As filed with the Securities and Exchange Commission on June 12, 2006
Registration No. 333-
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
EASTGROUP PROPERTIES, INC.
(Exact name of Registrant as specified in its charter)
Maryland 13-2711135
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
300 One Jackson Place
188 East Capitol Street
Jackson, Mississippi 39201-2195
(601) 354-3555
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
DAVID H. HOSTER II, President and Chief Executive Officer
EastGroup Properties, Inc.
300 One Jackson Place
188 East Capitol Street
Jackson, Mississippi 39201-2195
(601) 354-3555
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
JOSEPH P. KUBAREK, Esq.
Jaeckle Fleischmann & Mugel, LLP
12 Fountain Plaza
Buffalo, New York 14202-2292
(716) 856-0600
Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this registration statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If this Form is a registration statement pursuant to General Instruction
I.D. or a post-effective amendment thereto that shall become effective upon
filing with the Commission pursuant to Rule 462(e) under the Securities Act,
check the following box: [X]
If this Form is a post-effective amendment to a registration statement
filed pursuant to General Instruction I.D. filed to register additional
securities or additional classes of securities pursuant to Rule 413(b) under the
Securities Act, check the following box: [ ]
CALCULATION OF REGISTRATION FEE
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Title of Each Class Proposed maximum Proposed maximum
of Securities to be Amount to be offering price per aggregate offering Amount of
Registered registered unit price registration fee
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Common Stock,
Preferred Stock, and (1)(2) (1)(2) (1)(2) (3)
Warrants
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(1) Omitted pursuant to Form S-3 General Instruction II.E.
(2) An unspecified number of the securities of each identified class is being
registered for possible issuance from time to time at indeterminate prices.
Separate consideration may or may not be received for securities that are
issuable on exercise, conversion or exchange of other securities.
(3) In accordance with Rules 456(b) and 457(r), the Registrant is deferring
payment of all of the registration fee, except for $15,583 that has already
been paid with respect to $250,000,000 aggregate initial offering price of
securities that were previously registered pursuant to Registration
Statement No. 333-109769, and were not sold thereunder.
================================================================================
[EASTGROUP PROPERTIES LOGO]
COMMON STOCK, PREFERRED STOCK, WARRANTS
From time to time, we may offer to sell common stock, preferred stock, and
warrants to purchase preferred stock or common stock covered by this prospectus
independently, or together in any combination that may include other securities
set forth in an accompanying prospectus supplement, in one or more offerings,
for sale directly to purchasers or through underwriters, dealers or agents to be
designated at a future date. Our outstanding common shares are listed on the New
York Stock Exchange under the symbol "EGP." This prospectus provides you with a
general description of the securities we may offer.
Each time securities are sold using this prospectus, we will provide a
supplement to this prospectus or possibly other offering material containing
specific information about the offering. The supplement or other offering
material may also add, update or change information contained in this
prospectus. This prospectus may not be used to offer or sell any securities
unless accompanied by a prospectus supplement. You should read this prospectus
and any supplement and/or other offering material carefully before you invest.
We may sell securities to or through underwriters, dealers or agents. For
additional information on the method of sale, you should refer to the section
entitled "Plan of Distribution." The names of any underwriters, dealers or
agents involved in the sale of any securities and the specific manner in which
they may be offered will be set forth in the prospectus supplement covering the
sale of those securities.
This prospectus contains summaries of certain provisions contained in some
of the documents described herein, but reference is made to the actual documents
for complete information. All of the summaries are qualified in their entirety
by the actual documents. Copies of some of the documents referred to herein have
been filed or will be filed or incorporated by reference as exhibits to the
registration statement of which this prospectus is a part, and you may obtain
copies of those documents as described below under "Where You Can Find More
Information."
--------------------
Neither the Securities and Exchange Commission nor any other regulatory
body has approved or disapproved of the securities or passed upon the accuracy
or adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
--------------------
The date of this Prospectus is June 12, 2006.
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TABLE OF CONTENTS
Page
RISK FACTORS...................................................................3
FORWARD-LOOKING INFORMATION....................................................3
RATIO OF EARNINGS TO FIXED CHARGES.............................................4
USE OF PROCEEDS................................................................4
DESCRIPTION OF CAPITAL STOCK...................................................5
DESCRIPTION OF COMMON STOCK....................................................6
DESCRIPTION OF PREFERRED STOCK.................................................7
DESCRIPTION OF SHAREHOLDER RIGHTS PLAN.........................................9
DESCRIPTION OF WARRANTS.......................................................10
CERTAIN PROVISIONS OF MARYLAND LAW AND OUR CHARTER AND BYLAWS.................10
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES........................14
PLAN OF DISTRIBUTION..........................................................33
LEGAL MATTERS.................................................................33
EXPERTS.......................................................................33
WHERE YOU CAN FIND MORE INFORMATION...........................................33
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...............................34
You should rely only on the information contained in or incorporated by
reference into this prospectus and any related prospectus supplement. We have
not authorized any other person to provide you with different information. If
anyone provides you with different or inconsistent information, you should not
rely on it. We are not making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus, the related prospectus supplement
and the documents incorporated by reference herein is accurate only as of its
respective date or dates or on the date or dates which are specified in these
documents. Our business, financial condition, results of operations and
prospects may have changed since those dates.
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RISK FACTORS
Investment in our securities involves risks. Before acquiring any
securities offered pursuant to this prospectus, you should carefully consider
the information contained or incorporated by reference in this prospectus or in
any accompanying prospectus supplement, including, without limitation, the risks
of an investment in our company set forth under the captions "Item 1A. Risk
Factors" and "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" (or similar captions) in our most recent
annual report on Form 10-K and under the caption "Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations" in our
quarterly reports on Form 10-Q, and as described in our other filings with the
Securities and Exchange Commission, or SEC. The occurrence of any of these risks
might cause you to lose all or a part of your investment in the offered
securities. Please also refer to the section below entitled "Forward-Looking
Information."
FORWARD-LOOKING INFORMATION
This prospectus, the prospectus supplement, the documents incorporated by
reference in this prospectus and other written reports and oral statements made
from time to time by the company may contain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements may include statements with respect to our financial
condition, results of operations and business and on the possible impact of this
offering on our financial performance. Words such as "anticipates," "expects,"
"intends," "plans," "believes," "seeks," "estimates" and similar expressions as
they relate to us or our management, are intended to identify forward-looking
statements.
Because such statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forward-looking statements. Investors are cautioned not to place undue reliance
on such statements, which speak only as of the date the statements were made.
Among the factors that could cause actual results to differ materially are:
national, regional and local economic climates, changes in financial markets,
interest rates, increased or unanticipated competition for our properties, risks
associated with acquisitions, maintenance of our REIT status, availability of
financing and capital, changes in demand for developed properties, and other
risks detailed from time to time in the reports filed with the SEC by us.
Except for ongoing obligations to disclose material information as required
by the federal securities laws, we do not undertake any obligation to release
publicly any revisions to any forward-looking statements to reflect events or
circumstances after the date of the filing of this prospectus or to reflect the
occurrence of unanticipated events.
ABOUT EASTGROUP PROPERTIES, INC.
We are an equity real estate investment trust, or REIT, focused on the
development, acquisition and operation of industrial properties in major Sunbelt
markets throughout the United
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States with an emphasis in the states of Florida, Texas, California and Arizona.
Our goal is to maximize shareholder value by being the leading provider of
functional, flexible, and quality business distribution space for location
sensitive tenants primarily in the 5,000 to 50,000 square foot range. Our
strategy for growth is based on ownership of premier distribution facilities
generally clustered near major transportation features in supply constrained
submarkets. Substantially all of our revenue is generated from renting warehouse
distribution space.
We are a corporation organized under the laws of the State of Maryland. Our
principal executive offices are located at 300 One Jackson Place, 188 East
Capitol Street, Jackson, MS 39201-2195, and our telephone number is (601)
354-3555. We also have a web site at www.eastgroup.net. Information contained on
our web site is not and should not be considered a part of this prospectus.
Additional information regarding EastGroup, including our audited financial
statements, is contained in the documents incorporated by reference in this
prospectus. Please also refer to the section below entitled "Where You Can Find
More Information."
RATIO OF EARNINGS TO FIXED CHARGES
Our ratio of earnings to combined fixed charges and preferred stock
dividends for the three months ended March 31, 2006 and the years ended December
31, 2005, 2004, 2003, 2002 and 2001 was 1.45, 1.53, 1.70, 1.45, 1.40 and 1.70,
respectively.
For purposes of calculating these ratios, earnings represent income from
continuing operations before adjustments for minority interest in consolidated
subsidiary and income from equity investee, plus fixed charges, plus distributed
income of equity investee, minus capitalized interest, minus preferred stock
dividends. Fixed charges represent interest expense and preferred stock
dividends from our consolidated statements of operations plus capitalized
interest, amortization of mortgage premiums and an estimated interest component
of rental expense. The ratios are based solely on historical financial
information and no pro forma adjustments have been made thereto.
USE OF PROCEEDS
Unless otherwise specified in a prospectus supplement accompanying this
prospectus, the net proceeds from the sales of the securities to which this
prospectus relates will be used for general corporate purposes. General
corporate purposes may include, without limitation, the repayment of debt and
the development and acquisition of additional properties.
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DESCRIPTION OF CAPITAL STOCK
The following description is only a summary of certain terms and provisions
of our capital stock. You should refer to our charter and bylaws for the
complete provisions thereof.
The total number of shares of capital stock of all classes that we are
authorized to issue is 100,000,000. Our charter authorizes the issuance of
68,080,000 shares of common stock, par value $.0001 per share; 600,000 shares of
Series C Preferred Stock, par value $.0001 per share; 1,320,000 shares of 7.95%
Series D Cumulative Redeemable Preferred Stock, par value $.0001 per share; and
30,000,000 shares of Excess Stock, par value $.0001 per share. As of May 31,
2006, 22,212,695 shares of common stock, 1,320,000 shares of Series D preferred
stock, no shares of Series C preferred stock and no shares of Excess Stock were
issued and outstanding. The common stock and the Series D preferred stock are
currently listed on the New York Stock Exchange under the symbols "EGP" and "EGP
PrD," respectively.
Our Board of Directors is authorized by the charter, to classify and
reclassify any of our unissued shares of capital stock, by, among other
alternatives, setting, altering or eliminating the designation, preferences,
conversion or other rights, voting powers, qualifications and terms and
conditions of redemption of, limitations as to dividends and any other
restrictions on, our capital stock. The power of the Board of Directors to
classify and reclassify any of the shares of capital stock includes the
authority to classify or reclassify such shares into a class or classes of
preferred stock or other stock.
Pursuant to the provisions of our charter, if a transfer of stock occurs
such that any person would own, beneficially or constructively (applying the
applicable attribution rules of the Code), more than 9.8% (in value or in
number, whichever is more restrictive) of our outstanding equity stock
(excluding shares of Excess Stock), then the amount in excess of the 9.8% limit
will automatically be converted into shares of Excess Stock, any such transfer
will be void from the beginning, and we will have the right to redeem such
stock. These restrictions also apply to any transfer of stock that would result
in our being "closely held" within the meaning of Section 856(h) of the Code, or
otherwise failing to qualify as a REIT for federal income tax purposes. Upon any
transfer that results in Excess Stock, such Excess Stock shall be held in trust
for the exclusive benefit of one or more charitable beneficiaries designated by
us. Upon the satisfaction of certain conditions, the person who would have been
the recordholder of the equity stock if the transfer had not resulted in Excess
Stock may designate a beneficiary of an interest in the trust. Upon such
transfer of an interest in the trust, the corresponding shares of Excess Stock
in the trust shall be automatically exchanged for an equal number of shares of
equity stock of the same class as such stock had been prior to it becoming
Excess Stock and shall be transferred of record to the designated beneficiary.
Excess Stock has no voting rights, except as required by law, and any vote cast
by a purported transferee in respect of shares of Excess Stock prior to the
discovery that shares of equity stock had been converted into Excess Stock shall
be void from the beginning. Excess Stock shall not be entitled to dividends. Any
dividend paid prior to our discovery that equity stock has been converted into
Excess Stock shall be repaid to us upon demand. In the event of our liquidation,
each holder of Excess Stock shall be entitled to receive that portion of our
assets that would have been distributed to the holder of equity stock in respect
of which such Excess Stock was issued. The trustee of the trust holding Excess
Stock shall distribute such assets to the beneficiaries of such trust. These
restrictions
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will not prevent the settlement of a transaction entered into through the
facilities of any interdealer quotation system or national securities exchange
upon which shares of our capital stock are traded. Notwithstanding the prior
sentence, certain transactions may be settled by providing shares of Excess
Stock.
Our Board of Directors, upon receipt of a ruling from the Internal Revenue
Service or an opinion of counsel or other evidence satisfactory to the Board of
Directors and upon at least 15 days written notice from a transferee prior to a
proposed transfer that, if consummated, would result in the intended transferee
"beneficially owning" (as defined in our charter, and determined after the
application of the applicable attribution rules of the Code) equity stock in
excess of the 9.8% ownership limit and the satisfaction of such other conditions
as the Board may direct, may in its sole and absolute discretion exempt a person
from the 9.8% ownership limit. Additionally, our Board of Directors, upon
receipt of a ruling from the Internal Revenue Service or an opinion of counsel
or other evidence satisfactory to our Board, may in its sole and absolute
discretion exempt a person from the limitation on a person "constructively
owning" (as defined in our charter, and determined after the application of the
applicable attribution rules of the Code) equity stock in excess of the 9.8%
ownership limit if (i) such person does not and represents that it will not
directly or "constructively own" (after the application of the applicable
attribution rules of the Code) more than a 9.8% interest in a tenant of ours;
(ii) we obtain such representations and undertakings as are reasonably necessary
to ascertain this fact; and (iii) such person agrees that any violation or
attempted violation of such representations, undertakings and agreements will
result in such equity stock in excess of the ownership limit being converted
into and exchanged for Excess Stock. Our Board of Directors may from time to
time increase or decrease the 9.8% limit, provided that the 9.8% limit may be
increased only if five individuals could not "beneficially own" or
"constructively own" (applying the applicable attribution rules of the Internal
Revenue Code) more than 50.0% in value of the shares of equity stock then
outstanding.
DESCRIPTION OF COMMON STOCK
Distributions. Subject to the preferential rights of any shares of
preferred stock currently outstanding or subsequently classified and to the
provisions of our charter regarding restrictions on transfer and ownership of
shares of common stock, a holder of our common stock is entitled to receive
distributions, if, as and when authorized and declared by our Board of
Directors, out of our assets that we may legally use for distributions to
stockholders and to share ratably in our assets that we may legally distribute
to our stockholders in the event of our liquidation, dissolution or winding up
after payment of, or adequate provision for, all of our known debts and
liabilities. We currently pay regular quarterly distributions on our common
stock.
Relationship to Preferred Stock and Other Shares of Common Stock. The
rights of a holder of shares of common stock will be subject to, and may be
adversely affected by, the rights of holders of preferred stock that have been
issued and that may be issued in the future. Our Board of Directors may cause
preferred stock to be issued to obtain additional capital, in connection with
acquisitions, to our officers, directors and employees pursuant to benefit plans
or otherwise and for other corporate purposes.
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A holder of our common stock has no preferences, conversion rights, sinking
fund, redemption rights, appraisal rights or preemptive rights to subscribe for
any of our securities. Subject to the provisions of our charter regarding
restrictions on ownership and transfer, all shares of common stock have equal
distribution, liquidation, voting and other rights.
Voting Rights. Subject to the provisions of our charter regarding
restrictions on transfer and ownership of shares of common stock, a holder of
common stock has one vote per share on all matters submitted to a vote of
stockholders, including the election of directors.
Under Maryland law, a Maryland corporation generally cannot dissolve, amend
its charter, merge, sell all or substantially all of its assets, engage in a
share exchange or engage in similar transactions outside the ordinary course of
business, unless approved by the affirmative vote of stockholders holding at
least two thirds of the shares entitled to vote on the matter. However, a
Maryland corporation may provide in its charter for approval of these matters by
a lesser percentage, but not less than a majority of all of the votes entitled
to be cast on the matter. Our charter provides that such actions need to be
approved by a majority of the votes entitled to be cast on the matter. However,
any merger, consolidation, share exchange, recapitalization, dissolution, sale
of all or substantially all of our assets or any amendment to the provisions of
our charter regarding the Board of Directors, indemnification of our directors
and officers or amendment of the charter must be approved by at least two-thirds
of our Board of Directors. Additionally, no amendment to our charter may be made
that would, (i) in the determination of our Board of Directors, cause us not to
qualify as a REIT, (ii) amend the provisions of our charter regarding removal of
directors, (iii) amend our Bylaws, (iv) amend the provisions of our charter
regarding the indemnification of directors and officers, (v) amend our charter,
or (vi) impose cumulative voting in the election of directors, in each case,
unless approved by the holders of not less than 80% of the votes entitled to be
cast on the matter.
There is no cumulative voting in the election of directors, which means
that the holders of a plurality of the outstanding shares of common stock voting
can elect all of the directors then standing for election and the holders of the
remaining shares of common stock, if any, will not be able to elect any
directors, except as otherwise provided for any series of our preferred stock.
Stockholder Liability. Under Maryland law applicable to Maryland
corporations, holders of common stock will not be liable as stockholders for our
obligations solely as a result of their status as stockholders.
Transfer Agent. The registrar and transfer agent for shares of our common
stock is Computershare Limited.
DESCRIPTION OF PREFERRED STOCK
General. Our charter authorizes our Board of Directors to classify and
reclassify any unissued shares of our stock into other classes or series of
stock, including classes or series of preferred stock. Shares of preferred stock
may be issued from time to time, in one or more series, as
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authorized by our Board of Directors. Before issuance of shares of each series,
the Board of Directors is required to fix for each such series, subject to the
provisions of Maryland law and our charter, the powers, designations,
preferences and relative, participating, optional or other special rights of
such series and qualifications, limitations or restrictions thereof, including
such provisions as may be desired concerning voting, redemption, dividends,
dissolution or the distribution of assets, conversion or exchange, and such
other matters as may be fixed by resolution of the Board of Directors or a duly
authorized committee thereof. The Board of Directors could authorize the
issuance of shares of preferred stock with terms and conditions which could have
the effect of discouraging a takeover or other transaction which holders of
some, or a majority of, shares of common stock might believe to be in their best
interests, or in which holders of some, or a majority of, shares of common stock
might receive a premium for their shares of common stock over the then market
price of such shares. The shares of preferred stock will, when issued, be fully
paid and nonassessable and will have no preemptive rights.
The prospectus supplement relating to any shares of preferred stock offered
thereby will contain the specific terms, including:
(i) The title and stated value of such shares of preferred stock;
(ii) The number of such shares of preferred stock offered, the liquidation
preference per share and the offering price of such shares of
preferred stock;
(iii) The voting rights of such shares of preferred stock;
(iv) The dividend rate(s), period(s) and/or payment date(s) or method(s) of
calculation thereof applicable to such shares of preferred stock;
(v) The date from which dividends on such shares of preferred stock will
accumulate, if applicable;
(vi) The procedures for any auction or remarketing, if any, for such shares
of preferred stock;
(vii) The provision for a sinking fund, if any, for such shares of
preferred stock;
(viii) The provisions for redemption, if applicable, of such shares of
preferred stock;
(ix) Any listing of the shares of preferred stock on any securities
exchange;
(x) The terms and conditions, if applicable, upon which the shares of
preferred stock will be convertible into shares of our common stock,
including the conversion price (or manner of calculation thereof);
(xi) A discussion of federal income tax considerations applicable to such
shares of preferred stock;
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(xii) The relative ranking and preferences of such shares of preferred stock
as to dividend rights and rights upon liquidation, dissolution or
winding up of our affairs;
(xiii) Any limitations on issuance of any series of shares of preferred
stock ranking senior to or on a parity with such series of shares of
preferred stock as to dividend rights and rights upon liquidation,
dissolution or winding up of our affairs;
(xiv) Any limitations on direct or beneficial ownership and restrictions on
transfer of such shares of preferred stock, in each case as may be
appropriate to preserve our status as a REIT; and
(xv) Any other specific terms, preferences, rights, limitations or
restrictions of such shares of preferred stock.
The registrar and transfer agent for the shares of preferred stock will be
set forth in the applicable prospectus supplement.
The description of the provisions of the shares of preferred stock set
forth in this prospectus and in the related prospectus supplement is only a
summary, does not purport to be complete and is subject to, and is qualified in
its entirety by, reference to the definitive Articles Supplementary to our
Charter relating to such series of shares of preferred stock. You should read
these documents carefully to fully understand the terms of the shares of
preferred stock. In connection with any offering of shares of preferred stock,
Articles Supplementary will be filed with the Securities and Exchange Commission
as an exhibit or incorporated by reference in the Registration Statement.
DESCRIPTION OF SHAREHOLDER RIGHTS PLAN
Our Board of Directors has adopted a rights plan. As a result, we issued
one right for each outstanding share of common stock outstanding. One right will
be issued for each additional share of common stock that we issue. Each right
entitles the holder to purchase one one-thousandth of a share of our Series C
preferred stock at an exercise price of $70.00 (subject to adjustments). The
rights become exercisable 10 business days after any party acquires or announces
an offer to acquire 15% or more of our common stock, our Board of Directors
determines that a substantial stockholder's ownership may be adverse to the
interests of our other stockholders or our qualification as a REIT, or certain
similar event. The rights expire on December 3, 2008, unless earlier redeemed.
The rights are redeemable at $0.0001 per right at any time before 10 business
days following the time that any party acquires, or obtains the right to
acquire, beneficial ownership of 15% or more of our outstanding common stock, or
our Board of Directors determines that a substantial stockholder's ownership may
be adverse to the interests of our other stockholders or our qualification as a
REIT.
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DESCRIPTION OF WARRANTS
We may issue warrants for the purchase of shares of preferred stock or
shares of common stock. Warrants may be issued independently or together with
any other securities offered by any prospectus supplement and may be attached to
or separate from such securities. Each series of warrants will be issued under a
separate warrant agreement to be entered into between us and a warrant agent
specified in the applicable prospectus supplement. The warrant agent will act
solely as our agent in connection with the warrants of such series and will not
assume any obligation or relationship of agency or trust for or with any holders
or beneficial owners of warrants. Further terms of the warrants and the
applicable warrant agreements will be set forth in the applicable prospectus
supplement.
The applicable prospectus supplement will describe the terms of the
warrants in respect of which this prospectus is being delivered, including,
where applicable, the following: (1) the title of such warrants; (2) the
aggregate number of such warrants; (3) the price or prices at which such
warrants will be issued; (4) the designation, terms and number of shares of our
preferred stock or common stock purchasable upon exercise of such warrants; (5)
the designation and terms of the offered securities, if any, with which such
warrants are issued and the number of such warrants issued with each such
offered security; (6) the date, if any, on and after which such warrants and the
related preferred stock or common stock will be separately transferable,
including any limitations on ownership and transfer of such warrants as may be
appropriate to preserve our status as a REIT; (7) the price at which each share
of preferred stock or common stock purchasable upon exercise of such warrants
may be purchased; (8) the date on which the right to exercise such warrants
shall commence and the date on which such right shall expire; (9) the minimum or
maximum amount of such warrants which may be exercised at any one time; (10)
information with respect to book-entry procedures, if any; (11) a discussion of
certain federal income tax consequences; and (12) any other terms of such
warrants, including terms, procedures and limitations relating to the exchange
and exercise of such warrants.
CERTAIN PROVISIONS OF MARYLAND LAW AND OUR CHARTER AND BYLAWS
The following paragraphs summarize certain material provisions of Maryland
law applicable to Maryland corporations. The summary does not purport to be
complete and is subject to and qualified in its entirety by reference to
Maryland law, our charter, including any articles supplementary, and bylaws. You
should read these documents carefully to fully understand the terms of Maryland
law, our charter and our bylaws.
Maryland, the state of our incorporation, has certain anti-takeover
statutes, including the "business combination" provisions and "control share
acquisition" provisions, which may also have the effect of making it difficult
to gain control of us or to change existing management. To date, we have not
opted out of the business combination provisions or the control share
acquisition provisions of the Maryland General Corporation Law (the "MGCL").
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Business Combinations
Under Maryland law, "business combinations" between a Maryland corporation
and an interested stockholder or an affiliate of an interested stockholder are
prohibited for five years after the most recent date on which the interested
stockholder becomes an interested stockholder. These business combinations
include a merger, consolidation, share exchange, or, in circumstances specified
in the statute, an asset transfer or issuance or reclassification of equity
securities. An interested stockholder is defined as:
o any person who beneficially owns ten percent or more of the voting
power of the corporation's shares; or
o an affiliate or associate of the corporation who, at any time within
the two-year period prior to the date in question, was the beneficial
owner of ten percent or more of the voting power of the then
outstanding voting stock of the corporation.
A person is not an interested stockholder under the statute if the Board of
Directors approved in advance the transaction by which he otherwise would have
become an interested stockholder. However, in approving a transaction, the Board
of Directors may provide that its approval is subject to compliance, at or after
the time of approval, with any terms and conditions determined by the Board.
After the five-year prohibition, any business combination between the
Maryland corporation and an interested stockholder generally must be recommended
by the Board of Directors of the corporation and approved by the affirmative
vote of at least:
o 80% of the votes entitled to be cast by holders of outstanding shares
of voting stock of the corporation; and
o two-thirds of the votes entitled to be cast by holders of voting stock
of the corporation other than shares held by the interested
stockholders with whom or with whose affiliate the business
combination is to be effected or held by an affiliate or associate of
the interested stockholder.
o These super-majority vote requirements do not apply if the
corporation's common stockholders receive a minimum price, as defined
under Maryland law, for their shares in the form of cash or other
consideration in the same form as previously paid by the interested
stockholder for its shares.
The statute permits various exemptions from its provisions, including
business combinations that are exempted by the Board of Directors before the
time that the interested stockholder becomes an interested stockholder.
Control Share Acquisitions
Maryland law provides that control shares of a Maryland corporation
acquired in a control share acquisition have no voting rights except to the
extent approved by a vote of two-thirds
11
of the votes entitled to be cast on the matter. Shares owned by the acquiror, by
officers or by directors who are employees of the corporation are excluded from
shares entitled to vote on the matter. Control shares are voting shares of stock
which, if aggregated with all other shares of stock owned by the acquiror or in
respect of which the acquiror is able to exercise or direct the exercise of
voting power (except solely by virtue of a revocable proxy), would entitle the
acquiror to exercise voting power in electing directors within one of the
following ranges of voting power:
o one-fifth or more but less than one-third,
o one-third or more but less than a majority, or
o a majority or more of all voting power.
Control shares do not include shares the acquiring person is then entitled to
vote as a result of having previously obtained stockholder approval. A control
share acquisition means the acquisition of control shares, subject to certain
exceptions.
A person who has made or proposes to make a control share acquisition may
compel the Board of Directors of the corporation to call a special meeting of
stockholders to be held within 50 days of demand to consider the voting rights
of the shares. The right to compel the calling of a special meeting is subject
to the satisfaction of certain conditions, including an undertaking to pay the
expenses of the meeting. If no request for a meeting is made, the corporation
may itself present the question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then
the corporation may redeem for fair value any or all of the control shares,
except those for which voting rights have previously been approved. The right of
the corporation to redeem control shares is subject to certain conditions and
limitations. Fair value is determined, without regard to the absence of voting
rights for the control shares, as of the date of the last control share
acquisition by the acquiror or of any meeting of stockholders at which the
voting rights of the shares are considered and not approved. If voting rights
for control shares are approved at a stockholders meeting and the acquiror
becomes entitled to vote a majority of the shares entitled to vote, all other
stockholders may exercise appraisal rights. The fair value of the shares as
determined for purposes of appraisal rights may not be less than the highest
price per share paid by the acquiror in the control share acquisition.
The control share acquisition statute does not apply (i) to shares acquired
in a merger, consolidation or share exchange if the corporation is a party to
the transaction, or (ii) to acquisitions approved or exempted by the charter or
bylaws of the corporation.
Certain Elective Provisions of Maryland Law
Maryland law provides, among other things, that the board of directors has
broad discretion in adopting stockholders' rights plans and has the sole power
to fix the record date, time and place for special meetings of the stockholders.
Furthermore, Maryland corporations that:
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o have three independent directors who are not officers or employees of
the entity or related to an acquiring person; and
o are subject to the reporting requirements of the Securities Exchange
Act,
may elect in their charter or bylaws or by resolution of the board of directors
to be subject to all or part of a special subtitle which provides that:
o the corporation will have a staggered board of directors;
o any director may be removed only for cause and by the vote of
two-thirds of the votes entitled to be cast in the election of
directors generally, even if a lesser proportion is provided in the
charter or bylaws;
o the number of directors may only be set by the board of directors,
even if the procedure is contrary to the charter or bylaws;
o vacancies may only be filled by the remaining directors, even if the
procedure is contrary to the charter or bylaws; and
o the secretary of the corporation is required to call a special meeting
of stockholders only on the written request of the stockholders
entitled to cast at least a majority of all the votes entitled to be
cast at the meeting, even if the procedure is contrary to the charter
or bylaws.
To date, we have not made any of the elections described above, although,
independent of these elections, our charter and bylaws contain provisions that
special meetings of stockholders are only required to be held upon the request
of a majority of the stockholders, that directors may be removed only for cause
and by the vote of two-thirds of the votes entitled to be cast and that
vacancies may be filled only by our Board of Directors.
Consideration of "All Relevant Factors"
In addition, as permitted by the Maryland General Corporation Law, our
charter includes a provision that requires our Board of Directors, in their
evaluation of any potential business combination or any actual or proposed
transaction that could result in a change of control, to consider all relevant
factors, including, the economic effect on our stockholders, the social and
economic effect on our employees, suppliers, customers and creditors and the
communities in which we have offices or other operations.
13
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
Introductory Notes
The following discussion describes the material federal income tax
considerations relating to our taxation as a REIT, and the ownership and
disposition of the securities offered under this prospectus.
The following discussion is not exhaustive of all possible tax
considerations and does not provide a detailed discussion of any state, local or
foreign tax considerations, nor does it discuss all of the aspects of federal
income taxation that may be relevant to a prospective stockholder in light of
his or her particular circumstances or to stockholders (including insurance
companies, tax-exempt entities, financial institutions or broker-dealers,
foreign corporations, persons holding common stock as part of a hedging or
conversion transaction or a straddle, and persons who are not citizens or
residents of the United States) who are subject to special treatment under the
federal income tax laws.
Jaeckle Fleischmann & Mugel, LLP has provided an opinion to the effect that
this discussion, to the extent that it contains descriptions of applicable
federal income tax law, is correct in all material respects and fairly
summarizes in all material respects the federal income tax laws referred to
herein. This opinion, however, does not purport to address the actual tax
consequences of the purchase, ownership and disposition of our capital stock to
any particular holder. The opinion and the information in this section are based
on the Internal Revenue Code of 1986, as amended (the "Code"), current,
temporary and proposed Treasury regulations, the legislative history of the
Code, current administrative interpretations and practices of the Internal
Revenue Service, and court decisions. The reference to Internal Revenue Service
interpretations and practices includes Internal Revenue Service practices and
policies as endorsed in private letter rulings, which are not binding on the
Internal Revenue Service except with respect to the taxpayer that receives the
ruling. In each case, these sources are relied upon as they exist on the date of
this prospectus. No assurance can be given that future legislation, regulations,
administrative interpretations and court decisions will not significantly change
current law, or adversely affect existing interpretations of existing law, on
which the opinion and information in this section are based. Any change of this
kind could apply retroactively to transactions preceding the date of the change.
Moreover, opinions of counsel merely represent counsel's best judgment with
respect to the probable outcome on the merits and are not binding on the
Internal Revenue Service or the courts. Accordingly, even if there is no change
in applicable law, no assurance can be provided that such opinion, or the
statements made in the following discussion, will not be challenged by the
Internal Revenue Service or will be sustained by a court if so challenged.
EACH PROSPECTIVE INVESTOR IS ADVISED TO CONSULT WITH HIS OR HER OWN TAX
ADVISOR TO DETERMINE THE IMPACT OF HIS OR HER PERSONAL TAX SITUATION ON THE
ANTICIPATED TAX CONSEQUENCES OF THE OWNERSHIP AND SALE OF THE SECURITIES OFFERED
UNDER THIS PROSPECTUS. THIS INCLUDES THE FEDERAL, STATE, LOCAL, FOREIGN AND
OTHER TAX CONSEQUENCES OF THE OWNERSHIP AND SALE OF THE SECURITIES OFFERED UNDER
THIS PROSPECTUS AND THE POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
14
Taxation of Our Company as a REIT
We have elected to be taxed as a REIT under Sections 856 through 859 of the
Code, commencing with our initial taxable year. Our qualification and taxation
as a REIT depends upon our ability to meet on a continuing basis, through actual
annual operating results, distribution levels and diversity of stock ownership,
the various qualification tests and organizational requirements imposed under
the Code, as discussed below. We believe that we are organized and have operated
in such a manner as to qualify under the Code for taxation as a REIT since the
effective date of our election, and we intend to continue to operate in such a
manner. No assurances, however, can be given that we will operate in a manner so
as to qualify or remain qualified as a REIT. See "-- Failure to Qualify" below.
The following is a general summary of the material Code provisions that
govern the federal income tax treatment of a REIT and its stockholders. These
provisions of the Code are highly technical and complex. This summary is
qualified in its entirety by the applicable Code provisions, the regulations
promulgated thereunder ("Treasury Regulations"), and administrative and judicial
interpretations thereof.
Jaeckle Fleischmann & Mugel, LLP has provided to us an opinion to the
effect that we have been organized and have operated in conformity with the
requirements for qualification and taxation as a REIT, effective for each of our
taxable years ended December 31, 1997 through December 31, 2005, and our current
and proposed organization and method of operation will enable us to continue to
meet the requirements for qualification and taxation as a REIT for taxable year
2006 and thereafter. It must be emphasized that this opinion is conditioned upon
certain assumptions and representations made by us to Jaeckle Fleischmann &
Mugel, LLP as to factual matters relating to our organization and operation and
that of our subsidiaries. In addition, this opinion is based upon our factual
representations concerning our business and properties as described in the
reports filed by us under the federal securities laws.
Qualification and taxation as a REIT depends upon our ability to meet on a
continuing basis, through actual annual operating results, the various
requirements under the Code described in this prospectus with regard to, among
other things, the sources of our gross income, the composition of our assets,
our distribution levels, and our diversity of stock ownership. While we intend
to operate so that we continue to qualify as a REIT, given the highly complex
nature of the rules governing REITs, the ongoing importance of factual
determinations, and the possibility of future changes in our circumstances, no
assurance can be given that we satisfy all of the tests for REIT qualification
or will continue to do so.
If we qualify for taxation as a REIT, we generally will not be subject to
federal corporate income taxes on net income that we currently distribute to
stockholders. This treatment substantially eliminates the "double taxation" (at
the corporate and stockholder levels) that generally results from investment in
a corporation.
Notwithstanding our REIT election, however, we will be subject to federal
income tax in the following circumstances. First, we will be taxed at regular
corporate rates on any undistributed taxable income, including undistributed net
capital gains. (However, we can elect to
15
"pass through" any of our taxes paid on its undistributed net capital gains
income to our stockholders on a pro rata basis.) Second, under certain
circumstances, we may be subject to the "alternative minimum tax" on any items
of tax preference and alternative minimum tax adjustments. Third, if we have (i)
net income from the sale or other disposition of "foreclosure property" (which
is, in general, property acquired by foreclosure or otherwise on default of a
loan secured by the property) that is held primarily for sale to customers in
the ordinary course of business or (ii) other nonqualifying income from
foreclosure property, we will be subject to tax at the highest corporate rate on
such income. Fourth, if we have net income from prohibited transactions (which
are, in general, certain sales or other dispositions of property (other than
foreclosure property) held primarily for sale to customers in the ordinary
course of business), such income will be subject to a 100% tax on prohibited
transactions. Fifth, if we should fail to satisfy the 75% gross income test or
the 95% gross income test (as discussed below), and have nonetheless maintained
our qualification as a REIT because certain other requirements have been met, we
will be subject to a 100% tax equal to the gross income attributable to the
greater of either (i) the amount by which 75% of our gross income exceeds the
amount qualifying under the 75% test for the taxable year or (ii) the amount by
which 90% of our gross income (95% in the case of a failure occurring for our
tax year beginning January 1, 2005 and thereafter) exceeds the amount of our
income qualifying under the 95% test for the taxable year, multiplied in either
case by a fraction intended to reflect our profitability. Sixth, if we should
fail to distribute during each calendar year at least the sum of (i) 85% of our
REIT ordinary income for such year; (ii) 95% of our REIT capital gain net income
for such year (for this purpose such term includes capital gains which we elect
to retain but which we report as distributed to our stockholders; see "-- Annual
Distribution Requirements" below); and (iii) any undistributed taxable income
from prior years, we would be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed. Seventh, if we
acquire any asset from a C corporation (i.e., a corporation generally subject to
full corporate level tax) in a transaction in which the basis of the asset in
our hands is determined by reference to the basis of the asset (or any other
property) in the hands of the C corporation, and we recognize gain on the
disposition of such asset during the 10 year period beginning on the date on
which such asset was acquired by us, then, to the extent of such property's
built in gain (the excess of the fair market value of such property at the time
of acquisition by us over the adjusted basis of such property at such time),
such gain generally will be subject to tax at the highest regular corporate rate
then applicable. Eighth, we will be subject to a 100% penalty tax on amounts
received (or on certain expenses deducted by a taxable REIT subsidiary) if
arrangements among us, our tenants and a taxable REIT subsidiary are not
comparable to similar arrangements among unrelated parties. Ninth, beginning in
2005, if we fail to satisfy the 5% or the 10% assets tests, and the failure
qualifies under the Non De Minimis Exception, as described below under "-- Asset
Tests," then we will have to pay an excise tax equal to the greater of (i)
$50,000; or (ii) an amount determined by multiplying the net income generated
during a specified period by the assets that caused the failure by the highest
federal income tax applicable to corporations. Tenth, beginning in 2005, if we
fail to satisfy any REIT requirements other than the income test or asset test
requirements, described below under "-- Income Tests" and "-- Asset Tests,"
respectively, and would qualify for a reasonable cause exception, then we will
have to pay a penalty equal to $50,000 for each such failure.
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Requirements for Qualification
The Code defines a REIT as a corporation, trust or association (i) which is
managed by one or more trustees or directors; (ii) the beneficial ownership of
which is evidenced by transferable shares or by transferable certificates of
beneficial interest; (iii) which would be taxable as a domestic corporation but
for Sections 856 through 859 of the Code; (iv) which is neither a financial
institution nor an insurance company subject to certain provisions of the Code;
(v) the beneficial ownership of which is held by 100 or more persons; (vi) of
which not more than 50% in value of the outstanding capital stock is owned,
directly or indirectly, by five or fewer individuals (as defined in the Code to
include certain entities) during the last half of each taxable year after
applying certain attribution rules; (vii) that makes an election to be treated
as a REIT for the current taxable year or has made an election for a previous
taxable year which has not been revoked; and (viii) which meets certain other
tests, described below, regarding the nature of its income and assets. The Code
provides that conditions (i) through (iv), inclusive, must be met during the
entire taxable year and that condition (v) must be met during at least 335 days
of a taxable year of 12 months, or during a proportionate part of a taxable year
of less than 12 months. Condition (vi) must be met during the last half of each
taxable year other than the first taxable year for which an election to become a
REIT is made. For purposes of determining stock ownership under condition (vi),
a supplemental unemployment compensation benefits plan, a private foundation or
a portion of a trust permanently set aside or used exclusively for charitable
purposes generally is considered an individual. However, a trust that is a
qualified trust under Section 401(a) of the Code generally is not considered an
individual, and beneficiaries of a qualified trust are treated as holding shares
of a REIT in proportion to their actuarial interests in the trust for purposes
of condition (vi). Conditions (v) and (vi) do not apply until after the first
taxable year for which an election is made to be taxed as a REIT. We have issued
sufficient common stock with sufficient diversity of ownership to allow us to
satisfy requirements (v) and (vi). In addition, our charter contains
restrictions regarding the transfer of our shares intended to assist us in
continuing to satisfy the share ownership requirements described in (v) and (vi)
above. See "Description of Capital Stock" in the accompanying prospectus. These
restrictions, however, may not ensure that we will be able to satisfy these
share ownership requirements. If we fail to satisfy these share ownership
requirements and do not qualify for certain statutory relief provisions, we will
fail to qualify as a REIT.
In addition, a corporation may not elect to become a REIT unless its
taxable year is the calendar year. Our taxable year is the calendar year.
To qualify as a REIT, we cannot have at the end of any taxable year any
undistributed earnings and profits that are attributable to a non-REIT taxable
year. We believe that we have complied with this requirement.
For our tax years beginning prior to January 1, 1998, pursuant to
applicable Treasury Regulations, to be taxed as a REIT, we were required to
maintain certain records and request on an annual basis certain information from
our stockholders designed to disclose the actual ownership of our outstanding
shares. We have complied with such requirements. For our tax years beginning on
or after January 1, 1998, these records and informational requirements are no
longer a condition to REIT qualification. Instead, a monetary penalty will be
imposed for failure to comply with these requirements. If we comply with these
regulatory rules, and we do not know, or exercising
17
reasonable diligence would not have known, whether we failed to meet requirement
(vi) above, we will be treated as having met the requirement.
Qualified REIT Subsidiaries
If a REIT owns a corporate subsidiary that is a "qualified REIT
subsidiary," the separate existence of that subsidiary will be disregarded for
federal income tax purposes. Generally, a qualified REIT subsidiary is a
corporation, other than a taxable REIT subsidiary, all of the capital stock of
which is owned by the REIT. All assets, liabilities and items of income,
deduction and credit of the qualified REIT subsidiary will be treated as assets,
liabilities and items of income, deduction and credit of the REIT itself. A
qualified REIT subsidiary of ours will not be subject to federal corporate
income taxation, although it may be subject to state and local taxation in some
states.
Taxable REIT Subsidiaries
A "taxable REIT subsidiary" is a corporation in which we directly or
indirectly own stock and that elects with us to be treated as a taxable REIT
subsidiary under Section 856(l) of the Code. In addition, if one of our taxable
REIT subsidiaries owns, directly or indirectly, securities representing more
than 35% of the vote or value of a subsidiary corporation, that subsidiary will
automatically be treated as a taxable REIT subsidiary of ours. A taxable REIT
subsidiary is a corporation subject to federal income tax, and state and local
income tax where applicable, as a regular "C" corporation. No more than 20% of
our assets may consist of the securities of one or more taxable REIT
subsidiaries.
Generally, a taxable REIT subsidiary can perform impermissible tenant
services without causing us to receive impermissible tenant services income
under the REIT income tests. However, several provisions regarding the
arrangements between a REIT and its taxable REIT subsidiaries ensure that a
taxable REIT subsidiary will be subject to an appropriate level of federal
income taxation. For example, a taxable REIT subsidiary is limited in its
ability to deduct interest payments made to us. In addition, we will be
obligated to pay a 100% penalty tax on some payments that we receive or on
certain expenses deducted by the taxable REIT subsidiary if the economic
arrangements among us, our tenants and the taxable REIT subsidiary are not
comparable to similar arrangements among unrelated parties.
We have established a wholly owned taxable REIT subsidiary, EastGroup TRS,
Inc., for the purpose of developing and selling certain real property and we may
establish other taxable REIT subsidiaries in the future.
Income Tests
In order for us to maintain qualification as a REIT, two percentage tests
relating to the source of our gross income must be satisfied annually. First, at
least 75% of our gross income for a taxable year must be "qualifying income."
Qualifying income generally includes (1) rents from real property (except as
modified below); (2) interest on obligations collateralized by mortgages on, or
interests in, real property; (3) gains from the sale or other disposition of
interests in real property and
18
real estate mortgages, other than gain from property held primarily for sale to
customers in the ordinary course of its trade or business ("dealer property");
(4) dividends or other distributions on shares in other REITs, as well as gain
from the sale of such shares; (5) abatements and refunds of real property taxes;
(6) income from the operation, and gain from the sale, of property acquired at
or in lieu of a foreclosure of the mortgage collateralized by such property
("foreclosure property"); (7) commitment fees received for agreeing to make
loans collateralized by mortgages on real property or to purchase or lease real
property; and (8) income from temporary investments in stock or debt instruments
purchased with the proceeds of new capital raised by us. Second, at least 95% of
our gross income (excluding gross income from prohibited transactions) for each
taxable year must be derived from such real property investments described
above, dividends, interest and gain from the sale or disposition of stock or
other securities that are not dealer property, or from any combination of the
foregoing. Moreover, beginning in 2005, gross income from certain transactions
entered into by us to hedge indebtedness we incur to acquire or carry real
estate assets and that are properly and timely identified as hedging
transactions is not included in gross income for purposes of the 95% income
test, but will be continued to be taken into account as nonqualifying income for
purposes of the 75% income test. To the extent that we hedge with other types of
financial instruments, or in other situations, it is not entirely clear how the
income from those transactions will be treated for purposes of the income tests.
We intend to structure any hedging transactions in a manner that does not
jeopardize our status as a REIT.
Rents received by us will qualify as "rents from real property" in
satisfying the above gross income tests only if several conditions are met.
First, the amount of rent must not be based in whole or in part on the income or
profits of any person. However, amounts received or accrued generally will not
be excluded from "rents from real property" solely by reason of being based on a
fixed percentage or percentages of receipts or sales.
Second, rents received from a tenant will not qualify as "rents from real
property" if we, or a direct or indirect owner of 10% or more of our stock,
actually or constructively owns 10% or more of such tenant. We may, however,
lease our properties to a taxable REIT subsidiary and rents received from that
subsidiary will not be disqualified from being "rents from real property" by
reason of our ownership interest in the subsidiary if at least 90% of the
property in question is leased to unrelated tenants and the rent paid by the
taxable REIT subsidiary is substantially comparable to the rent paid by the
unrelated tenants for comparable space. However, if we own more than 50% of the
vote or value of the taxable REIT subsidiary, and the rent payable is increased
pursuant to a lease renegotiation, then the increase in rent will not be treated
as qualifying rent.
Third, if rent attributable to personal property that is leased in
connection with a lease of real property is greater than 15% of the total rent
received under the lease, then the portion of rent attributable to such personal
property will not qualify as "rents from real property." Under prior law, this
15% test was based on the relative adjusted tax basis of both the real and
personal property. For taxable years beginning after December 31, 2000, the test
is based on the relative fair market value of the real and personal property.
Generally, for rents to qualify as "rents from real property" for the
purposes of the gross income tests, we are only allowed to provide services that
are both "usually or customarily rendered" in connection with the rental of real
property and not otherwise considered "rendered to
19
the occupant." Income received from any other service will be treated as
"impermissible tenant service income" unless the service is provided through an
independent contractor that bears the expenses of providing the services and
from whom we derive no revenue or through a taxable REIT subsidiary, subject to
specified limitations. The amount of impermissible tenant service income we
receive is deemed to be the greater of the amount actually received by us or
150% of our direct cost of providing the service. If the impermissible tenant
service income exceeds 1% of our total income from a property, then all of the
income from that property will fail to qualify as rents from real property. If
the total amount of impermissible tenant service income from a property does not
exceed 1% of our total income from that property, the income will not cause the
rent paid by tenants of that property to fail to qualify as rents from real
property, but the impermissible tenant service income itself will not qualify as
rents from real property.
Our investment in commercial and industrial properties generally gives rise
to rental income that is qualifying income for purposes of the 75% and 95% gross
income tests. We do not receive any rent that is based on the income or profits
of any person. In addition, we do not own, directly or indirectly, 10% or more
of any tenant (other than, perhaps, a tenant that is a taxable REIT subsidiary
where other requirements are satisfied). Furthermore, we believe that any
personal property rented in connection with our facilities is well within the
15% restriction. Moreover, we do not provide services, other than within the 1%
de minimis exception described above, to our tenants that are not customarily
furnished or rendered in connection with the rental of property, other than
through an independent contractor or a taxable REIT subsidiary. Finally, we
anticipate that income on our other investments will not result in our failing
the 75% or 95% gross income test for any year.
Beginning in 2005, if we fail to satisfy one or both of the 75% or 95%
gross income tests, we may nevertheless qualify as a REIT for such year if we
are entitled to relief under certain provisions of the Code. These relief
provisions generally will be available if our failure to meet such tests was due
to reasonable cause and not due to willful neglect, and if we timely file a
schedule describing each item of our gross income in accordance with Treasury
Regulations. It is not possible, however, to state whether in all circumstances
we would be entitled to the benefit of these relief provisions. As discussed
above in "-- Taxation of Our Company as a REIT," even if these relief provisions
were to apply, a tax would be imposed with respect to the excess net income.
Beginning in 2005, if we fail to satisfy one or both of the gross income
tests, we nevertheless may qualify as a REIT for that year if we qualify for
relief under certain provisions of the federal income tax laws. Those relief
provisions generally will be available if:
o our failure to meet such tests was due to reasonable cause and not due
to willful neglect;
o we attach a schedule of the sources of our gross income to our tax
return; and
o any incorrect information on the schedule was not due to fraud with
intent to evade tax.
We cannot predict, however, whether in all circumstances we would qualify
for the relief provisions. In addition, as discussed above in "-- Taxation of
Our Company as a REIT," even
20
if the relief provisions were to apply, we would incur a 100% tax on the gross
income attributable to the greater of (i) the amount by which we fail the 75%
gross income test and (ii) the amount by which 90% (95% for 2005 and later
taxable years), in each case, of our gross income exceeds the amount of
qualifying income under the 95% gross income test, multiplied in either case by
a fraction intended to reflect our profitability.
Asset Tests
At the close of each quarter of our taxable year, we must satisfy six tests
relating to the nature of our assets.
1. At least 75% of the value of our total assets must be represented by
"real estate assets," cash, cash items and government securities. Our real
estate assets include, for this purpose, our allocable share of real estate
assets held by the partnerships in which we own an interest, and the
noncorporate subsidiaries of these partnerships, as well as stock or debt
instruments held for less than one year purchased with the proceeds of an
offering of our shares or a public offering of our long-term debt.
2. Not more than 25% of our total assets may be represented by securities,
other than those in the 75% asset class.
3. The value of any one nongovernment issuer's securities owned by us may
not exceed 5% of the value of our total assets.
4. We may not own more than 10% of any one issuer's outstanding voting
securities.
5. We may not own more than 10% of the total value of the outstanding
securities of any one issuer.
6. Not more than 20% of our total assets may be represented by the
securities of one or more taxable REIT subsidiaries.
For purposes of these asset tests, the securities of qualified REIT
subsidiaries are not taken into account, and any assets owned by our qualified
REIT subsidiaries are treated as owned directly by us.
For purposes of these asset tests, the term "securities" does not include
stock in another REIT, equity or debt securities of a qualified REIT subsidiary
or taxable REIT subsidiary, mortgage loans that constitute real estate assets or
equity interests in a partnership or any entity that is disregarded for federal
income tax purposes. For purposes of the 10% value test, debt instruments issued
by a partnership are not classified as "securities" to the extent of our
interest as a partner in such partnership (based on our proportionate share of
the partnership's equity interests and certain debt securities) or if at least
75% of the partnership's gross income, excluding income from prohibited
transactions, is qualifying income for purposes of the 75% gross income test.
For purposes of the 10% value test, the term "securities" also does not include
securities issued by another REIT, certain "straight debt" securities (for
example, qualifying debt securities of a
21
corporation of which we own no equity
interest), loans to individuals or estates, and accrued obligations to pay rent.
With respect to each issuer in which we currently own an interest that does
not qualify as a REIT, a qualified REIT subsidiary or a taxable REIT subsidiary,
we believe that our pro rata share of the value of the securities, including
unsecured debt, of any such issuer does not exceed 5% of the total value of our
assets and that we comply with the 10% voting securities limitation and 10%
value limitation (taking into account the "straight debt" exceptions with
respect to certain issuers). In addition, we believe that our securities of
taxable REIT subsidiaries do not exceed 20% of the value of our total assets.
With respect to our compliance with each of these asset tests, however, we
cannot provide any assurance that the Internal Revenue Service might not
disagree with our determination.
We will monitor the status of our assets for purposes of the various asset
tests and will manage our portfolio in order to comply at all times with such
tests. If we fail to satisfy the asset tests at the end of a calendar quarter,
we will not lose our REIT status if one of the following exceptions applies:
o we satisfied the asset tests at the end of the preceding calendar
quarter, and the discrepancy between the value of our assets and the asset test
requirements arose from changes in the market values of our assets and was not
wholly or partly caused by the acquisition of one or more nonqualifying assets;
or
o we eliminate any discrepancy within 30 days after the close of the
calendar quarter in which it arose.
Moreover, if we fail to satisfy the asset tests at the end of a calendar
quarter during a taxable year beginning in 2005, we will not lose our REIT
status if one of the following additional exceptions applies:
o De Minimis Exception. The failure is due to a violation of the 5% or 10%
asset tests referenced above and is "de minimis" (for this purpose, a "de
minimis" failure is one that arises from our ownership of assets the total value
of which does not exceed the lesser of 1% of the total value of our assets at
the end of the quarter in which the failure occurred and $10 million), and we
either dispose of the assets that caused the failure or otherwise satisfy the
asset tests within 6 months after our identification of the failure; or
o Non De Minimis Exception. All of the following requirements are
satisfied: (i) the failure is not "de minimis" as defined above, (ii) the
failure is due to reasonable cause and not willful neglect, (iii) we file a
schedule in accordance with Treasury Regulations providing a description of each
asset that caused the failure, (iv) we either dispose of the assets that caused
the failure or otherwise satisfy the asset tests within 6 months after our
identification of the failure, and (v) we pay an excise tax as described in "--
Taxation of Our Company as a REIT."
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Annual Distribution Requirements
In order to qualify as a REIT, we are required to distribute dividends
(other than capital gain dividends) to our stockholders in an amount at least
equal to (i) the sum of (a) 90% of our "REIT taxable income" (computed without
regard to the dividends paid deduction and our net capital gain) and (b) 90% of
the net income (after tax), if any, from foreclosure property, minus (ii) the
sum of certain items of noncash income over 5% of our REIT taxable income. Such
distributions generally must be paid in the taxable year to which they relate.
Dividends may be paid in the following year in two circumstances. First,
dividends may be declared in the following year if the dividends are declared
before we timely file our tax return for the year and if made before the first
regular dividend payment after such declaration. Second, if we declare a
dividend in October, November or December of any year with a record date in one
of these months and pay the dividend on or before January 31 of the following
year, we will be treated as having paid the dividend on December 31 of the year
in which the dividend was declared. To the extent that we do not distribute all
of our net capital gain or distribute at least 90%, but less than 100%, of our
"REIT taxable income," as adjusted, we will be subject to tax on the
nondistributed amount at regular capital gains and ordinary corporate tax rates.
Furthermore, if we should fail to distribute during each calendar year at least
the sum of (i) 85% of our REIT ordinary income for such year; (ii) 95% of our
REIT capital gain net income for such year; and (iii) any undistributed taxable
income from prior periods, we will be subject to a 4% excise tax on the excess
of such required distribution over the amounts actually distributed.
We may elect to retain and pay tax on our net long-term capital gains and
require our stockholders to include their proportionate share of such
undistributed net capital gains in their income. If we make such election, our
stockholders would receive a tax credit attributable to their share of the
capital gains tax paid by us, and would receive an increase in the basis of
their shares in us in an amount equal to the stockholder's share of the
undistributed net long-term capital gain reduced by the amount of the credit.
Further, any undistributed net long-term capital gains that are included in the
income of our stockholders pursuant to this rule will be treated as distributed
for purposes of the 4% excise tax.
We have made and intend to continue to make timely distributions sufficient
to satisfy the annual distribution requirements. It is possible, however, that
we, from time to time, may not have sufficient cash or liquid assets to meet the
distribution requirements due to timing differences between the actual receipt
of income and actual payment of deductible expenses and the inclusion of such
income and deduction of such expenses in arriving at our taxable income, or if
the amount of nondeductible expenses such as principal amortization or capital
expenditures exceeds the amount of noncash deductions. In the event that such
timing differences occur, in order to meet the distribution requirements, we may
arrange for short term, or possibly long term, borrowing to permit the payment
of required dividends. If the amount of nondeductible expenses exceeds noncash
deductions, we may refinance our indebtedness to reduce principal payments and
may borrow funds for capital expenditures.
Under certain circumstances, we may be able to rectify a failure to meet
the distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year that may be included in our deduction for dividends
paid for the earlier year. Thus, we may avoid
23
being taxed on amounts distributed as deficiency dividends; however, we will be
required to pay interest to the Internal Revenue Service based upon the amount
of any deduction taken for deficiency dividends.
Prohibited Transaction Rules
A REIT will incur a 100% penalty tax on the net income derived from a sale
or other disposition of property, other than foreclosure property, that the REIT
holds primarily for sale to customers in the ordinary course of a trade or
business (a "prohibited transaction"). Under a safe harbor provision in the
Internal Revenue Code, however, income from certain sales of real property held
by the REIT for at least four years at the time of the disposition will not be
treated as income from a prohibited transaction. We believe that none of our
assets is held for sale to customers and that a sale of any of our assets would
not be in the ordinary course of its business. Whether a REIT holds an asset
"primarily for sale to customers in the ordinary course of a trade or business"
depends, however, on the facts and circumstances in effect from time to time,
including those related to a particular asset. Although we will attempt to
ensure that none of our sales of property will constitute a prohibited
transaction, we cannot assure investors that none of such sales will be so
treated.
Failure to Qualify
Beginning in 2005, if we fail to qualify as a REIT and such failure is not
an asset test or income test failure, we generally will be eligible for a relief
provision if the failure is due to reasonable cause and not willful neglect and
we pay a penalty of $50,000 with respect to such failure.
If we fail to qualify for taxation as a REIT in any taxable year and no
relief provisions apply, we will be subject to tax (including any applicable
alternative minimum tax) on our taxable income at regular corporate rates.
Distributions to stockholders in any year in which we fail to qualify will not
be deductible by us, nor will such distributions be required to be made. In such
event, to the extent of our current and accumulated earnings and profits, all
distributions to stockholders will be taxable as ordinary income, and, subject
to certain limitations in the Code, corporate distributees may be eligible for
the dividends received deduction. Unless entitled to relief under specific
statutory provisions, we will also be disqualified from taxation as a REIT for
the four taxable years following the year during which qualification was lost.
It is not possible to state whether in all circumstances we would be entitled to
such statutory relief.
Tax Aspects of Our Investments in Partnerships
General. Many of our investments are held through subsidiary partnerships
and limited liability companies. This structure may involve special tax
considerations. These tax considerations include the following:
1. the status of each subsidiary partnership and limited liability company
taxed as a partnership (as opposed to an association taxable as a corporation)
for income tax purposes; and
2. the taking of actions by any of the subsidiary partnerships or limited
liability companies that could adversely affect our qualification as a REIT.
24
We believe that each of the subsidiary partnerships and each of the limited
liability companies that are not disregarded entities for federal income tax
purposes will be treated for tax purposes as partnerships (and not as
associations taxable as corporations). If any of the partnerships were to be
treated as a corporation, it would be subject to an entity level tax on its
income. In such a situation, the character of our assets and items of gross
income would change, which could preclude us from satisfying the asset tests and
possibly the income tests, and in turn prevent us from qualifying as a REIT. In
addition, if any of the partnerships were treated as a corporation, it is likely
that we would hold more than 10% of the voting power or value of the entity and
would fail to qualify as a REIT. See "-- Asset Tests."
A REIT that is a partner in a partnership will be deemed to own its
proportionate share of the assets of the partnership and will be deemed to earn
its proportionate share of the partnership's income. In addition, the assets and
gross income of the partnership retain the same character in the hands of the
REIT for purposes of the gross income and asset tests applicable to REITs. Thus,
our proportionate share of the assets and items of income of each subsidiary
partnership and limited liability company that is treated as a partnership for
federal income tax purposes is treated as our assets and items of income for
purposes of applying the asset and income tests. We have sufficient control over
all of the subsidiaries that are treated as partnerships for federal income tax
purposes to protect our REIT status and intend to operate them in a manner that
is consistent with the requirements for our qualification as a REIT.
Taxation of Stockholders
Taxation of Taxable U.S. Stockholders. As used in the remainder of this
discussion, the term "U.S. Stockholder" means a beneficial owner of equity stock
that is for United States federal income tax purposes:
1. a citizen or resident, as defined in Section 7701(b) of the Code, of the
United States;
2. a corporation or partnership, or other entity treated as a corporation
or partnership for federal income tax purposes, created or organized in or under
the laws of the United States or any state or the District of Columbia;
3. an estate the income of which is subject to United States federal income
taxation regardless of its source; or
4. in general, a trust subject to the primary supervision of a United
States court and the control of one or more United States persons.
If an entity treated as a partnership for U.S. federal income tax purposes
holds common stock, the tax treatment of a partner in the partnership will
generally depend upon the status of the partner and the activities of the
partnership. If the investor is a partner of a partnership holding common stock,
the investor should consult his or her tax advisor regarding the tax
consequences of the ownership and disposition of common stock. Generally, in the
case of a partnership that holds
25
our stock, any partner that would be a U.S. Stockholder if it held the stock
directly is also a U.S. Stockholder.
As long as we qualify as a REIT, distributions made to our taxable U.S.
Stockholders out of current or accumulated earnings and profits (and not
designated as capital gain dividends or retained capital gains) will be taken
into account by them as ordinary income, and corporate stockholders will not be
eligible for the dividends received deduction as to such amounts. Distributions
in excess of current and accumulated earnings and profits will not be taxable to
a stockholder to the extent that they do not exceed the adjusted basis of such
stockholder's stock, but rather will reduce the adjusted basis of such shares
(but not below zero) as a return of capital. To the extent that such
distributions exceed the adjusted basis of a stockholder's stock, they will be
included in income as long-term capital gain (or short-term capital gain if the
shares have been held for one year or less), assuming the shares are a capital
asset in the hands of the stockholder. In addition, any dividend declared by us
in October, November or December of any year payable to a stockholder of record
on a specific date in any such month shall be treated as both paid by us and
received by the stockholder on December 31 of such year, provided that the
dividend is actually paid by us during January of the following calendar year.
For purposes of determining what portion of a distribution is attributable to
current or accumulated earnings and profits, earnings and profits will first be
allocated to distributions made to holders of the shares of preferred stock.
Stockholders may not include in their individual income tax returns any net
operating losses or capital losses of ours.
In general, any gain or loss realized upon a taxable disposition of shares
by a stockholder who is not a dealer in securities will be treated as a
long-term capital gain or loss if the shares have been held for more than one
year, otherwise as short-term capital gain or loss. However, any loss upon a
sale or exchange of stock by a stockholder who has held such shares for six
months or less (after applying certain holding period rules) will be treated as
long-term capital loss to the extent of distributions from us required to be
treated by such stockholder as long-term capital gain.
Distributions that we properly designate as capital gain dividends will be
taxable to stockholders as gains (to the extent that they do not exceed our
actual net capital gain for the taxable year) from the sale or disposition of a
capital asset held for greater than one year. If we designate any portion of a
dividend as a capital gain dividend, a U.S. Stockholder will receive an Internal
Revenue Service Form 1099-DIV indicating the amount that will be taxable to the
stockholder as capital gain. However, stockholders that are corporations may be
required to treat up to 20% of certain capital gain dividends as ordinary
income. A portion of capital gain dividends received by noncorporate taxpayers
may be subject to tax at a 25% rate to the extent attributable to certain gains
realized on the sale of real property. In addition, noncorporate taxpayers are
generally taxed at a maximum rate of 15% on net long-term capital gain
(generally, the excess of net long-term capital gain over net short-term capital
loss) attributable to gains realized on the sale of property held for greater
than one year.
Distributions we make and gain arising from the sale or exchange by a
stockholder of shares of our stock will not be treated as passive activity
income, and, as a result, stockholders generally will not be able to apply any
"passive losses" against such income or gain. Distributions we make (to the
extent they do not constitute a return of capital) generally will be treated as
investment income for purposes of computing the investment interest limitation.
Gain arising from the sale or
26
other disposition of our stock (or distributions treated as such) will not be
treated as investment income under certain circumstances.
Upon any taxable sale or other disposition of our stock, a U.S. Stockholder
will recognize gain or loss for federal income tax purposes on the disposition
of our stock in an amount equal to the difference between
o the amount of cash and the fair market value of any property received on
such disposition; and
o the U.S. Stockholder's adjusted basis in such stock for tax purposes.
Gain or loss will be capital gain or loss if the stock has been held by the
U.S. Stockholder as a capital asset. The applicable tax rate will depend on the
stockholder's holding period in the asset (generally, if an asset has been held
for more than one year it will produce long-term capital gain) and the
stockholder's tax bracket. A U.S. Stockholder who is an individual or an estate
or trust and who has long-term capital gain or loss will be subject to a maximum
capital gain rate of 15%. U.S. Stockholders that acquire, or are deemed to
acquire, stock after December 31, 2000 and who hold the stock for more than five
years and certain low income taxpayers may be eligible for a lower long-term
capital gains rate. However, to the extent that the capital gain realized by a
noncorporate stockholder on the sale of REIT stock corresponds to the REIT's
"unrecaptured Section 1250 gain," such gain would be subject to tax at a rate of
25%. Stockholders are advised to consult with their own tax advisors with
respect to their capital gain tax liability.
The Jobs and Growth Tax Relief Reconciliation Act of 2003 reduced the
maximum individual tax rate for long-term capital gains generally from 20% to
15% (for sales occurring after May 6, 2003 through December 31, 2008) and for
dividends generally from 38.6% to 15% (for tax years from 2003 through 2008).
The Tax Increase Prevention and Reconciliation Act of 2005 extended the lower
capital gains and dividend rates through taxable years beginning on or before
December 31, 2010. In 2011, the maximum tax rate on long-term capital gains will
return to 20% and the maximum rate on dividends will be 39.6%. Because we are
not generally subject to federal income tax on the portion of our REIT taxable
income or capital gains distributed to our stockholders, our dividends will
generally not be eligible for the 15% tax rate on dividends. As a result, our
ordinary REIT dividends will continue to be taxed at the higher tax rates
applicable to ordinary income. However, the 15% tax rate for long-term capital
gains and dividends will generally apply to:
1. your long-term capital gains, if any, recognized on the disposition of
our shares;
2. our distributions designated as long-term capital gain dividends (except
to the extent attributable to "unrecaptured Section 1250 gain," in which case
such distributions would continue to be subject to a 25% tax rate);
3. our dividends attributable to dividends received by us from non-REIT
corporations, such as taxable REIT subsidiaries; and
27
4. our dividends to the extent attributable to income upon which we have
paid corporate income tax (e.g., to the extent that we distribute less than 100%
of our taxable income).
Economic Accrual of Redemption Premium on Preferred Stock. For federal
income tax purposes, if a corporation issues preferred stock that may be
redeemed at a price that is more than a de minimis amount higher than its issue
price, the difference is treated as a "redemption premium" that is taxable to
the holder on an annual economic accrual basis. If a U.S. Stockholder recognizes
income as a result of redemption premium on the preferred stock, the holder's
tax basis in the preferred stock will increase by the amount included in the
holder's gross income.
Taxation of Tax-Exempt Stockholders. Provided that a tax-exempt stockholder
has not held its stock as "debt financed property" within the meaning of the
Code, the dividend income from us will not be unrelated business taxable income,
referred to as UBTI, to a tax-exempt stockholder. Similarly, income from the
sale of stock will not constitute UBTI unless the tax-exempt stockholder has
held its stock as debt financed property within the meaning of the Code or has
used the stock in a trade or business. However, for a tax-exempt stockholder
that is a social club, voluntary employee benefit association, supplemental
unemployment benefit trust, or qualified group legal services plan exempt from
federal income taxation under Sections 501(c)(7), (c)(9), (c)(17) and (c)(20) of
the Code, respectively, or a single parent title-holding corporation exempt
under Section 501(c)(2) of the Code the income of which is payable to any of the
aforementioned tax-exempt organizations, income from an investment in us will
constitute UBTI unless the organization properly sets aside or reserves such
amounts for purposes specified in the Code. These tax exempt stockholders should
consult their own tax advisors concerning these "set aside" and reserve
requirements.
A "qualified trust" (defined to be any trust described in Section 401(a) of
the Code and exempt from tax under Section 501(a) of the Code) that holds more
than 10% of the value of the shares of a REIT may be required, under certain
circumstances, to treat a portion of distributions from the REIT as UBTI. This
requirement will apply for a taxable year only if (i) the REIT satisfies the
requirement that not more than 50% of the value of its shares be held by five or
fewer individuals (the "five or fewer requirement") only by relying on a special
"look through" rule under which shares held by qualified trust stockholders are
treated as held by the beneficiaries of such trusts in proportion to their
actuarial interests therein; and (ii) the REIT is "predominantly held" by
qualified trusts. A REIT is "predominantly held" by qualified trusts if either
(i) a single qualified trust holds more than 25% of the value of the REIT
shares, or (ii) one or more qualified trusts, each owning more than 10% of the
value of the REIT shares, hold in the aggregate more than 50% of the value of
the REIT shares. If the foregoing requirements are met, the percentage of any
REIT dividend treated as UBTI to a qualified trust that owns more than 10% of
the value of the REIT shares is equal to the ratio of (i) the UBTI earned by the
REIT (computed as if the REIT were a qualified trust and therefore subject to
tax on its UBTI) to (ii) the total gross income (less certain associated
expenses) of the REIT for the year in which the dividends are paid. A de minimis
exception applies where the ratio set forth in the preceding sentence is less
than 5% for any year.
The provisions requiring qualified trusts to treat a portion of REIT
distributions as UBTI will not apply if the REIT is able to satisfy the five or
fewer requirement without relying on the look through rule. The restrictions on
ownership of stock in our charter should prevent
28
application of the foregoing provisions to qualified trusts purchasing our
stock, absent a waiver of the restrictions by the board of directors.
Taxation of Non-U.S. Stockholders. The rules governing U.S. federal income
taxation of nonresident alien individuals, foreign corporations, foreign
partnerships and other foreign stockholders (collectively, "Non-U.S.
Stockholders") are complex, and no attempt will be made herein to provide more
than a limited summary of such rules. The discussion does not consider any
specific facts or circumstances that may apply to a particular Non-U.S.
Stockholder. Prospective Non-U.S. Stockholders should consult with their own tax
advisors to determine the impact of U.S. federal, state and local income tax
laws with regard to an investment in our common stock, including any reporting
requirements.
Distributions that are not attributable to gain from sales or exchanges by
us of U.S. real property interests and not designated by us as capital gain
dividends or retained capital gains will be treated as dividends of ordinary
income to the extent that they are made out of our current or accumulated
earnings and profits. Such distributions ordinarily will be subject to a
withholding tax equal to 30% of the gross amount of the distribution unless an
applicable tax treaty reduces such rate. However, if income from the investment
in our stock is treated as effectively connected with the Non-U.S. Stockholder's
conduct of a U.S. trade or business, the Non-U.S. Stockholder generally will be
subject to a tax at graduated rates in the same manner as U.S. Stockholders are
taxed with respect to such dividends (and may also be subject to a branch
profits tax of up to 30% if the stockholder is a foreign corporation). We expect
to withhold U.S. federal income tax at the rate of 30% on the gross amount of
any dividends paid to a Non-U.S. Stockholder that are not designated as capital
gain dividends, unless (i) a lower treaty rate applies and the Non-U.S.
Stockholder files an IRS Form W-8BEN evidencing eligibility for that reduced
rate with us or (ii) the Non-U.S. Stockholder files an IRS Form W-8ECI with us
claiming that the distribution is income treated as effectively connected to a
U.S. trade or business. Such forms shall be filed every three years unless the
information on the form changes before that date.
Distributions in excess of our current and accumulated earnings and profits
will not be taxable to a stockholder to the extent that they do not exceed the
adjusted basis of the stockholder's stock, but rather will reduce the adjusted
basis of such shares. To the extent that such distributions exceed the adjusted
basis of a Non-U.S. Stockholder's shares, they will give rise to tax liability
if the Non-U.S. Stockholder would otherwise be subject to tax on any gain from
the sale or disposition of his or her stock as described below. We may be
required to withhold U.S. federal income tax at the rate of at least 10% on
distributions to Non-U.S. Stockholders that are not paid out of current or
accumulated earnings and profits unless the Non-U.S. Stockholders provide us
with withholding certificates evidencing their exemption from withholding tax.
If it cannot be determined at the time that such a distribution is made whether
or not such distribution will be in excess of current and accumulated earnings
and profits, the distribution will be subject to withholding at the rate
applicable to dividends. However, the Non-U.S. Stockholder may seek a refund of
such amounts from the Service if it is subsequently determined that such
distribution was, in fact, in excess of our current and accumulated earnings and
profits.
Distributions that are attributable to gain from sales or exchanges by us
of U.S. real property interests will be taxed to a Non-U.S. Stockholder under
the provisions of the Foreign
29
Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under FIRPTA, these
distributions are taxed to a Non-U.S. Stockholder as if such gain were
effectively connected with a U.S. business. Thus, Non-U.S. Stockholders will be
taxed on such distributions at the normal capital gain rates applicable to U.S.
Stockholders (subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien individuals). Also,
distributions subject to FIRPTA may be subject to a 30% branch profits tax in
the hands of a corporate Non-U.S. Stockholder not entitled to treaty relief or
exemption. We are required by applicable Treasury Regulations to withhold 35% of
any distribution that could be designated by us as a capital gain dividend. This
amount is creditable against the Non-U.S. Stockholder's FIRPTA tax liability.
Beginning in 2005, a Non-U.S. stockholder that owns no more than 5% of our
common stock at all times during such taxable year will not be subject to 35%
FIRPTA withholding with respect to distributions that are attributable to gain
from our sale or exchange of U.S. real property interests, provided that our
common stock continues to be regularly traded on an established securities
market. Instead, any distributions made to such Non-U.S. Stockholder will be
subject to the general withholding rules discussed above in "-- Taxation of
Non-U.S. Stockholders," which generally impose a withholding tax equal to 30% of
the gross amount of each distribution (unless reduced by treaty).
Gain recognized by a Non-U.S. Stockholder upon the sale or exchange of our
stock generally would not be subject to United States taxation unless:
o the investment in our stock is effectively connected with the Non-U.S.
Stockholder's U.S. trade or business, in which case the Non-U.S. Stockholder
will be subject to the same treatment as domestic stockholders with respect to
any gain;
o the Non-U.S. Stockholder is a non-resident alien individual who is
present in the United States for 183 days or more during the taxable year and
has a tax home in the United States, in which case the non-resident alien
individual will be subject to a 30% tax on the individual's net capital gains
for the taxable year; or
o our stock constitutes a U.S. real property interest within the meaning of
FIRPTA, as described below.
Our stock will not constitute a U.S. real property interest if we are a
domestically-controlled REIT. We will be a domestically-controlled REIT if, at
all times during a specified testing period, less than 50% in value of our stock
is held directly or indirectly by Non-U.S. Stockholders.
We believe that, currently, we are a domestically controlled REIT and,
therefore, that the sale of our stock would not be subject to taxation under
FIRPTA. Because our stock is publicly traded, however, we cannot guarantee that
we are or will continue to be a domestically-controlled REIT.
Even if we do not qualify as a domestically-controlled REIT at the time a
Non-U.S. Stockholder sells our stock, gain arising from the sale still would not
be subject to FIRPTA tax if:
30
o the class or series of shares sold is considered regularly traded under
applicable Treasury Regulations on an established securities market, such as the
NYSE; and
o the selling Non-U.S. Stockholder owned, actually or constructively, 5% or
less in value of the outstanding class or series of stock being sold throughout
the five-year period ending on the date of the sale or exchange.
If gain on the sale or exchange of our stock were subject to taxation under
FIRPTA, the Non-U.S. Stockholder would be subject to regular U.S. federal income
tax with respect to any gain in the same manner as a taxable U.S. Stockholder,
subject to any applicable alternative minimum tax and special alternative
minimum tax in the case of non-resident alien individuals.
State and Local Taxes. We and our stockholders may be subject to state or
local taxation in various state or local jurisdictions, including those in which
we or they transact business or reside (although U.S. Stockholders who are
individuals generally should not be required to file state income tax returns
outside of their state of residence with respect to our operations and
distributions). The state and local tax treatment of us and our stockholders may
not conform to the federal income tax consequences discussed above.
Consequently, prospective stockholders should consult their own tax advisors
regarding the effect of state and local tax laws on an investment in the common
stock.
Backup Withholding Tax and Information Reporting
U.S. Stockholders. In general, information-reporting requirements will
apply to certain U.S. Stockholders with regard to payments of dividends on our
stock and payments of the proceeds of the sale of our stock, unless an exception
applies.
The payor will be required to withhold tax on such payments at the rate of
28% if (i) the payee fails to furnish a taxpayer identification number, or TIN,
to the payor or to establish an exemption from backup withholding, or (ii) the
Internal Revenue Service notifies the payor that the TIN furnished by the payor
is incorrect.
In addition, a payor of dividends on our stock will be required to withhold
tax at a rate of 28% if (i) there has been a notified payee under-reporting with
respect to interest, dividends or original issue discount described in Section
3406(c) of the Code, or (ii) there has been a failure of the payee to certify
under the penalty of perjury that the payee is not subject to backup withholding
under the Code.
Some holders, including corporations, may be exempt from backup
withholding. Any amounts withheld under the backup withholding rules from a
payment to a holder will be allowed as a credit against the holder's U.S.
federal income tax and may entitle the holder to a refund, provided that the
required information is furnished to the Internal Revenue Service.
Non-U.S. Stockholders. Generally, information reporting will apply to
payments of dividends on our stock, interest, including original issue discount,
and backup withholding as described above for a U.S. Stockholder, unless the
payee certifies that it is not a U.S. person or otherwise establishes an
exemption.
31
The payment of the proceeds from the disposition of our stock to or through
the U.S. office of a U.S. or foreign broker will be subject to information
reporting and backup withholding as described above for U.S. Stockholders unless
the Non-U.S. Stockholder satisfies the requirements necessary to be an exempt
Non-U.S. Stockholder or otherwise qualifies for an exemption. The proceeds of a
disposition by a Non-U.S. Stockholder of our stock to or through a foreign
office of a broker generally will not be subject to information reporting or
backup withholding. However, if the broker is a U.S. person, a controlled
foreign corporation for U.S. tax purposes, a foreign person 50% or more of whose
gross income from all sources for specified periods is from activities that are
effectively connected with a U.S. trade or business, a foreign partnership if
partners who hold more than 50% of the interests in the partnership are U.S.
persons, or a foreign partnership that is engaged in the conduct of a trade or
business in the U.S., then information reporting generally will apply as though
the payment was made through a U.S. office of a U.S. or foreign broker.
Applicable Treasury Regulations provide presumptions regarding the status
of holders when payments to the holders cannot be reliably associated with
appropriate documentation provided to the payor. Under these Treasury
Regulations, some holders are required to provide new certifications with
respect to payments made after December 31, 2000. Because the application of
these Treasury Regulations varies depending on the stockholder's particular
circumstances, you are advised to consult your tax advisor regarding the
information reporting requirements applicable to you.
Sunset of Tax Provisions and Possible Legislative or Other Actions Affecting Tax
Considerations
Several of the tax considerations described herein are subject to a sunset
provision. The sunset provision generally provides that for taxable years
beginning after December 31, 2010, certain provisions that are currently in the
Code will revert back to a prior version of those provisions. These provisions
include provisions related to qualified dividend income, the application of the
15% capital gains rate to qualified dividend income and other tax rates
described herein. The impact of this reversion is not discussed herein.
Consequently, prospective security holders should consult their own tax advisors
regarding the effect of sunset provisions on an investment in our stock.
In addition, prospective investors should recognize that the present U.S.
federal income tax treatment of an investment in our stock may be modified by
legislative, judicial or administrative action at any time, and that any such
action may affect investments and commitments previously made. The rules dealing
with U.S. federal income taxation are constantly under review by persons
involved in the legislative process and by the Internal Revenue Service and the
U.S. Treasury Department, resulting in revisions of Treasury Regulations and
revised interpretations of established concepts as well as statutory changes.
Revisions in U.S. federal tax laws and interpretations thereof could adversely
affect the tax consequences of an investment in our stock.
State and local taxes
Our Company and our stockholders may be subject to state or local taxation
in various jurisdictions, including those in which we or they transact business
or reside. The state and local tax
32
treatment of us and our stockholders may not conform to the U.S. federal income
tax consequences discussed above. Consequently, prospective stockholders should
consult their own tax advisors regarding the effect of state and local tax laws
on an investment in the offered securities.
PLAN OF DISTRIBUTION
We may sell the offered securities on a delayed or continuous basis through
agents, underwriters or dealers, directly to one or more purchasers, through a
combination of any of these methods of sale, or in any other manner, as provided
in the applicable prospectus supplement. We will identify the specific plan of
distribution, including any underwriters, dealers, agents or direct purchasers
and their compensation, in the applicable prospectus supplement.
LEGAL MATTERS
The legality of the securities offered hereby will be passed upon for us by
Jaeckle Fleischmann & Mugel, LLP, Buffalo, New York who may rely upon an opinion
of DLA Piper Rudnick Gray Cary US LLP, Baltimore, Maryland as to certain
Maryland law matters.
EXPERTS
The consolidated financial statements and schedule of EastGroup Properties,
Inc. as of December 31, 2005 and 2004, and for each of the years in the
three-year period ended December 31, 2005, and management's assessment of the
effectiveness of internal control over financial reporting as of December 31,
2005, have been incorporated by reference herein in reliance upon the reports of
KPMG LLP, independent registered public accounting firm, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission, or the SEC, a
registration statement under the Securities Act with respect to the securities
offered hereunder. As permitted by the SEC's rules and regulations, this
prospectus does not contain all of the information set forth in the registration
statement. For further information regarding our company and our equity stock,
please refer to the registration statement and the contracts, agreements and
other documents filed as exhibits to the registration statement. Additionally,
we file annual, quarterly and special reports, proxy statements and other
information with the SEC.
You may read and copy all or any portion of the registration statement or
any other materials that we file with the SEC at the SEC public reference room
at 100 F Street, N.E.,
33
Washington, D.C., 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference room. Our SEC filings, including the
registration statement, are also available to you on the SEC's web site
(www.sec.gov). We also have a web site (www.eastgroup.net) through which you may
access our SEC filings. In addition, you may view our SEC filings at the offices
of the New York Stock Exchange, Inc., which is located at 20 Broad Street, New
York, New York 10005. Our SEC filings are available at the NYSE because our
common stock is listed and traded on the NYSE under the symbol "EGP."
Information contained on our web site is not and should not be considered a
part of this prospectus.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to incorporate by reference the information contained in
documents that we file with them. The information incorporated by reference is
considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede this information.
We incorporate by reference the documents listed below and any future
filings we make with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act prior to the completion of this offering:
o Our Annual Report on Form 10-K for the year ended December 31, 2005;
o Our Quarterly Report on Form 10-Q for the three months ended March 31,
2006;
o Our Current Reports on Form 8-K filed June 6, 2006 and June 8, 2006;
and
o The description of our common stock contained in our registration
statement on Form 8-B, filed on June 5, 1997, and all amendments and
reports updating that description.
You may request a free copy of these filings (other than exhibits, unless
they are specifically incorporated by reference in the documents) by writing or
telephoning us at the following address and telephone number:
EastGroup Properties, Inc.
Attention: Chief Financial Officer
300 One Jackson Place
188 East Capitol Street
Jackson, MS 39201-2195
(601) 354-3555
34
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the expenses in connection with the issuance
and distribution of the securities being registered, other than underwriting
discounts and commissions. All of the amounts shown are estimates, except the
SEC registration fee which is deferred in accordance with Rules 456(b) and
457(r).
SEC Registration fee...................................... *
Accountants' fees and expenses............................ $15,000
Legal fees and expenses................................... $30,000
Printing fees............................................. $20,000
Miscellaneous............................................. $5,000
-----------
Total..................................................... $70,000
===========
----------
* In accordance with Rule 456(b) and as set forth in footnote (3) to the
"Calculation of Registration Fee" table on the front cover page of this
registration statement, we are deferring payment of the registration fee for the
securities offered by this prospectus, except for $15,583 that has already been
paid with respect to $250,000,000 aggregate initial offering price of securities
that were previously registered pursuant to Registration Statement No.
333-109769 filed by EastGroup Properties, Inc., and were not sold thereunder.
All expenses in connection with the issuance and distribution of the
securities being offered will be borne by EastGroup.
Item 15. Limitation of Liability and Indemnification of Directors and Officers.
Maryland law permits a corporation to include in its charter a provision
limiting the liability of its directors and officers to the corporation and its
stockholders for money damages, except for liability resulting from (i) actual
receipt of an improper benefit or profit in money, property or services or (ii)
active and deliberate dishonesty established by a final judgment and which is
material to the cause of action. The charter of EastGroup (the "Charter")
contains a provision which eliminates directors' and officers' liability to the
maximum extent permitted by Maryland law.
Maryland law requires a corporation (unless its charter provides otherwise,
which the Charter does not) to indemnify a director or officer who has been
successful in the defense of any proceeding to which he or she is made a party
by reason of his or her service in that capacity, or in the defense of any
issue, claim or matter in such a proceeding. The Charter contains a provision
authorizing and requiring EastGroup to indemnify, to the fullest extent
permitted by Maryland law, its directors and officers, whether serving EastGroup
or, at its request, any other entity.
II-1
Maryland law permits a corporation to indemnify its present and former
directors and officers, among others, against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection with
any proceeding unless it is established that:
o the act or omission was material to the matter giving rise to the
proceeding and (i) was committed in bad faith or (ii) was the result
of active and deliberate dishonesty,
o the director or officer actually received an improper personal benefit
in money, property or services, or
o in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful.
A court may order indemnification if it determines that the director or
officer is fairly and reasonably entitled to indemnification, even though the
prescribed standard of conduct is not met. However, indemnification for an
adverse judgment in a suit by us or in our right, or for a judgment of liability
on the basis that personal benefit was improperly received, is limited to
expenses.
In addition, Maryland law permits us to advance reasonable expenses to a
director or officer upon receipt of (i) a written affirmation by the director or
officer of his or her good faith belief that he or she has met the standard of
conduct necessary for indemnification and (ii) a written undertaking by him or
her or on his or her behalf to repay the amount paid or reimbursed if it is
ultimately determined that the standard of conduct was not met.
EastGroup has entered into an indemnification agreement (the
"Indemnification Agreement") with each of its directors and officers, and the
Board of Directors has authorized EastGroup to enter into an Indemnification
Agreement with each of the future directors and officers of EastGroup. While
Maryland law permits a corporation to indemnify its directors and officers; as
described above, it also authorizes other arrangements for indemnification of
directors and officers, including insurance. The Indemnification Agreement is
intended to provide indemnification to the maximum extent allowed by the laws of
the State of Maryland.
The Indemnification Agreement provides that EastGroup shall indemnify a
director or officer who is a party to the Agreement (the "Indemnitee") if he or
she was or is a party to or otherwise involved in any proceeding by reason of
the fact that he or she was or is a director or officer of EastGroup, or was or
is serving at its request in a certain capacity of another entity, against
losses incurred in connection with the defense or settlement of such proceeding.
The provisions in the Indemnification Agreement are similar to those provided
for under Maryland law. According to the Indemnification Agreement, however, an
Indemnitee who pays any amount in settlement of a proceeding without EastGroup's
written consent is not entitled to indemnification.
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Item 16. Exhibits.
1.1* Form of underwriting agreement.
3.1 Articles of Incorporation (incorporated by reference to Appendix B to the
Company's Proxy Statement for its Annual Meeting of Stockholders held on
June 5, 1997).
3.2 Bylaws of the Company (incorporated by reference to Appendix C to the
Company's Proxy Statement for its Annual Meeting of Stockholders held on
June 5, 1997).
3.3 Articles Supplementary of the Company relating to the Series C Preferred
Stock (incorporated by reference to Exhibit A to Exhibit 4 to the Company's
Form 8-A filed December 9, 1998).
3.4 Articles Supplementary of the Company relating to the 7.95% Series D
Cumulative Redeemable Preferred Stock (incorporated by reference to Exhibit
3 to the Company's Form 8-A filed June 6, 2003).
4.1 Rights Agreement dated as of December 3, 1998 between the Company and
Harris Trust and Savings Bank, as Rights Agent (incorporated by reference
to Exhibit 4 to the Company's Form 8-A filed December 9, 1998).
4.2 First Amendment to Rights Agreement dated December 20, 2004 between the
Company and Equiserve Trust Company, N.A.(now Computershare Limited), which
replaced Harris Trust and Savings Bank, as Rights Agent (incorporated by
reference to Exhibit 99.1 to the Company's Form 8-K filed December 22,
2004).
4.3* Form of Warrant Agreement.
5.1 Opinion of Jaeckle Fleischmann & Mugel, LLP regarding legality of
securities being registered (filed herewith).
8.1 Opinion of Jaeckle Fleischmann & Mugel, LLP regarding certain tax matters
(filed herewith).
12.1 Statement of computation of ratio of earnings to combined fixed charges and
preferred stock distributions (filed herewith).
23.1 Consent of KPMG LLP (filed herewith).
23.2 Consent of Jaeckle Fleischmann & Mugel, LLP (included in Exhibits 5 and 8).
24 Powers of Attorney (included on signature page).
----------------
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* To be filed, if applicable, subsequent to the effectiveness of this
registration statement by an amendment to the registration statement or
incorporated by reference pursuant to a Current Report on Form 8-K in
connection with the offering of securities.
Item 17. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
Registration Statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
provided, however, that paragraphs (a)(1)(i), (a)(1)(ii) and (a)(1)(iii) do not
apply if the information required to be included in a post-effective amendment
by those paragraphs is contained in reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
Registration Statement, or is contained in a form of prospectus filed pursuant
to Rule 424(b) that is part of the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, 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.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for the purpose of determining liability under the
Securities Act to any purchaser:
II-4
(i) Each prospectus filed by the Registrant pursuant to Rule
424(b)(3) shall be deemed to be part of the registration statement as
of the date the filed prospectus was deemed part of and included in
the registration statement; and
(ii) Each prospectus required to be filed pursuant to Rule
424(b)(2), (b)(5) or (b)(7) as part of a registration statement in
reliance on Rule 430B relating to an offering made pursuant to Rule
415(a)(1)(i), (vii) or (x) for the purpose of providing the
information required by Section 10(a) of the Securities Act shall be
deemed to be part of and included in the registration statement as of
the earlier of the date such form of prospectus is first used after
effectiveness or the date of the first contract of sale of securities
in the offering described in the prospectus. As provided in Rule 430B,
for liability purposes of the issuer and any person that is at that
date an underwriter, such date shall be deemed to be a new effective
date of the registration statement relating to the securities in the
registration statement to which the prospectus relates, and the
offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof. Provided, however, that no
statement made in a registration statement or prospectus that is part
of the registration statement or made in a document incorporated or
deemed incorporated by reference into the registration statement or
prospectus that is part of the registration statement will, as to a
purchaser with a time of contract of sale prior to such effective
date, supersede or modify any statement that was made in the
registration statement or prospectus that was part of the registration
statement or made in any such document immediately prior to such
effective date.
(5) That, for the purpose of determining liability of the Registrant
under the Securities Act to any purchaser in the initial distribution of
the securities, the undersigned Registrant undertakes that in a primary
offering of securities of the undersigned Registrant pursuant to this
registration statement, regardless of the underwriting method used to sell
the securities to the purchaser, if the securities are offered or sold to
such purchaser by means of any of the following communications, the
undersigned Registrant will be a seller to the purchaser and will be
considered to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned
Registrant relating to the offering required to be filed pursuant to
Rule 424;
(ii) Any free writing prospectus relating to the offering
prepared by or on behalf of the undersigned Registrant or used or
referred to by the undersigned Registrant;
(iii) The portion of any other free writing prospectus relating
to the offering containing material information about the undersigned
Registrant or its securities provided by or on behalf of the
undersigned Registrant; and
(iv) Any other communication that is an offer in the offering
made by the undersigned Registrant to the purchaser.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities
II-5
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act 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 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 whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Jackson, State of Mississippi on June 12, 2006.
EASTGROUP PROPERTIES, INC.
By: /s/ David H. Hoster II
-----------------------
David H. Hoster II
President and Chief Executive Officer
POWERS OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that each person whose signature appears below
hereby constitutes and appoints each of David H. Hoster II or N. Keith McKey his
or her true and lawful attorney-in-fact and agent, each with full power of
substitution and revocation, for him or her and in his or her name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto each attorney-in-fact and
agent, full power and authority to do and perform each such and every act and
thing requisite and necessary to be done, as fully to all intents and purposes
as such person might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
II-6
Pursuant to the requirements of the Securities Act of 1933, this
registration statement and the foregoing Powers of Attorney have been signed by
the following persons in the capacities and on the date indicated.
Signature Title Date
/s/ Leland R. Speed Chairman of the Board June 12, 2006
-------------------
Leland R. Speed
/s/ David H. Hoster II Chief Executive Officer, June 12, 2006
----------------------- President and Director
David H. Hoster II (Principal Executive Officer)
/s/ N. Keith McKey Executive Vice President, Chief June 12, 2006
------------------- Financial Officer, Secretary and
N. Keith McKey, CPA Treasurer (Principal Financial Officer)
/s/ Bruce Corkern Senior Vice President, Chief June 12, 2006
----------------- Accounting Officer and Controller
Bruce Corkern, CPA (Principal Accounting Officer)
/s/ D. Pike Aloian Director June 12, 2006
-------------------
D. Pike Aloian
/s/ H.C. Bailey, Jr. Director June 12, 2006
--------------------
H.C. Bailey, Jr.
/s/ Hayden C. Eaves III Director June 12, 2006
------------------------
Hayden C. Eaves III
/s/ Fredric H. Gould Director June 12, 2006
---------------------
Fredric H. Gould
/s/ Mary E. McCormick Director June 12, 2006
----------------------
Mary E. McCormick
/s/ David M. Osnos Director June 12, 2006
-------------------
David M. Osnos
II-7