<PAGE>
As filed with the Securities and Exchange Commission on February 17, 1999
Registration No. 333-69001
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
AMENDMENT NO. 2
to
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
----------------
ProLogis Trust
(Exact name of registrant as specified in its charter)
----------------
Maryland 6719 74-2604728
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
incorporation or Code Number)
organization)
14100 East 35th Place
Aurora, Colorado 80011
(303) 375-9292
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
----------------
Jeffrey A. Klopf, Secretary
ProLogis Trust
125 Lincoln Avenue
Santa Fe, New Mexico 87501
(505) 982-9292
(Name, address, including zip code, and telephone number, including area code,
of agent for service):
Copies to:
Michael T. Blair Michael D. Wortley
Mayer, Brown & Platt Vinson & Elkins L.L.P.
190 South LaSalle Street 2001 Ross Avenue
Chicago, Illinois 60603 Dallas, Texas 75201
(312) 782-0600 (214) 220-7700
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
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(d)
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. [_]
----------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
Proposed Merger of
MERIDIAN INDUSTRIAL TRUST, INC.
with and into
PROLOGIS TRUST
TO THE SHAREHOLDERS OF PROLOGIS TRUST
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held
Tuesday, March 30, 1999
8:30 a.m.
14100 East 35th Place
Aurora, Colorado 80011
Your board of trustees asks you to attend this meeting to consider and vote
on the following:
1. Proposed Merger. A proposal to merge Meridian Industrial Trust, Inc.,
a Maryland corporation, with and into ProLogis Trust, a Maryland real
estate investment trust. In the merger, ProLogis will issue to Meridian
stockholders, for each share of Meridian common stock, 1.10 common shares
of ProLogis and up to $2.00 in cash if and to the extent that an average
price of a ProLogis common share, multiplied by 1.10, is less than $25.00.
ProLogis will issue to holders of Meridian Series D cumulative redeemable
preferred stock one corresponding preferred share of ProLogis for each
share of Meridian Series D cumulative redeemable preferred stock. The
Agreement and Plan of Merger providing for the merger, which describes the
terms of the merger in great detail, is attached to the accompanying joint
proxy statement and prospectus as Annex A; and
2. Other Business. Any other matter that properly comes before the
meeting or any adjournment or postponement.
Approval of the merger and the transactions contemplated thereby requires the
affirmative vote of at least two-thirds of the outstanding ProLogis common
shares entitled to vote thereon.
Only holders of common shares at the close of business on February 24, 1999
are entitled to notice of and to vote at the special meeting or any
adjournments or postponements.
By the Order of the Board of
Trustees,
Jeffrey A. Klopf
Secretary
March 2, 1999
Aurora, Colorado
Your board of trustees unanimously recommends that you vote "FOR" the merger.
We invite you to attend the special meeting because it is important that your
shares be represented at the meeting. Please sign, date and return the enclosed
proxy card in the accompanying postage-paid envelope. If you attend the
meeting, you may vote in person, which will revoke a signed proxy if you have
already sent one in. You may also revoke your proxy at any time before the
meeting either in writing or by notifying ProLogis.
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
455 Market Street, 17th Floor
San Francisco, California 94105
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
----------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Meridian
Industrial Trust, Inc., a Maryland corporation, will be held at Meridian's
offices at 455 Market Street, 17th Floor, San Francisco, California on Tuesday,
March 30, 1999 at 7:30 a.m., local time, for the following purposes:
1. To consider and vote upon a proposal to approve the merger of Meridian
with and into ProLogis Trust, a Maryland real estate investment trust, the
Agreement and Plan of Merger by and between Meridian and ProLogis dated as
of November 16, 1998, as amended, and the other transactions contemplated
therein, a copy of which is attached as Annex A to the accompanying joint
proxy statement and prospectus; and
2. To transact such other business as may properly come before the
meeting or any postponement or adjournment thereof.
Approval of the merger and the transactions contemplated thereby requires the
affirmative vote of holders of a majority of the outstanding shares of
Meridian's common stock entitled to vote thereon.
Stockholders of Meridian are not entitled to appraisal rights in connection
with the merger.
The enclosed proxy card will enable you to vote your shares of common stock
on the matters to be considered at the special meeting. All you need to do is
mark the proxy card to indicate your vote, date and sign the proxy card, and
then return it promptly in the self-addressed stamped envelope provided. The
giving of the proxy will not affect your right to attend the meeting, nor, if
you choose to revoke the proxy, your right to vote in person.
The board of directors has fixed the close of business on February 24, 1999
as the record date for determination of stockholders entitled to notice of and
to vote at the special meeting.
By the Order of the Board of
Directors,
Robert A. Dobbin
Secretary
March 2, 1999
San Francisco, California
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+The information in this joint proxy statement and prospectus is not complete +
+and may be changed. We may not sell these securities until the registration +
+statement filed with the Securities and Exchange Commission is effective. +
+This joint proxy statement and prospectus is not an offer to sell these +
+securities and is not soliciting an offer to buy these securities in any +
+state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
The board of trustees of ProLogis Trust and the board of directors of
Meridian Industrial Trust, Inc. have approved a merger of Meridian into
ProLogis and recommend that their shareholders vote in favor of the merger.
Each share of Meridian common stock issued and outstanding immediately prior
to the effective time of the merger will be converted into the right to
receive:
(A) 1.10 common shares of beneficial interest of ProLogis and the associated
preferred share purchase rights, and
(B) up to $2.00 in cash to the extent that the average price of a ProLogis
common share, multiplied by 1.10, is less than $25.00.
The average trading price of ProLogis common shares will be based upon the
daily high and low per share transaction prices for ProLogis common shares for
15 trading days randomly selected from the 30 consecutive trading days ending
on the fifth trading day prior to the closing of the merger.
For example, based on the closing price of ProLogis common shares on February
12, 1999 of $19.625, the Meridian common stockholders would receive merger
consideration with a value of $23.5875 per share of Meridian common stock held,
consisting of 1.10 ProLogis common shares and $2.00 in cash. After the merger,
the current Meridian stockholders will own approximately 23.3% of the
outstanding common shares of ProLogis, which represents 20.8% on a fully
diluted basis assuming conversion or exchange of all ProLogis convertible or
exchangeable securities.
The merger cannot be completed unless the shareholders of both companies
approve it. We have scheduled special meetings for our shareholders to vote on
the merger. Your vote is very important.
This joint proxy statement and prospectus provides you with detailed
information about the proposed merger. We encourage you to read this entire
document carefully. In addition, you may obtain information about our companies
from documents that we have filed with the Securities and Exchange Commission.
See the risk factors beginning on page 22 of this joint proxy statement and
prospectus for a discussion of risks that you should consider in evaluating the
merger.
Neither the Securities and Exchange Commission nor
any state securities commission has approved or
disapproved these securities or passed upon the
accuracy or adequacy of this joint proxy statement
and prospectus. Any representation to the contrary
is a criminal offense.
Joint proxy statement and prospectus dated February , 1999
and first mailed to shareholders on March 2, 1999
<PAGE>
This joint proxy statement and prospectus incorporates important business and
financial information about ProLogis and Meridian that is not included in or
delivered with this document, including the information described on page 19
under "Where You Can Find More Information." This information is available
without charge to the ProLogis shareholders and the Meridian stockholders upon
written or oral request to the following addresses or telephone numbers and
will be provided by first class mail within one business day of receipt of such
request:
Investor Relations Department Investor Relations Department
ProLogis Trust Meridian Industrial Trust, Inc.
14100 East 35th Place 455 Market Street, 17th Floor
Aurora, Colorado 80011 San Francisco, California 94105
(303) 375-9292
(800) 820-0181
To obtain timely delivery, the ProLogis shareholders and the Meridian
stockholders must request the information no later than five business days
before they must make their investment decisions. ProLogis and Meridian
shareholders must make their requests no later than March 23, 1999.
(800) 333-2243
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
SUMMARY................................................................ 1
Questions and Answers About the Merger............................... 1
The Companies........................................................ 4
The Special Meetings of Shareholders................................. 5
The Merger Agreement................................................. 5
Selected Historical Financial Data of ProLogis....................... 8
Selected Historical Financial Data of Meridian....................... 12
ProLogis Pro Forma Summary Financial Data............................ 15
Comparative Market and Per Share Data................................ 17
Cautionary Statement Regarding Forward-Looking Statements............ 18
About This Joint Proxy Statement and Prospectus...................... 18
Where You Can Find More Information.................................. 19
RISK FACTORS........................................................... 22
Risk factors relating to the merger.................................. 22
Risk factors relating to ownership of ProLogis common shares and
preferred shares.................................................... 25
THE COMPANIES.......................................................... 29
ProLogis............................................................. 29
Meridian............................................................. 30
The combined company................................................. 30
THE MERGER............................................................. 31
Terms of the merger.................................................. 31
Background of the merger............................................. 32
Reasons for the merger; Recommendations of the ProLogis board........ 35
Opinion of ProLogis' financial advisor............................... 37
Reasons for the merger; Recommendations of the Meridian board........ 43
Opinion of Meridian's financial advisor.............................. 45
Interests of Meridian directors, officers and significant
stockholders ....................................................... 51
Voting agreements.................................................... 53
Material federal income tax consequences............................. 53
Accounting treatment................................................. 56
Restrictions on sales by affiliates.................................. 56
Appraisal rights..................................................... 56
THE MERGER AGREEMENT................................................... 57
ProLogis board recommendation........................................ 57
Meridian board recommendation........................................ 57
General.............................................................. 57
Expenses of solicitation............................................. 57
Effective time of the merger......................................... 58
Exchange of Meridian shares.......................................... 58
Conditions to the merger............................................. 59
Representations and warranties....................................... 60
Covenants............................................................ 61
Distributions........................................................ 63
No Solicitation of transactions...................................... 63
Termination.......................................................... 64
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
Termination fees...................................................... 64
Indemnification....................................................... 65
Amendment and waiver.................................................. 65
THE SPECIAL MEETINGS OF SHAREHOLDERS.................................... 66
The ProLogis special meeting.......................................... 66
The Meridian special meeting.......................................... 67
COMPARISON OF SHAREHOLDER RIGHTS........................................ 69
DESCRIPTION OF PROLOGIS SECURITIES...................................... 74
Common shares......................................................... 74
Preferred share purchase rights....................................... 76
Staggered board of trustees........................................... 76
Certain provisions of Maryland law.................................... 76
Series E preferred shares............................................. 78
PRINCIPAL SHAREHOLDERS OF PROLOGIS...................................... 83
LEGAL MATTERS........................................................... 84
INDEPENDENT PUBLIC ACCOUNTANTS AND EXPERTS.............................. 84
INDEX TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.......... F-1
ANNEXES
Agreement and Plan of Merger.......................................... Annex A
Opinion of Merrill Lynch & Co......................................... Annex B
Opinion of Goldman, Sachs & Co........................................ Annex C
</TABLE>
ii
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the detailed
information appearing elsewhere in this joint proxy statement and prospectus,
including the annexes hereto, or incorporated herein by reference. We urge you
to review the entire joint proxy statement and prospectus including its
annexes.
Questions and Answers About the Merger
Q: What are the benefits of the proposed merger?
A: ProLogis and Meridian expect the combined company resulting from the merger
to have the following important characteristics, which are intended to
create long-term shareholder value:
(1) the largest publicly traded industrial real estate investment trust
with approximately 168.3 million square feet of distribution facilities
located in 94 markets in the United States, Mexico and Europe;
(2) a customer base of over 3,100 including 414 who are among ProLogis'
targeted customer base of the 1,000 largest users of distribution
space;
(3) operational and property-level cost savings as the result of
integrating Meridian's assets into ProLogis' established operating
system; and
(4) larger capitalization which is expected to lead to more favorable
access to debt and equity capital markets.
Q: What are the detriments of the proposed merger?
A: ProLogis and Meridian expect the merger to have the following potential
detriments to their shareholders:
(1) the exchange ratio is fixed, which means that the ProLogis shares that
Meridian stockholders will receive in the merger may have a greater or
lesser value than the value contemplated at the time the merger
agreement was signed because of fluctuations in the market price of
ProLogis common shares and the limitation on the amount of cash to be
received by Meridian stockholders;
(2) the substantial management time and effort that will be required to
consummate the merger and integrate the operations of the two
companies; and
(3) the risk that the benefits sought in the merger will not be obtained.
Q: Will ProLogis shareholders receive any shares as a result of the merger?
A: No. ProLogis shareholders will continue to hold the same number of proLogis
shares they currently own.
Q: What do I need to do now?
A: Just mail your signed proxy card in the enclosed return envelope as soon as
possible, so that your shares can be voted at the March 30, 1999 ProLogis
shareholder meeting, if you are a ProLogis shareholder, or at the March 30,
1999 Meridian stockholder meeting, if you are a Meridian stockholder.
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: Your broker will vote your shares only if you provide instructions to him on
how to vote. You should contact your broker and ask what directions your
broker will need from you. Your broker will not be able to vote your shares
without instructions from you.
1
<PAGE>
Q: Can I change my vote after I have mailed my signed proxy card?
A: Yes. You can change your vote at any time before your proxy is voted at the
applicable shareholder meeting. You can do this in one of three ways. First,
you can send a written notice stating that you revoke your proxy. Second,
you can complete and submit a new proxy card. Third, you can attend the
appropriate meeting and vote in person. Your attendance by itself will not,
however, revoke your proxy. If you have instructed a broker to vote your
shares, you must follow directions received from your broker to change those
instructions.
Q: Should Meridian stockholders or ProLogis shareholders send in certificates
now?
A: No. If you are a Meridian stockholder, after the merger is completed you
will receive written instructions for exchanging your shares of Meridian
common stock for ProLogis common shares, and any cash payments you may be
entitled to receive. If you are a ProLogis shareholder, you should retain
your certificates, as you will continue to hold the ProLogis shares you
currently own.
Q: What happens to my distributions prior to the closing of the merger and in
the future?
A: Meridian plans to continue to pay distributions on its shares of common
stock until the closing of the merger at approximately the same rates per
share as were paid by it during the last year. ProLogis plans to continue to
pay distributions on its common shares consistent with its current
distribution policy. However, both the ProLogis board of trustees and the
Meridian board of directors will continue to evaluate their respective
financial condition and earnings level, which could result in a change in
the future distribution level. After the merger, ProLogis intends to pay
distributions in order to maintain its status as a real estate investment
trust under the Internal Revenue Code of 1986.
Q: What are the tax consequences of the merger?
A: We have structured the merger so that neither ProLogis, Meridian nor our
respective shareholders or stockholders will recognize any gain or loss for
federal income tax purposes in the merger, except for tax payable on any
cash received by Meridian stockholders in the merger. The closing of the
merger is conditioned, among other things, on the delivery of the legal
opinions of ProLogis' counsel as to the tax consequences as to ProLogis and
ProLogis' shareholders and Meridian's counsel as to these tax consequences
to Meridian and Meridian's stockholders.
Q: What will Meridian stockholders' tax basis be in the ProLogis common shares
they receive in the merger?
A: Your tax basis in the ProLogis common shares will equal your current tax
basis in your Meridian common stock surrendered in the exchange, decreased
by the amount of cash received and increased by any amount treated as a
dividend in such exchange or the amount of any gain recognized in such
exchange. See "The Merger--Material federal income tax consequences" on page
53.
Q: When do you expect the merger to be completed?
A: We hope to complete the merger as quickly as possible after the shareholder
votes.
2
<PAGE>
Q: Who can help answer my questions?
A: If you are a ProLogis shareholder and you have more questions about the
merger, you should contact:
ProLogis Trust
Investor Relations Department
14100 East 35th Place
Aurora, Colorado 80011
Telephone: (800) 820-0181
Fax: (303) 576-2600
If you are a Meridian stockholder and you have more questions about the
merger, you should contact:
Meridian Industrial Trust, Inc.
Investor Relations Department
455 Market Street, 17th Floor
San Francisco, California 94105
Telephone: (415) 228-3900
(800) 333-2243
Fax: (415) 284-2840
3
<PAGE>
The Companies
ProLogis Trust
14100 East 35th Place
Aurora, Colorado 80011
(303) 375-9292
ProLogis, which will be the surviving company in the merger, is a real estate
investment trust organized under Maryland law and has elected to be taxed as a
real estate investment trust under the Internal Revenue Code of 1986. ProLogis
is an owner and lessor of industrial distribution facilities with nearly 1,300
facilities being leased to industrial users throughout North America and
Europe, making it the largest publicly held, U.S. based company to do so.
ProLogis is an international company focused exclusively on meeting the
distribution space needs of international, national, regional and local
industrial real estate users through the ProLogis Operating System(TM). As of
December 31, 1998, ProLogis, including its unconsolidated subsidiaries, had
134.7 million square feet of industrial distribution facilities, which included
126.1 million square feet of operating facilities. Additionally, ProLogis had
8.6 million square feet under development at a total expected investment of
$391.9 million in 90 North American and European markets. Also, as of December
31, 1998, ProLogis, including its unconsolidated subsidiaries, owned or
controlled 4,678 acres of land for the future development of approximately 81.6
million square feet of distribution facilities.
Meridian Industrial Trust, Inc.
455 Market Street, 17th Floor
San Francisco, California 94105
(415) 281-3900
Meridian is a corporation organized under Maryland law and has elected to be
taxed as a real estate investment trust under the Internal Revenue Code of
1986. Meridian engages primarily in the business of owning, acquiring,
developing, managing and leasing income-producing warehouse/distribution and
light industrial properties. As of December 31, 1998, Meridian, including its
unconsolidated subsidiaries and joint ventures, owned 232
warehouse/distribution and light industrial properties, encompassing
approximately 31.4 million square feet. Meridian had 2.2 million square feet of
warehouse/distribution and light industrial properties under development at a
total expected investment of $81.2 million as of December 31, 1998. In
addition, Meridian owned or controlled 420 acres of land for the future
development of an additional approximately 6.3 million square feet of warehouse
distribution facilities.
The Combined Company
Upon completion of the merger, ProLogis is expected to have a total market
capitalization of approximately $6.3 billion, based on the closing price of
ProLogis shares on February 12, 1999 and the outstanding principal amount of
indebtedness of the two companies on such date. The combined company will own
more than 1,500 distribution facilities, based on the real estate assets held
by ProLogis and Meridian as of December 31, 1998. The combined real estate
assets, including assets held by unconsolidated subsidiaries and joint
ventures, will consist of approximately 157.5 million square feet of operating
distribution facilities. Also, the combined company will have 10.8 million
square feet of distribution facilities under development at a total expected
investment of $473.1 million in 94 North American and European markets.
Additionally, the combined company will own or control approximately 5,100
acres of land for the future development of approximately 87.9 million square
feet of distribution facilities. The combined company will continue to be taxed
as a real estate investment trust under the Internal Revenue Code of 1986.
4
<PAGE>
The Special Meetings of Shareholders
The ProLogis special meeting (See page 66)
. The ProLogis special meeting of shareholders is scheduled to be held at
8:30 a.m., Mountain Standard Time, on Tuesday, March 30, 1999 at the
offices of ProLogis at 14100 East 35th Place, Aurora, Colorado.
. The ProLogis board of trustees has fixed the close of business on
February 24, 1999 as the record date for the determination of holders of
ProLogis common shares entitled to notice of and to vote at the ProLogis
special meeting of shareholders.
. The affirmative vote of the holders of at least two-thirds of the
ProLogis common shares entitled to vote is required to approve the
merger.
The Meridian special meeting (See page 67)
. The Meridian special meeting of stockholders is scheduled to be held at
7:30 a.m., Pacific Standard Time, on Tuesday, March 30, 1999 at the
offices of Meridian at 455 Market Street, 17th Floor, San Francisco,
California.
. The Meridian board of directors has fixed the close of business on
February 24, 1999 as the record date for the determination of holders of
Meridian common stock entitled to notice of and to vote at the Meridian
special meeting of stockholders.
. The proposal to approve the merger must be approved by the affirmative
vote of the holders of a majority of the outstanding shares of Meridian
common stock entitled to vote on the merger.
The Merger Agreement
We encourage you to read the entire merger agreement, which is attached as
Annex A to this joint proxy statement and prospectus.
Merger consideration
For each share of Meridian common stock, Meridian common stockholders will
receive 1.10 common shares of ProLogis and up to $2.00 in cash to the extent
that an average trading price of a ProLogis common share for a randomly
selected 15 trading days during a 30 trading day period prior to the merger,
multiplied by 1.10, is less than $25.00, as shown in the examples below:
<TABLE>
<CAPTION>
Approximate Average Number of ProLogis Cash to be issued for Dollar value of the
Trading common shares to be issued each share of consideration to be received
Price of ProLogis for each share of Meridian Meridian common by Meridian common
common shares common stock in the merger stock in the merger stockholders in the merger
------------------- -------------------------- --------------------- ----------------------------
<S> <C> <C> <C>
$22.725 and above 1.10 $0.00 $25.00 and higher
$22.50 1.10 $0.25 $25.00
$22.25 1.10 $0.525 $25.00
$21.75 1.10 $1.075 $25.00
$21.50 1.10 $1.35 $25.00
$21.25 1.10 $1.625 $25.00
$21.00 1.10 $1.90 $25.00
$20.91 and below 1.10 $2.00 $25.00 and less
</TABLE>
Each outstanding share of Meridian Series D cumulative redeemable preferred
stock will convert into the right to receive one ProLogis preferred share of a
corresponding series having substantially identical rights and preferences.
Based upon the number of shares of Meridian common stock outstanding on
February 12, 1999, the holders of Meridian common stock immediately prior to
the merger will hold, immediately after the merger,
5
<PAGE>
approximately 23.3% of the aggregate number of ProLogis common shares expected
to be outstanding after the merger, which represents 20.8% on a fully diluted
basis assuming conversion or exchange of all ProLogis convertible or
exchangeable securities.
Effective time of the merger
Subject to the satisfaction or waiver of the conditions to the merger, we
currently expect the merger to become effective as soon as practical after the
shareholder votes.
Conditions to the merger (See page 59)
The completion of the merger depends upon meeting or waiving a number of
conditions, including:
(1) approval of the merger by the shareholders of ProLogis and the
approval of the merger by the stockholders of Meridian;
(2) the authorization for listing on the New York Stock Exchange of the
ProLogis common shares and preferred shares issuable in connection with the
merger;
(3) the completion of the sale of the outstanding shares of common stock
of Meridian Refrigerated, Inc. to an entity in which ProLogis owns a
substantial majority of the economic interest; and
(4) the receipt of satisfactory legal opinions regarding Meridian's and
ProLogis' real estate investment trust status for federal income tax
purposes and the treatment of the merger as a reorganization for federal
income tax purposes.
Termination (See page 64)
ProLogis and Meridian jointly can agree to terminate the merger agreement at
any time, even if the shareholders of both companies have approved the merger.
Also, either company can decide, without the consent of the other, to terminate
the merger agreement if:
(1) any governmental entity has issued an injunction or taken other
action permanently restraining, enjoining or prohibiting the completion of
the merger and such action has become final and nonappealable;
(2) the required approval of the shareholders of either party has not
been obtained;
(3) the merger has not been completed on or before July 31, 1999; or
(4) the other party materially breaches the merger agreement.
Meridian may unilaterally terminate the merger agreement if:
(1) the Meridian board of directors decides to withdraw or change its
recommendation of the merger agreement and Meridian gives ProLogis notice
that it has received a superior acquisition proposal from a third party and
either ProLogis does not revise its acquisition proposal or the Meridian
board determines that the third-party acquisition proposal is superior to
ProLogis' revised proposal; or
(2) the ProLogis board of trustees does not recommend against a tender or
exchange offer for the acquisition of 50% or more of the ProLogis common
shares by a third party or if ProLogis enters into or recommends a
transaction involving the acquisition by a third party of 50% or more of
the then outstanding ProLogis common shares or all or substantially all of
ProLogis' assets.
ProLogis may unilaterally terminate the merger agreement if the Meridian
board of directors withdraws or changes its recommendation that its
stockholders approve the merger agreement in connection with a superior
proposal from a third party.
Termination fees (See page 64)
ProLogis will be required to pay a $25 million termination fee to Meridian if
Meridian terminates the merger agreement because ProLogis fails to recommend
against a tender or exchange offer for the acquisition
6
<PAGE>
of 50% or more of the ProLogis common shares by a third party or if ProLogis
enters into or recommends a transaction involving the acquisition by a third
party of 50% or more of the then outstanding ProLogis common shares or all or
substantially all of ProLogis' assets.
Meridian also will be required to pay a termination fee under the
circumstances described below. The termination fee will be $25 million if The
Prudential Insurance Company of America, Meridian's largest stockholder, enters
into a voting agreement with ProLogis to vote in favor of the merger. If The
Prudential Insurance Company does not enter into such an agreement, the
termination fee will be $40 million. The Prudential Insurance Company and five
separate insurance accounts administered by The Prudential Insurance Company
collectively own approximately 27.0% of the outstanding shares of Meridian
common stock. Prudential Real Estate Investors, a division of Prudential
Investment Corporation manages these investments for The Prudential Insurance
Company and the five separate accounts (collectively, "Prudential Real
Estate"). ProLogis and Prudential Real Estate are discussing executing a voting
agreement, but have not entered into a voting agreement as of the date hereof.
The circumstances under which Meridian may be required to pay the termination
fee are as follows:
(1) the Meridian board withdraws or changes its recommendation that
stockholders approve the merger agreement because it determines to accept a
superior acquisition proposal from a third party;
(2) Meridian stockholders do not approve the merger and at the time of
the vote a third party acquisition proposal is pending and, within 12
months of the vote, Meridian completes an acquisition proposal with any
party; or
(3) ProLogis terminates the merger agreement because of a material breach
by Meridian and at the time of the termination an acquisition proposal is
pending and, within 12 months after the termination, Meridian agrees to or
completes an acquisition proposal with any party.
The termination fee payable under these circumstances will be reduced by any
fee already paid to ProLogis as a result of the termination.
If the merger agreement is terminated by ProLogis or Meridian because of the
other party's breach of the merger agreement, the breaching party will pay the
lesser of $1.25 million or the terminating party's out-of-pocket expenses
incurred in connection with the merger agreement. In the event the merger
agreement is terminated as a result of the willful breach of the merger
agreement, the breaching party will be fully liable to the other party for any
damages resulting from the breach.
Opinions of financial advisors (See pages 37 through 43 and 45 through 50)
Each of Merrill Lynch & Co. and Goldman, Sachs & Co. rendered opinions as to
the fairness of the consideration to be paid or received in the merger from a
financial point of view. These opinions, which are based upon and subject to
various qualifications and assumptions, are attached as Annexes B and C to this
joint proxy statement and prospectus, respectively. We encourage you to read
these opinions. Summaries of the analyses prepared by Merrill Lynch & Co. and
Goldman, Sachs & Co. are included in this joint proxy statement and prospectus
under the captions "The Merger--Opinion of ProLogis' financial advisor" and "--
Opinion of Meridian's financial advisor."
Appraisal rights
Because the ProLogis common shares and the Meridian common stock and Meridian
Series D cumulative redeemable preferred stock are listed on the New York Stock
Exchange, neither the ProLogis shareholders nor the Meridian stockholders have
appraisal rights under Maryland law.
Regulatory Approvals
The parties are not aware of any federal or state regulatory approvals which
must be obtained in connection with the merger and related transactions.
7
<PAGE>
Selected Historical Financial Data of ProLogis
We are providing the following financial information to aid you in your
analysis of the financial aspects of the merger. We derived this information
from audited consolidated financial statements for the years ended December 31,
1993 through 1997 and unaudited consolidated financial statements for the nine
months ended September 30, 1998. The amounts are stated in thousands, except
for the per share data. The information is only a summary and you should read
it together with ProLogis' historical consolidated financial statements, and
related notes, contained in the annual reports and other information that
ProLogis files with the Securities and Exchange Commission. See "Where You Can
Find More Information" on page 19.
As presented in the table below, funds from operations represents ProLogis'
net earnings, computed in accordance with generally accepted accounting
principles, before minority interest, before gains or losses from debt
restructuring, before gains or losses on disposition of depreciated real
estate, before gains or losses from mark to market adjustments resulting from
the remeasurement, based on current foreign currency exchange rates, of
intercompany and other debt of ProLogis' foreign subsidiaries, before deferred
tax benefits and deferred tax expenses of ProLogis' taxable subsidiaries,
before significant non-recurring items that materially distort the comparative
measurement of company performance over time, plus real estate depreciation and
amortization, exclusive of amortization of loan costs, and after adjustments
for unconsolidated subsidiaries calculated to compute their funds from
operations on the same basis as ProLogis. ProLogis believes that funds from
operations is helpful to a reader as a measure of the performance of an equity
real estate investment trust because, along with cash flow from operating,
investing and financing activities, it provides a reader with an indication of
the ability of ProLogis to incur and service debt, to make capital expenditures
and to fund other cash needs. The funds from operations measure presented by
ProLogis, while consistent with the National Association of Real Estate
Investment Trusts' definition and that of Meridian, will not be comparable to
similarly titled measures of other real estate investment trusts which do not
compute funds from operations in a manner consistent with ProLogis. Funds from
operations is not intended to represent cash made available to shareholders.
Funds from operations should not be considered as an alternative to net
earnings or any other generally accepted accounting principles measurement of
performance as an indicator of ProLogis' operating performance, or as an
alternative to cash flows from operating, investing or financing activities as
a measure of liquidity.
8
<PAGE>
<TABLE>
<CAPTION>
Nine Months
Ended
September 30, Years Ended December 31,
------------- ------------------------------------------
1998 1997 1996 1995 1994 1993
------------- -------- -------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Operating Data:
Rental income........... $251,605 $284,533 $227,000 $153,879 $70,609 $9,963
Other real estate
income................. 10,542 12,291 5,342 2,899 -- --
Income from
unconsolidated
subsidiaries........... 1,930 3,278 -- -- -- --
Total revenues.......... 271,425 302,494 233,463 158,503 71,702 10,319
Rental expenses,
including property
management fees........ 20,458 27,008 26,674 18,460 7,244 1,093
Real estate investment
trust management fees
paid to affiliate...... -- 17,791 21,472 14,207 8,673 1,323
General and
administrative......... 14,060 5,742 1,025 839 770 411
Administrative services
fee paid to affiliate.. 1,566 1,113 -- -- -- --
Interest rate hedge
expense(1)............. 27,652 -- -- -- -- --
Costs incurred in
acquiring management
companies from
affiliate(2)........... -- 75,376 -- -- -- --
Earnings from
operations(1)(2)....... 77,454 35,931 82,710 50,991 28,058 4,531
Gain (loss) on
dispositions of
depreciated real
estate, net............ 4,278 7,378 (29) 1,053 35 --
Preferred share cash
dividends paid......... 35,543 35,318 25,895 6,698 -- --
Net earnings
attributable to common
shares(1)(2)........... 43,088 4,431 53,460 42,015 25,101 4,412
Common share cash
distributions paid..... $111,769 $106,556 $ 85,340 $ 64,445 $37,698 $7,001
Per Share Data:
Net earnings
attributable to common
shares(1)(2):
Basic................. $ 0.36 $ 0.04 $ 0.63 $ 0.61 $ 0.57 $ 0.47
Diluted............... 0.35 0.04 0.63 0.61 0.57 0.47
Series A preferred share
dividends paid......... $ 1.76 $ 2.35 $ 2.35 $ 1.24 -- --
Series B preferred share
dividends paid......... 1.31 1.75 1.50 -- -- --
Series C preferred share
dividends paid......... 3.20 4.27 0.57 -- -- --
Series D preferred share
dividends paid......... 0.93 -- -- -- -- --
Common share
distributions declared
and paid............... $ 0.92 $ 1.07 $ 1.01 $ .935 $ 0.85 $ 0.75
Weighted average common
shares outstanding:
Basic................. 121,183 100,729 84,504 68,924 44,265 9,334
Diluted............... 121,421 100,869 84,511 74,422 44,277 9,336
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
December 31,
September 30, -----------------------------------------------------
1998 1997 1996 1995 1994 1993
------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Other Data:
Reconciliation of net
earnings to funds from
operations:
Net earnings
attributable to common
shares................. $ 43,088 $ 4,431 $ 53,460 $ 42,015 $ 25,101 $ 4,412
Add (Deduct):
Real estate
depreciation and
amortization......... 72,902 76,275 59,850 39,767 18,169 2,525
Minority interest..... 3,101 3,560 3,326 3,331 2,992 119
(Gain) loss on
dispositions of
depreciated real
estate, net.......... (4,278) (7,378) 29 (1,053) -- --
Costs incurred in
acquiring management
companies from
affiliate(2)......... -- 75,376 -- -- -- --
Interest rate hedge
expense(1)........... 27,652 -- -- -- -- --
Reconciling items from
unconsolidated
subsidiaries......... 32,702 2,419 -- -- -- --
Other, net............ (4,019) 6,376 225 -- 45 133
--------- --------- --------- --------- --------- ---------
Funds from operations
attributable to common
shares................. $ 171,148 $ 161,059 $ 116,890 $ 84,060 $ 46,307 $ 7,189
========= ========= ========= ========= ========= =========
Weighted average common
shares outstanding:
Basic (includes
convertible
partnership units)... 126,253 105,919 89,699 74,409 49,022 9,447
Diluted............... 136,647 116,371 89,700 74,422 49,034 9,449
Net cash provided by
operating
activities........... $ 174,320 $ 192,273 $ 136,201 $ 100,154 $ 47,222 $ 12,084
Net cash used in
investing
activities........... (915,812) (570,861) (665,878) (628,795) (631,871) (260,780)
Net cash provided by
financing
activities........... $ 748,133 $ 398,827 $ 512,212 $ 529,606 $ 599,382 $ 254,770
Ratio of earnings to
combined fixed
charges and preferred
share dividends...... 1.2 (3) 1.5 1.7 3.3 11.3
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
December 31,
September 30, ----------------------------------------------------
1998 1997 1996 1995 1994 1993
------------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Financial Position:
Real estate owned, at
cost................... $3,312,567 $2,846,591 $2,399,431 $1,767,307 $1,133,484 $373,135
Land held for
development............ 171,250 159,645 109,316 60,363 42,147 21,667
Investments in and
advances to
unconsolidated
subsidiaries........... 525,138 86,139 -- -- -- --
Total assets............ 3,924,128 3,033,953 2,462,306 1,833,972 1,194,937 401,855
Lines of credit and
short-term
borrowings(4).......... 309,500 -- 38,600 81,000 160,000 83,406
Mortgage notes payable.. 134,534 133,028 139,952 145,276 144,262 40,109
Long-term debt.......... 958,586 724,052 524,191 324,527 -- --
Total liabilities....... 1,558,518 1,003,912 805,933 639,040 350,607 141,618
Minority interest....... 51,358 53,304 56,984 58,741 66,555 50,786
Total shareholders'
equity................. $2,314,252 $1,976,737 $1,599,389 $1,136,191 $ 777,775 $209,451
Number of common shares
outstanding............ 123,092 117,364 93,677 81,416 64,587 19,762
</TABLE>
- --------
(1) Earnings from operations for the nine months ended September 30, 1998
reflect the $27.7 million mark to market adjustment associated with two
interest rate hedges that, due to changing market conditions, no longer
qualify for hedge accounting treatment under generally accepted accounting
principles. This expense was not deducted for purposes of calculating funds
from operations. For purposes of calculating funds from operations,
ProLogis has deferred this expense and intends to amortize it as a
component of interest expense over the term of a future debt offering.
(2) Earnings from operations for 1997 reflect the one-time, non-cash charge of
$75.4 million associated with the costs incurred in acquiring ProLogis'
management companies from an affiliate in September 1997. This one-time
charge was not deducted for purposes of calculating funds from operations
due to its non-recurring and non-cash nature.
(3) For 1997, earnings from operations were insufficient to cover combined
fixed charges and preferred share dividends by $21.3 million because of the
one-time charge of $75.4 million referenced in note (2) above.
(4) As of February 12, 1999, ProLogis had $301.0 million of borrowings
outstanding under its $375 million unsecured lines of credit and $150.0
million of short-term borrowings outstanding.
11
<PAGE>
Selected Historical Financial Data of Meridian
We are providing the following financial information to aid you in your
analysis of the financial aspects of the merger. We derived this information
from audited financial statements for the period ended December 31, 1995 and
the years ended December 31, 1997 and 1996 and unaudited financial statements
for the nine months ended September 30, 1998. The amounts are stated in
thousands, except for the per share data. The information is only a summary and
you should read it together with Meridian's historical financial statements,
and related notes, contained in the annual reports and other information that
Meridian files with the Securities and Exchange Commission. See "Where You Can
Find More Information" on page 19.
As shown in the table below, funds from operations is calculated as net income
or loss, computed in accordance with generally accepted accounting principles,
excluding gains or losses from debt restructurings, divestiture of properties
and significant non-recurring items that materially distort the comparative
measurement of Meridian over time, plus depreciation and amortization of real
estate assets, and after adjustment for unconsolidated subsidiaries,
partnerships and joint ventures calculated to compute their funds from
operations on the same basis as Meridian. Meridian believes that funds from
operations is helpful to a reader as a measure of the performance of an equity
real estate investment trust because, along with cash flows from operating,
investing and financing activities, it provides a reader with an indication of
the ability of Meridian to incur and service debt, to make capital expenditures
and to fund other cash needs. The funds from operations measure presented by
Meridian, while consistent with the National Association of Real Estate
Investment Trusts' definition and that of ProLogis, will not be comparable to
similarly titled measures of other real estate investment trusts which do not
compute funds from operations in a manner consistent with Meridian. Funds from
operations is not intended to represent cash made available to shareholders.
Funds from operations should not be considered as an alternative to net
earnings or any other generally accepted accounting principles measurement of
performance as an indicator of Meridian's operating performance, or as an
alternative to cash flows from operating, investing or financing activities as
a measure of liquidity.
<TABLE>
<CAPTION>
Years Ended
Nine Months Ended December 31,
September 30, ------------------------
1998 1997 1996(1) 1995(2)
----------------- ------- ------- -------
<S> <C> <C> <C> <C>
Operating Data:
Rental income..................... $72,770 $54,566 $29,758 $ --
Other real estate income.......... 695 390 376 --
Income from unconsolidated
subsidiaries and joint ventures.. 3,019 645 -- --
Total revenues.................... 89,739 66,150 35,041 33
Rental expenses, including
property management fees......... 5,218 5,199 4,259 --
General and administrative........ 6,015 6,212 4,273 1,321
Interest rate hedge expense (3)... 12,633 -- -- --
Earnings from operations (1) (3).. 19,539 23,988 11,161 (1,293)
Gain (loss) on dispositions of
depreciated real estate, net..... 4,497 (462) 3,313 --
Preferred share cash dividends
paid............................. 2,927 2,818 2,412 29
Net earnings (loss) attributable
to common shares (1) (3)......... 20,686 19,870 11,651 (1,322)
Common share cash distributions
paid............................. $30,584 $24,425 $10,544 $ --
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended Years Ended December 31,
September 30, -------------------------------
1998 1997 1996(1) 1995(2)
----------------- --------- -------- ----------
<S> <C> <C> <C> <C>
Per Share Data:
Net earnings attributable to
common shares (1) (3):
Basic..................... $ 0.68 $ 1.12 $ 1.37 $(1,468.89)
Diluted................... 0.67 1.09 1.33 (32.05)
Series A preferred stock
dividends paid............. -- -- -- 0.03
Series B preferred stock
dividends paid............. 0.99 1.24 1.06 --
Series D preferred stock
dividends paid............. 0.55 -- -- --
Common share distributions
paid....................... $ 0.99 $ 1.16 $ 0.99 --
Weighted average common
shares outstanding
Basic..................... 30,623 17,791 8,476 1
Diluted................... 31,080 18,264 10,546 41
Other Data:
Reconciliation of net
earnings to funds from
operations:
Net earnings attributable to
common shares.............. $ 20,686 $ 19,870 $ 11,651 $ (1,322)
Add (Deduct):
Real estate depreciation
and amortization......... 16,616 11,109 4,915 --
Minority interest......... 379 -- -- --
(Gain) loss on
dispositions of
depreciated real estate,
net...................... (4,497) 462 (3,313) --
Interest rate hedge
expense (3).............. 12,633 -- -- --
Reconciling items from
unconsolidated
subsidiaries and joint
ventures................. 624 -- -- --
Other, net................ 1,821 3,626 2,823 29
---------- --------- -------- ----------
Funds from operations
attributable to common
shares..................... $ 48,262 $ 35,067 $ 16,076 $ (1,293)
========== ========= ======== ==========
Weighted average common
shares outstanding:
Basic (4)................. 30,623 17,791 8,476 1
Diluted................... 33,450 20,537 10,546 41
Net cash provided (used) by
operating activities....... $ 40,921 $ 37,286 $ 15,132 $ (459)
Net cash used in investing
activities................. (283,760) (177,402) (80,819) (576)
Net cash provided by
financing activities....... $ 238,519 $ 145,029 $ 68,154 $ 1,510
Ratio of earnings to
combined fixed charges and
preferred share
dividends (1) (3).......... 1.8 2.2 2.3 N/A
Financial Position:
Real estate owned, at cost.. $1,080,406 $ 844,740 $326,349 $ --
Land held for development... 26,393 -- -- --
Investments in and advances
to unconsolidated
subsidiaries............... 45,907 -- -- --
Total assets................ 1,177,627 863,512 333,063 3,724
Line of credit (5).......... 235,300 20,500 11,500 --
Mortgage notes payable...... 87,312 76,597 66,094 --
Long-term debt (6).......... 160,102 106,109 -- --
Total liabilities........... 532,585 288,241 89,550 3,438
Minority interest........... 17,605 5,132 -- --
Total shareholders' equity
(deficit) (7).............. $ 627,437 $ 570,139 $243,513 $ (714)
Number of common shares
outstanding (7)............ 31,674 30,166 13,596 1
</TABLE>
13
<PAGE>
- --------
(1) Meridian was incorporated on May 18, 1995. On February 23, 1996, Meridian
merged with three real estate investment trusts, with Meridian as the
surviving entity. In addition, concurrent with that transaction, Meridian
acquired certain properties and assumed certain mortgage notes. Except for
interest earned on its investments and general and administrative expenses
which were incurred and accrued, Meridian had no operating activities prior
to those transactions.
(2) Represents the period from inception, May 18, 1995, to December 31, 1995.
(3) Earnings from operations for the nine months ended September 30, 1998
include a one-time non-recurring expense of $12.6 million resulting from a
termination of an interest rate protection agreement Meridian entered into
in May 1998 in anticipation of a near-term debt offering. Meridian was
prevented from executing the planned offering due to an unanticipated and
rapid deterioration of the credit markets.
(4) Meridian does not assume conversion of limited partnership units in
computing basic weighted average common shares outstanding for purposes of
earnings per share as the effect is antidilutive.
(5) As of February 12, 1999, Meridian had $319.9 million of borrowings
outstanding under its $350 million unsecured line of credit.
(6) On November 20, 1997, Meridian completed a private offering to
institutional investors of $160 million in principal of unsecured senior
notes. In connection with this transaction, Meridian entered into two
forward exchange rate contracts which resulted in a payment to Meridian
totaling $109,000, which was accounted for as a premium.
(7) As of December 31, 1995, the initial capitalization of Meridian consisted
of 900 shares of common stock. In addition, four other real estate
investment trusts purchased shares of Series A preferred stock aggregating
$1 million, of which 920,500 shares were cancelled and 79,500 shares were
redeemed concurrently with the closing of the merger and asset acquisition
transactions described in Note (1).
14
<PAGE>
ProLogis Pro Forma Summary Financial Data
The merger will be accounted for as a purchase which means that ProLogis will
record the assets and liabilities acquired from Meridian at ProLogis' cost, the
consideration paid to Meridian stockholders in the merger. For a description of
purchase accounting see "The Merger--Accounting treatment" on page 56.
We have presented below unaudited pro forma financial information that
reflects the purchase method of accounting and is intended to give you a better
picture of what our businesses might have looked like had the merger occurred
on January 1, 1997. The amounts are stated in thousands, except for the per
share data. We prepared the pro forma condensed consolidated balance sheet by
making adjustments to reflect the assets and liabilities acquired at their fair
value and made certain other merger-related adjustments. We prepared the pro
forma condensed consolidated statements of earnings from operations by
combining the historical amount of earnings of each company. We then adjusted
the combined amount to reflect differences in the operating results that would
have resulted if the merger had occurred on January 1, 1997. The companies may
have performed differently if they had been combined. You should not rely on
the pro forma information as being indicative of the historical results that we
would have had or the future results that we will experience after the merger.
The information is only a summary and you should read it together with
ProLogis' and Meridian's historical financial statements incorporated herein by
reference, and the ProLogis pro forma condensed consolidated financial
statements included or incorporated herein by reference.
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Operating Data:
Rental income........................... $ 333,615 $ 407,834
Other real estate income................ 10,542 12,291
Income from unconsolidated subsidiaries
and joint ventures..................... 5,813 6,501
Total revenues.......................... 358,657 432,209
Rental expenses, including property
management fees........................ 26,621 45,163
Real estate investment trust management
fees paid to affiliate................. -- 19,938
General and administrative.............. 19,562 11,779
Administrative services fees paid to
affiliate.............................. 1,566 1,113
Interest rate hedge expense (1)......... 40,285 --
Costs incurred in acquiring management
companies from affiliate (2)........... -- 75,376
Earnings from operations before minority
interest, excluding gains on
dispositions (1)(2).................... 94,198 69,434
Preferred share cash dividends paid..... 38,824 39,693
Net earnings from operations
attributable to common
shares (1)(2)(3)....................... $ 51,377 $ 25,521
Per Share Data:
Net earnings from operations
attributable to common
shares (1)(2)(3):
Basic................................. $ 0.32 $ 0.18
Diluted............................... $ 0.32 $ 0.18
Weighted average common shares
outstanding:
Basic................................. 161,023 140,569
Diluted............................... 161,261 140,709
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Other Data:
Reconciliation of net earnings from
operations to funds from operations
(3):
Net earnings from operations
attributable to common shares.......... $ 51,377 $ 25,521
Add (Deduct):
Real estate depreciation and
amortization......................... 97,008 110,271
Minority interest..................... 3,952 4,190
Costs incurred in acquiring management
companies from affiliate (2)......... -- 75,376
Interest rate hedge expense (1)....... 40,285 --
Net foreign currency (gain) loss on
remeasurement of intercompany debt... (3,417) 348
Foreign currency (gain) loss related
to acquisition of affiliate.......... (2,054) 6,028
Non-recurring costs................... 1,452 --
Parent company's share of reconciling
items from unconsolidated
subsidiaries and joint ventures...... 33,836 3,933
----------- -----------
Funds from operations attributable to
common shares.......................... $ 222,439 $ 225,667
=========== ===========
Weighted average common shares
outstanding:
Basic (includes convertible
partnership units)................... 166,624 146,290
Diluted............................... 177,018 156,742
Net cash provided by operating
activities............................. $ 218,671 $ 272,756
Net cash used by investing activities... (1,269,348) (1,183,991)
Net cash provided by financing
activities............................. $ 1,045,402 $ 936,486
Ratio of earnings to combined fixed
charges and preferred share dividends.. 1.3 1.0
<CAPTION>
September 30, 1998
------------------
Financial Position:
<S> <C> <C>
Real estate owned, at cost.............. $4,727,666
Land held for development............... 171,250
Investments in and advances to
unconsolidated subsidiaries and joint
ventures............................... 571,045
Total assets............................ 5,420,618
Lines of credit and short-term
borrowings............................. 642,400
Mortgage notes payable.................. 247,165
Long-term debt.......................... 1,114,673
Total liabilities....................... 2,210,143
Minority interest....................... 68,963
Total shareholders' equity.............. $3,141,512
Number of common shares outstanding..... 162,933
</TABLE>
- --------
(1) Pro forma earnings from operations for the nine months ended September 30,
1998 reflect $40.3 million of charges associated with interest rate hedges
and an interest rate protection agreement that, due to changing market
conditions, no longer qualify for hedge accounting treatment under
generally accepted accounting principles. This expense was not deducted for
purposes of calculating funds from operations.
(2) Earnings from operations for 1997 reflect the one-time, non-cash charge of
$75.4 million associated with the costs incurred in acquiring ProLogis'
management companies from an affiliate in September 1997. This one-time
charge was not deducted for purposes of calculating funds from operations
due to its non-recurring and non-cash nature.
(3) The pro forma amounts do not reflect the effects of any cost savings that
may occur after the merger. See notes (bb) and (cc) of the Notes to Pro
Forma Condensed Consolidated Statements of Earnings from Operations on
pages F-12 through F-14.
16
<PAGE>
Comparative Market and Per Share Data
We have summarized below the per share information for our respective
companies on an historical basis, pro forma basis prior to the merger, combined
pro forma basis and combined equivalent basis. The combined pro forma summary
amounts are based on the purchase method of accounting. The Meridian per share
equivalents are calculated by multiplying the combined pro forma per share
amounts by 1.10, without giving effect to any cash which may be paid in the
merger. Meridian stockholders will receive 1.10 ProLogis common shares in
exchange for each share of Meridian common stock and up to $2.00 in cash to the
extent that an average price of a ProLogis common share, multiplied by 1.10, is
less than $25.00. The following information should be read together with the
historical and pro forma financial statements included or incorporated by
reference herein.
On November 16, 1998, the last trading day prior to the announcement of the
signing of the merger agreement, the closing price of a ProLogis common share
was $21.1875. On the same day, the closing price of a share of Meridian common
stock was $22.1875. The equivalent per share value of a share of Meridian
common stock on such date, applying the merger consideration per share
including cash, was $25.00.
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended
1998 December 31, 1997
----------------- -----------------
ProLogis Meridian ProLogis Meridian
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Earnings from operations attributable to
common shares
per share (1) (2):
Basic:
Historical (3).......................... $ 0.32 $ 0.53 $(0.03) $ 1.19
Pro forma prior to merger (4)........... $ 0.32 $ 0.52 $(0.08) $ 1.23
Combined pro forma (5) (6).............. $ 0.32 -- $ 0.18 --
1.10 combined pro forma................. -- $ 0.35 -- $ 0.20
Diluted:
Historical (3).......................... $ 0.32 $ 0.52 $(0.03) $ 1.16
Pro forma prior to merger (4)........... $ 0.32 $ 0.52 $(0.08) $ 1.21
Combined pro forma (5) (6).............. $ 0.32 -- $ 0.18 --
1.10 combined pro forma................. -- $ 0.35 -- $ 0.20
Distributions per common share (7):
Historical.............................. $ 0.92 $ 0.99 $ 1.07 $ 1.16
Book value per common share (at end of
period):
Historical.............................. $13.28 $17.44 $13.14 $17.74
Pro forma prior to merger (4)........... $13.28 $17.44 N/A N/A
Combined pro forma (5).................. $14.80 N/A N/A N/A
1.10 combined pro forma................. N/A $16.28 N/A N/A
</TABLE>
- --------
(1) ProLogis' historical and pro forma prior to merger earnings from operations
for the nine months ended September 30, 1998 reflect the impact of a mark-
to-market charge of $27.7 million associated with two interest rate hedges
and for the year ended December 31, 1997 reflect the impact of a one-time,
non-cash charge of $75.4 million associated with the costs incurred in
acquiring ProLogis' management companies from an affiliate.
(2) Meridian's historical and pro forma prior to merger earnings from
operations for the nine months ended September 30, 1998 reflect a $12.6
million expense associated with terminating an interest rate protection
agreement.
(3) Earnings from operations attributable to common shares for each period
presented represents earnings from operations for the applicable period
reduced by minority interest in earnings and preferred share distributions.
(4) Reflects the pro forma effect, where appropriate, of certain transactions
involving the acquisitions and dispositions of industrial distribution
facilities by ProLogis and Meridian as described on page F-2.
(5) Reflects the adjustments described in notes (1) and (2) on a combined
basis.
(6) The combined pro forma amounts do not reflect the effects of any cost
savings that may occur after the merger. See notes (bb) and (cc) of the
Notes to Pro Forma Condensed Consolidated Statements of Earnings from
Operations on pages F-12 through F-14.
(7) The post-merger distribution rate has not been determined. See "The Merger
Agreement--Distributions" on page 63.
17
<PAGE>
Cautionary Statement Regarding Forward-Looking Statements
The following statements are or may constitute forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934:
(1) Statements, including possible or assumed future results of
operations of ProLogis and Meridian contained in "Summary," "The Merger--
Background of the merger," "The Merger--Reasons for the merger;
Recommendations of the ProLogis board," "The Merger--Opinion of ProLogis'
financial advisor," "The Merger--Reasons for the merger; Recommendations of
the Meridian board" and "The Merger--Opinion of Meridian's financial
advisor," including any forecasts, projections and descriptions of
anticipated cost savings or other synergies referred to therein, and any
such statements incorporated by reference from documents filed with the
Securities and Exchange Commission by ProLogis and Meridian, including any
statements contained herein or therein regarding the development or
possible or assumed future results of operations of ProLogis' and
Meridian's businesses, the markets for ProLogis' and Meridian's services
and products, anticipated capital expenditures, competition or the effects
of the merger of Meridian with and into ProLogis;
(2) any statements preceded by, followed by or that include the words
"believes," "expects," "anticipates," "intends" or similar expressions; and
(3) other statements contained or incorporated by reference herein
regarding matters that are not historical facts.
Because such statements are subject to risks and uncertainties, actual results
may differ materially from those expressed or implied by such forward-looking
statements. ProLogis and Meridian shareholders are cautioned not to place undue
reliance on such statements, which speak only as of the date thereof.
Among the factors that could cause actual results to differ materially are:
general economic conditions, competition and the supply of and demand for
industrial distribution facilities in the combined company's markets, interest
rate levels, the availability of financing, potential environmental liability
and other risks associated with the ownership, development and acquisition of
industrial distribution facilities, including risks that tenants will not take
or remain in occupancy or pay rent, or that construction or operating costs may
be greater than anticipated, economies generated by the merger, inflationary
trends, and other risks detailed from time to time in the reports filed with
the Securities and Exchange Commission by ProLogis and Meridian.
Except for their ongoing obligations to disclose material information as
required by the federal securities laws, neither ProLogis nor Meridian
undertakes any obligation to release publicly any revisions to any forward-
looking statements to reflect events or circumstances after the date hereof or
to reflect the occurrence of unanticipated events.
About This Joint Proxy Statement And Prospectus
This joint proxy statement and prospectus is part of a registration statement
that ProLogis filed with the Securities and Exchange Commission relating to the
ProLogis common shares and preferred shares being issued in connection with the
merger. This joint proxy statement and prospectus provides you with a general
description of the securities ProLogis will offer. You should read this joint
proxy statement and prospectus together with the additional information
described under the heading "Where You Can Find More Information."
18
<PAGE>
Where You Can Find More Information
ProLogis and Meridian are subject to the reporting requirements of the
Securities Exchange Act of 1934, and each files reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any materials ProLogis or Meridian files with the Securities and Exchange
Commission at its Public Reference Room at 450 Fifth Street, N.W., Washington,
D.C. 20549. You may obtain information on the operation of the Public Reference
Room by calling the Securities and Exchange Commission at 1-800-SEC-0330. In
addition, the Securities and Exchange Commission maintains an Internet site
that contains reports, proxies, information statements, and other information
regarding issuers that file electronically, and the address of that site is
http://www.sec.gov. ProLogis' outstanding common shares and Meridian's
outstanding common stock are listed on the New York Stock Exchange under the
symbols "PLD" and "MDN", respectively, and all reports, proxy statements and
other information filed by ProLogis and Meridian with the New York Stock
Exchange may be inspected at the New York Stock Exchange's offices at 20 Broad
Street, New York, New York 10005. In addition, warrants to purchase shares of
Meridian's common stock are listed on the American Stock Exchange and such
reports, proxy statements and other information filed by Meridian with the
American Stock Exchange may be inspected at the American Stock Exchange's
offices at 86 Trinity Place, New York, New York 10006-1881.
ProLogis has filed with the Securities and Exchange Commission a registration
statement on Form S-4 under the Securities Act of 1933 with respect to the
common shares and preferred shares of ProLogis being offered in the merger.
This joint proxy statement and prospectus, which constitutes part of the
registration statement, does not contain all of the information set forth in
the registration statement. Parts of the registration statement are omitted
from the joint proxy statement and prospectus in accordance with the rules and
regulations of the Securities and Exchange Commission. For further information,
your attention is directed to the registration statement. Statements made in
this joint proxy statement and prospectus concerning the contents of any
documents referred to herein are not necessarily complete, and in each case are
qualified in all respects by reference to the copy of such document filed with
the Securities and Exchange Commission.
The Securities and Exchange Commission allows ProLogis and Meridian to
"incorporate by reference" the information ProLogis and Meridian file with the
Securities and Exchange Commission, which means that ProLogis and Meridian can
disclose important information to you by referring you to those documents. The
information incorporated by reference is an important part of this joint proxy
statement and prospectus, and information that ProLogis and Meridian file later
with the Securities and Exchange Commission will automatically update and
supersede this information.
ProLogis incorporates by reference the documents listed below:
(1) ProLogis' annual report on Form 10-K for the year ended December 31,
1997, as amended by Form 10-K/A filed April 30, 1998 and by Form 10-K/A
filed February , 1999;
(2) ProLogis' quarterly reports on Form 10-Q for the quarters ended March
31, 1998, June 30, 1998 and September 30, 1998, as amended by Form 10-Q/A
filed February , 1999;
(3) ProLogis' current reports on Form 8-K filed March 17, April 13, April
28, April 30, November 18, December 4, and December 10, 1998, as amended by
Form 8-K/A filed February , 1999;
(4) The description of the ProLogis common shares and preferred share
purchase rights contained or incorporated by reference in ProLogis'
registration statement on Form 8-A filed February 23, 1994; and
(5) The description of ProLogis' policies with respect to particular
activities under the caption "ProLogis Policies With Respect to Certain
Activities" on page 65 of ProLogis' Proxy Statement dated August 6, 1997
and filed August 8, 1997 in connection with ProLogis' special meeting of
shareholders on September 8, 1997.
19
<PAGE>
The Securities and Exchange Commission has assigned file number 1-12846 to
the reports and other information that ProLogis files with the Securities and
Exchange Commission.
Meridian incorporates by reference the documents listed below:
(1) Meridian's annual report on Form 10-K for the year ended December 31,
1997, as amended by Form 10-K/A filed February 19, 1999;
(2) Meridian's quarterly reports on Form 10-Q for the quarters ended
March 31, 1998, June 30, 1998 and September 30, 1998, as amended by Form
10-Q/A filed February 19, 1999;
(3) Meridian's current reports on Form 8-K filed February 23, March 16,
May 29, June 23, June 26, July 2, as amended by Form 8-K/A filed July 8,
August 25, September 10, November 10, November 18, December 7, and December
11, 1998, as amended by Form 8-Q/A filed February 19, 1999;
(4) The description of Meridian's stock contained in Meridian's
Registration Statement on Form 8-A filed on January 4, 1996 for
registration of the common stock pursuant to Section 12(b) of the
Securities Exchange Act of 1934, as amended, including any amendment or
report filed for the purpose of updating such description; and
(5) The description of Meridian's policies regarding particular
activities under the caption "Policies with Respect to Certain Activities"
on page 73 in the prospectus dated November 19, 1996 included in Meridian's
Registration Statement on Form S-11, Securities and Exchange Commission
Registration Number 333-16435.
The Securities and Exchange Commission has assigned file number 1-14166 to
the reports and other information that Meridian files with the Securities and
Exchange Commission.
You may request a copy of each of the above-listed ProLogis documents at no
cost, by writing or telephoning ProLogis at the following address, telephone
numbers or e-mail address, which will be sent by first class mail within one
business day of receipt of request:
Investor Relations Department
ProLogis Trust
14100 East 35th Place
Aurora, Colorado 80011
(303) 375-9292
(800) 820-0181
www.prologis.com
You may request a copy of each of the above-listed Meridian documents at no
cost, by writing or telephoning Meridian at the following address, telephone
numbers or e-mail address, which will be sent by first class mail within one
business day of receipt of request:
Investor Relations Department
Meridian Industrial Trust, Inc.
455 Market Street, 17th Floor
San Francisco, California 94105
(415) 281-3900
(800) 333-2243
www.mit-reit.com
All documents filed by each of ProLogis and Meridian pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after the date
of this joint proxy statement and prospectus and prior to the dates of the
ProLogis special meeting and the Meridian special meeting shall be deemed
incorporated in and a part of this joint proxy statement and prospectus from
the date of filing of such documents.
20
<PAGE>
Any statement contained in a document incorporated or deemed to be
incorporated herein shall be deemed modified or superseded for purposes of this
joint proxy statement and prospectus to the extent that a statement contained
herein or in any other subsequently filed document that is deemed to be
incorporated herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this joint proxy statement and prospectus.
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is inconsistent with information contained in this document or
any document incorporated herein. This joint proxy statement and prospectus is
not an offer to sell these securities in any state where the offer and sale of
these securities is not permitted. The information in this joint proxy
statement and prospectus is current as of the date it is mailed to security
holders, and not necessarily as of any later date. If any material change
occurs during the period that this joint proxy statement and prospectus is
required to be delivered, this joint proxy statement and prospectus will be
supplemented or amended.
All information regarding ProLogis in this joint proxy statement and
prospectus has been supplied by ProLogis, and all information regarding
Meridian in this joint proxy statement and prospectus has been supplied by
Meridian.
21
<PAGE>
RISK FACTORS
You should consider carefully the factors set forth below in evaluating the
merger. The following list summarizes all material risks related to the merger.
This joint proxy statement and prospectus contains forward-looking statements
with respect to the operations of ProLogis, Meridian and the combined company.
Actual results could differ materially from those set forth in the forward-
looking statements. See "Cautionary Statement Regarding Forward-Looking
Statements."
Risk factors relating to the merger
Fixed merger consideration may not reflect changes in share value
The value of ProLogis common shares and preferred shares and Meridian common
stock and preferred stock at the effective time of the merger may be different
from the price and value of those securities on the date the merger
consideration was determined. In addition, the average trading price of
ProLogis common shares used to determine the amount of cash, if any, that
holders of Meridian common stock will be entitled to receive, if the average
trading price is below $22.725, will be calculated using 15 randomly selected
trading days during the 30 trading days ending five trading days before the
closing of the merger. The actual trading price of ProLogis common shares at
the effective time of the merger may differ, perhaps significantly, from the
average trading price calculated over this 30-day period. This difference could
be caused by changes in the operations and prospects of ProLogis or Meridian,
general market and economic conditions and other factors which are beyond the
control of either party.
The total value of the purchase price being paid by ProLogis may differ from
the fair value of Meridian's pro forma assets
The value of the consideration being paid by ProLogis for the assets of
Meridian in the merger may be different than the value of the assets being
acquired. For example, based on the closing prices of the ProLogis common
shares and the value of the Meridian Series D preferred stock on February 12,
1999, the value of the merger consideration is less than the fair value of
Meridian's pro forma assets at September 30, 1998, as estimated by ProLogis, by
approximately $51.6 million.
The fairness opinions obtained by ProLogis and Meridian may not reflect
changes in the relative value of the companies since the merger agreement was
signed
ProLogis does not intend to obtain an updated fairness opinion of Merrill
Lynch & Co., and Meridian does not intend to obtain an updated fairness opinion
of Goldman, Sachs & Co. Changes in the operations and prospects of ProLogis or
Meridian, general market and economic conditions and other factors which are
beyond the control of ProLogis or Meridian, on which the opinions of Merrill
Lynch and Goldman Sachs are based, may have altered the relative value of the
companies. Therefore, the opinions of Merrill Lynch and Goldman Sachs will not
address the fairness of the merger consideration at the time the merger is
completed.
The expectation that the merger will result in an efficient integration of the
companies and the achievement of cost savings may not occur
Meridian and ProLogis have entered into the merger agreement with the
expectation that the merger will result in benefits, including, without
limitation, cost savings, operating efficiencies, revenue enhancements and
other synergies. Achieving the anticipated benefits of the merger will depend
in part upon the integration of the businesses of Meridian and ProLogis in an
efficient manner, and there can be no assurance that this will occur. There can
be no assurance that the combined company will realize any of the anticipated
benefits of the merger. For a discussion of other factors and assumptions
related to the anticipated benefits of the merger, see "The Merger--Reasons for
the merger; Recommendation of the ProLogis board" and "The Merger--Reasons for
the merger; Recommendation of the Meridian board."
22
<PAGE>
The companies have expended resources and capital in the pursuit of this
merger, and if the merger fails to occur, the companies will not benefit from
these expenses and may incur additional payments
The merger may not be completed. If the merger is not completed, ProLogis and
Meridian will have incurred substantial expenses for which no ultimate benefit
will have been received by either ProLogis or Meridian. Additionally, if the
merger agreement is terminated, ProLogis may be required to pay Meridian a $25
million termination fee or Meridian may be required to pay ProLogis a $25
million termination fee, if Prudential Real Estate enters into a voting
agreement with ProLogis. If Prudential Real Estate does not enter into such an
agreement, the termination fee payable by Meridian will be $40 million. See
"The Merger Agreement--Termination fees."
Two stockholders of Meridian have the power to determine the outcome of the
vote of Meridian stockholders
Prudential Real Estate beneficially owns approximately 27.0% of the
outstanding shares of Meridian common stock and Ameritech Pension Trust
beneficially owns approximately 26.6% of the outstanding Meridian common stock.
If each of Prudential Real Estate and Ameritech vote in favor of the merger
agreement, the merger agreement will be approved, notwithstanding the vote of
any other Meridian stockholder. Similarly, if each of Prudential Real Estate
and Ameritech vote against the merger agreement, the merger agreement will not
be approved and the merger will not close. We are not aware of any relationship
between Prudential Real Estate and Ameritech and we expect that they will each
make their voting decisions independently and will vote according to their own
respective best interests.
The directors, officers and stockholders of Meridian may have interests in the
completion of the merger that are different from the interests of Meridian
stockholders
.Each of the officers of Meridian, including Allen J. Anderson, Meridian's
chairman and chief executive officer, Milton K. Reeder, Meridian's
president and chief financial officer, and Dennis D. Higgs, executive vice
president of Meridian, will be entitled to receive cash severance payments
following consummation of the merger. The following table summarizes the
maximum severance payments to which officers of Meridian would be
entitled. These officers will also be entitled to receive an amount
necessary to pay applicable excise taxes to which such person would be
subject.
<TABLE>
<CAPTION>
Amount of
Name and Title Payment
-------------- ----------
<S> <C>
Allen J. Anderson............................................. $1,240,000
Chairman and Chief Executive Officer
Milton K. Reeder.............................................. $ 900,000
Chief Financial Officer
Dennis D. Higgs............................................... $ 860,000
Executive Vice President
Peter D. Harmon............................................... $ 270,000
Vice President
Timothy B. Keith.............................................. $ 240,000
Vice President--Regional
All officers as a group
(8 persons).................................................. $4,104,250
</TABLE>
.The Meridian directors and officers, including Messrs. Anderson, Reeder
and Higgs, and some of Meridian's employees collectively own options to
acquire a total of 2,022,371 shares of Meridian common stock. 1,298,863 of
these options were granted to such persons in 1997 and 1998 at exercise
prices ranging from $22.00 to $25.625 per share; in August 1998, the
Meridian board approved a
23
<PAGE>
pricing of the exercise prices of these options to $21.125 per share,
contingent upon a change in control of Meridian. All of Meridian's
outstanding stock options, including the 130,020 options held by
Meridian's independent directors, will be vested and fully exercisable
upon the closing of the merger. The option repricing for Meridian's
executive officers is summarized in the table below:
<TABLE>
<CAPTION>
Length of
Number of Original
Securities Market Price Exercise Option Term
Underlying of Stock at Price at New Remaining
Options Time of Time of Exercise at Date of
Name Repriced (#) Repricing ($) (1) Repricing ($) Price ($) Repricing
---- ------------ ----------------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Allen J. Anderson............ 70,000 21.125 22.00 21.125 8.5 years
Chief Executive Officer 300,000 21.125 25.1875 21.125 9.5 years
Brian R. Barringer........... 50,000 21.125 25.1875 21.125 9.5 years
Vice President
Robert A. Dobbin............. 10,000 21.125 22.00 21.125 8.5 years
Secretary and General Counsel 25,000 21.125 25.1875 21.125 9.5 years
Peter B. Harmon.............. 15,000 21.125 22.00 21.125 8.5 years
Vice President--Regional 2,500 21.125 23.125 21.125 8.75 years
Director 20,000 21.125 25.1875 21.125 9.5 years
Dennis D. Higgs.............. 45,000 21.125 22.00 21.125 8.5 years
Executive Vice President and 210,000 21.125 25.1875 21.125 9.5 years
Chief Investment Officer
Timothy B. Keith............. 10,000 21.125 22.00 21.125 8.5 years
Vice President--Regional 55,000 21.125 25.1875 21.125 9.5 years
Director
Milton K. Reeder............. 45,000 21.125 22.00 21.125 8.5 years
President and Chief Financial 215,000 21.125 25.1875 21.125 9.5 years
Officer
Greg Skirving (2)............ 11,351 21.125 25.1875 21.125 9.5 years
Senior Vice President--
National Marketing
James Suarez................. 10,000 21.125 22.00 21.125 8.5 years
Vice President--Finance 25,000 21.125 25.1875 21.125 9.5 years
</TABLE>
--------
(1) Reflects the closing price of Meridian common stock on August 18,
1998.
(2) Mr. Skirving is no longer an employee of Meridian.
.On August 18, 1998, in connection with the Meridian board of directors'
analysis of Meridian's strategic alternatives, the Meridian board
authorized grants of restricted common stock to Messrs. Anderson, Reeder
and Higgs, Robert A. Dobbin, Meridian's general counsel, and Timothy B.
Keith, a vice president and regional director of Meridian in the amounts
of 110,000 shares, 70,000 shares, 70,000 shares, 15,000 shares and 17,000
shares, respectively. These restricted stock grants will vest and the
restrictions will lapse upon the closing of the merger. As a result, these
persons will receive benefits in the merger that will not be shared by
other stockholders of Meridian generally. See "The Merger--Interests of
Meridian directors, officers and significant stockholders."
.Messrs. Anderson, Reeder and Higgs will also receive an aggregate of
approximately $513,000 in cash from an entity in which ProLogis owns a
substantial majority of the economic interest in exchange for the shares
of common stock they hold in Meridian Refrigerated, Inc., an entity in
which Meridian owns substantially all of the economic interest. These
persons paid an aggregate of approximately $455,000
24
<PAGE>
for such shares. As a result, these persons will receive benefits in the
merger that will not be shared by other stockholders of Meridian
generally. See "The Merger--Interests of Meridian directors, officers and
significant stockholders."
. If the merger is completed, at the effective time of the merger, two of
the current members of Meridian's board will be chosen by ProLogis to
become trustees of ProLogis. These directors of Meridian will continue as
trustees of ProLogis after the merger and will be granted options to
acquire 2,000 common shares of ProLogis pursuant to the ProLogis Share
Option Plan for Outside Trustees upon their appointment to the ProLogis
board and will be compensated for their services as trustees and granted
annual options during their tenure as trustees. While the two persons to
serve as ProLogis trustees have not yet been selected by ProLogis, they
will receive benefits that will not be shared by other stockholders of
Meridian generally.
An affiliate of Prudential Real Estate is entitled to a fee if the merger is
completed
Prudential Securities Incorporated, an affiliate of Prudential Real Estate,
Meridian's largest stockholder, will be entitled to receive a $1 million fee in
connection with its services as financial advisor to Meridian in connection
with the merger. Meridian's board of directors decided to retain Prudential
Securities as a financial advisor on October 16, 1998 and entered into an
engagement letter with Prudential Securities on October 29, 1998, prior to the
Meridian board's approval of the merger and after it had already retained
Goldman Sachs. See "The Merger--Background of the merger." The financial
advisory services provided by Prudential Securities to Meridian included
advising Meridian's directors and senior management regarding the structuring
and negotiation of the solicitation of expressions of interest from potential
acquirors and the use of pricing mechanisms such as fixed exchange ratios,
fixed price-floating exchange ratios, and collars and termination rights in a
stock for stock merger and the possible effects of such mechanisms on the stock
prices for the participants. In addition, representatives of Prudential
Securities continue to be available to Meridian's board of directors to provide
such assistance as may be requested by the board. Prudential Real Estate
beneficially owns approximately 27.0% of the issued and outstanding shares of
Meridian common stock. As a result of the fee payable to Prudential Securities,
Prudential Real Estate may be deemed to have interests in the merger that are
different from those of other Meridian stockholders.
Rights of ProLogis shareholders differ from those of Meridian
The rights of stockholders of Meridian currently are governed by Maryland law
applicable to corporations and Meridian's charter and bylaws. Upon completion
of the merger, stockholders of Meridian will become shareholders of ProLogis
and their rights will be governed by Maryland law applicable to real estate
investment trusts and ProLogis' declaration of trust and bylaws. The rights of
stockholders of Meridian may differ materially from the rights of shareholders
of ProLogis and, therefore, the rights of the former Meridian stockholders in
ProLogis may be less favorable than their former rights as stockholders of
Meridian. One of these differences, the staggered board of trustees of
ProLogis, may have the effect of making it difficult for a third party to
acquire control of ProLogis without the consent of the board of trustees. See
"Comparison of Shareholder Rights."
Risk factors relating to ownership of ProLogis common shares and preferred
shares
Significant influence of ProLogis' principal shareholder may impact ProLogis
management and operations
Security Capital Group Incorporated owns approximately 40.3% of the issued
and outstanding common shares of ProLogis and is expected to own approximately
30.9% upon completion of the merger. Through its ownership of common shares,
Security Capital controls approximately 40.3% of the vote on matters submitted
for shareholder action, including the election of trustees. Other than
shareholders who acquired shares prior to ProLogis' initial public offering who
are permitted to hold up to 30% of the shares of ProLogis, no other shareholder
may hold more than 9.8% of the outstanding shares of ProLogis. See "Description
of ProLogis
25
<PAGE>
Securities--Common shares--Restrictions on size of holdings." For so long as
Security Capital beneficially owns at least 10% of ProLogis' outstanding common
shares, Security Capital has a right to nominate up to three trustees,
depending on its level of ownership of shares. The trustees so elected are in a
position to exercise significant influence over the affairs of ProLogis if they
were to act together in the future. Additionally, for so long as Security
Capital beneficially owns at least 10% of ProLogis' outstanding common shares,
Security Capital has the right to approve
(1)ProLogis' annual operating budget and substantial deviations therefrom,
(2) acquisitions or dispositions in a single transaction or group of
related transactions where the purchase price exceeds $5 million,
(3) property management arrangements, and
(4) the increase of the number of trustees to more than 10.
Accordingly, due to the foregoing, for so long as it continues to
beneficially own at least 10% of ProLogis' outstanding common shares, Security
Capital will retain significant influence over the affairs of ProLogis which
may result in decisions that do not fully represent the interests of all
shareholders of ProLogis.
The merger will increase the geographic concentration of ProLogis in several
markets, increasing ProLogis' exposure to the general economic conditions of
these markets
ProLogis' operating performance depends on the economic conditions of markets
in which its facilities are concentrated. The merger will increase the
concentration of ProLogis in a number of markets, principally the Chicago,
Dallas, Los Angeles and Columbus markets. ProLogis' operating performance could
be adversely affected if conditions, such as an oversupply of space or a
reduction in demand for industrial distribution facilities, in ProLogis' larger
markets become less favorable relative to other geographic areas. Any material
oversupply of space or material reduction of demand for space could adversely
effect ProLogis' operating income and the value of ProLogis shares.
ProLogis' real estate investments are subject to risks particular to real
estate investments
Value of real estate dependent on numerous factors
Real property investments are subject to varying degrees of risk. Real estate
values are affected by a number of factors, including:
(1)changes in the general economic climate;
(2)local conditions, such as an oversupply of space or a reduction in demand
for real estate in an area;
(3)the quality and philosophy of management;
(4)competition from other available space;
(5)the ability of the owner to provide adequate maintenance and insurance;
(6)the ability of the owner to control variable operating costs;
(7)government regulations;
(8)interest rate levels;
(9)the availability of financing; and
(10) potential liability under, and changes in, environmental, zoning, and
other laws.
Restrictions on, and risks of, unsuccessful development activities
ProLogis intends to continue to pursue development activities as
opportunities arise. Such development activities generally require various
government and other approvals. ProLogis may not receive such approvals.
26
<PAGE>
ProLogis will be subject to risks associated with any such development
activities. These risks include:
(1) the risk that development opportunities explored by ProLogis may be
abandoned;
(2) the risk that construction costs of a project may exceed original
estimates, possibly making the project less profitable than originally
estimated;
(3) limited cash flow during the construction period; and
(4) the risk that occupancy rates and rents of a completed project will not
be sufficient to make the project profitable.
In case of an unsuccessful development project, ProLogis' loss could exceed its
investment in the project.
Tenant default
ProLogis' income and distributable cash flow would be adversely affected if a
significant number of ProLogis' tenants is unable to meet their obligations to
ProLogis, or if ProLogis is unable to lease, on economically favorable terms, a
significant amount of space in its industrial distribution facilities. In the
event of default by a significant number of tenants, ProLogis may experience
delays and incur substantial costs in enforcing its rights as landlord.
Illiquidity of real estate investments
Equity real estate investments are relatively illiquid and therefore may tend
to limit the ability of ProLogis to react promptly to changes in economic or
other conditions. In addition, significant expenditures associated with equity
real estate investments, such as mortgage payments, real estate taxes and
maintenance costs, are generally not reduced when circumstances cause a
reduction in income from the investments. Like other companies qualifying as
real estate investment trusts under the Internal Revenue Code of 1986, ProLogis
must comply with the safe harbor rules, relating to the number of properties
sold in a year, their tax bases and the cost of improvements made thereto, or
meet other tests which enable a real estate investment trust to avoid punitive
taxation on the sale of assets. Thus, ProLogis' ability to sell assets at any
time to change its asset base may be restricted.
Share prices may be effected by market interest rates
The annual distribution rate on the ProLogis common shares as a percentage of
its market price may influence the trading price of such common shares. An
increase in market interest rates may lead investors to demand a higher annual
distribution rate, which could adversely affect the market price of such common
shares. A decrease in the market price of the ProLogis common shares could
reduce ProLogis' ability to raise additional equity capital in the public
markets.
Uninsured losses may adversely affect ProLogis
Some types of losses, such as from hurricanes or acts of war, may be
uninsurable, or the cost of insuring against such losses may not be
economically justifiable. If an uninsured loss occurs, ProLogis could lose both
the invested capital in and anticipated revenues from the affected facility,
but would still be obligated to repay any recourse mortgage indebtedness on the
facility.
Potential environmental liability
Under various federal, state and local laws, ordinances and regulations, a
current or previous owner, developer or operator of real estate may be liable
for the costs of removal or remediation of hazardous or toxic substances at,
on, under or in its property. The costs of removal or remediation of such
substances could be substantial. Such laws often impose liability without
regard to whether the owner or operator knew of, or was responsible for, the
release or presence of such hazardous substances. The presence of such
substances on
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ProLogis' properties may adversely affect its ability to sell such properties
or to borrow using such properties as collateral and may also have an adverse
affect on ProLogis' ability to pay distributions to its shareholders.
Debt financing, increases in interest rates, financial covenants and absence
of limitations on debt may result in decreased distributions to shareholders
Debt financing
ProLogis is subject to risks normally associated with debt financing,
including the risk that ProLogis' cash flow will be insufficient to meet
required payments of principal and interest and the risk that ProLogis will not
be able to refinance existing indebtedness or that the terms of such
refinancings will not be as favorable as the terms of the existing
indebtedness. There can be no assurance that ProLogis will be able to refinance
any indebtedness or otherwise obtain funds by selling assets or raising equity
to make required payments on maturing indebtedness.
Requirements of credit facilities; foreclosures
The terms of ProLogis' indebtedness require ProLogis to comply with a number
of customary financial and other covenants, such as maintaining debt service
coverage and leverage ratios, maintaining insurance coverage, etc. These
covenants may limit ProLogis' flexibility in its operations, and breaches of
these covenants could result in defaults under the instruments governing the
applicable indebtedness even if ProLogis has satisfied its payment obligations.
If ProLogis is unable to refinance its indebtedness at maturity or meet its
payment obligations, the amount of cash available for distribution may be
adversely affected.
Risk of rising interest rates
ProLogis may incur indebtedness in the future that bears interest at a
variable rate or may be required to refinance its debt at higher interest
rates. Increases in interest rates could increase ProLogis' interest expense,
which could adversely affect ProLogis' ability to pay expected distributions to
shareholders.
No limitation on debt
ProLogis currently has a policy of incurring debt only if, upon such
incurrence, ProLogis' debt-to-book capitalization ratio, as adjusted, would
equal 50% or less. The ProLogis board of trustees could alter or eliminate this
policy without shareholder approval and would do so if, for example, it were
necessary in order for ProLogis to continue to qualify as a real estate
investment trust under the Internal Revenue Code of 1986. If this policy were
changed, ProLogis could become more highly leveraged, resulting in an increase
in debt service that could adversely affect the cash available for distribution
to shareholders.
Costs of compliance with laws may reduce cash flow available for distribution
ProLogis' facilities are subject to various federal, state and local
regulatory requirements, such as state and local fire and life safety
requirements. Failure to comply with these requirements could result in the
imposition of fines by governmental authorities or awards of damages to private
litigants. There can be no assurance that these requirements will not be
changed or that new requirements will not be imposed, a result that could
require significant unanticipated expenditures by ProLogis and could have an
adverse effect on ProLogis' cash flow.
Failure to qualify as a real estate investment trust could adversely affect
shareholders
ProLogis has elected to be taxed as a real estate investment trust under the
Internal Revenue Code of 1986 commencing with its taxable year ended December
31, 1993. To maintain real estate investment trust status, ProLogis must meet a
number of highly technical requirements on a continuing basis. Those
requirements seek to ensure, among other things, that the gross income and
investments of a real estate investment trust are largely real estate related,
that a real estate investment trust distributes substantially all its ordinary
taxable
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re-income to shareholders on a current basis and that the real estate
investment trust's ownership is not overly concentrated. Due to the
complex nature of these rules, the limited available guidance concerning
interpretation of the rules, the importance of ongoing factual
determinations and the possibility of adverse changes in the law,
administrative interpretations of the law and developments at ProLogis, no
assurance can be given that ProLogis will qualify as a real estate
investment trust for any particular year.
If ProLogis fails to qualify as a real estate investment trust, it will be
taxed as a regular corporation, and distributions to shareholders will not be
deductible in computing ProLogis' taxable income. The resulting corporate tax
liabilities could materially reduce the funds available for distribution to
ProLogis' shareholders or for reinvestment. In the absence of real estate
investment trust status, distributions to shareholders would no longer be
required. Moreover, ProLogis might not be able to elect to be treated as a
real estate investment trust for the four taxable years after the year during
which ProLogis ceased to qualify as a real estate investment trust. In
addition, if ProLogis later requalified as a real estate investment trust, it
might be required to pay a full corporate-level tax on any unrealized gain in
its assets as of the date of requalification and to make distributions to
shareholders equal to any earnings accumulated during the period of non-real
estate investment trust status.
Potential adverse effect of real estate investment trust distribution
requirements
To maintain its qualification as a real estate investment trust under the
Internal Revenue Code of 1986, ProLogis must annually distribute to ProLogis'
shareholders at least 95% of its ordinary taxable income, excluding net
capital gains. This requirement limits ProLogis' ability to accumulate
capital. Under certain circumstances, ProLogis may not have sufficient cash or
other liquid assets to meet the distribution requirements. Difficulties in
meeting the distribution requirements might arise due to competing demands for
ProLogis' funds or to timing differences between tax reporting and cash
receipts and disbursements, because income may have to be reported before cash
is received, because expenses may have to be paid before a deduction is
allowed or because deductions may be disallowed or limited. In those
situations, ProLogis might be required to borrow funds or sell facilities on
adverse terms in order to meet the distribution requirements. If ProLogis
fails to make a required distribution, it would cease to be a real estate
investment trust.
THE COMPANIES
ProLogis
ProLogis is a real estate investment trust organized under Maryland law and
has elected to be taxed as a real estate investment trust under the Internal
Revenue Code of 1986. ProLogis is an owner and lessor of industrial
distribution facilities with nearly 1,300 facilities leased to industrial
users throughout North America and Europe, making it the largest publicly held
U.S.-based company to do so. ProLogis is an international company focused
exclusively on meeting the distribution space needs of international,
national, regional and local industrial real estate users through the ProLogis
Operating System(TM). ProLogis distinguishes itself from its competition by
being the only entity that combines all of the following:
(1) An international operating strategy dedicated to providing distribution
facilities to a targeted customer base of the 1,000 largest users of
distribution facilities worldwide, 399 of which are currently ProLogis
customers;
(2) An organizational structure and service delivery system built around
the customer--ProLogis believes its service approach is unique to the
real estate industry as it combines international scope and expertise
with strong local presence in each of its target markets; and
(3) A disciplined investment strategy based on proprietary research that
identifies high growth markets with sustainable demand for ProLogis'
distribution facilities.
As of December 31, 1998, ProLogis, including its unconsolidated
subsidiaries, had 134.7 million square feet of industrial distribution
facilities, which included 126.1 million square feet of operating facilities.
In addition, ProLogis had 8.6 million square feet under development at a total
expected investment of $391.9
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million in 90 North American and European markets. Also, as of December 31,
1998, ProLogis, including its unconsolidated subsidiaries, owned or controlled
4,678 acres of land for the future development of approximately 81.6 million
square feet of distribution facilities.
On December 29, 1998, ProLogis acquired 100% of the preferred stock,
representing 95% of the equity interest, of Garonor Holdings S.A., a Luxembourg
based holding company. Also on December 29, 1998, Garonor Holdings S.A.
acquired in excess of 99% of the voting stock of Garonor S.A. for approximately
$317 million. Garonor S.A. owns 5.25 million square feet of industrial
distribution facilities located in France. Garonor Holdings S.A. is in the
process of acquiring the remaining voting stock of Garonor S.A. The transaction
was funded with approximately $200 million of secured financing from a group of
European banks, borrowings on ProLogis' unsecured line of credit and proceeds
from a secured debt financing arrangement that was completed by ProLogis in
December 1998.
The cornerstone of ProLogis' operating strategy is the ProLogis Operating
System(TM) that utilizes ProLogis' international network of corporate
distribution facilities to fully meet its customers' distribution needs on a
global basis.
ProLogis engages in the acquisition, development, marketing, and long-term
ownership of distribution facilities. ProLogis has the resources to provide a
full array of financial, development and operating services, including:
(1) expertise in market research,
(2) building and land acquisition and due diligence,
(3) master-planned distribution park design and building construction,
and
(4) marketing, asset and leasing management.
ProLogis deploys capital in markets with excellent long-term growth prospects
and in markets where it can achieve a strong position through the acquisition
and development of flexible facilities for warehousing, distribution and light
manufacturing uses. ProLogis expanded its operations into Mexico and Europe in
1997 to meet the needs of its targeted national and international customers as
they expand and reconfigure their distribution facility requirements globally.
Meridian
Meridian is a corporation organized under Maryland law and has elected to be
taxed as a real estate investment trust under the Internal Revenue Code of
1986. Meridian engages primarily in the business of owning, acquiring,
developing, managing and leasing income-producing warehouse/distribution and
light industrial properties. At December 31, 1998, Meridian, including its
unconsolidated subsidiaries and joint ventures, owned 232
warehouse/distribution and light industrial properties encompassing
approximately 31.4 million square feet. Meridian had 2.2 million square feet of
warehouse/distribution properties under development at a total expected
investment of $81.2 million as of December 31, 1998. In addition, Meridian
owned or controlled 420 acres of land for the future development of an
additional approximately 6.3 million square feet of warehouse distribution
facilities. Meridian's properties are located in significant industrial centers
and distribution hubs throughout the United States, including Atlanta, Chicago,
Columbus, Dallas, Detroit, Houston, the Los Angeles Basin, Memphis, the New
Jersey/Pennsylvania I-95 Corridor, Phoenix, the San Francisco Bay Area and
Seattle.
The combined company
Upon completion of the merger, ProLogis is expected to have a total market
capitalization of approximately $6.3 billion, based on the closing price of
ProLogis shares on February 12, 1999 and the outstanding principal amount of
indebtedness of the two companies on such date. The combined company will own
more than 1,500 distribution facilities, based on the real estate assets held
by ProLogis and Meridian as of December 31, 1998. The combined real estate
assets, including assets held by unconsolidated subsidiaries and
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joint ventures, will consist of approximately 157.5 million square feet of
operating distribution facilities. Also, the combined company will have 10.8
million square feet of distribution facilities under development at a total
expected investment of $473.1 million in 94 North American and European
markets. Additionally, the combined company will own or control approximately
5,100 acres of land for the future development of approximately 87.9 million
square feet of distribution facilities. The combined company will continue to
be taxed as a real estate investment trust under the Internal Revenue Code of
1986.
The combined company resulting from the merger is expected to have the
following important characteristics, which are intended to create long-term
shareholder value:
(1) the largest publicly traded industrial real estate investment trust
with approximately 168.2 million square feet of distribution facilities
located in 94 target markets in the United States, Mexico and Europe;
(2) a customer base of over 3,100 including 414 who are among ProLogis'
targeted customer base of the 1,000 largest users of distribution space;
(3) significant operational and property-level cost savings as the result
of integrating Meridian's assets into ProLogis' established operating
systems; and
(4) larger capitalization which is expected to lead to more favorable
access to debt and equity capital markets.
THE MERGER
Terms of the merger
The ProLogis board of trustees and the Meridian board of directors have each
approved the merger and the merger agreement, a copy of which is attached
hereto as Annex A and incorporated herein by reference. Pursuant to the merger
agreement, among other things, upon the satisfaction, or waiver, of the
conditions set forth therein, at the effective time of the merger:
. Meridian will be merged with and into ProLogis, with ProLogis being the
surviving entity,
. each issued and outstanding share of Meridian common stock will be
converted into the right to receive 1.10 ProLogis common shares and the
corresponding number of rights to purchase 0.01 of ProLogis Series A
junior participating preferred shares,
. if the average of the daily high and low per share transaction prices for
ProLogis common shares for 15 trading days randomly selected by Arthur
Andersen LLP from the 30 trading days ending on, and including, the fifth
trading day prior to the closing of the merger, is less than $22.725,
each holder of Meridian common stock will be entitled to receive an
additional amount in cash; the amount of cash will be equal to the amount
by which $25.00 exceeds the product of the average trading price,
calculated as described above, multiplied by 1.10, but will not exceed
$2.00, and
. each issued and outstanding share of Meridian Series D cumulative
redeemable preferred stock will be converted into the right to receive
one share of a corresponding series of ProLogis preferred shares having
substantially identical rights and preferences.
As a result of the merger and without any action on the part of the holder
thereof, at the effective time of the merger, each share of Meridian common
stock and preferred stock will cease to be outstanding, will be canceled and
retired and will cease to exist. Each holder of a certificate representing
Meridian common stock or Meridian preferred stock will thereafter cease to have
any rights with respect to such shares, except the right to receive the
ProLogis common shares, including the associated preferred share purchase
rights, and any cash consideration or ProLogis Series E preferred shares, as
applicable, upon the surrender of such certificate. Promptly after the
effective time of the merger, ProLogis will deposit with an exchange agent, a
bank or trust company, certificates representing the ProLogis shares to be
issued in the merger. The exchange agent will mail a letter of transmittal and
instructions to each holder of a certificate representing Meridian shares, as
of the effective time, for use in effecting the surrender of their Meridian
stock certificates in exchange for certificates representing ProLogis shares.
See "The Merger Agreement--Exchange of certificates."
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Background of the merger
Since its formation, Meridian's fundamental business objective has been to
maximize total return to its stockholders by increasing cash flow per share and
increasing the long-term value of Meridian's properties. A key strategy in
achieving that objective has been to acquire and develop new industrial
properties while maximizing cash flow from Meridian's existing properties.
Beginning in early 1998, market prices for publicly traded real estate
investment trusts began a significant decline. As a result of this decline and
recent volatility in the credit markets, Meridian and many other real estate
investment trusts have been limited in their ability to raise additional equity
capital and to issue long-term debt to fund further growth. In this environment
and because Meridian management believes that the real estate investment trust
industry will continue to consolidate, Meridian's management began to explore
the potential for a strategic business combination with another large real
estate investment trust as a means of competing effectively and enhancing
stockholder value.
Throughout 1998, ProLogis, through its strategic acquisitions committee, had
been considering ways in which to increase its market presence in key logistics
and other target markets in a capital constrained environment. ProLogis began
to focus on potential merger and acquisition candidates within the industrial
real estate investment trust sector as it grew increasingly evident that
consolidation was likely to continue in the real estate investment trust sector
generally and was likely to begin in the industrial sector specifically.
Following a review of potential acquisition candidates, ProLogis focused
primarily on Meridian due to its business plan, asset base and sole focus on
industrial facilities.
Allen Anderson, Meridian's chairman and chief executive officer initiated
discussions with several real estate investment trusts during the summer of
1998 regarding possible strategic combinations. In addition to meetings with
other companies, between June 3, 1998 and August 10, 1998, Mr. Anderson had
several telephone conversations and face to face meetings with Irving F. Lyons
III, ProLogis' co-chairman and chief investment officer, and other ProLogis
representatives. In these meetings, Mr. Anderson and Mr. Lyons discussed the
industrial real estate market generally, the operations of the two companies
and the possible benefits of a strategic combination. None of the discussions
with ProLogis or any of the other companies resulted in a proposal that was
acceptable to Meridian.
At a telephone meeting of Meridian's board of directors on August 18, 1998,
Meridian engaged Goldman, Sachs & Co. as its financial advisor to review the
company's strategic alternatives. Meridian's board retained Goldman Sachs
because of its substantial experience in transactions similar to the merger,
its familiarity with Meridian and the other factors described below under "--
Opinion of Meridian's financial advisor." Goldman Sachs has in the past acted
on behalf of ProLogis and Security Capital and their respective affiliates as
described below under "--Opinion of Meridian's financial advisor."
At a meeting of Meridian's board of directors in Dallas on September 18,
1998, representatives of Goldman Sachs made a presentation to the Meridian
board regarding various strategic alternatives. This presentation focused on
four primary alternatives:
(1) maintaining Meridian's existing growth and operating strategy,
(2) embarking on a new strategy relying on a high degree of leverage,
primarily through mortgaging Meridian's existing properties,
(3) pursuing a "merger of equals" business combination, or
(4) pursuing a "change of control" business combination which could take
the form of an acquisition by a financial buyer or a merger with another
real estate investment trust. During this meeting, the Meridian board of
directors and its legal and financial advisors discussed the challenges and
opportunities presented by each of the proposed alternatives.
On the basis of the board's discussion and the Goldman Sachs presentation,
Meridian's board of directors asked Goldman Sachs to explore Meridian's value
in a "change of control" transaction by circulating an
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offering memorandum to a limited number of qualified parties and seeking non-
binding expressions of interest from those parties. On September 28, 1998,
Meridian engaged Goldman Sachs as its financial advisor to pursue a strategic
business combination. On October 6, 1998, Goldman Sachs distributed offering
memoranda to eight parties, including ProLogis.
In addition to pursuing a "change of control" transaction, at the Meridian
board's direction, Mr. Anderson resumed the discussions that started in March
1998 with "Company A," another publicly traded real estate investment trust,
regarding a "merger of equals" transaction. Mr. Anderson met with
representatives of Company A on September 9, September 24 and September 29,
1998 to discuss the companies' respective business plans, potential competitive
advantages of the combined entity, management and social issues regarding a
potential combination and the possibility of including a third company in the
transaction. During this period, confidentiality letters were exchanged and
Meridian and Company A shared relevant non-public financial and operating
information. Finally, on October 7, 1998, Company A's financial advisor made a
presentation to representatives of Meridian and Company A regarding the
proposed transaction. Based upon the indicated value of Meridian shares in a
merger with Company A and the responses to Goldman Sachs' solicitations of
interest discussed below, these discussions were abandoned without any further
meetings.
On October 15, 1998, ProLogis engaged Merrill Lynch & Co. to act as its
financial advisor in connection with its evaluation of the potential
acquisition of Meridian. ProLogis' board retained Merrill Lynch because of its
substantial experience in transactions similar to the merger, its familiarity
with ProLogis and the other factors described below under "--Opinion of
ProLogis' financial advisor." Merrill Lynch, in conjunction with ProLogis'
internal due diligence personnel, prepared a comprehensive overview of
Meridian, preliminary valuations of Meridian based on public comparables and
cash flow analyses and a preliminary analysis of pro forma merger consequences.
Merrill Lynch also analyzed the potential transaction from the perspective of
ProLogis' significant competitors.
On October 16, 1998, Meridian's board of directors decided to retain
Prudential Securities Incorporated as a financial advisor and entered into an
engagement letter with Prudential Securities on October 29, 1998. Meridian's
board retained Prudential Securities based on its long standing relationship
with Meridian and its reputation as a nationally recognized investment banking
firm with experience advising clients in transactions similar to the merger and
because of its familiarity with Meridian. Prudential Securities was the lead
underwriter on Meridian's two public stock offerings in 1996 and was a co-lead
manager on Meridian's public offering of preferred stock in June 1998.
Prudential Securities has also advised Meridian's board of directors from time
to time regarding other matters, including Meridian's acquisition of a
substantial real estate portfolio from Ameritech in September 1997, for which
it received normal and customary compensation. The Meridian board of directors
decided to retain Prudential Securities after already having engaged Goldman
Sachs because the directors believed that, based on Prudential Securities'
experience and prior relationship with Meridian, Prudential Securities' advice
would assist them in discharging their statutory duties to determine whether
the merger was advisable and to act with due care.
On October 22, 1998, Goldman Sachs received three formal expressions of
interest. ProLogis offered to acquire Meridian in a stock-for-stock merger in
which Meridian's common stockholders would receive ProLogis common shares
having a value of $25.00. This amount was determined by ProLogis after
consideration of the advice of Merrill Lynch. ProLogis' proposal was subject to
the negotiation of definitive documentation, satisfactory completion of its due
diligence review of Meridian and the approval of ProLogis' board of trustees.
Two other parties, "Company B," a joint venture between a publicly traded
real estate investment trust and a financial investor, and "Company C," another
publicly traded real estate investment trust that owns primarily industrial
properties, also submitted expressions of interest. Company B offered to
acquire Meridian in an all-cash transaction in which Meridian's common
stockholders would receive $26.00 per share. This offer was subject to the
approval of the joint venture's financial partner and several contingencies
that are more
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customary in a property or portfolio acquisition than in the acquisition of a
public company. Company C offered to acquire Meridian in a merger in which
Meridian's common stockholders would receive a combination of cash and Company
C common stock having a value of between $25.00 and $27.00 per share. Company
C's offer was subject to the negotiation of definitive documentation and
satisfactory completion of its due diligence. Two other parties expressed an
interest in portions of Meridian's portfolio but did not make offers for all or
a substantial portion of the company. None of ProLogis' or Meridian's financial
advisors represented any of the other bidders for Meridian.
On October 26, 1998, Meridian's board of directors held a meeting in Dallas
at which representatives of Goldman Sachs made a presentation regarding the
three expressions of interest. Meridian's directors, management and
representatives of Goldman Sachs also discussed the net asset value of
Meridian's portfolio based on a range of capitalization rates. Finally,
Meridian's board and its advisors discussed a variety of mechanisms for
protecting Meridian's stockholders from a deterioration in an acquiror's stock
price.
A data room of Meridian due diligence material was established at the Dallas
office of Vinson & Elkins L.L.P., Meridian's counsel. ProLogis and Company C
and their respective representatives each visited the data room during the week
of October 26. On October 29, copies of a form of merger agreement were sent to
ProLogis, Company B and Company C. On October 30, Company B withdrew its
proposal before the Meridian board convened to consider the proposal. On
November 3, members of ProLogis management visited Meridian's offices in San
Francisco, California, during which Meridian management presented an overview
of Meridian, its business and its active transactions. During the meeting the
parties discussed matters which had arisen during the course of ProLogis' due
diligence review. On November 10, members of Meridian management visited
Company C's offices for a presentation regarding Company C's operating
strategy, its long-term business plan, financial statements and real estate
portfolio, including interviews with key management personnel. On November 9,
members of Meridian management visited ProLogis' offices in Aurora, Colorado,
during which ProLogis management presented an overview of ProLogis, its
business and its active transactions. During the meeting, the parties also
discussed the status of ProLogis' due diligence review and issues that had
arisen. From November 9 through 11, members of ProLogis' management team met
with their financial and legal advisors, reviewed and commented on the proposed
merger agreement and finalized the offer to Meridian.
On November 12, Meridian received final offers from ProLogis and Company C.
Mr. Lyons and Walter Rakowich, a managing director of ProLogis, presented the
ProLogis bid in person to Mr. Anderson and Meridian's financial and legal
advisors at Goldman Sachs' office in San Francisco. ProLogis' offer was to
acquire Meridian in a merger in which each share of Meridian common stock would
be entitled to receive consideration having a value of $24.50. In their final
proposal, Company C offered to acquire Meridian in a stock-for-stock merger in
which Meridian's common stockholders would receive Company C common stock
having a value, based upon the then current price of Company C stock, that was
less than the $24.50 value to be received in the ProLogis proposal. Company C's
offer also did not include any protection against a decline in Company C's
trading price.
On November 13, Meridian's board of directors met in San Francisco to
consider the two proposals. At the conclusion of an approximately six hour
meeting, the Meridian board of directors approved the ProLogis proposal and the
principal terms of the merger as set out in the comments to the draft merger
agreement that ProLogis and its legal advisors provided to Meridian and its
legal advisors. During the course of this meeting at the board's direction, Mr.
Anderson made several telephone calls to Mr. Lyons regarding various components
of the ProLogis proposal, including Meridian's and ProLogis' ability to obtain
voting agreements from their respective major stockholders, the amount and
structure of the cash component of the consideration to be received by
Meridian's stockholders and the number of Meridian directors who would continue
as trustees of the combined company.
As a result of these conversations, ProLogis revised its offer to provide for
a merger in which each share of Meridian stock would be converted into the
right to receive consideration having a value of $25.00, consisting of 1.10
ProLogis common shares and up to $2.00 in cash if an average price of a
ProLogis common
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share prior to the closing of the merger was less than $22.725 and Meridian
requested that Security Capital agree to vote its ProLogis common shares in
favor of the merger. Similarly, ProLogis requested that Prudential Real Estate
agree to vote its shares of Meridian common stock in favor of the merger, and
in the absence of such an agreement, that the termination fee be higher.
Meridian agreed to use its reasonable best efforts to obtain a voting agreement
from Prudential Real Estate.
At the conclusion of the Meridian board meeting the principal terms of the
merger having been agreed to by their respective boards, the management and
representatives of Meridian and ProLogis agreed to negotiate and execute the
definitive agreements. In a series of conference calls from November 14th
through November 16th, senior management of both companies and their respective
financial and legal advisors negotiated the terms of the definitive merger
agreement, the voting agreement and the Meridian Refrigerated stock purchase
agreement. See "The Merger Agreement" and "--Voting agreements."
On November 16, Meridian's board of directors held a telephone meeting to
approve the merger agreement and the merger. Representatives of Goldman Sachs
delivered their opinion to the Meridian board that as of such date, and based
upon and subject to the various qualifications and assumptions described
therein, the consideration to be received by the holders of Meridian common
stock in the merger was fair from a financial point of view to the holders of
Meridian common stock. The directors discussed ProLogis' request that
Prudential Real Estate enter into a voting agreement and agree to vote in favor
of the merger. Meridian's board of directors was concerned about the request
for a Prudential Real Estate voting agreement for two reasons. First, they
realized that Prudential Real Estate was acting in a fiduciary capacity with
respect to shares of Meridian common stock that it managed on behalf of several
separate accounts, and therefore might be unwilling to agree to vote in favor
of the merger before the Meridian stockholders meeting. Second, if Prudential
Real Estate agreed to vote in favor of the merger, the Meridian board was
concerned that it would be difficult for the remaining stockholders to vote
down the merger if a holder of approximately 27.0% was committed to vote in
favor of the merger. For these reasons, the Meridian board of directors
proposed that the merger agreement provide that Meridian agree to pay a higher
termination fee if Prudential Real Estate did not enter into a voting agreement
and not provide that the execution of a voting agreement with Prudential Real
Estate would be a condition to ProLogis' obligation to complete the merger.
Meridian's board of directors reviewed and discussed the information
presented by management and Meridian's legal advisors, together with the
opinion presented by Goldman Sachs. At the conclusion of this discussion,
Meridian's board of directors unanimously approved the merger and the merger
agreement.
On November 16, 1998, a special telephonic meeting of the ProLogis board was
convened to consider the merger and the merger agreement. At this meeting,
Merrill Lynch delivered its oral opinion that, as of such date, the
consideration to be paid by ProLogis in the merger was fair, from a financial
point of view, to ProLogis and the shareholders of ProLogis. After a review of
the information presented by management and a review of the terms of the merger
and merger agreement, the ProLogis board approved the merger and merger
agreement and resolved to recommend the merger to ProLogis' shareholders.
In early December 1998, ProLogis and Meridian and their respective legal
advisors discussed several proposed amendments to the merger agreement. These
amendments, which were technical in nature, were finalized on February 3, 1999
and approved by the ProLogis board and the Meridian board.
Reasons for the merger; Recommendations of the ProLogis board
Prologis' board of trustees has determined that the terms of the merger and
the merger agreement and the transactions contemplated thereby are advisable
and in the best interests of Prologis and its shareholders and recommends that
Prologis shareholders vote for the approval of the merger.
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<PAGE>
Positive factors considered by the ProLogis board
In making its determination with respect to the merger, the ProLogis board
considered the following material positive factors:
(1) The merger will combine the assets of Meridian and ProLogis,
strengthening the largest industrial real estate investment trust in the
nation, which is focused on owning, managing, acquiring and developing
distribution facilities in ProLogis' target logistics markets throughout
the United States, Mexico and Europe. ProLogis is expected to have a pro
forma total market capitalization of approximately $6.3 billion, based on
the closing price of ProLogis shares on February 12, 1999 and the
outstanding principal amount of indebtedness of the two companies on such
date.
(2) The board of trustees believes that the merger will result in a
strong balance sheet for ProLogis. The post-merger pro forma ratio of total
long-term debt to total long-term undepreciated book capitalization ratio
is approximately 28.3%. In addition, the board of trustees believes that
the merger will result in improved liquidity for ProLogis shareholders as a
result of the increased total equity capitalization of the combined company
and an increased trading volume of the securities of the combined company.
(3) Approximately 98% of Meridian's assets are located in ProLogis'
target markets, which allows ProLogis' experienced management team to
spread its expertise over a broader asset base.
(4) Similarities in Meridian and ProLogis assets are expected to create
overhead savings and leasing and property management cost reductions.
Management expects these savings and cost reductions to aggregate
approximately $8.0 million on an annualized basis beginning in 1999.
(5) The merger will give ProLogis increased market presence in key
logistics markets. Forty-five percent of Meridian's assets are located in
Los Angeles, Dallas and Chicago. After the merger, ProLogis will own assets
totaling in excess of 38 million square feet in these key markets.
(6) Meridian's refrigerated distribution facilities are located in
markets ProLogis has targeted for its refrigerated business and are key
strategic additions to ProLogis' refrigerated distribution network.
(7) The combined company will have a diversified customer base, which the
ProLogis board believes will further reduce ProLogis' exposure to large
customers. The increase in ProLogis' customer base is expected to enhance
ProLogis' position in markets it already serves.
(8) Expanded customer relations will provide growth prospects through the
expansion of a quality customer base. After the merger, ProLogis will have
as customers 414 of ProLogis' targeted 1,000 largest users of distribution
facilities worldwide. Additionally, 38 of ProLogis' current customers will
become multi-market customers.
(9) The opinion, analysis and presentation of Merrill Lynch described
below, including the opinion to the effect that, as of the date of such
opinion, and based upon and subject to the matters stated in such opinion,
the consideration to be paid by ProLogis in the merger is fair, from a
financial point of view, to ProLogis and the shareholders of ProLogis.
Negative factors considered by the ProLogis board
The ProLogis board also considered the matters described above under "Risk
Factors" as well as the following potentially negative factors in its
deliberations concerning the merger:
(1) Because the exchange ratio is supplemented by cash consideration,
ProLogis may have to distribute cash because of general fluctuations in the
real estate investment trust market, which are not specifically related to
ProLogis' financial results or ProLogis common shares.
(2) Because the exchange ratio is fixed, the ProLogis common shares that
ProLogis will be required to issue in the merger may have a greater value
than the value contemplated at the time the merger was signed or at the
time the average trading price for ProLogis common shares used to calculate
the amount of any cash consideration to be received by Meridian common
stockholders is determined because of increases in the market price of
ProLogis common shares.
36
<PAGE>
(3) ProLogis shareholders will not maintain their current percentage
ownership of ProLogis.
(4) The substantial management time and effort that will be required to
consummate the merger and to combine the operations of the two companies.
In view of the wide variety of factors considered by the ProLogis board, the
ProLogis board did not quantify or otherwise attempt to assign relative weights
to the specific factors considered in making its determination. However, in the
view of the ProLogis board, the potentially negative factors considered by it
were not sufficient, either individually or collectively, to outweigh the
positive factors considered by it in its deliberations relating to the merger.
Opinion of ProLogis' financial advisor
Merrill Lynch was engaged by ProLogis to deliver to the board of trustees of
ProLogis a fairness opinion to assist ProLogis in evaluating a strategic merger
between Meridian and ProLogis.
On November 16, 1998, Merrill Lynch delivered the Merrill Lynch opinion to
the ProLogis board stating that, as of November 16, 1998, and based upon the
assumptions made, matters considered and limits of review set forth therein,
the consideration to be received by holders of Meridian common stock in
accordance with the merger agreement was fair, from a financial point of view,
to ProLogis and the holders of ProLogis common shares.
The full text of the Merrill Lynch opinion, which sets forth assumptions
made, matters considered and limits on the review undertaken, is attached to
this joint proxy statement and prospectus as Annex B and is incorporated herein
by reference. The description of the Merrill Lynch opinion set forth herein is
qualified in its entirety by reference to the full text of the Merrill Lynch
opinion. Shareholders are urged to read the opinion in its entirety. In the
opinion of ProLogis, no events or significant changes in the information
provided by ProLogis to Merrill Lynch have occurred.
The Merrill Lynch opinion is addressed to the board of trustees of ProLogis
and addresses only the fairness, from a financial point of view, of the merger
consideration in the merger, does not address the merits of the underlying
decision by ProLogis to engage in the merger and does not constitute, nor
should it be construed as, a recommendation to any shareholder as to how such
shareholder should vote at the special meeting. The exchange ratio and the
merger consideration for the merger were determined on the basis of
negotiations between ProLogis and Meridian and were approved by the board of
trustees of ProLogis.
In connection with the preparation of the Merrill Lynch opinion, Merrill
Lynch, among other things:
(1) reviewed publicly available business and financial information
relating to ProLogis and Meridian which Merrill Lynch deemed to be
relevant;
(2) reviewed information, including financial forecasts, relating to the
business, earnings, funds from operations, adjusted funds from operations,
cash flow, assets, liabilities and prospects of ProLogis and Meridian
furnished to Merrill Lynch by ProLogis and Meridian, as well as the amount
and timing of the cost savings and related expenses and synergies expected
to result from the merger furnished to Merrill Lynch by ProLogis and
Meridian;
(3) conducted discussions with members of senior management of ProLogis
and Meridian concerning the matters described in clauses (1) and (2) above,
as well as their respective businesses and prospects before and after
giving effect to the merger and the timing of the cost savings and related
expenses and synergies expected to result from the merger;
37
<PAGE>
(4) reviewed the market prices and valuation multiples for ProLogis'
common shares and Meridian's common stock and compared them with those of
publicly traded companies that Merrill Lynch deemed relevant;
(5) reviewed the results of operations of ProLogis and Meridian and
compared them with those of publicly traded companies that Merrill Lynch
deemed to be relevant;
(6) compared the proposed financial terms of the merger with the
financial terms of other transactions which Merrill Lynch deemed to be
relevant;
(7) participated in discussions and negotiations among representatives of
ProLogis and Meridian and their financial and legal advisors;
(8) reviewed the potential pro forma impact of the merger on ProLogis;
(9) reviewed a draft dated November 15, 1998 of the merger agreement; and
(10) reviewed such other financial studies and analyses and took into
account such other matters as Merrill Lynch deemed necessary, including
Merrill Lynch's assessment of general economic, market and monetary
conditions.
In preparing the Merrill Lynch opinion, Merrill Lynch has assumed and relied
on the accuracy and completeness of all information supplied or otherwise made
available to Merrill Lynch, discussed with or reviewed by or for Merrill Lynch,
or publicly available, and Merrill Lynch has not assumed any responsibility for
independently verifying such information or undertaken an independent
evaluation or appraisal of any of the assets or liabilities of ProLogis or
Meridian or been furnished with any such evaluation or appraisal. In addition,
Merrill Lynch has not assumed any obligation to conduct any physical inspection
of the properties or facilities of ProLogis or Meridian. With respect to the
financial forecast information and the timing of the cost savings and related
expenses and synergies expected to result from the merger furnished to or
discussed with Merrill Lynch by ProLogis or Meridian, Merrill Lynch has assumed
that they have been reasonably prepared and reflect the best currently
available estimates and judgment of ProLogis' or Meridian's management as to
the expected future financial performance of ProLogis or Meridian, as the case
may be, and the timing of the cost savings and related expenses and synergies
expected to result from the merger. Merrill Lynch has further assumed that the
merger will qualify as a tax-free reorganization for United States federal and
any applicable state income tax purposes. Merrill Lynch assumed that the merger
will not change the real estate investment trust status of the pro forma
entity, and that the final form of the merger agreement will be substantially
similar to the last draft thereof reviewed by Merrill Lynch.
The Merrill Lynch opinion is necessarily based upon market, real estate,
economic and other conditions as they exist and can be evaluated on, and on the
information made available to Merrill Lynch as of, the date of the Merrill
Lynch opinion. Merrill Lynch has assumed that, in the course of obtaining the
necessary regulatory or other consents or approvals, contractual or otherwise,
for the merger, no restrictions, including any divestiture requirements or
amendments or modifications, will be imposed that will have a material adverse
effect on the contemplated benefits of the merger or the timing of the cost
savings and related expenses and synergies expected to result from the merger.
At the meeting of the ProLogis board held on November 16, 1998, Merrill Lynch
telephonically presented financial analyses that it had prepared accompanied by
written materials in connection with the delivery of the Merrill Lynch opinion.
The following is a summary of the material financial and comparative analyses
performed by Merrill Lynch in arriving at the Merrill Lynch opinion.
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<PAGE>
Merrill Lynch reviewed ProLogis' offer for Meridian and, on the basis thereof
and using publicly available share price information for the ProLogis common
shares as of November 13, 1998, calculated an aggregate net offer value of
$862.4 million. The aggregate net offer value consisted of $809.2 million of
ProLogis common shares and $53.7 million in cash, less warrant proceeds of
$11.7 million, plus Meridian common stock option cash out of $11.1 million.
Using an estimation of Meridian's debt balances as of December 31, 1998
provided by Meridian's management, Merrill Lynch also calculated an aggregate
transaction value of $1,502.9 million, which consisted of the aggregate net
offer value plus estimated debt as of December 31, 1998 of $595.5 million, less
an estimation of Meridian's cash balance as of December 31, 1998 of $5.0
million, plus liquidation value of perpetual preferred stock as of December 31,
1998 of $50.0 million. Merrill Lynch also calculated the offer price per share
transaction multiples based on projections provided by Meridian's management of
its funds from operations per share and funds from operations less recurring
capital expenditures per share of 13.3x and 17.1x, respectively, for 1998 and
11.2x and 13.8x, respectively, for 1999.
Valuation of Meridian
Historical Trading Performance and Current Capitalization
Merrill Lynch reviewed trading information for Meridian that it deemed
relevant and, on the basis thereof, calculated its market value, market
capitalization and trading multiples based on its stock price as of November
13, 1998 of $21.69. For this purpose, Merrill Lynch defined "total market
capitalization" as the market value of Meridian's common equity, plus preferred
shares at liquidation value, plus total debt plus minority interest less cash.
Merrill Lynch then calculated the market value of Meridian as a multiple of
projected funds from operations, based on mean estimates of funds from
operations provided by First Call Corporation, a provider of real-time,
commingled research, earnings estimates and corporate information, and funds
from operations less recurring capital expenditures, based on estimates of
funds from operations less recurring capital expenditures from analysts'
reports from Merrill Lynch Equity Research. Meridian's funds from operations
multiples for 1998 and 1999 were 10.9x and 9.7x, respectively, and the funds
from operations less recurring capital expenditures multiples for 1998 and 1999
were 12.7x and 11.0x, respectively.
Analysis of Selected Comparable Publicly Traded Companies
Using publicly available information and estimates of future financial
results published by First Call and information taken from Merrill Lynch Equity
Research, Merrill Lynch compared financial and operating information and ratios
for Meridian with the corresponding financial and operating information for a
group of publicly traded companies engaged primarily in the ownership,
management, operation and acquisition of industrial properties which Merrill
Lynch deemed to be reasonably comparable to Meridian. For the purpose of its
analyses, the following companies were used as comparable companies to
Meridian: AMB Property Corporation, Cabot Industrial Trust, CenterPoint
Properties, Inc., ProLogis and Spieker Properties, Inc. Merrill Lynch selected
the companies to be compared to ProLogis from public companies engaging in
similar lines of business and of approximately similar size as ProLogis.
Merrill Lynch's calculations resulted in the following relevant ranges for
the companies found by Merrill Lynch to be comparable to Meridian and for
Meridian as of November 13, 1998:
<TABLE>
<CAPTION>
Trading Valuation
Multiples
--------------------------
Public
Comparables
----------------
Low Mean High Meridian
---- ---- ---- --------
<S> <C> <C> <C> <C>
1998 projected funds from operations............... 11.3x 11.9x 13.0x 10.9x
1999 projected funds from operations .............. 10.0x 10.6x 11.4x 9.7x
1998 projected funds from operations less recurring
capital expenditures.............................. 12.9x 13.7x 15.1x 12.7x
1999 projected funds from operations less recurring
capital expenditures.............................. 11.6x 12.1x 13.1x 11.0x
</TABLE>
This analysis results in a per share valuation of between $18.83 and $25.31.
None of the companies found by Merrill Lynch to be comparable to Meridian is,
of course, identical to Meridian. Accordingly, a complete analysis of the
results of the foregoing calculations cannot be limited to a quantitative
review of such results and involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies found by Merrill Lynch to be comparable to
39
<PAGE>
Meridian, and other factors that could affect the public trading volume of the
companies found by Merrill Lynch to be comparable to Meridian, as well as that
of Meridian. In addition, the multiples of market value to estimated 1998 and
projected 1999 funds from operations and funds from operations less recurring
capital expenditures for the companies found by Merrill Lynch to be comparable
to Meridian are based on projections prepared by research analysts using only
publicly available information. Accordingly, such estimates may or may not
prove to be accurate.
Comparable Transactions Analysis
For informational purposes, Merrill Lynch also compared financial ratios of
the merger with those of other selected mergers and strategic transactions
involving real estate investment trusts which Merrill Lynch deemed to be
relevant. These transactions were Reckson/Crescent's proposed merger with Tower
Realty Trust, Equity Office Properties Trust's merger with Beacon Properties,
and Highwood Properties Trust's merger with Crocker Realty. In the absence of
any comparable recent public merger transactions involving companies primarily
engaged in the industrial property business, the transactions selected by
Merrill Lynch were transactions involving companies primarily engaged in the
office property business. While Merrill Lynch provided the board of trustees of
ProLogis with information regarding these transactions, this information was
presented to the board of trustees for illustrative purposes. Merrill Lynch
advised the board of trustees to base its decision primarily upon the other
valuation methodologies presented to the board of trustees and described in
this joint proxy statement and prospectus.
Using publicly available information and estimates of financial results as
published by First Call, Merrill Lynch calculated the premium of the implied
offer value per share relative to the acquired company's stock price on the day
before announcement of the respective transaction and the implied offer value
per share for the acquired company, as of the day before the announcement of
the respective transaction, as a multiple of the estimated funds from
operations per share for such company for the current year, if the deal was
announced in the first half of the year, or for the next year if the deal was
announced in the second half of the year. This analysis resulted in the
following relevant ranges for the transactions found by Merrill Lynch to be
comparable to the merger:
<TABLE>
<CAPTION>
Low Mean High
---- ---- ----
<S> <C> <C> <C>
Premium to Market....................................... 7.3% 17.4% 28.3%
Next Fiscal Year funds from operations.................. 10.3x 13.4x 15.5x
</TABLE>
Discounted Cash Flow Analysis
Merrill Lynch performed discounted cash flow analyses, i.e., analyses of the
present value of the projected levered cash flows for the periods using the
discount rates indicated, of Meridian based upon projections provided by
Meridian's management of its funds from operations for the years 1999 through
2003, inclusive, using discount rates reflecting an equity cost of capital
ranging from 13.0% to 17.0% and terminal value multiples of calendar year 2003
funds from operations ranging from 10.5x to 12.5x. Based upon Meridian's
projection of funds from operations per share for the years 1999 through 2003
and its projected terminal value multiples, the range of present values per
share of Meridian common stock was $22.40 to $29.13.
Net Asset Valuation Analysis
Merrill Lynch performed a net asset valuation for Meridian based on an asset-
by-asset real estate valuation of Meridian's properties, an estimation of the
current value for Meridian's other assets and liabilities, and an estimation of
Meridian's debt balances as of December 31, 1998. The real estate valuation
utilized property specific projections prepared by Meridian's management for
the calendar year 1999. No appraisals of the properties were performed in
connection with Merrill Lynch's analysis. For the operating portfolio of
Meridian, the valuation utilized the direct capitalization method on 1999
property net operating income and a capitalization rate range of 8.25% to
8.75%. This analysis results in a per share valuation of between $24.27 and
$26.71.
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<PAGE>
Valuation of ProLogis
Historical Trading Performance and Current Capitalization
Merrill Lynch reviewed trading information for ProLogis and, on the basis
thereof, calculated its market value, market capitalization and trading
multiples based on its share price as of November 13, 1998 of $21.31. For this
purpose, Merrill Lynch defined "total market capitalization" as market value of
ProLogis' common equity, plus preferred shares at liquidation value, plus total
debt, less cash. Merrill Lynch then calculated the market value of ProLogis as
a multiple of projected funds from operations, based on mean estimates of funds
from operations provided by First Call and funds from operations less recurring
capital expenditures, based on estimates of funds from operations less
recurring capital expenditures from analysts' reports from Merrill Lynch Equity
Research. ProLogis' funds from operations multiples for 1998 and 1999 were
11.9x and 10.6x, respectively, and the funds from operations less recurring
capital expenditures multiples for 1998 and 1999 were 13.7x and 12.2x,
respectively.
Analysis of Selected Comparable Publicly Traded Companies
Using publicly available information and estimates of future financial
results published by First Call and taken from Merrill Lynch Equity Research,
Merrill Lynch compared financial and operating information and ratios for
ProLogis with the corresponding financial and operating information for a group
of publicly traded companies engaged primarily in the ownership, management,
operation and acquisition of industrial distribution facilities which Merrill
Lynch deemed to be reasonably comparable to ProLogis. For the purpose of its
analyses, the following companies were used as comparable companies to
ProLogis: AMB Property Corporation, Cabot Industrial Trust, CenterPoint
Properties, Inc., Meridian and Spieker Properties, Inc. These companies were
selected because they are publicly traded real estate investment trusts owning
a substantial amount of industrial real estate.
Merrill Lynch's calculations resulted in the following relevant ranges for
the companies found by Merrill Lynch to be comparable to ProLogis and for
ProLogis as of November 13, 1998:
<TABLE>
<CAPTION>
Trading Valuation
Multiples
--------------------------
Public
Comparables
----------------
Low Mean High ProLogis
---- ---- ---- --------
<S> <C> <C> <C> <C>
1998 projected funds from operations............... 10.9x 11.7x 13.0x 11.9x
1999 projected funds from operations............... 9.7x 10.4x 11.4x 10.6x
1998 projected funds from operations less recurring
capital expenditures.............................. 12.7x 13.5x 15.1x 13.7x
1999 projected funds from operations less recurring
capital expenditures.............................. 11.0x 11.9x 13.1x 12.2x
</TABLE>
This analysis results in a per share valuation of between $19.25 and $23.56.
None of the companies found by Merrill Lynch to be comparable to ProLogis is,
of course, identical to ProLogis. Accordingly, a complete analysis of the
results of the foregoing calculations cannot be limited to a quantitative
review of such results and involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies found by Merrill Lynch to be comparable to ProLogis, and other
factors that could affect the public trading volume of the companies found by
Merrill Lynch to be comparable to ProLogis, as well as that of ProLogis. In
addition, the multiples of market value to estimated 1998 and projected 1999
funds from operations and funds from operations less recurring capital
expenditures for the companies found by Merrill Lynch to be comparable to
ProLogis are based on projections prepared by research analysts using only
publicly available information. Accordingly, such estimates may or may not
prove to be accurate.
Comparable Transactions Analysis
Merrill Lynch also compared financial ratios of the merger with those of
other selected mergers and strategic transactions involving real estate
investment trusts which Merrill Lynch deemed to be relevant. These transactions
were Reckson/Crescent's proposed merger with Tower Realty Trust, Equity Office
Properties Trust's merger with Beacon Properties, and Highwood Properties
Trust's merger with Crocker Realty.
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<PAGE>
Using publicly available information and estimates of financial results as
published by First Call, Merrill Lynch calculated the premium of the implied
offer value per share relative to the acquired company's stock price on the day
before announcement of the respective transaction and the implied offer value
per share for the acquired company, as of the day before the announcement of
the respective transaction, as a multiple of the estimated funds from
operations per share for such company for the current year, if the deal was
announced in the first half of the year, or for the next year if the deal was
announced in the second half of the year. This analysis resulted in the
following relevant ranges for the ProLogis comparable transactions:
<TABLE>
<CAPTION>
Low Mean High
---- ---- ----
<S> <C> <C> <C>
Premium to Market....................................... 7.3% 17.4% 28.3%
Next Fiscal Year funds from operations.................. 10.3x 1.34x 15.5x
</TABLE>
Discounted Cash Flow Analysis
Merrill Lynch performed discounted cash flow analyses, i.e., analyses of the
present value of the projected levered cash flows for the periods using the
discount rates indicated, of ProLogis based upon projections provided by
ProLogis' management of its funds from operations for the years 1999 through
2003, inclusive, using discount rates reflecting an equity cost of capital
ranging from 13.0% to 17.0% and terminal value multiples of calendar year 2003
funds from operations ranging from 10.5x to 12.5x. Based upon ProLogis'
projection of funds from operations per share for the years 1999 through 2003
and projected terminal value, the range of present values per common share of
ProLogis was $21.06 to $27.52.
Net Asset Valuation Analysis
Merrill Lynch also performed a net asset valuation for ProLogis based on an
asset-by-asset real estate valuation of ProLogis' properties, an estimation of
the current values for ProLogis' other assets and liabilities, and an
estimation of ProLogis' debt balances as of December 31, 1998. The real estate
valuation utilized property specific projections prepared by ProLogis'
management for the calendar year 1999. For the operating portfolio of ProLogis,
the valuation utilized the direct capitalization method on 1999 property net
operating income and a capitalization rate range of 8.00% to 8.75%. This
analysis resulted in a per share valuation of between $21.22 and $24.34.
Pro Forma Merger Consequences
Implied Exchange Ratio Analysis--Comparative Valuations
Merrill Lynch utilized the results of each of the following four valuation
methodologies: Public Comparables; Acquisition Comparables; Discounted Cash
Flow Analysis--Funds from Operations Method; and the Net Asset Valuation in
order to calculate a range of implied exchange ratios for each method. This
analysis yielded the following ranges:
<TABLE>
<CAPTION>
Valuation Multiples
-------------------------------
Low High Exchange ratio(a)
----- ----- -----------------
<S> <C> <C> <C>
Public Comparables............................ 0.942x 1.315x 1.100x
Acquisition Comparables....................... 0.734x 1.662x 1.100x
Discounted Cash Flow Analysis--Funds from
Operations Method............................ 0.814x 1.384x 1.100x
Net Asset Valuation........................... 0.997x 1.259x 1.100x
</TABLE>
- --------
(a) Exchange ratio as set forth in the merger agreement.
Pro Forma Combination Analysis
Merrill Lynch analyzed the pro forma effects resulting from the merger,
including the potential impact on ProLogis' projected stand-alone funds from
operations per share and the anticipated accretion to ProLogis' funds from
operations per share resulting from the merger. Merrill Lynch observed that,
after giving effect to
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<PAGE>
the timing of the cost savings and related expenses and synergies expected to
result from the merger, the merger would be accretive to ProLogis' projected
funds from operations per share in each of the years 1999 through 2003,
inclusive.
Capitalization
In addition, Merrill Lynch compared ProLogis' projected book capitalization
as of December 31, 1998 to its pro forma projected book capitalization as of
December 31, 1998, after giving effect to the merger and based on projections
of ProLogis' and Meridian's management, ProLogis' pro forma implied market
capitalization as of December 31, 1998 after giving effect to the transaction.
The projected total debt to implied market capitalization was 32.6%, 33.4% and
33.7% as of December 31, 1999, December 31, 2000 and December 31, 2001 on a pro
forma basis, respectively.
The summary set forth above does not purport to be a complete description of
the analyses performed by Merrill Lynch in arriving at its opinion. The
preparation of a fairness opinion is a complex process and not necessarily
susceptible to partial or summary description. Merrill Lynch believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and of the factors considered by it, without considering all factors
and analyses, could create a misleading view of the process underlying the
Merrill Lynch opinion. In its analyses, Merrill Lynch made numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond ProLogis', Meridian's and Merrill
Lynch's control. Any estimates contained in Merrill Lynch's analyses are not
necessarily indicative of actual values, which may be significantly more or
less favorable than as set forth therein. Estimated values do not purport to be
appraisals and do not necessarily reflect the prices at which businesses or
companies may be sold in the future, and such estimates are inherently subject
to uncertainty.
The board of trustees of ProLogis selected Merrill Lynch to render a fairness
opinion because Merrill Lynch is an internationally recognized investment
banking firm with substantial experience in transactions similar to the merger
and because it is familiar with ProLogis and its business. Merrill Lynch is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, leveraged buyouts, negotiated
underwritings, secondary distributions of listed and unlisted securities and
private placements.
Pursuant to a letter agreement dated November 12, 1998, ProLogis agreed to
pay Merrill Lynch a fee of $3.85 million which is contingent upon consummation
of the merger. In addition, ProLogis agreed to indemnify Merrill Lynch and
certain related persons against liabilities arising out of or in conjunction
with its rendering of services under such letter agreement, including
liabilities under federal securities laws. ProLogis paid a fee to Merrill Lynch
of $200,000 upon the execution of the merger agreement, which will be applied
to the $3.85 million fee mentioned above.
Merrill Lynch has, in the past, provided financial advisory and financing
services to ProLogis and may continue to do so and has received, and may
receive, fees for the rendering of such services. In addition, in the ordinary
course of its business, Merrill Lynch may actively trade in the securities of
ProLogis or Meridian for its own account and the account of its customers and,
accordingly, may at any time hold a long or short position in such securities.
Reasons for the merger; Recommendations of the Meridian board
Meridian's board of directors has determined that the terms of the merger and
the merger agreement are advisable and fair to, and that the merger is in the
best interests of, Meridian and its stockholders and recommends that Meridian
stockholders vote for the approval of the merger.
In considering the recommendation of Meridian's board with respect to the
merger, Meridian stockholders should be aware that two members of the Meridian
board will become trustees of ProLogis following consummation of the merger and
one of Meridan's directors, Allen J. Anderson, may become entitled to
43
<PAGE>
severance benefits as a result of the merger. Therefore, such directors have
interests in the merger that are different than, or in addition to, the
interests of stockholders of Meridian generally. The Meridian board was aware
of these interests and considered them, among other matters, in approving the
merger agreement and the merger. See "--Interest of Meridian directors,
officers and significant stockholders."
In its deliberations with respect to the merger and the merger agreement, the
Meridian board consulted with Meridian's management and the financial and legal
advisors to Meridian. The factors considered by the Meridian board include
those enumerated below. While all of these factors were considered by the
Meridian board, the Meridian board did not make determinations with respect to
each such factor. Rather, the Meridian board made its judgment with respect to
the merger and the merger agreement based on the total mix of information
available to it, and the judgments of individual directors may have been
influenced to a greater or lesser degree by their individual views with respect
to different factors.
Positive factors considered by the Meridian board
The factors considered by the Meridian board in evaluating the merger and the
merger agreement included the following:
(1) its knowledge of the business, operations, assets, properties,
operating results and financial condition of Meridian;
(2) Meridian's strategic alternatives, including the prospects of
positioning Meridian for the future and restoring and enhancing long-term
stockholder value by remaining an independent company or by effecting a
strategic business combination with another company;
(3) information concerning Meridian's prospects as an independent
company;
(4) information concerning the financial position, results of operations,
businesses, competitive position and prospects of a business combination
with each of ProLogis, Company A and Company C;
(5) the philosophies of the managements of each of ProLogis, Company A
and Company C, and the similarity of those with that of Meridian's
management;
(6) the extensive information developed during the period of the
solicitation process discussed under "--Background of the merger" with
respect to ProLogis, Company A and Company C, as well as the extensive and
inclusive nature of the solicitation process itself;
(7) specifically, with respect to a business combination with ProLogis:
(A) the exchange ratio and recent trading prices for shares of
Meridian common stock and ProLogis common shares;
(B) the opportunity for the stockholders of Meridian to receive a
premium over the market price for their Meridian common stock
immediately prior to announcement of the merger agreement; the exchange
ratio implied a premium of $3.8125, or 18.0%, over the closing market
price per share of Meridian common stock on November 16, 1998 based on
the closing market price of $21.1875 for ProLogis common shares on the
same day;
(C) the anticipated positive effects of the merger on Meridian
stockholders through their ownership of stock in a combined company
that will likely have greater stability and strength due to its
increased number of target markets, and a more diversified customer
base, thereby reducing the adverse impact of regional economic cycles
and the relative significance of any individual customer, its expected
cost savings and synergies expected to result from the consolidation of
Meridian's and ProLogis' stand-alone operations, and its expected
increased flexibility and leverage in financing activities;
(D) the terms of the merger agreement, which provide for reciprocal
representations and warranties, conditions to closing and rights to
termination, and balanced rights and obligations as discussed under
"The Merger Agreement";
44
<PAGE>
(E) the tax treatment of the merger; and
(F) the numerous presentations made by Goldman Sachs to the Meridian
board during the solicitation process and the oral opinion of Goldman
Sachs rendered to the Meridian board on November 16, 1998 that as of
such date, and based on and subject to the various qualifications and
assumptions described therein, the consideration to be received in the
merger by Meridian common stockholders was fair from a financial point
of view, to the holders of Meridian common stock. See "--Opinion of
Meridian's financial advisor."
Negative factors considered by the Meridian board
Meridian's board of directors also considered the following potentially
negative factors in its deliberations concerning the merger:
(1) the risk that the benefits sought in the merger would not be
obtained,
(2) the risk of a decline in the trading price for ProLogis common shares
and its effect on the value to be received by Meridian's common
stockholders,
(3) the risk that a decline in the trading price of ProLogis common
shares could result in the value of the consideration received by Meridian
stockholders being less than the net asset value of Meridian's assets,
(4) the risk that the merger would not be completed,
(5) the effect of the public announcement of the merger on Meridian's
ability to retain employees and on the trading price of Meridian's common
stock,
(6) the substantial management time and effort that will be required to
complete the merger and integrate the operations of the two companies,
(7) the impact of the merger on Meridian personnel, and
(8) other matters described under "Risk Factors" on pages 22 to 29.
In the judgment of the Meridian board of directors, the potential benefits of
the merger to Meridian's stockholders clearly outweighed the risks inherent in
the transaction.
Opinion of Meridian's financial advisor
At the November 16, 1998 meeting of the Meridian board of directors, Goldman
Sachs rendered its oral opinion, which was subsequently confirmed by a written
opinion dated the same date, that as of such date, and based upon and subject
to the various qualifications and assumptions described therein, the
consideration to be received by the holders of Meridian common stock in the
merger is fair from a financial point of view to the holders of Meridian common
stock.
The full text of the written opinion of Goldman Sachs dated November 16, 1998
which sets forth assumptions made, procedures followed, matters considered and
limitations on the review undertaken in connection with the opinion is attached
as Annex C to this joint proxy statement and prospectus and is incorporated
herein by reference. Holders of Meridian common stock are urged to, and should,
read such opinion in its entirety. Goldman Sachs' opinion is addressed to the
Meridian board and addresses only the fairness to the holders of Meridian
common stock of the merger consideration and does not constitute a
recommendation to any holder of Meridian common stock as to how such holder
should vote with respect to the merger.
In connection with its opinion, Goldman Sachs reviewed, among other things,
. the merger agreement;
. the Security Capital voting agreement;
. the Annual Reports to Stockholders and Annual Reports on Form 10-K of
Meridian for each of the two years ended December 31, 1996 and 1997 and
in the case of ProLogis for each of the four years in the four-year
period ended December 31, 1997;
45
<PAGE>
. interim reports to shareholders and Quarterly Reports on Form 10-Q of
Meridian and ProLogis;
. other communications from Meridian and ProLogis to their respective
shareholders; and
. internal financial analyses and forecasts for Meridian and ProLogis
prepared by their respective managements, including the projected cost
savings and operating synergies projected by the management of Meridian
resulting from the merger.
Goldman Sachs also held discussions with members of the senior management of
Meridian and ProLogis regarding the strategic rationale for, and the potential
benefits of, the merger and the past and current business operations, financial
condition and future prospects of their respective companies. In addition,
Goldman Sachs reviewed the reported price and trading activity for the Meridian
common stock and the ProLogis common shares, compared certain financial and
stock market information for Meridian and ProLogis with similar information for
certain other companies, the securities of which are publicly traded, reviewed
the financial terms of certain recent business combinations in the real estate
industry specifically and performed such other studies and analyses as it
considered appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information reviewed by it and has assumed such accuracy
and completeness for purposes of rendering its opinion. In that regard, Goldman
Sachs assumed, with Meridian's consent, that the projected cost savings and
operating synergies projected by the management of Meridian resulting from the
merger were reasonably prepared on a basis reflecting the best currently
available judgments and estimates of the management of Meridian. In addition
Goldman Sachs did not make an independent evaluation or appraisal of the assets
and liabilities of Meridian or ProLogis or any of their subsidiaries and
Goldman Sachs was not furnished with any such evaluation or appraisal. The
opinion referred to herein was provided for the information and assistance of
Meridian's board of directors in connection with its consideration of the
merger and such opinion does not constitute a recommendation as to how any
holder of Meridian common stock should vote with respect to such transaction.
The following is a summary of certain of the financial analyses used by
Goldman Sachs in connection with providing its written opinion, dated November
16, 1998, to the Meridian board.
Contribution Analysis
Goldman Sachs reviewed estimated future financial information for Meridian,
ProLogis and the pro forma combined entity resulting from the merger including
the projected cost savings and operating synergies projected by the management
of Meridian resulting from the merger, including:
. estimated 1998 and 1999 net operating income, adjusted to eliminate the
effect of leverage;
. estimated 1998 and 1999 earnings before interest, income taxes,
depreciation and amortization, adjusted to eliminate the effect of
leverage;
. estimated 1998 and 1999 funds from operations; and
. estimated 1998 and 1999 funds available for distribution.
These analyses indicated the following contributions by Meridian to the
combined company for the following periods and implied exchange ratios based on
such contributions:
<TABLE>
<CAPTION>
1998 1999
--------------------- ---------------------
Meridian Meridian
Contribution Implied Contribution Implied
to Combined Exchange to Combined Exchange
Company Ratio Company Ratio
------------ -------- ------------ --------
<S> <C> <C> <C> <C>
Net operating income.............. 22.2% 1.17x 21.4% 1.09x
Earnings before interest, income
taxes, depreciation and
amortization..................... 21.9% 1.14x 21.3% 1.08x
Funds from operations............. 21.4% 1.10x 22.4% 1.17x
Funds available for distribution.. 20.2% 1.03x 22.0% 1.15x
</TABLE>
46
<PAGE>
Comparable Companies Analysis
Goldman Sachs reviewed and compared financial information relating to
Meridian to corresponding financial information for the following publicly
traded real estate investment trusts: CenterPoint Properties Trust, AMB
Property Corporation, ProLogis, Cabot Industrial Trust, Weeks Corporation,
EastGroup Properties, Inc. and First Industrial Realty Trust. These companies
were chosen because they are publicly-traded companies with operations that for
purposes of analysis may be considered similar to Meridian. Like Meridian, each
of these companies is a publicly traded real estate investment trust that owns
a substantial amount of industrial real estate. The financial information for
Meridian and these companies were based on the most recent publicly available
information, on information supplied by Institutional Brokers Estimates System
and on the closing market prices on November 13, 1998. Institutional Brokers
Estimates System is a data service that monitors and publishes compilations of
earnings estimates by selected research analysts regarding companies of
interest to institutional investors. Goldman Sachs' analyses indicated the
following with respect to the companies found by Goldman Sachs to be comparable
to Meridian and Meridian:
<TABLE>
<CAPTION>
Selected Companies
--------------------
Meridian Range Mean
-------- -------------- -----
<S> <C> <C> <C>
1997 funds from operations multiple*............ 12.5x 9.9x to 15.5x 12.9x
Estimated 1998 funds from operations multiple*.. 11.0x 8.5x to 13.0x 10.9x
Estimated 1999 funds from operations multiple*.. 9.7x 7.7x to 11.4x 9.7x
Estimated 1997-1999 compound annual growth
rates.......................................... 13.8% 10.1% to 23.7% 15.1%
Estimated 1999 funds from operations to growth
rate multiple*................................. 0.70x 0.42x to 0.86x 0.67x
</TABLE>
- --------
*Based on November 13, 1998 closing prices.
Selected Transactions Analysis
Goldman Sachs analyzed information relating to selected transactions in the
public real estate investment trust industry since 1995. Goldman Sachs'
analyzed:
. the premium or discount of the implied offer price to the target stock
price on the trading day before the particular selected transaction was
announced,
. the premium or discount of the implied offer price to the average target
stock price over the 60 trading days before the particular selected
transaction was announced,
. the transaction funds from operations multiple, based on the implied
offer price as a multiple of the target funds from operations estimate at
the announcement date, and
. the transaction funds from operations multiple as a percentage of the
acquiring company's funds from operations multiple for the particular
selected transaction.
These analyses indicated the following with respect to the merger and the
selected transactions:
<TABLE>
<CAPTION>
Selected Transactions
----------------------------
Meridian/ProLogis Range Mean Median
----------------- --------------- ----- ------
<S> <C> <C> <C> <C>
The premium or discount of the
implied offer price to the
target stock price on the
trading day before the
particular selected transaction
was announced.................. 15.3% -0.9% to 28.4% 9.2% 9.0%
The premium or discount of the
implied offer price to the
average target stock price over
the 60 trading days before the
particular selected transaction
was announced.................. 20.0% -6.5% to 33.6% 10.3% 12.3%
The transaction funds from
operations multiple, based on
the implied offer price as a
multiple of the target funds
from operations estimate at the
announcement date.............. 11.2x 6.7x to 15.6x 11.3x 11.6x
The transaction funds from
operations multiple as a
percentage of the acquiring
company's funds from operations
multiple for the particular
selected transaction........... 104.7% 73.5% to 109.8% 96.2% 98.4%
</TABLE>
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<PAGE>
Historical Exchange Ratio Analysis
Goldman Sachs analyzed the implied exchange ratios of Meridian common stock
and ProLogis common shares based on a comparison of historical average prices
for Meridian common stock and ProLogis common shares over a 12 month period
from November 13, 1997 to November 13, 1998 and calculated the implied
transaction premiums over the implied historical exchange ratios of Meridian
common stock and ProLogis common shares for the periods set forth below, based
on the closing share prices and weighted averages as of or through November 13,
1998 and an exchange ratio of 1.10x for the merger, excluding the cash portion,
if any.
<TABLE>
<CAPTION>
Period Implied Transaction Premium
------ ---------------------------
<S> <C>
90 days ended November 13, 1998............... 17.0%
180 days ended November 13, 1998.............. 17.0%
365 days ended November 13, 1998.............. 12.2%
</TABLE>
Sensitivity Analysis
Goldman Sachs performed a sensitivity analysis based on different synergy
assumptions for the combined company. This analysis assumed: (a) the
Institutional Brokers Estimates System estimated stand alone 1999 funds from
operations for Meridian of $2.24 per share, (b) the Institutional Brokers
Estimates System estimated stand alone 1999 funds from operations for ProLogis
of $2.00 per share, (c) $15.3 million of transaction costs and $16.2 million of
change of control costs, based on Meridian management projections, (d)
financing costs of 120 basis points over 1 month LIBOR, all-in rate of 6.92%,
and (e) per share merger consideration of $25.00 for each share of Meridian
common stock, consisting of $23.44 of ProLogis common shares and $1.56 in cash.
Goldman Sachs' analysis indicated that,
(1) assuming synergies of $14.0 million for the combined entity:
. the pro forma combined company would have an estimated funds from
operations accretion in 1999 of $0.05 per share, or 2.7%, compared to
estimated stand alone 1999 ProLogis funds from operations,
. the pro forma combined company would have an estimated funds from
operations accretion in 1999 of $0.02 per share, or 0.85%, compared
to estimated stand alone 1999 Meridian funds from operations and
. the proportion of pro forma debt of the combined company to the pro
forma total market capitalization of the combined company would be
31.4%;
(2) assuming synergies of $11.2 million for the combined company:
. the pro forma combined company would have an estimated funds from
operations accretion in 1999 of $0.04 per share, or 1.9%, compared to
estimated stand alone 1999 ProLogis funds from operations,
. the pro forma combined company would have an estimated funds from
operations accretion in 1999 of $0.00 per share, or 0.08%, compared
to estimated stand alone 1999 Meridian funds from operations and
. the proportion of pro forma debt of the combined company to the pro
forma total market capitalization of the combined company would be
31.6%;
(3) assuming synergies of $8.4 million for the combined company:
. the pro forma combined company would have an estimated funds from
operations accretion in 1999 of $0.02 per share, or 1.1%, compared to
estimated stand alone 1999 ProLogis funds from operations,
. the pro forma combined company would have an estimated funds from
operations dilution in 1999 of $0.02 per share, or 0.69%, compared to
estimated stand alone 1999 Meridian funds from operations and
. the proportion of pro forma debt of the combined company to the pro
forma total market capitalization of the combined company would be
31.7%;
48
<PAGE>
(4) assuming synergies of $5.6 million for the combined entity:
. the pro forma combined company would have an estimated funds from
operations accretion in 1999 of $0.01 per share, or 0.3%, compared to
estimated stand alone 1999 ProLogis funds from operations,
. the pro forma combined company would have an estimated funds from
operations dilution in 1999 of $0.03 per share, or 1.46%, compared to
estimated stand alone 1999 Meridian funds from operations and
. the proportion of pro forma debt of the combined company to the pro
forma total market capitalization of the combined company would be
31.9%; and
(5) assuming synergies of $2.8 million for the combined company:
. the pro forma combined company would have an estimated funds from
operations dilution in 1999 of $0.01 per share, or 0.5%, compared to
estimated stand alone 1999 ProLogis funds from operations,
. the pro forma combined company would have an estimated funds from
operations dilution in 1999 of $0.05 per share, or 2.23%, compared to
estimated stand alone 1999 Meridian funds from operations and
. the proportion of pro forma debt of the combined company to the pro
forma total market capitalization of the combined company would be
32.0%.
Goldman Sachs' analysis further indicated that, based on the assumptions
described above, Meridian stockholders would hold 21.3% of the shares
outstanding of the pro forma combined company.
Net Asset Value Analysis
Goldman Sachs estimated the net asset value per share for Meridian common
stock as of year-end 1998 by subtracting outstanding debt and other liabilities
from gross value, where gross value was based on Meridian's projected core
portfolio net operating income of $126 million at capitalization rates ranging
from 8.75% to 9.25% plus the estimated year-end 1998 value of other assets.
These analyses indicated the following estimated net asset values of Meridian
common stock:
<TABLE>
<CAPTION>
Estimated Net Asset Value of
Capitalization Rate Meridian Common Stock at 12/31/98
------------------- ---------------------------------
<S> <C>
8.75%................................... $26.16
9.00%................................... $24.99
9.25%................................... $23.88
</TABLE>
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all such analyses. No company or
transaction used in the above analyses as a comparison is directly comparable
to Meridian or ProLogis or the merger. The analyses were prepared solely for
purposes of Goldman Sachs' providing its opinion to the Meridian board of
directors as to the fairness, from a financial point of view, of the
consideration to be received in the merger to the holders of Meridian common
stock and do not purport to be appraisals or necessarily reflect the prices at
which businesses or securities actually may be sold. Analyses based upon
forecasts or future results are not necessarily indicative of actual future
results, which may be significantly more or less favorable than suggested by
such analyses. Because such analyses are inherently subject to uncertainty,
being based upon numerous factors or events beyond the control of the parties
or their respective advisors, none of Meridian, ProLogis, Goldman Sachs or any
other person assumes responsibility if future results are materially different
from those forecast. As described above, Goldman Sachs' opinion to the
49
<PAGE>
Meridian board of directors was one of many factors taken into consideration by
the Meridian board of directors in making its determination to approve the
merger agreement and the merger. The foregoing summary does not purport to be a
complete description of the analysis performed by Goldman Sachs and is
qualified by reference to the written opinion of Goldman Sachs set forth in
Annex C hereto.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. The Meridian board of
directors selected Goldman Sachs as its financial advisor because it is a
nationally recognized investment banking firm that has substantial experience
in transactions similar to the merger and because of Goldman Sachs' familiarity
with Meridian. Goldman Sachs is familiar with Meridian, having acted as its
financial advisor in connection with, and having participated in some of the
negotiations leading to, the merger agreement, as well as having acted as:
. lead-managing underwriter of a public offering of its 8.75% Series D
cumulative redeemable preferred stock in June 1998 and
. co-managing underwriter of an offering of $160 million of 7.25% and 7.30%
Unsecured Notes due 2007 and 2009 in November 1997.
Goldman Sachs is also familiar with ProLogis, having acted as its financial
advisor in connection with the acquisition of ProLogis' real estate investment
trust manager and property manager in September 1997, and having acted in
connection with the public offering of securities as:
. lead managing underwriter of an offering of $274.5 million of common
shares in October 1994,
. lead managing underwriter of an offering of $135 million of Series A
cumulative redeemable preferred shares of beneficial interest in June
1995,
. lead managing underwriter of an offering of $100 million 7.81% Medium-
Term Notes-Series A, due 2015, in February 1997,
. lead managing underwriter of an offering of $100 million of 7.625% Notes
due 2017 in July 1997,
. lead managing underwriter of an offering of $125 million of 7% Notes due
2003 in October 1998 and
. lead-managing underwriter of an offering of $250 million of 7.05% Notes
due 2006 in July 1998.
Goldman Sachs is providing and may continue to provide investment banking
services to ProLogis in the future. Goldman Sachs is also a placement agent
under ProLogis' medium-term note program. In addition, Goldman Sachs is
familiar with Security Capital, which has an equity investment in ProLogis,
having rendered significant investment banking services to Security Capital and
certain of its affiliates from time to time, including having acted as
principal in certain transactions, and Goldman Sachs is providing and may
continue to provide investment banking services or act as principal in
transactions with Security Capital and its affiliates in the future.
Goldman Sachs provides a full range of financial, advisory and security
services and in the course of its normal trading activities may from time to
time effect transactions and hold securities, including derivative securities,
of Meridian, ProLogis or Security Capital for its account and for the accounts
of customers.
Pursuant to a letter agreement dated September 28, 1998, the Meridian board
of directors engaged Goldman Sachs as its financial advisor and to render an
opinion with respect to the fairness of the financial consideration to be
received by holders of Meridian common stock. Pursuant to the terms of the
Goldman Sachs engagement letter, Meridian has agreed to pay Goldman Sachs a fee
of 0.70% of the total consideration paid for Meridian's equity securities,
including amounts paid to holders of options, warrants and convertible
securities, plus the principal amount of all indebtedness for borrowed money as
set forth on the most recent consolidated balance sheet of Meridian prior to
the consummation of the merger. Meridian has agreed to reimburse Goldman Sachs
for its reasonable out-of-pocket expenses, including attorney's fees, and to
indemnify Goldman Sachs against liabilities it incurs, including liabilities
under the federal securities laws.
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<PAGE>
Interests of Meridian directors, officers and significant stockholders
Allen J. Anderson, Milton K. Reeder and Dennis G. Higgs together own all of
the Class A common stock and Jurgen Spaethe owns all of the Class B non-voting
common stock of Meridian Refrigerated, Inc., an entity in which Meridian owns
substantially all of the economic interest. At or prior to the merger, CS
Integrated LLC, an entity in which ProLogis owns a substantial majority of the
economic interest, will purchase all of the Class A common stock of Meridian
Refrigerated, Inc. In connection with this transaction, the common shareholders
of Meridian Refrigerated, Inc., other than Mr. Spaethe who is the president and
chief executive officer of Meridian Refrigerated, Inc., will receive an
aggregate of approximately $513,000 in cash for their shares, for which such
persons paid an aggregate of approximately $455,000, and Mr. Spaethe will
receive approximately $150,000 in cash for his shares.
The merger will qualify as a change in control for purposes of the Meridian
severance agreements and the Meridian officers will be entitled to receive cash
severance payments if Meridian, or the surviving entity, terminates an
officer's employment within 18 months following the change in control or the
officer terminates his own employment within six months following the change in
control. The definition of a change in control includes a merger in which the
holders of Meridian common stock and other voting securities prior to the
merger cease to hold at least 50% of the common stock and other voting
securities of the company created by the merger. In addition, each of such
persons will be entitled to receive an amount necessary to pay applicable
excise taxes to which such person would be subject as a result of these
payments and any other taxable income recognized as a result of the change of
control.
The following table summarizes the maximum severance payments to which
officers of Meridian would be entitled:
<TABLE>
<CAPTION>
Amount of
Name and Title Payment
-------------- ----------
<S> <C>
Allen J. Anderson............................................. $1,240,000
Chairman and Chief Executive Officer
Milton K. Reeder.............................................. $ 900,000
Chief Financial Officer
Dennis D. Higgs............................................... $ 860,000
Executive Vice President
Peter D. Harmon............................................... $ 270,000
Vice President
Timothy B. Keith.............................................. $ 240,000
Vice President--Regional
All officers as a group
(8 persons).................................................. $4,104,250
</TABLE>
On August 19, 1998, the compensation committee of the Meridian board of
directors and the Meridian board of directors approved a re-pricing of the
exercise price of outstanding stock options to $21.125. These options had been
granted to the directors and to officers and employees of Meridian in 1997 and
1998 at exercise prices ranging from $22.00 to $25.625 per share with ten year
terms. Although the Meridian board was unwilling to unconditionally reset the
exercise price of such options, the board believed that a reset of the exercise
price contingent upon a change of control would be beneficial to the
stockholders of Meridian. Because the Meridian board expected that the majority
of its employees would not be offered positions in a business combination that
resulted in a change in control of Meridian, the board believed such a
repricing
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<PAGE>
would provide an incentive to the management of Meridian to support a change of
control which would be in the best interests of the Meridian stockholders.
<TABLE>
<CAPTION>
Length of
Number of Original
Securities Market Price Exercise Option Term
Underlying of Stock at Price at New Remaining
Options Time of Time of Exercise at Date of
Name Date Repriced (#) Repricing ($) (1) Repricing ($) Price ($) Repricing
---- ---- ------------ ----------------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Allen J. Anderson............ 8/19/98 70,000 21.125 22.00 21.125 8.5 years
Chief Executive Officer
8/19/98 300,000 21.125 25.1875 21.125 9.5 years
Brian R. Barringer........... 8/19/98 50,000 21.125 25.1875 21.125 9.5 years
Vice President
Robert A. Dobbin............. 8/19/98 10,000 21.125 22.00 21.125 8.5 years
Secretary and General Counsel 8/19/98 25,000 21.125 25.1875 21.125 9.5 years
Peter B. Harmon.............. 8/19/98 15,000 21.125 22.00 21.125 8.5 years
Vice President--Regional 8/19/98 2,500 21.125 23.125 21.125 8.75 years
Director 8/19/98 20,000 21.125 25.1875 21.125 9.5 years
Dennis D. Higgs.............. 8/19/98 45,000 21.125 22.00 21.125 8.5 years
Executive Vice President and 8/19/98 210,000 21.125 25.1875 21.125 9.5 years
Chief Investment Officer
Timothy B. Keith............. 8/19/98 10,000 21.125 22.00 21.125 8.5 years
Vice President--Regional 8/19/98 55,000 21.125 25.1875 21.125 9.5 years
Director
Milton K. Reeder............. 8/19/98 45,000 21.125 22.00 21.125 8.5 years
President and Chief Financial 8/19/98 215,000 21.125 25.1875 21.125 9.5 years
Officer
Greg Skirving (2)............ 8/19/98 11,351 21.125 25.1875 21.125 9.5 years
Senior Vice President--
National Marketing
James Suarez................. 8/19/98 10,000 21.125 22.00 21.125 8.5 years
Vice President--Finance 8/19/98 25,000 21.125 25.1875 21.125 9.5 years
</TABLE>
- --------
(1) Reflects the closing price of Meridian common stock on August 18, 1998.
(2) Mr. Skirving is no longer an employee of Meridian.
All of Meridian's outstanding stock options, including the 130,020 options
held by Meridian's independent directors, will vest and become fully
exercisable upon the closing of the merger.
On August 18, 1998, in connection with the Meridian board of directors'
analysis of Meridian's strategic alternatives, the Meridian board authorized
grants of restricted common stock to Messrs. Anderson, Reeder and Higgs, Robert
A. Dobbin, Meridian's general counsel, and Timothy B. Keith, a vice president
and regional director of Meridian in the amounts of 110,000 shares, 70,000
shares, 70,000 shares, 15,000 shares and 17,000 shares, respectively. These
restricted stock grants will vest and the restrictions will lapse upon the
closing of the merger.
If the merger is completed, two of the current members of Meridian's board
will be chosen by ProLogis to become trustees of ProLogis. These directors of
Meridian will continue as trustees of ProLogis after the merger and will be
granted options to acquire 2,000 common shares of ProLogis pursuant to the
ProLogis Share Option Plan for outside Trustees upon their appointment to the
ProLogis board and will be compensated for their services as trustees and
granted annual options during their tenure as trustees. While the two persons
to serve as ProLogis trustees have not yet been selected by ProLogis, they will
receive benefits that will not be shared by other stockholders of Meridian
generally.
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<PAGE>
Prudential Securities Incorporated, an affiliate of Prudential Real Estate,
Meridian's largest stockholder, will be entitled to a fee of $1 million in
connection with its services to Meridian as a financial advisor in connection
with the merger.
Voting agreements
Concurrently with the execution of the merger agreement, Meridian and
Security Capital entered into a voting agreement which requires that, subject
to its terms and conditions, Security Capital vote all ProLogis common shares
beneficially owned by it in favor of the merger.
Under the voting agreement, Security Capital may not, directly or indirectly,
sell, transfer, pledge, assign or otherwise dispose of its ProLogis common
shares, unless subsequent holders of the ProLogis common shares expressly agree
to be bound by the voting agreement.
The voting agreement terminates upon the earlier of the termination of the
merger agreement or the effective time of the merger.
Additionally, Meridian has agreed to use its reasonable best efforts to cause
Prudential Real Estate to enter into a written voting agreement with ProLogis
having the same terms as the Security Capital Group voting agreement. If the
Prudential Real Estate voting agreement is obtained, the termination fee
applicable to Meridian under the merger agreement will be reduced from $40
million to $25 million. Prior to and immediately following the execution of the
merger agreement, Allen Anderson, Meridian's chief executive officer, and
Messrs. Brooksher and Lyons, co-chairmen of ProLogis, each met separately with
representatives of Prudential Real Estate to discuss the voting agreement.
Prudential Real Estate did not agree to enter into a voting agreement at that
time but indicated that it would consider such an agreement. As of the date of
this joint proxy statement and prospectus, no such agreement has been entered
into.
Material federal income tax consequences
The following is a summary of the material U.S. federal income tax
consequences of the merger of Meridian with and into ProLogis. The discussion
below under "--Tax treatment of Meridian and ProLogis" is accurate in all
material respects as to matters of law and legal conclusions and, to the extent
such discussion constitutes matters of law or legal conclusions, it is based on
the opinion of each of Mayer, Brown & Platt and Vinson & Elkins L.L.P. This
summary is based upon the current provisions of the Internal Revenue Code of
1986, as amended, its legislative history, Treasury regulations, administrative
pronouncements and judicial decisions, all of which are subject to change,
possibly with retroactive effect. This summary does not purport to be a
complete discussion of all U.S. federal income tax consequences relating to the
merger. This summary does not address the tax consequences of the merger under
state, local or non-U.S. tax laws. In addition, this summary may not apply, in
whole or in part, to particular categories of ProLogis or Meridian
shareholders, such as financial institutions, broker-dealers, life insurance
companies, tax-exempt organizations, investment companies, foreign taxpayers,
individuals who received ProLogis common shares or Meridian common stock
pursuant to stock options, restricted stock programs or in other compensatory
transactions, and other special status taxpayers. Finally, a tax ruling from
the Internal Revenue Service has not been requested with respect to the merger
or the other transactions described herein, and there can be no assurance that
the Internal Revenue Service will not assert a contrary position. This summary
is included for general information only. All ProLogis and Meridian
shareholders are urged to consult their tax advisors to determine the specific
tax consequences of the merger, including any state, local and non-U.S. tax
consequences.
Tax treatment of Meridian and ProLogis
In the opinion of each of Mayer, Brown & Platt and Vinson & Elkins L.L.P.,
based on factual representations of Meridian and ProLogis, the merger will be
treated for federal income tax purposes as a reorganization within the meaning
of Section 368 of the Internal Revenue Code of 1986 and each of Meridian
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and ProLogis will be a party to such merger within the meaning of Section
368(b) of the Internal Revenue Code of 1986. The discussion below assumes that
the merger will be treated as a reorganization within the meaning of Section
368 of the Internal Revenue Service Code of 1986.
In the opinion of Mayer, Brown & Platt, based on factual representations of
Meridian and ProLogis, no income, gain or loss will be recognized by ProLogis
as a result of the merger. In the opinion of Vinson & Elkins L.L.P., based on
factual representations of Meridian and ProLogis, no income gain or loss will
be recognized by Meridian as a result of the merger.
In the opinion of Mayer, Brown & Platt, based on factual representations of
Meridian and ProLogis, no income, gain or loss will be recognized by a holder
of ProLogis common shares as a result of the merger. The tax basis and holding
period of the ProLogis common shares owned by a holder will not change as a
result of the merger.
Receipt of ProLogis common shares and Series E preferred shares in exchange
for Meridian common and preferred stock
In the opinion of Vinson & Elkins L.L.P., based on factual representations of
Meridian and ProLogis, no income, gain or loss will be recognized by a holder
of Meridian common stock or Meridian Series D cumulative redeemable preferred
stock who, pursuant to the merger, receives ProLogis common shares or ProLogis
Series E preferred shares, as the case may be, in exchange for all of such
holder's Meridian common stock or Meridian Series D cumulative redeemable
preferred stock, except to the extent of cash consideration received. The tax
basis of the ProLogis common shares or ProLogis Series E preferred shares, as
the case may be, received by a holder in such exchange, will be equal to the
tax basis of the Meridian common stock or Meridian Series D cumulative
redeemable preferred stock surrendered in exchange therefor, decreased by the
amount of cash received by such holder and increased by any amount treated as a
dividend in the exchange or the amount of any gain recognized in the exchange.
The holding period of the ProLogis common shares or ProLogis Series E preferred
shares received will include the holding period of Meridian common stock or
Meridian Series D cumulative redeemable preferred stock surrendered in exchange
therefor, provided that such shares were held as capital assets of the holder
at the effective time.
Treatment of cash consideration
Pursuant to the merger, ProLogis may pay cash consideration of up to $2.00
per share to the holders of Meridian common stock if the value of the ProLogis
common shares multiplied by 1.10 is less than $25.00. In general, a holder of
Meridian common stock who exchanges Meridian common stock for cash
consideration and ProLogis common shares will recognize capital gain or
dividend income with respect to the cash consideration received to the extent
of such holder's gain realized in the merger or such holder's allocable share
of earnings and profits, as applicable. The determination of whether such a
holder will recognize capital gain or dividend income will be made by reference
to the rules of Sections 356(a)(2) and 302 of the Internal Revenue Code of
1986. Under Section 356(a)(2) of the Internal Revenue Code of 1986, each holder
of Meridian common stock will be treated for tax purposes as if such holder had
received only ProLogis common shares in the merger, and immediately thereafter
ProLogis had redeemed appropriate portions of such ProLogis common shares in
exchange for the cash consideration actually distributed to such holder in the
merger. Under Section 302 of the Internal Revenue Code of 1986, all of the cash
representing gain or loss recognized by a holder on the exchange will be taxed
as capital gain or loss if the deemed redemption from such holder is a
"substantially disproportionate redemption" of stock with respect to such
holder or is "not essentially equivalent to a dividend," taking into account,
in either case, the constructive ownership rules of Section 318 of the Internal
Revenue Code of 1986 and all other actual and deemed redemptions from such
holder and other holders of ProLogis common shares undertaken as part of the
plan of reorganization. Under Section 318 of the Internal Revenue Code of 1986,
a holder may be considered to constructively own, after the merger, ProLogis
common shares owned and in some cases constructively owned by the holder's
spouse, children, grandchildren
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or parents or entities in which the holder has an ownership or beneficial
interest and ProLogis common shares which the holder, or such individuals or
entities, has the right to acquire upon the exercise of options. Such gain or
loss will be long-term capital gain or loss, subject to a maximum tax rate of
20%, if the holder's holding period is more than one year at the effective
time.
The deemed redemption of a holder's ProLogis common shares described in the
preceding paragraph will be a "substantially disproportionate redemption" if,
as a result of the deemed redemption, there is a greater than 20% reduction in
the percentage of all then outstanding ProLogis common shares then owned by the
holder and the percentage of voting power of all then outstanding ProLogis
common shares represented by all ProLogis common shares then owned by the
holder.
The deemed redemption of a holder's ProLogis common shares will be "not
essentially equivalent to a dividend" if the holder experiences a "meaningful
reduction" in the holder's proportionate equity interest in ProLogis by reason
of the deemed redemption. In general, there are no fixed rules for determining
when a "meaningful reduction" has occurred. However, based upon a published
ruling of the Internal Revenue Service, the receipt of cash in the merger would
not be characterized as a dividend if the holder's percentage stock ownership
interest in ProLogis after the merger is minimal, the holder exercises no
control over the affairs of ProLogis, and the holder's percentage equity
interest in ProLogis is reduced in the deemed redemption to any extent.
If neither of the redemption tests described above is satisfied, a holder
will be treated as having received a dividend equal to the lesser of the amount
of such holder's recognized gain, as described above and such holder's ratable
share of the accumulated earnings and profits of Meridian and ProLogis.
Backup withholding; information reporting
The cash payments, if any, due a holder upon the exchange of Meridian common
stock pursuant to the merger, other than exempt persons or entities, will be
subject to "backup withholding" for federal income tax purposes unless specific
requirements are met. ProLogis or a third-party paying agent, as the case may
be, must withhold 31 percent of the cash payments to such holder, unless such
holder
(1) is a corporation or comes within other exempt categories found within
Section 3406 of the Internal Revenue Code of 1986, and, when required,
demonstrates this fact, or
(2) provides ProLogis or the third-party paying agent, as the case may
be, with his or her taxpayer identification number and completes a form in
which he or she certifies that he or she has not been notified by the IRS
that he or she is subject to backup withholding as a result of a failure to
report interest and dividends.
The taxpayer identification number of an individual is his or her Social
Security number. Any amount paid as backup withholding will be credited against
the holder's federal income tax liability. Holders who receive ProLogis common
shares must also comply with the information reporting requirements of the
Treasury regulations under Section 368 of the Internal Revenue Code of 1986. In
general, the Treasury regulations under Section 368 require any taxpayer, who
receives stock, securities or other property, including cash, in a tax-free
exchange in connection with a corporate reorganization, to include with his or
her income tax return a complete statement of facts pertaining to the
nonrecognition of gain or loss including:
(1) the cost or other basis of the stock or securities transferred in the
exchange; and
(2) the amount of stock, securities or other property received in the
exchange.
In addition, the statement must include the fair market value, at the date of
the exchange, of each kind of stock, securities or other property received by
the taxpayer and taxpayers are required to keep permanent records showing the
cost or other basis of any property involved in such an exchange. All ProLogis
and Meridian shareholders are urged to consult their tax advisors to determine
the specific information that they may need to file pursuant to the Treasury
regulations under Section 368.
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Consequences of the merger on ProLogis' ability to use Meridian's net
operating losses
As of the end of its taxable year ending as of the effective time, Meridian
is expected to have a net operating loss for federal income tax purposes of
approximately $47.3 million. Section 382 of the Internal Revenue Code of 1986
limits a corporation's use of its net operating losses and other tax attributes
if a corporation has a cumulative change in ownership of greater than 50%
within a three-year period. Meridian will undergo such an ownership change as a
result of the merger, and consequently ProLogis will be subject to the
limitation with respect to the use of Meridian's net operating loss under
Section 382 of the Internal Revenue Code of 1986. In addition, Meridian
underwent such an ownership change in 1996 when it merged Meridian Point Realty
Trust IV Co., Meridian Point Realty Trust VI Co., and Meridian Point Realty
Trust VII Co. As a result, the ability of ProLogis to use any net operating
losses of Meridian or the entities that merged into Meridian from periods prior
to the effective time will generally be limited. Because ProLogis is a real
estate investment trust under the Internal Revenue Code of 1986 and is not
generally subject to federal income tax, ProLogis does not believe the
limitation on ProLogis' ability to use the net operating losses will have a
material adverse impact on ProLogis' operations.
Consequences of the merger on ProLogis' qualification as a REIT
Based upon certain factual representations of Meridian and ProLogis and based
on the opinion of Vinson & Elkins L.L.P. that Meridian has qualified to be
taxed as a real estate investment trust under the Internal Revenue Code of 1986
for its taxable year ending as of the effective time and for each of the
taxable years ended December 31, 1995, 1996, 1997 and 1998, in the opinion of
Mayer, Brown & Platt, ProLogis has qualified to be taxed as a real estate
investment trust under the Internal Revenue Code of 1986 for its taxable years
ended December 31, 1993, 1994, 1995, 1996, 1997 and 1998, and the consummation
of the merger will not jeopardize the status of ProLogis as a real estate
investment trust under the Internal Revenue Code of 1986. ProLogis intends to
operate in a manner which permits it to satisfy the requirements for taxation
as a real estate investment trust under the applicable provisions of the
Internal Revenue Code of 1986, but no assurance can be given that these
requirements will be met.
Accounting treatment
ProLogis will account for the merger as a purchase in accordance with
Accounting Principals Board Opinion No. 16. Accordingly, ProLogis will record
the assets and liabilities acquired from Meridian at ProLogis' cost, the
consideration paid to Meridian stockholders in the merger.
Restrictions on sales by affiliates
The ProLogis common shares and Series E preferred shares to be issued in the
merger will be registered under the Securities Act of 1933. Such securities
will be freely transferable under the Securities Act of 1933, except for those
issued to any person who may be deemed to be an affiliate of Meridian, as such
term is defined for purposes of Rule 145 under the Securities Act of 1933.
Affiliates of Meridian may not sell their ProLogis common shares acquired in
connection with the merger except pursuant to an effective registration
statement under the Securities Act of 1933 covering such securities, paragraph
(d) of Rule 145 or any other applicable exemption under the Securities Act of
1933. Meridian has agreed to use its reasonable best efforts to procure written
agreements from executive officers, directors and other affiliates containing
appropriate representations and commitments intended to ensure compliance with
Rule 145.
Appraisal rights
Because the ProLogis common shares and the Meridian common stock are listed
on the New York Stock Exchange, neither the ProLogis shareholders nor the
Meridian stockholders have appraisal rights under Maryland law.
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THE MERGER AGREEMENT
ProLogis board recommendation
The members of the ProLogis board of trustees have unanimously approved and
declared advisable and recommend that the ProLogis shareholders vote "FOR" the
merger. The affirmative vote of the holders of at least two-thirds of the
ProLogis common shares entitled to be cast is required to approve the merger.
Meridian board recommendation
The members of the Meridian board of directors have unanimously approved the
merger and determined that the terms of the merger agreement are advisable and
fair to, and the merger is in the best interests of, Meridian and its
stockholders. Meridian's board of directors recommend that Meridian
stockholders vote "FOR" the merger. The affirmative vote of the holders of a
majority of the votes entitled to be cast by holders of Meridian common stock
is required to approve the merger proposal.
General
The merger agreement provides for the merger of Meridian with and into
ProLogis. In the merger, the holders of Meridian common stock will receive for
each share of Meridian common stock 1.10 ProLogis common shares and the
associated preferred share purchase rights and up to $2.00 in cash, if and to
the extent that an average trading price for a ProLogis common share,
multiplied by 1.10, is less than $25.00. In addition, holders of Meridian's
Series D cumulative redeemable preferred stock will receive one ProLogis Series
E preferred share having substantially identical rights and preferences for
each share of Meridian Series D cumulative redeemable preferred stock. The
transaction is intended to qualify as a tax-free reorganization for federal
income tax purposes. The discussion in this joint proxy statement and
prospectus of the merger agreement and the description of the material terms of
the merger agreement are qualified in their entirety by reference to the merger
agreement, a copy of which is attached to this joint proxy statement and
prospectus as Annex A and is incorporated herein by reference.
Expenses of solicitation
All fees and expenses including financial advisory and other professional
services fees, incurred in connection with the merger agreement and the
transactions contemplated thereby will be paid by the party incurring such
expenses, except for those fees and expenses incurred in connection with
filing, printing and distributing this joint proxy statement and prospectus,
which will be shared equally by ProLogis and Meridian. The costs of
solicitation of proxies from ProLogis shareholders will be borne by ProLogis.
The costs of solicitation of proxies from Meridian stockholders will be borne
by Meridian. ProLogis and Meridian will reimburse brokers, fiduciaries,
custodians and other nominees for reasonable out-of-pocket expenses incurred in
sending this joint proxy statement and prospectus and other proxy materials to,
and obtaining instructions relating to such material from, ProLogis and
Meridian shareholders. ProLogis shareholder proxies may be solicited by
trustees or officers of ProLogis in person, by letter or by telephone or
telegram. Meridian stockholder proxies may be solicited by directors or
officers of Meridian in person, by letter or by telephone or telegram. In
addition, ProLogis will retain Georgeson and Company, New York, New York, to
assist in the solicitation of proxies. It is estimated that its fees for
services to ProLogis will not exceed $22,000 in the aggregate plus expenses.
ProLogis and Meridian will also reimburse custodians, nominees and
fiduciaries for forwarding proxies and proxy materials to the beneficial owners
of its stock in accordance with regulations of the Securities and Exchange
Commission and the New York Stock Exchange.
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Effective time of the merger
Subject to the satisfaction, or waiver, of the other conditions to the
obligations of ProLogis and Meridian to complete the merger, the merger will be
completed as soon as practicable following the approval by the shareholders of
ProLogis and Meridian of the merger and the merger agreement at their
respective special meetings.
Exchange of Meridian shares
As of the effective time, ProLogis will deposit cash in an amount sufficient
to pay the aggregate cash consideration, if any, and certificates representing
the ProLogis common shares and ProLogis Series E preferred shares to be issued
in exchange for outstanding shares of Meridian common stock and Meridian Series
D cumulative redeemable preferred stock, with an exchange agent designated by
ProLogis and reasonably acceptable to Meridian. The deposit of the cash and
certificates will be for the benefit of the holders of shares of Meridian
common stock and Meridian Series D cumulative redeemable preferred stock, as
applicable, for exchange in accordance with the merger agreement.
As soon as reasonably practicable after the effective time, the exchange
agent will mail to each holder of record of a certificate or certificates
which, prior to the effective time, represented outstanding shares of Meridian
common stock or Meridian Series D cumulative redeemable preferred stock a
letter of transmittal which will specify that delivery shall be effected and
risk of loss and title to the certificates shall pass only upon delivery of the
Meridian certificates to the exchange agent; and instructions for surrendering
the Meridian certificates in exchange for certificates representing ProLogis
common shares or ProLogis Series E preferred shares, as the case may be. Upon
surrender of a Meridian certificate for cancellation to the exchange agent,
together with the letter of transmittal, duly executed, and any other documents
reasonably required by ProLogis or the exchange agent, the holder of a Meridian
certificate formerly representing shares of Meridian common stock will be
entitled to receive in exchange therefor the amount of cash consideration, if
any, and a certificate representing that number of ProLogis common shares, and
the holder of a certificate formerly representing shares of Meridian Series D
cumulative redeemable preferred stock will be entitled to receive a certificate
representing that number of ProLogis Series E preferred shares, which such
holder has the right to receive pursuant to the merger agreement, and any
unpaid ProLogis distributions and distributions with a record date after the
effective time that the holder has the right to receive. The surrendered
Meridian certificate shall be canceled.
At the effective time, each holder of an uncertificated share of Meridian
common stock will be entitled to receive the amount of cash consideration, if
any, and an initial transaction statement representing the number of ProLogis
common shares, and each holder of an uncertificated share of Meridian Series D
cumulative redeemable preferred stock will be entitled to receive an initial
transaction statement representing that number of ProLogis Series E preferred
shares, in each case, which such holder is entitled to receive in the merger.
The transaction statement with respect to the uncertificated shares of Meridian
common stock and Meridian Series D cumulative redeemable preferred stock, on
the books and records of Meridian, will then be canceled.
In the event of a transfer of ownership of Meridian common stock or Meridian
Series D cumulative redeemable preferred stock, which is not registered in the
transfer records of Meridian, the appropriate amount of cash consideration, if
any, and a certificate representing the appropriate number of ProLogis common
shares or ProLogis Series E preferred shares, as the case may be, may be paid
and issued to a transferee if the Meridian certificate is presented to the
exchange agent properly endorsed or accompanied by appropriate stock powers and
otherwise in proper form for transfer and accompanied by all documents required
to evidence and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid. After the effective time of the merger, each
Meridian certificate will represent only the right to receive, upon surrender,
the appropriate amount of cash consideration, in the case of a certificate
representing Meridian common stock, and the certificate representing ProLogis
common shares or ProLogis Series E preferred shares, as the case may be, and
any unpaid Prologis distributions and distributions that such holder has the
right to receive. The exchange
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agent will not be entitled to vote or exercise any rights of ownership with
respect to ProLogis common shares or ProLogis Series E preferred shares, as the
case may be, it holds, except that it shall receive and hold all dividends or
other distributions paid or distributed with respect thereto for the account of
persons entitled thereto.
Conditions to the merger
The respective obligations of ProLogis and Meridian to effect the merger and
the other transactions contemplated by the merger agreement are subject to the
satisfaction or waiver of each of the following conditions at or prior to the
effective time of the merger:
(1) Each party shall have performed in all material respects its
obligations contained in the merger agreement required to be performed on
or prior to the closing of the merger as evidenced by certificates signed
by each party's chief executive officer and chief financial officer and the
representations and warranties of each party shall be true and correct in
all material respects on and as of the date made and the date of the
closing of the merger;
(2) the shareholders of ProLogis shall have approved the merger and the
matters contemplated thereby;
(3) the stockholders of Meridian shall have approved the merger and the
matters contemplated thereby;
(4) the registration statement filed by ProLogis with the Securities and
Exchange Commission shall have become effective in accordance with the
Securities Act of 1933, and no stop order suspending such effectiveness
shall have been issued and remain in effect and no proceeding for that
purpose shall have been initiated or threatened by the Securities and
Exchange Commission;
(5) the ProLogis common shares and Series E preferred shares issuable as
a result of the merger, including any shares issuable upon the exercise of
any Meridian stock options or common stock warrants, shall have been
authorized for listing on the New York Stock Exchange, subject to notice of
issuance;
(6) no temporary restraining order, preliminary or permanent injunction
or other order or decree by any federal or state court or any other
governmental entity which prevents or makes illegal the consummation of the
merger shall have been issued and remain in effect;
(7) all necessary consents, approvals, permits and authorizations
required to be obtained by any governmental entity will have been obtained;
(8) the sale of the outstanding shares of common stock of Meridian
Refrigerated, Inc. shall have been consummated;
(9) the directors and officers of Meridian shall have fully paid any and
all loans which Meridian has guaranteed;
(10) Meridian shall have received a favorable opinion from Vinson &
Elkins L.L.P. to the effect that, for United States federal income tax
purposes
(a) the merger will qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986,
(b) no gain or loss will be recognized by Meridian as a result of the
merger, and
(c) no gain or loss will be recognized by holders of Meridian common
stock or Meridian preferred stock except to the extent cash, if any, is
received as merger consideration or, with respect to stockholders in
special circumstances, such as holders who acquired shares of Meridian
common stock through the exercise of employee stock options or
otherwise as compensation for employment;
(11) ProLogis shall have received a favorable opinion from Mayer, Brown &
Platt to the effect that, for federal income tax purposes, the merger will
qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986 and no gain or loss will be recognized for
federal income tax purposes by ProLogis as a result of the merger;
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(12) ProLogis shall have received a favorable opinion from Vinson &
Elkins L.L.P. to the effect that Meridian has qualified to be taxed as a
real estate investment trust pursuant to the Internal Revenue Code of 1986
for its taxable years ending December 31, 1995, 1996, 1997, and 1998 and
will so qualify for its taxable year ending as of the closing date and that
each Meridian partnership is properly treated as a partnership and not as a
"publicly traded partnership" for federal income tax purposes; and
(13) Meridian shall have received a favorable opinion from Mayer, Brown &
Platt to the effect that ProLogis has qualified to be taxed as a real
estate investment trust pursuant to the Internal Revenue Code of 1986 for
its taxable years ending December 31, 1995, 1996, 1997 and 1998 and
ProLogis' present organization, ownership, method of operation and asset
and income are such that ProLogis will so qualify for the taxable year in
which the closing occurs.
Representations and warranties
The merger agreement contains various customary representations and
warranties relating to, among other things:
(1) the due organization, power, authority and standing of ProLogis and
Meridian and similar corporate matters;
(2) the capital structure of ProLogis and Meridian;
(3) the authorization of the merger agreement by each party, the absence
of any violations caused by the merger, and the required consents and
approvals in connection with the execution of the merger;
(4) the availability and accuracy of the documents filed by ProLogis and
Meridian with the Securities and Exchange Commission;
(5) the accuracy of the information supplied by each party for inclusion
in this joint proxy statement and prospectus;
(6) the absence of changes or events since information was most recently
filed by each party with the Securities and Exchange Commission;
(7) the absence of undisclosed material liabilities of either party;
(8) the absence of any default by either party;
(9) compliance with applicable laws by each party;
(10) the absence of litigation;
(11) tax matters;
(12) pension and benefit plans of each party and their compliance with
the laws and regulations governing such plans;
(13) labor matters;
(14) intangible property;
(15) ownership of real properties;
(16) compliance with environmental laws and other environmental matters;
(17) maintenance of insurance;
(18) the receipt of fairness opinions from each party's financial
advisor;
(19) the vote required of each party's shareholders necessary to approve
the merger;
(20) the absence of ProLogis' beneficial ownership of Meridian common
stock or Meridian preferred stock, and the absence of Meridian's beneficial
ownership of ProLogis common shares or debt securities;
(21) the absence of broker's fees except for fees owed to Merrill Lynch,
which represented ProLogis, and Goldman Sachs and Prudential Securities
Incorporated, which represented Meridian;
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(22) the absence of a requirement for either party to register as an
investment company under the Investment Company Act 1940;
(23) the approval of amendments to Meridian's Rights Agreement and the
exemption of the transaction from the application of Maryland antitakeover
laws; and
(24) the existence and terms of the material contracts of each party.
Covenants
Conduct of business prior to merger
Except as specifically required by the terms of the merger agreement or with
the written consent of the other party, ProLogis and Meridian have agreed that
they will, prior to the effective time of the merger, carry on their respective
businesses in the usual, regular and ordinary course of business consistent
with past practice and use commercially reasonable efforts to preserve intact
their present business organizations, including keeping available the services
of its current office and employees, maintaining insurance with financially
responsible insurance companies against risks and losses that are customary for
companies engaged in their respective business, and preserving their
relationships with customers, suppliers and others having business dealings
with the party, in order that their businesses shall not be impaired prior to
the effective time.
In addition, except as contemplated by the merger agreement, unless the other
party has agreed in writing, ProLogis and Meridian have each agreed that they
will not, and will not permit any of their respective subsidiaries to:
(1) (a) declare or pay any dividends or make other distributions in
respect of any of their shares of beneficial interest, capital stock or
partnership interests, except for
. the payment of regular quarterly dividends and distributions to
shareholders not in excess of $0.33 per share of common stock in the
case of Meridian, and not in excess of $0.375 per common share in
the case of ProLogis,
. the payment of any partnership distribution in accordance with
the requirements of existing organizational documents, and
. the payment of regular quarterly cash dividends to stockholders
of any corporations that are preferred stock subsidiaries of the
parties;
(b) split, combine or reclassify any of its shares of beneficial
interest or capital stock;
(c) repurchase, redeem or otherwise acquire any shares of its
beneficial interest or capital stock, except as required by the terms
of outstanding securities, or as contemplated by an existing employee
benefit plan and except for the outstanding shares of Meridian Series B
convertible preferred stock which will be redeemed for cash or
converted into Meridian common stock prior to the merger in accordance
with the terms of the Meridian Series B convertible preferred stock;
(2) authorize the issuance of securities, except for the issuance of
shares upon the exercise of options or warrants outstanding on the date of
the merger agreement or in connection with identified anticipated
transactions;
(3) amend their organizational documents, other than as contemplated by
the merger agreement;
(4) authorize, recommend, propose or announce an intention to adopt a
plan of complete or partial liquidation or dissolution;
(5) make any changes in their accounting methods which would be required
to be disclosed under the rules and regulations of the Securities and
Exchange Commission, except as required by law, rule, regulation or
generally accepted accounting practices;
(6) enter into any agreement or arrangement with any affiliate, other
than with wholly-owned subsidiaries, on terms less favorable to the
respective party than could be reasonably expected to be obtained with an
unaffiliated third party on an arm's length basis;
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(7) fail to use commercially reasonable efforts to maintain with
financially responsible insurance companies insurance in such amounts and
against risks and losses as are customary for companies engaged in their
respective businesses;
(8) make or rescind any material express or deemed election relating to
taxes, settle or compromise any material claim, action, suit, litigation,
proceeding, arbitration, investigation, audit or controversy relating to
taxes or change in any material respect any of its methods of reporting
income or deductions for federal income tax purposes; or
(9) grant any increases in compensation of any of their directors,
trustees, officers or employees, except increases to employees who are not
directors, trustees or officers made in the ordinary course of business,
pay additional pension benefits or retirement allowances or enter into a
new or amended material employment contract, severance or termination
agreement or employee benefit or pension plan.
Meridian has also agreed that, except as contemplated by the merger
agreement, it will not, and will not permit any of its subsidiaries to:
(1) acquire or agree to acquire by merging or consolidating with or by
purchasing any equity interest in or assets of any business, corporation,
partnership, association or other business organization;
(2) sell or otherwise dispose of, or agree to sell, or otherwise dispose
of any of its material assets; and
(3) except for identified transactions, incur or guarantee any
indebtedness or issue or sell any debt securities or warrants or rights to
acquire debt securities, except for short-term borrowings in the ordinary
course of business consistent with past practice.
Other
ProLogis and Meridian have agreed that:
(1) upon reasonable notice, each will afford to the other party and its
respective accountants, counsel, financial advisors and other
representatives full access, during normal business hours throughout the
period prior to the closing, to all properties, books, contracts,
commitments and records of such party, as appropriate, and, during such
period, each will furnish promptly to the other a copy of each document
filed or received pursuant to the requirements of the Securities and
Exchange Commission in connection with the transactions contemplated by the
merger agreement, and such other information concerning its business,
properties and personnel as shall be reasonably requested;
(2) ProLogis will take any action required to be taken under applicable
state blue sky or securities laws in connection with the merger and each
party will furnish all information as may be reasonably requested in
obtaining the applicable permits, approvals and registrations;
(3) each will use its respective reasonable best efforts to cause to be
delivered to the other party letters of their respective certified public
accountants, dated a date within two business days before the date on which
ProLogis' registration statement filed with the Securities and Exchange
Commission becomes effective, in form and substance reasonably satisfactory
to the other party and customary in scope and substance for comfort letters
delivered by independent public accountants in connection with registration
statements similar to ProLogis' registration statement;
(4) as soon as practicable following the date upon which ProLogis'
registration statement is declared effective by the Securities and Exchange
Commission, each party will use its reasonable best efforts to obtain the
approval of its shareholders required by the merger agreement;
(5) they will cooperate and use their respective best efforts to cause to
be done, all things necessary or advisable under applicable laws and
regulations, and under contracts giving rise to the required consents, to
consummate the transactions contemplated by the merger agreement, including
using its reasonable best efforts to identify and obtain all necessary or
appropriate waivers, consents and approvals, to effect all necessary
registrations and filings and to lift any injunction or other legal bar to
the transactions contemplated by the merger agreement; and
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(6) they will take such action as may be necessary or advisable to ensure
that after the effective time, ProLogis shall select two of the current
members of Meridian's board to be elected and serve as trustees of
ProLogis.
Distributions
ProLogis and Meridian intend to continue making quarterly distributions and
dividends. ProLogis' current quarterly common share distributions are $0.3183
per ProLogis common share and its current quarterly preferred share
distributions are $0.5875 per ProLogis Series A preferred share, $0.4375 per
ProLogis Series B preferred share, $1.0675 per ProLogis Series C preferred
share and $0.495 per ProLogis Series D preferred share. Meridian's current
quarterly common stock distributions are $0.33 per share of Meridian common
stock and its current quarterly preferred stock dividends are $0.33 per share
of Meridian Series B convertible preferred stock and $0.5469 per share of
Meridian Series D cumulative redeemable preferred stock. After the effective
time of the merger, ProLogis intends to maintain its current quarterly
distribution policy and to pay stated quarterly dividends on the ProLogis
Series E preferred shares issued in the merger, subject to authorization by the
ProLogis board and the availability of funds therefor.
ProLogis and Meridian have agreed to coordinate with each other the payment
of distributions with respect to ProLogis common shares and shares of Meridian
common stock after the date of the merger agreement, with the intention that
(1) Meridian pay whatever preclosing distributions that shall be
necessary to avoid jeopardizing its status as a real estate investment
trust under the Internal Revenue Code of 1986 and to avoid paying federal
income and excise taxes,
(2) the shareholders of ProLogis and stockholders of Meridian be treated
fairly in order to avoid any "windfall" preclosing distributions, and
(3) except as may be necessary to accomplish the foregoing, holders of
ProLogis common shares and Meridian common stock and Meridian preferred
stock will not receive two distributions, or fail to receive one
distribution, for any single calendar quarter with respect to their
Meridian stock, on the one hand, and any ProLogis shares that any such
holder receives in the merger, on the other hand.
No solicitation of transactions
In the merger agreement, Meridian has agreed on its own behalf and on behalf
of its subsidiaries that:
(1) it will not initiate, solicit or encourage, directly or indirectly,
any inquiries or the making or implementation of any proposal or offer with
respect to a merger, acquisition, tender offer, exchange offer, sale of
assets or similar transaction involving 10.0% of more of the assets or any
equity securities of Meridian or any of its subsidiaries or engage in
negotiations, provide confidential information or otherwise facilitate such
a proposal;
(2) it will use its best efforts to cause its officers, directors,
employees, agents and financial advisors not to engage in the activities
listed above;
(3) it will immediately cease and cause to be terminated any existing
discussions or negotiations with any parties regarding the foregoing; and
(4) it will notify ProLogis promptly if it receives any such inquiries or
proposals.
However, the agreement does not prohibit Meridian from:
(1) furnishing information concerning itself and its businesses or
assets, pursuant to an appropriate confidentiality agreement customary
under the circumstances, to a third party who has made an unsolicited
alternative proposal to acquire Meridian,
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(2) engaging in discussions or negotiations with a third party who has
made an unsolicited alternative proposal to acquire Meridian, and
(3) following receipt of an unsolicited alternative acquisition proposal,
taking and disclosing to its shareholders a position contemplated by Rule
14e-2 or 14d-9 under the Securities Exchange Act of 1934, as amended, or
otherwise making disclosure to its shareholders,
but in each case only if and to the extent that Meridian's board has concluded
in good faith, after consulting with and considering the advice of legal and
financial advisors, that such action could reasonably result in an acquisition
proposal that is economically superior to the terms of the merger agreement,
and Meridian has provided ProLogis with written notice of its intent to furnish
information or enter into negotiations with such third party prior to
furnishing such information or entering into negotiations and further keeps
ProLogis informed of the status of such negotiations.
Termination
The merger agreement may be terminated at any time prior to the effective
time of the merger, whether before or after approval by the shareholders of
ProLogis and Meridian, under the following circumstances:
(1) by mutual written consent of ProLogis and Meridian or by mutual
action of their respective boards;
(2) if the merger shall not have been consummated on or before July 31,
1999;
(3) any governmental entity has issued a final and non-appealable
injunction or taken any other final action permanently restraining,
enjoining or otherwise prohibiting the consummation of the merger;
(4) the required approval of the shareholders of any party was not
obtained because the required number of shares were not voted in favor of
the merger; and
(5) a breach by the other party of a representation, warranty, covenant
or other agreement contained in the merger agreement which individually or
in the aggregate would have a material adverse effect on the party and such
a breach could not be cured with 30 days after giving written notice to the
breaching party. This breach would also be a failure of a condition
precedent specified in the merger agreement. This expressly includes a
breach of either party's covenant to recommend approval of the merger which
will be deemed a "willful breach" and would subject the breaching party to
liability resulting from the breach.
ProLogis may unilaterally terminate the merger agreement if the Meridian
board of directors withdraws or modifies its recommendation that its
stockholders approve the merger in connection with a superior acquisition
proposal from a third party.
Meridian may unilaterally terminate the merger agreement if
(1) the Meridian board of directors withdraws or modifies its
recommendation of the merger and Meridian has given ProLogis notice that it
has received a superior acquisition proposal from a third party and
ProLogis does not revise its acquisition proposal within five days after
receiving such notice or the Meridian board determines that the third-party
acquisition proposal is superior to ProLogis' revised proposal; or
(2) the ProLogis board of trustees does not recommend against a tender or
exchange offer for the acquisition of 50% or more of the ProLogis common
shares by a third party or if ProLogis enters into or recommends a
transaction involving the acquisition by a third party of 50% or more of
the then outstanding ProLogis common shares or all or substantially all of
the assets of ProLogis.
Termination fees
ProLogis will be required to pay a $25 million termination fee if Meridian
terminates the merger agreement because ProLogis fails to recommend against a
tender or exchange offer for the acquisition of 50% or more of the ProLogis
common shares by a third party or if ProLogis enters into or recommends a
transaction involving the acquisition by a third party of 50% or more of the
then outstanding ProLogis common shares or all or substantially all of its
assets.
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Meridian may also be required to pay a termination fee. The termination fee
owed by Meridian will be $40 million, unless Prudential Real Estate enters into
a voting agreement with ProLogis, in which case the termination fee will be $25
million. Meridian may be required to pay the termination fee under the
following circumstances:
(1) the Meridian board withdraws or changes its recommendation that the
Meridian stockholders approve the merger pursuant to Meridian's decision to
accept a superior acquisition proposal from a third party;
(2) ProLogis terminates the merger agreement because the Meridian board
withdraws or changes its recommendation that Meridian stockholders approve
the merger in connection with a superior acquisition proposal;
(3) the stockholders of Meridian fail to approve the merger, at the time
of the vote a third-party Meridian acquisition proposal is pending and
within 12 months of the shareholders' vote, Meridian consummates an
acquisition proposal with any party; or
(4) ProLogis terminates the merger agreement as a result of Meridian's
material breach of the merger agreement and at the time of the termination
a Meridian acquisition proposal is pending and, within 12 months after the
termination, Meridian agrees to or consummates an acquisition proposal with
any party. The termination fee payable by Meridian under these
circumstances will be reduced by any fee already paid to ProLogis at the
time of the termination.
If the agreement is terminated by ProLogis or Meridian because of the non-
terminating party's breach of the merger agreement, the breaching party will
pay the terminating party an amount equal to the lesser of $1.25 million or the
terminating party's out-of-pocket expenses incurred in connection with the
merger agreement. In the event the merger agreement is terminated as a result
of the willful breach of the merger agreement, the breaching party shall be
fully liable to the other party for any damages resulting from the breach.
Indemnification
ProLogis has agreed that all rights to indemnification and exculpation from
liabilities or acts or omissions occurring at or prior to the effective time of
the merger existing on the date of the merger agreement in favor of the current
or former directors or officers, or directors or officers elected prior to
closing, of Meridian and its subsidiaries as provided in their organizational
documents and any indemnification agreements or arrangements of Meridian and
its subsidiaries will survive the merger, will be assumed and performed by
ProLogis, and will continue in accordance with their terms with respect to
matters arising before the effective time of the merger. If provided in the
applicable document, ProLogis will pay any expenses of any of the foregoing
indemnified persons in advance of the final disposition of any action,
proceeding or claim relating to any act or omission to the fullest extent
permitted under Maryland law upon receipt from the indemnified person to whom
advances are to be made of an undertaking to repay such advances as required
under Maryland law. ProLogis will maintain "run-off" directors and officers
liability insurance with a coverage amount and other terms and conditions no
less favorable to the Meridian directors and officers under their current
liability insurance policy. ProLogis shall maintain such insurance until the
sixth anniversary of the effective time of the merger.
Amendment and waiver
The merger agreement may not be amended except in writing signed by both
ProLogis and Meridian and in compliance with applicable law. The merger
agreement may be amended before or after the approval of the ProLogis
shareholders or Meridian stockholders, provided, however, that after any such
approval the parties shall obtain such further shareholder approval as required
by applicable law. At any time prior to the closing, ProLogis or Meridian may
(1) extend the time for the performance of any of the obligations of the
other party,
(2) waive any inaccuracies in the representations and warranties contained
therein or in any document delivered pursuant thereto, and
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(3) waive compliance with any of the agreements or conditions contained
therein. Any agreement on the part of ProLogis and Meridian that relates to any
extension or waiver shall only be valid if it is in the form of a signed
writing.
THE SPECIAL MEETINGS OF SHAREHOLDERS
The ProLogis special meeting
Purpose of the meeting
At the ProLogis special meeting, the holders of ProLogis common shares will
be asked to consider and vote upon a proposal to approve the merger and the
merger agreement.
Date, time and place; Record date
The ProLogis special meeting is scheduled to be held at the offices of
ProLogis at 14100 East 35th Place, Aurora, Colorado, at 8:30 a.m., Mountain
time, on Tuesday, March 30, 1999.
The ProLogis board has fixed the close of business on February 24, 1999 as
the record date for the determination of holders of ProLogis common shares
entitled to notice of and to vote at the ProLogis special meeting. On February
12, 1999, there were 123,737,556 ProLogis common shares outstanding, which were
held by approximately 1,159 record holders. Each ProLogis common share is
entitled to one vote on all matters presented for shareholder action. As of
February 12, 1999, Security Capital and ProLogis' trustees and executive
officers beneficially owned an aggregate of 50,892,867 ProLogis common shares
or approximately 41.1% of the outstanding ProLogis common shares entitled to
vote on the merger, which requires a two-thirds vote. Security Capital has
agreed, subject to certain conditions, and each of such other persons has
indicated their intent to vote their ProLogis common shares in favor of the
merger and the merger agreement.
Admission
Registered owners of ProLogis common shares who plan to attend the ProLogis
special meeting in person must detach and retain the admission ticket which is
attached to the proxy card. Beneficial owners who plan to attend the ProLogis
special meeting in person may obtain admission tickets in advance by sending
written requests, along with proof of ownership, such as a bank or brokerage
firm account statement, to:
Assistant Secretary
ProLogis Trust
14100 East 35th Place
Aurora, Colorado 80011
Record owners and beneficial owners, including the holders of valid proxies
therefrom, who do not present admission tickets at the meeting all will be
admitted upon verification of ownership at the admissions counter at the
ProLogis special meeting. Verification of ownership for record holders,
including holders of valid proxies therefrom will consist of a valid form of
personal identification, such as a driver's license or passport, and for
beneficial owners will consist of a bank or brokerage firm account statement
showing beneficial ownership as of the ProLogis record date together with a
valid form of personal identification.
Voting rights
The presence, either in person or by proxy, of the holders of a majority of
the outstanding ProLogis common shares is necessary to constitute a quorum at
the ProLogis special meeting. Assuming the existence of a quorum, the
affirmative vote of the holders of at least two-thirds of the outstanding
ProLogis common shares
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entitled to vote on the merger is required to approve the merger and the merger
agreement. Holders of record of ProLogis common shares on the ProLogis record
date are entitled to one vote per ProLogis common share at the ProLogis special
meeting.
If a shareholder attends the ProLogis special meeting, he or she may vote by
ballot. However, since many shareholders may be unable to attend the ProLogis
special meeting, the ProLogis board is soliciting proxies so that each holder
of ProLogis common shares on the ProLogis record date has the opportunity to
vote on the proposals to be considered at the ProLogis special meeting. When a
proxy card is returned properly signed and dated, the ProLogis common shares
represented thereby will be voted in accordance with the instructions on the
proxy card. If a shareholder does not return a signed proxy card, their
ProLogis common shares will not be voted and thus will have the effect of a
vote "against" the merger and the merger agreement. Similarly, a broker non-
vote or an abstention will have the effect of a vote "against" the merger and
the merger agreement. Shareholders are urged to mark the box on the proxy card
to indicate how their ProLogis common shares are to be voted. If a shareholder
returns a signed proxy card, but does not indicate how their ProLogis common
shares are to be voted, the ProLogis common shares represented by the proxy
card will be voted "FOR" the merger and the merger agreement. The proxy card
also confers discretionary authority on the individuals appointed by the
ProLogis board and named on the proxy card to vote the ProLogis common shares
represented thereby on any other matter that is properly presented for action
at the ProLogis special meeting. Such discretionary authority will not be used
to vote for adjournment of the ProLogis special meeting to permit further
solicitation of proxies if the shareholder votes against any proposal.
Any ProLogis shareholder who executes and returns a proxy card may revoke
such proxy at any time before it is voted by:
(1) notifying in writing the Assistant Secretary of ProLogis at 14100
East 35th Place, Aurora, Colorado 80111,
(2) granting a subsequent proxy or
(3) appearing in person and voting at the ProLogis special meeting.
Attendance at the ProLogis special meeting will not in and of itself
constitute revocation of a proxy.
Other matters
ProLogis is not aware of any business or matter other than those indicated
above which may be properly presented at the ProLogis special meeting. If,
however, any other matter properly comes before the ProLogis special meeting,
the proxy holders will, in their discretion, vote thereon in accordance with
their best judgment.
Any proposal by a shareholder intended to be presented at the 1999 annual
meeting of shareholders must have been received by ProLogis at its principal
executive offices located at 14100 35th Place, Aurora, Colorado 80111 not later
than January 28, 1999 for inclusion in ProLogis' proxy statement and form of
proxy relating to ProLogis' 1999 annual meeting of shareholders.
The Meridian special meeting
Purpose of the meeting
At the Meridian special meeting, the holders of Meridian common stock will be
asked to consider and vote upon a proposal to approve the merger and the merger
agreement.
Date, time and place; Record date
The Meridian special meeting is scheduled to be held at 7:30 a.m., Pacific
time, on Tuesday, March 30, 1999.
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The Meridian board has fixed the close of business on February 24, 1999 as
the record date for the determination of holders of Meridian common stock
entitled to notice of and to vote at the Meridian special meeting. On February
9, 1999 there were 33,545,193 shares of Meridian common stock outstanding,
which were held by approximately 14,500 record holders. Each share of Meridian
common stock is entitled to one vote on all matters presented for shareholder
action. As of February 9, 1999, Meridian's directors and executive officers
beneficially owned an aggregate of 2,489,864 shares of Meridian common stock or
approximately 7.5% of the outstanding Meridian common stock and, including the
17,900,930 shares of Meridian common stock owned by Prudential Real Estate and
Ameritech, approximately 61.1% of the outstanding shares of Meridian common
stock entitled to vote on the merger, which is greater than the majority vote
required to approve the merger.
Voting rights
The presence, either in person or by proxy, of the holders of a majority of
the outstanding Meridian common stock is necessary to constitute a quorum at
the Meridian special meeting. Assuming the existence of a quorum, the
affirmative vote of the holders of a majority of the outstanding shares of
Meridian common stock entitled to vote on the merger represented in person or
by proxy at the Meridian special meeting is required to approve the merger and
the merger agreement. Holders of record of Meridian common stock on the
Meridian record date are entitled to one vote per share of Meridian common
stock at the Meridian special meeting.
If a Meridian stockholder attends the Meridian special meeting, he or she may
vote by ballot. However, since many stockholders may be unable to attend the
Meridian special meeting, the Meridian board is soliciting proxies so that each
holder of Meridian common stock on the Meridian record date has the opportunity
to vote on the merger and any other proposals to be considered at the Meridian
special meeting. When a proxy card is returned properly signed and dated, the
Meridian common stock represented thereby will be voted in accordance with the
instructions on the proxy card. If a Meridian stockholder does not return a
signed proxy card, their Meridian common stock will not be voted and thus will
have the effect of a vote "against" the merger and the merger agreement.
Similarly, a broker non-vote or an abstention will have the effect of a vote
"against" the merger and the merger agreement. Meridian stockholders are urged
to mark the box on the proxy card to indicate how their shares of Meridian
common stock is to be voted. If a Meridian stockholder returns a signed proxy
card, but does not indicate how their Meridian common stock is to be voted, the
Meridian common stock represented by the proxy card will be voted "FOR" the
merger and the merger agreement. The proxy card also confers discretionary
authority on the individuals appointed by the Meridian board and named on the
proxy card to vote the Meridian common stock represented thereby on any other
matter that is properly presented for action at the Meridian special meeting.
Such discretionary authority will not be used to vote for adjournment of the
Meridian special meeting to permit further solicitation of proxies if the
stockholder votes against the approval of the merger.
Any Meridian stockholder who executes and returns a proxy card may revoke
such proxy at any time before it is voted by
(1) notifying in writing the Secretary of Meridian at 455 Market Street,
17th Floor, San Francisco, California 94105,
(2) granting a subsequent proxy or
(3) appearing in person and voting at the Meridian special meeting.
Attendance at the Meridian special meeting will not in and of itself
constitute revocation of a proxy.
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Other Matters
Meridian is not aware of any business or matter other than the proposal to
approve the merger which may be properly presented at the Meridian special
meeting. If, however, any other matter properly comes before the Meridian
special meeting, the proxy holders will, in their discretion, vote thereon in
accordance with their best judgment.
Any proposal by a stockholder intended to be presented at the 1999 annual
meeting of stockholders must have been received by Meridian at its principal
executive offices located at 455 Market Street, 17th Floor, San Francisco,
California 94105 not later than December 18, 1998 for inclusion in Meridian's
proxy statement and form of proxy relating to Meridian's 1999 annual meeting of
stockholders.
COMPARISON OF SHAREHOLDER RIGHTS
Meridian is organized as a Maryland corporation and ProLogis is organized as
a real estate investment trust under the laws of the State of Maryland. As a
Maryland corporation, Meridian is subject to the Maryland General Corporation
Law, which is a general corporation statute dealing with a wide variety of
matters, including election, tenure, duties, liabilities and indemnification of
directors and officers, dividends and other distributions, meetings and voting
rights of stockholders, and extraordinary actions, such as amendments to the
charter, mergers, sales of all or substantially all of the assets and
dissolution. As a Maryland real estate investment trust, ProLogis is governed
by Title 8 of the Corporations and Associations Article of the Annotated Code
of Maryland and other provisions of the Annotated Code of Maryland. Title 8
covers some of the same matters covered by the Maryland General Corporation
Law, including liabilities of the trust, shareholders, trustees and officers,
amendment of the declaration of trust, and mergers of a real estate investment
trust with other entities. There are many matters that are addressed in the
Maryland General Corporation Law that are not dealt with in Title 8 of the
Corporations and Associations Article of the Annotated Code of Maryland, and it
is the general practice of real estate investment trusts to address some of
these matters through provisions in the declaration of trust or bylaws.
Differences between the Maryland General Corporation Law and Title 8 of the
Corporations and Associations Article of the Annotated Code of Maryland and the
Meridian charter and Meridian bylaws and the ProLogis declaration of trust and
bylaws are discussed below. However, the discussion of the comparative rights
of stockholders of Meridian and shareholders of ProLogis set forth below does
not purport to be complete and is subject to and qualified in its entirety by
reference to the Maryland General Corporation Law and Title 8 of the
Corporations and Associations Article of the Annotated Code of Maryland and
also to the Meridian charter and Meridian bylaws and the ProLogis declaration
of trust and ProLogis bylaws.
Authorized and issued shares
Under the ProLogis declaration of trust, the maximum number of shares of
beneficial interest that ProLogis is currently authorized to issue is
230,000,000. There are currently 148,424,106 shares of beneficial interest
outstanding, including ProLogis common shares and preferred shares, and
19,117,690 shares of beneficial interest reserved for issuance pursuant to
convertible securities or options which have been granted. After the merger,
there will be 188,039,044 shares of beneficial interest outstanding, including
161,352,494 ProLogis common shares and the 2,000,000 ProLogis Series E
preferred shares.
The Meridian charter authorizes the issuance of 100,000,000 shares of common
stock and 25,000,000 shares of preferred stock, and the Meridian board of
directors may classify any unissued shares of preferred stock and reclassify
any previously classified but unissued shares of preferred or unissued shares
of common stock of any series from time to time, in one or more series of
stock. Currently Meridian has issued and outstanding 33,545,193 shares of
common stock, 1,623,376 shares of Meridian Series B convertible preferred
stock, 2,000,000 shares of Meridian Series D cumulative redeemable preferred
stock and has authorized 150,000 shares of Meridian Series C junior
participating preferred stock, $.001 par value per share.
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Special meeting
The ProLogis declaration of trust provides that a majority of the trustees, a
majority of the Independent Trustees, or any officer of ProLogis may call a
special meeting of ProLogis' shareholders and that such a meeting shall be
called upon the written request of shareholders holding 10% of the outstanding
shares entitled to vote. An "Independent Trustee" means a trustee who
(1) is not an affiliate of ProLogis,
(2) is not serving as a trustee or director of more than three real estate
investment trusts organized by a sponsor of ProLogis and
(3) does not perform any other service for ProLogis, other than as trustee.
The Meridian bylaws provide that the chairman of the Meridian board, if a
chairman has been appointed, or the board of directors may call a special
meeting of Meridian's stockholders. A special meeting shall also be called upon
the written request of stockholders entitled to cast not less than 10% of all
the votes entitled to be a cast at the meeting.
ProLogis board/ Meridian board
Pursuant to the ProLogis declaration of trust, the ProLogis board of trustees
is divided into three classes with terms of three years, with the term of one
class of trustees expiring at the annual meeting of shareholders in each year.
Each trustee will hold office for the term for which he or she is elected and
until his or her successor is elected and qualifies, or until his or her
resignation, removal or death. Trustees may succeed themselves in office. The
ProLogis declaration of trust provides that a trustee may be removed with or
without cause, by the affirmative vote of the holders of two-thirds of the
outstanding shares or by two-thirds of the trustees then in office.
The Meridian board is not divided into classes. Section 2-406(a) of the
Maryland General Corporation Law provides that unless the charter of a
corporation provides otherwise, which the Meridian charter does not, the
stockholders of a corporation may remove any director, with or without cause,
by the affirmative vote of a majority of all the votes entitled to be cast for
the election of directors. Pursuant to the Meridian charter, each director of
Meridian holds office until the next annual meeting of shareholders and until
his or her successor is elected and qualified, or until his or her resignation,
removal or death.
Standard of conduct for trustees and directors
Title 8 of the Corporations and Associations Article of the Annotated Code of
Maryland contains no statutory standard of conduct for trustees of a Maryland
real estate investment trust such as ProLogis. In the absence of statutory
provisions establishing standards of conduct for trustees of Maryland real
estate investment trusts, it is possible, though not certain, that the Maryland
courts would look, by analogy, to the Maryland General Corporation Law for
guidance. In addition, the ProLogis declaration of trust provides that in
defining or interpreting the powers and duties of the trustees, reference may
be made to the Maryland General Corporation Law, to the extent appropriate and
not inconsistent with the Internal Revenue Code of 1986 or Title 8 of the
Corporations and Associations Article of the Annotated Code of Maryland.
The Maryland General Corporation Law requires a director of a Maryland
corporation, such as Meridian, to perform his or her duties as a director in
good faith, in a manner he or she reasonably believes to be in the best
interest of the corporation, and with the care that an ordinarily prudent
person in a like position would use under similar circumstances.
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Board committees
Title 8 of the Corporations and Associations Article of the Annotated Code of
Maryland contains no provision for or limitation on the composition of or
delegation of powers to committees of the board of trustees of a Maryland real
estate investment trust, such as ProLogis. Under the ProLogis declaration of
trust, the ProLogis board may designate one or more committees which shall
consist of one or more trustees. Such committees shall have and may exercise
such powers as shall be conferred or authorized by the ProLogis board. The
ProLogis declaration of trust provides that the ProLogis bylaws, or a majority
of the trustees, may authorize any one or more of the trustees, or any one or
more of the officers or employees or agents of ProLogis, on behalf of ProLogis,
to exercise and perform any and all powers granted to the ProLogis board, and
to discharge any and all duties imposed on the ProLogis board, and to do any
acts and to execute any instruments deemed by such person or persons to be
necessary or appropriate to exercise such power or to discharge such duties,
and to exercise his own sound judgment in so doing. The authority to act upon
any transaction which requires the vote of a majority of the Independent
Trustees may not be delegated to a committee.
The Maryland General Corporation Law permits the board to delegate to a
committee of one or more directors any of its power, except the powers to
authorize dividends, issue stock in various situations, recommend to the
stockholders except any action which requires stockholder approval, amend the
bylaws or approve any merger or share exchange which does not require
stockholder approval. The Meridian bylaws permit the board to delegate to
committees any powers of the board, except as prohibited by law.
Amendment of declaration of trust
Title 8 of the Corporations and Associations Article of the Annotated Code of
Maryland requires the approval of shareholders of a Maryland real estate
investment trust, such as ProLogis, for any amendment to the declaration of
trust, with exceptions. As permitted by Title 8 of the Corporations and
Associations Article of the Annotated Code of Maryland, the ProLogis
declaration of trust permits the ProLogis board, by a two-thirds vote and
without shareholder approval, to amend the ProLogis declaration of trust from
time to time to qualify as a real estate investment trust under the Internal
Revenue Code of 1986 or under Title 8 of the Corporations and Associations
Article of the Annotated Code of Maryland.
The Maryland General Corporation Law requires the approval of stockholders of
a Maryland corporation, such as Meridian, for any amendment to the charter,
except for minor changes in the corporate name.
Dividends and other distributions
Title 8 of the Corporations and Associations Article of the Annotated Code of
Maryland contains no limitation on the payment of dividends or other
distributions by a Maryland real estate investment trust, such as ProLogis. The
ProLogis declaration of
The Maryland General Corporation Law provides that no dividend or other
distribution may be paid to stockholders of a Maryland corporation, such as
Meridian, unless, after payment of the distribution, the corporation is able to
pay its debts
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trust allows the trustees to declare and pay to shareholders such dividends or
distributions as the trustees, in their discretion, shall determine and
requires the trustees to endeavor to declare and pay such dividends and
distributions as shall be necessary for ProLogis to qualify as a real estate
investment trust under the Internal Revenue Code of 1986, so long as such
qualification is, in the opinion of the trustees, in the best interests of the
shareholders.
as they become due in the usual course of business and the corporation's total
assets at least equal the sum of its liabilities and, unless the charter
permits otherwise, the amount that would be needed to satisfy the preferential
rights on dissolution of stockholders whose preferential rights on dissolution
are superior to those of the stockholders receiving the distribution. The
Meridian charter does not so permit, except to a limited extent, with respect
to the Series D cumulative redeemable preferred stock.
Maryland asset requirements
Title 8 of the Corporations and Associations Article of the Annotated Code of
Maryland requires that as a Maryland real estate investment trust, ProLogis
hold, either directly or indirectly, at least 75% of the value of its assets in
the form of real estate assets, mortgages or mortgage related securities,
government securities, cash and cash equivalent items, including high-grade
short term securities and receivables. Title 8 of the Corporations and
Associations Article of the Annotated Code of Maryland also prohibits a
Maryland real estate investment trust from using or applying land for farming,
agricultural, horticulture or similar purposes.
There is no such requirement for a Maryland corporation, such as Meridian.
ProLogis declaration of trust
Restrictions on ProLogis operations
The ProLogis declaration of trust contains extensive limitations on ProLogis'
ability to undertake various actions, which restrictions are not applicable to
Meridian. The ProLogis declaration of trust provides that ProLogis may not:
(1) invest or trade in commodities or commodity contracts;
(2) invest more than 25% of its total assets in unimproved real property,
excluding property which is being developed or will be developed within a
reasonable period;
(3) invest in junior mortgage loans unless, by appraisal or other method
that the Independent Trustees determine,
(a) the capital invested in such mortgage loan is adequately secured
on the basis of the equity of the borrower in the property underlying
such investment and the ability of the borrower to repay the mortgage
loan, or
(b) such mortgage loan is a financing device entered into by ProLogis
to establish the priority of its capital investment over the capital
invested by others investing with ProLogis in a real estate project;
(4) issue warrants or options to purchase its securities to the ProLogis
trustees or sponsors of ProLogis or any of their affiliates in an amount
exceeding 10% of the outstanding shares of ProLogis on the date of the
grant of any options or warrants;
(5) compensate any independent contractor employed by ProLogis at a rate
higher than the going rate, if any, for like services in the community or
locale in which such services are performed;
(6) make or invest in mortgage loans, including construction loans, on
any one property if the aggregate amount of all mortgage loans outstanding
on the property, including the loans of ProLogis, would exceed an amount
equal to 85% of the fair market value of the property as determined by the
trustees of ProLogis unless substantial justification exists because of the
presence of other underwriting criteria;
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(7) make or invest in any mortgage loans that are subordinate to any
mortgage or equity interest of the trustees, sponsors or affiliates of
ProLogis; and
(8) invest in land sale contracts, unless such contracts of sale are in
recordable form and are appropriately recorded in the chain of title.
Additionally, the ProLogis declaration of trust provides that the aggregate
borrowing of ProLogis, secured and unsecured, may not be unreasonable in
relation to the net assets of ProLogis and must be reviewed by the ProLogis
board at least quarterly. The ProLogis declaration of trust provides that the
maximum amount of such borrowing in relation to the net assets may, in the
absence of a satisfactory showing that a higher level of borrowing is
appropriate, not exceed 300%. Any excess in borrowing over such 300% level must
be approved by a majority of the Independent Trustees and disclosed to
shareholders in the next quarterly report of ProLogis, along with justification
for such excess. The term "net assets" means the total assets, other than
intangibles, at cost, before deducting depreciation or other non-cash reserves,
less total liabilities, calculated at least quarterly on a basis consistently
applied.
The ProLogis declaration of trust further provides that "Total Operating
Expenses" of ProLogis shall, in the absence of a satisfactory showing to the
contrary, not exceed in any fiscal year the greater of:
(1) 2% of the average of the aggregate book value of the assets of
ProLogis invested, directly, or indirectly, in equity interests in and
loans secured by real estate, before reserves for depreciation or bad debts
or other similar non-cash reserves, computed by taking the average of such
values at the end of each month during such period or
(2) 25% of the Net Income of ProLogis for such year.
"Net Income" means total revenues applicable to such year, less the expenses
applicable to such year other than additions to reserves for depreciation or
bad debts or other similar non-cash reserves. For the purposes of the
foregoing, "Net Income" excludes the gain from the sale of ProLogis' assets.
"Total Operating Expenses" means all operating, general and administrative
expenses of ProLogis as determined under generally accepted accounting
principles except the expenses of raising capital, interest payments, taxes,
non-cash expenditures and costs related directly to asset acquisition,
operation and disposition. The Independent Trustees have the fiduciary
responsibility of limiting such expenses to amounts that do not exceed such
limitations unless the Independent Trustees have made a finding that, based on
such unusual and non-recurring factors which they deem sufficient, a higher
level of expenses is justified for such year. Any such findings and the reasons
in support thereof must be reflected in the minutes of the meeting of the
trustees.
The ProLogis declaration of trust provides that, within 60 days after the end
of any fiscal quarter of ProLogis for which Total Operating Expenses, for the
12 months then ended, exceeded 2% of the average aggregate book value of the
assets, as calculated above, or 25% of Net Income, whichever is greater, there
must be sent to the shareholders of ProLogis a written disclosure of such fact.
If the Independent Trustees find that such higher operating expenses are
justified, such disclosure must be accompanied by an explanation of the facts
the Independent Trustees considered in arriving at the conclusion that such
higher operating expenses were justified.
Restrictions on related party transactions
The ProLogis declaration of trust provides that ProLogis may not purchase
property from a sponsor, trustee, or affiliates thereof. ProLogis shall not
enter into any other principal transaction including without limitation, the
sale of property, the making of loans, borrowing money, or investing in joint
ventures with the sponsor, trustee or affiliate thereof, except for emergency
loans approved by a majority of the Independent Trustees not otherwise
interested in such transaction as being fair and reasonable to ProLogis and on
terms and conditions not less favorable to ProLogis than those available from
unaffiliated third parties. ProLogis may employ affiliates of the trustees to
perform services, provided such services are at market rates for like services
and a majority of the Independent Trustees not otherwise interested in such
services approve the services as being fair and reasonable to ProLogis.
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DESCRIPTION OF PROLOGIS SECURITIES
Common shares
General
ProLogis' declaration of trust, as amended, authorizes ProLogis to issue up
to 230,000,000 shares of beneficial interest, par value $0.01 per share,
consisting of common shares, preferred shares, and such other types or classes
of shares of beneficial interest as the board of trustees may create and
authorize from time to time. At February 12, 1999, approximately 123,737,556
common shares were issued and outstanding and held of record by approximately
1,159 shareholders.
The declaration of trust authorizes the trustees to classify or reclassify
any unissued series of common shares or preferred shares by setting or changing
the preferences, conversion or other rights, voting powers, restrictions,
limitations as to distributions, qualifications or terms or conditions of
redemption.
The following description sets forth general terms and provisions of the
common shares. The statements below describing the common shares are in all
respects subject to and qualified in their entirety by reference to the
applicable provisions of ProLogis' declaration of trust and bylaws, as amended.
The outstanding common shares are fully paid and, except as set forth below
under "--Shareholder liability," non-assessable. Each common share entitles the
holder to one vote on all matters requiring a vote of shareholders, including
the election of trustees. Holders of common shares do not have the right to
cumulate their votes in the election of trustees, which means that the holders
of a majority of the outstanding common shares can elect all of the trustees
then standing for election. Holders of common shares are entitled to such
distributions as may be declared from time to time by the ProLogis board out of
funds legally available therefor. Holders of common shares have no conversion,
redemption, preemptive or exchange rights to subscribe to any securities of
ProLogis. In the event of a liquidation, dissolution or winding up of the
affairs of ProLogis, the holders of the common shares are entitled to share
ratably in the assets of ProLogis remaining after provision for payment of all
liabilities to creditors and payment of liquidation preferences and accrued
dividends, if any, on the Series A preferred shares, Series B preferred shares,
Series C preferred shares, Series D preferred shares, and Series E preferred
shares, and subject to the rights of holders of other series of preferred
shares, if any. The right of holders of the common shares are subject to the
rights and preferences established by the board for the Series A preferred
shares, Series B preferred shares, Series C preferred shares, Series D
preferred shares, and Series E preferred shares and any other series of
preferred shares which may subsequently be issued by ProLogis.
Transfer agent
The transfer agent and registrar for the ProLogis common shares is
BankBoston, N.A., 150 Royall Street, Canton, Massachusetts 02021. The ProLogis
common shares are listed on the New York Stock Exchange under the symbol "PLD."
Trustee liability
ProLogis' declaration of trust provides that trustees shall not be
individually liable for any obligation or liability incurred by or on behalf of
ProLogis or by the trustees for the benefit and on behalf of ProLogis. Under
Maryland law governing real estate investment trusts, trustees are not
personally liable for the obligations of the real estate investment trust
except that if otherwise liable, trustees are not relieved from liability for
acts or omissions which constitute bad faith, willful misfeasance, or gross
negligence in the conduct of his or her duties.
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Shareholder liability
Both Maryland statutory law governing real estate investment trusts organized
under the laws of that state and the ProLogis declaration of trust provide that
shareholders shall not be personally or individually liable for any debt, act,
omission or obligation of ProLogis or the ProLogis board. The declaration of
trust further provides that ProLogis shall indemnify and hold each shareholder
harmless from all claims and liabilities to which the shareholder may become
subject by reason of being or having been a shareholder and that ProLogis shall
reimburse each shareholder for all legal and other expenses reasonably incurred
by the shareholder in connection with any such claim or liability, except to
the extent that such claim or liability arises out of the shareholder's bad
faith, willful misconduct or gross negligence and provided that such
shareholder gives ProLogis prompt notice of any such claim or liability and
permits ProLogis to conduct the defense thereof. In addition, ProLogis is
required to, and as a matter of practice does, insert a clause in its
management and other contracts providing that shareholders and trustees assume
no personal liability for obligations entered into on behalf of ProLogis.
Nevertheless, with respect to tort claims, contractual claims where shareholder
liability is not so negated, claims for taxes and statutory liability, the
shareholders may, in some jurisdictions, be personally liable to the extent
that such claims are not satisfied by ProLogis. Inasmuch as ProLogis carries
public liability insurance which it considers adequate, any risk of personal
liability to shareholders is limited to situations in which ProLogis' assets
plus its insurance coverage would be insufficient to satisfy the claims against
ProLogis and its shareholders.
Restrictions on size of holdings
ProLogis' declaration of trust restricts beneficial ownership of ProLogis'
outstanding shares of beneficial interest by a single person, or persons acting
as a group, to 9.8% of such shares. The purposes of the ownership limit are to
assist in protecting and preserving ProLogis' real estate investment trust
status and to protect the interest of shareholders in takeover transactions by
preventing the acquisition of a substantial block of shares unless the acquiror
makes a cash tender offer for all outstanding shares. For ProLogis to qualify
as a real estate investment trust under the Internal Revenue Code of 1986, not
more than 50% in value of its outstanding shares of beneficial interest may be
owned by 5 or fewer individuals at any time during the last half of any taxable
year. The ownership limit permits 5 persons to acquire up to a maximum of 9.8%
each, or an aggregate of 49% of the outstanding shares, and, thus, assists the
ProLogis board in protecting and preserving ProLogis' real estate investment
trust status for tax purposes. The restriction on ownership does not apply to
Security Capital, which counts as numerous holders for purposes of the tax
rule, because its shares are attributed to its shareholders for purposes of
this rule.
Shares of beneficial interest owned by a person or group of persons other
than Security Capital in excess of 9.8%, or in excess of 30% in the aggregate
in the case of shareholders who acquired shares prior to ProLogis' initial
public offering, of the outstanding shares of beneficial interest are subject
to redemption by ProLogis, at its option, upon 30 days' notice, at a price
equal to the average daily per share closing sale price during the 30-day
period ending on the business day prior to the redemption date. ProLogis may
make payment of the redemption price at any time or times up to the earlier of
5 years after the redemption date or the liquidation of ProLogis. ProLogis may
refuse to effect the transfer of any shares of beneficial interest which would
make the transferee a holder of shares acquired in excess of the ownership
limit. Shareholders of ProLogis are required to disclose, upon demand of the
ProLogis board, such information with respect to their direct and indirect
ownership of shares of ProLogis as the ProLogis board deems necessary to comply
with the provisions of the Internal Revenue Code of 1986 pertaining to
qualification, for tax purposes, of real estate investment trusts, or to comply
with the requirements of any other appropriate taxing authority.
The ownership limit does not apply to acquisitions by an underwriter in a
public offering or to any transaction involving the issuance of shares of
beneficial interest, or securities convertible into shares, in which a majority
of the ProLogis board determines that the underwriter or other person initially
acquiring the shares will make a timely distribution thereof to or among other
holders such that, after the distribution, none of the shares will be held in
violation of the ownership limit. Security Capital's ownership of shares is
attributed for
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tax purposes to its shareholders. The ProLogis board has exempted Security
Capital from the ownership limit and has permitted shareholders who acquired
shares prior to ProLogis' initial public offering to acquire up to 30% of the
outstanding shares of beneficial interest.
Preferred share purchase rights
On December 7, 1993, the ProLogis board declared a dividend of one preferred
share purchase right for each common share outstanding, payable to holders of
common shares of record at the close of business on December 31, 1993. The
holders of any additional common shares issued after such date and before the
redemption or expiration of the preferred share purchase rights are also
entitled to receive one preferred share purchase right for each such additional
common share. Each preferred share purchase right entitles the holder to
purchase from ProLogis one one-hundredth of a share of Series A junior
participating preferred shares, par value $0.01 per share, at a price of $40.00
per one one-hundredth of a Series A junior participating preferred share,
subject to adjustment. Preferred share purchase rights are exercisable when a
person or group of persons, other than Security Capital, acquires 20% or more
of the outstanding common shares. Under specific circumstances, each preferred
share purchase right entitles the holder to purchase, at the preferred share
purchase right's then current exercise price, a number of ProLogis common
shares having a market value of twice the preferred share purchase right's
exercise price. The acquisition of ProLogis pursuant to mergers or other
business transactions would entitle each holder to purchase, at the preferred
share purchase right's then current exercise price, a number of the acquiring
company's common shares having a market value equal to twice the preferred
share purchase right's exercise price. The preferred share purchase rights held
by 20% shareholders, other than Security Capital, would not be exercisable. The
preferred share purchase rights will expire on December 7, 2003, and are
subject to redemption in whole, but not in part, at a price of $0.01 per
preferred share purchase right payable in cash, shares of ProLogis, or any
other form of consideration specified by the ProLogis board.
Staggered board of trustees
ProLogis' declaration of trust divides the ProLogis board of trustees into
three classes of trustees, with each class constituting approximately one-third
of the total number of trustees and with classes serving staggered three-year
terms. The classification of trustees will have the effect of making it more
difficult for shareholders to change the composition of the ProLogis board.
ProLogis believes, however, that the longer time required to elect a majority
of a classified ProLogis board helps to insure continuity and stability of
ProLogis' management and policies.
The classification provisions could also have the effect of discouraging a
third party from accumulating large blocks of ProLogis' shares or attempting to
obtain control of ProLogis, even though such an attempt might be beneficial to
ProLogis and its shareholders. Accordingly, shareholders could be deprived of
opportunities to sell their beneficial shares at a higher market price than
they might otherwise receive.
Certain provisions of Maryland law
Business combinations
Under Maryland law, "business combinations," including a merger,
consolidation, share exchange, or, in limited circumstances, an asset transfer
or issuance or reclassification of equity securities, between a Maryland real
estate investment trust and any person who beneficially owns 10% or more of the
voting power of the trust's shares or an affiliate or associate of the trust
who, at any time within the two-year period prior to the date in question, was
the beneficial owner of 10% or more of the voting power of the trust's shares
or an affiliate thereof are prohibited for five years after the most recent
date on which the interested shareholder becomes an interested shareholder.
Thereafter, any such business combination must be
(1) recommended by the board of trustees of such trust, and
(2) approved by the affirmative vote of at least
(a) 80% of the votes entitled to be cast by holders of outstanding voting
shares of the trust and
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(b) two-thirds of the votes entitled to be cast by holders of outstanding
voting shares other than shares held by the 10% shareholder with whom the
business combination is to be effected or by an affiliate or associate
thereof, voting together as a single group,
unless, among other things, the trust's common shareholders receive a minimum
price, as defined in the statute, for their shares and the consideration is
received in cash or in the same form as previously paid by the 10% shareholder
for his shares. These provisions of Maryland law do not apply, however, to
business combinations that are approved or exempted by the board of trustees of
the trust prior to the time that the 10% shareholder acquires his shares in
excess of 10%. ProLogis' declaration of trust and bylaws contained, prior to
Security Capital's beneficial ownership of 10% of the voting power of ProLogis'
shares, provisions exempting Security Capital and its affiliates and successors
from the provisions of the business combination statute.
Control share acquisitions
Maryland law provides that "Control Shares" of a Maryland real estate
investment trust acquired in a "Control Share Acquisition," have no voting
rights except to the extent approved by a vote of two-thirds of the votes
entitled to be cast on the matter, excluding shares of beneficial interest
owned by the acquiror or by officers or trustees who are employees of the
trust. "Control Shares" are voting shares of beneficial interest which, if
aggregated with all other such shares of beneficial interest previously
acquired by the acquiror or in respect of which the acquiror is able to
exercise voting power in electing trustees, fall within one of the following
ranges of voting power:
(1) one-fifth or more but less than one-third,
(2) one-third or more but less than a majority, or
(3) a majority of all voting power.
Control Shares do not include capital stock the acquiring person is then
entitled to vote as a result of having previously obtained shareholder
approval. A "Control Share Acquisition" means the acquisition of Control
Shares, subject to limited exceptions set forth under Maryland law.
A person who has made or proposes to make a Control Share Acquisition, upon
satisfaction of specific conditions, including an undertaking to pay expenses,
may compel the board of trustees of the trust to call a special meeting of
shareholders to be held within 50 days of a demand to consider voting rights
for the shares. If no request for a meeting is made, the trust may itself
present the question at any shareholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as is required by the statute,
then, subject to the conditions and limitations set forth under Maryland law,
the trust may redeem any or all of the Control Shares, except those for which
voting rights have previously been approved, for fair value determined, without
regard to 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
shareholders at which the voting rights of such shares are considered and not
approved. If voting rights for Control Shares are approved at a shareholders'
meeting and the acquiror becomes entitled to vote a majority of the shares of
beneficial interest entitled to vote, all other shareholders may exercise
appraisal rights. The fair value of the shares of beneficial interest as
determined for purposes of such 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 to shares acquired in a
merger, consolidation or share exchange if the trust is a party to the
transaction, or to acquisitions approved or exempted by the declaration of
trust or bylaws of the trust.
ProLogis' bylaws contain provisions exempting Security Capital and its
affiliates and successors from the provisions of the Control Share Acquisition
statute.
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Series E preferred shares
General
The summary of terms and provisions of the Series E preferred shares set
forth below does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, the terms and provisions of ProLogis'
declaration of trust and bylaws, as amended. A copy of the ProLogis articles
supplementary has been filed as an exhibit to the registration statement of
which this joint proxy statement and prospectus forms a part.
Subject to limitations prescribed by Maryland law and ProLogis' declaration
of trust, ProLogis' board of trustees is authorized to provide for the
issuance, from the authorized but unissued shares of beneficial interest of
ProLogis, of preferred shares in such series as the ProLogis board may
authorize, and the board is further authorized to establish from time to time
the number of shares to be included in any such series and to fix the
designation and any preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption of the shares of each series.
When issued, the Series E preferred shares will be validly issued, fully
paid, and nonassessable. The holders of the Series E preferred shares will have
no preemptive rights with respect to any shares of beneficial interest of
ProLogis or any other securities of ProLogis convertible into or carrying
rights or options to purchase any such shares. The Series E preferred shares
will not be subject to any sinking fund or other obligation of ProLogis to
redeem or retire the Series E preferred shares.
The transfer agent, registrar and dividend disbursing agent for the Series E
preferred shares is BankBoston, N.A., 150 Royall Street, Canton, Massachusetts
02021.
Ranking
With respect to payment of dividends and amounts upon liquidation,
dissolution or winding up, the Series E preferred shares will rank senior to
ProLogis' Series A junior participating preferred shares and on a parity with
all other series of preferred shares of ProLogis and senior to the common
shares.
While any Series E preferred shares are outstanding, ProLogis may not
authorize, create or increase the authorized number of shares of any class, or
of any securities convertible into shares of any class, of security that ranks
senior to the Series E preferred shares with respect to the payment of
dividends or amounts payable upon liquidation, dissolution, or winding up,
without the affirmative vote of the holders of two-thirds of the outstanding
Series E preferred shares and "Parity Shares", voting as a single class, unless
provision is made for the redemption of all outstanding Series E preferred
shares. However, ProLogis may create additional classes of other stock,
increase the authorized number of preferred shares, or issue series of
preferred shares ranking on a parity with the Series E preferred shares with
respect, in each case, to the payment of dividends and amounts upon
liquidation, dissolution, and winding up without the consent of any holder of
Series E preferred shares. See "--Voting rights" below.
Dividends
Holders of the Series E preferred shares will be entitled to receive, when
and as declared by the board of trustees, out of funds legally available for
the payment of dividends, cumulative preferential cash dividends at the rate of
8.75% of the liquidation preference per annum per share, equivalent to $2.1875
per share per annum. Such dividends will be cumulative and payable quarterly in
arrears on the last calendar day, or, if such day is not a business day, the
next business day, of each January, April, July and October. The first
dividend, which is expected to be paid on or about April 30, 1999, will be for
a full quarter unless a partial dividend was declared and paid by Meridian
prior to the merger, in which case, the first dividend will be for the period
beginning after the merger. Such first dividend and any dividends payable on
the Series E preferred shares for any partial dividend period will be computed
on the basis of the actual number of days in such period. Dividends will be
payable to holders of record as they appear in the records of ProLogis at the
close of
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business on the applicable record date, which will be the date designated as
such by the board of trustees that is not more than 50 nor less than 10 days
prior to such dividend payment date. Accrued and unpaid dividends for any past
dividend periods may be authorized and paid at any time and for such interim
periods without reference to any regular dividend payment date, to holders of
record on such date not exceeding 50 days preceding the payment date thereof,
as may be fixed by the ProLogis board of trustees. Any dividend payment made on
the Series E preferred shares will first be credited against the earliest
accrued but unpaid dividend due with respect to the Series E preferred shares
that remains payable.
Dividends on Series E preferred shares will accrue whether or not ProLogis
has earnings, whether or not there are funds legally available for the payment
of such dividends, and whether or not such dividends are authorized. No
interest, or sum of money in lieu of interest, will be payable in respect of
any dividend payment or payments on the Series E preferred shares that may be
in arrears. Holders of Series E preferred shares will not be entitled to any
dividends, whether payable in cash, property or shares of ProLogis, in excess
of the full cumulative dividends on the Series E preferred shares.
If, for any taxable year, ProLogis elects to designate as "capital gain
dividends", as defined in Section 857 of the Internal Revenue Code of 1986 or
any successor section, any portion of the dividends, within the meaning of the
Internal Revenue Code of 1986, paid or made available for the year to holders
of all classes of shares of beneficial interest, then the portion of the amount
so designated by ProLogis that will be allocable to holders of Series E
preferred shares will be in the same proportion that the dividends paid or made
available to the holders of Series E preferred shares for the year bears to the
dividends paid or made available for the year to holders of all classes of
shares of beneficial interest.
Except as provided in the next sentence, so long as any Series E preferred
shares are outstanding no dividends will be authorized or set apart for payment
or paid for any period on any shares ranking on a parity with the Series E
preferred shares unless full cumulative dividends have been authorized and are
paid or are contemporaneously authorized and funds sufficient for the payment
thereof are set aside for such payment on the Series E preferred shares for all
prior dividend periods. If accrued dividends on the Series E preferred shares
for all prior dividend periods have not been paid in full or a sum sufficient
for payment thereof is not set apart, then any dividend declared on the Series
E preferred shares and on any shares ranking on a parity with the Series E
preferred shares for any dividend period will be declared ratably in proportion
to accrued and unpaid dividends on the Series E preferred shares and such
shares ranking on a parity with the Series E preferred shares.
So long as any Series E preferred shares are outstanding, ProLogis will not
(1) declare, pay or set apart funds for the payment of any dividend or other
distribution with respect to any common shares or any other class or series of
beneficial interest of ProLogis now or hereafter issued and outstanding that
ranks junior to the Series E preferred shares as to the payment of dividends or
in the distribution of assets or amounts upon liquidation, dissolution, and
winding up or
(2) redeem, purchase or otherwise acquire for consideration any shares
ranking junior to the Series E preferred shares as to the payment of dividends
or in the distribution of assets upon liquidation, dissolution and winding up
through a sinking fund or otherwise, other than a redemption or purchase or
other acquisition of common shares made for purposes of any employee incentive
or benefit plan of ProLogis or any subsidiary, unless
(a) all cumulative dividends with respect to the Series E preferred
shares and any shares ranking on a parity with the Series E
preferred shares at the time such dividends are payable have
been paid or have been authorized with funds having been set
apart for payment of such dividends, and
79
<PAGE>
(b) sufficient funds have been or contemporaneously are paid or have
been authorized and set apart for the payment of the dividend
for the current dividend period with respect to the Series E
preferred shares and any shares ranking on a parity with the
Series E preferred shares.
Liquidation rights
Upon any voluntary or involuntary liquidation, dissolution or winding up of
ProLogis, before any payment or the distribution of the assets of ProLogis
shall be made to or set apart for the holders of shares ranking junior to the
Series E preferred shares as to the payment of dividends or in the distribution
of assets upon liquidation, dissolution and winding up, the holders of Series E
preferred shares will be entitled to receive out of the assets of ProLogis
legally available for distribution to shareholders a liquidation preference of
$25.00 per Series E preferred share, plus an amount equal to all dividends,
whether or not earned or authorized, accrued and unpaid thereon to the date of
final distribution to such holders, and no more.
Until the holders of Series E preferred shares and shares ranking on a parity
with the Series E preferred shares have been paid their liquidation preference
in full, no payment will be made to any holder of shares ranking junior to the
Series E preferred shares as to the payment of dividends or in the distribution
of assets upon the liquidation, dissolution or winding up of ProLogis. If upon
any liquidation, dissolution or winding up of ProLogis, the assets of ProLogis,
or proceeds thereof, distributable among the holders of the Series E preferred
shares are insufficient to pay in full the amount payable upon liquidation with
respect to the Series E preferred shares and any other shares ranking on a
parity with the Series E preferred shares, then such assets, or the proceeds
thereof, will be distributed among the holders of Series E preferred shares and
any such shares ranking on a parity with the Series E preferred shares ratably
in accordance with the respective amounts which would be payable on such Series
E preferred shares and any such shares ranking on a parity with the Series E
preferred shares if all amounts payable thereon were paid in full. A
consolidation or merger of ProLogis with another entity, a statutory share
exchange by ProLogis, or a sale, lease, or transfer of all or substantially all
of ProLogis' assets will not be considered a liquidation, dissolution or
winding up, voluntary or involuntary, of ProLogis.
Redemption
The Series E preferred shares are not redeemable by ProLogis prior to June
30, 2003. On and after that date, ProLogis, at its option, upon not less than
30 or more than 90 days' written notice, may redeem the Series E preferred
shares, in whole or in part, at any time or from time to time, for cash at a
redemption price of $25.00 per share, plus accumulated, accrued and unpaid
dividends thereon to the date fixed for redemption, without interest. If fewer
than all of the outstanding Series E preferred shares are to be redeemed, the
number of shares to be redeemed will be determined by ProLogis and such shares
may be redeemed pro rata, as nearly as may be, from the holders of record of
such shares in proportion to the number of such shares held by such holders, by
lot, or by any other method determined by ProLogis in its sole discretion to be
equitable.
Unless full cumulative dividends on all Series E preferred shares and any
shares ranking on a parity with the Series E preferred shares have been or
contemporaneously are authorized and paid or declared and a sum sufficient for
the payment thereof set apart for payment for all past dividend periods and the
then current dividend period, no Series E preferred shares or shares ranking on
a parity with the Series E preferred shares may be redeemed in part and may not
be or purchased or acquired by ProLogis except pursuant to a purchase or
exchange offer made on the same terms to holders of all outstanding Series E
preferred shares or shares ranking on a parity with the Series E preferred
shares, as the case may be.
Notice of redemption will be mailed at least 30 days but not more than 90
days before the redemption date to each holder of record of Series E preferred
shares at the address shown on the share transfer books of ProLogis. Each
notice shall state:
(1) the redemption date;
80
<PAGE>
(2) the number of Series E preferred shares to be redeemed;
(3) the redemption price per share;
(4) the place or places where certificates for Series E preferred shares are
to be surrendered for payment of the redemption price; and
(5) that dividends on the Series E preferred shares will cease to accrue on
such redemption date.
If fewer than all Series E preferred shares are to be redeemed, the notice
mailed to each such holder thereof shall also specify the number of Series E
preferred shares to be redeemed from such holder. If notice of redemption of
any Series E preferred shares has been given and if the funds necessary for
such redemption have been set aside by ProLogis in trust for the benefit of the
holders of Series E preferred shares so called for redemption, then from and
after the redemption date, dividends will cease to accrue on the Series E
preferred shares, such Series E preferred shares shall no longer be deemed
outstanding, and all rights of the holders of such shares will terminate,
except the right to receive the redemption price.
The holders of Series E preferred shares at the close of business on a
dividend record date will be entitled to receive the dividends payable with
respect to such Series E preferred shares on the corresponding dividend payment
date, notwithstanding the redemption thereof between such dividend record date
and the corresponding dividend payment date. Except as provided above, ProLogis
will make no payment or allowance for unpaid dividends, whether or not in
arrears, on Series E preferred shares which have been called for redemption.
The Series E preferred shares have no stated maturity and will not be subject
to any sinking fund or mandatory redemption.
Voting rights
Except as indicated below, or except as otherwise from time to time required
by applicable law, the holders of Series E preferred shares will have no voting
rights.
If dividends payable for six or more quarterly periods, whether or not
consecutive, on the Series E preferred shares or any shares ranking on a parity
with the Series E preferred shares are in arrears, whether or not earned or
declared, the number of trustees then constituting the board of trustees of
ProLogis will be increased by two, and the holders of Series E preferred
shares, voting together as a class with the holders of any other series of
shares ranking on a parity with the Series E preferred shares, will have the
right to elect two additional trustees to serve on ProLogis' board of trustees
at any annual meeting of shareholders or a special meeting held in place
thereof, or at a special meeting of the holders of the Series E preferred
shares and the shares ranking on a parity with the Series E preferred shares.
Such voting rights will terminate when all such accrued and unpaid dividends
have been declared and paid or set aside for payment. The term of office of all
trustees so elected will terminate with the termination of such voting rights
and the number of trustees shall be reduced accordingly.
The approval of two-thirds of the outstanding Series E preferred shares and
all other shares ranking on a parity with the Series E preferred shares
similarly affected, voting as a single class, is required in order to
(1) amend ProLogis' declaration of trust to affect materially and adversely
the rights, preferences or voting power of the holders of the Series E
preferred shares or the shares ranking on a parity with the Series E preferred
shares;
(2) enter into a share exchange that affects the Series E preferred shares,
or consolidate ProLogis with or merge ProLogis with another entity, unless in
each such case each Series E preferred share remains outstanding without a
material adverse change to its terms and rights or is converted into or
exchanged for preferred shares
81
<PAGE>
of the surviving entity having preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption thereof identical to that of the Series E preferred
shares except for changes that do not materially and adversely affect the
holders of Series E preferred shares, or
(3) authorize, create, or increase the authorized amount of any shares of any
class, or any security convertible into shares of any class, having rights
senior to the Series E preferred shares with respect to the payment of
dividends or amounts upon liquidation, dissolution, or winding up of ProLogis
unless a provision is made for redemption of all outstanding Series E preferred
shares.
However, ProLogis may create additional classes of shares ranking on a parity
with the Series E preferred shares and shares ranking junior to the Series E
preferred shares as to the payment of dividends or in the distribution of
assets upon liquidation, dissolution and winding up, increase the authorized
number of shares ranking on a parity with the Series E preferred shares and
shares ranking junior to the Series E preferred shares as to the payment of
dividends or in the distribution of assets upon liquidation, dissolution and
winding up and issue additional series of shares ranking on a parity with the
Series E preferred shares and shares ranking junior to the Series E preferred
shares as to the payment of dividends or in the distribution of assets upon
liquidation, dissolution and winding up without the consent of any holder of
Series E preferred shares.
Except as provided above and as required by applicable law, the holders of
Series E preferred shares are not entitled to vote on any merger or
consolidation involving ProLogis, on any share exchange or on a sale of all or
substantially all of the assets of ProLogis and the consent of such holders
shall not be required for the taking of any corporate action.
Conversion
The Series E preferred shares are not convertible into or exchangeable for
any other property or securities of ProLogis.
Restrictions on ownership
As described above in "Description of ProLogis Securities--Common shares--
Restrictions on size of holdings," for ProLogis to qualify as a real estate
investment trust under the Internal Revenue Code of 1986, no more than 50% in
value of its outstanding shares of beneficial interest may be owned, directly
or indirectly, by five or fewer "individuals" during the last half of a full
taxable year or during a proportionate part of a shorter taxable year. Under
the constructive ownership provisions of the Internal Revenue Code of 1986,
shares owned by an entity, including a corporation, life insurance company,
mutual fund or pension trust, are treated as owned by the ultimate individual
beneficial owners of the entity. Because ProLogis intends to maintain its
qualification as a real estate investment trust, ProLogis' declaration of trust
and articles supplementary contain restrictions on the ownership and transfer
of shares of beneficial interest, including the Series E preferred shares,
intended to assist ProLogis in complying with these requirements.
Subject to exceptions specified in the ProLogis' declaration of trust, no
holder may own, or be deemed to own by virtue of certain attribution provisions
of the Internal Revenue Code of 1986, more than 9.8% of the ProLogis Series E
preferred shares. The ProLogis board has waived this restriction with respect
to the acquisition of Series E preferred shares for a holder who is not an
"individual" within the meaning of Section 542(a)(2) of the Internal Revenue
Code of 1986 as modified by Section 856(h)(3) of the Internal Revenue Code of
1986, so long as through such holder's ownership of such Series E preferred
shares no "individual" would be considered the beneficial owner of more than
9.8% of the Series E preferred shares and such holder would not be deemed to
own, actually or constructively, an interest in a tenant of ProLogis or a
tenant of an entity owned or controlled by ProLogis in whole or in part, that
would cause ProLogis to own, actually or constructively, more than a 9.8%
interest, as set forth in Section 856(h)(3) of the Internal Revenue Code of
1986, in any tenant of ProLogis. If a holder were to acquire more than 9.8% of
the Series E preferred shares and such holder did not meet the criteria set
forth in the preceding sentence, such holder's Series E preferred shares would
be subject to the provisions in the declaration of trust and relating to a
violation of the ownership limits as described above in "Description of
ProLogis Securities--Common shares--Restrictions on size of holdings."
82
<PAGE>
PRINCIPAL SHAREHOLDERS OF PROLOGIS
The following table sets forth, as of February 12, 1999, the pro forma
beneficial ownership of ProLogis common shares, after giving effect to the
merger, for
(1) each person who will be beneficial owner of more than 5% of the
ProLogis common shares,
(2) each trustee of ProLogis,
(3) the co-chairmen of ProLogis and the three other most highly
compensated executive officers of ProLogis and
(4) all trustees and executive officers of ProLogis as a group.
Unless otherwise indicated in the footnotes, all of the ProLogis shares will
be owned directly, and the indicated person or entity will have sole voting and
dispositive power. The number and percent of ProLogis common shares that will
be beneficially owned by a person assume that all options held by that person
which are exercisable within 60 days will be exercised, but that no options
held by other persons have been exercised.
Unless otherwise noted, the mailing address for each person identified below
will be c/o ProLogis Trust, 14100 East 35th Place, Aurora, Colorado 80011.
<TABLE>
<CAPTION>
Number of ProLogis
Common Shares to be Percent of
Beneficial Owner Beneficially Owned Class
- ---------------- ------------------- ----------
<S> <C> <C>
Security Capital Group Incorporated.......... 49,903,814(1) 30.99%
125 Lincoln Avenue
Santa Fe, New Mexico 87501
The Prudential Insurance Company of America.. 9,913,565 6.16
Prudential Plaza
751 Broad Street
Newark, New Jersey 07102
Ameritech Pension Trust...................... 9,777,457 6.07
225 West Randolph Street, HQ13A
Chicago, Illinois 10017
K. Dane Brooksher............................ 125,870(2) *
Stephen L. Feinberg.......................... 136,648(3)(4) *
4855 North Mesa, Suite 120
El Paso, Texas 79912
Donald P. Jacobs............................. 2,283(3) *
J.L. Kellogg Graduate School of Management
Northwestern University
2001 Sheridan Road
Evanston, Illinois 60208
Irving F. Lyons III.......................... 359,227(5) *
47775 Fremont Boulevard
Fremont, California 94538
William G. Myers............................. 157,334(3)(6) *
1114 State Street, Suite 232
Santa Barbara, California 93101
John E. Robson............................... 17,783(3)(7) *
555 California Street, Suite 2600
San Francisco, California 94101
J. Andre Teixeica............................ 0 *
Thomas G. Wattles............................ 26,339(8) *
125 Lincoln Avenue
Santa Fe, New Mexico 87501
Jeffrey H. Schwartz.......................... 185,917(9) *
John W. Seiple............................... 50,798(10) *
Robert J. Watson............................. 65,393(11) *
All trustees and executive officers as a
group (23 persons)........................... 1,373,847 *
</TABLE>
- --------
*Less than 1%
83
<PAGE>
(1) These shares are owned of record by SC Realty Incorporated, a wholly owned
subsidiary of Security Capital.
(2) Includes 772 shares held by Mr. Brooksher's wife.
(3) Includes for Messrs. Feinberg, Jacobs, Myers and Robson beneficial
ownership of 10,000, 6,000, 8,000 and 10,000 shares, respectively, that are
issuable upon exercise of options granted under the ProLogis Share Option
Plan for Outside Trustees.
(4) 50,000 of these shares and 11,000 ProLogis Series B preferred shares
convertible into an aggregate of 14,102 shares are owned by Dorsar
Partners, L.P.; as a result of his position with this entity, Mr. Feinberg
may be deemed to share voting and dispositive power with respect to common
shares owned by this entity. 6,000 of these shares are owned by a trust for
the benefit of Mr. Feinberg and an additional 6,000 of these shares are
owned by a trust for the benefit of a relative of which Mr. Feinberg is a
trustee.
(5) 7,625 of these shares are owned by trusts for the benefit of Mr. Lyons and
other family members of which Mr. Lyons is a trustee and 280 of these
shares are owned by Mr. Lyons' daughters. 256,530 of these shares are
issuable upon exchange of units in SCI Limited Partnership--I. Mr. Lyons is
a partner of certain limited partners of such partnership. By virtue of
such position, Mr. Lyons may be deemed to beneficially own these shares.
(6) 34,814 of these shares are owned by an entity with which Mr. Myers may be
deemed to share voting and dispositive power with respect to shares as a
result of his position with this entity. 118,181 of these shares are owned
by Mr. Myers' Profit Sharing Plan.
(7) 13,939 of these shares are owned by Mr. Robson's IRA and 3,400 of these
shares are owned by the John and Margaret Robson Living Trust. Mrs. Robson
owns 444 of these shares.
(8) 7,424 of these shares are held by Mr. Wattles' IRA, 2,178 of these shares
are held by Mr. Wattles' children and 5 shares are held by Mr. Wattles'
wife.
(9) 128,264 of these shares are issuable upon exchange of units in a
partnership owned by Mr. Schwartz.
(10) Mr. Seiple's shareholdings include 804 shares owned by his children.
(11) Includes 866 shares held in trust accounts for Mr. Watson's children, 433
shares held by his wife and 1,150 shares held by the estate of Mr.
Watson's late father.
LEGAL MATTERS
The validity of the ProLogis common shares and ProLogis Series E preferred
shares offered to holders of Meridian common stock and Meridian preferred
stock, respectively, by this joint proxy statement and prospectus has been
passed upon for ProLogis by Mayer, Brown & Platt, Chicago, Illinois. An opinion
as to continued real estate investment trust qualification following the merger
has been rendered for ProLogis and Meridian by Mayer, Brown & Platt. An opinion
as to the tax aspects of the merger has been rendered for Meridian by Vinson &
Elkins L.L.P. and an opinion as to the tax aspects of the merger has been
rendered for ProLogis by Mayer, Brown & Platt. Mayer, Brown & Platt has in the
past represented and is currently representing Security Capital and other
affiliates of ProLogis.
INDEPENDENT PUBLIC ACCOUNTANTS AND EXPERTS
The consolidated financial statements and schedules of ProLogis as of
December 31, 1997 and 1996, and for each of the years in the three-year period
ending December 31, 1997 incorporated by reference herein and in this
registration statement on Form S-4 filed by ProLogis have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are incorporated by reference herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.
84
<PAGE>
The consolidated financial statements and schedules of Meridian as of
December 31, 1997 and 1996, and for the years ending December 31, 1997 and 1996
and the period from inception through December 31, 1995 incorporated by
reference herein and in the registration statement on Form S-4 filed by
ProLogis have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
incorporated by reference herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said reports.
With respect to the unaudited interim financial information for the nine
months ended September 30, 1998 and 1997, for ProLogis, Arthur Andersen LLP has
applied limited procedures in accordance with professional standards for a
review of that information. However, their separate report thereon states that
they did not audit and they do not express an opinion on that interim financial
information. Accordingly, the degree of reliance on their report on that
information should be restricted in light of the limited nature of review
procedures applied. In addition, the accountants are not subject to the
liability provisions of Section 11 of the Securities Act of 1933 for their
report on the unaudited interim financial information because that report is
not a "report" or a "part" of the registration statement prepared or certified
by the accountants within the meaning of Sections 7 and 11 of the Securities
Act of 1933.
85
<PAGE>
PROLOGIS TRUST
INDEX TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Pro Forma Condensed Consolidated Balance Sheet as of September 30, 1998
(unaudited) F-3
Notes to Pro Forma Condensed Consolidated Balance Sheet F-4
Pro Forma Condensed Consolidated Statement of Earnings from Operations
for the nine months ended September 30, 1998 (unaudited) F-8
Pro Forma Condensed Consolidated Statement of Earnings from Operations
for the year ended December 31, 1997 (unaudited) F-9
Notes to Pro Forma Condensed Consolidated Statements of Earnings from
Operations F-10
</TABLE>
F-1
<PAGE>
PROLOGIS TRUST
PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
The accompanying pro forma condensed consolidated financial statements for
ProLogis Trust ("ProLogis") reflect: (i) the acquisition by ProLogis of certain
industrial distribution facilities during the period from December 31, 1996 to
October 30, 1998, as detailed in the Current Report on Form 8-K filed by
ProLogis on December 3, 1998 and (ii) the proposed merger (the "Merger") of
Meridian Industrial Trust, Inc. ("Meridian") with and into ProLogis.
Under the Agreement and Plan of Merger dated as of November 16, 1998, as
amended (the "Merger Agreement"), for each share of Meridian common stock held,
the holder will receive 1.10 ProLogis common shares ("ProLogis Common Shares")
plus up to $2.00 in cash under certain circumstances, and Meridian's Series D
preferred stockholders will receive one comparable ProLogis cumulative
redeemable preferred share. In addition, ProLogis will assume Meridian's
outstanding liabilities. The Merger will be accounted for using the purchase
method of accounting in accordance with Accounting Principles Board Opinion No.
16.
The accompanying pro forma condensed consolidated financial statements have
been prepared based upon certain pro forma adjustments to the historical
financial statements of ProLogis. The pro forma adjustment to reflect the
Merger is based upon the pro forma financial statements of Meridian that were
previously filed via Current Report on Form 8-K by Meridian on December 7,
1998, which is referenced in the accompanying notes to the pro forma condensed
consolidated financial statements.
The accompanying pro forma condensed consolidated balance sheet has been
prepared as if: (i) the facility acquired by ProLogis subsequent to September
30, 1998 had been acquired as of that date; and, (ii) the Merger had occurred
as of September 30, 1998.
The accompanying pro forma condensed consolidated statements of earnings from
operations for the nine months ended September 30, 1998 and the year ended
December 31, 1997 have been prepared as if: (i) the acquisition of certain
facilities acquired by ProLogis during the period from January 1, 1997 to
October 30, 1998 as detailed in the Current Report on Form 8-K filed by
ProLogis on December 3, 1998 had occurred on January 1, 1997; (ii) the
assumption of certain mortgage debt associated with the facilities noted in (i)
above had occurred as of January 1, 1997; (iii) the issuance of senior
unsecured notes subsequent to December 31, 1996, necessary to fund the pro
forma acquisitions noted in (i) above, had occurred as of January 1, 1997; and,
(iv) the Merger had occurred as of January 1, 1997.
The pro forma condensed consolidated financial statements do not purport to
be indicative of the financial position or results of operations which would
actually have been obtained had the Merger and other transactions been
completed on the dates indicated or which may be obtained in the future. The
pro forma condensed consolidated financial statements should be read in
conjunction with the historical financial statements of ProLogis and Meridian,
as set forth in their respective 1997 Annual Reports on Form 10-K and Quarterly
Reports on Form 10-Q for the nine months ended September 30, 1998 and the pro
forma financial statements of Meridian included in the Current Report on Form
8-K filed on December 7, 1998.
The accompanying pro forma condensed consolidated statements of earnings from
operations for the nine months ended September 30, 1998 and the year ended
December 31, 1997 do not give effect to the fully stabilized results of
operations related to: (i) facilities under development of both ProLogis and
Meridian at September 30, 1998 with a combined total budgeted completion cost
of $544.2 million; or, (ii) completed developments of ProLogis and Meridian
during 1997 and the first nine months of 1998 with a combined total budgeted
completion cost of $678.3 million. Management believes that there will be
sufficient depth of management and personnel such that additional facilities
can be developed and managed without a significant increase in personnel or
other costs. As a result, management believes that the accretion in net
earnings from operations and funds from operations from the Merger reflected in
the pro forma condensed consolidated statements of earnings from operations is
not indicative of the full accretion that is expected to occur on a post-Merger
basis.
In management's opinion, all material adjustments necessary to reflect the
effects of the Merger and other transactions have been made to the pro forma
condensed consolidated financial statements.
F-2
<PAGE>
PROLOGIS TRUST
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 1998
(In thousands, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Merger Adjustments
----------------------------------------
Pro Forma
Adjust- ProLogis ProLogis
ProLogis ments-- Pre-Merger Purchase Price Post-Merger
ASSETS Historical Acquisitions Pro Forma Meridian(d) Adjustments ProLogis Pro Forma
------ ---------- ------------ ---------- ----------- -------------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Real estate............. $3,483,817 $7,663 (a) $3,491,480 $1,179,783 $227,653 -- $4,898,916
Less accumulated
depreciation.......... 231,526 -- 231,526 29,005 (29,005) -- 231,526
---------- ------ ---------- ---------- -------- ------- ----------
Net real estate
investment.......... 3,252,291 7,663 3,259,954 1,150,778 256,658 (e)(f) -- 4,667,390
Investments in and
advances to
unconsolidated
subsidiaries........... 525,138 -- 525,138 45,907 -- (g) -- 571,045
Cash and cash
equivalents............ 31,650 (4,138)(b) 27,512 3,535 -- -- 31,047
Restricted cash and cash
held in escrow......... -- -- -- 10,912 -- -- 10,912
Note receivable......... -- -- -- 8,000 -- (h) -- 8,000
Accounts receivable and
other assets........... 115,049 -- 115,049 31,479 (14,304)(e)(i) -- 132,224
---------- ------ ---------- ---------- -------- ------- ----------
Total assets....... $3,924,128 $3,525 $3,927,653 $1,250,611 $242,354 $ -- $5,420,618
========== ====== ========== ========== ======== ======= ==========
<CAPTION>
LIABILITIES AND
SHAREHOLDERS' EQUITY
--------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Liabilities:
Lines of credit........ $ 159,500 $ -- $ 159,500 $ 292,148 $(48,301)(j) $10,304 (p) $ 492,400
72,440 (e)(k)
5,550 (e)(k)
759 (l)
Short-term
borrowings............ 150,000 -- 150,000 -- -- -- 150,000
Mortgage notes and
assessment bonds
payable............... 134,534 3,525 (c) 138,059 103,312 5,794 (e)(m) -- 247,165
Long-term debt......... 958,586 -- 958,586 160,102 (4,015)(e)(m) -- 1,114,673
Accounts payable and
other liabilities..... 155,898 -- 155,898 50,007 10,304 (e)(n) (10,304)(p) 205,905
---------- ------ ---------- ---------- -------- ------- ----------
Total liabilities.. 1,558,518 3,525 1,562,043 605,569 42,531 -- 2,210,143
Minority interest....... 51,358 -- 51,358 17,605 -- -- 68,963
Shareholders' equity:
Series A Preferred
Shares................ 135,000 -- 135,000 -- -- -- 135,000
Series B Convertible
Preferred Shares...... 194,925 -- 194,925 25,000 (25,000)(j) -- 194,925
Series C Preferred
Shares................ 100,000 -- 100,000 -- -- -- 100,000
Series D Preferred
Shares................ 250,000 -- 250,000 50,000 -- (50,000)(q) 250,000
Series E Preferred
Shares................ -- -- -- -- -- 50,000 (q) 50,000
Common Shares
(123,091,696 shares
historical and
162,933,442 shares
post-merger pro
forma)................ 1,231 -- 1,231 32 3 (j) 362 (q) 1,629
1 (j)
Additional paid-in
capital................ 1,899,342 -- 1,899,342 567,044 73,297 (j) (362)(q) 2,676,204
152,281 (e)(o) (14,639)(r)
(759)(l)
Employee share purchase
notes.................. (25,660) -- (25,660) -- -- (25,660)
Accumulated other
comprehensive income... 307 -- 307 -- -- -- 307
Distributions in excess
of net earnings........ (240,893) -- (240,893) (14,639) -- 14,639 (r) (240,893)
---------- ------ ---------- ---------- -------- ------- ----------
Total shareholders'
equity............ 2,314,252 -- 2,314,252 627,437 199,823 -- 3,141,512
---------- ------ ---------- ---------- -------- ------- ----------
Total liabilities
and shareholders'
equity............ $3,924,128 $3,525 $3,927,653 $1,250,611 $242,354 $ -- $5,420,618
========== ====== ========== ========== ======== ======= ==========
</TABLE>
The accompanying notes are an integral part of the pro forma condensed
consolidated financial statements.
F-3
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 1998
(Unaudited)
(a) Represents the acquisition of the Oceanie Distribution Center #1 in Paris,
France on October 30, 1998. The purchase price of the facility was $7.7
million and $3.5 million of existing mortgage debt was assumed.
(b) Represents the use of cash on hand to fund the cash portion of the pro
forma acquisition discussed in footnote (a).
(c) Represents the assumption of mortgage debt associated with the pro forma
acquisition discussed in footnote (a).
(d) Reference is made to Meridian's Current Report on Form 8-K filed on
December 7, 1998 with the Securities and Exchange Commission for the source
of Meridian's pre-Merger pro forma balance sheet as of September 30, 1998.
Meridian's pro forma balance sheet gives effect to the post September 30,
1998 acquisitions of real estate assets as if these acquisitions had
occurred as of September 30, 1998. Certain amounts have been reclassified
to conform to ProLogis' financial statement presentation.
(e) Represents adjustments to record Meridian's pro forma assets and
liabilities at their respective purchase values based on the purchase
method of accounting. The assumed purchase price was computed as follows
(in thousands):
<TABLE>
<S> <C>
Issuance of ProLogis Common Shares (1)........................ $ 781,894
Issuance of ProLogis Series E preferred shares (3)............ 46,125
Cash payments to Meridian common shareholders (2)............. 72,440
Assumption of Meridian's liabilities at estimated fair value
(4).......................................................... 569,351
Assumption of Meridian's pro forma minority interest at book
value (which approximates estimated fair value).............. 17,605
Costs incurred by ProLogis (5)................................ 5,550
----------
Assumed purchase price........................................ $1,492,965
==========
</TABLE>
(1) Represents the value of the 39,841,746 ProLogis common shares that will
be exchanged for the assumed 36,219,769 outstanding shares of Meridian
common stock (based on the exchange ratio of 1.1 to one). The value of
the ProLogis Common Shares is based upon the closing price of the
shares on February 12, 1999 of $19.625 per share. The assumed
outstanding shares of Meridian common stock are calculated as follows:
<TABLE>
<S> <C>
Pre-Merger pro forma shares of Meridian common stock
outstanding................................................ 31,674,027
Conversion of Meridian Series B preferred stock............. 1,623,376
Assumed exercise of options and warrants.................... 2,640,366
Conditional stock grants ................................... 282,000
----------
Adjusted pro forma shares of Meridian common stock
outstanding................................................ 36,219,769
==========
</TABLE>
(2) Represents the cash payment to Meridian common stockholders of $2.00
based upon the assumed price of ProLogis Common Shares of $19.625 for
the 36,219,769 Meridian shares outstanding. The total cash payment of
$72,440,000 will result in additional interest expense of approximately
$3,564,000 for the nine months ended September 30, 1998 and $4,890,000
for the year ended December 31, 1997. This interest expense is included
in the pro forma condensed consolidated statements of earnings from
operations for the applicable periods as discussed in note (ee).
(3) The assumed value of the ProLogis Series E preferred shares is based
upon the closing price of the Meridian Series D preferred stock on
February 12, 1999 of $23.0625 per share.
(4) The Meridian liabilities assumed are calculated as follows:
<TABLE>
<S> <C>
Meridian pro forma liabilities.................................. $605,569
Fair value adjustment to mortgage notes (see note (m)).......... 5,794
Fair value adjustment to long-term debt (see note (m)).......... (4,015)
Accrued severance costs (see note (n)) ......................... 10,304
Pro forma pay down on line of credit (see note (j))............. (48,301)
--------
$569,351
========
</TABLE>
F-4
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET--(Continued)
(5) Represents costs to be incurred by ProLogis in connection with the
Merger, ($5,350,000 of banking and professional fees and $200,000 for
other costs including printing, regulatory filing, title and transfer
costs).
(f) Represents the step-up in basis of Meridian's real estate assets in
accordance with the purchase method of accounting based on the assumed
purchase price (see note (e)). The stepped-up basis indicated is less than
the estimated fair value of Meridian's real estate assets by approximately
$51.6 million of pro forma negative goodwill. Management's basis for
determining fair value estimates and the components of fair value are as
follows:
(i) Operating facilities: the application of an estimated capitalization
rate to each operating facility's estimated 1999 net operating income.
The capitalization rates were based upon market analysis and individual
property assessments;
(ii) Developments expected to be completed in 1998: the application of an
estimated capitalization rate to the facility's estimated 1999 net
operating income. The capitalization rates were based upon market
analysis and individual property assessments. This value was then
adjusted to reflect the estimated percentage of completion of the
facilities as of September 30, 1998;
(iii) Developments expected to be completed subsequent to 1998: the actual
cost of the development at September 30, 1998 adjusted upward by a
factor to reflect the step-up to estimated fair value. Based on
ProLogis' experience, the historical cost of an internally developed
facility upon completion is less than the fair value of the facility
at the time of completion;
(iv) Land held for development: the book value at September 30, 1998 was
deemed to be the fair value because all land acquisitions occurred
within the last 12 months and the acquisition cost is representative
of current market conditions;
(v) Participating mortgage note receivable included in real estate:
represents a participating mortgage note at the actual outstanding
principal balance at September 30, 1998. The interest rate of the note
of 10.5% was deemed to be comparable to the interest rate that would
have been negotiated by the combined company.
A summary of the fair values of Meridian's real estate assets, the
calculation of negative goodwill and the calculation of the adjustment for the
step-up in basis of Meridian's real estate assets are as follows (in
thousands):
<TABLE>
<S> <C>
Operating facilities........................................ $1,303,760
Developments expected to be completed in 1998............... 90,389
Developments expected to be completed subsequent to 1998.... 12,990
Land held for development................................... 28,601
Participating mortgage note receivable...................... 23,300
----------
Fair value of real estate assets............................ 1,459,040
Pro forma book value of Meridian real estate assets......... 1,150,778
----------
Preliminary adjustment for step-up in basis of real estate
assets..................................................... 308,262
Book value of Meridian's total assets....................... 1,250,611
Adjustment to fair value of other assets (see note(i))...... (14,304)
----------
Fair value of total assets.................................. 1,544,569
Purchase price (see note(e))................................ 1,492,965
----------
Negative goodwill........................................... $ (51,604)
==========
</TABLE>
F-5
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET--(Continued)
In accordance with GAAP, the negative goodwill is applied to Meridian's real
estate assets. Consequently, the real estate assets step-up adjustment is
recalculated as follows:
<TABLE>
<S> <C>
Preliminary adjustment for step-up in basis of real estate
assets...................................................... $308,262
Negative goodwill............................................ (51,604)
--------
Final adjustment for step-up in basis of real estate assets.. $256,658
========
</TABLE>
(g) The fair value of Meridian's investment in the preferred stock of Meridian
Refrigerated, Inc., which owns refrigerated distribution companies, is
assumed to be the book value at September 30, 1998. The underlying assets
of Meridian Refrigerated, Inc. were acquired in 1998.
(h) Represents a note receivable to Meridian. The fair value of the note is its
outstanding principal balance at September 30, 1998 because the interest
rate of the note of 8.5% was deemed to be comparable to the interest rate
that would have been negotiated by the combined company.
(i) Represents the elimination of the following assets of Meridian that have no
future value to the combined company (in thousands):
<TABLE>
<S> <C>
Deferred loan costs, net......................................... $ 2,432
Costs capitalized associated with a new financial reporting
software package that will not be implemented by the combined
company......................................................... 925
Rent leveling receivable......................................... 5,740
Capitalized leasing commissions and expenses, net................ 3,866
Miscellaneous fixed assets....................................... 716
Costs incurred related to potential Meridian facility
acquisitions that are not planned by the combined company....... 625
-------
Total adjustment............................................... $14,304
=======
</TABLE>
(j) Represents the: (i) assumed pre-Merger conversion of Meridian's 1,623,376
shares of Meridian Series B convertible preferred stock into shares of
Meridian common stock on a one for one basis ($1,000 aggregate par value
and $24,999,000 aggregate additional paid-in capital); and, (ii) the
issuance of shares of Meridian common stock upon the assumed exercise of
outstanding options and warrants ($3,000 aggregate par value and
$48,298,000 aggregate additional paid-in capital). In accordance with
Section 5.10 of the Merger Agreement, the Meridian options will vest and
become fully exercisable upon consummation of the Merger. As all of the
outstanding options and warrants have exercise prices below the current per
share price of Meridian common stock, the full exercise of the options is
assumed for pro forma purposes.
The proceeds from the exercise of the Meridian options and warrants are
assumed to be used to pay down Meridian's line of credit as follows
(dollars in thousands, except per share amounts):
<TABLE>
<S> <C>
2,024,371 options at a weighted average exercise price of
$19.07 per share.............................................. $38,605
615,995 warrants at a weighted average exercise price of $15.74
per share..................................................... 9,696
-------
Cash proceeds from assumed exercise.......................... $48,301
=======
</TABLE>
(k) Represents additional borrowings on ProLogis' lines of credit necessary to
fund the cash payments to Meridian stockholders described in note (e)(2)
and merger costs described in note(e)(5).
(l) Represents costs associated with registering the ProLogis common and
preferred shares to be given to the Meridian stockholders in the Merger.
(m) The adjustments to Meridian's mortgage notes payable and long-term debt
reflect the premium or discount to adjust these financial instruments to
their estimated fair value. The adjustment is based on the present value of
amounts to be paid using interest rates currently available to ProLogis for
debt obligations with
F-6
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET--(Continued)
similar terms and features. The borrowing rates available to ProLogis are
assumed to be comparable to the borrowing rates available to the combined
company. The adjustments are based on current rates ranging from 7.20% to
8.05%. See note (e)(4).
(n) Represents the liability to be assumed by the combined company related to
the costs under the severance agreements with Meridian's officers and the
severance plan applicable to all other Meridian employees. Under Section
5.9 of the Merger Agreement all Meridian employees will be terminated as a
result of the Merger. See note (e)(4).
(o) Represents adjustment of Meridian's stockholders' equity based on the
assumed fair value of the shares to be received from ProLogis as
calculated below (dollars in thousands, except per share amounts):
<TABLE>
<S> <C>
39,841,746 shares of common stock at $19.625 per share (the
assumed per share value of the ProLogis Common Shares to be
issued to Meridian holders on 1.10 for one basis as described
in note (e)).................................................. $ 781,894
2,000,000 shares of preferred stock at $23.0625 per share (the
assumed per share value of the ProLogis preferred shares to be
issued to Meridian holders on a one for one basis as described
in note (e)).................................................. 46,125
Meridian's pre-Merger pro forma stockholders' equity (assumes
conversion of Meridian Series B preferred stock and exercise
of options and warrants described in note (j))................ (675,738)
---------
Total adjustment............................................. $ 152,281
=========
</TABLE>
(p) Represents the payments to terminated Meridian employees to be made by
ProLogis under the terms of the Merger Agreement.
(q) Represents: (i) the 1.10 for one exchange of 36,219,769 shares of Meridian
common stock ($0.001 par value) for 39,841,746 ProLogis Common Shares
($0.01 par value); (ii) the one for one exchange of 2,000,000 shares of
Meridian Series D preferred stock for 2,000,000 comparable ProLogis Series
E preferred shares ($25.00 per share stated liquidation preference) (the
number of shares of Meridian common stock are determined in note (e));
and, (iii) a $362,000 adjustment for the difference between the $0.001 par
value of Meridian's common stock on an aggregate basis as compared to the
$0.01 par value of ProLogis' Common Shares on an aggregate basis related
to the exchange of shares referenced above.
(r) Represents the reclassification of $14,639,000 of Meridian's distributions
in excess of net earnings to additional paid-in capital in accordance with
purchase accounting.
F-7
<PAGE>
PROLOGIS TRUST
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
EARNINGS FROM OPERATIONS
Nine Months Ended September 30, 1998
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Merger
Acquisitions Adjustments
----------------------- ProLogis --------------------------- ProLogis
ProLogis Pro Forma Pre-Merger Post-Merger
Historical Historical Adjustments Pro Forma Meridian (z) ProLogis (aa) Pro Forma
---------- ---------- ----------- ---------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Income:
Rental income.......... $251,605 $4,411(t) $ -- $256,016 $77,599 $ -- $333,615
Other real estate
income................ 10,542 -- -- 10,542 -- -- 10,542
Income from
unconsolidated
subsidiaries and JV... 1,930 -- -- 1,930 3,883 -- 5,813
Foreign exchange
gains, net............ 5,336 -- -- 5,336 -- -- 5,336
Interest and other
income................ 2,012 -- -- 2,012 1,339 -- 3,351
-------- ------ ------- -------- ------- ------- --------
Total income......... 271,425 4,411 -- 275,836 82,821 -- 358,657
-------- ------ ------- -------- ------- ------- --------
Expenses:
Rental expenses, net
of recoveries......... 20,458 392(t) 29 (u) 20,879 5,742 -- (bb) 26,621
General and
administrative........ 14,060 -- -- 14,060 5,502 -- (cc) 19,562
Administrative
services fee paid to
affiliate............. 1,566 -- -- 1,566 -- -- 1,566
Depreciation and
amortization.......... 73,684 -- 1,111 (v) 74,795 18,021 5,087 (dd) 97,903
Interest............... 52,455 -- 2,919 (w)(x) 55,374 17,807 532 (ee) 73,713
Interest rate hedge
expense............... 27,652 -- -- 27,652 12,633 40,285
Other.................. 4,096 -- -- 4,096 713 -- 4,809
-------- ------ ------- -------- ------- ------- --------
Total expenses....... 193,971 392 4,059 198,422 60,418 5,619 264,459
-------- ------ ------- -------- ------- ------- --------
Earnings from operations
before minority
interest, excluding
gains on dispositions.. 77,454 4,019 (4,059) 77,414 22,403 (5,619) 94,198
Minority interest share
in net earnings........ 3,101 -- -- 3,101 896 -- 3,997
-------- ------ ------- -------- ------- ------- --------
Earnings from
operations, excluding
gains on dispositions.. 74,353 4,019 (4,059) 74,313 21,507 (5,619) 90,201
Less preferred share
dividends.............. 35,543 -- -- 35,543 4,888 (1,607)(ff) 38,824
-------- ------ ------- -------- ------- ------- --------
Net earnings from
operations attributable
to common shares....... $ 38,810 $4,019 $(4,059) $ 38,770 $16,619 $(4,012) $ 51,377
======== ====== ======= ======== ======= ======= ========
Weighted average common
shares outstanding--
basic.................. 121,183(s) -- (s) -- (s) 121,183(y) 31,674(y) 161,023(y)
======== ====== ======= ======== ======= ========
Weighted average common
shares outstanding--
diluted................ 121,421(s) -- (s) -- (s) 121,421(y) 32,131(y) 161,261(y)
======== ====== ======= ======== ======= ========
Per share net earnings
from operations
attributable to common
shares:
Basic.................. $ 0.32(s) -- (s) -- (s) $ 0.32(y) $ 0.52(y) $ 0.32(y)
======== ====== ======= ======== ======= ========
Diluted................ $ 0.32(s) -- (s) -- (s) $ 0.32(y) $ 0.52(y) $ 0.32(y)
======== ====== ======= ======== ======= ========
</TABLE>
The accompanying notes are an integral part of the pro forma condensed
consolidated financial statements.
F-8
<PAGE>
PROLOGIS TRUST
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
EARNINGS FROM OPERATIONS
Year Ended December 31, 1997
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Merger
Acquisitions Adjustments
------------------------ --------------------------
ProLogis
ProLogis Pro Forma Pre-Merger
Historical Historical Adjustments Pro Forma Meridian (z) ProLogis(aa)
---------- ---------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Rental income............. $284,533 $21,461(t) $ -- $305,994 $101,840 $ --
Other real estate
income................... 12,291 -- -- 12,291 -- --
Income from
unconsolidated
subsidiaries............. 3,278 -- -- 3,278 3,223 --
Interest and other
income................... 2,392 -- -- 2,392 3,191 --
-------- ------- -------- -------- -------- -------
Total income............ 302,494 21,461 -- 323,955 108,254 --
-------- ------- -------- -------- -------- -------
Expenses:
Rental expenses, net of
recoveries............... 27,008 4,175(t) (131)(u) 31,052 14,111 -- (bb)
General and
administrative........... 5,742 -- -- 5,742 6,037 -- (cc)
REIT management fee paid
to affiliate............. 17,791 -- 2,147 (gg) 19,938 -- --
Administrative services
fee paid to affiliate.... 1,113 -- -- 1,113 -- --
Depreciation and
amortization............. 76,562 -- 5,515 (v) 82,077 21,784 6,782 (dd)
Interest.................. 52,704 -- 14,499 (w)(x) 67,203 20,050 1,068 (ee)
Costs incurred in
acquiring management
companies from
affiliate................ 75,376 -- -- 75,376 -- --
Foreign exchange loss..... 6,376 -- -- 6,376 -- --
Other..................... 3,891 -- -- 3,891 175 --
-------- ------- -------- -------- -------- -------
Total expenses.......... 266,563 4,175 22,030 292,768 62,157 7,850
-------- ------- -------- -------- -------- -------
Earnings from operations
before minority interest,
excluding gains on
dispositions.............. 35,931 17,286 (22,030) 31,187 46,097 (7,850)
Minority interest share in
net earnings.............. 3,560 -- -- 3,560 660 --
-------- ------- -------- -------- -------- -------
Earnings from operations,
excluding gains on
dispositions.............. 32,371 17,286 (22,030) 27,627 45,437 (7,850)
Less preferred share
dividends................. 35,318 -- -- 35,318 6,518 (2,143)(ff)
-------- ------- -------- -------- -------- -------
Net earnings (loss) from
operations attributable to
common shares............. $ (2,947) $17,286 $(22,030) $ (7,691) $ 38,919 $(5,707)
======== ======= ======== ======== ======== =======
Weighted average common
shares outstanding--
basic..................... 100,729 (s) -- (s) -- (s) 100,729 (y) 31,674(y)
======== ======= ======== ======== ========
Weighted average common
shares outstanding--
diluted................... 100,729 (s) -- (s) -- (s) 100,729 (y) 32,131(y)
======== ======= ======== ======== ========
Per share net earnings
(loss) from operations
attributable to common
shares:
Basic..................... $ (0.03)(s) -- (s) -- (s) $ (0.08)(y) $ 1.23(y)
======== ======= ======== ======== ========
Diluted................... $ (0.03)(s) -- (s) -- (s) $ (0.08)(y) $ 1.21(y)
======== ======= ======== ======== ========
<CAPTION>
ProLogis
Post-Merger
Pro Forma
-------------
<S> <C>
Income:
Rental income............. $407,834
Other real estate
income................... 12,291
Income from
unconsolidated
subsidiaries............. 6,501
Interest and other
income................... 5,583
-------------
Total income............ 432,209
-------------
Expenses:
Rental expenses, net of
recoveries............... 45,163
General and
administrative........... 11,779
REIT management fee paid
to affiliate............. 19,938
Administrative services
fee paid to affiliate.... 1,113
Depreciation and
amortization............. 110,643
Interest.................. 88,321
Costs incurred in
acquiring management
companies from
affiliate................ 75,376
Foreign exchange loss..... 6,376
Other..................... 4,066
-------------
Total expenses.......... 362,775
-------------
Earnings from operations
before minority interest,
excluding gains on
dispositions.............. 69,434
Minority interest share in
net earnings.............. 4,220
-------------
Earnings from operations,
excluding gains on
dispositions.............. 65,214
Less preferred share
dividends................. 39,693
-------------
Net earnings (loss) from
operations attributable to
common shares............. $ 25,521
=============
Weighted average common
shares outstanding--
basic..................... 140,569(y)
=============
Weighted average common
shares outstanding--
diluted................... 140,709(y)
=============
Per share net earnings
(loss) from operations
attributable to common
shares:
Basic..................... $ 0.18(y)
=============
Diluted................... $ 0.18(y)
=============
</TABLE>
The accompanying notes are an integral part of the pro forma condensed
consolidated financial statements.
F-9
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF
EARNINGS FROM OPERATIONS
Nine Months Ended September 30, 1998 and
Year Ended December 31, 1997
(Unaudited)
(In thousands)
(s) A reconciliation of the denominator used to calculate basic net earnings
per ProLogis Common Share to the denominator used to calculate diluted net
earnings per ProLogis Common Share for the nine months ended September 30,
1998 is as follows (in thousands, except per Common Share amounts):
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1998
---------------------------------
Net Pro Forma Pro
Historical Adjustments Forma
---------- ------------- --------
<S> <C> <C> <C>
Net earnings from operations
attributable to ProLogis Common
Shares............................... $ 38,810 $(40) $ 38,770
======== ==== ========
Weighted average ProLogis Common
Shares outstanding--basic............ 121,183 -- 121,183
Incremental options and warrants...... 238 -- 238
-------- ---- --------
Adjusted weighted-average ProLogis
Common Shares outstanding--diluted
(1).................................. 121,421 -- 121,421
======== ==== ========
Per share net earnings from operations
attributable to ProLogis Common
Shares:
Basic............................... $ 0.32 $-- $ 0.32
======== ==== ========
Diluted (1)......................... $ 0.32 $-- $ 0.32
======== ==== ========
</TABLE>
--------
(1) For the nine months ended September 30, 1998, there were
10,156 weighted average Series B Preferred Shares and
5,070 limited partnership units outstanding on an as-
converted basis that were not assumed to be converted into
ProLogis Common Shares for purposes of calculating diluted
earnings per ProLogis Common Share as the effect was
antidilutive.
Because ProLogis has a net loss for the year ended December 31, 1997
(historical and pro forma), the effect of all potentially dilutive ProLogis
Common Shares is anti-dilutive. Consequently, basic and diluted loss per
Common Share are the same.
(t) Represents historical revenues and certain expenses of the facilities
acquired by ProLogis subsequent to December 31, 1996 as detailed in the
Current Report on Form 8-K filed by ProLogis on December 3, 1998. The total
historical acquisition adjustment reflects the period from January 1, 1997
to the earlier of the respective dates of acquisition, December 31, 1997 or
September 30, 1998 as applicable (results of operations after the dates of
acquisition are included in ProLogis' historical operating results).
Historical acquisition revenues and certain expenses exclude amounts which
would not be comparable to the proposed future operations of the facilities
such as certain interest expense, interest income, income taxes and
depreciation.
(u) Represents the adjustment to historical property management expenses for
the periods indicated to reflect these expenses at the level they would
have been had ProLogis owned the facilities as of January 1, 1997.
(v) Reflects the recognition of depreciation expense associated with the pro
forma acquisitions, discussed in note (t), for the periods indicated. This
depreciation adjustment is based on ProLogis' purchase cost assuming asset
lives of 30 years. Depreciation is computed using a straight-line method.
(w) Reflects the recognition of $643,000 for the nine months ended September
30, 1988 and $1,823,000 for the year ended December 31, 1997 of interest
expense on mortgage debt for the periods indicated as if the debt had been
assumed by ProLogis on January 1, 1997. The mortgage debt assumed in
conjunction with
F-10
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF
EARNINGS FROM OPERATIONS--(Continued)
the acquisition of certain of the facilities acquired subsequent to December
31, 1996 discussed in note (t) bears interest at fixed rates ranging from
7.75% to 10.60%.
(x) Represents $2,276,000 for the nine months ended September 30, 1988 and
$12,676,000 for the year ended December 31, 1997 of additional interest
expense on senior unsecured debt securities. The adjustment assumes that
the issuance of senior unsecured debt securities necessary to fund the pro
forma acquisitions discussed in note (t) occurred on January 1, 1997. The
adjustment is based on a weighted average effective interest rate of 7.05%
for the nine months ended September 30, 1998 and 7.17% for the year ended
December 31, 1997.
(y) A reconciliation of the denominator used to calculate basic net earnings
per common share to the denominator used to calculate diluted net earnings
per common share for the periods indicated for ProLogis and Meridian on a
pre-Merger pro forma basis and for ProLogis on a pro forma post-Merger
basis is as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1998
-----------------------------------------
Pre-Merger
-------------------------- ProLogis
ProLogis Meridian Post-Merger
Pro Forma Pro Forma Pro Forma
------------ ----------- -------------
<S> <C> <C> <C>
Net earnings from
operations attributable
to common shares......... $ 38,770 $ 16,619 $ 51,377
============ =========== ============
Weighted average common
shares outstanding--
basic.................... 121,183 31,674 161,023(1)
Incremental options and
warrants................. 238 457 238
------------ ----------- ------------
Adjusted weighted-average
common shares
outstanding--diluted..... 121,421 32,131 161,261(1)(2)
============ =========== ============
Per share net earnings
from operations
attributable to common
shares:
Basic................... $ 0.32 $ 0.52 $ 0.32
============ =========== ============
Diluted................. $ 0.32 $ 0.52 $ 0.32(2)
============ =========== ============
<CAPTION>
Year Ended December 31, 1997
-----------------------------------------
Pre-Merger
-------------------------- ProLogis
ProLogis Meridian Post-Merger
Pro Forma Pro Forma Pro Forma
------------ ----------- -------------
<S> <C> <C> <C>
Net earnings (loss) from
operations attributable
to common shares......... $ (7,691) $ 38,919 $ 25,521
============ =========== ============
Weighted average common
shares outstanding--
basic.................... 100,729 31,674 140,569(1)
Incremental options and
warrants................. -- 457 140
------------ ----------- ------------
Adjusted weighted-average
common shares
outstanding--diluted..... 100,729 32,131 140,709(1)(3)
============ =========== ============
Per share net earnings
from operations
attributable to common
shares:
Basic................... $ (0.08) $ 1.23 $ 0.18
============ =========== ============
Diluted................. $ (0.08) $ 1.21 $ 0.18(3)
============ =========== ============
</TABLE>
--------
(1) The ProLogis post-Merger pro forma weighted average common
shares outstanding reflects the following adjustments based
on the assumption that the Merger occurred as
F-11
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF
EARNINGS FROM OPERATIONS--(Continued)
of January 1, 1997: (i) the assumed pre-Merger conversion of
Meridian's Series B preferred stock to Meridian common stock;
(ii) the assumed pre-Merger exercise of all of Meridian's
outstanding options and warrants; and, (iii) the increase
resulting from the issuance of 1.10 ProLogis Common Shares
for one share of Meridian common stock.
(2) For the nine months ended September 30, 1998, there were
10,156 weighted average ProLogis Series B Preferred Shares
and 5,601 weighted average limited partnership units
outstanding on an as-converted basis that were not assumed
to be converted into ProLogis Common Shares for purposes of
calculating diluted earnings per ProLogis Common Share as
the effect was antidilutive.
(3) For the year ended December 31, 1997, there were 10,319
weighted average ProLogis Series B Preferred Shares and
5,721 weighted average limited partnership units outstanding
on an as-converted basis that were not assumed to be
converted into ProLogis Common Shares for purposes of
calculating diluted earnings per ProLogis Common Share as
the effect was antidilutive.
(z) Reference is made to Meridian's Current Report on Form 8-K filed on
December 7, 1998 with the Securities and Exchange Commission for the source
of Meridian's pre-Merger pro forma statements of earnings from operations
for the nine months ended September 30, 1998 and the year ended December
31, 1997. The pre-Merger pro forma statements of earnings from operations
give effect to the acquisitions of real estate assets subsequent to
December 31, 1996 as if the acquisitions had occurred as of January 1,
1997. Certain amounts have been reclassified to conform to ProLogis'
financial statement presentation.
(aa) The accompanying pro forma condensed consolidated statements of earnings
from operations for the nine months ended September 30, 1998 and the year
ended December 31, 1997 do not give effect to the fully stabilized results
of operations related to: (i) facilities under development of both
ProLogis and Meridian at September 30, 1998 with a combined total budgeted
completion cost of $544.2 million; or (ii) completed developments of
ProLogis and Meridian during 1997 and the first nine months of 1998 with a
total combined budgeted completion cost of $678.3 million. Management
believes that there will be sufficient depth of management and personnel
such that additional facilities can be developed and managed without a
significant increase in personnel or other costs. As a result, management
believes that the accretion in net earnings from operations and funds from
operations from the Merger reflected in the pro forma condensed
consolidated statements of earnings from operations is not indicative of
the full accretion that is expected to occur on a post-Merger basis.
(bb) During the nine months ended September 30, 1998 and the year ended
December 31, 1997, Meridian utilized the services of third-party
management companies to perform property management functions for
substantially all of its operating facilities. Meridian paid these
management companies a fee based upon the revenues generated by the
facility. ProLogis utilizes third-party management companies on a very
limited basis. Substantially all of the property management functions
related to ProLogis' operating facilities are performed by employees of
ProLogis. ProLogis expects that after consummation of the Merger, the
property management functions related to the Meridian operating facilities
acquired will be performed by ProLogis employees and that the existing
Meridian third-party management contracts will be terminated. Management
of ProLogis expects that additional employees (including property
accounting personnel) will be needed as these property management
functions are transferred from the third-party management companies.
However, it is expected that, because approximately 98% of the Meridian
facilities are located in markets where ProLogis currently owns and
manages assets, certain expense savings will be achieved. While ProLogis
expects to realize lower property management costs related to the Meridian
operating facilities than had been incurred by Meridian, no estimate of
these expected future
F-12
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF
EARNINGS FROM OPERATIONS--(Continued)
cost savings has been included in the pro forma financial statements. Such
adjustment is not included because these costs savings cannot be factually
supported within the SEC regulations governing the preparation of the pro
forma financial statements until such time as the third-party agreements are
terminated and the property management function is transferred to ProLogis.
(cc) As a separate corporate entity, Meridian incurred general and
administrative costs as follows:
.Personnel costs and related employee benefits and expenses for the
Meridian administrative employees: These employees will be terminated
under Section 5.9 of the Merger Agreement. These employees are not related
to the property management function, but rather perform corporate
functions specific to the Meridian corporate entity. These functions are
considered duplicative with the functions performed currently by ProLogis
employees.
.Directors fees and costs: The Meridian corporate entity will cease to
exist after the Merger, therefore the Board of Directors will no longer be
in existence.
.Professional fees (including auditing, accounting, legal, stock
registration and consulting): These costs will not be incurred as the
Meridian corporate entity will cease to exist after the Merger.
Accordingly, there will be no entity to incur these costs and Meridian
will have no publicly-traded securities.
.Office expenses (including rent and utilities): Meridian maintains a
corporate office in San Francisco, California. ProLogis' has an existing
corporate office and does not intend to maintain any additional corporate
offices after the Merger.
Meridian's general and administrative costs are summarized below (in
thousands). The amounts are annualized based upon the historical costs incurred
by Meridian for the nine months ended September 30, 1998. These costs are
related to the corporate organization as opposed to costs associated with the
operations of Meridian's real estate facilities (which are included in rental
expenses and are discussed in note (bb)). ProLogis expects that, after the
Merger, a significant portion of these expenses will be eliminated.
<TABLE>
<S> <C>
Personnel and related.............................................. $3,970
Professional fees.................................................. 1,510
Directors fees and expenses........................................ 220
Office expenses.................................................... 1,370
Other.............................................................. 250
------
Total............................................................ $7,320
======
</TABLE>
While the general and administrative costs noted above will not be incurred
by Meridian after the Merger, ProLogis does expect that there will be
incremental increases in certain of its corporate general and administrative
costs. ProLogis has determined these increases to be related to the following
changes in its corporate operations directly as a result of the Merger:
.Legal, auditing and accounting fees will increase because ProLogis will be
acquiring approximately $1.5 billion of additional assets aggregating
approximately 33.5 million square feet of industrial distribution
facilities.
.Stock transfer fees, proxy solicitation and shareholder relations costs
will increase because ProLogis will be issuing approximately 39.8 million
additional ProLogis Common Shares and 2.0 million Series E preferred
shares.
.Under Section 5.19 of the Merger Agreement, ProLogis will add two members
to its Board of Trustees resulting in additional fees and expenses.
F-13
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF
EARNINGS FROM OPERATIONS--(Continued)
The incremental ProLogis costs are computed on a pro rata basis based upon
the additional pro forma revenues generated by the Merger (for accounting,
auditing and legal fees), additional shares outstanding after the Merger (for
stock transfer, proxy and shareholder relations) and the increase in the number
of trustees as follows:
<TABLE>
<S> <C>
Accounting, auditing and legal....................................... $190
Stock transfer, proxy and shareholder relations...................... 90
Directors fees and expenses.......................................... 75
----
Total.............................................................. $355
====
</TABLE>
While ProLogis expects that general and administrative cost savings could
result from the Merger, such savings could not be factually supported and
quantified within the SEC regulations governing the preparation of the pro
forma financial statements. Consequently, no adjustment has been made to the
pro forma financial statements.
(dd) Represents the net increase in depreciation of real estate as a result of
the step-up in basis to record Meridian's real estate at estimated fair
value for the periods indicated (in thousands):
<TABLE>
<CAPTION>
Nine Months
Ended Year Ended
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
Step-up in real estate basis (see note (e)).... $256,658 $256,658
Less amount of step-up allocated to:
Developments in progress..................... (16,305) (16,305)
Land portion of operating facilities......... (35,907) (35,907)
Participating mortgage....................... (976) (976)
-------- --------
Depreciable portion of step-up in basis........ 203,470 203,470
-------- --------
Estimated annual incremental depreciation
expense based on an assumed weighted average
life of 30 years.............................. 6,782 6,782
Proration factor............................... 0.75 1.0
-------- --------
Estimated incremental depreciation......... $ 5,087 $ 6,782
======== ========
</TABLE>
F-14
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF
EARNINGS FROM OPERATIONS--(Continued)
(ee) Represents the net change in interest expense as a result of the following
items for the periods indicated (in thousands):
<TABLE>
<CAPTION>
Nine Months
Ended Year Ended
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
Decrease related to the pay down on Meridian's
line of credit as a result of the assumed
exercise of options and warrants described in
note (j) (1).................................. $(2,584) $(3,360)
Decrease based on the pro forma interest rates
resulting from the adjustments of Meridian's
debt to its estimated fair market value as
described in note (m) (2)..................... (303) (404)
Decrease in Meridian loan cost amortization
related to the elimination of Meridian
deferred loan costs as described in note (i).. (962) (1,179)
Increase related to additional borrowings on
the line of credit of $16,613 to fund the
Merger-related costs identified in note (e)
and the assumed cash payments to Meridian
stockholders of $72,440 described in note (k)
(3)........................................... 4,381 6,011
------- -------
Total adjustment............................. $ 532 $ 1,068
======= =======
</TABLE>
--------
(1) Computed using Meridian's actual weighted average interest
rate of 7.13% for the nine months ended September 30, 1998
and 6.96% for the year ended December 31, 1997.
(2) Based on effective interest rates determined to be available
to the combined company (7.20% for secured long-term debt
and 7.95%-8.05% for unsecured long-term debt).
(3) Computed using ProLogis' actual weighted average interest
rate of 6.56% for the nine months ended September 30, 1998
and 6.75% for the year ended December 31, 1997.
(ff) Represents the elimination of dividends on the Meridian Series B preferred
stock for the periods indicated that is assumed to be converted to shares
of Meridian common stock as of January 1, 1997. See note (j).
(gg) Represents the additional REIT management fee that would have been paid
for the period from January 1, 1997 to September 8, 1997 (the period the
REIT management agreement was in effect resulting from the additional cash
flow, as defined, generated by the pro forma acquisitions discussed in
note (t).
F-15
<PAGE>
ANNEX A
RESTATED
AGREEMENT AND PLAN OF MERGER
between
PROLOGIS TRUST
and
MERIDIAN INDUSTRIAL TRUST, INC.
Dated as of November 16, 1998
and as
Amended as of February 3, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
The Merger
<C> <S> <C>
1.1 The Merger; Effective Time of the Merger............................ A-1
1.2 Closing............................................................. A-2
1.3 Effect of the Merger................................................ A-2
1.4 Declaration of Trust and Bylaws..................................... A-2
1.5 Trustees and Officers............................................... A-2
ARTICLE II
Effect of the Merger on the Capital Stock
of the Company and MIT; Exchange of Certificates
2.1 Effect of the Merger on Capital Stock............................... A-2
(a)Shares of Beneficial Interest of the Company..................... A-2
(b)Capital Stock of MIT............................................. A-3
(c)Treatment of MIT Stock Options................................... A-3
(d)Treatment of MIT Warrants........................................ A-3
(e)Impact of Stock Splits, etc...................................... A-3
2.2 Exchange of Certificates............................................ A-3
(a)Exchange Agent................................................... A-3
(b)Exchange Procedures.............................................. A-4
(c)Distributions with Respect to Unexchanged Shares................. A-5
(d)No Further Ownership Rights...................................... A-5
(e)Intentionally Omitted............................................ A-6
(f)Termination of Exchange Fund..................................... A-6
(g)No Liability..................................................... A-6
(h)Lost, Stolen, or Destroyed Certificates.......................... A-6
(i)Withholding of Tax............................................... A-6
2.3 Dissenting Shares................................................... A-6
ARTICLE III
Representations and Warranties
3.1 Representations and Warranties of MIT............................... A-7
(a)Organization, Standing and Power................................. A-7
(b)Capital Structure................................................ A-7
(c)Authority; No Violations; Consents and Approvals................. A-8
(d)SEC Documents.................................................... A-9
(e)Information Supplied............................................. A-10
(f)Absence of Certain Changes or Events............................. A-10
(g)No Undisclosed Material Liabilities.............................. A-11
(h)No Default....................................................... A-11
(i)Compliance with Applicable Laws.................................. A-11
(j)Litigation....................................................... A-11
(k)Taxes............................................................ A-12
(l)Pension and Benefit Plans; ERISA................................. A-13
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
(m)Labor Matters.................................................. A-14
(n)Intangible Property............................................ A-15
(o)Environmental Matters.......................................... A-15
(p)Properties..................................................... A-17
(q)Insurance...................................................... A-17
(r)Opinion of Financial Advisor................................... A-17
(s)Vote Required.................................................. A-18
(t)Beneficial Ownership of Company Common Stock................... A-18
(u)Brokers........................................................ A-18
(v)Investment Company Act of 1940................................. A-18
(w)Amendment to Rights Agreement; State Takeover Laws............. A-18
(x)Contracts...................................................... A-18
3.2 Representations and Warranties of the Company..................... A-19
(a)Organization, Standing and Power............................... A-19
(b)Capital Structure.............................................. A-19
(c)Authority; No Violations, Consents and Approvals............... A-20
(d)SEC Documents.................................................. A-22
(e)Information Supplied........................................... A-22
(f)Absence of Certain Changes or Events........................... A-22
(g)No Undisclosed Material Liabilities............................ A-23
(h)No Default..................................................... A-23
(i)Compliance with Applicable Laws................................ A-23
(j)Litigation..................................................... A-23
(k)Taxes.......................................................... A-24
(l)Pension and Benefit Plans; ERISA............................... A-25
(m)Labor Matters.................................................. A-26
(n)Intangible Property............................................ A-27
(o)Environmental Matters.......................................... A-27
(p)Properties..................................................... A-28
(q)Insurance...................................................... A-29
(r)Opinion of Financial Advisor................................... A-29
(s)Vote Required.................................................. A-29
(t)Beneficial Ownership of MIT Common Stock and MIT Preferred
Stock............................................................. A-29
(u)Brokers........................................................ A-29
(v)Investment Company Act of 1940................................. A-29
(w)Contracts...................................................... A-29
ARTICLE IV
Covenants Relating to Conduct
of Business Pending the Merger
4.1 Conduct of Business by MIT and the Company Pending the Merger..... A-30
(a)Ordinary Course................................................ A-30
(b)Dividends; Changes in Stock.................................... A-30
(c)Issuance of Securities......................................... A-31
(d)Governing Documents............................................ A-32
(e)No Acquisitions................................................ A-32
(f)No Dispositions................................................ A-32
(g)No Dissolution, Etc............................................ A-32
(h)Accounting..................................................... A-32
(i)Affiliate Transactions......................................... A-32
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
(j)Insurance...................................................... A-32
(k)Tax Matters.................................................... A-32
(l)Certain Employee Matters....................................... A-32
(m)Indebtedness................................................... A-33
(n)Agreements..................................................... A-33
4.2 No Solicitation by MIT............................................ A-33
ARTICLE V
Additional Agreements
5.1 Preparation of S-4 and the Joint Proxy Statement.................. A-34
5.2 Letter of MIT's Accountants....................................... A-34
5.3 Letter of the Company's Accountants............................... A-35
5.4 Access to Information............................................. A-35
5.5 Stockholders Meetings............................................. A-35
5.6 Approvals; Best Efforts........................................... A-35
5.7 Agreements of Rule 145 Affiliates................................. A-36
5.8 Authorization for Shares and Stock Exchange Listing............... A-36
5.9 Employee Matters.................................................. A-36
5.10 Stock Options..................................................... A-36
5.11 MIT Warrants...................................................... A-37
5.12 Indemnification; Directors' and Officers' Insurance............... A-38
5.13 Agreement to Defend............................................... A-38
5.14 Public Announcements.............................................. A-38
5.15 Other Actions..................................................... A-39
5.16 Advice of Changes; SEC Filings.................................... A-39
5.17 Reorganization.................................................... A-39
5.18 Conveyance Taxes.................................................. A-39
5.19 Board of Trustees................................................. A-39
5.20 Registrations Rights Agreements................................... A-39
5.21 Indemnification Agreements........................................ A-40
5.22 Redemption or Conversion of MIT Series B Preferred Stock.......... A-40
Investigation and Agreement by the Parties; No Other
5.23 Representations or Warranties..................................... A-40
5.24 Partnership Agreements............................................ A-41
5.25 MIT Senior Notes.................................................. A-41
5.26 MIT Voting Agreement.............................................. A-41
ARTICLE VI
Conditions Precedent
6.1 Conditions to Each Party's Obligation to Effect the Merger........ A-41
(a)MIT Stockholder Approval....................................... A-41
(b)Company Stockholder Approval................................... A-41
(c)Exchange Listing............................................... A-41
(d)Other Approvals................................................ A-41
(e)S-4............................................................ A-42
(f)No Injunctions or Restraints................................... A-42
(g)Meridian Refrigerated Stock Purchase Agreement................. A-42
(h)Meridian Point Properties Stock Purchase Agreement............. A-42
6.2 Conditions to Obligations of the Company.......................... A-42
(a)Representations and Warranties of MIT.......................... A-42
(b)Performance of Obligations of MIT.............................. A-42
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
(c)Tax Opinions..................................................... A-42
(d)Director and Officer Loans....................................... A-43
(e)MIT Series B Preferred Stock..................................... A-43
6.3 Conditions to Obligations of MIT.................................... A-43
(a)Representations and Warranties of the Company.................... A-43
(b)Performance of Obligations of the Company........................ A-43
(c)Tax Opinions..................................................... A-43
ARTICLE VII
Termination and Amendment
7.1 Termination......................................................... A-44
7.2 Effect of Termination............................................... A-45
7.3 Amendment........................................................... A-46
7.4 Extension; Waiver................................................... A-47
ARTICLE VIII
General Provisions
8.1 Payment of Expenses................................................. A-47
8.2 Nonsurvival of Representations, Warranties and Agreements........... A-47
8.3 Notices............................................................. A-48
8.4 Interpretation...................................................... A-48
8.5 Counterparts........................................................ A-48
8.6 Entire Agreement; No Third Party Beneficiaries...................... A-48
8.7 Governing Law....................................................... A-49
8.8 No Remedy in Certain Circumstances.................................. A-49
8.9 Assignment.......................................................... A-49
8.10 Specific Performance................................................ A-49
8.11 Director, Trustee and Officer Liability............................. A-49
8.12 Schedule Definitions................................................ A-49
</TABLE>
EXHIBITS:
<TABLE>
<S> <C>
Exhibit A Form of Articles Supplementary Classifying 2,000,000 Shares of Company Cumulative
Redeemable Preferred Stock
Exhibit B Individuals to be added to Board of Trustees
Exhibit C Form of Rule 145 Affiliate Agreement
Exhibit D Form of Indemnification Agreement
Exhibit E Stock Purchase Agreement--Meridian Point Properties, Inc.
Exhibit F Stock Purchase Agreement--Meridian Refrigerated, Inc.
DISCLOSURE SCHEDULES:
MIT Disclosure Schedule:
Schedule 3.1(a) MIT Significant Subsidiaries
Schedule 3.1(b) MIT Subsidiary Ownership
Schedule 3.1(c) MIT Conflicts
Schedule 3.1(f) MIT Certain Changes or Events
Schedule 3.1(g) MIT Undisclosed Liabilities
Schedule 3.1(j) MIT Litigation
</TABLE>
iv
<PAGE>
<TABLE>
<C> <S>
Schedule 3.1(k) MIT Tax Information
Schedule 3.1(l) MIT Pension and Benefit Plan and Related Information
Schedule 3.1(m) MIT Labor Matters
Schedule 3.1(o) MIT Environmental Matters
Schedule 3.1(p) MIT Properties
Schedule 3.1(q) MIT Insurance
Schedule 3.1(x) MIT Contracts
Schedule 4.1 MIT Conduct of Business
Company Disclosure Schedule:
Schedule 3.2(a) Company Significant Subsidiaries
Schedule 3.2(b) Company Subsidiary Ownership
Schedule 3.2(c) Company Conflicts
Schedule 3.2(f) Company Certain Changes or Events
Schedule 3.2(g) Company Undisclosed Liabilities
Schedule 3.2(j) Company Litigation
Schedule 3.2(k) Company Tax Information
Schedule 3.2(l) Company Pension and Benefit Plan and Related Information
Schedule 3.2(m) Company Labor Matters
Schedule 3.2(o) Company Environmental Matters
Schedule 3.2(p) Company Properties
Schedule 3.2(q) Company Insurance
Schedule 3.2(w) Company Contracts
Schedule 4.1 Company Conduct of Business
</TABLE>
v
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Defined on
Page #
----------
<S> <C>
Definition
Affiliate.......................................................... 32
Agreement.......................................................... 1
AMEX............................................................... 9
Articles of Merger................................................. 1
Articles Supplementary............................................. 40
Average Trading Price.............................................. 3
Break-up Payment................................................... 46
Cash Consideration................................................. 3
CERCLA............................................................. 17
Certificate........................................................ 4
Closing............................................................ 1
Closing Date....................................................... 2
Code............................................................... 1
Company............................................................ 1
Company Acquisition Proposal....................................... 45
Company Common Stock............................................... 3
Company Cumulative Redeemable Preferred Stock...................... 2
Company Disclosure Schedule........................................ 19
Company Employee Benefit Plans..................................... 25
Company ERISA Affiliate............................................ 25
Company Intangible Property........................................ 27
Company Litigation................................................. 24
Company Order...................................................... 24
Company Partnership................................................ 44
Company Pension Plans.............................................. 25
Company Permits.................................................... 23
Company Properties................................................. 28
Company Rights..................................................... 3
Company Rights Agreement........................................... 3
Company SEC Documents.............................................. 22
Company Stock Plan................................................. 20
Company Termination Fee............................................ 45
Confidentiality Agreement.......................................... 35
Conversion Number.................................................. 3
EBI................................................................ 46
Effective Time..................................................... 1
Encumbrances....................................................... 8
Environmental Laws................................................. 15
EPA................................................................ 17
ERISA.............................................................. 13
Excess Securities.................................................. 5
Exchange........................................................... 5
Exchange Act....................................................... 9
Exchange Agent..................................................... 3
Exchange Fund...................................................... 4
GAAP............................................................... 10
Governmental Entity................................................ 9
</TABLE>
vi
<PAGE>
<TABLE>
<CAPTION>
Defined on
Page #
----------
<S> <C>
Hazardous Materials................................................ 15
Injunction......................................................... 42
Investment Company Act............................................. 18
Joint Proxy Statement.............................................. 9
Knowledge.......................................................... 11
Letter of Transmittal.............................................. 4
Material Adverse Change............................................ 7
Material Adverse Effect............................................ 7
Material Breach.................................................... 44
Merger............................................................. 1
Merger Consideration............................................... 3
MIT................................................................ 1
MIT Acquisition Proposal........................................... 33
MIT Articles of Incorporation...................................... 7
MIT Bylaws......................................................... 7
MIT Common Stock................................................... 2
MIT Disclosure Schedule............................................ 7
MIT Employee Benefit Plans......................................... 13
MIT ERISA Affiliate................................................ 13
MIT Indemnified Parties............................................ 38
MIT Intangible Property............................................ 15
MIT Litigation..................................................... 11
MIT Order.......................................................... 11
MIT Partnership.................................................... 43
MIT Pension Plans.................................................. 13
MIT Permits........................................................ 11
MIT Properties..................................................... 17
MIT Right.......................................................... 3
MIT Rights Agreement............................................... 3
MIT SEC Documents.................................................. 9
MIT Senior Notes................................................... 41
MIT Series B Preferred Stock....................................... 7
MIT Series C Preferred Stock....................................... 3
MIT Series D Preferred Stock....................................... 2
MIT Stock Plan..................................................... 7
MIT Superior Proposal.............................................. 34
MIT Warrants....................................................... 31
MGCL............................................................... 1
MIT Termination Fee................................................ 45
NYSE............................................................... 9
Party.............................................................. 30
Payee.............................................................. 46
Property Restrictions.............................................. 17
Prudential......................................................... 41
Prudential Voting Agreement........................................ 41
REIT............................................................... 11
Release............................................................ 16
Remedial Action.................................................... 16
Rule 145 Affiliates................................................ 36
S-4................................................................ 10
</TABLE>
vii
<PAGE>
<TABLE>
<CAPTION>
Defined on
Page #
----------
<S> <C>
Securities Act..................................................... 10
Significant Subsidiary............................................. 19
stockholders....................................................... 1
Subsidiary......................................................... 7
Surviving Entity................................................... 1
Takeover Statute................................................... 18
Tax Protection Agreement........................................... 13
Taxes.............................................................. 12
Termination Date................................................... 44
Title 8............................................................ 1
Trading Day........................................................ 3
Voting Debt........................................................ 7
Warrant Agreement.................................................. 31
</TABLE>
viii
<PAGE>
AGREEMENT AND PLAN OF MERGER
Agreement and Plan of Merger, dated as of November 16, 1998 (this
"Agreement"), between ProLogis Trust, a Maryland real estate investment trust
(the "Company"), and Meridian Industrial Trust, Inc., a Maryland corporation
("MIT").
Whereas, the Company and MIT have determined to engage in a strategic
business combination;
Whereas, in furtherance thereof, the Board of Directors of MIT has approved
and declared advisable this Agreement and the merger of MIT with and into the
Company, with the Company being the surviving corporation (the "Merger");
Whereas, in furtherance thereof, the Board of Trustees of the Company has
approved and declared advisable this Agreement and the Merger;
Whereas, the Board of Trustees of the Company has determined that it is
advisable and in the best interest of the holders of the Company's shares of
beneficial interest, and the Board of Directors of MIT has determined that it
is advisable and fair to and in the best interests of holders of MIT's stock
(all such holders are referred to herein as "stockholders"), for the Merger to
be effected upon the terms and subject to the conditions of this Agreement;
Whereas, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and this Agreement is
intended to be and is adopted as a plan of reorganization within the meaning of
Treasury Regulation Section 1.368-1(c);
Whereas, the Company and MIT desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger; and
Whereas, concurrently with the execution of this Agreement, MIT and Security
Capital Group Incorporated are entering into an agreement providing, among
other things, that Security Capital Group Incorporated will vote or cause to be
voted at the stockholders meeting of the Company contemplated hereby, all of
the shares of Company Common Stock (as hereinafter defined) owned by it at such
time in favor of this Agreement and the Merger and the transactions
contemplated hereby.
Now, Therefore, in consideration of the foregoing and the representations,
warranties, covenants and agreements herein contained, the parties to this
Agreement agree as follows:
ARTICLE I
The Merger
1.1 The Merger; Effective Time of the Merger. Upon the terms and subject to
the conditions of this Agreement, at the Effective Time (as hereinafter
defined), MIT shall be merged with and into the Company in accordance with the
Maryland General Corporation Law (the "MGCL") and Title 8 of the Corporations
and Associations Article of the Annotated Code of Maryland ("Title 8"), the
separate corporate existence of MIT shall cease and the Company shall continue
as the surviving entity (the Company is sometimes referred to herein as the
"Surviving Entity"). As soon as practicable at or after the closing of the
Merger (the "Closing") pursuant to Article VI, MIT and the Company shall file
articles of merger prepared and executed in accordance with the relevant
provisions of Title 8 and the MGCL (the "Articles of Merger") with the State
Department of Assessments and Taxation of Maryland. The Merger shall become
effective upon the filing of the Articles of Merger with, and acceptance for
record of the Articles of Merger by, the State Department of Assessments and
Taxation of Maryland, or at such later time (but not to exceed 30 days after
the Articles of Merger are accepted for record by the State Department of
Assessments and Taxation of Maryland) specified in the Articles of Merger (the
"Effective Time").
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1.2 Closing. The Closing shall take place at 9:30 a.m., Central time, on a
date to be specified by the parties, which shall be no later than the fifth
business day after satisfaction (or waiver in accordance with this Agreement)
of the latest to occur of the conditions set forth in Article VI (the "Closing
Date"), at the offices of Mayer, Brown & Platt, 190 South LaSalle Street,
Chicago, Illinois 60603, unless another date or place is agreed to in writing
by the parties.
1.3 Effect of the Merger. The Merger shall have the effects set forth in this
Agreement and the applicable provisions of Title 8 and the MGCL. Without
limiting the generality of the foregoing and subject thereto, at the Effective
Time all the property, rights, privileges, immunities, powers and franchises of
MIT and the Company shall vest in the Surviving Entity, and all debts,
liabilities, obligations and duties of MIT and the Company shall become the
debts, liabilities, obligations and duties of the Surviving Entity.
1.4 Declaration of Trust and Bylaws
(a) At the Effective time, the Declaration of Trust and Bylaws of the Company
in effect immediately prior to the Effective Time shall be the Declaration of
Trust and Bylaws of the Surviving Entity, until thereafter amended in
accordance with their respective terms and applicable law.
(b) Immediately prior to the Effective Time, the Board of Trustees of the
Company shall authorize the designation of a series of preferred shares of
beneficial interest, $0.01 par value (the "Company Cumulative Redeemable
Preferred Stock"), of the Company, so as to permit the Company to issue shares
of Company Cumulative Redeemable Preferred Stock pursuant to Section 2.1
hereof, and the Company shall file with the State Department of Assessments and
Taxation of Maryland immediately prior to the Effective Time Articles
Supplementary with respect to Company Cumulative Redeemable Preferred Stock
pursuant to Title 8 in substantially the form attached as Exhibit A hereto.
Dividends on the Company Cumulative Redeemable Preferred Stock shall be deemed
to accrue from and after the end of the last Dividend Period (as defined in the
Articles Supplementary for the Series D Cumulative Redeemable Preferred Stock,
par value $0.001 per share ("MIT Series D Preferred Stock"), of MIT) for which
a record date has been set prior to the Effective Time, unless a partial
dividend is declared and paid at the Effective Time on the MIT Series D
Preferred Stock pursuant to Section 4.1(b) hereof, in which case, dividends on
the Company Cumulative Redeemable Preferred Stock shall be deemed to accrue
from and after the Effective Time. The blanks in Sections 2(k) and 3(a) of
Exhibit A hereto shall be completed to reflect the calendar day on which
dividends on the Company Cumulative Redeemable Preferred Stock begin to accrue
as described in the immediately preceding sentence.
1.5 Trustees and Officers. At the Effective Time, the Board of Trustees of
Company shall increase the number of members comprising its Board of Trustees
by up to three trustees, and shall appoint two of the individuals identified on
Exhibit B hereto (such individuals to be selected by the Company's Board of
Trustees in its discretion) as the persons to fill two of the vacancies created
thereby, and such trustees shall serve until their successors have been duly
elected or appointed and qualified or until their death, resignation or removal
in accordance with the Declaration of Trust and Bylaws of the Surviving Entity.
From and after the Effective Time, the officers of the Company shall be the
officers of the Surviving Entity, with such additions thereto as the Board of
Trustees of the Surviving Entity shall deem appropriate from time to time, each
to serve until the earlier of their death, resignation or removal from office.
ARTICLE II
Effect of the Merger on the Capital Stock
of the Company and MIT; Exchange of Certificates
2.1 Effect of the Merger on Capital Stock. At the Effective Time, by virtue
of the Merger and without any action on the part of the holder of any shares of
capital stock of the Company, or the common stock, par value $0.001 per share
("MIT Common Stock"), of MIT or MIT Series D Preferred Stock:
(a) Shares of Beneficial Interest of the Company. Each share of
beneficial interest of the Company issued and outstanding immediately prior
to the Effective Time shall not be converted or otherwise affected by the
Merger and shall remain outstanding after the Merger.
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(b) Capital Stock of MIT. Subject to the provisions of Section 2.2(e)
hereof, (i) each share of MIT Common Stock and, to the extent then
outstanding, the associated right (each a "MIT Right") to purchase Series C
Junior Participating Preferred Stock, par value $0.001 per share ("MIT
Series C Preferred Stock"), of MIT in accordance with the Rights Agreement
dated as of March 12, 1998 (the "MIT Rights Agreement"), between MIT and
First Chicago Trust Company of New York (references in this Agreement to
shares of MIT Common Stock shall also be deemed to refer to the MIT Rights
associated therewith, as appropriate), issued and outstanding immediately
prior to the Effective Time (other than any shares of MIT Common Stock
which are held by the Company or a wholly-owned Subsidiary of the Company
(as hereinafter defined) of the Company, which shares shall be canceled and
no consideration shall be received in exchange therefor) shall be converted
into the right to receive (A) 1.10 (the "Conversion Number") common shares
of beneficial interest of the Company, par value $.01 per share ("Company
Common Stock"), and (B) if the Average Trading Price (as hereinafter
defined) is less than $22.725, an amount in cash (not to exceed $2.00 per
share) equal to the amount by which (x) $25.00 exceeds (y) the product of
the Average Trading Price multiplied by the Conversion Number (the "Cash
Consideration") and the corresponding number of rights ("Company Rights")
to purchase preferred shares of beneficial interest of the Company pursuant
to the Rights Agreement dated as of December 31, 1993, as amended, between
the Company and State Street Bank & Trust Company, as Rights Agent (the
"Company Rights Agreement") (references in this Agreement to shares of
Company Common Stock shall also be deemed to refer to the Company Rights
associated therewith, as appropriate), and (ii) each share of MIT Series D
Preferred Stock issued and outstanding immediately prior to the Effective
Time shall be converted into one share of Company Cumulative Redeemable
Preferred Stock (the consideration described in clauses (i) and (ii) is
collectively referred to herein as the "Merger Consideration"). "Average
Trading Price" means the average of the daily high and low per share
transaction prices for Company Common Stock as reported in The Wall Street
Journal's New York Stock Exchange Composite Transactions Reports for the 15
Trading Days randomly selected by Arthur Andersen LLP from the 30
consecutive Trading Days ending on (and including) the fifth Trading Day
prior to the scheduled Closing Date determined in accordance with the
provisions of Section 1.2; and "Trading Day" refers to a day on which the
Exchange (as hereinafter defined) is open for trading. All such shares of
MIT Common Stock and MIT Series D Preferred Stock, when so converted, shall
no longer be outstanding and shall automatically be canceled and retired
and shall cease to exist, and each holder of a certificate representing any
such shares and each holder of uncertificated shares shall cease to have
any rights with respect thereto, except the right to receive the applicable
Merger Consideration and any unpaid dividends and distributions that such
holder has the right to receive pursuant to Section 2.2(c), to be issued or
paid in consideration therefor upon the surrender of such certificates or
exchange of such uncertificated shares in accordance with Section 2.2,
without interest.
(c) Treatment of MIT Stock Options. Any MIT Stock Options (as defined in
Section 5.10) outstanding at the Effective Time shall be assumed by the
Surviving Entity as provided in Section 5.10.
(d) Treatment of MIT Warrants.. Each MIT Warrant (as defined in Section
5.11) outstanding at the Effective Time shall be assumed by the Surviving
Entity as provided in Section 5.11.
(e) Impact of Stock Splits, etc.. In the event of any change in the MIT
Common Stock and/or Company Common Stock between the date of this Agreement
and the Effective Time in accordance with the terms of this Agreement by
reason of any stock split, stock dividend, subdivision, reclassification,
recapitalization, combination, exchange of shares or the like, the number
and class of shares of Company Common Stock to be issued and delivered in
the Merger in exchange for each share of MIT Common Stock as provided in
this Agreement shall be appropriately adjusted so as to maintain the
relative proportionate interests of the holders of MIT Common Stock and
Company Common Stock.
2.2 Exchange of Certificates
(a) Exchange Agent. As of the Effective Time, the Company shall deposit with
a bank or trust company designated by the Company and reasonably acceptable to
MIT (the "Exchange Agent"), for the benefit of the holders of shares of MIT
Common Stock and MIT Series D Preferred Stock, as applicable, for exchange in
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accordance with this Article II, through the Exchange Agent, cash in an amount
sufficient to pay the aggregate Cash Consideration, if any, and certificates
representing the shares of Company Common Stock and Company Cumulative
Redeemable Preferred Stock (such cash and such shares of Company Common Stock
and Company Cumulative Redeemable Preferred Stock, together with any dividends
or distributions with respect to all shares of Company Common Stock and Company
Cumulative Redeemable Preferred Stock issuable pursuant to Section 2.1, being
hereinafter referred to as the "Exchange Fund"), issuable pursuant to Section
2.1 in exchange for outstanding shares of MIT Common Stock and MIT Series D
Preferred Stock. The Exchange Agent shall, pursuant to irrevocable
instructions, deliver the Cash Consideration, if any, the Company Common Stock
and Company Cumulative Redeemable Preferred Stock contemplated to be paid and
issued pursuant to Section 2.1 out of the Exchange Fund. The Exchange Fund
shall not be used for any other purpose.
(b) Exchange Procedures.
(i) As soon as reasonably practicable after the Effective Time, the
Exchange Agent shall mail to each holder of record of a certificate or
certificates which, immediately prior to the Effective Time, represented
outstanding shares of MIT Common Stock or MIT Series D Preferred Stock
(each, a "Certificate"), which holder's shares of MIT Common Stock or MIT
Series D Preferred Stock were converted into the right to receive the
amount of Cash Consideration, if any, and the number of shares of Company
Common Stock or Company Cumulative Redeemable Preferred Stock, as the case
may be, set forth in Section 2.1: (i) a letter of transmittal ("Letter of
Transmittal") which shall specify that delivery shall be effected and risk
of loss and title to the Certificates shall pass only upon delivery of the
Certificates to the Exchange Agent, and shall be in such form and have such
other provisions as the Surviving Entity may reasonably specify; and (ii)
instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of Company Common Stock or
Company Cumulative Redeemable Preferred Stock, as the case may be. Upon
surrender of a Certificate for cancellation to the Exchange Agent, together
with the Letter of Transmittal, duly executed, and any other documents
reasonably required by the Surviving Entity or the Exchange Agent, (A) the
holder of a Certificate formerly representing shares of (1) MIT Common
Stock shall be entitled to receive in exchange therefor the amount of Cash
Consideration, if any, and a certificate representing that number of shares
of Company Common Stock, or (2) MIT Series D Preferred Stock shall be
entitled to receive a certificate representing that number of shares of
Company Cumulative Redeemable Preferred Stock, which such holder has the
right to receive pursuant to the provisions of this Article II, and any
unpaid dividends and distributions that such holder has the right to
receive pursuant to Section 2.2(c); and (B) the Certificate so surrendered
shall forthwith be canceled. In the event of a transfer of ownership of MIT
Common Stock or MIT Series D Preferred Stock, which is not registered in
the transfer records of MIT, the appropriate amount of Cash Consideration,
if any, and a certificate representing the appropriate number of shares of
Company Common Stock or Company Cumulative Redeemable Preferred Stock, as
the case may be, may be paid and issued to a transferee if the Certificate
representing such MIT Common Stock or MIT Series D Preferred Stock is
presented to the Exchange Agent properly endorsed or accompanied by
appropriate stock powers and otherwise in proper form for transfer and
accompanied by all documents required to evidence and effect such transfer
and by evidence that any applicable stock transfer taxes have been paid.
Until surrendered as contemplated by this Section 2.2, each Certificate
shall be deemed at any time after the Effective Time to represent only the
right to receive upon such surrender the appropriate amount of Cash
Consideration, in the case of a certificate representing MIT Common Stock,
and the certificate representing shares of Company Common Stock or Company
Cumulative Redeemable Preferred Stock, as the case may be, and any unpaid
dividends and distributions that such holder has the right to receive
pursuant to Section 2.2(c). The Exchange Agent shall not be entitled to
vote or exercise any rights of ownership with respect to Company Common
Stock or Company Cumulative Redeemable Preferred Stock, as the case may be,
held by it from time to time hereunder, except that it shall receive and
hold all dividends or other distributions paid or distributed with respect
thereto for the account of persons entitled thereto.
(ii) As soon as reasonably practicable after the Effective Time, the
Exchange Agent shall mail to each holder of record of uncertificated shares
of MIT Common Stock or MIT Series D Preferred Stock, which
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holder's shares of MIT Common Stock or MIT Series D Preferred Stock were
converted into the right to receive the amount of Cash Consideration, if
any, and the number of shares of Company Common Stock or Company Cumulative
Redeemable Preferred Stock, as the case may be, set forth in Section 2.1,
if requested by the Company: (i) a letter of transmittal which shall
specify that delivery of any initial transaction statement shall be
effected and risk of loss and title to the shares represented thereby shall
pass only upon delivery of the letter of transmittal to the Exchange Agent,
and shall be in such form and have such other provisions as the Surviving
Entity may reasonably specify; and (ii) instructions for completing such
letter of transmittal to effect the exchange of such uncertificated shares
of MIT Common Stock or MIT Series D Preferred Stock into uncertificated
shares of Company Common Stock or Company Cumulative Redeemable Preferred
Stock, as the case may be. Upon valid delivery of a letter of transmittal
to the Exchange Agent, together with any other documents reasonably
required by the Surviving Entity or the Exchange Agent, or if no letter of
transmittal is requested by the Company, at the Effective Time, (A) the
holder of uncertificated shares of (1) MIT Common Stock shall be entitled
to receive in exchange therefor the amount of Cash Consideration, if any,
and an initial transaction statement representing that number of shares of
Company Common Stock, or (2) MIT Series D Preferred Stock shall be entitled
to receive an initial transaction statement representing that number of
shares of Company Cumulative Redeemable Preferred Stock, which such holder
has the right to receive pursuant to the provisions of this Article II, and
any unpaid dividends and distributions that such holder has the right to
receive pursuant to Section 2.2(c); and (B) the transaction statement on
the books and records of MIT shall forthwith be canceled. Until exchanged
as contemplated by this Section 2.2, each uncertificated share of MIT
Common Stock and MIT Series D Preferred Stock shall be deemed at any time
after the Effective Time to represent only the right to receive upon such
exchange the appropriate amount of Cash Consideration, in the case of
uncertificated shares of MIT Common Stock, and an initial transaction
statement representing uncertificated shares of Company Common Stock or
Company Cumulative Redeemable Preferred Stock, as the case may be, and any
unpaid dividends and distributions that such holder has the right to
receive pursuant to Section 2.2(c). The Exchange Agent shall not be
entitled to vote or exercise any rights of ownership with respect to
Company Common Stock or Company Cumulative Redeemable Preferred Stock, as
the case may be, held by it from time to time hereunder, except that it
shall receive and hold all dividends or other distributions paid or
distributed with respect thereto for the account of persons entitled
thereto.
(c) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions with respect to Company Common Stock or Company Cumulative
Redeemable Preferred Stock, as the case may be, declared or made after the
Effective Time with a record date after the Effective Time shall be paid to the
holder of any unsurrendered Certificate or any unexchanged uncertificated share
with respect to the right to receive shares of Company Common Stock or Company
Cumulative Redeemable Preferred Stock, as the case may be, represented thereby
until the holder of such Certificate or uncertificated share shall surrender
such Certificate or rights in respect of such uncertificated share. Subject to
the effect of applicable laws, following surrender of any such Certificate or
exchange of any such uncertificated share, there shall be paid to the holder
thereof, without interest: (i) at the time of such surrender, the amount of
dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such shares of Company Common Stock or Company
Cumulative Redeemable Preferred Stock, as the case may be; and (ii) at the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to such surrender and a payment
date subsequent to such surrender payable with respect to such shares of
Company Common Stock or Company Cumulative Redeemable Preferred Stock, as the
case may be.
(d) No Further Ownership Rights. Any Cash Consideration and all shares of
Company Common Stock or Company Cumulative Redeemable Preferred Stock, as the
case may be, issued upon the surrender for exchange of shares of MIT Common
Stock and MIT Series D Preferred Stock in accordance with the terms hereof
shall be deemed to have been issued in full satisfaction of all rights
pertaining to such shares of MIT Common Stock and MIT Series D Preferred Stock,
subject, however, to the Surviving Entity's obligation to pay any dividends or
make any other distributions with a record date prior to the Effective Time
that may have been declared or
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made by MIT on such shares of MIT Common Stock and MIT Series D Preferred Stock
in accordance with the terms of this Agreement and which remain unpaid at the
Effective Time, and after the Effective Time there shall be no further
registration of transfers on the stock transfer books of the Surviving Entity
of the shares of MIT Common Stock or MIT Series D Preferred Stock that were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates or rights in respect of uncertificated shares of MIT Common
Stock or MIT Series D Preferred Stock are presented to the Surviving Entity for
any reason, they shall be canceled and exchanged as provided in this Article
II.
(e) Intentionally Omitted.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund made
available to the Exchange Agent that remain undistributed to the former
stockholders of MIT on the first anniversary of the Effective Time shall be
delivered to the Surviving Entity, upon demand, and any stockholders of MIT who
have not theretofore received any applicable Cash Consideration, Company Common
Stock or Company Cumulative Redeemable Preferred Stock, as the case may be, and
any additional cash and other dividends or distributions to which they are
entitled under this Article II shall thereafter look only to the Surviving
Entity for payment of their claims with respect thereto and only as general
creditors thereof.
(g) No Liability. Neither the Surviving Entity nor MIT shall be liable to any
holder of shares of MIT Common Stock or MIT Series D Preferred Stock, as the
case may be, for any part of the Merger Consideration or for dividends or
distributions with respect thereto delivered to a public official pursuant to
any applicable abandoned property, escheat or similar law. Any amounts
remaining unclaimed by holders of any such shares five years after the
Effective Time or at such earlier date as is immediately prior to the time at
which such amounts would otherwise escheat to or become property of any
governmental entity, shall, to the extent permitted by applicable law, become
the property of the Surviving Entity, free and clear of any claims or interest
of any such holders or their successors, assigns or personal representatives
previously entitled thereto.
(h) Lost, Stolen, or Destroyed Certificates. If any Certificate shall have
been lost, stolen or destroyed, upon the making of an affidavit of that fact by
the person claiming such Certificate to be lost, stolen or destroyed and, if
required by the Surviving Entity, the posting by such person of a bond in such
reasonable amount as the Surviving Entity may direct as indemnity against any
claim that may be made against it with respect to such Certificate, the
Exchange Agent shall issue in exchange for such lost, stolen or destroyed
Certificate the certificate representing the appropriate amount of Cash
Consideration payable in respect of shares of MIT Common Stock and that number
of shares of Company Common Stock or Company Cumulative Redeemable Preferred
Stock, as the case may be, which such holder has the right to receive pursuant
to the provisions of this Article II, and any unpaid dividends and
distributions that such holder has the right to receive pursuant to Section
2.2(c).
(i) Withholding of Tax. The Surviving Entity shall be entitled to deduct and
withhold from the Merger Consideration, any dividends or distributions
otherwise payable pursuant to this Agreement to any holder of a Certificate or
holder of uncertificated shares of MIT Common Stock or MIT Series D Preferred
Stock such amount as the Surviving Entity (or any affiliate thereof) or the
Exchange Agent is required to deduct and withhold with respect to the making of
such payment under federal, state, local or foreign tax law. To the extent that
amounts are so withheld by the Surviving Entity, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the former
holder of a Certificate or holder of uncertificated shares of MIT Common Stock
or MIT Series D Preferred Stock or other stockholders of MIT in respect of
which such deduction and withholding was made by the Surviving Entity.
2.3 Dissenting Shares. The holders of shares of MIT Common Stock or MIT
Series D Preferred Stock shall not be entitled to appraisal rights.
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ARTICLE III
Representations and Warranties
3.1 Representations and Warranties of MIT. MIT represents and warrants to the
Company as follows (in each case as qualified by matters reflected on the
disclosure schedule dated as of the date of this Agreement and delivered by MIT
to the Company on or prior to the date of this Agreement (the "MIT Disclosure
Schedule") and made a part hereof by reference, each such matter qualifying
each representation and warranty, as applicable, notwithstanding any specific
Section or Schedule reference or lack thereof):
(a) Organization, Standing and Power. MIT and each of its Subsidiaries (as
defined below) is a corporation or partnership duly organized, validly existing
and in good standing under the laws of its state of incorporation or
organization, has all requisite power and authority to own, lease and operate
its properties and to carry on its business as now being conducted, and is duly
qualified and in good standing to do business in each jurisdiction in which the
business it is conducting, or the operation, ownership or leasing of its
properties, makes such qualification necessary, other than in such
jurisdictions where the failure so to qualify would not have a Material Adverse
Effect (as defined below) on MIT. MIT has heretofore delivered to the Company
complete and correct copies of its Third Amended and Restated Articles of
Incorporation (the "MIT Articles of Incorporation") and Third Amended and
Restated Bylaws (the "MIT Bylaws"). All Subsidiaries of MIT and their
respective jurisdictions of incorporation or organization, as well as the
respective ownership of MIT in such Subsidiaries (to the extent that all of the
equity interests in any such Subsidiary are not owned, directly or indirectly,
by MIT), are identified on Schedule 3.1(a) of the MIT Disclosure Schedule.
Schedule 3.1(a) of the MIT Disclosure Schedule sets forth a list of each
jurisdiction in which MIT or a MIT Subsidiary is qualified or licensed to do
business and each assumed name under which any of them conducts business in any
jurisdiction. As used in this Agreement: (i) a "Material Adverse Effect" or
"Material Adverse Change" shall mean, in respect of MIT or the Company, as
applicable, any effect or change that is or would be materially adverse to the
business, operations, assets, condition (financial or otherwise) or results of
operations of such party and its Subsidiaries taken as a whole, and (ii) the
word "Subsidiary" means, with respect to any party, any corporation or other
organization, whether incorporated or unincorporated, of which: (i) such party
or any other Subsidiary of such party is a general partner; (ii) at least a
majority of the securities or other interests having by their terms ordinary
voting power to elect a majority of the Board of Directors or others performing
similar functions with respect to such corporation or other organization is,
directly or indirectly, owned or controlled by such party or by any one or more
of its Subsidiaries, or by such party and any one or more of its Subsidiaries;
or (iii) such party and/or any other Subsidiary of such party has a direct or
indirect investment of $25 million or more in capital or indebtedness.
(b) Capital Structure. As of the date hereof, the authorized capital stock of
MIT consists of (i) 175,000,000 shares of MIT Common Stock and (ii) 25,000,000
shares of preferred stock, par value $0.001 per share, of which (x) 2,272,727
shares have been designated as MIT Series B Preferred Stock, par value $0.001
per share ("MIT Series B Preferred Stock"), (y) 150,000 shares have been
designated as MIT Series C Preferred Stock and (z) 2,300,000 shares have been
designated as MIT Series D Preferred Stock. At the close of business on October
31, 1998: (A) 31,689,273 shares of MIT Common Stock (including one MIT Right
for each outstanding share of MIT Common Stock) were issued and outstanding;
(B) 1,623,376 shares of MIT Series B Preferred Stock were issued and
outstanding; (C) no shares of MIT Series C Preferred Stock were issued and
outstanding; (D) 2,000,000 shares of MIT Series D Preferred Stock were issued
and outstanding; (E) 1,894,351 shares of MIT Common Stock were reserved for
issuance pursuant to MIT's Second Amended and Restated Employee and Director
Incentive Stock Plan (the "MIT Stock Plan"), of which 282,000 shares of MIT
Common Stock were subject to issuance upon vesting of restricted stock grants
or exercise of options or awards granted to officers, directors or employees of
MIT and its Subsidiaries; (F) 1,623,376 shares of MIT Common Stock were
reserved for issuance upon conversion of the MIT Series B Preferred Stock; (G)
601,627 shares of MIT Common Stock were subject to issuance, and were also
reserved for issuance, upon exercise of the MIT Warrants; and (H) no Voting
Debt (as defined below) was issued and outstanding. The term "Voting Debt"
means bonds, debentures, notes or other indebtedness having the right to vote
(or convertible into
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securities having the right to vote) on any matters on which stockholders of
MIT or the Company, as applicable, may vote. All outstanding shares of MIT
Common Stock, MIT Series B Preferred Stock and MIT Series D Preferred Stock are
validly issued, fully paid and nonassessable and are not subject to preemptive
rights. Except as set forth on Schedule 3.1(b) of the MIT Disclosure Schedule,
all outstanding shares of capital stock of the Subsidiaries of MIT owned by
MIT, or a direct or indirect wholly owned Subsidiary of MIT, are free and clear
of all liens, pledges, charges, encumbrances, claims, mortgages, deeds of
trust, security interests, restrictions, rights of first refusal, defects in
title, or other burdens, options or encumbrances of any kind ("Encumbrances").
Set forth in Schedule 3.1(b) of the MIT Disclosure Schedule is a true and
complete list of the following: (i) each outstanding qualified or non-qualified
option to purchase MIT Common Stock granted under the MIT Stock Plan or
otherwise; (ii) each grant of MIT Common Stock to employees which is subject to
any risk of forfeiture and a total thereof; (iii) any obligation of MIT to
issue MIT Common Stock as a result of the transactions contemplated hereby and
a total thereof; and (iv) each loan made by MIT with respect to the purchase of
MIT Common Stock, and indicating those loans which will be forgiven, in whole
or in part, as a result of the transactions contemplated by this Agreement.
Except as set forth in this Section 3.1(b) or on Schedule 3.1(b) of the MIT
Disclosure Schedule, and except for changes since October 31, 1998 resulting
from the exercise of stock options, stock grants or other awards granted prior
to October 31, 1998 pursuant to the MIT Stock Plan, or the exercise of MIT
Warrants, or as contemplated by this Agreement, there are issued and
outstanding or reserved for issuance: (1) no shares of capital stock, Voting
Debt or other voting securities of MIT; (2) no securities of MIT or any
Subsidiary of MIT or securities or assets of any other entity convertible into
or exchangeable for shares of capital stock, Voting Debt or other voting
securities of MIT or any Subsidiary of MIT, and (3) no options, warrants,
calls, rights (including preemptive rights), commitments or agreements to which
MIT or any Subsidiary of MIT is a party or by which it is bound in any case
obligating MIT or any Subsidiary of MIT to issue, deliver, sell, purchase,
redeem or acquire, or cause to be issued, delivered, sold, purchased, redeemed
or acquired, additional shares of capital stock or any Voting Debt or other
voting securities of MIT or of any Subsidiary of MIT, or obligating MIT or any
Subsidiary of MIT to grant, extend or enter into any such option, warrant,
call, right, commitment or agreement. There are not as of the date hereof and
there will not be at the Effective Time any stockholder agreements, voting
trusts or other agreements or understandings to which MIT is a party or by
which it is bound relating to the voting of any shares of the capital stock of
MIT that will limit in any way the solicitation of proxies by or on behalf of
MIT from, or the casting of votes by, the stockholders of MIT with respect to
the Merger. There are no restrictions on MIT to vote the stock of any of its
Subsidiaries. Except as set forth on Schedule 3.1(b) to the MIT Disclosure
Schedule, all dividends or distributions on securities of MIT that have been
declared or authorized prior to the date of this Agreement have been paid in
full.
(c) Authority; No Violations; Consents and Approvals.
(i) The Board of Directors of MIT has approved and declared advisable the
Merger and this Agreement, and declared the Merger and this Agreement to be
fair to and in the best interests of the stockholders of MIT. The directors
of MIT have advised MIT and the Company that they intend to vote or cause
to be voted all of the shares of MIT Common Stock beneficially owned by
them and their affiliates in favor of approval of the Merger and this
Agreement. MIT has all requisite corporate power and authority to enter
into this Agreement and, subject, with respect to consummation of the
Merger, to approval of this Agreement and the Merger by the stockholders of
MIT in accordance with the MGCL and the MIT Articles of Incorporation and
MIT Bylaws, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of MIT, subject, with respect to consummation
of the Merger, to approval of this Agreement and the Merger by the
stockholders of MIT in accordance with the MGCL and the MIT Articles of
Incorporation and MIT Bylaws. This Agreement has been duly executed and
delivered by MIT and, subject, with respect to consummation of the Merger,
to approval of this Agreement and the Merger by the stockholders of MIT in
accordance with the MGCL and the MIT Articles of Incorporation and MIT
Bylaws, and assuming this Agreement constitutes the valid and binding
obligation of the Company, constitutes a valid and binding obligation of
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MIT enforceable in accordance with its terms, subject, as to
enforceability, to bankruptcy, insolvency, reorganization, moratorium and
other laws of general applicability relating to or affecting creditors'
rights and to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(ii) Except as set forth on Schedule 3.1(c) of the MIT Disclosure
Schedule, the execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby and compliance with
the provisions hereof will not, conflict with, or result in any violation
of, or default (with or without notice or lapse of time, or both) under, or
give rise to a right of termination, cancellation or acceleration of any
material obligation or to the loss of a material benefit under, or give
rise to a right of purchase under, result in the creation of any
Encumbrance upon any of the properties or assets of MIT or any of its
Subsidiaries under, require the consent or approval of any third party or
otherwise result in a material detriment to MIT or any of its Subsidiaries
under, any provision of (A) the MIT Articles of Incorporation or MIT Bylaws
or any provision of the comparable charter or organizational documents of
any of MIT's Subsidiaries, (B) any loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise or license applicable to MIT or any of its
Subsidiaries or their respective properties or assets or any guarantee by
MIT or any of its Subsidiaries of any of the foregoing, (C) any joint
venture or other ownership arrangement or (D) assuming the consents,
approvals, authorizations or permits and filings or notifications referred
to in Section 3.1(c)(iii) are duly and timely obtained or made and the
approval of the Merger and this Agreement by the stockholders of MIT has
been obtained, any judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to MIT or any of its Subsidiaries or any of their
respective properties or assets, other than, in the case of clauses (B),
(C) and (D), any such conflicts, violations, defaults, rights, Encumbrances
or detriments that, individually or in the aggregate, would not have a
Material Adverse Effect on MIT, materially impair the ability of MIT to
perform its obligations hereunder or prevent the consummation of any of the
transactions contemplated hereby.
(iii) Except as set forth on Schedule 3.1(c) of the MIT Disclosure
Schedule, no consent, approval, order or authorization of, or registration,
declaration or filing with, or permit from any court, governmental,
regulatory or administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign (a "Governmental
Entity"), is required by or with respect to MIT or any of its Subsidiaries
in connection with the execution and delivery of this Agreement by MIT or
the consummation by MIT of the transactions contemplated hereby, as to
which the failure to obtain or make would have a Material Adverse Effect on
MIT, except for: (A) the filing with the SEC of (1) a proxy statement in
preliminary and definitive form relating to the meetings of the
stockholders of MIT and of the Company to be held in connection with the
Merger (the "Joint Proxy Statement") and (2) such reports under Section
13(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and such other compliance with the Exchange Act and the rules and
regulations thereunder, as may be required in connection with this
Agreement and the transactions contemplated hereby; (B) the filing of the
Articles of Merger with, and the acceptance for record of the Articles of
Merger by, the State Department of Assessments and Taxation of Maryland;
(C) filings with the New York Stock Exchange (the "NYSE") and the American
Stock Exchange (the "AMEX"); (D) such filings and approvals as may be
required by any applicable state securities, "blue sky" or takeover laws,
or environmental laws; (E) such filings and approvals as may be required by
any foreign premerger notification, securities, corporate or other law,
rule or regulation; and (F) any such consent, approval, order,
authorization, registration, declaration, filing, or permit that the
failure to obtain or make would not, individually or in the aggregate, have
a Material Adverse Effect on MIT, materially impair the ability of MIT to
perform its obligations hereunder or prevent the consummation of any of the
transactions contemplated hereby.
(d) SEC Documents. MIT has made available to the Company a true and complete
copy of each report, schedule, registration statement and definitive proxy
statement filed by MIT with the SEC since January 1, 1996 and prior to or on
the date of this Agreement (the "MIT SEC Documents"), which are all the
documents (other than preliminary material) that MIT was required to file with
the SEC between January 1, 1996 and the
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date of this Agreement. As of their respective dates, the MIT SEC Documents
complied in all material respects with the requirements of the Securities Act
of 1933, as amended (the "Securities Act"), or the Exchange Act, as the case
may be, and the rules and regulations of the SEC thereunder applicable to such
MIT SEC Documents, and none of the MIT SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. MIT has no
outstanding and unresolved comments from the SEC with respect to any of the MIT
SEC Documents. The financial statements of MIT included in the MIT SEC
Documents complied as to form in all material respects with the published rules
and regulations of the SEC with respect thereto, were prepared in accordance
with generally accepted accounting principles ("GAAP") applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto or, in the case of the unaudited statements, as permitted by Rule 10-01
of Regulation S-X of the SEC) and fairly presented in accordance with
applicable requirements of GAAP (subject, in the case of the unaudited
statements, to normal, recurring adjustments, none of which are material) the
consolidated financial position of MIT and its consolidated Subsidiaries as of
their respective dates and the consolidated results of operations and the
consolidated cash flows of MIT and its consolidated Subsidiaries for the
periods presented therein. Except as disclosed in the MIT SEC Documents, there
are no agreements, arrangements or understandings between MIT and any party who
is at the date of this Agreement or was at any time prior to the date hereof
but after January 1, 1996 an Affiliate (as defined in Section 4.1(k)) of MIT
that are required to be disclosed in the MIT SEC Documents. The books of
account and other financial records of the Company are true, complete and
correct in all material respects and are accurately reflected in all material
respects in the financial statements included in the MIT SEC Documents.
(e) Information Supplied. None of the information supplied or to be supplied
by MIT for inclusion or incorporation by reference in the Registration
Statement on Form S-4 to be filed with the SEC by the Company in connection
with the issuance of shares of Company Common Stock and Company Cumulative
Redeemable Preferred Stock in the Merger (the "S-4") will, at the time the S-4
becomes effective under the Securities Act or at the Effective Time, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they are made, not misleading, and none
of the information supplied or to be supplied by MIT and included or
incorporated by reference in the Joint Proxy Statement will, at the date mailed
to stockholders of MIT and at the date mailed to stockholders of the Company or
at the time of the meeting of such stockholders to be held in connection with
the Merger or at the Effective Time, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. If at any time prior
to the Effective Time any event with respect to MIT or any of its Subsidiaries,
or with respect to other information supplied by MIT for inclusion in the Joint
Proxy Statement or S-4, shall occur which is required to be described in an
amendment of, or a supplement to, the S-4 or the Joint Proxy Statement, such
event shall be so described, and MIT shall reasonably cooperate with the
Company to cause such amendment or supplement to be promptly filed with the SEC
and, as required by law, disseminated to the stockholders of MIT. The Joint
Proxy Statement, insofar as it relates to MIT or its Subsidiaries or other
information supplied by MIT for inclusion or incorporation by reference
therein, will comply as to form in all material respects with the provisions of
the Exchange Act and the rules and regulations thereunder.
(f) Absence of Certain Changes or Events. Except as set forth on Schedule
3.1(f) of the MIT Disclosure Schedule or as disclosed in or reflected in the
financial statements included in the MIT SEC Documents, and except as
contemplated by this Agreement, since the date of the most recent audited
financial statements included in the MIT SEC Documents, there has not been: (iA
any declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to any of MIT's capital
stock; (ii) any amendment of any term of any outstanding equity security of MIT
or any Subsidiary of MIT; (iii) any repurchase, redemption or other acquisition
by MIT or any Subsidiary of MIT of any outstanding shares of capital stock or
other equity securities of, or other ownership interests in, MIT or any
Subsidiary of MIT; (iv) any material change in any method of accounting or
accounting practice or any tax method, practice or election
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by MIT or any Subsidiary of MIT; (v) any amendment of any employment,
consulting, severance, retention or any other agreement between MIT and any
officer or director of MIT; or (vi) any other transaction, commitment, dispute
or other event or condition (financial or otherwise) of any character (whether
or not in the ordinary course of business) that has had a Material Adverse
Effect on MIT, nor has there occurred any such transaction, commitment, dispute
or other event or condition that, with the passage of time, would reasonably be
expected to result in a Material Adverse Effect on MIT, except for general
economic changes, changes in the United States financial markets generally,
changes that affect real estate investment trusts (each a "REIT") generally and
changes that affect industrial real estate generally.
(g) No Undisclosed Material Liabilities. Except as set forth on Schedule
3.1(g) of the MIT Disclosure Schedule or as disclosed in the MIT SEC Documents,
as of the date hereof, there are no liabilities of MIT or any of its
Subsidiaries of any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise, that would have a Material Adverse
Effect on MIT, other than: (i) liabilities adequately provided for on the
balance sheet of MIT dated as of September 30, 1998 (including the notes
thereto) contained in MIT's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998; (ii) liabilities incurred in the ordinary course of
business subsequent to September 30, 1998 which would not, individually or in
the aggregate, be reasonably expected to have a Material Adverse Effect on MIT;
and (iii) liabilities under this Agreement.
(h) No Default. Neither MIT nor any of its Subsidiaries is in default or
violation (and no event has occurred which, with notice or the lapse of time or
both, would constitute a default or violation) of any term, condition or
provision of (i) the MIT Articles of Incorporation or MIT Bylaws or the
comparable charter or organizational documents of any of MIT's Subsidiaries,
(ii) any loan or credit agreement, note, bond, mortgage, indenture, lease or
other agreement, instrument, permit, concession, franchise or license to which
MIT or any of its Subsidiaries is now a party or by which MIT or any of its
Subsidiaries or any of their respective properties or assets is bound or (iii)
any order, writ, injunction, decree, statute, rule or regulation applicable to
MIT or any of its Subsidiaries, except in the case of (ii) and (iii) for
defaults or violations which in the aggregate would not have a Material Adverse
Effect on MIT.
(i) Compliance with Applicable Laws. MIT and its Subsidiaries hold all
permits, licenses, variances, exemptions, orders, franchises and approvals of
all Governmental Entities necessary for the lawful conduct of their respective
businesses (the "MIT Permits"), except where the failure so to hold would not
have a Material Adverse Effect on MIT. MIT and its Subsidiaries are in
compliance with the terms of the MIT Permits, except where the failure so to
comply would not have a Material Adverse Effect on MIT. Except as disclosed in
the MIT SEC Documents, the businesses of MIT and its Subsidiaries are not being
conducted in violation of any law, ordinance or regulation of any Governmental
Entity, except for possible violations which would not have a Material Adverse
Effect on MIT. As of the date of this Agreement, no investigation or review by
any Governmental Entity with respect to MIT or any of its Subsidiaries is
pending and of which MIT has knowledge (as hereinafter defined) or, to the
knowledge of MIT as of the date hereof, is threatened, other than those the
outcome of which would not have a Material Adverse Effect on MIT. For purposes
of this Agreement "knowledge" means the actual knowledge of the executive
officers and directors of the Company or MIT, as applicable.
(j) Litigation. Except as disclosed in the MIT SEC Documents or Schedule
3.1(j) of the MIT Disclosure Schedule, as of the date of this Agreement there
is no suit, action or proceeding pending, or, to the knowledge of MIT,
threatened against or affecting MIT or any Subsidiary of MIT ("MIT
Litigation"), and, as of the date of this Agreement, MIT and its Subsidiaries
have no knowledge of any facts that are likely to give rise to any MIT
Litigation, in each case, that would have a Material Adverse Effect on MIT, nor
is there any judgment, decree, injunction, rule or order of any Governmental
Entity or arbitrator outstanding against MIT or any Subsidiary of MIT ("MIT
Order") that would have a Material Adverse Effect on MIT or its ability to
consummate the transactions contemplated by this Agreement. Schedule 3.1(j) of
the MIT Disclosure Schedule contains an accurate and complete list of all
suits, actions and proceedings pending or, to the knowledge of MIT, threatened
against or affecting MIT or any of its Subsidiaries as of the date hereof.
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(k) Taxes. Except as set forth on Schedule 3.1(k) of the MIT Disclosure
Schedule:
(i) Each of MIT and its Subsidiaries (A) has filed all Tax returns and
reports required to be filed by it (after giving effect to any filing
extension properly granted by a Governmental Entity having authority to do
so) and all such returns and reports are accurate and complete in all
material respects, and (B) has paid (or MIT has paid on its behalf) all
Taxes (as defined below) shown on such returns and reports as required to
be paid by it, except those where the failure to file such tax returns and
reports or pay such Taxes would not have a Material Adverse Effect on MIT.
The most recent financial statements contained in the MIT SEC Documents
reflect an adequate reserve for all material Taxes payable by MIT and its
Subsidiaries for all taxable periods and portions thereof through the date
of such financial statements. MIT and each Subsidiary of MIT has
established (and until the Closing Date shall continue to establish and
maintain) on its books and records reserves that are adequate for the
payment of all Taxes not yet due and payable. Since September 30, 1998, MIT
has incurred no liability for Taxes under Sections 857(b), 860(c) or 4981
of the Code, including without limitation any Tax arising from a prohibited
transaction described in Section 857(b)(6) of the Code, and neither MIT nor
any of its Subsidiaries has incurred any material liability for Taxes other
than in the ordinary course of business. No event has occurred, and no
condition or circumstance exists, which presents a material risk that any
material Tax described in the preceding sentence will be imposed upon MIT.
No material deficiencies for any Taxes have been proposed, asserted or
assessed against MIT or any of its Subsidiaries, including claims by any
taxing authority in a jurisdiction where MIT or any Subsidiary of MIT do
not file Tax returns but in which any of them is or may be subject to
taxation, and no requests for waivers of the time to assess any such Taxes
are pending. As used in this Agreement, "Taxes" includes all federal,
state, local and foreign income, property, sales, use, franchise,
employment, payroll, excise, environmental and other taxes, tariffs or
governmental charges of any nature whatsoever, together with penalties,
interest or additions to Tax with respect thereto.
(ii) MIT (A) for all taxable years commencing with 1995 through December
31, 1997 has been subject to taxation as a REIT within the meaning of
Section 856 of the Code and has satisfied all requirements to qualify as a
REIT for such years, (B) has operated since December 31, 1997 to the date
of this representation, and intends to continue to operate, in such a
manner as to qualify as a REIT for the taxable year ending December 31,
1998 and the taxable year ending at the Effective Time, and (C) has not
taken or omitted to take any action which would reasonably be expected to
result in a challenge to its status as a REIT and, to MIT's knowledge, no
such challenge is pending or threatened. Each Subsidiary of MIT which is a
partnership, joint venture or limited liability company (1) has been since
its formation and continues to be treated for federal income tax purposes
as a partnership and not as a corporation or an association taxable as a
corporation and (2) has not since the later of its formation or the
acquisition by MIT of a direct or indirect interest therein, owned any
assets (including, without limitation, securities) that would cause MIT to
violate Section 856(c)(4) of the Code. Each MIT Subsidiary which is a
corporation has been since its formation a qualified REIT subsidiary under
Section 856(i) of the Code.
(iii) All Taxes which MIT or the MIT Subsidiaries are required by law to
withhold or collect, including Taxes required to have been withheld in
connection with amounts paid or owing to any employee, independent
contractor, creditor, stockholder or other third party and sales, gross
receipts and use taxes, have been duly withheld or collected and, to the
extent required, have been paid over to the proper Governmental Entities or
are held in separate bank accounts for such purpose. There are no liens for
Taxes upon the assets of MIT or the MIT Subsidiaries except for statutory
liens for Taxes not yet due.
(iv) The Tax returns of MIT and the MIT Subsidiaries are not being and
have not been examined or audited by any taxing authority for any past year
or periods.
(v) Neither MIT nor the MIT Subsidiaries (A) has filed a consent under
Section 341(f) of the Code concerning collapsible corporations, or (B) is a
party to any Tax allocation or sharing agreement.
(vi) MIT does not have any liability for the Taxes of any person other
than MIT and the MIT Subsidiaries and the MIT Subsidiaries do not have any
liability for the Taxes of any person other than MIT and the MIT
Subsidiaries (A) under Treasury Regulation Section 1.1502-6 (or any similar
provision of state, local or foreign law), (B) as a transferee or
successor, (C) by contract, or (D) otherwise.
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(vii) Neither MIT nor the MIT Subsidiaries has made any payments, is
obligated to make any payments, or is a party to an agreement that could
obligate it to make any payments that will not be deductible under Section
280G of the Code. MIT and the MIT Subsidiaries have disclosed to the IRS
all positions taken on its federal income Tax returns which could give rise
to a substantial understatement of Tax under Section 6662 of the Code.
(viii) Neither MIT nor any MIT Subsidiary has entered into or is subject,
directly or indirectly, to any "Tax Protection Agreements," except as
disclosed in Schedule 3.1(k), true and correct copies of which have been
made available to the Company. As used herein, a "Tax Protection Agreement"
is an agreement, oral or written, (A) that has as one of its purposes to
permit a person or entity to take the position that such person or entity
could defer federal taxable income that otherwise might have been
recognized upon a transfer of property to any Subsidiary of MIT that is
treated as a partnership for federal income tax purposes, and (B) that (i)
prohibits or restricts in any manner the disposition of any assets of MIT
or any of its Subsidiaries (including, without limitation, requiring MIT or
any of its Subsidiaries to indemnify any person for any tax liabilities
resulting from any such disposition), (ii) requires that MIT or any of its
Subsidiaries maintain, or put in place, or replace, indebtedness, whether
or not secured by one or more of the MIT Properties (as hereinafter
defined), or (iii) requires that MIT or any of its Subsidiary offer to any
person or entity at any time the opportunity to guarantee or otherwise
assume, directly or indirectly, the risk of loss for federal income tax
purposes for indebtedness or other liabilities of MIT or any of its
Subsidiaries.
(l) Pension and Benefit Plans; ERISA. Except as set forth on Schedule 3.1(l)
of the MIT Disclosure Schedule or in the MIT SEC Documents:
(i) All "employee pension benefit plans," as defined in Section 3(2) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
maintained by MIT or any of its Subsidiaries or any trade or business
(whether or not incorporated) which is under common control, or which is
treated as a single employer, with MIT under Section 414(b), (c), (m) or
(o) of the Code ("MIT ERISA Affiliate") or to which MIT or any of its
Subsidiaries or any MIT ERISA Affiliate contributed or is obligated to
contribute thereunder within six years prior to the Effective Time (the
"MIT Pension Plans") intended to qualify under Section 401 of the Code so
qualify and have been determined by the IRS to be qualified under Section
401 of the Code and, to the knowledge of MIT as of the date hereof, nothing
has occurred with respect to the operation of the MIT Pension Plans that
could reasonably be expected to cause the loss of such qualification or the
imposition of any material liability, penalty or tax under ERISA or the
Code.
(ii) No MIT Pension Plan is subject to Title IV of ERISA.
(iii) There is no material violation of ERISA with respect to (A) the
filing of applicable reports, documents, and notices with the Secretary of
Labor and the Secretary of the Treasury regarding all "employee benefit
plans," as defined in Section 3(3) of ERISA, the MIT Pension Plans and all
other material employee compensation and benefit arrangements or payroll
practices, including, without limitation, severance pay, sick leave,
vacation pay, salary continuation for disability, consulting or other
compensation agreements, retirement, deferred compensation, bonus, long-
term incentive, stock option, stock purchase, hospitalization, medical
insurance, life insurance and scholarship programs maintained by MIT or any
of its Subsidiaries or with respect to which MIT or any of its Subsidiaries
has any liability (all such plans, other than the MIT Pension Plans, being
hereinafter referred to as the "MIT Employee Benefit Plans") or (B) the
furnishing of such documents to the participants or beneficiaries of the
MIT Employee Benefit Plans or MIT Pension Plans.
(iv) Copies of each MIT Employee Benefit Plan and MIT Pension Plan,
related trust (or other funding or financing arrangement), and all
amendments have been made available to the Company, as have the most recent
summary plan descriptions, administrative service agreements, and Form
5500.
(v) The MIT Employee Benefit Plans and MIT Pension Plans have been
maintained, in all material respects, in accordance with their terms and
with all provisions of ERISA (including rules and regulations thereunder)
and other applicable Federal and state law, there is no material liability
for breaches of
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fiduciary duty in connection with the MIT Employee Benefit Plans and MIT
Pension Plans, and neither MIT nor any of its Subsidiaries or any "party in
interest" or "disqualified person" with respect to the MIT Employee Benefit
Plans and MIT Pension Plans has engaged in a material "prohibited
transaction" within the meaning of Section 4975 of the Code or Section 406
of ERISA.
(vi) As of the date of this Agreement, there are no material actions,
suits or claims pending (other than routine claims for benefits) or, to the
knowledge of MIT, threatened against, or with respect to, the MIT Employee
Benefit Plans or MIT Pension Plans or their assets.
(vii) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (A) result in any
payment becoming due to any employee or group of employees of MIT or any of
its Subsidiaries; (B) increase any benefits otherwise payable under any MIT
Employee Benefit Plan or MIT Pension Plan; or (C) result in the
acceleration of the time of payment or vesting of any such benefits. Except
as described on Schedule 3.1(l) of the MIT Disclosure Schedule, there are
no severance agreements or employment agreements between MIT or any of its
Subsidiaries and any employee of MIT or such Subsidiary. True and complete
copies of all severance agreements and employment agreements described on
Schedule 3.1(l) of the MIT Disclosure Schedule have been provided to the
Company.
(viii) Neither MIT nor any of its Subsidiaries has any consulting
agreement or arrangement with any person involving compensation in excess
of $100,000 except as are terminable upon one month's notice or less.
(ix) Neither MIT nor any of its Subsidiaries nor any MIT ERISA Affiliate
contributes to, or has an obligation to contribute to, and has not within
six years prior to the Effective Time contributed to, or had an obligation
to contribute to, a multiemployer plan within the meaning of Section 3(37)
of ERISA.
(x) No stock or other security issued by MIT or any of its Subsidiaries
forms or has formed a material part of the assets of any MIT Employee
Benefit Plan or MIT Pension Plan.
(xi) MIT and its ERISA Affiliates have materially complied with the
requirements of Section 4980B of the Code and Parts 6 and 7 of Subtitle B
of Title I of ERISA regarding health care coverage under the MIT Employee
Benefit Plans.
(xii) No amount has been paid by MIT or any of its ERISA Affiliates, and
no amount is expected to be paid by MIT or any of its ERISA Affiliates,
which would be subject to the provisions of 162(m) of the Code such that
all or a part of such payments would not be deductible by the payor.
(m) Labor Matters. Except as set forth on Schedule 3.1(m) of the MIT
Disclosure Schedule or in the MIT SEC Documents:
(i) neither MIT nor any of its Subsidiaries is a party to any collective
bargaining agreement or other current labor agreement with any labor union
or organization, and there is no current union representation question
involving employees of MIT or any of its Subsidiaries, nor does MIT or any
of its Subsidiaries know of any activity or proceeding of any labor
organization (or representative thereof) or employee group (or
representative thereof) to organize any such employees;
(ii) as of the date hereof, there is no unfair labor practice charge or
grievance arising out of a collective bargaining agreement or other
grievance procedure against MIT or any of its Subsidiaries pending, or, to
the knowledge of MIT or any of its Subsidiaries, threatened, that has, or
will have, a Material Adverse Effect on MIT;
(iii) as of the date hereof, there is no complaint, lawsuit or proceeding
in any forum by or on behalf of any present or former employee, any
applicant for employment or any classes of the foregoing alleging breach of
any express or implied contract of employment, any law or regulation
governing employment or the termination thereof or other discriminatory,
wrongful or tortious conduct in connection with the employment relationship
against MIT or any of its Subsidiaries pending, or, to the knowledge of MIT
or any of its Subsidiaries, threatened, that has, or will have, a Material
Adverse Effect on MIT;
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(iv) there is no strike, dispute, slowdown, work stoppage or lockout
pending, or, to the knowledge of MIT or any of its Subsidiaries,
threatened, against or involving MIT or any of its Subsidiaries that has,
or will have, a Material Adverse Effect on MIT;
(v) MIT and each of its Subsidiaries are in compliance with all
applicable laws respecting employment and employment practices, terms and
conditions of employment, wages, hours of work and occupational safety and
health, except for non-compliance that does not have, and will not have, a
Material Adverse Effect on MIT; and
(vi) as of the date hereof, there is no proceeding, claim, suit, action
or governmental investigation pending or, to the knowledge of MIT or any of
its Subsidiaries, threatened, in respect to which any current or former
director, officer, employee or agent of MIT or any of its Subsidiaries is
or may be entitled to claim indemnification from MIT or any of its
Subsidiaries pursuant to the MIT Articles of Incorporation or MIT Bylaws or
any provision of the comparable charter or organizational documents of any
of MIT's Subsidiaries, as provided in any indemnification agreement to
which MIT or any Subsidiary of MIT is a party or pursuant to applicable law
that has, or will have, a Material Adverse Effect on MIT.
(n) Intangible Property. MIT and its Subsidiaries own, possess or have
adequate rights to use all material trademarks, trade names, patents, service
marks, brand marks, brand names, computer programs, databases, industrial
designs and copyrights necessary for the operation of the businesses of each of
MIT and its Subsidiaries (collectively, the "MIT Intangible Property"), except
where the failure to possess or have adequate rights to use such properties
would not have a Material Adverse Effect on MIT. All of the MIT Intangible
Property is owned or licensed by MIT or its Subsidiaries free and clear of any
and all liens, claims or encumbrances, except those that would not have a
Material Adverse Effect on MIT, and neither MIT nor any such Subsidiary has
forfeited or otherwise relinquished any MIT Intangible Property which
forfeiture would result in a Material Adverse Effect on MIT. To the knowledge
of MIT, the use of the MIT Intangible Property by MIT or its Subsidiaries does
not, in any material respect, conflict with, infringe upon, violate or
interfere with or constitute an appropriation of any right, title, interest or
goodwill, including, without limitation, any intellectual property right,
trademark, trade name, patent, service mark, brand mark, brand name, computer
program, database, industrial design, copyright or any pending application
therefor, of any other person, and there have been no claims made, and neither
MIT nor any of its Subsidiaries has received any notice of any claim or
otherwise knows that any of the MIT Intangible Property is invalid or conflicts
with the asserted rights of any other person or has not been used or enforced
or has failed to have been used or enforced in a manner, that would result in
the abandonment, cancellation or unenforceability of any of the MIT Intangible
Property, except for any such conflict, infringement, violation, interference,
claim, invalidity, abandonment, cancellation or unenforceability that would not
have a Material Adverse Effect on MIT.
(o) Environmental Matters. For purposes of this Agreement:
"Environmental Laws" means all federal, state and local laws (including
common laws), rules, regulations, ordinances, orders and decrees of any
Governmental Entity, whether now in existence or hereafter enacted and in
effect at the time of Closing, relating to pollution or the protection of
human health or the environment of any jurisdiction in which the applicable
party hereto owns or operates assets or conducts business or owned or
operated assets or conducted business (whether or not through a predecessor
entity) (including, without limitation, ambient air, surface water,
groundwater, land surface, subsurface strata, natural resources or
wildlife), including, without limitation, laws and regulations relating to
Releases or threatened Releases of Hazardous Materials or otherwise
relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of solid waste or Hazardous
Materials, and any similar laws, rules, regulations, ordinances, orders and
decrees of any foreign jurisdiction in which the applicable party hereto
owns or operates assets or conducts business;
"Hazardous Materials" means (i) any petroleum or petroleum products,
radioactive materials (including naturally occurring radioactive
materials), asbestos in any form that is or could become friable, urea
formaldehyde foam insulation, polychlorinated biphenyls or transformers or
other equipment that contain dielectric fluid containing polychlorinated
biphenyls, (ii) any chemicals, materials or substances
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which are now defined as or included in the definition of "solid wastes,"
"hazardous substances," "hazardous wastes," "hazardous materials,"
"extremely hazardous substances," "restricted hazardous wastes," "toxic
substances" or "toxic pollutants," or words of similar import, under any
Environmental Law and (iii) any other chemical, material, substance or
waste, exposure to which is now prohibited, limited or regulated under any
Environmental Law in a jurisdiction in which MIT or any of its Subsidiaries
operates (for purposes of this Section 3.1(o)) or in which the Company or
any of its Subsidiaries operates (for purposes of Section 3.2(o)).
"Release" means any spill, effluent, emission, leaking, pumping, pouring,
emptying, escaping, dumping, injection, deposit, disposal, discharge,
dispersal, leaching or migration into the indoor or outdoor environment, or
into or out of any property owned, operated or leased by the applicable
party or its Subsidiaries; and
"Remedial Action" means all actions, including, without limitation, any
capital expenditures, required by a Governmental Entity or required under
any Environmental Law, or voluntarily undertaken to (i) clean up, remove,
treat, or in any other way ameliorate or address any Hazardous Materials or
other substance in the indoor or outdoor environment; (ii) prevent the
Release or threat of Release, or minimize the further Release of any
Hazardous Material so it does not endanger or threaten to endanger the
public or employee health or welfare of the indoor or outdoor environment;
(iii) perform pre-remedial studies and investigations or post-remedial
monitoring and care pertaining or relating to a Release; or (iv) bring the
applicable party into compliance with any Environmental Law.
Except as disclosed on Schedule 3.1(o) of the MIT Disclosure Schedule:
(i) The operations of MIT and its Subsidiaries have been conducted, are
and, as of the Closing Date, will be, in compliance with all Environmental
Laws, except where the failure to so comply would not have a Material
Adverse Effect on MIT;
(ii) MIT and its Subsidiaries have obtained and, until the Closing Date,
will maintain all permits, licenses and registrations, or applications
relating thereto, and have made and, until the Closing Date, will make all
filings, reports and notices required under applicable Environmental Laws
for the continued operations of their respective businesses, except such
matters the lack or failure of which would not have a Material Adverse
Effect on MIT;
(iii) MIT and its Subsidiaries are not subject to any outstanding written
orders issued by, or contracts with, any Governmental Entity or other
person respecting (A) Environmental Laws, (B) Remedial Action, (C) any
Release or threatened Release of a Hazardous Material or (D) an assumption
of responsibility for environmental liabilities of another person, except
such orders or contracts the compliance with which would not have a
Material Adverse Effect on MIT;
(iv) As of the date of this Agreement, MIT and its Subsidiaries have not
received any written communication alleging, with respect to any such
party, the violation of or liability under any Environmental Law, which
violation or liability would have a Material Adverse Effect on MIT;
(v) Neither MIT nor any of its Subsidiaries has any contingent liability
in connection with the Release of any Hazardous Material into the indoor or
outdoor environment (whether on-site or off-site) or employee or third
party exposure to Hazardous Materials that would have a Material Adverse
Effect on MIT;
(vi) The operations of MIT and its Subsidiaries involving the generation,
transportation, treatment, storage or disposal of hazardous or solid waste,
as defined and regulated under 40 C.F.R. Parts 260-270 (in effect as of the
date of this Agreement) or any applicable state equivalent, are in
compliance with applicable Environmental Laws, except where the failure to
so comply would not have a Material Adverse Effect on MIT;
(vii) To the knowledge of MIT, there is not now on or in any property of
MIT or its Subsidiaries or any property for which MIT or its Subsidiaries
is potentially liable any of the following: (A) any underground storage
tanks or surface impoundments or (B) any on-site disposal of Hazardous
Material, any of which ((A) or (B) preceding) would have a Material Adverse
Effect on MIT; and
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(viii) No MIT Property (as hereinafter defined) is included or, to the
knowledge of MIT, proposed for inclusion on the National Priorities List
issued pursuant to the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended ("CERCLA") by the United States
Environmental Protection Agency (the "EPA") or on the Comprehensive
Environmental Response, Compensation, and Liability Information System
database maintained by the EPA, and MIT has no knowledge that any MIT
Property has otherwise been identified in a published writing by the EPA as
a potential CERCLA removal, remedial or response site or, to the knowledge
of MIT, proposed for inclusion on any similar list of potentially
contaminated sites pursuant to any other Environmental Law.
(p) Properties.
(i) MIT or one of MIT's Subsidiaries owns fee simple title (or where
indicated, leasehold estate) to each of the real properties identified in
Schedule 3.1(p) to the MIT Disclosure Schedule (the "MIT Properties"), except
as listed on Schedule 3.1(p) to the MIT Disclosure Schedule, which are all of
the real estate properties owned by them, in each case (except as provided
below) free and clear of Encumbrances. The MIT Properties are not subject to
any rights of way, written agreements, laws, ordinances and regulations
affecting building use or occupancy (collectively, "Property Restrictions"),
except for (A0 Encumbrances and Property Restrictions set forth in Schedule
3.1(p) to the MIT Disclosure Schedule, (B) Property Restrictions imposed or
promulgated by law or any governmental body or authority with respect to real
property, including zoning regulations, provided that they do not materially
adversely affect the currently intended use of any MIT Property, (C)
Encumbrances and Property Restrictions disclosed on existing title reports or
existing surveys (in either case copies of which title reports or surveys have
been delivered or made available to the Company), and (D) mechanics',
carriers', workmen's, repairmen's and materialmen's liens and other
Encumbrances, Property Restrictions and other limitations of any kind, if any,
which, individually or in the aggregate, do not materially detract from the
value of or materially interfere with the present use of any of the MIT
Properties subject thereto or affected thereby, and do not otherwise have a
Material Adverse Effect on MIT. Except as provided in Schedule 3.1(p) to the
MIT Disclosure Schedule, valid policies of title insurance have been issued,
insuring MIT's or the applicable MIT Subsidiaries' fee simple title or
leasehold estate to the MIT Properties in amounts at least equal to the value
of such MIT Properties at the time of the issuance of such policy, subject only
to the matters disclosed above and on the MIT Disclosure Schedule, and such
policies are, at the date hereof, in full force and effect and no material
claim has been made against any such policy.
(ii) All properties currently under development or construction by MIT or the
MIT Subsidiaries and all properties currently proposed for acquisition,
development or commencement of construction prior to the Effective Time by MIT
and the MIT Subsidiaries are listed as such on Schedule 3.1(p) to the MIT
Disclosure Schedule. All executory agreements entered into by MIT or any MIT
Subsidiary relating to the development or construction of industrial or other
real estate properties (other than agreements for architectural, engineering,
planning, accounting, legal or other professional services or agreements for
material or labor) are listed on Schedule 3.1(p) to the MIT Disclosure
Schedule. Copies of such agreements, all of which have previously been
delivered or made available to the Company are listed on the MIT Disclosure
Schedule and are true and correct.
(q) Insurance. Schedule 3.1(q) of the MIT Disclosure Schedule sets forth an
insurance schedule of MIT's and each of its Subsidiaries' directors' and
officers' liability insurance. MIT maintains insurance with financially
responsible insurers in such amounts and covering such risks as are in
accordance with normal industry practice for companies engaged in businesses
similar to those of MIT and each of its Subsidiaries (taking into account the
cost and availability of such insurance). Except as set forth on Schedule
3.1(q), neither MIT nor any MIT Subsidiary has received any notice of
cancellation or termination with respect to any material insurance policy of
MIT or any MIT Subsidiary.
(r) Opinion of Financial Advisor. The Board of Directors of MIT has received
the oral opinion of Goldman, Sachs & Co. addressed to such Board to the effect
that, as of the date hereof, the Merger Consideration to be received by the
holders of the MIT Common Stock in accordance with Section 2.1 is fair
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from a financial point of view to the holders of the MIT Common Stock. A copy
of the written opinion of Goldman, Sachs & Co. described above will be provided
to the Company promptly after it has been received from Goldman, Sachs & Co.
(s) Vote Required. The affirmative vote of the holders of at least a majority
of the outstanding shares of MIT Common Stock is the only vote of the holders
of any class or series of MIT capital stock necessary to approve this Agreement
and the transactions contemplated hereby.
(t) Beneficial Ownership of Company Common Stock. As of the date hereof,
neither MIT nor its Subsidiaries "beneficially owns" (as defined in Rule 13d-3
under the Exchange Act) any of the outstanding Company Common Stock or any of
the Company's outstanding debt securities.
(u) Brokers. Except for the fees and expenses payable to Goldman, Sachs & Co.
and Prudential Securities, Inc., which fees are reflected in each such firm's
respective engagement letter with MIT (copies of which have been delivered to
the Company), no broker, investment banker, or other person is entitled to any
broker's, finder's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of MIT.
(v) Investment Company Act of 1940. Neither MIT nor any of its Subsidiaries
is, or at the Effective Time will be, required to be registered as an
investment company under the Investment Company Act of 1940, as amended (the
"Investment Company Act").
(w) Amendment to Rights Agreement; State Takeover Laws.
(i) The Board of Directors of MIT has adopted a resolution approving an
amendment to the MIT Rights Agreement to provide that (A) the MIT Rights
Agreement shall terminate and the MIT Rights shall be canceled upon the
consummation of the Merger and that (B) none of the execution and delivery
of this Agreement, the conversion of shares of MIT Common Stock in the
right to receive the Merger Consideration in accordance with Article II of
this Agreement and the consummation of the merger or any other transaction
contemplated hereby will cause (w) the MIT rights to be exercisable under
the MIT Rights Agreement, (x) the Company or any of its Subsidiaries or any
of its stockholders to be deemed an "Acquiring Person" (as defined in the
MIT Rights Agreement), or (y) any such event to be deemed a "Distribution
Date" (as defined in the MIT Rights Agreement) or the "Shares Acquisition
Date" (as defined in the MIT Rights Agreement). MIT shall not redeem any of
the MIT Rights prior to the Effective Time unless required to do so by a
court of competent jurisdiction.
(ii) MIT has taken all action necessary to exempt the transaction
contemplated by this Agreement from (A) the operation of any "fair price,"
"moratorium," "control share acquisition," "business combination," or any
other anti-takeover statute or similar statute enacted under the state or
federal laws of the United States or similar statute or regulation (a
"Takeover Statute") and (B) any ownership restrictions or limitations set
forth in the MIT Articles of Incorporation or MIT By-Laws.
(x) Contracts.
(i) Except as disclosed in the MIT SEC Documents or in Schedule 3.1(x) to the
MIT Disclosure Schedule, there is no contract or agreement that purports to
limit in any material respect the names or the geographic location in which MIT
or any MIT Subsidiary may conduct its business. Neither MIT nor any MIT
Subsidiary has received a written notice that MIT or any MIT Subsidiary is in
violation of or in default under (nor to the knowledge of MIT does there exist
any condition which upon the passage of time or the giving of notice or both
would cause such a violation of or default under) any material loan or credit
agreement, note, bond, mortgage, indenture, lease, permit, concession,
franchise, license or any other material contract, agreement, arrangement or
understanding, to which it is a party or by which it or any of its properties
or assets is bound, except as set forth in Schedule 3.1(x), nor does such a
violation or default exist, except to the extent that such violation or
default, individually or in the aggregate, would not have a MIT Material
Adverse Effect.
(ii) Schedule 3.1(x) sets forth each interest rate cap, interest rate collar,
interest rate swap, currency hedging transaction, and any other agreement
relating to a similar transaction to which MIT or any MIT Subsidiary is a party
or an obligor with respect thereto.
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(iii) Except as set forth in Schedule 3.1(x), neither MIT nor any of MIT
Subsidiaries is party to any agreement which would restrict any of them from
prepaying any of their indebtedness without penalty or premium at any time or
which requires any of them to maintain any amount of indebtedness with respect
to any of the MIT Properties.
(iv) Neither MIT nor any MIT Subsidiaries is a party to any agreement
relating to the management of any of the MIT Properties which is not terminable
by MIT or the MIT Subsidiary without penalty on less than 61 days notice except
the agreements described in Schedule 3.1(x).
(v) Schedule 3.1(x) lists all agreements entered into by MIT or any of the
MIT Subsidiaries providing for the sale of, or option to sell, any MIT
Properties or the purchase of, or option to purchase, any real estate which are
currently in effect.
(vi) Except as set forth in Schedule 3.1(x), neither MIT nor any MIT
Subsidiary has any continuing contractual liability (A) for indemnification or
otherwise under any agreement relating to the sale of real estate previously
owned, whether directly or indirectly, by MIT or any MIT Subsidiary, except for
standard indemnification provisions entered into in the normal course of
business, (B) to pay any additional purchase price for any of the MIT
Properties, or (C) to make any prorations or adjustments to prorations
involving an amount in excess of $50,000 (other than real estate taxes) that
may previously have been made with respect to any property currently or
formerly owned by MIT.
(vii) Except as set forth in Schedule 3.1(x), there are no material
outstanding contractual obligations of MIT or any MIT Subsidiary to provide any
funds to, or make any investment (in the form of a loan, capital contribution
or otherwise) in, any MIT Subsidiary or any other Person.
(viii) Except as set forth in Schedule 3.1(x), there are no indemnification
agreements entered into by and between MIT and any director or officer of MIT
or any of its Subsidiaries.
3.2 Representations and Warranties of the Company. The Company represents and
warrants to MIT as follows (in each case as qualified by matters reflected on
the disclosure schedule dated as of the date of this Agreement and delivered by
the Company to MIT on or prior to the date of this Agreement (the "Company
Disclosure Schedule") and made a part hereof by reference, each such matter
qualifying each representation and warranty, as applicable, notwithstanding any
specific Section or Schedule reference or lack thereof):
(a) Organization, Standing and Power. The Company is a real estate investment
trust duly formed and existing under Title 8 and is in good standing with the
State Department of Assessments and Taxation of Maryland. Each of the
Significant Subsidiaries (as defined below) is a corporation or partnership
duly organized, validly existing and in good standing under the laws of its
state of incorporation or organization, has all requisite power and authority
to own, lease and operate its properties and to carry on its business as now
being conducted, and is duly qualified and in good standing to do business in
each jurisdiction in which the business it is conducting, or the operation,
ownership or leasing of its properties, makes such qualification necessary,
other than in such jurisdictions where the failure so to qualify would not have
a Material Adverse Effect on the Company. All Significant Subsidiaries of the
Company and their respective jurisdictions of incorporation or organization, as
well as the respective ownership of the Company in such Subsidiaries, if not
wholly owned, are identified on Schedule 3.2(a) of the Company Disclosure
Schedule. The Company has heretofore delivered to MIT complete and correct
copies of its Declaration of Trust and Bylaws, each as amended to date. As used
in this Agreement, a "Significant Subsidiary" means any Subsidiary of the
Company that would constitute a Significant Subsidiary of the Company within
the meaning of Rule 1-02 of Regulation S-X of the Securities and Exchange
Commission.
(b) Capital Structure. As of the date hereof, the authorized beneficial
interest of the Company consists of 230,000,000 shares of beneficial interest,
par value $0.01 per share, of which 200,450,000 shares are Company Common
Stock, 5,400,000 shares have been designated as Company Series A Preferred
Shares, 8,050,000
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shares have been designated as Company Series B Convertible Preferred Shares,
2,000,000 shares have been designated as Company Series C Preferred Shares,
10,000,000 shares have been designated as Company Series D Preferred Shares,
and 2,300,000 shares have been designated as Company Series A Junior
Participating Preferred Shares. At the close of business on October 31, 1998:
(A) 123,203,576 shares of Company Common Stock were issued and outstanding; (B)
5,400,000 Company Series A Preferred Shares were issued and outstanding;
7,698,700 Company Series B Convertible Preferred Shares were issued and
outstanding; 2,000,000 Company Series C Preferred Shares were issued and
outstanding; 10,000,000 Company Series D Preferred Shares were issued and
outstanding; and no Company Series A Junior Participating Preferred Shares were
issued or outstanding; (C) 9,600,000 shares of Company Common Stock were
reserved for issuance pursuant to the Company's 1997 Long-Term Incentive Plan
(the "Company Stock Plan") and 100,000 shares of Company Common Stock were
reserved for issuance under the Company's Share Option Plan for Outside
Trustees, of which 2,884,774 shares of Company Common Stock were subject to
issuance upon vesting of restricted stock grants or exercise of options or
awards granted to officers, directors or employees of the Company and its
subsidiaries pursuant to such plans; and (D) no Voting Debt was issued and
outstanding. All outstanding shares of Company Common Stock are validly issued,
fully paid and, except as described in the Company SEC Documents, nonassessable
and are not subject to preemptive rights. Except as set forth on Schedule
3.2(b) of the Company Disclosure Schedule, all outstanding shares of capital
stock of the Subsidiaries of the Company are owned by the Company, or a direct
or indirect wholly owned Subsidiary of the Company, free and clear of all
Encumbrances. Except as set forth in this Section 3.2(b) or on Schedule 3.2(b)
of the Company Disclosure Schedule, and except for changes since October 31,
1998 resulting from the exercise of stock options, stock grants or other awards
granted prior to October 31, 1998 pursuant to the Company Stock Plan, or as
contemplated by this Agreement, there are outstanding: (1) no shares of
beneficial interest, Voting Debt or other voting securities of the Company; (2)
no securities of the Company or any Subsidiary of the Company or securities or
assets of any other entity convertible into or exchangeable for shares of
beneficial interest, capital stock, Voting Debt or other voting securities of
the Company or any Subsidiary of the Company; and (3) no options, warrants,
calls, rights (including preemptive rights), commitments or agreements to which
the Company or any Subsidiary of the Company is a party or by which it is bound
in any case obligating the Company or any Subsidiary of the Company to issue,
deliver, sell, purchase, redeem or acquire, or cause to be issued, delivered,
sold, purchased, redeemed or acquired, additional shares of beneficial
interest, capital stock or any Voting Debt or other voting securities of the
Company or of any Subsidiary of the Company, or obligating the Company or any
Subsidiary of the Company to grant, extend or enter into any such option,
warrant, call, right, commitment or agreement. There are not as of the date
hereof and there will not be at the Effective Time any stockholder agreements,
voting trusts or other agreements or understandings to which the Company is a
party or by which it is bound relating to the voting of any shares of the
beneficial interest of the Company that will limit in any way the solicitation
of proxies by or on behalf of the Company from, or the casting of votes by, the
stockholders of the Company with respect to the Merger. There are no
restrictions on the Company to vote the stock of any of its Subsidiaries. All
dividends or distributions on securities of the Company that have been
authorized prior to the date of this Agreement have been paid in full. When
issued in accordance with this Agreement, the shares of Company Common Stock
and Company Cumulative Redeemable Preferred Stock issued pursuant to the Merger
will be duly authorized and validly issued, fully paid and, except as described
in the Company SEC Documents, nonassessable and not subject to preemptive (or
similar) rights. When issued in accordance with this Agreement upon exercise of
the MIT Stock Options and the MIT Warrants, in each case to be assumed pursuant
to the Merger, the shares of Company Common Stock issued thereunder will be
duly authorized and validly issued, fully paid and, except as described in the
Company SEC Documents, nonassessable and not subject to preemptive (or similar)
rights.
(c) Authority; No Violations, Consents and Approvals.
(i) The Board of Trustees of the Company has approved and declared advisable
the Merger and this Agreement, and declared the Merger and this Agreement to be
in the best interests of the stockholders of the Company. The trustees of the
Company have advised MIT and the Company that they intend to vote or cause to
be voted all of the shares of Company Common Stock beneficially owned by them
and their affiliates in
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favor of approval of the Merger and this Agreement (including the issuance of
Company Common Stock). The Company has all requisite trust power and authority
to enter into this Agreement and, subject, with respect to consummation of the
Merger, to approval of this Agreement and the Merger by the stockholders of the
Company in accordance with Title 8 and the Declaration of Trust and Bylaws of
the Company, and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
trust action on the part of the Company, subject, with respect to the
consummation of the Merger, to approval of this Agreement and the Merger by the
stockholders of the Company in accordance with Title 8 and the Declaration of
Trust and Bylaws of the Company. This Agreement has been duly executed and
delivered by the Company and, subject, with respect to consummation of the
Merger, to approval of this Agreement and the Merger by the stockholders of the
Company in accordance with Title 8 and the Declaration of Trust and Bylaws of
the Company, and assuming this Agreement constitutes the valid and binding
obligation of MIT, constitutes a valid and binding obligation of the Company
enforceable in accordance with its terms, subject as to enforceability, to
bankruptcy, insolvency, reorganization, moratorium and other laws of general
applicability relating to or affecting creditors' rights and to general
principles of equity (regardless of whether such enforceability is considered
in a proceeding in equity or at law).
(ii) Except as set forth on Schedule 3.2(c) of the Company Disclosure
Schedule, the execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby and compliance with the
provisions hereof will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any material
obligation or to the loss of a material benefit under, or give rise to a right
of purchase under, result in the creation of any Encumbrance upon any of the
properties or assets of the Company or any of its Subsidiaries under, require
the consent or approval of any third party lender or otherwise result in a
material detriment to the Company or any of its Subsidiaries under, any
provision of (A) the Declaration of Trust or Bylaws of the Company or any
provision of the comparable charter or organizational documents of any of its
Subsidiaries, (B) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession, franchise
or license applicable to the Company or any of its Subsidiaries or their
respective properties or assets or any guarantee by the Company or any of its
Subsidiaries of the foregoing, (C) any joint venture or other ownership
arrangement or (D) assuming the consents, approvals, authorizations or permits
and filings or notifications referred to in Section 3.2(c)(iii) are duly and
timely obtained or made, any judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to the Company or any of its Subsidiaries or any
of their respective properties or assets, other than, in the case of clauses
(B), (C) and (D), any such conflicts, violations, defaults, rights,
Encumbrances or detriments that, individually or in the aggregate, would not
have a Material Adverse Effect on the Company, materially impair the ability of
the Company to perform its obligations hereunder or prevent the consummation of
any of the transactions contemplated hereby.
(iii) Except as set forth on Schedule 3.2(c) of the Company Disclosure
Schedule, no consent, approval, order or authorization of, or registration,
declaration or filing with, or permit from any Governmental Entity is required
by or with respect to the Company or any of its Subsidiaries in connection with
the execution and delivery of this Agreement by the Company or the consummation
by the Company of the transactions contemplated hereby, as to which the failure
to obtain or make would have a Material Adverse Effect on the Company, except
for: (A) the filing of a premerger notification report by the Company or its
ultimate parent under the HSR Act and the expiration or termination of the
applicable waiting period with respect thereto; (B) the filing with the SEC of
the Joint Proxy Statement, the S-4, such reports under Section 13(a) of the
Exchange Act and such other compliance with the Securities Act and the Exchange
Act and the rules and regulations thereunder as may be required in connection
with this Agreement and the transactions contemplated hereby, and the obtaining
from the SEC of such orders as may be so required; (C) the filing of the
Articles of Merger with, and acceptance for record of the Articles of Merger
by, the State Department of Assessments and Taxation of Maryland; (D) filings
with, and approval of, the Exchange; (E) such filings and approvals as may be
required by any applicable state securities, "blue sky" or takeover laws or
environmental laws; (F) such
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filings and approvals as may be required by any foreign premerger notification,
securities, corporate or other law, rule or regulation; and (G) any such
consent, approval, order, authorization, registration, declaration, filing, or
permit that the failure to obtain or make would not, individually or in the
aggregate, have a Material Adverse Effect on the Company, materially impair the
ability of the Company to perform its obligations hereunder or prevent the
consummation of any of the transactions contemplated hereby.
(d) SEC Documents. The Company has made available to MIT a true and complete
copy of each report, schedule, registration statement and definitive proxy
statement filed by the Company with the SEC since January 1, 1996 and prior to
or on the date of this Agreement (the "Company SEC Documents"), which are all
the documents (other than preliminary material) that the Company was required
to file with the SEC between December 31, 1996 and the date of this Agreement.
As of their respective dates, the Company SEC Documents complied in all
material respects with the requirements of the Securities Act or the Exchange
Act, as the case may be, and the rules and regulations of the SEC thereunder
applicable to such Company SEC Documents, and none of the Company SEC Documents
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The Company has no outstanding and unresolved comments from the SEC
with respect to any of the Company SEC Documents. The financial statements of
the Company included in the Company SEC Documents complied as to form in all
material respects with the published rules and regulations of the SEC with
respect thereto, were prepared in accordance with GAAP applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto or, in the case of the unaudited statements, as permitted by Rule 10-01
of Regulation S-X of the SEC) and fairly present in accordance with applicable
requirements of GAAP (subject, in the case of the unaudited statements, to
normal, recurring adjustments, none of which are material) the consolidated
financial position of the Company and its consolidated Subsidiaries as of their
respective dates and the consolidated results of operations and the
consolidated cash flows of the Company and its consolidated Subsidiaries for
the periods presented therein. Except as disclosed in the Company SEC
Documents, there are no agreements, arrangements or understandings between the
Company and any party who is at the date of this Agreement or was at any time
prior to the date hereof but after January 1, 1996 an Affiliate (as defined in
Section 4.1(k)) of the Company that are required to be disclosed in the Company
SEC Documents.
(e) Information Supplied. None of the information supplied or to be supplied
by the Company for inclusion or incorporation by reference in the S-4 will, at
the time the S-4 becomes effective under the Securities Act or at the Effective
Time, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they are made, not
misleading, and none of the information supplied or to be supplied by the
Company and included or incorporated by reference in the Joint Proxy Statement
will, at the date mailed to stockholders of MIT or the Company, as the case may
be, or at the time of the meeting of such stockholders to be held in connection
with the Merger or at the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. If at any time prior
to the Effective Time any event with respect to the Company or any of its
Subsidiaries, or with respect to other information supplied by the Company for
inclusion in the Joint Proxy Statement or the S-4, shall occur which is
required to be described in an amendment of, or a supplement to, the S-4 or the
Joint Proxy Statement, such event shall be so described, and such amendment or
supplement shall be promptly filed with the SEC. The Joint Proxy Statement,
insofar as it relates to the Company or other Subsidiaries of the Company or
other information supplied by the Company for inclusion or incorporation by
reference therein, will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations thereunder.
(f) Absence of Certain Changes or Events. Except as set forth on Schedule
3.2(f) of the Company Disclosure Schedule or as disclosed in or reflected in
the financial statements included in the Company SEC Documents, and except as
contemplated by this Agreement, since the date of the most recent audited
financial statements included in the Company SEC Documents there has not been:
(i) any declaration, setting aside or
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payment of any dividend or other distribution (whether in cash, stock or
property) with respect to any shares of the Company's beneficial interest; (ii)
any amendment of any material term of any outstanding equity security of the
Company or any Subsidiary of the Company; (iii) any repurchase, redemption or
other acquisition by the Company or any Subsidiary of the Company of any
outstanding shares of beneficial interest, capital stock or other equity
securities of, or other ownership interests in, the Company or any Subsidiary
of the Company; (iv) any material change in any method of accounting or
accounting practice or any tax method, practice or election by the Company or
any Subsidiary of the Company; (v) any amendment of any employment, consulting,
severance, retention or any other agreement between the Company and any officer
or trustee of the Company; or (vi) any other transaction, commitment, dispute
or other event or condition (financial or otherwise) of any character (whether
or not in the ordinary course of business) that has had a Material Adverse
Effect on the Company, nor has there occurred any such transaction, commitment,
dispute or other event or condition that, with the passage of time, would
reasonably be expected to result in a Material Adverse Effect on the Company,
except for general economic changes, changes in the United States financial
markets generally, changes that affect REITs generally and changes that affect
industrial real estate generally.
(g) No Undisclosed Material Liabilities. Except as set forth on Schedule
3.2(g) of the Company Disclosure Schedule or in the Company SEC Documents, as
of the date hereof, there are no liabilities of the Company or any of its
Subsidiaries of any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise, that would have a Material Adverse
Effect on the Company, other than: (i) liabilities adequately provided for on
the balance sheet of the Company dated as of September 30, 1998 (including the
notes thereto) contained in the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998; (ii) liabilities incurred in the ordinary
course of business subsequent to September 30, 1998 which would not,
individually or in the aggregate, be reasonably expected to have a Material
Adverse Effect on the Company; and (iii) liabilities under this Agreement.
(h) No Default. Neither the Company nor any of its Subsidiaries is in default
or violation (and no event has occurred which, with notice or the lapse of time
or both, would constitute a default or violation) of any term, condition or
provision of (i) the Declaration of Trust or Bylaws of the Company or the
comparable charter or organizational documents of any of its Subsidiaries, (ii)
any loan or credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise or license to which the
Company or any of its Subsidiaries is now a party or by which the Company or
any of its Subsidiaries or any of their respective properties or assets is
bound (except for the requirement under certain of such instruments to file
supplemental indentures as a result of the transactions contemplated hereby) or
(iii) any order, writ, injunction, decree, statute, rule or regulation
applicable to the Company or any of its Subsidiaries, except in the case of
clauses (ii) and (iii) for defaults or violations which in the aggregate would
not have a Material Adverse Effect on the Company.
(i) Compliance with Applicable Laws. The Company and its Subsidiaries hold
all permits, licenses, variances, exemptions, orders, franchises and approvals
of all Governmental Entities necessary for the lawful conduct of their
respective businesses (the "Company Permits"), except where the failure so to
hold would not have a Material Adverse Effect on the Company. The Company and
its Subsidiaries are in compliance with the terms of the Company Permits,
except where the failure so to comply would not have a Material Adverse Effect
on the Company. Except as disclosed in the Company SEC Documents, the
businesses of the Company and its Subsidiaries are not being conducted in
violation of any law, ordinance or regulation of any Governmental Entity,
except for possible violations which would not have a Material Adverse Effect
on the Company. As of the date of this Agreement, no investigation or review by
any Governmental Entity with respect to the Company or any of its Subsidiaries
is pending and of which the Company has knowledge or, to the knowledge of the
Company as of the date hereof, is threatened, other than those the outcome of
which would not have a Material Adverse Effect on the Company.
(j) Litigation. Except as disclosed in the Company SEC Documents or Schedule
3.2(j) of the Company Disclosure Schedule, as of the date of this Agreement
there is no suit, action or proceeding pending, or, to the knowledge of the
Company, threatened against or affecting the Company or any Subsidiary of the
Company
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("Company Litigation"), and, as of the date of this Agreement, the Company and
its Subsidiaries have no knowledge of any facts that are likely to give rise to
any Company Litigation, in each case, that would have a Material Adverse Effect
on the Company, nor is there any judgment, decree, injunction, rule or order of
any Governmental Entity or arbitrator outstanding against the Company or any
Subsidiary of the Company ("Company Order") that would have a Material Adverse
Effect on the Company or its ability to consummate the transactions
contemplated by this Agreement. Schedule 3.2(j) of the Company Disclosure
Schedule contains an accurate and complete list of all suits, actions and
proceedings pending or, to the knowledge of the Company, threatened against or
affecting the Company or any of its Subsidiaries as of the date hereof.
(k) Taxes. Except as set forth on Schedule 3.2(k) of the Company Disclosure
Schedule:
(i) Each of the Company and its Subsidiaries (A) has filed all Tax
returns and reports required to be filed by it (after giving effect to any
filing extension properly granted by a Governmental Entity having authority
to do so) and all such returns and reports are accurate and complete in all
material respects, and (B) has paid (or the Company has paid on its behalf)
all Taxes (as defined below) shown on such returns and reports as required
to be paid by it, except those where the failure to file such tax returns
and reports or pay such Taxes would not have a Material Adverse Effect on
the Company. The most recent financial statements contained in the Company
SEC Documents reflect an adequate reserve for all material Taxes payable by
the Company and its Subsidiaries for all taxable periods and portions
thereof through the date of such financial statements. The Company and the
Company Subsidiaries have established reserves that are adequate for the
payment of all Taxes not yet due and payable. Since September 30, 1998, the
Company has incurred no liability for Taxes under Sections 857(b), 860(c)
or 4981 of the Code, including without limitation any Tax arising from a
prohibited transaction described in Section 857(b)(6) of the Code, and
neither the Company nor any of its Subsidiaries has incurred any material
liability for Taxes other than in the ordinary course of business. No event
has occurred, and no condition or circumstance exists, which presents a
material risk that any material Tax described in the preceding sentence
will be imposed upon the Company. No material deficiencies for any Taxes
have been proposed, asserted or assessed against the Company or any of its
Subsidiaries, including claims by any taxing authority in a jurisdiction
where the Company and the Company Subsidiaries do not file Tax returns but
in which any of them is or may be subject to taxation, and no requests for
waivers of the time to assess any such Taxes are pending.
(ii) The Company (A) for all taxable years commencing with December 31,
1993 through December 31, 1997 has been subject to taxation as a REIT
within the meaning of Section 856 of the Code and has satisfied all
requirements to qualify as a REIT for such years, (B) has operated since
December 31, 1997 to the date of this representation, and intends to
continue to operate, in such a manner as to qualify as a REIT for the
taxable year ending December 31, 1998, and (C) has not taken or omitted to
take any action which would reasonably be expected to result in a challenge
to its status as a REIT and, to the Company's knowledge, no such challenge
is pending or threatened. Each Subsidiary of the Company which is a
partnership, joint venture or limited liability company (1) has been since
its formation and continues to be treated for federal income tax purposes
as a partnership and not as a corporation or an association taxable as a
corporation and (2) has not since the later of its formation or the
acquisition by the Company of a direct or indirect interest therein, owned
any assets (including, without limitation, securities) that would cause the
Company to violate Section 856(c)(4) of the Code. Each Company Subsidiary
which is a corporation has been since its formation a qualified REIT
subsidiary under Section 856(i) of the Code.
(iii) All Taxes which the Company or the Company Subsidiaries are
required by law to withhold or collect, including Taxes required to have
been withheld in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder or other third party and
sales, gross receipts and use taxes, have been duly withheld or collected
and, to the extent required, have been paid over to the proper Governmental
Entities or are held in separate bank accounts for such purpose. There are
no liens for Taxes upon the assets of the Company or the Company
Subsidiaries except for statutory liens for Taxes not yet due.
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(iv) The Tax returns of the Company and the Company Subsidiaries are not
being and have not been examined or audited by any taxing authority for any
past year or periods.
(v) Neither the Company nor the Company Subsidiaries (A) has filed a
consent under Section 341(f) of the Code concerning collapsible
corporations, or (B) is a party to any Tax allocation or sharing agreement.
(vi) Except as disclosed in Schedule 3.2(k), the Company does not have
any liability for the Taxes of any person other than the Company and the
Company Subsidiaries and the Company Subsidiaries do not have any liability
for the Taxes of any person other than the Company and the Company
Subsidiaries (A) under Treasury Regulation Section 1.1502-6 (or any similar
provision of state, local or foreign law), (B) as a transferee or
successor, (C) by contract, or (D) otherwise.
(vii) Neither the Company nor the Company Subsidiaries has made any
payments, is obligated to make any payments, or is a party to an agreement
that could obligate it to make any payments that will not be deductible
under Section 280G of the Code. The Company and the Company Subsidiaries
have disclosed to the IRS all positions taken on its federal income Tax
returns which could give rise to a substantial understatement of Tax under
Section 6662 of the Code.
(l) Pension and Benefit Plans; ERISA. Except as set forth on Schedule 3.2(l)
of the Company Disclosure Schedule or in the Company SEC Documents:
(i) All "employee pension plans," as defined in Section 3(2) of ERISA,
maintained by the Company or any of its Subsidiaries or any trade or
business (whether or not incorporated) which is under common control, or
which is treated as a single employer, with the Company under Section
414(b), (c), (m) or (o) of the Code ("Company ERISA Affiliate") or to which
the Company or any of its Subsidiaries or any Company ERISA Affiliate
contributed or is obligated to contribute thereunder within six years prior
to the Effective Time (the "Company Pension Plans") intended to qualify
under Section 401 of the Code so qualify and have been determined by the
IRS to be qualified under Section 401 of the Code and, to the knowledge of
the Company as of the date hereof, nothing has occurred with respect to the
operation of the Company Pension Plans that could reasonably be expected to
cause the loss of such qualification or the imposition of any material
liability, penalty, or tax under ERISA or the Code.
(ii) No Company Pension Plan is subject to Title IV of ERISA.
(iii) There is no violation of ERISA with respect to (A) the filing with
the Secretary of Labor and the Secretary of the Treasury of applicable
reports, documents, and notices regarding the "employee benefit plans," as
defined in Section 3(3) of ERISA, the Company Pension Plans and all other
material employee compensation and benefit arrangements or payroll
practices, including, without limitation, severance pay, sick leave,
vacation pay, salary continuation for disability, consulting or other
compensation agreements, retirement, deferred compensation, bonus, long-
term incentive, stock option, stock purchase, hospitalization, medical
insurance, life insurance and scholarship programs maintained by the
Company or any of its Subsidiaries or with respect to which the Company or
any of its Subsidiaries has any liability (all such plans, other than the
Company Pension Plans, being hereinafter referred to as the "Company
Employee Benefit Plans") or (B) the furnishing of such documents to the
participants or beneficiaries of the Company Employee Benefit Plans or
Company Pension Plans.
(iv) Copies of each the Company Employee Benefit Plan and the Company
Pension Plan, related trust (or other funding or financing arrangement),
and all amendments have been made available to MIT, as have the most recent
summary plan descriptions, administrative service agreements, and Form
5500.
(v) The Company Employee Benefit Plans and the Company Pension Plans have
been maintained, in all material respects, in accordance with their terms
and with all provisions of ERISA (including rules and regulations
thereunder) and other applicable Federal and state law, there is no
material liability for breaches of fiduciary duty in connection with the
Company Employee Benefit Plans and the Company Pension Plans, and neither
the Company nor any of its Subsidiaries or any "party in interest" or
"disqualified person" with respect to the Company Employee Benefit Plans
and the Company Pension Plans has engaged in a material "prohibited
transaction" within the meaning of Section 4975 of the Code or Section 406
of ERISA.
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<PAGE>
(vi) As of the date of the Agreement, there are no material actions,
suits or claims pending (other than routine claims for benefits) or, to the
knowledge of the Company, threatened against, or with respect to, the
Company Employee Benefit Plans or the Company Pension Plans or their
assets.
(vii) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (A) result in any
payment becoming due to any employee or group of employees of the Company
or any of its Subsidiaries; (B) increase any benefits otherwise payable
under any Company Employee Benefit Plan or the Company Pension Plan; or (C)
result in the acceleration of the time of payment or vesting of any such
benefits. Except as described on Schedule 3.2(l) of the Company Disclosure
Schedule, there are no severance agreements or employment agreements
between the Company or any of its Subsidiaries and any employee of the
Company or such Subsidiary. True and complete copies of all severance
agreements and employment agreements described on Schedule 3.2(l) of the
Company Disclosure Schedule have been provided to MIT.
(viii) Except as set forth on Schedule 3.2(l)(viii) of the Company
Disclosure Schedule, neither the Company nor any of its Subsidiaries has
any consulting agreement or arrangement with any person involving
compensation in excess of $100,000, except as are terminable upon one
month's notice or less.
(ix) Neither the Company nor any of its Subsidiaries nor any Company
ERISA Affiliate contributes to, or has an obligation to contribute to, and
has not within six years prior to the Effective Time contributed to, or had
an obligation to contribute to, a multiemployer plan within the meaning of
Section 3(37) of ERISA.
(x) No stock or other security issued by the Company or any of its
Subsidiaries forms or has formed a material part of the assets of any
Company Employee Benefit Plan or Company Pension Plan.
(xi) The Company and its ERISA Affiliates have materially complied with
the requirements of Section 4980B of the Code and Parts 6 and 7 and
Subtitle B of Title I of ERISA regarding continuation of health care
coverage notices and provision of appropriate health care coverage under
the Company Employee Benefit Plans.
(xii) No amount has been paid by the Company or any of its ERISA
Affiliates, and no amount is expected to be paid by the Company or any of
its ERISA Affiliates, which would be subject to the provisions of 162(m) of
the Code such that all or a part of such payments would not be deductible
by the payor.
(m) Labor Matters. Except as set forth on Schedule 3.2(m) of the Company
Disclosure Schedule or in the Company SEC Documents:
(i) neither the Company nor any of its Subsidiaries is a party to any
collective bargaining agreement or other current labor agreement with any
labor union or organization, and there is no current union representation
question involving employees of the Company or any of its Subsidiaries, nor
does the Company or any of its Subsidiaries know of any activity or
proceeding of any labor organization (or representative thereof) or
employee group (or representative thereof) to organize any such employees;
(ii) as of the date hereof, there is no unfair labor practice charge or
grievance arising out of a collective bargaining agreement or other
grievance procedure against the Company or any of its Subsidiaries pending,
or, to the knowledge of the Company or any of its Subsidiaries, threatened,
that has, or will have, a Material Adverse Effect on the Company;
(iii) as of the date hereof, there is no complaint, lawsuit or proceeding
in any forum by or on behalf of any present or former employee, any
applicant for employment or any classes of the foregoing alleging breach of
any express or implied contract of employment, any law or regulation
governing employment or the termination thereof or other discriminatory,
wrongful or tortious conduct in connection with the employment relationship
against the Company or any of its Subsidiaries pending, or, to the
knowledge of the Company or any of its Subsidiaries, threatened, that has,
or will have, a Material Adverse Effect on the Company;
(iv) there is no strike, dispute, slowdown, work stoppage or lockout
pending, or, to the knowledge of the Company or any of its Subsidiaries,
threatened, against or involving the Company or any of its Subsidiaries
that has, or will have, a Material Adverse Effect on the Company;
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(v) The Company and each of its Subsidiaries are in compliance with all
applicable laws respecting employment and employment practices, terms and
conditions of employment, wages, hours of work and occupational safety and
health, except for non-compliance that does not have, and will not have, a
Material Adverse Effect on the Company; and
(vi) as of the date hereof, there is no proceeding, claim, suit, action
or governmental investigation pending or, to the knowledge of the Company
or any of its Subsidiaries, threatened, in respect to which any current or
former director, officer, employee or agent of the Company or any of its
Subsidiaries is or may be entitled to claim indemnification from the
Company or any of its Subsidiaries pursuant to the Certificate of
Incorporation or Bylaws of the Company or any provision of the comparable
charter or organizational documents of any of its Subsidiaries, as provided
in any indemnification agreement to which the Company or any Subsidiary of
the Company is a party or pursuant to applicable law that has, or will
have, a Material Adverse Effect on the Company.
(n) Intangible Property. The Company and its Subsidiaries possess or have
adequate rights to use all material trademarks, trade names, patents, service
marks, brand marks, brand names, computer programs, databases, industrial
designs and copyrights necessary for the operation of the businesses of each of
the Company and its Subsidiaries (collectively, the "Company Intangible
Property"), except where the failure to possess or have adequate rights to use
such properties would not have a Material Adverse Effect on the Company. All of
the Company Intangible Property is owned or licensed by the Company or its
Subsidiaries free and clear of any and all liens, claims or encumbrances,
except those that would not have a Material Adverse Effect on the Company and
neither the Company nor any such Subsidiary has forfeited or otherwise
relinquished any Company Intangible Property which forfeiture would result in a
Material Adverse Effect on the Company. To the knowledge of the Company, the
use of the Company Intangible Property by the Company or its Subsidiaries does
not, in any material respect, conflict with, infringe upon, violate or
interfere with or constitute an appropriation of any right, title, interest or
goodwill, including, without limitation, any intellectual property right,
trademark, trade name, patent, service mark, brand mark, brand name, computer
program, database, industrial design, copyright or any pending application
therefor, of any other person, and there have been no claims made, and neither
the Company nor any of its Subsidiaries has received any notice of any claim or
otherwise knows that any of the Company Intangible Property is invalid or
conflicts with the asserted rights of any other person or has not been used or
enforced or has failed to have been used or enforced in a manner, that would
result in the abandonment, cancellation or unenforceability of any of the
Company Intangible Property, except for any such conflict, infringement,
violation, interference, claim, invalidity, abandonment, cancellation or
unenforceability that would not have a Material Adverse Effect on the Company.
(o) Environmental Matters. Except as disclosed on Schedule 3.2(o) of the
Company Disclosure Schedule:
(i) The operations of the Company and its Subsidiaries have been
conducted, are and, as of the Closing Date, will be, in compliance with all
Environmental Laws, except where the failure to so comply would not have a
Material Adverse Effect on the Company;
(ii) The Company and its Subsidiaries have obtained and, until the
Closing Date, will maintain all permits, licenses and registrations, or
applications relating thereto, and have made and, until the Closing Date,
will make all filings, reports and notices required under applicable
Environmental Laws for the continued operations of their respective
businesses, except such matters the lack or failure of which would not have
a Material Adverse Effect on the Company;
(iii) The Company and its Subsidiaries are not subject to any outstanding
written orders issued by, or contracts with, any Governmental Entity or
other person respecting (A) Environmental Laws, (B) Remedial Action, (C)
any Release or threatened Release of a Hazardous Material or (D) an
assumption of responsibility for environmental liabilities of another
person, except such orders or contracts the compliance with which would not
have a Material Adverse Effect on the Company;
(iv) As of the date of this Agreement, the Company and its Subsidiaries
have not received any written communication alleging, with respect to any
such party, the violation of or liability under any Environmental Law,
which violation or liability would have a Material Adverse Effect on the
Company;
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(v) Neither the Company nor any of its Subsidiaries has any contingent
liability in connection with the Release of any Hazardous Material into the
indoor or outdoor environment (whether on-site or off-site) or employee or
third party exposure to Hazardous Materials that would have a Material
Adverse Effect on the Company;
(vi) The operations of the Company or its Subsidiaries involving the
generation, transportation, treatment, storage or disposal of hazardous or
solid waste, as defined and regulated under 40 C.F.R. Parts 260-270 (in
effect as of the date of this Agreement) or any applicable state
equivalent, are in compliance with applicable Environmental Laws, except
where the failure to so comply would not have a Material Adverse Effect on
the Company; and
(vii) To the knowledge of the Company, there is not now on or in any
property of the Company or its Subsidiaries or any property for which the
Company or its Subsidiaries is potentially liable any of the following: (A)
any underground storage tanks or surface impoundments or (B) any on-site
disposal of Hazardous Material, any of which ((A) or (B) preceding) would
have a Material Adverse Effect on the Company.
(viii) No Company Property (as hereinafter defined) is included or, to
the knowledge of MIT, proposed for inclusion on the National Priorities
List issued pursuant to CERCLA by the EPA or on the Comprehensive
Environmental Response, Compensation, and Liability Information System
database maintained by the EPA, and the Company has no knowledge that any
Company Property has otherwise been identified in a published writing by
the EPA as a potential CERCLA removal, remedial or response site or, to the
knowledge of the Company, proposed for inclusion on any similar list of
potentially contaminated sites pursuant to any other Environmental Law.
(p) Properties.
(i) Except as disclosed on Schedule 3.2(p) to the Company Disclosure Schedule
or as described in the Company SEC Documents, the Company or one of the
Company's Subsidiaries owns fee simple title (or a leasehold estate) to each of
the real properties used or useful in the operation of the business of the
Company and its subsidiaries (the "Company Properties") in each case (except as
provided below) free and clear of Encumbrances. The Company Properties are not
subject to any Property Restrictions, except for (A) Encumbrances and Property
Restrictions described in the Company SEC Documents or set forth in Schedule
3.2(p) to the Company Disclosure Schedule, (B) Property Restrictions imposed or
promulgated by law or any governmental body or authority with respect to real
property, including zoning regulations, provided that they do not materially
adversely affect the currently intended use of any Company Property, (C)
Encumbrances and Property Restrictions disclosed on existing title reports or
existing surveys (in either case copies of which title reports or surveys have
been delivered or made available to MIT and listed in the Company Disclosure
Schedule), and (D) mechanics', carriers', workmen's, repairmen's and
materialmen's liens and other Encumbrances, Property Restrictions and other
limitations of any kind, if any, which, individually or in the aggregate, are
not substantial in amount, do not materially detract from the value of or
materially interfere with the present use of any of the Company Properties
subject thereto or affected thereby, and do not otherwise have a Material
Adverse Effect on the Company. Except as provided in Schedule 3.2(p) to the
Company Disclosure Schedule, valid policies of title insurance have been
issued, insuring the Company's or the applicable Company Subsidiaries' fee
simple title or leasehold estate to the Company Properties in amounts at least
equal to the value of such Company Properties at the time of the issuance of
such policy, subject only to the matters disclosed above and on the Company
Disclosure Schedule, and such policies are, at the date hereof, in full force
and effect and no material claim has been made against any such policy.
(ii) All properties currently under development or construction by the
Company or the Company Subsidiaries and all properties currently proposed for
acquisition, development or commencement of construction prior to the Effective
Time by the Company and the Company Subsidiaries are disclosed in the Company
SEC Documents or are listed as such on Schedule 3.2(p) to the Company
Disclosure Schedule. Copies of all executory agreements entered into by the
Company or any Company Subsidiary relating to the
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development or construction of industrial or other real estate properties
(other than agreements for architectural, engineering, planning, accounting,
legal or other professional services, or construction agreements for material
or labor) have previously been delivered or made available to MIT.
(q) Insurance. Schedule 3.2(q) of the Company Disclosure Statement sets forth
an insurance schedule of the Company's and each of its Subsidiaries' directors'
and officers' liability insurance. The Company maintains insurance in such
amounts and covering such risks as are in accordance with normal industry
practice for companies engaged in businesses similar to those of the Company
and each of its Subsidiaries (taking into account the cost and availability of
such insurance).
(r) Opinion of Financial Advisor. The Board of Directors of the Company has
received the oral opinion of Merrill Lynch & Co. addressed to such Board that,
as of the date hereof, the Merger Consideration to be received by the holders
of MIT Common Stock in accordance with Section 2.1 is fair from a financial
point of view to the holders of Company Common Stock. A copy of the written
opinion of Merrill Lynch & Co. will be provided to the Company promptly after
it has been received from Merrill Lynch & Co.
(s) Vote Required. The affirmative vote of at least two-thirds of the
outstanding shares of Company Common Stock entitled to vote with respect to the
approval of this Agreement and the transactions contemplated hereby, including
the issuance of Company Common Stock in the Merger, is the only vote of the
holders of any class or series of the Company's shares of beneficial interest
necessary to approve this Agreement and the transactions contemplated hereby.
(t) Beneficial Ownership of MIT Common Stock and MIT Preferred Stock. As of
the date hereof, neither the Company nor its Subsidiaries beneficially owns any
of the outstanding shares of MIT Common Stock or MIT Preferred Stock.
(u) Brokers. Except for the fees and expenses payable to Merrill Lynch & Co.,
which fees are reflected in its engagement letter with the Company (a copy of
which has been delivered to MIT), no broker, investment banker or other person
is entitled to any broker's, finder's or other similar fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company.
(v) Investment Company Act of 1940. Neither the Company nor any of its
Subsidiaries is, or at the Effective Time will be, required to be registered as
an investment company under the Investment Company Act.
(w) Contracts.
(i) Neither the Company nor any Company Subsidiary has received a written
notice that the Company or any Company Subsidiary is in violation of or in
default under (nor to the knowledge of the Company does there exist any
condition which upon the passage of time or the giving of notice or both would
cause such a violation of or default under) any material loan or credit
agreement, note, bond, mortgage, indenture, lease, permit, concession,
franchise, license or any other material contract, agreement, arrangement or
understanding, to which it is a party or by which it or any of its properties
or assets is bound, except as set forth in Schedule 3.2(w), nor does such a
violation or default exist, except in each case to the extent that such
violation or default, individually or in the aggregate, would not have a
Company Material Adverse Effect.
(ii) Neither the Company nor any of its Subsidiaries is a party to any
interest rate cap, interest rate collar, interest rate swap, currency hedging
transaction, or any other agreement relating to a similar transaction, which,
individually or in the aggregate, would be reasonably likely to have a Company
Material Adverse Effect.
(iii) There exists no agreement entered into by the Company or any of the
Company Subsidiaries providing for the sale of, or option to sell, any of the
Company Properties or the purchase of, or option to purchase, any real estate
which are currently in effect, the consummation or performance of which would
be reasonably likely to have a Company Material Adverse Effect.
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(iv) Neither the Company nor any of the Company Subsidiaries has any
continuing contractual liability (A) for indemnification or otherwise under any
agreement relating to the sale of real estate previously owned, whether
directly or indirectly, by the Company or any of the Company Subsidiaries,
except for standard indemnification provisions entered into in the normal
course of business, (B) to pay any additional purchase price for any of the
Company Properties, or (C) to make any prorations or adjustments to prorations
involving an amount in excess of $50,000 (other than real estate taxes) that
may previously have been made with respect to any property currently or
formerly owned by the Company, in each case, except as, individually or in the
aggregate, would not have a Company Material Adverse Effect.
(v) There are no material outstanding contractual obligations of the Company
or any the Company Subsidiaries to provide any funds to, or make any investment
(in the form of a loan, capital contribution or otherwise) in, any of the
Company Subsidiaries or any other Person, in each case, except as, individually
or in the aggregate, would not have a Company Material Adverse Effect.
ARTICLE IV
Covenants Relating to Conduct of Business Pending the Merger
4.1 Conduct of Business by MIT and the Company Pending the Merger. Prior to
the Effective Time, (i) MIT agrees as to itself and its Subsidiaries that
(except as required by the terms of the organizational documents of any
Subsidiary limited partnership listed on Schedule 3.1(a) to the MIT Disclosure
Schedule, as described on Schedule 4.1 to the MIT Disclosure Schedule or as
expressly contemplated or permitted by this Agreement, or to the extent that
the Company shall otherwise consent in writing, which consent shall not be
unreasonably withheld) and (ii) the Company agrees as to itself and its
Subsidiaries that (except as described on Schedule 4.1 to the Company
Disclosure Schedule or as expressly contemplated or permitted by this
Agreement, or to the extent that MIT shall otherwise consent in writing, which
consent shall not be unreasonably withheld) (for purposes of this Section 4.1
and as used elsewhere in this Agreement, MIT and the Company each being a
"Party"):
(a) Ordinary Course. Each Party and its Subsidiaries shall carry on its
businesses in the usual, regular and ordinary course in substantially the same
manner as heretofore conducted and shall use all commercially reasonable
efforts to preserve intact its present business organizations, keep available
the services of its current officers and employees, subject in the case of MIT
to Section 5.9, and endeavor to preserve its relationships with customers,
suppliers and others having business dealings with it to the end that its
goodwill and ongoing business shall not be impaired in any material respect at
the Effective Time. Each party will promptly notify the other of any material
emergency or Material Adverse Change or of any material litigation or
governmental complaints, investigations or hearings.
(b) Dividends; Changes in Stock. Except as contemplated by this Agreement and
for transactions solely among a Party and its Subsidiaries, a Party shall not
and it shall not permit any of its Subsidiaries to: (i) declare or pay any
dividends on or make other distributions in respect of any of its shares of
beneficial interest, capital stock or partnership interests, except (A) in the
case of MIT, for (1) the declaration and payment of regular quarterly cash
dividends not in excess of $.33 per share of MIT Common Stock with usual record
and payment dates, regular quarterly cash dividends on the MIT Series B
Preferred Stock and the MIT Series D Preferred Stock in accordance with their
respective terms, (2) the payment of any distributions to the partners of any
limited partnerships that are Subsidiaries of MIT made in accordance with the
requirements of the existing organizational documents of such Subsidiary
limited partnerships and (3) the payment of regular quarterly cash dividends to
stockholders of any corporations that are preferred stock Subsidiaries of MIT
and (B) in the case of the Company, for (1) the declaration and payment of
regular quarterly cash dividends not in excess of $.375 per share of Company
Common Stock with usual record and payment dates, regular dividends on the
Company Series A Preferred Shares, the Company Series B Preferred Shares, the
Company Series C Preferred Stock, and the Company Series D Preferred Shares or
any other class of preferred shares of beneficial interest issued subsequent to
the date hereof in accordance with this Agreement in each case in accordance
with
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their respective terms, (2) the payment of any distributions to the partners of
any limited partnerships that are Subsidiaries of the Company made in
accordance with the requirements of the existing organizational documents of
such Subsidiary limited partnerships and (3) the payment of regular quarterly
cash dividends to shareholders of any corporations that are preferred stock
Subsidiaries of the Company; (ii) split, combine or reclassify any of its
shares of beneficial interest or capital stock or issue or authorize or propose
the issuance of any other securities in respect of, in lieu of or in
substitution for shares of such Party's beneficial interest or capital stock;
or (iii) repurchase, redeem or otherwise acquire, or permit any of its
Subsidiaries to purchase, redeem or otherwise acquire, any shares of its
beneficial interest or capital stock, except (x) as required by the terms of
its or any of its Subsidiaries' securities outstanding on the date hereof, (y)
as contemplated by any existing employee benefit plan and (z) that the
outstanding shares of MIT Series B Preferred Stock will be redeemed for cash or
converted into MIT Common Stock in accordance with the terms of the MIT Series
B Preferred Stock and Section 5.22. MIT and the Company shall coordinate with
each other regarding the payment of dividends with respect to MIT Common Stock
and Company Common Stock after the date hereof, it being the intention of the
Parties that (a) MIT shall pay whatever preclosing dividends shall be necessary
to avoid (i) jeopardizing its status as a "real estate investment trust" under
the Code and (ii) having positive real estate investment trust taxable income
for the taxable year ending at the Effective Time (provided that the foregoing
shall not be deemed to limit the amount of dividends that are otherwise payable
by MIT or the Company under the terms of this Agreement), (b) the stockholders
of MIT and the Company shall be treated fairly in order to avoid any "windfall"
preclosing dividends, and (c) except as may be necessary to accomplish the
foregoing, holders of MIT Common Stock and Company Common Stock shall not
receive two dividends, or fail to receive one dividend, for any single calendar
quarter with respect to their shares of MIT Common Stock or Company Common
Stock or any shares of Company Common Stock that any such holder receives in
exchange for shares of MIT Common Stock in the Merger.
(c) Issuance of Securities. A Party shall not, and it shall not permit any of
its Subsidiaries to, issue, deliver or sell, or authorize or propose to issue,
deliver or sell, any shares of its beneficial interest or capital stock of any
class, any Voting Debt or other voting securities or any securities convertible
into, or any rights, warrants or options to acquire, any such shares, Voting
Debt, other voting securities or convertible securities, other than: (i) in the
case of MIT, (A) the issuance of MIT Common Stock upon the exercise of stock
options granted under the MIT Stock Plan, MIT Warrants that are outstanding on
the date hereof and stock options issued to directors of MIT in accordance with
the provisions of the MIT Stock Plan after the date hereof, or in satisfaction
of stock grants or other stock based awards made prior to the date hereof
pursuant to the MIT Stock Plan, (B) issuances of MIT Common Stock by MIT to
partners of limited partnership Subsidiaries of MIT in accordance with the
requirements of the existing organizational documents of such Subsidiaries, (C)
issuances of MIT Stock Options and grants of MIT Common Stock to directors of
MIT in accordance with the provisions of the MIT Stock Plan, (D) issuances by a
wholly owned Subsidiary of MIT of such Subsidiary's capital stock or shares of
beneficial interest to its parent, and (E) the issuance of MIT Common Stock
upon the conversion of the MIT Series B Preferred Stock in accordance with its
terms; and (ii) in the case of the Company (A) the issuance of Company Common
Stock upon the exercise of stock options granted under the Company Stock Plan
that are outstanding on the date hereof, or in satisfaction of stock grants or
stock based awards made prior to the date hereof pursuant to the Company Stock
Plan, (B) issuances by a wholly owned subsidiary of the Company of such
Subsidiary's capital stock or shares of beneficial interest to its parent, (C)
issuance of Company Common Stock by the Company to partners of limited
partnership Subsidiaries of the Company in accordance with requirements of the
existing organizational documents of such Subsidiaries, (D) issuance of Company
Common Stock by the Company to holders of Series B Convertible Preferred Stock
in accordance with the terms thereof, and (E) other issuances of shares of
beneficial interest of the Company at the fair market value of such shares of
beneficial interest, as determined by the Company's Board of Trustees in good
faith. MIT shall use its reasonable best efforts to limit any extension of the
period during which the warrants issued and outstanding under that certain
Warrant Agreement dated as of February 16, 1996 (the "Warrant Agreement"), by
and between MIT and First Chicago Trust Company of New York (the "Public MIT
Warrants") and the Warrant dated as of February 23, 1996, originally issued to
USAA Real Estate Company (collectively with the Public MIT Warrants, the "MIT
Warrants") may be exercised.
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(d) Governing Documents. Except as contemplated hereby or in connection
herewith, no Party shall amend or propose to amend its charter or bylaws.
(e) No Acquisitions. MIT shall not, and it shall not permit any of its
Subsidiaries to, acquire or agree to acquire by merging or consolidating with,
or by purchasing any equity interest in or any of the assets of, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof, other than the acquisitions
described on Schedule 4.1 of the MIT Disclosure Schedule.
(f) No Dispositions. Other than: (i) as may be necessary or required by law
to consummate the transactions contemplated hereby or (ii) as described on
Schedule 4.1 of the MIT Disclosure Schedule, MIT shall not, and it shall not
permit any of its Subsidiaries to, sell or otherwise dispose of, or agree to
sell or otherwise dispose of, any of its material assets.
(g) No Dissolution, Etc. Except as otherwise permitted or contemplated by
this Agreement, neither Party shall authorize, recommend, propose or announce
an intention to adopt a plan of complete or partial liquidation or dissolution
of such Party or any of its Significant Subsidiaries.
(h) Accounting. Neither Party shall, nor shall either Party permit any of its
Subsidiaries to, make any changes in their accounting methods which would be
required to be disclosed under the rules and regulations of the SEC, except as
required by law, rule, regulation or GAAP.
(i) Affiliate Transactions. Except for any transaction contemplated by this
Agreement, neither Party shall, nor shall either Party permit any of its
Subsidiaries to, enter into any agreement or arrangement with any of their
respective Affiliates (as such term is defined in Rule 405 under the Securities
Act, an "Affiliate"), other than with wholly owned Subsidiaries of such Party,
on terms less favorable to such Party or such Subsidiary, as the case may be,
than could be reasonably expected to have been obtained with an unaffiliated
third party on an arm's-length basis.
(j) Insurance. Each Party shall, and shall cause its Subsidiaries to, use
commercially reasonable efforts to maintain with financially responsible
insurance companies insurance in such amounts and against such risks and losses
as are customary for companies engaged in their respective businesses.
(k) Tax Matters. Neither Party shall (i) make or rescind any material express
or deemed election relating to Taxes (except as required by law or necessary to
preserve such Party's status as a REIT or the status of any of such Party's
Subsidiaries as a partnership for federal income tax purposes or as a qualified
REIT subsidiary under Section 856(i) of the Code) unless it is reasonably
expected that such action will not materially and adversely affect such Party,
including elections for any and all joint ventures, partnerships, limited
liability companies or other investments where MIT or the Company, as
appropriate, has the capacity to make such binding election, (ii) settle or
compromise any material claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to Taxes, except
where such settlement or compromise will not materially and adversely affect
such Party, or (iii) change in any material respect any of its methods of
reporting income or deductions for federal income tax purposes from those
employed in the preparation of its federal income Tax Returns that have been
filed for prior taxable years, except as may be required by applicable law or
except for changes that are reasonably expected not to materially and adversely
affect such Party.
(l) Certain Employee Matters. Except pursuant to Section 5.9, a Party shall
not and it shall not permit any of its Subsidiaries to: (i) grant any increases
in the compensation of any of its directors, trustees, officers or employees,
except increases to employees who are not directors, trustees or officers made
in the ordinary course of business and in accordance with past practice;
provided that payments of annual bonuses to officers and employees (x)
consistent with past practices, (y) as previously approved by the Board of
Directors or Board of Trustees of such Party and (z) up to the maximum amount,
including any discretionary component, permitted under such Party's existing
bonus plans shall not be deemed an increase in compensation; (ii) pay or
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agree to pay to any director, trustees, officer or employee, whether past or
present, any material pension, retirement allowance or other employee benefit
not required or contemplated by any of the existing MIT Employee Benefit Plans
or MIT Pension Plans or the Company Employee Benefit Plans or the Company
Pension Plans, as applicable, in each case as in effect on the date hereof;
(iii) enter into any new, or amend any existing, material employment or
severance or termination agreement with any director, officer or employee; or
(iv) become obligated under any new MIT Employee Benefit Plan or MIT Pension
Plan, or any new Company Employee Benefit Plan or Company Pension Plan, as
applicable, which was not in existence or approved by the Board of Directors of
MIT or the Board of Trustees of the Company, as applicable, prior to the date
hereof, or amend any such plan or arrangement in existence on the date hereof
if such amendment would have the effect of materially enhancing any benefits
thereunder.
(m) Indebtedness. MIT shall not, nor shall it permit any of its Subsidiaries
to, (i) incur any indebtedness for borrowed money (except (A) to finance any
transactions or other expenditures permitted by this Agreement (including those
referred to in Section 4.1(e)) and regular borrowings under credit facilities
made in the ordinary course of MIT's cash management practices, (B)
refinancings of existing debt and (C) immaterial borrowings that, in each such
case, permit prepayment of such debt without penalty) or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities of MIT or any of its Subsidiaries or guarantee any
debt securities of others or (ii) except in the ordinary course of business,
create any material mortgages, liens, security interests or similar other
encumbrances on the property of MIT or any of its Subsidiaries in connection
with any indebtedness thereof.
(n) Agreements. No Party shall, nor shall any Party permit any of its
Subsidiaries to, agree in writing or otherwise to take any action inconsistent
with any of the foregoing.
4.2 No Solicitation by MIT. Prior to the Effective Time, MIT agrees that:
(a) neither it nor any of its Subsidiaries shall initiate, solicit or
encourage, directly or indirectly, any inquiries or the making or
implementation of any proposal or offer (including, without limitation, any
proposal or offer to its stockholders) with respect to a merger,
acquisition, tender offer, exchange offer, consolidation, sale of assets or
similar transaction involving any purchase of 10% or more of the assets or
any equity securities of MIT or any of the MIT Subsidiaries, other than the
transactions contemplated by this Agreement (any such proposal or offer
being hereinafter referred to as a "MIT Acquisition Proposal") or engage in
any negotiations concerning or provide any confidential information or data
to, or have any discussions with, any person relating to a MIT Acquisition
Proposal, or otherwise facilitate any effort or attempt to make or
implement a MIT Acquisition Proposal;
(b) it will direct, and will use its best efforts to cause, its officers,
directors, employees, agents or financial advisors not to engage in any of
the activities in Section 4.2(a), except to the extent expressly permitted
thereby;
(c) it will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing and will take the necessary
steps to inform the individuals or entities referred to in Section 4.2(b)
of the obligations undertaken in this Section 4.2; and
(d) it will notify the Company promptly if MIT receives any such
inquiries or proposals, or any requests for such information, or if any
such negotiations or discussions are sought to be initiated or continued
with it;
provided, however, that nothing contained in this Section 4.2 shall prohibit
the Board of Directors of MIT from (i) furnishing information to, or entering
into discussions or negotiations with, any person or entity that makes an
unsolicited MIT Acquisition Proposal, if, and only to the extent that, (A) the
Board of Directors of MIT determines in good faith, following consultation with
and after considering the advice of its legal and financial advisors, that such
action could reasonably be expected to result in a MIT Superior Proposal (as
hereinafter defined), (B) prior to furnishing such information to, or entering
into discussions or negotiations with, such
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person or entity, MIT provides written notice to the Company to the effect that
it is furnishing information to, or entering into discussions with, such person
or entity (provided, however, that MIT shall not be required to identify such
person or group or disclose such terms or conditions to the Company until the
beginning of the five business day period referred to in Section 7.1(d), if the
Board of Directors of MIT determines, in good faith following consultation with
and after considering the advice of its legal and financial advisors, that such
identification or disclosure prior to such time would be reasonably likely to
materially impair such discussions or negotiations), and (C) subject to any
confidentiality agreement (which agreement was executed by MIT upon approval by
the MIT Board of Directors following consultation with and after considering
the advice of its legal and financial advisors) with such person or entity, MIT
keeps the Company informed of the status (not the terms) of any such
discussions or negotiations, and (ii) to the extent applicable, complying with
Rule 14e-2 or Rule 14d-9 promulgated under the Exchange Act with regard to a
MIT Acquisition Proposal. Nothing in this Section 4.2 shall (x) permit MIT to
enter into an agreement with respect to a MIT Acquisition Proposal during the
term of this Agreement (it being agreed that during the term of this Agreement,
MIT shall not enter into an agreement with any person that provides for, or in
any way facilitates, a MIT Acquisition Proposal (other than a confidentiality
agreement in customary form executed as provided above) or (y) affect any other
obligation of MIT under this Agreement; provided, however, that the Board of
Directors of MIT may approve and recommend a MIT Superior Proposal and, in
connection therewith, withdraw or modify its approval or recommendation of this
Agreement and the Merger. As used herein, a "MIT Superior Proposal" means a
bona fide MIT Acquisition Proposal made by a third party which a majority of
the members of the Board of Directors of MIT determines in good faith to be
more favorable to MIT's stockholders from a financial point of view than the
Merger (based on advice from MIT's independent financial advisor that the value
of the consideration provided for in such proposal is superior to the value of
the consideration provided for in the Merger), for which financing is then
committed or which, in the good faith reasonable judgment of the Board of
Directors of MIT, based on advice from MIT's independent financial advisor, is
reasonably capable of being financed by such third party, and for which the
Board of Directors of MIT determines, in its good faith reasonable judgment, is
reasonably capable of being consummated without undue delay.
ARTICLE V
Additional Agreements
5.1 Preparation of S-4 and the Joint Proxy Statement. The Company and MIT
shall promptly prepare and file with the SEC the Joint Proxy Statement and the
Company and MIT shall prepare, and the Company will file with the SEC, the S-4
in which the Joint Proxy Statement will be included as a prospectus in each
case in form and substance reasonably satisfactory to each of MIT and the
Company. Each of the Company and MIT shall use its reasonable best efforts to
have the S-4 declared effective under the Securities Act as promptly as
practicable after such filing and to keep such S-4 effective as long as
necessary to consummate the Merger. Each of the Company and MIT shall agree to
date the Joint Proxy Statement as of the approximate date of mailing to the
applicable shareholders, and each shall use its reasonable best efforts to
cause the Joint Proxy Statement to be mailed to their respective stockholders
at the earliest practicable date. The Company shall use its reasonable best
efforts to obtain all necessary state securities laws or "blue sky" permits,
approvals and registrations in connection with the issuance of Company Common
Stock and Company Cumulative Redeemable Preferred Stock in the Merger and upon
the exercise of MIT Stock Options and MIT Warrants and each of the Company and
MIT shall furnish all information concerning the Company and MIT and its
respective stockholders as may be reasonably requested in connection with
obtaining such permits, approvals and registrations.
5.2 Letter of MIT's Accountants. MIT shall use its reasonable best efforts to
cause to be delivered to the Company a letter of Arthur Andersen LLP, MIT's
independent public accountants, dated a date within two business days before
the date on which the S-4 shall become effective and addressed to the Company
and MIT, in form and substance reasonably satisfactory to the Company and
customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the S-4.
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5.3 Letter of the Company's Accountants. The Company shall use its reasonable
best efforts to cause to be delivered to MIT a letter of Arthur Andersen LLP,
the Company's independent public accountants, dated a date within two business
days before the date on which the S-4 shall become effective and addressed to
the Company and MIT, in form and substance reasonably satisfactory to MIT and
customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the S-4.
5.4 Access to Information. Upon reasonable notice, the Company and MIT, as
the case may be, shall (and shall cause each of their respective Subsidiaries
to) afford to the officers, employees, accountants, counsel and other
representatives of the others, access, during normal business hours during the
period prior to the Effective Time, to all its properties, books, contracts,
commitments and records, as well as to its officers and employees (provided
that neither the Company nor MIT shall contact any officer or employee of the
other party without first inquiring of the other party as to whether the
officer and employee to be contacted has been advised of the pendency of the
transactions contemplated by this Agreement) and, during such period, each of
the Company and MIT, as the case may be, shall (and shall cause each of their
respective Subsidiaries to) furnish promptly to the others (a) a copy of each
report, schedule, registration statement and other document filed or received
by it during such period pursuant to SEC requirements and (b) all other
information concerning its business, properties and personnel as such other
party may reasonably request. Each of the Company and MIT agrees that it will
not, and will cause its respective representatives not to, use any information
obtained pursuant to this Section 5.4 for any purpose unrelated to the
consummation of the transactions contemplated by this Agreement. The letter
agreement dated as of October 5, 1998 between the Company and MIT (the
"Confidentiality Agreement") shall apply with respect to information furnished
thereunder or hereunder and any other activities contemplated thereby.
5.5 Stockholders Meetings. MIT shall call a meeting of its stockholders to be
held as promptly as practicable after the date hereof for the purpose of voting
upon this Agreement and the Merger. The Company shall call a meeting of its
stockholders to be held as promptly as practicable after the date hereof for
the purpose of voting upon this Agreement and the Merger (including the
Company's issuance of Company Common Stock and the assumption of the MIT Stock
Plan and any MIT Stock Options). The Board of Trustees of the Company and,
subject to the provisions of Section 4.2, the Board of Directors of MIT will
recommend to its stockholders approval of such matters and not rescind such
recommendation and shall use its reasonable best efforts to obtain approval and
adoption of this Agreement and the Merger (including, in the case of the
Company, the issuance of Company Common Stock and the assumption of the MIT
Stock Plan and any MIT Stock Options) by its stockholders. Each of MIT and the
Company shall use all commercially reasonable efforts to hold such meetings on
the same date and as soon as practicable after the date upon which the S-4
becomes effective.
5.6 Approvals; Best Efforts.
(a) Each party hereto shall cooperate and use its reasonable best efforts to
promptly prepare and file all necessary documentation to effect all necessary
applications, notices, petitions, filings and other documents, and use all
commercially reasonable efforts to obtain (and will cooperate with each other
in obtaining) any consent, acquiescence, authorization, order or approval of,
or any exemption or nonopposition by, any Governmental Entity required to be
obtained or made by the Company or MIT or any of their respective Subsidiaries
in connection with the Merger or the taking of any action contemplated thereby
or by this Agreement.
(b) Subject to the terms and conditions herein provided, the Company and MIT
shall: (i) use its reasonable best efforts to cooperate with one another in (A)
determining which filings are required to be made prior to the Effective Time
with, and which consents, approvals, permits or authorizations are required to
be obtained prior to the Effective Time from, governmental or regulatory
authorities of the United States, the several states and foreign jurisdictions
and any third parties in connection with the execution and delivery of this
Agreement, and the consummation of the transactions contemplated by such
agreements and (B) timely making all such filings and timely seeking all such
consents, approvals, permits and authorizations, (ii) use its reasonable best
efforts
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to obtain in writing any consents required from third parties to effectuate the
Merger, such consents to be in form reasonably satisfactory to the Company and
MIT, and (iii) use its reasonable best efforts to take, or cause to be taken,
all other action and do, or cause to be done, all other things necessary,
proper or appropriate to consummate and make effective the transactions
contemplated by this Agreement. Nothing in this Section 5.6(b) shall be deemed
to require a party to make any payments to any third party in connection with
obtaining any such consents. If, at any time, after the Effective Time, any
further action is necessary or desirable to carry out the purpose of this
Agreement, the proper officers, trustees and directors of the Company shall
take all such necessary action.
5.7 Agreements of Rule 145 Affiliates. Prior to the Effective Time, MIT shall
cause to be prepared and delivered to the Company a list identifying all
persons who, at the time of the MIT stockholders meeting, may be deemed to be
"affiliates" of MIT, as that term is used in paragraphs (c) and (d) of Rule 145
under the Securities Act (the "Rule 145 Affiliates"). MIT shall use its
reasonable best efforts to cause each person who is identified as a Rule 145
Affiliate in such MIT list to deliver to the Company, at or prior to the
Effective Time, a written agreement, in substantially the form attached as
Exhibit C hereto, that such Rule 145 Affiliate will not sell, pledge, transfer
or otherwise dispose of any shares of Company Common Stock or Company
Cumulative Redeemable Preferred Stock issued to such Rule 145 Affiliate
pursuant to the Merger, except pursuant to an effective registration statement
or in compliance with Rule 145 or an exemption from the registration
requirements of the Securities Act. MIT and the Rule 145 Affiliates shall be
relieved of this obligation under the foregoing provisions of this Section 5.7
and such written agreements if, and to the extent, such Rule 145 is amended not
to require such written agreements or any of the covenants contained therein.
5.8 Authorization for Shares and Stock Exchange Listing. Prior to the
Effective Time, the Company shall have taken all action necessary to permit the
Company to issue the number of shares of Company Common Stock and Company
Cumulative Redeemable Preferred Stock, if any, required to be issued pursuant
to Section 2.1. The Company shall use its reasonable best efforts to cause (a)
the shares of Company Common Stock and Company Cumulative Redeemable Preferred
Stock to be issued in the Merger, (b) the shares of Company Common Stock to be
reserved for issuance upon exercise of MIT Stock Options and MIT Warrants and
issuances under the MIT Stock Plan to be approved for listing on the Exchange
and (c) the Public MIT Warrants to be approved for listing on the AMEX, subject
to official notice of issuance, prior to the Closing Date.
5.9 Employee Matters. (a) The Company and MIT agree that MIT shall terminate
the employment of all employees of MIT immediately prior to the Effective Time
and the Company and MIT agree that such terminations shall be deemed to have
occurred following a change of control for the purposes of any applicable
employment or severance agreements or severance plans.
(b) After the Effective Time, the Surviving Entity shall provide (or shall
continue to provide) coverage under the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA"), to all former MIT employees
who constitute qualified beneficiaries under COBRA and their eligible
dependents in accordance with the requirements of COBRA.
(c) In the event the Surviving Entity hires any former employee of MIT or its
Subsidiaries on or after the Effective Time, the Surviving Entity shall
determine the terms and conditions of such employment, provided that the
Surviving Entity will provide such employees with the same benefits that are
provided to similarly situated employees of the Company and its Subsidiaries.
(d) At the Effective Time, the Surviving Entity shall assume and perform each
of the severance agreements described on Schedule 3.1(l) to the MIT Disclosure
Schedule in the same manner and to the same extent that MIT would be required
to perform such agreements if no Merger had been consummated.
5.10 Stock Options. (a) MIT shall request that each MIT employee and director
that holds any MIT Stock Option take all actions necessary to cause,
immediately prior to the Effective Time, (i) each outstanding
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option to purchase MIT Common Stock and any stock appreciation rights related
thereto that have been granted pursuant to the MIT Stock Plan (each a "MIT
Stock Option") to be canceled, and in consideration of such cancellation, MIT
shall pay to each such holder of MIT Stock Options an amount in respect thereof
equal to the product of (A) the excess, if any, of the closing price of the MIT
Common Stock on the Exchange on the Trading Day immediately prior to the
Effective Time over the exercise price per share of such MIT Stock Option and
(B) the number of shares of MIT Common Stock subject thereto.
(b) At the Effective Time, each MIT Stock Option shall become,
notwithstanding anything in the MIT Stock Plan or any agreement governing MIT
Stock Options to the contrary, fully exercisable and vested as of the Effective
Time and shall remain outstanding and be assumed by the Surviving Entity. Each
such option shall be deemed to constitute an option to acquire, on the same
terms and conditions as were applicable under such MIT Stock Option, a number
of shares of Company Common Stock equal to the number of shares of MIT Common
Stock purchasable pursuant to such MIT Stock Option, multiplied by the
Conversion Number (plus the amount of Cash Consideration, if any, payable with
respect to the number of shares of MIT Common Stock issuable pursuant to such
MIT Stock Option immediately prior to the Effective Time), at a price per share
equal to the per-share exercise price for the shares of MIT Common Stock
purchasable pursuant to such MIT Stock Option divided by the Conversion Number;
provided, however, that in the case of any option to which Section 421 of the
Code applies by reason of its qualification under any of Sections 422 through
424 of the Code, the option price, the number of shares purchasable pursuant to
such option and the terms and conditions of exercise of such option shall be
determined in order to comply with Section 424(a) of the Code; and provided
further, that, unless otherwise provided in the applicable MIT Stock Plan or
MIT Stock Option, the number of shares of Company Common Stock that may be
purchased upon exercise of such MIT Stock Option shall not include any
fractional share and, upon exercise of such MIT Stock Option, a cash payment
shall be made for any fractional share based upon the closing price of a share
of Company Common Stock on the Exchange on the trading day immediately
preceding the date of exercise. Notwithstanding the terms of any MIT Stock
Option or the MIT Stock Plan, each MIT Stock Option shall be exercisable, and
shall not expire or otherwise terminate, until the earlier to occur of (i) the
fifth anniversary of the Closing Date and (ii) the date on which such MIT Stock
Option would otherwise expire if it were to remain outstanding for the longest
period of time permitted by the agreement governing such MIT Stock Option
without regard to any termination of employment provisions therein.
(c) The Company shall take all action necessary to reserve for issuance a
sufficient number of shares of Company Common Stock for delivery upon exercise
of the MIT Stock Options assumed in accordance with this Section 5.10. At or
prior to the Effective Time, the Company shall take all action necessary to
ensure that the exercise of any MIT Stock Options outstanding at the Effective
Time has been appropriately registered with the SEC on a registration statement
on Form S-8 (or any successor form) or another appropriate form with respect to
the shares of Company Common Stock subject to any such MIT Stock Options and
shall use its reasonable best efforts to maintain the effectiveness of such
registration statement or registration statements (and maintain the current
status of the prospectus or prospectuses contained therein) for so long as MIT
Stock Options remain outstanding.
5.11 MIT Warrants.
(a) Subject to the terms of their respective governing instruments, each MIT
Warrant issued and outstanding at the Effective Time shall remain outstanding
following the Effective Time. At the Effective Time, the Warrant Agreement and
each outstanding MIT Warrant shall be assumed by the Surviving Entity. Each
such MIT Warrant shall be deemed to constitute a warrant to acquire, on the
same terms and conditions as were applicable under such MIT Warrant, a number
of shares of Company Common Stock equal to the number of shares of MIT Common
Stock, purchasable pursuant to such MIT Warrant multiplied by the Conversion
Number (plus the amount of Cash Consideration, if any, payable with respect to
the number of shares of MIT Common Stock issuable upon the exercise of such MIT
Warrant immediately prior to the Effective Time), at a price per share equal to
the per-share exercise price for the shares of MIT Common Stock purchasable
pursuant
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to such MIT Warrant divided by the Conversion Number. Any fractional interests
shall be rounded up to one share of Company Common Stock (with all fractional
interests to which a holder would otherwise be entitled being aggregated before
any such rounding). The Company shall take all action necessary to reserve for
issuance a sufficient number of shares of Company Common Stock for delivery
upon exercise of the MIT Warrants assumed in accordance with this Section 5.11.
(b) Prior to the Effective Time, the Company shall file with the SEC a
registration statement on Form S-3 (or any successor form) or another
appropriate form with respect to the exercise of the Public MIT Warrants and
shall obtain the effectiveness of such registration statement at or prior to
the Closing Date. The Company shall maintain the effectiveness of such
registration statement (and maintain the current status of the prospectus or
prospectuses contained therein) through February 23, 1999 or such later date
through which the Public MIT Warrants shall remain exercisable.
5.12 Indemnification; Directors' and Officers' Insurance.
(a) From and after the Effective Time, the Surviving Entity shall provide
exculpation and indemnification for each person who is now or has been at any
time prior to the date hereof or who becomes prior to the Effective Time, an
officer or director of MIT or any MIT Subsidiary (the "MIT Indemnified
Parties") that is the same as the exculpation and indemnification provided to
the MIT Indemnified Parties by MIT (including advancement of expenses, if so
provided) immediately prior to the Effective Time in its charter and/or bylaws,
in any separate indemnification agreements between MIT and its directors or
officers or in any other MIT Employee Benefit Plan or MIT Pension Plan as in
effect at the close of business on the date hereof; provided, that such
exculpation and indemnification covers actions or omissions on or prior to the
Effective Time, including, without limitation, all transactions contemplated by
this Agreement. The Company shall obtain and maintain in effect at the
Effective Time and continuing until the sixth anniversary thereof "run-off"
directors and officers liability insurance with a coverage amount and other
terms and conditions no less favorable to the MIT Indemnified Parties than
under MIT's current directors and officers liability insurance policy covering
the directors and officers of MIT with respect to their service as such prior
to the Effective Time. The premium for such policy shall be paid in full at the
Effective Time.
(b) The provisions of this Section 5.12 are intended to be for the benefit
of, and shall be enforceable by, each MIT Indemnified Party, his or her heirs
and his or her personal representatives and shall be binding on all successors
and assigns of the Company and MIT. The Company agrees to pay all costs and
expenses (including fees and expenses of counsel) that may be incurred by any
MIT Indemnified Party or his or her heirs or his or her personal
representatives in successfully enforcing the indemnity or other obligations of
Acquiror under this Section 5.12. The provisions of this Section 5.12 shall
survive the Merger and are in addition to any other rights to which a MIT
Indemnified Party may be entitled.
(c) In the event that the Company or any of its respective successors or
assigns (i) consolidates with or merges into any other person and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger or (ii) transfers all or substantially all of its properties and assets
to any person, then, and in each such case, the successors and assigns of such
entity shall assume the obligations set forth in this Section 5.12, which
obligations are expressly intended to be for the irrevocable benefit of, and
shall be enforceable by, each MIT Indemnified Party.
5.13 Agreement to Defend. In the event any claim, action, suit, investigation
or other proceeding by any governmental body or other person or other legal or
administrative proceeding is commenced that questions the validity or legality
of the transactions contemplated hereby or seeks damages in connection
therewith, the parties hereto agree to cooperate and use their commercially
reasonable efforts to defend against and respond thereto.
5.14 Public Announcements. The parties hereto will consult with each other
before issuing, and provide each other with the reasonable opportunity to
review and comment upon, any press release or otherwise making any public
statements with respect to the transactions contemplated by this Agreement, and
shall not issue any
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such press release or make any such public statement without the reasonable
consent of the other party, except as may be required by applicable law, by
court process or by obligations pursuant to any listing agreement with any
national securities exchange or transaction reporting system so long as the
other party is notified promptly by the disclosing party of such press release
or public statement. The Parties agree that the initial press release to be
issued with respect to the transactions contemplated by this Agreement will be
in the form agreed to by the Parties hereto prior to the execution of the
Agreement.
5.15 Other Actions. Except as contemplated by this Agreement, neither the
Company nor MIT shall, nor shall the Company or MIT permit any of its
Subsidiaries to, take or agree or commit to take any action that is reasonably
likely to result in any of its respective representations or warranties
hereunder being untrue in any material respect or in any of the conditions to
the Merger set forth in Article VI not being satisfied. Each of the parties
agrees to use its reasonable best efforts to satisfy the conditions to Closing
set forth in this Agreement.
5.16 Advice of Changes; SEC Filings. The Company and MIT, as the case may be,
shall confer on a regular basis with each other, report on operational matters
and promptly advise each other orally and in writing of any change or event
having, or which would have a Material Adverse Effect on the Company or MIT, as
the case may be. The Company and MIT shall promptly provide each other (or
their respective counsel) copies of all filings made by such party or its
Subsidiaries with the SEC or any other state or federal Governmental Entity in
connection with this Agreement and the transactions contemplated hereby.
5.17 Reorganization. It is the intention of the Company and MIT that the
Merger will qualify as a reorganization described in Section 368(a) of the Code
(and any comparable provisions of applicable state or local law). Neither the
Company nor MIT (nor any of their respective Subsidiaries) will take or omit to
take any action (whether before, on or after the Closing Date), which action or
omission would cause the Merger not to be so treated. The parties will
characterize the Merger as such a reorganization for purposes of all Tax
Returns and other filings.
5.18 Conveyance Taxes. The Company and MIT will (a) cooperate in the
preparation, execution and filing of all returns, questionnaires, applications
or other documents regarding any real property transfer or gains, sales, use,
transfer, value added, stock transfer and stamp taxes, any transfer, recording,
registration and other fees and any similar taxes which become payable in
connection with the transactions contemplated by this Agreement that are
required or permitted to be filed on or before the Effective Time, (b)
cooperate in the preparation, execution and filing of all returns,
questionnaires, applications or other documents regarding any applicable
exemptions to any such tax or fee, and (c) each pay any such tax or fee which
becomes payable by it on or before the Effective Time.
5.19 Board of Trustees. The Company and MIT shall take such action as may be
necessary or advisable (including seeking approval of such matters as may be
necessary or advisable at the Company stockholders meeting and including a
solicitation of proxies for such matters in the Joint Proxy Statement) to
ensure that immediately after the Effective Time, two of the individuals
designated on Exhibit B hereto shall be elected to serve as members of the
Board of Trustees of the Surviving Entity. Exhibit B hereto also indicates the
assignment of such trustees to the classes on the Board of Trustees on which
they shall serve.
5.20 Registrations Rights Agreements. MIT shall use its commercially
reasonable efforts to obtain a written waiver of each holder of Registrable
Securities (as defined) under that certain Amended and Restated Investor Rights
Agreement dated as of February 23, 1996 between MIT, Hunt Realty Acquisitions,
L.P., USAA Real Estate Company, Meridian Point Realty Trust '83, Ameritech and
OTR, to the restrictions on the ability of MIT to grant registration rights
that are pari passu or senior to the registration rights granted to such
holders thereunder. MIT and the Company shall each use its commercially
reasonable efforts to negotiate a resolution with any affected stockholders of
MIT or the Company of any conflicts between the "piggy back" registration
rights granted by MIT to certain of its stockholders and the "demand"
registration rights granted by the Company to certain of its stockholders.
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5.21 Indemnification Agreements. At the Effective Time, the Surviving Entity
shall execute and deliver an indemnification agreement in substantially the
form attached as Exhibit D hereto to the two individuals on Exhibit B who are
appointed to the Board of Trustees of the Company.
5.22 Redemption or Conversion of MIT Series B Preferred Stock. Prior to the
Effective Time, MIT shall take all actions that are necessary or appropriate
and in accordance with the terms of the Articles Supplementary classifying
2,272,727 Shares of MIT Preferred Stock as MIT Series B Preferred Stock (the
"Articles Supplementary") to (a) redeem all of the outstanding shares of MIT
Series B Preferred Stock for an amount per share equal to $16.95, plus, an
amount equal to all per share dividends on the MIT Series B Preferred Stock
then accumulated and unpaid thereon, whether or not authorized, to and
including the date fixed for redemption or (b) require all holders of
outstanding shares of MIT Series B Preferred Stock to exchange such holders'
shares of MIT Series B Preferred Stock for the number of fully paid and
nonassessable shares of MIT Common Stock to which such holders would be
entitled as determined in accordance with the Articles Supplementary. The
parties hereto understand that each holder of MIT Series B Preferred Stock may
convert its shares of MIT Series B Preferred Stock into shares of MIT Common
Stock on or before the dated fixed for redemption in accordance with the terms
and conditions of the Articles Supplementary.
5.23 Investigation and Agreement by the Parties; No Other Representations or
Warranties.
(a) Each Party acknowledges and agrees that it has made its own inquiry and
investigation into, and, based thereon, has formed an independent judgment
concerning, the other Party and its Subsidiaries and their businesses and
operations, and such Party has requested such documents and information from
the other Party as such Party considers material in determining whether to
enter into this Agreement and to consummate the transactions contemplated in
this Agreement. Each Party acknowledges and agrees that it has had an
opportunity to ask all questions of and receive answers from the other Party
with respect to any matter such Party considers material in determining whether
to enter into this Agreement and to consummate the transactions contemplated in
this Agreement. In connection with each Party's investigation of the other
Party and its Subsidiaries and their businesses and operations, each Party and
its representatives have received from the other Party or its representatives
certain projections and other forecasts for the other Party and its
Subsidiaries and certain estimates, plans and budget information. Each Party
acknowledges and agrees that there are uncertainties inherent in attempting to
make such projections, forecasts, estimates, plans and budgets; that such Party
is familiar with such uncertainties; that such Party is taking full
responsibility for making its own evaluation of the adequacy and accuracy of
all estimates, projections, forecasts, plans and budgets so furnished to it or
its representatives; and that such Party will not (and will cause all of its
respective Subsidiaries or other Affiliates or any other person acting on its
behalf to not), in the absence of fraud, assert any claim or cause of action
against any of the other Party's direct or indirect partners, directors,
officers, employees, agents, stockholders, Affiliates, consultants, counsel,
accountants, investment bankers or representatives with respect thereto, or
hold any such other person liable with respect thereto.
(b) Each Party agrees that, except for the representations and warranties
made by the other Party that are expressly set forth in Section 3.1 or 3.2 of
this Agreement, as applicable, the other Party has not made and shall not be
deemed to have made to such Party or to any of its representatives or
Affiliates any representation or warranty of any kind. Without limiting the
generality of the foregoing, each Party agrees that neither the other Party nor
any of its Affiliates makes or has made any representation or warranty to such
Party or to any of its representatives or Affiliates with respect to:
(i) any projections, forecasts, estimates, plans or budgets of future
revenues, expenses or expenditures, future results of operations (or any
component thereof), future cash flows (or any component thereof) or future
financial condition (or any component thereof) of the other Party or any of
its Subsidiaries or the future business, operations or affairs of the other
Party or any of its Subsidiaries heretofore or hereafter delivered to or
made available to such Party or its counsel, accountants, advisors,
lenders, representatives or Affiliates; and
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(ii) any other information, statement or documents heretofore or
hereafter delivered to or made available to such Party or its counsel,
accountants, advisors, lenders, representatives or Affiliates with respect
to the other Party or any of its Subsidiaries or the business, operations
or affairs of the other Party or any of its Subsidiaries, except to the
extent and as expressly covered by a representation and warranty made by
the other Party and contained in Section 3.1 or 3.2 of this Agreement, as
applicable.
5.24 Partnership Agreements. At the Effective Time, the Surviving Entity
shall assume and perform any obligation that MIT or any Subsidiary of MIT has
immediately prior to the Effective Time to issue securities in accordance with
the terms of any partnership agreement to which MIT or any Subsidiary of MIT is
a party, in the same manner and to the same extent that MIT would be required
to perform such obligation if no Merger had been consummated.
5.25 MIT Senior Notes. The Company shall (a) execute and deliver to each
holder of MIT's 7.25% Senior Notes, Series A, due 2007 and 7.30% Senior Notes,
Series B, due 2009 (collectively, the "MIT Senior Notes") evidence of its
assumption of the due and punctual performance and observance of each covenant
and agreement of the Note Purchase Agreement dated November 15, 1997 with
respect thereto and (b) cause to be delivered to each such holder an opinion of
nationally recognized independent counsel to the effect that all agreements or
instruments effecting such assumption are enforceable in accordance with their
terms and comply with the terms of such Note Purchase Agreement.
5.26 MIT Voting Agreement. MIT shall use its reasonable best efforts to cause
The Prudential Insurance Company of America ("Prudential") to enter into a
written agreement with the Company in the form of the agreement between MIT and
Security Capital Group Incorporated referred to in the recitals to this
Agreement (with such changes thereto as are required by the differences in the
parties and the nature of their stock ownership), pursuant to which Prudential
will agree to vote or cause to be voted at the stockholders meeting of MIT
contemplated hereby all of the shares of MIT Common Stock owned by it at such
time in favor of this Agreement and the Merger and the transactions
contemplated thereby (the "Prudential Voting Agreement").
ARTICLE VI
Conditions Precedent
6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to
the satisfaction prior to the Closing Date of the following conditions:
(a) MIT Stockholder Approval. The Merger and all other actions
contemplated hereby that require the approval of MIT's stockholders shall
have been approved and adopted by the affirmative vote of the holders of a
majority of the outstanding shares of MIT Common Stock entitled to vote
thereon.
(b) Company Stockholder Approval. This Agreement and the Merger
(including the issuance of Company Common Stock and all other actions
contemplated hereby that require the approval of the Company's stockholders
shall have been approved and adopted by the affirmative vote of the holders
of two-thirds of the outstanding shares of Company Common Stock entitled to
vote thereon.
(c) Exchange Listing. The shares of Company Common Stock and Company
Cumulative Redeemable Preferred Stock issuable to MIT stockholders pursuant
to this Agreement in the Merger and, to the extent such securities are then
outstanding, upon the exercise of the MIT Stock Options and the MIT
Warrants shall have been authorized for listing on the Exchange, subject to
official notice of issuance. The Public MIT Warrants, to the extent such
securities are then outstanding, shall have been authorized for listing on
the AMEX, subject to official notice of issuance.
(d) Other Approvals. All consents, approvals, permits and authorizations
required to be obtained prior to the Effective Time from any Governmental
Entity as indicated in Section 3.1(c) or Schedule 3.1(c) to the MIT
Disclosure Schedule in connection with the execution and delivery of this
Agreement and the
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consummation of the transactions contemplated hereby shall have been made
or obtained (as the case may be), except for such governmental consents,
approvals, permits and authorizations the failure of which to be obtained
would not, in the aggregate, result in a Material Adverse Effect on the
Company (assuming the Merger has occurred) or to materially adversely
affect the consummation of the Merger, and no such governmental consent,
approval, permit or authorization shall impose terms or conditions that
would have a Material Adverse Effect on the Company (assuming the Merger
has occurred). Unless otherwise agreed to by the Company and MIT (which
agreement shall not be unreasonably withheld), no such governmental
consent, approval, permit or authorization shall then be subject to appeal.
(e) S-4. The S-4 shall have become effective under the Securities Act and
shall not be the subject of any stop order or proceedings seeking a stop
order.
(f) No Injunctions or Restraints No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction, no order of any Governmental Entity having
jurisdiction over any party hereto, and no other legal restraint or
prohibition shall be in effect (an "Injunction") preventing or making
illegal the consummation of the Merger.
(g) Meridian Refrigerated Stock Purchase Agreement. The sale of the
outstanding shares of common stock of Meridian Refrigerated, Inc. pursuant
to that certain Stock Purchase Agreement of even date herewith, a copy of
which is attached as Exhibit E hereto, shall have been consummated.
(h) Meridian Point Properties Stock Purchase Agreement. The sale of the
outstanding shares of capital stock of Meridian Point Properties, Inc.
pursuant to that certain Stock Purchase Agreement of even date herewith, a
copy of which is attached as Exhibit F hereto, shall have been consummated.
6.2 Conditions to Obligations of the Company. The obligations of the Company
to effect the Merger are subject to the satisfaction of the following
conditions, any or all of which may be waived in whole or in part by the
Company:
(a) Representations and Warranties of MIT. Each of the representations
and warranties of MIT set forth in this Agreement shall be true and correct
in all material respects as of the date of this Agreement and (except to
the extent such representations and warranties speak expressly as of an
earlier date) as of the Closing Date as though made on and as of the
Closing Date; provided, however, that this condition shall be deemed to
have been satisfied unless the individual or aggregate impact of all
inaccuracies of such representations and warranties (without regard to any
materiality or Material Adverse Effect qualifier(s) contained in any and
each such representation or warranty) would have a Material Adverse Effect
on MIT and its Subsidiaries taken as a whole. The Company shall have
received a certificate signed on behalf of MIT by the Chief Executive
Officer and the Chief Financial Officer of MIT to such effect.
(b) Performance of Obligations of MIT. MIT shall have performed in all
material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date, and the Company shall have
received a certificate signed on behalf of MIT by the Chief Executive
Officer and the Chief Financial Officer of MIT to such effect.
(c) Tax Opinions.
(i) The Company shall have received an opinion, in form and substance
reasonably satisfactory to the Company, dated the Closing Date, a copy
of which will be furnished to MIT, of Mayer, Brown & Platt, counsel to
the Company, to the effect that, if the Merger is consummated in
accordance with the terms of this Agreement, the Merger will be treated
as a reorganization within the meaning of Section 368(a) of the Code,
no gain or loss will be recognized for federal income tax purposes by
the Company as a result of the Merger. In rendering such opinion, such
counsel may receive and rely upon customary factual representations of
fact and covenants of MIT and the Company.
(ii) The Company shall have received an opinion, in substance
reasonably satisfactory to the Company, dated the Closing Date, of
Vinson & Elkins L.L.P., counsel to MIT, to the effect that (A) MIT has
qualified to be taxed as a real estate investment trust pursuant to the
Code for its taxable
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years ending December 31, 1995, 1996, 1997 and 1998 and its taxable
year ending as of the Closing Date and (B) each MIT Partnership (as
hereafter defined) is properly treated as a partnership and not as a
"publicly traded partnership" for federal income tax purposes. For
purposes of this Agreement, the term "MIT Partnership" shall include
all MIT Subsidiaries that are organized as partnerships included in
Schedule 3.1(a) to the MIT Disclosure Schedule.
(d) Director and Officer Loans. The directors and officers of MIT shall
have paid in full any and all loans which MIT has guaranteed.
(e) MIT Series B Preferred Stock. All shares of MIT Series B Preferred
Stock shall have been redeemed or exchanged pursuant to Section 5.22
hereof.
6.3 Conditions to Obligations of MIT. The obligation of MIT to effect the
Merger is subject to the satisfaction of the following conditions, any or all
of which may be waived in whole or in part by MIT:
(a) Representations and Warranties of the Company. Each of the
representations and warranties of the Company set forth in this Agreement
shall be true and correct in all material respects as of the date of this
Agreement and (except to the extent such representations and warranties
speak as of an earlier date) as of the Closing Date as though made on and
as of the Closing Date; provided, however, that this condition shall be
deemed to have been satisfied unless the individual or aggregate impact of
all inaccuracies of such representations and warranties (without regard to
any materiality or Material Adverse Effect qualifier(s) contained in any
and each such representation and warranty) would have a Material Adverse
Effect on the Company and its Subsidiaries taken as a whole. MIT shall have
received a certificate signed on behalf of the Company by the Chief
Executive Officer and the Chief Financial Officer of the Company to such
effect.
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date, and MIT shall
have received a certificate signed on behalf of the Company by the Chief
Executive Officer and the Chief Financial Officer of the Company to such
effect.
(c) Tax Opinions
(i) MIT shall have received an opinion, in form and substance
reasonably satisfactory to MIT, dated the Closing Date, a copy of which
will be furnished to the Company, of Vinson & Elkins L.L.P., counsel to
MIT, to the effect that, if the Merger is consummated in accordance
with the terms of this Agreement, the Merger will be treated as a
reorganization within the meaning of Section 368(a) of the Code, no
gain or loss will be recognized for federal income tax purposes by MIT
as a result of the Merger and no gain or loss will be recognized for
federal income tax purposes by a stockholder of MIT as a result of the
Merger upon the conversion of shares of MIT Common Stock or MIT Series
D Preferred Stock into shares of Company Common Stock or Company
Cumulative Redeemable Preferred Stock, as applicable, except with
respect to (A) cash, if any, received as Merger Consideration, (B)
cash, if any, received in lieu of fractional shares of Company Common
Stock or (C) a stockholder in special circumstances, such as a
stockholder who acquired shares of MIT Common Stock through the
exercise of employee stock options or otherwise as compensation for
employment. In rendering such opinion, such counsel may receive and
rely upon customary factual representations of fact and covenants of
MIT and the Company.
(ii) MIT shall have received an opinion, in substance reasonably
satisfactory to MIT, dated the Closing Date, of Mayer, Brown & Platt,
counsel to Company, to the effect that (A) Company has qualified to be
taxed as a real estate investment trust pursuant to the Code for its
taxable years ending December 31, 1995, 1996, 1997 and 1998 and
Company's present organization, ownership, method of operation, assets
and income are such that Company will so qualify for the taxable year
in which the Closing occurs and (B) each Company Partnership (as
hereinafter defined) is properly treated as a partnership and not as a
"publicly traded partnership" for federal income tax purposes. For
purposes of this Agreement, the term "Company Partnership" shall
include all Company Subsidiaries that are organized as partnerships
included in Schedule 3.2(a) to the Company Disclosure Schedule.
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ARTICLE VII
Termination and Amendment
7.1 Termination. This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, whether before or after
approval of the matters presented in connection with the Merger by the
stockholders of MIT and the stockholders of the Company:
(a) by mutual written consent of the Company and MIT, or by mutual action
of their respective Board of Directors or Board of Trustees, as applicable;
(b) by either the Company or MIT:
(i) if (A) any Governmental Entity shall have issued any Injunction
or taken any other action permanently restraining, enjoining or
otherwise prohibiting the consummation of the Merger and such
Injunction or other action shall have become final and nonappealable;
or (B) any required approval of the stockholders of a party shall not
have been obtained by reason of the failure to obtain the required vote
upon a vote held at a duly held meeting of stockholders, or at any
adjournment thereof;
(ii) if the Merger shall not have been consummated by July 31, 1999
(the "Termination Date"); provided, however, that the right to
terminate this Agreement under this Section 7.1(b)(ii) shall not be
available to any party whose breach of any representation or warranty
or failure to fulfill any covenant or agreement under this Agreement
has been the cause of or resulted in the failure of the Merger to occur
on or before such date; or
(iii) in the event of a breach by the other Party of any
representation, warranty, covenant or other agreement contained in this
Agreement which (A) would give rise to the failure of a condition set
forth in Section 6.2(a) or (b) or Section 6.3(a) or (b), as applicable,
and (B) cannot be or has not been cured within 30 days after the giving
of written notice to the breaching Party of such breach, provided that
in no event shall such 30-day period extend beyond the Termination
Date, and expressly including a breach of either party's covenant to
recommend the approval of the Merger and this Agreement as provided in
Section 5.5 (subject to the provisions of Section 4.2), which breach
the parties agree cannot be cured and shall be deemed a "willful
breach" for the purposes of Section 7.2(a) (a "Material Breach")
(provided that the terminating Party is not then in Material Breach of
any representation, warranty, covenant or other agreement contained in
this Agreement);
(c) by the Company if (i) the Board of Directors of MIT shall have
withdrawn or modified, in any manner which is adverse to the Company, its
recommendation or approval of the Merger or this Agreement and the
transactions contemplated hereby, or shall have resolved to do so, in each
case, in compliance with Section 4.2, or (ii) the Board of Directors of MIT
shall have recommended to the stockholders of MIT any MIT Acquisition
Proposal or any transaction described in the definition of MIT Acquisition
Proposal, or shall have resolved to do so, in each case, in compliance with
Section 4.2;
(d) by MIT, if (i) the Board of Directors of MIT shall have determined to
withdraw or modify, in any manner which is adverse to the Company, its
recommendation or approval of the Merger or this Agreement and the
transactions contemplated hereby pursuant to Section 4.2, (ii) MIT shall
have given notice to the Company advising the Company that MIT has received
a MIT Superior Proposal from a third party, specifying the material terms
and conditions of such MIT Superior Proposal (including the identity of the
third party) and that MIT intends to terminate this Agreement in accordance
with this Section 7.1(d), and (iii) either (A) the Company shall not have
revised its acquisition proposal within five business days after the date
on which such notice is deemed to have been given to the Company, or (B) if
the Company within such period shall have revised its acquisition proposal,
the Board of Directors of MIT, after consultation with MIT's financial
advisor, shall have determined in its good faith reasonable judgment that
the third party's MIT Acquisition Proposal is superior to the Company's
revised acquisition proposal; provided that MIT may not effect such
termination pursuant to this Section 7.1(d) unless MIT has
contemporaneously with such termination tendered payment to the Company, or
its designee, of the MIT Termination Fee pursuant to Section 7.2(b) and the
five business day period has expired; or
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(e) by MIT if (i) the Board of Trustees of the Company shall have failed
to recommend against a tender or exchange offer for the acquisition of 50%
or more of the Company Common Stock then outstanding within the time
periods proscribed under Rule 14d-9 and Rule 14e-2 under the Exchange Act,
or (ii) the Company shall have (A) entered into or recommended or been
required to disclose a transaction, or proposal or offer, involving the
acquisition, directly or indirectly, for consideration consisting of cash
and/or securities, of 50% or more of the shares of Company Common Stock
then outstanding, voting securities representing 50% or more of the voting
power of the then outstanding shares of beneficial interest of the Company,
or all or substantially all of the assets of the Company (a "Company
Acquisition Proposal"), other than an unsolicited Company Acquisition
Proposal that the Board of Trustees of the Company is recommending against
or with respect to which the Board of Trustees of the Company has not yet
taken a position, or (B) entered into any agreement in respect of a Company
Acquisition Proposal.
A terminating Party shall provide written notice of termination to the other
Party specifying with particularity the reason for such termination. A
terminating Party may rely on only one provision in this Section 7.1 for any
such termination.
7.2 Effect of Termination.
(a) In the event of termination of this Agreement by any party hereto as
provided in Section 7.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of any party hereto except with
respect to this Section 7.2, the second and third sentences of Section 5.4,
Section 8.1, Section 8.3, Section 8.4, Section 8.5, Section 8.6, Section 8.7
and Section 8.8; provided, however, that, notwithstanding the provisions of
Sections 7.2(e) and (f), if such termination results from a willful breach
(except as provided in Section 8.8) by a party hereto of any of its
representations or warranties or of any of its covenants or agreements
contained in this Agreement, the breaching Party shall be fully liable for such
breach notwithstanding the termination of this Agreement.
(b) If (i) the Company terminates this Agreement pursuant to Section 7.1(c)
or (ii) MIT terminates this Agreement pursuant to Section 7.1(d), then MIT
shall, on the day of such termination, pay the Company a fee in cash equal to
Twenty-Five Million Dollars ($25,000,000), or if such termination occurs at any
time prior to the time at which Prudential enters into the Prudential Voting
Agreement the amount of such fee shall be Forty Million Dollars ($40,000,000)
(such fee in the applicable amount is referred to as the "MIT Termination
Fee"), by wire transfer of immediately available funds to an account designated
by the Company.
(c) If (i) MIT terminates this Agreement pursuant to Section 7.1(e), then the
Company shall, on the day of such termination, pay MIT a fee of Twenty-Five
Million Dollars ($25,000,000) (the "Company Termination Fee") in cash by wire
transfer of immediately available funds to an account designated by MIT.
(d) If (i) this Agreement is terminated by either MIT or the Company pursuant
to clause (B) of Section 7.1(b)(i) because the stockholders of MIT shall not
have approved and adopted this Agreement and the Merger at MIT's stockholders
meeting referred to in Section 5.5, (ii) at the time of such stockholder
meeting there shall have been pending a MIT Acquisition Proposal and (iii)
within 12 months after the date of such MIT stockholders' meeting, MIT agrees
to or consummates a MIT Acquisition Proposal (whether or not such Merlot
Acquisition Proposal is the same Merlot Acquisition Proposal pending at the
time of such meeting), then at the closing or other consummation of such MIT
Acquisition Proposal MIT shall pay the Company an amount equal to the MIT
Termination Fee by wire transfer of immediately available funds to an account
designated by the Company.
(e) If this Agreement is terminated by the Company pursuant to Section
7.1(b)(iii) because MIT is in Material Breach of this Agreement, then MIT
shall, on the date of such termination, pay to the Company (provided MIT was
not entitled to terminate this Agreement pursuant to Section 7.1(b)(iii)) the
Company Termination Expenses (as defined below) in cash by wire transfer of
immediately available funds to an account
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designated by the Company. The Company Termination Expenses shall be an amount
equal to the lesser of One Million Two Hundred and Fifty Thousand Dollars
($1,250,000) or the Company's out-of-pocket expenses incurred in connection
with this Agreement and the transactions contemplated hereby (including all
attorney's, accountant's and investment banker's fees and expenses and a
reasonable allocation of the time of any in-house counsel engaged on the
transactions contemplated hereby).
(f) If this Agreement is terminated by MIT pursuant to Section 7.1(b)(iii)
because the Company is in Material Breach of this Agreement, the Company shall,
on the day of such termination, pay to MIT (provided the Company was not
entitled to terminate this Agreement pursuant to Section 7.1(b)(iii)) the MIT
Termination Expenses (as defined below) in cash by wire transfer of immediately
available funds to an account designated by MIT. The MIT Termination Expenses
shall be an amount equal to the lesser of One Million Two Hundred and Fifty
Thousand Dollars ($1,250,000) or MIT's out-of-pocket expenses incurred in
connection with this Agreement and the transactions contemplated hereby
(including all attorney's, accountant's and investment banker's fees and
expenses, and a reasonable allocation of the time of any in-house counsel
engaged on the transactions contemplated hereby).
(g) If (i) this Agreement is terminated by the Company pursuant to Section
7.1(b)(iii) because MIT is in Material Breach of this Agreement, (ii) at the
time of termination of this Agreement there shall have been a pending MIT
Acquisition Proposal and (iii) within 12 months after the date of the
termination of this Agreement, MIT agrees to or consummates a MIT Acquisition
Proposal (whether or not such MIT Acquisition Proposal is the same MIT
Acquisition Proposal pending at the time of such termination), then at the
closing or other consummation of such MIT Acquisition Proposal MIT shall pay
the Company an amount equal to the MIT Termination Fee (less any Company
Termination Expenses previously paid to the Company pursuant to Section 7.2(e)
and the amount of any damages payable pursuant to Section 7.2(a) or any
settlements paid with respect to claims made under Section 7.2(a)) by wire
transfer of immediately available funds to an account designated by the
Company.
(h) Notwithstanding the above, to the extent that the right to receive a MIT
Termination Fee or Company Termination Fee (the "Break-up Payment") in a
taxable year would create excessive bad income ("EBI") for the recipient (the
"Payee"), the right to receive the portion of the Break-up Payment that would
create EBI shall be deferred, or potentially extinguished, as set forth below.
The right to receive a Break-up Payment shall be treated as creating EBI for
the Payee to the extent that the right to receive the amount, when taken into
account with other gross income of the Payee for that year, would cause the
Payee to violate for that taxable year either the 75% or 95% gross income tests
described in Sections 856(c)(2) or 856(c)(3) of the Code.
Any amount deferred in a particular taxable year pursuant to the preceding
sentences shall become payable in the next succeeding year(s); but only to the
extent that it would not then create EBI. To the extent that any deferred
amount would continue to create EBI after it has been carried forward for seven
years (applying first in, first out principles), that portion shall no longer
be an obligation of the payor. Notwithstanding the foregoing, Break-up Payments
that would otherwise be considered EBI under the preceding provisions shall be
made if and to the extent the Payee, as a condition precedent, obtains an
opinion of tax counsel or private ruling from the IRS that the receipt of such
excess amounts would not adversely affect the Payee's ability to qualify as a
REIT. If a Break-up Payment is inadvertently made in an amount in excess of the
limitations set forth above, such excess payments shall be treated as a loan
from the payor to the Payee, to be repaid as soon as practicable following
discovery of the overpayment. The purpose of these provisions dealing with EBI
is to protect the REIT status of the Payees, and these provisions shall be
interpreted and applied so as to accomplish that purpose.
7.3 Amendment. This Agreement may be amended by the parties hereto, by action
taken or authorized by their respective Board of Directors and Board of
Trustees, at any time before or after approval of the matters presented in
connection with the Merger by the stockholders of MIT and the stockholders of
the Company, provided, however, that after any such approval, no amendment
shall be made which by law requires further approval by such stockholders
without first obtaining such further approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
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7.4 Extension; Waiver. At any time prior to the Effective Time, the parties
hereto, by action taken or authorized by their respective Board of Directors
and Board of Trustees, may, to the extent legally allowed: (a) extend the time
for the performance of any of the obligations or other acts of the other
parties hereto; (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto; and
(c) subject to the provision in the last sentence of Section 7.3, waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall
be valid only if set forth in a written instrument signed on behalf of such
party.
ARTICLE VIII
General Provisions
8.1 Payment of Expenses. Each party hereto shall pay its own expenses
incident to preparing for entering into and carrying out this Agreement and the
consummation of the transactions contemplated hereby, whether or not the Merger
shall be consummated, except that the Company and MIT shall share equally the
expenses incurred by the Company and MIT in connection with the printing and
mailing of the Joint Proxy Statement and all filing fees paid in connection
with the S-4 to the SEC and provided that this Section 8.1 shall in no way
affect the rights and obligations of the Parties under Article VII.
8.2 Nonsurvival of Representations, Warranties and Agreements. Subject to the
remaining provisions of this Section 8.2, the representations, warranties and
agreements in this Agreement shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any other party
hereto, any person controlling any such party or any of their officers,
directors, representatives or agents whether prior to or after the execution of
this Agreement. None of the representations, warranties and agreements in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Effective Time and any liability for breach or violation thereof
shall terminate absolutely and be of no further force and effect at and as of
the Effective Time, except for the agreements contained in Sections 2.1, 2.2,
5.9 through 5.13, 5.19, 5.21 and Article VIII, and the agreements delivered
pursuant to Section 5.7. The Confidentiality Agreement shall survive the
execution and delivery of this Agreement, and the provisions of the
Confidentiality Agreement shall apply to all information and material delivered
hereunder.
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<PAGE>
8.3 Notices. Any notice or communication required or permitted hereunder
shall be in writing and either delivered personally, telegraphed or telecopied
or sent by certified or registered mail, postage prepaid, and shall be deemed
to be given, dated and received (a) when so delivered personally, (b) upon
receipt of an appropriate electronic answerback or confirmation when so
delivered by telegraph or telecopy (to such number specified below or another
number or numbers as such person may subsequently designate by notice given
hereunder), or (c) five business days after the date of mailing to the
following address or to such other address or addresses as such person may
subsequently designate by notice given hereunder, if so delivered by mail:
(i) if to the Company, to:
ProLogis Trust
14100 East 35th Place
Aurora, Colorado 80111
Telecopy: (303) 576-2761
Attention: General Counsel
with a copy to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Telecopy: (312) 701-7711
Attention: Michael T. Blair
and (b) if to MIT, to:
Meridian Industrial Trust, Inc.
455 Market Street, 17th Floor
San Francisco, California 94105
Telecopy: (415) 228-3909
Attention: Chief Executive Officer
with copies to:
Vinson & Elkins L.L.P. Meridian Industrial Trust, Inc.
2001 Ross Avenue 455 Market Street, 17th Floor
Dallas, Texas 75201 San Francisco, California 94105
Telecopy: (214) 220-7716 Telecopy: (415) 284-2840
Attention: Michael D. Wortley Attention: General Counsel
8.4 Interpretation. When a reference is made in this Agreement to Sections,
such reference shall be to a Section of this Agreement unless otherwise
indicated. The table of contents, glossary of defined terms and headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement. Whenever the
word "include," "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation." Unless the
context otherwise requires, "or" is disjunctive but not necessarily exclusive,
and words in the singular include the plural and in the plural include the
singular.
8.5 Counterparts. This Agreement may be executed in two or more counterparts,
all of which shall be considered one and the same agreement and shall become
effective when two or more counterparts have been signed by each of the parties
and delivered to the other parties, it being understood that all parties need
not sign the same counterpart.
8.6 Entire Agreement; No Third Party Beneficiaries. This Agreement (together
with the Confidentiality Agreement and any other documents and instruments
referred to herein) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereto. The provisions of Sections 5.9, 5.10,
5.11, 5.12, 5.19, 5.21, 5.24 and 5.25 are intended to
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<PAGE>
be for the benefit of, and shall be enforceable by, the persons referred to
therein and their respective heirs and representatives. Except as provided in
the immediately preceding sentence, this Agreement is not intended to confer
upon any person other than the parties hereto any rights or remedies hereunder.
8.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Maryland, without giving effect to the
principles of conflicts of law thereof.
8.8 No Remedy in Certain Circumstances. Each party agrees that, should any
court or other competent authority hold any provision of this Agreement or part
hereof to be null, void or unenforceable, or order any party to take any action
inconsistent herewith or not to take an action consistent herewith or required
hereby, the validity, legality and enforceability of the remaining provisions
and obligations contained or set forth herein shall not in any way be affected
or impaired thereby, unless the foregoing inconsistent action or the failure to
take an action constitutes a material breach of this Agreement or makes this
Agreement impossible to perform, in which case this Agreement shall terminate
pursuant to Article VII hereof. Except as otherwise contemplated by this
Agreement, to the extent that a party hereto took an action inconsistent
herewith or failed to take action consistent herewith or required hereby
pursuant to an order or judgment of a court or other competent authority, such
party shall not incur any liability or obligation unless such party breached
its obligations under Confidentiality Agreement or did not in good faith seek
to resist or object to the imposition or entering of such order or judgment.
8.9 Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether
by operation of law or otherwise) without the prior written consent of the
other parties. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and assigns.
8.10 Specific Performance. The parties hereby acknowledge and agree that the
failure of any party to this Agreement to perform its obligations hereunder in
accordance with their specific terms or to otherwise comply with such
obligations, including its failure to take all actions as are necessary on its
part to the consummation of the Merger, will cause irreparable injury to the
other party to this Agreement for which damages, even if available, will not be
an adequate remedy. Accordingly, each of the parties hereto hereby consents to
the issuance of injunctive relief by any court of competent jurisdiction to
compel performance of any party's obligations, including an injunction to
prevent breaches, and to the granting by any such court of the remedy of
specific performance of the terms and conditions hereof.
8.11 Director, Trustee and Officer Liability. To the maximum extent
permissible under Maryland law, the directors, trustees, officers and
stockholders of each party hereto and its Affiliates in their capacity as such
shall not have any personal liability or obligation arising under this
Agreement (including any claims that the other party may assert). Each Party
shall look solely to the assets of the other party hereto for satisfaction of
any liability of such other party with respect to this Agreement and any other
agreements to which it is a party.
8.12 Schedule Definitions. All capitalized terms in the MIT Disclosure
Schedule or Company Disclosure Schedule shall have the meanings ascribed to
them herein, unless the context otherwise requires or as otherwise defined.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK]
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<PAGE>
In Witness Whereof, each party has caused this Agreement to be signed by its
respective officer thereunto duly authorized, all as of the date first written
above.
PROLOGIS TRUST, a Maryland real
estate investment trust
/s/ Edward S. Nekritz
By: _________________________________
Name: Edward S. Nekritz
Title: Vice President
MERIDIAN INDUSTRIAL TRUST, INC., a
Maryland corporation
/s/ Allen J. Anderson
By: _________________________________
Name: Allen J. Anderson
Title: Chairman and Chief Executive
Officer
A-50
<PAGE>
ANNEX B
[Merrill Lynch letterhead]
November 16, 1998
Board of Trustees
ProLogis Trust
14100 East 35th Place
Aurora, CO 80011
Members of the Board of Trustees:
ProLogis Trust (the "Acquiror") and Meridian Industrial Trust, Inc. (the
"Company") propose to enter into an Agreement and Plan of Merger, dated
November 16, 1998 (the "Agreement"), pursuant to which the Company will be
merged with and into the Acquiror in a transaction (the "Transaction") in which
each of the issued and outstanding shares of beneficial interest of the
Company, par value $.001 per share (all such shares, the "Company Shares"),
will be converted into the right to receive 1.10 shares (the "Exchange Ratio")
of Acquiror shares of beneficial interest, par value $.01 per share (all such
shares, the "Acquiror Shares") plus, to the extent the Average Trading Price
(as defined in the Agreement) is less than $22.725 per share, an amount in cash
of up to $2.00 (such per share cash payment together with the Exchange Ratio,
the "Merger Consideration").
You have asked us whether, in our opinion, the Merger Consideration is fair
from a financial point of view to the Acquiror and the holders of Acquiror
Shares.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial
information relating to the Acquiror and the Company which we deemed to be
relevant;
(2) Reviewed certain information, including financial forecasts, relating
to the business, earnings, funds from operations, adjusted funds from
operations, cash flow, assets, liabilities and prospects of the Acquiror
and the Company furnished to us by the Acquiror and the Company, as well as
the amount and timing of the cost savings and related expenses and
synergies expected to result from the Transaction (the "Expected
Synergies") furnished to us by the Acquiror and the Company;
(3) Conducted discussions with members of senior management of the
Acquiror and the Company concerning the matters described in clauses (1)
and (2) above, as well as their respective business and prospects before
and after giving effect to the Transaction and the Expected Synergies;
(4) Reviewed the market prices and valuation multiples for the Acquiror
Shares and the Company Shares and compared them with those of certain
publicly traded companies that we deemed relevant;
(5) Reviewed the results of operations of the Acquiror and the Company
and compared them with those of certain publicly traded companies that we
deemed to be relevant;
(6) Compared the proposed financial terms of the Transaction with the
financial terms of certain other transactions which we deemed to be
relevant;
(7) Participated in certain discussions and negotiations among
representatives of the Acquiror and the Company and their financial and
legal advisors;
(8) Reviewed the potential pro forma impact of the Transaction on the
Acquiror;
(9) Reviewed a draft dated November 15, 1998 of the Agreement; and
(10) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our assessment
of general economic, market and monetary conditions.
B-1
<PAGE>
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of the Acquiror or the Company or been furnished with any such
evaluation or appraisal. In addition, we have not assumed any obligation to
conduct any physical inspection of the properties or facilities of the Acquiror
or the Company. With respect to the financial forecast information and the
Expected Synergies furnished to or discussed with us by the Acquiror or the
Company, we have assumed that they have been reasonably prepared and reflect
the best currently available estimates and judgment of the Acquiror's or
Company's management as to (a) the expected future financial performance of the
Acquiror or the Company, as the case may be, and (b) the Expected Synergies. We
have further assumed that the Transaction will qualify as a tax-free
reorganization for United States federal and any applicable state income tax
purposes. We have assumed that the Transaction will not change the REIT status
of the pro forma entity, and that the final form of the Agreement will be
substantially similar to the last draft thereof reviewed by us.
Our opinion is necessarily based upon market, real estate, economic and other
conditions as they exist and can be evaluated on, and on the information made
available to us as of, the date hereof. We have assumed that, in the course of
obtaining the necessary regulatory or other consents or approvals (contractual
or otherwise) for the Transaction, no restrictions, including any divestiture
requirements or amendments or modifications, will be imposed that will have a
material adverse effect on the contemplated benefits of the Transaction or the
Expected Synergies.
We are acting as financial advisor to the Acquiror in connection with the
Transaction and will receive a fee from the Acquiror for our services which is
contingent upon the consummation of the Transaction. In addition, the Acquiror
has agreed to indemnify us for certain liabilities arising out of our
engagement. We have, in the past, provided financial advisory services to the
Acquiror and may continue to do so and have received, and may receive, fees for
the rendering of such services. In addition, in the ordinary course of our
business, we may actively trade the securities of the Acquiror or the Company,
for our own account and for the accounts of customers, and, accordingly, may at
any time hold a long or short position in such securities.
This opinion is for the use and benefit of the Board of Trustees of the
Acquiror. Our opinion does not address the merits of the underlying decision by
the Acquiror to engage in the Transaction and does not constitute a
recommendation to any shareholder of the Acquiror as to how such shareholder
should vote on the proposed merger. We are not expressing any opinion herein as
to the prices at which of the Acquiror Shares will trade following the
announcement or consummation of the Transaction.
On the basis of and subject to the foregoing, we are of the opinion that, as
of the date hereof, the Merger Consideration is fair from a financial point of
view to the Acquiror and the holders of Acquiror Shares.
Very truly yours,
/s/ Merrill, Lynch, Pierce, Fenner &
Smith
Incorporated
Merrill, Lynch, Pierce, Fenner &
Smith
Incorporated
B-2
<PAGE>
ANNEX C
PERSONAL AND CONFIDENTIAL
November 16, 1998
Board of Directors
Meridian Industrial Trust, Inc.
455 Market Street, 17th Fl.
San Francisco, CA 94105
Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the holders of the outstanding shares of Common Stock, par value $0.001
per share (the "MIT Common Stock"), of Meridian Industrial Trust, Inc. ("MIT")
of the Consideration (as defined below) to be received for MIT Common Stock
pursuant to the Agreement and Plan of Merger, dated as of November 16, 1998,
between ProLogis Trust ("PLD") and MIT (the "Agreement"). Pursuant to the
Agreement, MIT will be merged with and into PLD (the "Merger") and each
outstanding share of MIT Common Stock will be converted into 1.1 shares (the
"Conversion Number") of Common Stock, par value $0.01 of PLD (the "PLD Common
Stock"). If the average of the daily high and low per share transaction prices
for PLD Common Stock as reported in The Wall Street Journal's New York Stock
Exchange Composite Transactions Reports for a 15-day period (as randomly
selected by Arthur Andersen LLP) prior to closing (the "Average Trading Price")
is less than $22.725, an additional amount of cash will be paid to the holders
of MIT Common Stock (not to exceed $2.00 per share) equal to the amount by
which (x) $25.00 exceeds (y) the product of the Average Trading Price
multiplied by the Conversion Number (such cash together with PLD Common Stock
to be received in the Merger, the "Consideration"), as more fully set forth in
the Agreement.
Goldman, Sachs & Co. ("Goldman Sachs"), as part of its investment banking
business, is continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate
and other purposes. We are familiar with MIT, having acted as (i) lead-managing
underwriter of a public offering of its 8.75% Series D Cumulative Redeemable
Preferred Stock in June 1998 and (ii) co-managing underwriter of an offering of
$160 million of 7.25% and 7.30% Unsecured Notes due 2007 and 2009 in November
1997, as well as having acted as its financial advisor in connection with, and
having participated in certain of the negotiations leading to, the Agreement.
We are familiar with PLD, having acted as (i) lead-managing underwriter of an
offering of $125 million of 7.00% Notes due 2003 in October 1998 and (ii) lead-
managing underwriter of an offering of $250 million of 7.05% Notes due 2006 in
July 1998, and we are providing and may continue to provide investment banking
services to PLD in the future. In addition, Goldman Sachs is familiar with
Security Capital Group Incorporated ("SCG"), which has an equity investment in
PLD, having rendered significant investment banking services to SCG and certain
of its affiliates from time to time, including having acted as principal in
certain transactions, and we are providing and may continue to provide
investment banking services or act as principal in certain transactions with
SCG and its affiliates in the future. Goldman Sachs provides a full range of
financial advisory and securities services and, in the course of its normal
trading activities, may from time to time effect transactions and hold
securities, including derivative securities, of PLD, MIT or SCG for its own
account and for the accounts of customers.
C-1
<PAGE>
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Voting Agreement, dated as of November 16, 1998, among SCG and
MIT; Annual Reports to Stockholders and Annual Reports on Form 10-K of MIT for
the two years ended December 31, 1997, and in the case of PLD for the four
years ended December 31, 1997; certain interim reports to stockholders and
Quarterly Reports on Form 10-Q of MIT and PLD; certain other communications
from MIT and PLD to their respective stockholders; and certain internal
financial analyses and forecasts for MIT and PLD prepared by their respective
managements, including certain cost savings and operating synergies projected
by the management of MIT to result from the transaction contemplated by the
Agreement (the "Synergies"). We also have held discussions with members of the
senior management of MIT and PLD regarding the strategic rationale for, and the
potential benefits of, the transaction contemplated by the Agreement and the
past and current business operations, financial condition and future prospects
of their respective companies. In addition, we have reviewed the reported price
and trading activity for MIT Common Stock and PLD Common Stock, compared
certain financial and stock market information for MIT and PLD with similar
information for certain other companies, the securities of which are publicly
traded, reviewed the financial terms of certain recent business combinations in
the real estate industry and performed such other duties and analyses as we
considered appropriate.
We have relied upon the accuracy and completeness of all of the financial and
other information reviewed by us and have assumed such accuracy and
completeness for purposes of rendering this opinion. In that regard, we have
assumed with your consent that the Synergies have been reasonably prepared on a
basis reflecting the best available judgments and estimates of the management
of MIT. In addition, we have not made an independent evaluation or appraisal of
the assets and liabilities of MIT or PLD or any of their subsidiaries and we
have not been furnished with any such evaluation or appraisal. Our advisory
services and the opinion expressed herein are provided for the information and
assistance of the Board of Directors of MIT in connection with its
consideration of the transaction contemplated by the Agreement and such opinion
does not constitute a recommendation as to how any holder of MIT Common Stock
should vote with respect to such transaction.
Based upon and subject to the foregoing and based upon such other matters as
we consider relevant, it is our opinion that as of the date hereof the
Consideration to be received by the holders of MIT Common Stock is fair from a
financial point of view to the holders of MIT Common Stock.
Very truly yours,
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Article 4, Section 11, of the ProLogis declaration of trust provides as
follows with respect to indemnification of Trustees:
"The Trust shall indemnify and hold harmless each Trustee from and
against all claims and liabilities, whether they proceed to judgment or are
settled, to which such Trustee may become subject by reason of his being or
having been a Trustee, or by reason of any action alleged to have been
taken or omitted by him as Trustee, and shall reimburse him for all legal
and other expenses reasonably incurred by him in connection with any such
claim or liability, including any claim or liability arising under the
provisions of federal or state securities laws; provided, however, that no
Trustee shall be indemnified or reimbursed under the foregoing provisions
in relation to any matter unless it shall have been adjudicated that his
action or omission did not constitute willful misfeasance, bad faith or
gross negligence in the conduct of his duties, or, unless, in the absence
of such an adjudication, the Trust shall have received a written opinion
from independent counsel, approved by the Trustees, to the effect that if
the matter of willful misfeasance, bad faith or gross negligence in the
conduct of duties had been adjudicated, it would have been adjudicated in
favor of such Trustee. The Trust, without requiring a preliminary
determination of the ultimate entitlement to indemnification, shall pay or
reimburse reasonable expenses incurred by any Trustee in connection with
any threatened, pending or completed action, suit or proceeding to which
such Trustee is, was or at any time becomes a party or is threatened to be
made a party, as a result directly or indirectly, of serving at any time as
a Trustee. The rights accruing to a Trustee under these provisions shall
not exclude any other right to which he may be lawfully entitled, nor shall
anything herein contained restrict the right of the Trust to indemnify or
reimburse such Trustee in any proper cause even though not specifically
provided for herein."
Article 9, Section 1 of the ProLogis declaration of trust provides as follows
with respect to the limitation of liability of Trustees and officers and
indemnification:
"A Trustee or officer of the Trust shall not be liable for monetary
damages to the Trust or its shareholders for any act or omission in the
performance of his duties unless:
(1) The Trustee or officer actually received an improper benefit in
money, property or services in which case, such liability shall be for
the amount of the benefit in money, property or services actually
received;
(2) The Trustee's or officer's action or failure to act was the
result of active and deliberate dishonesty and was material to the
cause of action being adjudicated;
(3) The Trustee's or officer's action or failure to act constitutes
willful misconduct or deliberate recklessness; or
(4) Such liability to the Trust is specifically imposed upon Trustees
or officers by statute."
Article 9, Section 6 of the declaration of trust provides as follows with
respect to the indemnification of trustees and officers:
"Notwithstanding any other provisions of this Declaration of Trust, the
Trust, for the purpose of providing indemnification for its Trustees and
officers, shall have the authority, without specific shareholder approval,
to enter into insurance or other arrangements, with persons or entities
which are not regularly engaged in the business of providing insurance
coverage, to indemnify all Trustees and officers of the Trust against any
and all liabilities and expenses incurred by them by reason of their being
Trustees or officers of the Trust, whether or not the Trust would otherwise
have the power under this Declaration of Trust or under Maryland law to
indemnify such persons against such liability. Without limiting the power
of the Trust to procure or maintain any kind of insurance or other
arrangement, the Trust may, for the
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benefit of persons indemnified by it, (i) create a trust fund, (ii)
establish any form of self-insurance, (iii) secure its indemnity obligation
by grant of any security interest or other lien on the assets of the
corporation, or (iv) establish a letter of credit, guaranty or surety
arrangement. Any such insurance or other arrangement may be procured,
maintained or established within the Trust or with any insurer or other
person deemed appropriate by the board of trustees regardless of whether
all or part of the stock or other securities thereof are owned in whole or
in part by the Trust. In the absence of fraud, the judgment of the board of
trustees as to the terms and conditions of insurance or other arrangement
and the identity of the insurer or other person participating in any
arrangement shall be conclusive, and such insurance or other arrangement
shall not be subject to voidability, nor subject the Trustees approving
such insurance or other arrangement to liability, on any ground, regardless
of whether Trustees participating and approving such insurance or other
arrangement shall be beneficiaries thereof."
ProLogis has entered into indemnity agreements with each of its officers and
trustees which provide for reimbursement of all expenses and liabilities of
such officer or trustee, arising out of any lawsuit or claim against such
officer or trustee due to the fact that he was or is serving as an officer or
trustee, except for such liabilities and expenses (a) the payment of which is
judicially determined to be unlawful, (b) relating to claims under Section
16(b) of the Securities Exchange Act of 1934, as amended, or (c) relating to
judicially determined criminal violations. In addition, ProLogis has entered
into indemnity agreements with each of its trustees who is not also an officer
of ProLogis which provide for indemnification and advancement of expenses to
the fullest lawful extent permitted by Maryland law in connection with any
pending or completed action, suit or proceeding by reason of serving as a
trustee and ProLogis has established a trust to fund payments under the
indemnification agreements.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
The exhibits to this Registration Statement are listed in the Exhibit Index,
which appears immediately after the signature page and is incorporated herein
by this reference.
(b) Financial Statements and Schedules
Refer to Index to Pro Forma Condensed Consolidated Financial Statements
included at page F-1.
(c) Reports, Opinions and Appraisals
Refer to Annex B and Annex C.
Item 22. Undertakings
(a) The undersigned Registrant hereby undertakes as follows:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
A. To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
B. To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. 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 and of the estimated maximum offering
range may be reflected in the form of a prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
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<PAGE>
C. 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.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(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.
That, for purposes of determining any liability under the Securities Act of
1933, each filing of the registrant's annual report pursuant to section 13(a)
or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to 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 offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
That prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration statement, by
any person or party who is deemed to be an underwriter within the meaning of
Rule 145(c), the issuer undertakes that such reoffering prospectus will contain
the information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
That every prospectus (i) that is filed pursuant to the paragraph immediately
preceding, or (ii) that purports to meet the requirements of section 10(a)(3)
of the Act and is used in connection with an offering of securities subject to
Rule 415, will be filed as a part of an amendment to the registration statement
and will not be used until such amendment is effective, and that, for purposes
of determining any liability under the Securities Act of 1933, each such post-
effective amendment shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
To respond to requests for information that is incorporated by reference into
the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one
business day of receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
Except as permitted by General Instruction H to Form S-4 (in a transaction
not covered by General Instruction I), to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in the
registration statement when it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
of 1993 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions described under Item 20 above,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 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 of 1933 and will be
governed by the final adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
ProLogis has duly caused this Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized in the City of Aurora, State of
Colorado, on February 16, 1999.
Prologis Trust
/s/ Edward S. Nekritz
By: _________________________________
Edward S. Nekritz
Senior Vice President
Pursuant to the requirements of the Securities Act of 1993, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
*
Date: February 16, 1999 -------------------------------------
Irving F. Lyons III
Co-Chairman, Chief Investment
Officer
and Trustee
*
Date: February 16, 1999 -------------------------------------
K. Dane Brooksher
Co-Chairman, Chief Operating
Officer
and Trustee
*
Date: February 16, 1999 -------------------------------------
M. Gordon Keiser, Jr.
Senior Vice President
(Principal Financial Officer)
*
Date: February 16, 1999 -------------------------------------
Edward F. Long
Vice President and Controller
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Date: February 16, 1999 *
-------------------------------------
Thomas G. Wattles
Trustee
Date: February 16, 1999 *
-------------------------------------
Stephen L. Feinberg
Trustee
Date: February 16, 1999 *
-------------------------------------
Donald P. Jacobs
Trustee
*
Date: February 16, 1999 -------------------------------------
William G. Myers
Trustee
Date: February 16, 1999 *
-------------------------------------
John E. Robson
Trustee
-------------------------------------
J. Andre Teixeira
/s/ Edward S. Nekritz
*By: ________________________________
Edward S. Nekritz
Attorney-in-fact
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EXHIBIT INDEX
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2.1 Agreement and Plan of Merger dated November 16, 1998 (Incorporated by
reference to exhibit 2.1 to ProLogis' Form 8-K dated November 16,
1998)
2.2+ Amendment to Agreement and Plan Merger dated as February 3, 1999
3.1 Amended and Restated Declaration of Trust of ProLogis (Incorporated by
reference to exhibit 4.1 to ProLogis' Registration Statement No. 33-
73382)
3.2 First Certificate of Amendment of Amended and Restated Declaration of
Trust of ProLogis (Incorporated by reference to exhibit 3.1 to
ProLogis' Form 8-K dated June 14, 1994)
3.3 Second Articles of Amendment of Restated Declaration of Trust of
ProLogis (Incorporated by reference to exhibit 4.3 to ProLogis'
Registration Statement No. 33-87306)
3.4 Articles Supplementary relating to ProLogis' Series A Cumulative
Redeemable Preferred Shares of Beneficial Interest (Incorporated by
reference to exhibit 4.8 to ProLogis' Form 8-A registration statement
relating to such shares)
3.5 First Articles of Amendment to Articles Supplementary relating to
ProLogis' Series A Cumulative Redeemable Preferred Shares of
Beneficial Interest (Incorporated by reference to exhibit 10.3 to
ProLogis' Form 10-Q for the quarter ended September 30, 1995)
3.6 Articles Supplementary relating to ProLogis' Series B Cumulative
Convertible Redeemable Preferred Shares of Beneficial Interest
(Incorporated by reference to exhibit 4.1 to ProLogis' Form 8-K dated
February 14, 1996)
3.7 Articles Supplementary with respect to ProLogis' Series C Cumulative
Redeemable Preferred Shares of Beneficial Interest (Incorporated by
reference to exhibit 4.8 to ProLogis' Form 8-A dated November 13,
1996)
3.8 Articles Supplementary with respect to ProLogis' Series D Cumulative
Redeemable Preferred Shares (Incorporated by reference to exhibit 4.10
to ProLogis' Form 8-A filed on April 8, 1998)
3.9+ Form of Articles Supplementary with respect to ProLogis' Series E
Cumulative Redeemable Preferred Shares of Beneficial Interest
3.10+ Form of Articles of Merger
3.11 Bylaws of ProLogis (Incorporated by reference to exhibit 4.3 to
ProLogis' Registration Statement No. 33-83208)
4.1 Rights Agreement, dated as of December 31, 1993, between ProLogis and
State Street Bank and Trust Company, as Rights Agent, including form
of Rights Certificate (Incorporated by reference to exhibit 4.4 to
ProLogis' Registration Statement No. 33-78080)
4.2 First Amendment to Rights Amendment, dated as of February 15, 1995,
between ProLogis, State Street Bank and Trust Company and The First
National Bank of Boston, as successor Rights Agent (Incorporated by
reference to exhibit 3.1 to ProLogis' Form 10-Q for the quarter ended
September 30, 1995)
4.3 Second Amendment to Rights Agreement, dated as of June 22, 1995,
between ProLogis, State Street Bank and Trust Company and The First
National Bank of Boston (Incorporated by reference to exhibit 3.1 to
ProLogis' Form 10-Q for the quarter ended September 30, 1995)
4.4 Form of share certificate for Common Shares of Beneficial Interest of
ProLogis (Incorporated by reference to exhibit 4.4 to ProLogis'
Registration Statement No. 33-73382)
4.5 Form of share certificate for Series A Cumulative Redeemable Preferred
Shares of Beneficial Interest of ProLogis (Incorporated by reference
to exhibit 4.7 to ProLogis' Form 8-A registration statement relating
to such shares)
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4.6 8.72% Note due March 1, 2009 (Incorporated by reference to exhibit 4.7
to ProLogis' Form 10-K for the year ended December 31, 1994)
4.7 Form of share certificate for Series B Cumulative Convertible
Redeemable Preferred Shares of Beneficial Interest of ProLogis
(Incorporated by reference to exhibit 4.8 to ProLogis' Form 8-A
registration statement relating to such shares)
4.8 Form of share certificate for Series C Cumulative Redeemable Preferred
Shares of Beneficial Interest of ProLogis (Incorporated by reference
to exhibit 4.8 to ProLogis' Form 10-K for the year ended December 31,
1996)
4.9 9.34% Note due March 1, 2015 (Incorporated by reference to exhibit 4.8
to ProLogis' Form 10-K for the year ended December 31, 1994)
4.10 7.875% Note due May 15, 2009 (Incorporated by reference to exhibit 4.4
to ProLogis' Form 8-K dated May 9, 1995)
4.11 7.30% Note due May 15, 2001 (Incorporated by reference to exhibit 4.3
to ProLogis' Form 8-K dated May 9, 1995)
4.12 7.25% Note due May 15, 2000 (Incorporated by reference to exhibit 4.2
to ProLogis' Form 8-K dated May 9, 1995)
4.13 7.125% Note due May 15, 1998 (Incorporated by reference to exhibit 4.1
to ProLogis' Form 8-K dated May 9, 1995)
4.14 7.25% Note due May 15, 2002 (Incorporated by reference to exhibit 4.1
to ProLogis' Form 10-Q for the quarter ended June 30, 1996)
4.15 7.95% Note due May 15, 2008 (Incorporated by reference to exhibit 4.2
to ProLogis' Form 10-Q for the quarter ended June 30, 1996)
4.16 8.65% Note due May 15, 2016 (Incorporated by reference to exhibit 4.3
to ProLogis' Form 10-Q for the quarter ended June 30, 1996)
4.17 7.81% Medium-Term Notes, Series A, due February 1, 2015 (Incorporated
by reference to exhibit 4.17 to ProLogis' Form 10-K for the year ended
December 31, 1996)
4.18 Indenture, dated as of March 1, 1995, between ProLogis and State
Street Bank and Trust Company, as Trustee (Incorporated by reference
to exhibit 4.9 to ProLogis' Form 10-K for the year ended December 31,
1994)
4.19 Collateral Trust Indenture, dated as of July 22, 1993, between
Krauss/Schwartz Properties, Ltd. and NationsBank of Virginia, N.A., as
Trustee (Incorporated by reference to exhibit 4.10 to ProLogis' Form
10-K for the year ended December 31, 1994)
4.20 First Supplemental Collateral Trust Indenture, dated as of October 28,
1994, among ProLogis Limited Partnership-IV, Krauss/Schwartz
Properties, Ltd., and NationsBank of Virginia, N.A., as Trustee
(Incorporated by reference to exhibit 10.6 to ProLogis' Form 10-Q for
the quarter ended September 30, 1994)
4.21+ Form of share certificate for Series D Cumulative Redeemable Preferred
Shares of Beneficial Interest of ProLogis
4.22+ Form of share certificate for Series E Cumulative Redeemable Preferred
Shares of Beneficial Interest of ProLogis
5.1+ Opinion of Mayer, Brown & Platt as to the validity of the shares being
offered
8.1+ Opinion of Mayer, Brown & Platt as to certain tax matters
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8.2+ Opinion of Vinson & Elkins L.L.P. as to certain tax matters
10.1 Amended and Restated Investor Rights Agreement among Meridian, Hunt
Realty Acquisitions, L.P., USAA Real Estate Company, Meridian Point
Realty Trust '83, State Street Bank and Trust Company (as Trustee for
Ameritech Pension Trust) and OTR (an Ohio general partnership, acting
on behalf of and as a nominee for the State Teachers Retirement Board
of Ohio), dated as of February 23, 1996 (filed with Meridian's
Amendment No. 1 to Registration Statement No. 333-02322 on March 25,
1996, and incorporated herein by reference).
10.2 Registration Rights Agreement, dated September 24, 1997, among
Meridian, The Prudential Insurance Company of America, The Prudential
Insurance Company of America on behalf of a single client insurance
company separate account contained in Group Annuity Contract No.
GA-9032, Strategic Performance Fund-II, Inc., and The Prudential
Variable Contract Real Property Partnership (filed with the Schedule
13D filed on October 3, 1997 by The Prudential Insurance Company of
America, Strategic Performance Fund-II, Inc., and The Prudential
Variable Contract Real Property Partnership, and incorporated herein
by reference).
10.3 Amended and Restated Registration Rights Agreement, dated September
24, 1997, among Meridian, The Prudential Insurance Company of America
acting for the benefit of the Chevron Separate Account, and The
Prudential Insurance Company of America acting for the benefit of the
Strategic Performance Fund I Separate Account (filed with the Schedule
13D filed on October 3, 1997 by The Prudential Insurance Company of
America, Strategic Performance Fund-II, Inc., and The Prudential
Variable Contract Real Property Partnership, and incorporated herein
by reference).
10.4 Registration Rights Agreement, dated September 30, 1997, between
Meridian and State Street Bank and Trust Company, as Trustee for
Ameritech Pension Trust (filed with the Amendment No. 1 to Schedule
13D filed on October 10, 1997 by Ameritech Pension Trust and
incorporated herein by reference).
10.5 Amended and Restated Stockholders' Agreement among Meridian, USAA Real
Estate Company, Meridian Point Realty Trust IV Co., Meridian Point
Realty Trust VI Co., Meridian Point Realty Trust VII Co., Meridian
Point Realty Trust '83, Allen J. Anderson, C.E. Cornutt, Peter O.
Hanson, Robert E. Morgan, John S. Moody, James M. Pollak, Kenneth N.
Stensby and Lee W. Wilson, dated as of November 10, 1995 (filed with
Meridian's Registration Statement No. 333-00018 on January 3, 1996,
and incorporated herein by reference).
10.6 Warrant Agreement between Meridian and the First Chicago Trust Company
of New York, dated as of February 16, 1996 (filed with Meridian's
Amendment No. 1 to Registration Statement No. 333-02322 on March 25,
1996, and incorporated herein by reference).
10.7 Form of Indemnification Agreement signed by Meridian and certain
directors, officers, employees and agents of Meridian (filed with
Meridian's Registration Statement No. 333-00018 on January 3, 1996,
and incorporated herein by reference).
10.8 Stock Purchase Agreement among Meridian, Harris Trust & Savings Bank,
as Trustee for Ameritech Pension Trust, and OTR, on behalf of and as
nominee for the State Teachers Retirement Board of Ohio, dated as of
December 29, 1995 (filed with Meridian's Registration Statement No.
333-00018 on January 3, 1996, and incorporated herein by reference).
10.9 Third Amended and Restated Revolving Credit Agreement, dated September
23, 1997, among (i) Meridian, (ii) BankBoston, N.A., Texas Commerce
Bank National Association, NationsBank of Texas, N.A., Wells Fargo
Bank, N.A., Dresdner Bank AG, First American Bank Texas, S.S.B.,
(collectively, the "Banks"), (iii) BankBoston, N.A. as Agent for the
Banks, (iv) Texas Commerce Bank National Association as Documentation
Agent for the Banks, and (v) NationsBank of Texas, N.A. as Syndication
Agent for the Banks (filed on November 14, 1997 with Meridian's Form
10-Q for the quarter ended September 30, 1997, and incorporated herein
by reference).
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10.10 Second Amended and Restated Guaranty of Payment and Performance, dated
September 23, 1997, executed by MIT Unsecured L.P. (filed on November
14, 1997 with Meridian's Form 10-Q for the quarter ended September 30,
1997, and incorporated herein by reference).
10.11 Form of First Amendment to Third Amended and Restated Revolving Credit
Agreement, dated February 19, 1998, among (i) Meridian, (ii) MIT
Unsecured L.P. and Meridian Refrigerated, Inc. (iv) BankBoston, N.A.,
Chase Bank of Texas, National Association, NationsBank of Texas, N.A.,
Wells Fargo Bank, N.A., Dresdner Bank AG, New York Branch and Grand
Cayman Branch, and First American Bank Texas, S.S.B., (collectively,
the "Banks"), (iii) BankBoston, N.A. as Agent for the Banks, (iv)
Chase Bank of Texas, National Association as Documentation Agent for
the Banks, and (v) NationsBank of Texas, N.A. as Syndication Agent for
the Banks (filed as exhibit 10.22 to Meridian's Form 10-K for the year
ended December 31, 1997, and incorporated herein by reference).
10.12 Form of Guaranty of Payment and Performance, dated February 19, 1998,
and signed by Meridian Refrigerated, Inc. (filed as exhibit 10.23 to
Meridian's Form 10-K for the year ended December 31, 1997, and
incorporated herein by reference).
10.13 Amended and Restated Loan Administration Agreement between The
Prudential Insurance Company of America and Meridian, IndTennco
Limited Partnership, Metro-Sierra Limited Partnership, and Progress
Center/Alabama Limited Partnership, dated as of February 23, 1996
(filed on March 20, 1997 as exhibit 10.24 to Meridian's Form 10-K for
1996, and incorporated herein by reference).
10.14 Agreement of Limited Partnership of DFW Nine between Dallas Nine Corp.
and Sierra Capital Realty Trust IV, dated April 15, 1987 (filed with
Meridian's Amendment No. 1 to Registration Statement No. 333-02322 on
March 25, 1996, and incorporated herein by reference).
10.15 Amendment No. 1 to Agreement of Limited Partnership of DFW Nine
between Dallas Nine Corp., Ridgelea Corp., Sierra Capital Realty Fund
IV, and Sierra Capital Realty Trust VI, dated June 1, 1987 (filed with
Meridian's Amendment No. 1 to Registration Statement No. 333-02322 on
March 25, 1996, and incorporated herein by reference).
10.16 Assignment of General Partnership Interests and Agreement regarding
DFW Nine, between Dallas Nine Corp., Metroplex Co. (a Nevada
corporation), Metroplex Co. (a California corporation) and DFW Nine,
dated February, 1996 (filed with Meridian's Amendment No. 1 to
Registration Statement No. 333-02322 on March 25, 1996, and
incorporated herein by reference).
10.17 Assignment of Limited Partnership Interest in MIT Unsecured L.P.
(formerly known as "DFW Nine") between Meridian, MIT-ULP, Inc., and
MIT Unsecured, Inc. (formerly known as "Metroplex Co."), dated
December 31, 1996 (filed on March 20, 1997 with Meridian's Form 10-K
for 1996, and incorporated herein by reference).
10.18 Agreement of Limited Partnership of Progress Center/Alabama Limited
Partnership between Pro-Sierra Corporation and Sierra Capital Realty
Trust VII Co., dated December 3, 1987 (filed with Meridian's Amendment
No. 1 to Registration Statement No. 333-02322 on March 25, 1996, and
incorporated herein by reference).
10.19 First Amendment to Agreement of Limited Partnership of Progress
Center/Alabama Limited Partnership, dated June 29, 1990 (filed with
Meridian's Amendment No. 1 to Registration Statement No. 333-02322 on
March 25, 1996, and incorporated herein by reference).
10.20 Assignment of Limited Partnership Interest in MIT Secured L.P. between
Meridian, MIT-SLP, Inc. and MIT Secured Inc. (formerly known as
Progress Center/Alabama Limited Partnership), dated December 31, 1996
(filed on March 20, 1997 with Meridian's Form 10-K for 1996, and
incorporated herein by reference).
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10.21 Amended and Restated Stock Purchase Agreement, dated June 12, 1997, by
and between Meridian, as Seller, and The Prudential Insurance Company
of America, as Purchaser, together with a summary of the economic
terms of three additional Stock Purchase Agreements into which
Meridian as Seller has entered with Strategic Performance Fund-II,
Inc. as Purchaser, The Prudential Variable Contract Real Property
Partnership as Purchaser, and The Prudential Insurance Company of
America on behalf of a single client insurance company account
contained in Group Annuity Contract No. GA-9032 as Purchaser (filed on
August 13, 1997 with Meridian's Form 10-Q for the quarter ended June
30, 1997, and incorporated herein by reference).
10.22 Form of Severance Agreement entered into between Meridian and Allen J.
Anderson, Dennis D. Higgs, and Milton K. Reeder (filed as exhibit
10.55 to Meridian's Form 10-K for the year ended December 31, 1997,
and incorporated herein by reference).
10.23 Form of Severance Agreement entered into between Meridian and Gregory
D. Skirving, Peter B. Harmon, Timothy B. Keith, Brian R. Barringer,
Jaime Suarez, and Robert A. Dobbin (filed as exhibit 10.56 to
Meridian's Form 10-K for the year ended December 31, 1997, and
incorporated herein by reference).
10.24 Meridian's Severance Plan, adopted February 5, 1998 (filed as exhibit
10.57 to Meridian's Form 10-K for the year ended December 31, 1997,
and incorporated herein by reference).
10.25 Warrant issued to USAA Real Estate Company to purchase common stock of
Meridian, dated February 23, 1996 (filed with Meridian's Amendment No.
1 to Registration Statement No. 333-02322 on March 25, 1996, and
incorporated herein by reference).
10.26 Note Purchase Agreement among Meridian and The Travelers Insurance
Company (I/N/O TRAL & CO.), United Services Automobile Association
(I/N/O SALKELD & CO.), The Variable Annuity Life Insurance Company,
The United States Life Insurance Company in the City of New York, All
American Life Insurance Company, The Old Line Life Insurance Company
of America, The Lincoln National Life Insurance Company, Lincoln Life
& Annuity Company of New York, First Penn-Pacific Life Insurance
Company (I/N/O CUDD & CO), Lincoln National Health & Casualty
Insurance Company, Allied Life Insurance Company "B" (I/N/O GERLACH &
CO), Sons of Norway (I/N/O VAR & CO), Aid Association for Lutherans
(I/N/O NIMER & CO), Metropolitan Life Insurance Company, National Life
Insurance Company, Life Insurance Company of the Southwest, Keyport
Life Insurance Company (I/N/O BOST & CO), Union Central Life Insurance
Company (I/N/O HARE & CO), and Pan-American Life Insurance Company,
dated November 15, 1997 (filed as exhibit 10.66 to Meridian's Form 10-
K for the year ended December 31, 1997, and incorporated herein by
reference).
10.27 Second Amendment, dated June 23, 1998, to Third Amended and Restated
Revolving Credit Agreement, dated February 19, 1998, among (i)
Meridian, (ii) MIT Unsecured L.P. and Meridian Refrigerated, Inc.
(iii) BankBoston, N.A., Chase Bank of Texas, National Association,
NationsBank of Texas, N.A., Wells Fargo Bank, N.A., Dresdner Bank AG,
New York Branch and Grand Cayman Branch, and First American Bank
Texas, S.S.B., (collectively, the "Banks"), (iv) BankBoston, N.A. as
Agent for the Banks, (v) Chase Bank of Texas, National Association as
Documentation Agent for the Banks, and (vi) NationsBank of Texas,
N.A., as Syndication Agent for the Banks (incorporated by reference to
exhibit 10.1 to Meridian's Form 10-Q for the quarter ended June 30,
1998).
10.28 Registration Rights Agreement, dated June 30, 1998, among Meridian, R.
William Gardner, Douglas C. Gardner, Steven D. Gardner, and Todd L.
Platt (incorporated by reference to exhibit 10.2 to Meridian's Form
10-Q for the quarter ended June 30, 1998).
10.29 Voting Agreement between Security Capital and Meridian, dated November
16, 1998 (incorporated by reference to exhibit 2.2 to Meridian's Form
8-K, dated November 18, 1998).
12.1+ Statement re: Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Share Dividends
</TABLE>
E-5
<PAGE>
<TABLE>
<C> <S>
15.1+ Letter from Arthur Andersen LLP, Chicago, Illinois, re unaudited
interim financial information
23.1 Consent of Arthur Andersen LLP, Chicago, Illinois
23.2 Consent of Arthur Andersen LLP, San Francisco, California
23.3 Consent of Mayer, Brown & Platt (included in the opinion filed as
Exhibit 5.1 and 8.1)
23.4 Consent of Vinson & Elkins L.L.P. (included in the opinion filed as
Exhibit 8.2)
23.5 Consent of Merrill & Lynch & Co.
23.6* Consent of Goldman, Sachs & Co.
24.1+ Power of Attorney
99.1+ Form of ProLogis Proxy
99.2+ Form of Meridian Proxy
</TABLE>
- --------
* To be filed by amendment.
+Previously filed.
E-6
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accounts, we hereby consent to the incorporation by
reference in this registration statement of (i) our reports dated March 13, 1998
included in ProLogis (formerly Security Capital Industrial) Trust's (the
"Trust") Form 10-K for the year ended December 31, 1997, (ii) our report dated
March 13, 1998, included in the Trust's Form 8-K dated March 13, 1998 and (iii)
our reports dated November 30, 1998, included in the Trust's Form 8-K dated
December 4, 1998, and to all references to our Firm included in this
registration statement.
/s/ ARTHUR ANDERSEN LLP
Chicago, Illinois
February 16, 1999
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated March 23, 1998
included in Meridian Industrial Trust, Inc.'s Form 10-K for the year ended
December 31, 1997, and to all references to our Firm included in this
registration statement.
/s/ Arthur Andersen LLP
San Francisco, California
February 16, 1999
<PAGE>
Exhibit 23.5
Consent of Merrill Lynch & Co.
We hereby consent to the use of our opinion letter dated November 16, 1998 to
the Board of Trustees of ProLogis Trust included as Annex B to the joint proxy
statement and prospectus which forms a part of the Registration Statement on
Form S-4 relating to the proposed merger of Meridian Industrial Trust, Inc. with
and into ProLogis Trust and to the references to such opinion in such joint
proxy statement and prospectus under the captions "Summary--Opinions of
financial advisors," "The Merger--Background of the merger," "The Merger--
Reasons for the merger; Recommendations of the ProLogis board" and "The Merger--
Opinion of ProLogis' financial advisor" and to the inclusion of the foregoing
opinion as "Annex B" to the above mentioned Joint Proxy Statement and
Prospectus. In giving such consent, we do not admit that we come within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended, (the "Securities Act") or the rules and regulations of
the Securities Exchange Commission thereunder (the "SEC"), nor do we thereby
admit that we are experts with respect to any part of such Registration
Statement within the meaning of the term "experts" as used in the Securities
Act, or the rules and regulations of the SEC thereunder.
MERRILL LYNCH, PIERCE, FENNER
& SMITH INCORPORATED
By: /s/ Michael V. DeFelice
---------------------------
Director
February 16, 1999
