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As filed with the Securities and Exchange Commission on September 24, 1999
Registration No. 333-86081
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT No. 1
to
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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PROLOGIS TRUST
(Exact name of registrant as specified in its charter)
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Maryland 74-2604728
(State of organization) (I.R.S. Employer Identification No.)
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)
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Edward S. Nekritz, Secretary
ProLogis Trust
14100 East 35th Place
Aurora, Colorado 80011
(303) 375-9292
(Name, address, including zip code, and telephone number, including area code,
of agent for service):
Copies to:
Michael T. Blair
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
(312) 782-0600
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Approximate Date of Commencement of Proposed Sale to the Public: From time
to time after the Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act of 1933 registration statement number
of the earlier effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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 Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
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PROSPECTUS
[LOGO OF PROLOGIS TRUST]
ProLogis Trust
14100 East 35th Place
Aurora, Colorado 80011
(303) 375-9292
32,683 Common Shares
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We may issue up to 32,683 common shares to the limited partners of Meridian
Realty Partners, L.P., a Delaware limited partnership, upon exchange of their
units of partnership interest in that partnership. Those limited partners may
then offer to resell those common shares. ProLogis, through a wholly owned
subsidiary, is the sole general partner of Meridian Realty Partners. We are
registering the common shares so that the limited partners who may be
affiliates of ProLogis may resell those common shares from time to time, but
the registration of the common shares does not necessarily mean that the
limited partner will offer or sell any of the common shares.
The limited partners may from time to time offer and sell the common shares
on the New York Stock Exchange or otherwise and they may sell the common shares
at market prices or at negotiated prices. They may sell the common shares in
ordinary brokerage transactions, in block transactions, in privately negotiated
transactions, pursuant to Rule 144 under the Securities Act of 1933 or
otherwise. If the limited partners sell the common shares through brokers, they
expect to pay customary brokerage commissions and charges.
We will not receive any additional cash consideration when we issue common
shares to the limited partners upon exchange of their units of partnership
interest. Also, we will not receive any of the proceeds when the limited
partners sell any of those common shares. However, we have agreed to pay the
majority of the expenses of the registration and sale of the common shares.
Our common shares are listed on the New York Stock Exchange under the symbol
"PLD". On September 23, 1999, the last reported sale price of our common shares
on the New York Stock Exchange was $18.5625 per share.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed on the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
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The date of this prospectus is September 24, 1999.
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We have not authorized any person to give any information or to make any
representation not contained in this prospectus in connection with any offering
of these common shares. This prospectus is not an offer to sell any security
other than these common shares and it is not soliciting an offer to buy any
security other than these common shares. This prospectus is not an offer to
sell these common shares to any person and it is not soliciting an offer from
any person to buy these common shares in any jurisdiction where the offer or
sale to that person is not permitted. You should not assume that the
information contained in this prospectus is correct on any date after the date
of this prospectus, even though this prospectus is delivered or these common
shares are offered or sold on a later date.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
PROLOGIS TRUST............................................................ 1
USE OF PROCEEDS........................................................... 2
DESCRIPTION OF COMMON SHARES.............................................. 2
DESCRIPTION OF PROVISIONS OF MARYLAND LAW AND OF PROLOGIS' DECLARATION OF
TRUST AND BYLAWS......................................................... 7
DESCRIPTION OF PARTNERSHIP UNITS.......................................... 9
EXCHANGE OF PARTNERSHIP UNITS............................................. 14
REGISTRATION RIGHTS....................................................... 16
COMPARISON OF OWNERSHIP OF PARTNERSHIP UNITS AND COMMON SHARES............ 17
FEDERAL INCOME TAX CONSIDERATIONS......................................... 29
SELLING SHAREHOLDERS...................................................... 38
PLAN OF DISTRIBUTION...................................................... 38
EXPERTS................................................................... 39
LEGAL MATTERS............................................................. 39
WHERE YOU CAN FIND MORE INFORMATION....................................... 40
INCORPORATION BY REFERENCE................................................ 40
</TABLE>
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PROLOGIS TRUST
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, as amended. ProLogis deploys capital in markets that
ProLogis believes have excellent long-term growth prospects and in markets
where ProLogis believes it can achieve a strong position through the
acquisition and development of flexible facilities designed for both
warehousing and light manufacturing uses. 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) and believes it has distinguished itself from its
competition by being the only entity that combines all of the following:
(1) An international operating platform dedicated to providing distribution
facilities to a targeted customer base of the 1,000 largest users of
distribution facilities worldwide, 430 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 June 30, 1999, ProLogis' real estate assets, including assets held by
unconsolidated subsidiaries and joint ventures, consisted of approximately
147.0 million square feet of operating distribution facilities and
approximately 16.5 million square feet of refrigerated distribution facilities.
In addition, ProLogis had 8.8 million square feet of distribution facilities
under development at a total expected investment of $509.5 million. ProLogis
has facilities in 94 North American and European Markets. Also, ProLogis owned
or controlled approximately 4,962 acres of land for future development of
approximately 79.9 million square feet of distribution facilities. ProLogis'
objective is to increase shareholder value by achieving long-term sustainable
growth in cash flow.
ProLogis was originally formed in June 1991 to take advantage of two
strategic opportunities identified as a result of extensive market research:
. the opportunity to build a distribution and light manufacturing asset
base at costs significantly below replacement cost and a land inventory
at attractive prices; and
. the opportunity to create, for the first time, a national operating
company which would differentiate itself from its competition through its
ability to meet a corporate customer's distribution facility requirements
on a national, regional and local basis.
In 1997, ProLogis began expanding its operations into Mexico and Europe to
meet the needs of its targeted national and international customers as they
expanded and reconfigured their distribution facility requirements globally.
Consistent with ProLogis' objective of expanding its services platform for its
targeted customer base, in 1997 and 1998 ProLogis further expanded to serve the
refrigerated logistics needs of its customers by acquiring an international
refrigerated distribution network. Today, ProLogis' business is organized into
the following segments:
. acquisition and development of industrial distribution facilities for
long-term ownership and leasing in North America and Europe;
. operation of refrigerated distribution facilities through unconsolidated
subsidiaries, one operating in North America and one operating in nine
countries in Europe; and
. development of distribution facilities for future sale or on a fee basis
in North America and, through an unconsolidated subsidiary, in the United
Kingdom.
This global network of distribution facilities has ProLogis well positioned
to become the global leader in this rapidly consolidating industry.
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USE OF PROCEEDS
ProLogis will not receive any additional consideration when it issues its
common shares to the limited partners of Meridian Realty Partners upon exchange
of their units of partnership interest in the partnership. Also, ProLogis will
not receive any of the proceeds from the sale of any of the common shares by
the limited partners. The limited partners will receive all proceeds from the
sale of the common shares.
DESCRIPTION OF COMMON SHARES
General
ProLogis' declaration of trust authorizes ProLogis to issue up to
275,000,000 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 ProLogis' board of trustees may create and
authorize from time to time. ProLogis' board of trustees may amend ProLogis'
declaration of trust without shareholder consent to increase or decrease the
aggregate number of shares or the shares of any class which ProLogis has
authority to issue. At September 23, 1999, 161,501,831 common shares were
issued and outstanding and held of record by approximately 11,689 shareholders.
The following description of certain general terms and provisions of the
common shares is not complete and you should refer to ProLogis' declaration of
trust and bylaws for more information.
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 board of trustees 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 cumulative redeemable preferred
shares, Series B cumulative convertible redeemable preferred shares, Series C
cumulative redeemable preferred shares, Series D cumulative redeemable
preferred shares and Series E cumulative redeemable 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 of trustees 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.
Purchase rights
On December 7, 1993, the board of trustees 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 purchase rights are also entitled to
receive one purchase right for each such additional common share. Each purchase
right entitles the holder under set circumstances 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 preferred share, subject to adjustment. Purchase rights are exercisable
when a person or group of persons, other than Security Capital Group
Incorporated, acquires 20% or more of the outstanding common shares or
announces a tender offer or exchange offer for 25% or more of the outstanding
common shares. Under set circumstances, each purchase right entitles
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the holder to purchase, at the purchase right's then current exercise price, a
number of common shares having a market value of twice the purchase right's
exercise price. The acquisition of ProLogis pursuant to some types mergers or
other business transactions would entitle each holder to purchase, at the
purchase right's then current exercise price, a number of the acquiring
company's common shares having a market value at that time equal to twice the
purchase right's exercise price. The purchase rights held by 20% shareholders,
other than Security Capital Group would not be exercisable. The 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 purchase right payable in cash, shares of
ProLogis or any other form of consideration determined by the board of
trustees.
Transfer agent
The transfer agent and registrar for the common shares is BankBoston, N.A.,
150 Royall Street, Canton, Massachusetts 02021. The common shares are listed on
the New York Stock Exchange under the symbol "PLD."
Restriction on size of holdings
The ProLogis declaration of trust restricts beneficial ownership, or deemed
ownership by virtue of the attribution provisions of the Internal Revenue Code
or Section 13(d) of the Securities Exchange Act of 1934, 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 restriction are to
assist in protecting and preserving ProLogis' real estate investment trust
status under the Internal Revenue Code 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, not more than 50% in value of its
outstanding shares of beneficial interest may be owned by five or fewer
individuals at any time during the last half of any taxable year. The
restriction permits five persons to acquire up to a maximum of 9.8% each, or an
aggregate of 49% of the outstanding shares, and, thus, assists the board of
trustees in protecting and preserving ProLogis' real estate investment trust
status under the Internal Revenue Code.
The ownership restriction does not apply to Security Capital Group, which
counts as numerous holders for purposes of the tax rule, because its shares are
attributed to its shareholders for purposes of this rule. Additionally, the
ownership limit is subject to an exception for holders who were the beneficial
owners of shares, or who possessed securities convertible into shares, in
excess of the ownership limit on and immediately after the adoption of
ProLogis' declaration of trust by the board of trustees on June 24, 1999.
These holders may beneficially own shares or possess securities convertible
into shares, only up to their respective existing holder limits. The existing
holder limit for any such holder is equal to the percentage of outstanding
shares beneficially owned, or which would be beneficially owned upon the
exchange of convertible securities, by the holder on and immediately after the
adoption of the declaration of trust.
ProLogis' board of trustees, upon receipt of a ruling from the Internal
Revenue Service or an opinion of counsel or other evidence satisfactory to
ProLogis' board of trustees and upon such other conditions as ProLogis' board
of trustees may direct, may exempt a proposed transferee from the ownership
limit. The proposed transferee must give written notice to ProLogis of the
proposed transfer at least 30 days prior to any transfer which, if consummated,
would result in the proposed transferee owning ProLogis' shares in excess of
the ownership limit. ProLogis' board of trustees may require such opinions of
counsel, affidavits, undertakings or agreements as it determines to be
necessary or advisable in order to determine or ensure ProLogis' status as a
real estate investment trust.
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Any transfer of ProLogis' shares that would:
(1) create a direct or indirect ownership of shares in excess of the
ownership limit or excess holder limits;
(2) result in ProLogis' shares being beneficially owned by fewer than 100
persons, determined without reference to any rules of attribution, as
provided in Section 856(a) of the Internal Revenue Code;
(3) result in ProLogis being "closely held" within the meaning of Section
856(h) of the Internal Revenue Code;
(4) result in a Non-U.S. person, other than Security Capital Group, owning
50% or more of the market value of the issued and outstanding ProLogis
shares;
(5) create an ownership of shares by a party that has a 9.9% or greater
interest in a tenant of ProLogis; or
(6) result in the disqualification of ProLogis as a real estate investment
trust under the Internal Revenue Code.
will not have any effect, and the intended transferee will acquire no rights
to the shares.
These restrictions on transferability and ownership will not apply if
ProLogis' board of trustees determines that it is no longer in the best
interests of ProLogis to attempt to qualify, or to continue to qualify, as a
real estate investment trust under the Internal Revenue Code.
Notwithstanding the previous restrictions, any purported transfer of
ProLogis' shares or event which would
(1) result in a person owning ProLogis' shares in excess of the ownership
limit or the existing holder limits;
(2) cause ProLogis to become "closely held" under Section 856(h) of the
Internal Revenue Code;
(3) result in 50% or more of the outstanding shares being held by a person,
as defined in section 7701(a)(30) of the Internal Revenue Code;
(4) result in 9.9% or more of the outstanding shares being held by a person
that constructively owns 9.9% or more of the voting power, shares or
assets of a ProLogis tenant; or
(5) result in the disqualification of ProLogis as a real estate investment
trust under the Internal Revenue Code
will result in those shares being constituting excess shares which will be
transferred pursuant to ProLogis' declaration of trust to a party not
affiliated with ProLogis designated by ProLogis as the trustee of a trust for
the exclusive benefit of an organization or organizations described in
Sections 170(b)(1)(A) and 170(c) of the Internal Revenue Code and identified
by ProLogis' board of trustees as the charitable beneficiary or beneficiaries
of the trust, until such time as the excess shares are transferred to a person
whose ownership will not violate the restrictions on ownership. While these
excess shares are held in trust, ProLogis will pay any distributions on the
excess shares to the trust for the benefit of the charitable beneficiary and
the excess shares may only be voted by the trustee for the benefit of the
charitable beneficiary.
Subject to the ownership limit, the trustee will transfer the excess shares
at the direction of ProLogis to any person if the excess shares would not be
excess shares in the hands of that person. The purported transferee will
receive the lesser of:
(1) the price paid by the purported transferee for the excess shares or, if
no consideration was paid, the fair market value of the excess shares
on the day of the event which caused the excess shares to be held in
trust; and
(2) the price received from the sale or other disposition of the excess
shares.
Any dividend or distribution paid to the purported transferee which the
purported transferee was obligated to repay to the trustee, shall be
subtracted from this payment.
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The trustee will pay any proceeds from the sale or other disposition of the
excess shares in excess of the amount payable to the purported transferee to
the charitable beneficiary. In addition, ProLogis will have the right to
purchase the excess shares held in trust for a 90-day period at a purchase
price equal to the lesser of:
(1) the price paid by the purported transferee for the excess shares or, if
no consideration was paid, the fair market value of the excess shares
on the day of the event which caused the excess shares to be held in
trust; and
(2) the fair market value of the excess shares on the date ProLogis elects
to purchase them.
Fair market value, for these purposes, means the last reported sales price
on the New York Stock Exchange on the trading day immediately preceding the
relevant date, or if those shares are not then traded on the New York Stock
Exchange, the last reported sales price on the trading day immediately
preceding the relevant date as reported on any exchange or quotation system on
which those shares are then traded. If the shares are not then traded on any
exchange or quotation system, the fair market value will be the market price on
the relevant date as determined in good faith by ProLogis' board of trustees.
From and after the purported transfer to the purported transferee of the
excess shares, the purported transferee will cease to be entitled to
distributions voting rights and other benefits with respect to the excess
shares except the right to payment on the transfer of the excess shares as
described above; however, the purported transferee remains entitled to
liquidation distributions. If the purported transferee receives any
distributions on excess shares prior to ProLogis' discovery that those excess
shares have been transferred in violation of the provisions of ProLogis'
declaration of trust, the purported transferee must repay those distributions
to ProLogis upon demand, and ProLogis will pay those amounts to the trust for
the benefit of the charitable beneficiary. If the restrictions on
transferability and ownership are determined to be void, invalid or
unenforceable by any court of competent jurisdiction, then ProLogis may treat
the purported transferee of any excess shares to have acted as an agent on
behalf of ProLogis in acquiring those excess shares and to hold those excess
shares on behalf of ProLogis.
All certificates evidencing shares will bear a legend referring to the
restrictions described above.
All persons who own, directly or by virtue of the attribution provisions of
the Internal Revenue Code, more than 5%, or such other percentage between 0.5%
and 5%, as provided in the rules and regulations of the Internal Revenue Code,
of the number or value of ProLogis' outstanding shares must give a written
notice containing certain information to ProLogis by January 31 of each year.
In addition, each shareholder is upon demand required to disclose to ProLogis
in writing such information with respect to its direct, indirect and
constructive ownership of ProLogis' shares as ProLogis' board of trustees deems
reasonably necessary to comply with the provisions of the Internal Revenue Code
applicable to a real estate investment trust, to determine ProLogis' status as
a real estate investment trust to comply with the requirements of any taxing
authority or governmental agency or to determine any such compliance.
The restrictions on share ownership in ProLogis' declaration of trust are
designed to protect the real estate investment trust status of ProLogis. The
restrictions could have the effect of discouraging a takeover or other
transaction in which holders of some, or a majority, of the common shares might
receive a premium for their shares over the then prevailing market price or
which such holders might believe to be otherwise in their best interest.
Indemnification of trustees and officers
The Maryland statutory law governing real estate investment trusts permits a
real estate investment trust to indemnify or advance expenses to trustees,
officers, employees and agents of the real estate investment trust to the same
extent as is permitted for directors, officers, employees and agents of a
Maryland corporation under Maryland statutory law. Under ProLogis' declaration
of trust, ProLogis is required to indemnify each trustee, and may indemnify
each officer, employee and agent to the fullest extent permitted by Maryland
law, as
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amended from time to time, in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he or she was a trustee, officer,
employee or agent of ProLogis or is or was serving at the request of ProLogis
as a director, trustee, officer, partner, employee or agent of another foreign
or domestic corporation, partnership, joint venture, limited liability company,
trust, other enterprise or employee benefit plan, from all claims and
liabilities to which such person may become subject by reason of service in
that capacity and to pay or reimburse reasonable expenses, as those expenses
are incurred, of each trustee, officer, employee and agent in connection with
any of those proceedings. ProLogis' board of trustees believes that the
indemnification provision enhances ProLogis' ability to attract and retain
superior trustees and officers for ProLogis and its subsidiaries.
ProLogis has entered into indemnity agreements with each of its officers and
trustees which provide for reimbursement of all expenses and liabilities of the
officer or trustee, arising out of any lawsuit or claim against the officer or
trustee due to the fact that he was or is serving as an officer or trustee,
except for liabilities and expenses, the payment of which is judicially
determined to be unlawful, relating to claims under Section 16(b) of the
Securities Exchange Act of 1934 or 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 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.
Shareholder liability
Both the Maryland statutory law governing real estate investment trusts and
ProLogis' declaration of trust provide that shareholders shall not be
personally or individually liable for any debt, act, omission or obligation of
ProLogis or ProLogis' board of trustees. ProLogis' declaration of trust further
provides that ProLogis shall indemnify and hold each shareholder harmless from
and against all claims and liabilities, whether they proceed to judgment or are
settled or otherwise brought to a conclusion, to which the shareholder may
become subject by reason of his or her 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; provided that the shareholder gives ProLogis prompt notice of any
such claim or liability and permits ProLogis to conduct the defense of the
claim or liability. In addition, ProLogis is required to, and as a matter or
practice does, insert a clause in its management and other contracts providing
that shareholders 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 some
statutory liabilities, the shareholders may, in some jurisdictions, be
personally liable to the extent that those 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.
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DESCRIPTION OF PROVISIONS OF MARYLAND LAW AND OF PROLOGIS' DECLARATION OF TRUST
AND BYLAWS
The following description of some general provisions of Maryland law and of
ProLogis' declaration of trust and bylaws is not complete and you should refer
to Maryland law, ProLogis' declaration of trust and ProLogis' bylaws for more
information.
Board of trustees
ProLogis' declaration of trust provides that ProLogis' board of trustees
will have not less than three nor more than fifteen trustees, as determined
from time to time by ProLogis' board of trustees. The trustees are divided into
three classes. Each trustee will hold office for three years and until his or
her successor is duly elected and qualifies. The term of the Class I Trustees
will expire at the annual meeting of shareholders in 2000, the term of the
Class II Trustees will expire at the annual meeting of shareholders in 2001 and
the term of the Class III Trustees will expire at the annual meeting of
shareholders in 2002. At each annual meeting of shareholders, the successors to
the class of trustees whose term expires at that meeting will be elected to
hold office for three years. Whenever there is a vacancy or vacancies on the
board of trustees, including vacancies resulting from an increase in the number
of trustees, the vacancy may be filled at a special meeting of the shareholders
called for the purpose of electing trustees to fill the vacancy, by the
trustees then in office or at the next annual meeting of the shareholders. Any
trustees elected at special meetings of the shareholders to fill vacancies or
appointed by the trustees then in office will hold office until the next annual
meeting of shareholders.
The classified board provision may have the effect of making it more
difficult for a third party to acquire control of ProLogis without the consent
of ProLogis' board of trustees, even if a change in control would be beneficial
to ProLogis and its shareholders.
Business combinations
Under Maryland law, "business combinations," between a Maryland real estate
investment trust and an "interested shareholder" or an affiliate of an
interested shareholder are prohibited for five years after the most recent date
on which the interested shareholder became an interested shareholder. A
business combination may include including a merger, consolidation, share
exchange, or, in some circumstances, an asset transfer or issuance or
reclassification of equity securities. After the five-year period, these
business combinations must be recommended by the board of trustees of the real
estate investment trust and approved by at least 80% of the votes entitled to
be cast by shareholders of the real estate investment trust, including at least
two-thirds of the votes entitled to be cast by shareholders other than the
interested shareholder with whom the business combination is to be effected,
unless, among other things, the real estate investment trust's common
shareholders receive a minimum price, as defined under Maryland law, for their
shares and they receive the consideration in cash or in the same form as
previously paid by the interested shareholder for its shares. An "interested
shareholder" is a person who either beneficially owns 10% or more of the voting
power of the real estate investment trust's outstanding shares or is an
affiliate of the real estate investment trust and, at any time during the prior
two years, beneficially owned 10% or more of the voting power of the real
estate investment trust's then outstanding shares. These provisions of Maryland
law do not apply, however, to business combinations which are approved or
exempted by the board of trustees of the real estate investment trust prior to
the time that the interested shareholder becomes an interested shareholder.
ProLogis' declaration of trust exempts any business combination with
Security Capital Group and its affiliates and successors from these provisions
of Maryland law.
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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 by shareholders, other than the acquiror or officers or
trustees who are employees of the real estate investment trust. "Control
shares" are voting shares which, if aggregated with all other voting shares
previously acquired by the acquiror or in respect of which the acquiror is able
to exercise voting power, would entitle the acquiror to exercise at least one-
fifth of the voting power in electing trustees. Control shares do not include
shares 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 certain exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions, including an undertaking to pay expenses,
may compel the board of trustees of the real estate investment trust to call a
special meeting of shareholders to be held within 50 days of demand to consider
voting rights for the shares. If no request for a meeting is made, the real
estate investment trust may itself present the question at any shareholders'
meeting.
If the shareholders do not approve voting rights at the meeting or if the
acquiring person does not deliver an acquiring person statement as required by
Maryland law, then, subject to certain conditions and limitations, the real
estate investment trust may redeem any or all of the control shares, except
those for which voting rights have previously been approved, for fair market
value. Fair market value will be 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 those shares were considered and not approved. If the
shareholders approve voting rights for control shares and the acquiror becomes
entitled to exercise a majority of the voting power in electing trustees, all
other shareholders may exercise appraisal rights. The fair value of the shares
for purposes of the appraisal rights may not be less than the highest price per
share paid by the acquiror for the control shares.
The control share acquisition law does not apply to shares acquired in a
merger, consolidation or share exchange if the real estate investment trust is
a party to the transaction, or to acquisitions approved or exempted by the
declaration of trust or bylaws of the real estate investment trust.
ProLogis' declaration of trust exempts Security Capital Group and its
affiliates and successors from these provisions of Maryland law. Additionally,
through the bylaws, the board of trustees has provided that these provisions of
Maryland will not apply to any acquisition of ProLogis shares by any person.
However, this exemption may be repealed, in whole or in part, at any time
whether before or after an acquisition of control shares, and upon the repeal,
may, to the extent provided by any successor bylaw, apply to any prior or
subsequent control share acquisition.
Amendments to ProLogis' declaration of trust
Maryland law requires the shareholder of a real estate investment trust to
approve any amendment to its declaration of trust, with some exceptions. As
permitted by Maryland law, ProLogis' declaration of trust permits ProLogis'
board of trustees, without any action by the shareholders, to amend ProLogis'
declaration of trust to increase or decrease the aggregate number of shares or
the number of shares of any class which ProLogis may issue. The board of
trustees also may change the par value of any class or series of shares and the
aggregate par value of the shares and the board of trustees may classify or
reclassify any unissued shares from time to time by setting or changing the
preferences, conversion or other rights, voting powers, restrictions
limitations as to dividends or distributions, qualifications or terms or
conditions of the redemption of the shares by filing articles supplementary
pursuant to Maryland law. Also, as permitted by Maryland law, ProLogis'
declaration of trust permits ProLogis' board of trustees, by a two-thirds vote,
to amend ProLogis' declaration of trust to enable ProLogis to qualify as a real
estate investment trust. A majority of the votes entitled to be cast by
shareholders must approve any other amendment to ProLogis' declaration of
trust.
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Termination of ProLogis
ProLogis has a perpetual term and intends to continue its operations for an
indefinite time period. However, the ProLogis declaration of trust provides
that, subject to the provisions of any class or series of shares at the time
outstanding, after approval by a majority of the entire board of trustees,
ProLogis may be terminated at any meeting of shareholders called for the
purpose of voting on the termination by the affirmative vote of the holders of
not less than a majority of the outstanding shares entitled to vote.
In connection with the termination of ProLogis, the ProLogis declaration of
trust provides that the board of trustees, upon receipt of releases or
indemnity as they deem necessary for their protection, may, without the need to
obtain shareholder approval, convey the property of ProLogis to one or more
persons, entities, trusts or corporations for consideration consisting in whole
or in part of cash, shares of stock or other property of any kind, and
distribute the net proceeds among the shareholders ratably, at valuations fixed
by the board of trustees, in cash or in kind, or partly in cash and partly in
kind.
Advance notice of trustee nominations and new business
For a shareholder to properly bring nominations or other business before an
annual meeting of shareholders, ProLogis' bylaws require that shareholder to
deliver a notice to the secretary, absent specified circumstances, not less
than 90 days nor more than 120 days prior to the first anniversary of the
preceding year's annual meeting setting forth:
(1) as to each person whom the shareholder proposes to nominate for
election or reelection as a trustee, all information relating to that
person which is required to be disclosed in solicitations of proxies
for the election of trustees, or is otherwise required, pursuant to
Regulation 14A of the Securities Exchange Act of 1934;
(2) as to any other business which the shareholder proposes to bring before
the meeting, a brief description of the business desired to be brought
before the meeting, the reasons for conducting that business at the
meeting and any material interest of that shareholder and of the
beneficial owner, if any, on whose behalf the proposal is made; and
(3) as to the shareholder giving the notice and the beneficial owner, if
any, on whose behalf the nomination or proposal is made, the name and
address of that shareholder as they appear on ProLogis' books; and of
that beneficial owner, the number of shares of each class of ProLogis
which are owned beneficially and of record by that shareholder and that
beneficial owner; and in the case of a nomination, a description of all
arrangements or understandings between the shareholder and each
proposed nominee and any other person or persons pursuant to which the
nomination is made by that person, a representation that the
shareholder intends to appear in person or by proxy at the meeting, if
there is a meeting, to nominate the person named in the notice and any
other information relating to the shareholder that would be required to
be disclosed in a proxy statement or other filings required to be made
in connection with solicitations of proxies for the election of
trustees pursuant to Section 14 of the Securities Exchange Act of 1934
and the rules and regulations of that section.
DESCRIPTION OF PARTNERSHIP UNITS
MIT Unsecured, Inc., a wholly owned subsidiary of ProLogis, is the sole
general partner of the partnership and owned approximately 87.0% of the
partnership units on August 27, 1999. The remaining partnership units are held
by the limited partners of the partnership. The following description of
certain general terms and provisions of the partnership units is not complete
and you should refer to Delaware law and the partnership's agreement of limited
partnership for more information. For a comparison of the voting and other
rights of holders of partnership units and holders of common shares you should
read the section "Exchange of partnership units--Comparison of ownership of
partnership units and common shares."
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General
Holders of partnership units, other than MIT Unsecured in its capacity as
general partner, hold limited partnership interests in the partnership, and all
holders of partnership units, including MIT Unsecured in its capacity as
general partner, are entitled to share in distributions from, and in the
profits and losses of, the partnership. MIT Unsecured, as general partner, is
entitled to receive 99% of the cash available for distribution after payment of
distributions to the partners in proportion to their respective partnership
units.
Holders of partnership units have the rights to which limited partners are
entitled under the partnership agreement and Delaware law. The partnership
units have not been registered pursuant to Federal or state securities laws and
are not listed on any exchange or quoted on any national quotation system. The
partnership units cannot be sold, assigned, pledged or otherwise disposed of by
a holder unless they are registered under Federal and state securities laws or
an exemption from registration is available.
Purpose, business and management
The purpose of the partnership includes the conduct of any business that may
be lawfully conducted by a Delaware limited partnership, except that the
business of the partnership may be limited to and conducted in a manner that
will permit ProLogis at all times to be classified as a real estate investment
trust. Subject to the preceding limitation, the partnership may enter into
partnerships, joint ventures or similar arrangements and may own interests in
other entities.
MIT Unsecured, as general partner of the partnership, has the exclusive
power and authority to conduct the business of the partnership. However, MIT
Unsecured may not do anything which would make it impossible to carry on the
partnership's business, possess partnership property for a non-partnership
purpose, admit a new partner to the partnership, do anything that would subject
a limited partner to unlimited liability enter into any contract or agreement
that prohibits or restricts the limited partners ability to exchange its
partnership units for ProLogis shares. Additionally MIT Unsecured may not,
without the limited partners' consent, amend, modify or terminate the
partnership agreement, make a general assignment for the benefits of creditors,
institute a proceeding for bankruptcy on behalf of the partnership or transfer
its partnership interest or admit any additional or successor general partners.
Except for those matters, no limited partner may participate in or exercise
control or management over the business of the partnership.
Ability to engage in other businesses; transactions with the general partner
and its affiliates
The partnership agreement does not prohibit MIT Unsecured or ProLogis from
engaging in activities or performing services which are competitive with the
partnership. Neither MIT Unsecured nor any of its affiliates is required to
offer any interest in those activities to the partnership or any of the limited
partners.
The partnership agreement does prohibit MIT Unsecured and ProLogis from
engaging in any transactions with or providing services to the partnership
except on terms that are fair and reasonable and no less favorable to the
partnership than would be obtained from an unaffiliated third party.
Distributions; allocations of income and loss
The partnership agreement requires the partnership to make fully cumulative
quarterly distributions of the partnership's available cash to the limited
partner generally in an amount equal to the preferred return per unit for each
limited partner multiplied by the number of partnership units owned by the
limited partner. The preferred return per unit signifies a dollar amount that
the limited partner will receive for each partnership unit that is owns. For
example, the preferred return per unit for the sole limited partner is equal to
$1.01 and with respect to 1,000 of the partnership units that it owns it is
entitled to a distribution of $1,010. In the case of more than one limited
partner, the preferred return per unit need not be the same for each limited
partner. Additionally, the limited partners will receive any unpaid
distributions from previous quarters.
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"Available cash" generally means all cash receipts received by the partnership
from whatever source plus the amount of any reduction in the reserves of the
partnership less partnership expenses, capital expenditures and principal
payments and increases in reserves. The partnership will distribute 99% of the
available cash remaining after the payment of distributions to the limited
partners to MIT Unsecured, as general partner. The remaining 1% will be
distributed to all holders of partnership units, including MIT Unsecured, in
proportion to the number of partnership units held by each partner.
The partnership agreement generally provides that 99% of the income and
losses of the partnership will be allocated to MIT Unsecured and the remaining
1% of income and losses will be allocated to the holders of partnership units,
including MIT Unsecured, in proportion to the number of partnership units held
by each.
Borrowing by the partnership
MIT Unsecured may cause the partnership to borrow money and to issue and
guarantee debt as it deems necessary to conduct the business of the
partnership. MIT Unsecured also may cause any debt to be secured by mortgages,
deeds of trust or other liens or encumbrances on the assets of the partnership.
MIT Unsecured also may cause the partnership to borrow money to enable the
partnership to make distributions in an amount sufficient to permit ProLogis,
so long as it qualifies as a REIT, to avoid the payment of any Federal income
tax. MIT Unsecured also may pledge the assets of the partnership to secure a
loan or other financing of MIT Unsecured or ProLogis and the proceeds of the
loan or financing are not required to be contributed to the partnership.
Reimbursement of general partner
MIT Unsecured does not receive any compensation for its services as general
partner of the partnership. However, as a partner in the partnership, MIT
Unsecured does receive distributions from the partnership and is allocated
items of partnership profits and losses. In addition, the partnership
reimburses MIT Unsecured for all expenses it incurs relating to the
partnership's ownership of its assets and the operation of the partnership.
Liability of general partner and limited partners
MIT Unsecured, as general partner of the partnership, is liable for all
general recourse obligations of the partnership to the extent they are not paid
by the partnership. MIT Unsecured is not liable for the nonrecourse obligations
of the partnership.
Except for limited circumstances with respect to tax withholdings, the
partnership may not require the limited partners to make additional
contributions to the partnership. If a limited partner does not take part in
the control of the business of the partnership and otherwise acts in accordance
with the provisions of the partnership agreement, the liability of the limited
partner for obligations of the partnership under the partnership agreement and
Delaware law is generally limited, subject to some limited exceptions, to the
loss of the limited partner's investment in the partnership represented by his
partnership units.
The partnership is qualified to conduct business in California and may
qualify to conduct business in other jurisdictions. In order for the
partnership to maintain the limited liability of the limited partners, the
partnership may have to satisfy legal requirements of those jurisdictions and
other jurisdictions. Limitations on the liability of a limited partner for the
obligations of a limited partnership have not been clearly established in many
states; accordingly, if a court determined that the limited partners' right to
make amendments to the partnership agreement or to take other action pursuant
to the partnership agreement constituted "control" of the partnership's
business for the purposes of the statutes of any relevant state, the limited
partners might be held personally liable for the partnership's obligations.
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Exculpation and indemnification of the general partner
MIT Unsecured, as general partner of the partnership, will not be liable to
the partnership or any limited partner for losses sustained or liabilities
incurred as a result of errors in judgment or mistakes of fact or law or of any
act or omission, if MIT Unsecured acted in good faith. In addition, the
partnership is required to indemnify MIT Unsecured and its directors, officers
and employees, against all losses and liabilities relating to the operations of
the partnership, unless the indemnitee's action or omission was the result of
willful misconduct or a knowing violation of the law or the indemnitee actually
received an improper personal benefit in violation or breach of the partnership
agreement.
MIT Unsecured, as general partner of the partnership, is not responsible for
any misconduct or negligence on the part of any of its agents as long as it
appointed the agent in good faith. MIT Unsecured may consult with legal
counsel, accountants, appraisers, management consultants, investment bankers
and other consultants and advisers selected by it and may rely on them as to
matters which MIT Unsecured reasonably believes to be within their professional
or expert competence.
Sales of assets
Under the partnership agreement, MIT Unsecured generally has the exclusive
authority to determine whether, when and on what terms the partnership will
sell or refinance its assets. However, prior to the fifth anniversary of the
partnership's acquisition of its original property, MIT Unsecured may not
dispose of all or any portion of the property if the disposal of that property
would cause the original limited partner to recognize taxable income and, for
that five year period, the partnership is required to maintain at least
$2,310,000 of indebtedness on that property and give the limited partners an
opportunity to assume any economic risk of loss up to $2,310,000 on that
property in connection with any refinancing or restructuring of indebtedness on
that property. Not withstanding this limitation, the partnership will
distribute the proceeds from any sale or refinancing of its assets first to the
limited partners to pay any accrued and unpaid distributions. The partnership
will distribute 99% of the remaining proceeds to MIT Unsecured, as general
partner, and the remaining 1% will be distributed to all holders of partnership
units, including MIT Unsecured, in proportion to the number of partnership
units held by each partner.
Removal of the general partner; transfer of the general partner's interest
The partnership agreement provides that the limited partners may not remove
MIT Unsecured as general partner of the partnership with or without cause. MIT
Unsecured may not transfer any of its partnership interests, except for the
transfer of all, but not less than all, of its partnership interests to
ProLogis, to a wholly owned subsidiary of ProLogis or in connection with a
reclassification, recapitalization, merger, consolidation or sale of all or
substantially all of its assets of ProLogis.
Restrictions on transfers of partnership units by limited partners
A limited partner may transfer its interest in the partnership without the
consent of MIT Unsecured provided that:
. the transferee is an accredited investor within the meaning of Rule 501
promulgated under the Securities Act of 1933,
. the transfer is not less than the lesser of (A) the greater of 5,000
partnership units or one-third of the partnership units owned by the
transferring at the time of the creator of the partnership or (B) all of
the remaining partnership units owned by the transferring partner,
. at the election of MIT Unsecured, the transferee will deliver to MIT
Unsecured an agreement that within six months of the transfer, the
transferee will redeem its shares,
. the transferee will not make any further transfers of the partnership
units, other than to MIT Unsecured, and
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. the transferee assumes the obligations and conditions of the transferring
limited partner under the partnership agreement, together with making the
representations and warranties set forth in the partnership agreement.
In the event of a transfer of a limited partnership interest, the transferring
partner must give MIT Unsecured written notice of the proposed transfer. At
that time MIT Unsecured has ten business days to elect to acquire the
transferring partners partnership interests at the same price offered to the
transferring partner by a third party.
A transferee of the limited partnership interest may be admitted as a
substituted limited partner only with the consent of MIT Unsecured, which
consent may be given or withheld by MIT Unsecured in its sole and absolute
discretion.
A transferee who has been admitted as a substituted limited partner in
accordance with the partnership agreement has all the rights and powers and is
subject to all the restrictions and liabilities of a limited partner under the
partnership agreement. If any transferee does not become a substituted limited
partner, that transferee has all the rights of an assignee of a limited
partnership interest under Delaware law, including the right to receive
distributions from the partnership and all allocations of partnership profits
and losses but the transferee will not be treated as a holder of the
partnership units for any other purpose under the partnership agreement. The
transferee is not entitled to vote the transferred partnership units.
In addition, limited partners may dispose of their partnership units by
redeeming them to the partnership. At the option of MIT Unsecured, the
partnership may pay the redemption price with ProLogis common shares. See
"Exchange of Partnership Units."
Issuance of additional partnership units
MIT Unsecured may cause the partnership to issue additional partnership
units without the consent of limited partners.
Amendments to the partnership agreement
Amendments to the partnership agreement may be proposed by MIT Unsecured or
by limited partners holding 25% or more of the partnership units. Following a
proposed amendment, MIT Unsecured will seek the written consent of the limited
partners on the proposed amendment or will call a meeting to vote on the
amendment. For purposes of obtaining a written consent, MIT Unsecured may
require a response within a reasonable specified time, but not less than
fifteen days. Failure by a limited partner to respond on time would constitute
a consent consistent with MIT Unsecured's recommendation.
Books and records
The partnership maintains its books and records at the principal office of
the partnership which is located at 14100 East 35th Place, Aurora, Colorado
80011. The partnership maintains its books for financial and purposes on an
accrual basis in accordance with generally accepted accounting principles or on
such other basis as MIT Unsecured determines to be necessary or appropriate.
As soon as practicable, but in no event later than 120 days after the close
of each fiscal year, MIT Unsecured will mail to each limited partner of record
as of the close of the fiscal year an annual report for the partnership
containing a balance sheet as of the end of the fiscal year and an income
statement and statement of changes in financial position for the fiscal year.
In addition, MIT Unsecured will mail to each such limited partner an annual
report of ProLogis for such fiscal year.
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As soon as practicable, but in no event later than 60 days after the close
of each calendar quarter, except the last calendar quarter of each year, MIT
Unsecured shall cause to be mail to each limited partner of record as of the
last day of the calendar quarter a report containing unaudited financial
statements of ProLogis and the partnership and such other information as may be
required by applicable law or regulation or as MIT Unsecured determines to be
appropriate.
Dissolution, winding up and termination
The partnership will continue until December 31, 2096, unless it is
dissolved earlier pursuant to the partnership agreement. The partnership will
be dissolved, and its affairs will be wound up, if any of the following events
occur:
(1) there is an event of withdrawal including bankruptcy, of MIT Unsecured
unless within 90 days thereafter, a majority of the remaining partners,
in which MIT Unsecured does not own a majority, agree in writing to
continue the business of the partnership and to appoint a new general
partner;
(2) an election to dissolve the partnership is made by MIT Unsecured, in
its sole and absolute discretion, with or without the consent of the
limited partners;
(3) a court enters a decree of judicial dissolution of the partnership
pursuant to Delaware law;
(4) the partnership sells all or substantially of the assets of the
partnership or a related series of transactions occur that result in
the sale or disposition of all or substantially all of the assets of
the partnership; or
(5) the redemption, or acquisition by MIT Unsecured, of all of the limited
partners' partnership units other than partnership units held by MIT
Unsecured.
When the partnership is dissolved, MIT Unsecured, as general partner, or the
liquidator will proceed to liquidate the partnership's assets and, after paying
the partnership's debts, will distribute the proceeds to the partners according
to their capital account balances.
EXCHANGE OF PARTNERSHIP UNITS
General
Any limited partner, beginning on August 20, 1999, the first anniversary of
the formation of the partnership, has the right to require the partnership to
redeem all or a portion of the partnership units held by such limited partner.
If a limited partner makes an election to have its partnership units redeemed,
it must exchange at least 5,000 partnership units. In the case of a limited
partner that owns less than 5,000 partnership units, the limited partner making
the election must exchange all of its partnership units. A limited partner may
deliver a notice to redeem partnership interests only once in each consecutive
12-month period.
On the 30th calendar day after MIT Unsecured's receipt of a notice of
redemption, the redeeming limited partner will transfer its partnership units
to the partnership. In exchange for each partnership unit being redeemed the
limited partner will receive cash in an amount equal to the sum of
(1) 1.10 multiplied by the average closing price of ProLogis common shares
over the 20 trading days on which ProLogis common shares were traded
immediately preceding MIT Unsecured's receipt of the notice of
redemption, and
(2) $2.00.
Upon receipt of a limited partner's redemption notice, MIT Unsecured, at its
sole and absolute discretion, may purchase the partnership units included in
the notice for cash or, at MIT Unsecured's election, for ProLogis common
shares. If MIT Unsecured elects to purchase the partnership units for ProLogis
common shares, the limited partner would be entitled to receive 1.10 ProLogis
common shares and $2.00 in cash for each tendered partnership unit. At this
time, ProLogis anticipates that MIT Unsecured will elect to acquire the
partnership units and issue common shares to all limited partners who surrender
their partnership units.
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MIT Unsecured only may purchase a limited partner's partnership units if a
limited partner has given MIT Unsecured, as general partner, notice of its
election to have the partnership redeem such limited partner's partnership
units. If MIT Unsecured elects to purchase the partnership units, the
partnership will be relieved of any obligation to redeem the partnership units
covered by the notice.
When MIT Unsecured acquires partnership units which are surrendered by
limited partners to the partnership, either by issuing common shares or by
paying the cash amount, the transaction will be treated as a sale of the
partnership units to MIT Unsecured for federal income tax purposes. Beginning
on the exchange date, the limited partner's right to receive distributions with
respect to the partnership units exchanged or redeemed will cease and, if its
partnership units were exchanged for common shares, it will have rights as a
shareholder of ProLogis. In the event that all of the partnership units are
redeemed, other than partnership units already held by MIT Unsecured, or that
MIT Unsecured acquires all of the partnership units, the partnership will be
terminated.
Tax consequences of exchange
The following discussion summarizes certain Federal income tax
considerations that may be relevant to a limited partner who exercises his
right to require the exchange of his partnership units. Holders of partnership
units should carefully review this prospectus, the registration statement of
which this prospectus is a part and any applicable prospectus supplement for
additional important information about ProLogis and the tax consequences of
acquiring, holding and disposing of common shares.
Tax treatment of exchange of partnership units. If a limited partner
exercises its right to exchange its partnership units for common shares, such
exchange will be treated by ProLogis, the partnership and the exchanging
limited partner for Federal income tax purposes as a sale of partnership units
by such limited partner to ProLogis at the time of such exchange. The exchange
will be fully taxable to the exchanging limited partner. The amount of taxable
gain or loss to an exchanging limited partner will equal the difference between
the amount realized for tax purposes and the tax basis in the partnership units
exchanged, including partnership units exchanged for common shares and cash,
including cash received in lieu of fractional common shares. Such exchanging
limited partner will be treated as realizing an aggregate amount equal to the
sum of:
(1) value of the common shares received in the exchange;
(2) the amount of any partnership liabilities allocable to the exchanged
partnership units at the time of the exchange; and
(3) cash, including any cash received in lieu of fractional common shares.
It is possible that the amount of gain recognized or even the tax liability
resulting from such gain could exceed the value of any common shares received
upon such an exchange. In addition, the ability of the limited partner to sell
a substantial number of common shares in order to raise cash to pay tax
liabilities associated with the exchange of partnership units may be restricted
because, as a result of fluctuations in the share price, the price the limited
partner receives for such common shares may not equal the value of his
partnership units at the time of exchange.
Except as described below, any gain recognized upon a sale or other
disposition of partnership units will be treated as gain attributable to the
sale or disposition of a capital asset. To the extent, however, that the amount
realized upon the sale of a unit attributable to a limited partner's share of
"unrealized receivables" of the partnership, as defined in Section 751 of the
Internal Revenue Code, exceeds the basis attributable to those assets, such
excess will be treated as ordinary income. Unrealized receivables include,
among other things, amounts that would be subject to depreciation recapture as
ordinary income if the partnership had sold its assets at their fair market
value at the time of the transfer of a unit, including the recapture of any
depreciation on real property held for one year or less.
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Basis of partnership units. In general, a limited partner who contributed a
partnership interest or other property in exchange for its partnership units,
or who received or was deemed to have received its partnership units upon
liquidation of a partnership, has an initial tax basis in its partnership units
equal to its basis in the contributed partnership interest or other property or
to its basis in its partnership interest at the time of such liquidation, as
applicable. A limited partner's initial basis in its partnership units
generally is increased by:
(1) such limited partner's share of the partnership's taxable income; and
(2) increases in its share of liabilities of the partnership. Generally,
such limited partner's basis in its partnership units is decreased, but
not below zero, by:
(A) its share of distributions from the partnership;
(B) decreases in its share of liabilities of the partnership;
(C) its share of losses of the partnership; and
(D) its share of nondeductible expenditures of the partnership that are
not chargeable to capital.
Potential application of the disguised sale regulations to an exchange of
partnership units. There is a risk that an exchange of partnership units may
cause the original transfer of property to the partnership in exchange for
partnership units to be treated as a "disguised sale" of property as of the
date of such transfer. The disguised sale regulations generally provide that,
unless one of the prescribed exceptions is applicable, a partner's contribution
of property to a partnership and a simultaneous or subsequent transfer of money
or other consideration, including the assumption of or taking subject to a
liability, from the partnership to the partner, will be presumed to be a sale,
in whole or in part, of such property by the partner to the partnership or to
another partner such as ProLogis. Further, the disguised sale regulations
provide generally that, in the absence of an applicable exception, if money or
other consideration is transferred by a partnership to a partner within two
years of the partner's contribution of property, the transactions are presumed
to be a sale of the contributed property unless the facts and circumstances
clearly establish that the transfers do not constitute a sale. Transfers within
such two-year period which the partner treats as other than a sale are required
to be disclosed to the IRS. The disguised sale regulations also provide that if
two years have passed between the transfer of money or other consideration and
the contribution of property, the transactions are presumed not to be a sale
unless the facts and circumstances clearly establish that the transfers
constitute a sale.
Accordingly, if a unit is exchanged, the IRS could contend that the
disguised sale regulations apply because, as a result of the exchange, a
limited partner receives common shares or cash subsequent to the limited
partner previous contribution of property to the partnership. In that event,
the IRS could contend that the original transfer of property to ProLogis was
taxable, in whole or in part, as a disguised sale under the disguised sale
regulations. Any gain recognized thereby may be eligible for installment sale
reporting under Section 453 of the Internal Revenue Code, subject to certain
limitations.
REGISTRATION RIGHTS
ProLogis and the limited partners are parties to a Registration Rights
Agreement which requires ProLogis to register the common shares which the
limited partners may receive when they exchange their partnership units. The
following description of general terms and provisions of the Registration
Rights Agreement is not complete and you should refer to the Registration
Rights Agreement for more information.
The Registration Rights Agreement requires ProLogis to try in good faith to
keep the registration statement for the common shares continuously effective
until the later of September 1, 2003 or the fourth anniversary of the date upon
which the registration statement of which this prospectus is a part is declared
effective.
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The Registration Rights Agreement requires the holders of partnership units
to pay the first $5,000 of registration expenses and requires ProLogis to pay
all remaining registration expenses incurred in registering the common shares,
including fees and disbursements of ProLogis' counsel. However, participating
limited partners must pay their own brokerage discounts and commissions and the
costs, fees and disbursements of their own counsel. The Registration Rights
Agreement also requires ProLogis to indemnify the limited partners and their
respective directors, officers, employees, agents and partners and any person
who controls any limited partner against certain losses, claims, damages,
liabilities and expenses arising under the securities laws. Each limited
partner must indemnify ProLogis and its trustees, officers, employees and
agents and any person who controls ProLogis against certain losses,
liabilities, claims, damages, liabilities and expenses arising under the
securities laws with respect to written information furnished to ProLogis by
that limited partner.
COMPARISON OF OWNERSHIP OF PARTNERSHIP UNITS AND COMMON SHARES
Generally, an investment in common shares is substantially equivalent
economically to an investment in partnership units. A holder of a common share
generally receives the same distribution as a holder of a unit and holders of
common shares and partnership units generally share in the risks and rewards of
ownership in ProLogis' business. However, there are some differences between
owning partnership units and owning common shares which may be material to
investors.
This section describes some of the significant differences between the
partnership and ProLogis and compares some of the legal rights associated with
owning partnership units and common shares. ProLogis believes that this
information may help limited partners of the partnership understand how their
investment will be changed if they exchange their partnership units for common
shares. However, the limited partners should carefully review this prospectus,
the rest of the registration statement of which this prospectus is a part and
any applicable prospectus supplement for additional important information about
ProLogis.
The Partnership ProLogis
Form of Organization and Assets Owned
The partnership is a Delaware ProLogis is a Maryland real estate
limited partnership and owns investment trust and is qualified as
interests in various industrial a real estate investment trust under
distribution facilities. the Internal Revenue Code. ProLogis
owns direct and indirect interests
in various distribution facilities.
17
<PAGE>
The Partnership ProLogis
Length of Investment
The partnership will dissolve on ProLogis has a perpetual term and
December 31, 2096, although it may intends to continue its operations
be dissolved earlier under various for an indefinite time period.
circumstances. However, the ProLogis declaration of
trust provides that, subject to the
provisions of any class or series of
shares at the time outstanding,
after approval by a majority of the
entire board of trustees, ProLogis
may be terminated at any meeting of
shareholders called for the purpose
of voting on the termination by the
affirmative vote of the holders of
not less than a majority of the
outstanding shares entitled to vote.
In connection with the termination
of ProLogis, the ProLogis
declaration of trust provides that
the board of trustees, upon receipt
of releases or indemnity as they
deem necessary for their protection,
may, without the need to obtain
shareholder approval, convey the
property of ProLogis to one or more
persons, entities, trusts or
corporations for consideration
consisting in whole or in part of
cash, shares of stock or other
property of any kind, and distribute
the net proceeds among the
shareholders ratably, at valuations
fixed by the Board, in cash or in
kind, or partly in cash and partly
in kind.
Purpose and Permitted Investments
The purpose of the partnership ProLogis' purpose is to invest in
includes the conduct of any business notes, bonds, and other obligations
that may be lawfully conducted by a secured by mortgages on real
Delaware limited partnership, except property and to purchase, hold,
that the business of the partnership lease, manage, sell, exchange,
may be limited to and conducted in a develop, subdivided and improve real
manner that will permit ProLogis at property and interests in real
all times to be classified as a real property and in general to do all
estate investment trust. Subject to other things in connection with the
the preceding limitation, the foregoing and to have and exercise
partnership may enter into all powers conferred by Maryland law
partnerships, joint ventures or on real estate investment trusts
similar arrangements and may own formed under Maryland law, and to do
interests in other entities. any or all of the things set forth
in the declaration of trust to the
same extent as natural persons might
or could do. In addition, it is
intended that ProLogis' business be
conducted so that it will qualify as
a real estate investment trust under
the Internal Revenue Code.
18
<PAGE>
The Partnership ProLogis
Additional Equity
Except for limited circumstances ProLogis' board of trustees has
with respect to tax withholdings, discretion to authorize and issue
the partnership may not require the equity securities consisting of
limited partners to make additional common shares or other types or
contributions to the partnership. If classes of securities provided that
a limited partner does not take part the total number of shares of
in the control of the business of beneficial interest that is issued
the partnership and otherwise acts does not exceed 275,000,000.
in accordance with the provisions of However, ProLogis' board of trustees
the partnership agreement, the may amend ProLogis' declaration of
liability of the limited partner for trust without shareholder consent to
obligations of the partnership under increase or decrease the aggregate
the partnership agreement and number of shares which ProLogis has
Delaware law is generally limited, authority to issue.
subject to some limited exceptions,
to the loss of the limited partner's
investment in the partnership
represented by his partnership
units. MIT Unsecured may contribute
any additional funds which it
determines the partnership requires
as additional capital contributions
in return for additional partnership
units, although MIT Unsecured is not
required to make any additional
capital contributions.
Borrowing Policies
MIT Unsecured may cause the ProLogis' board of trustees may
partnership to borrow money and to cause ProLogis to borrow money and
issue and guarantee debt as it deems to issue and guarantee debt for the
necessary for conducting the purposes of ProLogis; and to
activities of the partnership. MIT mortgage or pledge ProLogis' real
Unsecured also may cause any debt to and personal property to secure that
be secured by mortgages, deeds of debt.
trust or other liens or encumbrances
on the assets of the partnership.
MIT Unsecured also may cause the
partnership to borrow money to
enable the partnership to make
distributions in an amount
sufficient to permit ProLogis, so
long as it qualifies as a real
estate investment trust, to avoid
the payment of any Federal income
tax.
19
<PAGE>
The Partnership
ProLogis
Management Control
MIT Unsecured, as general partner of ProLogis' board of trustees has
the partnership, has the exclusive exclusive control over ProLogis'
power and authority to conduct the business and affairs subject to the
business of the partnership. restrictions in ProLogis'
However, MIT Unsecured may not, declaration of trust and bylaws. The
without the written consent of all trustees are divided into three
the limited partners, do anything classes. At each annual meeting of
which would make it impossible to the shareholders, the successors of
carry on the partnership's business, the class of trustees whose term
possess partnership property for a expires at that meeting will be
non-partnership purpose, admit a new elected for a three-year term.
partner to the partnership, do ProLogis' board of trustees may
anything that would subject a alter or eliminate any policies
limited partner to unlimited which it adopts without a vote of
liability or do anything to cause the shareholders. Accordingly,
the partnership to be taxed as a except for their vote in the
corporation for Federal income tax elections of trustees, shareholders
purposes. Except for those matters, have no control over the ordinary
no limited partner may participate business policies of ProLogis.
in or exercise control or management
over the business of the ProLogis and Security Capital Group
partnership. The partnership Incorporated, ProLogis' largest
agreement provides that the limited shareholder, are parties to a Third
partners may not remove MIT Amended and Restated Investor
Unsecured as general partner of the Agreement. The investor agreement
partnership with or without cause. gives Security Capital Group a right
to nominate up to three trustees,
depending on its level of ownership
of common shares. The investor
agreement provides that, without
first having consulted with Security
Capital Group's nominees to
ProLogis' board of trustees
designated in writing, ProLogis may
not seek board approval of:
(1) ProLogis' annual budget;
(2) incurring expenses in any year
exceeding specific thresholds;
(3) acquisitions or dispositions in
a single transaction or group of
related transactions where the
purchase price exceeds $25
million; and
(4) contracts for investment
management, property management
or leasing services which would
reasonably require ProLogis to
make yearly payments in excess
of $1 million.
ProLogis is not obligated to accept
or follow any advice received from
Security Capital Group in relation
to these matters.
20
<PAGE>
The Partnership ProLogis
Additionally, so long as Security
Capital Group beneficially owns at
least 25% of the outstanding common
shares, Security Capital Group has
the right to approve the following
matters proposed by ProLogis:
(1) subject to some limited
exceptions, the issuance or sale
of any common shares or any
securities convertible into or
exchangeable for common shares
at less than fair market value;
(2) the issuance and sale of any
disqualified shares resulting in
ProLogis' Fixed Charge Coverage
Ratio, as defined in the
investor agreement, being less
than 1.4 to 1.0;
(3) the adoption of any employee
benefit plan pursuant to which
common shares or any securities
convertible into common shares
may be issued and any action
with respect to the compensation
of the senior officers of
ProLogis; and
(4) the incurrence of any additional
indebtedness, including
guarantees and renegotiations
and restructurings of existing
indebtedness, resulting in
ProLogis' interest expense
coverage ratio, as defined in
the investor agreement, being
less than 2.0 to 1.0.
21
<PAGE>
The Partnership ProLogis
Management Liability and Indemnification
MIT Unsecured, as general partner of Under ProLogis' declaration of
the partnership, is liable for all trust, ProLogis is required to
general recourse obligations of the indemnify each trustee, and may
partnership to the extent they are indemnify each officer, employee and
not paid by the partnership. MIT agent to the fullest extent
Unsecured is not liable for the permitted by Maryland law, as
nonrecourse obligations of the amended from time to time, in
partnership. connection with any threatened,
pending or completed action, suit or
proceeding, whether civil, criminal,
administrative or investigative, by
reason of the fact that he or she
was a trustee, officer, employee or
agent of ProLogis or is or was
serving at the request of ProLogis
as a director, trustee, officer,
partner, employee or agent of
another foreign or domestic
corporation, partnership, joint
venture, limited liability company,
trust, other enterprise or employee
benefit plan, from all claims and
liabilities to which such person may
become subject by reason of service
in that capacity and to pay or
reimburse reasonable expenses, as
those expenses are incurred, of each
trustee, officer, employee and agent
in connection with any of those
proceedings, except for liabilities
and expenses, the payment of which
is judicially determined to be
unlawful, relating to claims under
section 16(b) of the Securities
Exchange Act of 1934 or relating to
judicially determined criminal
violations.
MIT Unsecured, as general partner of
the partnership, will not be liable
to the partnership or any limited
partner for losses sustained or
liabilities incurred as a result of In addition, ProLogis has entered
errors in judgment or mistakes of into indemnity agreements with each
fact or law or of any act or of its trustees who is not also an
omission, if MIT Unsecured acted in officer of ProLogis which provide
good faith. In addition, the for indemnification and advancement
partnership is required to indemnify of expenses to the fullest extent
MIT Unsecured and its directors, permitted by Maryland law in
officers and employees, against all connection with any pending or
losses and liabilities relating to completed action, suit or proceeding
the operations of the partnership, by reason of serving as a trustee
unless the indemnitee's action or and ProLogis has established a trust
omission was the result of willful to fund payments under the
misconduct or a knowing violation of indemnification agreements.
the law or the indemnitee actually
received an improper personal
benefit in violation or breach of
the partnership agreement.
MIT Unsecured, as general partner of
the partnership, is no responsible
for any misconduct or negligence on
the part of any of its agents as
long as it appointed the agent in
good faith. MIT Unsecured may
consult with legal counsel,
accountants, appraisers, management
consultants, investment bankers and
other consultants and advisers
selected by it and may rely on them
as to matters which MIT Unsecured
reasonably believes to be within
their professional or expert
competence.
22
<PAGE>
The Partnership ProLogis
Anti-takeover Provisions
The partnership agreement provides In addition to the Maryland
that the limited partners may not statutory anti-takeover provisions,
remove MIT Unsecured as general ProLogis' declaration of trust and
partner of the partnership with or bylaws contain a number of
without cause. provisions that may delay or
discourage an unsolicited proposal
to acquire ProLogis or remove its
management. These provisions
include, among others:
(1) a staggered board;
(2) authorized shares of beneficial
interest which may be issued, in
the discretion of ProLogis'
board of trustees, as preferred
shares of beneficial interest
with superior voting rights to
the common shares;
(3) a shareholder rights plan which
limits the ownership of common
shares by any person or group of
persons;
(4) restrictions on transferability
and ownership of ProLogis'
shares designed to preserve
ProLogis' status as a real
estate investment trust under
the Internal Revenue Code;
(5) the requirement that special
meetings of shareholders only
may be called by a majority of
the trustees or upon the written
request of shareholders holding
a majority of the outstanding
ProLogis shares entitled to
vote; and
(6) a provision providing for the
removal of trustees only for
cause by the affirmative vote of
two-thirds of all votes entitled
to be cast in the election of
trustees or by the trustees then
in office by a two-thirds vote.
For more information on the Maryland
anti-takeover provisions see
"Description of provisions of
Maryland law and of ProLogis'
declaration of trust and bylaws--
Business combinations" and "--
Control share acquisitions." For a
description of the shareholder
rights plan, see "Description of
common shares--Purchase rights."
23
<PAGE>
The Partnership ProLogis
Voting Rights
The limited partners have voting Subject to the provisions of
rights only with respect to the ProLogis' declaration of trust
matters described under "-- regarding excess shares, each
Management Control," the amendments outstanding share entitles its
to the partnership agreement holder to one vote on all matters
described under "--Amendments to the submitted to shareholders for vote,
Partnership agreement" and the including the election of trustees.
continuation of the partnership upon Shareholders of ProLogis have the
withdrawal of the general partner. right to vote on, among other
Otherwise, MIT Unsecured, as general things, a merger of ProLogis, some
partner of the partnership, has the amendments to ProLogis' declaration
exclusive power and authority to of trust and the termination of
conduct the business of the ProLogis. A trustee may be removed
partnership. only for cause by the shareholders
by the affirmative vote of two-
thirds of all of the votes entitled
to be cast in the election of
trustees or by the trustees then in
office by a two-thirds vote. All
other matters, including a merger of
ProLogis or the election of
trustees, require the affirmative
vote of a majority of the shares
entitled to vote on the matter.
ProLogis' declaration of trust
permits ProLogis' board of trustees
to classify and issue shares of
beneficial interest of ProLogis with
voting rights different than the
common shares.
Amendments to the Partnership Agreement or ProLogis' Declaration of Trust
Amendments to the partnership Maryland law requires the
agreement may be proposed by MIT shareholder of a real estate
Unsecured or by limited partners investment trust to approve any
holding 25% or more of the amendment to its declaration of
partnership units. Following a trust, with some exceptions. As
proposed amendment, MIT Unsecured permitted by Maryland law, ProLogis'
will seek the written consent of the declaration of trust permits
limited partners on the proposed ProLogis' board of trustees, without
amendment or will call a meeting to any action by the shareholders, to
vote on the amendment. For purposes amend ProLogis' declaration of trust
of obtaining a written consent, MIT to increase or decrease the
Unsecured may require a response aggregate number of shares or the
within a reasonable specified time, number of shares of any class which
but not less than fifteen days. ProLogis may issue. The board of
Failure by a limited partner to trustees also may change the par
respond on time would constitute a value of any class or series of
consent consistent with MIT shares and the aggregate par value
Unsecured's recommendation. of the shares and the board of
trustees may classify or reclassify
any unissued shares from time to
time by setting or changing the
preferences, conversion or other
rights, voting powers, restrictions
limitations as to dividends or
distributions, qualifications or
terms or conditions of the
redemption of the shares by filing
articles supplementary pursuant to
Maryland law. Also, as permitted by
Maryland law, ProLogis' declaration
of trust permits ProLogis' board of
trustees, by a two-thirds vote, to
amend ProLogis' declaration of trust
to enable ProLogis to qualify as a
real estate investment trust. A
majority of the votes entitled to be
cast by shareholders must approve
any other amendment to ProLogis'
declaration of trust.
24
<PAGE>
The Partnership ProLogis
Compensation, Fees and Distributions
MIT Unsecured does not receive any ProLogis' non-employee trustees
compensation for its services as receive an annual retainer and
general partner of the partnership. meeting fees for each meeting of the
However, as a partner in the board of trustees they attend, which
partnership, MIT Unsecured does is paid in common shares. Non-
receive distributions from the employee members of ProLogis'
partnership and is allocated items investment, compensation, audit and
of partnership profits and losses. special committees receive
In addition, the partnership additional retainers and fees.
reimburses MIT Unsecured for all ProLogis' trustees may also receive
expenses it incurs relating to the options under ProLogis' 1997 Long-
partnership's ownership of its Term Incentive Plan. ProLogis also
assets and the operation of the grants its non-employee trustees
partnership. options to purchase common shares
under ProLogis' Common Share Option
Plan for Outside Trustees.
Liability of Investors
If a limited partner does not take Both the Maryland statutory law
part in the control of the business governing real estate investment
of the partnership and otherwise trusts and ProLogis' declaration of
acts in accordance with the trust provide that shareholders
provisions of the partnership shall not be personally or
agreement, the liability of the individually liable for any debt,
limited partner for obligations of act, omission or obligation of
the partnership under the ProLogis or ProLogis' board of
partnership agreement and Delaware trustees. ProLogis' declaration of
law is generally limited, subject to trust further provides that ProLogis
some limited exceptions, to the loss shall indemnify and hold each
of the limited partner's investment shareholder harmless from all claims
in the partnership represented by and liabilities to which the
his partnership units. shareholder may become subject by
reason of his or her 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, provided
that the shareholder gives ProLogis
prompt notice of any such claim or
liability and permits ProLogis to
conduct the defense of the claim or
liability. In addition, ProLogis is
required to, and as a matter or
practice does, insert a clause in
its management and other contracts
providing that shareholders 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 certain statutory liability, the
shareholders may, in some
jurisdictions, be personally liable
to the extent that those claims are
not satisfied by ProLogis. Inasmuch
as ProLogis carriers 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.
25
<PAGE>
The Partnership ProLogis
Review of Investor Lists
Under Maryland law, ProLogis must
provide a list of its shareholders
if it receives a written request
from shareholders who have held, for
at least six months, at least 5% of
the outstanding shares of beneficial
interest of any class of ProLogis'
shares.
Distributions
The partnership agreement requires Holders of common shares are
the partnership to make fully entitled to such distributions as
cumulative quarterly distributions ProLogis' board of trustees may
of the partnership's available cash declare from time to time out of
to the limited partners generally in funds legally available for the
an amount equal to the preferred payment of distributions. If there
return per unit for each limited is a liquidation, dissolution or
partner multiplied by the number of winding up of ProLogis' affairs, the
partnership units owned by each holders of the common shares are
limited partner, respectively. entitled to share equally in
Additionally, the limited partners ProLogis' assets remaining after
will receive any unpaid ProLogis pays or sets aside assets
distributions from previous to pay all liabilities to its
quarters. The partnership will creditors and subject to the rights
distribute 99% of the available cash of the holders of ProLogis'
remaining after the payment of preferred shares. In order to
distributions to the limited qualify as a real estate investment
partners to MIT Unsecured, as trust, ProLogis must distribute at
general partner. The remaining 1% least 95% of its taxable income,
will be distributed to all holders excluding capital gains, and any
of partnership units, including MIT taxable income, including capital
Unsecured, in proportion to the gains, not distributed will be
number of partnership units held by subject to corporate Federal income
each partner. tax and may be subject to Federal
excise tax. In addition, ProLogis is
entitled to receive its
proportionate share of distributions
made by the partnership with respect
to the partnership units it holds.
Potential Dilution of Rights
The partnership may issue additional ProLogis' declaration of trust
partnership units without the authorizes ProLogis to issue up to
consent of limited partners from 275,000 shares of beneficial
time to time, as MIT Unsecured may interest, par value $0.01 per share,
determine is necessary for raising consisting of common shares,
additional funds needed by the preferred shares and such other
partnership. types or classes of shares of
beneficial interest as ProLogis'
board of trustees may create and
authorize from time to time.
ProLogis' board of trustees may
amend ProLogis' declaration of trust
without shareholder consent to
increase or decrease the aggregate
number of shares or the shares of
any class which ProLogis has
authority to issue. On August 26,
1999, 161,418,759 common shares were
issued and outstanding and held of
record by approximately 11,788
shareholders.
26
<PAGE>
The Partnership ProLogis
Liquidity
A limited partner may transfer its With some exceptions, persons who
interest in the partnership without are not affiliates of ProLogis will
the consent of MIT Unsecured, be able to freely transfer their
provided that the transferee meets common shares because they have been
and fulfills the transfer registered under the Securities Act
requirements of the partnership of 1933, subject to the restrictions
agreement. In order to transfer its on transferability and ownership of
interest in the partnership, the excess shares in ProLogis'
limited partner must deliver written declaration of trust. The common
notice to MIT Unsecured. A shares are listed on the New York
transferee of a limited partner may Stock Exchange.
be admitted as a substituted limited
partner only with the consent of MIT
Unsecured.
Because no trading market exists for
the partnership units, the
partnership units are illiquid. Any
limited partner, beginning on August
20, 1999, may redeem at least 5,000
of its partnership units, and if the
limited partner does not own at
least 5,000 partnership units, all
of its then owned partnership units,
at any time for cash by delivering a
notice to MIT Unsecured.
On the 30th calendar day after MIT
Unsecured receives the notice, the
exchanging limited partners will
transfer their partnership units to
the partnership and the exchanging
limited partners will receive cash.
Upon receipt of a limited partner's
redemption notice, MIT Unsecured, at
its sole and absolute discretion,
may purchase the partnership units
included in the notice for cash or,
at MIT Unsecured's election, for
ProLogis common shares. If MIT
Unsecured elects to purchase the
partnership units for ProLogis
common shares, the limited partner
would be entitled to receive 1.10
ProLogis common shares and $2.00 in
cash for each tendered partnership
unit. At this time, ProLogis
anticipates that MIT Unsecured will
elect to acquire the partnership
units and issue common shares to all
limited partners who surrender their
partnership units.
MIT Unsecured only may purchase a
limited partners partnership units
if a limited partner has given MIT
Unsecured, as general partner,
notice of its election to have the
partnership redeem such limited
partner's partnership units. If MIT
Unsecured elects to purchase the
partnership units, the partnership
will be relieved of any obligation
to redeem the partnership units
covered by the notice.
27
<PAGE>
The Partnership ProLogis
Federal Income Taxation
The partnership is not subject to ProLogis has elected to be taxed as
Federal income taxes. Instead, each a real estate investment trust for
holder of partnership units includes Federal income tax purposes for its
its allocable share of the taxable year ended December 31,
partnership's taxable income or loss 1998. So long as it qualifies as a
in determining its individual real estate investment trust,
Federal income tax liability. The ProLogis will be permitted to deduct
maximum Federal income tax rate for distributions paid to its
the individuals under current law is shareholders which effectively will
39.6%. Income and loss from the reduce the "double taxation" that
partnership generally is subject to typically results when a corporation
the "passive activity" limitations. earns income and distributes that
Under the "passive activity" rules, income to its shareholders in the
income and loss from the partnership form of dividends. A qualified real
and such other partnerships that is estate investment trust, however, is
considered "passive income" subject to Federal income tax on
generally can be offset against income that is not distributed and
income and loss from other also may be subject to Federal
investments that constitute "passive income and excise taxes in some
activities" unless the partnership circumstances. The maximum Federal
is considered a "publicly traded income tax rate for corporations
partnership," in which case income under current law is 35%.
and loss from the partnership can Distributions paid by ProLogis will
only be offset against other income be treated as "portfolio" income and
and loss from the partnership or cannot be offset with losses from
such other partnerships. "passive activities." The maximum
Federal income tax rate for
Cash distributions from the individuals under current law is
partnership are not taxable to a 39.6%.
holder of partnership units except
to the extent they exceed such Except to the extent designated as
holder's basis in its interest in capital gain dividends,
the partnership, which will include distributions made by ProLogis to
such holder's allocable shares of its taxable domestic shareholders
the partnership's nonrecourse debt. out of current or accumulated
earnings and profits will be taken
Each year, holders of partnership into account by them as ordinary
units will receive a Schedule K-1 income. Distributions that are
tax form containing detailed tax designated as capital gain dividends
information for inclusion in generally will be taxed as long-term
preparing their Federal income tax capital gain, subject to some
returns. limitations. Distributions in excess
of current or accumulated earnings
Holders of the partnership units are and profits will be treated as a
required, in some cases, to file non-taxable return of basis to the
state income tax returns and/or pay extent of a shareholder's adjusted
state income taxes in the states in basis in its common shares with the
which the partnership owns property, excess taxed as capital gain.
even if they are not residents of
those states. Each year, shareholders of ProLogis
will receive Form 1099 used by
corporations to report distributions
paid to their stockholders.
28
<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS
ProLogis intends to operate in a manner that permits it to satisfy the
requirements for taxation as a real estate investment trust under the
applicable provisions of the Internal Revenue Code. No assurance can be given,
however, that such requirements will be met. The following is a description of
the federal income tax consequences to ProLogis and its shareholders of the
treatment of ProLogis as a real estate investment trust. Since these provisions
are highly technical and complex, each prospective purchaser of the ProLogis
common shares is urged to consult his or her own tax advisor with respect to
the federal, state, local, foreign and other tax consequences of the purchase,
ownership and disposition of the ProLogis common shares.
Based upon representations of ProLogis with respect to the facts as set
forth and explained in the discussion below, in the opinion of Mayer, Brown &
Platt, counsel to ProLogis, ProLogis has been organized in conformity with the
requirements for qualification as a real estate investment trust beginning with
its taxable year ending December 31, 1993, and its actual and proposed method
of operation described in this prospectus and as represented by management will
enable it to satisfy the requirements for such qualification.
This opinion is based on representations made by ProLogis as to factual
matters relating to ProLogis' organization and intended or expected manner of
operation. In addition, this opinion is based on the law existing and in effect
on the date of this prospectus. ProLogis' qualification and taxation as a real
estate investment trust will depend upon ProLogis' ability to meet on a
continuing basis, through actual operating results, asset composition,
distribution levels and diversity of stock ownership, the various qualification
tests imposed under the Internal Revenue Code discussed below. Mayer, Brown &
Platt will not review compliance with these tests on a continuing basis. No
assurance can be given that ProLogis will satisfy such tests on a continuing
basis.
In brief, if the conditions imposed by the real estate investment trust
provisions of the Internal Revenue Code are met, entities, such as ProLogis,
that invest primarily in real estate and that otherwise would be treated for
federal income tax purposes as corporations, are generally not taxed at the
corporate level on their "real estate investment trust taxable income" that is
currently distributed to shareholders. This treatment substantially eliminates
the "double taxation," at both the corporate and shareholder levels that
generally results from the use of corporations.
If ProLogis fails to qualify as a real estate investment trust in any year,
however, it will be subject to federal income taxation as if it were a domestic
corporation, and its shareholders will be taxed in the same manner as
shareholders of ordinary corporations. In this event, ProLogis could be subject
to potentially significant tax liabilities, and therefore the amount of cash
available for distribution to its shareholders would be reduced or eliminated.
ProLogis elected real estate investment trust status effective beginning
with its taxable year ended December 31, 1993 and the ProLogis board of
trustees believes that ProLogis has operated and currently intends that
ProLogis will operate in a manner that permits it to qualify as a real estate
investment trust in each taxable year thereafter. There can be no assurance,
however, that this expectation will be fulfilled, since qualification as a real
estate investment trust depends on ProLogis continuing to satisfy numerous
asset, income and distribution tests described below, which in turn will be
dependent in part on ProLogis' operating results.
The following summary is based on the Internal Revenue Code, its legislative
history, administrative pronouncements, judicial decisions and Treasury
regulations, subsequent changes to any of which may affect the tax consequences
described in this prospectus, possibly on a retroactive basis. The following
summary is not exhaustive of all possible tax considerations and does not give
a detailed discussion of any state, local, or foreign tax considerations, nor
does it discuss all of the aspects of federal income taxation that may be
relevant to a prospective shareholder in light of his or her particular
circumstances or to various types of shareholders, including insurance
companies, tax-exempt entities, financial institutions or broker-dealers,
foreign corporations and persons who are not citizens or residents of the
United States, subject to special treatment under the federal income tax laws.
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Taxation of ProLogis
General
In any year in which ProLogis qualifies as a real estate investment trust,
in general it will not be subject to federal income tax on that portion of its
real estate investment trust taxable income or capital gain which is
distributed to shareholders. ProLogis may, however, be subject to tax at normal
corporate rates upon any taxable income or capital gain not distributed.
Notwithstanding its qualification as a real estate investment trust,
ProLogis may also be subject to taxation in other circumstances. If ProLogis
should fail to satisfy either the 75% or the 95% gross income test, as
discussed below, and nonetheless maintains its qualification as a real estate
investment trust because other requirements are met, it will be subject to a
100% tax on the greater of the amount by which ProLogis fails to satisfy either
the 75% test or the 95% test, multiplied by a fraction intended to reflect
ProLogis' profitability. ProLogis will also be subject to a tax of 100% on net
income from any "prohibited transaction," as described below, and if ProLogis
has net income from the sale or other disposition of "foreclosure property"
which is held primarily for sale to customers in the ordinary course of
business or other non-qualifying income from foreclosure property, it will be
subject to tax on such income from foreclosure property at the highest
corporate rate. In addition, if ProLogis should fail to distribute during each
calendar year at least the sum of:
(1) 85% of its real estate investment trust ordinary income for such year;
(2) 95% of its real estate investment trust capital gain net income for
such year, other than capital gains ProLogis elects to retain and pay
tax on as described below; and
(3) any undistributed taxable income from prior years,
ProLogis would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed.
The Taxpayer Relief Act of 1997 permits a real estate investment trust, to
designate in a notice mailed to shareholders within 60 days of the end of the
taxable year, or in a notice mailed with its annual report for the taxable
year, such amount of undistributed net long-term capital gains it received
during the taxable year, which its shareholders are to include in their taxable
income as long-term capital gains. Thus, if ProLogis made this designation, the
shareholders of ProLogis would include in their income as long-term capital
gains their proportionate share of the undistributed net capital gains as
designated by ProLogis and ProLogis would have to pay the tax on such gains
within 30 days of the close of its taxable year. Each shareholder of ProLogis
would be deemed to have paid such shareholder's share of the tax paid by
ProLogis on such gains, which tax would be credited or refunded to the
shareholder. A shareholder would increase his tax basis in his ProLogis shares
by the difference between the amount of income to the holder resulting from the
designation less the holder's credit or refund for the tax paid by ProLogis.
ProLogis may also be subject to the corporate "alternative minimum tax," as
well as tax in various situations and on some types of transactions not
presently contemplated. ProLogis will use the calendar year both for federal
income tax purposes and for financial reporting purposes.
In order to qualify as a real estate investment trust, ProLogis must meet,
among others, the following requirements:
Share ownership test
ProLogis' shares must be held by a minimum of 100 persons for at least 335
days in each taxable year or a proportional number of days in any short taxable
year. In addition, at all times during the second half of each taxable year, no
more than 50% in value of the ProLogis shares may be owned, directly or
indirectly and by applying constructive ownership rules, by five or fewer
individuals, which for this purpose includes some tax-exempt entities. Any
stock held by a qualified domestic pension or other retirement trust will be
treated as held directly by its beneficiaries in proportion to their actuarial
interest in such trust rather than by such trust.
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Pursuant to the constructive ownership rules, Security Capital's ownership of
shares is attributed to its shareholders for purposes of the 50% test. Under
the Taxpayer Relief Act, for taxable years beginning after August 5, 1997, if
ProLogis complies with the Treasury regulations for ascertaining its actual
ownership and did not know, or exercising reasonable diligence would not have
reason to know, that more than 50% in value of its outstanding shares of stock
were held, actually or constructively, by five or fewer individuals, then
ProLogis will be treated as meeting such requirement.
In order to ensure compliance with the 50% test ProLogis has placed
restrictions on the transfer of the shares of its stock to prevent additional
concentration of ownership. Moreover, to evidence compliance with these
requirements under Treasury regulations, ProLogis must maintain records which
disclose the actual ownership of its outstanding shares of stock and such
regulations impose penalties against ProLogis for failing to do so. In
fulfilling its obligations to maintain records, ProLogis must and will demand
written statements each year from the record holders of designated percentages
of shares of its stock disclosing the actual owners of such shares as
prescribed by Treasury regulations. A list of those persons failing or refusing
to comply with such demand must be maintained as a part of ProLogis' records. A
shareholder failing or refusing to comply with ProLogis' written demand must
submit with his or her tax returns a similar statement disclosing the actual
ownership of shares of ProLogis' stock and other information. In addition,
ProLogis' declaration of trust provides restrictions regarding the transfer of
shares that are intended to assist ProLogis in continuing to satisfy the share
ownership requirements. ProLogis intends to enforce the percentage limitations
on ownership of shares of its stock to assure that its qualification as a real
estate investment trust will not be compromised.
Asset tests
At the close of each quarter of ProLogis' taxable year, ProLogis must
satisfy tests relating to the nature of its assets determined in accordance
with generally accepted accounting principles. First, at least 75% of the value
of ProLogis' total assets must be represented by interests in real property,
interests in mortgages on real property, shares in other real estate investment
trusts, cash, cash items, and government securities, and qualified temporary
investments. Second, although the remaining 25% of ProLogis' assets generally
may be invested without restriction, securities in this class may not exceed
either, in the case of securities of any non-government issuer, 5% of the value
of ProLogis' total assets, or 10% of the outstanding voting securities of any
one issuer.
Gross income tests
There are currently two separate percentage tests relating to the sources of
ProLogis' gross income which must be satisfied for each taxable year. Prior to
taxable years beginning August 5, 1997, there were three separate percentage
tests relating to the sources of ProLogis' gross income which must have been
satisfied for each prior taxable year. For purposes of these tests, where
ProLogis invests in a partnership, ProLogis will be treated as receiving its
share of the income and loss of the partnership, and the gross income of the
partnership will retain the same character in the hands of ProLogis as it has
in the hands of the partnership. The three tests are as follows:
1. The 75% Test. At least 75% of ProLogis' gross income for the taxable year
must be "qualifying income." Qualifying income generally includes:
(1) rents from real property, except as modified below;
(2) interest on obligations collateralized by mortgages on, or interests
in, real property;
(3) gains from the sale or other disposition of non-"dealer property,"
which means interests in real property and real estate mortgages, other
than gain from property held primarily for sale to customers in the
ordinary course of ProLogis' trade or business;
(4) dividends or other distributions on shares in other real estate
investment trust, as well as gain from the sale of such shares;
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(5) abatements and refunds of real property taxes;
(6) income from the operation, and gain from the sale, of "foreclosure
property," which means property acquired at or in lieu of a foreclosure
of the mortgage collateralized by such property; and
(7) commitment fees received for agreeing to make loans collateralized by
mortgages on real property or to purchase or lease real property.
Rents received from a tenant will not however, qualify as rents from real
property in satisfying the 75% test, or the 95% gross income test described
below, if ProLogis, or an owner of 10% or more of ProLogis, directly or
constructively owns 10% or more of such tenant. In addition, if rent
attributable to personal property leased in connection with a lease of real
property is greater than 15% of the total rent received under the lease, then
the portion of rent attributable to such personal property will not qualify as
rents from real property. Moreover, an amount received or accrued will not
qualify as rents from real property or as interest income for purposes of the
75% and 95% gross income tests if it is based in whole or in part on the income
or profits of any person, although an amount received or accrued generally will
not be excluded from "rents from real property" solely by reason of being based
on a fixed percentage or percentages of receipts or sales. Finally, for rents
received to qualify as rents from real property, ProLogis generally must not
operate or manage the property or furnish or render services to tenants, other
than through an "independent contractor" from whom ProLogis derives no income,
except that the "independent contractor" requirement does not apply to the
extent that the services provided by ProLogis are "usually or customarily
rendered" in connection with the rental of properties for occupancy only, or
are not otherwise considered "rendered to the occupant for his convenience."
For taxable years beginning after August 5, 1997, a real estate investment
trust is permitted to render a de minimis amount of impermissible services to
tenants, or in connection with the management of property, and still treat
amounts received with respect to that property as rent from real property. The
amount received or accrued by the real estate investment trust during the
taxable year for the impermissible services with respect to a property may not
exceed 1% of all amounts received or accrued by the real estate investment
trust directly or indirectly from the property. The amount received for any
service or management operation for this purpose shall be deemed to be not less
than 150% of the direct cost of the real estate investment trust in furnishing
or rendering the service or providing the management or operation.
2. The 95% Test. In addition to deriving 75% of its gross income from the
sources listed above, at least 95% of ProLogis' gross income for the taxable
year must be derived from the above-described qualifying income, or from
dividends, interest or gains from the sale or disposition of stock or other
securities that are not dealer property. Dividends, other than on real estate
investment trust shares, and interest on any obligations not collateralized by
an interest in real property are included for purposes of the 95% test, but not
for purposes of the 75% test. In addition, payments to ProLogis under an
interest rate swap, cap agreement, option, futures contract, forward rate
agreement or any similar financial instrument entered into by ProLogis to hedge
indebtedness incurred or to be incurred, and any gain from the sale or other
disposition of these instruments, are treated as qualifying income for purposes
of the 95% test, but not for purposes of the 75% test.
For purposes of determining whether ProLogis complies with the 75% and 95%
income tests, gross income does not include income from prohibited
transactions. A "prohibited transaction" is a sale of dealer property,
excluding foreclosure property, unless such property is held by ProLogis for at
least four years and other requirements relating to the number of properties
sold in a year, their tax bases, and the cost of improvements made to the
property are satisfied. See "--Taxation of ProLogis--General."
Even if ProLogis fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may still qualify as a real estate investment
trust for such year if it is entitled to relief under provisions of the
Internal Revenue Code. These relief provisions will generally be available if:
(1) ProLogis' failure to comply was due to reasonable cause and not to
willful neglect;
(2) ProLogis reports the nature and amount of each item of its income
included in the tests on a schedule attached to its tax return; and
(3) any incorrect information on this schedule is not due to fraud with
intent to evade tax.
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If these relief provisions apply, however, ProLogis will nonetheless be subject
to a special tax upon the greater of the amount by which it fails either the
75% or 95% gross income test for that year.
3. The 30% Test. For taxable years beginning prior to August 5, 1997,
ProLogis must have derived less than 30% of its gross income for each taxable
year from the sale or other disposition of:
(1) real property held for less than four years, other than foreclosure
property and involuntary conversions;
(2) stock or securities held for less than one year; and
(3) property in a prohibited transaction.
The 30% gross income test has been repealed by the Taxpayer Relief Act for
taxable years beginning after August 5, 1997.
Annual distribution requirements
In order to qualify as a real estate investment trust, ProLogis is required
to make distributions, other than capital gain dividends, to its shareholders
each year in an amount at least equal to the sum of 95% of ProLogis' real
estate investment trust taxable income, computed without regard to the
dividends paid deduction and real estate investment trust net capital gain,
plus 95% of its net income after tax, if any, from foreclosure property, minus
the sum of some items of non-cash income. Such distributions must be paid in
the taxable year to which they relate, or in the following taxable year if
declared before ProLogis timely files its tax return for such year and if paid
on or before the first regular dividend payment after such declaration. To the
extent that ProLogis does not distribute all of its net capital gain or
distributes at least 95%, but less than 100%, of its real estate investment
trust taxable income, as adjusted, it will be subject to tax on the
undistributed amount at regular capital gains or ordinary corporate tax rates,
as the case may be. For taxable years beginning after August 5, 1997, the
Taxpayer Relief Act permits a real estate investment trust, with respect to
undistributed net long-term capital gains it received during the taxable year,
to designate in a notice mailed to shareholders within 60 days of the end of
the taxable year, or in a notice mailed with its annual report for the taxable
year, such amount of such gains which its shareholders are to include in their
taxable income as long-term capital gains. Thus, if ProLogis made this
designation, the shareholders of ProLogis would include in their income as
long-term capital gains their proportionate share of the undistributed net
capital gains as designated by ProLogis and ProLogis would have to pay the tax
on such gains within 30 days of the close of its taxable year. Each shareholder
of ProLogis would be deemed to have paid such shareholder's share of the tax
paid by ProLogis on such gains, which tax would be credited or refunded to the
shareholder. A shareholder would increase his tax basis in his ProLogis stock
by the difference between the amount of income to the holder resulting from the
designation less the holder's credit or refund for the tax paid by ProLogis.
ProLogis intends to make timely distributions sufficient to satisfy the
annual distribution requirements. It is possible that ProLogis may not have
sufficient cash or other liquid assets to meet the 95% distribution
requirement, due to timing differences between the actual receipt of income and
actual payment of expenses on the one hand, and the inclusion of such income
and deduction of such expenses in computing ProLogis' real estate investment
trust taxable income on the other hand. To avoid any problem with the 95%
distribution requirement, ProLogis will closely monitor the relationship
between its real estate investment trust taxable income and cash flow and, if
necessary, intends to borrow funds in order to satisfy the distribution
requirement. However, there can be no assurance that such borrowing would be
available at such time.
If ProLogis fails to meet the 95% distribution requirement as a result of an
adjustment to ProLogis' tax return by the Internal Revenue Service, ProLogis
may retroactively cure the failure by paying a "deficiency dividend," plus
applicable penalties and interest, within a specified period.
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Tax aspects of ProLogis' investments in partnerships
A significant portion of ProLogis' investments are owned through various
limited partnerships. ProLogis will include its proportionate share of each
partnership's income, gains, losses, deductions and credits for purposes of the
various real estate investment trust gross income tests and in its computation
of its real estate investment trust taxable income and the assets held by each
partnership for purposes of the real estate investment trust asset tests.
ProLogis' interest in the partnerships involves special tax considerations,
including the possibility of a challenge by the Internal Revenue Service of the
status of the partnerships as partnerships, as opposed to associations taxable
as corporations, for federal income tax purposes. If a partnership were to be
treated as an association, such partnership would be taxable as a corporation
and therefore subject to an entity-level tax on its income. In such a
situation, the character of ProLogis' assets and items of gross income would
change, which may preclude ProLogis from satisfying the real estate investment
trust asset tests and may preclude ProLogis from satisfying the real estate
investment trust gross income tests. See "--Failure to Qualify" below, for a
discussion of the effect of ProLogis' failure to meet such tests. Based on
factual representations of ProLogis, in the opinion of Mayer, Brown, & Platt,
under existing federal income tax law and regulations, ProLogis Limited
Partnership-I, ProLogis Limited Partnership-II, ProLogis Limited Partnership-
III and ProLogis Limited Partnership-IV will be treated for federal income tax
purposes as partnerships, and not as associations taxable as corporations. Such
opinion, however, is not binding on the Internal Revenue Service.
Failure to qualify
If ProLogis fails to qualify for taxation as a real estate investment trust
in any taxable year and relief provisions do not apply, ProLogis will be
subject to tax, including applicable alternative minimum tax, on its taxable
income at regular corporate rates. Distributions to shareholders in any year in
which ProLogis fails to qualify as a real estate investment trust will not be
deductible by ProLogis, nor generally will they be required to be made under
the Internal Revenue Code. In such event, to the extent of current and
accumulated earnings and profits, all distributions to shareholders will be
taxable as ordinary income, and subject to limitations in the Internal Revenue
Code, corporate distributees may be eligible for the dividends-received
deduction. Unless entitled to relief under specific statutory provisions,
ProLogis also will be disqualified from re-electing taxation as a real estate
investment trust for the four taxable years following the year during which
qualification was lost.
Taxation of ProLogis' shareholders
Taxation of taxable domestic shareholders
As long as ProLogis qualifies as a real estate investment trust,
distributions made to ProLogis' taxable domestic shareholders out of current or
accumulated earnings and profits, and not designated as capital gain dividends,
will be taken into account by them as ordinary income and will not be eligible
for the dividends-received deduction for corporations. Distributions, and for
tax years beginning after August 5, 1997, undistributed amounts, that are
designated as capital gain dividends will be taxed as long-term capital gains,
to the extent they do not exceed ProLogis' actual net capital gain for the
taxable year, without regard to the period for which the shareholder has held
its shares. However, corporate shareholders may be required to treat up to 20%
of some capital gain dividends as ordinary income. To the extent that ProLogis
makes distributions in excess of current and accumulated earnings and profits,
these distributions are treated first as a tax-free return of capital to the
shareholder, reducing the tax basis of a shareholder's shares by the amount of
such distribution, but not below zero, with distributions in excess of the
shareholder's tax basis taxable as capital gains, if the shares are held as a
capital asset. In addition, any dividend declared by ProLogis in October,
November or December of any year and payable to a shareholder of record on a
specific date in any such month shall be treated as both paid by ProLogis and
received by the shareholder on December 31 of such year, provided that the
dividend is actually paid by ProLogis during January of the following calendar
year.
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Shareholders may not include in their individual income tax returns any net
operating losses or capital losses of ProLogis. Federal income tax rules may
also require that minimum tax adjustments and preferences be apportioned to
ProLogis shareholders.
In general, any loss upon a sale or exchange of shares by a shareholder who
has held such shares for six months or less, after applying holding period
rules, will be treated as a long-term capital loss, to the extent of
distributions from ProLogis required to be treated by such shareholder as long-
term capital gains.
The Internal Revenue Service Restructuring and Reform Act of 1998 provides
that gain from the sale or exchange of shares held for more than one year is
taxed at a maximum capital gain rate of 20%. Pursuant to Internal Revenue
Service guidance, ProLogis may classify portions of its capital gain dividends
as gains eligible for the 20% capital gains rate or as unrecaptured Internal
Revenue Code Section 1250 gain taxable at a maximum rate of 25%.
Shareholders of ProLogis should consult their tax advisor with regard to the
application of the changes made by the Internal Revenue Service Restructuring
and Reform Act of 1988 with respect to taxation of capital gains and capital
gain dividends and with regard to state, local and foreign taxes on capital
gains.
Backup withholding
ProLogis will report to its domestic shareholders and to the Internal
Revenue Service the amount of distributions paid during each calendar year, and
the amount of tax withheld, if any, with respect to the paid distributions.
Under the backup withholding rules, a shareholder may be subject to backup
withholding at applicable rates with respect to distributions paid unless such
shareholder is a corporation or comes within other exempt categories and, when
required, demonstrates this fact or provides a taxpayer identification number,
certifies as to no loss of exemption from backup withholding, and otherwise
complies with applicable requirements of the backup withholding rules. A
shareholder that does not provide ProLogis with its correct taxpayer
identification number may also be subject to penalties imposed by the Internal
Revenue Service. Any amount paid as backup withholding will be credited against
the shareholder's income tax liability. In addition, ProLogis may be required
to withhold a portion of capital gain distributions made to any shareholders
who fail to certify their non-foreign status to ProLogis.
Taxation of tax-exempt shareholders
The Internal Revenue Service has issued a revenue ruling in which it held
that amounts distributed by a real estate investment trust to a tax-exempt
employees' pension trust do not constitute unrelated business taxable income.
Subject to the discussion below regarding a "pension-held real estate
investment trust," based upon the ruling, the analysis in the ruling and the
statutory framework of the Internal Revenue Code, distributions by ProLogis to
a shareholder that is a tax-exempt entity should also not constitute unrelated
business taxable income, provided that the tax-exempt entity has not financed
the acquisition of its shares with "acquisition indebtedness" within the
meaning of the Internal Revenue Code, and that the shares are not otherwise
used in an unrelated trade or business of the tax-exempt entity, and that
ProLogis, consistent with its present intent, does not hold a residual interest
in a real estate mortgage investment conduit.
However, if any pension or other retirement trust that qualifies under
Section 401(a) of the Internal Revenue Code holds more than 10% by value of the
interests in a "pension-held real estate investment trust" at any time during a
taxable year, a portion of the dividends paid to the qualified pension trust by
such real estate investment trust may constitute unrelated business taxable
income. For these purposes, a "pension-held real estate investment trust" is
defined as a real estate investment trust if such real estate investment trust
would not have qualified as a real estate investment trust but for the
provisions of the Internal Revenue Code which look through such a qualified
pension trust in determining ownership of stock of the real estate investment
trust and at least one qualified pension trust holds more than 25% by value of
the interests of such real estate investment trust or one or more qualified
pension trusts, each owning more than a 10% interest by value in the real
estate investment trust, hold in the aggregate more than 50% by value of the
interests in such real estate investment trust.
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Taxation of foreign shareholders
ProLogis will qualify as a "domestically-controlled real estate investment
trust" so long as less than 50% in value of its Shares is held by foreign
persons, for example, nonresident aliens and foreign corporations,
partnerships, trust and estates. It is currently anticipated that ProLogis will
qualify as a domestically controlled real estate investment trust. Under these
circumstances, gain from the sale of the shares by a foreign person should not
be subject to U.S. taxation, unless such gain is effectively connected with
such person's U.S. business or, in the case of an individual foreign person,
such person is present within the U.S. for more than 182 days in such taxable
year.
Distributions of cash generated by ProLogis' real estate operations, but not
by its sale or exchange of such properties, that are paid to foreign persons
generally will be subject to U.S. withholding tax at a rate of 30%, unless an
applicable tax treaty reduces that tax and the foreign shareholder files with
ProLogis the required form evidencing such lower rate or unless the foreign
shareholder files an Internal Revenue Service Form 4224 with ProLogis claiming
that the distribution is "effectively connected" income. Recently promulgated
Treasury Regulations revise in some respects the rules applicable to foreign
shareholders with respect to payments made after December 31, 1999.
Distributions of proceeds attributable to the sale or exchange by ProLogis
of U.S. real property interests are subject to income and withholding taxes
pursuant to the Foreign Investment in Real Property Tax Act of 1980, and may be
subject to branch profits tax in the hands of a shareholder which is a foreign
corporation if it is not entitled to treaty relief or exemption. ProLogis is
required by applicable Treasury regulations to withhold 35% of any distribution
to a foreign person that could be designated by ProLogis as a capital gain
dividend; this amount is creditable against the foreign shareholder's Foreign
Investment in Real Property Tax Act tax liability.
The federal income taxation of foreign persons is a highly complex matter
that may be affected by many other considerations. Accordingly, foreign
investors in ProLogis should consult their own tax advisors regarding the
income and withholding tax considerations with respect to their investment in
ProLogis.
Other tax considerations
Investments in taxable subsidiaries
ProLogis Development Services Incorporated, ProLogis Logistics Services
Incorporated and Meridian Refrigerated, Inc. will pay federal and state income
taxes at the full applicable corporate rates on their income prior to payment
of any dividends. ProLogis Development Services Incorporated, ProLogis
Logistics Services Incorporated and Meridian Refrigerated, Inc. will attempt to
minimize the amount of such taxes, but there can be no assurance whether or the
extent to which measures taken to minimize taxes will be successful. To the
extent that ProLogis Development Services Incorporated, ProLogis Logistics
Services Incorporated or Meridian Refrigerated, Inc. is required to pay
federal, state or local taxes, the cash available for distribution by either
company to its shareholders will be reduced accordingly.
Tax on built-in gain
Pursuant to Notice 88-19. 1988-1 C.B. 486, a C corporation that elects to be
taxed as a real estate investment trust has to recognize any gain that would
have been realized if the C corporation had sold all of its assets for their
respective fair market values at the end of its last taxable year before the
taxable year in which it qualifies to be taxed as a real estate investment
trust and immediately liquidated unless the real estate investment trust elects
to be taxed under rules similar to the rules of Section 1374 of the Internal
Revenue Code.
Since ProLogis has made this election, if during the "recognition period,"
being the 10-year period beginning on the first day of the first taxable year
for which ProLogis qualifies as a real estate investment trust,
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ProLogis recognizes gain on the disposition of any asset held by ProLogis as of
the beginning of the recognition period, then, to the extent of the excess of
the fair market value of such asset as of the beginning of the recognition
period over ProLogis' adjusted basis in such asset as of the beginning of the
recognition period, such gain will be subject to tax at the highest regular
corporate rate. Because ProLogis acquires many of its properties in fully
taxable transactions and presently expects to hold each property beyond the
recognition period, it is not anticipated that ProLogis will pay a substantial
corporate level tax on its built-in gain.
Possible legislative or other actions affecting tax consequences
Prospective shareholders should recognize that the present federal income
tax treatment of an investment in ProLogis may be modified by legislative,
judicial or administrative action at any time and that any such action may
affect investments and commitments previously made. The rules dealing with
federal income taxation are constantly under review by persons involved in the
legislative process and by the Internal Revenue Service and the Treasury,
resulting in revisions of regulations and revised interpretations of
established concepts as well as statutory changes. Revisions in federal tax
laws and interpretations of these laws could adversely affect the tax
consequences of an investment in ProLogis.
In this connection, Congress has recently passed the Taxpayer Refund and
Relief Act of 1999 which contains several provisions affecting real estate
investment trusts. The Taxpayer Refund and Relief Act of 1999, however, has not
yet been signed by the President and enacted into law. One provision under the
Taxpayer Refund and Relief Act of 1999, if enacted in its present form, would
prohibit a real estate investment trust from holding securities representing
more than 10% of the vote or value of the outstanding securities of any
corporation other than a qualified real estate investment trust subsidiary,
another real estate investment trust or corporations known as "taxable REIT
subsidiaries." Taxable REIT subsidiaries would be subject to full corporate
level taxation on their earnings, but would be permitted to engage in certain
types of activities, such as those performed by ProLogis Development Services
Incorporated, ProLogis Logistics Services Incorporated and Meridian
Refrigerated, Inc., which cannot currently be performed by real estate
investment trusts or their controlled subsidiaries without jeopardizing their
real estate investment trust status. Taxable REIT subsidiaries would be subject
to limitations on the deductibility of payments made to the associated real
estate investment trust which could materially increase the taxable income of
the taxable REIT subsidiary and would be subject to prohibited transaction
taxes on certain other payments made to the associated real estate investment
trust.
Under the taxable REIT subsidiary provision, ProLogis and each of ProLogis
Development Services Incorporated, ProLogis Logistics Services Incorporated and
Meridian Refrigerated, Inc. would be allowed to jointly elect to treat ProLogis
Development Services Incorporated, ProLogis Logistics Services Incorporated and
Meridian Refrigerated, Inc. as "taxable REIT subsidiaries," subject to
transition rules. Further, although ProLogis owns more than 10% of the value of
the outstanding securities of ProLogis Development Services Incorporated,
ProLogis Logistics Services Incorporated and Meridian Refrigerated, Inc. which,
absent a taxable REIT subsidiary election, would violate the provisions of the
Taxpayer Refund and Relief Act of 1999, the taxable REIT subsidiary provision
contains "grandfather" rules which would make the limitations on stock
ownership described above inapplicable to ProLogis' ownership of ProLogis
Development Services Incorporated, ProLogis Logistics Services Incorporated and
Meridian Refrigerated, Inc., even in the absence of an election to treat the
such companies as "taxable REIT subsidiaries." In such case, however, the
taxable REIT subsidiary provision would terminate ProLogis' ability to rely on
the grandfather rule if either ProLogis Development Services Incorporated,
ProLogis Logistics Services Incorporated or Meridian Refrigerated, Inc. were
either to engage in new trades or businesses or acquire substantial new assets.
Accordingly, in the absence of such an election, the taxable REIT subsidiary
provision may limit the future activities and growth of ProLogis Development
Services Incorporated, ProLogis Logistics Services Incorporated and Meridian
Refrigerated, Inc. No prediction can be made as to whether either the taxable
REIT subsidiary provision described above or any other provision affecting real
estate investment trusts will be enacted into law, or the impact of any such
legislation on ProLogis' operations.
37
<PAGE>
State and local taxes
ProLogis and its shareholders may be subject to state or local taxation in
various jurisdictions, including those in which it or they transact business or
reside. The state and local tax treatment of ProLogis and its shareholders may
not conform to the federal income tax consequences discussed above.
Consequently, prospective shareholders should consult their own tax advisors
regarding the effect of state and local tax laws on an investment in the
offered securities of ProLogis.
Foreign taxes
Frigoscandia S.A., a Luxembourg corporation, Garonor Holdings S.A., a
Luxembourg corporation, Kingspark Holding S.A., a Luxembourg corporation, and
ProLogis International Incorporated, a Delaware corporation, and each of their
subsidiaries and affiliates, may be subject to taxation in various foreign
jurisdictions. Each of the parties will pay any such foreign taxes prior to
payment of any dividends. Each entity will attempt to minimize the amount of
such taxes, but there can be no assurance whether or the extent to which
measures taken to minimize taxes will be successful. To the extent that any of
these entities is required to pay foreign taxes, the cash available for
distribution to its shareholders will be reduced accordingly.
Each prospective purchaser is advised to consult with his or her tax advisor
regarding the specific tax consequences to him or her of the purchase,
ownership, and sales of ProLogis common shares, including the federal, state,
local, foreign, and other tax consequences of such purchase, ownership, sale
and election and of potential changes in applicable tax laws.
SELLING SHAREHOLDERS
Person who receive common shares when they redeem their partnership units
and who are not, now or at the time of the redemption, affiliates of ProLogis
may resell those common shares without having to register them under the
Securities Act of 1933. However, those persons who receive common shares when
they redeem their partnership units and who may be affiliates of ProLogis may
need to register the resale of those common shares under the Securities Act of
1933. They may use this prospectus and the registration statement of which this
prospectus is a part to offer and sell those common shares.
The table below lists each person who may receive common shares in exchange
for partnership units and shows the number of common shares which each person
may receive in exchange for their partnership units as well as the total number
of common shares each person owned before this offering which includes common
shares they could receive by redeeming their partnership units. Because the
holders of partnership units may exchange all, some or none of their
partnership units and may receive common shares for those partnership units and
may then sell all, some or none of their common shares, ProLogis cannot
determine the number of common shares which each person will own after this
offering. If, however, any person listed below sold all of their common shares,
none of them would hold 1% or more of ProLogis' outstanding shares.
<TABLE>
<CAPTION>
Number of Common Shares Total Number of Common
Which May Be Received Shares Owned Prior
Name in Exchange for Units to this Offering
---- ----------------------- ----------------------
<S> <C> <C>
Charles B. Kendall........ 10,895 10,895
The Evans Family Trust.... 10,894 10,894
Sam C. Longo, Jr.......... 5,447 5,447
Darla J. Longo............ 5,447 5,447
</TABLE>
PLAN OF DISTRIBUTION
This prospectus relates to the possible issuance by ProLogis of up to 32,683
common shares if, and to the extent that, holders of partnership units redeem
their partnership units and ProLogis elects, through its wholly-owned
subsidiary MIT Unsecured, to pay for the redemption with common shares.
ProLogis will not receive any additional consideration when it issues common
shares to the holders of partnership units upon exchange of their partnership
units.
38
<PAGE>
ProLogis has agreed to pay all expenses in excess of $5,000 incurred in
registering the common shares, including fees and disbursements of ProLogis'
counsel. However, the limited partners must pay the first $5,000 incurred in
registering the common shares and their own brokerage discounts and commissions
and the costs, fees and disbursements of their own counsel associated with the
resale of the common shares. ProLogis estimates that the expenses in connection
with the registration of the shares registered hereby will be approximately
$32,500.
The Registration Rights Agreement also requires ProLogis to indemnify the
holders of partnership units and their respective directors, officers,
employees, agents and partners and any person who controls any limited partner
against certain losses, claims, damages, liabilities and expenses arising under
the securities laws. Each holder of partnership units must indemnify ProLogis
and its trustees, officers, employees and agents and any person who controls
ProLogis against certain losses, liabilities, claims, damages, liabilities and
expenses arising under the securities laws with respect to written information
furnished to ProLogis by that holder of partnership units.
ProLogis may from time to time issue up to 32,683 common shares upon the
exchange of partnership units. ProLogis will acquire one unit in the
partnership in exchange for each common share which ProLogis issues to holders
of partnership units pursuant to this prospectus. As a result, with each
exchange, ProLogis' interest in the partnership will increase. In the event
that all of the partnership units are redeemed, other than partnership units
already held by MIT Unsecured, or that MIT Unsecured acquires all of the
partnership units, either by issuing common shares or by paying the cash
amount, the partnership will be terminated.
EXPERTS
The financial statements and related schedules of ProLogis incorporated by
reference in this prospectus and in the registration statement have been
audited by Arthur Andersen LLP, independent public accountants, to the extent
and for the periods indicated in their reports. In those reports, Arthur
Andersen LLP states that with respect to a subsidiary accounted for under the
equity method, its opinion is based on the report of other independent public
accountants, namely KPMG. Additionally, the financial statements and related
schedules of Meridian Industrial Trust, Inc. for the years ending December 31,
1997 and 1998, which ProLogis has included in its current report on Form 8-K
dated April 13, 1999, have been audited by Arthur Andersen LLP. The financial
statements and related schedules referred to above have been incorporated by
reference in this prospectus and in the registration statement in reliance upon
the authority of those firms as experts in accounting and auditing in giving
the reports.
With respect to the unaudited interim financial information for the quarter
ended June 30, 1999, 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 the 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.
LEGAL MATTERS
The validity of the offered securities will be passed upon for ProLogis by
Mayer, Brown & Platt, Chicago, Illinois. Mayer, Brown & Platt has in the past
represented and is currently representing ProLogis and some of its affiliates,
including Security Capital Group.
39
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
ProLogis is subject to the informational requirements of the Securities
Exchange Act of 1934 and, in accordance therewith, files reports, proxy
statements and other information with the Securities and Exchange Commission.
Such reports, proxy statements and other information can be inspected and
copied at the public reference facilities maintained by the Securities and
Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549; Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and 7
World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material can be obtained at prescribed rates from the Public Reference Room of
the Securities and Exchange Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 or by calling the Securities and Exchange Commission at 1-800- SEC-
0330. Such material can also be obtained from the Securities and Exchange
Commission's worldwide web site at http://www.sec.gov. ProLogis' outstanding
common shares, Series A cumulative redeemable preferred shares of beneficial
interest, Series B cumulative convertible redeemable preferred shares of
beneficial interest, Series D cumulative redeemable preferred shares of
beneficial interest and Series E cumulative redeemable preferred shares of
beneficial interest, are listed on the New York Stock Exchange under the
symbols "PLD", "PLD-PRA", "PLD-PRB", "PLD-PRD" and "PLD-PRE", respectively, and
all such reports, proxy statements and other information filed by ProLogis 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. You can also obtain
information about ProLogis at its website, www.prologis.com.
This prospectus constitutes part of a registration statement on Form S-3
filed by ProLogis with the Securities and Exchange Commission under the
Securities Act of 1933. This prospectus does not contain all of the information
set forth in the registration statement, parts of which are omitted in
accordance with the rules and regulations of the Securities and Exchange
Commission. For further information, reference is made to the registration
statement.
INCORPORATION BY REFERENCE
There are incorporated by reference in this prospectus the following
documents previously filed by ProLogis with the Securities and Exchange
Commission.
(a) ProLogis' Annual Report on Form 10-K for the fiscal year ended December
31, 1998 and amended by Form 10-K/A filed April 30, 1999;
(b) ProLogis' Quarterly Reports on Form 10-Q for the fiscal quarters ending
March 31, 1999 and June 30, 1999;
(c) ProLogis' Current Reports on Form 8-K filed March 24, 1999, March 31,
1999, April 13, 1999, April 15, 1999, April 16, 1999 and September 9,
1999, and Form 8-K/A filed April 22, 1999;
(d) The description of the common shares contained in ProLogis'
registration statement on Form 8-A, as amended; and
(e) The description of ProLogis' preferred share purchase rights contained
in ProLogis' registration statement on Form 8-A, as amended.
The Securities and Exchange Commission has assigned file number 1-12846 to
reports and other information that ProLogis files with the Securities and
Exchange Commission.
All documents subsequently filed by ProLogis pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act of 1934 prior to the termination of the
offering of the offered securities, shall be deemed to be incorporated by
reference in this prospectus and to be a part of this prospectus from the date
of filing of such documents. Any statement contained in this prospectus or in a
document incorporated or deemed to be incorporated by reference in this
prospectus shall be deemed to be modified or superseded for purposes of this
prospectus to the extent that a statement contained in this prospectus, or in
any subsequently filed document
40
<PAGE>
which is incorporated or deemed to be incorporated by reference in this
prospectus, modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this prospectus.
ProLogis will provide without charge to each person, including any
beneficial owner, to whom a copy of this prospectus is delivered, upon the
written or oral request of such person, a copy of any or all of the documents
incorporated by reference in this prospectus, other than exhibits to such
documents unless such exhibits are specifically incorporated by reference into
such documents. Requests should be addressed to:
Secretary
ProLogis Trust
14100 East 35th Place
Aurora, Colorado 80011
(303) 375-9292
41
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses in connection with the
registration and sale of the shares registered hereby, all of which will be
paid by the registrant, except as noted in the prospectus:
<TABLE>
<CAPTION>
Selling
ProLogis Shareholders
--------- ------------
<S> <C> <C>
SEC registration fee............................... $ 176.27 $ --
New York Stock Exchange fees....................... 114.39 --
Transfer agent's fees.............................. 2,500 --
Legal fees and expenses............................ 20,000 --
Accounting fees and expenses....................... 2,500 --
Miscellaneous expenses............................. 1,709.34 5,000
--------- ------
Total.......................................... $ 27,500 $5,000
========= ======
</TABLE>
Item 15. Indemnification of Trustees and Officers.
Article 4, Section 10 of the Declaration of Trust provides as follows with
respect to the limitation of liability of Trustees:
"To the maximum extent that Maryland law in effect from time to time permits
limitation of the liability of trustees of a real estate investment trust, no
Trustee of the Trust shall be liable to the Trust or to any Shareholder for
money damages. Neither the amendment nor repeal of this Section 10, nor the
adoption or amendment of any other provision of this Declaration of Trust
inconsistent with this Section 10, shall apply to or affect in any respect the
applicability of the preceding sentence with respect to any act or failure to
act which occurred prior to such amendment, repeal or adoption. In the absence
of any Maryland statute limiting the liability of trustees of a Maryland real
estate investment trust for money damages in a suit by or on behalf of the
Trust or by any Shareholder, no Trustee of the Trust shall be liable to the
Trust or to any Shareholder for money damages except to the extent that (i) the
Trustee actually received an improper benefit or profit in money, property or
services, for the amount of the benefit or profit in money, property or
services actually received; or (ii) a judgment or other final adjudication
adverse to the Trustee is entered in a proceeding based on a finding in the
proceeding that the Trustee's action or failure to act was the result of active
and deliberate dishonesty and was material to the cause of action adjudicated
in the proceeding."
Article 4, Section 11 of the Declaration of Trust provides as follows with
respect to the indemnification of Trustees:
"The Trust shall indemnify each Trustee, to the fullest extent permitted by
Maryland law, as amended from time to time, in connection with any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she was a
Trustee of the Trust or is or was serving at the request of the Trust as a
director, trustee, officer, partner, manager, member, employee or agent of
another foreign or domestic corporation, partnership, joint venture, trust,
limited liability company, other enterprise or employee benefit plan, from all
claims and liabilities to which such person may become subject by reason of
service in such capacity and shall pay or reimburse reasonable expenses, as
such expenses are incurred, of each Trustee in connection with any such
proceedings."
II-1
<PAGE>
Article 8, Section 1 of the Declaration of Trust provides as follows with
respect to the limitation of liability of officers and employees:
"To the maximum extent that Maryland law in effect from time to time permits
limitation of the liability of officers of a real estate investment trust, no
officer of the Trust shall be liable to the Trust or to any Shareholder for
money damages. Neither the amendment nor repeal of this Section 1, nor the
adoption or amendment of any other provision of this Declaration of Trust
inconsistent with this Section 1, shall apply to or affect in any respect the
applicability of the preceding sentence with respect to any act or failure to
act which occurred prior to such amendment, repeal or adoption. In the absence
of any Maryland statute limiting the liability of officers of a Maryland real
estate investment trust for money damages in a suit by or on behalf of the
Trust or by any Shareholder, no officer of the Trust shall be liable to the
Trust or to any Shareholder for money damages except to the extent that (i) the
officer actually received an improper benefit or profit in money, property or
services, for the amount of the benefit or profit in money, property or
services actually received; or (ii) a judgment or other final adjudication
adverse to the officer is entered in a proceeding based on a finding in the
proceeding that the officer's action or failure to act was the result of active
and deliberate dishonesty and was material to the cause of action adjudicated
in the proceeding."
Article 8, Section 2 of the Declaration of Trust provides as follows with
respect to the indemnification of Trustees:
"The Trust shall have the power to indemnify each officer, employee and
agent, to the fullest extent permitted by Maryland law, as amended from time to
time, in connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he or she was an officer, employee or agent of the Trust or is
or was serving at the request of the Trust as a director, trustee, officer,
partner, manager, member, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust, limited liability company,
other enterprise or employee benefit plan, from all claims and liabilities to
which such person may become subject by reason of service in such capacity and
shall pay or reimburse reasonable expenses, as such expenses are incurred, of
each officer, employee or agent in connection with any such proceedings."
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 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 16. Exhibits.
See the Exhibit Index which is hereby incorporated herein by reference.
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
II-2
<PAGE>
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the Registration Statement; notwithstanding the foregoing,
any increase or decrease in the 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 prospectus filed with the Securities and Exchange Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement;
Provided, however, that paragraphs (a)(i) and (a)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Securities and Exchange Commission by the registrant pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the Registration Statement.
(b) 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.
(c) 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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to Trustees, officers and controlling persons of the
registrant pursuant to the provisions set forth or described in Item 15 of this
Registration Statement, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange 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 Trustee, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such Trustee, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question 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.
II-3
<PAGE>
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 September 24, 1999.
ProLogis Trust
By:
/s/ Edward S. Nekritz
----------------------------------
Edward S. Nekritz
Secretary and Senior Vice
President
SPECIAL POWER OF ATTORNEY
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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chairman, Chief Executive September 24, 1999
____________________________________
K. Dane Brooksher Officer and Trustee
* President, Chief Investment September 24, 1999
____________________________________
Irving F. Lyons III Officer and Trustee
* Chief Financial Officer and September 24, 1999
____________________________________
Walter C. Rakowich Managing Director
* Vice President (Principal September 24, 1999
____________________________________
Shari J. Jones Accounting Officer)
* Trustee September 24, 1999
____________________________________
Thomas G. Wattles
Trustee September 24, 1999
____________________________________
Stephen L. Feinberg
* Trustee September 24, 1999
____________________________________
Donald P. Jacobs
* Trustee September 24, 1999
____________________________________
William G. Myers
Trustee September 24, 1999
____________________________________
John E. Robson
* Trustee September 24, 1999
____________________________________
J. Andre Teixeira
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Trustee September 24, 1999
____________________________________
John S. Moody
Trustee September 24, 1999
____________________________________
Kenneth N. Stensby
</TABLE>
*By:
/s/ Edward S. Nekritz
- -------------------------------
Edward S. Nekritz
Attorney-in-Fact
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
4.1 Articles of Amendment and Restatement of ProLogis Trust
(Incorporated by reference to Exhibit 3.1 to ProLogis' Form 10-Q for
the period ending June 30, 1999)
4.1 Amended and Restated Bylaws of ProLogis Trust (Incorporated by
reference to Exhibit 3.2 to ProLogis' Form 10-Q for the period
ending June 30, 1999)
4.3 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)
4.4 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)
4.5 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)
4.6 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)
4.7 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)
4.8 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)
4.9 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)
4.10 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)
4.11 Form of share certificate for Series D Cumulative Redeemable
Preferred Shares of Beneficial Interest of ProLogis (Incorporated by
reference to exhibit 4.21 to ProLogis' registration statement No.
69001)
4.12 Form of share certificate for Series E Cumulative Redeemable
Preferred Shares of Beneficial Interest of ProLogis (Incorporated by
reference to exhibit 4.22 to ProLogis' registration statement No.
69001)
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
15.1+ Letter regarding unaudited interim financial information
23.1 Consent of Arthur Andersen LLP, Chicago, Illinois
23.2 Consent of KPMG LLP, Stockholm, Sweden
23.3+ Consent of Mayer, Brown & Platt (included in Exhibits 5.1 and 8.1)
24.1+ Power of Attorney
99.1+ Agreement of Limited Partnership of Meridian Realty Partners, L.P.
99.2+ Registration Rights Agreement by and between ProLogis Trust and
Kendall Ontario I
</TABLE>
- --------
+Previously filed.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants we hereby consent to the incorporation by
reference in this registration statement of our reports dated March 5, 1999,
included in ProLogis Trust's Form 10-K for the year ended December 31, 1998, and
to our report dated March 26, 1999, included in ProLogis Trust's Form 8-K dated
April 13, 1999, and to all references to our Firm included in this registration
statement.
/s/ Arthur Andersen LLP
Chicago, Illinois
September 23, 1999
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants of Frigoscandi Holding AB, we hereby
consent to the incorporation of our report dated January 28, 1999, included in
ProLogis Trust's Form 10-K for the year ended December 31, 1998, into ProLogis
Trust's registration statement on Form S-3. It should be noted that we have not
audited any financial statements of the company subsequent to December 31, 1998,
or performed any audit procedures subsequent to the date of our report.
KPMG
/s/ Owe Eurenius
Stockholm September 24, 1999
