Company if any court of
competent jurisdiction or other Governmental Authority shall have
issued an order, decree or ruling or taken any other action restraining,
enjoining or otherwise prohibiting the Merger or if litigation or proceedings
shall be pending that are reasonably likely to result in any of the foregoing;
30
<PAGE> 210
(d) by the Company, if Parkway or PAC shall not
have performed all obligations required to be performed by them under this
Agreement, except where any failures to perform would, in the aggregate, not
materially impair or delay the ability of Parkway, PAC and the Company to
effect the Merger;
(e) by the Company or Parkway, if there shall
have been a breach of any of the covenants contained herein or if any
representation or warranty made by any other party is untrue in any material
respect;
(f) by the Company or Parkway at any time prior
to one day before the Closing, in the event that the Closing Price per share of
common stock of Parkway equals an amount less than $11.50 per share of common
stock of Parkway or exceeds $16.00 per share of common stock of Parkway; and
(g) by the Company or Parkway in the event that
the closing price per share of common stock of Grenada Sunburst System
Corporation ("GSSC"), a Delaware corporation, on the last day on which GSSC
shares traded prior to the Closing equals an amount less than $28.00 per share
or is greater than $40.00 per share .
Section 7.2 EFFECT OF TERMINATION. In the event of the
termination and abandonment of this Agreement pursuant to Section 7.1
subsections (a), (b), (c), (f) or (g) this Agreement shall forthwith become
void and have no effect, without any liability on the part of any party or its
directors, officers, or shareholders, other than the provisions of Section
5.2(b), 7.5 and 8.9.
Section 7.3 AMENDMENT. This Agreement may be amended by
action taken by or on behalf of the Boards of Directors of the Company, Parkway
and PAC at any time before or after any adoption of this Agreement by the
shareholders of the Company but, after any such approval, no amendment shall be
made which decreases the Merger Consideration per Share or which adversely
affects the rights of the Company's shareholders hereunder without the approval
of such shareholders. This Agreement may not be amended except by an
instrument in writing signed on behalf of Parkway, the Company and PAC.
Section 7.4 EXTENSION; WAIVER. At any time prior to the
Effective Time, the parties hereto, by action taken by or on behalf of the
respective Boards of Directors of the Company, Parkway and PAC, may (a) extend
the time for the performance of any of the obligations or other acts of any
other applicable party hereto, (b) waive any inaccuracies in the
representations and warranties contained herein by any other applicable party
or in any document, certificate or writing delivered pursuant hereto by any
other applicable party, or (c) subject to the proviso contained in Section 7.3,
waive compliance with any of the agreements of any other applicable party or
with any conditions to its own obligations. Any agreement on the part of any
other applicable party to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
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Section 7.5 REIMBURSEMENT OF EXPENSES. In the event that
either Parkway or the Company terminates this Agreement and the Merger pursuant
to the provision of Section 7.1(d), (e), (f) or (g) hereof, (the party giving
notice of termination under Section 7.1(f)or (g) or receiving notice that it
has failed to perform under Section 7.1(d) or (e) being referred to in this
section as the "Terminating Party"), the Terminating Party shall pay the other
party (for purposes of this Section 7.5, the "Non-Terminating Party") the
Non-Terminating Party's out-of-pocket expenses incurred in connection with this
transaction, including without limitation professional fees and travel
expenses, which shall be paid by wire transfer not later than three (3)
business days after the Non-Terminating Party notifies the Terminating Party of
the amount of such expenses. Payment of such expenses shall not preclude the
Non-Terminating Party from asserting any other claim it may have in law or in
equity against the Terminating Party. If the Terminating Party fails to pay
such expenses on the date provided herein, the Terminating Party shall pay
interest thereon from the due date thereof until the date paid at the rate of
ten percent per annum and shall reimburse the Non-Terminating Party all
reasonable attorneys' fees and other costs and expenses incurred in collecting
such expenses from the Terminating Party.
ARTICLE VIII.
MISCELLANEOUS
Section 8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties made in this Agreement shall not survive
beyond the Effective Time. This Section 8.1, however, shall not limit any
covenant or agreement of the parties hereto, which by its terms contemplates
performance after the Effective Time.
Section 8.2 BROKERAGE FEES; COMMISSIONS AND EXPENSES.
The Company hereby represents and warrants to Parkway with respect to the
Company, and Parkway hereby represents and warrants to the Company with respect
to Parkway, that no person or entity is entitled to receive from the Company or
Parkway, respectively, any investment banking, brokerage or finder's fee or
fees for financial consulting or advisory services (except the fee for the
fairness opinion) in connection with this Agreement or the transactions
contemplated hereby. Other costs, expenses and liabilities which may be
incurred in connection with the consummation of this Agreement or the Merger,
such as, for example and without limitation, the cost of professional fees
shall be paid by the party incurring the cost, except as contemplated by
Section 7.5.
Section 8.3 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement
(a) constitutes the entire agreement among the parties with respect to the
subject matter hereof and supersedes all other prior agreements and
understandings, both written and oral,
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among the parties or any of them with respect to the subject matter hereof and
(b) shall not be assigned by operation of law or otherwise.
Section 8.4 VALIDITY. The invalidity or unenforceability
of any provision of this Agreement shall not affect the validity or
enforceability of any other provisions of this Agreement, each of which shall
remain in full force and effect.
Section 8.5 NOTICES. All notices, requests, claims,
demands and other communications hereunder shall be in writing and shall be
deemed to have been duly given when delivered in person, by facsimile
telegram or telex, or by registered or certified mail (postage prepaid, return
receipt requested) to the respective parties as follows:
If to the Company:
EB, Inc.
300 One Jackson Place
188 East Capitol Street
Jackson, MS 39201-2195
Attention: Leland R. Speed, Chief Executive
Officer
N. Keith McKey, Vice President,
Chief Financial Officer and
Secretary
with a copy (which shall not affect
the validity of notice hereunder) to:
Forman, Perry, Watkins & Krutz
1200 One Jackson Place
188 East Capitol Street
Post Office Box 22608
Jackson, MS 39225-2608
Attention: Steven M. Hendrix, Esq.
If to Parkway or PAC:
The Parkway Company
300 One Jackson Place
188 East Capitol Street
Jackson, MS 392 01-2195
Attention: Steven G. Rogers, President
N. Keith McKey, Executive Vice
President, Chief Financial
Officer and Secretary
with a copy (which shall not affect
the validity of notice hereunder) to:
33
<PAGE> 213
Jaeckle, Fleischmann & Mugel
800 Fleet Bank Building
Twelve Fountain Plaza
Buffalo, New York 14202
Attention: Joseph P. Kubarek, Esq.
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
Section 8.6 GOVERNING LAW. This Agreement shall be
governed by and construed in accordance with the laws of the State of
Mississippi, regardless of the laws that might otherwise govern under
applicable principles of conflicts of laws thereof.
Section 8.7 DESCRIPTIVE HEADINGS. The descriptive
headings herein are inserted for convenience of reference only and are not
intended to be part of or to affect the meaning or interpretation of this
Agreement.
Section 8.8 COUNTERPARTS. This Agreement may be executed
in two or more counterparts, each of which shall be deemed to be an original,
but all of which shall constitute one and the same agreement.
Section 8.9 EXPENSES. Except as otherwise provided
herein, each of the parties shall bear and pay all costs and expenses incurred
by it or on its behalf in connection with the transactions contemplated
hereunder, including fees and expenses of its own financial or other
consultants, investment bankers, accountants and counsel.
Section 8.10 CERTAIN DEFINITIONS.
(a) "Environmental Laws" shall mean any and all
laws, subsequent enactments, modifications and amendments, including, without
limitation, any foreign, federal, state and local laws, statutes, ordinances,
rules, regulations, permits, licenses, approvals, administrative consent orders
or agreements, interpretations, orders and decrees of courts or Governmental
Authorities relating to the protection of human health or the environment,
including, but not limited to, requirements pertaining to the manufacture,
processing, distribution, use, treatment, storage, disposal, transportation,
handling, reporting, licensing, permitting, investigation or remediation of
Hazardous Materials. Environmental Laws include, for example and without
limitation, the Resource Conservation and Recovery Act of 1976; the
Comprehensive Environmental Response, Cleanup and Liability Act of 1980
("CERCLA"); the Hazardous Materials Transportation Act; the Clean Water Act
(the Federal Water Pollution Control Act); the Toxic Substances Control Act;
the Safe Drinking Water Act; the Emergency Planning and Community Right-to-Know
Act; the United States Environmental Protection Agency's Underground Storage
Tank Regulations; all as amended and modified; and occupational health and
safety, flood control and sanitation laws.
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(b) "Governmental Authority" shall mean the
United States, any foreign country, state, county, city or other political
subdivision, agency or instrumentality exercising executive, legislative,
judicial, regulatory or administration jurisdiction, over Parkway, PAC, the
Company, and Parkway's Subsidiaries.
(c) "Hazardous Material" shall mean any substance
or material (i) which is or becomes defined as a hazardous waste, hazardous
substance, pollutant, contaminant or toxic substance or water under any
Environmental Law; (ii) which is toxic, explosive, corrosive, flammable,
infectious, radioactive, mutagenic or otherwise hazardous and is or becomes
regulated by any Governmental Authority; (iii) the presence of which requires
investigation or remediation under any Environmental Law or common law; or (iv)
the presence of which is deemed to constitute a nuisance, trespass or pose a
health or safety hazard to persons or neighboring properties.
(d) "Material Adverse Effect" shall mean any
adverse change in the financial condition, assets, business or operations of
any party and, in the case of Parkway, its Subsidiaries, which is material to
such party taken as a whole.
(e) "Proxy Statement/Prospectus" shall mean the
document forming Part I of the Registration Statement on Form S-4 filed with
the SEC pursuant to the requirements of the Securities Act and the Exchange
Act.
(f) "Special Meeting" shall mean the special
meeting of the shareholders of the Company called pursuant to the Proxy
Statement/Prospectus to consider approval of the Merger.
(g) "Subsidiary" shall mean, when used with
reference to an entity, any corporation, a majority of the outstanding voting
securities of which are owned directly or indirectly by such entity. Such term
shall also refer to any other partnership, limited partnership, joint venture,
trust, or other business entity in which a party hereto owns a majority
interest.
Section 8.11 PERFORMANCE BY PAC. Parkway agrees to cause
PAC to comply with its obligations hereunder and to cause PAC to consummate the
Merger as contemplated herein.
Section 8.12 DISCLOSURE SCHEDULE. If the Disclosure
Schedule becomes misleading in any respect, the Company and Parkway shall
notify the other, in writing, of any facts making the Disclosure Schedule
misleading; provided, however, that no such notice shall be deemed to amend or
modify the representations and warranties herein.
Section 8.13 PARTIES IN INTEREST. This Agreement shall be
binding upon and inure solely to the benefit of each party hereto, and nothing
in this Agreement, express or implied, is intended to or shall confer upon any
other person or persons any rights, benefits or remedies of any nature
whatsoever under or by reason of this Agreement.
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IN WITNESS WHEREOF, each of the parties has caused this
Agreement to be executed on its behalf by its officers thereunto duly
authorized, all as of the day and year set forth above.
EB, INC.
By: /s/ David H. Hoster II
------------------------------
David H. Hoster II, Executive
Vice-President
ATTEST:
/s/ N. Keith McKey
- ----------------------------
N. Keith McKey, Secretary
PARKWAY ACQUISITION CORPORATION
By: /s/ Steven G. Rogers
------------------------------
Steven G. Rogers, President
ATTEST:
/s/ N. Keith McKey
- ----------------------------
N. Keith McKey, Secretary
THE PARKWAY COMPANY
By: /s/ Steven G. Rogers
-----------------------------
Steven G. Rogers, President
ATTEST:
/s/ N. Keith McKey
- ----------------------------
N. Keith McKey, Secretary
36
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FIRST AMENDMENT
TO
AGREEMENT AND PLAN OF MERGER
AMONG
THE PARKWAY COMPANY,
PARKWAY ACQUISITION CORPORATION
AND
EB, INC.
DATED JANUARY 26, 1995
<PAGE> 217
FIRST AMENDMENT
TO
AGREEMENT AND PLAN OF MERGER
This is the First Amendment to the Agreement and Plan of
Merger, dated as of October 28, 1994 (the "Merger Agreement"), among EB, Inc.,
a Mississippi corporation, Parkway Acquisition Corporation, a Mississippi
corporation and a wholly owned subsidiary of The Parkway Company, and The
Parkway Company, a Texas corporation. All capitalized terms used herein shall
have the same respective meanings as in the Merger Agreement.
RECITALS:
--------
On December 31, 1994, Grenada Sunburst System Corporation
("GSSC") merged with and into GSSC Acquisition Corporation, Inc., a
wholly owned subsidiary of Union Planters Corporation, and each outstanding
share of common stock of GSSC was converted into 1.453 shares of Union Planters
Corporation. The parties hereto desire to amend the Merger Agreement to
reflect that development. It is therefore agreed as follows:
1. The third sentence of paragraph (a) of Section 1.6
("Conversion of Shares") of the Merger Agreement is hereby amended to read in
its entirety as follows:
Notwithstanding the foregoing, this Agreement is subject to
termination as provided in Section 7.1 in the event that the
Closing Price per share of common stock of Parkway equals an
amount less than $11.50 per share of common stock of Parkway
or exceeds $16.00 per share of common stock of Parkway.
2. Paragraph (a) of Section 6.2 of the Merger Agreement
is hereby amended to read in its entirety as follows:
<PAGE> 218
(a) This Agreement and the transactions contemplated hereby
shall have been approved by the affirmative vote of the
shareholders of each of Parkway and the Company by the
applicable requisite vote.
3. Paragraph (g) of Section 7.1 of the Merger Agreement
is removed from the Merger Agreement in its entirety.
4. All other provisions of the Merger Agreement shall
remain in full force and effect.
DATED: January 26, 1995
EB, INC.
ATTEST:
By s/Leland R. Speed
--------------------------------
Leland R. Speed, President
s/Sarah P. Clark
- --------------------------------
Sarah P. Clark,
Assistant Secretary
PARKWAY ACQUISITION CORPORATION
ATTEST:
By s/Steven G. Rogers
--------------------------------
Steven G. Rogers, President
s/Sarah P. Clark
- --------------------------------
Sarah P. Clark,
Secretary
THE PARKWAY COMPANY
ATTEST:
By s/Steven G. Rogers
--------------------------------
Steven G. Rogers, President
s/Sarah P. Clark
- --------------------------------
Sarah P. Clark,
Secretary
- 2 -
<PAGE> 219
JAECKLE, FLEISCHMANN & MUGEL
APPENDIX C
A T T O R N E Y S A T L A W
FLEET BANK BUILDING TWELVE FOUNTAIN PLAZA BUFFALO, NEW YORK 14202-2292
TEL (716) 856-0600 FAX (716) 856-0432
November 1, 1994
EB, Inc.
300 One Jackson Place
Jackson, Mississippi 37201-2195
Gentlemen:
We have acted as counsel to The Parkway Company, a Texas
corporation ("Parkway"), in connection with the transactions contemplated by
the Agreement and Plan of Merger dated October 28, 1994 among Parkway, Parkway
Acquisition Corporation, a Mississippi corporation ("PAC"), and EB, Inc., a
Mississippi corporation ("EB") (the "Agreement"). We have been requested by
Parkway to render this opinion.
We have examined executed counterparts of the Agreement and
have examined such other documents and records as we have deemed necessary and
relevant for purposes hereof. We have relied on certificates of officers of EB
and on certificates of officers of Parkway and of PAC as well as upon
information set forth in the Registration Statement on Form S-4 relating to the
transactions contemplated by the Agreement and on representations of the
parties set forth in the Agreement. We have assumed the genuineness of all
signatures, the authenticity of all documents and records submitted to us as
originals, the conformity to authentic original documents and records of all
documents and records submitted to us as copies, and the truthfulness of all
statements of fact contained therein.
In rendering our opinion, we have considered the applicable
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
Treasury Regulations, pertinent judicial authorities, interpretive rulings of
the Internal Revenue Service and such other authorities as we have considered
necessary and relevant. Based on the foregoing and subject to the limitations
and assumptions set forth herein, and having due regard for such legal
considerations as we deem relevant, we are of the opinion that:
1. The Merger of PAC into EB and exchange by the holders
of EB Shares for the Merger Consideration will be
treated for federal income tax purposes as a purchase
of EB Shares by Parkway, and will not be treated as a
tax free reorganization within the meaning of Section
368 of the Code.
2. Gains or losses will be recognized by the holders of
EB Shares upon their receipt of the Merger
Consideration in exchange for their EB
<PAGE> 220
EB, Inc.
November 1, 1994
Page 2
Shares. The amount of gain recognized will equal the
excess of the fair market value of the Merger
Consideration received over the tax basis in EB
Shares surrendered. The amount of loss recognized
will equal the excess of the tax basis in the EB
Shares surrendered over the fair market value of the
Merger Consideration received. This gain or loss
will constitute capital gain or loss if the EB Shares
surrendered are held as a capital asset at the
Effective Date.
3. The tax basis of the Parkway Shares received by the
holders of EB Shares will equal the fair market value
of the Parkway Shares received as of the Effective
Date.
4. The holding period of the Parkway Shares in the hands
of the holders of EB Shares will not include the
holding period of such EB Shares, but will begin as
of the Effective Date.
5. No gains or losses will be recognized by EB, PAC or
Parkway as a result of this Merger.
Except as set forth above, we express no opinion as to the tax
consequences, whether federal, state, local, or foreign, to any party of the
Merger or of any transactions related to the Merger or contemplated by the
Agreement. This opinion is being furnished to you in connection with the
Merger and may not be used or relied upon for any other purpose. We hereby
consent to the filing of this opinion as an exhibit to the Registration
Statement and to its attachment as an exhibit to the Proxy Statement/Prospectus
contained therein, as well as to the reference to this opinion therein.
Very truly yours,
JAECKLE, FLEISCHMANN & MUGEL
<PAGE> 221
APPENDIX D
ARTICLE 13
DISSENTERS' RIGHTS
SUBARTICLE A. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
79-4-13.01 DEFINITIONS -- IN THIS ARTICLE:
(1) "Corporation" means the issuer of the shares held by
a dissenter before the corporate action, or the surviving or acquiring
corporation by merger or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to
dissent from corporate action under Section 79-4-13.02 and who exercises that
right when and in the manner required by Sections 79-4-13.20 through
79-4-13.28.
(3) "Fair value," with respect to a dissenter's shares,
means the value of the shares immediately before the effectuation of the
corporate action to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action unless exclusion would be
inequitable.
(4) "Interest" means interest from the effective date of
the corporate action until the date of payment, at the average rate currently
paid by the corporation on its principal bank loans or, if none, at a rate that
is fair and equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name
shares are registered in the records of a corporation or the beneficial owner
of shares to the extent of the rights granted by a nominee certificate on file
with a corporation.
(6) "Beneficial shareholder" means the person who is a
beneficial owner of shares held in a voting trust or by a nominee as the record
shareholder.
(7) "Shareholder" means the record shareholder or the
beneficial shareholder. (Last amended by Ch. 369, L. '88, eff. 4-19-88.)
79-4-13.02 RIGHT TO DISSENT. -- (a) A shareholder is entitled
to dissent from, and obtain payment of the fair value of his shares in the
event of, any of the following corporate action:
(1) Consummation of a plan of merger to which the
corporation is a party (i) if shareholder approval is required for the merger
by Section 79-4-11.03 or the articles of incorporation and the shareholder is
entitled to vote on the merger, or (ii) if the corporation is a subsidiary that
is merged with its parent under Section 79-4-11.04;
<PAGE> 222
(2) Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(3) Consummation of a sale or exchange of all, or
substantially all, of the property of the corporation other than in the usual
and regular course of business, if the shareholder is entitled to vote on the
sale or exchange, including a sale in dissolution, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which all or
substantially all of the net proceeds of the sale will be distributed to the
shareholders within one (1) year after the date of sale;
(4) An amendment of the articles of incorporation that
materially and adversely affects rights in respect of a dissenter's shares
because it:
(i) Alters or abolishes a preferential right of the shares;
(ii) Creates, alters or abolishes a right in respect of
redemption, including a provision respecting a sinking fund for the redemption
or repurchase, of the shares;
(iii) Alters or abolishes a preemptive right of the holder of
the shares to acquire shares or other securities;
(iv) Excludes or limits the right of the shares to vote on
any matter, or to cumulate votes, other than a limitation by dilution through
issuance of shares or other securities with similar voting rights; or
(v) Reduces the number of shares owned by the shareholder
to a fraction of a share if the fraction share so created is to be acquired for
cash under Section 79-4-6.04; or
(5) Any corporate action taken pursuant to a shareholder
vote to the extent the articles of incorporation, bylaws or a resolution of the
board of directors provides that voting or nonvoting shareholders are entitled
to dissent and obtain payment for their shares.
(b) Nothing in subsection (a)(4) shall entitle a
shareholder of a corporation to dissent and obtain payment for his shares as a
result of an amendment of the articles of incorporation exclusively for the
purpose of either (i) making such corporation subject to application of the
Mississippi Control Share Act, or (ii) making such act inapplicable to a
control share acquisition of such corporation.
(c) A shareholder entitled to dissent and obtain payment
for his shares under this article may not challenge the corporate action
creating his entitlement unless the action is unlawful or fraudulent with
respect to the shareholder or the corporation. (Last amended by Ch. 411, L.
`90, eff. 1-1-91.)
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<PAGE> 223
79-4-13.03 DISSENT BY NOMINEES AND BENEFICIAL OWNERS. -- (a)
A record shareholder may assert dissenters' rights as to fewer than all the
shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares as to which he dissents and his other shares were registered
in the names of different shareholders.
(b) A beneficial shareholder may assert dissenters'
rights as to shares held on his behalf only if:
(1) He submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and
(2) He does so with respect to all shares of which he is
the beneficial shareholder or over which he has power to direct the vote.
79-4-13.20 NOTICE OF DISSENTERS' RIGHTS. -- (a) If proposed
corporate action creating dissenters' rights under Section 79-4-13.02 is
submitted to a vote at a shareholders' meeting, the meeting notice must state
that shareholders are or may be entitled to assert dissenters' rights under
this article and be accompanied by a copy of this article.
(b) If corporate action creating dissenters' rights under
Section 79-4-13.02 is taken without a vote of shareholders, the corporation
shall notify in writing all shareholders entitled to assert dissenters' rights
that the action was taken and send them the dissenters' notice described in
Section 79-4-13.22. (Last amended by Ch. 486, L. `87, eff. 1-1-88.)
79-4-13.21 NOTICE OF INTENT TO DEMAND PAYMENT. -- (a) If
proposed corporate action creating dissenters' rights under Section 79-4-13.02
is submitted to a vote at a shareholders' meeting, a shareholder who wishes to
assert dissenters' rights (1) must deliver to the corporation before the vote
is taken written notice of his intent to demand payment for his shares if the
proposed action is effectuated, and (2) must not vote his shares in favor of
the proposed action.
(b) A shareholder who does not satisfy the requirement of
subsection (a) is not entitled to payment for his shares under this article.
79-4-13.22 DISSENTERS' NOTICE. -- (a) If proposed corporate
action creating dissenters' rights under Section 79-4-13.02 is authorized at a
shareholders' meeting, the corporation shall deliver a written dissenters'
notice to all shareholders who satisfied the requirements of Section
79-4-13.21.
- 3 -
<PAGE> 224
(b) The dissenters' notice must be sent no later than ten
(10) days after the corporate action was taken, and must:
(1) State where the payment demand must be sent and where
and when certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what
extent transfer of the shares will be restricted after the payment demand is
received;
(3) Supply a form for demanding payment that includes the
date of the first announcement to news media or to shareholders of the terms of
the proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not he acquired beneficial ownership of
the shares before that date;
(4) Set a date by which the corporation must receive the
payment demand, which date may not be fewer than thirty (30) nor more that
sixty (60) days after the date the subsection (a) notice is delivered; and
(5) Be accompanied by a copy of this article.
79-4-13.23 DUTY TO DEMAND PAYMENT. -- (a) A shareholder sent
a dissenters' notice described in Section 79-4-13.22 must demand payment,
certify whether he acquired beneficial ownership of the shares before the date
required to be set forth in the dissenter's notice pursuant to Section
79-4-13.22(b)(3), and deposit his certificates in accordance with the terms of
the notice.
(b) The shareholder who demands payment and deposits his
shares under subsection (a) retains all other rights of a shareholder until
these rights are cancelled or modified by the taking of the proposed corporate
action.
(c) A shareholder who does not demand payment or deposit
his share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for his shares under this article.
79-4-13.24 SHARE RESTRICTIONS. -- (a) The corporation may
restrict the transfer of uncertificated shares from the date the demand for
their payment is received until the proposed corporate action is taken or the
restrictions released under Section 79-4-13.26.
(b) The person for whom dissenters' rights are asserted
as to uncertificated shares retains all other rights of a shareholder until
these rights are cancelled or modified by the taking of the proposed corporate
action.
- 4 -
<PAGE> 225
79-4-13.25 PAYMENT. -- (a) Except as provided in Section
79-4-13.27, as soon as the proposed corporate action is taken, or upon receipt
of a payment demand, the corporation shall pay each dissenter who complied with
Section 79-4-13.23 the amount the corporation estimates to be the fair value of
his shares, plus accrued interest.
(b) The payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a
fiscal year ending not more than sixteen (16) months before the date of
payment, an income statement for that year, a statement of changes in
shareholders' equity for that year, and the latest available interim financial
statements, if any;
(2) A statement of the corporation's estimate of the fair
value of the shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenters' right to demand
payment under Section 79-4-13.28; and
(5) A copy of this article.
79-4-13.26 FAILURE TO TAKE ACTION. -- (a) If the corporation
does not take the proposed action within sixty (60) days after the date set for
demanding payment and depositing share certificates, the corporation shall
return the deposited certificates and release the transfer restrictions imposed
on uncertificated shares.
(b) If after returning deposited certificates and
releasing transfer restrictions, the corporation takes the proposed action, it
must send a new dissenters' notice under Section 79-4-13.22 and repeat the
payment demand procedure.
79-4-13.27 AFTER-ACQUIRED SHARES. -- (a) A corporation may
elect to withhold payment required by Section 79-4-13.25 from a dissenter
unless he was the beneficial owner of the shares before the date set forth in
the dissenters' notice as the date of the first announcement to news media or
to shareholders of the terms of the proposed corporate action.
(b) To the extent the corporation elects to withhold
payment under subsection (a), after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
pay this amount to each dissenter who agrees to accept it in full satisfaction
of his demand. The corporation shall send with its offer a statement of its
estimate of the fair value of the shares, an explanation of how the interest
was calculated and a statement of the dissenter's right to demand payment under
Section 79-4-13.28.
- 5 -
<PAGE> 226
79-4-13.28 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT
OR OFFER. -- (a) A dissenter may notify the corporation in writing of his own
estimate of the fair value of his shares and amount of interest due, and demand
payment of his estimate (less any payment under Section 79-4-13.25), or reject
the corporation's offer under Section 79-4-13.27 and demand payment of the fair
value of his shares and interest due, if:
(1) The dissenter believes that the amount paid under
Section 79-4-13.25 or offered under Section 79-4-13.27 is less than the fair
value of his shares or that the interest due is incorrectly calculated;
(2) The corporation fails to make payment under Section
79-4-13.25 within sixty (60) days after the date set for demanding payment; or
(3) The corporation, having failed to take the proposed
action, does not return the deposited certificates or release the transfer
restrictions imposed on uncertificated shares within sixty (60) days after the
date set for demanding payment.
(b) A dissenter waives his right to demand payment under
this section unless he notifies the corporation of his demand in writing under
subsection (a) within thirty (30) days after the corporation made or offered
payment for his shares.
SUBARTICLE C. JUDICIAL APPRAISAL OF SHARES
79-4-13.30 COURT ACTION. -- (a) If a demand for payment under
Section 79-4-13.28 remains unsettled, the corporation shall commence a
proceeding within sixty (60) days after receiving the payment demand and
petition the court to determine the fair value of the shares and accrued
interest. If the corporation does not commence the proceeding within the
60-day period, it shall pay each dissenter whose demand remains unsettled the
amount demanded.
(b) The corporation shall commence the proceeding in the
chancery court of the county where a corporation's principal office (or, if
none in this state, its registered office) is located. If the corporation is a
foreign corporation without a registered office in this state, it shall
commence the proceeding in the county in this state where the registered office
of the domestic corporation merged with or whose shares were acquired by the
foreign corporation was located.
(c) The corporation shall make all dissenters (whether or
not residents of this state) whose demands remain unsettled parties to the
proceeding as in an action against their shares and all parties must be served
with a copy of the petition. Nonresidents may be served by registered or
certified mail or by publication as provided by law.
- 6 -
<PAGE> 227
(d) The jurisdiction of the court in which the proceeding
is commenced under subsection (b) is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers
described in the order appointing them, or in any amendment to it. The
dissenters are entitled to the same discovery rights as parties in other civil
proceedings.
(e) Each dissenter made a party to the proceeding is
entitled to judgment (1) for the amount, if any, by which the court finds the
fair value of his shares, plus interest, exceeds the amount paid by the
corporation, or (2) for the fair value, plus accrued interest, of his
after-acquired shares for which the corporation elected to withhold payment
under Section 79-4-13.27.
79-4-13.31 COURT COSTS AND COUNSEL FEES. -- (a) The court in
an appraisal proceeding commenced under Section 79-4-13.30 shall determine all
costs of the proceeding, including the reasonable compensation and expenses of
appraisers appointed by the court. The court shall assess the costs against
the corporation, except that the court may assess costs against all or some of
the dissenters, in amounts the court finds equitable, to the extent the court
finds the dissenters acted arbitrarily, vexatiously or not in good faith in
demanding payment under Section 79-4-13.28.
(b) The court may also assess the fees and expenses of
counsel and experts for the respective parties, in amounts the court finds
equitable:
(1) Against the corporation and in favor of any or all
dissenters if the court finds the corporation did not substantially comply with
the requirements of Sections 79-4-13.20 through 79-4-13.28; or
(2) Against either the corporation or a dissenter, in
favor of any other party, if the court finds that the party against whom the
fees and expenses are assessed acted arbitrarily, vexatiously or not in good
faith with respect to the rights provided by this article.
(c) If the court finds that the services of counsel for
any dissenter were of substantial benefit to other dissenters similarly
situated, and that the fees for those services should not be assessed against
the corporation, the court may award to these counsel reasonable fees to be
paid out of the amounts awarded the dissenters who were benefited.
154759
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APPENDIX E
----------
DIRECTORS AND EXECUTIVE OFFICERS
OF
EB, INC.
The name, business address, present principal occupation or
employment and five year employment history of each director and executive
officer of EB, Inc. ("EB") are set forth below. Also stated below are the
aggregate number of EB Shares beneficially owned by each such person and the
percentage of outstanding EB Shares such beneficial ownership represents.
Unless otherwise indicated below, the business address of each director and
officer is 300 One Jackson Place, 188 East Capitol Street, Jackson, Mississippi
39201, and each director and officer has held the positions indicated for at
least the past five years. All directors and officers listed below are
citizens of the United States. Directors are identified by an asterisk.
<TABLE>
AGGREGATE NO. OF
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND EB SHARES
NAME AND FIVE-YEAR BENEFICIALLY PERCENT
BUSINESS ADDRESS EMPLOYMENT HISTORY OWNED OF CLASS
---------------------------- ------------------------------ ------------- --------
<S> <C> <C> <C>
*H.C. Bailey, Jr. President of H.C. Bailey Company (real estate 9,870(1) .68%
162 E. Amite Street development and investment); President of Bailey
Jackson, MS 39201 Mortgage Company (mortgage banking) until 1992;
Chairman of the Board and Chief Executive Officer
and President of Security Savings and Loan
Association until 1992; Director of EB since
1988.
*William S. Cassel Vice President and General Manager of Interstate 27,110 1.87
1601 2nd Street Merchandise Warehouse, Inc. (a public warehouse);
Meridian, MS 39301 Director of EB since 1993.
</TABLE>
<PAGE> 229
<TABLE>
<CAPTION>
AGGREGATE NO. OF
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND EB SHARES
NAME AND FIVE-YEAR BENEFICIALLY PERCENT
BUSINESS ADDRESS EMPLOYMENT HISTORY OWNED OF CLASS
---------------------------- ------------------------------ ------------- --------
<S> <C> <C> <C>
*Roger P. Friou Director and Chief Financial Officer of Jitney 5,300 .37
453 North Mill Street Jungle Stores of America, Inc. (a retail
Jackson, MS 39202 supermarket chain); Director of EB since 1993.
*David H. Hoster II Executive Vice President of Parkway, Congress 500(2) .03
Street and Eastover from 1988 to 1994, and EB
from 1988 to 1994; President of EastGroup since
1993 and Executive Vice President of EastGroup
from 1988 to 1993 and Rockwood from 1988 to 1994;
President of EastPark Realty Trust from 1976 to
1990.(3)(4)(5)
*Leland R. Speed Chief Executive Officer of LNH since 1992, EB 23,364(2)(6) 1.61
since 1993, Eastover from 1977 to 1994, Congress
Street from 1984 to 1994, EastPark Realty Trust
from 1983 to 1990, Rockwood from 1980 to 1994,
and Parkway, Eastover and EastGroup.(3)(4)(5)
*Kenneth W. Warren Executive Vice President and Managing Officer of 1,786 .12
1624 North 5th Avenue Security Savings and Loan until 1992; Director of
Laurel, MS 39440 EB since 1988.
</TABLE>
E - 2
<PAGE> 230
<TABLE>
<CAPTION>
AGGREGATE NO. OF
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND EB SHARES
NAME AND FIVE-YEAR BENEFICIALLY PERCENT
BUSINESS ADDRESS EMPLOYMENT HISTORY OWNED OF CLASS
---------------------------- ------------------------------ ------------- --------
<S> <C> <C> <C>
Steven G. Rogers President of Parkway since 1993 and Senior Vice 100 .01
President of Parkway from 1988 to 1993; Senior
Vice-President of Rockwood from 1988 to 1994;
Senior Vice-President of Eastover and Congress
Street from 1988 to 1994; Senior Vice President
of EB and LNH since 1988 and Senior Vice
President of EastGroup from 1988 to
1994.(3)(4)(5)
Sarah P. Clark Vice President and Assistant Secretary of Parkway -- --
since 1992; Vice President and Assistant
Secretary of EB since 1993 and Rockwood,
EastGroup, Eastover and Congress Street from 1992
to 1994; Vice President of LNH from 1992 to 1995;
Controller of Eastover from 1986 to 1992 and
EastGroup from 1990 to 1992; Controller of
Parkway from 1986 to 1990.(3)(4)(5)
_________________________
(1) Includes EB Shares owned by Mr. Bailey's family.
(2) Does not include an aggregate of 755,745 EB Shares owned by Parkway.
(3) Each of these companies was or is primarily engaged in the real estate business.
(4) The companies that participate in the expense-sharing arrangements are described in the Joint Proxy
Statement/Prospectus under "Special Factors -- Expense-Sharing Arrangements." The date indicated in the
table as the date an executive officer began serving as such for the Expense-Sharing Participants
indicates generally that the
</TABLE>
E - 3
<PAGE> 231
<TABLE>
<S> <C>
officer began serving as such for the companies that were participants at that time. Service as an
executive officer for a company that became an Expense-Sharing Participant after that date began
generally at the time the company became a participant.
(5) Rockwood, through its subsidiaries, is engaged in the real estate business in New Orleans, Louisiana.
Rockwood ceased participating in the expense sharing arrangements described in the Joint Proxy Statement/
Prospectus under "Special Factors -- Expense-Sharing Arrangements" on June 28, 1994 and no longer shares
common management with EB and Parkway. Parkway and its wholly-owned subsidiary, Parkway Congress
Corporation, own an aggregate of 3,288,286 shares of Rockwood (24.23%) as of January 11, 1995.
(6) Does not include (i) 4,079 EB Shares owned by Mr. Speed's son Forrest; (ii) 1,780 EB Shares owned by Mr.
Speed's son Warren; and (iii) 500 EB Shares owned by Mr. Speed's son Stewart.
</TABLE>
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E - 4
<PAGE> 232
APPENDIX F
----------
DIRECTORS AND EXECUTIVE OFFICERS
OF
THE PARKWAY COMPANY
The name, business address, present principal occupation or employment and
five year history of each director and executive officer of Parkway are set
forth below. Also stated below are the aggregate number of Parkway Shares
beneficially owned by each such person and the percentage of outstanding
Parkway Shares such beneficial ownership represents. Unless otherwise
indicated below, the business address of each director and officer is 300 One
Jackson Place, 188 East Capitol Street, Jackson, Mississippi 39201, and each
director and officer has held the positions indicated for at least the past
five years. All directors and officers listed below are citizens of the United
States. Directors are indicated by an asterisk.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
AGGREGATE NO. OF
PRESENT PRINCIPAL OCCUPATION OR PARKWAY SHARES
NAME AND BUSINESS EMPLOYMENT AND FIVE-YEAR BENEFICIALLY
ADDRESS EMPLOYMENT HISTORY OWNED PERCENT OF CLASS
- ----------------- -------------------------------- --------------- ----------------
*Daniel C. Arnold Director of Farm & Home Financial 14,035(1) .91%
1001 Fanin Corporation from 1989 to 1994 and Chairman
Suite 1220 of the Board, President and Chief Executive
Houston, TX 77002-6708 Officer from 1989 to 1991; Director of U.S.
Physical Therapy, Inc.; Trustee of Baylor
College of Medicine; Trustee of First
Continental Real Estate Investment Trust
from 1993 to 1994.
*H.C. Bailey, Jr. See Appendix E. 5,000 .32
162 E. Amite Street
Jackson, MS 39201
*George R. Farish Chief Executive Officer of Houston Savings 5,700 .37
4550 Post Oak Place Drive Association.
Suite 225
Houston, TX 77027
</TABLE>
<PAGE> 233
<TABLE>
<CAPTION>
AGGREGATE
NO. OF
PRESENT PRINCIPAL PARKWAY
OCCUPATION OR EMPLOYMENT SHARES
NAME AND BUSINESS AND FIVE-YEAR EMPLOYMENT BENEFICIALLY
ADDRESS HISTORY OWNED PERCENT OF CLASS
--------------------- ----------------------------- ------------ ----------------
<S> <C> <C> <C>
*B. Pat Green, Jr. Chairman of Green Oil Company, Inc. (a 10,100 .65
1425 Broadway Drive retail chain of gasoline stations and car
Hattiesburg, MS 39401 washes); sole proprietor of Green
Investment Company (real estate
development).
*Sidney W. Lassen Chairman and Chief Executive Officer of 1,000 .06
2542 Williams Boulevard Sizeler Property Investors, Inc. (a real
Kenner, LA 70062 estate company).
*Joe F. Lynch Chairman of the Board and Chief Executive 36,316 2.36
5718 Westheimer Officer of First Continental from 1989 to
Suite 1450 1994 and President of First Continental
Houston, TX 77057 until 1989; Vice Chairman of the Board of
Farm & Home Financial Corporation and of
Farm & Home Savings Association from 1991
to 1994.
*C. Herbert Magruder Physician and a partner in the medical firm 7,650(2) .50
1325 Spring Street of Carolina Pathology Associates.
Greenwood, SC 29646
*W. Lincoln Mossop, Jr. General partner of Barrett & Co. 3,548 .23
The Wilcox Building (securities brokers and dealers and a
42 Weybosset Street member firm of the Boston Stock Exchange,
Providence, RI 02903 Inc.).
*Leland R. Speed See Appendix E. - -
Steven G. Rogers See Appendix E. - -
Sarah P. Clark See Appendix E. - -
</TABLE>
F-2
<PAGE> 234
<TABLE>
<CAPTION>
AGGREGATE
NO. OF
PRESENT PRINCIPAL PARKWAY
OCCUPATION OR EMPLOYMENT SHARES
NAME AND BUSINESS AND FIVE-YEAR EMPLOYMENT BENEFICIALLY
ADDRESS HISTORY OWNED PERCENT OF CLASS
--------------------- ----------------------------- ------------ ----------------
<S> <C> <C> <C>
Regina P. Shows Controller of Parkway since 1992; - -
Controller of Rockwood
from 1991 to 1994; Accountant for Parkway,
Congress Street, Eastover, EastGroup and EB
from 1988 to 1990.(3)
All officers and 83,349 5.33
directors
- ------------
<FN>
(1) Includes all 14,035 Parkway Shares held by the Arnold Family Limited Partnership, of which Mr. Arnold is the Managing General
Partner.
(2) Includes 300 Parkway Shares held by the estate of Dr. Magruder's deceased spouse, as to which he has shared voting and
investment power.
(3) Each of these companies was or is primarily engaged in the real estate business.
</TABLE>
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F-2
<PAGE> 235
APPENDIX G
RPR
RAUSCHER PIERCE REFSNES, INC.
G. CLYDE BUCK
Managing Director
September 27, 1994
The Parkway Company
300 One Jackson Place
188 East Capitol Street
Jackson, Mississippi 39201
Attention: Mr. N. Keith McKey
Executive Vice President, Chief Financial Officer and
Secretary
Dear Mr. McKey:
You have asked us for our opinion as to the fairness from a
financial point of view to the shareholders of The Parkway Company ("Parkway")
of the terms of two proposed merger agreements between (a) Parkway and Congress
Street Properties, Inc. ("Congress Street") and (b) Parkway and EB, Inc. ("EB")
in stock-for-stock transactions whereby Parkway would be the sole surviving
entity (the "Exchanges").
Rauscher Pierce Refsnes, Inc., as part of its investment banking
business, is continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements, and valuations for estate, corporate and other purposes.
In arriving at our opinion, we have, among other things:
1. Reviewed a draft dated August 30, 1994 of an "Agreement and
Plan of Merger" between Parkway and EB;
1001 Fannin, Suite 700 * Houston, Texas 77002 * (713) 651-3354
MEMBER NEW YORK STOCK EXCHANGE INC.
<PAGE> 236
The Parkway Company
September 27, 1994
Page 2
2. Reviewed a draft dated September 7, 1994 of an "Agreement and
Plan of Merger" between Parkway and Congress Street;
3. Reviewed a draft received on September 27, 1994 of the Proxy
Statement for the merger between Parkway and EB;
4. Reviewed a draft dated September 7, 1994 of the Proxy
Statement for the merger between Parkway and Congress Street;
5. Reviewed Parkway's Form 10-KSB for the years ended June 30,
1992, 1993 and 1994 and Parkway's quarterly 10-QSB reports for
the quarters ended March 31, 1993, September 30, 1993,
December 31, 1993 and March 31, 1994;
6. Reviewed quarterly earnings reports on Form 10-Q for EB for
the quarters ended March 31, 1993, June 30, 1993, September
30, 1993, March 31, 1994 and June 30, 1994 plus EB's Annual
Reports on Form 10-KSB for the years ended December 31, 1991,
1992 and 1993;
7. Reviewed quarterly earning reports on Form 10-Q for Congress
Street for the quarters ended November 30, 1993, February 28,
1994 and May 31, 1994 plus Congress Street's Annual Reports on
Form 10-KSB for the years ended August 31, 1992 and August 31,
1993;
8. Reviewed financial forecasts prepared by management of each
entity as follows for (a) Parkway for the year ending June 30,
1994, (b) EB for the year ending December 31, 1994 and (c)
Congress Street for the fiscal year ending August 31, 1994;
9. Reviewed recent appraisals (net asset value sheets) for major
real estate holdings of Parkway, Parkway Texas Corporation
(formerly First Continental Real Estate Investment Trust which
merged with Parkway in May, 1994) and EB, Inc.;
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The Parkway Company
September 27, 1994
Page 3
10. Reviewed Parkway's "Management Summary" report on various
assets dated September 14, 1993;
11. Reviewed Parkway's Proxy Statement for its merger with First
Continental dated April 5, 1994;
12. Reviewed the Notice of Annual Meeting and Proxy Statement for
Parkway dated November 12, 1993;
13. Reviewed the Notice of Annual Meeting and Proxy Statement for
EB dated April 28, 1993;
14. Reviewed the Notice of Annual Meeting and Proxy Statement for
Congress Street dated March 8, 1994;
15. Reviewed various press releases related to the transaction and
its progress; and
16. Discussed with management of Parkway, EB and Congress Street
the outlook for future operating results, the assets and
liabilities of all three entities, material in the foregoing
documents, and other matters we considered relevant to our
inquiry.
In our review and in arriving at our opinion, we have, with
your permission, (i) not independently verified any of the foregoing
information and have relied upon its being complete and accurate in all
material respects, and (ii) not made an independent evaluation or appraisal of
specific real estate holdings or other assets of Parkway, EB or Congress
Street. Our opinion is provided solely for your benefit in connection with the
proposed transaction, according to the terms of our engagement letter dated
August 18, 1994.
<PAGE> 238
The Parkway Company
September 27, 1994
Page 4
Based upon and subject to the foregoing, it is our opinion that, as of
the date hereof, the terms of the two proposed Exchanges are fair to the
shareholders of Parkway from a financial point of view.
RAUSCHER PIERCE REFSNES, INC.
By: /s/ G. CLYDE BUCK
-------------------------------
G. Clyde Buck
Managing Director
<PAGE> 239
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the Texas Business Corporation Act (the "TBCA"), a corporation is
empowered to indemnify its directors if it is determined that the director has
conducted himself in good faith and reasonably believed: (i) in the case of
conduct in his official capacity, that his conduct was in the corporation's
best interests or (ii) in all other cases, that his conduct was not opposed to
the corporation's best interests; furthermore, in the case of a criminal
proceeding, the director must have had no reasonable cause to believe his
conduct was unlawful. The determination as to whether a director is entitled
to indemnification must be made (i) by the Board, by a majority vote of a
quorum of disinterested directors, or (ii) if such quorum cannot be obtained,
by a majority vote of a committee of the Board consisting of two or more
disinterested directors, designated to act in the matter by a majority vote of
all directors, or (iii) by special legal counsel selected by the Board or a
Board committee as set forth in (i) or (ii), or, if such a quorum cannot be
obtained and committee established, by a majority vote of all directors, or
(iv) by shareholder vote that excludes the shares of interested directors. A
director cannot be indemnified under the TBCA if the person is found liable on
the basis that personal benefit was improperly received or if the person is
found liable to the corporation, except that a director may be indemnified for
reasonable expenses actually incurred in connection with a legal proceeding if
the director has not been found liable for willful or intentional misconduct in
the performance of his duty to the corporation.
Under Parkway's By-Laws, Parkway is required to indemnify its directors and
officers to the fullest extent permitted by Texas law as currently existing or
later amended (but in the case of such amendment, only to the extent that it
permits broader indemnification rights than permitted prior to such amendment).
The TBCA authorizes Texas corporations to indemnify officers, but contains no
specific provisions comparable to those described above with respect to
directors regarding the circumstances under which officers are entitled to
indemnification. Each director and officer of Parkway has a written agreement
with Parkway which requires, among other things, that Parkway shall indemnify
him to the fullest extent permitted under the TBCA as currently existing or
later amended (but in the case of such amendment, only to the extent that it
permits broader indemnification rights than permitted prior to such amendment).
The Texas Miscellaneous Corporation Laws Act provides that a director of a
corporation shall not be liable to the corporation or its shareholders for
monetary damages for an act or omission in the director's capacity as a
director to the extent provided in the corporation's articles of incorporation,
except that such limitation of liability may not extend to (i) a breach of the
director's duty of loyalty to the corporation or its shareholders, (ii) an act
or omission not in good faith that constitutes a breach of duty of the director
to the corporation or an act or omission that involves intentional misconduct
or a knowing violation of the law, (iii) a
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transaction from which the director receives an improper benefit or (iv) an act
or omission for which the liability of directors is expressly provided by an
applicable statute. Parkway's Articles of Incorporation, as amended, provide
that its directors shall not be liable to Parkway or its shareholders for
monetary damages to the fullest extent permitted under Texas law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following exhibits are filed herewith (or incorporated by reference):
(2) Agreement and Plan of Merger among Parkway, PAC and EB dated as of
October 28, 1994 (as amended by the First Amendment to the Agreement
and Plan of Merger dated January 26, 1995), attached to the Joint
Proxy Statement/Prospectus as Appendix B. Parkway agrees to furnish
supplementally to the Commission upon request a copy of any omitted
schedule or exhibit to the Merger Agreement.
(3)(a) Parkway's Articles of Incorporation, as amended (incorporated by
reference to Exhibit 6.1 of Amendment No. 1 to Parkway's Form S-14
(No. 2-69138) filed on November 6, 1980).
(b) Amendment to Parkway's Articles of Incorporation (incorporated by
reference to Exhibit A of Parkway's Proxy Statement dated November 3,
1987).
(c) Parkway's Bylaws (incorporated by reference to Exhibit 6.2 of
Amendment No. 1 to Parkway's Form S-14 (No. 2-69138) filed on
November 6, 1980).
(d) Amendment to Parkway's Bylaws, dated December 4, 1986 (incorporated
by reference to Exhibit (3)(c) on Parkway's 1987 Annual Report on
Form 10-K).
(e) Amendment to Parkway's Bylaws, dated December 4, 1987 (incorporated
by reference to Exhibit 3(e) on Parkway's 1988 Annual Report on Form
10-K).
(5)(a) Opinion of Jaeckle, Fleischmann & Mugel regarding legality of shares
being registered, (incorporated by reference to Exhibit 5(a) of the
original Registration Statement on Form S-4 (No. 33-85950)).
(8) Opinion of Jaeckle, Fleischmann & Mugel as to the federal income tax
consequences of the Merger, attached to the Joint Proxy
Statement/Prospectus as Appendix C.
(10)(a) 1985 Stock Option and Stock Appreciation Rights Plan (incorporated by
reference to Annex 1 in Amendment No. 1 to Highlands-National, Inc.'s
Form S-14 (No. 2-96473) filed on May 4, 1985).
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(b) Amendment and Restatement of Expense-Sharing Agreement among Congress
Street Properties, Inc., Eastover Corporation, EastGroup Properties
and Parkway dated as of September 1, 1990 (incorporated by reference
to Parkway's 1990 Form 10-K).
(c) First Amendment to Amendment and Restatement of Expense-Sharing
Agreement among Congress Street Properties, Inc., Eastover
Corporation, EastGroup Properties and The Parkway Company dated as of
October 1, 1993 (incorporated by reference to Exhibit 10B of
EastGroup's Registration Statement on Form S-2 (No. 33-70574) filed
October 19, 1993).
(d) Parkway's 1991 Incentive Plan (incorporated by reference to Parkway's
proxy statement dated October 28, 1991).
(e) Parkway's 1991 Directors Stock Option Plan, as amended (incorporated
by reference to Exhibit B of Parkway's proxy statement for the 1994
Annual Meeting of Shareholders).
(f) Parkway's 1994 Stock Option Plan (incorporated by reference to
Exhibit A of Parkway's proxy statement for the 1994 Annual Meeting of
Shareholders).
(11) Statement regarding computation of earnings per share (incorporated
by reference to Exhibit (11) of Parkway's 1994 Form 10-KSB).
(13)(a) EB's Annual Report to Shareholders for the year ended December 31,
1993 (incorporated by reference to Exhibit 13(a) of the original
Registration Statement on Form S-4 (No. 33-85950)).
(22) Subsidiaries of Parkway (incorporated by reference to Exhibit 22 of
Parkway's 1994 Form 10-KSB).
(24)(a) Consent of Ernst & Young LLP, filed herewith.
(b) Consent of KPMG Peat Marwick LLP, filed herewith.
(c) Consent of Deloitte & Touche LLP, filed herewith.
(d) Consent of Howard Frazier Barker Elliott, Inc., filed herewith.
(e) Consent of Roger P. Friou, filed herewith.
(f) Consent of Rauscher Pierce Refsnes, Inc., filed herewith.
(25) Power of Attorney (incorporated by reference to pages II-6 and II-7
of the original Registration Statement on Form S-4 (No. 33- 85950)).
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<PAGE> 242
(28)(a) Agreement of Parkway to furnish the Commission with copies of
instruments defining the rights of holders of long-term debt
(incorporated by reference to Exhibit 28(e) of Parkway's Form S-4
(No. 33-2960) filed with the Commission on February 3, 1986).
(b) Opinion of Howard Frazier Barker Elliott, Inc. as to the fairness of
the transaction to EB shareholders, attached as Appendix A to the
Joint Proxy Statement/Prospectus.
(c) Opinion of Rauscher Pierce Refsnes, Inc. as to the fairness of the
transaction to Parkway shareholders, attached as Appendix G to the
Joint Proxy Statement/Prospectus.
(d) Form of proxy for EB shareholders, (incorporated by reference to
Exhibit 28(d) of Parkway's Amendment No. 1 to the Registration
Statement on Form S-4 (No. 33-85950) filed with the Commission on
January 27, 1995).
(e) Form of proxy for Parkway shareholders, (incorporated by reference
to Exhibit 28(e) of Parkway's Amendment No. 1 to the Registration
Statement on Form S-4 (No. 33-85950) filed with the Commission on
January 17, 1995.).
ITEM 22. UNDERTAKINGS
Parkway, the undersigned registrant, hereby undertakes:
(1) To deliver or cause to be delivered with the prospectus, to
each person to whom the prospectus is sent or given, the latest annual report
to security holders that is incorporated by reference in the prospectus and
furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3
under the Securities Exchange Act of 1934; and, where interim financial
information required to be presented by Article 3 of Regulation S-X are not set
forth in the prospectus, to deliver, or cause to be delivered to each person to
whom the prospectus is sent or given, the latest quarterly report that is
specifically incorporated by reference in the prospectus to provide such
interim financial information.
(2) That prior to any public reoffering of the securities
registered hereunder through use of a prospectus which is a part of this
registration statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the issuer undertakes that such
reoffering prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
(3) That every prospectus (i) that is filed pursuant to paragraph
(2) immediately preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Act and is
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used in connection with an offering of securities subject to Rule 415, will be
filed as part of an amendment to the registration statement and will not be
used until such amendment is effective, and that, for purposes of determining
any liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act, and, is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of this issue.
(5) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the effective
date of the registration statement through the date of responding to the
request.
(6) To supply by means of a post-effective amendment all
information concerning a transaction, and the company being acquired involved
therein, that was not the subject of and included in the registration statement
when it became effective.
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<PAGE> 244
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant
has duly caused this Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Jackson, State of Mississippi, on
March 6, 1995.
THE PARKWAY COMPANY
By: /s/ Steven G. Rogers
------------------------
Steven G. Rogers,
President
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<PAGE> 245
Pursuant to the requirements of the Securities Act of 1933,
this Amendment has been signed below by Steven G. Rogers on March 6, 1995,
individually and as attorney-in-fact for the following persons:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------- -----
<S> <C>
Leland R. Speed Chairman, Chief Executive Officer |
and Director (Principal Executive |
Officer) |
|
Sarah P. Clark Vice President, Chief |
Financial Officer and Secretary |
(Principal Financial Officer) |
|
Regina P. Shows Controller (Principal Accounting |
Officer) |
|
Daniel C. Arnold Director |
|
H. C. Bailey, Jr. Director | /s/Steven G. Rogers
| -------------------
| Steven G. Rogers
George R. Farish Director | Individually and as
| Attorney-in Fact
B. Pat Green, Jr. Director |
|
Sidney W. Lassen Director |
|
Joe F. Lynch Director |
|
C. Herbert Magruder Director |
|
W. Lincoln Mossop, Jr. Director |
</TABLE>
155835
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<PAGE> 1
EXHIBIT 23(a)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated September 9, 1994 with respect to the consolidated
financial statements of The Parkway Company for the years ended June 30, 1994
and 1993 in Amendment No. 2 to the Registration Statement (Form S-4 No.
33-85950) and related Prospectus of the Parkway Company for the registration of
491,582 shares of its common stock.
We also consent to the use of our report dated January 24, 1995, with respect
to the consolidated financial statements of Congress Street Properties, Inc.
for the years ended August 31, 1994 and 1993 in Amendment No. 2 to the
Registration Statement (Form S-4 No. 33-85950) and related Prospectus of the
Parkway Company for the registration of 491,582 shares of its common stock.
March 7, 1995 /s/ Ernst & Young LLP
----------------------------------
Ernst & Young LLP
157997
<PAGE> 1
EXHIBIT 23(b)
INDEPENDENT AUDITORS' CONSENT
The Trustees and Shareholders
East Group Properties:
We consent to the use of our audit report dated March 17, 1994, relating to the
consolidated balance sheets of EastGroup Properties and subsidiaries as of
December 31, 1993 and 1992, and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1993, incorporated herein by
reference on Form S-4 of The Parkway Company, and to the reference to our firm
under the heading "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
------------------------------
KPMG PEAT MARWICK LLP
Jackson, Mississippi
March 7, 1995
158003
<PAGE> 1
EXHIBIT 23(c)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of The Parkway Company on
Form S-4, as amended, of our report dated March 10, 1994 appearing in the Annual
Report on Form 10-KSB, as amended, of EB, Inc. for the years ended December 31,
1993 and 1992 which is incorporated by reference in the Prospectus, which is
part of this Registration Statement, and to the reference to us under the
heading "Experts" in such Prospectus insofar as it relates to EB, Inc.
/s/ Deloitte & Touche LLP
--------------------------
Deloitte & Touche LLP
Jackson, Mississippi
March 7, 1995
158011
<PAGE> 1
EXHIBIT 23(d)
CONSENT OF HOWARD FRAZIER BARKER ELLIOT, INC.
--------------------------------------------
We hereby consent to the references to us and to our opinion dated
October 12, 1994 in Amendment No.2 to the Registration Statement on Form S-4
(No. 33-85950) of The Parkway Company relating to the proposed merger of EB,
Inc. into Parkway Acquisition Corporation, a subsidiary of The Parkway Company,
and to the inclusion of such opinion as an appendix to the related Joint Proxy
Statement/Prospectus.
DATED: March 7, 1995
HOWARD FRAZIER BARKER ELLIOT, INC.
By /s/Charles L. Elliott
--------------------------------
Name: Charles L. Elliot
Title: Vice-President and Principal
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EXHIBIT 23(e)
March 7, 1994
The Parkway Company
300 One Jackson Place
188 East Capitol Street
Jackson, Mississippi 39201
Ladies and Gentlemen:
I consent to being named as a person about to become a director of The
Parkway Company in its Amendment No. 2 to the Registration Statement on Form
S-4 (No 33-85950) relating to the merger of EB, Inc. and Parkway Acquisition
Corporation.
Very truly yours,
/s/ Roger P. Friou
--------------------
Roger P. Friou
152964
<PAGE> 1
EXHIBIT 23(f)
CONSENT OF RAUSCHER PIERCE REFSNES, INC.
----------------------------------------
We hereby consent to the references to us and to our opinion dated
September 27, 1994 in Amendment No. 2 to the Registration Statement on Form S-4
(No. 33-85950) of The Parkway Company relating to the proposed merger of EB,
Inc. into Parkway Acquisition Corporation, a subsidiary of The Parkway Company,
and to the inclusion of such opinion as an appendix to the related Joint Proxy
Statement/Prospectus.
DATED: March 7, 1995
RAUSCHER PIERCE REFSNES, INC.
By /s/G. Clyde Buck
----------------------------
Name: G. Clyde Buck
Title: Managing Director
152824
